As we noted last week in Relative tightening cycle already more intense than the 2003-06 cycle, overnight lending rates between banks have been surging, with the 3 month US LIBOR now at 2.3%, up a whopping 940% from the .22% cycle low.
As acknowledged in this clip, LIBOR is the reference rate for an estimated $150 trillion (with a T) in derivative and financial contracts, including some $1.5 trillion of adjustable rate mortgages and student loans, and some $4 to $5 trillion of business credit. Higher servicing costs leave less cash for all other spending including market manipulation by corporations aka share buy backs.
But, say chief con-fidence men at JP Morgan and BlackRock in this clip, they are not that worried. Both firms have been grotesquely enriched and enlarged since the QE-re-leveraging magic began in 2009, and they are confident good times should continue to roll.
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