♠ Posted by Emmanuel in Cheneynomics at 5/22/2009 08:42:00 AMI honestly don't know what's whose when it comes to discussing global economic imbalances: being fundamentally incorrect about its nature but pushing the same story line anyway despite all evidence to the contrary (Bretton Woods II) or pulling a 180 degree turn without explanation like Michael Pettis now does. In the past, I have pointed out that he hasn't really come across a "deficits don't matter"-style story he didn't like [1, 2]. Let us have a look at Michael Pettis circa 2005 from the op-ed pages of the Wall Street Journal commenting on "Deficit Attention Disorder":
Seen in this light, concerns about whether the world can continue to finance the U.S. current-account deficit are overstated. Not only can the world continue to finance the U.S. deficit into the foreseeable future, but the deficit may arise precisely because a large part of the world must continue to accumulate financial assets in the U.S. to help badly needed future adjustments. Instead of bewailing the current balance of payments and the supposedly unsustainable U.S. current-account deficit, Europe, Japan and the U.S. must work together to ensure that the adjustments forced upon the world by demographic changes work smoothly over the long term.I really enjoy the wisecracks about the sustainability of large deficits. Now let's see Pettis 2009 in the pages of the Financial Times:
The Asian model, in other words, implicitly involved a massive bet on the willingness and ability of the US to continue to run large and rising trade deficits.Huh, deficits suddenly matter and are unsustainable? Given Pettis' track record, perhaps I should become more sanguine on gargantuan deficits right about now. Anyway, where's the real Michael Pettis? More importantly, is he worth listening to after providing contradictory opinions without the benefit of either an explanation or an apology?
For nearly two decades US households borrowed recklessly to finance the consumption binge that allowed Asian exporters to continue exporting excess capacity but, as household balance sheets in the US became vastly overextended, it was just a question of time before a long deleveraging process would occur. The global financial crisis is part of this very process.
UPDATE: And here's another thing that gets to me. In addition to being fundamentally contradictory, Pettis is rather tardy and unoriginal. In the FT piece, he claims "Asia needs to ditch its growth model." As early as the start of the year, some bozo claimed that Asia's export-led development model was a goner.
I'll tell you what: my outlet may be a humble blog (admittedly with a decent-sized readership of those in the know) as opposed to Pettis appearing in the WSJ and FT, but I do not foresee being significantly outmaneuvered by him anytime soon. Not that it's exceedingly difficult...