Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
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  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, September 11, 2023

AI Summary. The widening federal deficit reflected a sharp fall in tax receipts as a windfall from stock prices and inflation faded, plus rising interest payments, rather than new spending programs. The U.S. collects a lower share of income in taxes than other major economies, making higher revenue a reasonable alternative to cutting essential spending.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman acknowledges that “we’re going to keep running deficits bigger than even fiscal doves like myself would like.” He advocates raising taxes on the rich and middle class.

Is the widening deficit driven by falling revenue rather than new spending?

Core argument: The U.S. federal deficit for the first three quarters of fiscal 2023 ran nearly three times its year-earlier level, driven mainly by a sharp fall in tax receipts and rising interest payments rather than new spending programs.

The federal deficit for the first 3/4 of the fiscal year 2023 was almost 3x as high as a year before. Very little of it was the result of new spending programs (although money is starting to flow out the door under the Biden administration’s industrial policies). It was mainly about two things: a sharp fall in tax receipts and rising interest payments. What’s happening on taxes is that the federal government in effect got a windfall from stock prices and inflation, which is now going away. We’re not looking at any fundamental deterioration. The U.S. government really shouldn’t be running budget deficits this big at full employment. Yet we don’t want to reduce deficits by cutting essential spending. America collects a lower share of its income in taxes than other major economies, so more revenue — partly from the rich, but also from the middle class — would be a reasonable policy.

Takeaways by Macro Roundup® AI

  1. The U.S. federal deficit for the first three quarters of fiscal 2023 ran nearly three times its year-earlier level, driven mainly by a sharp fall in tax receipts and rising interest payments rather than new spending programs.
  2. The drop in tax receipts reflects the unwinding of a windfall from stock prices and inflation rather than a fundamental fiscal deterioration, though money is beginning to flow out under the Biden administration's industrial policies.
  3. The U.S. should not run deficits this large at full employment, and rather than cutting essential spending should raise more revenue from both the rich and the middle class, since America collects a lower share of income in taxes than other major economies.

Related Articles:

  • Is a U.S. Debt Crisis Looming? Is it Even Possible? — A debt spiral requires the interest rate on government debt to exceed the economy's growth rate; with inflation-protected 10-year U.S. bond yields near 1.83%, close to most estimates of sustainable growth, any spiral would be slow-moving. Stabilizing debt at 100% of GDP would require a 2% primary surplus.
  • American Gothic — US tax increases since 1950 of 2% of GDP or more occurred when overall tax receipts were a much smaller share of GDP than today. Restoring the ratio of entitlement to non-defense discretionary spending to its earlier level of 2.2x would require tax increases larger than those historical precedents.
  • Living with High Public Debt — High public debt ratios are likely to persist because large sustained primary budget surpluses are politically unrealistic, real interest rates are already very low, faster global growth is hard to engineer, inflation is not a sustainable route to reducing debt, and financial repression is less feasible amid liberalized markets.

AI Summary. Seven large technology stocks account for nearly 30% of the S&P 500's total value, but the rise of both hyped stocks and the broader market was more extreme during the dot-com era. Historically, only a few stocks have generated most of the stock market's value creation in the US and internationally.

Jesper Rangvid Rangvid's Blog
Date Posted:
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Seven stocks made up 70% of S&P 500 value creation in 2023, but Jesper Rangvid argues that this isn’t without historical precedent. In the Dot.com period, Cisco, Dell, Intel, Lucent, and Microsoft had an even more extreme run-up.

Is market concentration in a few large stocks unusual historically?

Core argument: The "Magnificent 7" — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — account for nearly 30% of the total value of the S&P 500, a concentration the author calls exceptional.

The hype around the “Magnificent 7” stocks [Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla] that have driven the stock market this year is reminiscent of the dot.com era, which ended with a spectacular crash. However, there are two reasons why today’s developments seem less worrying: The rise of hyped stocks was more extreme in the Dot.com era, as was the rise of the rest of the market. While today’s situation is exceptional, with seven stocks accounting for nearly 30% of the total value of the S&P 500, the rule in the past has been that only a few stocks generated most of the value creation of the stock market in the US and internationally.

Takeaways by Macro Roundup® AI

  1. The "Magnificent 7" — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — account for nearly 30% of the total value of the S&P 500, a concentration the author calls exceptional.
  2. The author argues today's market is less worrying than the dot.com era because the rise of hyped stocks was more extreme then, as was the rise of the rest of the market.
  3. Historically, only a few stocks have generated most of the stock market's value creation in the US and internationally.

Related Articles:

  • 7 or 493 Stocks: What Matters for the S&P 500? — The combined market value of the S&P 500's 500 companies rose $5tn, or 15.3%, while the 493 stocks outside the "Magnificent Seven" — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — returned only 4.5%. Those seven stocks accounted for about 71% of the index's return.
  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.
  • Mr. Toad’s Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs — Between 40% and 60% of US initial public offerings generate negative returns even in favorable periods, so average IPO returns far exceed median returns and depend on a small set of large winners. Excluding just the top 3% of IPOs turns average net returns negative and cuts average absolute returns by more than half.

AI Summary. A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

Hendrik Bessembinder, Te-Feng Chen, Goeun Choi and K.C. John Wei Financial Analysts Journal
Date Posted:
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Hendrik Bessembinder finds that the best-performing 1,526 global firms (2.4% of total) accounted for all of the $75.7T in net global stock market wealth creation between 1990 and 2020.

How concentrated is global stock market wealth creation among firms?

Core argument: Global stock market net wealth creation totaled $75.7 trillion between January 1990 and December 2020, with the best-performing 1,526 firms (2.39% of the sample) accounting for all of it.

We calculate net global stock market wealth creation of $US 75.7 trillion btw 1990 and 2020. Wealth creation is highly concentrated. Five firms (0.008% of the total) with the largest wealth creation during the January 1990 to December 2020 period (Apple, Microsoft, Amazon, Alphabet, and Tencent) accounted for 10.3% of global net wealth creation. The best-performing 159 firms (0.25% of total) accounted for half of global net wealth creation. The best-performing 1,526 firms (2.39% of the total) can account for all net global wealth creation. Skewness in compound returns is even stronger outside the U.S. The present sample includes 46,723 non-U.S. stocks. Of these, 42.6% generated buy-and-hold returns measured in U.S. dollars that exceed one-month U.S. Treasury bill returns over matched horizons. By comparison, 44.8% of the 17,776 U.S. stocks in the present sample outperformed Treasury bills.

Takeaways by Macro Roundup® AI

  1. Global stock market net wealth creation totaled $75.7 trillion between January 1990 and December 2020, with the best-performing 1,526 firms (2.39% of the sample) accounting for all of it.
  2. Five firms — Apple, Microsoft, Amazon, Alphabet, and Tencent — representing 0.008% of the sample, accounted for 10.3% of global net wealth creation, and the best-performing 159 firms (0.25%) accounted for half.
  3. Of 46,723 non-U.S. stocks, 42.6% generated U.S. dollar buy-and-hold returns exceeding one-month U.S. Treasury bill returns over matched horizons, compared with 44.8% of 17,776 U.S. stocks.

Related Articles:

  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.
  • More Bang for Your Buck — Among firms trading at a discount to book value, European companies show a gross profit-to-assets ratio of 18.5%, 1.5x that of North American value firms, and earnings-to-assets of 6.4%, nearly 3x North America's. The authors argue wide valuation spreads plus higher profitability strengthen the case for European and Japanese value stocks.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Strong demand for the weight-loss and diabetes drugs Ozempic and Wegovy has kept Denmark out of recession: GDP is up about 1.1% over the past year but down 0.9% excluding pharmaceuticals, meaning drugmakers added roughly 2% to growth. Booming exports let Denmark's central bank hold rates lower while maintaining its euro peg.

Joseph Politano Apricitas Economics
Date Posted:

US demand for Ozempic stopped a Danish recession. Excluding the pharmaceutical sector, Danish Q2 2023 GDP would have been down 0.9% vs. up 1.1% year-over-year. @josephpolitano

Can a single drugmaker keep a national economy out of recession?

Core argument: Danish GDP rose roughly 1.1% over the past year but fell 0.9% excluding pharmaceuticals, meaning drugmakers alone added roughly 2% to Danish growth and functionally prevented a recession.

Demand for Ozempic (a diabetes drug often sought for weight loss—though not FDA-approved for that purpose) and Wegovy (the new drug explicitly approved for treating obesity), is so strong that it functionally prevented a recession in Denmark—headline GDP is up roughly 1.1% over the last year, but excluding the pharmaceutical industry it’s down -0.9%, meaning drugmakers alone have added roughly 2% to Danish economic growth. Booming exports and high dollar earnings are allowing Danmarks Nationalbank—the Danish Central Bank—to keep rates lower than they otherwise would in order to maintain their currency peg to the Euro. Novo Nordisk, the Danish pharmaceutical giant has rapidly become the most valuable publicly traded company in Europe. Sales have risen 30% in the first half of this year, profits are up 40%, and the company is having to ration supply as production struggles to keep up with growth in orders.

Takeaways by Macro Roundup® AI

  1. Danish GDP rose roughly 1.1% over the past year but fell 0.9% excluding pharmaceuticals, meaning drugmakers alone added roughly 2% to Danish growth and functionally prevented a recession.
  2. Booming pharmaceutical exports and high dollar earnings allow Danmarks Nationalbank to hold rates lower than it otherwise would while maintaining Denmark's currency peg to the euro.
  3. Novo Nordisk has become Europe's most valuable publicly traded company, with sales up 30% and profits up 40% in the first half of the year, and is rationing supply as production struggles to keep up with orders.

Related Articles:

  • More Bang for Your Buck — Among firms trading at a discount to book value, European companies show a gross profit-to-assets ratio of 18.5%, 1.5x that of North American value firms, and earnings-to-assets of 6.4%, nearly 3x North America's. The authors argue wide valuation spreads plus higher profitability strengthen the case for European and Japanese value stocks.

AI Summary. A statistical model using 13 economic variables including inflation, unemployment, and petrol prices explained 86% of the variation in the monthly US consumer-sentiment index between 1980 and 2016, but the correlation between sentiment and both current and future spending has vanished since the pandemic began. The same variables retain their power to forecast consumer spending.

Economist Staff The Economist
Date Posted:

Since the pandemic, the University of Michigan’s consumer sentiment survey has been much lower than expected based on strong economic indicators. Gloomy sentiment has not yet impacted consumer spending.

Has consumer sentiment lost its link to spending?

Core argument: A statistical model using 13 economic variables, including inflation, unemployment and petrol prices, explained 86% of the variation in the monthly consumer-sentiment index between 1980 and 2016, a very good fit.

We built a statistical model to predict the monthly consumer-sentiment index between 1980 and 2016 using a broad battery of economic data. A combination of 13 variables, including inflation, unemployment and petrol prices explained 86% of the variation in the index in this period, a very good fit. Before the pandemic, the relationships between these indicators and consumer sentiment were relatively stable. Although Americans report being worried about their finances, they are behaving as flush as ever—and in economic forecasting, actions speak louder than words. When used to project future spending rather than consumer sentiment, the same battery of economic variables has fully maintained its forecasting power since 2020. In contrast, since covid began, the correlation between sentiment and both current and future spending has vanished.

Takeaways by Macro Roundup® AI

  1. A statistical model using 13 economic variables, including inflation, unemployment and petrol prices, explained 86% of the variation in the monthly consumer-sentiment index between 1980 and 2016, a very good fit.
  2. Since covid began, the correlation between consumer sentiment and both current and future consumer spending has vanished, even as the same battery of economic variables has fully maintained its power to forecast spending.
  3. Americans report being worried about their finances while behaving as flush as ever, and in economic forecasting actions speak louder than words.

AI Summary. A decomposition of price and quantity growth across items indicates that most of the decline in inflation came from supply-side expansion, where price increases slowed while quantity growth picked up. The author argues that resolving supply shocks combined with a modest easing of demand brought inflation down without a cost to the level of employment.

Mike Konczal Roosevelt Institute
Date Posted:

Disinflation has been driven by expanded supply, not decreased demand. @mtkonczal finds of 123 core PCE items 73% of goods and 66% of services see “prices falling with quantities increasing,” consistent with expanded supply.

Did supply-side expansion drive most of the decline in inflation?

Core argument: Categories where price growth decelerated while quantity growth accelerated — for example from 5% price and 1% quantity growth at end-2022 to 3% price and 2% quantity growth through July 2023 — are classified as supply-increasing in this exercise.

Note that this is a deceleration of the rate of increase. So if an item had 5% price growth and 1% quantity growth at the end of 2022, and then it had a 3% price growth and 2% quantity growth ending July 2023, it would show up as (-2,+1), or on the bottom right quadrant. It would be categorized as supply-increasing in this exercise, as the rate of price increases fell while the rate of quantity increases picked up. At the moment, the inflation story is exactly what a “soft landing” would have predicted. A combination of resolving supply shocks and a subtle decrease in demand has driven inflation down dramatically, with no cost to the level of employment.

Takeaways by Macro Roundup® AI

  1. Categories where price growth decelerated while quantity growth accelerated — for example from 5% price and 1% quantity growth at end-2022 to 3% price and 2% quantity growth through July 2023 — are classified as supply-increasing in this exercise.
  2. A combination of resolving supply shocks and a subtle decrease in demand has driven inflation down dramatically with no cost to the level of employment, matching what a "soft landing" would have predicted.

Related Articles:

  • The Relationship between Consumption Growth and Inflation — Across "normal" subperiods, personal consumption inflation of 1–3% accompanied real consumption growth of about 2–3%, with a positive relationship between the two, but high-inflation subperiods showed roughly 6% inflation alongside average consumption growth. This pattern suggests that high inflation reflected supply disruptions or other demand components rather than strong consumption growth.
  • 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 Unresolved Tension Between Prices and Incomes — Persistent per-worker income growth of about 5% a year is difficult to reconcile with forecasts of 2% inflation, since inflation reflects the gap between nominal spending growth and real production, and wages are the largest source of financing for consumer spending. Interest rates may therefore fall more slowly than market prices imply.

AI Summary. An estimated 20–40m tonnes of lithium metal lie within a volcanic crater in the US, larger than the deposits beneath a Bolivian salt flat previously considered the world's largest. Planned extraction would remove clay with water, centrifuge out lithium-bearing grains, and leach the clay in sulfuric acid.

Anthony King Chemistry World
Date Posted:

A lithium deposit in a volcanic crater on the Nevada–Oregon border is likely the world’s largest. Mining could begin by 2026. @ChemistryWorld

Does the US hold the world's largest lithium deposit?

Core argument: An estimated 20–40 million tonnes of lithium metal lie within a US volcanic crater formed around 16 million years ago, larger than the Bolivian salt flat deposit previously considered the world's largest.

An estimated 20 to 40 million tonnes of lithium metal lie within a volcanic crater formed around 16 million years ago. This is notably larger than the lithium deposits found beneath a Bolivian salt flat, previously considered the largest deposit in the world. Thomas Benson, a geologist at Lithium Americas Corporation expects to begin mining in 2026. It will remove clay with water and then separate out the small lithium-bearing grains from larger minerals by centrifuging. The clay will then be leached in vats of sulfuric acid to extract lithium.

Takeaways by Macro Roundup® AI

  1. An estimated 20–40 million tonnes of lithium metal lie within a US volcanic crater formed around 16 million years ago, larger than the Bolivian salt flat deposit previously considered the world's largest.
  2. Thomas Benson, a geologist at Lithium Americas Corporation, expects mining at the site to begin in 2026.
  3. The planned extraction removes clay with water, centrifuges to separate small lithium-bearing grains from larger minerals, and leaches the clay in vats of sulfuric acid.

Related Articles:

  • Tesla’s Lithium Lead at Risk as Rivals Make Supply Deals — Lithium demand is expected to rise more than fivefold by the end of the decade, and 2030 electric-vehicle sales targets are probably unachievable because of raw-material constraints, according to Piper Sandler & Co. New lithium mines can cost up to $1bn and take more than six years to build.
  • Chile’s Move to Control Lithium Alarms Industry — Chile has moved to take state control of key lithium projects, and the combined market value of its two incumbent lithium producers has fallen by $8.5bn. Mining executives and analysts argue the strategy will erode the appeal of the world's second-largest lithium producer as an investment destination, benefiting Australia, Argentina and several African countries.
  • 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.

AI Summary. Vietnam has elevated the US to a "comprehensive strategic partnership," its highest tier of bilateral relations, a status previously held only by China, Russia, India and South Korea. The upgrade carries security implications including potential defense cooperation, as well as economic significance in industries such as semiconductors.

Mercedes Ruehl, James Politi, Henry Foy and Stefania Palma Financial Times
Date Posted:

Vietnam has upgraded its relationship with the United States to the level previously reserved for China, Russia, India, and as of last year, South Korea. Vietnam had long avoided the move for fear of upsetting Beijing.

Vietnam has upgraded its relationship with the United States to the level previously reserved for China, Russia, India, and...

Is Vietnam deepening ties with the US to counter China?

Core argument: Vietnam raised the US by two levels to a "comprehensive strategic partnership," the top tier of its bilateral ties hierarchy, previously reserved only for China, Russia, India and, as of last year, South Korea.

Vietnam has upgraded its relationship with the US to the highest level. The US signed a “comprehensive strategic partnership” with the south-east Asian country on Sunday after President Joe Biden arrived in Hanoi from New Delhi, where he had attended the G20 summit. The symbolic but significant change, which follows years of lobbying by Washington, raises the US by two levels to the top status in Vietnam’s bilateral ties hierarchy. The status is one previously reserved only for China, Russia, India and, as of last year, South Korea. Vietnam had long avoided the move for fear of upsetting Beijing. As well as having security implications, such as potential defence co-operation, the new US status also carries economic importance, especially in crucial industries such as semiconductors.

Takeaways by Macro Roundup® AI

  1. Vietnam raised the US by two levels to a "comprehensive strategic partnership," the top tier of its bilateral ties hierarchy, previously reserved only for China, Russia, India and, as of last year, South Korea.
  2. The upgrade, signed after President Joe Biden arrived in Hanoi from the G20 summit in New Delhi, follows years of lobbying by Washington, a move Vietnam had long avoided for fear of upsetting Beijing.
  3. The new US status carries security implications, such as potential defence co-operation, as well as economic importance in crucial industries such as semiconductors.

Related Articles:

  • Vietnam Boots UK Out of Top Seven US Trading Partners — Vietnam is on track to displace Britain from the US's top seven goods trading partners for the first time in records going back at least to 2004, with the UK's share of US merchandise trade at 2.6% and Vietnam's at 2.7%. China's share stood at 13.2%, down from a full-year peak of 16.4% in 2017.
  • War, AI and Climate Change Shake Up $32 Trillion in Global Trade — US imports of tariffed goods from China are estimated to be about $150bn below where they would otherwise be, with Mexico filling much of the gap. Manufacturing accounts for 13% of India's gross domestic product, below the government's 25% goal, and Indian manufacturers' value-add is 20% versus 49% for China.
  • Globalization Isn’t Dead. But It’s Changing — China's share of US imports fell from a peak of 22% to under 17%, while other Asian economies and Mexico gained share. Vietnam's exports to the US rose from under $10bn to more than $120bn, Mexico's roughly doubled to over $400bn, and the Philippines, Taiwan, Thailand, India, and Malaysia also grew exports rapidly.

AI Summary. Italy has told China it plans to withdraw from China's Belt and Road Initiative, the infrastructure and investment program it joined in 2019, while seeking to maintain friendly relations with Beijing.

Antonio Vanuzzo and Alberto Nardelli Bloomberg
Date Posted:

Italy has privately told China it plans to withdraw from Xi’s signature Belt and Road Initiative.

Italy has privately told China it plans to withdraw from Xi’s signature Belt and Road Initiative.

Is Italy withdrawing from China's Belt and Road Initiative?

Core argument: Italian Prime Minister Giorgia Meloni told Chinese Premier Li Qiang that Italy plans to withdraw from Xi Jinping's Belt and Road Initiative, according to a person familiar with the matter who asked not to be named.

During a meeting on Saturday on the sidelines of the Group of 20 summit in India, Giorgia Meloni told Chinese Premier Li Qiang that Italy plans to withdraw from Chinese President Xi Jinping’s signature Belt and Road Initiative while still looking to maintain friendly relations with Beijing, according to a person familiar with the matter, who asked not to be named. Italy officially signed up for the pact in 2019.

Takeaways by Macro Roundup® AI

  1. Italian Prime Minister Giorgia Meloni told Chinese Premier Li Qiang that Italy plans to withdraw from Xi Jinping's Belt and Road Initiative, according to a person familiar with the matter who asked not to be named.
  2. Italy officially signed up for the Belt and Road pact in 2019, and Meloni conveyed the planned exit while saying Italy still seeks to maintain friendly relations with Beijing.
  3. The Meloni-Li meeting took place on the sidelines of the Group of 20 summit in India.

Related Articles:

  • Italy Intends to Exit China Belt and Road Pact as Relations Sour — Italy's government is favoring an exit from China's Belt and Road Initiative, though no final decision has been made, and its participation renews automatically unless Rome actively withdraws. Italy is the only Group of Seven country in the pact, which has funded $900bn in infrastructure projects globally.
  • China As an International Lender of Last Resort — Using the first comprehensive dataset of China's overseas bailouts, the authors find China has extended over $170bn in central bank swap line liquidity to distressed countries plus $70bn in rescue loans from state-owned banks and enterprises, equal to more than 20% of International Monetary Fund lending over the past decade.

Tuesday, September 12, 2023

AI Summary. The Congressional Budget Office estimates the federal budget deficit reached $1.5tn over the first 11 months of the fiscal year, $0.6tn more than the same period a year earlier, with revenues 10% lower and outlays 3% higher. Net interest costs on the public debt rose $149bn, or 30%, which the agency attributes mainly to significantly higher interest rates.

Nathaniel Frentz and Justin Latus Congressional Budget Office
Date Posted:

According to @USCBO, the federal budget deficit grew by $600B for the first 11 months of fiscal 2023 vs. fiscal 2022. Revenues were down 10% and outlays were up 3%.

Is the federal deficit widening as revenues fall and interest costs climb?

Core argument: The Congressional Budget Office estimates the federal budget deficit reached $1.5 trillion in the first 11 months of fiscal year 2023, $0.6 trillion more than the shortfall recorded over the same period a year earlier.

The federal budget deficit was $1.5 trillion in the first 11 months of fiscal year 2023, the Congressional Budget Office estimates—$0.6 trillion more than the shortfall recorded during the same period last year. Revenues were 10% lower and outlays were 3% higher from October through August than they were during the same period in fiscal year 2022. Receipts collected through August 2023, net of refunds, were about $350 billion less than CBO projected, mainly because of smaller-than-anticipated collections of individual and corporate income taxes. Net outlays for interest on the public debt rose by $149 billion (or 30 percent), mainly because interest rates are significantly higher than they were in the first 11 months of fiscal year 2022.

Takeaways by Macro Roundup® AI

  1. The Congressional Budget Office estimates the federal budget deficit reached $1.5 trillion in the first 11 months of fiscal year 2023, $0.6 trillion more than the shortfall recorded over the same period a year earlier.
  2. Revenues from October through August were 10 percent lower and outlays 3 percent higher than in the same period of fiscal year 2022, and receipts net of refunds ran about $350 billion below CBO's projection.
  3. Net outlays for interest on the public debt rose by $149 billion, or 30 percent, mainly because interest rates are significantly higher than in the first 11 months of fiscal year 2022.

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.
  • 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.
  • 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. Most U.S. mortgages are 30-year fixed rate, while many other countries rely on variable or short-dated fixed rate mortgages, leaving U.S. mortgage debt servicing ratios near historical lows amid robust wage growth and a large stock of low-rate loans. Households in many other countries are seeing disposable income squeezed.

Joseph Wang Fed Guy Blog
Date Posted:

The prevalence of long-dated mortgages, and a reliance on capital markets financing, has made the US relatively immune to rate increases. @FedGuy12 writes that the dollar is likely to strengthen as foreign central banks cut rates before the Fed.

Do fixed rate mortgages shield US households from rising rates?

Core argument: U.S. mortgage debt servicing ratios have stayed near historical lows, supported by the dominance of 30-year fixed rate loans, a large existing stock taken out at low rates, and robust wage growth.

While the vast majority of U.S. mortgages are 30 year fixed rate, many other countries rely on either variable rate or short dated fixed rate mortgages. U.S. mortgage debt servicing ratios have thus remained around historical lows due to robust wage growth and a large existing stock of mortgages taken out at low rates. In contrast, households in many other countries are beginning to see their disposable income disappear. The dollar strengthened significantly in 2022 as the Fed moved more aggressively than other major central banks, but sold off when other countries caught up. The scenario may replay in a slightly different way as interest rate differentials widen because other central banks retreat first.

Takeaways by Macro Roundup® AI

  1. U.S. mortgage debt servicing ratios have stayed near historical lows, supported by the dominance of 30-year fixed rate loans, a large existing stock taken out at low rates, and robust wage growth.
  2. Households in many other countries, where variable rate or short-dated fixed rate mortgages prevail, are beginning to see their disposable income disappear.
  3. The dollar strengthened significantly in 2022 as the Fed moved more aggressively than other major central banks, then sold off once those banks caught up, a pattern that may replay as rate differentials widen with other central banks retreating first.

Related Articles:

  • Soft Landing Summer — The estimated 12-month US recession probability has been cut to 15%, matching the postwar unconditional average implied by a recession occurring roughly once every seven years, and far below the 60% Bloomberg consensus. The authors expect interest rates to fluctuate in a higher range than in the post-2008 period.
  • Has the Fed Tightened Enough? Guideposts to Consider — Wage growth of about 2.5% would be consistent with 2% inflation given low recent-trend productivity growth, but wage growth is running near 4.5%. On this view inflation is more likely to level out at its current rate than keep falling, pushing the Federal Reserve toward further tightening through rate rises or holding rates high.
  • 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. Nonfinancial corporate profit margins—profits as a share of gross value added—rose to about 19% before easing to 15%, compared with about 13% before the pandemic. The authors attribute much of the increase to large direct government support for small and medium-sized U.S. businesses and to lower net interest expenses under accommodative monetary policy.

Berardino Palazzo Federal Reserve Board
Date Posted:
Is Database:
Database

New @federalreserve research demonstrates elevated corporate profit margins during the pandemic period were a function of government spending and lower interest expenses.

Why did corporate profit margins rise after the pandemic?

Core argument: Nonfinancial corporate profit margins, measured as before-tax profits with capital consumption adjustment over gross value added, rose sharply to about 19% in 2021 Q2 before easing to 15% in 2022 Q4, versus about 13% in 2019 Q4.

Using a measure of nonfinancial corporate profits from the national income accounts [before tax profits with capital consumption adjustment] we find that nonfinancial corporate profit margins, or profits over gross value added, increased sharply to about 19% in 2021 Q2 and slipped back to 15% in 2022 Q4, compared to about 13% in 2019 Q4. Our analysis shows that much of the increase in aggregate profit margins following the COVID-19 pandemic can be attributed to (i) the unprecedented large and direct government intervention to support U.S. small and medium-sized businesses and (ii) a large reduction in net interest expenses due to accommodative monetary policy. Without the historically outsized government fiscal intervention and accommodative monetary policy, non-financial profit margins during 2020-2021 would have been more in line with past episodes of large economic downturns.

Takeaways by Macro Roundup® AI

  1. Nonfinancial corporate profit margins, measured as before-tax profits with capital consumption adjustment over gross value added, rose sharply to about 19% in 2021 Q2 before easing to 15% in 2022 Q4, versus about 13% in 2019 Q4.
  2. The authors attribute much of the post-pandemic rise in aggregate profit margins to large, direct government support for U.S. small and medium-sized businesses and to a large reduction in net interest expenses under accommodative monetary policy.
  3. The authors find that without the outsized fiscal intervention and accommodative monetary policy, nonfinancial profit margins during 2020–2021 would have been more in line with past episodes of large economic downturns.

Related Articles:

  • The Curious Incident of the Elevated Profit Margins — The US fiscal deficit averaged just under 3% of gross national product from 1950 to 2011 but 6.6% from 2012 to 2022, driven mainly by health and social security spending, a pattern that holds excluding pandemic years. Even assuming permanently elevated profit margins, US equity valuations imply low long-run returns.
  • “Greedflation” and the Profits Equation — The increase in nominal pretax U.S. business income since late 2019 equals about 17% of the increase in consumer spending excluding imputed rent over the same period, below the roughly 21% share of such spending that quarterly pretax business income has historically represented. On this measure, profit growth has been slightly low relative to a naive expectation.

AI Summary. China is set to overtake Japan as the world's biggest car exporter, driven in part by a mismatch between factory output and domestic demand. Analysts attribute the overcapacity to misjudged forecasts of declining internal combustion engine sales, surging electric vehicle demand, and reduced need for privately owned cars as shared mobility grows.

Edward White, Song Jung-a, Leo Lewis and Andy Lin Financial Times
Date Posted:

China is set to become the world’s largest car exporter, shipping 2.8mm vehicles through July. An industry analyst suggests that Chinese EV and legacy ICE manufacturers have excess capacity that may be as large as 25mm units/year.

Is domestic overcapacity making China the world's biggest car exporter?

Core argument: China is set to overtake Japan as the world's biggest car exporter this year, driven by structural problems in its domestic auto industry that threaten to upend car markets worldwide.

China is set to become the world’s biggest car exporter this year, overtaking Japan. Driving China’s global ascendancy are deep structural problems in the domestic auto industry, which threaten to upend car markets across the world. A stark mismatch between production at Chinese factories and local demand has been caused, in part, by industry executives mis-forecasting three key trends: the rapid decline of internal combustion engine car sales, the explosion in popularity of electric vehicles and the declining need for privately owned vehicles as shared mobility booms among an increasingly urbanised Chinese population. The result has been “massive overcapacity” in the number of vehicles produced in factories across the country, said Bill Russo, former head of Chrysler in China and founder of advisory firm Automobility. “We have an overhang of 25mn units not being used.”

Takeaways by Macro Roundup® AI

  1. China is set to overtake Japan as the world's biggest car exporter this year, driven by structural problems in its domestic auto industry that threaten to upend car markets worldwide.
  2. Bill Russo, former head of Chrysler in China and founder of Automobility, describes "massive overcapacity" in Chinese vehicle production, with an overhang of 25mn units not being used.
  3. The mismatch between Chinese factory output and local demand stems in part from industry executives mis-forecasting the rapid decline of internal combustion engine sales, the explosion in electric vehicle popularity, and falling need for privately owned cars as shared mobility grows.

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.
  • How China Became A Car-Exporting Juggernaut — 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.

AI Summary. When core inflation averages above 4%, stock and bond returns have moved together with few exceptions, and core inflation has averaged 4.5% over the past three years. Even within periods of positive correlation, stocks and bonds can move in opposite directions over shorter stretches, making the correlation an indicator of whether inflation or growth risk dominates.

Greg Obenshain Verdad
Date Posted:

Stock-bond correlation is positive when core inflation averages above 4%. @GregObenshain notes that, in high inflation environments, inflation shocks tend to suggest a policy response that sends stock and bond prices in the same direction.

Does high core inflation make stocks and bonds move together?

Core argument: When core inflation averages above 4%, the stock-bond correlation has been positive with few exceptions; core inflation has averaged 4.5% over the past three years and stands at 4.7%.

When the core inflation rate averages above 4%, the stock-bond correlation has been positive with few exceptions. Core inflation has averaged 4.5% for the past three years and is currently 4.7%. Even in periods of high stock-bond correlations, stocks, and bonds can be negatively correlated over shorter periods. In fact, over the first eight months of this year, stocks and bonds moved opposite one another in May, June, and July. This also helps explain how in the 1970s during a period of sustained positive stock-bond correlations, Treasurys still had positive returns in recessions. The stock-bond correlation can be seen as an indicator of what is the dominant risk—inflation or growth—and how it is changing.

Takeaways by Macro Roundup® AI

  1. When core inflation averages above 4%, the stock-bond correlation has been positive with few exceptions; core inflation has averaged 4.5% over the past three years and stands at 4.7%.
  2. Even within periods of high stock-bond correlations, stocks and bonds can be negatively correlated over shorter stretches, as they were in May, June, and July.
  3. Despite sustained positive stock-bond correlations in the 1970s, Treasurys still posted positive returns in recessions, and the stock-bond correlation can be read as an indicator of whether inflation or growth is the dominant risk and how that is changing.

Related Articles:

  • Stock-Bond Correlations — The trailing three-year correlation between stocks and bonds turned positive for the first time in decades, after roughly 30 years of negative correlation. Classifying regimes by the standard deviation of the trailing stock-bond correlation shows neutral and positive-correlation environments tend to be good for equities and oil, while Treasury bonds and gold benefit from negative-correlation environments.
  • Do Stocks Always Outperform Bonds? — Revised historical data that adds more stocks, cap-weights returns, and corrects survivorship bias in pre-1871 records puts long-run real stock returns at 5.9% rather than 6.6%, and real bond returns at 4.1% rather than 3.6%. The author argues earlier sources omitted failed banks, canals, and railroads, overstating early US stock returns.

AI Summary. Polling suggests the demographic basis of the Republican candidate's Electoral College advantage may be eroding, with relative Democratic resilience among white voters and Republican strength among nonwhite voters. Because nonwhite voters are underrepresented in the most critical battleground states, such gains would tend to boost the national vote more than the battlegrounds.

Nate Cohn New York Times
Date Posted:

Trump’s edge in the electoral college is fading as polling shows Trump’s improved margins with non-white voters may have minimal impact in battleground states. @Nate_Cohn

Are shifting voter demographics eroding the Republican Electoral College advantage?

Core argument: White voters made up 83% of the 2020 electorate in Wisconsin, Michigan, and Pennsylvania, compared with 69% of voters elsewhere in the nation.

Mr. Trump’s made huge gains among white voters without a college degree in 2016, a group that was overrepresented in the key Northern battleground states. The polls so far this cycle suggest that the demographic foundations of Mr. Trump’s advantage in the Electoral College might be eroding. Mr. Biden is relatively resilient among white voters, who are generally overrepresented in the battleground states. Mr. Trump, meanwhile, shows surprising strength among nonwhite voters, who are generally underrepresented in the most critical battleground states. As a consequence, Mr. Trump’s gains among nonwhite voters nationwide would tend to do more to improve his standing in the national vote than in the battleground states. Overall, 83% of voters in Wisconsin, Michigan, and Pennsylvania were white in the 2020 election compared with 69% of voters elsewhere in the nation.

Takeaways by Macro Roundup® AI

  1. White voters made up 83% of the 2020 electorate in Wisconsin, Michigan, and Pennsylvania, compared with 69% of voters elsewhere in the nation.
  2. Polling this cycle suggests the demographic foundations of Trump's Electoral College advantage might be eroding, with Biden relatively resilient among white voters, who are generally overrepresented in the battleground states.
  3. Trump's strength among nonwhite voters, who are generally underrepresented in the most critical battleground states, would tend to do more to improve his standing in the national vote than in the battlegrounds.

Related Articles:

  • Consistent Signs of Erosion in Black and Hispanic Support for Biden — Polling shows the Democratic presidential candidate's support among nonwhite voters running well below his prior election standing across racial groups, with leads of 72-11 among Black voters, 47-35 among Hispanic registrants, and 40-39 among other nonwhite voters. About 5% of his former nonwhite voters now back the Republican candidate, including 8% of Hispanic voters.
  • How to Interpret Polling Showing Biden’s Loss of Nonwhite Support — Since 1980, the gap between white and Black voter turnout has been related to the share of Black registered voters backing Democrats in pre-election polls, meaning Black voters who don't support Democrats tend not to vote. Polls showing weaker Democratic support among Black voters may therefore signal a smaller Black share of the electorate.
  • Can Democrats Survive the Looming Crisis in New York City’s Outer Boroughs? — Just over a third of the decline in the Democratic margin of victory came from the suburbs, with New York City voters—through a mix of defection and abstention—accounting for most of the rest. Precincts that are at least three-quarters Hispanic or Asian swung 58 and 52 points toward Republicans, versus 32 points in white and 8 points in black precincts.

AI Summary. Twelve homeowners insurers in Louisiana were declared insolvent within roughly a year, and average premiums rose 6.7% one year and 18.5% the next, according to state and industry data. Enrollment in the state-backed insurer of last resort climbed from 45,000 policies to 130,000 even though it charges 10% above market rates.

Leslie Kaufman Bloomberg
Date Posted:

In Louisiana the mean home insurance premium rose 6.7% in 2021 and 18.5% in 2022 as insurers reprice their risk.

Are homeowners insurers failing and premiums surging in storm-exposed states?

Core argument: Twelve insurers writing homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2022, according to the Insurance Information Institute, sending insurance prices spiraling in absolute terms and relative to local median incomes that are among the nation's lowest.

Twelve insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2022, according to the Insurance Information Institute. Those closures sent insurance prices spiraling out of control, in both absolute terms and also in prices relative to local median incomes that are among the lowest in the nation. The average premium rose 6.7% in 2021 and then 18.5% in 2022, according to the Louisiana Department of Insurance. Louisiana Citizens Property Insurance Corp., the state-backed insurer of last resort, went from 45,000 policies in 2020 to 130,000 currently. That’s despite the fact that, by law, it charges 10% above market rate and raised rates 65% at the beginning of this year.

Takeaways by Macro Roundup® AI

  1. Twelve insurers writing homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2022, according to the Insurance Information Institute, sending insurance prices spiraling in absolute terms and relative to local median incomes that are among the nation's lowest.
  2. Louisiana's average homeowners premium rose 6.7% in 2021 and 18.5% in 2022, according to the Louisiana Department of Insurance.
  3. Louisiana Citizens Property Insurance Corp., the state-backed insurer of last resort, grew from 45,000 policies in 2020 to 130,000, despite charging 10% above market rate by law and raising rates 65% at the start of the year.

Related Articles:

  • Analyzing State Resilience to Weather and Climate Disasters — The real annual cost of U.S. weather and climate disasters has risen from about $20bn per year in the 1980s to nearly $95bn per year in 2010–19, reaching roughly $153bn in one year. Property insurers absorbed 48% of these costs, uninsured or underinsured homeowners, businesses and farms 37%, the federal government 11%, and state and local governments 4%.
  • How a Small Group of Firms Changed the Math for Insuring Against Natural Disasters — 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.
  • 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.

AI Summary. U.S. rural population grew for a second consecutive year after decades of decline, with non-metro areas outpacing urban growth for the first time in three decades. Gains were concentrated: the 10 rural counties with the largest increases grew about 5% on average versus a 0.4% national rate, and their house prices rose more than 40% over three years.

Nazmul Ahasan and Gregory Korte Bloomberg
Date Posted:

US non-metro population grew faster than urban population for the first time in three decades in 2021. Home prices in the 10 fastest-growing rural counties are up 40% in the past three years.

Is rural population growth outpacing urban growth and lifting house prices?

Core argument: House prices in the 10 rural counties with the largest population increases rose more than 40% over the past three years, fueling resentment.

The latest government data released just last month points to a second year of increases in 2022 after years of declines. The trend is sparking resentment as house prices in the top 10 rural counties that have seen the biggest population increases surged more than 40% over the past three years. The number of people living in non-metro areas outgrew the urban population for the first time in three decades in 2021, and the rural population expanded again last year. But growth wasn’t evenly distributed, with the top 10 counties with the largest population gains growing by an average 5%, according to Census data. That’s more than the national average of 0.4%.

Takeaways by Macro Roundup® AI

  1. House prices in the 10 rural counties with the largest population increases rose more than 40% over the past three years, fueling resentment.
  2. The 10 counties with the largest population gains grew by an average 5%, versus a national average of 0.4%, according to Census data.
  3. Non-metro population growth outpaced urban growth in 2021 for the first time in three decades, and government data show the rural population expanded again in 2022.

Related Articles:

  • Young Families Have Not Returned to Large Cities Post-Pandemic — The under-five population in large urban U.S. counties fell 6.1% while overall population in those counties fell 0.9%, with declines exceeding 10% in the largest counties including New York, Cook County, Illinois, and Los Angeles. Losses of young families were more severe in the Mid-Atlantic and West Coast, while the under-five population grew in Southeastern urban counties.
  • Tax Data Reveals Large Flight of High Earners from Major Cities During the Pandemic — Internal Revenue Service migration data show net migration subtracted more than $68bn of taxable income from large urban counties in a single year, about 2% of their total, while adding to taxable income in all other county types. Manhattan lost over $16bn and San Francisco over $8bn, or 20%.

AI Summary. Sweden announced plans to raise defense spending by more than 25% to reach NATO's target of 2% of GDP, a level met by only 11 of the alliance's 31 members. Meeting such commitments requires a major reordering of budget and electoral priorities, as when Denmark funded higher spending by cancelling a public holiday.

John Paul Rathbone Financial Times
Date Posted:
Is Database:
Database

Western countries are facing tradeoffs to finance increased defense spending as the post-Cold War “peace dividend” fades in the face of Chinese and Russian revanchism, with 20 of 31 NATO members still below the 2% of GDP target.

Can governments meet defense spending targets without reordering budget priorities?

Core argument: Sweden, a NATO membership applicant, announced plans to raise defense spending by more than 25% to reach the alliance's target of 2% of GDP, a threshold currently met by only 11 of NATO's 31 members.

Sweden, which has applied for Nato membership, announced on Monday that it planned to raise defense spending by more than 25% to meet the military alliance’s target of 2% of GDP. Currently, only 11 of 31 members do. Persuading voters of the sacrifices required to make such commitments a reality represents a seismic reordering of the budget and electoral priorities. In Denmark, the government opted to fund its increase in public spending by cancelling a public holiday — to much chagrin from voters. "Leaders have signed up to a generational shift in defence policy. But I do wonder if they fully understand, or have told their finance ministers,” a senior Nato official said.

Takeaways by Macro Roundup® AI

  1. Sweden, a NATO membership applicant, announced plans to raise defense spending by more than 25% to reach the alliance's target of 2% of GDP, a threshold currently met by only 11 of NATO's 31 members.
  2. Denmark's government funded its increase in public spending by cancelling a public holiday, a move that drew chagrin from voters.
  3. A senior NATO official said leaders have signed up to a generational shift in defense policy but questioned whether they fully understand it or have told their finance ministers.

Related Articles:

  • The Age-Old Question: How Do Governments Pay For Wars? — Denmark abolished a centuries-old religious holiday, requiring people to work that day, partly to help pay for extra defence spending, a move 70% of Danes opposed in one poll. The Stockholm International Peace Research Institute calculates global defence spending rose 4% to a record $2.24tn and is set to keep rising even as higher interest rates raise governments' borrowing costs.
  • The Cost of the Global Arms Race — Global defence spending rose nearly 4% in real terms to over $2tn, and new commitments and forecast increases, if implemented, are estimated to add more than $200bn a year worldwide. If countries below 2% of GDP reached that level and others added half a percentage point, outlays would rise by close to $700bn annually.
  • Military Briefing: Ukraine War Exposes ‘Hard Reality’ of West’s Weapons Capacity — NATO members' defense ministries are finding that dormant weapons production lines cannot be restarted quickly, and that expanding capacity requires investment that depends on securing long-term production contracts. These countries had cut military spending, downsized defense industries, and shifted to lean "just-in-time" production with low inventories of munitions and other equipment.