Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…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 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, February 23, 2023

AI Summary. Analysis of underlying trends suggests the persistent component of core services inflation excluding housing began rising before trend wage growth did and has since come down faster, though both peaked around the same time. Further deceleration in trend wage growth may ease inflationary pressures, but the speed of that decline is uncertain.

Martin Almuzara, Richard Audoly, and Davide Melcangi Federal Reserve Bank Of New York
Date Posted:

.@NewYorkFed presents evidence that services inflation leads wage growth. The model suggests that services inflation peaked in the early months of 2022 and then started to decline.

Does trend wage growth lead or lag services inflation?

Core argument: The authors estimate that the persistent component of core services inflation excluding housing, recovered from PCE data, began rising before trend wage growth did and has come down faster, though both trends peaked around the beginning of 2022.

We inspect how the trend in wage growth relates to the trend in price inflation in core services (excluding housing) recovered from PCE data. Both trends are estimated using the methodology described earlier, so their timing can be compared as they are both expressed in terms of annualized monthly growth. Our results not only suggest that the persistent component of core services inflation started to increase before trend wage growth did, but also show that it has come down faster, despite the fact that both trends peaked around the beginning of 2022. Persistent services inflation markedly slowed down between June and October, although it seems to have levelled off since. A further deceleration in trend wage growth may ease inflationary pressures, but considerable uncertainty about the speed of this decline remains.

Takeaways by Macro Roundup® AI

  1. The authors estimate that the persistent component of core services inflation excluding housing, recovered from PCE data, began rising before trend wage growth did and has come down faster, though both trends peaked around the beginning of 2022.
  2. Persistent core services inflation excluding housing slowed markedly between June and October before appearing to level off, according to the authors' trend estimates expressed as annualized monthly growth.
  3. The authors suggest a further deceleration in trend wage growth may ease inflationary pressures, while noting considerable uncertainty about the speed of that decline.

AI Summary. The authors argue that corporate earnings must fall to trigger the layoffs needed to slow wage growth, a prerequisite for sustainably returning inflation to 2%, and they see odds favoring an economic downturn. Absent that downturn, they expect inflation to stay above central bank targets, keeping short-term interest rates higher than markets anticipate.

Bob Prince and Aaron Goone Bridgewater Associates
Date Posted:

Bob Prince and Aaron Goone @Bridgewater argue that earnings have not yet fallen enough to stabilize inflation at target suggesting either “continued rise in short-term interest rates or at least a period of sustained higher interest rates.”

Does returning inflation to 2% require falling earnings and layoffs?

Core argument: Earnings must fall to induce the layoffs needed to cool the labor market and slow wage growth, a prerequisite for a sustainable 2% inflation rate.

Earnings need to fall in order to induce the layoffs needed to cool the labor market and bring down wage growth, which is a prerequisite for a sustainable 2% inflation rate. After cooling late last year, our weekly reading of earnings growth has bounced rather than accelerating downward. Given current conditions and the cause/effect linkages, odds favor that there will be a third stage and that it will mostly likely take the form of an economic downturn. And if that doesn’t happen, inflation is likely to remain above central bank targets, prompting a continued rise in short-term interest rates or at least a period of sustained higher interest rates than what the markets are now discounting.

Takeaways by Macro Roundup® AI

  1. Earnings must fall to induce the layoffs needed to cool the labor market and slow wage growth, a prerequisite for a sustainable 2% inflation rate.
  2. A weekly reading of earnings growth has bounced after cooling late last year rather than accelerating downward.
  3. Odds favor a third stage of the tightening cycle that most likely takes the form of an economic downturn; absent that, inflation is likely to stay above central bank targets, prompting continued rises in short-term rates or sustained higher rates than markets discount.

AI Summary. US 3-month and 10-year yields remain negative in real terms when measured against trailing inflation, even after a rapid Federal Reserve tightening cycle, and consumer and producer price increases are falling. The author argues 2-3 more rate hikes lie ahead alongside a mild US recession whose likelihood and severity may be shrinking.

Michael Cembalest J.P. Morgan
Date Posted:

Michael Cembalest @JPMorgan thinks that the likely severity of a future recession is decreasing, despite continued weakness in their favorite leading indicator (ISM new orders minus inventories).

Are real US yields still negative after rapid Fed tightening?

Core argument: Despite the fastest Fed tightening cycle on record, US real 3-month and 10-year yields remain negative when measured against trailing inflation.

Despite the fastest Fed tightening cycle on record, real US 3-month and 10-year yields are still negative when based on trailing inflation measures. Consumer and producer price increases are falling as we expected they would but it’s too soon for the Fed to pause here. It also seems unlikely that the Fed or ECB will be able to cut rates later this year, unless they overshoot first. Will economic resilience prompt the Fed to tighten even more than markets expect? I think it would take more than a couple of months of positive surprises for the Fed to hike by 50 bps. We still see weakness ahead in our preferred leading indicator (new orders vs inventories) and deflation in the housing pipeline. Bottom line: 2-3 more Fed hikes ahead, and a mild US recession whose likelihood and possible severity may be shrinking.

Takeaways by Macro Roundup® AI

  1. Despite the fastest Fed tightening cycle on record, US real 3-month and 10-year yields remain negative when measured against trailing inflation.
  2. The author expects two to three more Fed hikes and sees a rate cut by the Fed or ECB later this year as unlikely absent an overshoot first.
  3. The author's preferred leading indicator, new orders versus inventories, still signals weakness alongside deflation in the housing pipeline, pointing to a mild US recession whose likelihood and severity may be shrinking.

AI Summary. Across 58 economies accounting for more than 90% of global GDP, the combined interest bill for companies, households and governments is estimated to have risen from $10.4tn (12% of their combined GDP) to $13tn (14.5%). If rates follow the path priced into government-bond markets, that tab is projected to reach about 17% of GDP.

Economist Staff The Economist
Date Posted:
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An @EconUS analysis suggests that if rates follow their current trajectory, total interest costs globally will rise from 12% of GDP in 2021 to 17% by 2027. Their analysis covered 58 countries representing 90% of global GDP.

How much of global GDP is going to interest payments?

Core argument: The Economist estimates the combined interest bill of companies, households and governments across 58 countries reached $13trn in 2022, or 14.5% of their combined GDP, up from $10.4trn and 12% in 2021.

The Economist has estimated the interest bill for companies, households and governments across 58 countries. Together these economies account for more than 90% of global GDP. In 2021 their interest bill stood at $10.4T, or 12% of combined GDP. By 2022 it had reached a whopping $13T, or 14.5% of GDP. Our analysis suggests that, if rates follow the path priced into government-bond markets, the interest tab will hit around 17% of GDP by 2027.Interest costs in America exceeded 20% of GDP during the global financial crisis of 2007-09, the economic boom of the late 1990s and the last proper burst of inflation in the 1980s. Yet an average bill of this size would mask big differences between industries and countries.

Takeaways by Macro Roundup® AI

  1. The Economist estimates the combined interest bill of companies, households and governments across 58 countries reached $13trn in 2022, or 14.5% of their combined GDP, up from $10.4trn and 12% in 2021.
  2. The Economist's analysis suggests that, if rates follow the path priced into government-bond markets, the interest tab will reach around 17% of GDP by 2027 across the 58 countries, which account for more than 90% of global GDP.
  3. Interest costs in America exceeded 20% of GDP during the 2007-09 global financial crisis, the late-1990s boom and the 1980s burst of inflation, though an average bill of that size would mask big differences between industries and countries.

An Economist analysis suggests that if rates follow their current trajectory, total interest costs globally will rise from 12% of GDP in 2021 to 17% by 2027. Their analysis covered 58 countries representing 90% of global GDP, “….The Economist has estimated the interest bill for companies, households and governments across 58 countries. Together these economies account for more than 90% of global GDP. In 2021 their interest bill stood at $10.4T, or 12% of combined GDP. By 2022 it had reached a whopping $13T, or 14.5% of GDP. Our analysis suggests that, if rates follow the path priced into government-bond markets, the interest tab will hit around 17% of GDP by 2027.Interest costs in America exceeded 20% of GDP during the global financial crisis of 2007-09, the economic boom of the late 1990s and the last proper burst of inflation in the 1980s. Yet an average bill of this size would mask big differences between industries and countries….”

Description automatically generated Economist Staff, “The world’s interest bill is $13trn—and rising,” The Economist, February 19, 2023, https://www.economist.com/finance-and-economics/2023/02/19/the-worlds-13trn-interest-bill

The world’s interest bill is $13trn—and rising

After a relaxing 2010s, in which interest rates hardly budged, rising prices are putting central-bank officials to work. Indeed, policymakers have rarely been busier. In the first quarter of 2021, policy rates in a sample of 58 rich and emerging economies languished at an average of 2.6%. By the final quarter of 2022, this figure had jumped to 7.1%. Meanwhile, total debt in these countries stands at $298trn, or 342% of their combined gdp, up from $255trn, or 320% of gdp, before the covid-19 pandemic.

The more indebted the world becomes, the more sensitive it is to interest-rate rises. To assess the effect of borrowing and higher rates, The Economist has estimated the interest bill for companies, households and governments across 58 countries. Together these economies account for more than 90% of global gdp. In 2021 their interest bill stood at a $10.4trn, or 12% of combined gdp. By 2022 it had reached a whopping $13trn, or 14.5% of gdp.

Our calculations make a series of assumptions. In the real world, higher interest rates do not push up debt-servicing costs immediately, except for those of floating-rate debt, such as many overnight bank loans. The maturity of government debt tends to be in the range of five to ten years; companies and households tend to borrow on a shorter-term basis. Therefore we assume that interest-rate rises feed through over the course of five years for public debt, and over a two-year period for households and companies.

To project what might happen over the next few years, we make a few more assumptions. Real-life borrowers respond to higher rates by reducing debt to ensure that interest payments do not get out of hand. Nonetheless, research by the Bank for International Settlements, a club of central banks, shows that higher rates do raise interest payments on debt relative to income—ie, that deleveraging does not entirely negate higher costs. Thus we assume that nominal incomes rise according to imf forecasts and debt-to-gdp ratios stay flat. This implies annual budget deficits of 5% of gdp, lower than before covid.

Our analysis suggests that, if rates follow the path priced into government-bond markets, the interest tab will hit around 17% of gdp by 2027. What if markets are underestimating how much tightening central banks have in store? We find that another percentage point, on top of that which markets have priced in, would bring the bill to a mighty 20% of gdp.

Such a bill would be big, but not without precedent. Interest costs in America exceeded 20% of gdp during the global financial crisis of 2007-09, the economic boom of the late 1990s and the last proper burst of inflation in the 1980s. Yet an average bill of this size would mask big differences between industries and countries. Ghana’s government, for instance, would face a debt-to-revenue ratio of over six and government-bond yields of 75%—which would almost certainly mean eye-watering cuts to state spending.

Inflation may ease the burden somewhat by pushing up nominal tax revenues, household incomes and corporate profits. And global debt as a share of gdp has fallen from its peak of 355% in 2021. But this relief has so far been more than offset by the considerable rise in interest rates. In America, for instance, real rates as measured by the yield on the five-year Treasury inflation-protected security sit at 1.5%, against an average of 0.35% in 2019.

So who is bearing the burden? We rank households, companies and governments across our 58 countries according to two variables: debt-to-income ratios and the increase in rates over the past three years. When it comes to households, rich democracies, including the Netherlands, New Zealand and Sweden, look more sensitive to rising interest rates. All three have debt levels nearly twice their disposable incomes and have seen short-term government-bond yields rise by more than three percentage points since the end of 2019.

Yet countries that have less time to prepare for rate rises may, in fact, face greater difficulties than their more indebted peers. Mortgages in the Netherlands, for instance, often have longer-term fixed rates, meaning the country’s households are probably better protected from higher rates than our rankings suggest. In other countries, by contrast, households typically either have shorter-term fixed-rate loans or borrow on flexible terms. In Sweden floating-rate mortgages account for nearly two-thirds of the stock, which means problems may emerge more quickly. In emerging economies the data are patchier. Although debt-to-income ratios are lower, this partly reflects the fact that formal credit is hard to obtain.

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In the business world, surging consumer demand has lifted profits. In 33 of the 39 countries for which we have data, the ratio of debt to gross operating profit has fallen in the past year. Indeed, parts of the world look surprisingly strong. Despite the woes of Adani Group, a conglomerate under fire from a short-seller, India scores well, thanks to a relatively low debt-to-income ratio of 2.4, and a smaller rise in rates.

Big debt burdens and tighter financial conditions may still prove too much for some companies. s&p Global, a research firm, notes that default rates on European speculative-grade corporate debt rose from under 1% at the start of 2022 to more than 2% by the end of the year. French firms are especially indebted, with a ratio of debt to gross operating profit of nearly nine, higher than any country bar Luxembourg. Russia, cut off from foreign markets, has seen short-term yields spike. Hungary, where the central bank has rapidly raised rates to protect its currency, could face a big interest bill relative to the size of its economy.

Last and most consequential is government debt. Daleep Singh of pgim, an asset manager, says a variable to watch is the risk premium on debt (the extra return markets demand to hold a country’s bonds over and above the yield on an American Treasury). Rich-world governments are mostly doing fine on this measure. But Italy, which has seen one of the biggest increases in bond yields among euro-zone countries in our sample, remains a risk. As the European Central Bank tightens policy, it has stopped buying sovereign bonds, and will begin to shrink its balance-sheet in March. The danger is that this prompts a crunch.

Emerging economies increasingly borrow in their own currencies, but those struggling with external debts may require help. Argentina recently reached a bail-out agreement, which will require uncomfortable belt-tightening, with the imf. It sits near the top of this category, and already defaulted on its external debt in 2020. Egypt, which has medium-term government-bond yields around four to five percentage points above pre-pandemic levels, is trying not to follow suit. Ghana, which recently joined Argentina in the severely distressed camp, is now embarking on fiscal and monetary tightening in an attempt to secure support from the imf.

The fate of some governments, as well as the households and firms that eventually need state support, may depend on the goodwill of China. Despite high debt levels, China itself sits near the bottom of our rankings because of its placid interest rates. Yet its importance to global debt stress is only growing. China is now the largest lender to the world’s poor economies and gobbles up two-thirds of their inflating external debt-service payments, complicating debt-relief efforts. Western governments must hope they can shoot down this balloon, too.

AI Summary. The total value of US homes fell $2.3tn, or 4.9%, in the second half of a year after peaking at $47.7tn, the largest percentage decline since the 2008 housing crisis, according to real estate brokerage Redfin. Total home value remains roughly $13tn above its pre-pandemic level.

Paulina Cachero Bloomberg
Date Posted:

The value of American homes declined by $2.3T or 4.9% in the second half of 2022 the largest decline since the second half of 2008 when homes were down 5.8%. Notably home values are still up ~ $13T since February 2020. @Markets

Are US home values falling sharply while staying far above pre-pandemic levels?

Core argument: The total value of US homes fell $2.3 trillion, or 4.9%, in the second half of 2022 after peaking at $47.7 trillion in June, according to Redfin.

After peaking at $47.7 trillion in June, the total value of US homes declined by $2.3 trillion, or 4.9%, in the second half of 2022, according to real estate brokerage Redfin. That’s the largest drop in percentage terms since the 2008 housing crisis, when home values slumped by 5.8% from June to December. “The housing market has shed some of its value, but most homeowners will still reap big rewards from the pandemic housing boom,” said Redfin economics research lead Chen Zhao, adding that the total value of homes remains roughly $13 trillion higher than it was in February 2020.

Takeaways by Macro Roundup® AI

  1. The total value of US homes fell $2.3 trillion, or 4.9%, in the second half of 2022 after peaking at $47.7 trillion in June, according to Redfin.
  2. The 4.9% decline is the largest percentage drop since the 2008 housing crisis, when home values fell 5.8% from June to December, Redfin reported.
  3. Redfin economics research lead Chen Zhao said most homeowners will still reap big rewards from the pandemic housing boom, with total home value roughly $13 trillion above its February 2020 level.

AI Summary. The author projects that China's demographic decline will cap its rise: its prime-age labor force began shrinking in 2012 as growth slowed from about 10% annually to 3%, and by 2031-35 its growth rate will fall below America's with per capita income near 30% of the US level.

Yi Fuxian Project Syndicate
Date Posted:

.@fuxianyi reviews declining birth rates and increasing old-age dependency ratios and concludes that Chinese GDP growth rate will be below the US in 2031-35. “If the US is overtaken as the world’s largest economy, it will be by India, not China.”

.@fuxianyi reviews declining birth rates and increasing old-age dependency ratios and concludes that Chinese GDP growth rate...

Will demographic decline cap China's economic rise below America's?

Core argument: China's GDP growth slowed from an average 10% annually in 1979–2011 to 7% by 2015 and 3% as of 2022, after its prime-age labor force (15–59) began shrinking in 2012.

Assuming that China is lucky enough to stabilize its fertility rate at 1.1 children per woman, its population in 2049 will be just 2.9 times that of the US, and all its key indicators of demographic and economic vitality will be much worse. In 1980, China's median age was 21, eight years younger than America’s, and from 1979 to 2011, its GDP grew at an average annual rate of 10%. But China’s prime-age labor force (15-59) began to shrink in 2012, and by 2015, GDP growth had decelerated to 7% before slowing further, to 3%, as of 2022. An average of 23.4 million births per year from 1962 to 1990 made China “the world’s factory.” But even China’s own exaggerated official figures put last year’s births at just 9.56 million.  By 2030, China’s median age will already be 5.5 years above that of the US, and by 2033, its old-age dependency ratio will begin to exceed America’s. Its GDP growth rate will begin to fall below America’s in 2031-35, at which point its per capita GDP will hardly have reached 30% of its rival’s – let alone the 50-75% predicted by Chinese official economists. If the US is overtaken as the world’s largest economy, it will be by India, not China.

Takeaways by Macro Roundup® AI

  1. China's GDP growth slowed from an average 10% annually in 1979–2011 to 7% by 2015 and 3% as of 2022, after its prime-age labor force (15–59) began shrinking in 2012.
  2. China averaged 23.4 million births per year from 1962 to 1990, the cohort that made it "the world's factory," but its own exaggerated official figures put last year's births at just 9.56 million.
  3. China's GDP growth is projected to fall below America's in 2031-35, with its per capita GDP hardly reaching 30% of the US level rather than the 50-75% predicted by Chinese official economists, and any overtaking of the US economy coming from India instead.

AI Summary. Cambodian health officials reported the death of an 11-year-old girl from H5N1 bird flu, the country's first known human infection in nearly a decade. About 870 human infections and 457 deaths have been reported to the World Health Organization across 21 countries, including roughly 170 infections and 50 deaths in the last seven years.

Sopheng Cheang Bloomberg
Date Posted:

An 11-year-old girl in Cambodia died from H5N1 after falling ill February 16. The WHO reports there have been at least 870 human infections from the H5N1 avian flu strain, with a 52% mortality rate. @markets

An 11-year-old girl in Cambodia died from H5N1 after falling ill February 16. The WHO reports there have been at least 870...

How deadly are human bird flu infections worldwide?

Core argument: An 11-year-old girl from Cambodia's Prey Veng province died of H5N1 bird flu, the country's first known human infection since 2014, according to the Health Ministry.

An 11-year-old girl in Cambodia has died from bird flu in the country's first known human H5N1 infection since 2014, health officials said. The girl from the rural southeastern province of Prey Veng became ill Feb. 16 and was sent to be treated at hospital in the capital, Phnom Penh. She was diagnosed Wednesday after suffering a fever up to 39 Celsius (102 Fahrenheit) with coughing and throat pain and died shortly afterward, the Health Ministry said in a statement Wednesday night. Globally, about 870 human infections and 457 deaths have been reported to the WHO in 21 countries. But the pace has slowed, and there have been about 170 infections and 50 deaths in the last seven years.

Takeaways by Macro Roundup® AI

  1. An 11-year-old girl from Cambodia's Prey Veng province died of H5N1 bird flu, the country's first known human infection since 2014, according to the Health Ministry.
  2. The girl fell ill Feb. 16 with a fever up to 39 Celsius, coughing and throat pain, was sent to a hospital in Phnom Penh, diagnosed Wednesday, and died shortly afterward.
  3. About 870 human H5N1 infections and 457 deaths have been reported to the World Health Organization across 21 countries, including roughly 170 infections and 50 deaths in the last seven years.

AI Summary. Infectious disease experts say the risk of H5N1 bird flu remains largely contained to animal populations, with 50mn birds killed by the virus or culled in this outbreak according to the European Centre for Disease Prevention and Control. Experts argue more vigorous action is needed to build vaccine stocks and prevent circulation among mammals.

Donato Paolo Mancini and Clive Cookson Financial Times
Date Posted:

The incoming chief scientist of the WHO tells the @FinancialTimes “If there was an outbreak tomorrow of H5N1 in humans, we wouldn’t be able to vaccinate the world within 2023.”

How likely is bird flu to spread among humans?

Core argument: The European Centre for Disease Prevention and Control reports that 50mn birds, including poultry, have been killed by the virus or culled in this outbreak, with large-scale culling carried out in dozens of countries including Japan, France and the US.

Infectious disease experts say the risk remains largely contained to the animal population — 50mn birds, including poultry, have been killed by the virus or culled in this outbreak, according to the European Centre for Disease Prevention. Large-scale culling has been carried out in dozens of countries including Japan, France and the US. H5N1 is “a big worry,” said Jeremy Farrar, flu expert and outgoing director of the Wellcome Trust. “You would hate to look back in the midst of an H5N1 pandemic and say: ‘Hold on, didn’t we watch this avian population die all over the world and we started to see mammals dying and what did we do about it?’” He said more vigorous action was needed both to build up H5N1 vaccine stocks and prevent circulation of the virus among mammals. “If there was an outbreak tomorrow of H5N1 in humans, we wouldn’t be able to vaccinate the world within 2023,” added Farrar, who will become chief scientist at the World Health Organization in May.

Takeaways by Macro Roundup® AI

  1. The European Centre for Disease Prevention and Control reports that 50mn birds, including poultry, have been killed by the virus or culled in this outbreak, with large-scale culling carried out in dozens of countries including Japan, France and the US.
  2. Infectious disease experts say the H5N1 risk remains largely contained to the animal population, while Jeremy Farrar, outgoing director of the Wellcome Trust, calls the virus "a big worry" and urges more vigorous action to build vaccine stocks and prevent circulation among mammals.
  3. Jeremy Farrar, who becomes chief scientist at the World Health Organization in May, said that if an H5N1 outbreak in humans occurred tomorrow, the world could not be vaccinated within 2023.

AI Summary. The U.S. plans to deploy between 100 and 200 troops to Taiwan, up from roughly 30, to expand a training program for Taiwan's military amid the threat from China. The Michigan National Guard is also training a contingent of Taiwanese forces.

Nancy Youssef and Gordon Lubold Wall Street Journal
Date Posted:

The United States plans to deploy 100-200 troops in Taiwan to expand military training programs, up from 30 a year ago. Taiwanese military personnel are also participating in training programs in the US. @WSJ

The United States plans to deploy 100-200 troops in Taiwan to expand military training programs, up from 30 a year ago....

Is the U.S. expanding its troop training presence in Taiwan?

Core argument: The U.S. plans to deploy 100–200 troops to Taiwan in the coming months, up from roughly 30 stationed there a year ago, to bolster a training program for Taiwan's military, according to U.S. officials.

The U.S. is markedly increasing the number of troops deployed to Taiwan, more than quadrupling the current number to bolster a training program for the island’s military amid a rising threat from China. The U.S. plans to deploy between 100 and 200 troops to the island in the coming months, up from roughly 30 there a year ago, according to U.S. officials. The larger force will expand a training program the Pentagon has taken pains not to publicize as the U.S. works to provide Taipei with the capabilities it needs to defend itself without provoking Beijing. Beyond training on Taiwan, the Michigan National Guard is also training a contingent of the Taiwanese military according to people familiar with the training.

Takeaways by Macro Roundup® AI

  1. The U.S. plans to deploy 100–200 troops to Taiwan in the coming months, up from roughly 30 stationed there a year ago, to bolster a training program for Taiwan's military, according to U.S. officials.
  2. The Pentagon has taken pains not to publicize the Taiwan training program as the U.S. works to provide Taipei with the capabilities it needs to defend itself without provoking Beijing.
  3. The Michigan National Guard is also training a contingent of the Taiwanese military, beyond the instruction conducted on Taiwan itself, according to people familiar with the training.

AI Summary. Survey data show 75% of Americans name strengthening the economy a top policy priority, followed by reducing health care costs and defending against terrorism at 60% each. Concern about COVID-19 as a priority has declined.

Pew Staff Pew Research Center
Date Posted:
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American’s top policy priority is “strengthening economy” 75%, followed by reducing health care costs and defending against terrorism 60%.

Is strengthening the economy the public's top policy priority?

Core argument: Strengthening the economy is the top policy priority for 75% of Americans as of early 2023.

As of early 2023, 75% of Americans prioritize strengthening the economy, underscoring its critical role in public policy. This focus is followed by reducing health care costs and defending against terrorism, each cited by 60% of respondents. The emphasis on economic fortification reflects ongoing concerns about inflation, labor market stability, and GDP growth. Despite the pandemic's initial impact, COVID-19 concerns have diminished, allowing economic issues to regain prominence. Policymakers are urged to address these priorities by implementing strategies that bolster economic resilience, enhance healthcare affordability, and ensure national security. The data suggests a shift in public sentiment towards long-term economic stability over immediate pandemic-related challenges, highlighting the need for comprehensive fiscal and monetary policies to sustain growth and mitigate potential downturns.

Takeaways by Macro Roundup® AI

  1. Strengthening the economy is the top policy priority for 75% of Americans as of early 2023.
  2. Reducing health care costs and defending against terrorism each follow as priorities, cited by 60% of Americans.
  3. Concerns about COVID-19 have declined again among Americans, with economic issues regaining prominence over pandemic-related challenges.

Friday, February 24, 2023

AI Summary. The Federal Reserve's preferred inflation gauge accelerated, with the personal consumption expenditures price index up 5.4% from a year earlier and the core measure up 4.7%, both pickups after several months of declines. Inflation-adjusted consumer spending jumped 1.1% from the prior month, the most in nearly two years, after consecutive declines.

Reade Pickert Bloomberg
Date Posted:

Core-PCE rose to 4.7% y/y up from 4.6% in December. Consumer spending rose just over 1% from the prior month, the most in two years. @markets

Is inflation reaccelerating alongside a rebound in consumer spending?

Core argument: The personal consumption expenditures price index rose 5.4% from a year earlier in January and the core measure rose 4.7%, both accelerating after several months of declines.

The Federal Reserve’s preferred inflation gauges unexpectedly accelerated in January and consumer spending surged after a year-end slump, adding pressure on policymakers to keep ratcheting up interest rates. The personal consumption expenditures price index rose 5.4% from a year earlier and the core metric was up 4.7%, both marking pickups after several months of declines. Consumer spending, adjusted for prices, jumped 1.1% from the prior month, the most in nearly two years, after consecutive declines.

Takeaways by Macro Roundup® AI

  1. The personal consumption expenditures price index rose 5.4% from a year earlier in January and the core measure rose 4.7%, both accelerating after several months of declines.
  2. Inflation-adjusted consumer spending jumped 1.1% from the prior month in January, the largest gain in nearly two years, following consecutive monthly declines.
  3. The unexpected pickup in the Federal Reserve's preferred inflation gauges, alongside surging consumer spending, adds pressure on policymakers to keep raising interest rates.

AI Summary. Core personal consumption inflation is running at 4.7% over 12 months with little progress, and the economy is described as very overheated. Inflation is more likely than not to fall from that pace, but a tight labor market and goods prices make 6% inflation much more likely than 2%.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman thinks that the tight labor market means that “6% inflation is much more likely than 2% inflation,” and concludes, “If I were the FOMC I would be raising rates by 50bp at the next meeting and signaling a terminal rate around 6%.”

Is high inflation more likely than a return to 2%?

Core argument: Jason Furman notes core PCE inflation at annual rates of 7.1% over one month, 4.7% over three months, 5.1% over six months, and 4.7% over twelve months, indicating little if any progress on inflation.

The economy is very overheated. We have made little if any progress on inflation. There is little if any reason to expect a large slowdown going forward. Core PCE at an annual rate: 1 month: 7.1% 3 months: 4.7% 6 months: 5.1% 12 months: 4.7%. In some ways it is cleaner just to exclude housing and used cars. Which gives [approximately] the same story as core inflation. We still have lagged rent but that is probably only worth about 0.5 to 1pp off the rate. Possibly lagged monetary policy effects coming too. So yes, more likely than not that inflation falls from its 4.7% pace. Maybe even into the 3's. But there are still forces going in the direction of high inflation. In recent months goods prices have fallen, but that likely won't continue. And the extremely tight labor market has lagged effects on inflation. 6% inflation is much more likely than 2% inflation. If I were the FOMC I would be raising rates by 50bp at the next meeting and signaling a terminal rate around 6%.

Takeaways by Macro Roundup® AI

  1. Jason Furman notes core PCE inflation at annual rates of 7.1% over one month, 4.7% over three months, 5.1% over six months, and 4.7% over twelve months, indicating little if any progress on inflation.
  2. Furman argues the economy is very overheated and that 6% inflation is much more likely than 2%, with recent goods-price declines unlikely to continue and the extremely tight labor market carrying lagged effects on inflation.
  3. Furman says that were he on the FOMC he would raise rates by 50bp at the next meeting and signal a terminal rate around 6%, while granting inflation more likely than not falls from its 4.7% pace, maybe into the 3's.

AI Summary. High private debt relative to GDP may make aggregate demand more sensitive to interest rate increases, but longer debt maturities, less prevalent variable-rate borrowing, and higher household net worth should counteract that sensitivity. Both the level and composition of private debt matter for calibrating monetary policy.

Miguel Ampudia, Fiorella De Fiore, et al Bank for International Settlements
Date Posted:

.@BIS_org argues aggregate global demand might be more sensitive to higher rates given elevated debt levels.

Does high private debt make demand more sensitive to rate hikes?

Core argument: Private debt levels stand at historical highs as monetary policy tightens globally, and when private debt to GDP is high, aggregate demand may be more sensitive to interest rate hikes.

Monetary policy is tightening globally while private debt levels stand at historical highs. When private debt to GDP is high, aggregate demand may be more sensitive to interest rate hikes. Yet, after a decade of low rates, the maturity of private debt has generally lengthened, the prevalence of variable rates has fallen, and household net worth has increased. This should counteract the higher demand sensitivity stemming from elevated debt. Both the level and composition of private debt are important factors, although not the only ones, for the calibration of monetary policy in the current economic environment.

Takeaways by Macro Roundup® AI

  1. Private debt levels stand at historical highs as monetary policy tightens globally, and when private debt to GDP is high, aggregate demand may be more sensitive to interest rate hikes.
  2. After a decade of low rates, lengthened private debt maturities, a reduced prevalence of variable rates, and higher household net worth should counteract the greater demand sensitivity stemming from elevated debt.
  3. Both the level and composition of private debt are important factors, though not the only ones, for calibrating monetary policy.

AI Summary. New York's count of tax filers with adjusted gross income above $1m fell 1.3%, from 55,100 to 54,370, while the national total rose nearly 10% to 608,549. The state's top 1% of earners supply close to half of its income tax revenue.

Paul Farrell Daily Mail
Date Posted:
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.@DailyMail reports that 8% of very wealthy New Yorkers (those earning >$25 million per year) left the state during 2021.

Is New York losing millionaires while their numbers rise nationally?

Core argument: New York saw 1,453 residents earning more than $25 million leave the state in 2021, only 520 fewer than departed at the height of lockdowns, implying 17% of this cohort over two years.

The number of those earning more than $25 million that fled the state in 2021 is 1,453, just 520 less than the amount that left at the height of lockdowns and intense social distancing [implying 17% of this cohort over two years]. The top one percent of earners in New York account for close to half of the state's income tax revenue. Between 2019 and 2020, New York City lost six percent of those earning between $150,000 and $750,000.  EJ McMahon of the Empire Center for Public Policy claimed the data showed a 1.3 percent decline in the number of New Yorkers with adjusted gross annual income of more than $1 million. The precise figure fell from 55,100 to 54,370 - 730 individuals, while the national number climbed from 554,340 to 608,549 - a nearly 10 percent jump.  According to new Census Bureau data, New York experienced the largest population decline of any US state this year - losing 0.9 percent of its residents.

Takeaways by Macro Roundup® AI

  1. New York saw 1,453 residents earning more than $25 million leave the state in 2021, only 520 fewer than departed at the height of lockdowns, implying 17% of this cohort over two years.
  2. EJ McMahon of the Empire Center for Public Policy said the data showed New Yorkers with adjusted gross income above $1 million fell 1.3% from 55,100 to 54,370, while the national count rose nearly 10% from 554,340 to 608,549.
  3. New York's top 1% of earners account for close to half of the state's income tax revenue, and New York City lost 6% of residents earning $150,000–$750,000 between 2019 and 2020.

AI Summary. 43,000 people died on US roads in 2021, the highest mortality rate in the developed world, with the average new American car weighing 1.94 tons, half a ton more than the European average. As vehicles grew heavier, occupant deaths fell 22% while pedestrian deaths rose 57%.

John Burn-Murdoch Financial Times
Date Posted:

Pedestrians’ deaths in America have risen 57%, in part because Americans prefer larger cars (fully half a ton larger than the European average). @jburnmurdoch

Do heavier American cars raise pedestrian deaths while protecting occupants?

Core argument: 43,000 people died on US roads in 2021, the highest road mortality rate in the developed world by some margin.

43,000 people died on America’s roads in 2021, the highest mortality rate in the developed world by some margin. The average new American car purchased in 2021 weighed 1.94 tons, fully half a ton more than the European average. Purchases of SUVs and “light” trucks together now account for four out of every five new vehicles bought in the US, up from one in five 50 years ago. This would all be a mere curiosity except that these vehicles have a variety of lethal qualities. As American cars have bulked up, the number of fatalities for the drivers and passengers inside these rolling fortresses has fallen by 22 per cent. But the number of pedestrians killed has risen by 57 per cent. According to an estimate by Justin Tyndall, assistant professor of economics at the University of Hawaii, the lives of 8,000 pedestrians could have been saved between 2000 and 2018 if Americans had stuck to smaller vehicles.

Takeaways by Macro Roundup® AI

  1. 43,000 people died on US roads in 2021, the highest road mortality rate in the developed world by some margin.
  2. As American cars have grown heavier, fatalities among drivers and passengers inside them have fallen 22 per cent while pedestrian deaths have risen 57 per cent.
  3. Justin Tyndall, assistant professor of economics at the University of Hawaii, estimates that 8,000 pedestrian lives could have been saved between 2000 and 2018 had Americans stuck to smaller vehicles.

AI Summary. Earnings inequality between firms declines as a group of firms founded in the same year ages, while each successive founding cohort enters with higher between-firm pay dispersion, a pattern that accounts for a large share of the aggregate rise in between-firm earnings inequality. The authors expect inequality to keep rising as older cohorts are replaced by newer ones.

Isaac Sorkin and Melanie Wallskog National Bureau of Economic Research
Date Posted:
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A new @NBERpubs paper shows that newer firms have more earnings dispersion than older firms, and that this pattern accounts for a large fraction of the aggregate rise in between-firm earnings inequality. @WallskogMelanie

Do newer firm cohorts drive the rise in between-firm earnings inequality?

Core argument: Between-firm earnings inequality within a firm cohort declines as that cohort ages, while each subsequent cohort enters with higher between-firm dispersion and then declines along a path roughly parallel to earlier cohorts.

We plot the between-firm variance of earnings within a cohort over time. We find two striking patterns. First, within a cohort, between-firm earnings inequality declines as the cohort ages. Second, each subsequent cohort of firms enters with a higher level of between-firm earnings inequality before declining on a path approximately parallel to previous cohorts. We find that between-firm pay dispersion declines within a cohort. Second, there are striking cohort patterns: more recent cohorts are more dispersed than older cohorts. This pattern accounts for a large fraction of the aggregate rise in between-firm earnings inequality. As older cohorts are replaced with cohorts with inequality “technology” of the more recent vintage, we expect inequality to continue to rise, even without a change in that underlying technology.

Takeaways by Macro Roundup® AI

  1. Between-firm earnings inequality within a firm cohort declines as that cohort ages, while each subsequent cohort enters with higher between-firm dispersion and then declines along a path roughly parallel to earlier cohorts.
  2. The cohort pattern in between-firm pay dispersion accounts for a large fraction of the aggregate rise in between-firm earnings inequality.
  3. As older cohorts are replaced by cohorts carrying more recent inequality "technology," between-firm earnings inequality is expected to keep rising even without any change in that underlying technology.

AI Summary. An analysis of 58 countries representing 90% of global GDP finds total interest costs rose from $10.4tn (12% of GDP) to $13tn (14.5% of GDP), and projects they could reach 17% of GDP if current rate trajectories persist. Total debt in these countries stands at $298tn, or 342% of GDP.

Economist Staff The Economist
Date Posted:
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Total interest costs for 90% of global economy could rise from 12% of GDP in 2021 to 17% by 2027 if current rate trajectories persist.

How much of global GDP goes to paying interest?

Core argument: Across 58 countries representing 90% of global GDP, the total interest bill rose from $10.4tn, or 12% of GDP, in 2021 to $13tn, or 14.5% of GDP, in 2022, and could reach 17% by 2027 if current rate trajectories persist.

An analysis covering 58 countries, representing 90% of global GDP, indicates that total interest costs could rise from 12% of GDP in 2021 to 17% by 2027 if current rate trajectories persist. In 2021, the interest bill was $10.4tn, or 12% of GDP, increasing to $13tn, or 14.5% of GDP, by 2022. This rise is driven by policy rates jumping from an average of 2.6% in early 2021 to 7.1% by late 2022. Total debt in these countries stands at $298tn, or 342% of GDP, up from $255tn pre-pandemic. Higher rates could push the interest burden to 20% of GDP if underestimated by markets. Inflation may ease some burdens by boosting nominal incomes, but the significant rate hikes have largely offset this relief. The impact varies across industries and countries, with some facing severe fiscal challenges.

Takeaways by Macro Roundup® AI

  1. Across 58 countries representing 90% of global GDP, the total interest bill rose from $10.4tn, or 12% of GDP, in 2021 to $13tn, or 14.5% of GDP, in 2022, and could reach 17% by 2027 if current rate trajectories persist.
  2. Average policy rates across the 58 countries jumped from 2.6% in early 2021 to 7.1% by late 2022, and the interest burden could reach 20% of GDP if markets have underestimated rates.
  3. Total debt across the 58 countries stands at $298tn, or 342% of GDP, up from $255tn before the pandemic, with the burden varying across industries and countries.

An Economist analysis suggests that if rates follow their current trajectory, total interest costs globally will rise from 12% of GDP in 2021 to 17% by 2027. Their analysis covered 58 countries representing 90% of global GDP, “…. The Economist has estimated the interest bill for companies, households and governments across 58 countries. Together these economies account for more than 90% of global GDP. In 2021 their interest bill stood at $10.4T, or 12% of combined GDP. By 2022 it had reached a whopping $13T, or 14.5% of GDP. Our analysis suggests that, if rates follow the path priced into government-bond markets, the interest tab will hit around 17% of GDP by 2027.Interest costs in America exceeded 20% of GDP during the global financial crisis of 2007-09, the economic boom of the late 1990s and the last proper burst of inflation in the 1980s. Yet an average bill of this size would mask big differences between industries and countries….”

Economist Staff, "The world’s interest bill is $13trn—and rising,"The Economist, February 19, 2023, https://www.economist.com/finance-and-economics/2023/02/19/the-worlds-13trn-interest-bill

The world’s interest bill is $13trn—and rising

After a relaxing 2010s, in which interest rates hardly budged, rising prices are putting central-bank officials to work. Indeed, policymakers have rarely been busier. In the first quarter of 2021, policy rates in a sample of 58 rich and emerging economies languished at an average of 2.6%. By the final quarter of 2022, this figure had jumped to 7.1%. Meanwhile, total debt in these countries stands at $298trn, or 342% of their combined gdp, up from $255trn, or 320% of gdp, before the covid-19 pandemic.

The more indebted the world becomes, the more sensitive it is to interest-rate rises. To assess the effect of borrowing and higher rates, The Economist has estimated the interest bill for companies, households and governments across 58 countries. Together these economies account for more than 90% of global gdp. In 2021 their interest bill stood at a $10.4trn, or 12% of combined gdp. By 2022 it had reached a whopping $13trn, or 14.5% of gdp.

Our calculations make a series of assumptions. In the real world, higher interest rates do not push up debt-servicing costs immediately, except for those of floating-rate debt, such as many overnight bank loans. The maturity of government debt tends to be in the range of five to ten years; companies and households tend to borrow on a shorter-term basis. Therefore we assume that interest-rate rises feed through over the course of five years for public debt, and over a two-year period for households and companies.

To project what might happen over the next few years, we make a few more assumptions. Real-life borrowers respond to higher rates by reducing debt to ensure that interest payments do not get out of hand. Nonetheless, research by the Bank for International Settlements, a club of central banks, shows that higher rates do raise interest payments on debt relative to income—ie, that deleveraging does not entirely negate higher costs. Thus we assume that nominal incomes rise according to imf forecasts and debt-to-gdp ratios stay flat. This implies annual budget deficits of 5% of gdp, lower than before covid.

Our analysis suggests that, if rates follow the path priced into government-bond markets, the interest tab will hit around 17% of gdp by 2027. What if markets are underestimating how much tightening central banks have in store? We find that another percentage point, on top of that which markets have priced in, would bring the bill to a mighty 20% of gdp.

The worlds interest bill is 13trnand rising: Extended Excerpt Image 1


Such a bill would be big, but not without precedent. Interest costs in America exceeded 20% of gdp during the global financial crisis of 2007-09, the economic boom of the late 1990s and the last proper burst of inflation in the 1980s. Yet an average bill of this size would mask big differences between industries and countries. Ghana’s government, for instance, would face a debt-to-revenue ratio of over six and government-bond yields of 75%—which would almost certainly mean eye-watering cuts to state spending.

Inflation may ease the burden somewhat by pushing up nominal tax revenues, household incomes and corporate profits. And global debt as a share of gdp has fallen from its peak of 355% in 2021. But this relief has so far been more than offset by the considerable rise in interest rates. In America, for instance, real rates as measured by the yield on the five-year Treasury inflation-protected security sit at 1.5%, against an average of 0.35% in 2019.

So who is bearing the burden? We rank households, companies and governments across our 58 countries according to two variables: debt-to-income ratios and the increase in rates over the past three years. When it comes to households, rich democracies, including the Netherlands, New Zealand and Sweden, look more sensitive to rising interest rates. All three have debt levels nearly twice their disposable incomes and have seen short-term government-bond yields rise by more than three percentage points since the end of 2019.

Yet countries that have less time to prepare for rate rises may, in fact, face greater difficulties than their more indebted peers. Mortgages in the Netherlands, for instance, often have longer-term fixed rates, meaning the country’s households are probably better protected from higher rates than our rankings suggest. In other countries, by contrast, households typically either have shorter-term fixed-rate loans or borrow on flexible terms. In Sweden floating-rate mortgages account for nearly two-thirds of the stock, which means problems may emerge more quickly. In emerging economies the data are patchier. Although debt-to-income ratios are lower, this partly reflects the fact that formal credit is hard to obtain.

The worlds interest bill is 13trnand rising: Extended Excerpt Image 2


In the business world, surging consumer demand has lifted profits. In 33 of the 39 countries for which we have data, the ratio of debt to gross operating profit has fallen in the past year. Indeed, parts of the world look surprisingly strong. Despite the woes of Adani Group, a conglomerate under fire from a short-seller, India scores well, thanks to a relatively low debt-to-income ratio of 2.4, and a smaller rise in rates.

Big debt burdens and tighter financial conditions may still prove too much for some companies. s&p Global, a research firm, notes that default rates on European speculative-grade corporate debt rose from under 1% at the start of 2022 to more than 2% by the end of the year. French firms are especially indebted, with a ratio of debt to gross operating profit of nearly nine, higher than any country bar Luxembourg. Russia, cut off from foreign markets, has seen short-term yields spike. Hungary, where the central bank has rapidly raised rates to protect its currency, could face a big interest bill relative to the size of its economy.

Last and most consequential is government debt. Daleep Singh of pgim, an asset manager, says a variable to watch is the risk premium on debt (the extra return markets demand to hold a country’s bonds over and above the yield on an American Treasury). Rich-world governments are mostly doing fine on this measure. But Italy, which has seen one of the biggest increases in bond yields among euro-zone countries in our sample, remains a risk. As the European Central Bank tightens policy, it has stopped buying sovereign bonds, and will begin to shrink its balance-sheet in March. The danger is that this prompts a crunch.

Emerging economies increasingly borrow in their own currencies, but those struggling with external debts may require help. Argentina recently reached a bail-out agreement, which will require uncomfortable belt-tightening, with the imf. It sits near the top of this category, and already defaulted on its external debt in 2020. Egypt, which has medium-term government-bond yields around four to five percentage points above pre-pandemic levels, is trying not to follow suit. Ghana, which recently joined Argentina in the severely distressed camp, is now embarking on fiscal and monetary tightening in an attempt to secure support from the imf.

The fate of some governments, as well as the households and firms that eventually need state support, may depend on the goodwill of China. Despite high debt levels, China itself sits near the bottom of our rankings because of its placid interest rates. Yet its importance to global debt stress is only growing. China is now the largest lender to the world’s poor economies and gobbles up two-thirds of their inflating external debt-service payments, complicating debt-relief efforts. Western governments must hope they can shoot down this balloon, too.