Fiscal Cliff Sequel: Taiwan Must Not Cross the Line

Fiscal Cliff Sequel: Taiwan Must Not Cross the Line
China Times editorial (Taipei, Taiwan, ROC)
A Translation
January 5, 2012

Summary: The White House and Congress reached a last minute agreement. They prevented the fiscal cliff from becoming a reality. Stock markets around the world rose in response. But the celebration will not last long. The sequel to the fiscal cliff will soon debut. Add this year's global economic risks, and turbulence in the financial markets will be difficult to avoid.

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The White House and Congress reached a last minute agreement. They prevented the fiscal cliff from becoming a reality. Stock markets around the world rose in response. But the celebration will not last long. The sequel to the fiscal cliff will soon debut. Add this year's global economic risks, and turbulence in the financial markets will be difficult to avoid.

During in the second half of last year, analysts constantly reminded the US government about the risks of the fiscal cliff. The so-called fiscal cliff refers to the 2013 expiration of the Bush administration's preferential tax rates. This will automatically restore higher tax rates. Also, in order to balance the budget, the government will begin "automatic deficit reduction." The government will raise taxes. The public will reduce consumption. Government deficit reductions and spending cuts will work in combination. According to Federal Reserve (FED) Chairman Ben Bernanke, together these will withdraw a great deal of income from the economy. It will affect spending and short-term economic recovery. According to Congressional Budget Office estimates, once the economy falls off the fiscal cliff, the United States will enter a recession. This year it will experience a negative growth rate of 0.5%, and an unemployment rate of 9%.

No one is willing to leap off this cliff. Republicans may have been unwilling. But they were forced to compromise. U.S. President Barack Obama smirked with satisfaction during a press conference. But this situation will not last. The two parties will immediately begin another round of struggles. The agreement addresses only the tax increase portion and the deficit reduction portion. The U.S. Treasury Department used cash scheduling and other methods to postpone the U.S. debt ceiling by two months. But they will eventually have to confront the problem. The White House wants to increase the debt limit. Republicans want to cut welfare spending. The two parties are locked in combat. Financial market turmoil is difficult to avoid. The view from the market is that the agreement is merely an expedient. It is not a fundamental solution. Further negotiations will lead to market volatility.

The paradox is that if the two parties cannot reach an agreement, in two months the United States will go over the fiscal cliff. The global market economy will plumb new lows. Under normal circumstances, the two parties would wrestle for a while, then each take a step back. The White House would reduce some of its expenditures. Congress would raise the debt ceiling. Unfortunately reaching an agreement is not necessarily a good thing. It means America's fiscal problems will become increasingly severe, and step by step advance toward the red zone.

No wonder the three major credit rating companies said that going over the fiscal cliff might be better than reaching an agreement. The credit rating companies feel that the United States government must come up with a way to reduce debt as a percentage of GDP (gross domestic product). At the same time, it must achieve revenue growth and make spending cuts. Otherwise, the U.S. national debt rating could be downgraded. Given the reality of the political and economic situation in the United States, the possibility of achieving this goal is low. Especially given that the process of American political compromise could undermine outsider confidence in the United States' ability to solve its fiscal and economic problems. Lest we forget, Standard & Poor's cut the U.S. sovereign credit rating the previous year. One of the reasons was American political battles. Congress can not afford to compromise.

Any country, especially an elective democracy, will find itself bogged down once their fiscal affairs enter the red zone. It will find itself sinking deeper and deeper, unable to extricate itself. This is true of the United States, Japan, and the PIIGS. Ultimately, the nation's fiscal affairs will lead to collapse. The social and economic adjustments will be great and painful. When nations find themselves in these circumstances, the government lacks the financial resources and ability to cope.

During the Clinton administration, the United States enjoyed a budget surplus. But once Bush took office he made massive tax cuts. He made significant increases in expenditures in the War on Terror. As a result the US once again experienced financial difficulties. After the financial tsunami of a century, the U.S. government no longer has the ability to expand its fiscal policy. All it can do is promote the massive printing of money, i.e., Quantitative Easing. By contrast, Germany and the Nordic countries, normally practice fiscal discipline. During a crisis the country is able to ride out the storm. The government has the ability to adapt to changes. Therefore, normally adhering to fiscal discipline is key.

ROC debt at all levels of government is only about 4% of GDP. It is much lower than in other countries. But add hidden liabilities, and the figure soars to over 100%. The economy is in recession. The government should increase spending. Instead, government public works spending has been reduced. Endless arguments over whether the pension system is bankrupt have triggered social unrest. Government finances have already entered the red zone. The United States is the world's number one power. It has the advantage of being able to print dollars, the global reserve currency, If its fiscal policy is poor, it can expand its money supply. Other countries do not have this privilege. Therefore they face the same dilemma as the PIIGS. The ROC must learn from the United States and Europe. It must put its fiscal house in order. It must increase fiscal discipline, cut costs, and prevent its fiscal affairs from becoming bogged down. Otherwise it will reach a point of no return. If it attempts to make changes too far down the road, society will pay a painful price.

財政懸崖還有續集 台灣借鏡別踩紅線
2013-01-05
中國時報

雖然，美國白宮與國會終究在最後關頭達成協議，避免「財政懸崖」成真，全球股市以大漲慶賀。不過，這個慶祝行情不會持續太久，因為，財政懸崖續集馬上就會上演，加上今年全球經濟風險仍多，金融市場顛波震盪仍難避免。

從去年下半年開始，各界就不斷在提醒美國「財政懸崖」的風險。所謂財政懸崖，指的是到二○一三年開始，布希政府任內給予的稅率優惠到期，將自動恢復較高的稅率；還有為了平衡財政，政府進入「自動減赤」。民眾會因增稅而減少消費，政府因減赤而降低支出，一來一往之間，根據聯準會（ＦＥＤ）主席柏南克的說法：「把這些綜合起來，會有大量收入從經濟體系中被抽走；這會影響到支出，並影響短期經濟復甦能力。」依照美國國會預算辦公室的估計，「墜崖」後，美國將進入衰退，今年經濟負成長○．五％，失業率回升到九％。

這個懸崖，終究沒人敢跳，共和黨再不甘願，也只能妥協，讓美國總統歐巴馬在記者會中得意的笑。但這個光景不會太久，兩黨馬上進入另一回的鬥爭。這次的協議只解決增稅部分，減赤方面，美國財政部雖然運用現金調度等方式，讓美國的債務上限延後兩個月，但問題終究要面對；白宮要的是調高債務上限，共和黨要的是砍社福等支出，兩黨對決過程，金融市場震盪仍難避免。市場的看法是：這次的協議只是權宜之計，非根本解決之道，未來進一步談判時，就會導致市場波動。

更弔詭的是，如果兩黨無法達成協議，兩個月後美國「墜崖」，全球市場與經濟必然再下探深淵。正常情況下，應該是兩黨吵鬧、角力一陣後各自退讓一步，白宮刪減一些支出、國會調高債務上限。問題是達成協議，也未必是好事，因為這意味著美國財政問題將日益嚴重、一步步走向紅線區。

難怪三大信評公司，甚至發出「墜崖」可能比達成協議好的說法。信評公司都認為美國必須拿出降低債務占ＧＤＰ（國內生產毛額）的方法，同時實現財政收入增長與削減開支，否則美國國債評等有可能被降等。衡諸美國現實的政治與經濟情勢，達到此目標的可能性低；特別是美國政治折衝的過程，就可能削弱外界對美國是否有能力解決財政與經濟問題的信心。別忘了標準普爾前年下調美國主權信用評等的理由之一，就是美國政治惡鬥、國會沒有能力達成妥協。

任何國家─特別是選舉制的民主國家，一旦財政踏入紅線區後，都會陷入泥沼，愈陷愈深、難以抽身是常態，包括美、日、歐豬五國，情況都是如此。最終，財政接近崩潰，整個社會與經濟的調整將非常龐大而痛苦；在國家碰上特殊情況時，政府可說是完全缺乏應變的財源與能力。

美國在柯林頓任期內，己實現財政盈餘的美景；但布希上任後的大減稅、反恐戰爭的支出大增，讓美國再陷財政困境。之後碰上百年僅見的金融海嘯，美國政府已無擴張財政政策的能力，只好推動大印鈔票的ＱＥ（量化寬鬆）政策。反觀德國與北歐國家，平日注重財政紀律，危機時國家仍能平穩度過，政府也有能力因應變局。因此，平日即遵守財政紀律是非常重要的。

台灣的各級政府債務餘額雖然號稱只占ＧＤＰ的四成左右，遠低於其它國家，但如加上隱藏性負債，則這個數字會飆上百分之百。我們看到在景氣低迷、政府應該擴大財政支出時，政府的公共建設支出反而減少，還有近月各界議論不斷的退休金是否會破產因而引發社會不安等問題，其實就是政府財政已踏入紅線區所致。美國是全球第一強權，擁有印製全球準備貨幣美元的特權，即使財政政策不靈光，還可不斷擴大其貨幣政策的影響力，但其它國家都沒有這個特權，因此才會有歐豬五國的窘境。台灣必須以歐美國家為借鏡，好好整頓財政、加強財政紀律、開源節流，別讓台灣的財政陷入泥沼，因為這將會是一條不歸路─若想在路的盡頭才做調整，那社會將付出極其龐大且痛苦的代價。