As someone else put it, LIBOR is somewhat the cost of insurance of default. And when this is shooting up, that means that expected default risk is getting higher and higher.
Zombie companies barely staying afloat taking on as much debt as creditors are willing to risk are going to be having a tougher time servicing their debt and likely going to see plenty more bankruptcies.
For the average person, Zero Hedge puts it pretty well:
Finally, for ordinary households, the increase in debt service costs as a result of the 3M Libor spike will mostly come through adjustable rate mortgages. The recent increase in LIBOR-OIS has added about $5 billion to the annual interest expense of households, or about 0.04% of the recent level of household consumption outlays, which is sufficient nominal to not generate a crisis; if it does, there is something very broken with the "recovering" US economy.
However, given that we just saw the mortgage lenders are back to their old tricks like in 2008, those already struggling to pay their mortgages, as are most of the paycheck to paycheckers - who aren't going to be served well by the employers going into bankruptcy - such as the retailpocalypse and decline in wages, plenty will likely have trouble servicing their mortgage debt as well. And in real terms with actual inflation, the US economy is contracting and not expanding.
But don't worry about it, you're going to be alright. Because Jesus is the reason for the season. Can I get a amen?
https://www.zerohedge.com/news/2018-03-30/how-much-debt-linked-soaring-libor
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