Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…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
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, November 30, 2023

AI Summary. Accounting for Black families, who historical studies routinely drop, and for measurement error in fathers' economic status can double estimates of intergenerational persistence in linked United States census data from 1850 to 1940. The author argues historical mobility was lower than previously estimated, implying greater equality of opportunity today than in the past.

Zachary Ward American Economic Review
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Intergenerational income mobility in US is greater than in the 19th and early 20th century, as previous estimates overestimated historical mobility due to bad samples and measurement error.

Was historical economic mobility lower than earlier estimates suggested?

Core argument: Accounting for Black families, whom historical studies routinely drop, and for measurement error in fathers' economic status can double estimates of intergenerational persistence in linked U.S. census data from 1850 to 1940, the author finds.

This paper’s main message is that historical mobility was lower than previously estimated in linked data. To show why, I account for two measurement issues: unrepresentative samples and measurement error. First, I account for unrepresentative samples by adding Black families, who historical studies routinely drop. Second, I address measurement error by using multiple father observations to more accurately capture his permanent economic status. Using linked census data from 1850 to 1940, I show that accounting for race and measurement error can double estimates of intergenerational persistence. Updated estimates imply that there is greater equality of opportunity today than in the past, mostly because opportunity was never that equal.

Takeaways by Macro Roundup® AI

  1. Accounting for Black families, whom historical studies routinely drop, and for measurement error in fathers' economic status can double estimates of intergenerational persistence in linked U.S. census data from 1850 to 1940, the author finds.
  2. The author addresses measurement error by using multiple observations of a father to more accurately capture his permanent economic status.
  3. The updated estimates imply greater equality of opportunity in the United States today than in the past, mostly because historical opportunity was never that equal.

Related Articles:

AI Summary. The wealth of the richest person on the Forbes 400 list rose from 85,000x median family income to 2,500,000x, a roughly 30x increase in that ratio. The author argues this gap is hard to reconcile with research finding little change in after-tax top income shares, and presumes those figures contain errors.

Brad DeLong Brad DeLong's Grasping Reality
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.@delong cites evidence that wealth inequality has increased markedly since 1982, and argues that, since wealth and income fluctuate together, it’s implausible that top-income shares have not risen.

How can top wealth rise 30x while top income shares stay flat?

Core argument: Elon Musk's $251 billion atop the 2023 Forbes 400 equals 2,500,000 times the median family income of $98,705, versus Daniel Ludwig's $2 billion in 1982 at 85,000 times the then-median family income of $23,430.

Here is my take: In the US in 1982, the top of the first Forbes 400 list was Daniel Ludwig with nominal $2 billion. That was 85,000 times the then-median nominal family income of $23,430. In 2023, the top of the Forbes 400 was Elon Musk with nominal $251 billion. That was 2,500,000 times the now-median nominal family income of $98,705. Now: ($251B/$99K)/($2B/$23K) = 29.8 How the f*** is the ratio of the top to the median to explode by a factor of 30 while the Auten/Splinter measures show “little change in after-tax top income shares”? Until someone comes up with an explanation for how this could be—how a 30x multiplication since 1982 of the ratio of the top of the Forbes 400 to median household income is consistent with “top income shares are lower and have increased less since 1980 than other studies… increasing government transfers and tax progressivity have resulted in… little change in after-tax top income shares…”—I am going to presume the chances are 99% that there are big things wrong in the numbers in Auten/Splinter.

Takeaways by Macro Roundup® AI

  1. Elon Musk's $251 billion atop the 2023 Forbes 400 equals 2,500,000 times the median family income of $98,705, versus Daniel Ludwig's $2 billion in 1982 at 85,000 times the then-median family income of $23,430.
  2. The ratio of the Forbes 400 leader's wealth to median family income rose by a factor of 29.8 between 1982 and 2023.
  3. Brad DeLong argues that a roughly 30-fold rise in that ratio is hard to reconcile with Auten and Splinter's finding that government transfers and tax progressivity have left after-tax top income shares little changed, and puts 99% odds on errors in their numbers.

Related Articles:

AI Summary. U.S. health spending fell to 17.1% of GDP from 17.5% a year earlier and 17.9% the year before, the smallest share since 2014 and below the pre-pandemic level. Adjusted for overall and medical inflation the share was largely unchanged, with the decline driven by higher inflation outside health and lagging medical inflation.

Victoria Udalova Briefing Book
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Victoria Udalova notes that, according to the Bureau of Economic Analysis, the share of American GDP spent on health care declined for the second straight year to 17.1% in 2022, the lowest level since 2014.

Is falling health spending as a share of GDP just inflation?

Core argument: New BEA estimates put U.S. health spending at 17.1% of GDP in 2022, down from 17.5% in 2021 and 17.9% in 2020, a second consecutive annual decline.

According to the new BEA estimates, the share of GDP spent on health in 2022 declined to 17.1% from 17.5% in 2021 and 17.9% in 2020. This marks the second consecutive year of decline in health spending as a share of GDP. The estimated share in 2022 represents the smallest share of the economy spent on health since 2014 and a smaller share that was spent on health in 2019, before the start of the pandemic. Adjusting for differences in overall and medical inflation, the share of GDP spent on health in 2022 was largely unchanged from 2020 and 2021. As such, the decline in health spending as a share of GDP in 2021 and 2022 was primarily driven by high inflation in sectors outside of health and a lagging medical inflation.

Takeaways by Macro Roundup® AI

  1. New BEA estimates put U.S. health spending at 17.1% of GDP in 2022, down from 17.5% in 2021 and 17.9% in 2020, a second consecutive annual decline.
  2. The 2022 health share of GDP is the smallest since 2014 and below the share spent on health in 2019, before the start of the pandemic.
  3. Adjusting for overall and medical inflation, the health share of GDP in 2022 was largely unchanged from 2020 and 2021, with the declines in 2021 and 2022 driven primarily by high inflation outside health and lagging medical inflation.

Related Articles:

  • A Huge Threat to the U.S. Budget Has Receded. And No One Is Sure Why — Spending per Medicare beneficiary in the US has nearly leveled off over more than a decade, though total enrollment has grown as baby boomers age. Policy changes including cuts to hospital and private plan payments explain some savings, but the Congressional Budget Office attributes most of its lowered forecasts to "technical adjustments" in public health and medical practice.
  • Why Medicare and Social Security Are Sustainable — Growth in U.S. health spending above GDP growth has slowed considerably, and the Congressional Budget Office projects social insurance spending will eventually rise by about 5 percentage points of GDP, half of that from assumed health cost increases. The author argues better incentives for medically effective care could hold cost growth well below those projections.

AI Summary. The Federal Reserve records losses as a "deferred asset" and suspends payments to the Treasury until it is paid down, having accumulated roughly $117bn. The authors estimate the Federal Reserve will carry this deferred asset until mid-2027 before resuming transfers to the Treasury.

Miguel Faria e Castro and Samuel Jordan-Wood Federal Reserve Bank of St. Louis
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According to @mfariacastro @samajordanwood, the Federal Reserve should return to positive net income in 2025 and will resume transfers to the Treasury in 2027.

When will the Fed resume sending its profits to Treasury?

Core argument: The Fed had accumulated a deferred asset of $116.9 billion as of Nov. 8, 2023, which it will pay down once net income turns positive before resuming remittances to the Treasury.

Remittances rose considerably in the aftermath of the balance sheet expansion following the global financial crisis of 2007-08; they went from 0.2% of GDP and 1.3% of government receipts in 2007 to 0.6% and 3.4%, respectively, in 2015. Remittances then fell due to the 2015-18 tightening cycle, but they rose again in 2020 as the Fed slashed interest rates and resumed its balance sheet expansion (additionally, GDP fell in 2020, which partly explains the positive jump). Between 2021 and 2022, remittances as a percent of GDP dropped from 0.5% to 0.3%. Once the Fed returns to earning a positive net income, it will pay down the value of the deferred asset until it reaches zero, at which point the Fed will resume sending remittances to the Treasury. As of Nov. 8, 2023, the Fed had accumulated a deferred asset of $116.9 billion. In April 2023, the New York Fed estimated that the Fed will return to positive net income in 2025. Combining those New York Fed projections with the latest data on net income, we estimate that the Fed will carry this deferred asset until mid-2027, after which it will resume transfers to the Treasury.

Takeaways by Macro Roundup® AI

  1. The Fed had accumulated a deferred asset of $116.9 billion as of Nov. 8, 2023, which it will pay down once net income turns positive before resuming remittances to the Treasury.
  2. Fed remittances rose from 0.2% of GDP and 1.3% of government receipts in 2007 to 0.6% and 3.4% in 2015 following the post-crisis balance sheet expansion, then fell during the 2015-18 tightening cycle.
  3. The New York Fed estimated in April 2023 that the Fed will return to positive net income in 2025, and combining those projections with recent net income data suggests the deferred asset persists until mid-2027.

Related Articles:

  • There Is No “Stealth Fiscal Stimulus” — The U.S. federal budget deficit has widened by about 3-4 percentage points of GDP, with lower revenues mostly attributable to a plunge in capital gains tax receipts after an earlier windfall and to the collapse in Federal Reserve payments to the Treasury. Higher outlays are almost entirely attributable to surging interest payments on Treasury debt.

AI Summary. Most workers' wages have risen significantly more than prices since the pandemic began, and private data show Thanksgiving dinner costs 4.5% less than a year earlier while gasoline prices are down more than 30% from their peak. The author argues the narrative that inflation is still running wild is not true.

Paul Krugman Krugman Wonks Out
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.@paulkrugman notes that Average Hourly Earnings have outpaced CPI since 2019, and argues “most workers’ wages have risen significantly more” than inflation.

Have wages outpaced prices since the pandemic began?

Core argument: Most workers' wages have risen significantly more than prices since the pandemic began, and the U.S. economy is doing very well — better than even optimists expected a year ago.

What we can say, with considerable certainty, is that while prices have gone up a lot since the pandemic began, most workers’ wages have risen significantly more. I’m told that real people know that inflation is still running hot, whatever the government numbers may say. Actually, the American Farm Bureau Association, a private group, tells us that Thanksgiving dinner cost 4.5% less this year than last. Gasbuddy.com, another private group, tells us that prices at the pump are down more than 30% since their peak last year. Neither turkeys nor gas prices are good measures of underlying inflation, but both show that the narrative of inflation still running wild is just not true. While the public’s negative view of the economy is a major puzzle, acknowledging that puzzle is no reason to soft-pedal the evidence that the U.S. economy is currently doing very well — indeed, much better than even optimists expected a year ago.

Takeaways by Macro Roundup® AI

  1. Most workers' wages have risen significantly more than prices since the pandemic began, and the U.S. economy is doing very well — better than even optimists expected a year ago.
  2. The American Farm Bureau Association reports Thanksgiving dinner cost 4.5% less this year than last, and Gasbuddy.com reports pump prices are down more than 30% from their peak last year.
  3. Turkey and gasoline prices are not good measures of underlying inflation, but both indicate the narrative of inflation still running wild is not true, leaving the public's negative view of the economy a major puzzle.

Related Articles:

  • The Economy Is Great. Why Are Americans in Such a Rotten Mood? — Consumer sentiment has been more depressed than historic correlations with the "misery index"—the sum of inflation and unemployment—would predict, even as consumer-price inflation fell from a 9.1% peak to 3.7%. The author argues much of this pessimism is "referred pain," reflecting dissatisfaction with the country as a whole rather than the economy.
  • Are You Better Off Than You Were Four Years Ago? — Inflation-adjusted wages rose over the past four years, including when measured from just before the pandemic, at roughly the same pace as in the preceding years: about 3% cumulative growth adjusted by the consumer price index versus about 4% in 2015-2019, and about 5% growth adjusted by personal consumption prices.
  • Why Americans Dislike the Economy — The Employment Cost Index, which adjusts for shifts in the mix of jobs and industries, shows inflation-adjusted wages have fallen 3.7% since the end of 2020, erasing the gains of the late 2010s. Real wages stand at 2015 levels, so American paychecks buy no more than they did eight years earlier.

Friday, December 1, 2023

AI Summary. From 1940 to 1945, the US Office of Scientific Research and Development engaged industrial and academic contractors in more than 2,200 research contracts worth over $9bn in 2022 dollars, despite no pre-war tradition of funding externally performed research. At the war's height, the US government funded the research behind nearly 1 in 8 US patents.

Daniel Gross and Bhaven Sampat American Economic Review
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During World War II, American defense innovation spending was responsible for 1 in 8 American patents. Areas where defense research dollars were spent produced 40% to 50% more patents annually by the 1970s relative to pre-war levels.

Did wartime government R&D funding reshape the US innovation system?

Core argument: From 1940 to 1945, the Office of Scientific Research and Development engaged industrial and academic contractors in more than 2,200 R&D contracts worth over $9 billion in 2022 dollars, despite no pre-war U.S. tradition of funding extramural R&D.

In this paper, we study the long-run effects of the largest R&D shock in U.S. history. In World War II, the newly-created Office of Scientific Research and Development (OSRD) led an expansive effort to develop technologies and medical treatments for the Allied war effort. From 1940 to 1945, OSRD engaged industrial and academic contractors in more than 2,200 R&D contracts at over $9 billion (2022 dollars), despite no pre-war tradition of funding extramural (externally-performed) R&D. At the height of the war, the U.S. government was funding the research behind nearly 1 of every 8 U.S. patents—more than five times pre-war and modern levels, and nearly twice the level at the peak of the Cold War in the 1950s and 1960s. The immediate effect of these investments was a range of technological advances which were not only instrumental to the success of the Allied campaign, but also of wide civilian value after the war ended. Its longer-run impact was to reshape the U.S. innovation system.

Takeaways by Macro Roundup® AI

  1. From 1940 to 1945, the Office of Scientific Research and Development engaged industrial and academic contractors in more than 2,200 R&D contracts worth over $9 billion in 2022 dollars, despite no pre-war U.S. tradition of funding extramural R&D.
  2. At the height of World War II, the U.S. government funded the research behind nearly 1 of every 8 U.S. patents—more than five times pre-war and modern levels and nearly twice the 1950s–1960s Cold War peak.
  3. The authors argue that OSRD's wartime investments yielded technological and medical advances instrumental to the Allied campaign and of wide civilian value afterward, and reshaped the U.S. innovation system over the longer run.

Related Articles:

  • Moonshot: Public R&D and Growth — Federal R&D investment for the mission to send a crewed mission to the Moon peaked at over 0.7% of GDP for NASA. The authors estimate that NASA research-and-development contractor spending had a local economic impact similar to that of typical government expenditures, and note there is no credible empirical estimate of the space program's contribution to economic growth.
  • Public R&D Spillovers and Productivity Growth — Using US firm-level patent and balance-sheet data spanning 1950–2020, the author estimates that a 1% decline in spillovers from publicly funded research and development causes a 0.17% decline in firm productivity growth, with public R&D spillovers about 3x as impactful as private ones and smaller firms gaining most.
  • Pentagon Plans Vast AI Fleet to Counter China Threat — The Pentagon plans to field thousands of air-, land- and sea-based artificial-intelligence systems, drones and autonomous platforms within two years to counter threats from China and other adversaries, spending hundreds of millions of dollars on systems intended to be "small, smart, cheap.

AI Summary. The authors estimate that the Federal Reserve's balance-sheet runoff makes its current policy rate of 5.375% equivalent in its effect on financial conditions to a rate of 5.763% without runoff, a gap of 39 basis points. They project that gap to widen to a full percentage point as assets continue rolling off at $95bn a month.

Benn Steil and Elisabeth Harding Barrons
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QT is tightening monetary policy more than the Fed realizes; under the current trajectory, @BennSteil estimates that the policy rate is 5.76%, after adjusting for the balance sheet shrinkage, relative to its headline of 5.38%.

Is monetary policy tighter than the stated policy rate suggests?

Core argument: The authors calculate that the Fed's 5.375% policy rate, combined with the current quantitative tightening roll-off schedule, affects financial conditions equivalently to a 5.763% policy rate without QT, a gap of 39bps.

The figure shows the path through time of two interest rates. The lower line shows the path of the Fed’s policy rate going back to April 2022, and its projected path forward over the coming two years. The upper line shows what we call the “QT-equivalent policy rate,” which accounts for the effect of QT. The QT-equivalent rate is the policy rate needed without QT to have an effect on financial conditions equivalent to that produced by the actual policy rate with QT. What we find is that today’s policy rate of 5.375% is, under the current QT roll-off schedule, having roughly the same impact on financial conditions as a policy rate of 5.763% without QT. That’s a gap of 39bps, or 39 hundreds of a percent. But the effect of QT rises sharply going forward, as $95 billion in assets continue to roll off the balance sheet each month, before reaching a high of 100 basis points—or one full percent—in May 2025.

Takeaways by Macro Roundup® AI

  1. The authors calculate that the Fed's 5.375% policy rate, combined with the current quantitative tightening roll-off schedule, affects financial conditions equivalently to a 5.763% policy rate without QT, a gap of 39bps.
  2. The authors project the QT-equivalent gap will widen to 100bps in May 2025 as $95 billion in assets roll off the Fed's balance sheet each month.
  3. The authors define the QT-equivalent policy rate as the policy rate needed without quantitative tightening to produce the same effect on financial conditions as the actual policy rate with QT in place.

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.
  • 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.
  • 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%.

AI Summary. The New Tenant Rent Index, which tracks rents on newly signed leases, shows disinflation that is passing through to slower growth in the shelter component of consumer prices, with data suggesting further stabilization ahead. Growth in aggregate wages and salaries continues to decline as the labor market slows, a pattern closely tied to housing inflation.

Joseph Politano Apricitas Economics
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The continued rise in rents is now the primary driver of CPI inflation; however, rent inflation is decelerating, with the New Tenant Rent Index now having a rate of change in line with its pre-pandemic level. @JosephPolitano

Will new lease rents keep slowing housing inflation?

Core argument: The New Tenant Rent Index showed significant rent disinflation that has begun passing through to decelerating CPI shelter prices, and NTR data through the third quarter suggests further stabilization ahead.

Earlier this year, the New Tenant Rent Index (NTR) was showing significant disinflation in rent prices that have since begun passing through to decelerations in CPI shelter prices—and recently released NTR data through the third quarter suggests that even more stabilization is yet to come. Growth in Gross Labor Income—the aggregate wages and salaries of all workers in the economy—continues to decline as the labor market slows toward normal pre-pandemic growth rates. Given how tight the relationship between cyclical growth in employment/wages and housing inflation is, a deceleration in NTR has naturally followed the slower labor market of the last year.

Takeaways by Macro Roundup® AI

  1. The New Tenant Rent Index showed significant rent disinflation that has begun passing through to decelerating CPI shelter prices, and NTR data through the third quarter suggests further stabilization ahead.
  2. Growth in Gross Labor Income, the aggregate wages and salaries of all workers in the economy, continues to decline as the labor market slows toward pre-pandemic growth rates.
  3. Given the tight relationship between cyclical employment and wage growth and housing inflation, the deceleration in the New Tenant Rent Index follows a slower labor market.

Related Articles:

  • The Most Important New Disinflation Indicator — The New Tenant Repeat Rent Index tracks price changes only for units where new tenants have signed leases, using the same underlying data as the Consumer Price Index, and tends to lead official rent measures by about a year. It currently points to significant rent disinflation over the next three quarters.
  • Where Is Shelter Inflation Headed? — A model forecast based on metro-area data projects that year-over-year shelter inflation will continue to slow and may turn negative, which would be the most severe contraction in shelter inflation since the 2007-09 financial crisis. Shelter is a major component of overall inflation, so such a turnaround would have important implications for headline inflation.
  • Striking Similarities (and Differences) Between Inflation Today and In the 1970s — US inflation over the past 5-10 years has closely tracked its behavior in the early 1970s, a pattern that would put inflation back on target by mid-2024. But unlike the early 1970s, when core inflation followed headline inflation both up and down, headline inflation has been falling while core has not, indicating more pronounced underlying inflationary pressures.

AI Summary. Inflation-adjusted US house prices are 3.0% below their peak, while housing affordability is the worst since 1982, when 30-year mortgage rates exceeded 14%. With mortgage rates at 7.20%, the principal-and-interest payment on a $500,000 house with 20% down is 16% higher than a year earlier and 88% higher than two years earlier.

Bill McBride Calculated Risk
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According to @calculatedrisk, real home prices are 3% under the recent peak. According to his affordability index the monthly payment for the same house is up 88% over the past two years.

How much has housing affordability deteriorated as mortgage rates rose?

Core argument: Inflation-adjusted house prices are 3.0% below their peak, and houses were the least affordable in September 2023 since 1982, when 30-year mortgage rates were over 14%.

Affordability was worse in September than in August, as house prices and mortgage rates both increased. In September 2023, houses were the least “affordable” since 1982 when 30-year mortgage rates were over 14%. We already know affordability will be even worse in October since mortgage rates have increased further. For September: a year ago, the payment on a $500,000 house, with a 20% down payment and 6.11% 30-year mortgage rates, would be around $2,427 for principal and interest. The monthly payment for the same house, with house prices up 4.0% YoY and mortgage rates at 7.20% in September 2023, would be $2,822 - an increase of 16%. However, if we compare to two years ago, there is huge difference in monthly payments. In September 2021, the payment on a $500,000 house, with a 20% down payment and 2.90% 30-year mortgage rates, would be around $1,665 for principal and interest. The monthly payment for the same house, with house prices up 15.1% over two years and mortgage rates at 7.20% in September 2023, would be $3,125 - an increase of 88%!

Takeaways by Macro Roundup® AI

  1. Inflation-adjusted house prices are 3.0% below their peak, and houses were the least affordable in September 2023 since 1982, when 30-year mortgage rates were over 14%.
  2. The principal-and-interest payment on a $500,000 house with 20% down rose 88% over two years, from about $1,665 at a 2.90% mortgage rate in September 2021 to $3,125 at 7.20% with prices up 15.1%.
  3. Affordability worsened in September as house prices and mortgage rates both increased, with the payment on a $500,000 house up 16% year over year, from about $2,427 to $2,822, and October affordability expected to be worse.

Related Articles:

  • Higher For Longer and The 2024 Housing Outlook — Sustained higher mortgage rates are expected to weigh most on housing turnover, since nearly all borrowers hold rates below market levels, discouraging moves; the authors project existing home sales of 3.8mn, the fewest annual sales since the early 1990s. Housing starts are projected to fall 4% to 1.34mn.
  • America’s Missing Empty Homes — Restoring the pre-pandemic 12% vacancy rate would require 2.7m new housing units left entirely empty, or more than 18m additional units if 75% of new units are filled on net. Construction of 1.4m units in the first half of 2023 failed to keep up with demand, pushing unoccupied housing rates lower.
  • With Housing, Millennials Have Much to Complain About — The Census Bureau's customary homeownership rate is measured by household, showing 52.7% of 25-to-34-year-old household heads own homes, but only 32.6% of all Americans in that age group do — down 20 percentage points from the late 1970s and nearly 10 points since the mid-2000s. Young-adult homeownership has seen a modest resurgence since 2016.

AI Summary. Foreign central banks and sovereign wealth funds historically bought US Treasuries to hold down their own currencies and support exports rather than for yield, and these yield-insensitive official holders have been selling Treasuries to limit their currencies' weakening. Foreign private investors, by contrast, find US yields attractive despite high hedging costs.

Torsten Sløk Apollo
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Torsten Sløk @apolloglobal forecasts that foreign official institutions will stop selling Treasuries given recent dollar weakening.

Do foreign official and private Treasury buyers have different motives?

Core argument: Foreign official institutions such as central banks and sovereign wealth funds bought US Treasuries for FX reasons rather than yield, intervening to limit appreciation of their domestic currencies because an overly strong currency hurts exports.

For decades, the biggest foreign holders of US Treasuries were central banks and sovereign wealth funds around the world. Foreign official institutions were buying Treasuries because many countries, in particular emerging markets, were intervening to limit the appreciation of their domestic currencies because a domestic currency that is too strong hurts exports. In other words, the foreign official sector was not buying Treasuries for yield reasons but for FX reasons to support the US dollar and thereby domestic exports. With the Fed raising rates and the dollar going up, that has now changed. Foreign central banks no longer need to buy US Treasuries and US dollars to depreciate their currencies. And foreign private buyers find US yield levels attractive despite high hedging costs. The bottom line is that with the Fed raising rates and the dollar going up, yield-insensitive central banks have been selling Treasuries to limit the weakening of their domestic currencies.

Takeaways by Macro Roundup® AI

  1. Foreign official institutions such as central banks and sovereign wealth funds bought US Treasuries for FX reasons rather than yield, intervening to limit appreciation of their domestic currencies because an overly strong currency hurts exports.
  2. With the Fed raising rates and the dollar rising, yield-insensitive foreign central banks have been selling Treasuries to limit the weakening of their own currencies, no longer needing to buy dollars to depreciate them.
  3. Foreign private investors find US yield levels attractive despite high hedging costs, unlike the FX-driven buying that long characterized the foreign official sector.

Related Articles:

  • 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.
  • 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.

AI Summary. A teardown of Huawei's Mate 60 Pro smartphone found it runs on a 7-nanometer processor made by Chinese chipmaker SMIC, suggesting China is roughly five years behind the most advanced chip technology. US export controls were aimed at keeping China at least eight years behind.

Bloomberg Staff Bloomberg
Date Posted:

Huawei is the center of China’s efforts to circumvent American export controls, benefiting from an elaborate network of shell companies.

Are export controls keeping China as far behind in chips as intended?

Core argument: A TechInsights teardown of Huawei's Mate 60 Pro conducted for Bloomberg News found the handset is powered by SMIC's advanced 7-nanometer processor, suggesting China is roughly five years behind the most advanced chip technology.

To see how deeply Huawei and the Chinese government are now entwined, look no further than the launch in August of the new Mate 60 Pro smartphone. Huawei timed the release of the phone to coincide with US Commerce Secretary Gina Raimondo’s visit to China in part because of direct encouragement from a senior official at the top of the regime, according to a person familiar with the situation who asked not to be identified discussing sensitive matters. Huawei never disclosed technical details, but a teardown of the handset conducted by TechInsights for Bloomberg News found it was powered by SMIC’s advanced 7-nanometer processor. That suggests China is roughly five years behind the current most advanced technology. Export controls imposed by the Biden administration in 2022 were aimed at keeping China at least eight years behind.

Takeaways by Macro Roundup® AI

  1. A TechInsights teardown of Huawei's Mate 60 Pro conducted for Bloomberg News found the handset is powered by SMIC's advanced 7-nanometer processor, suggesting China is roughly five years behind the most advanced chip technology.
  2. The Biden administration's 2022 export controls aimed to keep China at least eight years behind, a wider gap than the roughly five-year lag implied by the Mate 60 Pro's SMIC processor.
  3. Huawei timed the Mate 60 Pro launch to coincide with US Commerce Secretary Gina Raimondo's August visit to China, in part because of direct encouragement from a senior official at the top of the regime, according to a person familiar with the situation.

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