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, April 11, 2024

AI Summary. Using admission-score cutoffs across all 35 Texas public universities, the author estimates that marginally admitted students complete an additional year of four-year education, are 12 percentage points more likely to earn a bachelor's degree, and earn 5–10% more than marginally rejected peers, with gains driven by students who otherwise would not attend a four-year school.

Jack Mountjoy National Bureau of Economic Research
Date Posted:
Is Database:
Database

Data from public universities in Texas show students whose test scores marginally qualify for their target 4-year state college have higher educational attainment and eventually earn 10% more than counterparts whose scores marginally fail to qualify.

Do marginally admitted public university students earn more than rejected peers?

Core argument: Marginally admitted students at Texas public universities complete an additional year of four-year education, are 12 percentage points more likely to earn a bachelor's degree, and eventually earn 5–10 percent more than marginally rejected but otherwise identical students.

I use administrative admission records spanning all 35 public universities in Texas, which collectively enroll 10 percent of American public university students, to systematically identify and employ decentralized cutoffs in SAT/ACT scores that generate discontinuities in admission and enrollment. The typical marginally admitted student completes an additional year of education in the four-year sector, is 12 percentage points more likely to earn a bachelor's degree, and eventually earns 5-10 percent more than [a] marginally rejected but otherwise identical counterpart. I derive tight bounds on separate effects for students on the extensive margin of the four-year sector versus those who would fall back to a less-preferred four-year school if rejected. These results revealed a dominant role for the extensive margin in driving the average marginal returns.

Takeaways by Macro Roundup® AI

  1. Marginally admitted students at Texas public universities complete an additional year of four-year education, are 12 percentage points more likely to earn a bachelor's degree, and eventually earn 5–10 percent more than marginally rejected but otherwise identical students.
  2. The study draws on administrative admission records from all 35 public universities in Texas, which together enroll 10 percent of American public university students, exploiting decentralized SAT/ACT cutoffs that generate discontinuities in admission and enrollment.
  3. Tight bounds on separate effects indicate a dominant role for the extensive margin of the four-year sector, rather than students who would fall back to a less-preferred four-year school, in driving average marginal returns.

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.
  • How Ivy League Schools Tilt Your Odds in the Lottery of Life — Research classifying incomes by percentile finds that among top students, 19% of those who attended elite schools reach the richest 1% of the income distribution, versus 12% of those who did not. The authors compare these upper-tail outcomes to lottery tickets: elite schools offer many, most worth nothing, a few a jackpot.

AI Summary. All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.

Justin Fox Bloomberg
Date Posted:

All of the increase in US employment since 2020 has been among foreign-born workers. “Without immigration, the US working-age population would be shrinking, and this seems likely to remain the case for the rest of the decade.” @foxjust

Is immigration the only thing keeping the US working-age population from shrinking?

Core argument: All of the increase in US employment since February 2020 has been among foreign-born workers, and the jump in immigration appears to be enabling the soft landing most economists deemed impossible as of late 2022.

All the increase in employment in the US since February 2020 has been among foreign-born workers. The sudden jump in immigration seems to be enabling the soft landing that most economists saw as impossible as of late 2022. There have been trade-offs. The Great Resignation coincided with what David Autor dubbed the “unexpected compression,” in which low-wage workers made big pay gains relative to those with higher incomes. That period of outperformance ended in the middle of 2023, according to the Federal Reserve Bank of Atlanta’s Wage Growth Tracker. But without immigration, the US working-age population would be shrinking, and this seems likely to remain the case for the rest of the decade. Immigrants are taking all the jobs because, on net, no one else is available.

Takeaways by Macro Roundup® AI

  1. All of the increase in US employment since February 2020 has been among foreign-born workers, and the jump in immigration appears to be enabling the soft landing most economists deemed impossible as of late 2022.
  2. Without immigration, the US working-age population would be shrinking, a condition likely to persist for the rest of the decade, leaving immigrants to fill jobs because on net no one else is available.
  3. The low-wage workers' pay gains relative to higher earners, which David Autor dubbed the "unexpected compression," ended in mid-2023, according to the Federal Reserve Bank of Atlanta's Wage Growth Tracker.

Related Articles:

  • Immigration and the U.S. Economy Since the Pandemic: An Accounting Exercise — The US native-born labor force fell by about 1.2m over four years, a decline driven overwhelmingly by population aging, while foreign-born labor supply grew by about 3m, leaving the overall labor force up roughly 2m. Without immigration, the total US labor force would have shrunk.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.
  • Employment Pivot — The Federal Reserve now indicates that a surge in migration will expand labor supply and moderate wage growth without requiring higher unemployment, making strong job gains compatible with potential rate cuts. Overall jobs data show native-born employment little changed since 2020 while foreign-born employment rose by 3m.

AI Summary. One scenario, given a 30% chance, is that the US is emerging from secular stagnation as fifteen years of government deficits resolved a safe-asset shortage that had pinned short-term Treasury rates near their lower bound, with a high-pressure economy and an AI boom lifting productivity. Prudence would mean an annual deficit of $800bn, 3% of GDP, rather than $1.7tn, 6%.

Brad DeLong Grasping Reality
Date Posted:

After yesterday’s CPI print @delong has reduced the likelihood a delayed deflationary cycle to 40% and now sees an equal likelihood of an AI-powered boom or a nascent fiscal crisis in the US.

Are we emerging from secular stagnation into faster productivity growth?

Core argument: DeLong assigns a 30% chance that the U.S. has emerged from secular stagnation, with fifteen years of government deficits resolving the safe-asset shortage that had pinned short-term Treasury rates near their lower bound and constrained central banks.

A scenario is that we are now emerging from the decade and more of secular stagnation: The debt accumulations of fifteen years of government deficits have resolved the safe-asset shortage which had kept short-term Treasury interest rates very near their lower bound and greatly reduced central banks’ abilities to manage the economy. Faster productivity growth from a high-pressure economy raises returns and investments and validates the current interest-rate configuration as high expected future profits from expansion drive investment ahead of savings. An AI-boom in which scaling laws hold for long enough that the build-out of tech capital does produce some very useful and valuable use cases further amplifies productivity growth. In that case, we get back to the growth configuration we had in the Clinton years—The chance of this scenario? I guess it at 30%. The other 30%? For more than fifteen years I have been saying that the bond market will tell us when it is time to start worrying again about moving the federal budget closer to balance. It would certainly be prudent to have a current annual deficit of not $1.7 trillion a year—6% of GDP—but rather $800 billion—3% of GDP.

Takeaways by Macro Roundup® AI

  1. DeLong assigns a 30% chance that the U.S. has emerged from secular stagnation, with fifteen years of government deficits resolving the safe-asset shortage that had pinned short-term Treasury rates near their lower bound and constrained central banks.
  2. In DeLong's optimistic scenario, faster productivity growth from a high-pressure economy plus an AI boom in which scaling laws hold long enough to yield valuable use cases validates the current interest-rate configuration and restores Clinton-era growth.
  3. DeLong argues it would be prudent to cut the annual federal deficit from $1.7 trillion, or 6% of GDP, to $800 billion, or 3% of GDP, having said for more than fifteen years that the bond market would signal when to worry.

Related Articles:

  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.
  • Living with High Public Debt — High public debt ratios are likely to persist because large sustained primary budget surpluses are politically unrealistic, real interest rates are already very low, faster global growth is hard to engineer, inflation is not a sustainable route to reducing debt, and financial repression is less feasible amid liberalized markets.

AI Summary. U.S. Centers for Disease Control data on nonfatal self-harm show a 518% increase in hospitalizations following emergency department visits among girls aged 10–14, with a large rise also among girls aged 15–19. Because suicide deaths vary by sex and age, low suicide rates among teen girls do not mean teen girls are not struggling.

Zach Rausch After Babel
Date Posted:
Is Database:
Database

Hospitalizations for intentional self-harm for American girls 10-14 increased 518% between 2007-2009 and 2021 and 91% for the 15-19 cohort. These increases imply a high degree of distress for young American women. @ZachMRausch

Do low suicide rates mean teen girls are not struggling?

Core argument: Hospitalizations following emergency department visits for self-harm among 10–14-year-old girls rose 518% since 2007–08, based on CDC nonfatal self-harm data covering 2001–2021; rates for boys in that age group were unavailable.

Using CDC nonfatal self-harm data from 2001-2021, we can zoom in on trends among adolescents who first go to the emergency department and are subsequently hospitalized. Since 2007-08, there has been a 518% increase in hospitalizations for 10-14-year-old girls. (The rates for 10-14-year-old boys were unavailable). The data for 15-19-year-old girls also shows a large rise. Suicide is a sex and age-specific phenomenon. Young children rarely die by suicide, while adults do so far more often. Men almost always die by suicide at higher rates than women. This is not because the average adolescent or woman is that much happier than the average adult or man. Instead, there are many cultural and biological forces that drive individuals from some groups to die by suicide at higher rates than individuals in other groups (a topic for another post). In other words, we cannot assume just because rates of suicide for teen girls are low that teen girls are not struggling in unprecedented ways.

Takeaways by Macro Roundup® AI

  1. Hospitalizations following emergency department visits for self-harm among 10–14-year-old girls rose 518% since 2007–08, based on CDC nonfatal self-harm data covering 2001–2021; rates for boys in that age group were unavailable.
  2. CDC nonfatal self-harm data also show a large rise in emergency department visits leading to hospitalization among 15–19-year-old girls.
  3. Suicide rates vary by sex and age, with young children rarely dying by suicide and men dying by suicide at higher rates than women, so low suicide rates among teen girls do not establish that teen girls are not struggling.

Related Articles:

  • Suicide Rates Are up for Gen Z Across the Anglosphere, Especially for Girls — Rates of self-harm episodes among adolescents in the U.S., UK, Canada, Australia, and New Zealand have increased since 2010, especially for girls, reaching record-high levels in all five countries. The author links this to a five-year period in which adolescents shifted from basic phones to smartphones with continuous internet and social media access.
  • Suicide Rates for Girls Are Rising. Are Smartphones to Blame? — Across 17 countries, suicide rates among girls aged 10-19 rose from an average of 3.0 per 100,000 people to 3.5, while the higher rate among boys, at 6.1 per 100,000, barely changed. Hospitalisations for self-harm among teenage girls climbed in all 11 countries with data, by an average of 143%, versus 49% for boys.
  • Teens, Social Media and Technology 2023 — About nine-in-ten U.S. teens ages 13 to 17 say they use YouTube, making it the most widely used platform in Pew Research Center's survey, followed by TikTok (63%), Snapchat (60%), and Instagram (59%). Facebook use among teens fell from 71% in 2014-2015 to 33%, and Twitter's teen user base also shrank over the past decade.

AI Summary. Interceptions of people at sea by Tunisian authorities doubled to 81,000, and the European Union is projected to spend €278mn on migration in Tunisia, with two-thirds of one €105mn package dedicated to border management. Critics argue that outsourcing border enforcement is a short-term fix that leaves the EU open to blackmail by host governments.

Laura Dubois and Adam Samson Financial Times
Date Posted:

Last year 292,000 illegal immigrants managed to enter the EU, the highest level since 2016. In response, the EU is increasing efforts to outsource border management to Northern African countries such as Tunisia and Libya. @FT

Does paying other countries to control migration work for Europe?

Core argument: Tunisian authorities' interceptions of people at sea doubled to 81,000, and two-thirds of the €105mn pledged under the EU deal is dedicated to border management, according to figures seen by the Financial Times.

Interceptions of people at sea by the Tunisian authorities doubled last year to 81,000. Two-thirds of the €105mn pledged under the deal are dedicated to border management, according to figures seen by the FT. Overall, the EU is projected to spend €278mn on migration in Tunisia until 2027. The 2017 agreement between Italy and Libya, under which the EU pledged funds to curb migration, including €59mn to strengthen the Libyan coastguard. Critics of the policy point out that outsourcing the challenges with immigration is only a short-term fix that also leaves the EU open to blackmail. Erdoğan, for example, has repeatedly used refugees as a bargaining chip to extract more funds and concessions from Europe. In 2020, he “opened the gates” to Europe, prompting thousands of Syrian refugees to attempt to cross the Greek border. In response, Greece deployed tear gas and live rounds against them.

Takeaways by Macro Roundup® AI

  1. Tunisian authorities' interceptions of people at sea doubled to 81,000, and two-thirds of the €105mn pledged under the EU deal is dedicated to border management, according to figures seen by the Financial Times.
  2. The EU is projected to spend €278mn on migration in Tunisia until 2027, and under a 2017 agreement between Italy and Libya it pledged funds to curb migration, including €59mn to strengthen the Libyan coastguard.
  3. Critics argue that outsourcing immigration challenges is a short-term fix that leaves the EU open to blackmail, citing Erdoğan's 2020 decision to "open the gates," which prompted thousands of Syrian refugees to attempt to cross the Greek border and drew tear gas and live rounds from Greece.

Related Articles:

  • The World Is Becoming More African — United Nations forecasts project Africans will rise from 8% of the world's people in 1950 to one-quarter by 2100, with the continent holding the world's largest workforce within a decade. McKinsey & Company estimates Africa's per-person economic growth has averaged 1% annually since 1990, against India's 5% and China's 9%.
  • Giorgia Meloni Calls For EU Help To Deal With Surge In Migrant Arrivals — Italy has appealed for greater European Union support as more than 12,000 people arrived from north Africa in a single week, most reaching the island of Lampedusa. Arrivals on Italian shores have surged to more than 128,600 so far this year, up from about 66,200 a year earlier.
  • Europe Hopes Barbed Wire Will Keep Migrants Out. It Won’t — The total length of border fences in the European Union grew from 315km to 2,163km over roughly a decade, yet unauthorised crossings made up just 0.13% of all external crossings into the EU. Most migrants arrive via the Mediterranean rather than the Balkans or the eastern land border.

AI Summary. Apple assembled $14bn of iPhones in India in its last fiscal year, doubling output there to roughly 14%, or about 1 in 7, of its iPhones. China remains Apple's largest iPhone-making hub and biggest overseas market, though its revenue there is falling amid competition from rivals such as Huawei.

Sankalp Phartiyal Bloomberg
Date Posted:

Apple doubled iPhone production in India last fiscal year, assembling 14% of iPhones there as it accelerates efforts to move manufacturing out of China.

Apple doubled iPhone production in India last fiscal year, assembling 14% of iPhones there as it accelerates efforts to move...

Is smartphone manufacturing shifting from China to India?

Core argument: Apple assembled $14 billion of iPhones in India last fiscal year, doubling production, according to people familiar with the matter who declined to be named because the information isn't public.

Apple assembled $14 billion of iPhones in India last fiscal year, doubling production in a sign it’s accelerating a push to diversify beyond China. The US tech giant now makes as much as 14% or about 1 in 7 of its marquee devices from India, people familiar with the matter said, declining to be named as the information isn’t public. The ramp-up suggests Apple is accelerating efforts to cut its longstanding reliance on China as geopolitical tensions mount. The country remains its largest iPhone-making hub and biggest overseas market. But that’s also where Apple’s revenues are plunging, hit by ascendant rivals such as Huawei Technologies Co. and an expanding ban on the use of foreign technology in the workplace.

Takeaways by Macro Roundup® AI

  1. Apple assembled $14 billion of iPhones in India last fiscal year, doubling production, according to people familiar with the matter who declined to be named because the information isn't public.
  2. India now accounts for as much as 14%, or about 1 in 7, of Apple's iPhones, a ramp-up that suggests Apple is accelerating efforts to cut its reliance on China.
  3. China remains Apple's largest iPhone-making hub and biggest overseas market, though Apple's revenues there are plunging, hit by rivals such as Huawei Technologies Co. and an expanding ban on foreign technology in the workplace.

Related Articles:

  • Apple’s Complex, Secretive Gamble to Move Beyond China — Apple is shifting some production out of China—iPhones and accessories to India, AirPods and Mac assembly to Vietnam, some Mac output to Malaysia, and simpler products to Ireland—while planning to retain extensive Chinese operations. Its leadership is concerned that moving too much capacity too quickly could prompt Chinese retaliation or nationalist consumer backlash.
  • Apple’s iPhone Supply Chain Splinters Under US-China Tensions — Data on more than 370 Apple suppliers and their factory locations show the company's manufacturing network spreading across the developing world, with Vietnam and India the biggest gainers. US and Japanese producers have reduced their China footprint as Chinese firms join the supplier list, though China still houses most Apple device factories.
  • China Blocks Use of Intel and AMD Chips in Government Computers — China has issued government procurement guidelines that phase out US microprocessors from Intel and AMD in state PCs and servers and sideline Microsoft's Windows and foreign database software in favor of domestic alternatives. China accounted for 27% of Intel's $54bn in sales and 15% of AMD's $23bn.

Friday, April 12, 2024

AI Summary. Producer price inflation for final demand tracks consumer price inflation excluding shelter closely, and both show inflation under control; overall consumer inflation looks hot only because the shelter component is up 5.6%. That shelter measure lags rents by construction, and more current rent series show no recent inflation.

Greg Mankiw Greg Mankiw Blog
Date Posted:

Greg Mankiw argues that CPI inflation is temporarily elevated because the housing component lags actual rents, which have now stabilized. He believes that CPI Y/Y in early 2025 will be < 2.5%.

Is high inflation just a lagging shelter measurement?

Core argument: The CPI for shelter is up 5.6%, which makes headline CPI look hot, while PPI for final demand and CPI less shelter track each other closely and show inflation under control.

PPI for final demand tracks the CPI less shelter very closely. By both measures, inflation is now very much under control. The problem is that the CPI for shelter is up 5.6%, so the overall CPI looks quite hot. Some would argue that leaving out shelter is misleading because shelter is such a large fraction of the typical household budget. On the other hand, the CPI for shelter is well known to be a lagging indicator of rents by virtue of how it is constructed, and other more current series show no recent inflation in rents. This latter argument puts me in the optimistic camp on inflation. By the way, I recently made a bet with my friend Larry Ball that overall CPI from February 2024 to February 2025 will be less than 2.5%. I am writing the bet here as a sort of contract. We will check back next year. The bet is for $5. That is in nominal terms. So, in real terms, I get more if I win than Larry gets if he wins.

Takeaways by Macro Roundup® AI

  1. The CPI for shelter is up 5.6%, which makes headline CPI look hot, while PPI for final demand and CPI less shelter track each other closely and show inflation under control.
  2. The CPI shelter component is a lagging indicator of rents by virtue of how it is constructed, and other more current series show no recent inflation in rents.
  3. A $5 nominal bet with Larry Ball holds that overall CPI from February 2024 to February 2025 will be less than 2.5%.

Related Articles:

  • Furman On CPI — Core consumer price inflation has run hot for three consecutive months, at a 3.5% annual rate over 12 months and 4.6% over the past three, undercutting the view that the early-year jump was a seasonal anomaly. Shelter inflation has plateaued around a 5.5% annual rate rather than falling as bottom-up forecasts assumed.
  • How Quickly Do Prices Respond to Monetary Policy? — An analysis finds recent swings in inflation have been concentrated in the categories most sensitive to monetary policy, with inflation for that responsive group now close to its pre-2020 rate. The authors estimate that interest rate increases likely began putting downward pressure on prices about a year later and will continue to do so near term.
  • Importing Shelter Inflation — Shelter costs make up about 30% of the consumer price index, and their monthly inflation appears to be stabilizing above pre-pandemic rates rather than delivering the disinflation forward-looking data had implied. The author suggests this may be related to a surge in migration, estimated at 3.3m migrants in a year.

AI Summary. Early signs of US fiscal stress would appear in markets as weaker Treasury auction results, including lower bid-to-cover ratios and softer demand from interest rate-sensitive buyers, rating agency opinions on the deteriorating fiscal position, and a higher term premium on longer-dated debt.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk notes that the first signs of fiscal stress will likely be large gaps between average and “tail” bids in Treasury auctions, lower bid-to-cover ratios, or softer demand from interest-rate-sensitive buyers.

Where would the first signs of US fiscal stress appear?

Core argument: Tailing Treasury auctions, lower bid-to-cover ratios, or softer demand from interest rate-sensitive buyers are identified as early market signs of US fiscal stress.

Where would the first signs of US fiscal stress appear in markets? 1) Tailing Treasury auctions, lower bid-to-cover ratios, or softer demand from interest rate-sensitive buyers. 2) Rating agencies issuing opinions about the deteriorating US fiscal situation. 3) The term premium trending higher.

Takeaways by Macro Roundup® AI

  1. Tailing Treasury auctions, lower bid-to-cover ratios, or softer demand from interest rate-sensitive buyers are identified as early market signs of US fiscal stress.
  2. Rating agencies issuing opinions about the deteriorating US fiscal situation is identified as a second place where fiscal stress would first appear.
  3. A term premium trending higher is identified as a third market sign of US fiscal stress.

Related Articles:

  • The Long Term Budget Outlook: 2024 to 2054 — The Congressional Budget Office projects the federal budget deficit will reach 8.5% of gross domestic product over a 30-year horizon, with outlays rising to 27.3% of GDP and revenues to 18.8%. The projected growth is attributed to rising interest costs, large sustained deficits excluding interest, and spending on federal health care programs, particularly Medicare.
  • 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.
  • 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.

AI Summary. China's central bank effectively fixed the yuan's daily reference rate rather than letting it follow the market, stabilizing the currency but leaving an exchange rate that cannot be called flexible. The bank is targeting the yuan's value against the dollar rather than against a basket of currencies.

Brad Setser Council on Foreign Relations
Date Posted:

.@Brad_Setser argues that the People’s Bank of China dropped the pretense of a market-driven exchange rate in 2023, and is currently targeting the yuan’s value against the dollar, not a basket of currencies.

Is China's currency still flexible, or pegged to the dollar?

Core argument: The PBOC has stopped moving the yuan's daily fix, which anchors a two-percentage-point trading band, allowing spot to weaken further while ending the pattern of spot leading the fix downward.

Faced with ongoing depreciation pressures (and a regime where, absent heavy-handed intervention by the PBOC, the market was basically leading the yuan to crawl down), the PBOC dropped the pretense that the yuan, which is required to trade within a two-percentage point band around the daily fix – was flexible and that the fix was somehow market determined. The fix just stopped moving, which meant that spot could weaken further. It worked. The CNY has stabilized, and spot no longer leads the fix down. It just isn’t quite anything that can realistically be called a flexible exchange rate. It also has become clear that the PBOC is currently targeting the yuan's value against the dollar, not its value against a basket of currencies.

Takeaways by Macro Roundup® AI

  1. The PBOC has stopped moving the yuan's daily fix, which anchors a two-percentage-point trading band, allowing spot to weaken further while ending the pattern of spot leading the fix downward.
  2. The yuan has stabilized under the unmoving fix, but the resulting regime cannot realistically be called a flexible exchange rate.
  3. The PBOC is currently targeting the yuan's value against the dollar rather than against a basket of currencies.

Related Articles:

  • The Threat from China’s Capital Flight — Oddities in China's official balance of payments statistics suggest its actual current account surplus may be nearly 3x the reported figure, which would make it about as large relative to world output as it has ever been. The likeliest explanation for simultaneous downward pressure on the yuan is capital flight of roughly $500bn a year.
  • Anatomy of Capital Fight in China… — Unaccounted capital outflows from China show up not only in the balance of payments' net errors and omissions category but also in net other investment and in the gap between customs-reported and foreign-exchange-reported goods trade balances. This combined residual averaged roughly $100bn per quarter, and about twice that during periods of heavier outflow pressure.
  • Is the Chinese Government Pushing Down the Yuan? — The Bank for International Settlements measure of China's inflation-adjusted, trade-weighted exchange rate has fallen roughly 14% from its recent peak, the largest decline among the 64 countries it tracks. The author argues this reflects a policy choice, with China's central bank having outsourced foreign reserve management to state-run banks while lending increasingly large sums to the domestic banking system.

AI Summary. U.S. export controls on China are associated with broad-based supply-chain decoupling, with U.S. suppliers more likely to end relationships with Chinese customers, including ones not targeted. The authors estimate affected suppliers suffered negative abnormal stock returns erasing $130bn in market value alongside lower bank lending, profitability, and employment, while affected Chinese firms shifted toward domestic and non-U.S. suppliers.

Matteo Crosignani, Lina Han, Marco Macchiavelli and André Silva Federal Reserve Bank of New York
Date Posted:
Is Database:
Database

US firms hit by controls restricting exports to China saw negative stock returns that wiped out $130 billion in market capitalization and drops in bank lending, profitability, and employment. @mcrosign @linahan56358916 @andrefjsilva

What do export controls cost U.S. suppliers selling to China?

Core argument: U.S. suppliers affected by export controls on their Chinese customers had negative abnormal stock returns wiping out $130 billion in market capitalization, and experienced declines in bank lending, profitability, and employment.

The U.S. has imposed export controls to deny China access to strategic technologies. These measures prompted a broad-based decoupling of U.S. and Chinese supply chains. Once their Chinese customers are subject to export controls, U.S. suppliers are more likely to terminate relations with Chinese customers, including those not targeted by export controls. As a result of these disruptions, affected suppliers have negative abnormal stock returns, wiping out $130 billion in market capitalization, and experience a drop in bank lending, profitability, and employment. Relations between targeted Chinese firms and their U.S. suppliers are more likely to be terminated after the export controls relative to unaffected Chinese firms. We also find that affected Chinese firms increase new relationships with domestic Chinese suppliers. There is evidence that, following U.S. export controls, China has boosted domestic innovation and self-reliance, and increased purchases from non-U.S. firms that produce similar technology to the U.S.-made ones subject to export controls.

Takeaways by Macro Roundup® AI

  1. U.S. suppliers affected by export controls on their Chinese customers had negative abnormal stock returns wiping out $130 billion in market capitalization, and experienced declines in bank lending, profitability, and employment.
  2. U.S. suppliers are more likely to terminate relations with Chinese customers once those customers are subject to export controls, including customers not themselves targeted.
  3. Affected Chinese firms increased new relationships with domestic Chinese suppliers, and evidence indicates China boosted domestic innovation and self-reliance and increased purchases from non-U.S. firms producing technology similar to that under U.S. export controls.

Related Articles:

  • China On Cusp Of Next-Generation Chip Production Despite US Curbs — China's largest chipmaker, SMIC, has assembled new production lines in Shanghai to mass-produce 5-nanometre smartphone processors designed by Huawei, using its existing stock of US- and Dutch-made equipment. Though 5nm remains a generation behind cutting-edge 3nm chips, the move indicates China's semiconductor industry is still progressing despite US export controls.
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AI Summary. China's Ministry of Industry and Information Technology has ordered state-owned mobile operators to inventory non-Chinese semiconductors in their networks and set timelines to replace them. Intel and AMD, which have supplied the bulk of core processors in Chinese networking equipment, stand to be hit hardest.

Liza Lin Wall Street Journal
Date Posted:

Sino-American decoupling is accelerating: China has moved up its deadline to get US-made chips out of the PRC’s telecom system to 2027.

Is China ordering telecom carriers to replace foreign chips with domestic ones?

Core argument: China's Ministry of Industry and Information Technology ordered state-owned mobile operators to inspect their networks for non-Chinese semiconductors and draft timelines to replace them, setting a deadline to phase out foreign core chips in telecom infrastructure.

The deadline given by China’s Ministry of Industry and Information Technology aims to accelerate efforts by Beijing to halt the use of such core chips in its telecom infrastructure. The regulator ordered state-owned mobile operators to inspect their networks for the prevalence of non-Chinese semiconductors and draft timelines to replace them. In the past, efforts to get the industry to wean itself off foreign semiconductors have been hindered by the lack of good domestically made chips. Chinese telecom carriers’ procurements show they are switching more to domestic alternatives, a move made possible in part because local chips’ quality has improved and their performance has become more stable. Such an effort will hit Intel and AMD the hardest. The two chip makers have in recent years provided the bulk of the core processors used in networking equipment in China and the world.

Takeaways by Macro Roundup® AI

  1. China's Ministry of Industry and Information Technology ordered state-owned mobile operators to inspect their networks for non-Chinese semiconductors and draft timelines to replace them, setting a deadline to phase out foreign core chips in telecom infrastructure.
  2. Intel and AMD will be hit hardest by the directive, having provided the bulk of core processors used in networking equipment in China and globally in recent years.
  3. Chinese telecom carriers' procurements show a shift toward domestic alternatives, made possible in part by improved quality and more stable performance of local chips, after earlier substitution efforts were hindered by the lack of good domestically made chips.

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