Federal Reserve Bad for U.S.? (Video Below)
Millions of Americans are waking up to the fact that the Federal Reserve is bad, but very few of them can coherently explain why this is true.  For decades, an unelected, privately-owned central bank has controlled America’s currency, run our economy and has driven the U.S. government to the brink of bankruptcy.  It operates in great secrecy, it has never been subjected to a comprehensive audit and yet the actions it takes have an impact on every single American. FULL STORY at TheEconomicCollapseBlog.com.

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Keith McCullough: US Economy Near Point of No Return

Friday, 13 Aug 2010 08:32 AM

By: Dan Weil

The Federal Reserve’s decision to expand its quantitative easing by purchasing more Treasuries is a dangerous one, says Keith McCullough, CEO of research firm Hedgeye.

“That could lead the country to the brink of collapse,” he wrote in a Fortune magazine column.

McCullough agrees with economists Carmen Reinhart and Ken Rogoff, who recently wrote that government debt in excess of 90 percent of GDP pulls down economic growth.

“It’s a point from which it’s almost impossible to return,” McCullough wrote.

FULL STORY.

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“We are in a period as you know where we have supply of liquidity, through in particular the one-month window and the main refinancing operations, unlimited supply of liquidity. We took also additional decisions in the occasion of our set of decisions of May 9th. We see clearly that there is an illustration of these tensions . . . .”

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* U.S. three-, six-month bills prove hot items at auction

* Euro Libor posts biggest gain in a month

* Banks hoard liquidity, overnight deposits at new highs

* ECB slowed bond buying last week
The U.S. three-month bill auction bid-to-cover ratio hit a
record high with the ratio of bids received over those accepted
at 4.8, beating the April 26 record of 2.69. READ MORE.

. . . .

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Are concerns over LIBOR rise unfounded?

Greg Peters, global head of fixed-income research at Morgan Stanley, talk with Bloomberg‘s Margaret Brennan about the rise in the London interbank offered rate, or Libor.

The rate banks say they pay for three-month loans in dollars climbed for an 11th day to 0.536 percent, the highest level since July 7, according to data from the British Bankers’ Association. Peters also discusses market sentiment and investment strategy. (Source: Bloomberg)

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The FT reported on Monday that we are due a sharp rise in dollar interbank offered rates, on account of renewed credit risk fears around European banks.

Ah, but will it be a spike — or is this the New Normal breaking through?

According to Citigroup’s Neela Gollapudi, if Libor is set to jump, it will be in response first of all to the end of the too-big-to-fail era in US banking, now that finance reform has passed.

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“Nobody panics when things are going ‘according to plan’.  . . . Even when the plan is horrifying.”

LIBOR continues rising, reflecting higher risk premium.  Are politicians simply digging deeper holes?

Image by Getty Images via Daylife

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… the Eurosystem appreciates the work being done by the Euro Alliance of Payment Schemes to establish inter-operability between the participating card schemes. This work can be seen as the first step towards a consolidation of card schemes, leading to a European card scheme.”  EAPS Website.

Gertrude Tumpel-Gugerell,
Executive Board / European Central Bank

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LIBOR stands for London Interbank Offered Rates. The LIBOR Rates are benchmark interest rates set by an organization in the United Kingdom called the British Bankers’ Association (BBA). The LIBOR rates are used chiefly as a set of benchmarks for unsecured, short-term loans between the most creditworthy international banks. There are many different LIBOR rates with many different currency denominations. In the United States, the U.S. dollar-denominated LIBOR rates are published each business day in the Money Rates section of the Eastern print edition of the Wall Street Journal®.

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In the American financial marketplace, the LIBOR rates play a key role as the index for many debt instruments and debt securities, including interest-only mortgages and other adjustable-rate loan products, and certain credit cards.

In the mid-1980′s, financial markets around the world began using the LIBOR as an index for a wide variety of financial products, and that’s why the LIBOR rates are some of the most important market indices today. Many American banks index their loans and credit card products to the U.S. Prime Rate, but there’s a movement among banks to LIBOR indexing in lieu of indexing to Prime. Banks like the LIBOR rates because they change in response to current credit market conditions and are updated every business day. The U.S. Prime Rate, on the other hand, moves in synch with the Federal Funds Target Rate, which is usually reviewed by the Federal Reserve’s Federal Open Market Committee (FOMC) every six weeks.

The U.S. Prime Rate and the benchmark Federal Funds Target Rate are both set by America’s central bank: the United States Federal Reserve. The LIBOR rates, on the other hand, are not controlled by the central bank of the United Kingdom (the Bank of England.)

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With LIBOR approaching 1/2%, risk is being priced back into the world banking architecture.  Of course, at the height of the recent banking crisis, the London interbank offered rate topped 5% . . . so, there’s quite a bit of risk premium to go . . . .

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