The Pettis Paradigm and the Second China Shock
With Chinese funding of European debt, Europe, ironically, would find itself enjoying part of the supposed benefits of exorbitant privilege. It would discover however that while more foreign funding sounds like a good thing, it is the same as larger current account deficits, which most certainly are not a good thing for countries struggling with lo
... See moreMichael Pettis • The Great Rebalancing
Inflation, Interest Rates, The War in Ukraine & Commodity Prices, Labor Markets and The Great Repricing
Compounding Thoughts • Making Sense of the Macro
The increase in inflows will increase the demand for renminbi, so it will increase central bank intervention by exactly the same amount. If you look only at the central bank’s figures, its capital exports will actually rise, and this will seem to imply an increase in the trade surplus, but remember that the increase in capital exports by the People
... See moreMichael Pettis • The Great Rebalancing
Economists weren’t always so mixed up. In his classic 1944 book, International Currency Experience , Ragnar Nurkse wrote that “the devaluation of a currency is expansionary in effect if it corrects a previous overvaluation, but deflationary if it makes the currency undervalued.” Tariffs, which are close cousins of currency devaluation, act in the s
... See moreMichael Pettis • How Tariffs Can Help America
Second, Trump is threatening to put tariffs on U.S. allies like Canada and Mexico. This will deprive American manufacturers of the cheap parts and components they need to build things cheaply, thus making them less competitive against their Chinese rivals. It will also provoke retaliation from allies, limiting the markets available to American manu
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