As we approach the intersection of insolvency and hyperinflationary breakdown — where on one corner are overtly fascist central banks playing a great game of make believe denying how their own, utter lack of due diligence created today's mess in the first place while exacerbating potential for a chaotic systemic collapse by acceding to making the insolvency of too big to fail titans of tyranny their own, and on another corner irrefutable history revealing a human condition driven to most practical and effective means for securing liberty in the face of circumstance acting to repress it — a clearer sense of dynamics likely to precipitate bankruptcy reorganization a la Glass-Steagall comes into view.
Surely, a LIBOR "scandal" rapidly widening in scope to include suspected, sordid complicity of regulatory agencies might be foremost perceived a battering ram aiming to hasten this end ("scandal" is in quotes because the only thing scandalous is that it took this long to admit that, the depths of Team Fraud's depravity in fact needs looking into). The question here, though, partly boils down to whether banks were taking a calculated risk selling interest rate swaps to enterprises well-advised to hedge their interest rate risk — this no matter any presumed ability banks collectively possessed to drive LIBOR down, as any number of ticking time bombs could have nullified actions banks were taking effectively to protect their position, however untoward their means of doing so — or, whether the banking community was committing a sales fraud in a game they otherwise had every confidence was rigged in their favor, this along lines of say, sub-prime. Honestly, I am siding principally with the former view rather than the latter, yet quite disgusted, too, by a systemic vig that plays on the unsuspecting, just like any casino.
The Fed, the BoE, the ECB, the Bank of Japan, etc. in fact are more appropriately incited for having provided the "fix" propping up this arrangement. These institutions have been very upfront about their low interest rate policy lasting for as far as the eye can see. So, what bank in today's environment can be incited for acting upon this common knowledge in their own favor? Yes, I have seen some of the emails of traders involved in the alleged LIBOR fixing. Yet who among these fleas had any impact on matters determining whether Greece, Ireland, Portugal, etc. might just up and leave the EMU, and precipitate a financial crisis dwarfing that in '08? Their exquisite champagne? Hey, more casino.
The most indicting condemnation rests on whether there was collusion among banks venturing to drive LIBOR lower, and whether regulators blessed this. As such the real problem with this LIBOR "scandal" is exposure it brings to a fantasy land saturated with belief in the "free market." There is no such thing! Never was and never will be. Some collective organization, some agency, always exerts control over markets for the sake of securing a valuable advantage. This point stands to be driven home should serious investigation uncover untoward — particularly the illegal sort — collusion in LIBOR's fixing involving regulatory agencies right up to the Fed and U.S. Treasury. Thus, too, will questions arise over whether the presumed, ultimate beneficiary of "the market" — humanity uplifted to better secure its inalienable right to life, liberty and happiness — in fact is best served by what already is widely perceived a rigged game whose impact has done more harm than good, or whether a Glass-Steagall bankruptcy reorganization preceding a return to national banking employing a Hamiltonian credit system is the most appropriate way forward, that judicious marshaling of the productive application of capital, indeed, effectively serve a humanity rightly regarded capitalism's ultimate beneficiary, this above all other dogmatic considerations. A modern-day Pecora Commission likely being in the offing in this, an election year here in the U.S. could settle the matter in short order, at least judging by growing shrieks raising suspicion of collusion right up to a U.S. Treasury headed by former New York Federal Reserve President Tina Geithner, policy cross-dresser extraordinaire.
Let's not forget, either, the practical impact this growing LIBOR scandal likely will have. Namely, it presents yet another hit on confidence. Those among the alleged scandal's "marks" probably are much less likely to piss away scarce capital on interest rate protection as now has some among their ranks likely feeling defrauded, rightly or wrongly. For capital starved, "too big to fail" titans of tyranny this is a big problem. Appearances of solvency will need to be sustained in some other manner. Thus a paradox for "marks" and "regulators" alike: the former likely better off increasing their interest rate risk protection in response to the LIBOR scandal (this at least in principle, yet in practice many an interest rate swap could prove worthless in the face of soon-to-be insolvent counter-parties, so why bother), while the latter will have no choice but gun the hyperinflationary happiness engine in a deluded attempt to hold down interest rates.
So, with the LIBOR "fix" likely no longer available as stealth means to generate free capital to fill a massive Derivatives Black Hole, most deafening could become the shrieks from still über levered, capital starved, economic albatrosses whose fee gravy again is being impinged upon, this following on the same effect resulting from criminal ratings agencies being relegated incapable of feigning solvent counter-parties following the MBS fiasco culminating in the collapse of 2008. Accompanying panicked cries in high places within the trans-Atlantic banking system, then, likely will be a mad scramble for capital hitting liquid assets all the way up the capital structure right to the very core U.S. Treasury market.
Upward pressure on interest rates, be it by forced selling or a hit on confidence at the behest of a likely hyperinflationary response to these sales coming from central banks, spells "game over."
All the same gold could hang in there, as fear of systemic collapse effectively establishes a floor under spot gold's price (much as has held true over the past decade). This, of course, assumes in the offing one final shot of hyperinflationary happiness from hopelessly trapped central banks. As this seems rather likely, the view put forward in "Anticipating Bath Time for Bubbly Gold" about a year ago expecting one final, parabolic surge in spot gold's price setting up its subsequent collapse could imminently materialize in the fallout from the LIBOR scandal. Then again, maybe the common thread connecting spot gold now with its early-1980s reversal lower will prove upward pressure on interest rates. As such, it's possible spot gold already peaked last year. Indeed, fear of systemic collapse supporting spot gold could be overwhelmed by an immediate need to raise capital leading to gold's dramatic undoing. In fact this dynamic might already have begun to set in, notwithstanding continued downward pressure on interest rates (at least in core trans-Atlantic economies), with anticipation toward a capital-short, chaotic future summarized in a question many times asked over the past decade: how much lower can rates go? Slowly but surely it apparently is becoming common knowledge that, central banks are trapped. Residual to this understanding is realization interest rates probably are on the verge of surging higher, then. So, given that spot gold's 200-day moving average has turned down and its 50-day moving average has made a so-called "death cross," it could be over for gold already.
Paradoxically, the U.S. dollar simultaneously could rise over the period immediately ahead. Yet this will not be on account of appearing the prettiest leper at the Insolvency Ball whose commencement awaits a devastating reversal in interest rates. Rather it will be by the phrase "Come Bossy" becoming a cry moving from dairy farms across the nation to banks scrambling for capital wherever it might be found. Likely precipitating trade war 21st century style as a result, Glass-Steagall's rapid exportation and subsequent implementation of sovereign national banking the world over could sweep onto the scene like a tornado, likewise clearing the way for other positive developments conducive to growth in something other than indebted servitude. Suffice it that speculative currency markets soon could become a thing of the past, and this right on the heals of insolvent central banks likewise being swept away.
You heard it here first. Hopelessly overwhelmed central banks now are on the doorstep of their declared insolvency. The best laid plans for sustaining the leveraged Ponzi scheme central banks collectively were instrumental in creating and blessing are about to come crashing down faster than New York's World Trade Center on September 11, 2001, with the imminent gassing of the U.S. Treasury market likely the detonator. A rigged LIBOR market exposing a thieving "free market" likely blessed by both Bernice and Tina playing their tried and true game of "see no evil" (not to ignore how the Barclays settlement and decimation of top executives goes some way toward substantiating serious wrongdoing) is set to deliver a hit on confidence at the very core of the trans-Atlantic banking system. The last thing a financial system with a voracious appetite for capital needs is diminished confidence in the trillions of dollars of securities whose pricing is based off LIBOR.
Congress better wake up. The Financial Times of London evidently is not joking about the urgent need to reinstate Glass-Steagall. How very out of touch with reality, then, are swindler apologists like Geithner, Bernanke and Volcker who to this day still argue against this necessary reform, particularly with the bill charged these two-faced policy cross-dressers coming due with revelations of regulatory collusion in the setting of LIBOR, whose effect provided subsidy to what are widely regarded reckless, hopelessly insolvent banks, and this at the expense of many. Confidence at the core now set to rapidly disintegrate, the hour made for dashing upon the rocks both spineless jellyfish and skeleton thugs alike is come. By no means either will a majority be needed to get the job done. Indeed, the President would be wise to contemplate Gaddafi's fate, as "friend" turned foe among these ranks never is a personal betrayal, but rather a more weighty matter of business.
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