the accomplice to those correlation assumptions...

Came across another assumption/belief that helped brought the financial world to its knees…from a short book introduction by author of Dumb Money Daniel Gross…

“…the concept of a savings glut, arguing that America's twin budget and trade deficits could be traced not to a dearth of American savings but to a glut of foreign savings...Other worthies chimed in that saving money the old-fashioned way was a waste of time because the market was doing the heavy lifting for us. Economists claimed that the government measures of income used to calculate savings—which includes wages and salaries, interest on bonds, and stock dividends but which excluded capital gains on stocks, profits from selling a house, or withdrawals from 401(k) plans—were hopelessly behind the times. "The structure of the household portfolio has changed over time," said David Malpass, chief economist at Bear Stearns, one of the leading exponents of what might be dubbed the theory of Magical Market Savings. In 2004, Malpass found that, thanks to the booming stock and housing markets, the net worth of U.S. households—their assets minus their liabilities—stood at a record $48.54 trillion, up 9.6 percent from 2003 despite sluggish income growth. Why put money aside for a rainy day when your house and the market were doing it for you?”

So one interesting thing about social science is, (more likely than in natural science), whatever we believe is true is often something built on someone else’s guess (or you can call it definition/assumption,etc,etc)…and if you have the authority to replace/redefine the guesses, you can make new truth and, as we can see now, change the reality…