Sarkozy Thinks Commodity Regulation Will Solve Price Problems

French President Nicolas Sarkozy spoke on Tuesday at the European Union's headquarters in Brussels. In his speech, he called for tighter controls on derivatives trading in commodity markets.

Sarkozy remarked that the world had worked hard to restore economic growth after the global financial crisis of 2008. He suggested that the increasing price of many commodities was threatening to derail that global growth, according to France 24.

France is set to chair the upcoming November meeting of the Group of 20 (G20). Sarkozy stated that he hoped to use that as opportunity to push for increased commodity regulation among member states.

Some G20 members, like Brazil and Argentina, have benefitted from the increase in the price of commodities. Those countries might push back against Sarkozy's initiatives, and it therefore may be difficult for Sarkozy to accomplish his goal.

Further, is it safe to say that Sarkozy is correct in his argument?

Commodity traders or "speculators" may temporarily elevate the price of a commodity by buying it and therefore removing supply from the market.

Yet, speculators make their money by buying low and selling high. If the commodity speculators turn around and dump their purchases on the market when the price is high, that may drive the price down.

Thus, while commodity speculators may to be blame for raising the price of commodities in some periods, when they sell the commodities they have accumulated they might be lowering the price in other periods. In essence, commodity speculators can stabilize the price of a commodity over time.

Additionally, if speculators were to blame for the recent run-up in commodity prices, would there not be massive stockpiles of these commodities sitting somewhere?

The Chairman of the Federal Reserve, Ben Bernanke, gave a speech last week in which he addressed this argument. Although he was attempting to defend the actions of the Fed against its critics, he may have indirectly debunked Sarkozy's argument.

Bernanke stated that if traders (speculators) were buying commodities to avoid holding cash, then there should be large, unused stockpiles of these commodities. Bernanke stated that this simply was not the case; rather, demand from growing emerging market economies was constraining the supply of commodities.

U.S. consumers struggling to afford gas may appreciate Sarkozy's efforts to lower the price of commodities like crude oil. Still, Sarkozy's proposal might not bring that relief.