Douglas Carswell

Economic boom or bubble?

The economy is growing again. Hurray!

We've already seem a flurry of forecasters upgrading their estimates about UK growth. Expect more of that in 2014. Output is likely to rise sharply.

But, as I asked the minister in Treasury questions yesterday, is this just another of those credit-induced booms? Another of those consumer-led recoveries, built on debt?

The Bank of England would, I am sure, say "no". The money supply, they might point out, is not growing wildly. In fact, they might go on to argue, the credit that all that new banking regulation is taking out of the system is being replaced by just the right amount of QE and credit.

If you look at narrow measures of money, it would be difficult to disagree. But it isn't quite that simple.

If you consider some of the broader measures of money, it seems that the money supply is growing – and growing fast. Look at the Divisia index on the left and see how it has shot up since 2011.  Money supply expansion coincides a little too neatly with the rise in output.  (Hattip: Anthony Evans of ESCP Europe Business School and the Market Monetarist blog site.)

Another credit-induced boom? I hope not. The Treasury minister said he would pass on my concerns to the new Governor of the Bank of England, Mark Carney.

Of course, the monetary mandarins allowed a bubble to balloon before. And they thought they had got the measure of the money supply right then, too.

What we need to do to make sure this does not happen yet again is the subject of a paper that I have coming out in the New Year.

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