The LIBOR Manipulation Scandal is the Tip of the Iceberg - Gold, Silver, Oil, and the Petrodollar

Have you heard about the LIBOR fixing scandal? Perhaps you have heard that Barclay's paid a tiny fine for their part after they admitted guilt, which is highly unusual.  What you probably haven't heard is how deep the rabbit hole goes, ho broad the scandal is and how it all impacts YOU!

Does it affect mortgage rates in the USA?  Yes.
Does it affect money market funds where your 401k money may be sitting? Yes.
Does it affect the price of US treasuries? Yes.
Does it affect the interest rates you pay on car loans? Yes.  Business loans? Yes.

You get the point.  Now let's dive in to help you understand what you will NOT hear on Bloomberg, Yahoo News, Associated Press news, Reuters News, and ANY major media outlet.


So the LIBOR rigging scandal involves various large banks, mostly primary dealers to the Federal Reserve and the Bank of England (pretty much every bank that received bailout funds in 2008 and more), and their efforts to keep interest rates low.  By doing so, they improve the value of the debt based assets on their balance sheets.  By collaborating with each other over time, these banks, which have overlapping shareholders, appeared to the outside world as being more solvent, more fundamentally sound than they really are.  LIBOR is the basis for floating rate debt instruments like the collateralized debt obligations (CDO) that exploded in 2008 and caused the global credit system to freeze up.  CDOs are a derivative product whose purchase price benefits with a lower interest rate.  By colluding with other market makers, these large banks can push the LIBOR rate lower and make financials look better just in time for quarterly reports.

The other asset that banks hold on their books are US treasuries.  The Federal Reserve lends money to these primary dealers at 0.25% interest rates while they buy US treasuries which pay up to 2% interest.  By doing this in the billions of dollars, banks are able to generate stable income simply from the spread, essentially with no risk.  As the global interest rates are pushed down by the Fed and the Bank of England, and many other central banks, the yield on treasury bonds goes up.  By manipulating LIBOR, these banks can increase the value of the bonds they have on their books, thus making their assets look better than their liabilities and improving their financial statements in quarterly reports to the SEC, which typically means their stock price will rise as well, giving them even more capital to gamble on derivatives.

Now, think of yourself again.  What interest rate does your bank pay on certificate of deposits? or savings accounts? Somewhere around 1%?.  Banks will take your money and pay you next to nothing. If LIBOR was not manipulated, it is certain that interest rates would float upwards towards 5-7%.  But that would decrease the value of the assets on the banks books and they would have to pay you a higher rate for your money on deposit.

How about money to buy a car or a small business loan?  Here they probably charge anywhere from 5% - 15% for these loans they provide to the public.  The money they lend, comes from everyone else's deposits, for which they pay 1% interest, and from the money they get from the Federal Reserve, for which they pay 0.25%.  So they are making an AWESOME spread.

So how about those US treasuries? Remember that is how the Federal government pays for its deficit, and you've probably heard the annual deficit is well over $1 trillion dollars, annually, and future prospects do not look very good.  This means that as the Federal government is giving aid to foreign nations in the billions, it is borrowing money at around 2% interest from buyers of the treasuries.  Put another way, if the Federal government could not find buyers for the treasuries, it would not be able to make good on all its debts and it would default on its existing obligations, just like Greece.

Fortunately for the US federal government, the rest of the world is undergoing massive turmoil and downturn, making the US dollar a safe haven, so OPEC exporters, Japan, China, and the Federal Reserve is buying our treasury bonds, keeping our government afloat.

But what if there were fewer and fewer buyers of these treasuries? What if banks like JP Morgan Chase, and national governments and central banks around the world stop buying treasuries?  Would we go broke.  You bet.  So it is in the best interest of the Federal government to keep interest rates low so the cost of debt service is low and so that the deficit can continue to be funded.  The USA is now the largest debtor nation with a national debt of over $15 trillion dollars.  Eventually, we will go bankrupt.  It's just a matter of time.

Back to the LIBOR scandal.  So the banks are colluding to keep interest rates low, screwing savers from any kind of decent return, urging people into riskier investments like the stock market, all the while they are getting money for nothing from central banks, buying treasuries, keeping the government afloat.  If the banks crash, the government crashes.  So now you have a perpetual cycle where no matter what crimes and fraud and wrongdoings occur at large banks, they are allowed to continue operating to keep the country from defaulting on it's financial obligations.  It's really a stall tactic because eventually the house of cards must fall, but perhaps we will wait until after the next election so the next president can take the blunt of the blowback.

Enough of my ranting, watch these financial reports and decide for yourself.

Now watch this video which elaborates on the breadth of the sectors impacted by LIBOR and interest rate manipulation.



The DOJ will most likely investigate only foreign banking institutions because it wants to present the illusion of justice, while working to protect US banks, particularly JP Morgan Chase (JPM), Citibank, Morgan Stanley, Goldman Sachs, and Bank of America.  This allows the currency war to drag on and force the Euro down against the US dollar, which is under attack as the global reserve currency by Iran, China, Japan, Russia, India, South Africa, Venezuela, and Brazil.  The scales are tipping.