What Is a Fiscal Crisis?

Financial crisis: The state's finances have suffered serious disruption and turmoil due to non-payment. The specific manifestations are: a huge deficit in the state budget, which is unable to make ends meet; a sharp increase in national debt; and the suspension of payment of all or part of the national debt. The broad fiscal crisis also includes the chaos and turbulence of the currency and credit system. The fiscal crisis that usually occurs in capitalist countries is caused by the militarization of the national economy, the implementation of inflated fiscal and financial policies, or other economic and political reasons. The main manifestations are: the state's fiscal revenue and expenditure situation is deteriorating, the income is insufficient, the fiscal deficit is huge, the national debt is growing, the payment of all or part of the national debt has stopped, and severe inflation.

[cái zhèng wi j]

A huge budget deficit, inability to repay debts, and a serious threat to the country's economic operations. ^[1]

In the early 1980s, developed

Financial crisis

The hidden dangers of China's fiscal revenue and expenditure have become a topic of common concern in the economics community. When we discuss issues in the financial field and other issues that lead to fiscal revenue and expenditure, it is often easy to overlook that the financial crisis itself will have multiple impacts on the operation and reform of other fields. One can call it the contagious effect of a financial crisis. It is obvious that the dilemma of fiscal revenue and expenditure has intensified since China's reform and opening up. In the process of reform and opening up in the past 20 years, China's national fiscal revenue as a percentage of its gross domestic product (GDP) dropped from 28.4% in 1979 to 10.7% in 1995, and then rose slightly to 14% in 1999. This proportion is far below the average of 32% in developing countries. In particular, the proportion of the central government's disposable financial resources has fallen dramatically. In 1979, the central government's expenditure accounted for 16.2% of GDP, but it was only 3.2% in 1996, and then rose slightly to 5% in 1999. And the reason for the increase in 1999 is that a large part of the income is from the issuance of government bonds, and the government will face a huge debt burden in the future. With such limited financial resources, the central government must pay huge reform costs. According to a World Bank report in 1997, China s annual deficit of at least 4.6% of GDP, which is a very important fiscal expenditure item including medical care, education, poverty alleviation, annuity, infrastructure, and environmental protection, is equivalent to the central government s 1997 total budget. Of 135%. Brookings Institute economist Nicholas Lardy estimates that the portion of social welfare expenditures borne by state-owned enterprises will have to be transferred to the central government in the future as high as 3.3% of GDP per year, equivalent to the central government's total expenditure in 1997. In addition, the World Bank estimates that China needs to invest at least 6 trillion yuan in infrastructure from 1995 to 2004, which is equivalent to the GDP of 1995.

At the same time, it must be noted that a considerable part of China's fiscal expenditure is hidden liabilities that are not included in normal explicit fiscal revenues and expenditures. This mainly includes some debts that should be financed but not financed for various reasons. For example, wages owed by the government, loss-making accounts for grain operations, non-performing assets of state-owned financial institutions, and arrears of pension insurance funds. According to World Bank estimates, China's total government debt (including explicit and implicit debt) has reached 100% of GDP. Although the repayment of debts will not occur at the same time, although there are other forms of debt repayment (for example, the sale of some state-owned assets), the scale and duration of various hidden and contingent debts are unclear. Together, and at the same time generating pressure on the state's finances, it may quickly increase the actual debt burden rate in the short term, triggering a fiscal crisis. The outbreak of the financial crisis may quickly spread to other areas of the economic system.

Talking about the contagion of financial crisis to financial marketization reform

The famous financial scientist McKinnon pointed out that without an efficient and effective finance, the liberalization and marketization of the financial market cannot continue to progress smoothly. This conclusion touched on the contagious effect of the financial crisis on the reform of financial marketization. If it is said that since the reform and opening up, the coinage income generated by China's monetization process can still support financial marketization under a relatively weak fiscal, then when China's monetization process is basically completed, the weak fiscal The restrictions on the advancement of market reforms are even more significant. Due to the weakness of finances, the fiscal inability to provide sufficient financial support to solve the problem of losses of state-owned enterprises. Therefore, the act of evading bank debts and artificially lowering interest rates to ensure that the main recipients of loans have a hidden relationship between market interest rates and regulated rates Subsidies and forced blood transfusions into state-owned enterprises through debt-to-equity swaps have all appeared. These acts and phenomena have undoubtedly increased the operating burden of state-owned banks and hindered the market-oriented reform of the banking industry. The rapid expansion of bank assets and the inevitable emergence of some non-performing assets in banks require banks to replenish their capital in a timely manner. However, weak finances cannot provide this timely support, and banks generally lack financing channels such as listing. Low bank capital adequacy ratio is an inevitable problem.

In the event of financial difficulties in revenue and expenditure, under China's state-owned banks-led financial structure, state-owned banks are naturally forced to assume some fiscal functions. This is the so-called "eat the finances and eat the banks". "To use is the inevitable result. The state-owned nature of banks, as well as the issue of banking that is related to social stability, therefore, regardless of whether the bank s non-performing assets are formed as a result of government intervention, the write-off of non-performing assets of the bank will directly and indirectly lead to fiscal revenue reductions and increases; The ultimate supporter of the payment crisis can only be finance. It can be seen that, in our country, financial risks will eventually be passed on to the finances. The essence of financial risks is fiscal risks.

Contagion of Fiscal Crisis to Pension Insurance System

Based on China's specific employment structure and the dominance of state-owned enterprises, the endowment insurance for employees of state-owned enterprises has actually become a hidden liability for finance. However, weak finances cannot give strong support to endowment insurance. Even if we do not consider the social instability that may result from this, only from the perspective of the continuous and stable operation of the endowment insurance system, weak finances have become a healthy endowment insurance system. Hard constraints to sustain. A reasonable reasoning is that without the strong financial support, the current pension system in China will face a serious financial crisis if it continues to develop as it currently is. To solve this serious problem, we must start from fiscal and taxation, and gradually absorb huge amounts of hidden debts through measures such as adjusting the structure of fiscal expenditures and opening up new sources of taxation. According to the Economic Reform and Management Institute of the State Council and the American Antai Insurance Company, the actuarial results of the domestic endowment insurance hidden debts show that if the current payment rates, retirement age, and return on investment of enterprises and individuals are calculated, In thirty years, China will bear a hidden debt of nearly 7.6 trillion yuan. In order to maintain the continuous operation of the current endowment insurance system, many scholars have proposed different solutions, such as: using multiple channels to raise funds to make up for hidden debts: the first is to adjust the structure of fiscal expenditures. The second is to open up new sources of tax revenue. Can consider levying new taxes or additional tax value to increase the source of funds. The third is to realize some state-owned assets. The realization of state-owned assets can be realized through stock market realization, gains from the use of state-owned land for compensation, and the sale of public housing. The fourth is to issue special government bonds to raise funds to make up for hidden debts. When no obvious effect is seen in other methods, the reduction of state-owned shares has become an important policy motive for supplementing the pension and social security funds. While the financial crisis has spread to the social security and pension insurance system, the state-owned shares that have not been properly grasped have been reduced. The plan is to shift this crisis to an already fragile Chinese stock market.

According to the current state-owned shares reduction plan, the state-owned shares acquired at a lower cost in order to draw as much funds as possible to supplement the shortage of pension insurance and social security funds (from the government's fiscal standpoint, not from the perspective of maintaining the healthy operation of the solicitation market) See, this reason is undoubtedly quite sufficient), the adoption of participation in the market circulation at the same price as the shares outstanding, the introduction of this plan has led to the continuous decline and weakness of the Chinese stock market. Here, the financial crisis spread to the security market through the transmission of the pension insurance system and the social security system.

Weak finances induce different forms of extra-budgetary charges

Weak finances induce different forms of extra-budgetary charges, which in turn become hotbeds of continued economic chaos and corruption

Because of the fiscal expenditures in many areas, normal fiscal expenditures cannot be met, so various forms of extra-budgetary charges have emerged, which has led to serious disorder in the fiscal distribution order, excessive out-of-control and rapid expansion of extra-budgetary and extra-system financial resources. The existence of extra-budgetary and extra-budgetary financial resources, although they can play some specific roles, can make up for some of the shortcomings of financial resources in the budget, but they are at a cost of "digging" the budget. The phenomenon of "random charges" they have not only severely disrupted the normal fiscal distribution order, but also greatly harmed economic development and corrupted the social atmosphere. Therefore, it is a "confidence" in China's finances and an important focus of China's fiscal risks. . Of course, the channels of contagion of the financial crisis are not only in the above-mentioned limited areas. Our analysis is mainly limited to the financial and fiscal systems. The negative impact of the financial crisis on social stability and education development is beyond the scope of this article, but its impact is undoubtedly quite serious.

U.S. is about to face the next fiscal crisis

Immediately after avoiding the "fiscal cliff", the United States will once again face the problem of "debt ceiling". After losing to Obama, Republicans are eager to take the opportunity to challenge the Democratic government. The United States also lost its highest sovereign credit rating because of the last debt ceiling. The US government is on the verge of default.

On the 15th, in the latest edition of the "Global Economic Outlook", the World Bank also explicitly ranked the US budget dispute as the number one risk to the global economy. Taking this into consideration, the World Bank has sharply cut its growth expectations for the global economy this year.

Banks such as Goldman Sachs believe that even if the United States can raise the debt ceiling at the last minute as scheduled, it is still likely to be difficult to escape the economic drag brought by the activation of the automatic spending reduction mechanism.

A recent article in the British "Economist" magazine called the possible risks of debt arrears in the United States and called for the abolition of the outdated fiscal system of "debt ceiling".

US President Barack Obama and Congress reached an agreement on the New Year's Day without raising taxes on most items, so the United States has just escaped a fiscal disaster.

But a bigger crisis will emerge in five weeks, when the Treasury will run out of its borrowing authority. Obama warned that if the "debt ceiling" is not raised, the government will have to default on its debt.

Republicans say they need some means to drag a profligate president to the negotiating table. They make sense, but the "debt ceiling" is a dangerous tool.