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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
Feb 28
1/7
 Bloomberg: "China is balancing productivity gains from AI with labor stability, as automation could displace workers and trigger an economic spiral."

I think this whole AI-will-cause-unemployment argument is very confused.
bloomberg.com/news/articles/…
2/7
 Getting workers to become more productive doesn't cause workers to be fired. In fact that's the only way to make them richer.

What really matters is whether or not wage growth for the overall economy keeps pace with productivity gains.
3/7
 If they don't, growth in production will outstrip growth in consumption, and while this can temporarily be resolved by rising household debt, ultimately it means that production will be reduced and unemployment rise.
Read 7 tweets
Michael Pettis Profile picture
Feb 26
1/5
 SCMP: "“China needs to move decisively towards consumption-led growth,” Sonali Jain-Chandra, IMF mission chief for China, said in an interview with the South China Morning Post."
scmp.com/economy/china-…
2/5
 Yes, but how? The IMF has urged China to put into place a stronger social safety net, but even if China were to do so, until it is credible (which will take years, even decades) it will have little impact on current consumption.
3/5
 I'd argue that the only sustainable way "to move decisively towards consumption-led growth" requires a major shift in the distribution of national income away from either businesses or the government (or both) towards workers and middle-class households.
Read 5 tweets
Michael Pettis Profile picture
Feb 25
1/5
 Bloomberg: "The scale of the problem is staggering. Trade data released Thursday showed a record $112 billion gap between what China reported exporting to the US and what US Customs said actually arrived last year."
bloomberg.com/news/features/…
2/5
 "Put simply," Bloomberg continues, "that suggests that as much as a quarter of what Asia’s top economy shipped to American shores last year slipped under the tariff radar."
3/5
 It also suggests why a hodgepodge of sectoral and bilateral tariffs are less efficient than a simple tariff on all imports. While the former mostly shift trade around, the latter is equivalent to a currency devaluation for a country that doesn't intervene in its currency.
Read 5 tweets
Michael Pettis Profile picture
Feb 24
1/6
 Bloomberg: "Instead of fighting over quotas and rules, officials should be rolling up their sleeves and thinking honestly about where the EU has a fighting chance of competing — not “picking winners, but letting the losers go.”"
bloomberg.com/opinion/articl…
2/6
 This might be perfectly good advice in a "normal" trading environment, in which countries maximize exports in order to maximize imports and domestic consumption, trade is broadly balanced, and production shifts according to comparative advantage.
3/6
 But that is not the world we live in. Consider China. It accounts for roughly 18% of global GDP, only 13% of global consumption, and a massive 31% of global manufacturing.

But it did not get there by “picking winners, and letting the losers go.”
Read 6 tweets
Michael Pettis Profile picture
Feb 24
1/4
 As this WSJ article points out, countries are keeping their exports competitive in the face of US tariffs by increasingly subsidizing them, with the subsidies ultimately being paid for in the form of suppressed consumption.
wsj.com/economy/trade/…
2/4
 This means that we are increasingly caught up in a globalized Kalecki Paradox: when one country subsidizes manufacturing exports at the expense of wage growth, it can grow more quickly, but when all countries do it, they collectively grow more slowly.
engelsbergideas.com/notebook/europ…
3/4
 That's because by reducing demand, they are also reducing demand for their exports. They have to double down to remain competitive, even as a collective doubling down worsens the overall outcome.

As the article points out, this makes the US deficit the key variable.
Read 4 tweets
Michael Pettis Profile picture
Feb 24
1/7
 Reuters: "China's biggest solar firms shed nearly one-third of their workforces last year, company filings show, as one of the industries hand-picked by Beijing to drive economic growth grapples with falling prices and steep losses."
reuters.com/business/world…
2/7
 "The job cuts illustrate the pain from the vicious price wars being fought across Chinese industries as they grapple with overcapacity and tepid demand. The world produces twice as many solar panels each year as it uses, with most of them produced in China."
3/7
 With Chinese manufacturing competitiveness so dependent on the very transfers that weaken domestic demand, China and the world are caught in a trap. The world cannot continue to absorb a Chinese manufacturing sector that is growing so much faster than domestic demand.
Read 7 tweets

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