Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “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
  • “…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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, August 4, 2025

AI Summary. Net income at Alphabet, Amazon, Meta and Microsoft rose 73% to $91bn in a quarter two years on, while their combined free cash flow fell 30% to $40bn, as heavy AI investment absorbs cash these firms once recycled into financial markets. That spare cash previously helped hold down long-term interest rates despite large federal deficits.

Greg Ip Wall Street Journal
Date Posted:
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Btw 2016 and 2023, Alphabet, Amazon, Meta and Microsoft’s free cash flow and net earnings ~ tracked each other; since 2023, net earnings have risen 73% and free cash flow has declined by 30% due to the AI buildout.

Does AI investment push up long-term interest rates?

Core argument: Combined net income at Alphabet, Amazon, Meta and Microsoft rose 73% to $91 billion in the second quarter from two years earlier, while their free cash flow fell 30% to $40 billion, according to FactSet data.

From 2016 through 2023, free cash flow and net earnings of Alphabet, Amazon, Meta and Microsoft grew roughly in tandem. But since 2023, the two have diverged. The four companies’ combined net income is up 73%, to $91 billion, in the second quarter from two years earlier, while free cash flow is down 30% to $40 billion, according to FactSet data. Between [the] crisis and Covid-19, these companies were generating five to eight times as much cash from operations as they invested, and that spare cash was recycled back into the financial system. It helped hold down long-term interest rates amid high federal deficits, as did inflation below the Federal Reserve’s 2% target and the Fed buying bonds. Today, government deficits are even larger, inflation is above 2% and the Fed has been shrinking its bondholdings. Meanwhile, corporations face steep investment needs to exploit AI and reshore production to avoid tariffs. Jason Thomas [head of research at Carlyle Group] estimates that since 2020, the companies’ cumulative free cash flow has been 78% lower, relative to GDP, than in the equivalent period following 2009.

Takeaways by Macro Roundup® AI

  1. Combined net income at Alphabet, Amazon, Meta and Microsoft rose 73% to $91 billion in the second quarter from two years earlier, while their free cash flow fell 30% to $40 billion, according to FactSet data.
  2. Jason Thomas, head of research at Carlyle Group, estimates the four companies' cumulative free cash flow since 2020 has been 78% lower relative to GDP than in the equivalent period following 2009.
  3. Between the financial crisis and Covid-19, these companies generated five to eight times as much cash from operations as they invested, and that spare cash, recycled into the financial system, helped hold down long-term interest rates amid high federal deficits.

Related Articles:

  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
  • Honey, AI Capex is Eating the Economy — Capital spending on AI data centers is around 20% of railroads' peak spending as a share of GDP and is rising quickly, having already surpassed the dot-com era peak in telecom investment. Unlike long-lived rail infrastructure, data centers are short-lived assets requiring frequent hardware replacement, and the capital is being reallocated from other sectors.
  • Back to Our Regularly Scheduled Programming — The four largest US hyperscalers spent $440bn on capital expenditure and research in 2024, with $596bn projected for 2025, a 35% increase, leaving large gaps between AI spending and AI revenues. These firms account for more than half of all capital expenditure growth in the US equity market.

AI Summary. Federal Reserve Bank of Atlanta data show annual wage growth for the lowest-paid quartile of US workers, earning roughly under $806 a week, slowed to 3.7% from a peak of 7.5%, while pay for the top 25% rose 4.7% and the overall workforce 4.3%. Wage growth has slowed less for higher earners.

Delphine Strauss, Claire Jones and Steff Chávez Financial Times
Date Posted:
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Wage growth for the bottom quartile of American workers slowed to a 3.7% annual rate in June; under that of the top quartile, whose wages grew 4.7%. Since 2017, wage growth for the bottom quartile has generally outpaced that of their higher-earning peers.

Are the lowest-paid workers seeing the sharpest slowdown in wage growth?

Core argument: Wage growth for the lowest-paid quartile of US workers, those earning roughly less than $806 a week, slowed to an annual rate of 3.7% in June from a peak of 7.5% in late 2022, according to the Atlanta Fed.

Data from the Federal Reserve Bank of Atlanta shows wage growth for the lowest-paid quartile of workers — people earning roughly less than $806 a week — slowed to an annual rate of 3.7% in June, down from a peak of 7.5 per cent in late 2022, when post-pandemic labour shortages in industries such as hospitality were most acute. Wage growth has also slowed for higher earners but to a lesser extent. Pay for the top 25% of workers is up by 4.7%in the year to June, and for the overall workforce by 4.3%. Those in the highest quartile earn more than $1,887 a week.

Takeaways by Macro Roundup® AI

  1. Wage growth for the lowest-paid quartile of US workers, those earning roughly less than $806 a week, slowed to an annual rate of 3.7% in June from a peak of 7.5% in late 2022, according to the Atlanta Fed.
  2. Pay for the top 25% of US workers, who earn more than $1,887 a week, rose 4.7% in the year to June, exceeding both the 4.3% gain for the overall workforce and the 3.7% gain for the bottom quartile.
  3. Atlanta Fed data show wage growth has slowed for higher earners as well, but to a lesser extent, with the lowest quartile's late-2022 peak coming when post-pandemic labour shortages in industries such as hospitality were most acute.

Related Articles:

  • Life Under Two: Debt, Deficits, and the AI Discontinuity — The United States averaged annual GDP growth above 3% for decades, but 2% or less is now more likely. Over ten years, the author estimates that gap amounts to a $3.36tn larger economy, $3.7tn more tax revenue, and 6m more jobs, shifting public psychology from abundance toward scarcity.
  • AI Is Wrecking an Already Fragile Job Market for College Graduates — An analysis of labor data finds a shrinking share of each graduating class is landing jobs requiring a bachelor's degree. At the 15 largest tech companies by market value, entry-level hires as a share of total new hires have fallen 50%, and recent graduates made up 7% of new hires, down from 11%.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.

AI Summary. Tariff pass-through to consumer goods prices has varied widely by category, with household appliances and household supplies passing on nearly all or more than the estimated tariff cost while clothing, new cars, and telephone equipment show minimal or negative price effects. Across 19 products the authors estimate about 50% pass-through to consumption goods prices.

Chris Marsh Money: Inside and Out
Date Posted:

11/20 sub-categories of core goods have likely reacted to tariffs, with an overall impact of 50% pass-through to consumption goods. Virtually all tariff increases for household appliances have been passed on whereas the prices of new cars have not risen.

How much of tariff costs are passing through to consumer prices?

Core argument: Across 19 product categories, the estimated overall tariff pass-through to consumption goods inflation is 50%.

Two of the sub-categories are shown [above] as an example, where cumulative PCE is contrasted with the estimated tariff impact. New motor vehicles have seen no inflation uplift since March and are running below the pre-pandemic norm through June. In contrast, with a short lag, household appliances have responded to the tariff strongly in May and June to nearly pass on the estimated tariff cost in full. Looking at the full range of products the ratio of the inflation outcome from March to June over the estimated tariff impact for that category over this period varies from more than 100% for some products (household supplies, for example), 50%-100% inflation for others (like sporting equipment) while goods such as clothes, new cars, and telephone equipment have minimal or negative impact — meaning seasonally adjusted inflation has been negative despite the tariffs. We suspect that car and smart phone producers have been able to absorb the tariff costs to date, including through deft use of inventories, hence the slow response for these categories. The overall inflation impact for these 19 products is a 50% tariff pass-through to consumption goods.

Takeaways by Macro Roundup® AI

  1. Across 19 product categories, the estimated overall tariff pass-through to consumption goods inflation is 50%.
  2. Household appliance prices responded strongly to the tariff in May and June, nearly passing on the estimated tariff cost in full, while household supplies show a pass-through ratio above 100%.
  3. New motor vehicles have seen no inflation uplift since March and run below the pre-pandemic norm through June, with clothes and telephone equipment also showing minimal or negative seasonally adjusted inflation despite the tariffs.

Related Articles:

  • Are Businesses Absorbing the Tariffs or Passing Them on to Their Customers? — About three-quarters of manufacturing and service firms facing tariff-driven cost increases reported passing at least some of those costs to customers through higher prices, while roughly a quarter of each said they absorbed the full increase without raising prices. Nearly a third of manufacturers and about 45% of service firms reported full pass-through.
  • The Tariff Shock to US Inflation Is Massive — Tariff-driven inflation is now showing up in furnishings and recreational goods—two heavily China-imported categories making up 25% of "core" goods in US inflation baskets—with monthly inflation running 100–120 basis points above seasonal norms. The author argues this impulse is large enough that the Federal Reserve may not cut rates at all.
  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.

AI Summary. The inflation measure preferred by Federal Reserve officials has risen faster in 2025 than in 2024 or 2023, with no progress since late 2022. A "supercore" measure stripping out volatile components is running nearly 2 percentage points above its pre-pandemic average, driven by accelerating goods prices excluding energy, groceries, and vehicles.

Matt Klein The Overshoot
Date Posted:

Matt Klein notes wage growth remains persistently 1–1.5pp faster than its pre-pandemic level, consistent with an inflation rate of ~3% before the impact of tariffs, which should be limited as imported goods are a small part of the US consumption basket.

Has inflation stalled above its pre-pandemic pace despite a strong job market?

Core argument: The "supercore" inflation measure, which strips out volatile components and those subject to idiosyncratic measurement issues, has run almost 2 percentage points faster than its pre-pandemic average in 2025H1.

The inflation measure preferred by Federal Reserve officials has been rising faster in 2025 than it did in either 2024 or 2023. In fact, there has been no progress since 2022H2. This is particularly evident when stripping out the components that are either volatile or subject to idiosyncratic measurement issues. So far in 2025H1, this “supercore” measure has been running almost 2 percentage points faster than its pre-pandemic average. While inflation in services excluding housing, utilities, and imputed services with no market prices has been gradually decelerating over the past 3-4 years, it remains about 0.7 percentage points faster than pre-pandemic. The problem is that prices for goods excluding energy, groceries, and motor vehicles and parts have accelerated massively and are now rising almost as fast as during the worst of the 2021H2-2022H1 inflation spike.

Takeaways by Macro Roundup® AI

  1. The "supercore" inflation measure, which strips out volatile components and those subject to idiosyncratic measurement issues, has run almost 2 percentage points faster than its pre-pandemic average in 2025H1.
  2. The inflation measure preferred by Federal Reserve officials has risen faster in 2025 than in either 2024 or 2023, with no progress since 2022H2.
  3. Prices for goods excluding energy, groceries, and motor vehicles and parts are rising almost as fast as during the worst of the 2021H2–2022H1 inflation spike, while services excluding housing, utilities, and imputed services run about 0.7 percentage points above pre-pandemic rates.

Related Articles:

  • Inflation, Trump, and the Fed — Nominal wage income is growing about 1–1.5 percentage points faster than before the pandemic, implying somewhat more inflation than in 2017–2019 if most of that extra income is spent and businesses cannot ramp up production. Cutting interest rates enough to reverse the budget deficit increase, without offsetting fiscal tightening, would be extraordinarily inflationary.
  • Skyrocketing Tariffs: Why Did Inflation Take So Long to React? — US inflation stayed stable for months after tariff rates rose steeply, which the author attributes to firms stockpiling imports ahead of the tariffs, importers absorbing some added cost through lower profits, and easing inflationary pressures elsewhere. The author argues the first two factors will fade as inventories deplete, pushing consumer prices higher.
  • The Tariff Shock to US Inflation Is Massive — Tariff-driven inflation is now showing up in furnishings and recreational goods—two heavily China-imported categories making up 25% of "core" goods in US inflation baskets—with monthly inflation running 100–120 basis points above seasonal norms. The author argues this impulse is large enough that the Federal Reserve may not cut rates at all.

AI Summary. US factories assembled 10.5m vehicles last year, close to the 10.3m annual average of the pre-NAFTA period back to 1969, while the industry's real value added and industrial production stand at all-time highs and employment totals 1m workers. Detroit's auto employment peaked in 1950 and halved by 1970, reflecting competition from other US regions rather than imports.

Adam Ozimek Economic Innovation Group
Date Posted:

Noting real value added in US autos is now at an all-time high, Adam Ozimek argues the “death of Detroit” was due not to globalization but to migrating production within the US; Japanese imports did not “nearly destroy” the industry in the early 80s.

Has the US auto industry actually declined?

Core argument: American factories assembled 10.5m vehicles last year, below the post-NAFTA peak but well above the depressed 2000s and nearly equal to the 10.3m annual average of the pre-NAFTA period dating back to 1969.

Claims of vast deindustrialization ring true for textiles [e.g.] But the domestic auto industry is different, with 10.5 million vehicles assembled in American factories last year - down from the peak of the post-NAFTA boom, but well above the depressed years of the 2000s and nearly equal to the average of 10.3 million annual vehicles made in the pre-NAFTA period dating back to 1969. Real value added and industrial production are now at all-time highs. The auto industry today employs 1 million workers. Between 1950 and the signing of NAFTA in 1993, it averaged 1.1 million workers, just slightly higher. In Detroit, the decline of the auto industry is certainly not a myth. But its very real decline was caused by competition not with the rest of the world, but with the rest of the US. Auto manufacturing employment in Detroit had already peaked in 1950, at just over 220,000 workers. By 1970 the biggest declines had already occurred, with employment falling by more than half, to fewer than 100,000 jobs. One big factor was the militancy of local unions. In 1978, when imports hit a record high of more than 3mm vehicles, American auto producers had their best year ever, with 12.9 million cars assembled.

Takeaways by Macro Roundup® AI

  1. American factories assembled 10.5m vehicles last year, below the post-NAFTA peak but well above the depressed 2000s and nearly equal to the 10.3m annual average of the pre-NAFTA period dating back to 1969.
  2. The auto industry employs 1m workers today, only slightly below the 1.1m average from 1950 to NAFTA's signing in 1993, while real value added and industrial production stand at all-time highs.
  3. Detroit's auto manufacturing employment peaked in 1950 at just over 220,000 and fell by more than half to under 100,000 by 1970, a decline attributed to competition with the rest of the US rather than the world, with local union militancy one big factor.

Related Articles:

AI Summary. China detained a US defense supplier's 55-metric-ton shipment of Australian-mined antimony for three months while it was transiting the Chinese port of Ningbo, releasing it only on the condition that it be returned to Australia rather than sent to the US. The episode signals that Beijing is enforcing its critical mineral export bans against Western defense companies.

Jon Emont, Heather Somerville and Alistair MacDonald Wall Street Journal
Date Posted:

More than 80,000 parts that are used in Defense Department weapons systems are made with critical minerals now subject to Chinese export controls, according to data from defense software firm Govini.

Is China enforcing its critical mineral export bans against Western defense suppliers?

Core argument: China customs detained 55 metric tons of Australian-mined antimony belonging to United States Antimony Corporation for three months beginning in April while it was transloaded at Ningbo, a routing the company had used routinely.

Beijing is signaling that it takes its mineral export bans very seriously. Earlier this year, one U.S. defense supplier, the United States Antimony Corporation, tried to ship 55 metric tons of antimony mined in Australia to its smelter in Mexico. The load transited via the Chinese port city of Ningbo—until recently a routine practice. But in April, while the shipment was being transloaded in Ningbo, China customs detained it for three months, prompting United States Antimony to ask the State Department and White House for help. The Chinese released the shipment in July, on the condition that it be sent back to Australia and not to the U.S. When it arrived in Australia, United States Antimony learned that product seals had been broken. It is currently working out whether the antimony has been tampered with or contaminated. “The shipping company, everyone who was involved, they’d never seen this happen before,” said company CEO Gary Evans.

Takeaways by Macro Roundup® AI

  1. China customs detained 55 metric tons of Australian-mined antimony belonging to United States Antimony Corporation for three months beginning in April while it was transloaded at Ningbo, a routing the company had used routinely.
  2. The detention prompted United States Antimony to seek help from the State Department and White House, and China released the shipment in July on the condition that it return to Australia rather than go to the U.S.
  3. United States Antimony found product seals broken when the shipment reached Australia and is determining whether the antimony was tampered with or contaminated, with CEO Gary Evans saying the shipping company and everyone involved had never seen this happen before.

Related Articles:

  • China’s Weaponisation of Rare Earths is a New Kind of Trade War — China's export controls on rare earth materials and magnets threatened to halt production across the auto industry, the largest manufacturing sector in most advanced economies, and forced Washington to negotiate on tariffs. Despite China's well-known dominance of rare earth production, Western governments and companies have not developed alternative suppliers.
  • Pentagon to Take Stake in Rare-Earth Company, Challenging China’s Control — Under a deal with the largest U.S. rare earths miner, the Defense Department will take a 15% stake, commit billions of dollars to investment and output purchases, and guarantee a price floor for rare earth minerals and magnets. The agreement calls for a new magnet factory, expected online in 2028, at a scale far exceeding current U.S. magnet production.
  • Apple to Buy Rare Earths From Pentagon-Backed US Producer MP — Apple has agreed to a $500m deal to buy rare-earth minerals from US producer MP Materials, which has secured Pentagon backing, and the two firms will build a Texas factory with neodymium magnet lines tailored for Apple products. Western producers including MP Materials and Australia's Lynas have struggled to profit amid weak prices and oversupply.

Tuesday, August 5, 2025

AI Summary. Bloomberg Economics estimates the natural interest rate has climbed from a low of 1.7% in 2012 to about 2.5%, and projects 2.8% by 2030 as baby boomers retire, foreign savings gluts fade, and government borrowing rises — keeping ten-year Treasury yields between 4.5% and 5%.

Jamie Rush, Tom Orlik and Stephanie Flanders Bloomberg
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Bloomberg projects that the long-term real natural interest rate will rise to 2.8% by 2030, the highest since 2000. Demographics, debt, reduced Asian buying, and spending on defense, AI, and climate change may lead the 10-year nominal rate to exceed 6%.

Is the natural interest rate rising, keeping long-term yields elevated?

Core argument: Bloomberg Economics calculates the natural rate of interest has risen from a nadir of 1.7% in 2012 to about 2.5% in 2024, and projects 2.8% by 2030, keeping the ten-year Treasury yield between 4.5% and 5%.

The retirement of the baby boomers, the end of the savings glut from China and the petrostates, and more borrowing from governments have changed the arrow on the natural rate from down to up. Bloomberg Economics calculations suggest it has already climbed from a nadir of 1.7% in 2012 to around 2.5% in 2024. Based on plausible trajectories for demographics, debt and other factors, it will climb to 2.8% by 2030 — keeping the ten-year Treasury rate lodged between 4.5% and 5%. Climate change always seems to be the challenge of tomorrow, never today. If the US does get serious about decarbonization, Bloomberg NEF puts the cost of transitioning to clean energy at $10 trillion. AI holds out the promise of a step change in growth — getting there will require massive investment in data centers, the power grid, and reconfiguring the way factories and offices work. Higher military spending will make it hard for governments to get their fiscal houses in order. If all of those forces collide, the impact could be even higher borrowing costs — with the natural rate above 4% and the ten-year Treasury at a nose-bleed inducing 6% or higher.

Takeaways by Macro Roundup® AI

  1. Bloomberg Economics calculates the natural rate of interest has risen from a nadir of 1.7% in 2012 to about 2.5% in 2024, and projects 2.8% by 2030, keeping the ten-year Treasury yield between 4.5% and 5%.
  2. Baby boomer retirement, the end of the savings glut from China and the petrostates, and heavier government borrowing have turned the natural rate's trajectory from downward to upward.
  3. If decarbonization, which Bloomberg NEF prices at $10 trillion for the US clean energy transition, AI investment in data centers and the power grid, and higher military spending collide, the natural rate could exceed 4% and the ten-year Treasury 6% or higher.

Related Articles:

  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
  • Rapidly Growing Treasury Supply Crowding Out Other Types of Credit Growth — Roughly half of all fixed income issuance coming to market over the past year has been US Treasuries, meaning investors must allocate a growing share of dollars to financing the government. The argument is that lower government debt would free up more funds for consumer borrowing and business investment.
  • The AI Boom’s Hidden Risk to the Economy — Net income at Alphabet, Amazon, Meta and Microsoft rose 73% to $91bn in a quarter two years on, while their combined free cash flow fell 30% to $40bn, as heavy AI investment absorbs cash these firms once recycled into financial markets. That spare cash previously helped hold down long-term interest rates despite large federal deficits.

AI Summary. Aggregate cash and short-term investments at U.S. public companies averaged 7.5% of total assets from 1970 to 2024, with the average at 5.8% from 1970 to 2000 and 9.7% from 2001 to 2024. Holdings are highly concentrated: of $2.1tn in estimated excess cash in 2024, roughly one-quarter was held by 10 companies.

Michael Mauboussin and Dan Callahan Morgan Stanley
Date Posted:

At the end of 2024, US public companies had a cash-to-assets ratio of 9%, well above the long-term mean of 7.5% over 1970-2024. The driver of the increase in cash holdings appears to be the growth in intangible, relative to tangible, assets.

Have U.S. public companies increased their cash holdings since 2000?

Core argument: Aggregate cash and short-term investments as a share of total assets for U.S. public companies averaged 7.5% from 1970 to 2024, spanning two regimes: 5.8% from 1970 to 2000 and 9.7% from 2001 to 2024, ending 2024 at 9%.

Exhibit 1 shows aggregate cash and short-term investments divided by total assets for U.S. public companies from 1970 to 2024. The average over the full period is 7.5%, but you can see two regimes: the average was 5.8% from 1970 to 2000 and 9.7% from 2001 to 2024 (9% at the close of 2024). The appropriate cash balance varies a great deal based on factors such as a company’s industry, reliance on intangible investment, position in its life cycle, and degree of business diversification. Cash has option value - it provides companies with the opportunity, but not the obligation, to invest in value-creating investments as they arise. Cash holdings are heavily skewed. Of the $2.1 trillion of excess cash held in 2024, we estimate that one-quarter of it was attributable to 10 companies, and one-half to 67.

Takeaways by Macro Roundup® AI

  1. Aggregate cash and short-term investments as a share of total assets for U.S. public companies averaged 7.5% from 1970 to 2024, spanning two regimes: 5.8% from 1970 to 2000 and 9.7% from 2001 to 2024, ending 2024 at 9%.
  2. Of the $2.1 trillion of excess cash held in 2024, an estimated one-quarter was attributable to 10 companies and one-half to 67.
  3. The appropriate cash balance varies with a company's industry, reliance on intangible investment, life-cycle position, and business diversification, and cash carries option value, giving companies the opportunity but not the obligation to make value-creating investments as they arise.

Related Articles:

  • Why Global Imbalances Do Matter — From 2008 to 2023 the US household and corporate sectors ran average savings surpluses of 3.5% and 1.6% of GDP respectively, leaving the federal government as the dominant net borrower in the US economy. This suggests the benefit of persistent net capital inflows is the ability to run larger fiscal deficits and grow public debt.
  • The AI Boom’s Hidden Risk to the Economy — Net income at Alphabet, Amazon, Meta and Microsoft rose 73% to $91bn in a quarter two years on, while their combined free cash flow fell 30% to $40bn, as heavy AI investment absorbs cash these firms once recycled into financial markets. That spare cash previously helped hold down long-term interest rates despite large federal deficits.
  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.

AI Summary. The US Treasury issues longer-term securities on a regular schedule and absorbs swings in financing needs through short-term bills, putting it on track to modestly shorten its debt maturity structure. As short-term debt grows, government interest expense becomes more closely tied to the Federal Reserve's policy rate.

Joseph Wang Fed Guy Blog
Date Posted:
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Greater bill issuance and a shorter debt maturity structure will amplify the fiscal impact of Fed policy, “As the level of short-term debt increases, the government’s interest expense becomes more closely tied to the Fed’s policy rate.”

Does more short-term debt tie interest costs to policy rates?

Core argument: Treasury estimates that meeting all incremental financing with bills for the next two years would raise the bill share to 23%, slightly above its historical average.

Treasury’s policy is to issue coupon securities in a regular and predictable manner and meet fluctuations in financing needs with bill issuance. The Treasury is on track to modestly shorten its maturity structure by increasing the share of bills by a couple percent. This implies that the ~$600b financing gap next year would be met with bill issuance. Treasury estimates that meeting incremental financing entirely with bills for the next two years would only raise the share of bills to 23%, slightly above its historical average. As the level of short-term debt increases, the government’s interest expense becomes more closely tied to the Fed’s policy rate. This brings forward the strange scenario where higher policy rates intended to lower inflation actually boosts the economy by quickly increasing the private sector’s interest income. It also magnifies the Fed’s role in setting fiscal policy, which belongs to the elected government. Trump has already frequently cited the fiscal impacts of the Fed maintaining its current interest rate stance as a rationale for more influence over the Fed. That argument will become even stronger as the maturity structure shortens.

Takeaways by Macro Roundup® AI

  1. Treasury estimates that meeting all incremental financing with bills for the next two years would raise the bill share to 23%, slightly above its historical average.
  2. Treasury's practice of issuing coupon securities in a regular and predictable manner while meeting financing fluctuations with bills implies the roughly $600 billion financing gap next year would be met with bill issuance.
  3. As short-term debt rises, the government's interest expense becomes more closely tied to the Fed's policy rate, raising the prospect that higher rates boost the economy by increasing private-sector interest income and magnify the Fed's role in fiscal policy.

Related Articles:

  • Treasury Issuance Growing — US Treasury auction metrics show no current weakness in demand, with stable bid-to-cover ratios and no systematic tailing, even as debt-to-GDP rises, the term premium increases, and the government must refinance $9tn over the next year. The author argues Treasury issuance will keep outgrowing the economy, likely pushing long-term interest rates higher.
  • Data Update 4 for 2025: Interest Rates, Inflation and Central Banks! — Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.
  • The Fed and the Secular Decline in Interest Rates — The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.

AI Summary. Tariff revenue may make future administrations of either party reluctant to roll back tariffs, since repeal would add to the federal debt and replacing the revenue with other taxes would require a politically risky vote in Congress. Democrats may also be tempted to use tariff revenue to fund new social programs.

Andrew Duehren New York Times
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Tariffs have generated $152B through July, ~ 2x the revenue collected over the same period last year. Trump’s tariffs may persist through a change of government due to the scale of the revenue and the difficulty of offsetting it via new taxes.

Does tariff revenue make future administrations reluctant to repeal tariffs?

Core argument: Ernie Tedeschi said future leaders in Washington of either party may hesitate to roll back the tariffs if doing so would add further to a federal debt load already raising alarms on Wall Street.

Ernie Tedeschi said that future leaders in Washington, whether Republican or Democrat, may be hesitant to roll back the tariffs if that would mean a further addition to the federal debt load, which is already raising alarms on Wall Street. And replacing the tariff revenue with another type of tax increase would require Congress to act, while the tariffs would be a legacy decision made by a previous president. “Congress may not be excited about taking such a politically risky vote when they didn’t have to vote on tariffs in the first place,” Mr. Tedeschi said. Democrats, once they return to power [will face] temptation to use the tariff revenue to fund a new social program, especially if raising taxes in Congress proves as challenging as it has in the past. As it is, Democrats have been divided over tariffs. Maintaining the status quo may be an easier political option than changing trade policy.

Takeaways by Macro Roundup® AI

  1. Ernie Tedeschi said future leaders in Washington of either party may hesitate to roll back the tariffs if doing so would add further to a federal debt load already raising alarms on Wall Street.
  2. Tedeschi said replacing the tariff revenue with another tax increase would require Congress to take a politically risky vote on a legacy decision made by a previous president, when lawmakers never had to vote on tariffs in the first place.
  3. Democrats returning to power would face the temptation to use tariff revenue to fund a new social program, especially if raising taxes in Congress proves as challenging as in the past, and Democrats have been divided over tariffs.

Related Articles:

  • State of U.S. Tariffs: August 1, 2025 — The average effective US tariff rate facing consumers is 18.3%, the highest since 1934, and 17.3% after consumption shifts to lower-tariffed goods, the highest since 1935. The authors estimate these tariffs raise $2.7tn over 2026-35, or $2.2tn after $466bn in negative dynamic revenue effects.
  • Tariffs are Dumb Enough to (Almost) Work — A universal 15% tariff on imported goods could raise roughly $300–$400bn annually, a fraction of what a value-added tax would generate but real revenue given U.S. imports of about $4tn. The author argues tariffs are a poorly designed form of consumption tax that could build political groundwork for replacing them with a more efficient value-added tax.
  • Rapidly Growing Treasury Supply Crowding Out Other Types of Credit Growth — Roughly half of all fixed income issuance coming to market over the past year has been US Treasuries, meaning investors must allocate a growing share of dollars to financing the government. The argument is that lower government debt would free up more funds for consumer borrowing and business investment.

AI Summary. China restricts public employees' foreign travel, including requirements to surrender passports, with rules extending under Xi Jinping to low-level workers such as teachers and nurses beyond the senior officials and state-secret handlers long required to report trips abroad. Some workers report being ordered to disclose personal social media accounts to employers.

Vivian Wang New York Times
Date Posted:

Travel bans for low-level employees continue to broaden in China with some kindergarten teachers, doctors, and employees of state-owned enterprises reporting being ordered to hand in their passports to local authorities.

Is China extending foreign travel restrictions to low-level public employees?

Core argument: Seven Chinese public employees, including an elementary school music teacher, a nurse and a literature professor, confirmed to The New York Times restrictions on their passports and foreign travel, part of a central push for greater political discipline and ideological loyalty among government workers.

The New York Times spoke to seven public employees, including an elementary school music teacher, a nurse and a literature professor, who confirmed the restrictions. The rules are part of a push by the central authorities to impose greater so-called political discipline and ideological loyalty on government workers. Two of the people The Times spoke to said they were also ordered to disclose their personal social media accounts to their employers. Another person said she had to notify her employer if she left the city where she worked. Travel restrictions for some state employees are not new. Since 2003, high-ranking officials or those handling state secrets must report foreign travel in advance. Their names are given to border officials to prevent unauthorized exits. But under Xi Jinping, China’s most powerful leader in decades, the controls have extended to far lower-level workers.

Takeaways by Macro Roundup® AI

  1. Seven Chinese public employees, including an elementary school music teacher, a nurse and a literature professor, confirmed to The New York Times restrictions on their passports and foreign travel, part of a central push for greater political discipline and ideological loyalty among government workers.
  2. Two of the workers said they were ordered to disclose personal social media accounts to their employers, and another said she had to notify her employer whenever she left the city where she worked.
  3. China has required high-ranking officials and those handling state secrets to report foreign travel in advance since 2003, with their names given to border officials to prevent unauthorized exits, but under Xi Jinping the controls extend to far lower-level workers.

Related Articles:

  • ‘No Marriage, No Children’ Is China’s Ticking Timebomb — China registered about 6.1m marriages in its most recent year, the lowest since public records began in 1986 and less than half the 2013 peak, with roughly 30% of 30-year-olds unmarried versus 15% a decade earlier. Births of 9.54m were the second-lowest since the People's Republic of China was founded in 1949.
  • The Exodus of China’s Wealthy to Japan — Japan's Chinese resident population reached about 822,000, up 60,000 from a year earlier. Prospective Chinese buyers of Japanese property must move money out of China, which limits outflows, and secure visas—available to those investing at least $32,000 in a Japanese business with an office and two or more employees.
  • China Tells Schoolteachers To Hand In Their Passports — Chinese authorities are requiring a growing number of schoolteachers and other public sector workers to surrender their passports, under a "personal travel abroad management" system that lets local officials control who may travel abroad, how often and where. Restrictions have been expanded to rank-and-file staff at schools, universities, local governments and state-owned groups.