{"id":36718,"date":"2013-03-09T13:28:08","date_gmt":"2013-03-09T18:28:08","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=36718"},"modified":"2013-03-09T08:28:52","modified_gmt":"2013-03-09T13:28:52","slug":"thou-shalt-not-drop-money-from-helicopters","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/03\/09\/thou-shalt-not-drop-money-from-helicopters\/","title":{"rendered":"Thou Shalt Not Drop Money From Helicopters"},"content":{"rendered":"

By Bill Bonner, billbonnersdiary.com<\/a><\/strong><\/p>\n

The Dow is still climbing. It poked further into record territory yesterday. Gold did nothing.<\/p>\n

What to make of it? Be cautious, dear reader. This is the most manipulated market in history.<\/strong><\/a> It could up higher, much higher. But you can’t trust it.<\/p>\n

Did we finish explaining how the world works?<\/p>\n

Probably not. We either forgot to explain it. Or forgot how it worked…<\/p>\n

We took up the question on a long walk down the beach.<\/p>\n

“You’re not disputing the importance of Aristotelian logic are you,” Elizabeth asked.<\/p>\n

“No. It’s a useful approach to solving problems in a logical and
\nrational way. But if you have a neighbor who is making noise late at
\nnight, you have to use something more than just logical and rational
\nthinking. You have to use your brain. Logic will tell you that you need
\nto do something to turn the music off.<\/p>\n

“That is a simple problem. You could solve it in several ways. Even a
\nrobot could solve it. Call the police… break into your neighbor’s
\nhouse and turn it down yourself… or possibly just ask the neighbor
\npolitely to keep it down.<\/p>\n

“All of those ways might work. Logically, you will select the one
\nthat involves the least expenditure of energy on your part with the
\nmost likelihood of success. That could be as simple as taking out a
\nshotgun and blasting your neighbor’s electrical box. Or maybe whacking
\nthe neighbor himself, so the problem goes away forever.<\/p>\n

“Is that a good idea? Logically, the answer is ‘maybe.’ Because you
\ndon’t know much more about the future. And since you don’t know what
\nwill happen — no one does — your decision should be based, logically,
\non only what you do know, which is that the noise will go off.<\/p>\n

“But here’s where you have to use your head. We follow rules that
\naren’t necessarily logical but that make civilization possible. ‘Thou
\nshalt not shoot up thy neighbor’s junction box’ is not necessarily
\nlogical. But it is nevertheless a useful guide to noise abatement
\nissues.<\/p>\n

“These rules evolved over a long period of time… each one of them
\ndistilled from the rich juice of mistakes, corrections and experience
\nof many generations that came before us. We ignore them at our peril.”<\/p>\n

“But you can perfectly well incorporate the lessons of history in
\nyour rational analysis,” countered the distaff, and wiser, half of the
\nBonner household. “You don’t have to rely on an illogical “Thou Shalt
\nNot.’ You can just think it through.”<\/p>\n

Ben Bernanke’s Pseudo Logic<\/h3>\n

We didn’t answer. Most people will think Elizabeth is right. You can
\ntry to think it through. You see a banana peel on your front step…
\nand you can see a lawsuit headed your way. You take the banana peel
\noff… and you probably have made for a better future.<\/p>\n

But there are many things that just don’t allow such simple
\nanalysis. I probably chose a bad example, because on the noisy neighbor
\nlevel you probably can have a reasonable shot at knowing what is going
\non.<\/p>\n

“Thou shalt not drop money from helicopters” is probably a better
\nprohibition. It is not logical. We don’t know exactly what outcome it
\nwill produce. And logically — or at least pseudo-logically — if
\npeople don’t have enough money, it seems to make sense to give them
\nsome.<\/p>\n

This became the evolved wisdom of central banking… discovered by
\ntrial and error over many centuries. Many times central bankers tried
\nprinting money. Never did it produce anything but misery.<\/p>\n

You could find a similar rule in the stock market: “Buy low. Sell
\nhigh.” It’s a rule, backed by long experience and bitter setbacks. It’s
\nillogical, in the sense that you never know what will happen.<\/p>\n

According to the most serious academic work, we never know whether
\nprices are going up or down. And when they’re going up, we feel a huge
\nemotional tug to get in on the trade. But the rule<\/a><\/strong> tells us to do something else.<\/p>\n

Will obeying the rule protect us from losses<\/a><\/strong>? We don’t know. But if we could know, we wouldn’t need the rule.<\/p>\n

It’s not that Aristotelian logic isn’t useful. And it’s not that you
\ncan build a bridge with old wives’ tales. (You can’t.) It’s just that
\neach has its own limitations. Don’t try to romance your girlfriend with
\nlogic. And don’t try to go to the moon on instinct and intuition.<\/p>\n

Regards,<\/p>\n

\"Bill<\/p>\n

Bill<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Bill Bonner, billbonnersdiary.com The Dow is still climbing. It poked further into record territory yesterday. Gold did nothing. What to make of it? Be cautious, dear reader. This is the most manipulated market in history. It could up higher, much higher. But you can’t trust it. Did we finish explaining how the world works? … <\/p>\n

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