The Great Rebalancing

Michael Pettis is professor of finance and economics at Peking University, a senior associate at the Carnegie Endowment, and a widely read commentator on China, Europe, and the global economy. He is the author of The Volatility Machine: Emerging Economies and the Threat of Financial Collapse.

Preface to the Paperback Edition xi CHAPTER ONE Trade Imbalances and the Global Financial Crisis 1 * Underconsumption 4 * The Different Explanations of Trade Imbalance 6 * Destabilizing Imbalances 9 * We Have the Tools 11 * Why the Confusion? 14 * Some Accounting Identities 17 * The Inanity of Moralizing 19 * The New Economic Writing 22 CHAPTER TWO How Does Trade Intervention Work? 26 * Trade Intervention Affects the Savings Rate 29 * Currency Manipulation 32 * Exporting Capital Means Importing Demand 34 * What Happens If China Revalues the Renminbi? 37 * Wealth Is Transferred within China 40 * Does China Need a Social Safety Net? 42 CHAPTER THREE The Many Forms of Trade Intervention 47 * How Changes in Wealth Affect Savings 50 * Wage Growth 52 * Trade Policy as the Implicit Consequence of Transfers 55 * Financial Repression 58 * Higher Interest Rates and Household Wealth 61 * Do Higher Interest Rates Stimulate or Reduce Consumption? 64 * Currency versus Interest Rates 66 CHAPTER FOUR The Case of Unbalanced Growth in China 69 * What Kind of Imbalance? 74 * Growth Miracles Are Not New 78 * The Brazilian Miracle 81 * Powering Growth 84 * Paying for Subsidies 87 * Limits to Backwardness 89 * The Trade Impact 92 * A Lost Decade? 94 * Can China Manage the Transition More Efficiently? 96 * Some More Misconceptions 97 CHAPTER FIVE The Other Side of the Imbalances 100 * Can Europe Change American Savings Rates? 103 * How Does Trade Rebalance? 106 * Globalization Is Not Bilateral 109 * The Global Shopping Spree 113 * Trade Remains Unbalanced 115 CHAPTER SIX The Case of Europe 119 * The Mechanics of Crisis 122 * Too Late 125 * German Thrift 128 * Forcing Germany to Adjust 131 * Two-Sided Adjustment 133 CHAPTER SEVEN Foreign Capital, Go Home! 136 * Swapping Assets 139 * It's about Trade, Not Capital 142 * Trade Imbalances Lead to Debt Imbalances 144 * The Current Account Dilemma 147 CHAPTER EIGHT The Exorbitant Burden 150 * Why Buy Dollars? 153 * It Is Better to Give Than to Receive 157 * Foreigners Fund Current Account Deficits, Not Fiscal Deficits 161 * Rebalancing the Scales 163 * When Are Net Capital Inflows a Good Thing? 166 * Can We Live without the Dollar? 168 * Why Not Use SDRs? 172 * An American Push Away from Exorbitant Privilege 174 CHAPTER NINE When Will the Global Crisis End? 178 * Transferring the Center of the Crisis 180 * Reversing the Rebalancing 183 * Some Predictions 185 * The Global Impact 191 APPENDIX Does income equality lead to unemployment? 197 Notes 217 Index 225