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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
Jun 30
1/4
 I just finished Martin Daunton's excellent survey and analysis of the last 100 years of globalization. There is an enormous amount of material here (nearly 900 pages) and it may not be an easy read for those who aren't already very familiar with much of this history. Image
2/4
 But for those who are, or who want to be, it's well worth the effort. While the book is ostensibly about the process of globalization, and the role of government and government institutions in that process, especially in pivotal periods during the 1930-40s, the 1970s and...
3/4
 in the past decade, a major theme is the enormous distortions caused by the unfettered flow of capital, the ways in which these flows dislocated domestic economies, and the various (mostly unsuccessful) attempts individually and collectively to control them.
Read 4 tweets
Michael Pettis Profile picture
Jun 28
1/4
 Good John Authers article on business profits in the US: "After-tax profits account for an unprecedented 10.7% of gross domestic product, when in the last 50 years of the 20th century, they never exceeded 8%."
@johnauthers_
bloomberg.com/opinion/articl…
2/4
 "The only time approaching their current share of the economy was in 1929 on the eve of the Great Crash. If the nation is to deal with inequality, money must be redistributed from somewhere; corporate profits are an obvious source of funds."
3/4
 Speaking of 1929, we need to re-read Marriner Eccles (FDR's Fed chairman) on the relationship between income inequality, weak domestic demand, rising debt needed to boost domestic demand, and the eventual collapse in production once rising debt can no longer be sustained.
Read 4 tweets
Michael Pettis Profile picture
Jun 28
1/4
 Caixin: "China is in dire need of more domestic consumption as global uncertainties hamper external demand. Key to this is increasing incomes, a Chinese economics professor said at the Summer Davos Forum in Tianjin on Thursday."

caixinglobal.com/2025-06-26/inc…
2/4
 It's good that there is finally a consensus that low consumption is China's most serious economic problem, and the main cause of its other problems (soaring debt, deflation, overinvestment in infrastructure and manufacturing, over-reliance on a rising trade surplus).
3/4
 It's also good that there's a growing consensus that the only sustainable way to raise consumption is to raise household incomes.

But it isn't yet fully acknowledged that China doesn't need rising consumption per se so much as rising consumption relative to GDP.
Read 4 tweets
Michael Pettis Profile picture
Jun 26
1/15
Kenneth Rogoff says: "There is, for example, a terrific chapter in which Ray Dalio brutally critiques Japanese policymakers for failing to force debt writedowns after the country’s early 1990s financial crisis.'

via @ftft.com/content/e1b99a…
2/15
"Instead," he continues, "they allowed debt overhang to hamstring the financial system and sap two decades of growth."

I haven't read Dalio's book, but this is an extremely important point, and one that Beijing should note.
3/15
Beijing has an enormous of debt that is ostensibly backed by the book value of associated assets (most Chinese debt was used to fund investment), but the economic value of these assets are not worth nearly as much as their book value.
ft.com/content/630f82…
Read 15 tweets
Michael Pettis Profile picture
Jun 22
1/6
 FT: "The value of Chinese exports to Europe in May climbed 12 per cent from a year earlier, with shipments to Germany up 22 per cent. Exports to south-east Asian countries rose 15 per cent."

ft.com/content/2bd9cc…
2/6
 The world is already complaining about the disruptions caused by this flood of Chinese exports away from the US to the rest of the world, especially to Europe. But this so far has been the easy part of the global trade adjustment. It will get much worse.
3/6
 The Trump administration so far has been unable to bring down the US trade deficit, and as long as the US trade deficit rises, it is much easier for other countries to absorb rising trade deficits with China as these are balanced with rising trade surpluses with the US.
Read 6 tweets
Michael Pettis Profile picture
Jun 22
1/7
 SCMP: "Hunan has become the first province in China to use the proceeds of special-purpose bonds to guarantee government payments to...
scmp.com/economy/china-…
2/7
 enterprises, with 20 billion yuan allocated for this year. This marks the first time the bonds – typically earmarked for revenue-generating construction projects – will be used to cover government arrears."
3/7
 A large number of local governments have huge amounts of undeclared debt which they cannot service, including arrears to businesses and various complicated forms of triangular deb and cross-debt guarantees.
Read 7 tweets

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