Money managers and institutional investors have a message for governments in developed markets: It's time to spend some money.
Their concern is that monetary policy, necessary in the aftermath of the financial crisis, has reached its limits. Adding a hefty shot of government spending could work in tandem with that effort, creating growth, improving tax receipts and, at the same time, potentially making much-needed improvements to infrastructure.
The shape and form of each country's fiscal policy will likely vary — across so-called helicopter money, infrastructure spending and tax breaks.
“Monetary policy is not going to rebuild the economy. We need other things, and that is fiscal stimulus,” said Carsten Stendevad, CEO at Danish pension fund ATP, Hilleroed, which has 800 billion Danish kroner ($119.9 billion) in assets. A number of countries — particularly Germany and some countries in northern Europe — can afford fiscal stimulus, he said.
“The incremental effects of further monetary policy I think are highly limited. The distortive effects of monetary policy in the financial market and the real economy, including a number of real estate markets, are very clear. So we need other policy instruments to be put forth. The area of infrastructure is the obvious place to start,” Mr. Stendevad said.
His view was echoed by Antony Barker, Manchester, England-based director of pensions at Santander U.K. PLC, sponsor of the £11.3 billion ($15 billion) Santander U.K. Group Pension Scheme Common Fund.
“I've regularly said policy is the wrong way round — (the government) should issue 100-year gilts and use the money to build” a number of U.K. infrastructure projects. “Apart from the direct economic/employment benefit of these infra deals, generating a long-term gilt price point will help hedging/valuations and extra supply should hopefully improve yields, meaning companies can invest in their businesses rather than fund made-up deficit numbers,” which in turn would generate further economic growth, profits and tax receipts, said Mr. Barker in an e-mail.
Sources also cited comments by Mario Draghi, president of the European Central Bank, at a press conference this month announcing that the ECB governing council left rates, and its asset purchase program, unchanged at its latest meeting.
“It is something I have been saying now for months, that to reap the full benefits of an extraordinarily accommodative monetary policy, one needs other policies,” Mr. Draghi said.