George Soros on why oil prices are soaring

In a word, it’s called reflexivity. To use a relevant, non-Deepak Chopra analogy from quantum physics, by the act of buying commodities futures in certain size blocks at certain prices, etc., traders influence the future of those commodities.

Soros noted that in his talk to Congress last week.

The Oil Drum explains exactly what this means, as Soros shows why the neoclassical economics of the U. of Chicago, etc. is dead and needs to be replaced by behavioral economics in every American college and university.

And, it’s not just oil. As the graphic shows, all sorts of commodities are being inflated beyond reason.

Yes, it is likely that some precious metals are getting near world peaks in production, but “Peak Copper,” for example, has been less studied than Peak Oil.

Of course, since this time, agriculture futures have climbed more and more, too. One has to wonder how much of THIS is a bubble. And, a bubble with a head of steam behind it:

Commodities have not had a boom since the late 1970s, and until recently have played a minor role in general portfolio asset allocation. Combined with media coverage (e.g. Jim Rogers) and rapid growth in demand and tightening of supply, commodity markets have had explosive moves the last 5 years. Pension funds, sovereign wealth funds, university endowments and other index speculators have been allocating money away from stocks and bonds into commodities.

Soros doesn’t deny part of the problem actually is Peak Oil, though, so his words carry extra weight.

On the other hand, this is the man who single-handedly nearly wrecked the economies of several southeast Asian countries in 1998.

On the other hand to that, re his Congressional testimony, “To catch a thief …”