In Episode 137 of Hidden Forces, Demetri Kofinas speaks with professor of finance at Beijing’s Peking University, Michael Pettis. Profesor Pettis’ research has focused mainly on Chinese financial markets, global trade & capital flows, and central banking. He spent seventeen years on Wall Street running fixed-income trading and capital market desks and has advised governments on privatizations of national banking systems and commercial bank debt restructuring & loan issuance.
In their latest book, “Trade Wars are Class Wars,” Michael Pettis and his co-author Matthew Klein argue that rising inequality within countries heightens trade conflicts between them. The entire conversation lasts for approximately two hours and we devote the first hour to understanding how balance of payments and capital flows—themselves heavily dependent on the dynamics of wealth and income distribution within a country’s borders—can generate imbalances in trade, asset prices, interest rates, debt levels, and currency valuations, often leading to misallocations of capital for the surplus and deficit countries alike.
The second hour is devoted to applying this balance of payments framework to specific economies—namely, the United States, the Eurozone, and China. Demetri and Michael discuss how the financial instability generated from the sorts of imbalances discussed in this episode are now seeping into our systems of government, turning a financial crisis into a political one.
For Super Nerds and Autodidacts, you will want to consult your rundowns and have your transcripts handy for this episode. There are links in the rundown to many of the concepts and theories discussed, as well as charts and images that are relevant to the discussion.
You can access the overtime of Demetri’s conversation with Michael Pettis, as well as obtain copies of the transcript and rundown to this week’s episode through the Hidden Forces Supercast Page. All subscribers gain access to our overtime feed, which can be easily added to your favorite podcast application.
Michael Pettis is a professor of finance at Peking University, where he has been teaching since 2004, and Senior Associate at the Carnegie Endowment for International Peace. Before Peking University he taught two years at Tsinghua University, and before that nine years at the Business School and the School of International and Public Affairs at Columbia University. In China his research has focused mainly on Chinese financial markets, global trade and capital flows, and central banking. During his time in China he also spent three years as Chief Strategist for the Hong Kong subsidiary of mainland Chinese brokerage, Shenyin Wanguo.
Pettis spent seventeen years before that on Wall Street running fixed-income trading and capital markets desks. During this time he has advised the Mexican government on the privatization of the national banking system, the Macedonian government on its commercial bank debt restructuring, the South Korean government on its 1998 commercial bank debt restructuring, and various Latin American governments on their debt issuance strategies.
Pettis publishes a blog, China Financial Markets, which was ranked by the Wall Street Journal as one of the top fifteen economic blogs worldwide, and is one of the reasons cited by Bloomberg-BusinessWeek for including him in its 2016 listing of The 50 Most Influential People in the World.Pettis has published widely, including for Foreign Affairs, Foreign Policy, World Policy Journal, Far Eastern Economic Review, Columbia Journal of World Business, Harvard Business Review, Wilson Quarterly, Financial Times, Bloomberg, The Wall Street Journal, Newsweek, Caijing, and several other leading periodicals.
In May 2020, Yale University Press will publish his book, Trade Wars are Class Wars. His most recent book, Avoiding the Fall: China’s Economic Restructuring, (Carnegie Endowment for International Peace, 2013), was selected by the Financial Times as one of the top ten books on business and economics in 2013. That same year he published The Great Rebalancing: Trade, Conflict and the Perilous Road Ahead for the World Economy (Princeton University Press, 2013), which in 2018 was selected among Barron’s “The 7 Best Books about the Financial Crisis”.
His previous books include After the Fall: The Future of Global Cooperation, (Geneva: ICMBS, 2012, co-authored with Jeffrey Frieden, Dani Rodrik and Ernesto Zedillo), Is China Vulnerable? The Causes and Consequences of Financial Fragility (Tsinghua University Press, 2003), The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001), and Managing Sub-Investment Grade Sovereign Risk (Euromoney Press, 1997). He received an MBA in Finance and an MIA in Development Economics from Columbia University.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Hic ambiguo ludimur. Vide ne ista sint Manliana vestra aut maiora etiam, si imperes quod facere non possim. Quae fere omnia appellantur uno ingenii nomine, easque virtutes qui habent, ingeniosi vocantur. Ergo ita: non posse honeste vivi, nisi honeste vivatur? Rapior illuc, revocat autem Antiochus, nec est praeterea, quem audiamus. Egone non intellego, quid sit don Graece, Latine voluptas? Duo Reges: constructio interrete. Nulla erit controversia.
Ut enim consuetudo loquitur, id solum dicitur honestum, quod est populari fama gloriosum. Quid in isto egregio tuo officio et tanta fide-sic enim existimo-ad corpus refers? Quamquam te quidem video minime esse deterritum. Facile est hoc cernere in primis puerorum aetatulis.
Quorum sine causa fieri nihil putandum est. Sed quod proximum fuit non vidit. Quaerimus enim finem bonorum. Itaque rursus eadem ratione, qua sum paulo ante usus, haerebitis. Tum Triarius: Posthac quidem, inquit, audacius. Ille vero, si insipiens-quo certe, quoniam tyrannus -, numquam beatus; Quos quidem tibi studiose et diligenter tractandos magnopere censeo. Omnia contraria, quos etiam insanos esse vultis. Primum quid tu dicis breve? Satisne ergo pudori consulat, si quis sine teste libidini pareat?
Nihil enim iam habes, quod ad corpus referas; Septem autem illi non suo, sed populorum suffragio omnium nominati sunt. Ita multo sanguine profuso in laetitia et in victoria est mortuus. Eorum enim omnium multa praetermittentium, dum eligant aliquid, quod sequantur, quasi curta sententia; Quare hoc videndum est, possitne nobis hoc ratio philosophorum dare. Expectoque quid ad id, quod quaerebam, respondeas.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Comprehensum, quod cognitum non habet? Sed tu istuc dixti bene Latine, parum plane. Quae hic rei publicae vulnera inponebat, eadem ille sanabat. Duo Reges: constructio interrete. Hoc Hieronymus summum bonum esse dixit. At eum nihili facit; Ex ea difficultate illae fallaciloquae, ut ait Accius, malitiae natae sunt. Et nemo nimium beatus est;
Levatio igitur vitiorum magna fit in iis, qui habent ad virtutem progressionis aliquantum. Utrum igitur tibi litteram videor an totas paginas commovere? Quare, quoniam de primis naturae commodis satis dietum est nunc de maioribus consequentibusque videamus. Verba tu fingas et ea dicas, quae non sentias? Que Manilium, ab iisque M. Tum mihi Piso: Quid ergo? Maximas vero virtutes iacere omnis necesse est voluptate dominante. Eam tum adesse, cum dolor omnis absit; Ut optime, secundum naturam affectum esse possit. Non ego tecum iam ita iocabor, ut isdem his de rebus, cum L.
Non quaeritur autem quid naturae tuae consentaneum sit, sed quid disciplinae. Te enim iudicem aequum puto, modo quae dicat ille bene noris. Cenasti in vita numquam bene, cum omnia in ista Consumis squilla atque acupensere cum decimano. Dicet pro me ipsa virtus nec dubitabit isti vestro beato M. Verba tu fingas et ea dicas, quae non sentias? Nihil opus est exemplis hoc facere longius. Quae hic rei publicae vulnera inponebat, eadem ille sanabat.
Quod mihi quidem visus est, cum sciret, velle tamen confitentem audire Torquatum. Tum ille: Tu autem cum ipse tantum librorum habeas, quos hic tandem requiris? Ergo illi intellegunt quid Epicurus dicat, ego non intellego? Mihi vero, inquit, placet agi subtilius et, ut ipse dixisti, pressius. Quid paulo ante, inquit, dixerim nonne meministi, cum omnis dolor detractus esset, variari, non augeri voluptatem? Laboro autem non sine causa;
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Qui-vere falsone, quaerere mittimus-dicitur oculis se privasse; Duo Reges: constructio interrete. Cur iustitia laudatur? Quos quidem tibi studiose et diligenter tractandos magnopere censeo. Sed ea mala virtuti magnitudine obruebantur. Transfer idem ad modestiam vel temperantiam, quae est moderatio cupiditatum rationi oboediens. Itaque quantum adiit periculum! ad honestatem enim illum omnem conatum suum referebat, non ad voluptatem. Atque haec ita iustitiae propria sunt, ut sint virtutum reliquarum communia. Quod ea non occurrentia fingunt, vincunt Aristonem; Haec igitur Epicuri non probo, inquam.
Conferam tecum, quam cuique verso rem subicias; Si stante, hoc natura videlicet vult, salvam esse se, quod concedimus; Quid in isto egregio tuo officio et tanta fide-sic enim existimo-ad corpus refers? Cum audissem Antiochum, Brute, ut solebam, cum M. Si enim ad populum me vocas, eum. Quaesita enim virtus est, non quae relinqueret naturam, sed quae tueretur. Ergo illi intellegunt quid Epicurus dicat, ego non intellego? Istam voluptatem perpetuam quis potest praestare sapienti? Bonum incolumis acies: misera caecitas. Si longus, levis.
Atque adhuc ea dixi, causa cur Zenoni non fuisset, quam ob rem a superiorum auctoritate discederet. Is ita vivebat, ut nulla tam exquisita posset inveniri voluptas, qua non abundaret. Quae si potest singula consolando levare, universa quo modo sustinebit? Utrum igitur tibi litteram videor an totas paginas commovere? Num igitur utiliorem tibi hunc Triarium putas esse posse, quam si tua sint Puteolis granaria? Atqui reperies, inquit, in hoc quidem pertinacem; Mihi vero, inquit, placet agi subtilius et, ut ipse dixisti, pressius. Compensabatur, inquit, cum summis doloribus laetitia.
Vide ne ista sint Manliana vestra aut maiora etiam, si imperes quod facere non possim. Suo genere perveniant ad extremum; Non minor, inquit, voluptas percipitur ex vilissimis rebus quam ex pretiosissimis. Eam stabilem appellas.
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Illud urgueam, non intellegere eum quid sibi dicendum sit, cum dolorem summum malum esse dixerit. Si longus, levis dictata sunt. An vero displicuit ea, quae tributa est animi virtutibus tanta praestantia? Nam de summo mox, ut dixi, videbimus et ad id explicandum disputationem omnem conferemus. Homines optimi non intellegunt totam rationem everti, si ita res se habeat. Videsne quam sit magna dissensio?
At, si voluptas esset bonum, desideraret. Iam id ipsum absurdum, maximum malum neglegi. Nos commodius agimus. Restinguet citius, si ardentem acceperit.
Primum divisit ineleganter; Quid in isto egregio tuo officio et tanta fide-sic enim existimo-ad corpus refers? Idem iste, inquam, de voluptate quid sentit? Sin laboramus, quis est, qui alienae modum statuat industriae? Neque solum ea communia, verum etiam paria esse dixerunt. Aperiendum est igitur, quid sit voluptas; Sin aliud quid voles, postea. Aperiendum est igitur, quid sit voluptas; Graecum enim hunc versum nostis omnes-: Suavis laborum est praeteritorum memoria.
Alterum significari idem, ut si diceretur, officia media omnia aut pleraque servantem vivere. Duo Reges: constructio interrete. Portenta haec esse dicit, neque ea ratione ullo modo posse vivi; Itaque primos congressus copulationesque et consuetudinum instituendarum voluntates fieri propter voluptatem; Quae autem natura suae primae institutionis oblita est? Si stante, hoc natura videlicet vult, salvam esse se, quod concedimus;
