Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, November 21, 2022

AI Summary. Economists estimate US households held roughly $1.2tn–$1.8tn in "excess savings" above pre-pandemic saving patterns, with JPMorgan Chase projecting the cushion could be fully spent within about a year and Goldman Sachs estimating about 25% has been drawn down so far.

Harriet Torry Wall Street Journal
Date Posted:

Excess savings associated with the pandemic, which are somewhere in the $1.2-$1.8T range, should provide support for the economy through the end of next year according to a range of estimates. @WSJ

How much excess savings do households have left to spend?

Core argument: JPMorgan Chase estimates U.S. households held about $1.2 trillion to $1.8 trillion in "excess savings"—the amount above what they would have saved absent the pandemic—in the third quarter, and says the hoard could be entirely spent by the second half of next year.

Headed into the third quarter of this year, households still had about $1.2 trillion to $1.8 trillion in “excess savings”—the amount above what they would have saved had there been no pandemic. Economists’ estimates for how much consumers have left vary. JPMorgan Chase & Co. put the hoard at about $1.2 to $1.8 trillion in the third quarter and said it could be entirely spent by the second half of next year. Goldman Sachs economists estimate households have drawn down about 25% of excess savings and will have spent about 60% by the end of 2023. Ian Shepherdson, chief economist of Pantheon Macroeconomics, puts it at $1.3 trillion and estimates that at the current rate of rundown, that could last another year or so.

Takeaways by Macro Roundup® AI

  1. JPMorgan Chase estimates U.S. households held about $1.2 trillion to $1.8 trillion in "excess savings"—the amount above what they would have saved absent the pandemic—in the third quarter, and says the hoard could be entirely spent by the second half of next year.
  2. Goldman Sachs economists estimate households have drawn down about 25% of excess savings and will have spent about 60% by the end of 2023.
  3. Ian Shepherdson, chief economist of Pantheon Macroeconomics, puts remaining excess savings at $1.3 trillion and estimates that at the current rate of rundown it could last another year or so.

AI Summary. Once the economic boost from pandemic aid fades, weak private investment demand will likely push interest rates back toward their pre-pandemic lows, as too much saving chases too few investment opportunities. Slow growth in the working-age population and disappointing technological progress argue against the rapid growth needed to sustain high investment spending.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman argues that once the demand shock from pandemic aid fades, “we’ll probably be back to a situation in which too much saving is chasing too few investment opportunities, and interest rates will be revisiting their old lows.”

Will weak investment demand push interest rates back to pre-pandemic lows?

Core argument: Krugman argues that once the economic boost from pandemic aid fades, the economy will return to its pre-pandemic pattern of weak private investment demand holding interest rates down.

Once [the economic boost from pandemic aid fades away,] we’ll probably be back where we were before the pandemic, with weak private investment demand holding interest rates down. Last time I wrote about this I stressed demography — the drastic slowdown in growth of the working-age population — plus what looks like disappointing rates of technological progress. Let me now put it a different way. [The macroeconomic accelerator effect] tells us that investment spending will only remain high if we expect rapid economic growth. And what we know now doesn’t support that expectation. What all this suggests to me is that the era of cheap money is not, in fact, over. A few years from now, we’ll probably be back to a situation in which too much saving is chasing too few investment opportunities, and interest rates will be revisiting their old lows

Takeaways by Macro Roundup® AI

  1. Krugman argues that once the economic boost from pandemic aid fades, the economy will return to its pre-pandemic pattern of weak private investment demand holding interest rates down.
  2. Krugman points to the drastic slowdown in growth of the working-age population and what he sees as disappointing rates of technological progress as reasons to expect low interest rates.
  3. Invoking the macroeconomic accelerator effect, Krugman contends investment spending stays high only if rapid economic growth is expected, and that a few years from now too much saving will again chase too few investment opportunities.

AI Summary. Higher interest rates have mixed economic effects because government interest payments to private holders of public debt add to private-sector spending power, while private-sector interest payments only redistribute income among private actors. If rates stay higher for longer, these payments are projected to exceed $1tn, and the current policy stance may not return inflation to 2%.

Joseph Wang Fed Guy Blog
Date Posted:

Former Fed bond trader Joseph Wang notes that higher interest rates subsidize consumption by increasing private sector interest income from public sector liabilities. He argues, “the current policy stance may not be effective in moving inflation back to 2%.” @FedGuy12

Do higher interest rates boost private spending power through government interest payments?

Core argument: If rates stay higher for longer, interest payments will easily exceed $1tn next year, and interest paid on public sector liabilities raises the private sector's overall spending power rather than merely redistributing income among private actors.

The economic impact of higher rates is mixed because it also subsidizes consumption by increasing private sector interest income from public sector liabilities. While private sector interest expenditures merely redistribute income among private actors, public sector interest rate expenditures increase the overall spending power of the private sector. If rates are higher for longer, the interest payments will easily exceed $1t next year. The aggressive rate hikes have thus far appeared to have a limited effect on dampening inflation. With the policy rate much closer to the terminal rate than 0% and financial markets stabilizing, the stock effect of monetary policy appears to be waning. If the flow effects are mixed, then the current policy stance may not be effective in moving inflation back to 2%

Takeaways by Macro Roundup® AI

  1. If rates stay higher for longer, interest payments will easily exceed $1tn next year, and interest paid on public sector liabilities raises the private sector's overall spending power rather than merely redistributing income among private actors.
  2. Aggressive rate hikes have so far appeared to have a limited effect in dampening inflation, in part because higher rates subsidize consumption by increasing private sector interest income from public sector liabilities.
  3. With the policy rate much closer to the terminal rate than to 0% and financial markets stabilizing, the stock effect of monetary policy appears to be waning, and the current policy stance may not move inflation back to 2%.

AI Summary. Because official housing inflation measures reflect rents across all leases rather than new ones, the argument is that the Federal Reserve was behind the curve in raising interest rates and could be late again in easing after rents fall. Rents on new leases cover a small, unrepresentative minority of renters but could serve as a leading indicator of inflation.

Justin Fox Bloomberg
Date Posted:

.@foxjust at @bloomberg argues that the lag between the new leases rent measure and the CPI’s shelter component may mean the Fed “was behind the curve when it started raising interest rates in March and could end up late again in pivoting to easier monetary policy.”

Do official housing inflation measures make monetary policy late?

Core argument: The Federal Reserve began raising interest rates in March, a year after rents on new leases started surging, and could end up late again in pivoting to easier policy long after rents have started to fall.

The most important of those implications would seem to be that the Federal Reserve’s policy-making committee was behind the curve when it started raising interest rates in March — a year after rents on new leases started exploding — and could end up late again in pivoting to easier monetary policy long after rents have started to fall. I ran the idea of switching to a new-leases rent measure by Princeton economist and former Fed Vice Chairman Alan Blinder, who wrote an influential paper in 1980 urging the switch to owner’s equivalent rent. He emailed, “For most purposes, making that change would be a terrible idea. It would reflect the prices paid by a small, and not representative, minority.  That said, if the BLS (or anyone) wants to create a leading indicator of inflation, using rents on new leases would be quite sensible.”

Takeaways by Macro Roundup® AI

  1. The Federal Reserve began raising interest rates in March, a year after rents on new leases started surging, and could end up late again in pivoting to easier policy long after rents have started to fall.
  2. Alan Blinder, the Princeton economist and former Fed Vice Chairman whose 1980 paper urged the switch to owner's equivalent rent, says using new-lease rents for most purposes would be "a terrible idea" because they reflect prices paid by a small, unrepresentative minority.
  3. Blinder says that using rents on new leases would be "quite sensible" if the Bureau of Labor Statistics or anyone wanted to create a leading indicator of inflation.

AI Summary. A study finds 60% of young American men with less than a high-school education have been arrested at least once by age 26, with arrest rates having increased over time. Among men aged 26–35, 33% of Black men versus 23% of white men had been arrested by 26, a gap education levels help explain.

Adam Tooze Chartbook
Date Posted:
Is Database:
Database

A 2019 RAND study found 60% of American men in the 26-35 cohort who failed to graduate from high school had been arrested by age 26, and their arrest rate has been going up over time, reports @adam_tooze

How common are arrests among young American men with less education?

Core argument: 60% of young American men with less than a high-school education have been arrested at least once by age 26, and James P. Smith found that the arrest rate has increased dramatically over time.

60% of young men in America with less than high-school education have been arrested at least once by age 26. Strikingly, the report’s author James P. Smith found that the arrest rate has increased dramatically over time. Black men were significantly more likely to have been arrested. Of black men aged 26-35 in the study, 33% had been arrested by age 26 versus 23% for white men. Education plays an outsized role in explaining racial arrest differences, especially for men in the 26–35 age group. The overall higher rate of arrests by 26 among black adults in the 26–35 age group correlates with lower education levels. The study also found that having a more educated father was associated with lower rates of arrests and convictions by 26.

Takeaways by Macro Roundup® AI

  1. 60% of young American men with less than a high-school education have been arrested at least once by age 26, and James P. Smith found that the arrest rate has increased dramatically over time.
  2. Among men aged 26–35 in James P. Smith's study, 33% of black men had been arrested by age 26 versus 23% of white men, with education playing an outsized role in explaining the racial difference.
  3. James P. Smith found that having a more educated father was associated with lower rates of arrests and convictions by age 26.

AI Summary. The authors estimate that participation in China's "Made in China 2025" industrial policy is associated with more innovation subsidies and higher research-and-development intensity among listed Chinese firms. They find no statistically significant evidence of gains in domestic or US patenting, labor productivity, total factor productivity, or profitability.

Lee Branstetter and Guangwei Li National Bureau Of Economic Research
Date Posted:

New research cast doubts on the impact of Made In China 2025, at least through 2018 “we see little statistical evidence of productivity improvement or increases in R&D expenditure, patenting and profitability”

New research cast doubts on the impact of Made In China 2025, at least through 2018 “we see little statistical evidence of...

Does China's industrial policy raise firms' innovation beyond R&D spending?

Core argument: Using a difference-in-differences approach on Chinese listed firms, the authors find that participation in "Made in China 2025" enables firms to receive more innovation subsidies, which appears to induce increases in R&D intensity.

Using a Difference-in-Differences approach, we find evidence that participation [in Made In China 2025] enables firms to receive more innovation subsidies, which appears to induce increases in R&D intensity. However, there is no evidence that participation increases domestic and foreign patenting, labor productivity, TFP, or profitability of participating firms, suggesting the most important goals of the policy are still unrealized. There is no statistically significant evidence (at a 5% significance level) of positive effects of the “Made in China 2025” initiative on total subsidies, Chinese invention patents, US utility patents, log labor productivity, TFP, and profit margin.

Takeaways by Macro Roundup® AI

  1. Using a difference-in-differences approach on Chinese listed firms, the authors find that participation in "Made in China 2025" enables firms to receive more innovation subsidies, which appears to induce increases in R&D intensity.
  2. The authors find no evidence that "Made in China 2025" participation increases domestic or foreign patenting, labor productivity, total factor productivity, or profitability, suggesting the policy's most important goals remain unrealized.
  3. Estimated effects of "Made in China 2025" on total subsidies, Chinese invention patents, US utility patents, log labor productivity, TFP, and profit margin are not statistically significant at the 5% level.

AI Summary. Cumulative total returns for Indian equities have been comparable to or better than US equities over roughly three decades, while Chinese equities have lagged both, according to index data for the MSCI India, S&P 500, and MSCI China indexes.

Niraj Bhagwat and Philip Brooks Wellington
Date Posted:
Is Database:
Database

The MSCI India Index has outperformed the MSCI China Index through April 2022, according to @Wellington_Mgmt research, as noted by @tylercowen

Have Indian stocks matched or beaten US and Chinese equities long term?

Core argument: Cumulative total returns from December 31, 1992 through April 20, 2022 show the MSCI China Index trailing both the S&P 500 Index and the MSCI India Index, according to the author's Figure 1.

Figure 1 shows the cumulative total returns posted by the S&P 500 Index, the MSCI China Index, and the MSCI India Index from December 31, 1992, through April 20, 2022. Our clients have been uniformly surprised that China’s long-term performance has been so much lower than that of the US and India, especially given all the investor focus on China in recent years. And they’ve been even more surprised that India – a market many clients have more or less ignored – has fared so well over the long run.

Takeaways by Macro Roundup® AI

  1. Cumulative total returns from December 31, 1992 through April 20, 2022 show the MSCI China Index trailing both the S&P 500 Index and the MSCI India Index, according to the author's Figure 1.
  2. Clients have been uniformly surprised that China's long-term equity performance has lagged that of the US and India, despite heavy investor focus on China in recent years.
  3. The MSCI India Index, representing a market many clients have more or less ignored, has fared well over the long run.

AI Summary. Japan has expanded its fleet of Aegis-equipped destroyers capable of intercepting ballistic missiles to eight ships. Japan's Defense Ministry said two Maya-class destroyers intercepted mock ballistic missiles in tests off Hawaii, including the first launch by a Japanese vessel of the US-Japan-developed Standard Missile-3 Block 2A interceptor.

Ryo Nemoto Nikkei Asia
Date Posted:

Two Aegis-equipped Japanese destroyers successfully intercepted mock ballistic missiles during tests off the coast of Hawaii earlier this month. Japan added two more vessels to its Aegis-equipped fleet and now has a total of 8 operational.

Two Aegis-equipped Japanese destroyers successfully intercepted mock ballistic missiles during tests off the coast of Hawaii...

Is Japan expanding its ballistic missile defense destroyer fleet?

Core argument: Japan raised to eight the number of Aegis-equipped destroyers capable of intercepting ballistic missiles, adding two more vessels, according to the Defense Ministry.

Japan added two more vessels to its fleet of Aegis-equipped destroyers, raising to eight the number of ships capable of intercepting ballistic missiles. Two Maya-class Aegis destroyers, the Maya and the Haguro, successfully intercepted mock ballistic missiles during tests off the coast of Hawaii earlier this month, the Defense Ministry said Monday. In addition, the Maya fired the Standard Missile-3 Block 2A, the interceptor missile developed by the US and Japan. This marks the first time a Japan Maritime Self-Defense Force vessel launched an interceptor from the state-of-the-art Block 2A system.

Takeaways by Macro Roundup® AI

  1. Japan raised to eight the number of Aegis-equipped destroyers capable of intercepting ballistic missiles, adding two more vessels, according to the Defense Ministry.
  2. The Maya-class destroyers Maya and Haguro intercepted mock ballistic missiles in tests off the coast of Hawaii, the Defense Ministry said.
  3. The Maya fired the Standard Missile-3 Block 2A interceptor developed by the US and Japan, the first launch of a Block 2A interceptor by a Japan Maritime Self-Defense Force vessel.

AI Summary. 13 of China's 31 provincial-level jurisdictions reported more deaths than births, including Shanghai, Jiangsu, Tianjin, Sichuan, Chongqing, Hunan, Hubei, Hebei, Shanxi, Inner Mongolia, Liaoning, Jilin, and Heilongjiang. Nationwide births totaled 10.62m, an 11.5% decline from the prior year.

Luna Sun South China Morning Post
Date Posted:

New official Chinese numbers show over 40% of 31 provincial-level jurisdictions reported more deaths than births last year. Total population grew by 480,000 to 1.4B in 2021, the smallest increase since 1962, with births down 11.5% from 2021. @SCMPNews

New official Chinese numbers show over 40% of 31 provincial-level jurisdictions reported more deaths than births last year....

How widespread is population decline across China's provinces?

Core argument: Chinese mothers gave birth to 10.62 million babies in 2021, an 11.5% decline from 2020, according to newly released official figures.

Among China’s 31 provincial-level jurisdictions, 13 reported more deaths than births last year. Those 13 comprised the wealthy regions of Shanghai, Jiangsu, and Tianjin; the central provinces of Sichuan, Chongqing, Hunan, and Hubei; Hebei, Shanxi, and the Inner Mongolia autonomous region in the north and northwest; and the northeastern rust-belt provinces of Liaoning, Jilin, and Heilongjiang. China has shined a bit more light on its demographic crisis, with newly released figures showing that more than a third of its provinces saw their populations shrink last year. Chinese mothers gave birth to just 10.62 million babies in 2021 – an 11.5% decline from 2020.

Takeaways by Macro Roundup® AI

  1. Chinese mothers gave birth to 10.62 million babies in 2021, an 11.5% decline from 2020, according to newly released official figures.
  2. Thirteen of China's 31 provincial-level jurisdictions, more than a third, reported more deaths than births in 2021.
  3. The 13 shrinking jurisdictions span wealthy Shanghai, Jiangsu, and Tianjin; central Sichuan, Chongqing, Hunan, and Hubei; northern Hebei, Shanxi, and Inner Mongolia; and northeastern Liaoning, Jilin, and Heilongjiang.

Tuesday, November 22, 2022

AI Summary. In the US, the earlier spike in lower-end wages relative to other workers' pay has stopped, while the split between labor income and profits has shifted toward investors. Increases in public and military investment in major economies appear too small to matter, and longer-term forward real interest rates remain within their post-financial-crisis range.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein cites the end of a spike in compensation for low-skilled workers and longer-term forward real interest rates well within their post-financial crisis range and argues against a deliberate economic downturn to curb inflation.

Have wage gains at the bottom reversed in favor of profits?

Core argument: The earlier spike in US lower-end wages relative to other workers' pay has completely stopped, while the split between labor income and profits has, if anything, shifted in favor of investors.

In the US, the earlier spike in lower-end wages relative to other workers' pay has completely stopped, while the split between labor income and profits has, if anything, moved in favor of investors. For better or worse, the popular and elite reactions to the inflation outbreak suggest that policymakers are not going to respond to future downturns the way they did to the pandemic. Soft budget constraints do not appear to be on the menu. And while there have been some constructive increases in public investment (and military spending) in the major economies, they do not seem large enough to move the needle. Financial markets may be wrong, but it is noteworthy that longer-term forward real interest rates are well within their post-financial crisis range, even if they have jumped over the past 12 months.

Takeaways by Macro Roundup® AI

  1. The earlier spike in US lower-end wages relative to other workers' pay has completely stopped, while the split between labor income and profits has, if anything, shifted in favor of investors.
  2. Popular and elite reactions to the inflation outbreak suggest policymakers will not respond to future downturns as they did to the pandemic, with soft budget constraints apparently not on the menu.
  3. Increases in public investment and military spending in the major economies do not appear large enough to move the needle, and longer-term forward real interest rates remain well within their post-financial-crisis range despite jumping over the past 12 months.

AI Summary. China's Covid-19 lockdowns have expanded to cover areas responsible for one-fifth of national gross domestic product, with outbreaks growing in Beijing, the manufacturing hub of Guangzhou, and Chongqing. Beijing shut most non-essential businesses in its largest district, Chaoyang, home to 3.4mn people, closed restaurants and entertainment venues, and told residents to work from home.

Ryan McMorrow, Sun Yu, Gloria Li, et al Financial Times
Date Posted:

China reported almost 28,000 new Covid cases on Tuesday, with outbreaks in Beijing, Guangzhou, and Chongqing. Lockdowns are more extensive than during the Shanghai outbreak that slowed annual economic growth to 0.4% in Q2. @ft

How much of China's economy is under Covid lockdowns?

Core argument: China reported almost 28,000 new Covid-19 cases on Tuesday, with cases spiraling toward record highs and outbreaks growing in Beijing, the southern manufacturing hub of Guangzhou, and the southwestern metropolis of Chongqing.

Covid-19 cases in China are spiraling towards record highs, forcing officials to lock down again large swaths of the country. The world's second-biggest economy reported almost 28,000 new Covid cases on Tuesday, with outbreaks in Beijing, the southern manufacturing hub of Guangzhou, and the southwestern metropolis of Chongqing continuing to grow. Covid restrictions have hit areas responsible for one-fifth of China's gross domestic product. Officials in Beijing shut most non-essential businesses in the city's largest district, Chaoyang, which has a population of 3.4mn, and have closed restaurants and other entertainment venues in much of the city while telling residents to work from home.

Takeaways by Macro Roundup® AI

  1. China reported almost 28,000 new Covid-19 cases on Tuesday, with cases spiraling toward record highs and outbreaks growing in Beijing, the southern manufacturing hub of Guangzhou, and the southwestern metropolis of Chongqing.
  2. Covid restrictions in China have hit areas responsible for one-fifth of the country's gross domestic product, as officials lock down large swaths of the world's second-biggest economy.
  3. Beijing officials shut most non-essential businesses in Chaoyang, the city's largest district with a population of 3.4mn, closed restaurants and other entertainment venues in much of the city, and told residents to work from home.

AI Summary. Deposit rates sit above the federal funds rate when policy rates are near zero and below it when rates rise, so as rates increase depositors shift funds elsewhere and banks raise their deposit rates. Deposits' responsiveness to monetary policy has been attenuated, which can be explained by deposit growth relative to investment opportunities.

Alena Kang-Landsberg and Matthew Plosser Liberty Street Economics
Date Posted:

Researchers at @NewYorkFed evaluate the pass-through of the fed funds rate to deposit rates (that is, deposit betas) over the past several interest rate cycles, and discuss factors that affect deposit rates.

How do deposit rates respond to changes in monetary policy?

Core argument: The gap between the deposit rate and the Fed funds rate is negative when rates are near zero and deposit levels are high, and turns positive as policy rates rise.

We can observe that the gap [between the deposit rate and the Fed funds rate] is negative when rates are near zero (and deposit levels are high) and positive when rates rise. As a consequence, post-GFC and before the 1994 tightening, deposits were more attractive to depositors, and deposit supply was high relative to loans. However, as rates rise, the gap increases, depositors move elsewhere, banks raise their rates, and cumulative deposit betas rise. Since the 1990s, the response of deposits to monetary policy has been attenuated. This can be explained by the growth in deposits over the post-crisis period relative to investment opportunities.

Takeaways by Macro Roundup® AI

  1. The gap between the deposit rate and the Fed funds rate is negative when rates are near zero and deposit levels are high, and turns positive as policy rates rise.
  2. As rates rise and the gap widens, depositors move funds elsewhere, banks raise their rates, and cumulative deposit betas rise.
  3. The response of deposits to monetary policy has been attenuated since the 1990s, which can be explained by the growth in deposits over the post-crisis period relative to investment opportunities.

AI Summary. New home construction fell 24% in the months following the start of Federal Reserve rate increases, consistent with the historical pattern in which housing starts decline within two years of a rate hike. Such construction declines can take years to bottom out.

Aziz Sunderji Wall Street Journal
Date Posted:

.@WSJ notes that the Fed has been raising rates at the fastest pace in four decades (+375 basis points in 9 months.) Key variables such as housing starts have declined much more rapidly than in previous cycles.

Do Fed rate hikes drive prolonged declines in home construction?

Core argument: New home construction fell 24% between the Federal Reserve's March rate increase and July, and declines in home construction following Fed rate increases can take years to bottom out.

The Nobel Prize-winning economist Milton Friedman famously argued that "monetary actions affect economic conditions only after a lag that is both long and variable." Historically, housing starts begin to decline within two years of a Fed hike. New home construction fell by 24% from the Fed increase in March to July. Declines in home construction that follow Fed rate increases can take years before they bottom out.

Takeaways by Macro Roundup® AI

  1. New home construction fell 24% between the Federal Reserve's March rate increase and July, and declines in home construction following Fed rate increases can take years to bottom out.
  2. Housing starts have historically begun to decline within two years of a Fed rate hike.
  3. Nobel Prize-winning economist Milton Friedman argued that monetary actions affect economic conditions only after a lag that is both long and variable.

AI Summary. Equity market bottoms are typically preceded by a meaningful rise in expected equity returns above cash, as investors must be incentivized back into stocks after significant losses. The authors estimate long-term excess expected returns remain relatively low by historical standards, with analyst consensus for long-term corporate cash flow growth barely changed.

Erin Miles, Khia Kurtenbach Bridgewater Associates
Date Posted:

Bridgewater notes that recent market conditions do not fit the historical pattern. Typically, rising discount rates and risk premiums lead to declining asset prices, which in turn leads to declining economic activity and earnings, and more pressure on equities.

Do expected equity returns signal a market bottom has arrived?

Core argument: Equity expected returns in excess of cash typically rise meaningfully before markets turn, because investors must be incentivized back into equities and out of safe assets after significant losses.

There is typically a meaningful increase in equity expected returns (shown below in excess of cash) before the turn in the market because investors need to be incentivized back into equities and out of safe assets following significant losses. Today, based on our read, the re-rating of equity prices has a way to go. Our estimate for long-term excess expected returns remains relatively low compared to history. Consistent with that, analyst consensus for long-term corporate cash flow growth has barely budged over the last year, not yet reflecting the cooling of the economy we expect to see.

Takeaways by Macro Roundup® AI

  1. Equity expected returns in excess of cash typically rise meaningfully before markets turn, because investors must be incentivized back into equities and out of safe assets after significant losses.
  2. The authors estimate long-term equity excess expected returns remain relatively low compared to history, and judge that the re-rating of equity prices has further to go.
  3. Analyst consensus for long-term corporate cash flow growth has barely budged over the past year, which the authors read as not yet reflecting the cooling of the economy they expect.

AI Summary. The Institute of International Finance reports global debt fell $6.4tn in a quarter to about $290tn, a drop amplified by a stronger dollar that makes loans in other currencies look smaller when measured in dollars. Debt has fallen to 343% of world economic output, about 20 percentage points below its pandemic peak.

Ben Holland Bloomberg
Date Posted:

@bloomberg reports that the dollar value of global debt as a share of the global economy is 20 percentage points under its pandemic peak, as a result of inflation and a sharply appreciated dollar.

Is global debt falling relative to world economic output?

Core argument: Global debt fell $6.4 trillion in the three months through September to about $290 trillion, according to the Institute of International Finance's quarterly Global Debt Monitor.

Total debt declined $6.4 trillion in the three months through September, to about $290 trillion, the IIF said in its quarterly Global Debt Monitor published Tuesday in Washington. That drop is amplified by the surging dollar, which makes loans denominated in other currencies look smaller when they’re measured in greenbacks. As a share of the world economy, debt has dropped to 343% -- about 20 percentage points below its pandemic peak last year. Soaring inflation in many economies has helped erode debt burdens measured against the size of economic output because the nominal value of gross domestic product has risen rapidly.

Takeaways by Macro Roundup® AI

  1. Global debt fell $6.4 trillion in the three months through September to about $290 trillion, according to the Institute of International Finance's quarterly Global Debt Monitor.
  2. The IIF said debt as a share of the world economy has dropped to 343%, about 20 percentage points below its pandemic peak last year, as soaring inflation lifted nominal GDP rapidly.
  3. The decline in global debt is amplified by the surging dollar, which makes loans denominated in other currencies look smaller when measured in greenbacks.

AI Summary. The authors estimate the Inflation Reduction Act will cut $30bn from Medicare drug plan subsidies, out of about $110bn in revenue, causing benefit cuts and premium increases for seniors. Traditional Medicare enrollees would face drug coverage cuts or switching to Medicare Advantage plans that may not cover their doctors.

Casey Mulligan and Tomas Philipson Wall Street Journal
Date Posted:

.@caseybmulligan and @TomasPhilipson estimate that The Inflation Reduction Act will reduce healthcare subsidies by $30B starting in 2025, leading to benefit cuts and premium increases for seniors. @WSJ

.@caseybmulligan and @TomasPhilipson estimate that The Inflation Reduction Act will reduce healthcare subsidies by $30B...

Will cuts to Medicare drug plan subsidies raise seniors' premiums?

Core argument: The authors estimate that beginning in 2025 the Inflation Reduction Act will cut Medicare reinsurance subsidies for beneficiaries with the most drug spending by $30 billion, out of revenue currently totaling about $110 billion.

The Inflation Reduction Act will lead to benefit cuts and premium increases for seniors. We estimate that beginning in 2025, plan subsidies—specifically, the reinsurance subsidies for the beneficiaries with the most drug spending—will be cut $30 billion, out of revenue that currently totals about $110 billion. With $30 billion less to finance prescription benefits, something will have to give. Traditional Medicare members face a difficult choice in 2025: either take drastic cuts in drug coverage or switch to Medicare Advantage plans that cover prescriptions but may not cover the hospitals and doctors who are currently providing them care.

Takeaways by Macro Roundup® AI

  1. The authors estimate that beginning in 2025 the Inflation Reduction Act will cut Medicare reinsurance subsidies for beneficiaries with the most drug spending by $30 billion, out of revenue currently totaling about $110 billion.
  2. The authors argue the Inflation Reduction Act will lead to benefit cuts and premium increases for seniors, since $30 billion less financing for prescription benefits means something will have to give.
  3. Traditional Medicare members face a difficult choice in 2025 between drastic cuts in drug coverage and switching to Medicare Advantage plans that cover prescriptions but may not cover their current hospitals and doctors.