Edward Conard

Top Ten New York Times Bestselling Author

  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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 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 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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, August 10, 2023

AI Summary. The authors project US debt to reach 134% of national income in 2032 and 263% in 2052, above Congressional Budget Office estimates of 115% and 189%. They attribute higher projected health spending, 29.6% of national income by 2072, to labor shortages in an aging economy's low-productivity healthcare sector.

John Mantus, Gaobo Pang, and Mark Warshawsky American Enterprise Institute
Date Posted:

A new @AEIecon analysis suggests that, as a result of the low-productivity healthcare sector’s growing share of the economy, America’s debt-to-GDP ratio will be 134% in 2032 relative to CBO’s 115% projection.

Will an aging population push health spending and debt above official projections?

Core argument: The authors project U.S. debt-to-GDP at 134% in 2032 and 263% in 2052, above CBO's 115% and 189%, with the federal deficit relative to national income growing significantly beyond historical experience within ten years.

Within the next ten years, the federal government budget deficit relative to national income will grow significantly beyond historical experience. We project that debt-to-GDP will be 134% in 2032 and 263% in 2052, compared to CBO’s 115% and 189%, respectively. Real interest rates rise in the long run in a ratcheting cycle of higher interest payments and growing deficits and debt. Our projection of national health expenditures relative to GDP in 2072 is 29.6%, compared to 28.4% by the Centers for Medicare & Medicaid Services used by the Medicare Trustees. These higher rates of healthcare inflation arise from labor shortage effects in an aging economy because healthcare is produced in a low productivity, labor-dependent sector. This rise in healthcare expenditures further deteriorates the federal budget and lowers consumer welfare.

Takeaways by Macro Roundup® AI

  1. The authors project U.S. debt-to-GDP at 134% in 2032 and 263% in 2052, above CBO's 115% and 189%, with the federal deficit relative to national income growing significantly beyond historical experience within ten years.
  2. The authors project national health expenditures at 29.6% of GDP in 2072, compared with 28.4% from the Centers for Medicare & Medicaid Services used by the Medicare Trustees.
  3. The authors attribute higher healthcare inflation to labor shortage effects in an aging economy, since healthcare is produced in a low-productivity, labor-dependent sector, and project that rising health expenditures further deteriorate the federal budget and lower consumer welfare.

Related Articles:

  • The 2023 Long-Term Budget Outlook — The Congressional Budget Office projects the federal deficit falls from 5.8% of gross domestic product to 5.0% before rising every year to 10% of GDP over three decades, a level exceeded only during World War II and the pandemic. Federal debt held by the public is projected to reach 181% of GDP.
  • US Fiscal Alarm Bells Are Drowning Out a Deeper Problem — The Congressional Budget Office projects US federal debt held by the public at 98% of national income, within 7.6 percentage points of its 1946 wartime peak and on track to exceed it by 2028. International Monetary Fund forecasts show US debt surpassing Italy's by 2028 and Greece's by the end of the decade.
  • Interest Costs Will Grow the Fastest Over the Next 30 Years — The Congressional Budget Office projects federal spending will reach 29.1% of GDP over three decades, with net interest on the national debt rising from 1.9% of GDP to 6.7%, or $5.4tn. Under that projection, interest becomes the largest single federal budget line item, surpassing Social Security, Medicare, and Medicaid.

AI Summary. A model estimates that the short-run neutral real interest rate — the rate consistent with the economy operating at potential — has increased notably, to some extent outpacing the large increase in the policy rate. The model attributes this change mainly to financial shocks, reflecting financial conditions such as corporate spreads remaining resilient despite the higher policy rate.

Katie Baker, Logan Casey, Marco Del Negro, Aidan Gleich and Ramya Nallamotu Federal Reserve Bank of New York
Date Posted:

Despite the Fed funds rate rising by 500bps in just over a year, the tightening may have been offset by an increase in the natural rate helping to limit the impact of tightening. @NYFedResearch

Has the short-run neutral real interest rate risen faster than policy rates?

Core argument: The model estimates that short-run r* has increased notably over the past year, to some extent outpacing the large increase in the policy rate.

From the model’s perspective, short-run r* has increased notably over the past year, to some extent outpacing the large increase in the policy rate. The chart decomposes the change in real r* (black line) and its forecast (red line) between June 2022 and March 2023. Note that these are changes in the real variable. The chart shows that “financial’’ shocks (yellow) are the key driver of this change. These shocks capture the fact that financial conditions, as measured for instance by corporate spreads, have remained very resilient in spite of the increase in the policy rate (and of the recent banking turmoil).

Takeaways by Macro Roundup® AI

  1. The model estimates that short-run r* has increased notably over the past year, to some extent outpacing the large increase in the policy rate.
  2. A decomposition of the change in real short-run r* and its forecast between June 2022 and March 2023 identifies "financial" shocks as the key driver.
  3. The financial shocks capture that financial conditions, measured for instance by corporate spreads, have remained resilient despite the increase in the policy rate and the recent banking turmoil.

Related Articles:

  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.
  • Measuring the Natural Rate of Interest After COVID-19 — Model estimates for the United States, Canada, and the Euro Area place the natural rate of interest within a few tenths of a percentage point of pre-pandemic estimates, with the main longer-term consequence of the pandemic a reduction in the natural rate of output. The authors find no evidence that the era of historically low natural rates has ended.
  • The Case for “Higher for Longer”: Prices are Disinflating, But Not Wages (Yet) — Occupations with the fastest pay gains have seen wage growth normalize while pay growth elsewhere remains persistently faster, with only modest deceleration from the peak. The author argues the neutral policy rate has risen as an investment drought ends, making 5.5% short-term rates unremarkable and 4% 10-year Treasury yields potentially too low.

AI Summary. The median center of the US population has been moving southwest, but the author argues that trend will slow or reverse without more water supply, more affordable housing policies, and progress on climate change. Areas from Missouri to West Virginia and the Great Lakes could become more attractive.

Bill McBride Calculated Risk
Date Posted:

.@calculatedrisk argues that the shift of the American population’s center of gravity to the southwest is likely to slow if not reverse due to climate change and water supply issues.

Will the southwestward shift of the US population slow or reverse?

Core argument: Most projections have the median center of US population continuing to move southwest, but the author argues that trend will slow or reverse without additional water supplies, progress on climate change, and housing policy changes that make housing more affordable.

Although most projections are for the southwestward trend for the median center of US population to continue, without additional sources of water, changes in housing policy, and progress on climate change the southwestward trend will slow - or maybe even reverse. Climate change might make some areas further north more desirable. Perhaps the Carolinas (away from the coast), TN, and KY will see more growth. And maybe even areas further north that have more affordable housing will experience new growth. Climate change might make those areas - from MO to WV on up to the Great Lakes - more attractive over the next 50 years. For the southwestward trend to continue, there will have to be an increase in water supply, progress on global warming, and changes to housing policies (to make housing more affordable).

Takeaways by Macro Roundup® AI

  1. Most projections have the median center of US population continuing to move southwest, but the author argues that trend will slow or reverse without additional water supplies, progress on climate change, and housing policy changes that make housing more affordable.
  2. The author suggests climate change could make areas farther north more desirable, with the inland Carolinas, Tennessee, and Kentucky seeing more growth.
  3. The author suggests areas from Missouri to West Virginia and up to the Great Lakes, where housing is more affordable, could attract new growth over the next 50 years as climate change shifts regional desirability.

Related Articles:

  • What’s the Matter With Miami? — A significant share of Florida's population inflow is retirees, and while the overall U.S. population grew 7.4% from 2010 to 2020, the population aged 65 and older grew 38.6%. Because retirees spend money on local services, the influx of seniors creates jobs for younger adults as well.
  • Climate Change and the Geography of the U.S. Economy — The positive association between extreme heat and U.S. county population growth weakened over recent decades and disappeared entirely in the 2010s, as hot counties grew hotter. Projected climate change is predicted to shift population from the Southeast and parts of the Southwest toward the North, Mountain West, and Pacific coast.
  • A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South — Six fast-growing Southern states — Florida, Texas, Georgia, North and South Carolina, and Tennessee — now contribute more to US GDP than the Northeast, including the Washington-New York-Boston corridor. The Southeast accounted for more than two-thirds of US job growth since the pandemic began, nearly double its pre-pandemic share, and housed 10 of the 15 fastest-growing large American cities.

AI Summary. Two-month annualized consumer price inflation rose from 3.0% to 3.2%, while real average hourly earnings continued to rise yet remained 4% below their pre-pandemic trend overall and 3% below for non-managerial workers. The author argues this gives the Federal Reserve no reason to raise rates, absent signs the good news is transitory.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman argues today’s CPI print which leaves core 12-month CPI at 4.7% leaves the Fed room to skip a rate hike in September, though more might be needed.

Does the latest inflation reading give the Fed reason to raise rates?

Core argument: Two-month CPI inflation rose from 3.0% in June to 3.2% in July, according to Jason Furman.

2-month CPI rose from 3.0% in June to 3.2% in July. Overall real average hourly earnings (both private and production and non-supervisory which excludes managers) continue to rise. But they are 4% and 3% below their immediate pre-pandemic trend respectively. Overall, assuming August is relatively moderate as well there is no reason for the Fed to raise rates at their September meeting. I outlined my views on this earlier. If some of the good news proves transitory, however, they'll need to go back & do more.

Takeaways by Macro Roundup® AI

  1. Two-month CPI inflation rose from 3.0% in June to 3.2% in July, according to Jason Furman.
  2. Real average hourly earnings continue to rise for both overall private workers and production and non-supervisory workers, yet stand 4% and 3% below their immediate pre-pandemic trend respectively.
  3. Jason Furman argues that if August proves relatively moderate as well, the Fed has no reason to raise rates at its September meeting, though it would need to do more should some of the good news prove transitory.

Related Articles:

  • Settling Into 4% Inflation? — Job churn has been declining while nominal wage growth has remained around 5% a year. Based on the historical relationship between wages, output, and prices, this implies trend nominal gross domestic product growth of roughly 5–6% a year and trend inflation of about 4% a year.
  • What We’ve Learned About Inflation — Fiscal theory holds that a one-time $5tn fiscal expansion produces a one-time rise in the price level sufficient to inflate away $5tn of debt value, after which inflation stops even if the Federal Reserve does nothing. Raising interest rates lowers current inflation at the cost of more-persistent inflation, a beneficial smoothing.
  • The Second Great Experiment Update — Newer macroeconomic theory using forward-looking rather than adaptive expectations holds that inflation is stable under an interest rate target and can fade on its own even when interest rates sit below the inflation rate. Under the fiscal theory of the price level, a burst of inflation devalues government debt and ends once the real value of that debt is restored.

AI Summary. Japan's National Institute of Population and Social Security Research projects that up to 42% of Japanese women may never have children, with a midpoint estimate of one-third and a more optimistic scenario of a quarter of women born in 2005. The institute projects childlessness as high as 50% among men.

Reed Stevenson Bloomberg
Date Posted:

Japan’s National Institute of Population and Social Security Research projects that 42% of adult Japanese women may never have children at the higher end of their range.

How many Japanese women are projected to never have children?

Core argument: Japan's National Institute of Population and Social Security Research projects that as many as 42% of adult Japanese women may never have children, with a midpoint estimate of one third remaining childless.

42% of adult Japanese women may end up never having children. In a more optimistic scenario, a quarter of women born in 2005 may end up not having offspring. The midpoint estimate by Japan’s National Institute of Population and Social Security Research calls for a third of them not having children. The percentage of childlessness is even higher for men, with as many as 50% never seen having children, according to the report.

Takeaways by Macro Roundup® AI

  1. Japan's National Institute of Population and Social Security Research projects that as many as 42% of adult Japanese women may never have children, with a midpoint estimate of one third remaining childless.
  2. In a more optimistic scenario, a quarter of Japanese women born in 2005 may end up without offspring.
  3. Childlessness is higher among Japanese men, with as many as 50% projected never to have children, according to the institute's report.

Related Articles:

  • Japan Demographic Woes Deepen as Birthrate Hits Record Low — Japan's fertility rate fell for a seventh consecutive year to a record low of about 1.26 children per woman, far below the 2.07 rate considered necessary to maintain a stable population. Births fell 5% to 770,747, a record low, while deaths rose 9% to a record 1.57m.
  • How a Vast Demographic Shift Will Reshape the World — In East Asia and Europe, growing numbers of retirees will depend on a shrinking working-age population, and some Asian countries are aging before becoming rich — China hit its peak working-age population at 20% of US income levels at the same point, Vietnam at 14%.
  • Inflation in The *Very* Long Run — Japan's experience indicates an aging society is not inherently inflationary: despite decades of a shrinking working-age population, its total number of workers has risen as women entered paid employment and people in their 60s and 70s stayed in or returned to work. The US is projected to have more favorable demographics than most other rich countries and China.

AI Summary. The US will ban certain American investments in China's quantum computing, advanced chips, and artificial intelligence sectors, and require companies to notify the government of other investments in those areas, aiming to block the Chinese military's access to US technology and capital. Private equity and venture capital firms are most affected.

Demetri Sevastopulo Financial Times
Date Posted:

The Biden administration is limiting American investment in China’s quantum computing, advanced chips, and artificial intelligence sectors.

The Biden administration is limiting American investment in China’s quantum computing, advanced chips, and artificial...

Will the US ban investment in Chinese quantum, chip, and AI sectors?

Core argument: President Biden's executive order will ban some US investment into China's quantum computing, advanced chips, and artificial intelligence sectors, as part of efforts to stop the Chinese military from accessing American technology and capital.

The Biden administration will ban some US investment into China’s quantum computing, advanced chips, and artificial intelligence sectors, as it boosts efforts to stop the Chinese military from accessing American technology and capital. The new executive order unveiled by President Joe Biden on Wednesday will come into force next year and will also require companies to notify the government of other investments in the three Chinese sectors. The action will largely affect private equity and venture capital firms as well as US investors in joint ventures with Chinese groups.

Takeaways by Macro Roundup® AI

  1. President Biden's executive order will ban some US investment into China's quantum computing, advanced chips, and artificial intelligence sectors, as part of efforts to stop the Chinese military from accessing American technology and capital.
  2. The executive order takes effect next year and will require companies to notify the US government of other investments in the three Chinese sectors.
  3. The investment restrictions will largely affect private equity and venture capital firms along with US investors in joint ventures with Chinese groups.

Related Articles:

  • US Adds 36 Chinese Companies to Trade Blacklist — The US Commerce Department added 36 Chinese companies to its "entity list" trade blacklist, requiring American firms to obtain hard-to-get licenses to export critical technologies to them. The move extends US efforts to slow China's development of advanced chips and military technologies such as hypersonic weapons.
  • China Fears Japan’s Chipmaking Curbs Go Further Than US Restrictions — Japan has said it intends to restrict exports of 23 types of chipmaking equipment, aligning with US and Dutch export controls that could limit China's access to cutting-edge chips. Chinese industry executives who reviewed the draft rules say they could restrict China's semiconductor manufacturing more than US measures do.
  • The Rise & Fall of Foreign Direct Investment in China — Net foreign direct investment into China has been negative for four consecutive quarters, as foreign investors shifted from reinvesting earnings from their Chinese operations to repatriating them. Whether this reflects cash management or signals a future slowdown in foreign direct investment is unclear, but the repatriation of profits is negative for China's currency.

AI Summary. China never mastered internal-combustion engines, but the shift to mechanically simpler battery-powered vehicles — backed by an estimated $100bn of state investment over a decade — helped it become a major car exporter, shipping more than 10,000 cars a day. Battery-powered vehicles account for a third of Chinese car exports, versus 4% in Japan and 20% in Germany.

Economist Staff The Economist
Date Posted:

Chinese car exports are surging; China is now exporting more than 10,000 cars a day.

How did China become a major car exporter?

Core argument: China's car exports rose from nearly 1.6m in 2021 to 2.7m in 2022, and customs data show nearly 2m shipped in the first six months of 2023, more than 10,000 a day.

In 2021 China exported nearly 1.6m cars. By 2022 it hit 2.7m. International sales are set to rev up further in 2023. Customs data show that the country shipped nearly 2m cars in the first six months of the year, or more than 10,000 a day. For all its manufacturing might, China never mastered internal-combustion engines, which have hundreds of moving parts and are tricky to assemble. The arrival of battery-powered vehicles, which are mechanically simpler and easier to build, helped China catch up. State investment in the EV technology, an estimated $100bn between 2009 and 2019, put the country in pole position. Today battery-powered vehicles account for a fifth of car sales in China and a third of exports. In Japan and Germany only 4% and 20% of exports, respectively, are electric.

Takeaways by Macro Roundup® AI

  1. China's car exports rose from nearly 1.6m in 2021 to 2.7m in 2022, and customs data show nearly 2m shipped in the first six months of 2023, more than 10,000 a day.
  2. China never mastered internal-combustion engines, which have hundreds of moving parts and are tricky to assemble, and the arrival of mechanically simpler battery-powered vehicles helped the country catch up.
  3. State investment in EV technology, estimated at $100bn between 2009 and 2019, put China in pole position, with battery-powered vehicles accounting for a fifth of its car sales and a third of its exports, versus 4% of exports in Japan and 20% in Germany.

Related Articles:

  • China’s Auto Export Wave Echoes Japan’s in the ’70s — The shift from petroleum-fueled internal combustion vehicles to electric vehicles moves resource leverage from Persian Gulf oil producers to critical minerals, with China holding more than half of global processing capacity for lithium, cobalt, and graphite and about a third for nickel. Chinese companies have spent $4.5bn acquiring stakes in nearly 20 lithium mines, mostly in Latin America and Africa.
  • Can Volkswagen Win Back China? — Volkswagen relies on China for at least half its annual profits, but its flagship VW brand has been displaced as China's best-selling car by BYD and holds just 2% of the electric vehicle market, ninth place, versus nearly 40% for BYD and over 10% for Tesla.
  • The Chinese Carmakers Planning to Shake Up The European Market — Chinese carmakers are expanding in Europe, with Chery planning up to 15,000 UK car sales and 50 UK showrooms, and Germany's largest car rental company agreeing to buy 100,000 BYD vehicles for its European operations. KPMG estimates Chinese groups could take a 15% share of new car sales in Europe, exceeding Renault's.

Friday, August 11, 2023

AI Summary. Excluding London's output and population would reduce British living standards by 14%, enough to fall below the poorest US state; by comparison, removing Amsterdam would cut the Netherlands by 5%, removing Munich would cut Germany by 1%, and removing the entire San Francisco Bay Area would cut US GDP per capita by 4%.

John Burn-Murdoch Financial Times
Date Posted:

A @jburnmurdoch analysis shows that excluding, London, per capita GDP of the rest of the UK would be lower than Mississippi, the poorest American state.

How dependent are British living standards on its capital city?

Core argument: Removing London's output and population would cut British living standards by 14%, enough to place the rest of the UK behind the last of the US states, though Britain in the aggregate is not as poor as Mississippi.

Removing London’s output and headcount would shave 14% off British living standards, precisely enough to slip behind the last of the US states. Britain in the aggregate may not be as poor as Mississippi, but absent its outlier capital it would be. By comparison, amputating Amsterdam from the Netherlands would shave off 5%, and removing Germany’s most productive city (Munich) would only shave off 1%. Most strikingly, for all of San Francisco’s opulent output, if the whole of the bay area from the Golden Gate to Cupertino seceded tomorrow, US GDP per capita would only dip by 4%.

Takeaways by Macro Roundup® AI

  1. Removing London's output and population would cut British living standards by 14%, enough to place the rest of the UK behind the last of the US states, though Britain in the aggregate is not as poor as Mississippi.
  2. Excluding Amsterdam would reduce Dutch living standards by 5%, and excluding Munich, Germany's most productive city, would reduce Germany's by only 1%, against London's 14% weight in British figures.
  3. Secession of the entire Bay Area from the Golden Gate to Cupertino would lower US GDP per capita by only 4%, despite San Francisco's opulent output.

Related Articles:

  • From Strength To Strength — The US produced $25.5tn in GDP, about 25% of the world total—roughly its 1990 share—while China's share stands at 18%; the US share of the G7's nominal GDP rose from 40% in 1990 to 58%. Income per person is now about 30% above western Europe and 54% above Japan, adjusted for purchasing power.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth
  • Europe Has Fallen Behind America and the Gap Is Growing — The EU economy was somewhat larger than the US in 2008 ($16.2tn versus $14.7tn), but by 2022 the US had grown to $25tn while the EU and UK combined reached only $19.8tn. The dollar's status as the world's reserve currency allows the US to finance its ambitions without unsettling markets.

AI Summary. German output remains barely above pre-pandemic levels, with cumulative GDP growth of less than 0.5% over roughly five years. German industrial investment has not recovered to pre-pandemic levels, and real fixed investment in equipment remains below its 2018 level, even as the US devotes record resources to factory construction and equipment purchases.

Joseph Politano Apricitas Economics
Date Posted:

.@JosephPolitano notes that Germany has achieved 0.5% cumulative GDP growth since late 2018, and industrial investment remains below 2018 levels.

Is weak industrial investment behind Germany's stagnant output?

Core argument: Germany has recorded less than 0.5% cumulative GDP growth since late 2018, with revised data placing output once again barely above pre-pandemic levels.

Germany’s economy has eked out extremely low growth over the last 5 years—recent revisions to GDP data mean its output is once again barely above pre-pandemic levels, but that still means the country has seen less than 0.5% cumulative GDP growth since late-2018. German industrial investments have not recovered to pre-pandemic levels at a time when countries like the US are pouring record amounts of resources into factory construction and equipment purchases. Real German fixed investment in equipment remains below 2018 levels nearly 5 years later, despite a strong recovery in late 2022 and early 2023.

Takeaways by Macro Roundup® AI

  1. Germany has recorded less than 0.5% cumulative GDP growth since late 2018, with revised data placing output once again barely above pre-pandemic levels.
  2. German industrial investment has not recovered to pre-pandemic levels, while countries such as the US pour record resources into factory construction and equipment purchases.
  3. Real German fixed investment in equipment remains below 2018 levels nearly five years later, despite a strong recovery in late 2022 and early 2023.

Related Articles:

  • Germany Is Running Out of Workers, Putting Growth in Jeopardy — Germany's labor supply is projected to shrink by 3m people, or 7%, over the next decade unless retirees are replaced by migrants, requiring about 400,000 newcomers a year just to hold steady. The offsetting trends of large-scale immigration and rising female employment are now fading as baby boomers retire.
  • China’s Auto Export Wave Echoes Japan’s in the ’70s — The shift from petroleum-fueled internal combustion vehicles to electric vehicles moves resource leverage from Persian Gulf oil producers to critical minerals, with China holding more than half of global processing capacity for lithium, cobalt, and graphite and about a third for nickel. Chinese companies have spent $4.5bn acquiring stakes in nearly 20 lithium mines, mostly in Latin America and Africa.
  • Germany’s Niche Companies Are a Model for Life After Globalization — Germany had 28 companies in the Fortune 500 in 2020, fewer than China's 134, America's 130, Japan's 62 and France's 40, but it has more than a thousand mid-sized firms ranking in the top three of their global niches. These "Mittelstand" companies account for the overwhelming majority of German businesses and about 60% of all jobs.

AI Summary. Foreign investors purchased nearly $670bn of long-term U.S. securities and short-term Treasury bills in a single year, with net purchases by China, India, and Middle East oil exporters well above their average annual net purchases over the prior nine years. The authors argue that increased financial fragmentation would not produce such larger purchases of U.S. assets.

Colin Weiss Federal Reserve Board
Date Posted:

In 2022, purchases of US securities by Middle East oil exporters, China, India, and Mexico were significantly higher than their 2013-2021 averages, despite talk of “financial fragmentation.” @dismaleconomist

Do foreign purchases of U.S. securities show financial fragmentation?

Core argument: Foreign investors bought nearly $670 billion of long-term U.S. securities and short-term Treasury bills in 2022, with purchases by China, India, and Middle East oil exporters large relative to those of other countries.

In 2022, foreign investors purchased nearly $670 billion of long-term U.S. securities and short-term Treasury bills. Not only were the purchases by China, India, and the Middle East oil exporters in 2022 large compared to those by other countries, they were also sizable when measured against these countries' average purchases over the previous nine years. Net purchases in 2022 were well above average annual net purchases from 2013-2021 in every case. As before, under increased financial fragmentation, one would not expect these countries to be making larger purchases of U.S. assets compared to purchases in previous years.

Takeaways by Macro Roundup® AI

  1. Foreign investors bought nearly $670 billion of long-term U.S. securities and short-term Treasury bills in 2022, with purchases by China, India, and Middle East oil exporters large relative to those of other countries.
  2. Net purchases of U.S. assets by China, India, and Middle East oil exporters in 2022 were well above their average annual net purchases over 2013-2021 in every case.
  3. Under increased financial fragmentation, China, India, and Middle East oil exporters would not be expected to make larger purchases of U.S. assets than in previous years.

Related Articles:

  • How Was the U.S. Current Account Deficit Financed In 2022? — As the Federal Reserve allowed some bonds to mature under quantitative tightening, new buyers of Treasury debt were needed, and money-market funds shifted from Treasury bills and coupons into reverse repurchase agreements with the Federal Reserve. The entire net issuance was absorbed by two opaque sectors: households and nonprofit organizations, and the rest of the world.
  • The New Geopolitics of Global Finance — Trade surpluses of energy-exporting autocracies and China are projected to total roughly $1tn, with Russia's topping $250bn and Saudi Arabia's topping $200bn. Because these surplus countries are not adding to official foreign exchange reserves, private financial intermediaries globally must absorb U.S. Treasury bonds and the associated interest rate risk.
  • Saudi Arabia’s PIF and the New Petrodollar Recycling — Saudi Arabia's Public Investment Fund appears to have taken over a significant portion of the foreign asset allocation previously handled by the Saudi Central Bank, making its balance sheet a window into a new form of petrodollar recycling. Of roughly $777bn in total assets, $305bn were current and $472bn non-current, with $225bn of the latter held as investment securities.

AI Summary. China's annual births fell to 9.56mm, the lowest total in its modern history, and an academic at Peking University estimates the following year's births at roughly 7mm to 8mm. Wedding registrations declined for a ninth consecutive year to 6.83mm, the lowest level since the late 1970s.

Luna Sun South China Morning Post
Date Posted:

Chinese fertility has fallen by 40% over the past 5 years with a prominent researcher forecasting fewer than 8mm births in 2023, down from 9.56mm in 2022.

Chinese fertility has fallen by 40% over the past 5 years with a prominent researcher forecasting fewer than 8mm births in...

Are China's births falling to new lows as marriages decline?

Core argument: Qiao Jie, dean of the Health Science Centre at Peking University, estimates China's 2023 births at roughly 7 million to 8 million, down from the 9.56 million recorded last year.

Last year’s 9.56mm births in China represented the lowest total in modern history. “The expected number of births in 2023 is estimated to be around 7 million to 8 million,” Qiao Jie, dean of the Health Science Centre at Peking University, said on Tuesday. Last year, wedding registrations declined to 6.83 million, marking the ninth consecutive annual decline and reaching the lowest level since the late 1970s.

Takeaways by Macro Roundup® AI

  1. Qiao Jie, dean of the Health Science Centre at Peking University, estimates China's 2023 births at roughly 7 million to 8 million, down from the 9.56 million recorded last year.
  2. China's 9.56 million births last year were the lowest total in the country's modern history.
  3. Chinese wedding registrations fell to 6.83 million last year, a ninth consecutive annual decline and the lowest level since the late 1970s.

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  • A Revolution Is Coming for China’s Families — Prolonged below-replacement fertility in China is projected to produce a "kin crash" in which rising generations have fewer living relatives than ever before in Chinese history. The authors argue this shrinking of extended family networks will erode the Chinese family's role in protecting people from adversity and helping them seize opportunity.
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AI Summary. Antarctic sea-ice extent reached a level three times further from the average than any previously recorded in July, and only 0.2–0.4% of the continent is currently exposed above the ice. Further warming is likely to expose more land, reducing the surface's reflectivity and increasing the heat the planet absorbs.

Lara Williams Bloomberg
Date Posted:

Declining sea ice has contributed to warming in the Arctic four times faster than the rest of the planet. Record low Antarctic sea ice may contribute to a similar dynamic.

Does shrinking Antarctic ice increase the heat the planet absorbs?

Core argument: Antarctic sea-ice extent in July deviated from the average by three times the largest departure previously recorded.

In terms of sea ice extent, this year has been particularly unusual. July’s sea-ice levels were three times further from the average than what had ever been seen previously. At the moment, Antarctica’s ice reflects a large amount of solar radiation back into space, helping keep the world cool. Only 0.2-0.4% of the continent is exposed above the ice at the moment, but that proportion is likely to increase with further warming. That reduces the albedo – or reflectivity – of the surface and increases the heat absorbed by the planet. It’s an effect we’re already seeing in the Arctic, which is now warming four times faster than the rest of the planet.

Takeaways by Macro Roundup® AI

  1. Antarctic sea-ice extent in July deviated from the average by three times the largest departure previously recorded.
  2. Only 0.2–0.4% of Antarctica is currently exposed above the ice, and that share is likely to rise with further warming, lowering surface albedo and increasing the heat the planet absorbs.
  3. Antarctica's ice reflects a large amount of solar radiation back into space, while the Arctic, where the albedo effect is already visible, is warming four times faster than the rest of the planet.

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