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How to make America invest again

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How to make America invest again

Top banking executives and other industry experts arecalling on the federal government to play a bigger role in stimulating economicgrowth.

The officials made pleas for fiscal stimulus multiple timesduring the Institute of International Finance annual meeting in Washington,D.C. JPMorgan Chase &Co. Chairman, President and CEO Jamie Dimon said the U.S. economycould benefit from several so-far failed initiatives, such as long-term fiscalreform, immigration policy changes, infrastructure planning and theTrans-Pacific Partnership.

Companies have a natural desire to grow, but Dimon said heregularly speaks with executives who say regulations prevent them from makinginvestments they want to make. In the U.S., capital expenditure has remainedweak even though the employment picture is showing signs of .

The Department of Labor's jobs totals Oct. 7 showed the unemploymentrate ticked up to 5.0% in September from 4.9% in August, but Federal ReserveVice Chairman Stanley Fischer said unemployment is "very close to thenatural rate."

Fischer did express some concern about weak productivity andbusiness investment. In late September, the Commerce Department releasedestimates that showed nonresidential fixed investment was down 0.5% year overyear. Also, nonresidential fixed investment on structures has been down yearover year in each quarter since the first three months of 2015.

The lack of investment is perplexing because one of thegoals of low interest rates is to increase company borrowing for investment."Then, the economy would grow and takeoff," Fischer said.

Businesses are borrowing, but they are not investing, saidGoldman Sachs GroupInc. President and COO Gary Cohn. He said companies are insteadtaking advantage of low rates to help fund share buybacks. The repurchaseapproach has helped boost earnings per share, enabling CEOs to satisfyinvestors without investing in topline growth, Cohn said.   

A central issue is that monetary policy alone cannot triggerthe business investment that would stimulate growth, several panelists at theevent said. "You don't make corporate strategy decisions based on interestrates," said MorganStanley Chairman and CEO James Gorman.

Harvard University Senior Fellow Paul Tucker said the banklobby should redirect its focus away from pushing for complicated capitalchanges and focus more on trying to entice governments to provide fiscalstimulus. Tucker said it has been too convenient for members of government to"sit on their hands" knowing their central bankers would attempt toprovide stimulus.

The calls for fiscal stimulus run counter to widespreadconsensus thinking from a few years ago that wanted austerity. Tucker said thatwhile the efforts to reduce public financing were correct at one time, theywent too far and put the onus on central bankers to stimulate growth.

Tucker added that central bankers themselves should alsopush for fiscal stimulus by raising more public awareness of the challenges togrowth. Central bankers are nervous about speaking out and thrusting themselvesinto the world of politics, Tucker acknowledged, but they need to get theirpoint across.

"They have to say again and again that they cannot liftthe trend rate of growth," he said.  

SociétéGénérale SA Chairman Lorenzo Bini Smaghi said one challenge is thatthere is little popular support for the type of structural reforms that would stimulateinvestment. He said free trade, openness of markets and allowing immigrationare all policies that could trigger investment.

"These kinds of structural reforms are what the peoplein advanced economies do not want," he said.

But finding some sort of fiscal stimulus that would gainsupport is important because the status quo is not working, said CEOMary Callahan Erdoes. She noted that normally there has been a correlationbetween employment rates and business investment, but that chain has broken.

"We have got to get back to fiscal stimulus,"Erdoes said.