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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 8
1/6
 China’s exports in November rose 5.9% year on year, leading to a $111.7 monthly trade surplus. A few years ago, a monthly trade surplus of over $100 billion would have seemed almost inconceivable, but so far this year it has happened six times

bloomberg.com/news/articles/…
2/6
 While exports to the US in November were down 29% year on year, according to Bloomberg, "Exports to the EU expanded almost 15% last month. Shipments to Africa surged nearly 28%, while those to the 10-nation Southeast Asian trading bloc gained only 8.4%."
3/6
 Contrary to what many think, it is not just a lucky coincidence that Chinese exports to the rest of the world have surged even as exports to the US have declined. The fact that US imports from the rest of the world have surged even as US imports from China have declined...
Read 6 tweets
Michael Pettis Profile picture
Dec 8
1/6
 Emmanuel Macron: "Today, we are caught between the US and China and it is a matter of life or death for the European industry. We have become the adjustment market and this is the worst-case scenario."

He is absolutely right.
reuters.com/world/china/fr…
2/6
 This is the point I have been making again and again over the years. The global economy is a closed system, and it must balance. This means that domestic imbalances created by countries that control their external accounts must...
3/6
 necessarily be exported to and absorbed by those of their trade partners that chose not to control their external accounts. It also means that the latter must end up with domestic imbalances that accommodate the domestic imbalances of the former.
Read 6 tweets
Michael Pettis Profile picture
Nov 30
1/10
WSJ: "What saves American finance is the dollar’s status as the must-have global asset and trading currency. Both roles face challenges, though, and the more the U.S. exploits foreigners, the higher the risk they look elsewhere."

via @WSJwsj.com/finance/invest…
2/10
While this is widely believed, it isn't true. Foreign capital inflows don't fund fiscal deficits. They fund current account deficits, and they must be matched domestically either by higher US investment, higher US unemployment, or higher US household and fiscal debt.
3/10
For those who understand accounting identities, these are the three main ways foreign inflows can result in wider gap between investment and saving. When there is an increase in net foreign inflows, in other words, one (or some combination) of these must occur.
Read 10 tweets
Michael Pettis Profile picture
Nov 28
1/12
Weijian Shan is right: China does need to let the renminbi rise, and substantially. An appreciating currency would "subsidize" imports and "tax" exports – the opposite of what tariffs are supposed to do. Given that households are net importers...
ft.com/content/5bb8ed…
2/12
and manufacturers are net exporters, an appreciating currency is effectively an income transfer from manufacturers to households.

This, as former PBoC governor Zhou Xiaochuan explained many years ago, would be a very effective part of the income rebalancing process.
3/12
In fact any policy that correctly rebalances the distribution of income towards more domestic consumption works the same way, raising the household share of GDP – by increasing wages relative to productivity, raising interest rates, expanding social welfare spending, etc.
Read 12 tweets
Michael Pettis Profile picture
Nov 28
1/8
 Xinhua: "China aims to "achieve a notable increase in household consumption as a share of GDP," and to increase the role of domestic demand as the principal engine of economic growth over the next five years, according to the new MIIT plan".
english.news.cn/20251127/5539c…
2/8
 But while everyone in government now acknowledges the urgent need to raise the consumption share of GDP, and wants to be seen doing something to achieve the goal, it isn't clear that they know what to do. This new "comprehensive" plan "to improve the alignment of...
3/8
 the supply and demand of consumer goods" seems mainly to focus on producing more and better consumer goods, as if the problem in China is that households have plenty of money to spend, and are eager to spend it, but just don't have anything to spend it on.
Read 8 tweets
Michael Pettis Profile picture
Nov 26
1/18
Martin Wolf wonders whether the US or China will be the first to abandon its current follies on trade imbalances, but I don't think this is the right way to understand the current "fracturing" of globalization.
via @ft@ftft.com/content/b5157c…
2/18
As I see it, everyone (even Europe, eventually) is relearning what we used to know: a highly globalized trading regime can only work when all major economies choose more or less the same tradeoff between global integration and economic sovereignty.
3/18
That's because economies that exert more control than their trading partners over their external accounts (i.e. choose more economic sovereignty and less global integration) are also able to exert more control over their internal accounts, i.e. they are able to structure...
Read 18 tweets

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