Friday 7 October 2011

The impact of quantitative easing

What is the difference between quantitative easing and public spending? Or for that matter what is the difference between QE, public spending and the billion pounds that Messrs Pickles and Osborne together found down the back of their sofas for weekly bin collections and freezing council tax?
There will undoubtedly be a technical argument - that the billion pound bung was 'found' in Whitehall from money already collected in taxes and simply unallocated and therefore does not count as extra public spending on the balance sheets. And QE is directed at banks and bonds. But the principle remains the same. The economy is stagnating, liquidity is tight, consumers are cutting their spending and the government wants to get things moving by injecting more cash into the economy. The effect of £75 billion of electronic money created to purchase bonds issued by the Treasury is aimed at stimulating spending. The £800m announced by Osborne to hold down council tax is aimed at not further deflating consumer demand through tax rises.
Would it have been better instead not to have imposed such a severe spending round for the public sector in the first place in particular local government which has caused job losses and further depressed the economy? And would it now not be better for the Treasury to revisit its spending plans for the next two years and alleviate some of these cuts, especially in the more depressed regions like the north and Midlands?

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