1/5 All this external debt is definitely storing up future trouble for developing countries, but not just for them. When developing countries borrow money from abroad and spend it domestically, part of it can flow abroad again in the form of rich...
2/5 people's profits, but most of it must go directly or indirectly to pay for imports from abroad.
This means that foreign borrowing by developing countries effectively transforms useless ex-ante savings into real global demand, something the world economy urgently...
3/5 needs. The problem is that once these countries can no longer borrow, and must begin to pay down the debt, what was once an addition to global demand becomes a subtraction from it: spending on real goods and services must be cut to fund increases in ex-ante savings.
4/5 Developing-country borrowing, in other words, is actually positive for global growth today, but can be negative for global growth tomorrow. This, by the way, is one of the strongest arguments why major lending countries should strongly support debt forgiveness for...
5/5 developing countries: to the extent that it boosts domestic employment, it will cost them nothing in the aggregate. It will mainly transfer income from international investors to domestic workers, producers, farmers and businesses.
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1/15
Foreign ministry spokesperson Li Jian says that the U.S. "overcapacity" narrative is a very blunt US policy tool whose purpose is to undermine Chinese industry. He isn't completely wrong: there is a lot of confusion over what "overcapacity" means.
2/15
China's domination of certain industrial sectors, for example, isn't in itself overcapacity. As Li noted, "The US exports 80% of its chips, especially advanced chips, and is a large exporter of pork and agricultural products. Is that 'overcapacity' according to US logic?"
3/15
A week earlier vice finance minister Liao Min said something similar – "the so-called 'overcapacity' is a manifestation of the market mechanism at work, where supply-demand imbalance is often the norm".
1/8 Although Russell Napier is right to identify China's high and soaring debt as a major problem for the economy, he then says: "China needs to not just reflate its economy but to inflate away its debts."
2/8 That would be a terrible mistake, and I think the PBoC understands why.
You cannot just "inflate away" debt. Inflation is just a mechanism for resolving debt by passing on the costs to net monetary savers.
3/8 In China's case, businesses, SOEs and the government are net borrowers, while households are high net savers. Inflating away the debt simply means forcing household savers to subsidize businesses, SOEs and borrowers.
1/6 This NYT article shows just how confused many economists continue to be about trade. They worry that because in recent years a few economies have been implementing trade and industrial policies, this means an end to free trade and free markets.
2/6 This turning away from free markets, they say, will constrain future growth.
Leave aside that industrial and trade policies have often expanded growth, their worries show just how little they understand what free trade and comparative advantage mean.
3/6 The world turned away from free trade decades ago. The large, persistent surpluses that have characterized global trade since the 1980s are largely the consequences of beggar-thy-neighbor trade policies aimed at boosting domestic growth a the expense of trade partners.
1/5 Chinese GDP grew by 5.3% in the first quarter of 2024, well above expectations, reinforcing concerns that GDP growth in China means something quite different than GDP growth in economies that operate under hard-budget constraints.
2/5 While most economists inside and outside China recognize that sustainable GDP growth in China requires that consumption play a stronger role in driving growth, with investment and the trade surplus playing a declining role, the opposite happened in the past three months.
3/5 Retail sales continued to lag in the first quarter, while much of the period's growth was driven by higher investment in infrastructure and (especially) manufacturing and a large trade surplus. China is still having trouble boosting domestic consumption, in other words.
1/5 FT: "Japan’s central bankers and government officials say the country may finally become a “normal” economy. Companies will be able to pass on increased costs to consumers in the form of higher prices, and workers will demand better pay."
2/5 We've heard this story before, and I think there are at least two reasons to remain skeptical. First, while wage-driven growth in domestic consumption would certainly be a good thing in the medium term, in the short term it runs into the same old problem.
3/5 Manufacturing accounts for 20% of Japan's GDP (versus 16% for the world), and its international competitiveness is still partially underwritten by implicit and explicit transfers from households. Reversing those transfers, which is necessary for any revival in domestic....
1/9 Good Brad Setser piece on Chinese overcapacity. I'd add that the idea overcapacity can be measured on a sector by sector basis, as in a recent Bloomberg article, shows how poorly it is understood. The problem of overcapacity is not incremental. It is systemic.
2/9 From a trade point of view, the problem is that exports are not being exchanged for imports, as they necessarily must in a system of comparative advantage, but rather to externalize the cost of excess savings and weak domestic demand.
3/9 In her brilliant 1937 essay, "Beggar-My-Neighbour Remedies For Unemployment", Joan Robinson put it this way: "When the game of beggar-my-neighbour has been played for one or two rounds, and foreign nations have stimulated their exports and cut down...