Category: Politics

The Libor Scandal In Full Perspective

by Paul Craig Roberts
19-Jul (Institute for Political Economy) — The article about the Libor scandal, coauthored with Nomi Prins, received much attention, with Internet repostings, foreign translation, and video interviews. To further clarify the situation, this article brings to the forefront implications that might not be obvious to those without insider experience and knowledge.

The price of Treasury bonds is supported by the Federal Reserve’s large purchases. The Federal Reserve’s purchases are often misread as demand arising from a “flight to quality” due to concern about the EU sovereign debt problem and possible failure of the euro.

…The lower is Libor, the higher is the price or evaluations of floating-rate debt instruments, such as CDOs, and thus the stronger the banks’ balance sheets appear.

Does this mean that the US and UK financial systems can only be kept afloat by fraud that harms purchasers of interest rate swaps, which include municipalities advised by sellers of interest rate swaps, and those with saving accounts?

The answer is yes, but the Libor scandal is only a small part of the interest rate rigging scandal. The Federal Reserve itself has been rigging interest rates. How else could debt issued in profusion be bearing negative interest rates?

…How long can the regime of negative interest rates continue while debt explodes upward? Currently, everyone in the US who counts and most who don’t have an interest in holding off armageddon. No one wants to tip over the boat. If the banks are sued for damages and lack the money to pay, the Federal Reserve can create the money for the banks to pay.

…To sum up, what has happened is that irresponsible and thoughtless–in fact, ideological–deregulation of the financial sector has caused a financial crisis that can only be managed by fraud. Civil damages might be paid, but to halt the fraud itself would mean the collapse of the financial system. Those in charge of the system would prefer the collapse to come from outside, such as from a collapse in the value of the dollar that could be blamed on foreigners, because an outside cause gives them something to blame other than themselves.


PG View: An excellent article that illustrates just how far beyond the Libor scandal the “fraud” seems to extend. Discussions about the manipulation of global financial markets are no longer relegated to just the tin-hat crowd, and Roberts calls the Fed’s zero interest rate policy what it is: “Rigging interest rates”, which is fundamentally little different from what Barclays and the other setters of Libor where engaged in.

Perhaps now is a good opportunity to take a portion of your assets outside of the traditional financial markets, which are increasingly acknowledged as being “rigged.”

Posted in Economy, Gold News, investments, Politics, U.S. Dollar |

Wall Street Trims Early Gains After Bernanke Dashes Easing Hopes

07-Jun (MoneyNews) — Stocks rose on Wall Street Thursday after China cut its benchmark lending rate in another bid to boost its slowing economy, but an early rally faded after Federal Reserve Chairman Ben Bernanke gave no signal of immediate action to prop up the U.S. economy.

The Dow Jones Industrial Average was up 80 points at 12,494 shortly after noon. It had been up as much as 140 points earlier. On Wednesday the stock market had its biggest gain of the year on hopes that more economic stimulus might be on the way in the U.S. and Europe.

China cut its benchmark lending rate for the first time in nearly four years, adding to efforts to reverse a sharp economic downturn. It was the first rate cut since November 2008.

“Markets received a near-term shot of adrenalin from China,” said Matthew Kaufler, portfolio manager at mutual fund group Federated Investors. “China is the world’s economic locomotive at the moment and it can’t afford to slow down at a time when other major economies are in precarious positions.”


Posted in all posts, Economy, Politics |

Bernanke: Fed Ready to Act if Europe Hits U.S.

07-Jun (The Wall Street Journal) — The U.S. economic recovery faces significant risks, including from the European sovereign debt crisis and uncertain U.S. fiscal policy, Federal Reserve Chairman Ben Bernanke said in testimony prepared for a congressional hearing on Thursday.

Still, the Fed chairman stopped short of signaling Fed action to combat these risks, other than to say that the Fed remained “prepared to take action” to protect the U.S. economy and financial system if stresses on the financial system escalate.

In all, Mr. Bernanke’s testimony was more restrained than comments offered this week by other Fed officials, including Wednesday evening comments by vice chairwoman Janet Yellen, which laid out detailed arguments for why the Fed might to take new actions to bolster the economy and protect it from risks to growth.


Transcript of Chairman Bernanke’s opening statement:

Posted in all posts, Gold News, Politics |

US initial jobless claims -12k to 377k for the week ended 02-Jun, below expectations of 380k, vs upward revised 389k in previous week.

Posted in all posts, Economy, Politics |

Greece Warns of Going Broke as Tax Proceeds Dry Up

05-Jun (New York Times) — As European leaders grapple with how to preserve their monetary union, Greece is rapidly running out of money.

Government coffers could be empty as soon as July, shortly after this month’s pivotal elections. In the worst case, Athens might have to temporarily stop paying for salaries and pensions, along with imports of fuel, food and pharmaceuticals.

Officials, scrambling for solutions, have considered dipping into funds that are supposed to be for Greece’s troubled banks. Some are even suggesting doling out i.o.u.’s.

Greek leaders said that despite their latest bailout of 130 billion euros, or $161.7 billion, they face a shortfall of 1.7 billion euros because tax revenue and other sources of potential income are drying up. A wrenching recession and harsh budget cuts have left businesses and individuals with less and less to give for taxes — and growing incentive to avoid paying what they owe.


Posted in all posts, Politics |