A Balance Sheet Approach to Fiscal Policy

So early fiscal consolidation can be expansionary on balance.

No one believes that fiscal balance is the whole growth model anywhere.

Unemployment was soaring, and austerity, rather than restoring fiscal balance, simply exacerbated the economic downturn.

First, it would include credible plans in Europe and the US to restore fiscal balance.

There are other instruments available for increasing domestic saving and reducing consumption besides the fiscal balance.

The fiscal balance is improving, but it should be carefully managed over the next two years.

Macroeconomic balance and prudent fiscal and monetary policies were a necessary but not a sufficient condition.

The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment.

Spending cuts and tax increases that in the long run restore fiscal sanity and balance are good.

Fiscal policy reflects the commitment gradually to reduce public deficits to arrive at a budget in balance.

In the US, the main challenge is to restore fiscal balance without damaging the recovery and future growth.

America s domestic demand shortfall reflects rising savings, balance sheet damage in the household sector, unemployment, and fiscal distress.

With the right balance of vision and caution, China s leaders can tackle the buildup of fiscal and financial risk.

This is needed to prevent even more private debt being put on government balance sheets, causing a fiscal blowout.

Understandably fixated on balance sheet repair, US consumers have not taken the bait from their monetary and fiscal authorities.

With the right balance of vision and caution, China s leaders can tackle the buildup of fiscal and financial risk.

The heavy artillery of monetary and fiscal stimulus is being wasted on attempts to short circuit balance sheet repair.

Acknowledging that recent fiscal policies had put the US on an unsustainable trajectory of rising public debt, Obama said that moving towards budget balance was now essential for fiscal stability.

Chile sets a target for its cyclically adjusted fiscal balance that is, the balance that emerges after accounting for the deviations in commodity prices and domestic output from their trends.

Koizumi sought smaller government and set clear numerical targets for fiscal consolidation, including a primary budget balance in 10 years.

But sounder fiscal policy might lead to even higher inflows as the country s external balance and sovereign risk outlook improve.

Sweden and Chile are almost poles apart geographically, but both have used sophisticated fiscal rules successfully. Chile sets a target for its cyclically adjusted fiscal balance that is, the balance that emerges after accounting for the deviations in commodity prices and domestic output from their trends.

This, in turn, could delay needed improvements in financial regulation, balance sheet repair by banks, structural economic reform, and fiscal adjustment.

Even with external assistance, many view default as a near certainty, because the arithmetic of restoring fiscal balance is so daunting.

China s current legal framework contributed to fiscal balance and financial stability in the past, and it continues to play a positive role.

Don t get me wrong, I am not arguing for fiscal profligacy. But the balance of risks has shifted over the past few years.

To be sure, there has been some progress in the eurozone periphery in the last few years fiscal deficits have been reduced, and some countries are now running primary budget surpluses (the fiscal balance excluding interest payments).

If skeptics are right, then we should accept that we will periodically be out of financial and fiscal balance without knowing it in advance.

And yet many policymakers are insisting on immediate action to rectify not only fiscal deficits, but also trade imbalances and banks balance sheet weaknesses.

One is that some policymakers think that fiscal balance really is the main pillar in a growth strategy Deleverage quickly and get on with it.

We knew that premature attempts to achieve long term fiscal balance would worsen the short term crisis and thus be counterproductive in the long run.

Countries can reduce their national debt by narrowing the budget deficit or achieving a primary surplus (the fiscal balance minus interest payments on outstanding debt).

The latter gives the economy a quick shot of competitiveness, improves the external balance, and reduces the output loss and unemployment that accompany fiscal cutbacks.

But key steps can and should be taken restoration of fiscal balance in well communicated plans, commitment to central bank autonomy and low inflation, and striking a thoughtful balance between under and over regulation of the financial sector.

The German model for resolving the debt crisis and returning to internal or external balance relies on fiscal consolidation and structural reforms for the deficit countries.

So what happened to the additional revenues derived from the commodity boom of recent years? Some of these funds were aimed to improve countries fiscal balance.

That is how the turnaround of the economy took place by reducing the fiscal deficit and converting the external balance of payments from deficit to surplus.

What is deemed necessary is to discover the combination of policies that, while restoring the fiscal budget and balance of payments, allows an acceleration of growth.

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.

The most likely form of the fiscal compact now seems to be a very mild agreement requiring each country to balance its budgets over the business cycle.

The overall budget deficit is still predicted to be 4.1 of Greece s GDP in 2013 a substantial improvement compared to 2010 but still far from fiscal balance.

Banks balance sheets are systemically dangerous when bloated by leverage, and it is this that regulatory or fiscal policy should address through liquidity buffers and leverage ratios.

Balance 1992 1992 Exchange Balance at

Fiscal Follies