Quantitative easing will not be enough this time – QE2 requires we spend it into the economy

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The likelihood of double dip recession is growing. As the FT notes:

Purchasing managers’ data in construction, manufacturing and services have all dropped in recent months after rising sharply in 2009 and early 2010.

Thursday saw purchasing managers’ data in construction fall to a six-month low of 52.1 in August from 54.1 in July.

Nationwide’s house-price data saw a monthly drop of 0.9 per cent in August, its sharpest fall since February. The news prompted a sell-off in sterling, which plumbed a three-week low against the euro.

And they demonstrate this graphically.

The implication is obvious: further steps to reflate the economy will be needed. The discussion is of quantitative easing. £2300 billion of that has been done already, and it aded essential liquidity to the economy.

The trouble with doing it again, as I noted recently, is that it’s not liquidity we’re short of now — it’s demand.

There’s only one way to stimulate demand now — and that’s government spending.

It has to be focussed spending.

It has, as far as possible to be investment.

It has to leak as little as possible from the UK.

It has to be import substituting to protect the pound.

It has to have a good payback.

It has to create short and long term jobs.

It’s called the Green New Deal.

This time QE is not enough.

QE2 is spent into the economy to deliver real economic activity and not just shore up bank balance sheets.

We can’t risk doing that again.

And as I’ll say time and again — there is an alternative — and the Green New Deal financed by QE2 — that’s government money spent into the economy — and not through banks - is it in this case.

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