During the darkest days of the financial crisis in 2008, the London Interbank Offered Rate (LIBOR) surged like crazy.
LIBOR is the interest rate banks charge to lend to each other. And interbank lending is crucial to the credit markets.
The spike in LIBOR caused credit markets to freeze, which prevented even the healthiest companies from accessing the capital markets to finance their ongoing operations.
In recent days, SHIBOR — China’s version of LIBOR — has been spiking.
Overnight SHIBOR is at 13.4%, up 578 basis points from yesterday. 1-week SHIBOR is at a staggering 11.0%, up 292 basis points.
And this has everyone freaked out that China is running right into its own credit crisis, which potentially could have devastating cascading economic effects around the world.
“It is remarkable that China’s central bank has been unable or unwilling to contain the spike in short-term rates, as the interbank liquidity squeeze continues,” noted Sober Look’s Walter Kurtz. “This is roughly the equivalent of the Fed not being able to control the fed funds rate.”
Here’s a long-term look at overnight SHIBOR via Barclays:
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