Most of the economic and spending debates at Westminster are about sums of money that will not make much difference to a £1.5 trillion economy.
I wrote during the election that arguing about £6 billion more or less was debating a rounding error in the National Accounts. The real money was being moved by the banks and the government in tens of billions.
Of course a few million here and a few billion here can be important for a public service or individual groups of people or for a part of the country. We do need to have those debates and try to get the detail right.
We also need sometimes to have a big picture debate. We need to discuss the forthcoming £390 billion of bank refinancing and roll over in 2011, the odd £400 billion of bank refinancing the following year, to talk about the £60 billion withdrawal of business credit, to keep in mind the £200 billion of quantitative easing and to understand the impact of a £150 billion deficit on our credit rating and interest rates.
There are mutterings from near Threadneedle Street that we might need more of the same money printing medicine as we had last year. I don’t think so. The question the Bank should be asking is why didn’t more of that money find its way into the private sector to finance a recovery? The answer is because the banks were under regulatory control to lend less and save more. QE was a device of the last Labour government to keep the costs of government borrowing low. It had some inflationary consequences along with the exchange rate decline. Banks were made to lend it to the government in the name of strengthening their liquidity, with government loans rated highly for their balance sheets.
The refinancing of the banks is large but can be done. The banks are in much better shape now. RBS after all has been on a compulsory slimming diet which will almost halve its balance sheet in a couple of years, cutting the amount of capital it needs.
Instead of worrying about printing more money the Bank should be concentrating on its forthcoming duties to regulate the banking system. It should have a plan now to ensure sufficiently capitalised banks are able to pass on an appropriate amount of the extra money that has been created to private sector uses. The challenge is not to debauch the currency more, but to fire up the private sector Quattro. At the moment the public sector Audi is taking most of the fuel.