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Even if you don't think you do, you already know plenty about commodities. Want us to prove it? No problem.
What makes oil produced in Saudi Arabia different from oil exported from Nigeria? It's the same thing that makes the corn you ate at last summer¿s barbecue different from the corn used to produce ethanol. Stumped? Well, don't feel bad, it's a trick question. The answer? Absolutely nothing. Corn is corn no matter where it comes from -- just as wheat is wheat and natural gas is -- right! -- natural gas. (Though the quality may differ, the make-up is uniform.)
So, in less elaborate terms, corn and oil (and all other commodities) are homogenous goods that can be processed, resold and more often than not, used as an input to the production of other goods or services. These goods are traded on a commodity exchange, thus setting the price-per-barrel (or other metric unit) used to value them.
Now pay attention, here's a question that indeed does have an answer: What is the difference between a commodity and a stock? While a stock can tank and become worthless, a commodity cannot have its value be wiped to zero. One other difference: Most commodities are traded in futures, meaning traders buy and sell where they think the price of a product will be at a certain point in the future. Stocks trade based on the value of the underlying company at that point in time.
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Tuesday, June 10, 2008
Senate Tax Bill's Defeat is Windfall for Consumers, Economy
Comtex
WASHINGTON, June 10, 2008 /PRNewswire-USNewswire via COMTEX/ ----NCPA Expert Says Failure to Adopt Windfall Profits Tax Will Keep U.S. Competitive
Failure of a Senate bill designed to tax the profits of the largest domestic oil producers and curb speculation in the oil futures market is a windfall for consumers and the economy, according to NCPA Senior Fellow H. Sterling Burnett.
"U.S. energy policy should focus on the supply of oil and gas, not raising prices for consumers as any windfall profits tax would have done," Burnett said. "The Senate considered this bill despite every government study and economic analysis, all of which prove that a windfall profits tax will only raise prices for consumers, make it more costly to develop and produce oil supplies and increase our dependence on foreign oil."
Burnett points out, for example, that a 1990 Congressional Research Service report estimated the windfall profits tax enacted in the 1980s reduced domestic oil production by 3 to 6 percent and increased oil imports between 8 and 16 percent. He also noted that a windfall profits tax would put U.S. oil and gas companies at a competitive disadvantage in the global energy marketplace.
"All this bill would have done is raise prices to consumers, reduce the value of investors' stock portfolios and retirement funds, and give government a slush fund to play with," Burnett said. "Profits siphoned off by government from domestic oil companies would not be available for investment in new production and refining capacity, but would be spent instead on pet government projects that have nothing to do with providing affordable energy to U.S. consumers."
"In order to lower gasoline prices, U.S. energy policy should focus on increasing the supply of oil and gas to meet world demand," Burnett added.
The NCPA is an internationally known nonprofit, nonpartisan research institute with offices in Dallas and Washington, D. C. that advocates private solutions to public policy problems. We depend on the contributions of individuals, corporations and foundations that share our mission. The NCPA accepts no government grants.
SOURCE National Center for Policy Analysis
Copyright (C) 2008 PR Newswire. All rights reserved
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