People haven't talked about 'fiscal stimulus' this much since the financial crisis

There have been more and more calls for more government, or fiscal, spending amid a low-growth economic environment, in which the benefits of central bank-engineered monetary stimulus seems to be waning.

In fact, according to Bank of America Merrill Lynch’s Savita Subramanian, discussions of “fiscal stimulus” have reached levels last seen in early 2009. That was when the policymakers where trying to figure out how to pull the world out from the financial crisis.

Economists have increased expectations that fiscal policy will provide a boost to GDP growth this year, marking the first time in seven years that fiscal policy would bolster growth.

“This is part of a broader global pattern, with a number of key countries shifting from tight to modestly easy fiscal policy,” wrote Bank of America’s Ethan Harris. “With interest rates close to zero and with diminishing returns to monetary policy, fiscal easing is likely to be an effective alternative.”

Both major presidential candidates have focused on expansionary fiscal policies from current levels.

Hillary Clinton has proposed a $275 billion infrastructure plan over five years. She has specifically proposed establishing a national infrastructure bank and reestablishing the Build America Bond program.

Meanwhile, Donald Trump has proposed what he calls an even bigger plan—to spend $500 billion to rebuild US infrastructure, though he hasn’t provided many details.

This comes at a time when the markets are seeing higher risks of a correction, Subramanian added. Valuation remains a primary concern for investors, with US market multiple at an expensive 17x. Meanwhile, investors aren’t as bearishly positioned as they might seem, even as economic surprises have waned since July. Also, growth remains weak, with sales growth at a three-year low, and leverage remains high as just as credit tightens and equity issuance appetite is drying up. This all comes at a time, when the presidential election has added uncertainty and data out of China could disappoint to the downside.

All of these concerns may actually be boosting the calls for more fiscal stimulus. That in itself may comes with its own dangers.

“Expectations for fiscal stimulus … appear ripe for disappointment,” Subramanian said.

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