With oil at $135 a barrel - up 463% since January 2001, Washington wrings its hands and says there's nothing it can do to lower the price. I think that's nonsense. There are two things that Washington can do today to get the price down: raise interest rates and close the swaps loophole.

What is the role of speculators in the price of oil and other commodities and what should be done to get those prices down? Some argue that oil prices are set by supply and demand. But if that were true, oil would drop because global demand is forecast to grow 1.2 million bbl/day -- and demand in the U.S. is down 300,000 barrels a day -- while global supply is expected to rise 2 million bbl/day.

Perhaps sixty percent of trading volume in oil is due to speculators -- these traders bet on a declining dollar and a rising price of oil. Raising interest rates would help lower the value of the dollar which has lost 70% of its value relative to the Euro since January 2001. Our Fed Funds rate fell from 5.25% to 2% since last August whereas in Europe, their rate is 4% and expected to rise. This difference makes Euros a more attractive currency for investors. So if the U.S. raises interest rates, people will start to buy dollars instead.

MAJOR PAPERS:

• The Wall Street Journal (subscription required) reported that Apple Inc (NASDAQ: AAPL) is in talks with Hollywood studies over making new movies available for rental on its iTunes service, according to two studio executives familiar with the matter.
• The Wall Street Journal reported that former Fed chairman Alan Greenspan may have added to subprime troubles by opposing a proposal for the Fed to use its authority to send examiners to the offices of consumer-finance lenders that were units of Federal regulated bank holding companies.

• The Bush administration has repeatedly defended Microsoft Corporation (NASDAQ: MSFT) against anti-competitive conduct accusations, including the rejection of a complaint by Google Inc (NASDAQ: GOOG), reported the New York Times.
• A major Boeing Company (NYSE: BA) partner for the company's 787 Dreamliner program - Vought Aircraft - is falling behind in obtaining parts for the plane's fuselage sections, reported the Seattle Times.

• Senator Joe Lieberman said yesterday on "Face The Nation" that the United States should launch strikes against Iran if the government does not stop aiding anti-American forces in Iraq, reported CBS News website.