Thread by @michaelxpettis

This could be an interesting development. In the 1920s and 1930s the US proved what should have been obvious: countries that lend substantial sums abroad (and run the corresponding trade surpluses) must constantly expand their lending to...
scmp.com/news/china/dip… via @scmpnews

@SCMPNews ...unsustainable levels if they refuse ever to allow their large trade surpluses to become trade deficits (or they must forgive the debt). Net repayment of foreign lending requires that the paring country run surpluses and the receiving county runs deficits.

In my 2013 book I...

@SCMPNews ...quote FDR’s 1932 lampooning of the Republican position:

A puzzled somewhat skeptical Alice asked the Republican leadership some simple questions:
“Will not the printing and selling of more stocks and bonds the building of new plants and the increase of efficiency produce...

@SCMPNews ...more goods than we can buy?”
“No,” shouted Humpty Dumpty, “the more we produce the more we can buy.”
“What if we produce a surplus?”
“Oh, we can sell it to foreign consumers.”
“How can the foreigners pay for it?”
“Why, we will lend them the money.”
“I see,” said...

@SCMPNews ...little Alice, “they will buy our surplus with our money. Of course these foreigners will pay us back by selling us their goods.”
“Oh not at all, “said Humpty Dumpty. “We set up a high wall called the tariff.”
“And,” said Alice at last, “how will the foreigners pay off...

@SCMPNews ...these loans?”
“That is easy, said Humpty Dumpty. “Did you ever hear of a moratorium?”
And so alas, my friends, we have reached the heart of the magic formula of 1928.

I guess China (and Germany) will learn that you can't run permanent surpluses and also get your money back.