America's crappy housing market, weak dollar, and troubled finance sector have forced institutional investors to look elsewhere for places from which they can draw their rapacious profits. What's hot for spring? Commodities like food and fuel. And that's a big reason for rising prices of those two vital categories: Speculators are dumping their money into the markets and creating a bizarre feedback loop in which speculator demand increases as prices rise. Or so says Michael W. Masters a hedge fund manager who testified before the Senate Homeland Security and Government Affairs Committee yesterday.

Of course, not everyone believes this to be true:

"Jeffrey H. Harris, the chief economist for the Commodity Futures Trading Commission, said it was clear that there were more institutional investors in commodities, but he said they had not systematically driven up prices. Prices 'are being driven by powerful fundamental market forces and the laws of supply and demand,' Mr. Harris said in testimony."

And if the head of the Commodity Futures Trading Commission says everything's on the up and up you've got to take him at his word, right?

Masters is unconvinced. Addressing the argument that ethanol production has resulted in less food production, he points out that "Index Speculators have stockpiled enough corn futures to potentially fuel the United States ethanol industry at full capacity for a year." In addition, speculators are currently sitting on enough wheat futures to supply every American with "all the baked goods they can eat for the next two years."

"Think about it this way," Masters told the committee. "If Wall Street concocted a scheme whereby investors bought large amounts of pharmaceutical drugs and medical devices in order to profit from the resulting increase in prices, making these essential items unaffordable to sick and dying people, society would be justly outraged. Why is there not outrage over the fact that Americans must pay drastically more to feed their families, fuel their cars, and heat their homes?"

Considering that pharmaceutical drugs and medical devices are already unaffordable to a growing number of sick and dying people we're not going to hold our breath waiting on the outrage to show up. On the other hand, when gas reaches five bucks a gallon and people really start to bitch and moan, expect our politicians to start looking for any kind of scapegoat who will help us ignore the actual problem of our dependence on foreign oil. Large institutional investors, you've been warned.