So much for the promise of Operation Twist. The US Federal Reserve's latest stimulus plan was not enough to counterbalance the dire economic outlook that accompanied it, rattling investors and sending global stock markets plunging. It is certainly hard to be optimistic, and the head of the World Bank spoke for many yesterday when he admitted that his hopes of recovery are eroded daily by "the steady drip of difficult economic news".
In fairness, the Fed's $400bn plan to bring down US mortgage costs will likely boost flagging consumer spending as planned. Similarly, Britain's moribund economy can expect a lift if – more likely, when – the Bank of England embarks on another round of quantitative easing (QE). But the markets sense that central banks alone cannot head off what the Fed describes as "significant downside risks to the economic outlook". There needs to be more from governments.
So far, there has been woefully little real action. In the US, such efforts as President Obama has made have been stymied by a politically hamstrung Congress. In Europe, interventions by the European Central Bank cannot make up for the absence of leadership from the eurozone's bickering politicians. In Britain, there is even less excuse for inaction. So far the Coalition has rightly held the line on the austerity programme. The importance of consistency in calming the all-powerful bond markets should not be either underestimated or undervalued. But there is much that could be done to stimulate growth. And at this week's Liberal Democrat conference Vince Cable missed an opportunity to get started.
In a speech heavy with foreboding, the Business Secretary warned of a looming crisis that is "the economic equivalent of war". What he did not do was set out detailed measures to do anything about it, although there are several within his purview, such as tweaking the tax rules to unlock business investment.
It can only be hoped that the Chancellor has pulled rank and will take the initiative at his own party conference in 10 days' time. When it comes to economic growth, the Government is no bystander, Mr Cable declared this week. Now he and the Chancellor need to turn the rhetoric into practice. The markets are right. By itself, no monetary twist will be enough.Reuse content