The Fed has gone for quantitative easing. As the FT notes:
The Federal Reserve, in one of its most important decision in decades, said it would buy $600bn in longer-term Treasury bonds by the end of the second quarter next year.
Proportionately, of course, this is a smaller programme than the UK’s QE programme.
But where the Fed leads the UK follows, and the chance that the UK will now use another round of QE to try to avert double dip recession and / pr deflation is high.
The trouble is, as Paul Mason has noted, no one knows if QE1 worked, so what’s the chance of QE2 doing so? In my opinion, not high unless the UK approach is radically transformed. I don’t want to premeditate the forthcoming Green New Deal publication on this issue. Suffice to say that if the UK could put £200 billion into the economy last time — a sum captured almost entirely as it transpired in bank balance sheets, profits and stock market and asset price inflation then this time it needs to do something very different. This time it needs to spend the money straight into the economy and cut out the middle man called the banks.
Do that — do qualitative easing as I might call it and not quantitative easing — and then we have a chance of using such funds properly. Do it as last time and the break down in our economy will get worse.