FOREX TRADING

I have been so perplexed over the past week, hearing US Federal Reserve Chief Ben Bernanke give a rally cry to the bulls, watching the positive data (or so it was interpreted as) come out and give hope, and seeing the Dollar hold steady.I really believed that the US Dollar would begin a more dramatic cave. But as it looks this wasn’t to be, not just yet. You’ve bad data still, you’ve China unloading their US Dollars, you’ve 10% unemployment and the number is growing and yet it was the reports from the banks scoring record profits that kept the US Dollar on its feet.But I’ve another expectation, as I’ve read over the balance sheets over and again of the banks and their multi-Billion Dollar profits.

When an economy is bad, more people live check-to-check, and even tend to extend themselves more than at any time. While an economy is healthy, Banks derive profits from investments and to a lesser degree, fees and customer charges.

Now, in a time where home, car and personal loans have been dry, the fact that the economic growth is negative, and that the questionable securities haven’t recovered as an investment tool, leaves it hard to believe that banks are able to grow so much last quarter.

Considering their reports, I can tell you that it’s obvious where they’re making their money from, and it is not a good sign for the economy.

In the US, when a bank customer goes beyond their account balance, they enter an overdraft territory in which they’re charged obscene fees for having the bank cover their charges.

Now, in the past it had been a standard that the customer needed to apply and request this overdraft, and this isn’t to be mistaken for a typical loan or credit line which are different animals.

The customer would agree that if they charged using their bank car, or wrote a check, and there was no money in the account, they’d pay a per-transaction fee and an interest fee calculated and prorated on a month to month basis. The interest is anywhere between 8-18% and the fees can be as high as $10 per transaction.

Now, according to Citigroup, Goldman and Bank of America, it seems as if 60% of their revenue was derived from “customer fees” and increase of 36% from the average between 2002 and 2008. So I dug a little further and here is the fact.

The average bank customer is paying, with fees and interest on overdraft, about 35% per month. Keep in mind that with the high fees, if a customer goes to a pharmacy and charges 1n $8 box of band-aids, he can be charged $18 plus interest on the full $18 as it is calculated at the end of the month.

Think about it, you’ve no money in your account and you make three charges for $100 in total, with $30 in fees plus interest on the $130 in total, you owe the bank $138. You took $100 and owe more than 1/3rd of that on top of your principle.

What the key is here is banks no longer ask customers if they want overdraft, they automatically approve every customer for it up to a set limit – like $5000. So even whenever you’ve no credit, whenever you’ve a bank account you do – and this is how the banks are making their money – 60% of it for that matter.

How does this affect the Forex online trader? It’s just evidence that some Online Forex blogger has presented to you that the picture isn’t black and white showing recovery, there are problems and it’s growing – growing enough that people en masses are borrowing and the banks are raping them on it, it is making a bad situation worse and the repercussions will come back to haunt everyone involved. Just watch retail sales and consumer prices – these will be telling numbers in the next few weeks.