Trouble Ahead: The Fed’s Reservoir Is Running Dry

Andy Snyder|October 13, 2021

We’re in trouble.

If there were any doubt that the stock market is rigged to keep moving higher and higher… here are some facts that will push that doubt aside.

The Los Angeles Times printed a scary headline this week. “As drought worsens, California farmers are being paid not to grow crops.”

It’s not all that different from what we saw last year… when folks were getting paid not to show up for work.

In this latest case of the government overstepping its bounds, farmers in the Palo Verde Valley are getting about $900 per acre… for doing nothing. All they have to do is close their irrigation spigots and let the land sit dry and fallow. If they do… the money will roll in – potentially for years.

Unlike so many other ag subsidies and welfare systems, this one doesn’t pay just a small portion of the income a farmer would get by growing. It’s not a safety net or a “just getting by” program. That $900 per acre is about what the farmer would make if he got out the tractor and farmed.

Craziness

History shows these half-cocked programs send ripples throughout the economy… ripples that continue to distort it and the lives of those who operate within it for generations.

But this program is a bit different.

As we said, it’s about those irrigation lines and all the heinous crimes upstream of them.

You see, the Palo Verde Valley gets only about four inches of rain each year. It’s a really dumb place to start a farm. Even in a wet year, it gets only a tenth of the rain that a Midwestern farm enjoys.

In a drought… the whole place goes dry.

In a truly free market, these desert farmers would have gone bankrupt generations ago.

But, as mamma says, ain’t nothing free.

As you probably know, the water that nourishes crops in California doesn’t come from California. It comes from way over in Arizona… thanks to the Colorado River. It’s the result of an ambitious project that kept thousands of men employed during the Great Depression.

The Hoover Dam was built to control flooding, generate electricity and, of course, spread water throughout the arid Southwest.

But like dozens of cousins all fighting over their rich grandma’s money, more and more hands have come in to scoop water out of the huge manmade reservoir behind the dam.

In all, some 25 million folks now rely on the water backed up by the massive concrete dam. That’s five times the region’s entire population at the time the dam was built.

Los Angeles, Phoenix and San Diego are all on the list. Las Vegas gets 90% of its water from the dam. None of these cities would have been able to grow to such sprawling proportions without the aid of a project that many say would never be allowed today.

But alas, there it is… funneling some faraway region’s rain and sending it to whoever has the loudest voice.

As this 90-year-old scheme wears thin, there’s not enough to go around. So Sin City gets its water, and farmers get paid to take a few years off.

Pumping It In

It doesn’t take an economist to see the parallels to the financial world. Like the Hoover Dam’s, our economy’s reservoir is running dry. After generations of mismanagement and nearsighted policy, the water behind the dam is receding.

Our keepers are doing all they can to refill it with freshly printed money – some $5 trillion in just the past year (amusingly, that’s more than the value of all the Monopoly money ever printed).

They’re paying folks not to work. They’re tearing up student debt. And they’re sending monthly checks to anybody with a kid.

But most importantly, they’ve hooked a hose up to the printing press and are pumping money directly into the financial markets. They’re buying up mortgages. They’re buying up bonds. And they’re buying up their own debt.

It’s not because Uncle Sam needs the investment income… or has a sudden love of real estate.

No.

Washington is cutting these checks to dam up the markets… to force money down a channel it otherwise wouldn’t go.

It’s working. Despite a massive malaise in the economy, we’ve hit one record high after another. And the only time the run slows is when the Federal Reserve threatens to close the irrigation valves.

But as the financial world frets over the Fed’s latest tapering decree, here’s the thing everybody forgets. We’ve been propping this economy up with fake demand and fake money for more than a century now.

Mark our words. The Fed will wimp out on its so-called tapering. Instead of pulling away the free lunch, it will take a few Tater Tots off the table and quickly find an excuse to add a heaping pile of moldy government cheese.

Through it all, stocks will do what they’ve done through all the messes of the last 20 years… they’ll rise and rise some more.

Stocks will continue to do what the government wants and needs them to do.

We’ll get hiccups like we’re seeing now. But they only give the government excuses to add more bricks to the dam.

Watch the news. And when the headlines start to tell the tale of the Fed backing down… think of us. And then go buy some stocks.

It’s either that or stand by the mailbox and wait for your government check.