I want to see QE, more QE and more QE said the IMF yesterday. Well, actually it didn’t use those words precisely. Its senior economist John Simon said at a press conference yesterday: “When you balance the risk, we think the fear of high inflation in the future shouldn't prevent monetary policy from being stimulative now," And he continued: "Even if you make a mistake...the inflationary consequences of that mistake are unlikely to be large."

He was speaking as the IMF unveiled a report saying inflationary pressures were in check.

Critics of QE look at the UK and the way inflation has stubbornly refused to come down, and ask: “How can that be?” But the UK is not typical; besides it is debatable to what extent the UK’s inflation is down to QE. In the UK the most inflationary aspect of QE has been the way it has forced down the value of the pound. Across the global economy, that danger will not apply. If QE is applied everywhere, we are not going to see all currencies fall; that can’t happen. The fact is that inflation in the US, across the Eurozone, in Japan, and now even in China is modest.

If you believe the problem with the developed world is lack of demand, then something has to give. If the global economy is being held back by lack of demand how is there a risk of inflation if measures are implemented to create demand?

The real question mark over QE relates to whether it works. The broad money supply grows via debt – the higher the lending, the higher the growth in the money supply. There is a danger that QE will not create demand because banks are not lending – indeed banks are being required to increase their capital – companies are not investing their cash, and even households are saving more.

The real problem with QE is that it is the bluntest of weapons. If it could be directed more precisely, then demand may indeed increase, but if QE was directed more precisely it started to look like government spending, and –thanks to global austerity – governments are not spending.

Just two more comments before this topic is closed today.

Firstly there is a contrary view. This view holds that the real problem with the economy is the high price of oil (and other energy sources), and food. Any increase in demand will lead to higher food and oil prices.

Secondly, the IMF said in its report the reason why global inflation pressures are so low is down to independence of central banks. But is that really so? Central banks mishandled monetary policy before the finance crisis, and have proved impotent since. For the IMF to say low inflation is down to central banks is like saying that the improving weather is down to more articulate weather forecasters.

© Investment & Business News 2013