Libor: Blowing Bubbles

By Christiaan van Huyssteen (@cvh23)

libor2

Source: Jesse Colombo (@TheBubbleBubble)

Libor (London interbank offered rate) is arguably the world’s most important benchmark interest rate, approximately $10 trillion worth of loans and more than $300 trillion of derivatives use Libor as a reference rate. This means that a movement of even a few basis point of change in the Libor rate can cause billions of dollars worth of profits and losses. The Libor rate has been at record lows since 2009. This artificially low (manipulated and fuelled by cheap central bank money) rate is inflating massive debt funded bubbles in stocks (established and emerging), bonds and real estate. There is a distinct correlation between rising Libor rates and every financial crisis over the last 20 years When these bubbles pop, Libor will rise (or vice versa), causing trillions of dollars of wealth to be wiped out.

 

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