QE 2.0 Equals Capital Flight

We have been told that QE 2.0 has been designed to help the US economy grow its way out of the recession.

However evidence seem to show otherwise. Capital investments appear to be flowing out of the US as a result of present policies putting at risk a recovery in employment conditions.

This from Bloomberg, (bold highlights mine)

Southern Copper’s plans illustrate why the Fed’s second round of bond buying may not reduce unemployment, which has stalled near a 26-year high. Chairman Ben S. Bernanke and his colleagues appear to be fueling a foreign-investment surge, underscoring the difficulty of stimulating the economy through monetary policy with interest rates already near record lows.

“You’re seeing leakage from quantitative easing,” said Stephen Wood, chief market strategist for Russell Investments in New York, which has $140 billion under management. “That leakage is going into emerging markets, commodity-based economies, commodities themselves and non-U.S. opportunities.”

U.S. corporations have issued more than $1.07 trillion in debt so far this year, according to data compiled by Bloomberg. Foreign companies also are tapping U.S. markets for cheap cash, selling $605.9 billion in debt through Nov. 15 compared with $371.8 billion for all of 2007, before the Fed cut the overnight bank-lending rate to a range of zero to 0.25 percent.

Instead of addressing issues which genuinely distorts the balance of the US economy mostly concerning (bubble) policy induced malinvestments, the left, as always, would most likely pin the blame of capital flight on “evil” China for having an artificially suppressed “manipulated” currency.

But again the “smoke and mirror” reasoning would not be substantiated by evidence, that’s because much of the ongoing outflows appear headed towards the relatively higher valued currency of the Eurozone.

From the same Bloomberg article,

U.S. corporations’ overseas investment in the first half of 2010 exceeded the amount that foreign firms spent in the U.S. on factories and acquisitions at an annual rate of almost $220 billion, according to the Commerce Department. In the first half of 2006, the last year before the financial crisis, the net flow favored the U.S. at an annual rate of about $30 billion.

More than half of outbound investment this year landed in Europe, Commerce data show. In April, Valmont Industries Inc., which manufactures light poles and communication towers, issued $300 million in 10-year notes. The Omaha-based company said it would use the proceeds to help fund its $439 million acquisition of Delta PLC, a London-based maker of similar products.

So again, the above circumstances only goes to show that the currency elixir (snake oil panacea) embraced by mercantilists, via QE 2.0, to solve the supposed global imbalances seems to be having an opposite effect.

Yet capital flows into the Europe has occurred in spite of the unresolved debt crisis in the periphery, the PIIGS.

So it seems another vindication for Friedrich von Hayek who once wrote

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Central planners seem to mostly get their designs backwards. It’s called the law of unintended consequences.