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Wednesday, October 2, 2013

Confidence and hard assets

The origin of the term Confidence Man (con-man), or Confidence Scheme or Con, comes from a scam played by a well-healed, good looking hustler in the 1920's who would approach genteel marks in NY's upper crust neighborhoods, pretend to know them, engage them in lively conversation, and then say: "Do you have the Confidence to loan me your watch until tomorrow?"

Often his marks would indeed loan their watch, and never have it returned.

The Banks play many similar games every day with their "Customers."

For example, when you "deposit" money with a bank, you are in fact loaning them your money, for which they should pay you some return or interest. The banks now however refuse to pay you any interest at all. Rather, they take your money, and gamble twelve times the amount in the risk markets, driving up all commodity prices, making everything more expensive for you.

Meanwhile the Fed is simultaneously producing ever more money which dilutes the money you've loaned the bank.

By the time you get your money back it is worth much less than the amount you loaned the bank. That is a Confidence Game.

Funny right?

Yeah, sure, it's funny until enough people realize what's happening. While it's true the average US citizen takes a very dim view of Wall Street, the banking system, and the Congress that overseas it all, still, in general they have CONFIDENCE that the US is still the greatest country on earth, the overall System generally works.

That confidence keeps people in the "Safety" of paper money generated by the system.

But now the clowns in Washington are doing their best to undermine that.  They've introduced a new tool: Negotiation through Hostage Taking.  Most people still believe that this mess in Washington will be quickly resolved.  But this new Hostage mentality, as it drags on, and is repeated, will go a long way towards damaging America's Confidence in its Systems, and the International Community's confidence in the US system.

And when that changes, when doubt creeps in about the efficacy, probity, transparency, of the SYSTEM, the insidious result is that people lose CONFIDENCE in the MONEY generated and used by the System.

When that happens they seek to convert that money into goods - as quickly as possible.

The super rich are already doing that.  Because they have more paper money than they could ever hope to spend.  This is causing hard assets to rise in value.

But right now, the middle class is scared. And though they have little confidence in the Bankers, the Financiers and the Politicians, they do have some CONFIDENCE in the system. So they are hoarding their dollars. This causes the deflationary pressures we're experiencing as money doesn't turn over.

But Confidence is a strangely tenuous human emotion. Nobody knows what can trigger the loss of Confidence in something as amorphous as THE SYSTEM. But the Tea Party Republicans are clearly hell bent on finding out.

And when that happens, people lose confidence in the system's money. Then even the middle class will seek to exchange it as quickly as possible for real goods. The money quickly loses all value. That is hyperinflation.

Do you think that could never happen here? Thank God. Because believing it could happen, is the first step in the loss of confidence.

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