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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
Jul 10
1/14
Much interesting stuff in this new paper by Tamim Bayoumi and Joseph E. Gagnon, including their claim that "the persistence of the US current account deficit reflects inflows associated with the size of US financial markets and perceived safety of its...

@GagnonMacro
2/14
assets, with net inflows ebbing and waning depending on financial sentiment about prospects for the US economy."

The idea that capital account imbalances can drive trade imbalances may seem counterintuitive to many, but it is implicit in how the balance of payments works.
3/14
It is important to work out the implications on the US economy, which have to do with far more than just whether or not the US runs a trade deficit. Because every country's internal account must be perfectly consistent with its external account, changes in...
Read 13 tweets
Michael Pettis Profile picture
Jul 9
1/10
According to Bloomberg, China’s share of US imports fell to 7.1% in May, the lowest since 2001, and less than half of the 14.8% in September 2024.

But while that may seem like progress on the trade front, in fact it isn't.

bloomberg.com/news/articles/…
2/10
The US trade problem is not a China problem so much as a problem with the role of the US in accommodating global imbalances. It does this as much through its capital account as through its trade account. What matters is the overall imbalance, not the bilateral imbalance.
3/10
To confuse the two means failing to note that even as the US deficit with China contracts, the overall US deficit continues to rise.

And what's more, the overall Chinese surplus also continues to rise. That's not just a coincidence.
Read 10 tweets
Michael Pettis Profile picture
Jul 8
1/8
 Robert Skidelsky, who has written great books on Keynes' life and work, wrote (with Vijay Joshi) a really good essay—way back in 2010—on the problems of unbalanced trade, and why Keynes' bancor proposal at Bretton Woods made so much sense.
@RSkidelsky
robertskidelsky.com/2010/06/23/key…
2/8
 As the revival of interest in Keynes' bancor proposal gathers pace, it is worth pointing out the similarities to his proposal and to more recent proposals in the US and elsewhere that deficit countries place a kind of Tobin tax on all capital inflows.
3/8
 The way bancor worked was by taxing the capital flow component of persistent surpluses. Surplus countries, of course have to acquire foreign assets to balance their surpluses, in the same way that deficit countries must give up claims on assets.
Read 8 tweets
Michael Pettis Profile picture
Jul 8
1/6
 Reuters: "Chinese government advisers are stepping up calls to make the household sector's contribution to broader economic growth a top priority at Beijing's upcoming five-year policy plan."

reuters.com/business/finan…
2/6
 Reuters continues: "Household consumption currently accounts for 40% of gross domestic product - some advisers propose China should aim for 50% over the next two five-year cycles."
3/6
 It's worth noting that China is such an outlier, that even if it does raise the household consumption share of GDP by ten percentage points, it will still have among the lowest household consumption shares of any major economy in the world.
Read 6 tweets
Michael Pettis Profile picture
Jul 7
1/6
 Good Caixin article on developer debt resolution: "As China’s real estate slump drags on with no recovery in sight, distressed developers are shifting toward more aggressive debt restructuring for survival, forcing creditors to swallow deep losses."

caixinglobal.com/2025-07-07/cov…
2/6
 "For three years," Caixin continues, "developers relied on an “extend and pretend” approach, rolling over debt in hopes of a market rebound. But home sales have collapsed, worsening property companies’ finances."
3/6
 This is the classic debt resolution process, familiar to me from my early years running LDC bond-trading desks. At first, both creditors and obligors pretend that what they have is a liquidity problem, not a solvency problem, and that all is needed is time and forbearance.
Read 6 tweets
Michael Pettis Profile picture
Jul 4
1/12
A Tsinghua-related think tanks argues that "China should issue 30 trillion yuan in treasury bonds to swap local governments’ hidden liabilities to re-energise growth momentum and cut off financial risks at their root."
via @scmpnewssc.mp/gz8bj?utm_sour…
2/12
This would help in two ways, according to the report. It would transfer debt from local government balance sheets to the central government balance sheet, giving them more breathing space to prop up the economy, and it would reduce interest payments.
3/12
But this is what comes of treating a systemic issue incrementally. The problem is not that local governments have too much debt. The excessive debt burden of local governments is actually a symptom of the real problem.
ft.com/content/630f82…
Read 12 tweets

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