The Brave New World of Central Bank Tyranny

Shah Gilani

Remember when banks used to make it worth your while to deposit cash with them?

Heck, maybe you even remember such inducements as free toasters.

But in a reprehensible turn of events, now you – the depositor – are about to get toasted.

Thanks to U.S. Federal Reserve policies that are holding market rates down near zero, you're getting just a few basis points in interest (a basis point is one one-hundredth of a percentage point) on your cash deposits – and have been for several years.

It's bad enough that you're getting practically no yield on your savings. But now the big banks – those greedy fellows that we taxpayers bailed out from a crisis that they actually caused – are about to start charging you to deposit money with them.

I'm not kidding.

There's so much money floating around that the biggest banks that are sitting on the most of it and can't – or refuse to – lend it out for any number of selfish reasons, now don't want it stuffing their vaults.

So big depositors – who already weren't earning anything on the savings they've asked big banks to hold and safeguard for them – will soon have to pay a fee for that questionable privilege.

There's a litany of disturbing elements to this tale. But the most galling is this: It won't be long before you and I are receiving notices of this unseemly new Big Bank tariff.

Welcome to the Brave New World of Central Bank Tyranny!

Sycophant central bankers here in the U.S. and over in Europe (and everywhere else, for that matter) have artificially manipulated interest rates down to nothing. That makes it possible for their masters – the big banks – to rack up record profits: They borrow from each other at one basis point and then go out and buy massive quantities of higher-yielding government bonds, cashing in on the "spread." The United States, European countries, Japan, China, and everyone else is happy, since they can keep running huge deficits.

In that equation, the banks don't need to make loans to us.

Still, we need a place to park our money.

But now the big banks are saying that they have too much cash and can't lend it fast enough. Of course, what they're not saying is that they don't want to lend it out to us at current low rates because, when rates rise, those loans will be "under water."

The banks are fat and happy making so much on their risk-free government loans (that's what the banks buying government bonds is all about; those bonds are nothing but cheap loans to profligate governments) that the extra money they have on deposit is starting to cost them profitability.

Yeah, you heard that right.

Here's where it gets a tad technical.

Shah Gilani

About the Author

Browse Shah's articles | View Shah's research services

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of 10X Trader, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade.

Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps.

Shah is a frequent guest on CNBC, Forbes, and Marketwatch, and you can catch him every week on Fox Business's "Varney & Co."

He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

… Read full bio