It appears that pension fund investments are fueling a bubble in commodity prices. According to the article, the top five companies doing these swap agreements are: Bank of America, Citigroup, JPMorgan Chase, HSBC North America Holdings, and Wachovia. All of the firms have taken billions of dollars in writedowns in the asset-backed security bust. By not plugging the swaps loophole, US regulators are effectively bailing out these companies without resorting to directly raiding domestic tax coffers. Unfortunately, contributing to the speculative rise in commodity prices is effectively an indirect tax upon the entire world.
It is ironic when the very act of hedging against inflation directly results in inflation, by driving up the price of economic inputs. Inflation becomes a self-fulfilling prophecy.
