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HUMANITY DOOMSDAY CLOCK - Moves forward to 2125 due to election of US President trump.

Estimate of the time that Humanity will go extinct or civilization will collapse. The HUMANITY DOOMSDAY CLOCK moves forward to 2125 due to US President trump's abandonment of climate change goals. Apologies to Bulletin of the Atomic Scientists for using the name.

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Sunday, July 21, 2019

Modern Monetary Theory, a Primer



There is some discussion of MMT, or Modern Monetary Theory as a way to pay for social programs.

The essential idea is to install a new program and then expand the deficit and debt by borrowing money through Treasury Bills to pay for the new program.

The logic appeals - if Republicans can use that mechanism to pay for tax cuts, then perhaps Democrats can use it to pay for new social programs.

It's like paying for a new car with a credit card - you hope that the new job you may get will give you the income to make the monthly payments for the car.

But Republicans use the discredited Laffer curve to hope that tax cuts will pay for themselves through increased economic activity and new tax revenues. But, it doesn't work.

It's possible that a Democrat program might actually raise economic activity so much that it would pay for itself, but right now I can't think of any program that might do that.

Perhaps it is better to just do things because they are right for the country and figure out how to pay for them later. That idea seems to work for most Nordic countries. It can work here if we are brave.

In the meantime, the critical question arises of our debt, interest payments and GDP levels.

Investors are willing to buy Treasuries and fund our deficits because they seem safe. And, they will continue to appear safe IF we can maintain the current percentage ratios among GDP, debt as a percentage of GDP and interest payments as a percentage of federal expenditures.

Once we blow up that delicate balance, then investors may ask for higher interest rates on T-Bills.

Then, our party will be over and we'll be just like Greece.

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