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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
Dec 24
1/8
 This is part of a very good Setser thread. In fact many analysts, including in the West, believed that by shifting investment from real estate to manufacturing, China was finally making the long-needed shift from non-productive investment to productive investment.
2/8
 I remember that one of them even claimed that because China was finally doing what Michael Pettis had been writing about for years, this should be celebrated as a good thing.

But this argument was always wrong, and for reasons that should have been obvious.
3/8
 That's because there is nothing intrinsically productive about investing in manufacturing, nor intrinsically non-productive about investing in real estate. What matters is the extent of demand and the gap between desired investment and actual investment.
Read 8 tweets
Michael Pettis Profile picture
Dec 23
1/4
 Things may indeed look bad in Europe, but we shouldn't overdo the pessimism. Europe must make a number of important changes, and that has long been understood. The "problem" with Europe may be precisely that is now forced to make these changes.

nytimes.com/2024/12/22/opi…
2/4
 As in the 1930s, or the 1970s, the global economy today is going through major shifts, and every country must adjust to these shifts. The good news is that, like every robust democracy, Europe is adjusting, even if that means a breakdown of existing institutions.
3/4
 The bad news is that the adjustment period is always painful and dispiriting. During this period, extremists of the left and right often outperform, but it is usually their criticism of the existing institutions that have to be absorbed and mitigated in new institutions.
Read 4 tweets
Michael Pettis Profile picture
Dec 23
1/6
 This may be a tad optimistic: "Just as a single decisive move can energize a chess game, China's latest initiative to address local government debt risks marks a crucial step in revitalizing the growth prospects."

chinadaily.com.cn/a/202412/20/WS…
2/6
 The article argues that the debt-relief package announced in November will transform the growth prospects of the economy by allowing local governments the fiscal space "to sustain a steady and robust recovery."
3/6
 In fact debt-relief package does two things. First, it shifts hidden debts back onto local-government balance sheets, where they belong, but this shift merely recognizes existing debt. It doesn't reduce it at all. It is true that the cost of servicing this debt will...
Read 6 tweets
Michael Pettis Profile picture
Dec 23
1/8
 Yicai: "Non-tax income has soared since the start of the year, mainly because local governments made efforts to dispose of idle assets and increase the vitality of resources and assets. However, according to data from...

yicaiglobal.com/news/china-to-…
2/8
 some provinces, income from fines and confiscations in these regions also maintained double-digit growth."

This article is interesting for at least two reasons. The first is its reference to "abnormality and law enforcement actions".
3/8
 In recent years local governments have tried to make up their funding gaps by imposing penalties and new fees on local businesses (preferably headquartered in other jurisdictions). My friends who own SMEs say that this has become a huge problem for them.
Read 8 tweets
Michael Pettis Profile picture
Dec 20
1/7
 China Daily says that now that last week's "Central Economic Work Conference identified the 'vigorous promotion of consumption' as the top priority for 2025", Beijing will "roll out an array of targeted measures to...

chinadaily.com.cn/a/202412/20/WS…
2/7
 boost consumption", mainly, it seems, expanding the scope and coverage of the the "trade-in" programs, in which Chinese households are given subsidies to trade in their home appliances, home furnishings and automobiles for new ones.
3/7
 The article claims that the trade-in program led to new sales of RMB 1 trillion this year, but fails to note that nearly all of these new sales came at the expense of other forms of consumption, so that they only increased total consumption by the amount of the subsidies.
Read 7 tweets
Michael Pettis Profile picture
Dec 18
1/9
 Lizzi Lee notes that requiring technology transfers and local production in exchange for market access is a way to protect strategically important industries.

She's right, but this only addresses one of the two very different trade-related problems.

ft.com/content/4b1b72…
2/9
 The first problem is that in a globalized world, economies with open capital and trade accounts automatically import their industrial policies as the obverse of the industrial policies of their more aggressively interventionist trade partners.

carnegieendowment.org/china-financia…
3/9
 If one economy subsidizes its EV industry because it believes it to be strategically important, for example, the global expansion in its EV industry will come at the expense of EV production among its trade partners.

In that case the kind of policies Lee proposes make sense.
Read 9 tweets

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