The facts just get curiouser and curiouser. Yesterday, the Fed continued its tapering programme – knocking $10bn off its monthly bond-buying scheme. Thus does the biggest investor in the world – one with bottomless pockets – exit the market.
Meanwhile, yesterday’s US GDP report showed that ‘g’ is almost dead, just as Thomas Piketty predicts. Last quarter, the growth rate was negligible. You can blame the weather. Or whatever you want. But you’d think this combination of news events would give investors pause… or fright. Instead, they seem to be emboldened. Or driven mad. Stocks rose. Bond yields fell. Gold did nothing.
If the economy were really improving, bond yields (interest rates) should be moving up. Instead, they’re going down, even as the Fed withdraws its support. And if the economy really were improving ‘g’ would be bigger than one tenth of one percent. And if the Fed’s quantitative easing (QE) programme really were holding up the stock market, you’d think it would shrink along with QE itself. Instead, it moved up to a new record.
But we have not heard the last word on the tapering programme. Our guess is that bull market on Wall Street will end before the QE programme ends. And when it does, we’ll be looking at a whole new set of facts – less curious ones. The weakest ‘recovery’ in history; a collapsing stock market; and an end to the end of QE. The Fed will cease looking to ‘normalise’ the economy and begin looking for new ways to distort it.
In the meantime, let’s turn to other things.
“Mi hermana necesita una casa acerca de la escuela.”
Life is full of unexpected twists and turns. We bought a remote ranch in the Andes expecting to enjoy ranch life and learn the cattle business. Instead, we find ourselves running a welfare programme.
“Yes, the valley has changed a lot in the last ten years”, Jorge, our foreman, explained. “In my generation everybody had to work. If you couldn’t work on the ranch, or support yourself with your own goats and your own garden, you had to leave. Now the government has ruined these people. They expect to live here without working.”
Jorge is exaggerating. People here work. But the government is in the process of destroying both the work culture and the family culture, just as it did in America’s inner cities a half-century earlier. All it takes is a programme that gives money to people who don’t work, and to women who don’t get married. Wealthy, well established people are immune. It’s not that they can’t be bought, but the price is not high enough. Here too, the 450 pesos a woman gets for having a child hardly tempts the chic women of Buenos Aires. But up in the Calchaqui Valley, 450 pesos is good money. Have five children and you get almost as much money as a full time worker.
Our farm supports five full-time cowboys. But there are 22 families living here. What do the others do? In the past, they did subsistence farming and little else. But over time, with the assistance of the government, the ties that bound began to chafe. Families came apart. Unmarried women want houses of their own. Their parents, frequently, want to get rid of them too. They turn to us.
“My sister lives up in the mountains. It’s a two-hour walk to school. And it’s very cold in the mornings. If you could build her a house near the school, or just a room, she could come on Sunday night, drop the children off at the school in the morning on Monday, and then go back to the mountains.”
It sounded reasonable enough. Houses here are cheap. They are built of adobe bricks, which we produce on the farm. The roofs are made of logs covered with cane sticks, then covered with mud. Plumbing and electricity, as you can imagine, are rudimentary. But there’s more to the story, and we’re toughening up. We’re learning to ‘just say no’.
“You have to tell them ‘no’,” Jorge insisted. “We’ve seen what happened on other farms. You say ‘yes’ to one, you’ve got to say ‘yes’ to all of them. Then you have a whole community next to the school. And then someone’s dog bites someone else, and kids break windows in the school, and things begin to disappear. It’s a nightmare.”
What Jorge is describing is the Baltimore we lived in the 1980s. We lived in the ghetto and got to see the effect of government welfare programmes first hand. It was not a pretty sight.
“You get what you pay for”, was one of Milton Friedman’s dicta. You pay people to be poor, unemployed, and in single-mom households – that’s what you get. And in Baltimore’s inner city, we got it good and hard. In the 21217 zip code, there were almost no married couples – other than the few ‘pioneers’ like ourselves who were trying to restore the handsome old buildings. Almost no one had a real job. And almost no one had any real idea how the world worked. They thought everybody lived on government handouts; the rich just got more.
It was obvious to us then that welfare programmes were a disaster for the people they were supposed to help. And now, here in the faraway Calchaqui Valley of Argentina, we find ourselves with a welfare programme of our own. Three women have already asked for new houses. Two families have asked for running water. And today, we took a group of ten people crowded into and onto our pickup truck – old, young, children, mothers – into town (a three-hour drive). Three children got sick on the windy, rocky road – each threw up in the truck. Why were they going into town? So they could register for welfare programmes!