These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
In November, the Federal Reserve will likely launch a second round of quantitative easing but don’t expect “QE2″ to make big waves. The failure of the Group of 20 finance ministers’ talks permits China to continue to subvert Fed efforts to rekindle U.S. growth.
More Fed purchases of Treasury and mortgage-backed securities would drive down borrowing costs and, it is hoped, boost business investment and home purchases. However, big corporations are already flush with cash and mortgage rates are near record lows, and the potential benefits from additional monetary promiscuity are limited.
U.S. businesses lack customers, and even zero interest rates won’t inspire General Electric Co. (GE) to build factories and add workers if light bulb sales are stagnant. Without more jobs, prospective homebuyers are too nervous to quit renting or purchase bigger homes.
Moreover, China’s export-oriented development policies and undervalued yuan subvert the impact of U.S. monetary policy on the demand for U.S. products, and U.S. investment, hiring decisions and housing markets.