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MMT Heaven and MMT Hell for Chinese Investment and US Fiscal Spending — Michael Pettis

Summary:
A reasonably accurate view of MMT applied to the Chinese economy. Michael Pettis sees little evidence that Chinese economists are aware of MMT, let alone using it to formulate policy. As for China, money or debt can no longer be used to fund infrastructure because the resulting increases (in money or debt) will not be matched by increases in real GDP. Beijing should, however, be able to create money or debt with no ill effects if the proceeds were used to reverse income inequality by increasing the incomes of the poor and middle classes. I rather doubt that China cannot find productive infrastructure for public investment, and I think they will continue to do so with a multiplier that is positive enough to justify the investment, especially in rural areas that lack modern

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A reasonably accurate view of MMT applied to the Chinese economy. Michael Pettis sees little evidence that Chinese economists are aware of MMT, let alone using it to formulate policy.
As for China, money or debt can no longer be used to fund infrastructure because the resulting increases (in money or debt) will not be matched by increases in real GDP. Beijing should, however, be able to create money or debt with no ill effects if the proceeds were used to reverse income inequality by increasing the incomes of the poor and middle classes.
I rather doubt that China cannot find productive infrastructure for public investment, and I think they will continue to do so with a multiplier that is positive enough to justify the investment, especially in rural areas that lack modern infrastructure. However, the Chinese plan has been to encourage urbanization as much more efficient, and that will continue, along with mechanizing agriculture in the rural areas. The former peasants will mostly become city-dwellers, as has happened in the West. 

But the fact is that the Chinese leadership has already declared that the period of investment dominance is over. The task now is to increase the consumption/investment ratio toward levels more normal for a developed economy. This "restructuring" (they call it that) will take some time.

This will involve increasing domestic consumption (aggregate demand in GDP terms), which implies a redirection of production from the export market toward the domestic market (aggregate supply). This requires fiscal stimulus in order to augment domestic purchasing power by providing spendable funds, e.g., for welfare programs. 

China Financial Markets
MMT Heaven and MMT Hell for Chinese Investment and US Fiscal Spending
Michael Pettis | Professor of Finance at Peking University’s Guanghua School of Management
Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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