Michael Pettis Profile picture
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

Oct 19
1/9
Bloomberg's Chris Anstey notes that "the consumer — not the producer — has been the main focus of officials in Washington. By contrast, China’s leadership, drawing on Marxist tradition, of course focused on production."
@AnsteyEco
bloomberg.com/news/newslette…
2/9
There is nothing wrong, of course, with maximizing consumption. The whole point of economic development, after all, should be to improve total welfare. This was one of Adam Smith's main points.
3/9
What academic economists have real problems understanding, however, is that to be sustainable, the rise in consumption has to be supported by a rise in production, not by a rise in debt and certainly not, most foolishly of all, by minimizing the price of imports when these...
Read 9 tweets
Oct 18
1/9
China Daily says that the next Five-Year Plan might see a change in the way local governments collect taxes, shifting collection from the site of production to the site of consumption.
chinadaily.com.cn/a/202510/17/WS…
2/9
This will presumably change local-government incentives from encouraging more production to encouraging more consumption. According to China Daily, "Local governments, eager for economic growth and...
3/9
tax revenue, aggressively court the same favored industries with favorable policies. The result is a dangerous cycle of redundant construction, vicious internal competition, and ultimately, some oversupply situations."
Read 9 tweets
Oct 16
1/5
Chinese debt continues to rise quickly, with total social financing rising by 8.7% year on year in September (more than twice GDP growth) to RMB 437.08 trillion. This is equal to nearly 312% of 2025's expected GDP (versus 303% at the end of 2024).
caixinglobal.com/2025-10-16/chi…
2/5
In the first nine months of the year, TSF rose RMB 30.09 trillion. If you assume interest on the stock of debt at an average of 2.5%, this implies that it required an increase in debt in the past year equal to 17% of GDP in order to boost nominal GDP by around 4%.
3/5
Bank lending grew by less than expected, or 6.6%, a record low and down from 6.8% in August, and while many analysts have focused on the implications for credit growth, what it really shows is that in recent months there has been a shift in the locus of debt creation.
Read 5 tweets
Oct 15
1/9
WSJ: "According to the people close to Beijing’s decision-making process, Xi’s hard-line strategy is based on the belief that Trump will ultimately fold and offer concessions rather than deploy Washington’s own significant leverage."
via @WSJwsj.com/world/china/ch…
2/9
If true, this could be a very high-risk strategy. According to the WSJ, "With hiring slowing, manufacturing contracting and prices rising, many economists say the U.S. isn’t positioned to absorb another major trade fight with China."
3/9
But if you were to rewrite the sentence as: "With hiring slowing, domestic demand stagnant and prices declining, many economists say China isn’t positioned to absorb another major trade fight with US", it would no less true.
Read 9 tweets
Oct 14
1/8
WSJ: "President Trump is trying to publicly de-escalate tensions with China to soothe markets while privately keeping up pressure on Beijing—a difficult balancing act that is being closely watched by Wall Street."
via @WSJwsj.com/world/china/tr…
2/8
This is also the impression I got from my meetings last week. There is a sense that Beijing overplayed its hand, perhaps because until China is able to boost domestic demand (something that will be extremely difficult), it is still very vulnerable to a trade contraction.
3/8
Although it is the growing US trade deficit that accommodates the growing Chinese surplus, I suspect many in Beijing think that it is the bilateral surplus with the US that matters, which is why it believed it needed to "win" the trade discussions as quickly as possible.
Read 8 tweets
Oct 2
1/9
FT: " UBS's Paul Gong played down the chances of an EV industry-wide consolidation in the near term, as deep financial support for lossmaking groups from provincial governments and capital markets stands in the way."
ft.com/content/5f73d2…
2/9
This is a very appropriate example of János Kornai's distinction between economies that operate under hard-budget constraints and those that operate under soft-budget constraints. The hard-budget constraint sets a limit to the extent of losses a business can have.
3/9
In market economies, Kornai argued, hard-budget constraints prevent entities from persistent loss-making activities unless investors truly believe that future profits are likely to be enormously large. It is economics, not politics, that determines the extent of investment.
Read 9 tweets

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