That the current real value of any government's net liabilities always equals the present discounted value of future primary surpluses is a mathematical condition (Appendix) for solvency. Sometimes, these equivalences find their expressions in stresses not much to a government's liking. We will define governments in accordance with how they handle their liabilities. Governments that rely on inflation or outright default to keep debt-to-gross domestic product (GDP) ratios on a sustainable trajectory are said to operate in a regime of fiscal dominance. Since World War II, the governments of some of Latin America's largest economies have pursued policies that have led to fiscal dominance. This has created credibility problems when Latin American governments announced adjustment policies. Fiscal dominance also explains much of the large risk premia that Latin American governments have to pay when borrowing at home or abroad. Even when default is not in the plans of a government, the fact that more inflationary countries are more likely to default creates tough going for them when they try to resort to financial markets. Fiscally dominated countries also have less scope to pursue inflation targeting, as their policy options are limited by the fiscal position of the government. Successfully implementing inflation targeting depends upon a persistently strong fiscal adjustment by the government. But the effect of changes in fiscal policy by fiscally dominated governments also run contrary to accepted wisdom for governments with high credibility. Monetarily dominant governments, in contrast, maintain fiscal balance by using combinations of spending cuts and tax increases when fiscal pressures mount. In regimes with such traditions, markets forgive the occasional policy departure. Most analysis of the effects of active fiscal policies for such countries concludes that countercyclical deficit strategies can trigger an economic expansion, even if it is partial and temporary. Regardless of which domination category a country is in, loosening its fiscal policy leads to some degree of crowding out. That is, a government's deficit financing requirements crowd out the borrowing efforts of the private sector. In monetarily dominated regimes, crowding out will be only partial. As a result, conventionally expansionary (contractionary) fiscal policy may cause GDP to expand (contract), as is typical of industrial countries. In the worst case for monetarily dominant regimes, a rise in interest rates caused by larger fiscal deficits completely crowds out private investment and fiscal policy has no effect on GDP. But in countries with histories of inflation and default, attended by expectations that the future will bring more or worse, crowding out can be even stronger. A change in fiscal policy may have such extreme effects on interest rates that they swamp any positive impulses that a direct change in policy may have. In this extreme case, an increase in fiscal deficits becomes contractionary rather than expansionary. We refer to this extreme phenomenon as hypercrowding out. Viewed from the opposite direction, hypercrowding out in fiscally dominant countries means that fiscal tightening becomes expansionary. Raising the primary fiscal surplus lowers real interest rates so much that GDP expands despite the direct contraction of aggregate demand from fiscal tightening. We test for the presence of hypercrowding out in Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Uruguay, and Venezuela starting in the middle-1990s and ending in the first half of the present decade. A substantial literature focuses on Brazil as having exhibited signs of fiscal dominance, which can be associated with hypercrowding out. Our results suggest that while Brazil has experienced hypercrowding out, so have several other Latin American countries. We also examine ties between indicators of fiscal dominance and the duration of sovereign default for each of our nine countries. …