Fiscal policy push or helicopter money: what’s on horizon?

Over the last decade, central banks have been busy.

But they’ve failed to spur growth and one thing is clear, says a new TD Asset Management report. It notes, “What has been lacking is meaningful fiscal policy action from governments,” and that’s a symptom of high debt levels in many countries and general unwillingness to spend.

Read: How to read the Fed’s signals

But that may be about to change. Aggressive fiscal stimulus, or even helicopter money, may come into play, the report adds. It explains, “With helicopter money, the government provides aggressive fiscal stimulus that is funded by the central bank. The fiscal spending can take the form of infrastructure spending, tax cuts or direct payments to citizens, and the goal is to encourage spending, thereby stimulating growth and inflation.”

However, says the report, “it is difficult to forecast the outcome for investors because [this approach] has only very rarely been used.”

Read: Where to find income opportunities

One country that may turn to helicopter money is Japan, says the report, given its struggle against deflation. Further, in Japan, “trade is poor, industrial production is weak and economic growth and inflation are stagnant. This makes it a prime candidate, and there is precedent as Japan has employed helicopter money before, using it to stimulate its economy in the 1930s.”

Read: How aging populations are affecting global growth

Also, click here to read the full report.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.