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 Patreon Page. All subscribers gain access to our overtime feed, which can be easily added to your favorite podcast application.

Producer & Host: Demetri Kofinas

Editor & Engineer: Stylianos Nicolaou

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Episode Recorded on May 16th, 2020

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.