mountainman: you are missing part of the picture which is why it doesn't make sense to you (in response to last post on first page of thread). Commodity "speculators" DO NOT have any affect on the real economy, but "commodity traders" DO! Why? Because trading is a real financial transaction, speculating is just professional estimation. The transaction is where money is made or lost.

So lets reword your example to use "traders" instead of "speculators/gamblers", the key here being that a trade must occur in each example. So lets say you are at the dog races but instead of betting on the results of the dog with another fellow gambler, you decide you want to own the winning dog because of all the potential future winnings you could earn with it. So you look them over and decide which one you think is the true leader in this dog racing business and you offer the owner $1M to purchase his dog, the owner agrees. You hand him a briefcase of hard earned money and now own this dog. This is a real legal transaction, based on your speculation of the future performance of that dog. So now you sit down to bask in the glory of your future earnings and watch the race. The dog you just purchased jumps out from the gate, but then suffers a heart attack and dies on the spot because it was being artificially held up by steroids, antibiotics and other unnatural short term performance boosters that ultimately result in long term trouble. Remember you already completed the transaction to purchase this dog, the $1M is gone, that guy is gone. On top of loosing the dog you are stuck with a $10k emergency vet bill, arena cleanup bill and remains disposal bill. Now how do you feel? This is like purchasing shares in Enron, looks good, you could have at one point speculated that it had potential future earnings. But then you find out it was artificially held at this level of performance through market manipulation, collusion, and straight up lies. You bought the wrong dog for the long term.

Ok now you are a sugar beet farmer, in fact all your neighbors for 5 houses on either side of your land are sugar beet farmers. Its just the right part of the world I guess to grow these. So now you do a little speculating and think that sugar beets are the new hot food trend. Rumor has it people everywhere are going to be demanding sugar beets this fall. So you invest $1M into your farm preparing to reap the harvest of the sugar beat craze you think will sweep the nation. You buy seeds, dirt, fertilizer, tractors, hire some help, etc.. and produce millions of nice sugar beats (notice the speculation lead you to make real financial transactions). Then the fall comes and your speculation was wrong. Nobody wants any more than they did last year, except now you have truck loads of fresh sugar beats sitting in your driveway, what do you do with them? You've invested so much, it'd be a shame to waste them. So you decide to put on a sale and reduce your prices so that everyone buys from you instead of your neighbor's farms. But then those farmers also can't live without sales, so they match your price or even reduce it further. So on top of you making a huge investment, your selling price for the product also went down. This is classic supply & demand dealing with tangible commodities.

So the speculating never effects the economy until you use that information do conduct a real transaction. Pay for supplies/labor/facilities, etc.. Everyday people make deals like the above dog purchase (ie: buying shares in a company that looks good today but is doomed for failure in the long term), or they ramp up for some new idea (ie: ramp up vehicle production on the continent most densely saturated with existing vehicles). These actions affect supply and demand and so affect the real value of various commodities (oil/gas, lumber, gold, copper, nickel, aluminum, water, wheat, corn, coffee, chocolate, milk, eggs, etc...) depending on which of these things your region/country sells, your dollar is going to go up or down based on the demand for your products.

If demand is high, your selling price will be high, you will be making lots of money. If demand slumps (housing market down, vehicle sales down, recreational item sales down) then you need to lower prices/margins to try and encourage sales. You are the beat farmer trying to offload your beats. Sale, sale, sale. Margins gone, profit gone, perhaps even a loss. In North America as a whole we've been on such a high level of consumption for so long we assume that all these industries will ALWAYS get better, bigger and more profitable every year forever. At some point in the past we all thought GM would always make more money next year than the last. We always thought more houses would be sold next year than the last (and for higher prices). Obviously this can't be true forever and in fact in order to sustain this pattern we artificially make it true by using consumer credit. It looks like a good economy because so much stuff is being purchased, money flying everywhere, but its all coming from credit, eventually we won't be able to throw money around everywhere.

Canada is doing ok, in part because the US/europe sucks, but also in part because a few of the things we sell are still going up (in BC think about copper/aluminum prices, Alberta think about oil/gas). Those couple good eggs in our basket are currently doing ok at holding us up despite some losses elsewhere (Ontario). But what if we weren't so diversified? (Greece)

Alright I'll stop typing now in the hopes that someone will actually read the results of my effort!

Ultimately, I like living in a prosperous region of the world. I like the comfort afforded to me. Economics have given us this comfortable life style. So economics is good at least in some measure and point in time. But at some point we can't hold up this level of consumption based off credit. At some point sales of consumer goods will need to drop dramatically, government spending will need to drop dramatically. In addition to not buying designer clothes, xbox's and fancy cars, we might even have to cut sugar beats out of our budgets! This is the spiral we talk of. You and I tighten our financial belts and put joe sugar beat farmer into bankruptcy and he was your employers biggest customer! So you lose your job, etc... please standby for a full reset (a mathematical certainty - lets just hope its peaceful).