Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, October 21, 2024

AI Summary. The US exempts nonresident individuals and foreign entities from tax on most capital gains from US financial assets and on interest from US bank deposits and other debt obligations, making those assets more attractive to foreign lenders. The author argues these inflows have raised US household debt, subsidizing domestic demand and enabling trade deficits, and proposes unwinding the tax preferences.

Kenneth Austin and Hillel Nadler Tax Notes Federal
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Kenneth Austin and @hillelnadler argue that tax and other preferences for foreigners holding U.S. assets are a driving force behind the large U.S. current account deficits and negative net asset positions, and recommend reducing their generosity.

Do US tax exemptions for foreign asset holders drive trade deficits?

Core argument: The United States exempts nonresident alien individuals and non-U.S. entities from tax on most capital gains from sales of U.S. financial assets and on interest from U.S. bank deposits and other debt obligations, making U.S. financial assets more attractive to foreign lenders.

America’s tax system is designed to attract foreign lenders. Because America’s financial markets are open, foreigners can lend (acquire U.S. assets like bonds or bank deposits) at will. Americans passively borrow in the aggregate as much as the rest of the world chooses to lend. And favorable tax treatment makes U.S. financial assets more attractive: The United States exempts nonresident alien individuals and non-U.S. entities from tax on most capital gains from the sale of U.S. financial assets and on interest from U.S. bank deposits and other debt obligations. In practice, foreign financial inflows have resulted in an increase in U.S. household debt, subsidizing domestic demand and allowing Americans to consume more than they produce — to run a trade deficit. The most obvious reform is to unwind the tax preferences for foreign holders of U.S. financial assets. Bilateral tax treaties limit the United States’ ability to impose tax on the income of some foreign asset holders, but the tax subsidies that the United States affords foreign asset holders go beyond what is required by treaty.

Takeaways by Macro Roundup® AI

  1. The United States exempts nonresident alien individuals and non-U.S. entities from tax on most capital gains from sales of U.S. financial assets and on interest from U.S. bank deposits and other debt obligations, making U.S. financial assets more attractive to foreign lenders.
  2. Because U.S. financial markets are open, foreigners acquire U.S. assets at will and Americans passively borrow in the aggregate as much as the rest of the world chooses to lend.
  3. Foreign financial inflows have in practice increased U.S. household debt, subsidizing domestic demand and allowing Americans to consume more than they produce and run a trade deficit.

Related Articles:

  • The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States — The authors document that the U.S. net foreign asset position fell by 60 percentage points of U.S. gross domestic product between 2007 and 2021, even as U.S. current account deficits narrowed. They attribute this to a boom in the market valuation of U.S. corporations' non-financial assets, which mechanically raised the value of large foreign equity holdings in U.S. firms.
  • Long Live the Dollar — Foreign investors have been the dominant net buyers of longer-dated US Treasuries, purchasing a net $700bn over a 14-month period against $860bn in total net issuance. These purchases came largely from non-official entities such as hedge funds, pension funds, insurance funds, and banks, potentially motivated by high US interest rates or currency speculation.
  • US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat — US companies need about 7% earnings-per-share growth to deliver a normal 4% equity risk premium above the risk-free rate, versus about 3% for other developed markets, with the highest expectations embedded in technology and the largest US tech firms. Chinese companies could generate a 4% risk premium over Chinese bonds with no earnings growth.

AI Summary. The United States' net international investment position deficit—the gap between foreign-owned US assets and US-owned foreign assets—is the largest on record and has turned negative across all major asset categories. Because much of the liability is equity, the author argues rebalancing could come through a correction in US equity values rather than a weaker dollar.

Chris Marsh Money: Inside and Out
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Net foreign claims on US assets are now 80% of US GDP, the most negative in history. @GeneralTheorist notes that this is partly a result of elevated U.S. equity prices, and may be resolved by a stock market correction rather than a fall in the dollar.

Can equity prices rebalance the US external position instead of the dollar?

Core argument: The US net international investment position debit is the largest of all time and has turned negative across all major asset categories, while the US external flow position is about to turn negative on all major categories as well.

The US net IIP debit is the largest of all time and has turned negative for all major asset categories in recent years—while the US external flow position is about to turn negative on all major categories. Does any of this matter? Seen from the perspective of the US dollar, the continued widening of the US net IIP debit position might suggest that at some point dollar weakness may be needed to facilitate external flow adjustment. However, growing equity liabilities means external adjustment can be achieved through other means—in particular, asset price adjustment. For example, a correction in US equity values would contribute to the rebalancing of the US net debit position without necessarily requiring dollar adjustment. So the growing external net debit position of the United States ironically might not call for more dollar adjustment. Then again, an equity correction would have wider implications for the US economy than simply contributing to a stronger external position—something that would not be good news for either the US economy or the world.

Takeaways by Macro Roundup® AI

  1. The US net international investment position debit is the largest of all time and has turned negative across all major asset categories, while the US external flow position is about to turn negative on all major categories as well.
  2. The continued widening of the US net IIP debit might suggest dollar weakness will eventually be needed to facilitate external flow adjustment, though growing equity liabilities mean adjustment could instead come through asset price movements.
  3. A correction in US equity values would contribute to rebalancing the US net debit position without necessarily requiring dollar adjustment, but would carry wider consequences for the US economy and the world.

Related Articles:

  • The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States — The authors document that the U.S. net foreign asset position fell by 60 percentage points of U.S. gross domestic product between 2007 and 2021, even as U.S. current account deficits narrowed. They attribute this to a boom in the market valuation of U.S. corporations' non-financial assets, which mechanically raised the value of large foreign equity holdings in U.S. firms.
  • US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat — US companies need about 7% earnings-per-share growth to deliver a normal 4% equity risk premium above the risk-free rate, versus about 3% for other developed markets, with the highest expectations embedded in technology and the largest US tech firms. Chinese companies could generate a 4% risk premium over Chinese bonds with no earnings growth.
  • The Great Rotation (Part 2) — The US accounts for 63% of global stock market value but only 26% of global economic output, compared with about 40% of global GDP when its market share last exceeded 60%. The authors argue investors following global indexes are overpaying for US-generated income relative to that earlier period.

AI Summary. China's exports have grown faster than its own economy, rising by about 3 percentage points as a share of its GDP, with a nearly $1tn surge over four years. Measured against the GDP of its trading partners, China's manufactured-goods surplus has increased by about three-quarters of a percentage point of world GDP to a record high.

Brad Setser Aspen Strategy Group
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Rumors of deglobalization are overstated, @Brad_Setser argues, citing China’s expanded exports. Since the pandemic, China’s exports are up 3pp relative to GDP, and its manufacturing trade surplus is at a record high.

Is China's export growth outpacing its own economy?

Core argument: China's exports have risen by close to $1 trillion over the last four years, growing much faster than China's own economy and lifting exports as a share of Chinese GDP by about 3 percentage points.

There recently has been a clear inflection point in the data, and China’s economy is now re-globalizing. This trend is obvious, exports have recently grown much faster than China’s own economy. As a share of China’s GDP, exports are now up by about 3 percentage points. The close-to-a-trillion-dollar surge in China’s exports over the last four years stands in opposition to any narrative of a fracturing and deglobalizing world economy. In fact, measured relative to the GDP of its trading partners, China’s surplus in manufactured goods has increased by about three-quarters of a percentage point of world GDP and is now at a record high.

Takeaways by Macro Roundup® AI

  1. China's exports have risen by close to $1 trillion over the last four years, growing much faster than China's own economy and lifting exports as a share of Chinese GDP by about 3 percentage points.
  2. China's surplus in manufactured goods, measured relative to the GDP of its trading partners, has increased by about three-quarters of a percentage point of world GDP and stands at a record high.
  3. A clear inflection point in the data indicates that China's economy is re-globalizing, counter to narratives of a fracturing and deglobalizing world economy.

Related Articles:

  • China’s Record Manufacturing Surplus — China's manufacturing trade surplus has reached about 2% of world GDP, exceeding the peak surpluses of export powerhouses like Japan and Germany, and shows no signs of shrinking as policy continues to emphasize advanced manufacturing capacity. The main offsetting manufactured-goods deficit is in the United States rather than commodity exporters.
  • Trade Intervention for Freer Trade — The authors argue the United States should counter surplus countries' trade policies either by restricting their goods exports through tariffs or by restricting their capital inflows through taxes, volume limits, reserve requirements, transaction approvals, or investor eligibility rules. They contend capital controls are a more targeted alternative to uniform tariffs, which impose equal costs on more and less mercantilist countries.
  • EU to Impose Tariffs Up to 45% on Chinese Electric Vehicles — The European Union voted to impose tariffs of up to 45% on electric vehicles made in China, lasting five years, with China vowing to protect its companies. Chinese-made electric cars rose from around 3% to more than 20% of EU electric vehicle sales over three years, with Chinese brands accounting for about 8%.

AI Summary. Intel and Boeing, once benchmarks for high-quality, demanding manufacturing, declined because of their own mistakes rather than cheap foreign competition. Because leading U.S. tech firms' software and devices depend on advanced semiconductors fabricated under contract, especially by Taiwan Semiconductor Manufacturing Co., Chinese subjugation of Taiwan could leave the U.S. tech sector at Beijing's mercy.

Greg Ip Wall Street Journal
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Over five years, the combined market cap of Boeing and Intel has halved. @greg_ip argues the crisis represents a “fundamental problem….the U.S. still designs the world’s most innovative products, but is losing the knack for making them.”

Does the decline of leading U.S. manufacturers threaten national security?

Core argument: Intel is worth less than $100 billion while Microsoft, Apple, and Nvidia are together worth $10 trillion.

Intel and Boeing were once the gold standard in manufacturing groundbreaking products to demanding specifications with consistently high quality. Not any longer. Neither fell prey to cheap foreign competition, but to their own mistakes. Since their problems are of their own making, it is tempting to leave them to their fates. Investors would likely shrug: Intel is worth less than $100 billion while Microsoft, Apple, and Nvidia are together worth $10 trillion. The problem: Those tech giants’ software and devices are useless without the advanced semiconductors whose fabrication they contract out, especially to Taiwan Semiconductor Manufacturing Co. If China makes good on its threat to subjugate Taiwan in the coming years, the entire U.S. tech sector could be at Beijing’s mercy.

Takeaways by Macro Roundup® AI

  1. Intel is worth less than $100 billion while Microsoft, Apple, and Nvidia are together worth $10 trillion.
  2. Intel and Boeing, once the gold standard in manufacturing groundbreaking products to demanding specifications with consistently high quality, fell not to cheap foreign competition but to their own mistakes.
  3. Microsoft, Apple, and Nvidia contract out fabrication of the advanced semiconductors their software and devices require, especially to Taiwan Semiconductor Manufacturing Co., so Chinese subjugation of Taiwan could leave the entire U.S. tech sector at Beijing's mercy.

Related Articles:

  • The Mysterious Slowdown in U.S. Manufacturing Productivity — US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.
  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.
  • Manufacturing Jobs Have Recovered, But Not Everywhere — U.S. manufacturing employment recovered the 650,000 jobs lost in the 2020 recession, rising above 12.9m workers and exceeding the pre-pandemic level of 12.8m — the first such post-recession recovery since the late 1970s. Even so, manufacturing's share of private-sector employment fell from 31% in 1970 to 9.7%.

AI Summary. Financing a growing federal deficit is easiest through short-term Treasury bills, which are cash-like and held by all investor classes, whereas longer-dated Treasuries carry interest-rate risk few investors will hold. The Treasury controls its own issuance mix and can raise the bill share without cooperation from the Federal Reserve or other agencies.

Joseph Wang Fed Guy Blog
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If either party emerges from the election with a trifecta, @FedGuy12 believes, “The likely result would not just be higher long-dated rates, but higher short-dated rates as well.” He expects the bill share of issuance to rise regardless of the winner.

How does the Treasury most easily finance a growing deficit?

Core argument: Financing a growing deficit is easiest through a greater share of Treasury bill issuance, since bills are cash-like and held by all investor classes, unlike longer-dated Treasuries, whose interest rate risk few investors are willing to hold.

The easiest way to finance a growing deficit is to issue a greater share of Treasury bills, which can be held by a wide range of investors. The demand for Treasury securities is deep, but it is subject to market sentiment and not infinitely elastic. This is particularly true for longer dated Treasuries, which carry significant interest rate risk that few investors are willing to hold. In contrast, Treasury bills are cash-like and held by all investor classes. The Treasury’s instinct last year in the face of market instability was to increase its share of bill issuance, and that approach would likely continue in the event of further fiscal deficit increases. The Treasury has full control over how it issues debt, and can easily point to history where bills were a much higher share of debt. This approach would not require the cooperation of the Fed nor any other government entity.

Takeaways by Macro Roundup® AI

  1. Financing a growing deficit is easiest through a greater share of Treasury bill issuance, since bills are cash-like and held by all investor classes, unlike longer-dated Treasuries, whose interest rate risk few investors are willing to hold.
  2. Demand for Treasury securities is deep but subject to market sentiment and not infinitely elastic, a constraint that applies particularly to longer-dated maturities.
  3. The Treasury has full control over how it issues debt and can shift toward bills without cooperation from the Federal Reserve or any other government entity, pointing to history when bills were a much higher share of debt.

Related Articles:

  • Weaker Demand for Treasuries — Recent 10-year and 30-year US Treasury auctions each cleared three basis points above the yields trading minutes beforehand, signaling demand significantly weaker than the market expected. Larger and more frequent such gaps since the Federal Reserve began raising interest rates make auction metrics an early indicator of weakening Treasury demand.
  • The Fiscal Impact of the Harris and Trump Campaign Plans — The Congressional Budget Office's current-law baseline projects U.S. national debt rising from 102% of GDP to 125% by 2035, exceeding the record 106% share set in 1946 within three years. The authors estimate the Harris campaign plan would raise debt to 133% of GDP by 2035 and the Trump plan to 142%.
  • One Weird Trick — A larger share of Treasury financing done through short-term bills rather than longer-dated coupon securities would likely ease upward pressure on long-term yields, though the effect may be modest. With the deficit estimated near $1.5t, shifting toward bills would let the Treasury hold coupon sizes steady or trim them, reducing near-term supply.

AI Summary. New York City Police Department figures show 4,858 major crimes with a minor accused or arrested in the most recent year, up 37% from 3,543 seven years earlier, with robberies and felony assaults continuing to rise. Police officials attribute the increase to a state law diverting most 16- and 17-year-old defendants from adult courts.

Maria Cramer New York Times
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Btw 2017 and 2023, major crimes in NYC committed by perpetrators < 18 surged 37%. Kevin O’Connor, a retired assistant commissioner warns, "These are the future adults. What are these kids going to be like when they’re 20 or 25 years old?"

Does diverting teen defendants from adult courts increase youth crime?

Core argument: New York City recorded 4,858 major crimes in which a minor was accused or arrested last year, up 37% from 3,543 in 2017, according to Police Department figures.

The number of people under 18 accused of major crimes has increased sharply in New York City in the past seven years, Police Department figures show. Last year, there were 4,858 major crimes where a minor was accused or arrested, up from 3,543 in 2017 — a 37% increase. The seven index crimes are murder, rape, robbery, felony assault, burglary, grand larceny and grand larceny of automobiles. Many of the crimes have continued to increase dramatically in 2024, particularly robberies and felony assaults. Through Oct. 1, there were arrests for 969 felony assaults and 2,019 robberies, a 17% increase from the same time last year. Until recently, the criminal justice system in New York treated many young people accused of serious crimes as adults. But in 2017, when youth crime had fallen to lows not seen for decades, legislators in Albany changed the way the cases of 16- and 17-year-olds were handled, passing a law known as “Raise the Age.” Police officials in New York said the law, which diverted most cases of 16- and 17-year-old defendants from adult courts to Family Court or to judges with access to social services and special training, was at the root of the crisis.

Takeaways by Macro Roundup® AI

  1. New York City recorded 4,858 major crimes in which a minor was accused or arrested last year, up 37% from 3,543 in 2017, according to Police Department figures.
  2. New York City police made arrests for 969 felony assaults and 2,019 robberies through Oct. 1, a 17% increase from the same period a year earlier.
  3. New York police officials said the 2017 "Raise the Age" law, which diverted most cases of 16- and 17-year-old defendants from adult courts to Family Court or to judges with social services access and special training, was at the root of the crisis.

Related Articles:

  • It’s Time to Talk About America’s Disorder Problem — A meta-analysis of 56 studies found that disorder policing consistently reduces crime, but that indiscriminate "aggressive order maintenance" arrests did not significantly reduce crime while problem-oriented strategies targeting specific sources of disorder often had sizable effects without spillovers. The authors note that a large share of disorder comes from a small number of people and places.
  • The Collapse of Broken-Windows Policing in New York City, Los Angeles, and Washington, DC, 2013–22 — Arrests for minor "broken-windows" offenses—counted as misdemeanors, violations, and infractions per 100,000 residents—fell 74% in New York, 77% in Washington, DC, and 81% in Los Angeles over the period studied, declining steadily in New York and Los Angeles.
  • Criminal Victimization, 2023 — The U.S. rate of violent victimization — including rape or sexual assault, robbery, aggravated assault, and simple assault — was 22.5 per 1,000 persons age 12 or older, statistically unchanged from the prior year and from five years earlier. The rate declined over the prior three decades from 79.8 per 1,000.

AI Summary. An analysis of positions voluntarily disclosed by roughly 500 hedge funds found more funds are net short batteries, solar, electric vehicles and hydrogen than long them, while more are net long fossil fuels than short oil, gas and coal. This comes despite large green stimulus programs in the US, Europe and China.

Sheryl Lee, Ishika Mookerjee and Christopher Udemans Bloomberg
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A Bloomberg analysis finds hedge funds are net short against “green” stocks like batteries, solar and electric vehicles. Since its high in 2021, the S&P Global Clean Energy Index has lost almost 60% of its value.

Are hedge funds betting against clean energy and favoring fossil fuels?

Core argument: The S&P Global Clean Energy Index has lost almost 60% of its value since a 2021 high, while the S&P 500 and the S&P Global Oil Index have each gained more than 50%.

Despite vast green stimulus packages in the US, Europe and China, more hedge funds are on average net short batteries, solar, electric vehicles and hydrogen than are long those sectors; and more funds are net long fossil fuels than are shorting oil, gas and coal, according to a Bloomberg News analysis of positions voluntarily disclosed by roughly 500 hedge funds to Hazeltree, a data compiler in the alternative investment industry. The hedge funds’ bets have coincided with a wave of momentum that’s been building against key corners of the green economy. Since a recent high in 2021, the S&P Global Clean Energy Index has lost almost 60% of its value, while the S&P 500 Index and the S&P Global Oil Index have soared more than 50%.

Takeaways by Macro Roundup® AI

  1. The S&P Global Clean Energy Index has lost almost 60% of its value since a 2021 high, while the S&P 500 and the S&P Global Oil Index have each gained more than 50%.
  2. A Bloomberg News analysis of positions voluntarily disclosed by roughly 500 hedge funds to data compiler Hazeltree finds more funds on average net short batteries, solar, electric vehicles and hydrogen than long those sectors.
  3. More hedge funds in the Hazeltree data are net long fossil fuels than are shorting oil, gas and coal, despite vast green stimulus packages in the US, Europe and China.

Related Articles:

  • Reconciling The Tension Between Green Spending and Debt Sustainability — The green energy transition is likely to reduce growth for some time, and with the gap between interest rates and growth rates near zero in many countries, stabilizing debt ratios requires primary budget balances to eventually reach zero or a small surplus. That end constraint cannot be altered; the only margin governments have is how quickly they reach it.
  • Clean Energy Sets $1.1 Trillion Record That’s Bound to Be Broken — Global investment in the energy transition reached $1.1tn, matching investment in fossil fuels for the first time, according to clean energy research group BloombergNEF. The fossil fuel figure covers oil and gas across upstream, midstream and downstream segments plus power generation without emissions reduction technology.
  • Giant Batteries Are Transforming the Way the U.S. Uses Electricity — California has installed more grid-scale batteries than any place outside China, storing excess daytime solar power for use after dark and supplying over one-fifth of the state's electricity during some evening hours. National battery storage capacity has grown tenfold over three years to 16,000 megawatts and is expected to nearly double again, led by Texas, California, and Arizona.

Tuesday, October 22, 2024

AI Summary. The authors model investors as having limited foresight in forecasting future government debt issuance, with participants differing in how far ahead they apply economic relationships. This heterogeneity implies that expected future increases in debt issuance raise the extra yield investors demand on longer-term bonds, with more distant changes discounted more heavily than nearer-term ones.

Christopher Gust and Arsenios Skaperdas Federal Reserve Board
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Gust and Skaperdas find that when people form expectations of future debt over a cognitively realistic 5 yr horizon, a permanent 1 ppt increase in debt-to-GDP raises the term premium on the 10-year by only 3 bps, half of the perfect foresight estimate.

Do expected future debt increases raise long-term bond yields?

Core argument: Modeling investors with limited foresight, the authors find that heterogeneity in forecast horizons creates a relationship in which changes in government debt issuance in the far future are discounted more heavily than near-future changes when pricing the term premium.

We modify the assumption regarding investors’ expectations formation to allow for limitations on the ability of investors to foresee and forecast future events. When investors differ in the horizon over which they use economic relationships to make forecasts, this heterogeneity gives rise to a relationship between the term premium and changes in debt issuance in which changes in debt issuance in the far future are discounted more heavily than those occurring in the near future. Accordingly, the limited foresight of financial market participants introduces an additional [discounting] parameter into the relationship between government debt and the term premium relative to the case of perfect foresight. The parameter 𝛾 corresponds to how far in the future the average financial market participant uses information on government debt to form beliefs about the term premium. As 𝛾 approaches 1, the model implies the same term premium effects as under perfect foresight. due to cognitive limits

Takeaways by Macro Roundup® AI

  1. Modeling investors with limited foresight, the authors find that heterogeneity in forecast horizons creates a relationship in which changes in government debt issuance in the far future are discounted more heavily than near-future changes when pricing the term premium.
  2. Limited foresight among financial market participants introduces an additional discounting parameter into the relationship between government debt and the term premium relative to the perfect-foresight case, according to the authors' model.
  3. The discounting parameter corresponds to how far into the future the average financial market participant uses government debt information to form beliefs about the term premium, and as it approaches 1 the model implies the same term premium effects as under perfect foresight.

Related Articles:

  • Federal Debt — Stabilizing federal debt would require a zero primary deficit — borrowing only to cover interest on past borrowing — which today would mean a cash deficit of about 3% of GDP, or roughly $800bn a year. The actual deficit is about $1.7tn, or 6% of GDP, with no political dynamics in prospect that would cut it to 3%.
  • 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.
  • The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget — The Congressional Budget Office projects that if private investment were more sensitive to federal deficits, debt held by the public would exceed 250% of GDP and real national income per person would be 18% ($21,300) lower than its baseline, with the average interest rate on federal debt 2pp higher.

AI Summary. US Treasury net interest payments reached $882bn in a fiscal year, equal to 3.06% of gross domestic product — the highest ratio since 1996 — and about 18% of federal revenues. The net interest bill exceeded Defense Department spending on military programs for the first time.

Viktoria Dendrinou Bloomberg
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The US is spending 3.06% of GDP or 18% of federal revenue on debt service, the highest level since 1996. Interest payments are higher than defense spending for the first time.

Has federal interest spending surpassed military spending for the first time?

Core argument: The Treasury paid $882 billion in net interest in the fiscal year through September, roughly $2.4 billion a day, equal to 3.06% of GDP — the highest ratio since 1996.

The Treasury spent $882 billion on net interest payments in the fiscal year through September — an average of roughly $2.4 billion a day. The cost was the equivalent of 3.06% as a share of gross domestic product, the highest ratio since 1996. The net interest bill exceeded the Defense Department’s spending on military programs for the first time, according to data from the Treasury Department and the Office of Management and Budget. It also amounted to about 18% of federal revenues — almost double the ratio from two years ago.

Takeaways by Macro Roundup® AI

  1. The Treasury paid $882 billion in net interest in the fiscal year through September, roughly $2.4 billion a day, equal to 3.06% of GDP — the highest ratio since 1996.
  2. Net interest payments exceeded the Defense Department's spending on military programs for the first time, according to Treasury Department and Office of Management and Budget data.
  3. Net interest amounted to about 18% of federal revenues, almost double the ratio of two years earlier.

Related Articles:

  • The Fiscal Impact of the Harris and Trump Campaign Plans — The Congressional Budget Office's current-law baseline projects U.S. national debt rising from 102% of GDP to 125% by 2035, exceeding the record 106% share set in 1946 within three years. The authors estimate the Harris campaign plan would raise debt to 133% of GDP by 2035 and the Trump plan to 142%.
  • 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.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.

AI Summary. The rise in the gold price reflects more than traditional economic, financial, and geopolitical influences, capturing a broader phenomenon that is building secular momentum as a growing number of countries become involved. As it takes deeper root, it risks fragmenting the global system and eroding the international influence of the dollar and the US financial system.

Mohamed El-Erian Financial Times
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Gold is up ~ 40% y/y but its rise isn’t tracking its historical relationship with US yields. @elerianm argues the relatively linear rise implies investors are buying based on the prospect of a “gradual change in the operation of the global system.”

Does the rising gold price signal fragmentation of the global financial system?

Core argument: The rise in the gold price goes beyond traditional economic, financial, and geopolitical influences, capturing a broader phenomenon that is building secular momentum, according to the author.

What is at stake here is not just the erosion of the dollar’s dominant role but also a gradual change in the operation of the global system; and a growing number of countries are interested and increasingly involved. What has been happening to the gold price is not just unusual in terms of traditional economic and financial influences. It also goes beyond strict geopolitical influences to capture a broader phenomenon which is building secular momentum. As it develops deeper roots, this risks materially fragmenting the global system and eroding the international influence of the dollar and the US financial system.

Takeaways by Macro Roundup® AI

  1. The rise in the gold price goes beyond traditional economic, financial, and geopolitical influences, capturing a broader phenomenon that is building secular momentum, according to the author.
  2. A growing number of countries are interested and increasingly involved in a gradual change in the operation of the global system, with the dollar's dominant role at stake.
  3. As the phenomenon develops deeper roots, it risks materially fragmenting the global system and eroding the international influence of the dollar and the US financial system.

Related Articles:

  • Taking Stock: Dollar Assets, Gold, and Official Foreign Exchange Reserves — Gold accounts for about 10% of aggregate official foreign exchange reserves, roughly its level in the early 2000s. International Monetary Fund country data indicate most added official gold holdings came from a few central banks, with over half of reported accumulation from China and Russia and about a quarter from several emerging markets.
  • Top Dollar — Foreign holdings of U.S. financial assets exceed American holdings abroad, making the United States a net debtor whose liabilities are denominated in dollars while its foreign assets are largely in other currencies. U.S. foreign liabilities grew from $30tn to over $51tn while U.S. foreign assets grew from $24tn to $33tn, tripling the net debtor position from $6tn.
  • Gold Rising — China appears to be shifting its reserve diversification toward gold, but its gold allocation remains well below that of other countries at odds with the United States, such as Russia and Turkey, which raised their gold holdings substantially. Gold held in domestic custody sits outside U.S. influence.

AI Summary. US research and development spending held between about 2.3% and 2.7% of GDP from the early 1980s until about 2013, then rose to roughly 3.5% of GDP as business R&D spending climbed while federal support as a share of GDP continued to lag. That 1-point rise equals about $290bn in additional annual R&D.

Timothy Taylor Conversable Economist
Date Posted:
Is Database:
Database

At ~ 3.5% of GDP, US R&D spending is at an all-time high, driven by a surge in business spending on R&D starting around 2016. US R&D spending is higher in absolute and relative terms than that of the EU and China. @TimothyTTaylor

Is business spending driving the rise in US R&D?

Core argument: Total US R&D spending has risen to about 3.5% of GDP after hovering between roughly 2.3%–2.7% of GDP from the early 1980s through about 2013.

Total R&D spending as a share of GDP (blue line) hovered between about 2.3%-2.7% of GDP from the early 1980s up through about 2013. But then you see a substantial change. Although federal support for R&D as a share of GDP continues to lag, business spending on R&D takes off, and pushes US R&D spending up to about 3.5% of GDP. With a US GDP in 2024 at around $29 trillion, a 1% rise in GDP means that about $290 billion more is being spent on R&D this year than would have been spent if R&D had stayed in that lower range.

Takeaways by Macro Roundup® AI

  1. Total US R&D spending has risen to about 3.5% of GDP after hovering between roughly 2.3%–2.7% of GDP from the early 1980s through about 2013.
  2. Business spending on R&D drove the increase, while federal support for R&D as a share of GDP continues to lag.
  3. With US GDP around $29 trillion in 2024, the roughly 1 percentage point rise in R&D's GDP share amounts to about $290 billion more spent on R&D than if R&D had stayed in its earlier range.

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  • Kindleberger Cycles: Method in the Madness of Crowds? — Because companies weigh only their own private returns, they underinvest in research whose returns to society are far higher, and evidence contests whether intellectual property and research subsidies fix this. One model calculates that technology bubbles deliver net social gains when social returns exceed private returns by 2.5x, and estimates put corporate research's ratio near 4x.
  • 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.

AI Summary. Major defense contractors including RTX, MBDA, and QinetiQ are investing heavily in high-energy laser weapons to destroy drones, a technology long regarded as science fiction. Britain's Ministry of Defence says its DragonFire laser will be deployed on Royal Navy ships five years ahead of schedule, firing at roughly £10 a shot.

Sylvia Pfeifer Financial Times
Date Posted:

The UK’s DragonFire system, which can shoot down a drone for ~ $13 a shot, will be deployed by 2027 – five years ahead of schedule – as defense contractors race to deliver affordable counter-drone solutions.

Are laser weapons becoming a practical way to shoot down drones?

Core argument: The UK Ministry of Defence says its DragonFire laser will fire at any target visible in the air for about £10 a shot, with accuracy equivalent to hitting a pound coin from a kilometre away.

Some of the world’s best-known contractors, including RTX in the US and Europe’s MBDA, as well as Britain’s QinetiQ, are investing heavily in the cutting-edge technology — long regarded as more science fiction than reality. The US army this year used high-energy lasers to shoot down drones in the Middle East in what was regarded as a milestone for the burgeoning industry. The UK’s Ministry of Defence said in April it would accelerate the development of its DragonFire laser. The weapon will now be deployed on Royal Navy ships by 2027 — five years earlier than planned. DragonFire will be able to fire at any target visible in the air at around £10 a shot and with an accuracy equivalent to hitting a pound coin from a kilometre away, according to the MoD. It successfully fired at aerial targets during a groundbreaking test in January.

Takeaways by Macro Roundup® AI

  1. The UK Ministry of Defence says its DragonFire laser will fire at any target visible in the air for about £10 a shot, with accuracy equivalent to hitting a pound coin from a kilometre away.
  2. The UK Ministry of Defence said in April it would accelerate DragonFire's development and deploy the weapon on Royal Navy ships by 2027, five years earlier than planned, after a successful test against aerial targets in January.
  3. RTX in the US, Europe's MBDA and Britain's QinetiQ are investing heavily in laser weapons, and the US army used high-energy lasers to shoot down drones in the Middle East.

Related Articles:

  • Top Defence Contractors Set To Rake In Record Cash After Orders Soar — The 15 largest aerospace and defence contractors are forecast to generate $52bn in free cash flow in 2026, almost double their combined 2021 level, as governments increase orders for new weapons. Five top US contractors alone are projected to produce $26bn, more than twice their 2021 total.
  • Mystery Drones Swarmed a U.S. Military Base for 17 Days. The Pentagon Is Stumped — Unidentified drones flew over a U.S. military base for 17 days in a coordinated pattern of higher-altitude fixed-wing aircraft and smaller quadcopters below, leading U.S. officials to doubt hobbyists were responsible. Federal law bars the military from shooting down drones near domestic bases absent an imminent threat.
  • Global Defence Groups Hiring At Fastest Rate In Decades Amid Record Orders — A survey of 20 large and medium-sized US and European defence and aerospace companies found they plan to recruit tens of thousands of workers, with 10 of them seeking to add almost 37,000 positions, or nearly 10% of their combined workforce. Demand spans apprentices to executives, including engineers, software developers, cyber security analysts, welders, and mechanics.

AI Summary. In a survey of 6,204 U.S. adults, 25% said Americans hold mostly negative views of men who are "manly or masculine," fewer than the 43% who said views are mostly positive and 31% who said views are neither. Republican men were most likely to perceive negative views, at 45%.

Juliana Menasce Horowitz and Kim Parker Pew Research Center
Date Posted:

53% of Republican men and 29% of Democratic men rate themselves as “highly masculine.” 45% of Republican men feel people have negative views of masculine men, and that this is a “bad thing.” @pewresearch

How do Americans view masculine men?

Core argument: In a Pew Research Center survey of 6,204 U.S. adults, 25% say Americans hold mostly negative views of men who are "manly or masculine," below the 43% who say views are mostly positive and the 31% who say views are neither positive nor negative.

We asked 6,204 U.S. adults about their views on men and masculinity. Relatively few Americans say people have negative views of masculine men. 25% say people in the United States have mostly negative views of men who are “manly or masculine.” This is smaller than the shares who say people have mostly positive views of masculine men (43%) or that views are neither positive nor negative (31%). But among Republican men, 45% do, and the vast majority of those who feel this way say this is a bad thing. Much smaller shares of Republican women (24%), Democratic men (20%) and Democratic women (13%) say people view masculine men negatively. (Republicans and Democrats include those who lean toward either party.)

Takeaways by Macro Roundup® AI

  1. In a Pew Research Center survey of 6,204 U.S. adults, 25% say Americans hold mostly negative views of men who are "manly or masculine," below the 43% who say views are mostly positive and the 31% who say views are neither positive nor negative.
  2. Republican men are more likely than other partisan groups to say Americans view masculine men negatively, at 45%, compared with 24% of Republican women, 20% of Democratic men and 13% of Democratic women.

Related Articles:

  • The Politics of Progress and Privilege: How America’s Gender Gap Is Reshaping the 2024 Election — Survey data show 35% of Americans say the term "feminist" describes them somewhat or very well, down from 51% earlier. Women are more likely than men to identify as feminist (42% vs 27%), with the widest gap among those age 18–29, where 55% of women but 31% of men claim the label.
  • America’s Young Men Are Falling Even Further Behind — Labor force participation among US men ages 25 to 34 has not grown in a decade, standing at 89%, which one analysis of Bureau of Labor Statistics data estimates is more than 700,000 fewer participants than at 2004 rates; women's participation in that age group is up 6 percentage points over 10 years, to 79%.
  • Many Gen Z Men Feel Left Behind. Some See Trump As An Answer — National polling shows a gender gap of roughly 39 to 51 percentage points among voters under 30, with young men favoring the Republican candidate and young women favoring the Democrat. The Republican message resonates particularly with young men without college degrees and young men of color.

AI Summary. India, the world's fifth largest economy, is projected to grow 6–8% over the next five years and to surpass Japan as the third largest economy. The outlook cites contained inflation, rising capital expenditure, improving fiscal and current account balances, favorable demographics, healthy household balance sheets, rising corporate profitability, and solid bank lending.

Torsten Sløk, Utsav Baijal, Rajvi Shah and Shruti Galwankar Apollo
Date Posted:

The Indian stock market as measured by the BSE 500 has outpaced the S&P 500, Hang Seng and NIKKEI 225 since 2000. Projected to grow at 6-8% over the next five years, India will soon be the world’s third-largest economy, surpassing Japan.

Is India positioned for strong growth and low inflation ahead?

Core argument: India, the world's fifth largest economy, is projected to grow 6–8% over the next five years and to surpass Japan as the third largest economy.

India, world’s fifth largest economy is projected to grow at 6-8% over the next five years and surpass Japan to become the third largest economy. Outlook for India remains healthy on the backdrop of strong GDP growth, under control inflation, rising capex, improving fiscal and current account balance and favorable demographics. Consumer and corporate confidence is upbeat. Household balance sheets are healthy and consumer spending is strong. Corporate profitability continues to rise with interest coverage ratio rising and interest burden falling. The financial sector has seen significant transformation with digitalization and bankruptcy law enactment. Bank lending has been solid, and the Indian stock, bond, and private markets continue to grow at a rapid pace.

Takeaways by Macro Roundup® AI

  1. India, the world's fifth largest economy, is projected to grow 6–8% over the next five years and to surpass Japan as the third largest economy.
  2. India's outlook rests on strong GDP growth, contained inflation, rising capital expenditure, improving fiscal and current account balances, and favorable demographics, with consumer and corporate confidence upbeat.
  3. Indian corporate profitability continues to rise, with interest coverage ratios increasing and interest burdens falling, while bank lending has been solid and stock, bond, and private markets grow rapidly.

Related Articles:

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  • Apple’s India iPhone Output Hits $14 Billion in China Shift — 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.
  • India At The Centre — India has averaged real GDP growth above 6% a year for three decades, and unlike China's growth, it has translated into equity returns, with the Sensex matching or beating the S&P 500 over 30-, 20-, 10-, and five-year spans. Analysis attributes the growth to rising total factor productivity, with contributions from services exports and improved basic infrastructure.