Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, February 2, 2024

AI Summary. Europe's regulators tend to act on the mere possibility of harm rather than evidence of it, an approach that can throttle innovation early. The McKinsey Global Institute found that among companies with over $1bn in revenue, U.S. firms spent 80% more on research and development, had 30% higher return on capital, and grew revenue 1.3 percentage points faster.

Greg Ip Wall Street Journal
Date Posted:

European firms with at least $1B in revenue spent 3.7% of revenue on R&D vs. 6.8% for comparable US firms, and earned 14% ROIC vs. 17.8% for US firms. @greg_ip points to European competition policy as a driver.

Does regulating against possible harm leave Europe behind on innovation?

Core argument: The McKinsey Global Institute found that among companies with more than $1 billion in revenue, U.S. firms spent 80% more on research and development, earned 30% higher return on capital, and grew revenue 1.3 percentage points faster than European peers.

Europe’s economy underperforms for lots of reasons, from demographics to energy costs, not just regulation. And U.S. regulators aren’t exactly hands-off. Still, they tend to act on evidence of harm, whereas Europe’s will act on the mere possibility. This precautionary principle can throttle innovation in its cradle. The McKinsey Global Institute noted Europe’s internal market is larger than China’s and almost as big as the U.S.’s. But when it compared companies with more than $1 billion in revenue, the U.S. firms spent 80% more on research and development, boasted 30% higher return on capital, and 1.3-percentage points faster revenue growth.

Takeaways by Macro Roundup® AI

  1. The McKinsey Global Institute found that among companies with more than $1 billion in revenue, U.S. firms spent 80% more on research and development, earned 30% higher return on capital, and grew revenue 1.3 percentage points faster than European peers.
  2. Europe's internal market is larger than China's and almost as big as the U.S.'s, according to the McKinsey Global Institute, yet Europe's economy underperforms for reasons ranging from demographics to energy costs, not regulation alone.
  3. European regulators act on the mere possibility of harm while U.S. regulators tend to act on evidence of harm, and this precautionary principle can throttle innovation in its cradle.

Related Articles:

  • EU’s New AI Act Risks Hampering Innovation, Warns Emmanuel Macron — France has warned that the European Union's new artificial intelligence law would impose the world's toughest regime on the foundation models underpinning generative AI products and risk hampering innovation. The rules impose transparency requirements on powerful AI models, restrict facial recognition, and prohibit "social scoring" of people based on behavior or personal characteristics.
  • Attenuating Innovation (AI) — AI regulation locks in incumbents, and the early AI winners promoting alarm in Washington about AI risks are engaged in regulatory capture, seeking rules that hobble future competitors while continuing their own development. Such an executive order is proscriptive rather than adaptive and presumes knowledge of an unknowable future.
  • Erik Brynjolfsson: ‘This Could Be The Best Decade in History — Or The Worst’ — Studies of large language models across tasks including software coding, consulting, and writing find double-digit productivity gains appearing within months, with less-skilled workers typically benefiting most. Given the large share of modern work these tools can augment, the author projects US productivity growth near 3% annually in the 2020s, roughly double the Congressional Budget Office's 1.4% projection.

AI Summary. Europe's fragmented financial sector struggles to supply enough capital and liquidity to support European companies and economic growth, with the gap between US and European financial sectors widening since the 2008-2009 crisis. The total market value of European banks fell from $2.7tn to $1.4tn, while US bank market value rose from $1.6tn to $2.6tn.

Rebecca Patterson Financial Times
Date Posted:

Between 2009-23 the S&P 500 saw gains 5x of the Euro Stoxx 50 in local currency terms. Rebecca Patterson argues Europe’s financial sector is dragging down economic growth by failing to “pump sufficient capital and liquidity” into European firms.

Is Europe's fragmented financial sector holding back its economic growth?

Core argument: The total market capitalisation of European banks, including the UK and Switzerland, fell from $2.7tn in 2007 to $1.4tn by 2021, according to a study by the Official Monetary and Financial Institutions Forum.

Europe’s relatively narrow and fragmented financial industry is like a weak financial heart that struggles to pump sufficient capital and liquidity to support healthy European companies and economic growth. The gap between US and European financial sectors has widened steadily since the 2008-2009 crisis, after which banking regulations were notably tightened. Indeed, the total market capitalisation of European banks (including the UK and Switzerland) fell from $2.7tn in 2007 to $1.4tn by 2021, according to a recent study by the Official Monetary and Financial Institutions Forum, a think-tank. Europe’s decline is even more striking when compared with the increase in US bank market capitalisation: from $1.6tn to $2.6tn.

Takeaways by Macro Roundup® AI

  1. The total market capitalisation of European banks, including the UK and Switzerland, fell from $2.7tn in 2007 to $1.4tn by 2021, according to a study by the Official Monetary and Financial Institutions Forum.
  2. US bank market capitalisation rose from $1.6tn to $2.6tn, according to the Official Monetary and Financial Institutions Forum study, contrasting with the decline in Europe.
  3. Europe's narrow and fragmented financial industry struggles to supply sufficient capital and liquidity to support European companies and economic growth, with the gap versus the US widening steadily since the 2008–2009 crisis, after which banking regulations were tightened.

Related Articles:

  • How The US Is Crushing Europe’s Domestic Exchanges — US equities make up nearly 70% of the MSCI World index, and its 10 largest constituents — all US companies — exceed the combined market capitalization of Japan, the UK, France, Canada, and Germany. That depth and liquidity attracts new listings from both US and overseas issuers.
  • Europe Has Fallen Behind America and the Gap is Growing — The EU economy was somewhat larger than the US in 2008 ($16.2tn versus $14.7tn), but by 2022 the US had grown to $25tn while the EU and UK combined reached only $19.8tn. The dollar's status as the world's reserve currency allows the US to finance its ambitions without unsettling markets.
  • From Strength To Strength — The US produced $25.5tn in GDP, about 25% of the world total—roughly its 1990 share—while China's share stands at 18%; the US share of the G7's nominal GDP rose from 40% in 1990 to 58%. Income per person is now about 30% above western Europe and 54% above Japan, adjusted for purchasing power.

AI Summary. US government interest payments have doubled from about $350bn in 2021 to over $700bn annually, reflecting higher interest rates and debt levels.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes since 2021 US government interest payments have doubled to over $700B annually, driven by higher interest rates and debt levels.

Have government interest payments doubled with higher rates and debt?

Core argument: US government interest payments have doubled from roughly $350 billion in 2021 to above $700 billion on an annualized basis, according to Torsten Sløk of Apollo Global.

In 2021, US government interest payments were around $350 billion. Because of the increase in interest rates and debt levels, annualized debt servicing costs are now above $700 billion.

Takeaways by Macro Roundup® AI

  1. US government interest payments have doubled from roughly $350 billion in 2021 to above $700 billion on an annualized basis, according to Torsten Sløk of Apollo Global.
  2. Torsten Sløk attributes the doubling of US annualized debt servicing costs to increases in both interest rates and debt levels.

Related Articles:

  • Why We Should, but Won’t, Reduce the Budget Deficit — High interest rates will likely crowd out private investment and weaken long-term growth prospects. Because Social Security, health care, other safety-net programs, defense, and interest payments make up most federal spending, leaving only a small and already squeezed slice of nondefense discretionary spending, deficit reduction requires either cutting popular benefits or raising taxes.
  • Who Benefits from Higher Yields? — Higher interest rates raise cash flows to fixed income holders, but the Federal Reserve and foreign investors hold 50% of outstanding Treasuries and foreigners hold 28% of outstanding corporate credit, so much of that added income does not boost US growth. The author argues higher rates are a net negative for the US economy.
  • The High Cost of Borrowing at Low Rates — The authors estimate that nearly 60% of US debt originated when the average ten-year Treasury rate was below 3%, and 75% when three-month Treasuries paid below 3%. That debt is now being rolled over into Treasuries paying 4.5%–5.6%, a rollover risk the authors argue policymakers failed to account for.

AI Summary. US federal debt held by the public stood at 95.4% of GDP, down from a peak of 103.2% in mid-2020 and up from a low of 21.9% in 1974. The author argues that if the US matches program spending to taxes—borrowing only to pay interest, a deficit of about 3% of GDP—the debt burden would likely gradually diminish.

Brad DeLong Brad DeLong's Grasping Reality
Date Posted:

.@delong proposes roughly matching federal program spending with taxes and running a deficit of ~ 3% of GDP to pay interest on federal debt. He is bearish on the prospect of building a legislative coalition to get there.

Would matching program spending to taxes shrink the debt burden over time?

Core argument: Federal debt held by the public stands at 95.4% of GDP, versus 94.0% at the start of Biden's first budget-year, a peak of 103.2% in mid-2020, and a low of 21.9% in the third quarter of 1974.

Federal debt held by the public reached a low point as a percentage of GDP reached a low point of 21.9% in the third quarter of 1974. Debt-to-GDP reached a peak of 103.2% in the middle of the COVID plague in mid-2020. It stood at 94.0% at the start of Biden’s first budget-year. And it stands at 95.4% today. If the United States can roughly match government program spending to taxes in the future while it rolls over its debt as it matures and borrows more money to pay the interest, the debt is highly likely to gradually diminish, and eventually fade away. Such a policy is a “deficit gamble”, but it is one on very favorable terms. That is if the United States matches program spending to taxes: and attains an average level of zero for what economists call the primary deficit. That does not mean a balanced budget. It means borrowing more only to pay the interest owed on what had been borrowed before. It means a current-cash deficit of around 3% of GDP—of approximately $800 billion a year.

Takeaways by Macro Roundup® AI

  1. Federal debt held by the public stands at 95.4% of GDP, versus 94.0% at the start of Biden's first budget-year, a peak of 103.2% in mid-2020, and a low of 21.9% in the third quarter of 1974.
  2. Holding the primary deficit at an average of zero—borrowing only to pay interest on existing debt—would make it highly likely that the debt gradually diminishes and eventually fades away.
  3. A zero average primary deficit means not a balanced budget but a current-cash deficit of around 3% of GDP, roughly $800 billion a year, a "deficit gamble" on very favorable terms.

Related Articles:

  • 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.
  • R versus G and the National Debt — National debt is considered sustainable when it grows more slowly than gross domestic product, so when the average interest rate on government debt (R) is below the economy's growth rate (G), debt can be sustainable even if non-interest spending exceeds revenue. R has been below G over the past 15 years.

AI Summary. Reversing the fiscal deterioration by returning to pre-2001 tax law would mean higher rates, smaller credits and more taxpayers, while pre-2001 spending law would mean no Medicare drug benefit and deep military and domestic cuts. With more seniors and higher health costs, matching pre-2001 levels would require dramatic per-person benefit cuts and tax increases above 15%.

Marc Goldwein Committee For A Responsible Federal Budget
Date Posted:

Deficits have grown by 7.5% of GDP since 2001. @MarcGoldwein notes 2/3 of the increase is higher spending, mainly on health care and retirement.

What would returning to earlier tax and spending law require?

Core argument: Reverting to pre-2001 tax law would mean higher rates, smaller credits, more taxpayers owing tax, and roughly a quarter of taxpayers on the alternative minimum tax.

Can we get out of this mess the way we got into it? We could revert to pre-2001 law, but we can’t change the past. A lot of the costs were temporary (wars, COVID relief, TCJA). Pre-2001 law means way higher taxes for everyone – higher rates, smaller credits, more taxpayers, ¼ of taxpayers on AMT. Pre-2001 law means no Medicare drug benefit, big military cuts, no homeland security dept, big domestic cuts, etc. We could revert to pre-2001 levels, but with more seniors & higher health costs, per-person Social Security & Medicare benefits would have to be cut dramatically. Taxes would have to go up >15% a big tax hike.

Takeaways by Macro Roundup® AI

  1. Reverting to pre-2001 tax law would mean higher rates, smaller credits, more taxpayers owing tax, and roughly a quarter of taxpayers on the alternative minimum tax.
  2. Returning to pre-2001 spending law would eliminate the Medicare drug benefit and the Department of Homeland Security while imposing large military and domestic cuts.
  3. Reverting to pre-2001 fiscal levels, with more seniors and higher health costs, would require dramatic cuts to per-person Social Security and Medicare benefits and tax increases of more than 15%.

Related Articles:

  • From Riches to Rags: Causes of Fiscal Deterioration Since 2001 — Federal debt held by the public rose from 32% to 98% of GDP over roughly two decades, despite earlier Congressional Budget Office projections that the debt would be paid off. The authors attribute 37 percentage points to major tax cuts, 33 to discretionary spending and Medicare expansions, and 28 to recession and pandemic responses.
  • 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.
  • Olivier Blanchard on Debt Explosions — 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.

AI Summary. The U.S. government said it disrupted a Chinese hacking operation that hijacked hundreds of infected routers to covertly target American and allied critical infrastructure networks. Officials described it as part of a campaign by Beijing to gain a foothold in networks running water treatment, the electrical grid, pipelines, and transportation so it could launch damaging cyberattacks in a future conflict.

Dustin Volz Wall Street Journal
Date Posted:

The US government is attempting to disrupt Chinese cyber capacity to attack US and allied critical civilian infrastructure networks, including air traffic control and utilities.

The US government is attempting to disrupt Chinese cyber capacity to attack US and allied critical civilian infrastructure...

Is China embedding itself in U.S. critical infrastructure networks?

Core argument: The U.S. government said it disrupted a Chinese hacking operation that hijacked hundreds of infected routers to covertly target American and allied critical infrastructure networks, describing it as uniquely dangerous and potentially life-threatening.

The U.S. government said it had disrupted a uniquely dangerous and potentially life-threatening Chinese hacking operation that hijacked hundreds of infected routers and used them to covertly target American and allied critical infrastructure networks. Senior officials described the operation in unusually blunt terms as part of an evolving and increasingly worrisome campaign by Beijing to get a foothold in U.S. computer networks responsible for everything from safe drinking water to aviation traffic so it could detonate, at a moment’s notice, damaging cyberattacks during a future conflict. [FBI Director] Wray said Chinese hackers had recently been spotted targeting “our water treatment plants, our electrical grid, our oil and natural gas pipelines, our transportation systems.”

Takeaways by Macro Roundup® AI

  1. The U.S. government said it disrupted a Chinese hacking operation that hijacked hundreds of infected routers to covertly target American and allied critical infrastructure networks, describing it as uniquely dangerous and potentially life-threatening.
  2. Senior U.S. officials said Beijing's campaign seeks a foothold in U.S. networks running everything from safe drinking water to aviation traffic so it could launch damaging cyberattacks at a moment's notice during a future conflict.
  3. FBI Director Wray said Chinese hackers had recently been spotted targeting U.S. water treatment plants, the electrical grid, oil and natural gas pipelines, and transportation systems.

Related Articles:

  • Volt Typhoon Targets US Critical Infrastructure with Living-Off-The-Land Techniques — Microsoft has identified stealthy intrusions by Volt Typhoon, a Chinese state-sponsored actor, against US critical infrastructure organizations spanning communications, manufacturing, utilities, transportation, maritime, government, information technology, and education. Microsoft assesses with moderate confidence that the campaign is developing capabilities that could disrupt critical communications infrastructure between the US and Asia during future crises.
  • The Next Global War — The authors argue the US-led international order faces three linked regional challenges — China's military buildup in the western Pacific, Russia's war in Ukraine, and Iran and its proxies in the Middle East — united by autocratic governance and grievance. They contend larger defense spending is essential but politically difficult and slow to take effect.
  • Why Xi Can No Longer Brag About the Chinese Economy — China's shipyards build 46% of the world's ships, letting it produce several warships and submarines a year, while the U.S. holds under 1% of capacity and its Navy faces late, over-budget deliveries from a few yards lacking workers. China is also the largest drone producer.

Monday, February 5, 2024

AI Summary. A 10% increase in wages where people live is associated with 3.5% less migration, while a 10% increase in destination wages is associated with 7.8% more migration; a 10% rise in destination home prices is associated with 2.6% less migration. The authors find wage responses alone would have raised migration rates, but housing-related factors more than offset them.

William Olney and Owen Thompson National Bureau of Economic Research
Date Posted:
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The decline in internal migration in the US has been driven by increasing housing prices; potential wage gains from migration are being offset by housing-related factors.

Do housing costs offset wage incentives driving internal migration?

Core argument: A 10% increase in destination-area wages is associated with a 7.8% rise in migration, while a 10% increase in origin wages is associated with a 3.5% decline.

A 10% increase in the origin wage is associated with a 3.5% decline in migration, while a 10% increase in the destination wage is associated with a 7.8% increase in migration. For housing, a 10% increase in origin home prices is associated with a 1.4% increase in migration, but a 10% increase in destination home prices is associated with a 2.6% decline in migration. These analyses show that wages on their own would have led to an increase in migration rates, primarily because migrants are increasingly responsive to high earnings levels in potential destination communing zones (CZs). However, these wage effects have been more than offset by housing-related factors, which have increasingly impeded internal mobility. In particular, migration has become much less responsive to housing prices in the origin CZ, such that many households that would have left in response to high home prices several decades ago now choose to stay.

Takeaways by Macro Roundup® AI

  1. A 10% increase in destination-area wages is associated with a 7.8% rise in migration, while a 10% increase in origin wages is associated with a 3.5% decline.
  2. A 10% increase in destination home prices is associated with a 2.6% decline in migration, while a 10% increase in origin home prices is associated with a 1.4% increase.
  3. Wage effects on their own would have raised migration rates, but housing-related factors more than offset them, with migration becoming much less responsive to origin-area home prices than several decades ago.

Related Articles:

  • Movers And Money: Mapping the Flow of Income During the Pandemic — Manhattan recorded the largest county-level income outflow to other states at $16.5bn, with 27.7 cents of every dollar leaving—$4.6bn—going to Florida, including $2.9bn to Miami-Dade County and $1.1bn to Palm Beach County. California had the largest state-level losses, while Florida was the biggest beneficiary with a net gain of $39bn.
  • Southern Comforts — Migration into southern metropolitan areas such as Austin, San Antonio, Jacksonville, and Tampa has continued, and the South also has a higher birth rate than other census regions. Growth has been uneven: Florida's GDP rose 20% and Texas and Tennessee 15% against a US average of 11%, while Oklahoma and Louisiana contracted.
  • A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South — Six fast-growing Southern states — Florida, Texas, Georgia, North and South Carolina, and Tennessee — now contribute more to US GDP than the Northeast, including the Washington-New York-Boston corridor. The Southeast accounted for more than two-thirds of US job growth since the pandemic began, nearly double its pre-pandemic share, and housed 10 of the 15 fastest-growing large American cities.

AI Summary. Core wage growth is running slightly faster than in the late 1990s and 2005-2007, about 2-3 percentage points faster than before the pandemic. The author argues a steady state near 5% annual wage growth need not be inflationary if workers save more or productivity gains let businesses expand output to meet demand.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues “wages are rising about 2-3pp faster than in the pre-pandemic period. The apparent steady state of ~5% yearly wage growth does not have to be inflationary.”

Can wage growth near 5% avoid fueling inflation?

Core argument: Core wage growth is running about 2–3pp faster than in the pre-pandemic period, slightly exceeding rates seen in the late 1990s and in 2005–2007.

Core wage growth is now running slightly faster than it was in the late 1990s and in 2005-2007. Put another way, wages are rising about 2-3pp faster than in the pre-pandemic period. The apparent steady state of ~5% yearly wage growth does not have to be inflationary. If workers save more, they would (partly) break the link between wages and spending, which would relieve some of the pressure on businesses to ration finite quantities via higher prices. And if businesses can ramp up output sufficiently to meet demand through productivity gains, inflation would be muted relative to spending growth. There are reasons to be optimistic about both factors, but it is too early (for me) to have much confidence about how this will play out.

Takeaways by Macro Roundup® AI

  1. Core wage growth is running about 2–3pp faster than in the pre-pandemic period, slightly exceeding rates seen in the late 1990s and in 2005–2007.
  2. A steady state of roughly 5% annual wage growth need not be inflationary if workers save more, partly breaking the link between wages and spending and easing pressure on businesses to ration supply through higher prices.
  3. Productivity gains that let businesses raise output enough to meet demand would mute inflation relative to spending growth, though it remains too early to have much confidence in how saving and productivity will play out.

Related Articles:

  • The Labor Market Is Primed For a Soft Landing — Elevated wage growth can threaten a strong labor market if it raises inflation concerns and leads the Federal Reserve to hold monetary policy tighter, though productivity growth eases that concern. After wage growth exceeded a sustainable benchmark of productivity growth plus the Federal Reserve's 2% inflation target, rebounding productivity and moderating wage growth have narrowed the gap.
  • Is Post-Pandemic Wage Growth Fueling Inflation? — A model forecasts no statistically significant additional wage pressure on prices if year-over-year employment cost growth runs between 3.78% and 4.25%, a range above the Federal Reserve's 2% inflation target plus average productivity growth. Because inflation has outpaced productivity-adjusted wages, wages have room to catch up without adding inflation.
  • 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.

AI Summary. A record $8.9tn of US government debt matures over a one-year period, and combined with a projected $1.4tn budget deficit and the Federal Reserve shrinking its balance sheet by $60bn per month, buyers will be needed for more than $10tn of Treasuries — over one-third of outstanding US government debt and of US GDP.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal reports that “someone will need to buy more than $10 trillion in US government bonds in 2024” as a record $8.9 trillion of government debt will mature over the next year.

How much Treasury debt will the market need to absorb?

Core argument: Buyers will need to absorb more than $10 trillion in US Treasuries in 2024, more than one-third of outstanding US government debt and more than one-third of US GDP.

A record $8.9 trillion of government debt will mature over the next year. The government budget deficit in 2024 will be $1.4 trillion according to the CBO, and the Fed has been running down its balance sheet by $60 billion per month. The bottom line is that someone will need to buy more than $10 trillion in US government bonds in 2024. That is more than one-third of US government debt outstanding. And more than one-third of US GDP. This may be a particular challenge when the biggest holders of US Treasuries, namely foreigners, continue to shrink their share. More fundamentally, interest rate-sensitive balance sheets such as households, pensions, and insurance have been the biggest buyers of Treasuries in 2023, and the question is whether they will continue to buy once the Fed starts cutting rates.

Takeaways by Macro Roundup® AI

  1. Buyers will need to absorb more than $10 trillion in US Treasuries in 2024, more than one-third of outstanding US government debt and more than one-third of US GDP.
  2. A record $8.9 trillion of US government debt matures over the next year, alongside a CBO-projected $1.4 trillion budget deficit for 2024 and Federal Reserve balance-sheet runoff of $60 billion per month.
  3. Foreigners, the largest holders of US Treasuries, continue to shrink their share, while interest rate-sensitive buyers such as households, pensions, and insurers were the biggest buyers in 2023, leaving open whether they keep buying once the Federal Reserve cuts rates.

Related Articles:

  • Government Interest Payments Have Doubled Since 2021 — US government interest payments have doubled from about $350bn in 2021 to over $700bn annually, reflecting higher interest rates and debt levels.
  • 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.
  • 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.

AI Summary. US interracial marriage rates showed no decline despite heightened public discourse about racial tension, a metric where increased racial tension would be expected to register. The author argues America's ethnoracial composition is more mixed than it has ever been, resembling a Latin American country more than a European one.

Cremieux Cremieux Recueil
Date Posted:

An analysis by @cremieuxrecueil finds that 16% of marriages in 2022 were interracial, up from 12% in 2008. The increase has been largely driven by intermarriage between whites and Hispanics.

Have interracial marriage rates declined amid rising talk of racial tension?

Core argument: Interracial marriage rates in the U.S. showed no decline during the "Great Awokening," a period in which heightened racial tension would have been expected to reduce them if race relations had worsened.

If the "Great Awokening” or “Great Racial Reckoning”, or whatever you wish to call it had a major impact on race relations in the U.S., [interracial marriage] is about the hardest metric on which it could have shown up. It’s reasonable to posit that, if people really were feeling more racial tension, interracial marriage rates should have declined as a result. That was not at all evident in the data. The trajectory for America’s ethnoracial composition remains one that is more mixed than it has ever been, more akin to a Latin American country than a European one. Although, it should be noted, Europe’s indigenous population is also rapidly aging and mixing at as-yet unforeseen rates so the analogy may have to change to a comparison with countries like China and Japan.

Takeaways by Macro Roundup® AI

  1. Interracial marriage rates in the U.S. showed no decline during the "Great Awokening," a period in which heightened racial tension would have been expected to reduce them if race relations had worsened.
  2. America's ethnoracial composition is on a trajectory toward being more mixed than it has ever been, resembling a Latin American country more than a European one.
  3. Europe's indigenous population is aging and mixing at rapid rates, which may make countries like China and Japan the more apt comparison.

Related Articles:

  • Econ Focus: Melissa Kearney — The decline in marriage and the rise in children raised in one-parent homes have occurred predominantly outside the college-educated class, whose members continue to marry, often to each other, while earnings for adults without a college degree have stagnated or risen only slightly. These divergent family-structure trends mean household inequality has widened by more than earnings inequality alone would imply.
  • Bringing Home the Bacon: Have Trends in Men’s Pay Weakened the Traditional Family? — Using the 25th percentile of pretax earnings among married sole-breadwinner fathers aged 25–29 as a marriageability threshold, the author estimates the share of young single men earning below it moved from 63% to 58% over four decades. Using an earlier baseline year instead yields a larger change, from 72% to 57%.
  • Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-Age Men — Among US prime-age men without college degrees, a 10% rise in expected earnings is associated with a 0.12 percentage point lower labor force exit rate, while a 10% rise in peers' reference earnings is associated with a 0.13 percentage point higher exit rate, fully offsetting the earnings effect.

AI Summary. Adjusted for inflation, aggregate credit card balances are roughly back to their 2019 level and close to their 2003–2023 average, having increased since 2022. Credit card balances per person equal 6.3% of mean income, below the historical average of 7.3% and near the series low of 5.2%.

Scott Fulford and Neale Mahoney Briefing Book
Date Posted:

In 2023 credit card balances per person were 6.3% of mean income, below the 7.3% historical average and fairly close to the 5.2% low in 2021. @nealemahoney @Scott_L_Fulford

Are credit card balances elevated after adjusting for inflation and income?

Core argument: Credit card balances per person equal 6.3% of mean income, below the historical average of 7.3% and fairly close to the series low of 5.2% recorded in 2021.

Adjusting for inflation, credit card balances are fairly typical. Although they have increased since 2022, aggregate credit card balances are roughly back to their 2019 level and close to their average over 2003 to 2023. Moreover, compared to incomes, credit card balances are well below their historical average. The figure shows credit card balances per person as a percentage of mean income. At 6.3%, the percentage is below its historical average (7.3%) and fairly close to the series low (5.2% in 2021). The pattern is similar if we use other income or population measures.

Takeaways by Macro Roundup® AI

  1. Credit card balances per person equal 6.3% of mean income, below the historical average of 7.3% and fairly close to the series low of 5.2% recorded in 2021.
  2. Adjusted for inflation, aggregate credit card balances are roughly back to their 2019 level and close to their 2003–2023 average, despite rising since 2022.
  3. The pattern of credit card balances sitting below their historical average relative to income holds when using other income or population measures.

Related Articles:

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  • Not Such A Cruel Summer — Bank of America internal data show average credit card balances for middle- and higher-income households at levels equivalent to 2019, while balances for lower-income households have risen more steeply and exceed their pre-pandemic range. Lower-income households continue to see faster wage growth, which offsets some of that pressure.
  • Credit Card Delinquencies Continue to Rise—Who Is Missing Payments? — Delinquency rates have risen from historic lows across most credit products, with auto loan and credit card delinquencies exceeding pre-pandemic levels while mortgage transitions into delinquency remain below them. The increase is broad-based across income groups and regions but disproportionately driven by Millennials, borrowers with auto or student loans, and those with relatively higher credit card balances.

AI Summary. Unlike the 1970s inflation waves, when inflation expectations rose as much as or more than inflation itself, inflation expectations stayed anchored near 3% while inflation reached 8%, which the author argues is an important reason inflation fell back. The author contends central banks still had to raise rates, since without hikes inflation would likely have been higher.

Jesper Rangvid Rangvid's Blog
Date Posted:

Jesper Rangvid argues that inflation was not transitory, and without tighter monetary conditions stronger economic growth would have driven higher inflation. He credits the Fed with keeping expectations anchored.

Were rate hikes necessary when inflation expectations stayed anchored?

Core argument: Inflation expectations peaked at 3% at the end of 2022 while inflation itself reached 8%, and anchored expectations are an important reason inflation has since fallen.

Figure 2 shows that inflation expectations rose just as much or even more than inflation itself during the two inflation waves in the 1970s. Higher inflation expectations fuelled inflation and made it more difficult to bring it down. The contrast with today’s inflation episode is striking. Today, inflation has also skyrocketed, to 8%. However, inflation expectations have remained anchored. At their peak at the end of 2022, inflation expectations were 3%, while inflation itself was at the aforementioned 8%. The fact that inflation expectations have remained low even though inflation has shot up is an important reason why inflation has fallen again. Moreover, the economy would probably have been even stronger and inflation even higher if there had been no rate hikes. Ultimately, this was not just a temporary supply-driven event. Central banks had to raise interest rates. Past experiences with alternative monetary policy responses have proved disastrous.

Takeaways by Macro Roundup® AI

  1. Inflation expectations peaked at 3% at the end of 2022 while inflation itself reached 8%, and anchored expectations are an important reason inflation has since fallen.
  2. During the two inflation waves of the 1970s, inflation expectations rose as much as or more than inflation itself, fuelling inflation and making it harder to bring down, unlike the current episode.
  3. Central banks had to raise interest rates because the episode was not just a temporary supply-driven event, and without rate hikes the economy would probably have been stronger and inflation higher.

Related Articles:

  • Rangvid On Housing Inflation — US core inflation measures include the cost of owner-occupied housing by imputing what homeowners would pay to rent from themselves, while Europe's core measure leaves owner-occupied housing out entirely. Measured the European way, US inflation is already back to 2%, while European inflation remains well above target.
  • 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.
  • When Will There Be No More Excess Savings Left? — Post-pandemic excess savings and core consumer price inflation one year later track each other closely, with inflation rising, peaking, and declining roughly a year after excess savings did. The author argues fiscal stimulus that boosted disposable income and excess savings contributed to this inflation episode, alongside monetary policy and supply chain problems.

AI Summary. Dartmouth College has reinstated its standardised test requirement after commissioned research concluded that dropping it did not increase applicant diversity and that high school grade point averages and counsellor recommendations were far less reliable predictors of university performance than SAT scores.

Andrew Jack Financial Times
Date Posted:

Dartmouth College has reinstated standardized testing requirements. A review found that the test results were a better indicator of undergraduate performance than high school grade point average.

Dartmouth College has reinstated standardized testing requirements. A review found that the test results were a better...

Do standardised test scores predict college performance better than grades?

Core argument: Students admitted to Dartmouth without SAT scores on average scored only better than the lowest 30% of the total intake in their first-year university exams, according to research commissioned by the college.

Dartmouth College is breaking ranks with its elite US university peers by reinstating a requirement for standardised test results put on hold during the pandemic. Research commissioned by Dartmouth concluded that dropping the requirement for tests did not increase the diversity of candidates. It found that those from lower socio-economic backgrounds did not apply or submit test scores which would have strengthened their case if they believed erroneously that they were too low. It found that grade point averages given by high school teachers based on performance in their classes and recommendations by college counsellors were far less reliable indicators of student performance once they reached university than SATs. Those admitted to Dartmouth without SATs on average only scored better than the lowest 30% of the total intake in their first-year university exams.

Takeaways by Macro Roundup® AI

  1. Students admitted to Dartmouth without SAT scores on average scored only better than the lowest 30% of the total intake in their first-year university exams, according to research commissioned by the college.
  2. Dartmouth College is reinstating its standardised testing requirement, suspended during the pandemic, after commissioned research concluded that dropping the requirement did not increase the diversity of candidates.
  3. The Dartmouth research found high school grade point averages and college counsellor recommendations were far less reliable indicators of university performance than SATs, and that applicants from lower socio-economic backgrounds withheld scores they wrongly believed were too low.

Related Articles:

  • The Misguided War On The SAT — The National Assessment of Educational Progress, a nationwide test of elementary and middle school students with no test-prep industry around it, shows racial and economic gaps closely resembling those on the SAT and ACT. Researchers argue this indicates college admissions tests measure underlying learning, making score disparities a symptom rather than a cause of inequality.
  • Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges — Children from top-1% families are more than 2x as likely as middle-class students with comparable SAT/ACT scores to attend an Ivy-Plus college, with two-thirds of the gap attributable to higher admissions rates. The authors attribute this advantage to legacy preferences, weight on non-academic credentials, and athlete recruitment.
  • ACT Scores Fell for Class of 2023, Sixth Consecutive Decline — The average ACT college admissions test score fell to 19.5 out of 36, a 30-year low and a sixth consecutive annual decline, with scores down across English, math, reading and science. The testing organization says the results indicate fewer high-school seniors are ready for college.