Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason 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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, May 5, 2025

AI Summary. A study of US college students finds moderate-to-severe depression reported by 26% of students at one elite institution, 22% reporting moderate-to-severe anxiety and 10% contemplating suicide. Poorer mental health is associated with being female, little exercise, low grades, and financial aid; financial stress is associated with higher suicidal thoughts.

David Blanchflower and Bruce Sacerdote National Bureau of Economic Research
Date Posted:

Blanchflower and Sacerdote found that in 2021-2022, 10% of Dartmouth students reported suicidal ideation. Those reporting frequent financial stress were 8 ppts more likely to seriously contemplate suicide than those reporting no such stress.

How widespread is poor mental health among college students?

Core argument: At Dartmouth, 26% of students report moderate to severe depression, 22% report moderate to severe anxiety, and 10% say they contemplated suicide, even though Dartmouth ranks well compared with other institutions.

We study the determinants of poor mental health among students. We focus on elite and non-elite institutions and examine Dartmouth as a special case. Dartmouth ranks well compared to other institutions. However, around a quarter of Dartmouth students (26%) report they suffer from moderate to severe depression and 22% that they suffer from moderate, to severe, anxiety and 10% say they contemplated suicide. We find broad patterns in the data, that ill-being is higher among females, those who engage in little exercise, have low GPAs, are not athletes nor in academic clubs nor religious organizations, reside in fraternity housing or are on financial aid. Table 9 models the suicide ideation variable for Dartmouth and other universities. It is higher for those age 18-24 than for older groups and among women although that is not the case in non-elite institutions. Exercise and being a varsity athlete are associated with lower suicidal thoughts. A new result is the importance of concerns and stresses over financial situations which increases the probability of suicidal thoughts. The [financial] stress variables are highly significant, to such a degree that adding them in column 3 removes the (negative) significance of the Dartmouth variable.

Takeaways by Macro Roundup® AI

  1. At Dartmouth, 26% of students report moderate to severe depression, 22% report moderate to severe anxiety, and 10% say they contemplated suicide, even though Dartmouth ranks well compared with other institutions.
  2. Ill-being is higher among female students, those who exercise little, have low GPAs, are not athletes or members of academic clubs or religious organizations, live in fraternity housing, or receive financial aid.
  3. Concerns over financial situations increase the probability of suicidal thoughts, and adding these highly significant stress variables removes the negative significance of the Dartmouth variable, while exercise and being a varsity athlete are associated with lower suicidal thoughts.

Related Articles:

  • Disconnected: The Growing Class Divide in American Civic Life — 17% of Americans report having no close friends, and survey data show a wide educational gap: 24% of those with a high school education or less have no close friends versus 10% of college graduates. Three decades ago, Americans with less formal education reported social circles at least as large.
  • The Girls Are Not Alright: Responses to Three Claims that the Youth Mental Health Crisis Is Exaggerated — 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.
  • The Anti-Social Century — Americans spend less time with other people than in any period with reliable data back to 1965, with in-person socializing down more than 20% from 2003 to 2023 according to the Bureau of Labor Statistics' American Time Use Survey. Among unmarried men and people under 25, the decline exceeded 35%.

AI Summary. An analysis of Census Bureau data finds millennials working in technology and finance are more likely to reach their generation's top 5% of household incomes than baby boomers at similar ages, while doctors and lawyers are less likely. That top 5% earned over $300,000, versus more than $212,000 in 2023 dollars for boomers.

Joe Pinsker, Paul Overberg and Stephanie Stamm Wall Street Journal
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Between 1996 and 2018, pay growth in higher wage industries outpaced growth in lower wage industries; 5% of fields accounted for more than half the difference.

Which industries now propel young workers into their generation's top earners?

Core argument: The top 5% of millennial households by income earned more than $300,000 in 2023, versus more than $212,000 in 2023 dollars for comparable baby boomer households in 1990, according to a Wall Street Journal analysis of Census Bureau data archived by IPUMS.

The tech and finance sectors are more likely to vault millennials into their generation’s top 5% of household incomes, compared with baby boomers at similar ages in 1990, according to a Wall Street Journal analysis of the latest Census Bureau data from 2023. Those ascendant industries have gained ground on doctors and lawyers. Millennials with those jobs are less likely to make it into their generation’s highest earners than their baby boomer counterparts were 35 years ago, according to the Journal’s analysis. The economy’s re-sorting has come with a big payoff. The top 5% of millennial households by income brought in more than $300,000 in 2023, according to the Journal’s analysis, which used census data archived by IPUMS at the University of Minnesota. Comparable boomer households in 1990 made more than $212,000 in 2023 dollars.

Takeaways by Macro Roundup® AI

  1. The top 5% of millennial households by income earned more than $300,000 in 2023, versus more than $212,000 in 2023 dollars for comparable baby boomer households in 1990, according to a Wall Street Journal analysis of Census Bureau data archived by IPUMS.
  2. Tech and finance jobs are more likely to place millennials in their generation's top 5% of household incomes than they were for baby boomers at similar ages in 1990, according to the Journal's analysis.
  3. Millennial doctors and lawyers are less likely to reach their generation's highest earners than their baby boomer counterparts were 35 years earlier, according to the Journal's analysis.

Related Articles:

  • Rising Top, Falling Bottom: Industries and Rising Wage Inequality — Rising earnings inequality is dominated by rising inequality between industries, with high-earning workers increasingly concentrated in high-earning industries and low-earning workers in low-earning ones. About 10% of 301 detailed industries account for almost all of the rising between-industry dispersion while employing less than 40% of workers.
  • Where Have All the Good Jobs Gone? Changes in the Geography of Work in the US, 1980-2021 — The authors define "good jobs" as those in industries paying a wage premium and find spatial convergence across US local labor markets: areas initially less specialized in good-job industries saw larger increases in that specialization. This convergence was most consequential for Black, Hispanic, and foreign-born workers, who were overrepresented in fast-converging Southern and Western cities.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.

AI Summary. Taiwan's dollar surged as much as 5% in a day, its largest move since 1988, as traders speculated authorities might permit appreciation to help secure a trade deal with the US. Taiwan's central bank attributed the two-day appreciation partly to market chatter and urged against irresponsible speculation.

Betty Hou and Ruth Carson Bloomberg
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Taiwan’s dollar surged 5% against the US dollar on Monday. The Taiwan dollar has appreciated >10% against the dollar in the past month amid speculation that the central bank will allow significant appreciation as part of trade negotiations with the US.

Can trade deal speculation drive a currency's sharpest surge in decades?

Core argument: Taiwan's dollar rose as much as 5% on Monday, its largest surge since 1988, as traders speculated that authorities might permit appreciation to help secure a trade deal with the US.

Taiwan’s dollar surged the most since 1988 as traders speculated that authorities might allow it to appreciate to help reach a trade deal with the US. The local dollar rose as much as 5% on Monday. In an emergency press briefing late Monday, Taiwan’s central bank sought to quell speculation about the currency’s surge, saying that the wild, two-day appreciation was partially attributable to market chatter and urged against irresponsible speculation. The Taiwan dollar has advanced more than 10% [against the USD] over the past month.

Takeaways by Macro Roundup® AI

  1. Taiwan's dollar rose as much as 5% on Monday, its largest surge since 1988, as traders speculated that authorities might permit appreciation to help secure a trade deal with the US.
  2. Taiwan's central bank held an emergency press briefing late Monday, attributing the two-day appreciation partly to market chatter and urging against irresponsible speculation.
  3. The Taiwan dollar has advanced more than 10% against the US dollar over the past month.

Related Articles:

  • Are Foreigners Selling US Assets? — European and Japanese investors hold roughly 30% and 20% of their fixed income in foreign debt, versus under 10% for US investors, with US bonds making up about 15% of Eurozone and Japanese portfolios. Because foreign investors are less sticky than domestic ones, turmoil in US bond markets has greater potential to unsettle them.
  • The Dollar has Further to Fall — The author argues the dollar has considerably further to fall, noting Federal Reserve data show its real value nearly two standard deviations above its average since 1973, a level matched only twice before, each followed by depreciations of 25-30%. Financing the $1.1tn US current account deficit requires matching net capital inflows.
  • Too Many Dollars — Investors in South Korea and Japan may also exit dollar assets on fears that trade talks bring currency revaluation, as both resemble Taiwan in their U.S. trade and defense ties and have historically weak currencies. Japan allowed sharp appreciation under the 1985 Plaza Accord, which some scholars link to its subsequent decades of weakness.

AI Summary. Investors in South Korea and Japan may also exit dollar assets on fears that trade talks bring currency revaluation, as both resemble Taiwan in their U.S. trade and defense ties and have historically weak currencies. Japan allowed sharp appreciation under the 1985 Plaza Accord, which some scholars link to its subsequent decades of weakness.

Joseph Wang Fed Guy Blog
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The surge in the Taiwan $ vis-a-vis the US dollar will likely repeat itself with the yen and won as well, asserts @FedGuy12. “The structural depreciation of the dollar remains the primary macro force of the year.”

Will Asian investors flee dollar assets over currency revaluation fears?

Core argument: South Korea and Japan resemble Taiwan in their U.S. trade relationships, reliance on U.S. military support, and currencies trading at historically weak levels against the dollar, raising the prospect that investors there also flee dollar assets over trade-talk revaluation fears.

Investors in a couple other East Asian nations may also stampede out of dollar assets in fear of trade talk related revaluation. South Korea and Japan are similar to Taiwan in its trade relationship with the U.S. and reliance upon the U.S. for military support. They both also have currencies that are trading at historically weak levels against the dollar. The market appears to realize this and priced in significant strength in the Korean Won the same time the TWD strengthened. Strength is not as apparent in the Yen even though the Yen is trading around multi-decade lows against the dollar. Note that Japan allowed its currency to appreciate significantly against the dollar earlier under the 1985 Plaza Accord, which some scholars believe contributed to its subsequent decades long economic weakness.

Takeaways by Macro Roundup® AI

  1. South Korea and Japan resemble Taiwan in their U.S. trade relationships, reliance on U.S. military support, and currencies trading at historically weak levels against the dollar, raising the prospect that investors there also flee dollar assets over trade-talk revaluation fears.
  2. The market priced in significant Korean Won strength at the same time the Taiwan dollar strengthened, while comparable strength is not as apparent in the Yen despite it trading around multi-decade lows against the dollar.
  3. Japan allowed its currency to appreciate significantly against the dollar under the 1985 Plaza Accord, which some scholars believe contributed to its subsequent decades-long economic weakness.

Related Articles:

  • Are Foreigners Selling US Assets? — European and Japanese investors hold roughly 30% and 20% of their fixed income in foreign debt, versus under 10% for US investors, with US bonds making up about 15% of Eurozone and Japanese portfolios. Because foreign investors are less sticky than domestic ones, turmoil in US bond markets has greater potential to unsettle them.
  • The Dollar has Further to Fall — The author argues the dollar has considerably further to fall, noting Federal Reserve data show its real value nearly two standard deviations above its average since 1973, a level matched only twice before, each followed by depreciations of 25-30%. Financing the $1.1tn US current account deficit requires matching net capital inflows.
  • Taiwan’s Markets Jolted as Currency Surges Most Since 1980s

AI Summary. During an earlier period when the dollar fell about 40% against major peers, exports grew strongly, yet the US still lost roughly 3m manufacturing jobs, showing a weaker dollar is no cure-all. The author argues current policies may yield some bilateral business gains but leave consumers facing higher prices and interest rates.

Rebecca Patterson New York Times
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Between 2001-2008, the dollar lost ~ 40% of its value. Rebecca Patterson argues that while a weaker dollar today might help export competitiveness, inflation and interest rates will largely offset those gains.

Does a weaker dollar deliver broad economic gains?

Core argument: The dollar lost 40% against its major peers between mid-2001 and mid-2008, as Americans sold dollars to buy foreign equities and bonds, while strong global demand and a competitive currency drove robust U.S. export growth.

Between mid-2001 and mid-2008, the [USD] gradually lost 40% compared with its major peers. Americans, attracted by overseas investment opportunities, sold dollars to buy foreign equities and bonds. Strong global demand for American goods, coupled with a competitive currency, resulted in robust export growth. The economic benefits from that weak-dollar period were not evenly distributed. Export companies thrived, but America still lost around three million manufacturing jobs. History tells us that a softer dollar isn’t a panacea, and that it’s also important to understand why the currency is falling. The policy path being pursued today may result in some improved bilateral business opportunities. But those gains will be offset by damage, which will flow through to consumers and businesses, potentially for years to come, in the form of relatively higher prices and interest rates.

Takeaways by Macro Roundup® AI

  1. The dollar lost 40% against its major peers between mid-2001 and mid-2008, as Americans sold dollars to buy foreign equities and bonds, while strong global demand and a competitive currency drove robust U.S. export growth.
  2. Gains from that weak-dollar period were unevenly distributed: export companies thrived, yet the U.S. still lost around three million manufacturing jobs, suggesting a softer dollar is not a panacea.
  3. Today's policy path may yield some improved bilateral business opportunities, but those gains will be offset by damage reaching consumers and businesses as relatively higher prices and interest rates, potentially for years to come.

Related Articles:

  • The Dollar has Further to Fall — The author argues the dollar has considerably further to fall, noting Federal Reserve data show its real value nearly two standard deviations above its average since 1973, a level matched only twice before, each followed by depreciations of 25-30%. Financing the $1.1tn US current account deficit requires matching net capital inflows.
  • Are Foreigners Selling US Assets? — European and Japanese investors hold roughly 30% and 20% of their fixed income in foreign debt, versus under 10% for US investors, with US bonds making up about 15% of Eurozone and Japanese portfolios. Because foreign investors are less sticky than domestic ones, turmoil in US bond markets has greater potential to unsettle them.
  • Dollar Upheaval: This Time is Different — Standard interest-rate parity implies a 50 basis-point rise in U.S. long-term yields relative to European yields should appreciate the dollar about 5%, yet the dollar depreciated 3.6%, leaving an 8.6% gap. The authors argue investors have reduced their willingness to pay for the safety and liquidity of all dollar-denominated assets, not only U.S. Treasury securities.

AI Summary. China's nominal consumer spending per person has grown about 5.5% a year since late 2019, versus a pre-pandemic average of roughly 8.5%, leaving spending about 13.5% below the pre-pandemic trend while industrial production is 6-7% below trend. Weak domestic demand has left Chinese imports barely growing as extra production is sold abroad.

Matt Klein The Overshoot
Date Posted:

Growth in nominal Chinese consumer spending per capita has been 5.5% since late 2019, compared to 8.5% pre-pandemic, notes @M_C_Klein. “Chinese leaders have repeatedly failed to execute the necessary pivot” from exports to domestic consumption.

Is weak Chinese consumer spending keeping imports flat while exports grow?

Core argument: China's nominal consumer spending per person has grown 5.5% a year since the end of 2019, versus a pre-pandemic average of about 8.5%, leaving spending in the 12 months to March 2025 13.5% below pre-pandemic trend.

Since the end of 2019, nominal consumer spending per person in China has grown at a yearly average rate of 5.5%. That compares to a stable pre-pandemic average growth rate of about 8.5%. The result is that the amount spent in the 12 months ending March 2025 was 13.5% below what would have been expected given pre-pandemic trends. Industrial production is also below the pre-pandemic trend, but the shortfall is relatively smaller (6-7%) compared to the consumption indicators. One implication is that Chinese imports have barely grown over the past few years, thanks to weak domestic demand, while exports have been relatively more robust as extra production has been sold abroad.The gap was particularly pronounced for discretionary categories of consumer spending such as “education, culture, and entertainment” (22% below trend) and healthcare (29% below trend). By contrast, nominal spending on “food, alcohol, and tobacco” has grown in line with the pre-pandemic trend. Chinese leaders have repeatedly failed to execute a pivot [from exports to domestic consumption] despite it being both official policy and the consensus recommendation of China’s leading economists for years.

Takeaways by Macro Roundup® AI

  1. China's nominal consumer spending per person has grown 5.5% a year since the end of 2019, versus a pre-pandemic average of about 8.5%, leaving spending in the 12 months to March 2025 13.5% below pre-pandemic trend.
  2. China's industrial production sits 6–7% below its pre-pandemic trend, a smaller shortfall than consumption, and weak domestic demand has left Chinese imports barely growing while exports absorbed the extra production.
  3. China's spending on "education, culture, and entertainment" is 22% below pre-pandemic trend and healthcare 29% below, while nominal spending on "food, alcohol, and tobacco" has grown in line with that trend.

Related Articles:

  • The Evolution of Global Trade in 2024 — Global trade imbalances consist of one very large surplus and one very large deficit: China's goods surplus exceeds $1tn a year, while the U.S. non-petroleum deficit drives the Asian surplus. The author argues a Chinese surplus this large can be sustained only alongside a large U.S. deficit.
  • Beijing Doesn’t Want America to See Its Trade-War Pain — Economists estimate the U.S. market accounts for nearly 21% of China's overseas sales once goods rerouted through other countries are counted, above the roughly 15% share in official Chinese data. Exports make up around 13% of China's economic output, with U.S.-bound sales estimated at about 3%.
  • China Offers First Hint of Devaluation With Weak Renminbi Fix — China's central bank set the renminbi's daily fixing rate just below 7.2 to the dollar, its weakest level in 18 months, signaling it may permit depreciation to offset US tariffs. Many economists believe Beijing will avoid a large devaluation because it would risk capital outflows and domestic instability.

AI Summary. The top US military commander in the Indo-Pacific said the United States would prevail in a conflict with China as it stands with current forces, citing American advantages in undersea, space, and counter-space capabilities. He warned that China is building weapons systems, including warships, at a much faster pace than the US.

Demetri Sevastopulo Financial Times
Date Posted:

The top American commander in the Indo-Pacific, Samuel Paparo, said “The United States will prevail in [a war over Taiwan] as it stands now.” However, he noted, “our trajectory on…really every force element that is salient is a bad trajectory.”

Is China's faster weapons buildup eroding America's military edge?

Core argument: Admiral Samuel Paparo said the United States would prevail in a conflict with the force it has now, citing US advantages in undersea capabilities, space, and counter-space weapons.

The top American military commander in the Indo-Pacific said “The United States will prevail in the conflict as it stands now, with the force that we have right now,” Admiral Samuel Paparo told the McCain Institute’s annual Sedona Forum in Arizona on Friday. Speaking one year after taking the helm at Indo-Pacific command, Paparo stressed that the US military had key advantages over China in undersea capabilities, as well as superior capabilities in space and weapons that counter space assets. But he warned that China was building weapons systems, including warships, at a much faster pace than the US. “Our trajectory on…really every force element that is salient is a bad trajectory,” Paparo said. “The rates of change on the depth and breadth of their exercises is the one non-linear effect that I’ve seen in the last year that wakes me up at night or keeps me up at night,” he said.

Takeaways by Macro Roundup® AI

  1. Admiral Samuel Paparo said the United States would prevail in a conflict with the force it has now, citing US advantages in undersea capabilities, space, and counter-space weapons.
  2. Paparo warned that China is building weapons systems, including warships, at a much faster pace than the United States, and that the US trajectory on "really every force element that is salient is a bad trajectory.".
  3. Paparo identified the rate of change in the depth and breadth of Chinese military exercises as the one non-linear effect he has seen in the past year that keeps him up at night.

Related Articles:

  • Ship Wars — Shipyards tied to China's defense industrial base account for 15% of the country's active shipyards but 40% of commercial output by tonnage, with over 75% of their production built for firms outside China and Hong Kong. The authors argue these commercial revenues offset fixed costs and effectively subsidize China's naval expansion.
  • A US Drone Maker Tries to Take Back the Country’s Skies — US drone maker Skydio has produced 45,000 drones in total, while Chinese rival DJI likely makes that many every few weeks — a scale gap that matters because production costs fall predictably with cumulative output. The Pentagon's Defense Innovation Unit says that at attrition rates observed in Ukraine, the US military would exhaust its entire drone supply in five days.
  • China’s Newest Nuclear Submarine Sank, Setting Back Its Military Modernization — U.S. officials say China's first Zhou-class nuclear-powered attack submarine, which features a distinctive X-shaped stern designed for greater maneuverability, sank at a shipyard near Wuhan, a setback for a priority weapons program that Chinese authorities sought to conceal.

Tuesday, May 6, 2025

AI Summary. The US dollar was exceptionally strong at a level implying an ever-shrinking export base and an ever-growing trade deficit, requiring continually larger foreign inflows at ever more inflated dollar and US equity valuations to sustain. Even after its recent slide, the dollar remains strong by almost all measures.

Brad Setser Council On Foreign Relations
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Despite its recent slide, the dollar “is still quite strong by almost all measures,” @Brad_Setser notes. Aside from recent American policy, mean reversion would suggest a weaker dollar.

Was the dollar overvalued enough that a decline was likely anyway?

Core argument: The dollar was exceptionally strong, making a decline likely at some point, and even after its slide it remains quite strong by almost all measures.

There is also the simple fact that the dollar was exceptionally strong and thus the odds were that it would fall at some point. The flow equilibrium around the dollar required ever increasing inflows from the rest of the world at ever more inflated values of the dollar and U.S. equities -- the so-called U.S. exceptionalism trade. The 2023-24 dollar was at a level that implied an ever-shrinking U.S. export base. It was also at a level that implied an ever-growing trade deficit. Even with the recent slide, the dollar is still quite strong by almost all measures.

Takeaways by Macro Roundup® AI

  1. The dollar was exceptionally strong, making a decline likely at some point, and even after its slide it remains quite strong by almost all measures.
  2. Sustaining the dollar's flow equilibrium required ever-increasing inflows from the rest of the world at ever more inflated values of the dollar and U.S. equities, the so-called U.S. exceptionalism trade.
  3. The dollar's 2023-24 level implied an ever-shrinking U.S. export base and an ever-growing trade deficit.

Related Articles:

  • The Dollar has Further to Fall — The author argues the dollar has considerably further to fall, noting Federal Reserve data show its real value nearly two standard deviations above its average since 1973, a level matched only twice before, each followed by depreciations of 25-30%. Financing the $1.1tn US current account deficit requires matching net capital inflows.
  • What the Weak Dollar Means for the Global Economy — The dollar has weakened to fresh lows against the euro, Japanese yen and Swiss franc, with the ICE U.S. Dollar Index down 8% this year, the worst start to a year in its four-decade history. Some on Wall Street worry China will push the yuan lower to offset trade-war effects.
  • Dollar Upheaval: This Time is Different — Standard interest-rate parity implies a 50 basis-point rise in U.S. long-term yields relative to European yields should appreciate the dollar about 5%, yet the dollar depreciated 3.6%, leaving an 8.6% gap. The authors argue investors have reduced their willingness to pay for the safety and liquidity of all dollar-denominated assets, not only U.S. Treasury securities.

AI Summary. The projected US debt path is higher than was projected under 2007 law because of large tax cuts and two major recessions and the policy responses to them, not larger-than-expected aging and health care costs; health care spending has risen less than projected. Near-term crisis odds remain unclear, with 10-year Treasury yields near 2007 levels.

Karen Dynan and Douglas Elmendorf National Bureau of Economic Research
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CBO’s upward revisions in projected Federal debt since 2007 reflect two major unforecasted recessions and tax cuts, not unexpected cost increases due to health and aging. Yields are near those of 2007 when debt-to-GDP was ⅓ of today’s level.

Why is the projected US debt path higher than earlier projections?

Core argument: The projected path of US federal debt is notably higher than was projected under current law in 2007, a shift attributed to large tax cuts in 2012 and 2017 and to two major recessions and the policy responses to them.

The projected path of debt is notably higher today than was projected under current law in 2007. That shift occurred not because aging and health care spending have had larger effects than expected; indeed, health care spending has risen less than projected in 2007 and accounts for some of the downward pivot in projected debt growth between 2020 and 2025. Instead, the jump owes to large tax cuts—in 2012 (making permanent most of the tax cuts enacted on a temporary basis in 2001 and 2003) and in 2017—and two major recessions and the policy responses to them. The probability of a US fiscal crisis in the near term remains very unclear. The yield on 10-year Treasury notes and the yield on 10-year inflation-indexed Treasury securities are both close to their levels in 2007 when the debt-to-GDP ratio was about one-third what it is now. Interest rates [may] increase significantly at some point because of high and rising federal debt, [which] could make voters unhappy enough [to] push their elected representatives to restrain debt growth. If the increase in rates is so sudden and sizable as to constitute a fiscal crisis, policymakers might have no choice but to raise taxes and cut spending sharply.

Takeaways by Macro Roundup® AI

  1. The projected path of US federal debt is notably higher than was projected under current law in 2007, a shift attributed to large tax cuts in 2012 and 2017 and to two major recessions and the policy responses to them.
  2. Health care spending has risen less than projected in 2007 and accounts for some of the downward pivot in projected debt growth between 2020 and 2025, rather than aging and health care costs exceeding expectations.
  3. Yields on 10-year Treasury notes and 10-year inflation-indexed Treasury securities are both close to their 2007 levels, when the debt-to-GDP ratio was about one-third of its present level, and the near-term probability of a US fiscal crisis remains very unclear.

Related Articles:

  • Can Treasury Markets Add and Subtract? — The authors estimate that Treasury yields rise on days when official cost estimates reveal deficit-increasing legislation, with a one-time 1 percentage point increase in the deficit-to-GDP ratio raising the 10-year yield by 0.75 basis points, or 6.75 basis points for a persistent deficit shock. The response reflects higher expected inflation and term premia alongside lower convenience yields.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.
  • Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements — Fiscal dominance requires governments to fund deficits at the margin with non-interest-bearing debt, and the revenue from inflation taxation—both expected and unexpected—is limited. The authors argue a US fiscal dominance episode could end the payment of interest on bank reserves and restore requirements that banks hold large zero-interest reserves against deposits.

AI Summary. Because sectoral savings and investment balances must sum to zero, the domestic counterpart of chronic US current account deficits has been chronic government budget deficits, with foreigners, US businesses, and US households all running savings surpluses. Since real interest rates have been low, the author argues foreign savings inflows made large fiscal deficits necessary to sustain domestic demand.

Martin Wolf Financial Times
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Martin Wolf notes that chronic Federal deficits have offset surpluses run by both the American domestic business and household sectors as well as foreign investment in the US.

Do foreign savings inflows make chronic US budget deficits necessary?

Core argument: Because U.S. sectoral balances must sum to zero, the domestic counterpart of chronic U.S. current account deficits has been chronic fiscal deficits, with foreigners running a substantial savings surplus with the U.S. for decades.

The counterpart of external deficits tends to be unsustainable domestic borrowing. Combined with financial fragility, the latter can lead to huge financial crises, as it did between 2007 and 2015. Sectoral savings and investment balances are revealing indicators of this last challenge. Foreigners have been running a substantial savings surplus with the US for decades. US businesses have also been in balance or surplus since the early 2000s, while US households have been in surplus since 2008. Since these sectoral balances have to add to zero, the domestic counterpart of US current account deficits has been chronic fiscal deficits. If real interest rates had been high, fiscal deficits might have been driving the chronic external deficits. But the opposite has been true: real interest rates have been either low or very low. The Keynesian hypothesis looks right: the inflow of net foreign savings, shown in capital account surpluses (and current account deficits) made big fiscal deficits necessary, because domestic demand in the US would otherwise have been chronically inadequate.

Takeaways by Macro Roundup® AI

  1. Because U.S. sectoral balances must sum to zero, the domestic counterpart of chronic U.S. current account deficits has been chronic fiscal deficits, with foreigners running a substantial savings surplus with the U.S. for decades.
  2. U.S. businesses have been in balance or surplus since the early 2000s and U.S. households in surplus since 2008, leaving the government sector as the deficit counterpart to foreign savings inflows.
  3. Real interest rates have been low or very low rather than high, which Martin Wolf argues supports the Keynesian hypothesis that inflows of net foreign savings made large U.S. fiscal deficits necessary to avoid chronically inadequate domestic demand.

Related Articles:

  • The U.S. Trade Deficit: Myths and Realities — Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.
  • The Global Trading System Was Already Broken — The authors argue globalization requires a new trade regime in which countries resolve their production, consumption, and investment imbalances domestically rather than exporting them to trade partners. They propose starting with a customs-union-style bloc of major deficit countries, which would force surplus countries to raise domestic consumption or investment or cut overproduction.
  • China’s Edge in the “Trade Struggle” is More Theoretical than Real — China's nominal consumer spending per person has grown about 5.5% a year since late 2019, versus a pre-pandemic average of roughly 8.5%, leaving spending about 13.5% below the pre-pandemic trend while industrial production is 6-7% below trend. Weak domestic demand has left Chinese imports barely growing as extra production is sold abroad.

AI Summary. Chinese firms have narrowed the gap with foreign competitors across targeted industries, with China's share of global patents rising by more than 4 percentage points in electric vehicles, new materials, electronics, and robotics. Gaps remain in areas such as advanced semiconductors, where Chinese firms still lag the global frontier.

Camille Boullenois, Malcolm Black and Daniel Rosen Rhodium Group
Date Posted:

The PRC’s “China 2025” industrial policy, though far from achieving self-sufficiency, has moved target firms closer to the technological frontier. Btw 2015 and 2020, China gained a 4pp share of global patents in robotics and electric vehicles.

Has China's industrial policy closed the technology gap with foreign firms?

Core argument: China's share of global top publications rose by an average of 18 percentage points between 2015 and 2023, and its share of global patents increased across most industries, with gains exceeding 4 percentage points in electric vehicles, new materials, electronics, and robotics.

Chinese companies have made significant strides in closing the gap with foreign firms and advancing toward the technological frontier, with several sectors already demonstrating signs of parity or even leadership. China’s share of global patents has risen across most industries, with notable gains in electric vehicles, new materials, electronics, and robotics, where its share grew by more than 4 percentage points. In basic research, China’s output is equally remarkable, with its share of global top publications increasing by an average of 18 percentage points between 2015 and 2023. Despite this rapid progress, Chinese firms have yet to achieve parity in many MIC25 sectors, with 62% of foreign firms surveyed predicting that their Chinese competitors would catch up within 5 to 10 years. Key gaps remain in areas such as advanced semiconductors, where Chinese firms still lag significantly behind the global frontier.

Takeaways by Macro Roundup® AI

  1. China's share of global top publications rose by an average of 18 percentage points between 2015 and 2023, and its share of global patents increased across most industries, with gains exceeding 4 percentage points in electric vehicles, new materials, electronics, and robotics.
  2. Chinese firms have yet to reach parity in many Made in China 2025 sectors, with advanced semiconductors remaining a key gap where they lag significantly behind the global frontier.
  3. Among foreign firms surveyed, 62% predict their Chinese competitors will catch up within five to ten years, while several sectors already show signs of parity or Chinese leadership.

Related Articles:

  • US Efforts to Contain Xi’s Push for Tech Supremacy Are Faltering — Research by Bloomberg Economics and Bloomberg Intelligence finds that of 13 key technologies tracked, China has reached global leadership in five and is catching up in seven others, with clear leads in electric vehicles, automotive software and lithium battery technology. China still struggles to develop manufacturing processes for advanced semiconductors, the main focus of US export controls.
  • How Do U.S. Firms Withstand Foreign Industrial Policies? — U.S. firms in industries targeted for encouragement by China's Five-Year Plans show significant declines in employment, investment, and output beginning a year after a plan's release, with plant closures following a year later. The authors find firms with existing operations upstream or downstream of encouraged industries, or able to offshore into them, fare better.
  • America Is Missing The New Labor Economy – Robotics Part 1 — Building an identical robotic arm in the US costs about 2.2x more than in China, and US-labeled components still depend heavily on Chinese parts and materials with no scalable alternative. The author argues China is the only country positioned to capture full-scale intelligent robotic automation, which would let it outcompete the US across production.

AI Summary. Christian Democrat Friedrich Merz became Germany's chancellor after securing 325 votes in Germany's 630-member parliament on a second ballot, having unexpectedly fallen short in the first round. He has angered parts of his conservative bloc by loosening Germany's constitutional borrowing limit to fund a €1tn debt-financed program for the military and infrastructure.

Anne-Sylvaine Chassany and Laura Pitel Financial Times
Date Posted:

Friedrich Merz became Germany’s chancellor after surprisingly falling short on the first round vote, which highlighted the tensions inherent in the coalition of Christian and Social Democrats established to keep the AFD out of the government.

Has Germany's new chancellor won parliamentary approval despite conservative opposition to borrowing?

Core argument: Friedrich Merz secured 325 votes in a secret ballot of the 630-member Bundestag on his second attempt of the day, after falling short in the first round in a shock setback.

Friedrich Merz has won a second-round parliamentary vote to become Germany’s chancellor after falling short earlier on Tuesday in a shock setback. The 69-year-old Christian Democrat, who won elections in February and has teamed up with the Social Democrats to form a majority government, had been expected to triumph in the first round. However, he secured a majority of the 630-member Bundestag only in his second attempt of the day, with 325 votes in a secret ballot. Merz has angered some within the more conservative wing of his CDU/CSU grouping by loosening the constitutional borrowing limit and embarking on a €1tn debt-fuelled spending programme to modernise the country’s military and its ageing infrastructure.

Takeaways by Macro Roundup® AI

  1. Friedrich Merz secured 325 votes in a secret ballot of the 630-member Bundestag on his second attempt of the day, after falling short in the first round in a shock setback.
  2. Merz, the 69-year-old Christian Democrat who won February's elections, formed a majority government with the Social Democrats and had been expected to win the chancellorship in the first round.
  3. Merz has angered some in the more conservative wing of his CDU/CSU grouping by loosening the constitutional borrowing limit and embarking on a €1tn debt-fuelled spending programme to modernise Germany's military and ageing infrastructure.

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  • Germany’s Spending Push Drives Up Borrowing Costs Across Eurozone — Germany's planned defence spending has pushed 10-year German government bond yields close to 3%, lifting borrowing costs across the eurozone because German debt serves as the bloc's benchmark. Investors warn this intensifies pressure on heavily indebted economies; one simulation projects Italy's debt-to-GDP ratio reaching 153% and France's 122% by 2030 absent spending cuts or faster growth.
  • From Trains to Tanks: Germany’s Rearmament Marks Industrial Shift — Germany's defense spending has risen almost 80% since 2020 to over €90bn, according to NATO estimates, offering hiring growth in a country where nearly 250,000 manufacturing jobs have disappeared since the pandemic began. Four major defense contractors added more than 16,500 employees over three years, a gain exceeding 40%, and plan roughly 12,000 more hires.
  • German Army Struggles to Get Gen Z Recruits ‘Ready for War’ — Germany's armed forces commissioner warned the country is not moving closer to its target of 203,000 active troops by 2031, as the military slightly shrank amid high dropout rates, with a quarter of new recruits leaving within six months. Conscientious objector applications reached 2,998, up from 200 in 2021.

AI Summary. U.S. startups have flown a reusable hypersonic test aircraft, the Talon-A, on fully autonomous flights exceeding five times the speed of sound, according to the Defense Department. The U.S. military had not flown a reusable hypersonic aircraft since closing its X-15 program, while China built some of the most advanced hypersonic missiles.

Heather Somerville Wall Street Journal
Date Posted:

Two small US startups successfully completed a test flight of a reusable hypersonic rocket-powered aircraft. Though the US invented the technology in the first place, American hypersonic efforts have lagged those of the PLA.

Are U.S. startups closing the hypersonic gap with China?

Core argument: The Talon-A hypersonic test aircraft exceeded five times the speed of sound in fully autonomous flights in December and March, the Defense Department said.

Two startups conducted the test flights of a vessel called the Talon-A: Stratolaunch, the company making the hypersonic test aircraft and based in the Mojave Desert, and Ursa Major, a Colorado-based builder of liquid rocket engines. The fully autonomous flights occurred in December and March, the Defense Department said on Monday, and exceeded five times the speed of sound—the generally accepted designation of hypersonic speed. The U.S. military hasn’t flown a reusable hypersonic-speed aircraft since 1968. That is when it shuttered the X-15 program, a superfast human-piloted aircraft lauded as a gold standard for experimental programs. As the Pentagon dawdled, China plowed ahead, building some of the most state-of-the-art hypersonic missiles.

Takeaways by Macro Roundup® AI

  1. The Talon-A hypersonic test aircraft exceeded five times the speed of sound in fully autonomous flights in December and March, the Defense Department said.
  2. The U.S. military had not flown a reusable hypersonic-speed aircraft since 1968, when it shuttered the human-piloted X-15 program, lauded as a gold standard for experimental programs.
  3. Two startups conducted the Talon-A flights: Stratolaunch, the Mojave Desert-based maker of the test aircraft, and Ursa Major, a Colorado-based builder of liquid rocket engines.

Related Articles:

  • US Adds 36 Chinese Companies to Trade Blacklist — The US Commerce Department added 36 Chinese companies to its "entity list" trade blacklist, requiring American firms to obtain hard-to-get licenses to export critical technologies to them. The move extends US efforts to slow China's development of advanced chips and military technologies such as hypersonic weapons.
  • From Rockets to Ball Bearings, Pentagon Struggles to Feed War Machine — The Pentagon is offering suppliers multiyear contracts and sending teams to resolve supply bottlenecks as procurement budgets grow, while abandoning post-Cold War cost-cutting practices such as just-in-time delivery and consolidation of the defense industry. The Defense Production Act is also being used to accelerate new missile programs, including hypersonic weapons.
  • US Eases Tech Curbs To Boost Aukus Security Pact With UK and Australia — The US is easing arms-export restrictions so that the UK and Australia no longer need licences for roughly 80% of their defence-related trade with the US, removing barriers to trilateral defence cooperation under the Aukus pact. The State Department says the change is critical to allied work on hypersonics, artificial intelligence, and undersea military capabilities.