Mix the cornstarch or arrowroot with ¼ cup milk and set aside.
Melt butter in a heavy bottomed sauté pan over medium-low heat. Add onions and sauté until translucent and very soft but not browned, about 15 minutes. Add the nutmeg, salt and pepper. Cook for about 2 more minutes. Add rest of milk and heavy cream to onion mixture and cook until just boiling, about 5 minutes. Add the cornstarch and milk mixture, bring back to a boil and cook, stirring for 1 - 2 minutes or until the sauce has thickened. Taste and adjust seasoning is needed.