How the Wealth Gap Drives Imbalances in Global Trade & Finance | Michael Pettis

Hidden Forces

Demetri Kofinas

Business, Government

4.8 • 1.6K Ratings

🗓️ 18 May 2020

⏱️ 62 minutes

🔗️ Recording | iTunes | RSS

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Summary

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

Transcript

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0:00.0	Today's episode of Hidden Forces is made possible by listeners like you.
0:04.4	For more information about this week's episode or for easy access to related programming
0:09.7	visit our website at hidden Forces. I.O. and subscribe to our free email list.
0:16.4	If you listen to the show on your Apple Podcast app, remember, you can give us a review.
0:21.5	Each review helps more people find the show and join our
0:24.9	amazing community. And with that, please enjoy this week's episode. And the What's up everybody? My guest today is Michael Pettis. Michael is a professor of finance at Peking University in Beijing
0:56.8	where he's been teaching since 2004.
0:59.5	His research has focused mainly on Chinese financial markets, global trade and capital flows,
1:05.7	and central banking.
1:07.1	He spent 17 years on Wall Street running fixed income trading and capital market desks. He's advised governments on
1:14.2	privatization of national banking systems and commercial bank debt restructuring
1:18.8	and issuance. He's someone I've wanted on for a long time and he's out with a new book which publishes
1:24.3	tomorrow called Trade Wars or Class Wars and the main argument that he and his co-author
1:29.7	Matthew Klein making the book is essentially that rising inequality within a country,
1:35.6	whether that country is China or the United States, heightens trade conflicts between them.
1:41.6	The entire conversation lasts 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 drive not only trade imbalances, but also things like asset prices,
2:06.6	interest rates, debt levels, currency valuations, and can often lead to enormous misallocations of capital, both for the surplus country
2:17.0	but also for the country that is on the receiving end of that capital.
2:21.2	The second hour is devoted to applying this framework to specific economies, namely the United
2:26.9	States, the Eurozone, and China. As regular listeners know, I'm extremely interested in and this is something that we discuss in detail in the second hour,
2:38.0	how the financial instability that has manifested as a result of the types of imbalances that we discuss today is seeping
2:46.1	into our systems of government and that what manifested in 2008 as a financial crisis is increasingly becoming a political one and potentially a
	...

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