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Time in nature. All of these things in nature. Also published on Medium. He loves to get the most out of every day and live life with a smile : View all posts by troygerstling. This site uses Akismet to reduce spam. Learn how your comment data is processed. Skip to content. June 21, March 28, troygerstling Self , Spirituality. BUT What if hell is just a giant distraction of temptation?
What if? Share this: Twitter Facebook. Like this: Like Loading A second adverse effect could easily occur too. Because this policy effectively would transfer wealth from the poor to the rich, there would be a net reduction in consumption. In a closed economy or in an economy that has little or no control over its capital account, as I explain here that net reduction would result in a further decrease in business investment and with it, by necessity, a further decrease in national savings, driven by a rise in unemployment, household debt, or the fiscal deficit.
In this second scenario, creating or borrowing money and passing it on to businesses or the rich only redistributes wealth from those who did not benefit from government policies to those who did. That requires that the government raise taxes to reduce demand and prevent unwanted inflation. In the second case, the government enacts policies that directly or indirectly give more money to average or poor households.
Again, these policies could be enacted in two different scenarios. For the first scenario, assume that the economy operates under demand-side constraints.
This mean that the economy suffers from weak demand—consumption and investment—and that there is resource and labor slack, or inefficiencies in the economy. Under these circumstances, delivering money to the poor directly boosts consumption because, by definition, they consume most additional income and indirectly boosts investment as businesses increase capacity to meet this additional demand. There are various iterations in which the increase in household income would be partly consumed and partly saved, with the saved portion funding new investment to serve the increase in consumption, which further increases household income and, in doing so, creates additional consumption and savings, and so on.
Once again, the result is MMT heaven. In the second scenario, however, assume that there are no demand side constraints. In such a world, growth is constrained by high costs of capital, regulations, or other supply-side constraints.
This means that, at current prices, total demand for goods and services has risen with no equivalent rise in the supply, so the country must suffer from inflation or, if unlike the United States it has control over its current account, it must run a trade deficit, which is balanced by equivalent capital outflows. The way to prevent either outcome is for the government to raise taxes enough to reduce aggregate demand to its original level.
For the third case, a government could pour money into building new infrastructure. In the second scenario, government spending on infrastructure is largely nonproductive and creates little value for the economy—as is the case in China today. This time, the consequences are a little more complicated because they can involve wealth transfers from one group to another. For an example of MMT working under the first scenario, consider China in the s.
Money creation and debt went mostly to fund businesses and the rich as ordinary households were forced to heavily subsidize borrowing costs , thus forcing up Chinese savings rates; the proceeds were then poured into productive investment, generating enough growth to trickle down to the poor at a substantial rate. Perhaps that is what people mean when they say that China supposedly proves the validity of MMT.
More recently, however, China represents the second scenario. Money creation or debt still go mostly to fund businesses and the rich, but there are few productive investment opportunities left. Although investment still continues to rise quickly, much of this investment is nonproductive and only shows up as increases in GDP because the entities responsible for the investment are not subject to hard budget constraints, so they never write down bad investments on the books. Because of the distribution of income, money creation shows up more as asset price inflation than as consumer price inflation.
As always in economics, it depends on the circumstances. It is easy to consider cases in which rising debt or money creation results in an equivalent or greater increase in total GDP or debt-servicing capacity. First, an economy driven by rising debt tends to adjust in ways that systematically incorporate strong positive feedback mechanisms as I explain here , pushing domestic balance sheets away from their optimal structures.
These balance sheet mismatches can lead to suboptimal resource allocation and can cause future growth to slow. Second, high levels of debt directly increase the volatility of earnings and income, so a country with more debt has less room to withstand temporary shocks, even if more debt comes with more assets that can service the debt over time. Third, when debt levels are high enough and balance sheets sufficiently fragile that there is uncertainty about how future debt-servicing costs will eventually be allocated, the different sectors of the economy that might be forced to absorb the debt-servicing costs will change their behavior in ways designed to protect themselves.
As financial distress theory shows, the ways in which they change their behavior almost always reduce growth, further increase balance sheet fragility, or both.
It is not clear to me that pure money creation under the positive circumstances listed above comes with comparable problems, so perhaps this means that governments should fund wealth-enhancing income transfers or productive investment mainly by creating money, not by borrowing. Instead, they simply spend. The purpose of borrowing or raising taxes in those circumstances is to counter the impact that MMT can have in some cases , but not in all.
There are, on the other hand, cases in which governments can simply create money or borrow with no ill effects, that is to say, with no inflationary impact and no increase in the debt burden. As always in economics, the outcome depends on the underlying conditions. So how do these insights apply to the world today? If they so choose, the U. Either way, productive investment would rise faster than debt or the money supply, as would the total value of goods and service produced.
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. My twitter account is michaelxpettis.fenkdedoubxe.tk
What if hell is heaven?
Aside from this blog I write a monthly newsletter that covers some of the same topics covered on this blog. Those who are interested in receiving the newsletter should write to me at chinfinpettis yahoo. Follow the conversation— Sign up to receive email updates when comments are posted to this article. So clear and logical. The problem, of course, is that the powerful don't want to hear this.
It's mindboggling that billionaires fight to keep, and even increase, their wealth. What for? Thanks, Karen, and sorry for such a late response, but I was traveling much of the past week. I wrote "unwanted inflation" because the impact of the transfer could be any kind of inflation. You are right to assume it will probably be asset inflation, but not necessarily. Michael, Excellent piece. This type of logical balance-sheet analysis is unfortunately omitted from most discussions of MMT.
I believe that there is an error in next-to-last sentence of the section "Give More Money to the Poor. Just to clarify for my own understanding, whenever you mention the scenarios wherein the optimal solution involves "raising taxes", does that directly imply that the optimal solution simultaneously involves paying off debt to improve the GDP to debt burden and increase future capacity to generate debt when required? I know you weren't directing your question to me. I can't resist getting my 2 cents in. MMT people would never advise paying off all the debt.
All the worry about Federal Government debt is a contrivance meant to justify austerity to the general population. You see, they always have their snouts in the public trough. I'd like to see the government debt more evenly distributed in the general population instead of concentrated at the top.