For those still following the echoes from Tom Friedman’s January 12 “Is China the Next Enron?” column (Tom answered No, because China is a spiffy MODERN nation under ENLIGHTENED LEADERSHIP with a DISCIPLINED population), here is China-finance expert Michael Pettis firing a broadside at Friedman.

“First,” [Friedman] warned, “a simple rule of investing that has always served me well: Never short a country with US$2 trillion in foreign currency reserves.”
Really? Friedman proposed the rule sarcastically — as both untestable and too obvious to need testing. It is so obvious that no country has ever had such high levels of reserves, so you can’t really test the hypothesis, but it’s also pretty obvious that a country with $2 trillion in reserves is in great shape. Anyone who wanted to short it must be pretty stupid, right? . . .
But [these reserves] are not unprecedented. Twice before in history a country has, under similar circumstances, run up foreign reserves of the same magnitude.
The first time occurred in the late 1920s when, after a decade of record-beating trade and capital account surpluses, the United States had accumulated what John Maynard Keynes worriedly described as “all the bullion in the world.” . . . The second time occurred in the late 1980s, when it was Japan’s turn to combine huge trade surpluses, along with more moderate surpluses on the capital account, to accumulate a stockpile of foreign reserves only a little less than the equivalent of 5-6% of global GDP …

Notice, by the way, how Pettis describes himself there at top right, brazenly refusing to do the Onomastic Cringe:

Michael Pettis is a professor at Peking University’s Guanghua School of Management . . .