Quantitative Easing is a mechanism of injecting money into the economy by which the government buys its own debt from lender eg financial institutions allowing them to do other things with the money. Both the USA and UK have used this technique to try and ride out the storm and both economies are stuttering badly.
There is much talk of a double dip recession which is conveniently defined as 2 consecutive quarters of negative GDP. Here in the UK, the impact of public sector cut backs has not yet arrived.
The effectiveness of QE is unknown. History will tell but for now it is unclear as to whether it does any good at all.
What is clear however is that manufacturing has not benefited from a lower sterling exchange rate (in theory it should as it makes our UK prices of exported merchandise cheaper and easier to sell). UK businesses are doing okay having cut costs and are sitting on big bank balances but are clearly reluctant to expand. The global economic uncertainty is deterring future investment. Our economy here was very much dependent on financial services whose fantastic profits of the past decade was based on silly business. A period of correction is to be expected.
The big decision as reflected in this Leading Article from the Independent yesterday is whether we continue with the planned cut backs or use QE or indeed something else. We all agree on the need to avoid a recession but there is no consensus on what to do.
In my opinion our spending on social services was bloated and we were paying ourselves more than we could afford as a society. Those cuts should stay. We also had silly and indeed incompetent handling of spending in the Ministry of Defence where most big projects run over budget and delayed by years. Billions have been wasted in a big computer health project that has gone nowhere. Government love big fancy toy projects but are incapable of managing complex outcomes. These should be stopped. Investing in infrastructure would be good way of investing in the economy if we could actually get a project up and running quickly. eg widen motorways but history shows that these take years if not decades. PFI (Private Finance Initiatives) have been a way of spending money without counting the debt as debt and indeed by paying a higher interest rate than if the government borrowed directly. We have a national housing shortage but building new homes will reduce the prices of existing homes and so nothing will be done.
There is no simple cure but spending must be cut from the trivial and diverted to the essential. We should carry through with existing plans. I would if given the opportunity force through expansion plans to relieve cluttered roads, make rail transport improvements and build more homes on brown and green belt, whilst providing tax incentives for investment by business. Less regulation would help but no more QE please. It has failed.