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Michael Pettis

@michaelxpettis

Apr 6

@SCMPNews

1/5
This may seem like a specialized story that has nothing to do the raging debate on whether the US dollar can maintain its global dominance, or will be replaced even partially by the RMB, but in fact this story is very relevant.
scmp.com/economy/global… via @SCMPNews

2/5
The fact that wealthy foreigners are able and eager to park at least part of their wealth in Florida real estate, but are unable or unwilling to so the same in Hainan, is crucially important to the status of either currency. It is why foreigners want USD, not RMB.

3/5
The problem for the US is that by welcoming so much foreign investment in US real estate, it is left with expensive (and empty) housing and an overvalued dollar that must be resolved by a rising US trade deficit.

Read 5 tweets

Michael Pettis

@michaelxpettis

Apr 6

@ZichenWanghere

1/8
Yao Yang, the dean of PKU's National School of Development, gave an interesting speech two weeks ago that was recorded and translated by Pekingnology. In it he made what I thought were three very interesting points.
@ZichenWanghere pekingnology.substack.com/p/pku-national…

2/8
One point was on the role of infrastructure. It is pretty clear now to (nearly) everyone how problematic it is to rely on infrastructure spending to generate GDP growth. Yao adds that further spending is “contrary to the central government's requirements for deleveraging.”

3/8
It is difficult to criticize openly the many years of excess infrastructure spending and its effect on the economy, but it is clear that an increasing number of policy advisors want to see it stopped. Less clear is what is to replace it as a source of economic activity.

Read 8 tweets

Michael Pettis

@michaelxpettis

Apr 5

@WSJ

1/7
Aside from the political implications, which include helping to stabilize the Mexican economy, there are at least two obvious economic benefits to the US when American businesses transfer part of their offshore production from China to Mexico.
wsj.com/articles/mexic… via @WSJ

2/7
The first, and perhaps most important from a trade point of view, is that Mexican workers have a much more balanced distribution of domestic income than do Chinese workers.

3/7
Mexican workers retain a higher share of what they produce than Chinese workers, which is also why Mexican households consume so much larger a share of what they produce (roughly 64% of GDP, versus below 40% for China).

Read 7 tweets

Michael Pettis

@michaelxpettis

Apr 5

1/8
John Redwood repeats the often-made claim that in a less “globalized” world, “overall world output and efficiency will drop”, but this claim depends on the implicit assumptions one makes about the constraints on global growth.
ft.com/content/51224d…

2/8
In a supply-constrained world, it is certainly likely that more trade and greater supply-chain expansion should result in more global output. In that case the whole point of trade is to get around supply-side constraints.

3/8
But it is a very different case in a demand-constrained world, when production migrates to economies whose greater international competitiveness depends mainly on the extent to which the household income share of GDP is suppressed.

Read 8 tweets

Michael Pettis

@michaelxpettis

Apr 4

1/4
Thomas Piketty reminds us in this article of the history of income inequality in the US. We have seen extreme levels of income inequality many times before.
nytimes.com/interactive/20…

2/4
Each time it happens, he notes, the argument is made that this time around high income inequality is the necessary or inevitable result of new technology or of an irreversible change in global economic conditions.

3/4
In the end, however, it turns out that rising or declining levels of income inequality have always been the consequences mainly of political decisions.

Read 4 tweets

Michael Pettis

@michaelxpettis

Apr 3

@MacaesBruno

1/11
Very interesting (and often disconcerting) interview by @MacaesBruno of Sergey Karaganov, a former Putin advisor. He argues, not surprisingly, that creeping Westernization is the cause of the war, and that Russia cannot afford to lose.
newstatesman.com/world/europe/u…

2/11
He finishes by arguing that “Continuous shocks will of course also mean that democracy in its present form in most European countries will not survive, because under circumstances of great tension, democracies always wither away or become autocratic.”

3/11
But while he concludes with “These changes are inevitable,” my understanding of history is radically different than his. During periods of great change and tension, it is the robust democracies, with their institutionalized forms of change, that are most likely to survive.

Read 11 tweets

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