At that rate it will take 15 months for QE3 to equal QE2’s $600 billion, and that didn’t work even though it came all at once, so you’ve got to wonder about the benefit of spreading it out over a year and a quarter.
But at least there’s no sign of deflation and the economy is not spinning into recession again as Europe appears to be.
As in Europe, the problem is a lack of productive investment, as opposed to speculation. American corporations are sitting on a cash pile of about $US2 trillion, even though the interest on that money is tiny, and banks are likewise sitting on the money they are getting from the Fed in return for selling bonds and mortgages, or else they are using it to speculate.
To work, capitalism requires long-term, illiquid bets to be made: someone has to build a factory or dig a mine or tie up money in a software start-up.
But these days the world has gone short. Cash is king and derivatives are its queen. Even on the stock exchange most of the turnover is now high frequency computer traders who start and finish each day owning nothing.
And why would anyone lock up their money in a factory or a mine? Money is being debased so that when it comes out of the prison of productive investment it will be worth much less, either because there has been a devaluation or because of inflation, or both.
QE3 is more likely to lead to an M&A boom than productive capital expenditure.
In Australia, investors are pulling back from long-term commitments as fast as they can, with resources projects being abandoned where possible or scaled back where it’s not. The fear in this country is not devaluation, but the opposite – as the US and Europe debauch their currencies ours goes up, ruining our export industries.
Somehow capital needs to be persuaded to go long again, to commit to taking risk in the expectation of gain in 10 years rather than 10 minutes.
In the meantime, all the money printing will probably inflate the prices of assets, as well as commodities, so the short-termers may have another ride for a while, and forget about the debt for a while.
This article first appeared on Business Spectator.
