Governments should rely less on central banks to prop up the world economy and focus more on boosting productivity and finalizing new rules for global markets, delegates including including Deutsche Bank AG (DBK)’s Anshu Jain said at the World Economic Forum.
“The world has been overreliant on central bankers, they are the new super heroes,” Jain, co-chief executive officer of Germany’s largest lender, said yesterday at a Bloomberg Television panel in Davos, Switzerland, hosted by Francine Lacqua. “Governments and business leaders need to pick up the slack” after central banks created an “artificial glut of plenty” to stave off a global depression.
Davos attendees are debating the next steps for the world economy after central banks cut global interest rates to record lows and flooded the financial system with money over the past six years. While UBS AG Chairman Axel Weber said that low interest rates are swelling asset prices, Italian central bank Governor Ignazio Visco told the Bloomberg panel that policy makers must make sure the risks are off the table before they start to pull back stimulus.
“Now it is also the time for looking with care at the exit strategy, but we have to be sure that the tail risks are out, and they are not totally out,” Visco said. “We have to keep on our adjustment process.”
Investors will reallocate money this year as economic risks recede and assets considered as safe return too little, said Ray Dalio, 63, founder of Bridgewater Associates LP, a Westport, Connecticut-based firm that oversees about $130 billion in assets. Money will move into stocks as well as goods and services, Dalio said, making it a “game changer” for the global economy.
“There’s a lot of money in a place that’s getting a very bad return and in this particular year there’s going to be, in my opinion, a shift,” Dalio said. “The complexion of the world will change as that money goes from cash into other things. The landscape will change particularly later in the year and beyond.”
Banks have excess liquidity and plenty of money to loan as the “underlying fundamentals” of the economy improve, said Bank of America Corp. (BAC) CEO Brian Moynihan. The Charlotte, North Carolina-based company company ranks second by assets among U.S. lenders.
While central banks have been providing support with low rates, the more fundamental issue for nations is to regain their competitiveness, Moynihan, 53, said, a sentiment voiced by other leaders during the session.
“We’ve got to take the burden off our central bankers shoulders and really governments and business leaders need to pick up that slack,” Jain said. “At this point, those shoulders are starting to get a little bit weary, I’m sure,” he said, leaning over to pat Visco on the back.
Jain said the mood in Davos this year was “optimistic,” though that sentiment was predicated on two hopes: that regulators finish the reforms started after the financial crisis and that government policies be “truly motivated” by long-term economic growth.
“For too long, that agenda has been confused in terms of finding stability, redistribution, social justice,” Jain said. “All reasonable things, but for now,” governments should “act in concert and focus on the future.”
While the euro has gained against the dollar as fears over Europe’s sovereign-debt crisis have receded, the U.S. currency’s recent weakness is more attributable to the effects of the Federal Reserve’s quantitative easing program, Jain said. In the “longer term,” U.S economic growth and contraction in the euro area will probably determine the value of the currencies, he said.
“It will come down to differential growth rates, as it always does,” he said.
To contact the reporters on this story: John Fraher in Davos, Switzerland at firstname.lastname@example.org; Hugh Son in New York at email@example.com; Nicholas Comfort in Frankfurt at firstname.lastname@example.org