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May 30, 2017

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Ludicrous talk of Taiwan fiscal cliff points to profound problem

The China Post--The finance minister saying Taiwan is not in danger of falling off a fiscal cliff is as preposterous as the Central Weather Bureau director-general reassuring residents that Hurricane Sandy will not hit Taiwan. But that's what happened at the Legislative Yuan on Monday.

To be fair, Minister of Finance Chang Sheng-ford (張盛和) was responding to a question by Kuomintang Legislator Lai Shyh-bao (賴士葆), who is supposed to be a financial expert. But the fact that he had to answer such a query, and the following media misinterpretation of the sensational imported term, shows how tragically misinformed the public in Taiwan have been.

Coined by U.S. Federal Reserve Chairman Ben Bernanke, the "fiscal cliff" refers to a specific situation in the U.S. when the nation's fiscal deficit could go down a cliff as automatic across-the-board cuts kick in and tax cuts from Bush era expire. The next possible drop down the cliff is Jan. 1, 2013.

The cliff Bernanke referred to is actually a drastic deficit decrease, not the situation of the fiscal house going down the cliff, which is what some Taiwanese media apparently misunderstood the term to mean ("Taiwan might be NT$10 billion short in tax revenue next year but it will not face the fiscal cliff" read one misguided media summarization of Chang's comments on Monday). The fiscal cliff is a crisis for the U.S. not because of the deficit decrease but because of the way it is to be achieved. Massive cuts on both defense and domestic spending compounded with tax increases could badly hurt already fragile private spending and push the U.S. back to recession.

The misinterpretation of the fiscal cliff is actually the latest example of politicians' and the media's misguided exploitation of foreign situations to drum up sensation and fear. The fiscal cliff originated from the debate over the so-called debt-ceiling crisis in the U.S. last year, which was in no small part inspired the Greece debt crisis. Despite the U.S.'s totally different situation from Greece — take the U.S.' near record-low borrowing costs as an example — and the widely held fear that a short-term government spending crunch is bad for the economy and in turn bad for deficit cuts during a downturn, U.S. politicians went into deficit-cutting mode with little debate on the virtues of fiscal contraction. Instead they debated only on how the cuts should be made, with suggestions sharply divided along party lines.

The fiscal cliff has come into being because that debate went nowhere. The automatic cuts were devised as a scary scenario to force the two parties to cooperate — the defense budget is as sacred for Republicans as welfare program are for Democrats so across-the-board cuts are undesirable for both parties. Yet both sides are still engaging in a staring contest with globally disastrous consequences. In short, the fiscal cliff is a self-inflicted crisis by U.S. politicians because they picked an unnecessary fight and then pushed themselves to crisis point in that fight.

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