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Michael Pettis Profile picture
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25 Jun, 4 tweets, 1 min read
1/4
 I disagree. They couldn't as long as they set unrealistically high GDP growth targets, and that's precisely the point. This has been a problem for years, and was made clear by some astonishing statements a few years ago by the Ministry of Rails.
2/4
 What is more, for years Beijing has been promising to cut back on property and infrastructure spending, and on the debt associated with it, but they have always expanded or contracted it as needed to achieve the GDP growth target.
3/4
 This investment has been, in other words, a residual that expands when what they call "high-quality" is lower and contracts when high-quality growth is higher. Last year for example when high-quality growth was negative, it expanded to represent nearly 200% of total growth.
4/4
 This year it will contract sharply because high-quality growth will probably deliver 6-7 percentage points of GDP growth. This approach to property and infrastructure investment makes no sense at all if this investment were productive.

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More from @michaelxpettis

Michael Pettis Profile picture
25 Jun
1/14
Zhou Chengjun, the PBoCs head of research, points out the inevitable conflict that major reserve-currency status brings (what I call "the exorbitant burden": "On one hand," he says, "are the goals of domestic monetary policy, on the other are...

caixinglobal.com/2021-06-24/opi…
2/14
the responsibilities and obligations as issuer of the global reserve currency. It is nearly impossible for the monetary authority to consider domestic goals and international roles at the same time."
3/14
Zhou is right, of course, but he then argues that this dilemma is why USD's role must decline in favor of RMB. He doesn't seem to recognize that in fact China faces a much more damaging form of this very same dilemma, which is why for all the talk in the past 15 years...
Read 15 tweets
Michael Pettis Profile picture
24 Jun
1/4
 Cash WMPs are WMPs that can be redeemed daily. Banks have issued an amount equal to roughly 8% of China's annual GDP.

As Caixin points out, these "are often marketed as delivering returns much higher than ordinary deposit rates, pushing banks to...

caixinglobal.com/2021-06-24/in-…
2/4
 invest in risky assets or extend loans to highly leveraged companies, such as property developers. A chief goal of the government’s new WMP rules is to ban banks from guaranteeing returns on investments, a long-standing practice that encourages investors to dump money...
3/4
 into risky, high-yielding assets while expecting state protection if the underlying investments fail."

Because banks earn WMP fees by investing depositors money in risky assets while protecting them from any associated loss, this seems a reasonable enough goal, one that...
Read 4 tweets
Michael Pettis Profile picture
23 Jun
1/6
 While it is true that 99% of what anti-MMTers say about MMT is nonsense, it is also true that 90% of what MMT proponents say about MMT is also nonsense. The tweet below is a typical example of the latter. Academic economists have long focused on the real economy while...
2/6
 ignoring balance sheets and money, and MMT was one of the ways in which to redress this, but it seems that some of its more naive proponents have now decided that MMT means you can ignore the real economy. That's one of the reasons why Hyman Minsky was so important:
3/6
 he insisted that the real economy must be understood in terms also of balance sheet constraints.

The mistake that the most naive MMTers make is their failure to understand that there is always a real constraint to borrowing — real debt-servicing capacity — even for...
Read 6 tweets
Michael Pettis Profile picture
23 Jun
1/8
 The idea that China is somehow expressing the insights of MMT is based on a pretty substantial confusion, both about MMT and about China’s growth model. MMT does not tell us that government debt doesn’t matter, even if far too many analysts believe...

bloomberg.com/news/articles/…
2/8
 that this is indeed what it tells us. It simply tells us that there are no legal or practical constraints on the ability of a government that controls its central bank to service its debt in monetary terms.
3/8
 But to the extent that increases in debt create purchasing power in some sector of the economy without creating an equivalent amount of additional production, servicing debt will still involve real transfers from other sectors of the economy.
Read 8 tweets
Michael Pettis Profile picture
21 Jun
1/6
 I disagree, Martin. For the past several decades businesses have been very clear: they cannot raise wages in line with productivity because of foreign competition, mainly from countries with low wages relative to productivity, and if they have to pay higher wages, they...
2/6
 will be forced to move production offshore. It has also been clear that the countries that have benefitted most from global trade have been those whose wages are lowest relative to productivity.
3/6
 Germany is a particularly good example of this because in the 2-3 years that they "reformed" wages downwards, they went from trade deficits and weak domestic demand to massive trade surpluses and very strong foreign demand, which in turn ultimately put huge downward...
Read 6 tweets
Michael Pettis Profile picture
21 Jun
1/5
 How can we discuss the dangers of debt without discussing the uses of that debt? It should be obvious that whether more government debt (or money, which is the same thing) is good or bad for the economy depends on its use and purpose.

wsj.com/articles/how-l… via @WSJopinion
2/5
 If an increase in US government debt funds a direct increase in productive investment (e.g. infrastructure), an indirect increase in productive investment (e.g. downward wealth transfers that, by boosting consumption, raise business investment) or act as a substitute...
3/5
 for household debt, there is no limit to the amount by which it can increase because any increase in debt-servicing costs will be more than matched by an increase in the real debt-servicing capacity of the economy.
Read 5 tweets

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