Economics As a Con Game

In a comment to the previous post (here) I mentioned something that I think needs a little development.  I said economics is partly a con game.

The complicating thing that makes it hard to predict is that Keynesian economics is a "con game". If other governments lose confidence in the dollar, it's over. On the other hand, if they keep believing in the dollar long after it's reasonable to, I think the global house of cards can stand quite a while. Some debtors will be happy to get the X dollars they're owed - even if those dollars are worth 10% of what they were worth when they signed the deal. They can do that by just digitizing a decimal place or two. Anyone living off savings will be ruined, but - hey! - omelet, eggs, you know the story. Sucks to be the egg.

This is an idea that popped into my head fully formed about 35 years ago,  during the nasty inflation roller coaster of the 70s.  The example that occurred to me was to imagine every talking head getting on TV and saying a recession is coming; if enough people stopped spending because they thought they were going to lose their jobs, that slow down could start a recession.  I believe the media and democrats (redundant, I know) tried to do this to Bush 43 - remember "the worst economy since Hoover" campaign?  Likewise, if everyone thought inflation was coming and spent ahead, thinking whatever they need won't get any cheaper, they could cause some economic growth.  I think some of the growth in the economy today is exactly that: preppers.  People buying food and other supplies because they see really bad times coming.  How ironic would it be if their preparing for disaster forestalled it!  It's one reason Ben Bernanke will look you in the eye and swear things are working to plan and everything is getting better: if people lose confidence in the dollar, it could collapse in minutes. 

Disclaimer:  I'm probably not being strictly correct in saying "Keynesian economics is a con game" - it's economies that don't depend on a commodity standard, be it gold, silver or the stone rings from Yap Island.

It's a question I've talked about many times before: what's a dollar worth?  Exactly what you'll give in exchange for one.  No country in the world, certainly, no major economy, is on a gold standard (that "barbaric relic" as Keynes called it).  So why does it take about $1.28 to buy a Euro today?  The market believes that the Euro, even with the ongoing collapse of several EU economies, is worth more than a dollar.  If anything, it shows just how little they think of us.  The market doesn't include the devaluation of any currency over long periods of time, it's just "what will you take for that dollar today?".  The dollar appreciated in value over the course of the 19th century.  Since the Federal Reserve was created, it has declined in value by 95%. 

This interdependency of countries and complex dependency on individuals is why it's hard to predict how things will work out in the next few months to few years.  Do the collapsing currencies prop each other up, or pull each other down?  Does it fail as a cascade?  Sort of a giant set of falling dominoes?  It's pretty hard for me to believe they'll hold each other up. 

As an aside, today was the final gun show before Christmas here in the Silicon Swamp.  We didn't need anything in particular, but we dropped by, partly curious to see how busy it would be.  The crowd seemed bigger than it did before the election, but it wasn't a turn away crowd.  I heard one vendor telling his booth partner it was the busiest hour he has ever had at a show and simply had to sit down.  I heard more talk in the aisles about getting ready for trouble.  Everyday people who think something bad is coming.  And I spent an hour chatting with an engineer I used to work with a decade ago, who was talking about how to store enough food, water and supplies to not have to even open the door and go out for a few months.