Today there is an opinion piece in The Guardian on what they could do. The piece looks at the cost of the recession, the size of the stimulus package so far and the consequences of the end and reverse of Quantitative Easing.
This article shows just how difficult the decision process is, with various competing factors to consider. Among other points raised is the effect of reversing Quantitative Easing. The government debt that the Bank of England have bought up in the market to boost the money supply will need to be sold. Doing this will push bond prices down and so interest rates up, possibly affecting the pace of the recovery post 2015.
This is an article that should be read to the end, but remember it is an opinion piece, not news and you should remember the writers bias.
It is very difficult to decide what to do because monetary policy is all about precise guesswork due to the significant time lags. It is unlikely we are going to see much of the results from all of the quantitative easing for a while yet so you can fully understand all hesitation. As we cannot really look back in history to see what is likely to occur from the billions of quantitative easing I believe we should re-assess the usefulness of quantitative easing in relation to the time period when it would come into effect. If it is going to take 2 years to come in are we still going to be struggling to grow in two years? This is the sort of prediction that needs to be tested using advanced techniques. On the other hand I do think that the end of the article is correct because in saying that we need to switch the emphasis from monetary policies to fiscal policies because the fiscal policies are likely to have shorter time lags which is what we need at present.
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