1/4 It may be exciting to think of history as consisting of turning points, but the Russian invasion is no more a turning point than was COVID, also widely hailed as such. Both events just accelerated what had already been happening for nearly a decade nytimes.com/2022/03/24/bus…
2/4 Globalization has been measurably in retreat since at least the GFC, and for good reason. The version of globalization into which we have locked ourselves has led to persistent trade and savings imbalances, rising income inequality, and soaring debt.
3/4 This was always going to be resolved one way or another, either because the leading economies decided to get together in a new Bretton Woods and repair the global trade and capital regime, or because populism and war forced countries to turn inward and against each other.
4/4 I suspect we will unfortunately continue to follow the latter path, although there is a small chance that by unifying the West the Russian invasion may unexpectedly push us towards the former. In that case it will perhaps really be a turning point.
For those who are interested, the link below is to a World Bank graph that shows trade as a share of global GDP. The share rises rapidly for decades, until 2008, after which it flattens and then begins to fall quite rapidly. data.worldbank.org/indicator/NE.T…
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1/8 I think this is a pretty important article. It points out that China is embracing supply-side policies even though analysts increasingly recognize that fiscal support would be better targeted at households than at businesses. bloomberg.com/news/articles/…
2/8 In fact China has embraced supply-side policies for at least three decades, but I wouldn't suggest it is a conservative policy. Supply-side policies make sense in economies in which productive investment is constrained by scarce savings or by logistical bottlenecks.
3/8 The problem is that while this was true of China for most of the period since the 1980s, it stopped being true about a decade ago, after which the main constraint on productive investment was no longer scarce savings but rather weak domestic demand.
1/4 This is interesting. Evergrande has just "discovered" that RMB 13 billion in pledged deposits have been seized by banks. Depending on how this is treated by the authorities, it could have an adverse impact on the way insolvency occurs within China. caixinglobal.com/2022-03-23/eve…
2/4 A well-functioning insolvency process reduces financial distress costs for the economy by, among other things, ensuring creditors are treated fairly. But if creditors with insider access are allowed to seize assets ahead of other creditors, the process can become chaotic.
3/4 Rather than an orderly restructuring designed to maximize enterprise value and limit the damage to the underlying economy, this would encourage a disorderly restructuring in which agents tear apart the company as they try to maximize the share they retain of the carcass.
1/4 Alibaba (and others) are aggressively buying back shares. This may turn out in retrospect to have been a good strategy, but its worth remembering that large-scale share buybacks are highly pro-cyclical for the economy. bloomberg.com/news/articles/…
2/4 Buybacks, in other words, reinforce improvements in the underlying economy to the same extent that they reinforce further deterioration. By expanding leverage ratios they multiply gains for investors on the way up while multiplying losses on the way down.
3/4 Last week when regulators were determined to arrest the stock market collapse, encouraging share buybacks probably seemed like a good idea. But for those worried more generally about excessive debt build-up, they might make things worse in the longer term.
1/7 Senator Cotton says "There’s no natural level of people, goods, or money moving across borders; it’s a policy choice that must be made by the people and their representatives.” ft.com/content/58700e…
2/7 He's right, of course, and Republicans should question a commitment to financial globalization that was always more ideological than practical (and out of synch with the party's history). Their views however are still based on Peter Navarro's obsolete understanding of trade.
3/7 If this were just about measures to prevent core US technologies and industries from being acquired by China or undermined by foreign mercantilism, it might make sense. There is nothing wrong with Washington being as protective of strategic industries as Beijing.
1/4 "China has had a long-standing objective of greater 'internationalization' of the yuan - but its mantra on seeking stability would likely trump that for the foreseeable future." reuters.com/markets/europe…
2/4 In fact "internationalizing" the RMB means that Beijing must give up control of its capital and current accounts, force down the national savings rate, liberalize the banking system and eliminate policy distinctions between Chinese and foreign financial institutions.
3/4 Beijing won't want to do that any time in the foreseeable future. In fact until it rebalances domestic demand, cleans up the banking system and eliminates moral hazard, internationalizing the RMB would be financially very disruptive.
1/14
Good piece by @TomFStevenson on one of the reasons why, for all the damage it does to the US economy, Washington is unlikely to want to constrain the global use of the US dollar. lrb.co.uk/the-paper/v44/…
2/14
“The fact is," he notes, "that Washington controls access to the international financial system. Much as a naval blockade denies access to the seas, US sanctions are based on monopoly power over a global commons: the world’s reserve currency and medium of exchange.”
3/14
But this comes at a cost to the US too. The dollar is widely used not because of US military power but rather in spite of it. Much of the world suffers from growth policies that reward domestic elites at the cost of structurally weak domestic demand and excess savings.