Michael Pettis calls out Thomas Friedman on his careless economic analysis–a very entertaining read. The punchline? China, with its $2-3T in reserves, has striking similarities with the USA before the Great Depression and Japan before the Bubble Economy burst. Pettis concludes:
We must be careful how we read history. The fact that the US and Japan had terrible decades following periods during which they had amassed levels of reserves that China has subsequently matched, and under conditions similar to those of China, does not necessarily mean that China too must have a lost decade or two. Chanos is not being crazy when he worries, but it is still an open question as to whether or not he will turn out to be right.
But the history does indicate that facile statements about central bank reserves should, at the very least, be measured against the obvious historical precedents. Chanos might still lose this debate, but Friedman has already proven himself to be hopelessly wrong.
This was a great article from Pettis. Friedman has always been a global economy “booster”: those uncritical boobs for whom the market always and everywhere “provides.”
David, you should really read the Predator State by James Galbraith. You will enjoy it, I believe.