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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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


Friday, November 17, 2023

AI Summary. Foreign holders, including private investors and central banks, own about 30% of outstanding U.S. Treasury securities, down from roughly 43% a decade ago, with China and Japan seen as unlikely net buyers going forward. Meanwhile the Treasury has issued a net $2tn in new debt and the Federal Reserve is shedding about $60bn a month.

Chelsey Dulaney and Megumi Fujikawa Wall Street Journal
Date Posted:
Is Database:
Database

The Treasury market will become increasingly stressed as the US runs record peacetime deficits at the same time the Fed is letting its portfolio run down $60B/month. @Brad_Setser notes foreign buyers are unlikely to step in at the pace supply is rising.

Is foreign ownership of U.S. Treasury debt shrinking as supply grows?

Core argument: Foreign investors, including private buyers and central banks, now hold about 30% of outstanding U.S. Treasury securities, down from roughly 43% a decade ago.

The U.S. Treasury market is in the midst of major supply and demand changes. The Federal Reserve is shedding its portfolio at a rate of about $60 billion a month. Overseas buyers who were once important sources of demand—China and Japan in particular—have become less reliable lately. Meanwhile, supply has exploded. The U.S. Treasury has issued a net $2 trillion in new debt this year, a record when excluding the pandemic borrowing spree of 2020. “U.S. issuance is way up, and foreign demand hasn’t gone up,” said Brad Setser, senior fellow at the Council on Foreign Relations. “And in some key categories—notably Japan and China—they don’t seem likely to be net buyers going forward.” In response to recent demand weakness, Treasury has shifted to issuing shorter-term bonds that are in higher demand, helping to restore market stability. Foreigners, including private investors and central banks, now own about 30% of all outstanding U.S. Treasury securities, down from roughly 43% a decade ago.

Takeaways by Macro Roundup® AI

  1. Foreign investors, including private buyers and central banks, now hold about 30% of outstanding U.S. Treasury securities, down from roughly 43% a decade ago.
  2. The U.S. Treasury has issued a net $2 trillion in new debt this year, a record excluding the 2020 pandemic borrowing, while the Federal Reserve sheds about $60 billion a month from its portfolio.
  3. Brad Setser, senior fellow at the Council on Foreign Relations, said U.S. issuance is way up while foreign demand has not risen, and that Japan and China do not seem likely to be net buyers going forward.

Related Articles:

  • Setser On Foreign Demand For Treasuries — Aggregate foreign demand for US bonds has been strong, in line with or above the post-global-financial-crisis norm, with Treasury purchases coming largely from private investors amid weak reserve growth and an absolute yield advantage. Foreign demand for long-term US agency bonds has been strong, with China a net buyer of agencies while selling Treasuries on net.
  • Preferred Habitats and Timing in the World’s Safe Asset — As the Federal Reserve shrinks its bond portfolio, the authors argue private investors, U.S. and foreign, are the more likely buyers of Treasury securities, since their purchases respond to yields and their holdings tilt toward longer-maturity bonds. Foreign governments have not materially added to their Treasury holdings in almost a decade and tend to hold shorter-maturity bonds.
  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.

AI Summary. The author argues that rising long-term US Treasury yields reflect a term premium driven by heavy bond supply and weaker demand, including the Federal Reserve shrinking its holdings, rather than a risk premium, since inflation-indexed yields have also risen. Risks include a failed auction or debt monetization producing high inflation.

Robert Armstrong and Ethan Wu Financial Times
Date Posted:

.@ojblanchard1 has a pessimistic outlook for the endgame for the surging American debt ratio: “My sense is it’s going to boil slowly,” he writes, “I don’t know how it ends; not smoothly, is my guess.”

.@ojblanchard1 has a pessimistic outlook for the endgame for the surging American debt ratio: “My sense is it’s going...

Do rising long-term yields reflect bond supply rather than default risk?

Core argument: Olivier Blanchard points to the term premium as the factor probably most relevant to long-term U.S. rates, citing heavy Treasury bond supply alongside weaker demand, with quantitative tightening adding to supply.

The factor which is probably most relevant, which is what finance people call the term premium. You can think of it in two ways. The first one is in terms of [Treasury bond] flow supply and flow demand. At this stage, there is a lot of supply and for various reasons there is less demand. There is QT, which is increasing supply from the Fed. It’s conceivable that that’s part of it. And the fact that long rates vary so much on news about the US Treasury changing the maturity of its issuance makes me think that it is probably relevant. The second one is to think of the term premium as a risk premium. I don’t think that’s it, because in that case we would see the nominal rates go up, but not rates on inflation-indexed bonds. But these rates have gone up as well. As hard as it is to imagine, there might be an emerging credit spread on T-bonds or a failed auction. And then Congress and the president would have to sit down and decide to do the right thing. A scary alternative scenario is that Donald Trump is elected, that he puts a lackey at the Fed, who monetises some of the debt, and we get high inflation.

Takeaways by Macro Roundup® AI

  1. Olivier Blanchard points to the term premium as the factor probably most relevant to long-term U.S. rates, citing heavy Treasury bond supply alongside weaker demand, with quantitative tightening adding to supply.
  2. Blanchard doubts the risk-premium explanation for higher long rates, noting that rates on inflation-indexed bonds have risen as well, not only nominal rates.
  3. Blanchard raises two adverse possibilities: an emerging credit spread on Treasury bonds or a failed auction that would force Congress and the president to act, or a Trump-appointed Fed lackey monetising some of the debt and producing high inflation.

Related Articles:

  • If Markets Are Right About Long Real Rates, Public Debt Ratios Will Increase For Some Time. We Must Make Sure That They Do Not Explode — Stabilizing public debt ratios would require cutting primary deficits to zero, which the author argues no government can do quickly without risking recession and boosting support for populist parties. With a US primary deficit around 4% and a dysfunctional budget process, the debt ratio is likely to keep rising for some time.
  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.
  • 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. The authors project the Federal Reserve will begin cutting rates once core inflation falls below 2.5%, then cut 0.25 percentage points per quarter until rates reach 3.5–3.75%, describing the cuts as optional rather than necessary to avoid recession. They expect the equilibrium rate to exceed last cycle's, partly because larger fiscal deficits boosting demand are likely to persist.

David Mericle Goldman Sachs
Date Posted:

David Mericle @GoldmanSachs forecasts that US real GDP will grow 1.8% in 2024 on a Q4/Q4 basis, or 2.1% on a full-year basis. He expects rate cuts in Q4 of next year with a terminal rate of 3.5-3.75%.

Will the neutral interest rate settle higher than last cycle's?

Core argument: The authors expect the FOMC to deliver its first rate cut in 2024 Q4 once core PCE inflation falls below 2.5%, followed by one 25bp cut per quarter until the fed funds rate reaches 3.5–3.75% in 2026 Q2.

We expect the FOMC to deliver its first rate cut in 2024 Q4 once core PCE inflation falls below 2.5%. We then expect one 25bp cut per quarter until 2026 Q2, when the fed funds rate would reach 3.5-3.75%. While we see rate cuts next year as optional in that they are not necessary to avoid recession, we expect the FOMC to conclude that while neutral might not be as low as the 2.5% median longer run dot, it probably is not as high as 5.25-5.5%, so some amount of normalization makes sense as inflation falls. We expect the equilibrium rate to be higher than last cycle because the post-financial crisis headwinds are behind us, much larger fiscal deficits that boost aggregate demand are likely to persist, the funds rate is approaching equilibrium from above rather than below, and the r* narrative is changing.

Takeaways by Macro Roundup® AI

  1. The authors expect the FOMC to deliver its first rate cut in 2024 Q4 once core PCE inflation falls below 2.5%, followed by one 25bp cut per quarter until the fed funds rate reaches 3.5–3.75% in 2026 Q2.
  2. The authors view rate cuts as optional rather than necessary to avoid recession, expecting the FOMC to conclude that neutral is probably not as low as the 2.5% median longer-run dot nor as high as 5.25–5.5%, so some normalization makes sense as inflation falls.
  3. The authors expect the equilibrium rate to exceed last cycle's because post-financial-crisis headwinds have passed, much larger fiscal deficits that boost aggregate demand are likely to persist, the funds rate is approaching equilibrium from above rather than below, and the r* narrative is changing.

Related Articles:

  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.
  • Inching Toward Equilibrium — With short-term interest rates far enough above zero, they are again the central bank's main lever for steering the economy toward equilibrium, a difficult task because policy changes affect spending, output, and inflation with lags that can span years. Equity yields have changed little while bond yields rose significantly, moving equity pricing further from equilibrium.
  • 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.

AI Summary. Higher short-term and long-term interest rates are flowing through to credit and interest costs, which the authors expect to produce "the grind" — a gradual decline in growth and in the health of corporate and household balance sheets — as a dominant driver of economies and markets over the next 12–18 months.

Greg Jensen, David Gordon, Daisuke O, Jackson Rumer Bridgewater Associates
Date Posted:

Bridgewater argues that higher rates will drive deteriorating corporate and household balance sheets, and lead to a slow-growth dynamic they call “the grind.”

Will higher interest rates gradually erode growth and balance sheet health?

Core argument: "The grind" — a gradual decline in growth and in the health of corporate and household balance sheets — is expected to be a dominant driver of economies and markets over the next 12–18 months as higher short and long rates flow through to credit and interest costs.

Higher short and now long rates continue to flow through to credit and interest costs. This is setting up a dynamic that we are calling “the grind”— a gradual decline in growth and in the health of corporate and household balance sheets —that we expect to be a dominant driver of economies and markets over the next 12-18 months. Earlier in the tightening cycle, short-term interest rates rose and dragged long-term interest rates higher. Then, beginning in October 2022 and lasting almost a year, there was a reprieve. Hikes in short-term interest rates continued, but bond yields traded sideways, reflecting market expectations for future easing combined with the Treasury circumventing the pressure on long rates by issuing T-bills. In recent months both conditions have shifted, initiating the next stage of the tightening cycle, led by long rates.

Takeaways by Macro Roundup® AI

  1. "The grind" — a gradual decline in growth and in the health of corporate and household balance sheets — is expected to be a dominant driver of economies and markets over the next 12–18 months as higher short and long rates flow through to credit and interest costs.
  2. Beginning in October 2022 and lasting almost a year, short-term rate hikes continued while bond yields traded sideways, reflecting market expectations for future easing combined with the Treasury issuing T-bills to circumvent pressure on long rates.
  3. Both conditions that had held bond yields sideways have shifted in recent months, initiating the next stage of the tightening cycle, led by long rates.

Related Articles:

  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.
  • Inching Toward Equilibrium — With short-term interest rates far enough above zero, they are again the central bank's main lever for steering the economy toward equilibrium, a difficult task because policy changes affect spending, output, and inflation with lags that can span years. Equity yields have changed little while bond yields rose significantly, moving equity pricing further from equilibrium.
  • Why No Recession (Yet)? — Real interest rates have risen by almost 10 percentage points, compared with 4 points during the 2004–2006 tightening, yet activity has held up because households entered the episode with large savings accumulated during the pandemic. As those surplus savings are used up and borrowers refinance at higher rates, the full impact of tightening has not yet been felt.

AI Summary. 40% of companies in the Russell 2000 index of small-cap US firms have negative earnings, a share that typically rises during recessions. If the economy enters a recession, many middle-market companies would be vulnerable to the combination of high interest rates and slowing growth.

Torsten Sløk Apollo
Date Posted:
Is Database:
Database

Citing that 40% of Russell 2000 firms have negative earnings, Torsten Sløk @apolloglobal argues that “if the economy enters a recession, a lot of middle-market companies will be vulnerable to the combination of high rates and slowing growth.”

How vulnerable are small-cap US companies to a recession?

Core argument: 40% of companies in the Russell 2000 have negative earnings, a share reached before the economy has entered a recession.

During recessions, the share of unprofitable firms rises. This is not surprising. But even before the economy has entered a recession, the share of companies in the Russell 2000 with no earnings is at 40%. The bottom line is that if the economy enters a recession, a lot of middle-market companies will be vulnerable to the combination of high rates and slowing growth.

Takeaways by Macro Roundup® AI

  1. 40% of companies in the Russell 2000 have negative earnings, a share reached before the economy has entered a recession.
  2. The share of unprofitable firms rises during recessions.
  3. If the economy enters a recession, many middle-market companies will be vulnerable to the combination of high rates and slowing growth.

Related Articles:

  • Credit Market Outlook: Default Rates Rising, But Credit Spreads Remain Tight — Higher borrowing costs are weighing on corporate earnings and interest coverage, with bankruptcy filings rising and default rates projected to keep rising, particularly among middle-market companies. Lagged effects of monetary policy are slowing consumer credit growth, with auto and credit card delinquencies rising and bank lending standards tightening.
  • Where Are All the Defaults? — One explanation for subdued high-yield bond spreads is that the lowest-quality borrowers, those most likely to default, have migrated from high-yield markets into private credit. Moody's reports the number of issuers with its lowest speculative-grade ratings has fallen, and that 62% of its rated universe is rated single-B or below.
  • Can Corporate America Cope With Its Vast Debt Pile? — Average funding costs in the $8.6tn US investment-grade corporate bond market exceed 6%, roughly 3x their lows of below 2%, while average coupons in the $1.3tn high-yield market are 9.4%, more than double their lows. Moody's projects the US default rate will peak at 5.4%, or as high as 14% if conditions worsen.

AI Summary. The Democratic share of the Black vote fell from 97% to 91% between 2012 and 2020, according to Catalist data on demographic voting patterns, with the decline in the latter half as large as in the first. Polls put the Democratic presidential share at 80%, and 70% among young Black men.

John Burn-Murdoch Financial Times
Date Posted:
Is Database:
Database

US voting behavior is becoming less racially polarized, as young black men swing from Biden to Trump. @jburnmurdoch @StackStrat

Is Democratic support among Black voters declining?

Core argument: The Democratic share of the Black vote fell from 97% in 2012 to 91% in 2020, according to Catalist data on demographic voting patterns.

Btw 2012 and 2020, the Democratic share of the black vote fell from 97 to 91%, according to the gold-standard data on demographic voting patterns from Catalist. And this is not just the unwinding of the Obama effect — the decline between 2016 and 2020 was as large as that from 2012 to 2016. Polls put Biden’s share of the black vote at just 80% today, a record low, dipping to 70% among young black men.

Takeaways by Macro Roundup® AI

  1. The Democratic share of the Black vote fell from 97% in 2012 to 91% in 2020, according to Catalist data on demographic voting patterns.
  2. The decline in the Democratic share of the Black vote between 2016 and 2020 was as large as the decline from 2012 to 2016, so the drop is not merely the unwinding of the Obama effect.
  3. Polls put Biden's share of the Black vote at 80%, a record low, dipping to 70% among young Black men.

Related Articles:

  • Why Less Engaged Voters Are Biden’s Biggest Problem — Times/Siena survey data indicate that Democrats and Biden voters were somewhat more likely than Republicans and Trump voters to skip the midterm election, implying the presidential electorate was more Democratic. Yet the same data indicate higher turnout would not help Biden now, even though it would bring more Democratic and Biden voters to the polls.
  • 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.
  • Why Biden Is Behind, and How He Could Come Back — Polling shows a broad decline in President Biden's standing across virtually every demographic group, with the steepest losses among young, Black, and Hispanic voters. Biden holds only a narrow lead among nonwhite voters under 45, a group that reported backing him by nearly 40 points in the prior election.

Monday, November 20, 2023

AI Summary. The underlying equilibrium level of real interest rates cannot be observed and must be estimated, and two Federal Reserve estimates disagree: one suggests it remains very low while the other suggests it has been rising. If the equilibrium rate has not risen, monetary policy is currently tight, and interest rates should fall significantly once inflation is controlled.

Jesper Rangvid Rangvid's Blog
Date Posted:

Jesper Rangvid finds that the NY Fed’s estimate of low underlying interest rates seems robust and that the resilient economy is likely due to post-pandemic savings and expansionary fiscal policy.

Has the equilibrium level of real interest rates actually risen?

Core argument: The equilibrium interest rate cannot be observed and must be estimated, with the NY Fed's estimate indicating underlying rates remain very low while the Richmond Fed's indicates they have been rising; the author judges the NY Fed estimate more robust for now.

The underlying level of interest rates cannot be observed but must be estimated. There are two well-known estimates. One, from the NY Fed, suggests that underlying interest rates are still very low, while the other, from the Richmond Fed, suggests that they have been rising recently. My reading of this is that the estimate from the NY Fed – at least for now – appears more robust. Low equilibrium interest rates have important implications. Let me conclude by mentioning at least two of them. If underlying equilibrium real interest rates had risen, monetary policy would not be tight right now and would explain why we have not yet experienced a recession. On the other hand, if r* has not risen, monetary policy is tight. I’m leaning towards the latter. I think the economy has been amazingly resilient because people saved a lot coming out of the pandemic, coupled with a very expansionary fiscal policy that is also supporting growth, not that monetary policy is not tight. Second, if underlying real interest rates are low, interest rates should fall when inflation is under control and monetary policy rates are lowered. Perhaps interest rates will not become quite as low as before the pandemic (e.g. negative interest rates in Europe), but should be significantly lower than today.

Takeaways by Macro Roundup® AI

  1. The equilibrium interest rate cannot be observed and must be estimated, with the NY Fed's estimate indicating underlying rates remain very low while the Richmond Fed's indicates they have been rising; the author judges the NY Fed estimate more robust for now.
  2. If the equilibrium real rate has not risen, monetary policy is tight, and the author attributes the economy's resilience to large post-pandemic savings and very expansionary fiscal policy rather than to monetary policy not being tight.
  3. If underlying real interest rates are low, interest rates should fall significantly below today's levels once inflation is under control and policy rates are lowered, though perhaps not back to pre-pandemic lows such as Europe's negative rates.

Related Articles:

  • Measuring the Natural Rate of Interest After COVID-19 — Model estimates for the United States, Canada, and the Euro Area place the natural rate of interest within a few tenths of a percentage point of pre-pandemic estimates, with the main longer-term consequence of the pandemic a reduction in the natural rate of output. The authors find no evidence that the era of historically low natural rates has ended.
  • 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.
  • 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. An updated analysis projects US interest paid on federal debt rising to about 3.8% in 2030 and debt-to-GDP reaching 113% by 2030, as the Treasury leans more on bills and shorter-maturity issuance. The gross financing need is projected to approach 45% of GDP before declining to about 35% as issuance shifts to longer maturities.

Chris Marsh Money: Inside and Out
Date Posted:
Is Database:
Database

.@GeneralTheorist forecasts that, absent fiscal consolidation, federal debt will reach 113% of GDP by 2030, and that gross financing needs will exceed $11 trillion every year from 2024-2030.

How does shorter-maturity issuance affect projected federal debt and interest costs?

Core argument: Interest paid on US debt is projected to rise to about 3.8% in 2030, with the average interest on debt approaching 3.5% at the end of the horizon, the two measures similar because debt-to-GDP stays close to 100% throughout.

We re-run our analysis allowing for the changing structure of issuance as the Treasury leans more on bill and shorter tenor issuance in the near-term consistent with the signal from the most recent QRF round. Interest paid on debt increasing to about 3.8% in 2030. The average interest on debt approaches 3.5% at the end of the horizon. Of course, because debt-to-GDP is close to 100% throughout, these two measures are very similar. Debt-to-GDP is expected to increase to 113% of GDP by 2030 while the gross financing need (GFN), a measure of the rolling 4Q ahead deficit plus maturing securities including bills, at first increases to nearly 45% of GDP in 2025 as T-bill issuance accelerates, but declines to about 35% of GDP in the baseline as issuance shifts to longer tenors.

Takeaways by Macro Roundup® AI

  1. Interest paid on US debt is projected to rise to about 3.8% in 2030, with the average interest on debt approaching 3.5% at the end of the horizon, the two measures similar because debt-to-GDP stays close to 100% throughout.
  2. US debt-to-GDP is expected to increase to 113% by 2030 in an analysis re-run to allow for Treasury's near-term shift toward bill and shorter-tenor issuance consistent with the most recent quarterly refunding round.
  3. The gross financing need, the rolling four-quarter-ahead deficit plus maturing securities including bills, first rises to nearly 45% of GDP in 2025 as T-bill issuance accelerates, then declines to about 35% of GDP in the baseline as issuance shifts to longer tenors.

Related Articles:

  • If Markets Are Right About Long Real Rates, Public Debt Ratios Will Increase For Some Time. We Must Make Sure That They Do Not Explode — Stabilizing public debt ratios would require cutting primary deficits to zero, which the author argues no government can do quickly without risking recession and boosting support for populist parties. With a US primary deficit around 4% and a dysfunctional budget process, the debt ratio is likely to keep rising for some time.
  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.
  • Preferred Habitats and Timing in the World’s Safe Asset — As the Federal Reserve shrinks its bond portfolio, the authors argue private investors, U.S. and foreign, are the more likely buyers of Treasury securities, since their purchases respond to yields and their holdings tilt toward longer-maturity bonds. Foreign governments have not materially added to their Treasury holdings in almost a decade and tend to hold shorter-maturity bonds.

AI Summary. Microsoft has planned annual datacenter spending of more than $50bn, which exceeds the annual spend of megaprojects such as nationwide rail networks, dams, and the Apollo moon program. The buildout is aimed at accelerating artificial general intelligence and extending generative AI from productivity applications to leisure.

Dylan Patel and Myron Xie Semi Analysis
Date Posted:
Is Database:
Database

Microsoft is spending at least $50bn annually on data centers going forward to power its AI push. @dylan522p notes this is “the largest infrastructure buildout that humanity has ever seen.”

Does annual datacenter spending now exceed history's largest megaprojects?

Core argument: Microsoft has penned in more than $50 billion in annual datacenter spending for 2024 and beyond, an infrastructure buildout described as the largest humanity has ever seen.

Microsoft is currently conducting the largest infrastructure buildout that humanity has ever seen. While that may seem like hyperbole, look at the annual spend of mega projects such as nationwide rail networks, dams, or even space programs such as the Apollo moon landings, and they all pale in comparison to the >$50 billion annual spend on datacenters Microsoft has penned in for 2024 and beyond. This infrastructure buildout is aimed squarely at accelerating the path to AGI and bringing the intelligence of generative AI to every facet of life from productivity applications to leisure.

Takeaways by Macro Roundup® AI

  1. Microsoft has penned in more than $50 billion in annual datacenter spending for 2024 and beyond, an infrastructure buildout described as the largest humanity has ever seen.
  2. Microsoft's datacenter spending exceeds the annual outlays of mega projects such as nationwide rail networks, dams, and space programs including the Apollo moon landings.
  3. Microsoft's infrastructure buildout, which includes the custom silicon efforts Maia 100, Athena, and Cobalt 100, is aimed at accelerating the path to artificial general intelligence and bringing generative AI to everything from productivity applications to leisure.

Related Articles:

  • The Growing Energy Footprint of Artificial Intelligence — Data centers have accounted for a relatively stable 1% of global electricity use, excluding cryptocurrency mining, but there is growing concern that the computing needed to build and run AI models could raise that share. Estimates suggest a single large language model query uses about 3 Wh of electricity, versus 0.3 Wh for a standard Google search.
  • The Race of the AI Labs Heats Up — Almost all recent artificial intelligence breakthroughs have come from large companies, largely because they hold the computing power. Amazon and Meta each produce two-thirds and four-fifths as much AI research as Stanford University respectively, while Alphabet and Microsoft produce considerably more, excluding their affiliated labs DeepMind and OpenAI.
  • Will A.I. Transform the Economy, and if So, How? — During the 1995-2005 information technology boom, productivity ended about 12% above the trend implied by growth from 1973 to 1995, and a comparable or larger gain of around 15% from artificial intelligence is plausible. If such optimistic estimates hold, growth would exceed conventional long-run estimates such as the Federal Reserve's roughly 1.8%, lifting revenue and easing debt concerns.

AI Summary. More than a quarter of US students were chronically absent in the 2021-22 school year, up from 15% before the pandemic, an increase of 6.5m students. Chronic absenteeism exceeded 61% in Oakland, California, and reached nearly 38% among seniors at an affluent Illinois high school.

New York Times Editorial Board New York Times
Date Posted:
Is Database:
Database

The New York Times editorial board notes that pandemic era education policy “may prove to be the most damaging disruption in the history of American education.” They highlight an ongoing problem with chronic absenteeism.

The New York Times editorial board notes that pandemic era education policy “may prove to be the most damaging...

Has student absenteeism risen sharply since the pandemic?

Core argument: More than 25% of U.S. students were chronically absent in the 2021-22 school year, up from 15% before the pandemic, adding 6.5 million students to the ranks of the chronically absent, according to data compiled by The Associated Press with Stanford's Thomas Dee.

This fall, The Associated Press illustrated how school attendance has cratered across the United States, using data compiled in partnership with the Stanford University education professor Thomas Dee. More than a quarter of students were chronically absent in the 2021-22 school year, up from 15 percent before the pandemic. That means an additional 6.5 million students joined the ranks of the chronically absent. The problem is pronounced in poorer districts like Oakland, Calif., where the chronic absenteeism rate exceeded 61%. But as the policy analyst Tim Daly wrote recently, absenteeism is rampant in wealthy schools, too. Consider New Trier Township High School in Illinois, a revered and highly competitive school that serves some of the country’s most affluent communities. Last spring, The Chicago Tribune reported that New Trier’s rate of chronic absenteeism got worse by class, reaching nearly 38% among its seniors.

Takeaways by Macro Roundup® AI

  1. More than 25% of U.S. students were chronically absent in the 2021-22 school year, up from 15% before the pandemic, adding 6.5 million students to the ranks of the chronically absent, according to data compiled by The Associated Press with Stanford's Thomas Dee.
  2. Chronic absenteeism exceeded 61% in Oakland, Calif., one of the poorer districts where the problem is pronounced.
  3. New Trier Township High School in Illinois, which serves some of the country's most affluent communities, saw chronic absenteeism worsen by class, reaching nearly 38% among seniors, The Chicago Tribune reported.

Related Articles:

AI Summary. Singapore-registered family offices rose from 50 in 2018 to 1,100 at the end of 2022, according to the Monetary Authority of Singapore. Lawyers and advisers setting up such offices say new registrations have slowed and processing times have stretched from under six months to as long as 18 months amid an application backlog and stricter criteria.

Mercedes Ruehl and Leo Lewis Financial Times
Date Posted:

The queue to set up a family office in Singapore can now be a year and a half as the rich seek to get money out of the PRC. The number of Singapore-registered family offices has jumped from 50 in 2018 to 1,100 last year.

The queue to set up a family office in Singapore can now be a year and a half as the rich seek to get money out of the PRC. ...

Are tighter rules slowing family office registrations in Singapore?

Core argument: Singapore-registered family offices rose from 50 in 2018 to 1,100 at the end of 2022, managing tens of billions of dollars of private wealth, according to the Monetary Authority of Singapore.

The number of Singapore-registered family offices, which manage tens of billions of dollars of private wealth, has leapt from just 50 in 2018 to 1,100 at the end of 2022, according to the Monetary Authority of Singapore. But lawyers and advisers involved in setting up family offices said the pace of new registrations has slowed, with demand now falling as processing times stretch from less than six months to in some cases as long as 18 months. The extended wait time, the people said, was the result of a backlog of existing applications and greater scrutiny under new, stricter criteria from Singaporean authorities.

Takeaways by Macro Roundup® AI

  1. Singapore-registered family offices rose from 50 in 2018 to 1,100 at the end of 2022, managing tens of billions of dollars of private wealth, according to the Monetary Authority of Singapore.
  2. Processing times for Singapore family office applications have stretched from under six months to as long as 18 months, which lawyers and advisers attribute to a backlog of existing applications and stricter new criteria from Singaporean authorities.
  3. Lawyers and advisers involved in setting up Singapore family offices said the pace of new registrations has slowed and demand is now falling.

Related Articles:

  • The Threat from China’s Capital Flight — Oddities in China's official balance of payments statistics suggest its actual current account surplus may be nearly 3x the reported figure, which would make it about as large relative to world output as it has ever been. The likeliest explanation for simultaneous downward pressure on the yuan is capital flight of roughly $500bn a year.
  • Net Outflow of Funds from China Hits 7-Year High in September — China's State Administration of Foreign Exchange reported a net outflow of $53.9bn in monthly international financial transactions handled by domestic banks for businesses and households, the largest since a $55.8bn outflow tied to a sudden yuan devaluation. Outflows linked to direct investment, such as building manufacturing plants, were notable.
  • The Rise & Fall of Foreign Direct Investment in China — Net foreign direct investment into China has been negative for four consecutive quarters, as foreign investors shifted from reinvesting earnings from their Chinese operations to repatriating them. Whether this reflects cash management or signals a future slowdown in foreign direct investment is unclear, but the repatriation of profits is negative for China's currency.

AI Summary. China has launched a nuclear-powered attack submarine using pump-jet propulsion, the first appearance on a Chinese submarine of noise-reducing technology used on the newest American submarines, and satellite images show expanded submarine construction capacity. China has also built or nearly completed underwater sensor networks around its coast that improve its ability to detect enemy submarines.

Alastair Gale Wall Street Journal
Date Posted:

The Chinese submarine fleet is improving rapidly in quantity and quality, as it has picked up technology from Russia and boosted its productive capacity.

Is China narrowing the US undersea warfare advantage?

Core argument: China put to sea a nuclear-powered attack submarine using pump-jet propulsion instead of a propeller, the first appearance on a Chinese submarine of noise-reducing technology used on the latest American submarines.

Early this year, China put to sea a nuclear-powered attack submarine with a pump-jet propulsion system instead of a propeller. It was the first time noise-reducing technology used on the latest American submarines had been seen on a Chinese submarine. A few months earlier, satellite images of China’s manufacturing base for nuclear-powered submarines in the northeastern city of Huludao showed hull sections laid out in the complex that were larger than the hull of any existing Chinese submarine. A second modern construction hall at the plant was finished in 2021, indicating plans to boost output. At the same time, the western Pacific is becoming more treacherous for U.S. submarines. Beijing has built or nearly finished several underwater sensor networks, known as the “Underwater Great Wall,” in the South China Sea and other regions around the Chinese coast. The networks give it a much better ability to detect enemy submarines.

Takeaways by Macro Roundup® AI

  1. China put to sea a nuclear-powered attack submarine using pump-jet propulsion instead of a propeller, the first appearance on a Chinese submarine of noise-reducing technology used on the latest American submarines.
  2. Satellite images of China's nuclear submarine manufacturing base at Huludao showed hull sections larger than the hull of any existing Chinese submarine, and a second modern construction hall completed in 2021 indicates plans to boost output.
  3. China has built or nearly finished several underwater sensor networks, known as the "Underwater Great Wall," in the South China Sea and other regions around its coast, giving it a much better ability to detect enemy submarines.

Related Articles:

  • Pentagon Accuses China of Accelerating Nuclear Build-Up — A congressionally mandated Pentagon survey estimated China's stockpile of operational nuclear warheads reached 500 and projected it would likely exceed 1,000 by 2030, while the US has 1,550 deployed strategic warheads permitted under the New Start arms control treaty. Analysts warn conventionally armed intercontinental missiles could destabilize the military balance.
  • US Nuclear Submarine Weak Spot In Bubble Trail: Chinese Scientists — Researchers at the Chinese Academy of Sciences calculate that the extremely low frequency magnetic signal generated by the bubble trail of an advanced submarine could exceed the sensitivity of advanced magnetic anomaly detectors by three to six orders of magnitude. The authors argue this offers a new approach to detecting and tracking submarines from long distances.
  • Nearly 40% of US Attack Submarines Are Out of Commission for Repairs — US Navy data show 18 of its 49 attack submarines — 37% — are out of commission for repairs because of naval shipyard delays, up from 28% and well above the 20% industry best practice. The report argues this leaves the US at a disadvantage against China's numerically larger fleet.