LONDON, England - July 18, 2010 - Euroland's authorities are inflicting a triple shock of fiscal, monetary, and currency tightening on a broken economy. They are doing so in a region where industrial output is still 14% below its peak, where growth barely scraped above zero over the winter "recovery", and where youth unemployment is at 40% in Spain, 35% in Slovakia, 29% in Italy, and 26% in Ireland.

They seem unaware that China is slowing and the U.S. is tipping into a second leg of the Long Slump. Last week's collapse in America's ECRI leading indicator to -9.8 marks the end of the V-shaped rebound. If this means what it normally means - recession within three months - Europe must take immediate action to prevent being drawn into a deflationary vortex. Spiralling public debt precludes further Keynesian spending, so this must come from central bank stimulus. Tight fiscal policy offset by ultra-loose money is the only option for Europe, the U.S. and Japan.

No student of Milton Friedman is surprised by the U.S. relapse. The Fed has allowed M3 money to contract at a 10% pace for much of this year - the Great Depression rate. The economy has hit the wall with the usual lag. Textbook stuff. Never ignore the quantity theory of money.

The U.S. Conference Board's indicator is not yet flashing a red alert, but that is because it gives weight to "yield curve inversion", where long rates fall below short rates. This indicator is meaningless in a Japan-style bust where policy rates are zero.

I suspect that Fed chair Ben Bernanke knows the economy buckled around the Ides of June, but is stymied by hawks at the regional Feds. All he can do for now is to talk down credit costs through hints of more quantitative easing, or QE2. In this he has succeeded. The yield on two-year Treasuries fell to an all-time low of 0.5765% on Friday. It's Weimar, all right: circa 1931, not 1923.