Edward Conard

Top Ten New York Times Bestselling Author

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  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, August 17, 2023

AI Summary. Research on U.S. household savings after the pandemic recession points to rapid accumulation and then drawdown of excess savings, with cumulative drawdowns exceeding $1.9tn and less than $190bn of excess savings remaining in the aggregate economy. The authors estimate that if recent drawdown rates persist, aggregate excess savings would be depleted.

Hamza Abdelrahman and Luiz Oliveira Federal Reserve Bank of San Francisco
Date Posted:

Analysts at @sffed argue that as of June households have spent 90% of $2.1T in excess savings accumulated during the pandemic. They estimate that excess savings will be fully depleted by the end of Q3 2023.

Are households running out of pandemic-era excess savings?

Core argument: Cumulative U.S. household drawdowns of pandemic-era excess savings reached more than $1.9 trillion as of June 2023, leaving less than $190 billion of excess savings in the aggregate economy, according to the authors' updated estimate.

Overall, despite differing methodologies and assumptions, the existing body of work on household savings following the pandemic recession firmly points to the rapid accumulation and drawdown of excess savings in the United States. The red area in Figure 1 shows our updated estimate for cumulative drawdowns, which reached more than $1.9 trillion as of June 2023. This implies that there is less than $190 billion of excess savings remaining in the aggregate economy. Should the recent pace of drawdowns persist—for example, at average rates from the past 3, 6, or 12 months—aggregate excess savings would likely be depleted in the third quarter of 2023.

Takeaways by Macro Roundup® AI

  1. Cumulative U.S. household drawdowns of pandemic-era excess savings reached more than $1.9 trillion as of June 2023, leaving less than $190 billion of excess savings in the aggregate economy, according to the authors' updated estimate.
  2. The authors project that aggregate U.S. excess savings would likely be depleted in the third quarter of 2023 if drawdowns continue at average rates from the past 3, 6, or 12 months.
  3. The existing body of work on U.S. household savings after the pandemic recession points to rapid accumulation and drawdown of excess savings, despite differing methodologies and assumptions.

Related Articles:

  • The Rise and Fall of Pandemic Excess Savings — Researchers estimate US households accumulated about $2.1tn in excess savings above the pre-pandemic trend before drawing them down, with cumulative drawdowns of $1.6tn leaving roughly $500bn remaining. If recent drawdown rates persist, the authors project remaining excess savings would continue supporting household spending for several more months.
  • Accumulated Savings During the Pandemic: An International Comparison with Historical Perspective — The authors construct measures of excess household savings accumulated during the COVID-19 pandemic and find they have been unwound in the United States, declined in advanced foreign economies, and slowed in emerging market economies. Past recessions featured smaller increases in excess savings and greater persistence in the accumulated stock.
  • The Trickling Up of Excess Savings — The authors argue that excess savings created by debt-financed government transfers do not disappear as households spend them down; instead they "trickle up" to wealthier households with lower propensities to spend, so the boost to aggregate demand fades only slowly. Their benchmark estimate puts this at roughly 5 years rather than a few quarters.

AI Summary. Goods with strong positive externalities—such as lower carbon emissions, supply chain resilience, and national security—can be underprovided by markets because private producers do not capture all the social benefits. Government support that lowers firms' production costs can correct this shortfall, de-risk new technologies, and make domestic manufacturing cost-competitive.

Heather Boushey Council of Economic Advisors
Date Posted:

.@hboushey46 of President Biden’s CEA argues public spending is “crowding in” private investment by “de-risking” ventures through tax credits and direct government support.

Can public investment correct underprovision of goods with positive externalities?

Core argument: Goods with strong positive externalities—reducing carbon emissions, improving supply chain resilience, and promoting national security—can be underprovided by the market because private actors do not experience all the social benefits of their production.

When goods have strong positive externalities—such as decreasing our carbon emissions, improving supply chain resilience, or promoting national security—the market can underprovide, as private actors do not experience all of the social benefits of their production. In these instances, government action, such as by lowering the cost of production for the firm, can correct the failure of the market to provide sufficient supply and improve overall welfare. These funding streams, combined, are designed to de-risk new technologies, support the development of necessary infrastructure, and more, making new technologies and domestic manufacturing cost-competitive.

Takeaways by Macro Roundup® AI

  1. Goods with strong positive externalities—reducing carbon emissions, improving supply chain resilience, and promoting national security—can be underprovided by the market because private actors do not experience all the social benefits of their production.
  2. Government action that lowers a firm's cost of production can correct the market's failure to provide sufficient supply and improve overall welfare.
  3. The combined public funding streams are designed to de-risk new technologies and support development of necessary infrastructure, making new technologies and domestic manufacturing cost-competitive.

Related Articles:

  • Making Manufacturing Great Again — US manufacturing construction spending has more than doubled over the past year and risen as a share of gross domestic product, a surge attributed to two laws: the Inflation Reduction Act, whose core is green energy subsidies, and the CHIPS Act, which promotes domestic semiconductor production.
  • Factory Boom Sweeps US With Construction at Record $190 Billion — US manufacturers' construction spending has more than doubled over the past year to an annual rate of nearly $190bn, according to the Census Bureau. Manufacturing now makes up about 13% of all non-government construction, the highest share in a data series going back to the early 1990s.
  • Republican Districts Dominate US Clean Technology Investment Boom — A Financial Times analysis found that more than 80% of pledged investment in large-scale clean energy and semiconductor manufacturing is destined for Republican congressional districts. The analysis attributes this partly to those districts' available land and cheap labor, and to state-level tax breaks and subsidies in states such as Georgia and Ohio.

AI Summary. Reinsurance prices rose as much as 40% year over year, according to a report by brokerage Gallagher Re, prompting insurers to change where and what they cover. State Farm and Allstate cited reinsurance market conditions and costs in curtailing some California business, and agricultural reinsurers announced exits from Iowa.

Emily Flitter New York Times
Date Posted:

In January reinsurance prices in the United States rose as much as 40% year-over-year as the industry repriced risk.

In January reinsurance prices in the United States rose as much as 40% year-over-year as the industry repriced risk.

Are rising reinsurance prices reshaping where insurers offer coverage?

Core argument: Reinsurance prices rose as much as 40% on Jan. 1 from a year earlier, according to a report by Gallagher Re, a brokerage firm that puts together reinsurance coverage deals.

Prices for reinsurance rose as much as 40% on Jan. 1 from a year earlier, according to a report by Gallagher Re, a brokerage firm that puts together reinsurance coverage deals. The price increases jolted insurers, who then made changes to where and for what they offered coverage. When State Farm announced in May that it would stop accepting new applications for certain policies in California, it cited “a challenging reinsurance market.” Allstate also cited reinsurance costs when it paused some of its activities in California. Last month, reinsurers specializing in agriculture insurance announced that they were pulling out of Iowa, where, three years ago, a severe windstorm caused nearly $4 billion in damage.

Takeaways by Macro Roundup® AI

  1. Reinsurance prices rose as much as 40% on Jan. 1 from a year earlier, according to a report by Gallagher Re, a brokerage firm that puts together reinsurance coverage deals.
  2. State Farm cited "a challenging reinsurance market" when it stopped accepting new applications for certain California policies, and Allstate cited reinsurance costs in pausing some of its California activities.
  3. Reinsurers specializing in agriculture insurance announced they were pulling out of Iowa, where a severe windstorm caused nearly $4 billion in damage three years earlier.

Related Articles:

  • Why California and Florida Have Become Almost Uninsurable — Wildfires in California and hurricanes in Florida have generated large volumes of insurance claims, while higher housing prices and construction and repair costs have made each claim more expensive. Insurers have also faced costlier reinsurance, with worldwide average reinsurance rates up about a quarter in one year and another third the next, according to reinsurance broker Howden Tiger.
  • Home Insurers Are Charging More and Insuring Less — Arizona, Texas, North Carolina, Oregon, Illinois and Utah approved the largest home-insurance rate increases, ranging from 20% to 30%, while some insurers have stopped selling new policies in states such as California and pulled back from disaster-prone areas. Reinsurance premiums, which insurers buy to offload risk, rose 33% to 50% at recent renewals.
  • Climate Shocks Are Making Parts of America Uninsurable. It Just Got Worse — State Farm, California's largest homeowner insurer, stopped accepting applications for most new home insurance policies statewide, citing rapidly growing catastrophe exposure. Florida faced a similar retreat by national carriers after Hurricane Andrew and responded with a market of small insurers backed by a state-mandated company providing windstorm coverage to homeowners who cannot obtain private insurance.
  • Farmers Insurance Limits Sales in Florida, California Amid Storm, Wildfire Risks — Farmers Insurance is limiting homeowners policy sales in Florida and California, hurricane- and wildfire-prone states, joining other large insurers in pulling back. In Florida it is ending sales of home, auto, and umbrella policies under its own brand — about 30% of the policies it sells there, affecting roughly 89,000 policies.

AI Summary. The 30-year US Treasury yield rose to about 4.42% and the 10-year approached 4.31%, near their prior peaks, with 30-year yields having been below 4% weeks earlier. Higher yields continue to attract buyers, with Bank of America reporting $127bn flowing into Treasury funds this year, on pace for a record.

Garfield Reynolds and Michael Mackenzie Bloomberg
Date Posted:

Yields on 30-year T-bills rose to 4.42% and the 10-year rose to 4.3%. The higher yields are attracting investors: according to @BankofAmerica, $127B has moved into funds that invest in Treasuries.

Are rising Treasury yields still attracting record inflows from investors?

Core argument: The 30-year Treasury yield rose as much as seven basis points to 4.42% in early US trading, slightly exceeding last year's high, after sitting below 4% as recently as July 31.

In early US trading Thursday the 30-year Treasury yield rose as much as seven bps to 4.42%, slightly exceeding last year’s high. It was below 4% as recently as July 31. The US 10-year yield approached 4.31%, within a few basis points of its 2022 peak. The higher yields in the US continue to draw in buyers. Investors pumped $127 billion this year into funds that invest in Treasuries, on pace for a record year, Bank of America said last week.

Takeaways by Macro Roundup® AI

  1. The 30-year Treasury yield rose as much as seven basis points to 4.42% in early US trading, slightly exceeding last year's high, after sitting below 4% as recently as July 31.
  2. The US 10-year Treasury yield approached 4.31%, within a few basis points of its 2022 peak, as global yields reached 15-year highs.
  3. Bank of America said investors pumped $127 billion this year into funds that invest in Treasuries, a pace on track for a record year, as higher US yields continue to draw buyers.

Related Articles:

  • In Search of Safe Havens: The Trust Deficit and Risk-free Investments! — Plotting US Treasury bond rates against a crude fundamental risk-free rate—actual inflation plus real GDP growth—undercuts the argument that central banks set interest rates. Central banks can nudge rates at the margin but cannot override the fundamentals of inflation and real growth.
  • The Fed and the Secular Decline in Interest Rates — The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.
  • 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.

AI Summary. Ten-year US Treasury yields are projected to average about 4.75% over the coming decade, built from inflation trending near 2.5%, a real return of 1.5%–2%, and a term premium of roughly 0.75–1 percentage point. Rising government borrowing needs underpin the higher real return.

Chris Anstey Bloomberg
Date Posted:

.@LHSummers forecasts 10-year T-bills yielding an average of 4.75% over the next decade relative to an average of 2.9% over the last 20 years.

Will 10-year Treasury yields average near 4.75% over the coming decade?

Core argument: Larry Summers expects the 10-year Treasury yield to average about 4.75% over the coming decade, and says it could end up higher than that.

Inflation is likely to trend at a faster pace than in the past, perhaps 2.5%. A real return, which could be 1.5% to 2% over time when thinking of the government’s increasing borrowing needs — driven by the need for more defense spending, the likelihood of some Trump administration tax cuts getting extended, and higher average interest costs on outstanding debt. A term premium, which is the compensation investors get for buying a longer-term security rather than rolling over investments in short-term ones. Typically this has averaged about 0.75 to 1 percentage point. Adding up the three components, then it’s likely investors over the next decade will be “looking at 4.75 on the 10-year — and it obviously could end up being higher than that.”

Takeaways by Macro Roundup® AI

  1. Larry Summers expects the 10-year Treasury yield to average about 4.75% over the coming decade, and says it could end up higher than that.
  2. Summers builds the 4.75% figure from three components: inflation trending faster than in the past, perhaps 2.5%, a real return of 1.5% to 2%, and a term premium that has typically averaged 0.75 to 1 percentage point.
  3. Summers links the real return to the government's increasing borrowing needs, driven by the need for more defense spending, the likelihood that some Trump administration tax cuts get extended, and higher average interest costs on outstanding debt.

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.
  • 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.

AI Summary. China's population aged over 60 is projected to grow by an average of 10m per year over the next decade, reaching 520m by 2050, or 37.8% of the population. A Renmin University of China demographer says this will add strain to the state pension fund, elderly care facilities, and medical services.

Mia Nulimaimaiti South China Morning Post
Date Posted:

By 2050 at least 38% of China’s population will be older than 60.

How fast will China's senior population grow over the next decade?

Core argument: China's population aged over 60 will grow by an average of 10 million per year over the next decade, reaching 520 million by 2050, or 37.8% of the population, according to Renmin University of China vice-president Du Peng.

China’s aging society problem will accelerate over the next decade, with the number of citizens aged over 60 expanding by an average of 10 million per year, according to a leading demographer, adding further strain to the state pension fund, elderly care facilities, and medical services. The acceleration will push the number of senior citizens to 520 million by 2050, or 37.8% of the population, according to Renmin University of China vice-president Du Peng. China had 209.78 million people aged over 65 last year, accounting for 14.9% of the population, up from 200 million in 2021, according to official data. Last year, 29.1% of Japan’s population were aged over 65, with 17% in the United States and South Korea and 7% in India, according to World Bank data.

Takeaways by Macro Roundup® AI

  1. China's population aged over 60 will grow by an average of 10 million per year over the next decade, reaching 520 million by 2050, or 37.8% of the population, according to Renmin University of China vice-president Du Peng.
  2. China counted 209.78 million people aged over 65 in the most recent year of official data, 14.9% of the population, up from 200 million in 2021.
  3. The accelerating aging of Chinese society will add further strain to the state pension fund, elderly care facilities, and medical services.

Related Articles:

  • China Is Facing a Moment of Truth About Its Low Retirement Age — China has one of the lowest retirement ages among major economies, letting women retire at 50 and men at 60 under a policy unchanged since the 1950s. Its labor ministry estimates more than 40m Chinese will retire over a five-year period while the working-age population falls by 35m.
  • China Is Dying Out — The author estimates China's population is now below 1.28bn, versus the United Nations' figure of 1.43bn, and projects it will fall to 1.08bn by 2050 and 440m by 2100 even if fertility rises to 1.1 births per woman. The share aged 65 and older is projected to rise from 14% to 35% by 2050, leaving 1.6 workers per senior.
  • China’s Population Likely Fell in 2022 as Births Hit New Low — An independent demographer estimates China's annual births fell to a record low of about 10m, down from 10.6m the prior year — itself the sixth straight decline and the lowest since 1949. Deaths likely exceeded the prior year's 10.1m, partly due to the spread of Covid infections.

AI Summary. Urban Chinese unemployment among those aged 16 to 24 has run above 20%, about double the pre-pandemic level for that age group, with over 70% of unemployed youth in one year calculated to be graduates. Sentiment analysis of social media indicates the mood of young Chinese is growing darker.

Economist Staff The Economist
Date Posted:

Analysis of Chinese social media posts by @TheEconomist shows increasingly negative sentiment among people born in the 1990s.

Is youth unemployment in China darkening the mood of young people?

Core argument: Urban Chinese unemployment among those aged 16–24 has exceeded 20% for months, roughly double the age group's pre-pandemic level, and calculations indicate over 70% of those unemployed youngsters in 2021 were graduates.

Unemployment among urban Chinese aged 16 to 24 has been running at over 20% for months, about double the age group’s pre-pandemic level. Our calculations show that in 2021 over 70% of those unemployed youngsters were graduates. To get a sense of how young people feel, we have interviewed dozens of them. Their message is strikingly consistent. “We have no hope,” says a 27-year-old in Huizhou. The malaise felt by him and his cohort has led to the emergence of a new nihilistic vocabulary, featuring phrases such as tangping (lying flat) and bailan (letting it rot). Using sentiment-analysis tools to extract feelings from text on social media, we found that the mood of young Chinese is growing ever darker. A surprising number of young couples are not even having sex. In a survey conducted in 2020, 14.6% and 10.1% of partnered men and women born between 1995 and 2003 reported having had no sex in the past year.

Takeaways by Macro Roundup® AI

  1. Urban Chinese unemployment among those aged 16–24 has exceeded 20% for months, roughly double the age group's pre-pandemic level, and calculations indicate over 70% of those unemployed youngsters in 2021 were graduates.
  2. Sentiment-analysis of Chinese social media text indicates the mood of young Chinese is growing darker, alongside a nihilistic vocabulary featuring tangping ("lying flat") and bailan ("letting it rot").
  3. In a survey conducted in 2020, 14.6% of partnered men and 10.1% of partnered women born between 1995 and 2003 reported having had no sex in the past year.

Related Articles:

  • China Urges Jobless Graduates To ‘Roll Up Their Sleeves’ and Try Manual Work — Youth unemployment in China among those aged 16 to 24 has reached 19.6%, remaining above 16% for a year, while the broader jobless rate has hovered around 5%. With a record 11.6mn college graduates entering a tight labour market, Beijing is urging graduates to lower their ambitions and take up manual work.
  • Chinese Youth Suicide Rate Quadruples In Over A Decade — A study in the Chinese Center for Disease Control and Prevention's official journal found the suicide rate among children aged 5 to 14 in China rose from about 0.2 to about 0.8 per 100,000 people over 11 years. Among 15- to 24-year-olds, the rate fell 6.8% annually before rising 19.6% annually through 2021.
  • China’s Singles Fight Family Pressure to Get Married as Population Declines — An estimated 200mn unmarried Chinese face family pressure to marry, with young people marrying later and the pool of marriageable youth shrinking each year. The number of Chinese women of childbearing age, defined as 15 to 49, fell by more than 4mn in a year.
  • China’s Collapsing Birth and Marriage Rates Reflect a People’s Deep Pessimism — China recorded about 9.6m births, roughly half the 17.9m recorded six years earlier, and millions of young people have joined movements expressing alienation from work ("lying flat") and from Chinese society itself ("let it rot"). A viral video of a man telling pandemic enforcers "we are the last generation" spread the despairing hashtag #Lastgeneration.
  • 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.

Friday, August 18, 2023

AI Summary. Some measures suggest the natural rate of interest has risen and may now be near pre-2008 levels, implying that a soft landing with 2% inflation would leave the federal funds rate around 3.5–4% rather than 2.5–2.75%, and that recent Federal Reserve policy has been less restrictive than often claimed.

Tom Lawler Calculated Risk
Date Posted:

Tom Lawler argues in support of recent work by Lubik and Matthes at the Federal Reserve that shows that r* has risen over the last year. He thinks that interest rates will be persistently higher.

Has the natural rate of interest risen back toward pre-crisis levels?

Core argument: Some measures indicate the natural rate of interest, or r-star, has risen over the past year to levels not far from those prevailing just before the 2008 financial crisis.

There is in fact evidence that the natural rate of interest, or r-star, has in fact risen over the last year, and by some measures, it would appear as if r-star may be at levels not that far from those seen just prior to the financial crisis of 2008. If that were the case, then a “soft-landing scenario where inflation fell back to 2% would be one where the Federal Fund Rate fell back to the 3 ½-4% level, rather than the 2 ½-2 ¾ % level implied by the HLW model or the FOMC’s “dot plots.” In addition, if r-star has risen significantly, then recent Federal Reserve policy has not been as “restrictive” as many have suggested. If that were the case, then one would have expected the economy to have performed better than the “consensus” forecast, which in fact has been the case.

Takeaways by Macro Roundup® AI

  1. Some measures indicate the natural rate of interest, or r-star, has risen over the past year to levels not far from those prevailing just before the 2008 financial crisis.
  2. A higher r-star would imply that a soft landing with inflation back at 2% leaves the federal funds rate near 3½–4%, rather than the 2½–2¾% implied by the HLW model and the FOMC's dot plots.
  3. A significantly higher r-star would mean Federal Reserve policy has been less restrictive than many suggest, consistent with the economy outperforming the consensus forecast.

Related Articles:

  • The Evolution of Short-Run r* After the Pandemic — 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.
  • 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.
  • 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. 42% of American homeowners own their homes outright with no mortgage, and among those with mortgages the median housing debt is 52% of the home's value. Homeowners with large equity cushions should be less affected by "lock-in" from low pandemic-era mortgage rates.

Joseph Politano Apricitas Economics
Date Posted:

.@JosephPolitano argues that the uptick in mortgage rates from 2.7% in 2021 to 7% two years later won’t “lock in” homeowners as fully as many expect, given that 42% of Americans own their homes outright.

Do large homeowner equity cushions limit mortgage rate lock-in?

Core argument: 42% of American homeowners own their homes with no mortgage.

What if higher mortgage rates have turned the low-rate mortgages of 2021 into golden handcuffs, locking owners into their existing homes? 42% of American homeowners own their homes with no mortgage. Most existing homeowners with mortgages have large equity cushions by virtue of purchasing before the massive pandemic-era home price appreciation. Excluding people who owned their homes free and clear, the median level of housing debt is only 52% of the value of the home, and those homeowners with large equity cushions should also be less affected by lock-in.

Takeaways by Macro Roundup® AI

  1. 42% of American homeowners own their homes with no mortgage.
  2. Among U.S. homeowners who carry mortgages, the median level of housing debt is 52% of the home's value, an equity cushion that should lessen the impact of rate lock-in.
  3. Most existing U.S. homeowners with mortgages hold large equity cushions because they purchased before pandemic-era home price appreciation.

Related Articles:

  • The “New Normal” Mortgage Rate Range — Goldman Sachs economists expect the federal funds rate to eventually stabilize at 3–3.25%, above what the Federal Reserve currently projects for the neutral rate. With a funds rate near 3.25% and a 10-year Treasury yield of 4.45%, 30-year fixed mortgage rates would sit in the low-to-mid 6% range.
  • The Great Pandemic Mortgage Refinance Boom — Fourteen million mortgages were refinanced during the COVID-era refinance boom: roughly 5m borrowers extracted a total of $430bn in home equity, while 9m refinanced without extracting equity and cut their aggregate annual housing costs by $24bn.

AI Summary. China's property sector, which accounts for 23% of GDP (26% counting imports), is yielding diminishing returns after a construction boom driven by the country's massive post-2008 investment stimulus. The author argues this debt supercycle is the best explanation for China's faltering economy and what comes next.

Ken Rogoff Project Syndicate
Date Posted:

.@krogoff argues the best lens for viewing the Chinese economy is a simple story of deleveraging after a debt “supercycle” that drove the property sector to 23% of GDP.

.@krogoff argues the best lens for viewing the Chinese economy is a simple story of deleveraging after a debt “supercycle”...

Does a debt supercycle explain China's faltering economy?

Core argument: China's property sector accounts for 23% of GDP, or 26% counting imports, and is now yielding diminishing returns after years of building housing and offices at breakneck speed.

China’s current problems can be traced back to its massive post-2008 investment stimulus, a significant portion of which fueled the real-estate construction boom. After years of building housing and offices at breakneck speed, the bloated property sector – which accounts for 23% of the country’s GDP (26% counting imports) – is now yielding diminishing returns. This comes as little surprise, as China’s housing stock and infrastructure rival that of many advanced economies while its per capita income remains comparatively low. The debt supercycle may have lasted longer than initially expected, perhaps because of the pandemic. But it was a critical piece of the story, and now, as China’s economy falters, it is the best explanation for what might come next.

Takeaways by Macro Roundup® AI

  1. China's property sector accounts for 23% of GDP, or 26% counting imports, and is now yielding diminishing returns after years of building housing and offices at breakneck speed.
  2. China's current problems trace back to its massive post-2008 investment stimulus, a significant portion of which fueled the real-estate construction boom.
  3. China's housing stock and infrastructure rival those of many advanced economies while its per capita income remains comparatively low, and the debt supercycle offers the best explanation for what may come next as the economy falters.

Related Articles:

  • Can China’s Long-Term Growth Rate Exceed 2–3 Percent? — China invests roughly 42–44% of its GDP, while more mature, capital-intensive economies typically invest about 15–20%. Modeling a ten-year path that lowers China's investment share to 30% of GDP, the author argues the resulting growth rate depends mainly on how fast consumption grows.
  • China Begins Nationwide Push to Reveal Hidden Government Debt — China's Ministry of Finance reported governments across the country held 37tn yuan ($5.1tn) in on-book debt, with no official tally of hidden debt or who owes it. The International Monetary Fund estimated local government financing vehicles held 66tn yuan ($9.2tn) of hidden debt at end-2022, up from 40tn yuan in 2019.
  • Housing, Household Debt, and the Business Cycle: An Application to China and Korea — Household debt and housing booms in China and Korea are comparable to those in the United States and United Kingdom from 2001 to 2007, and consumer spending in both countries could be quite weak. Korea's debt service ratio has risen substantially to an exceptionally high level, a pattern historically associated with slower growth.

AI Summary. Chinese property developer China Evergrande has filed for US bankruptcy protection while pursuing a restructuring agreement with international bondholders, with about $19bn in overseas liabilities. Its earlier default on dollar-denominated debt sparked a sector-wide liquidity crisis that has weighed on China's economic growth and pressured policymakers in Beijing.

Thomas Hale and Sujeet Indap Financial Times
Date Posted:

Evergrande, a Chinese property developer with $19B in overseas liabilities, has filed for bankruptcy protection in the US.

Evergrande, a Chinese property developer with $19B in overseas liabilities, has filed for bankruptcy protection in the US.

Is a major Chinese developer's default still weighing on China's growth?

Core argument: China Evergrande has filed for US bankruptcy protection while pursuing a prolonged restructuring agreement with international creditors holding billions of dollars in bonds, and carries about $19bn in overseas liabilities according to Bloomberg data.

Property developer China Evergrande has filed for bankruptcy protection in the US, as the company pursues a prolonged restructuring agreement with international creditors that hold billions of dollars in bonds. Evergrande defaulted on its dollar-denominated debts in late 2021, sparking a sector-wide liquidity crisis that has weighed on China’s economic growth and put increasing pressure on policymakers in Beijing. The company has about $19bn in overseas liabilities, according to Bloomberg data.

Takeaways by Macro Roundup® AI

  1. China Evergrande has filed for US bankruptcy protection while pursuing a prolonged restructuring agreement with international creditors holding billions of dollars in bonds, and carries about $19bn in overseas liabilities according to Bloomberg data.
  2. Evergrande's default on its dollar-denominated debts in late 2021 sparked a sector-wide liquidity crisis that has weighed on China's economic growth.
  3. The property sector liquidity crisis following Evergrande's default has put increasing pressure on policymakers in Beijing.

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AI Summary. Evidence does not support the view that China's growth is caught in a severe multi-year cyclical downturn. A widely noted 0.3% year-over-year decline in consumer prices largely reflected elevated food prices a year earlier, while core consumer prices excluding food and energy rose 0.8%, up from 0.4% the prior month.

Nicholas Lardy How Serious is China's Economic Slowdown?
Date Posted:

Nicholas Lardy @PIIE argues that concerns about the Chinese economy are overstated, given that core consumer prices in July rose by 0.8% once volatile food and energy prices are stripped out.

Nicholas Lardy @PIIE argues that concerns about the Chinese economy are overstated, given that core consumer prices in July...

Is China's economy caught in a severe multi-year downturn?

Core argument: China's headline consumer prices fell 0.3% year-over-year in July 2023, a decline mostly attributable to elevated food prices in the same period of 2022.

A careful reading of the present situation does not support the view that China's growth is now gripped by a severe cyclical downward spiral that will persist for several years. Falling retail prices could lead households to postpone consumption on the expectation that goods would become cheaper tomorrow. That would reduce consumption and economic growth. But the widely noted 0.3% decline in consumer prices in July 2023 compared with a year ago was mostly due to elevated food prices in the same period of 2022. Stripping out volatile prices of food and energy, core consumer prices in July rose by 0.8%, up from the 0.4% increase in June. It may be premature to raise the specter of deflation based on one month of data.

Takeaways by Macro Roundup® AI

  1. China's headline consumer prices fell 0.3% year-over-year in July 2023, a decline mostly attributable to elevated food prices in the same period of 2022.
  2. Chinese core consumer prices, excluding volatile food and energy, rose 0.8% in July 2023, up from a 0.4% increase in June, making it premature to raise the specter of deflation on one month of data.
  3. Falling retail prices can lead Chinese households to postpone consumption in expectation of cheaper goods, reducing consumption and growth, but a careful reading of the present situation does not support the view that China's growth is gripped by a severe multi-year cyclical downward spiral.

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AI Summary. Two former Google researchers have founded a Tokyo-based artificial intelligence start-up, Sakana. One is among the eight Google researchers who built the transformer, the software architecture underpinning generative AI systems including chatbots and image generators; all eight have since left Google, primarily to found their own start-ups.

Madhumita Murgia Financial Times
Date Posted:

All 8 of the Google researchers who co-wrote a 2017 paper that set off the AI boom have left the firm for startups.

All 8 of the Google researchers who co-wrote a 2017 paper that set off the AI boom have left the firm for startups.

Are leading AI researchers leaving big tech to launch their own start-ups?

Core argument: All eight Google researchers who co-authored the June 2017 transformer paper have left the company, primarily to found their own start-ups, with Jones the last of the eight to exit.

A former Google researcher who co-authored a paper that kick-started the generative AI revolution has joined forces with an ex-colleague to found a Tokyo-based artificial intelligence start-up. Jones, Sakana’s chief technology officer, was one of eight Google researchers who collaborated on building a software known as the transformer, which underpinned the rise of generative AI, including chatbots such as ChatGPT and Bard, and image generators such as Stability AI, Midjourney and Dall-E. The Transformers research paper was first published in June 2017. Since then all of its co-authors have left Google, primarily to found their own start-ups. Jones was the last of the eight to exit Google.

Takeaways by Macro Roundup® AI

  1. All eight Google researchers who co-authored the June 2017 transformer paper have left the company, primarily to found their own start-ups, with Jones the last of the eight to exit.
  2. Jones has co-founded Sakana, a Tokyo-based AI start-up, with a former Google colleague, and serves as its chief technology officer.
  3. The transformer software built by the eight Google researchers underpinned the rise of generative AI, including chatbots such as ChatGPT and Bard and image generators including Stability AI, Midjourney and Dall-E.

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