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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
Apr 20
1/6
 Good Steven Barnett piece. He points out that "targeting growth rates inconsistent with productivity trends leads to distortive policies", and argues instead for a "dramatic, permanent payroll tax cut" to boost consumption.
ft.com/content/d078c7…
2/6
 This would certainly work, as would any other policy that increases the disposable income of average Chinese households relative to GDP. China's extraordinarily low consumption share of GDP is mainly a consequence of the low household income share.
3/6
 Notice however that unless the cut in payroll taxes were matched by higher taxes on households or businesses, or by cuts in spending to either sector, a reduction in payroll taxes would have to be balanced dollar for dollar by more government debt.
Read 6 tweets
Michael Pettis Profile picture
Apr 20
1/4
 Several people have asked for more information about the Maekawa Commission report and its reception. There is a wide variety of sources, but I am attaching three memoranda on the topic written by the CIA in 1986. I find these especially helpful in illustrating perceptions at the time.
2/4
 From the summary of the April 9 memo: "A United States request that Japan alter its macroeconomic structure to reduce its propensity to run ever larger trade surpluses will probably bring a claim from Japanese officials that the country has already embarked on a process of structural change. Despite the nod this week's Maekawa Commission report gives to structural adjustment, Tokyo would probably resist major adjustments in savings, consumption, and investment incentives that did not also serve its industrial policy goals. Only the prospect of closed foreign markets or deep recession at home, neither of which Tokyo believes likely in the near term, would change this view."
cia.gov/readingroom/do…
3/4
 From the October 20 memo: "The impact on Japan's international competitiveness and on workers' spending patterns will depend in large part on whether the reduced hours are accompanied by the same or lower earnings. If wages are cut back along with hours, production costs will not necessarily rise, and Japanese workers might not increase their spending."
cia.gov/readingroom/do…
Read 4 tweets
Michael Pettis Profile picture
Apr 16
1/9
 The Economist discusses the determination of South Korea's president, Lee Jae Myung, to expand RoK industrial policy aggressively. "His plan involves diverting capital from the housing market to...
economist.com/finance-and-ec…
2/9
 industry, especially chipmakers instrumental to the global artificial-intelligence boom, and supplementing this with government cash."

The Economist describes these industrial policies as "trade-distorting intervention", and wonders how successful they will be.
3/9
 They certainly do affect trade. Diverting lending from the housing sector to targeted high-tech manufacturing sectors is likely to reduce the consumption share of total production while diverting production from services and the property sector to manufacturing.
Read 9 tweets
Michael Pettis Profile picture
Apr 16
1/8
 China’s first-quarter GDP grew by 5.0%, faster than the 4.8-4.9% most polls suggested, but the composition of the growth was more unbalanced than ever, especially in March.
ft.com/content/f2b53a…
2/8
 Retail sales were up a very disappointing 1.7% in March and up 2.4% for the first three months of 2026. As always, industrial activity was the bright spot, rising 5.7% year-on-year in March, and 6.1% for the first three months.
3/8
 This tells us both that domestic consumption is struggling more than ever and that the gap between production and consumption remained extremely high, especially in March.

This gap can only be resolved by higher investment or a higher trade surplus.
Read 8 tweets
Michael Pettis Profile picture
Apr 14
1/5
 China's March trade numbers were a big surprise, with exports up less than expected and imports way up. Given how volatile things have been, we don't want to read too much into one month's numbers, but if they reflect a new reality, they matter.
english.news.cn/20260414/f5b3a…
2/5
 Exports were up a measly 2.5% year on year in March, well below the 21.8% surge in the first two months of the year. Imports, driven mainly by higher commodity prices, were up an astonishing 27.8% in March, versus an already high 19.8% in the first two months of the year.
3/5
 The result was that China's trade surplus in March ($51.1 billion) was less than a quarter of the trade surplus in the previous two months. If sustained, this will be good for the world, but bad for China, which relies on huge trade surpluses to balance weak domestic demand.
Read 5 tweets
Michael Pettis Profile picture
Apr 14
1/9
 Very good FT article on why overcapacity is structurally embedded into the Chinese economy. It quotes one (anonymous, of course) investor who notes that "Officials are scared of missing their GDP targets. Nobody is scared of overcapacity."
via @ftft.com/content/7d51a6…
2/9
 I was nonetheless impressed by the number of Chinese who spoke openly about the difficulties created by the current growth model. This didn't use to be the case, but the fact that we're seeing more and more of this suggests that we may finally be seeing a change in the way policymakers think.
3/9
 One point that I have often made, and that comes out in this article, is that Chinese manufacturers may be incredibly competitive globally, but they might not be particularly efficient once direct and indirect subsidies are considered.
Read 9 tweets

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