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Michael Pettis Profile picture
@michaelxpettis
Sep 28, 2020 • 6 tweets • 2 min read • Read on X
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1/6
 Perhaps we shouldn't be surprised. I didn't look at the full details of the restructuring, but from what I saw it seemed to me that all it really did was to postpone principle repayments for a few years. If Argentina simply had a temporary problem...

ft.com/content/fd786d…
2/6
 of matching up cashflows, this might make sense, but if Argentina's external debt was more than it's exports could support (and clearly it was, as @Brad_Setser has argued), it didn't help at all.

Anyone who studies the history of sovereign debt restructuring knows how...
3/6
 this will probably turn out: For many years both sides will pretend that Argentina has a liquidity problem, not a solvency problem, during which time the economy will struggle as the debt gets regularly extended, until finally, once debt prices are low enough, Argentina...
4/6
 and its creditors will recognize reality and negotiate a substantial debt forgiveness, only after which will the economy start to grow again.

The problem is that the debt isn't just incidental to the economy: it is one of the reasons why the economy will continue to...
5/6
 struggle. The excessive debt burden encourages flight capital, discourages private sector investment, undermines social stability, makes workers and labor unions more militant, dramatically shortens the time horizons of policymakers, depresses export incentives, and so on.
6/6
 This is why as long as the debt burden remains, Argentina will not be able grow out of the debt no matter how regularly it restructures principle payments.

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More from @michaelxpettis

Michael Pettis Profile picture
Feb 11
1/6
 According to Greg Ip, in the US economy today, "rewards are going disproportionately toward capital instead of labor. Profits have soared since the pandemic. The result: Capital is triumphant, while the average worker ekes out marginal gains."
wsj.com/economy/jobs/c…
2/6
 And as Marriner Eccles, FDR's Fed chairman, explained in the 1930s, this creates a dangerous illusion. The extent of business profits depends almost wholly on the purchasing power of ordinary people, which in turn depends on wages.
3/6
 In a rapidly-growing developing economy, with huge unmet investment needs, it may be possible (even necessary) for profits to rise faster than wages because the resulting rise in saving can be deployed to productive investment.
Read 6 tweets
Michael Pettis Profile picture
Feb 10
1/5
 Reuters: "The EU should consider either an unprecedented 30% across-the-board tariff on Chinese goods or a 30% depreciation of the euro against the renminbi to counter a flood of cheap imports, a French government strategy report said on Monday."
reuters.com/world/china/fr…
2/5
 I think it's only a question of time before the EU will intervene in its external account to protect its manufacturing sector, just as China has done for decades and the US is increasingly trying to do. It can implement all the reforms that have been proposed to improve...
3/5
 the efficiency of its manufacturing, but while these reforms may indeed do just that, they won't improve Europe's competitive position.

This may sound counterintuitive at first, but I have a piece coming out soon in Engelsberg Ideas explaining why.
Read 5 tweets
Michael Pettis Profile picture
Feb 10
1/11
SCMP: "China’s potential growth rate could fall to about 2.5 per cent in the coming years unless action is taken, prominent Chinese economist Zhou Tianyong has warned."
sc.mp/itwrt?utm_sour…
2/11
“Without a strong turnaround in total factor productivity and a meaningful expansion in household consumption, it will be difficult for China’s economic growth to reach 4 per cent or higher,” he added.
3/11
A 2-3% growth rate is becoming an increasingly popular reference growth rate for Chinese analysts. I'd argue that over the past several years, 2-3% has actually been the upper limit of growth once we strip out the "positive" impact of not recognizing bad investment.
Read 11 tweets
Michael Pettis Profile picture
Feb 4
1/8
 Jason Furman: "A weaker dollar may improve the economy’s long-run balance, but it does so by forcing Americans to cut back on spending. That is like telling children to eat more spinach today so they will be healthier in the future."
nytimes.com/2026/02/03/opi…
2/8
 Furman is right. Currency appreciation reduces consumption costs in the short term by making imports cheaper, but in a hyperglobalized world, it also undermines domestic manufacturers by making them less competitive against foreign manufacturers.
3/8
 Academic economists (mainly in the US) will argue that this is a good thing because the goal should be to maximize consumption, but the only sustainable way to maximize consumption over the longer term is to maximize production.
ft.com/content/89110b…
Read 8 tweets
Michael Pettis Profile picture
Feb 3
1/4
 Yicai: "China's macro leverage ratio – a measure of total debt relative to nominal GDP – rose by 11.8 percentage points to 302.3 percent in 2025, exceeding the 10.1 point increase recorded in 2024, according to a new research report by CASS.
yicaiglobal.com/news/chinas-de…
2/4
 There is a lot of disagreement about the real debt-to-GDP ratio in China, especially given the difficulty of counting hidden debt, along with an "abnormal" rise in payables and receivables that reflects inability to pay debt more than it reflects rising revenues.
3/4
 If we use the official total social finance number as the measure of debt, the ratio is 315%. The BIS and other entities show even higher ratios. But whatever the real number, it is among the highest in the world, perhaps exceeded only by Japan among major economies.
Read 4 tweets
Michael Pettis Profile picture
Feb 2
1/7
 SCMP: "Chinese scholars have called for greater urgency in reducing reliance on US dollar assets, particularly after Washington and its allies froze about US$300 billion in Russian foreign exchange reserves in 2022."
scmp.com/economy/global…
2/7
 Although this may be a favorite new topic among academics – and not just Chinese academics - few seem to understand that a country cannot restructure global capital flows without also restructuring global...
3/7
 trade flows, nor that a country cannot change its external imbalances without either changing its internal imbalances or changing the external imbalances (and thus the internal imbalances) of its trade partners.
Read 7 tweets

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