Thread by @ChinaFinance40

A recent paper by cf40 member Peng Wensheng on counter-cyclical
adjustments from the perspective of Modern Monetary Theory (MMT).The main point he made is that at current stage,#China should mainly rely on expansionary
fiscal policies,especially #tax cuts,to achieve stable growth

Fiscal expansion can help make broad #money growth less dependent on #credit while facilitating the deleveraging process of non-government sectors. At least currently,“tight credit and loose fiscal policy” can help balance stable growth, structural adjustment,& risk prevention.

Over the past 40 years, under the influence of #neoclassical #economics, people have separated fiscal system from finance. In fact, the two are closely related and are both part of the #government. cf40.org.cn/uploads/newsle…

There are 3 key points that could help understand the relationship
between government balance sheet and balance of private sector: 1. government #debt is the assets of the private sector. The source of fiscal #deficit is the surplus of the private sector.

2.There is boundary for government debt/deficit which are restrictions of
resources and political factors,meaning if aggregate demands stimulated by
#fiscal expansion gets beyond the supply capacity of the #economy, it would bring #inflation and squeeze on the private sector.

3. The scale of government debt itself is not a restriction,as it does not bring default #risks.The rise in fiscal deficit and government debt will increase the income and net assets of the private sector,and it will help lower the #leverage ratio of the private sector.#economics