Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, November 27, 2023

AI Summary. U.S. H-1B visa denial rates rose from about 6% to 16%, and the authors estimate a 10 percentage point rise in denials increases Canadian applications by 30%, roughly one Canadian application per four forgone visas. More exposed Canadian firms increased sales and hired about 0.5 native workers per immigrant.

Agostina Brinatti and Xing Guo University of Michigan
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Immigration restrictions on skilled immigration during Trump’s first term drove an uptick in skilled immigration to Canada. This inflow was associated with Canadian firms expanding in both domestic and foreign markets. @AgosBrinatti

Do tighter U.S. skilled visa rules send workers and gains abroad?

Core argument: H-1B denial rates rose from about 6% in 2016 to 16% in 2018, alongside a decrease of 140,000 H-1B approvals relative to trend by the end of 2018.

By the end of 2018, there was a decrease of 140,000 H-1B approvals (relative to trend) and an unprecedented spike in H-1B denial rates. Denial rates increased from about 6% in 2016 to 16% in 2018. Our event-study estimates imply that a 10 percentage point increase in H-1B denial rates increases Canadian applications by 30%. A back-of-the-envelope calculation suggests that for every four forgone H-1B visas, there is an associated increase of one Canadian application. We find that firms that were relatively more exposed to the immigrant inflow increased sales. Consistent with the increase in production, we find that a firm hired approximately 0.5 additional native workers per new immigrant. We also find that the earnings per native worker at relatively more exposed firms dropped. This result together with the fact that more exposed firms are intensive in occupations that were more impacted by U.S. restrictions, is consistent with earnings per native worker in more affected occupations declining compared to less affected ones.

Takeaways by Macro Roundup® AI

  1. H-1B denial rates rose from about 6% in 2016 to 16% in 2018, alongside a decrease of 140,000 H-1B approvals relative to trend by the end of 2018.
  2. Event-study estimates imply that a 10 percentage point increase in H-1B denial rates raises Canadian applications by 30%, with a back-of-the-envelope calculation suggesting one additional Canadian application for every four forgone H-1B visas.
  3. Firms more exposed to the immigrant inflow increased sales and hired approximately 0.5 additional native workers per new immigrant, while earnings per native worker at those firms dropped.

Related Articles:

AI Summary. The seven largest US mega-cap technology stocks are projected to outperform the rest of the S&P 500, supported by faster expected sales growth, higher margins, greater reinvestment, and stronger balance sheets. Analysts expect these companies to grow sales at an 11% annual rate versus 3% for the other 493 companies, with net margins twice as high.

David Kostin, Ben Snider, Ryan Hammond, Cormac Conners, Lily Calcagnini, Jenny Ma and Daniel Chavez Goldman Sachs
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.@GoldmanSachs forecasts a 6% total return for the S&P 500 in 2024, with the Magnificent 7 growing sales at a CAGR of 11% vs. 3% for the rest of the S&P 500.

Will mega-cap tech stocks keep outperforming the rest of the index?

Core argument: Analyst estimates show the "Magnificent 7" mega-cap tech stocks growing sales at an 11% CAGR through 2025, versus 3% for the rest of the S&P 500.

The massive outperformance of the “Magnificent 7” mega-cap tech stocks has been a defining feature of the equity market in 2023. The stocks should collectively outperform the remainder of the index in 2024. The 7 stocks have faster expected sales growth, higher margins, a greater re-investment ratio, and stronger balance sheets than the other 493 stocks and trade at a relative valuation in line with recent averages after accounting for expected growth. However, the risk/reward profile of this trade is not especially attractive given elevated expectations. Analyst estimates show the mega-cap tech companies growing sales at a CAGR of 11% through 2025 compared with just 3% for the rest of the S&P 500. The net margins of the Magnificent 7 are twice the margins of the rest of the index, and consensus expects this gap will persist through 2025.

Takeaways by Macro Roundup® AI

  1. Analyst estimates show the "Magnificent 7" mega-cap tech stocks growing sales at an 11% CAGR through 2025, versus 3% for the rest of the S&P 500.
  2. The Magnificent 7's net margins are twice those of the other 493 S&P 500 stocks, and consensus expects that gap to persist through 2025.
  3. The Magnificent 7 should collectively outperform the rest of the index in 2024 on stronger balance sheets, a greater re-investment ratio, and relative valuations in line with recent averages after accounting for expected growth, though the risk/reward profile is not especially attractive.

Related Articles:

  • A Few Stocks Drive the Stock Market: Dot.com Vs. Today Vs. the Last 100 Years — 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.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — 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.
  • 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.

AI Summary. The seven largest S&P 500 companies have risen 80% this year and carry an average price-to-earnings ratio above 50, diverging from the other 493 companies in the index. Their valuations are beginning to resemble those of the Nifty Fifty era and the peak of the tech bubble.

Torsten Sløk Apollo
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Torsten Sløk @apolloglobal draws parallels between the current P/E of the Magnificent 7 and similar ratios from the 2000 tech bubble and the 1972 Nifty Fifty.

Are the largest tech stocks reaching past bubble valuations?

Core argument: Investors buying the S&P 500 are buying seven companies already up 80% this year with an average P/E ratio above 50.

The divergence between the S&P7 and the S&P493 continues. Investors buying the S&P 500 today are buying seven companies that are already up 80% this year and have an average P/E ratio above 50. In fact, S&P7 valuations are beginning to look similar to the Nifty Fifty and the tech bubble in March 2000.

Takeaways by Macro Roundup® AI

  1. Investors buying the S&P 500 are buying seven companies already up 80% this year with an average P/E ratio above 50.
  2. The divergence between the S&P7 and the S&P493 continues.
  3. S&P7 valuations are beginning to look similar to those of the Nifty Fifty and the tech bubble in March 2000.

Related Articles:

  • A Few Stocks Drive the Stock Market: Dot.com Vs. Today Vs. the Last 100 Years — 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.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — 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.
  • 2024 US Equity Outlook: “All You Had To Do Was Stay” — The seven largest US mega-cap technology stocks are projected to outperform the rest of the S&P 500, supported by faster expected sales growth, higher margins, greater reinvestment, and stronger balance sheets. Analysts expect these companies to grow sales at an 11% annual rate versus 3% for the other 493 companies, with net margins twice as high.

AI Summary. The strongest argument for adopting the dollar is precommitment: a country that dollarizes cannot print money to fund spending beyond tax revenue, must borrow in dollars, and must accept costly default rather than inflation if it does not repay. A government credibly committed to avoiding inflation and devaluation can borrow far more on better terms.

John Cochrane The Grumpy Economist
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.@JohnHCochrane argues dollarization is the closest Argentina can likely get to an independent central bank. He notes that Argentina will need a way to access dollars.

.@JohnHCochrane argues dollarization is the closest Argentina can likely get to an independent central bank. He notes that...

Does adopting the dollar help a country borrow on better terms?

Core argument: Precommitment is the most powerful argument for dollarization because a country that dollarizes cannot print money to spend more than it receives in taxes.

Precommitment is, I think, the most powerful argument for dollarization (as for eurorization of, say, Greece): A country that dollarizes cannot print money to spend more than it receives in taxes. A country that dollarizes must also borrow entirely in dollars and must endure costly default rather than relatively less costly inflation if it doesn't want to repay debts. Ex post inflation and devaluation is always tempting, to pay deficits, to avoid paying debt, to transfer money from savers to borrowers, to advantage exporters, or to goose the economy ahead of elections. If a government can precommit itself to eschew inflation and devaluation, then it can borrow a lot more money on better terms, and its economy will be far better off in the long run. An independent central bank is often advocated for precommitment value. Well, locating the central bank 5,000 miles away in a country that doesn't care about your economy is as independent as you can get!

Takeaways by Macro Roundup® AI

  1. Precommitment is the most powerful argument for dollarization because a country that dollarizes cannot print money to spend more than it receives in taxes.
  2. A dollarizing country must borrow entirely in dollars and endure costly default rather than relatively less costly inflation if it does not want to repay its debts.
  3. A government that precommits to eschew inflation and devaluation can borrow far more on better terms, and locating the central bank 5,000 miles away in a country indifferent to your economy is as independent as you can get.

Related Articles:

  • Milei’s Challenge — Interest on Argentina's central bank securities exceeds 100% annualized, at 133%, putting its interest bill at nearly 20% of GDP. The central bank must create more local currency to cover that bill, which in turn requires still more borrowing to absorb the new money.

AI Summary. China's officially reported current account surplus understates the true figure, with both the balance-of-payments goods surplus falling well short of customs data and investment income remaining in deficit despite higher U.S. interest rates. Adjusting for these discrepancies, the author estimates the surplus would be roughly $300bn larger, around $800bn or over 4% of China's GDP.

Brad Setser Council on Foreign Relations
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.@Brad_Setser finds “With reasonable adjustments, China’s ‘true’ current account surplus might be $300B larger than China officially reports,” or around $800B.

Is China's true current account surplus far larger than reported?

Core argument: With reasonable adjustments, China's "true" current account surplus might be $300 billion larger than officially reported, putting it near $800 billion, over 4 percent of GDP.

[In the official reports] both the goods surplus, which is much smaller in the balance of payments than in the customs data, and balance on investment income, which remains in deficit even with the rise in U.S. interest rates, are suspicious. With reasonable adjustments, China's “true” current account surplus might be $300 billion larger than China officially reports. That's real money, even for China. The model implies China's overall income balance should now be back in a surplus of around $70 billion thanks to the rise in U.S. short-term interest rates. So without the unexplained deficit in investment income and the discrepancy between customs goods and balance of payments goods, and China’s current account surplus would now be around $800 billion, over 4 percent of its GDP.

Takeaways by Macro Roundup® AI

  1. With reasonable adjustments, China's "true" current account surplus might be $300 billion larger than officially reported, putting it near $800 billion, over 4 percent of GDP.
  2. China's balance-of-payments goods surplus is much smaller than its customs data show, and its investment income balance remains in deficit despite the rise in U.S. interest rates.
  3. The model implies China's overall income balance should now be in surplus of around $70 billion thanks to the rise in U.S. short-term interest rates.

Related Articles:

  • Managing Economic and Financial Entanglements With China — China's surplus in manufactured goods net of commodity imports has kept growing relative to trade partners' output and relative to China's own economic output, alongside weak consumer spending and falling homebuilding. U.S. federal spending financed largely by borrowing has supported private balance sheets and demand, muting attention to that surplus.
  • Can China Reduce Its Internal Balances Without Renewed External Imbalances? — China's headline goods trade surplus is about 5% of its GDP, with the underlying surplus in manufactured goods close to 10% of GDP. The author argues that if China relies on interest rate cuts, exchange rate liberalization, and a weak yuan to offset its property downturn, its trade surplus could reach record levels relative to trading partners' output.
  • Can China Reduce Its Internal Balances Without Renewed External Imbalances? — China's headline goods trade surplus is about 5% of its GDP, with the underlying surplus in manufactured goods close to 10% of GDP. The author argues that if China relies on interest rate cuts, exchange rate liberalization, and a weak yuan to offset its property downturn, its trade surplus could reach record levels relative to trading partners' output.

AI Summary. China's annual college graduates rose from about 1m at the turn of the century, roughly 6% of the age cohort, to 11.6m, about 63% of the cohort, with over 40% studying science, technology, engineering, or math, compared with 18% in the US, 35% in Germany, and 26% across the OECD.

Han Feizi Asia Times
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Han Feizi argues China’s deepening pool of human capital will offset demographic drag. 40% of China’s college graduates are STEM majors. Given current graduation rates, by 2043 China will have more STEM-educated workers than the rest of the world.

Has China's college graduate share of its age cohort risen sharply?

Core argument: China's college graduates rose from 1 million at the turn of the century, or 6% of the age cohort measured against births 24 years earlier, to 11.6 million for the class of 2023, equal to 63% of the cohort.

At the turn of the century, China produced one million college graduates. This represented 6% of the age cohort which we calculate by dividing graduates by births 24 years prior (the average age at college graduation is 23.7 in China). This has increased dramatically to 11.6 million graduates for the class of 2023, 63% of the age cohort. Over 40% of China’s college graduates are STEM majors. This compares to 18% in the US, 35% in Germany, and 26% in the OECD. While we await graduation statistics for 2024 and beyond, we believe recent university expansions have enrolled an additional 3 million students per year since 2017, taking them out of both the job and family formation market until graduation. This just so happens to coincide with both the sudden decline in births and the increase in youth unemployment.

Takeaways by Macro Roundup® AI

  1. China's college graduates rose from 1 million at the turn of the century, or 6% of the age cohort measured against births 24 years earlier, to 11.6 million for the class of 2023, equal to 63% of the cohort.
  2. Over 40% of China's college graduates are STEM majors, compared with 18% in the US, 35% in Germany, and 26% across the OECD.
  3. University expansions are estimated to have enrolled an additional 3 million students per year since 2017, taking them out of the job and family formation markets until graduation, coinciding with declining births and rising youth unemployment.

Related Articles:

  • An Economic Hail Mary for China — A higher ratio of people aged 59 and over to children under 15 is strongly negatively correlated with GDP growth, as are higher median age and a larger share over 59. In China's northeastern provinces, where fertility fell a decade before the rest of the country, growth has stalled.
  • Prominent Chinese Economist Justin Lin Paints a Rosy Picture of China’s Greying Population — A prominent Chinese economist argues that analysis of provincial micro-data, past censuses, and 1% population sample surveys shows a shrinking and ageing population has no significant negative impact on economic growth. The argument holds that China is gaining a higher-quality human capital dividend conducive to technological innovation and industrial upgrading.
  • A Revolution Is Coming for China’s Families — Prolonged below-replacement fertility in China is projected to produce a "kin crash" in which rising generations have fewer living relatives than ever before in Chinese history. The authors argue this shrinking of extended family networks will erode the Chinese family's role in protecting people from adversity and helping them seize opportunity.

Tuesday, November 28, 2023

AI Summary. Between 1992 and 2008, global exports grew near 10% a year in nominal terms versus 6% GDP growth, lifting exports from under 20% to over 30% of national economies before flattening. Afterward, China's trade-to-GDP ratio fell from 71% to about 35% even as its share of global exports kept rising.

Arvind Subramanian, Martin Kessler, and Emanuele Properzi Peterson Institute for International Economics
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The decline in trade as a percent of global GDP in the aftermath of the global financial crisis has largely been driven by China, as China’s imports from the world have lagged both China’s GDP growth and the growth in global trade. @arvindsubraman

Has trade growth stopped outpacing global economic growth?

Core argument: During 1992–2008, global exports grew close to 10% a year in nominal terms versus 6% GDP growth, lifting exports' share of national economies from under 20% to over 30% in little more than 15 years.

Hyperglobalization refers to the exceptional period between 1992 and 2008 during which global exports grew at close to 10% a year in nominal terms while GDP increased by only 6% a year. As a result, the share of exports in national economies grew from less than 20% to more than 30% in a little bit more than 15 years. The hyper in hyperglobalization does not come from the level of trade relative to GDP, which remains high, or from levels compared with the theoretical potential of trade, which are low. Rather it comes from the change in the level of trade, which was positive before the Global Financial Crisis (GFC) and stagnant or slightly negative thereafter. After the GFC, a puzzling wedge emerged. China’s trade-to-GDP ratio plummeted by more than 30pp, from 71% to a trough of about 35%. But its global export market share continued to rise at the same heady pace, reaching nearly 15% of total exports and 22% of manufactured exports by 2022.

Takeaways by Macro Roundup® AI

  1. During 1992–2008, global exports grew close to 10% a year in nominal terms versus 6% GDP growth, lifting exports' share of national economies from under 20% to over 30% in little more than 15 years.
  2. The "hyper" in hyperglobalization comes from the change in trade levels, positive before the Global Financial Crisis and stagnant or slightly negative afterward, rather than from trade's level relative to GDP or its theoretical potential.
  3. China's trade-to-GDP ratio fell more than 30pp after the Global Financial Crisis, from 71% to a trough near 35%, while its global export share kept rising to nearly 15% of total exports and 22% of manufactured exports by 2022.

Related Articles:

  • China’s Current Account Surplus Is Likely Much Bigger Than Reported — China's officially reported current account surplus understates the true figure, with both the balance-of-payments goods surplus falling well short of customs data and investment income remaining in deficit despite higher U.S. interest rates. Adjusting for these discrepancies, the author estimates the surplus would be roughly $300bn larger, around $800bn or over 4% of China's GDP.
  • Managing Economic and Financial Entanglements With China — China's surplus in manufactured goods net of commodity imports has kept growing relative to trade partners' output and relative to China's own economic output, alongside weak consumer spending and falling homebuilding. U.S. federal spending financed largely by borrowing has supported private balance sheets and demand, muting attention to that surplus.
  • Pettis On China’s Export Strategy — China is shifting investment from its weakened property sector toward manufacturing, which already accounts for 27% of Chinese GDP versus 14% elsewhere and is constrained by weak demand rather than scarce capital. Since China holds about 18% of global GDP but 30% of global manufacturing, added output must be absorbed abroad absent higher consumption.

AI Summary. Less than 1% of the planet's water is usable; water demand has risen about 40% over 40 years and is estimated to increase another 25% by 2050, while supply has more than halved since 1970. Some 57% of global freshwater aquifers are beyond their tipping point, and one-third of piped fresh water is lost to leakage.

Vanessa Cook Bank of America
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Globally, demand for water is up 40% over the past forty years and will increase another 25% by 2050. Since 1970 water supply has halved. @BankofAmerica

Is global usable water supply shrinking as demand rises?

Core argument: Global water demand has risen roughly 40% over the past 40 years and is estimated to increase another 25% by 2050, while supply has more than halved since 1970.

Some 75% of our planet is covered with water, but less than 1% is usable, and even this is depleting quickly. Why? Water demand is up approximately 40% over the past 40 years and is estimated to increase another 25% by 2050, yet supply has more than halved since 1970. Water supply is declining in both quality and quantity. Some 80% of global sewage is dumped into the sea without adequate treatment and microplastics have been found in 83% of tap water. Well over half (57%) of global freshwater aquifers are beyond the tipping point, and even poor infrastructure limits supply as one-third of all fresh water running through pipes globally is lost to leakage. For every +1°C increase in global temperatures, there is a 20% drop in renewable water sources. To put this in context, the average global temperature has increased by at least 1.1°C since 1880, and July 2023 was the hottest month on record.

Takeaways by Macro Roundup® AI

  1. Global water demand has risen roughly 40% over the past 40 years and is estimated to increase another 25% by 2050, while supply has more than halved since 1970.
  2. Less than 1% of the water covering 75% of the planet is usable, with 57% of global freshwater aquifers beyond the tipping point and one-third of piped fresh water lost to leakage.
  3. Each 1°C increase in global temperatures corresponds to a 20% drop in renewable water sources, and average global temperature has risen at least 1.1°C since 1880.

Related Articles:

  • Texas Farmers Are Worried One of the State’s Most Precious Water Resources is Running Dry. You Should Be, Too — A report from a Texas water conservation district shows water levels in the Ogallala Aquifer, spanning eight U.S. High Plains states, have dropped consistently over the past five years. The aquifer supplies water for about 30% of U.S. irrigation, farms producing a quarter of national agricultural output, and drinking water for 82% of residents within its boundaries.
  • Arizona Is Running Out of Cheap Water. Investors Saw It Coming — Phoenix-area suburbs are paying sharply higher prices for water rights from a basin west of the city, with one suburb approving $80m for 6,000 acre-feet — more than double the per-acre-foot price another suburb paid earlier. Arizona's groundwater replenishment assessments rose from $154 to $768 per acre-foot.
  • America Is Using Up Its Groundwater Like There’s No Tomorrow — An analysis of 84,544 groundwater monitoring wells across the United States found that nearly half declined significantly over the past 40 years as more water was pumped out than nature replenished. Four of every 10 sites hit all-time lows in the past decade.

AI Summary. Lenders have incentives to offer more favorable terms to firms close to default in order to recover past investment, and U.S. loan-level data indicate that such "evergreening" lets less productive, more indebted firms borrow at relatively better terms. A dynamic model of the U.S. economy estimates that evergreening lowers borrowing rates, raises debt levels, and depresses overall productivity.

Miguel Faria-e-Castro, Pascal Paul, and Juan Sánchez Federal Reserve Bank of San Francisco
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Banks lend to firms to help them recover sunk costs. Between 2014-19, bank lending to zombie firms reduced economy-wide productivity by 0.25%. @mfariacastro @vediense @pascalpaul

Do banks lending to distressed firms depress overall productivity?

Core argument: The authors find that evergreening lets firms with worse fundamentals—less productive and more indebted—borrow at relatively better terms, as lenders offer favorable terms to keep firms close to default alive and recover past investment.

Our study builds on an intuitive idea: to recover its past investment, a lender has incentives to offer more favorable lending terms to a firm close to default to keep the firm alive. In contrast to standard intuition, we find that evergreening allows a firm with worse fundamentals—less productive and with more debt—to borrow at relatively better terms. Based on detailed U.S. loan-level data for the years 2014-19, we provide empirical support for our theory at a time when the banks were relatively well capitalized and the economy was growing steadily. Using a dynamic model of the U.S. economy, we find that evergreening has material effects on the performance of the overall economy, resulting in lower borrowing rates, higher levels of debt, and depressed overall productivity.

Takeaways by Macro Roundup® AI

  1. The authors find that evergreening lets firms with worse fundamentals—less productive and more indebted—borrow at relatively better terms, as lenders offer favorable terms to keep firms close to default alive and recover past investment.
  2. Using U.S. loan-level data for 2014–19, a period of relatively well-capitalized banks and steady growth, the authors provide empirical support for their theory of lending to distressed firms.
  3. In a dynamic model of the U.S. economy, the authors find evergreening materially affects aggregate performance, producing lower borrowing rates, higher debt levels, and depressed overall productivity.

Related Articles:

  • The Grind Ahead — 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.
  • 40% of Companies in Russell 2000 Have Negative Earnings — 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.
  • Rates Are Up. We’re Just Starting to Feel the Heat — U.S. companies have $600bn in corporate debt maturing this year, a total Goldman Sachs data show rising to more than $1tn a year from 2025 through 2028. Those debt loads, combined with higher financing costs, may cut into corporate profits, investor returns, innovation spending, and hiring, with some analysts expecting credit-rating downgrades.

AI Summary. It now takes $119.27 to buy what $100 purchased before the pandemic, with prices rising about as much since early 2020 as in the preceding decade. Groceries and electricity are each up 25% since January 2020, used cars 35%, auto insurance 33%, and rents roughly 20%.

Reade Pickert and Jennah Haque Bloomberg
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While Americans are now seeing real wage gains vs. the start of 2020, the price level is up 19.3%, about as much as the cumulative rise in prices between 2010-20.

How much have household prices risen since before the pandemic?

Core argument: Buying the same goods and services a US family could afford with $100 before the pandemic now requires $119.27, with prices since early 2020 rising about as much as in the full preceding decade.

It now requires $119.27 to buy the same goods and services a family could afford with $100 before the pandemic. Since early 2020, prices have risen about as much as they had in the full 10 years preceding the health emergency. It’s hard to find an area of a household budget that’s been spared: Groceries are up 25% since January 2020. Same with electricity. Used-car prices have climbed 35%, auto insurance 33%, and rents roughly 20%.

Takeaways by Macro Roundup® AI

  1. Buying the same goods and services a US family could afford with $100 before the pandemic now requires $119.27, with prices since early 2020 rising about as much as in the full preceding decade.
  2. Used-car prices have climbed 35% since January 2020 and auto insurance 33%, while groceries and electricity are each up 25% and rents roughly 20%.

Related Articles:

  • The US Consumer: Still Strong in 2024 — Real disposable income is forecast to grow 3% over the year, with labor income accounting for over half the increase, interest income adding over 1 percentage point, and a pullback in Medicaid coverage subtracting almost half a point. That pace is below the prior year's 4% but above the roughly 2.5% average in the two decades before the pandemic.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.
  • Fiscal Arithmetic and the Global Inflation Outlook — Across advanced economies, core inflation is significantly positively associated with growth in government debt since the start of the pandemic, and the authors expect this decade's fiscal expansions to shift price levels permanently higher. They argue this differs from permanently higher inflation, projecting inflation to diminish as temporary deficits normalize, with medium-term inflation expectations still anchored near central bank targets.

AI Summary. India's rupee has lost less than 1% against the dollar this year, compared with more than 3% for the Chinese yuan, about 9% for the South African rand, and 11% for the Japanese yen. The Reserve Bank of India built foreign-exchange reserves above $600bn, and the economy is on track to grow more than 6%.

Matthew Thomas Wall Street Journal
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The rupee has lost less than 1% of its value against the dollar as the Indian central bank’s efforts are supported by 6% growth and foreign investment inflows.

Is currency stability the clearest sign of India's strong economy?

Core argument: The Indian rupee has lost less than 1% against the dollar this year, at roughly 83 per dollar, versus declines of more than 3% for the Chinese yuan, about 9% for the South African rand, and 11% for the Japanese yen.

The rupee has lost less than 1% of its value against the dollar this year, compared with a decline of more than 3% for the Chinese yuan, a roughly 9% fall in the South African rand, and an 11% slide in the Japanese yen. One dollar currently buys around 83 rupees. Solid management by the Reserve Bank of India, the country’s central bank, deserves much of the credit. The central bank spent decades building up the country’s foreign-exchange reserves to more than $600 billion by the first half of 2022, one the largest pools of central-bank reserves in the world. India’s central bank has had a lot of help. The economy is on track to grow more than 6% this year, bringing its gross domestic product close to $4 trillion—within reach of Germany’s, the world’s fourth-largest.

Takeaways by Macro Roundup® AI

  1. The Indian rupee has lost less than 1% against the dollar this year, at roughly 83 per dollar, versus declines of more than 3% for the Chinese yuan, about 9% for the South African rand, and 11% for the Japanese yen.
  2. The Reserve Bank of India deserves much of the credit for the rupee's stability, having spent decades building foreign-exchange reserves to more than $600 billion by the first half of 2022, one of the world's largest central-bank reserve pools.
  3. India's economy is on track to grow more than 6% this year, bringing gross domestic product close to $4 trillion, within reach of Germany's, the world's fourth-largest.

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