Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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
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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.

Wednesday, August 6, 2025

AI Summary. Among US young adults aged 25–34, the share completing a high school or college degree rose 9 percentage points to 83%, while the share ever married fell 18 points to 44% and the share living with a child fell 16 points to 39%. Economic milestones became more common as family formation milestones became less common.

Paul Hemez and Jonathan Vespa U.S. Census Bureau
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US Census data show that btw 2005 and 2023, the fraction of Americans aged 25–34 who completed their education rose from 74% to 83%, but the % “ever married” fell from 62% to 44%, and the % with “a child in the household” fell from 55% to 39%.

How have young adults' economic and family milestones diverged?

Core argument: Among young adults aged 25–34, the share who had ever married fell 18 percentage points, from 62% in 2005 to 44% in 2023, while the share living with a child in the household fell 16 percentage points, from 55% to 39%.

This study explores changes in young adults’ experiences reaching five markers of adulthood: living independently, completing formal education, labor force participation, marriage, and living with a child.Figure 1 presents the share of young adults (25-34) who experienced each milestone of adulthood in 2005 and 2023. As the proportion of young men and women who experienced economic milestones (such as labor force participation and completed education) increased, the proportion who formed a family through marriage or parenthood declined. The share of young adults who completed their education by attaining a high school or college degree increased by 9 percentage points between 2005 to 2023, from 74% to 83%. Family formation milestones, on the other hand, were experienced less often. In 2005, about 62% of young adults had ever married, a share that declined by 18 percentage points to 44% by 2023. Similarly, the proportion of young adults who lived with a child in the household decreased by 16 percentage points from 55% to 39% over this 18-year period. [Found via Timothy Taylor's terrific blog]

Takeaways by Macro Roundup® AI

  1. Among young adults aged 25–34, the share who had ever married fell 18 percentage points, from 62% in 2005 to 44% in 2023, while the share living with a child in the household fell 16 percentage points, from 55% to 39%.
  2. The share of young adults aged 25–34 who completed their education by attaining a high school or college degree rose 9 percentage points between 2005 and 2023, from 74% to 83%.
  3. The study finds that as the proportion of young men and women reaching economic milestones such as labor force participation and completed education increased, the proportion forming a family through marriage or parenthood declined.

Related Articles:

  • Bachelors Without Bachelor’s: Gender Gaps in Education and Declining Marriage Rates — Marriage rates for college-educated women have remained stable over the past fifty years even as the relative supply of college-educated men declined, with the overall decline in marriage driven almost entirely by fewer marriages between non-college women and non-college men. The education gap in women's marriage rates is larger in areas where non-college men face the highest joblessness and incarceration.
  • US College Students’ Well-Being — 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.
  • 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 Summary. US birth-rate declines have been concentrated in states that were historically the most fertile, including Alaska, North Dakota and Utah, while long-low-fertility states such as Connecticut and Massachusetts fell by less than the national average. States with above-average fertility a decade ago account for more than 80% of the national decline.

Economist Staff The Economist
Date Posted:

States that had above average fertility rates in 2014 are responsible for 80% of the decline in American fertility over the last decade.

Are falling US birth rates driven by historically high-fertility states?

Core argument: U.S. states with above-average fertility rates in 2014 account for more than 80% of the decline in American birth rates over the past decade.

In recent years, birth rates have dropped only slightly in places where they have long been low. Four of the five least fertile states in 2014, including Connecticut and Massachusetts, have seen their rates decrease by less than the national average. It is in states that have been historically the most fertile where the fall has been precipitous; Alaska, North Dakota and Utah have seen some of the steepest declines (see map). All told, states that had above average fertility rates in 2014 are responsible for more than 80% of the collapse in American birth rates over the past decade.

Takeaways by Macro Roundup® AI

  1. U.S. states with above-average fertility rates in 2014 account for more than 80% of the decline in American birth rates over the past decade.
  2. Alaska, North Dakota and Utah, historically among the most fertile U.S. states, have seen some of the steepest fertility declines.
  3. Four of the five least fertile U.S. states in 2014, including Connecticut and Massachusetts, saw their fertility rates fall by less than the national average.

Related Articles:

  • Why Is Fertility So Low in High Income Countries? — Survey data indicate US adults do not rank having children as a top life priority: among adults aged 18–34, 22% say having children is extremely or very important, versus 68% for an enjoyable job or career and 62% for close friends. Among women aged 20–44, the share reporting that work is very important rose from 31.9% to 47.4%.
  • Depopulation Globally and in the Asia-Pacific: The Shape of Things to Come — Population aging and fertility below replacement levels are connected to a revolution in family structure in which families grow smaller, fewer people marry, and voluntary childlessness becomes common across countries. As a result, families become less able to bear the demands that may be placed on them.
  • The Demographic Future of Humanity: Facts and Consequences — The authors estimate the world total fertility rate is around 2.17, below the global replacement rate of roughly 2.21, meaning humanity is already below replacement, with fertility and births falling faster than anticipated. They project middle-income countries' fertility may fall below that of rich countries outside East Asia, with emigration compounding population decline.

AI Summary. Research on top-ranked investment analysts found that their performance declined relative to peers who stayed put after they changed employers, though those who moved with their teammates saw little effect. A study of American biotechnology firms found that collaborative star employees helped their colleagues become more productive.

Economist Staff The Economist
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The Economist highlights research that suggests high-performing employees who switched to a new firm underperformed relative to colleagues who stayed put.

Do star employees perform as well after switching employers?

Core argument: Boris Groysberg, Linda-Eling Lee, and Ashish Nanda found that top-ranked investment analysts' performance declined relative to colleagues who stayed put after they moved firms, even though analysts often cover the same firms for the same clients.

A variety of studies have tried to tease out how much firm-specific factors matter to the performance of hotshots. Perhaps the best-known research in this area has been done by Boris Groysberg of Harvard Business School. In one paper written with Linda-Eling Lee, of MSCI, and Ashish Nanda, also of Harvard, Mr Groysberg looked at the performance of the best investment analysts, as measured by external rankings, after they had moved firms. In theory, a move ought not to have made much difference to how well they did their job: analysts often cover the same firms for the same clients. In practice, the stars’ performance declined compared with colleagues who stayed put. Changing employers did not greatly affect the performance of top-tier analysts who moved with their teammates, according to the study. The personality of the new recruits also matters: a study of American biotech firms by Rebecca Kehoe of Cornell University and Daniel Tzabbar of Drexel University found that collaborative stars helped their peers become more productive.

Takeaways by Macro Roundup® AI

  1. Boris Groysberg, Linda-Eling Lee, and Ashish Nanda found that top-ranked investment analysts' performance declined relative to colleagues who stayed put after they moved firms, even though analysts often cover the same firms for the same clients.
  2. Groysberg, Lee, and Nanda found that changing employers did not greatly affect the performance of top-tier analysts who moved together with their teammates.
  3. Rebecca Kehoe of Cornell University and Daniel Tzabbar of Drexel University, studying American biotech firms, found that collaborative stars helped their peers become more productive.

Related Articles:

  • The Growing Importance of Decision-Making on the Job — The share of the U.S. wage bill paid to managers more than doubled from 15% to 32% over six decades, driven by employment growth and rising relative wages in management rather than top executive pay. Over the same period the age of peak earnings shifted from the late 30s to the mid-50s.
  • 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. The International Monetary Fund attributes more than half of the rise in the global debt-to-GDP ratio since 2008 to China, whose ratio is exceeded only by Japan's among major economies and is unusually high for a middle-income country. The author argues this debt reflects extensive unrecognized losses hidden in collective balance sheets, and that delaying recognition raises the eventual cost.

Michael Pettis China Financial Markets
Date Posted:

IMF data show China accounts for > 50% of the increase in the global economy’s government debt-to-GDP ratio since 2008 – a result, Pettis argues, of “the buildup of extensive unrecognized losses across China’s economy, which cannot be ignored forever.”

Does China's rising debt hide unrecognized losses that grow costlier over time?

Core argument: China accounts for more than half of the increase in the global economy's debt-to-GDP ratio since 2008, according to the IMF, with only Japan's ratio higher among major economies.

According to the IMF, debt has grown so rapidly in China that the nation accounts for more than half of the increase in the global economy’s debt-to-GDP ratio since 2008. Among major economies, only Japan’s debt-to-GDP ratio is higher, and given that debt-to-GDP ratios tend to rise with income levels, this makes China, as a middle-income economy, even more of an outlier than Japan. While the debt itself may not be the fundamental issue, it reflects a deeper problem: the buildup of extensive unrecognized losses across China’s economy, hidden in collective balance sheets. These losses, albeit unrecognized, are real. While they can be overlooked temporarily as long as banks are able to refinance the associated principal and interest without difficulty, they cannot be ignored forever. The longer China delays in recognizing losses on its collective balance sheets, the higher the ultimate cost will become.

Takeaways by Macro Roundup® AI

  1. China accounts for more than half of the increase in the global economy's debt-to-GDP ratio since 2008, according to the IMF, with only Japan's ratio higher among major economies.
  2. Because debt-to-GDP ratios tend to rise with income levels, China's status as a middle-income economy makes it more of an outlier than Japan.
  3. China's debt reflects extensive unrecognized losses hidden in collective balance sheets that can be overlooked only while banks refinance the associated principal and interest, with the ultimate cost rising the longer recognition is delayed.

Related Articles:

  • Fiscal Monitor: Putting a Lid on Public Debt — Global public debt is projected to approach 100% of GDP by 2030, with China and the United States largely driving the increase. Debt is projected to stabilize or decline in about two-thirds of countries, but remains higher than before the pandemic.
  • The Rise and Fall of LGFVs — China has nearly 12,000 local government financing vehicles whose aggregated assets and liabilities equal roughly 120% and 75% of national GDP, and whose earnings before interest, taxes, and depreciation do not cover their interest payments. Their average borrowing cost of about 5% far exceeds their 1% return on assets, and 80–90% of their annual spending is funded by new debt.
  • China Economy Memo: Tempest in a Teapot or Crisis A-Brewing? — The authors argue China is heading into a protracted debt crisis in which about 40% of local government financing vehicles default, hitting regional banks most exposed to such lending. They estimate total losses for these creditors at roughly $5tn, or about 30% of China's GDP.