1/6

This is pretty worrying. The justification for open capital markets is that, left to their own devices, investors will mostly seek out ways to shift capital from less productive to more productive uses and, in so doing, will end up raising global...

ft.com/content/f9b94a…
2/6

productivity and wages. There would be some speculative capital in this case, but it would be relatively limited and, because it would increase liquidity and help disseminate information quickly, it would serve mainly to grease the wheels of those fundamental investors...
3/6

who allocate capital to its most economically efficient use.

It is pretty hard to watch these huge flows into and out of developing countries, and the speed with which they shift, and conclude that this is in fact what is happening. Instead the unfettered flow of capital...
4/6

is largely speculative, serving mainly to exacerbate economic volatility in the affected countries, the costs and benefits of which are in turn distributed very asymmetrically between different economic sectors and classes, mainly based on their relative political strengths.
5/6

I would argue that reforming the system of international capital flows must be a fundamental part of any global renegotiation of the rules that govern international trade. While opposition from the financial sector may make it hard to implement, it shouldn't be very hard...
6/6

to design another set of rules under which trade and capital flows would serve economic productivity and wages better than the current system.

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More from @michaelxpettis

26 Jan
1/6

It's great to hear that Lu Di's band, Hardcore Raver, will contribute to the upcoming Gang of Four Tribute Album. Less than three month's before he died, Andy Gill called me to say that Gang of Four were coming to Beijing. When he arrived we...

radiichina.com/andy-gill-trib…
2/6

had a long dinner together while the rest of his band went partying.

I'd met him in 2013 after I had contacted him to see if he'd agree to come to Beijing to produce an album by Lu Di's previous band, the brilliant AV Okubo. To my shock and delight he agreed, even after...
3/6

I warned him that we were an indie label with very limited resources and would just be able to cover the cost of his flight and accommodations.

Andy and I saw each other several times since then in Beijing and London, and during our dinner that October we agreed that...
Read 6 tweets
26 Jan
1/6

We've been having this discussion for years with no resolution, and I would argue that resolution isn't possible without a major – and as yet unlikely – transformation of the growth model. Property development is the engine of growth in China, and...

ft.com/content/4c866d…
2/6

expectations of rising real-estate prices drive the demand that drives property development. Beijing recognizes that continually rising real-estate prices are “politically not acceptable”, so it must stabilize them without causing them to drop, which is difficult enough.
3/6

But even if it somehow succeeds, that means a gradual decline in the demand for new apartments and office space, and eventually with it in the expansion in property development, which means losing the economy's growth engine.

Only rapidly rising debt can keep this game...
Read 6 tweets
25 Jan
1/6

Good response by @GagnonMacro to a piece arguing that the Swiss central bank does not manipulate its currency.

In the report itself the authors argue that Switzerland runs a large and persistent current account surplus because "Switzerland is a country that saves more...
2/6

than what can be invested domestically. As a result, these investments are made abroad, which gives rise to the current account surplus. This is no evidence for an undervalued currency or unfair competitive policies." They then go on to explain why the Swiss save a lot.
3/6

This claim is disingenuous because it seems to imply that Swiss surpluses are somehow different from those of other countries. In fact every country that runs a current account surplus is, by definition, a country "that saves more than what can be invested domestically".
Read 6 tweets
25 Jan
1/4

As China's population ages, its dependency ratio is rapidly deteriorating, from 70% today to 56% by 2060. During this period the US and global dependency ratios will decline from 65% for both to 60% for the US and 62% for the world.

scmp.com/news/people-cu…
2/4

Beijing of course is worried about the implications of a rapidly deteriorating dependency ratio but, according to this article, won't implement policies to encourage births because these would imply that Beijing's earlier birth-control measures were a serious mistake.
3/4

I think there could also be another reason: they may not want to make a bad situation in the medium term worse. If we were to assume that Beijing is successful in sharply increasing expected births over the next 10-15 years, this would only mean that the dependency...
Read 5 tweets
25 Jan
1/4

More and more investors in Shenzhen and other hot property markets are getting into trouble for skirting rules designed to enforce the policy that "homes are for living, not speculating". The extent of the problem shows just how speculative the...

scmp.com/business/artic…
2/4

Chinese property markets have become, and have been for many years. It also suggests how useless it is to expect that new rules punishing speculating can change the nature of property investment in China. Once a market has been so long driven by speculative buying from...
3/4

investors whose only reason for buying is the self-reinforcing expectation of more rising prices, only a sharp drop in prices can drive speculators out.

This sharp reversal won't necessarily happen soon: the forces that drive speculative buying can go on for a very long...
Read 4 tweets
24 Jan
1/5

It is easy to make fun of Chinese bond-rating agencies (and most people do) as suffering from “flawed methodology, conflicts of interest, and corruption”, but, as Caixin points out, while these have all played a role in the industry’s...

caixinglobal.com/2021-01-22/in-…
2/5
misadventures, “structural problems in the bond market itself, including regulator meddling, are just as responsible for China’s ratings woes”.

I think this is absolutely correct. In China even the best and most objective rating agency would have to struggle with the...
3/5

implications of government insistence on growth rates higher than the economy can productively and sustainably bear. In that kind of system, credit quality must necessarily deteriorate, and an individual credit rating must often be based on nothing more than speculation...
Read 5 tweets

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