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Should the Bank of England recommence quantitative easing? This question will gain force from next Thursday's numbers. These are likely to show that the M4 money stock - the non-bank private sector's bank deposits - has grown by around 4 per cent in the last 12 months, its slowest rate for 10 years. What's more, with other figures next week likely to show inflation running at over 4.5 per cent on the RPIX measure, this would mean that the real money stock is shrinking for the first time since 1993, and at its fastest rate since Bank of England figures began in 1983.
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If you thought that weak monetary growth was a danger to the economy a year ago - and this was the reason why the Bank started QE - then you should consider it still a danger. This is especially so as today's news from the RICS and British Retail Consortium suggest that housing sales are falling and high street spending is weak. Hence the case for restarting QE.
But there was a problem with QE Mark I. It consisted almost entirely of buying gilts. This was a useful way of putting cash into the hands of financial institutions - the people who owned gilts - but it did little to increase the cash holdings of non-financial households and companies. And yet it is these that must increase their spending if the economy is to stage a genuine recovery.
In this context, a new paper by Giles Wilkes of the CentreForum thinktank is welcome. He says QE should take the form of credit easing. He proposes the creation of a credit risk fund which should direct finance to those parts of the system which are most broken. The fund should, he says, help finance loan guarantees; invest in private sector funds that provide finance to firms too small to access capital markets directly; and finance infrastructure projects. Such schemes would support non-financial firms more than QE did.
You might object that this puts public money at risk. But the opposite might be true. Anything that stops the private sector being a huge net saver will - as a matter of arithmetic - help reduce government borrowing.
Instead, my fear is that weak corporate spending is due to a lack of demand for finance, not just a lack of supply - and Giles' proposals do little to solve this.
Nevertheless, insofar as there is a supply constraint, his ideas help address it.
Read more of my musings at www.investorschronicle.co.uk/chrisdillow.
A selection of my favourite blogs, and data sources, appears under 'External links' on the right-hand side of the page.
I moonlight in the blogosphere, too: http://stumblingandmumbling.typepad.com
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