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

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