Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, March 30, 2023

AI Summary. Trade as a share of GDP has stalled since the financial crisis and declined in some cases, but capital and labor market trends point the other way, making it premature to describe the world economy as deglobalizing. While the US and China appear to be reducing reliance on global markets, other countries are not.

Pinelopi Goldberg and Tristan Reed Brookings Papers on Economic Activity
Date Posted:

Citing measures of trade, capital flows, and immigration, @PennyG_Yale argues there is evidence of a slowdown but not a reversal of globalization.

Is the global economy actually deglobalizing?

Core argument: Trade as a share of GDP has stalled since the financial crisis and declined in some cases, while trends in capital and labor markets point in a different direction, suggesting it is premature to speak of "deglobalization.".

First, it is clear that the growth of trade as percent of GDP has stalled since the financial crisis, and even declined in some cases. However, trends in capital and labor markets tell a different story. Taken together, these trends suggest that it is premature to talk of “deglobalization” – the slowdown of global trade seems a natural development following its earlier, fast growth and reflects partly the growth of the domestic markets of two large, formerly low-income countries, China and India. Second, deglobalization trends are highly heterogeneous across countries. While the United States and China – the world’s two largest economies which by virtue of their economic size drive aggregate trends – seem to be gradually decreasing their reliance on global markets, this is not true for the rest of the world.

Takeaways by Macro Roundup® AI

  1. Trade as a share of GDP has stalled since the financial crisis and declined in some cases, while trends in capital and labor markets point in a different direction, suggesting it is premature to speak of "deglobalization.".
  2. The slowdown in global trade follows an earlier period of fast growth and partly reflects the expansion of domestic markets in China and India, two large, formerly low-income countries.
  3. Deglobalization trends are heterogeneous across countries: the United States and China, the world's two largest economies, appear to be gradually reducing their reliance on global markets and drive aggregate trends by virtue of their size, while the rest of the world is not.

AI Summary. The U.S. combined federal, state, and local tax and transfer system is highly progressive: the bottom fifth of households faced a net rate of -127%, receiving $1.27 from government per dollar earned, while the top fifth paid a net 30.7%. The top fifth funded 90.1%, or $1.6tn, of all government transfers.

Tim Vermeer, Alex Durante, et al Tax Foundation
Date Posted:
Is Database:
Database

.@TaxFoundation analysis finds that for every dollar earned by the lowest quintile of American households, they receive an additional $1.27 from the government. @tevermeer @ericadyork @alex_durante_ @JaredWalczak

How progressive is the combined US tax and transfer system?

Core argument: The lowest U.S. income quintile faced a combined tax and transfer rate of -127.0%, receiving an extra $1.27 from government per dollar earned, while the top quintile's rate was +30.7%, paying just under $0.31 per dollar earned.

The U.S. system of taxes and transfers is highly progressive. The lowest quintile experienced a combined tax and transfer rate of negative 127.0 percent, meaning that for each dollar they earned, they received an additional $1.27 from the government, netting transfers (gains) and taxes (losses), while the top quintile had a rate of positive 30.7 percent, meaning on net they paid just under $0.31 for every dollar earned. The top quintile funded 90.1 percent, or $1.6 trillion, of all government transfers in 2019. For each dollar of taxes paid, the top quintile received $0.11 in gross government transfers. Government transfers account for 59 percent of the bottom quintile’s comprehensive income. For each dollar of taxes paid by the bottom quintile, they received $6.17 in gross government transfers.

Takeaways by Macro Roundup® AI

  1. The lowest U.S. income quintile faced a combined tax and transfer rate of -127.0%, receiving an extra $1.27 from government per dollar earned, while the top quintile's rate was +30.7%, paying just under $0.31 per dollar earned.
  2. The top quintile funded 90.1%, or $1.6 trillion, of all government transfers in 2019, receiving $0.11 in gross transfers for each dollar of taxes paid.
  3. Government transfers account for 59% of the bottom quintile's comprehensive income, and that group received $6.17 in gross government transfers for each dollar of taxes paid.

AI Summary. Federal Reserve data show the 25 largest U.S. banks gained $120bn in deposits while all smaller U.S. banks lost $108bn, the largest weekly dollar decline in smaller banks' deposits on record. Banks with under $10bn in assets accounted for nearly 43% of outstanding small-business loans, versus under 23% for the 13 largest banks.

David Benoit, Rachel Louise Ensign, et al Wall Street Journal
Date Posted:

Banks with less than $120B in deposits have lost over $108B in deposits since SVB’s collapse, which should restrict credit availability. Banks with <$10B in deposits account for almost 43% of small business loans. @WSJ

Does a shift of deposits to big banks threaten small-business lending?

Core argument: The 25 largest U.S. banks gained $120 billion in deposits in the days after SVB's collapse while all smaller U.S. banks lost $108 billion, the largest weekly dollar decline in smaller banks' deposits on record, according to Federal Reserve data.

The 25 biggest U.S. banks gained $120 billion in deposits in the days after SVB collapsed, according to Federal Reserve data. All the U.S. banks below that level lost $108 billion over the same period. It was the largest weekly decline in smaller banks’ deposits in dollar terms on record. Meanwhile, more than $220 billion has flowed into money-market funds over the past two weeks, according to data from Refinitiv Lipper. Banks with less than $10 billion in assets accounted for nearly 43% of small loans to businesses outstanding at the end of 2022, according to Prof. Cole’s analysis of federal banking data. The 13 largest banks, by contrast, accounted for less than 23% of small- business loans, much of which represents credit-card balances, he said.

Takeaways by Macro Roundup® AI

  1. The 25 largest U.S. banks gained $120 billion in deposits in the days after SVB's collapse while all smaller U.S. banks lost $108 billion, the largest weekly dollar decline in smaller banks' deposits on record, according to Federal Reserve data.
  2. More than $220 billion flowed into money-market funds over two weeks, according to data from Refinitiv Lipper.
  3. Banks with less than $10 billion in assets accounted for nearly 43% of small loans to businesses outstanding at the end of 2022, versus less than 23% for the 13 largest banks, much of it credit-card balances, according to Prof. Cole's analysis of federal banking data.

AI Summary. The commercial-property industry owed $5.6trn to investors and financial institutions, with about half owed to banks and $2.2trn owed to banks holding under $250bn in assets. Even a scenario in which landlords default on half of those small banks' office loans implies roughly $140bn in losses, about 10% of small banks' equity capital, though unevenly distributed.

Economist Staff The Economist
Date Posted:

Back of the envelope math suggests banks should be able to weather the decline in offices values; small banks face losses of $140B on offices, which is only 10% of their equity capital. @TheEconomist

How large are potential commercial-property loan losses for small banks?

Core argument: The commercial-property industry owed $5.6trn in debt to investors and financial institutions at the end of 2022, half of it to banks, according to the data provider Trepp.

At the end of 2022, the commercial-property industry owed $5.6trn in debt to investors and financial institutions. According to Trepp, a data provider, half of this was to banks. Brookfield and funds of its size might need to repay big institutions, but the vast majority are on the hook to lenders with below $250bn in assets—ones which are already under severe stress after the collapse of Silicon Valley Bank. Even the worst-case scenario would have limited impact. Roughly a quarter of the $2.2trn of commercial-property loans owed to small banks are office loans. Imagine thatlandlords hand back the keys on half these loans this year—some $280bn in total. If banks could recover just half the value of the loans by selling off the assets at deep discounts (say, a third of their value three years ago) they would be wearing losses of $140bn. That is just 10% of the equity capital that small banks hold. The blow would be unevenly distributed, however, and could imperil some institutions.

Takeaways by Macro Roundup® AI

  1. The commercial-property industry owed $5.6trn in debt to investors and financial institutions at the end of 2022, half of it to banks, according to the data provider Trepp.
  2. The vast majority of commercial-property borrowers owe lenders holding less than $250bn in assets, banks already under severe stress after the collapse of Silicon Valley Bank.
  3. If landlords handed back the keys on half of small banks' office loans, some $280bn, and banks recovered half that value, the resulting $140bn of losses would equal 10% of small banks' equity capital, unevenly distributed.

AI Summary. The core counties of large U.S. metropolitan areas lost a net of more than 800,000 residents to other parts of the country, an improvement from a 1.2m net outflow the prior year. About 500,000 net arrivals from abroad, plus more births and fewer deaths, left those counties' combined population little changed.

Paul Overberg, John McCormick and Max Rust Wall Street Journal
Date Posted:

Suburbs of big and medium sized cities are driving the US’s population growth while the flight from big cities slowed. @WSJ

Is the population outflow from large urban counties slowing?

Core argument: Core counties of large U.S. metro areas lost an estimated net of more than 800,000 domestic movers in the year ended June 30, an improvement from a 1.2 million drop the prior year, according to a Wall Street Journal analysis.

The suburbs of big cities and small and medium-size metropolitan areas continued to claim most of the country’s growth, according to a Wall Street Journal analysis of population estimates released Thursday for the year that ended June 30. Rural areas and small towns collectively remained nearly flat. The core counties of large metro areas had an estimated net loss of more than 800,000 movers to the rest of the country, but that was an improvement from a 1.2 million drop in the preceding year, the Journal analysis shows. After a sharp falloff in immigration at the peak of the pandemic, the latest data shows a revival that has helped bolster large urban counties, with about 500,000 net arrivals from abroad last year. A rise in births and fewer deaths also helped offset moves out of urban counties, leaving their collective population little changed for the year.

Takeaways by Macro Roundup® AI

  1. Core counties of large U.S. metro areas lost an estimated net of more than 800,000 domestic movers in the year ended June 30, an improvement from a 1.2 million drop the prior year, according to a Wall Street Journal analysis.
  2. About 500,000 net arrivals from abroad, along with a rise in births and fewer deaths, offset moves out of large urban counties, leaving their collective population little changed for the year.
  3. Suburbs of big cities and small and medium-size metropolitan areas claimed most of U.S. growth, while rural areas and small towns collectively remained nearly flat, the Wall Street Journal analysis shows.

AI Summary. Total factor productivity is the main factor accounting for differences in labor productivity growth across countries and over time, and its growth has been lackluster across large advanced economies since the mid-2000s. The authors find this slowdown appears in both manufacturing and market services, with U.S. productivity growth slowing before the Great Recession.

John Fernald, Robert Inklaar, and Dimitrije Ruzic Federal Reserve Bank of San Francisco
Date Posted:
Is Database:
Database

John Fernald @sffed argues that slower total factor productivity growth is likely not a function of the business cycle or scarring due to the crisis, as growth slowed in advance of 2008 across advanced economies.

Why has productivity growth slowed across large advanced economies?

Core argument: Total factor productivity is the main factor accounting for differences in labor productivity growth across countries and over time, and TFP growth has been lackluster across the large economies analyzed since the mid-2000s.

TFP is the main factor accounting for differences in labor productivity growth across countries and over time. Since the mid-2000s, TFP growth has been lackluster across the large economies we analyze here. At the level of the market economy, productivity slowed because the productivity frontier (the U.S.) slowed, with similar slowdowns elsewhere. At a more disaggregated level, the frontier economy is sometimes different, but the pattern of slow TFP growth since the mid-2000s is evident in both manufacturing and market services. Qualitatively as well as statistically, the evidence suggests that, following that mid-1990s pickup, U.S. TFP growth slowed before the Great Recession.

Takeaways by Macro Roundup® AI

  1. Total factor productivity is the main factor accounting for differences in labor productivity growth across countries and over time, and TFP growth has been lackluster across the large economies analyzed since the mid-2000s.
  2. At the market-economy level, productivity slowed because the productivity frontier, the United States, slowed, with similar slowdowns elsewhere.
  3. The evidence suggests that, following the mid-1990s pickup, U.S. TFP growth slowed before the Great Recession, with slow TFP growth since the mid-2000s evident in both manufacturing and market services.

AI Summary. The authors estimate that adjusting for population aging raises the labor force participation rate by 0.9 percentage point, enough to account for the entire participation gap, because the large baby boomer cohort sits at the age around 65 where retirement rates climb steeply. Undoing aging and excess retirements together would lift participation by 1.1 percentage point, from 62.5% to 63.6%.

Mary Amiti, Sebastian Heise, et al Federal Reserve Bank of New York
Date Posted:

An analysis from the @NewYorkFed shows that adjusting the labor force participation rate for population aging and excess retirements raises “the LFPR by 1.1 percentage point from 62.5% to 63.6%, more than making up for the participation gap.”

Does population aging explain the entire labor force participation gap?

Core argument: Adjusting for population aging alone raises the labor force participation rate by 0.9 percentage point in February 2023, which the authors find can explain the entire participation gap.

The gold line in the chart below shows this age-adjusted participation rate. Removing the effect of aging can explain the entire participation gap, lifting LFPR by 0.9 percentage point in February 2023. This big effect arises because the large baby boomer cohort is right at the retirement cutoff. As the chart above shows, the retirement share rises dramatically with age around the age of 65. Consequently, the aging of the baby boomers between 2020 and 2022 led to a significant rise in retirements, reducing participation. We analyze the effect of excess retirements on participation, in addition to the effect of aging. To do so, we analyze how the overall age-adjusted retirement share would change if we went back to the retirement shares in each age group of 2018-19. Overall, our results imply that undoing the effects of population aging and excess retirements would raise the LFPR by 1.1 percentage point from 62.5 percent to 63.6 percent, more than making up for the participation gap.

Takeaways by Macro Roundup® AI

  1. Adjusting for population aging alone raises the labor force participation rate by 0.9 percentage point in February 2023, which the authors find can explain the entire participation gap.
  2. Undoing the effects of population aging and excess retirements would raise the labor force participation rate by 1.1 percentage points, from 62.5 percent to 63.6 percent, more than making up for the participation gap, according to the authors' analysis.
  3. The retirement share rises sharply with age around 65, and the large baby boomer cohort sits at that cutoff, so its aging between 2020 and 2022 led to a significant rise in retirements that reduced participation.

AI Summary. Adolescent anxiety, depression, self-harm, and psychiatric hospitalization rates rose in all five Anglosphere countries beginning in the early 2010s, with larger absolute increases for girls than boys and for the youngest generation. The authors argue the shift from flip phones to smartphones and a phone-based childhood explains this common timing.

Zach Rausch and Jon Haidt After Babel
Date Posted:

.@JonHaidt reports the deterioration in teens mental health across the Anglosphere is seemingly following the same basic pattern which he suspects is being driven by smartphones and social media.

Did smartphones drive rising teen mental illness across English-speaking countries?

Core argument: All five Anglosphere countries show the same pattern beginning in the early 2010s: substantial increases in adolescent anxiety and depression alongside rising rates of self-harm or psychiatric hospitalization.

n sum, all five Anglosphere countries exhibit the same basic pattern: A) A substantial increase in adolescent anxiety and depression rates begins in the early 2010s. B) A substantial increase in adolescent self-harm rates or psychiatric hospitalizations begins in the early 2010s. C) The increases are larger for girls than for boys (in absolute terms). D) The increases are larger for Gen Z than for older generations (in absolute terms). At this point, there is only one theory we know of that can explain why the same thing happened to girls in so many countries at the same time: the rapid global movement from flip phones (where you can’t do social media) to smartphones and the phone-based childhood. The first smartphone with a front-facing camera (the iPhone 4) came out in 2010, just as teens were trading in their flip phones for smartphones in large numbers. (Few teens owned an iPhone in its first few years). Facebook bought Instagram in 2012, which gave the platform a huge boost in publicity and users.

Takeaways by Macro Roundup® AI

  1. All five Anglosphere countries show the same pattern beginning in the early 2010s: substantial increases in adolescent anxiety and depression alongside rising rates of self-harm or psychiatric hospitalization.
  2. The increases in adolescent anxiety, depression, and self-harm across the Anglosphere are larger in absolute terms for girls than boys, and larger for Gen Z than for older generations.
  3. The authors argue the only theory explaining why the same shift hit girls in so many countries at once is the rapid move from flip phones to smartphones, noting the iPhone 4's 2010 front-facing camera and Facebook's 2012 purchase of Instagram.

AI Summary. Republicans receive more votes from working-class (non-college) Americans than Democrats, carrying the nationwide working-class House vote by 13 points and the working-class presidential vote by 4 points. Modeled estimates from the States of Change project indicate the Republican presidential candidate won the working-class vote in 35 of 50 states.

Ruy Teixeira The Liberal Patriot
Date Posted:

Ruy Teixeira @AEI notes that “Republicans are, in a strict quantitative sense, the party of the American working class. That is, they currently get more working-class (noncollege) votes than the Democrats”

Ruy Teixeira @AEI notes that “Republicans are, in a strict quantitative sense, the party of the American working class. That...

Do Republicans now win more working-class votes than Democrats?

Core argument: Republicans carried the nationwide working-class (noncollege) House vote by 13 points in 2022, and Trump carried the nationwide working-class presidential vote by 4 points over Biden in 2020.

Republicans are, in a strict quantitative sense, the party of the American working class. That is, they currently get more working-class (noncollege) votes than the Democrats. That was true in 2022 when Republicans carried the nationwide working-class House vote by 13 points. That was true in 2020, when Trump carried the nationwide working-class presidential vote by 4 points over Biden. Moreover, modeled estimates by the States of Change project indicate that Trump carried the working-class vote in 35 out of 50 states, including in critical states for the Democrats like Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin, as well as in states that are slipping away from the party like Florida, Iowa, Ohio and Texas.

Takeaways by Macro Roundup® AI

  1. Republicans carried the nationwide working-class (noncollege) House vote by 13 points in 2022, and Trump carried the nationwide working-class presidential vote by 4 points over Biden in 2020.
  2. Modeled estimates from the States of Change project indicate Trump carried the working-class vote in 35 of 50 states, including Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin.
  3. States of Change estimates indicate Trump also carried the working-class vote in Florida, Iowa, Ohio and Texas, states described as slipping away from the Democrats.

AI Summary. The Hutchins Center's Fiscal Impact Measure, which approximates fiscal policy's contribution to quarterly real GDP growth, spiked during 2020 largely because of expanded transfer programs, but was a significant drag on growth in 2022. Using Congressional Budget Office baseline projections, the measure is projected to remain negative for the following two years.

CEA Staff The Council of Economic Advisers
Date Posted:

.@WhiteHouseCEA draws a connection between fiscal policy in 2020 and the uptick in inflation in 2021.

Is fiscal policy projected to drag on real GDP growth?

Core argument: The Hutchins Center's Fiscal Impact Measure spiked in 2020:Q2, mainly due to an expansion of transfer programs, and remained positive in two of the following three quarters.

Figure 2-15 plots the Hutchins Center’s Fiscal Impact Measure (FIM), which uses information on the Federal Government’s spending on goods and services, sate and local government spending on goods and services, and taxes and benefit programs to approximate the contribution of fiscal policy to total real GDP growth each quarter. A positive fiscal impulse means that the contribution of fiscal policy to real GDP is larger than it was the quarter before. Figure 2-15 shows that the FIM spiked in 2020:Q2, mainly due to an expansion of transfer programs, and was positive for two of the next three quarters, but was a significant drag throughout 2022 and is projected to remain negative in 2023 and 2024, using projections for fiscal policy by the Congressional Budget Office in its current baseline.

Takeaways by Macro Roundup® AI

  1. The Hutchins Center's Fiscal Impact Measure spiked in 2020:Q2, mainly due to an expansion of transfer programs, and remained positive in two of the following three quarters.
  2. The Fiscal Impact Measure shows fiscal policy as a significant drag throughout 2022, with projections based on the Congressional Budget Office's current baseline indicating it remains negative in 2023 and 2024.
  3. The Fiscal Impact Measure approximates fiscal policy's contribution to quarterly real GDP growth using federal spending on goods and services, state and local spending on goods and services, taxes, and benefit programs.

Friday, March 31, 2023

AI Summary. Three estimation approaches — an accounting exercise on credit extension by banks with under $250bn in assets, a financial conditions model incorporating bank lending standards, and a review of academic literature — imply tighter credit reduces growth by 0.25–0.5pp. The authors accordingly cut their growth forecast by 0.4pp, from 1.5% to 1.1%.

Jan Hatzius Goldman Sachs
Date Posted:

Jan Hatzius @GoldmanSachs thinks the credit contraction increases the odds of a recession inside of the next 12 months to 35%, well below the consensus of 60%.

How much does tighter bank credit reduce growth?

Core argument: The Q4/Q4 growth forecast was reduced by 0.4pp, from 1.5% to 1.1%, to reflect the estimated drag from tighter credit.

We have estimated the impact of tighter credit in three ways. The first is an accounting exercise that makes judgmental assumptions about new credit extension by banks with less than $250bn in assets and suggests a 0.25pp hit to growth. The second is an extension of our financial conditions impulse model that adds a role for bank lending standards and delivers a 0.5pp hit to growth. The third is a review of the academic literature on the effects of declines in both bank stock prices and accounting measures of equity capital on loan growth and GDP, which implies a 0.3-0.5pp hit to growth. On the back of these estimates, we have reduced our Q4/Q4 growth forecast by 0.4pp (from 1.5% to 1.1%).

Takeaways by Macro Roundup® AI

  1. The Q4/Q4 growth forecast was reduced by 0.4pp, from 1.5% to 1.1%, to reflect the estimated drag from tighter credit.
  2. An accounting exercise making judgmental assumptions about new credit extension by banks with less than $250bn in assets suggests a 0.25pp hit to growth.
  3. A financial conditions impulse model extended to include bank lending standards delivers a 0.5pp hit to growth, while a review of academic literature on bank stock prices and equity capital implies a 0.3-0.5pp hit.

AI Summary. Banking stress is argued to tighten credit and produce a harder landing for the real economy, because regional banks are key financiers of small and medium-size businesses and households. Higher public and private debt levels are said to create a "debt trap" in which higher policy rates fuel systemic debt crises that liquidity support cannot resolve.

Nouriel Roubini Project Syndicate
Date Posted:

.@Nouriel argues that that the Fed “must not delude themselves into thinking they can still achieve both price and financial stability.” He concludes, “everyone should be preparing for the coming stagflationary debt crisis.”

.@Nouriel argues that that the Fed “must not delude themselves into thinking they can still achieve both price and financial...

Does banking stress tighten credit enough to produce a harder landing?

Core argument: The credit crunch from banking stress is set to produce a harder landing for the real economy, given regional banks' key role in financing small and medium-size enterprises and households.

The credit crunch caused by today’s banking stress will create a harder landing for the real economy, owing to the key role that regional banks play in financing small and medium-size enterprises and households. Borrowers are facing rising rates – and thus much higher capital costs – on new borrowing and on existing liabilities that have matured and need to be rolled over. But the increase in long-term rates is also leading to massive losses for creditors holding long-duration assets. As a result, the economy is falling into a “debt trap,” with high public deficits and debt causing “fiscal dominance” over monetary policy, and high private debts causing “financial dominance” over monetary and regulatory authorities. In a debt trap, higher policy rates will fuel systemic debt crises that liquidity support will be insufficient to resolve. Since liquidity support cannot prevent this systemic doom loop, everyone should be preparing for the coming stagflationary debt crisis. 

Takeaways by Macro Roundup® AI

  1. The credit crunch from banking stress is set to produce a harder landing for the real economy, given regional banks' key role in financing small and medium-size enterprises and households.
  2. Borrowers face rising rates and higher capital costs on new borrowing and on matured liabilities that must be rolled over, while rising long-term rates inflict massive losses on creditors holding long-duration assets.
  3. The economy is falling into a debt trap in which high public deficits and debt create fiscal dominance over monetary policy and high private debt creates financial dominance, so higher policy rates fuel systemic debt crises that liquidity support cannot resolve.

AI Summary. Borrowers benefit from inflation eroding the real value of debt but face surging debt-service costs, with those that did not lengthen the maturity of their obligations during the era of low rates confronting an interest rate cliff. If higher debt service is absorbed without widespread bank crises, the one-off price-level shock opens fiscal space for public investment.

Adam Tooze Financial Times
Date Posted:

Citing the 20% fall in US’s ratio of the market value of public debt to nominal GDP, @adam_tooze argues we are living through one of the “most powerful episodes of financial repression ever.”

Citing the 20% fall in US’s ratio of the market value of public debt to nominal GDP, @adam_tooze argues we are living...

Does inflation eroding debt create fiscal space for public investment?

Core argument: The systemic question of the trillion-dollar rebalancing is how financial institutions are carried through it, and that is what will define this historical episode.

The truly systemic question is how we see our financial institutions through this giant trillion-dollar rebalancing. That is what will define this historical episode. Though debtors benefit from inflation and the revaluation of debts, they need to brace for the surging costs of debt service. Those who did not stretch the maturity of their obligations in the era of low rates now face an interest rate cliff. But if we can adjust to higher debt service and avoid a rash of bank crises, the one-off shock to the price level opens up unexpected fiscal space. We must use this wisely. We need public investment so as to escape the reactive cycle we are locked in and to begin anticipating the challenges of the polycrisis, whether in public health, climate change or destabilising geopolitics.

Takeaways by Macro Roundup® AI

  1. The systemic question of the trillion-dollar rebalancing is how financial institutions are carried through it, and that is what will define this historical episode.
  2. Debtors benefit from inflation and the revaluation of their debts but must brace for surging debt service costs, with those who did not stretch maturities during the low-rate era facing an interest rate cliff.
  3. If higher debt service is absorbed and a rash of bank crises avoided, the one-off shock to the price level opens unexpected fiscal space that should fund public investment to anticipate the polycrisis in public health, climate change and destabilising geopolitics.

AI Summary. One in 25 American five-year-olds is projected not to reach age 40, making deaths among the young a defining feature of US mortality. These deaths are overwhelmingly caused by external factors such as drug overdoses, gun violence, and dangerous driving.

John Burn-Murdoch Financial Times
Date Posted:

One in 25 or 4% of American 5-year-olds today will not live to 40; these deaths are largely due to drug overdoses, gun violence, and driving related deaths. @jburnmurdoch

What drives high death rates among young Americans?

Core argument: One in 25 American five-year-olds today will not reach their 40th birthday, meaning one set of parents from every US kindergarten class will most likely bury their child.

America’s mortality problem is driven primarily by deaths among the young. One statistic in particular stood out: one in 25 American five-year-olds today will not make it to their 40th birthday. No parent should ever have to bury their child, but in the US one set of parents from every kindergarten class most likely will. These young deaths are caused overwhelmingly by external causes—overdoses, gun violence, dangerous driving and such—which are deeply embedded social problems involving groups with opposing interests.

Takeaways by Macro Roundup® AI

  1. One in 25 American five-year-olds today will not reach their 40th birthday, meaning one set of parents from every US kindergarten class will most likely bury their child.
  2. America's mortality problem is driven primarily by deaths among the young.
  3. Deaths among young Americans stem overwhelmingly from external causes—overdoses, gun violence and dangerous driving—which are deeply embedded social problems involving groups with opposing interests.

AI Summary. The labor force participation rate ran about 0.9 percentage points below its pre-pandemic average, a shortfall of close to 2.4m workers, while a 0.6 hour drop in average weekly hours added a labor supply shortfall equivalent to roughly another 2.4m workers. Much of the participation decline would have been expected even absent the pandemic.

Katharine Abraham and Lea Rendell Brookings Papers on Economic Activity
Date Posted:

.@LeaRendell argues the labor force is 700,000 workers below expectations based on changing demographics and pre-pandemic trends. She attributes these workers’ absence to fear of COVID and long COVID.

How large is the labor supply shortfall, and why?

Core argument: The labor force participation rate over the 12 months ending December 2022 was about 0.9 percentage points below the 12-month average ending February 2020, a shortfall of close to 2.4 million workers.

The labor market has changed significantly since the start of the pandemic. Over the 12 months ending December 2022, the labor force participation rate was about 0.9 percentage points below the 12-month average ending in February 2020. This is a shortfall of close to 2.4 million workers. The 0.6 hour reduction in the moving average level of average weekly hours over the same period contributed an additional labor supply shortfall that is the equivalent of about another 2.4 million workers. As shown in the table, much of the decline in labor force participation over the past three years should have been anticipated even absent the pandemic

Takeaways by Macro Roundup® AI

  1. The labor force participation rate over the 12 months ending December 2022 was about 0.9 percentage points below the 12-month average ending February 2020, a shortfall of close to 2.4 million workers.
  2. A 0.6 hour decline in the moving average of average weekly hours over the same period added a labor supply shortfall equivalent to roughly another 2.4 million workers.
  3. Much of the decline in labor force participation over the past three years should have been anticipated even absent the pandemic.