More On the Commodity Bubble

I am dubious as to his solutions, but another writer backs up my thesis that we are in the middle of another asset bubble.

Nothing makes conservatives queasier than regulation, especially of financial markets. But oil’s meteoric rise from $50 in January 2007 to almost $139 on Friday calls for drastic measures that might solve this crisis without a measure as drastic as the gas tax Charles Krauthammer proposed on Friday.

In the past, energy price appreciations of last week’s magnitude have typically been caused by supply disruptions — like the 1973 OPEC embargo, or the 4 million barrels per day in lost production that followed the Islamic Revolution in Iran in 1979, which restricted international oil supplies for several years and caused a spike in prices.

Another Asset Bubble?

It is simple supply and demand. In the 90s people poured money wildly into the stock market, and it bubbled and crashed. Earlier this decade the same thing happened to the housing market, and we are now feeling the results. Now the money is being poured into the commodities market, especially oil and gold, and pushing the prices to unsustainable levels. How long before those "re-adjust" too? Perhaps it has already begun?

March 19 (Bloomberg) -- Gold plunged the most since June 2006, leading a decline in commodity prices, on speculation the slump in the dollar will end as the Federal Reserve eases the pace of interest-rate reductions.

The UBS Bloomberg Constant Maturity Commodity Index fell 61.3866, or 4.1 percent, to 1,428.009 at 5 p.m. in New York, led by declines in soybeans, wheat, cocoa and crude oil. The index of 26 commodities has dropped in three of the past four sessions and is down 9.3 percent from a record on Feb. 29.