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QE Shell Game

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He called QE III "the most extreme easing of monetary policy" he could recall. "Monetary policy is about as easy as it can get. Another round of QE is understandable - but it will fail to fix the problem."

"There is so much liquidity in the market that adding more is not going to change the economy." Banks are hoarding cash. They're not lending. They're speculating or stashing it in tax havens.

Corporations are doing the same thing. Why hire and invest when weak conditions aren't improving.

Volker said inflation isn't a problem now, but watch out. "The risk is that central bankers are not able to tighten policy in time. Will they be able to pull back fast enough from loose monetary policy?"

The same goes for the ECB, Bank of England and Bank of Japan. They're dumping money from helicopters to use Bernanke's former expression. Even so, it hasn't worked.

Don't expect China to rescue the world, Volker added. Its economy "slowed 50pc since its peak and is no longer able to support international growth." 

China equities hit a three and a half year low. Its manufacturing diffusion index was down for the 11th straight month. In 2012 through August, its foreign direct investment slumped 3.4% year-over-year. On September 20, its Commerce Ministry said:

"In general, external demand for China's exports will probably be even lower than in January-August since the global economy is continuing on a downward trend."
 

The bloom looks very much off its rose. It's just a matter of time until other large economies decline like China. A composite Eurozone manufacturing and service sector read fell to 45.9. It's the worst showing since June 2009.

Bloomberg reported Eurozone capital flight. In the 12 months ending July 31, 326 billion euros exited banks in Spain, Greece, Portugal and Ireland. They moved mostly to lenders in Germany, France, and five other core European countries.

French manufacturing was hit hard. Its PMI diffusion index sunk to 42.6. Japan reported August exports down 5.8% year-over-year. 

Dallas Fed President Richard Fisher said all QE III will do is keep inflation expectations elevated while doing little or nothing to create growth and jobs. 

Overall conditions look much like fall 2007. Only this time, what good will massive monetary easing do when everything done so far failed?

At the same time, it led to reckless speculation ahead of what Simon Johnson and Peter Boone call a "doomsday cycle" of shocks, collapses, and more bailouts. 

Europe already is troubled. Don't look there for help or to Brazil and India. World economies are either slowing or already in recession. Markit Economics provides reliable independent data. Its chief economist said this about Europe:

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I was born in 1934, am a retired, progressive small businessman concerned about all the major national and world issues, committed to speak out and write about them.

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