Generally speaking, confidence is a good thing.
As a wealth coach, I want you to have more confidence, especially in terms of your everyday financial choices. Confidence tends to breed better decisions in a virtuous cycle. You'll often see this in sports like basketball or soccer. The winning team tends to be confident, the losing team is often tentative and out of sorts.
Confidence is a good thing ... until there is too much of it.
Too much confidence shows up in the form of hubris, being "cocky" or (and this is the subject of today's post) when your confidence is manipulated to let down your guard or ignore issues where attention is needed.
THE CON GAME
One of the oldest scams is the con-game which is "an attempt to defraud a person or group after first gaining their confidence. A confidence artist (also known as con artist) is an individual operating alone or in concert with others who exploits characteristics of the human psyche such as dishonesty, honesty, vanity, compassion, credulity, irresponsibility, naïveté, or greed." (Wikipedia)
Right now, one of the ultimate cons of all time is being played out ... and you're the mark (as am I and just about every other average person). Unfortunately, it will likely result in the separation of you from your wealth (no matter how much or little you have).
This con has to do with a basic belief about markets, economies, central banks and other government interventions.
Con games work because your own confidence is used against you to blind you from seeing the situation for what it really is - a contrived scam, maybe even an elaborate set with fake actors (as in The Sting).
You never see the threat. Often, you don't even realize you've been taken until long after the fact when you find yourself with a bag full of what you thought was money but was, in fact nothing but worthless paper.
What is interesting in this Ultimate Con is that the confidence being manipulated is NOT in your own abilities (or the abilities of many people -the market). This Ultimate Con depends on your confidence in someone else (namely the government and central banks) to manage the whole economy, eliminate (or greatly reduce) the business cycle and optimize economic performance simply through their breathtaking abilities of central management and decision-making prowess.
This is what I call the Ultimate Con and it will not end well.
THE CENTRAL BANK CON
Today the markets are enamored with the ability of central banks and regional governments to prevent anything from failing. Too big to fail (TBTF) banks are bigger than ever (and just as dangerous) today. Countries like Greece and Cyprus which should have failed, reconstructed and then returned are as non-functional as ever ... just backed up by billions of euro's from neighboring country taxpayers.
Every time the U.S. stock market starts to show weakness (which used to be allowed to happen all the time in history, by the way), the Federal Reserve issues another round of Quantitative Easing, flooding the market with more make-believe money and propping up equity prices at a range that is historically unsustainable.
Yes ... in the short run if you throw enough money at any problem, you can mask over the symptoms. A car accident victim can lose their arms, legs, several internal organs and a lot of blood and still be kept alive for a really long time. The cost would be staggering and the underlying problems will eventually become an issue but we can deny that reality for a while.
This will work ... until it doesn't. History is riddled with stories of countries where monetary efforts eventually get seen for what they really are - a game of confidence.
As long as we believe that the Fed can save the day, we continue to support their irresponsible behavior and somehow kick the can a little further down the road. We save the pain for another day but for each day we put this off, we make that pain we will eventually have to endure even worse.
There will come a time when the confidence evaporates. People will see the smoke and mirrors for what it is - smoke and mirrors. The play will have been made and the mark (you and I) will be stuck holding a bag of worthless paper while the con artists have snuck away with all the money.
Beware the Ultimate Con ... and plan accordingly.
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