The Fed's QE3 does a funny thing to commodity prices. It can't magically create more supply to satisfy demand, so any new demand is panic buying by hedge funds and other money managers who stampede into hard assets. That's happening in the oil markets now. Blame Helicopter Ben for making your driving addiction more expensive. There's plenty of blame for hedge funds too; their HFT algorithms play so much havoc with prices that they probably caused a flash crash in oil prices today. The onset of hyperinflation often brings uncontrollable swings in short-term input prices that make it impossible for producers to reliably plan production. This eventually hits the real economy with shortages of finished goods. People will be queuing in line at your favorite grocery store, hardware store, appliance store, and car dealer to draw lots for the chance to buy goods that might become available with no notice. Once again, thank Helicopter Ben for making your life more difficult.
The slowdown in U.S. manufacturing activity is coming just in time to make the national election season interesting. Hardly any Americans work in manufacturing anymore so they won't see the effects until their service jobs stocking shelves at Wal-Mart are eliminated. You can't put stuff on shelves if it's not getting made.
Even Wall Street analysts are figuring out that the U.S. is slowing down and that businesses will see reduced earnings. I'd like to think they all took a break from playing drinking games in the office long enough to read my blog but that would be giving these folks too much credit for original thinking. Investors who bought stocks on he assumption that the Fed's QE3 can keep the market afloat are in for a rude awakening when the reality of lower earnings becomes official.
The ECB's attempt at QE won't be any more successful than the Fed's at propping up equity prices, given the restrictions on debtor countries' eligibility for the bond-buying program. I've written quite a bit on the political games European leaders have been playing to make the markets think everything will be okay. The market loses interest in the shuttle diplomacy of finance ministers if it doesn't produce corporate earnings or restore solvency to bankrupt countries. The markets can figure this out, unexpectedly. Politicians can't figure this out, which is expected.