To judge China s economic dynamism, the key indicator is its fiscal position. When, and only when, China s fiscal position is worsening rapidly will its economy suffer a hard landing.

Spain was not in an enviable position. The rapid deterioration of fiscal position after the crisis made any substantial countercyclical response impossible, while regulatory constraints limited the economy s structural flexibility.

A strong fiscal framework is indispensable to achieve this, and protects countries from contagion. But the crisis experience suggests that, in times of extreme market tensions, even a sound initial fiscal position may not offer absolute protection from spillovers.

To be sure, the fiscal stance improved in many Latin American economies in the years leading up to 2007, so countries like Chile were able to mount a strong anti crisis fiscal response. But, as a 2013 Inter American Development Bank (IADB) report makes clear, the fiscal stimulus was not always withdrawn in time when the crisis abated, so the fiscal position across the region today is weaker than it was in 2007.

In turn, this risks weakening both the government s fiscal position and the economy s external account. Without the ability to take timely countercyclical measures, such countries fare poorly when crises hit.

Despite the parlous fiscal position, for now the market for Japanese government bonds (JGBs) remains stable. But this is because government bonds are purchased mostly by domestic organizations and households.

According to the CDB, in the public sector, containment of expenditures, particularly on capital items, offset revenue shortfalls and led to an improvement in the Government's overall fiscal position.7

Fiscal Challenges and Fiscal Follies

To offset the negative impact of private sector deleveraging on growth, the US government has maintained expansionary fiscal and monetary policies. Now, with household debt sustained on a knife edge after feverish government intervention, the fiscal position has deteriorated dramatically and the current account balance has worsened again.

Cameron s bid to thwart Juncker s candidacy mirrored his unsuccessful attempt to prevent the adoption of the EU s fiscal compact in 2012. He overestimated German Chancellor Angela Merkel s willingness and ability to support the British position.

And here was the clincher By committing themselves to fiscal tightening, finance ministers gave themselves scope for some fiscal loosening. Proclaiming fiscal virtue enabled them to practice fiscal vice.

A dogmatic target of budgetary balance four years hence, irrespective of a country s position in the economic cycle, would achieve little targets are meaningless if they are impossible to implement. So the rules would have to be set with reference to each member state s cyclically adjusted fiscal position (for which the OECD already produces estimates).

Systemic risk raises doubts about the solvency of over indebted countries, which means that these countries efforts to consolidate their fiscal position and promote reform do not lead to improvement in financial conditions, which is essential for overcoming the crisis and promoting recovery. As a result, fiscal consolidation becomes increasingly difficult to achieve, inviting renewed speculative attacks.

China s strong fiscal position today gives it a window of opportunity. But that window will close fast, because beneficiaries of specific reform policies have morphed into vested interests, which are fighting hard to protect what they have.

When President George W. Bush took office in 2001, he was staring at giant budget surpluses as far as the eye could see. It was hard work engineering a five trillion dollar deterioration in America s fiscal position.

With a smaller debt burden and interest payments, Egypt s fiscal position would improve significantly, and threats to economic growth would recede. Foreign lenders resulting caution would prevent future Egyptian governments from irresponsibly saddling their populace with debt.

Second, China s fiscal position will worsen rapidly because of massive local government debt. And, third, the collapse of underground credit networks in bustling cities such as Wenzhou will lead to a broad financial crisis across the country.

Fiscal Follies

In the United States, where markets, the judiciary, and regulation are highly developed, the imperative is not institutional reform, but policy reform addressing the weak fiscal position, income and wealth inequities, unemployment, health care, and deteriorating physical infrastructure.

By contrast, less developed countries that borrow in foreign currencies may run out of currency reserves. When a fiscal crisis hit Greece, the financial world suddenly discovered that eurozone members had put themselves in the position of developing countries.

The US Congress is well aware of what these numbers portend, but its members have chosen to avert their eyes. Indeed, the president is no longer required to provide the usual five year forecast of the country s fiscal position.

Putin might also argue that Russia s fiscal position is far stronger that of the other G8 members. Yes, it helps that Siberia turned out to be a giant oil well, with the government sucking up much of the money.

Europe s Fiscal Wormhole

America s Fiscal Isolationism

Fiscal Apocalypse Now

Germany s Fiscal Follies

In that case, Greece s geopolitical position would be weakened, its economy would sink further into recession, and social tensions would rise. Moreover, instability would become chronic, because the eurozone would no longer offer a backstop for fiscal and financial laxity.

According to the governmental Bureau of Economic Research, the Territory is in a good position to experience a more balanced expansion in fiscal year 2005, given the continued expansion of the United States economy and planned and ongoing capital investment projects.

Position

Computes Italian Fiscal codes

America s Exceptional Fiscal Conservatism

Europe s Empty Fiscal Compact

Fiscal Fibs and Follies

Gaming US Fiscal Reform

America s Fiscal Cliff Dwellers

Is Fiscal Stimulus Pointless?

Threading the Fiscal Needle

Fixing America s Fiscal Problem

e. Special fiscal policies

For starters, the economy is not yet in a position to handle the 4 5 of GDP fiscal cliff that is approaching as all of the hard political decisions that were postponed come into view at the end of this year. The prospect of a disorderly fiscal contraction needs to give way to a more rationally designed approach that avoids undermining the fragile recovery.

Huge tax cuts and rising military spending have fueled an enormous rise in imports, and therefore a yawning trade deficit now accompanies America s weak fiscal position. But US politicians are blaming China and other countries for unfair trade, even threatening them with sanctions.

Third, though China s public debt GDP ratio is officially still under 20 , since the onset of the global financial crisis in 2008, its fiscal position has deteriorated. If the government s contingent liabilities are included, China s debt GDP ratio may be closer to 50 .

The impact of slowing global trade is most apparent for Germany, which was not burdened with excessive household or corporate debt, and enjoyed a favorable fiscal position. To escape the crisis, Germany used rapid export growth especially to meet voracious Chinese demand.

Position page.

Relative position