Governments in democracies respond to pressures from electorates and other sources to improve fiscal balance, but only slowly and messily. An election year is not a good time to expect action, but moves and speeches in preparation for post-election alterations are likely. There are already more speeches from Congressmen and others about compromises and the scheduled year-end tax increases, and these statements are staking out bargaining positions that involve who is going to be cut and who is going to pay more. Votes are at stake. In the next year or two, the U.S. government is more likely to pass some significant fiscal measures, despite the major impediments. Even Europe may actually do something other than shuffle financial cards.

Central banks are a source of pressure. A very important statement came out of the Bank for International Settlements yesterday: “The benefits from additional monetary stimulus by central banks in advanced economies are shrinking while the risks are likely growing,  Jaime Caruana, general manager of the respected Bank for International Settlements (BIS) said.” The BIS has some world central bank functions. Statements like these coordinate establishment thinking or attempt to. They reinforce what member central banks may want to say but prefer not to say publicly, or not yet say. Caruana said “The root causes of the crisis are structural and fiscal, and only structural and fiscal reforms can bring the global economy back to sustainable growth.” This is a very clear and unequivocal message to governments to take fiscal actions and a warning that central banks don’t want to do much more and are not going to do much more.

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