Should the Bank of England buy shares?
Is the Bank of England buying the wrong stuff, if it wants to reflate the economy and put the private sector on a sounder footing?
This is something I am increasingly hearing, both in the City and in political circles (notably from leading Tories).
As you doubtless know, the Bank's programme of quantitative easing involves it purchasing up to £150bn of UK government bonds and corporate debt, to increase the stock of money in circulation, encourage lending and stimulate economic activity.
But arguably it is purchasing a sub-optimal mix of assets, if it wants to maximise the stimulus to the economy.
In theory, it would derive much greater bang for its quids if it bought shares in British companies.
Well, if it bought equities from pension funds and other British financial institutions, it would still be increasing the stock of money.
But there could be a series of spin-off benefits.
Or at least that is the plausible argument of bankers, including one who helped the Hong Kong authorities to do just this - to considerable beneficial effect - in the late 1990s.
One advantage of buying shares is that it would address directly one of the causes of our economic woes, namely the over-indebtedness of companies.
In general, the British economy is struggling under the burden of excessive borrowing by companies, financial institutions, households and government.
Many of our biggest companies and banks need to strengthen themselves - to re-capitalise themselves - by issuing new shares.
The massive share sales announced in the past few weeks - from the likes of HSBC, assorted property giants and Centrica - won't have escaped your notice.
But investment institutions and retail investors have only a finite capacity and a limited appetite to buy these news shares.
With the FTSE 100 index malingering at well below 4000, companies' ability to sell new shares - to raise cash from investors to replace debt - could well disappear before too long.
However if the Bank of England were to wade into the stock market and buy existing shares, that would significantly improve the tone and liquidity of the market - and make it easier for businesses to raise new equity capital in rights issues and in share placings.
It could, in that sense, relieve some of the financial stress on companies that lies behind our recession.
Surely, as a matter of public policy, that would be preferable to the Bank of England's stated aim of helping companies to raise new debt.
If too much debt got us into this mess, surely it would be better to pay down the debt than accumulate more of it.
Funnily enough, this seems to be the view of the shadow chancellor, George Osborne. In a little noticed section of a recent speech, he said:
"We don't just need to recapitalise our banks. We need to recapitalise the whole of British business....Given the scale of the debt problems, I believe there is role for government in encouraging this recapitalisation of British business to take place more quickly than it otherwise would."
Which rather implies that he could be in favour of the Bank of England buying equities.
There could be a further attractive consequence of state-funded purchases of equities.
As I've been boring on about for months, there is unlikely to be a significant increase in bank lending until asset prices in general find a floor - because all lending is either directly or indirectly linked to the price of assets (from shares, through to property, and so on).
A credible equity-purchase programme by the Bank of England could - in theory - provide such a floor. And if the value of equities stabilised, there should be helpful knock-ons to other assets.
Which is turn could reinforce banks' confidence to do more lending.
Now the notion of the Bank of England buying shares is pretty unorthodox - but then our economic crisis is of a different complexion from anything we've suffered since (possibly) 1913.
That said, the technical difficulties would not be trivial.
Deciding which shares to buy and from whom would not be easy. Probably the sensible thing to do would be to acquire a stake in every company in either the FTSE 100 index of the biggest companies or the FTSE 350 (which includes middling size businesses).
Also, there's an interesting question about what to do with the acquired shares: one possibility would be to use them to endow public-sector pensions or provide a stock of assets for the soon-to-be-launched national pension savings schemes (the government-sponsored scheme for the millions who aren't saving enough for retirement).
One of the strongest arguments for buying equities now is that - on most analyses - they are cheap. Of course, they may yet become cheaper still.
However if the shares were acquired and held with the intention of holding them for a couple of decades - which the public sector can do - well if we didn't make a substantial capital gain on that kind of time horizon, then we'd be in doo-doo of a depth and toxicity that doesn't bear thinking about.