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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
Jan 21
1/7
 EU commissioner for trade Maroš Šefčovič is absolutely right to question the usefulness of the WTO: "If the WTO is to meet today’s challenges, its rules must be fair and deliver balanced, legitimate outcomes. Currently, they do neither."
ft.com/content/2ff1d4…
2/7
 The fact that decades of the largest, persistent trade imbalances in history have largely been WTO compliant suggests strongly that the WTO is more about maintaining legal fictions than it is about discouraging the adverse impact of trade intervention on the global economy.
3/7
 As Keynes (and many others) pointed out nearly a century ago, evidence that a country is intervening in trade shows up very clearly in the form of persistent, beggar-thy-neighbor trade surpluses. If the latter exists, then the former exists.
Read 7 tweets
Michael Pettis Profile picture
Jan 21
1/6
 Reuters: "Chinese leaders have pledged to "significantly" lift household consumption’s share of the economy over the next five years, but have not given a specific target."
reuters.com/world/asia-pac…
2/6
 If we assume that Beijing hopes to raise the consumption share of GDP by 3-5 percentage points (roughly a third of what it would need to be a more "normal" low-consuming economy), consumption would have to grow by 1-2 percentage points faster than GDP over the period.
3/6
 That's a pretty big gap, and one we have never yet seen in the past 3-4 decades of Chinese growth. The good way to manage this, of course, would be for consumption growth to accelerate, although it is not at all clear what would cause that acceleration.
Read 6 tweets
Michael Pettis Profile picture
Jan 20
1/7
 Good Martin Wolf piece on the global return of mercantilism. What is new about this piece is that it seems part of a growing recognition among global opinion makers that mercantilism and trade war didn't start when deficit economies with...
ft.com/content/cd68b3…
2/7
 open external accounts began to implement trade restrictions and otherwise control their external accounts. It started earlier, when economies that controlled their external accounts implemented trade and industrial policies that led to beggar-thy-neighbor trade surpluses.
3/7
 We are returning, in other words, to Joan Robinson and her 1937 explanation of how trade conflict emerges. What I would add is that in a hyperglobalized trading system (i.e one in which transportation costs, communications costs, and the costs of...
ia802806.us.archive.org/16/items/essay…
Read 7 tweets
Michael Pettis Profile picture
Jan 18
1/6
 Wall Street bankers and owners of movable capital would hate it, but if the rest of the world were to reduce its dependence on the US dollar, this would be good for the US economy, good for US manufacturing, and good for US farmers and workers.
wsj.com/finance/curren…
2/6
 The claim that the US benefits from the global use of the dollar is one of those things that people believe even though they can't explain why – except perhaps in terms of sanctions. None of the world's fastest-growing economies (including...
foreignaffairs.com/united-states/…
3/6
 advanced economies like the US in the 100 years before the 1970s, Germany in the same time period, or post-war Japan, Taiwan and South Korea) had major reserve currency status, and yet they all had rapidly growing economies driven by even more rapid growth in manufacturing.
Read 6 tweets
Michael Pettis Profile picture
Jan 18
1/4
 Bloomberg: "“Even with strong determination and sufficient resources, transforming China’s economy into one driven by consumption and services will take years,” Goldman said. “With a more reluctant, measured approach, it could take decades.”"
bloomberg.com/news/articles/…
2/4
 Goldman is right, of course, unless a debt crisis, or a serious acceleration of trade war, forces a much faster, disruptive adjustment. While the latter might happen, the former is, for now at least, pretty unlikely.
3/4
 A long adjustment, however, means a Japanese-style adjustment over two or three decades, in which consumption growth continues at more or less the same pace it had in the past while GDP growth drops sharply, and investment growth goes negative.
Read 4 tweets
Michael Pettis Profile picture
Jan 18
1/10
SCMP: "Kenya has reached a preliminary trade deal with China for duty-free exports of key products including coffee, tea and cut flowers – a major step towards narrowing the East African nation’s long-standing trade gap with Beijing."
via @scmpnewssc.mp/gg0zg?utm_sour…
2/10
This kind of incrementalist thinking is one of the reasons why global trade is so unbalanced and so poorly understood. China does not run a trade surplus with Kenya because of tariffs on coffee, tea and cut flowers.
3/10
It runs a massive trade surplus with the world because of equally-massive domestic imbalances. Reducing tariffs on Kenyan coffee, tea and cut flowers will have almost no effect at all on China's domestic imbalances, and so no affect on China's need for a trade surplus.
Read 10 tweets

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