Alasdair Macleod från GoldMoney om LIBOR räntan som fortsätter upp och den ökade utlåningen från bankerna vilket kan innebära att FED hamnar på efterkälken då det gäller inflationen
The Fed’s monetary policy is a mess. It is a little known fact that bank lending in the US is increasing, and the closest thing we have to free market interest rates, USD LIBOR, is signaling that demand for money is now driving the rates. Higher LIBOR confirms the growth in bank lending, and you can see how LIBOR is moving in the chart below.
This is scary, because it confirms that bank lending, which is broadly the difference between M2 and M1, is shooting out of control. The Fed should raise rates immediately, but it won’t, for the simple reason it doesn’t believe it has a problem, and it’s more worried about economic growth. But anyone with long experience of markets knows that this is the Fed falling behind the curve, and it will only raise interest rates too late and then by not enough.
This Caused The Price Of Gold To Skyrocket In The Hairy 1970s
The point about the increase in bank lending going into the economy is it will drive the rate of price inflation higher. The similarity with my memories of the 1970s, when central banks were slow to raise rates is becoming apparent. Last time it led to near-hyperinflation, and drove the gold price up from $100 to over $800, before Volcker raised the Fed Funds Rate to over 20%.
The difference today is the amount of debt. Volcker’s move was dramatic, but today’s Fed can only raise rates to somewhere between 2-3%, before setting off a debt mega-crisis. That’s not too far from where the 3-Month LIBOR rate is taking us. And by the way, 12-Month LIBOR is already over 1.5%.