Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard 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
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, March 15, 2023

AI Summary. A paper argues that a large rise in the volatility of costs can free a significant share of goods and services prices from stickiness, nearly collapsing price rigidity even if average costs are unchanged. Its empirical analysis finds a large increase in cost volatility around a burst of inflation, followed by a reversal.

Robert Hall National Bureau of Economic Research
Date Posted:
Is Database:
Database

Robert Hall argues that a substantial rise in the volatility of costs can free the prices of a significant fraction of goods and services prices from the grip of New Keynesian “zone of inaction.” @NBERpubs

Does higher cost volatility break price stickiness and unleash inflation?

Core argument: The paper argues that a rise in the volatility of costs, even with the average level of cost unchanged, can free a significant fraction of prices from New Keynesian stickiness and trigger a near collapse of price stickiness.

The basic idea of this paper is that a substantial rise in the volatility of costs and other determinants of prices can completely free the prices of a significant fraction of goods and services from the grip of New Keynesian stickiness, when the volatility of cost rises. There is a critical configuration of the model such that at lower values of the of the cost volatility, the price is a constant over time—resetting never occurs, except possibly to bring the price into the zone of indifference at the beginning of time.  The surprising implication of this investigation is that an increase in the volatility of cost that leaves the average level of cost unchanged can trigger a near collapse of price stickiness.  The next section of the paper presents an empirical analysis demonstrating a large increase in cost volatility around the time of a burst of inflation during and after the pandemic, followed by a reversal.

Takeaways by Macro Roundup® AI

  1. The paper argues that a rise in the volatility of costs, even with the average level of cost unchanged, can free a significant fraction of prices from New Keynesian stickiness and trigger a near collapse of price stickiness.
  2. In the model, below a critical level of cost volatility, prices remain constant over time and resetting never occurs, except possibly an initial reset bringing the price into the zone of indifference.
  3. The paper's empirical analysis documents a large increase in cost volatility around the time of the burst of inflation during and after the pandemic, followed by a reversal.

AI Summary. Liquidity in the US Treasury market has deteriorated as a banking crisis clouds the outlook for Federal Reserve monetary policy. Bid-ask spreads on 2-, 10- and 30-year US government bonds jumped to their highest level in at least six months, and the 10-year yield swung in a 34-basis-point range, the widest since the onset of the pandemic.

Masaki Kondo Bloomberg
Date Posted:

Bid-ask spreads for treasuries are widening with the 10-year yield moving 34bps Monday, the largest gap since the start of the pandemic. @markets

Does banking sector turmoil worsen liquidity in the Treasury market?

Core argument: Bid-ask spreads on 2-, 10- and 30-year US Treasuries jumped to their highest level in at least six months on Tuesday, according to data compiled by Bloomberg.

Liquidity in the world’s largest bond market is evaporating as the US banking crisis muddies the outlook for the Federal Reserve’s monetary policy. Bid-ask spreads on two-, 10- and 30-year US government bonds jumped to the highest level in at least six months on Tuesday, according to data compiled by Bloomberg. The 10-year yield swung in a 34-basis point range on Monday, the biggest gap since the onset of the pandemic in 2020.

Takeaways by Macro Roundup® AI

  1. Bid-ask spreads on 2-, 10- and 30-year US Treasuries jumped to their highest level in at least six months on Tuesday, according to data compiled by Bloomberg.
  2. The 10-year Treasury yield swung in a 34-basis-point range on Monday, the biggest gap since the onset of the pandemic in 2020.
  3. Liquidity in the US Treasury market is evaporating as the US banking crisis muddies the outlook for Federal Reserve monetary policy.

AI Summary. The authors estimate the market value of U.S. banking system assets is $2tn below book value, with marked-to-market assets down 10% on average and 20% at the worst-affected 5% of banks. They argue uninsured debt relative to assets determines which banks risk insolvency, since uninsured depositors can lose money and have incentives to run.

Erica Xuewei Jiang, Gregor Matvos, et al Social Science Research Network
Date Posted:

Mark-to-market losses in the banking system are concentrated in large banks but not the global systemically important banks. @EXjiang

How much have rising rates cut bank asset values and solvency?

Core argument: The U.S. banking system's market value of assets is $2 trillion lower than book value when loan portfolios held to maturity are accounted for, with marked-to-market assets down an average of 10% across all banks.

The U.S. banking system’s market value of assets is $2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity. Marked-to-market bank assets have declined by an average of 10% across all the banks, with the bottom 5th percentile experiencing a decline of 20%. We illustrate that uninsured leverage (i.e., Uninsured Debt/Assets) is the key to understanding whether these losses would lead to some banks in the U.S. becoming insolvent-- unlike insured depositors, uninsured depositors stand to lose a part of their deposits if the bank fails, potentially giving them incentives to run.  If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk. Overall, these calculations suggest that recent declines in bank asset values very significantly increased the fragility of the US banking system to uninsured depositor runs.

Takeaways by Macro Roundup® AI

  1. The U.S. banking system's market value of assets is $2 trillion lower than book value when loan portfolios held to maturity are accounted for, with marked-to-market assets down an average of 10% across all banks.
  2. Banks in the bottom 5th percentile saw marked-to-market asset declines of 20%, and uninsured leverage — uninsured debt to assets — is the key to understanding whether such losses would render banks insolvent.
  3. Uninsured depositors stand to lose part of their deposits if a bank fails, potentially giving them incentives to run, and withdrawals causing even small fire sales would put substantially more U.S. banks at risk.

AI Summary. An index of office property real estate investment trusts has halved over 12 months, falling to a level first reached in 1996, while one of New York City's biggest office developers is worth barely more than at the turn of the millennium. Because such developers are heavily leveraged, failure to repay loans could create wider problems.

John Authors Bloomberg
Date Posted:

.@johnauthers worries about the highly leveraged commercial real estate sector. Vornado’s market cap is back at its January 2000 level and Bloomberg Office Property REIT index has halved in the past year. @markets

Do falling office property values threaten lenders more broadly?

Core argument: Vornado Realty Trust, one of the largest developers of New York City office property, has a market capitalization barely above where it stood at the turn of the millennium.

The market cap of Vornado Realty Trust, one of the biggest developers of office property in New York City is now worth barely any more than it was at the turn of the millennium. Bloomberg’s index of office property real estate investment trusts (REITs) is still above its worst level from the GFC, but it’s halved in the last 12 months to a point it first reached in September of 1996. Few people are terribly bothered by the prospect of property developers losing money. The problem is that such developers tend to be heavily leveraged. If they’re not able to repay their loans, that could be a problem for everyone. Keep an eye on the skyscrapers.

Takeaways by Macro Roundup® AI

  1. Vornado Realty Trust, one of the largest developers of New York City office property, has a market capitalization barely above where it stood at the turn of the millennium.
  2. Office property developers tend to be heavily leveraged, and their inability to repay loans would pose a problem beyond the developers themselves.

AI Summary. Banking-sector stress that constricts credit is consistent with, rather than an obstacle to, the Federal Reserve's approach to lowering inflation, since the main mechanism by which higher interest rates slow the economy is tighter financial conditions and reduced borrowing for investment and consumer durables. Containing inflation by other means would require reducing fiscal stimulus.

John Cochrane The Grumpy Economist
Date Posted:

.@JohnHCochrane notes that SVB failure is a feature of Fed policy, not a bug as “constricting credit” and “tightening financial conditions” are the mechanisms through which monetary policy addresses inflation.

.@JohnHCochrane notes that SVB failure is a feature of Fed policy, not a bug as “constricting credit” and...

Does banking stress that tightens credit help lower inflation?

Core argument: John Cochrane argues that bank troubles constricting credit are a feature rather than a bug of the Fed's anti-inflation strategy, since tightening financial conditions is, in the Fed's view, the main channel through which higher rates slow the economy.

There is much commentary that bank troubles will interfere with the Fed's plan to lower inflation by raising rates. Actually, this is a feature not a bug. The main mechanism by which, in the Fed's view, raising interest rates slows the economy and lowers inflation is by "constricting credit," "tightening financial conditions," lowering borrowing that finances investment and consumer durables purchases.  The Fed didn't want runs, no, but it wants the result. If you don't like that, well, we need to think of other ways to contain inflation, like taking the fiscal gasoline off the fire.

Takeaways by Macro Roundup® AI

  1. John Cochrane argues that bank troubles constricting credit are a feature rather than a bug of the Fed's anti-inflation strategy, since tightening financial conditions is, in the Fed's view, the main channel through which higher rates slow the economy.
  2. Cochrane notes the Fed did not want bank runs but does want their result: lower borrowing that finances investment and consumer durables purchases.
  3. Cochrane contends that those who dislike disinflation working through constricted credit need other ways to contain inflation, such as taking the fiscal gasoline off the fire.

AI Summary. France's government has proposed raising the legal retirement age by two years to 64, arguing the change is needed to preserve the pension system and bring the national deficit, 5% of economic output, toward the European Union's 3% target. France spends about 14.5% of economic output on pensions, versus 7.5% in the US and 10.4% in Germany.

Noemie Bisserbe Wall Street Journal
Date Posted:

Ruling out tax hikes, the French government is attempting to raise the retirement age to extend the viability of the country’s pay-as-you-go retirement system. France spends about 14.5% of economic output on pensions relative to 7.5% in the US. @WSJ

Does high pension spending require raising the retirement age?

Core argument: France spends around 14.5% of its economic output on pensions, compared with 10.4% in Germany and 7.5% in the U.S., according to the OECD, while Emmanuel Macron has proposed raising the legal retirement age by two years to 64.

French President Emmanuel Macron has proposed an overhaul of the country’s pension system centered on raising the legal age of retirement by two years to 64. The legislation, which is currently before parliament, has triggered waves of protests and strikes that have taken a toll on France’s economy.  Mr. Macron says the changes are necessary to save France’s pension system from collapse and maintain fiscal discipline. He wants to bring the national deficit—which was 5% of gross domestic product last year—back in line with the European Union’s 3% target while also boosting France’s military budget amid the war in Ukraine. France spends around 14.5% of its economic output on pensions, compared with 7.5% in the U.S. and 10.4% in Germany, according to the Organization for Economic Cooperation and Development, a club of rich nations. France ranked second out of 38 OECD countries in terms of tax-to-GDP ratio in 2021, according to the OECD, at 45.1%, compared with the OECD average of 34.1% and 26.6% in the U.S.

Takeaways by Macro Roundup® AI

  1. France spends around 14.5% of its economic output on pensions, compared with 10.4% in Germany and 7.5% in the U.S., according to the OECD, while Emmanuel Macron has proposed raising the legal retirement age by two years to 64.
  2. Emmanuel Macron says the pension overhaul is needed to save France's pension system from collapse and to bring the deficit, 5% of GDP last year, back in line with the EU's 3% target while boosting military spending amid the war in Ukraine.
  3. France ranked second out of 38 OECD countries in tax-to-GDP ratio in 2021 at 45.1%, compared with the OECD average of 34.1% and 26.6% in the U.S.

AI Summary. A bank failure of this kind is described as a classic stage of the short-term debt cycle, in which tight money aimed at curbing credit growth and inflation triggers a self-reinforcing debt contraction that spreads by contagion until central banks ease. Each easing seeds the next debt problem, building toward an eventual restructuring and debt monetization.

Ray Dalio LinkedIn
Date Posted:

.@RayDalio argues that the SVB bank run is evidence we are in the early stage of the debt-contraction cycle.

Are bank failures a predictable stage of the short-term debt cycle?

Core argument: Dalio characterizes the Silicon Valley Bank failure as a classic bubble-bursting phase of the short-term debt cycle, which he says lasts about seven years, give or take about three.

[SVB] is a very classic event in the very classic bubble-bursting part of the short-term debt cycle (which lasts about seven years, give or take about three) in which the tight money to curtail credit growth and inflation leads to a self-reinforcing debt-credit contraction that takes place via a domino-falling-like contagion process that continues until central banks create easy money that negates the debt-credit contraction, thus producing more new credit and debt, which creates the seeds for the next big debt problem until these short-term cycles build up the debt assets and liabilities to the point that they are unsustainable and the whole thing collapses in a debt restructuring and debt monetization (which typically happens about once every 75 years, give or take about 25 years).

Takeaways by Macro Roundup® AI

  1. Dalio characterizes the Silicon Valley Bank failure as a classic bubble-bursting phase of the short-term debt cycle, which he says lasts about seven years, give or take about three.
  2. Dalio argues that tight money aimed at curtailing credit growth and inflation produces a self-reinforcing debt-credit contraction that spreads by domino-like contagion until central banks create easy money to negate it.
  3. Dalio holds that each easy-money response generates new credit and debt that seed the next debt problem, until accumulated debt assets and liabilities become unsustainable and collapse into debt restructuring and monetization roughly once every 75 years, give or take about 25.

Thursday, March 16, 2023

AI Summary. The gap between the rate at which banks lend to each other and the equivalent Treasury bill yield, known as the TED spread, widens as distrust between banks grows. There is no particular evidence that confidence between banks has broken down, and nothing remotely comparable to the global financial crisis.

John Authers Bloomberg
Date Posted:

.@johnauthers points to the relative stability of the gap between the rate of inter-bank loans and Treasury bills and argues that broad stress in the banking system is limited.

Does the spread between bank lending rates and Treasury bills signal distrust?

Core argument: The TED Spread, measuring the gap between interbank lending rates traditionally captured by Libor and equivalent Treasury bill yields, shows no particular evidence that confidence among banks has broken down.

The “TED Spread” — the gap between the rate at which banks lend to each other, traditionally captured by Libor (the London Interbank Offer Rate) and the equivalent Treasury bill yield. The higher the spread, the greater the distrust between banks. There is no particular evidence that confidence has broken down at present, and certainly nothing remotely comparable to the GFC.

Takeaways by Macro Roundup® AI

  1. The TED Spread, measuring the gap between interbank lending rates traditionally captured by Libor and equivalent Treasury bill yields, shows no particular evidence that confidence among banks has broken down.
  2. A higher TED Spread indicates greater distrust between banks, and present levels are nothing remotely comparable to those seen during the Global Financial Crisis.

AI Summary. US exports to China are 23% below where they would be had they grown at the same rate as China's imports from the world, with former major manufacturing exports such as automobiles and Boeing jets nearly absent. Record US farm sales to China reflect higher prices rather than larger shipment volumes.

Chad Brown and Yilin Wang Peterson Institute for International Economics
Date Posted:

Chinese imports from the US have fallen far short of the $200B commitments in President Trump’s “Phase One” agreement in 2020 and are now 23% below the trend prior to the 2017 start of the trade war. @ChadBown

Are US exports to China falling behind other countries' sales there?

Core argument: US exports to China in 2022 were 23 percent below the level they would have reached had they grown at the same rate as China's imports from the world each year over 2018–22.

Newly released data from 2022 show that US exports are falling farther and farther behind foreign peers also selling into the Chinese market. Once major US manufacturing exports—like automobiles and Boeing jets—have all but disappeared. Even where US exports appear to be doing alright—US farm sales to China in 2022 hit record highs—worrying signs have emerged. Much of the agricultural gains were not the result of increased shipments but simply higher prices and concerns over global food insecurity associated with the Russia-Ukraine war. A useful comparison is to examine US exports to China relative to their projected levels had they grown at the same rate as China’s imports from the world each year over 2018–22. US exports to China in 2022 are now 23 percent lower than that trend.

Takeaways by Macro Roundup® AI

  1. US exports to China in 2022 were 23 percent below the level they would have reached had they grown at the same rate as China's imports from the world each year over 2018–22.
  2. Once-major US manufacturing exports to China, including automobiles and Boeing jets, have all but disappeared, while US exports fall farther behind foreign peers selling into the Chinese market.
  3. US farm sales to China hit record highs in 2022, but much of the gain came from higher prices and concerns over global food insecurity associated with the Russia-Ukraine war rather than increased shipments.

AI Summary. Large American firms spent $2.5trn on capital expenditure and research, about 5% of GDP, roughly a fifth more in real terms than before the pandemic, but bank trackers now show near-zero US growth and a global slowdown. Analysis of about 700 big US and European firms' plans points to a 1% real-terms spending decline.

Economist Staff The Economist
Date Posted:

An @TheEconomist analysis notes slowing growth in capital investments in 2022, and forecasts that large, listed US and European firms will reduce capex by 1% in 2023.

Is corporate investment growth stalling after a post-pandemic surge?

Core argument: S&P 500 firms spent $2.5trn on capex and R&D in 2021 and 2022, equivalent to 5% of American GDP and a real-terms rise of roughly a fifth versus 2018-19.

In 2021 and 2022 firms in the S&P 500 index of large American firms spent $2.5trn, equivalent to 5% of the country’s GDP, on capex and R&D, a real-terms rise of around a fifth compared with 2018-19. An American capex “tracker” produced by Goldman Sachs, a bank, offers a picture of businesses’ outlays, as well as hinting at future intentions. It is currently registering close to zero growth, year on year. A global tracker produced by JPMorgan Chase, another bank, also points to a sharp deceleration. The Economist analysed capital-spending data from 33 OECD countries. In the fourth quarter of last year capex fell by 1% from the previous quarter. Our analysis of the plans of around 700 big, listed American and European firms suggests real-terms spending will fall by 1% in 2023.

Takeaways by Macro Roundup® AI

  1. S&P 500 firms spent $2.5trn on capex and R&D in 2021 and 2022, equivalent to 5% of American GDP and a real-terms rise of roughly a fifth versus 2018-19.
  2. Goldman Sachs's American capex tracker registers close to zero year-on-year growth, and JPMorgan Chase's global tracker also points to a sharp deceleration.
  3. The Economist's analysis of capital-spending data from 33 OECD countries found capex fell by 1% in the fourth quarter from the previous quarter, and the plans of around 700 big listed American and European firms suggest real-terms spending will fall by 1% in 2023.

AI Summary. Workers most likely to leave cities for the suburbs are high earners in technology, finance, real estate and entertainment who are key sources of income and property tax revenue, while lower-paid service, health care, hospitality and food workers are least likely to move. The 56 largest US metropolitan areas saw a cumulative decline of 900,000 in their white populations.

Thomas Edsall New York Times
Date Posted:

.@Edsall highlights the risk of downward spirals for major American cities, as higher-income workers take advantage of hybrid work schedules to move to suburbs, leaving cities with declining populations that are both lower-income and more non-white.

.@Edsall highlights the risk of downward spirals for major American cities, as higher-income workers take advantage of...

Are cities losing their highest-earning taxpayers to the suburbs?

Core argument: Brookings demographer William Frey reported that the 56 largest U.S. metropolitan areas saw a cumulative decline of 900,000 in their white populations from 2020 to 2021.

The men and women most likely to move to the suburbs are among the highest-paid key sources of income and property tax revenues: workers with six-figure salaries in technology, finance, real estate and entertainment. Those least likely to move, in turn, are paid much less, working in service industries, health care, hospitality and food sales. There is a striking interaction between the Covid-driven exodus from the cities and changing racial and ethnic urban populations. From 2020 to 2021, the nation’s 56 largest metropolitan areas saw a cumulative decline of 900,000 in their white populations William Frey, a demographer and senior fellow at the Brookings Institution reported.  The challenge facing cities is that dysfunction tends to engender dysfunction; downward spirals accelerate. Covid and remote work have transformed the face of urban America, just as the nation’s cities were becoming increasingly racially and ethnically diverse.

Takeaways by Macro Roundup® AI

  1. Brookings demographer William Frey reported that the 56 largest U.S. metropolitan areas saw a cumulative decline of 900,000 in their white populations from 2020 to 2021.
  2. Workers most likely to move to the suburbs hold six-figure salaries in technology, finance, real estate and entertainment, and rank among the highest-paid sources of city income and property tax revenues.
  3. Workers least likely to leave cities are paid much less, in service industries, health care, hospitality and food sales.

AI Summary. The share of job postings offering at least one remote day per week rose more than three-fold in the U.S. and five-fold or more in Australia, Canada, New Zealand and the U.K., exceeding 10% in all but New Zealand. These shifts vary widely across cities, industries, occupations and companies.

Stephen Hansen, Peter John Lambert, et al National Bureau of Economic Research
Date Posted:

Over 10% of job listings in the Anglosphere countries now allow for remote work for at least one day a week. @I_Am_NickBloom @StephenEKHansen @pj_lambert @raffasadun @Bledi_Taska

How much have job postings offering remote work increased?

Core argument: Job postings offering at least one remote day per week rose more than three-fold in the U.S. and five-fold or more in Australia, Canada, New Zealand and the U.K. from 2019 to 2022.

The share of postings that say new employees can work remotely one or more days per week was tiny before the pandemic: 1% or less in Australia, Canada and New Zealand as of 2019, about 3% in the U.K., and about 4% in the U.S. From 2019 to 2022, this remote-work share rose more than three-fold in the U.S and five-fold or more in the other countries. As of January 2023, the remote-work share exceeds 10% of postings in Australia, Canada, the U.K, and the U.S., and it appears to be on an upward trajectory in all five countries. These developments are highly non-uniform across and within cities, industries, occupations, and companies. Even when zooming in on employers in the same industry competing for talent in the same occupations, we find large differences in the share of job postings that explicitly offer remote work.

Takeaways by Macro Roundup® AI

  1. Job postings offering at least one remote day per week rose more than three-fold in the U.S. and five-fold or more in Australia, Canada, New Zealand and the U.K. from 2019 to 2022.
  2. Before the pandemic, postings advertising remote work stood at about 4% in the U.S., about 3% in the U.K., and 1% or less in Australia, Canada and New Zealand as of 2019.
  3. Remote-work postings exceed 10% of the total in Australia, Canada, the U.K. and the U.S. as of January 2023, with large differences across cities, industries, occupations, and even among employers in the same industry competing for the same occupations.