The Economic Fabric & Rising Recession Risks

by Lance Roberts
Real Investment Advice

LIBOR Pointing To Weaker Economy

Last week, I laid out the 12-reasons for why stock market “bulls” should pray that interest rates don’t rise. Just one word describes the outcome of that event given the current excessively leveraged consumption based economy of today – disaster.

The point here is that with the Federal Reserve talking about “tightening” monetary policy by hiking the “Fed Funds” rate – the reality is the Fed Funds rate has little to do with the actual credit market. The Fed rate is not actively traded and variable rate financial products are not linked to it. However, the London Interbank Offered Rate (LIBOR) is the rate used as the benchmark for many adjustable rate mortgages, business loans and financial instruments traded on global financial markets. In other words, increases in LIBOR tightens the flow of liquidity in many of the debt markets that directly affect the average consumer and small business by increasing costs. This is particularly burdensome when annual rates disposable income growth is on the decline.

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