'Financial vs. Fiscal Crises: A 21st Century Primer'

from diplomaticourier........

"A strange thing is happening in Washington.  Many politicians, pundits, and commentators are starting to confuse two interrelated but substantively different ideas: fiscal crises and financial crises.  While not everyone is guilty of this inadvertent or perhaps intentional mix-up, we are beginning to witness a recurrent pattern of attempts to paint the 2008 financial crisis as one that was primarily fiscal in nature.  Confused yet?  I don’t blame you.

Fiscal crises most commonly refer to ongoing institutional problems with managing debt loads, with the institution in this instance being the federal government.  Financialcrises, on the other hand, typically connote systemic problems within the financial sector of an economy – stemming from some combination of bad corporate choices and government policies – that ultimately lead to an economic retraction of some sort.  Getting these two things straight in the minds of the American public will go a long way towards informing robust public debate about necessary next steps: the banking crisis that led to a near-economic collapse in 2008 was primarily financial in nature, whereas the consequences of that crisis have resulted in short- to medium-term fiscal problems at the local, state, and national level.  There is meanwhile an additional long-term fiscal crisis that has been quietly chugging along for many years – indeed decades – now, and this particular problem is largely linked to long-term imbalances between tax revenues and spending on entitlement programs and defense.

In case you were wondering, there is a very good reason for some politicians to paint the 2008 crisis as a fiscal rather than financial one.  By confusing these two terms and ideas together, self-described “fiscal hawks” in Washington can bolster their claims of out-of-control government spending by the Obama administration, conveniently shifting any blame away from themselves.  The argument goes something like this: the reason we are in this mess today is because of excessive government spending by the current administration, and the only way to turn the economy around is to therefore cut this same irresponsible spending"..................READ MORE