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The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy - Updated Edition Paperback – October 26, 2014
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How trade imbalances spurred on the global financial crisis and why we aren't out of trouble yet
China's economic growth is sputtering, the Euro is under threat, and the United States is combating serious trade disadvantages. Another Great Depression? Not quite. Noted economist and China expert Michael Pettis argues instead that we are undergoing a critical rebalancing of the world economies. Debunking popular misconceptions, Pettis shows that severe trade imbalances spurred on the recent financial crisis and were the result of unfortunate policies that distorted the savings and consumption patterns of certain nations. Pettis examines the reasons behind these destabilizing policies, and he predicts severe economic dislocations that will have long-lasting effects.
Demonstrating how economic policies can carry negative repercussions the world over, The Great Rebalancing sheds urgent light on our globally linked economic future.
- Print length256 pages
- LanguageEnglish
- PublisherPrinceton University Press
- Publication dateOctober 26, 2014
- Dimensions6.07 x 0.7 x 8.49 inches
- ISBN-100691163626
- ISBN-13978-0691163628
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Editorial Reviews
Review
"Insightful. . . . [O]ffers a sweeping perspective that links trade, exchange rates, and cross-border capital flows to underlying domestic taxation, investment, and fiscal policies. . . . Pettis's erudite, but lucid and very readable analysis brims with surprising ripostes to conventional wisdom. . . . Pettis's stimulating, contrarian take on the present crisis challenges dogma with clear thinking." ― Publishers Weekly
"This is a book that should be read by: (a) politicians, central bankers and anybody else involved in macroeconomic policy; (b) all economists; (c) all students of economics; and (d) everybody else. The Great Rebalancing: Trade, Conflict and the Perilous Road Ahead for the World Economy by Michael Pettis is as sharp and clear as a cut diamond in its analysis of the continuing global imbalances. The author brings logic, accounting identities and clarity of thought and language to bear on the issue of prospects for the global economy, putting most other commentators into the shade."---Diane Coyle, Enlightened Economist
"[A] book full of easy-to-understand, yet often misunderstood theories, explanations and predictions for what went wrong internationally before the 2008 Financial Crisis, what has been going on since, and where things are likely to head in the future. . . . The Great Rebalancing is probably one of the clearest, most elegant and logically written explanations of world trade, including both how policies affect trade and how trade affects economies. . . . [T]his is not just a China book, but a book encompassing some of the biggest economic and financial questions of our time. The persuasive, clear and well-reasoned arguments behind many of the seemingly unorthodox ideas in the book will make it both pleasing and nicely unsettling for many readers. Hopefully its message will be heard amongst policymakers before some of the more disturbing predictions become realities."---James Parker, Diplomat
"With much pleasure, I highly recommend Michael Pettis' newest book The Great Rebalancing. . . . Michael Pettis has taught me most of what I know about global trade. I also happen to believe he is the world's foremost expert on China in relation to trade and global macro events. I give two thumbs up to The Great Rebalancing."---Mike "Mish" Shedlock, Global Economic Analysis
"I've been waiting for this book for over 10 years. . . . Anyone who wants to understand international economics better will benefit from this book. I cannot recommend it more highly."---David Merkel, Seeking Alpha
"This is a dense and well-argued book. . . . It will be read with interest by the large and growing community that follows China's economy."---Mark O'Neill, South China Morning Post
"The Great Rebalancing is probably one of the clearest, most elegant and logically written explanations of world trade, including both how policies affect trade and how trade affects economies. . . . [T]his is not just a China book, but a book encompassing some of the biggest economic and financial questions of our time. The persuasive, clear and well-reasoned arguments behind many of the seemingly unorthodox ideas in the book will make it both pleasing and nicely unsettling for many readers. Hopefully its message will be heard amongst policymakers before some of the more disturbing predictions become realities."---James Parker, Diplomat Pacific Money Blog
"[F]ascinating reading." ― BizEd
"[The Great Rebalancing] is original and quite convincing, and coherently challenges conventional accounts." ― Choice
"Demonstrating how economic policies can carry negative repercussions the world over, The Great Rebalancing sheds urgent light on our globally linked economic future." ― World Book Industry
"Policymakers should heed the macroeconomic laws that Pettis articulates. His text is a sound introduction to global balance-of-payment mechanisms, using the financial crisis as the ideal case study." ― Survival
"Pettis does a major service in explaining the determinants of global imbalances, providing insights into the functioning of the Chinese economy, while bringing in quotes from historical figures, prominent economists, and misguided pundits. . . . I hope this book stimulates a more informed debate on how to rebalance growth, trade, and capital flows in the least disruptive manner."---Caroline Freund, Journal of World Trade Review
"Pettis does a major service in explaining the determinants of global imbalances, providing insights into the functioning of the Chinese economy, while bringing in quotes from historical figures, prominent economists, and misguided pundits. This serves the purpose of underscoring how confused thinking can be on this important topic--a topic that ultimately helps determine the distribution of growth and jobs around the globe. I hope this book stimulates a more informed debate on how to rebalance growth, trade, and capital flows in the least disruptive manner."---Caroline Freund, Journal of World Trade
"The Great Rebalancing offers a stimulating read. The author advances many arguments I find quite interesting and pushes me to rethink issues I tend to take for granted. It certainly provides a different perspective."---Paul Deng, Copenhagen Journal of Asian Studies
"The Great Rebalancing does what all good books should do: it prompts the reader to question old assumptions and think about the world in a slightly different way. That is not only intellectually stimulating; it is, or should be, also of practical value. Maybe one day they will even get around to reading, and learning from, this book in Berlin."---Guy de Jonquiéres, Economic Record
Review
"This is a brilliant book, one that absolutely must be read by all who are concerned with globalization's future. Michael Pettis debunks the reigning conventional wisdom about international trade, finance, and globalization, and provides the most clear-eyed, unbiased, and unvarnished insights into how the Chinese economy works. From Chinese savers to Greek debtors to American bankers, Pettis shows how we are all connected―and what to prepare for on the road ahead."―Clyde Prestowitz, author of The Betrayal of American Prosperity
"Michael Pettis has written an essential guide to the macroeconomic imbalances that bedevil today's global economy. We ignore his message at our peril."―Dani Rodrik, author of The Globalization Paradox
"This is a profoundly interesting exploration of the causes of the trade and capital imbalances that produced the 2008 financial crisis. Michael Pettis argues that the structural gap between China's domestic consumption and production is the central reason for its pursuit of export-led growth through currency undervaluation. His analysis focuses valuable attention on the deep domestic reforms required in all the major trading countries for the 'great rebalancing' of their international accounts―and the avoidance of continuing crises."―Robert Skidelsky, author of Keynes: The Return of the Master
From the Back Cover
"Through the past decade of China's financial and strategic emergence, Michael Pettis has been a source of unfailing common sense about the possibilities and limitations of the Chinese model. Now he has put his analysis and recommendations into one concise book. I highly recommend reading and reconsulting his book to put the daily flow of China news into perspective."--James Fallows, author of China Airborne
"This is a brilliant book, one that absolutely must be read by all who are concerned with globalization's future. Michael Pettis debunks the reigning conventional wisdom about international trade, finance, and globalization, and provides the most clear-eyed, unbiased, and unvarnished insights into how the Chinese economy works. From Chinese savers to Greek debtors to American bankers, Pettis shows how we are all connected--and what to prepare for on the road ahead."--Clyde Prestowitz, author of The Betrayal of American Prosperity
"Michael Pettis has written an essential guide to the macroeconomic imbalances that bedevil today's global economy. We ignore his message at our peril."--Dani Rodrik, author of The Globalization Paradox
"This is a profoundly interesting exploration of the causes of the trade and capital imbalances that produced the 2008 financial crisis. Michael Pettis argues that the structural gap between China's domestic consumption and production is the central reason for its pursuit of export-led growth through currency undervaluation. His analysis focuses valuable attention on the deep domestic reforms required in all the major trading countries for the 'great rebalancing' of their international accounts--and the avoidance of continuing crises."--Robert Skidelsky, author of Keynes: The Return of the Master
About the Author
Product details
- Publisher : Princeton University Press; Revised edition (October 26, 2014)
- Language : English
- Paperback : 256 pages
- ISBN-10 : 0691163626
- ISBN-13 : 978-0691163628
- Item Weight : 8 ounces
- Dimensions : 6.07 x 0.7 x 8.49 inches
- Best Sellers Rank: #621,696 in Books (See Top 100 in Books)
- #66 in Political Trades and Tariffs
- #386 in Economic Policy
- #527 in Economic Policy & Development (Books)
- Customer Reviews:
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Top reviews from the United States
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While I have some Macro Economics 101 background, I have never been strong in the subject. But reading Michael Pettis took my understanding of the Balance of Payments (BOP) mechanisms to a new level of enlightenment. The book provides a simple but powerful framework to understanding savings/trade imbalances and their repercussions.
As a framework for better understanding the 2008 crisis, he starts off explaining three relevant BOP Accounting Identities without using equations. So, in certain parts, I had to re-read the passages a few times (I'm dense, I know) and to Google the equations (they are quite basic, but one would need a quick refresher). But once you remember the Accounting Identities, he shows their application, highlights the relevant cause and effect (highlighting how trained economists have misinterpreted causal relationships) and flags up wrong conclusions by fellow economists. Absolutely eye opening.
Pettis leads the reader to the correct use of these basic BOP Accounting Identities and their second-round effects on the problems caused or faced by China, the Eurozone, and a strong US Dollar, and concludes by making predictions for these three geographies.
That Pettis could consistently apply these simple Identities to analyse complex global events gave me a renewed confidence in interpreting global economic affairs. Clearly one of the best applied economics books in decades.
What was most refreshing to me was to read that the Chinese miracle is not a miracle and not even particularly Chinese. I am so sick of hearing and reading that China is so good at managing its economy and that if we were all a little bit more like the Chinese (or the Germans, perish the thought), the world would be much better off.
I've just come back from Athens where essentially every other storefront is empty and where unemployment keeps on creeping higher and have witnessed first hand how Germany's stubborn refusal of rebalancing (a point strongly made by the author) is hurting Southern Europe ever more. Not saying the Greeks did nothing wrong, but if you read this book you'll come to realize it's not about cultural stereotypes and more about the trade balance.
As an aside, it's funny to think that ten years ago Germany was the sick man of Europe and now all of a sudden it's the country that's doing everything right. How we should follow and listen to a country that started two world wars and defaulted twice on their government debt in the twentieth century on all things economic is beyond me.
The book starts by focusing on international economics and noting that the worlds net trade balance must be 0 with total savings equal total investment. From such basic closed economy identities like GDP=Consumption + Investment + Gov expenditure and moving to the open economy idenity including net exports, the reader is set to understand the authors arguments. He discusses how changes in exchange rates change trade balances and how trade balances define transfers of savings the reader is show how money flows define the savings and investment profile of countries rather than viewing savings and consumption as purely bottom up. The author also focuses on showing the reader that one has to consider multilateral not bilateral trade relationships to discuss how even if countries produce different goods, the real exchange rate still matters.
The author does a good job of using stylized clean examples to walk the reader through his arguments as well as then transferring those arguments to the real world and current events. The author is well versed in China and spends much time disussing how the saving/investment magnitude of the economy is very troubling. The author also spends time discussing Europe and how European resolution will be difficult unless Germany's trade surplus reverses. The authors looking glass of capital flows is important and relatively unused for the last few yrs (though has been discussed by many).
All in all The Great Rebalancing introduces a fresh perspective on the dynamics of the current events we face. It takes a macroeconomic trade/capital flow imbalance perspective and shows how they are the ultimate source of stress. I think this definitely adds to the literature. Its examples are not unbiased and given how the same phenomenon (interest to savings relationships) can differ in the individual propensity to claim that behavior is not the reason is not correct. If propensity to save in the US is low then it allows for higher sensitivity to currency appreciation vs in China. Microeconomics do affect macro and macro affect micro. The author focuses too much on the first order sensitivities and uses exagerated examples to make his points. But all in all i enjoyed this and think it is informative and adds to the literature.
Top reviews from other countries
The thesis makes sense to me.
I bought the book because I was already studying the issue of whether or not the US was benefiting from being the supplier of the world's reserve currency. I was starting to find evidence that being the supplier of the world's reserve currency was a drag on the US economy. Evidence to the contrary is more myth than reality. This book contributed to my understanding of how the system is "gamed".
China is duplicating the effect that empires had on their colonies. Empires created colonies in order to generate demand for goods manufactured by the "mother" country. In return the colonies supplied the empire with food and resources. The key concept is that the "mother" country produced more manufactured goods than it needed and created colonies to "export demand". Empires and mercantilism have given way to free trade. However China and Germany and a few other nations are exporting demand and the country that is playing the role of the colony is the US.
The good stuff. He clearly exposes how currency manipulation, trade tariffs, labor laws, consumptive taxes and Central bank rates all distort the saving/investment rate in each various countries. This is best part of the book, and provides and abstract framework for understanding these distortions. Forget the moralizing of frugal and spendthrift cultures, he makes a very compelling case the government policy is the primary driver of macro trade imbalances.
Contrary to some other criticism of Pettis, he does not claim the trade imbalances cause financial crises, in fact he constantly says how imbalances can persist for long periods of time. However after a financial crisis, the trade imbalance can determine the pain and suffering recovering from the crisis, because the trade imbalance will revert back toward the mean. He has very interesting predictions for German and Japan as surplus nations.
I recommend highly to any independent thinker who wants to grasp the big mscro picture, and avoid the nonsense of most conventional economists.
Der Autor, der an der University of Peking lehrt, gibt eine hochinteressante Darstellung der chinesischen Wirtschaft und Wirtschaftspolitik, sowie ihrer internationalen Auswirkungen. Er zeigt, über welche grundlegenden Mechanismen Politik, die rein nationale Ziele verfolgt, weitreichende außenwirtschaftliche Konsequenzen haben kann. Und für deutsche Leser ist vor allem wichtig, wie er die deutsche Rolle in der europäischen Krise skizziert: das sollte für jeden unserer Politiker zur Pflichtlektüre gemacht werden.






