The Real Fiscal Cliff. Foreign Exchange Swaps Tied To LIBOR Rate $650 Trillion

The real fiscal cliff is being ignored by MSM, including the financial channels…

WASHINGTON, Oct. 24 (Thomson Reuters Accelus) - The U.S. Treasury Department will move ahead after the Nov. 6 U.S. national elections to issue its plan for exempting foreign exchange swaps, a banking industry source said. A senior government official said a decision on the issue was expected by year end, after international standards setters complete work on derivatives margin requirements.

The Treasury plan, which was proposed in April 2011, would exempt instruments such as foreign exchange swaps and forward contracts from new rules affecting dealers in the $650 trillion over-the-counter derivatives market. 

The Treasury had been expected to finalize the plan before the October 13 deadline for registration for swap dealers. But the delay in finalizing the plan has made firms anxious about whether their foreign exchange swaps transactions will require them to register as swap dealers and be subject to higher costs.

 

http://blogs.reuters.com/financial-regulatory-forum/2012/10/24/u-s-treasury-to-move-by-year-end-on-plan-to-exempt-forex-swaps-sources-say/

 

Foreign exchange swaps are basically currency swaps, usually made in overnight bets.

 

Let’s say you own a company, and you have $100,000 in you payroll account. The law says that you can’t earn interest on that money, but banks have found a way around that, using offshore accounting, and a derivative instrument called an overnight sweep account.

 

Overnight, while America is sleeping, European markets are open. Specifically, the Euro. Companies bet their payroll account, hoping the dollar is stronger against the Euro the next day. All of this is tied to the LIBOR rate, which has the ability to strengthen the Euro against the Dollar by manipulating the Interbank loan interest rates. The higher the rate, the lower the Euro, because it costs more for central banks in Europe to borrow money. Since 2008, the LIBOR has been artificially manipulated lower to strengthen the Euro, and American companies, and municipalities, have lost their shirts in what was a normally lucrative gamble.

Now, the Treasury is threatening to force swap dealers to register, which would allow for oversight by the government in this out of control gambling market.

The rich are very, very nervous.