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Category Archives: confidence

Consumer Confidence Foretells Economic Crash?


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Consumer Confidence

 

Anyone who stops to think about it knows that the fundamental strategy for generating investment profits is to buy an investment when the price is low and sell when that investment’s price is high. The name of that strategy is “buy-low/sell-high”. The difference between the “buy low” price (say, $100) and the “sell high” price (say $300) is the measure of the profit ($200, in this example) made on the investment.

No one seeking investment profits can refute the “buy-low/sell-high” strategy. On considering that strategy, virtually everyone will say, “Well, of course,” or “Obviously” or even “Well, duh”.

However, the buy-low/sell-high” strategy isn’t as simple as it sounds. There’s a problem: investors like to behave like herd animals. We are generally and genetically afraid to act independently. We feel more comfortable believing someone else (especially an “expert”) than we do in trusting our own eyes and ears. Insofar as that tendency is prevalent, investors are prone to ignore the buy-low/sell-high strategy and instead “buy high” (when virtually everyone is buying and says “now’s the time to buy”) and “sell low” (when virtually everyone is selling at a low price). This “sell-low/buy-high” strategy is a sure formula for going broke. I.e., most investors tend to “buy high” (when the investment’s price is $300) and “sell low” (when the price is $100) and thereby suffer a $200 loss.

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Maintaining Public “Confidence”–in What?


Over-Confidence is Dumb [courtesy Google Images]

Over-Confidence is Self-Delusional
[courtesy Google Images]

“confidence: . full trust; belief in the powers, trustworthiness, or reliability of a person or thing: We have every confidence in their ability to succeed. belief in oneself and one’s powers or abilities; self-confidence; self-reliance; assurance:”

self-delusion, noun:  the action of deluding oneself; failure to recognize reality.”he retreats into a world of fantasy and self-delusion”

If you’ve followed the news about the economy for even a brief amount of time, you’ve almost certainly read article after article where someone in a position of authority talks about the need to “maintain public confidence”.

Strangely, they never seem to say exactly what that “confidence” should be in.  Is it confidence in our leaders?  Confidence in our public-school-educated children as the “future of our country”?  Confidence in what?

Nevertheless, it appears to be economic gospel that, no matter what, in order to protect the economy, we absolutely must maintain public confidence!–in . . . something . . . .

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Loss of Savings, Not Size of Debt, Causes Bank Panic


Bank Panic--A.D. 1907 [courtesy Google Images]

Bank Panic–A.D. 1907
[courtesy Google Images]

The Associated Press recently published an article entitled “The Latest:  Will Greek banks have all their money next week?”  That headline hints at the danger in fractional reserve banking.

As I understand it, in the US, the fractional reserve ratio is about 10:1 meaning that out of every ten dollars deposited into bank accounts, the bank holds one dollar in its vault to hand out to depositors and lends the other nine to borrowers.

The advantage and even necessity for fractional reserve banking is that it prevents currency from being hoarded in banks and shrinking the money supply needed to keep the economy growing.  Instead, fractional reserve banking allows 90% of the currency saved to be loaned back into the economy to circulate and stimulate economic activity.

The danger in fractional reserve banking is that if an emergency arises when only 10% of the deposits are actually kept in the bank vault, and more than 10% of US depositors want to simultaneously withdraw all of their currency from their bank accounts, then there’ll be a “bank run”.

If enough depositors join the bank run, the bank will be unable to provide the funds owed to depositors since 90% of their deposits have been loaned out to others.  Once the bank is shown to be unable to meet the depositors’ demands, the bank will be deemed to be insolvent and may be closed.

Although depositors might later be able to regain their deposits, for the immediate future, 90% of depositors will be unable to access any of their savings.  Without access to their bank deposits, bank customers may have no money to buy groceries, pay their mortgages, or get to work.  They’ll tend to panic.  The economy may tend to collapse.

Fractional reserve banking is both necessary to a modern economy and also dangerous.  If a nation’s depositors all try to withdraw their funds at once, they won’t be able to access their funds.  They’ll tend to panic, throw things, riot, light fires and shoot.

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Confidence vs Humility


[courtesy Google Images]

[courtesy Google Images]

I view the video below as evidence of a powerful and often self-destructive instinct in most people to follow anyone who speaks with great confidence.  People don’t much care about what’s being said.  They do care about the apparent confidence of the speaker.  Most people don’t care if the speaker speaks truth or lies, but they do care if he speaks with confidence.

If you speak without confidence–even if you’re telling a profound truth–most people won’t believe you.  Most people won’t follow you.

But if you speak with great confidence, people don’t care if you’re a pathological liar–they will follow you, they’ll obey you, they’ll give you lots of money.  Most salesmen, leaders, politicians, bankers and “men of power” understand this principle.  If you would win, if you would rule, you must speak with unbridled confidence.  Obama is a classic example of this phenomenon.

Adolph Hitler also understood this principle and called it the “big lie”.  If you told a lie big enough, no one would doubt it. Perhaps Hitler could’ve labeled the phenomenon the “confident lie”.  I.e., if you tell a lie with sufficient confidence, very few will doubt it.

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Posted by on September 29, 2014 in Belief, Bible, confidence, Good & Evil, Lies, Values, Video

 

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Monetary Psychology: Hyper-Inflation vs. Deflation


[courtesy Google Images]

[courtesy Google Images]

Most people suppose that inflation and deflation (changes in the value of a currency) are caused by mathematical changes in the economy.  In terms of minor changes in the value of a currency, they might be right.  Mathematics and science might explain 1% or 2% changes in the rates of inflation or deflation.  But significant changes in the value of a currency (say, 5% deflation or 20% inflation) are caused by public psychology moreso than mathematics.

Because fiat currencies (like the US dollar) have no intrinsic value, their perceived value is subjective and subject to public agreement.  That agreement and psychological changes are measures of public confidence in the fiat currency’s value.  That agreement is subject to change at any moment based on changes in the public psychology.

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