“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
AI Summary.Foreign investors made a record $942bn in net purchases of US stocks and investment fund shares over 12 months, the highest rolling 12-month total in Treasury data going back to 1985. Foreign demand for US debt securities moved in the opposite direction, falling to a net $188bn in the second quarter from $314bn in the first.
Michael Taffe and George SteerFinancial Times
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Foreign investors bought a record net $426B of US equities and fund shares in Q2, up 62% y/y, part of a record $942B in the 12 months through July. Overseas investors bought a net $188B of US debt securities in Q2, down from $314B in Q1.
Are foreign investors shifting from US debt into US stocks?
Core argument: Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, the highest rolling 12-month total in Treasury data going back to 1985.
Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, accelerating a shift in overseas investment towards American stocks and away from debt. The flows represented the highest rolling 12-month total in Treasury data going back to 1985. Net purchases of US equities and investment fund shares by foreign investors jumped to $426bn in the second quarter, up 62% from the same period in 2025, and surpassing the previous quarterly record of $299bn in 2022, according to the Bureau of Economic Analysis. Foreign demand for US debt moved in the opposite direction. Overseas investors bought a net $188bn of US debt securities in the second quarter, down from $314bn in the first.
Takeaways by Macro Roundup® AI
Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, the highest rolling 12-month total in Treasury data going back to 1985.
Net foreign purchases of US equities and investment fund shares reached $426bn in the second quarter, up 62% from the same period in 2025 and above the prior quarterly record of $299bn in 2022, according to the Bureau of Economic Analysis.
Overseas investors bought a net $188bn of US debt securities in the second quarter, down from $314bn in the first.
Related Articles:
World’s Unusually High Dollar Exposure Risks Fueling Selloff— Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure, the lowest share since at least 2015. With some of the largest holders of US assets carrying little protection against a weaker dollar, the currency is at risk of steeper declines if sentiment turns.
Foreign Investors Prefer US Stocks To Treasuries As Debt Worries Grow— International flows into US stocks averaged 2.8% of US GDP over a year, overtaking flows into US Treasuries at 2% of GDP for the first time this century outside brief episodes during the Covid-19 pandemic and after the global financial crisis, according to Deutsche Bank analysis of US Treasury data.
A Catalyst For The AI Bubble Break— Historically, controlling for valuations, a 1% rise in the share of the market represented by initial public offerings has been associated with roughly a 4% decline in prices. With large artificial-intelligence company listings expected and share issuance exceeding buybacks, equity supply could shift from shrinking about 1% a year to growing near 5%, implying returns roughly 20% below average.
AI Summary.A projection estimates China gains about $1.13tn in annual export value by 2030 relative to baseline while the rest of the world loses about $5.1tn, including $2.25tn for the G7. The authors attribute the net global decline to trade shifting toward Chinese goods whose export prices keep falling.
Charles Austin Jordan and Logan WrightRhodium Group
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China’s share of global exports by volume is on track to rise from 20% in 2025 to 28% by 2030. Yet China’s rising export share may depress the total value of global exports as lower-priced Chinese goods displace more expensive exports from other countries.
Do China's export share gains reduce global export values?
Core argument: The projection has China gaining roughly $1.13 trillion in annual export value by 2030 relative to the baseline scenario, while the rest of the world loses about $5.1 trillion.
The net result of our projection would suggest that China gains around $1.13 trillion in annual export value by 2030 relative to the baseline scenario, while the rest of the world loses around $5.1 trillion, with the G7 accounting for $2.25 trillion of those potential losses alone. This implies that China’s export share gains effectively destroy overall global trade values relative to the status quo due to continued declines in export prices. Regardless of which assumptions are used, China’s export share gains appear to reduce global total potential export values, because trade patterns are shifting toward Chinese goods that are declining in price.
Takeaways by Macro Roundup® AI
The projection has China gaining roughly $1.13 trillion in annual export value by 2030 relative to the baseline scenario, while the rest of the world loses about $5.1 trillion.
The G7 accounts for $2.25 trillion of the projected $5.1 trillion in export value losses borne by countries outside China.
China’s export share gains appear to reduce global total potential export values regardless of the assumptions used, because trade patterns shift toward Chinese goods whose prices continue to decline.
Related Articles:
The Year of the Trojan Fire Horse: China’s Imbalanced Economy and Unrelenting Mercantilism— About 30% of Chinese industrial companies are unprofitable "zombies" kept alive by subsidies far larger than those elsewhere, rather than exiting amid falling industrial producer prices. Countries with large increases in manufactured imports from China also saw slowdowns in domestic manufacturing, including declining manufacturing shares of output across most of Southeast Asia.
China Is Making Trade Impossible— Interviews with Chinese economists, technologists and business leaders yielded no clear answer to what products China would want to buy from the rest of the world in future, beyond commodities, luxury goods and higher education. The author argues China sees nothing it cannot eventually make better and cheaper itself, undermining trade as a two-way exchange.
Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push— Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.
AI Summary.China's export boom shows signs of cresting, with year-over-year growth leveling off at roughly 24-27% in US dollar terms, and memory chips now the biggest single swing factor for exports. Total export growth is expected to converge toward the recent trend for non-artificial-intelligence products of about 5-7%.
Andrew BatsonGavekal
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Andrew Batson argues that as the memory-chip price cycle’s impact on Chinese export growth fades, export growth in renminbi terms in 2027 “will most likely converge toward the recent trend for products outside the AI complex, which is around 5–7%.”
Is China's export boom leveling off toward slower growth?
Core argument: China’s export growth has leveled off over the past three months at roughly 24–27% year-on-year in US dollar terms and 18–20% in renminbi terms, a sign the export wave is cresting.
China’s latest extraordinary export wave is showing signs of cresting. The headline YoY growth of exports has leveled off over the past three months, staying around 24-27% in US dollar terms and 18-20% in renminbi terms. The boom in exports of products associated with investment in artificial intelligence is certainly not over, but current super-high growth rates will probably slow in coming months. Memory chips are now the biggest single swing factor for exports, and prices for some products have recently leveled off after their massive surge. While the ebb and flow of memory prices is difficult to forecast, growth of total exports in 2027 will most likely converge toward the recent trend for products outside the AI complex, which is around 5-7%. Semiconductor cycles have limited implications for China’s vast range of other exports, which are still very competitive in global markets.
Takeaways by Macro Roundup® AI
China’s export growth has leveled off over the past three months at roughly 24–27% year-on-year in US dollar terms and 18–20% in renminbi terms, a sign the export wave is cresting.
Memory chips are the biggest single swing factor for China’s exports, with prices for some products leveling off after a massive surge and super-high AI-related growth rates likely to slow in coming months.
Total Chinese export growth in 2027 will most likely converge toward the recent 5–7% trend for products outside the AI complex, which remain very competitive in global markets.
Related Articles:
China’s Share Of Global Container Exports Soars To 40%— China accounted for 40% of global container exports on a three-month rolling average, up 2.5 percentage points in nine months, according to the European Union Chamber of Commerce in China. The chamber's president argues this shows global trade imbalances are growing faster than expected.
Understanding Global Imbalances— The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
The Year of the Trojan Fire Horse: China’s Imbalanced Economy and Unrelenting Mercantilism— About 30% of Chinese industrial companies are unprofitable "zombies" kept alive by subsidies far larger than those elsewhere, rather than exiting amid falling industrial producer prices. Countries with large increases in manufactured imports from China also saw slowdowns in domestic manufacturing, including declining manufacturing shares of output across most of Southeast Asia.
AI Summary.Cumulative US borrowing from the rest of the world has reached 118% of GDP since 2000 as domestic savings fell short of investment, with growing global trade volumes boosting foreign demand for Treasuries and holding down US borrowing costs. The author argues stagnating trade and narrowing deficits shrink that funding subsidy.
Jason ThomasCarlyle
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US cumulative foreign borrowing since 2000 has reached 118% of GDP, but the US has earned more on foreign assets than foreigners earned on US liabilities. Carlyle speculates that this “exorbitant privilege” could erode if globalization unwinds.
Does shrinking global trade raise US borrowing costs?
Core argument: Cumulative US borrowing from the rest of the world has reached 118% of GDP since 2000, as domestic savings consistently fell short of domestic investment, with effective US net borrowing costs below zero until recently.
The size of the implicit US borrowing subsidy rose with global trade volumes. The growth in trade during the period of “globalization” was driven by the rise of globally-interconnected production networks, with production processes sliced into stages and distributed across borders. Businesses at each stage of the process would both invoice and get invoiced in dollars. This [plausibly] boosted demand for Treasuries to meet dollar payment obligations and backstop foreign banking systems, which placed downward pressure on Treasury yields and cheapened broader dollar funding costs.
Takeaways by Macro Roundup® AI
Cumulative US borrowing from the rest of the world has reached 118% of GDP since 2000, as domestic savings consistently fell short of domestic investment, with effective US net borrowing costs below zero until recently.
The implicit US borrowing subsidy grew with global trade volumes, as foreign demand for Treasuries to meet dollar payment obligations and backstop foreign banking systems pressed Treasury yields down and cheapened broader dollar funding costs.
Policies that scale back US external commitments, narrow the goods trade deficit, and restrict foreign adversaries’ access to dollar clearing further reduce the foreign savings available and willing to be recycled into low-yielding US assets.
Related Articles:
Global Trade Imbalances: Actual Problems, Unlikely Solutions— Foreign capital flowing into the US is shifting from government purchases of US Treasury bonds toward private foreign investment in US stocks and other riskier assets. This means a share of future gains from US productivity-enhancing investment will flow to these foreign investors, who are likely more willing to sell and exit if returns worsen.
Honey, Who Shrunk the U.S. Income Surplus?— Foreign holdings of U.S. financial assets are valued at $69tn versus $41tn of U.S. holdings abroad, a gap that has been mounting for decades. With the net liability position in interest-bearing assets at -$15tn, a 1 percentage point rise in interest rates would subtract $150bn from the U.S. net investment income balance.
AI Summary.Much of the official-sector inflow into the U.S. now comes from investors who are not traditional reserve managers, and those flows remain heavily tilted toward the dollar and toward risk assets rather than Treasuries. The author argues this shift in the global investor base helps explain why Treasuries trade at a discount while the dollar retains a premium.
Brad Setser and Alex EtraCouncil on Foreign Relations
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The stock of global dollar reserves has been roughly stable over the past decade. The world is not moving away from the dollar: dollar assets are shifting from official holdings of Treasurys towards private and quasi-sovereign holdings of risk assets.
Why do Treasuries trade at a discount while the dollar keeps premium?
Core argument: Most official-sector inflows into the U.S. come from investors who are not classic reserve managers, and those flows remain heavily tilted toward the dollar, so any real de-dollarization would likely begin among these investors.
Most of the current flow into the US from the “official” sector is coming from investors who are not classic reserve managers. Those flows remain heavily tilted toward the dollar, at least for now. Any real de-dollarization would likely occur first among these investors. Put differently, the dollar’s global role is increasingly as a source of returns, not a source of safety. The foreign bid, private and public, is for risk, not for Treasuries. It is currently fashionable in some circles to point to the diminution of the “convenience yield” on Treasuries even while the U.S. dollar continues to enjoy such a privilege. But the shift in the global investor base and their apparent portfolio preference for U.S. risk assets in lieu of Treasuries may help explain the divergence between the convenience yield on Treasuries and the convenience yield on the USD.
Takeaways by Macro Roundup® AI
Most official-sector inflows into the U.S. come from investors who are not classic reserve managers, and those flows remain heavily tilted toward the dollar, so any real de-dollarization would likely begin among these investors.
The dollar’s global role is increasingly as a source of returns rather than safety, with the foreign bid, private and public, directed at risk assets rather than Treasuries.
The shift in the global investor base toward U.S. risk assets in lieu of Treasuries may help explain the divergence between the convenience yield on Treasuries and that on the dollar, and suggests the “profit dollar” is likely trading at a historical premium.
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Financial Innovation and the International Monetary System— The dollar accounts for 59% of cross-border payments messaged through SWIFT, far ahead of the euro's 14%, and its share of foreign exchange turnover has risen gradually to about 90% of the 200% total since 2010. Official holdings of U.S. Treasuries have leveled off near $4tn while foreign private holdings rose from $1tn to over $5tn.
Foreign Investors Prefer US Stocks To Treasuries As Debt Worries Grow— International flows into US stocks averaged 2.8% of US GDP over a year, overtaking flows into US Treasuries at 2% of GDP for the first time this century outside brief episodes during the Covid-19 pandemic and after the global financial crisis, according to Deutsche Bank analysis of US Treasury data.
World’s Unusually High Dollar Exposure Risks Fueling Selloff— Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure, the lowest share since at least 2015. With some of the largest holders of US assets carrying little protection against a weaker dollar, the currency is at risk of steeper declines if sentiment turns.
AI Summary.Foreign ownership of US Treasury securities has shifted from official investors, who held the predominant share in 2008, toward private investors, whose holdings of $6.7tn now exceed official holdings of $3.9tn. Net issuance of Treasury securities boomed during and after the COVID pandemic, even accounting for Federal Reserve purchases that reduce net market supply.
Anusha Chari and Gian Maria Milesi-FerrettiBrookings Institution
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The composition of foreign ownership of U.S. Treasury debt has shifted sharply from official to private investors over the past two decades. Foreign private investors now hold $6.7T in Treasuries, vastly exceeding the $3.9T held by foreign official institutions.
Have private foreign investors overtaken official ones in holding Treasuries?
Core argument: Foreign private holdings of U.S. Treasury securities reached $6.7 trillion in mid-2025, including the Cayman Islands correction, exceeding official foreign holdings of $3.9 trillion.
Figure 5 shows a large shift in foreign holdings of US Treasurys: a diminishing role for official investors, who accounted for the predominant share in 2008, offset by a rising role for private investors. Figure 6 shows net issuance and purchases of U.S. Treasury securities during the past 25 years. The boom in net issuance during and after the COVID pandemic is particularly striking, even after controlling for the net purchases by the Fed which reduce net market supply. Foreign net purchases show a notable shift toward private purchases relative to the 2000s. As a result, foreign private holdings of U.S. Treasury securities in mid-2025 ($6.7 trillion, including the Cayman Islands correction) vastly exceed official holdings of $3.9 trillion.
Takeaways by Macro Roundup® AI
Foreign private holdings of U.S. Treasury securities reached $6.7 trillion in mid-2025, including the Cayman Islands correction, exceeding official foreign holdings of $3.9 trillion.
Foreign official investors accounted for the predominant share of foreign Treasury holdings in 2008, and their diminishing role has been offset by a rising role for private investors.
Net issuance of U.S. Treasury securities boomed during and after the COVID pandemic, even after controlling for Federal Reserve net purchases that reduce net market supply, alongside a shift in foreign net purchases toward private buyers relative to the 2000s.
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Mid-Year Outlook: At the Crossroads of Stagflation—What’s Next?— Foreign investors hold roughly $18.5tn in US equities (about 20% of the market), $7tn in Treasuries and $5tn in credit (about 30% of each), and foreign participation in 30-year Treasury auctions has trended down in recent months. Combined with US fiscal challenges, the authors argue this reliance on foreign demand is a vulnerability.
Tariffs and “International Payments Problems”— Foreigners are accumulating more financial claims on Americans than Americans are on foreigners across direct investment, stocks, bonds, currency, deposits, and loans, and the U.S. net international investment position has moved from -20% of GDP in 2010 to -89%. Almost all of that swing reflects valuation gains on U.S. stocks rather than added borrowing.
Global Trade Imbalances: Actual Problems, Unlikely Solutions— Foreign capital flowing into the US is shifting from government purchases of US Treasury bonds toward private foreign investment in US stocks and other riskier assets. This means a share of future gains from US productivity-enhancing investment will flow to these foreign investors, who are likely more willing to sell and exit if returns worsen.
AI Summary.Model-based simulations suggest that industrial policies using quantity targets to boost tradable output create shortages of nontradable goods, raising their prices and appreciating the real exchange rate — effects that can be reversed by repressing consumption, turning the current account effect positive. Appreciating a surplus country's nominal exchange rate alone would only add deflationary pressure.
Pierre-Olivier Gourinchas, Gene Kindberg-Hanlon, Manasa Patnam, Lorenzo Rotunno, et al.Journal of Economic Perspectives
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Industrial policy that stimulates exports also raises domestic spending. To generate a current-account surplus, it must be paired with forced saving, financial repression, or related features of the Chinese model.
How does repressing consumption change industrial policy's trade effects?
Core argument: Model-based simulations show that quantity targets boosting tradable output create a lopsided economy with a shortage of nontradable goods, raising domestic nontradable prices and the overall price level and appreciating the real exchange rate.
Consider the example of policy directives to boost tradable output through the use of quantity targets. [This] creates a lopsided economy, resulting in a shortage of nontradable goods. To restore balance, the price of domestic nontradable goods would rise, increasing the overall price level and appreciating the real exchange rate, as the model-based simulations in Figure 9 show. However, these side-effects of the policy can be reversed by suppressing consumption, for instance through forced saving policies. In this case, reduced aggregate demand contains the rapid rise in nontradable prices and overall inflation. A sufficient degree of consumption repression can fully reverse the fall in saving and appreciation of the real exchange rate that would otherwise occur, subdue the relative nontradable price increase, and turn the current account balance effect from negative to positive. A policy that would seek to appreciate the nominal exchange rate of surplus countries without a change in the underlying drivers of saving and investment would only result in stronger domestic deflationary pressures. In this sense, focusing on the nominal exchange rate alone risks overstating its ability to correct external imbalances without accompanying changes in domestic demand and saving.
Takeaways by Macro Roundup® AI
Model-based simulations show that quantity targets boosting tradable output create a lopsided economy with a shortage of nontradable goods, raising domestic nontradable prices and the overall price level and appreciating the real exchange rate.
A sufficient degree of consumption repression, such as forced saving policies, can fully reverse the fall in saving and the real exchange rate appreciation, subdue the relative nontradable price increase, and turn the current account balance effect from negative to positive.
Appreciating surplus countries' nominal exchange rates without changing the underlying drivers of saving and investment would only produce stronger domestic deflationary pressures, so focusing on the nominal rate alone risks overstating its ability to correct external imbalances.
Related Articles:
Understanding Global Imbalances— The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
Debt, Deficits & Global Imbalances— Taxes or restrictions on short-term capital inflows were argued to be a more direct and potentially superior tool than tariffs for shrinking the trade deficit, since tariffs risk retaliation and supply-chain distortions. Proponents said such measures could reduce reliance on household and government borrowing to sustain employment, if paired with efforts to strengthen domestic demand and tradables capacity.
Why Global Imbalances Matter— Countries running persistent trade surpluses, such as China, Germany and Japan, have built their economies around an excess supply of tradeable goods and services, leaving them dependent on deficit countries to absorb it. That dependence gives deficit countries bargaining power and exposes surplus countries to pressure to expand domestic demand.
AI Summary.Regression evidence suggests governments can buy current account surpluses: raising the fiscal balance by $1 tends to raise the current account by about $0.30, while issuing $1 of domestic-currency debt to buy foreign-currency assets raises it by roughly $0.50-$0.60. Combining a fiscal surplus with foreign-currency investment, as Norway and Singapore do, yields about $0.80 per $1.
Joseph Gagnon and Nishtha AgrawalPeterson Institute For International Economics
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Using annual data for 146 countries from 1985 – 2024, Gagnon and Agrawal find that a $1 increase in a country’s cyclically adjusted fiscal deficit is associated with a 22–38¢ increase in its current-account deficit, with most of the estimates ~30¢.
Can governments buy current account surpluses with fiscal and currency policy?
Core argument: Regression results suggest that raising the fiscal balance by $1 tends to raise the current account by about $0.30.
Table 1 presents regression results. The evidence strongly suggests that governments can buy current account surpluses. Raising the fiscal balance by $1 tends to raise the current account by $0.30 [Table 1, first row]. Issuing $1 of domestic currency debt to buy foreign-currency assets (foreign exchange intervention) raises the current account anywhere from $0.20 to $1.00, with a value around $0.50 to $0.60 most plausible [Rows 2 though 5]. NOF is Net Official Flows, and NOS is the stock of net official foreign assets. The most powerful policy, as exemplified by Norway and Singapore, is to run a fiscal surplus and invest the proceeds in foreign-currency assets. In that case, $1 buys a current account surplus of around $0.80 or so. The results are supported by annual panel regressions of current accounts and cross-country stock regressions of cumulated current accounts or stocks of net foreign assets. The estimated effects in the panel regressions may be biased down slightly by incomplete modeling of lagged effects.
Takeaways by Macro Roundup® AI
Regression results suggest that raising the fiscal balance by $1 tends to raise the current account by about $0.30.
Issuing $1 of domestic currency debt to buy foreign-currency assets is estimated to raise the current account by $0.20 to $1.00, with $0.50 to $0.60 most plausible.
Combining a fiscal surplus with investment of the proceeds in foreign-currency assets, as Norway and Singapore do, is estimated to buy a current account surplus of around $0.80 per $1.
Related Articles:
Understanding Global Imbalances— The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
The U.S. Trade Deficit: Myths and Realities— Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.
The Dangerous Triumph Of Neo-Mercantilism— Neo-mercantilism is thriving in both China, which pairs infant-industry promotion with large trade surpluses, and in a United States focused on external deficits and protecting domestic markets. The author argues this will likely fracture the world economy, and that a new multilateral treaty could include a mechanism to combat large structural trade surpluses.
