Junkie Despots at the Wheel of the American Economy

September 5, 2014 – Does the title seem preposterous? See what you think by the end of this article.

No words alone do today’s events justice. I’ve attached a normal distribution curve. This shows the probability of things occurring given how many standard deviations they are away from the expected.

ThadB_Chart1

Look on the chart and find the -5σ (5 standard deviations) along the top of the chart. Then follow the respective vertical line down to see what the probability is of a five standard deviation event. Now the numbers along the left side are the probabilities .35 representing a 35% chance and .05 representing a 5% chance. What does our line show for probability? It is so small you can’t see it on this chart but the probability of a 5 standard deviation event is 1 in about every 1.75 million.

That is how far away the actual jobs number was today from the experts estimates. Now this screams that the “experts” understanding of the underlying economy is egregiously wrong. Yet look at the following charts and note the market reaction to what can only be considered horrific news for the state of the economy.

ThadB_Chart2

The first chart is the 10 year yield which collapsed suggesting the news is bad. So bonds acted rationally. The bottom chart is gold and it jumped suggesting the news is bad. So gold acted rationally. The middle chart is the S&P Index of stock valuations and it spiked higher suggesting the news is good. This is completely irrational. But let me explain.

Bankers and traders control the American economy. And right now our bankers and traders have become nothing more than common junkies with an addiction that is negating their ability to act rationally. When the economy got sick and finally collapsed in 2008 it got its first shot of medicine. The medicine was a monetary injection. The side effect of this injection was that it created a good feeling in our control centre; being our bankers and traders. As we got more injections bankers and traders slowly became addicted to the resulting good feeling they get from the injection. Like any pain killer junkie they’ve gotten so delusional that they actually want our injection more than they want to heal from our underlying illness. And so they see good news as bad news as it means our injections will stop but they see bad news as good news as it means the injections continue.

So they lose sight of what is actually good for us because they’ve become so distorted by the good feeling produced by each injection. That is exactly why the market spiked on today’s news that we are still terribly sick. If you look at the market today it is feeling a high that it has never before experienced. The market is at all-time highs despite the broader underlying economy showing all the symptoms of still being very unhealthy. And so as long as we continue to let the delusional control centre, bankers and traders, dictate the recovery process we will never heal. Eventually the junkie does so much damage to itself it collapses again and in a much worse state than before the medication. The difficulty is to understand the control centre is no longer making rational decisions and to remove it from its position of control at least until a full economic recovery is achieved.

Chart 1
Chart 2
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