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Michael Pettis Profile picture
@michaelxpettis
Sep 2, 2019 • 4 tweets • 2 min read • Read on X
Nobody who bought Argentine bonds in this century was making a long-term investment decision about the country’s eventual ability to grow out of its debt, at least nobody who should be allowed to manage a bond fund. They were all...
ft.com/content/5cfe7c… via @financialtimes
@FinancialTimes ...speculators, hoping to ride the short-term wave and get out before Argentina was back against the wall which, given the debt burden, everyone (except the IMF, apparently) knew was just a question of time. That’s why there is no reason Argentina’s creditors – those who bet...
@FinancialTimes ...and lost – shouldn’t be forced to accept the loss and take a major haircut, the sooner the better. Restructuring the debt with IMF support just means bailing out speculators and rolling out the loss over many years, during which time the Argentine economy will do worse...
@FinancialTimes ...than ever. The history of sovereign debt restructurings is the history of making the same set of mistakes made over and over again.

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More from @michaelxpettis

Michael Pettis Profile picture
Aug 15
1/16
This article notes that Xi Gao's recent attack on the claims by Ray Dalio that excess debt accumulation inevitably results in financial crises "is part of the ongoing debate between deficit hawks and doves in China over debt-fuelled fiscal spending."
chinabankingnews.com/p/chinese-econ…
2/16
This debate is important because it will determine how long China's excessively high GDP growth targets can be maintained. If Chinese economic activity is to "grow" by more than the underlying economy can productively sustain, the way to so is by forcing those parts of...
3/16
the economy that don't operate under hard budget constraints (local governments, SOEs, business sectors with preferred access to credit) to boost investment, whether or not that investment is economically justified (and by now it mostly isn't).
carnegieendowment.org/posts/2025/02/…
Read 16 tweets
Michael Pettis Profile picture
Aug 14
1/6
 It takes real effort to miss the point as completely as Albrech does. If income is constant, then it is obvious that lower prices will boost consumption. But to separate income from production, as he does, requires a very bizarre understanding of economics.
2/6
 The point I made is that if the real value of American production rises, Americans will be able to consume more—regardless of whether prices rise or fall nominally. If it declines, even falling nominal prices will not prevent them from consuming less without a rise in debt.
3/6
 That's why it is silly for Albrech to claim that only import prices determine whether or not American consumers benefit from trade. This only makes sense if he assumes either that income is independent of production or that production is independent of trade.
Read 6 tweets
Michael Pettis Profile picture
Aug 13
1/4
 Yicai: "China’s margin trading balance on the Shanghai and Shenzhen stock markets topped CNY2 trillion yesterday for the first time in a decade. The balance has been climbing steadily since early June", rising by just over 12% as of yesterday.

yicaiglobal.com/news/margin-fi…
2/4
 For the past year I've been telling my clients that I expected more upside than downside on mainland stock markets, and Shanghai CSI is up nearly 30% from a year ago, but as margin levels rise, it becomes more complicated.
3/4
 Margin financing adds buying power, so stocks will most likely continue rising for a while longer, but of course it also means that any decline in prices is likely to be magnified, so that when the current rally ends, it could drop very sharply.
Read 4 tweets
Michael Pettis Profile picture
Aug 12
1/8
 SCMP: "Beijing now employs a wider arsenal of tools to manage volatility, with the key challenge being whether the yuan can open the door wider to market pricing and secure a larger international role – without destabilising swings."
scmp.com/economy/china-…
2/8
 That is indeed the key challenge, and one about whose resolution we should be very skeptical. For the yuan to become more open to market pricing and to secure a larger international role, Beijing would have to reduce and even remove restrictions on the capital account.
3/8
 But this means that it would be external conditions (along with domestic confidence about internal conditions, including flight capital) that would determine, to a large extent, the size and direction of China's capital and trade accounts.
Read 8 tweets
Michael Pettis Profile picture
Aug 8
1/7
 WSJ: "China’s exports grew at a faster clip in July, showing that U.S. tariffs so far haven’t curtailed China’s export machine, although trade with America has fallen."

wsj.com/economy/trade/…
2/7
 I wish we could just abandon the mistaken idea that if US tariffs on Chinese exports reduce China's exports to the US, they're likely to reduce total Chinese exports. That's not how trade works. What matters is what happens to total US net imports.
3/7
 As long as the Chinese economy is structurally locked into an expanding trade surplus, and as long as the US trade deficit continues to rise, China's net exports will continue to grow whether trade with the US expands or contracts.
Read 7 tweets
Michael Pettis Profile picture
Aug 7
1/8
 SCMP makes the rather strange claim that "after a sweeping debt-restructuring campaign", China is finally starting to bring its debt problem under control.
scmp.com/economy/china-…
2/8
 But this "debt-restructuring campaign" was not actually about bringing debt under control but rather about recognizing (some of) the hidden liabilities of local governments and shifting them back on to local-government or central-government balance sheets.
3/8
 Inner Mongolia's success in getting off the government's "high-debt risk" list, for example, was not because its debt had been reduced to a low level, but rather because it was forced to recognize about two-thirds of this hidden debt.
Read 8 tweets

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