Edward Conard

Top Ten New York Times Bestselling Author

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  • “…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
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  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, October 17, 2025

AI Summary. Capital-spending forecasts for the four largest cloud providers rose nearly 50% over the year, and AI data centers are increasingly funded through leveraged and off-balance-sheet structures, including $3.2bn in senior secured notes and a roughly $30bn asset-backed financing. The author argues this marks a speculative-finance phase where borrowers must roll over principal.

Paul Kedrosky Applied Complexity
Date Posted:

Kedrosky argues that a $3.2B junk bond issuance to fund a datacenter and a $30B SPV to finance a Meta datacenter campus place us in the “speculative finance” phase of a Minsky cycle, where firms can service interest but must roll over principal.

Is AI data center spending shifting toward leveraged, off-balance-sheet financing?

Core argument: 2026 capex forecasts for the top four hyperscalers alone grew almost 50% over the course of the year.

2026 capex forecasts for the top 4 hyperscalers alone grew almost 50% during the year, [which is] remarkable. There were two key events this week in our ongoing AI capex wave that are "unlocking" moments. TeraWulf is offering $3.2B in senior secured notes due in 2030 to fund expansion of its Lake Mariner data center. [Thus] we are now seeing elevated leverage and speculative financing in AI infrastructure. Meta and Blue Owl Capital have closed Project Hyperion, a roughly $30 billion financing for Meta’s new Louisiana data-center campus. Meta’s use of a multi-tranche, off-balance-sheet ABS signals a structural evolution from direct corporate borrowing to financialized infrastructure exposure. In terms of the Minsky cycle, we seem clearly in the “speculative finance” phase, where [borrowing firms] can service interest but must roll over principal. With increasing discussion of declining returns from GPU rentals, the pressures on cash flow to meet obligations will only grow in the mid-market. And the largest hyperscalers, seeing this, will continue to fund aggressive growth via new debt vehicles and hope to become the largest post-cycle players left standing.

Takeaways by Macro Roundup® AI

  1. 2026 capex forecasts for the top four hyperscalers alone grew almost 50% over the course of the year.
  2. TeraWulf is offering $3.2 billion in senior secured notes due 2030 to fund expansion of its Lake Mariner data center, which the author cites as evidence of elevated leverage and speculative financing in AI infrastructure.
  3. Meta and Blue Owl Capital closed Project Hyperion, a roughly $30 billion financing for Meta's new Louisiana data-center campus, whose multi-tranche off-balance-sheet asset-backed structure the author reads as a shift from direct corporate borrowing to financialized infrastructure exposure.

Related Articles:

  • The Godfather and Oracle’s Crap GPU Rental Returns — Oracle generated about $900m from renting servers powered by Nvidia chips over a three-month period and recorded $125m in gross profit, a 14% gross margin that is below those of many nontech retail businesses. The author argues data centers are a capital-intensive business with unimpressive margins.
  • Why AI Capex isn’t a Bubble: A Perez-ian Perspective — Carlota Perez's framework of technological revolutions casts heavy artificial-intelligence infrastructure spending as a late-stage installation surge, in which financial capital overshoots and builds capacity ahead of demand, leaving both losses and infrastructure for later productivity. The author argues this model is descriptive rather than prescriptive, and that executives and policymakers invoking it rationalize losses in advance and erode market discipline.
  • Why We Are Not In A Bubble….Yet — The 5 largest US technology companies are worth about 16% of the global public equity market, and the top 10 US stocks nearly 25%, almost $25tn. The author argues valuations are high but not bubble-level, with the "Magnificent 7" median forward price-to-earnings ratio at 27x, roughly half that of the late-1990s leaders.

AI Summary. Price data from RBC Capital Markets show average hourly rental rates for Nvidia's H200 and H100 graphics chips down 29% and 22% year-to-date, with smaller providers driving the declines. Prices charged by the largest cloud providers — Amazon Web Services, Microsoft Azure, Google and Oracle — have hardly moved, widening the gap between them and newer entrants.

Bryce Elder Financial Times
Date Posted:

GPU rental rates at the hyperscalers are relatively stable, while overall per-hour rates for Nvidia’s H200 and H100 chips are down 29% and 22%, respectively, year to date.

Are falling GPU rental prices driven by smaller providers, not hyperscalers?

Core argument: Per-hour rental rates for Nvidia's H200 and H100 GPUs are down 29% and 22% respectively year-to-date, according to price data collected by RBC Capital Markets.

[According to] price data collected by RBC Capital Markets average GPU pricing has been weak. For Nvidia’s H200 and H100 chips, per-hour rates are down 29% and 22% respectively in the year-to-date. What might be less obvious is that among the hyperscalers — Amazon’s AWS, Microsoft’s Azure, Google and Oracle — prices have hardly budged. The result is an ever-widening gap between rates charged by the big-four and a growing number of smaller rivals. Here’s the RBC data organised to show relative pricing across all GPUs. The iceberg effect shows how much new entrants are driving average rates lower. Meanwhile, for a hyperscaler customer, this month’s bill per GPU will almost always be the same as last month’s bill.

Takeaways by Macro Roundup® AI

  1. Per-hour rental rates for Nvidia's H200 and H100 GPUs are down 29% and 22% respectively year-to-date, according to price data collected by RBC Capital Markets.
  2. Prices charged by the four hyperscalers — Amazon's AWS, Microsoft's Azure, Google and Oracle — have hardly budged, so a hyperscaler customer's monthly bill per GPU is almost always the same as the prior month's.
  3. RBC's data show a widening gap between hyperscaler GPU rates and those of a growing number of smaller rivals, with new entrants driving average rates lower.

Related Articles:

  • The Godfather and Oracle’s Crap GPU Rental Returns — Oracle generated about $900m from renting servers powered by Nvidia chips over a three-month period and recorded $125m in gross profit, a 14% gross margin that is below those of many nontech retail businesses. The author argues data centers are a capital-intensive business with unimpressive margins.
  • Data Centers: More Money, Fewer Buyers — Data center developers can earn 12–15% returns on new construction while stabilized hyperscale campuses trade at 4–5% capitalization rates, drawing capital into development. Because long, flat leases to Amazon, Microsoft and Google make finished assets behave like annuities, few buyers exist, so developers turn to securitization instead of selling.
  • The Blob: Capital, China, Chips, Chicago and Chilliwack — Data center construction spending has eclipsed office construction, and the specialized power rates most data centers pay fall short of covering the cost of a new natural gas plant, leaving other customers to bear part of the bill. In the PJM grid region, data center demand accounted for 70% of the increase in electricity costs over the past year.

AI Summary. The authors estimate that highly visible price changes in gasoline and food, along with broad-based inflation, accounted for about 4pp of the roughly 6pp post-pandemic spike in household inflation expectations, but explain less than 1pp of the most recent 8pp surge. They attribute the remaining roughly 7.5pp to unexplained factors, larger than the 0.8–2pp inflationary impact estimated for new tariffs.

Philippe Andrade and Michael Wicklein Federal Reserve Bank of Boston
Date Posted:

Spikes in “salient” food and gas prices, along with core CPI, explain ⅔ of the surge in post-pandemic inflation expectations in the Michigan Survey, but only 1pp of the recent 8pp surge, raising concerns that expectations are becoming unanchored.

Do visible price changes explain the recent surge in inflation expectations?

Core argument: Gasoline prices, food prices, and underlying inflation together contributed about 4pp of the 2021–2022 surge in household inflation expectations, with unexplained factors adding 2pp, so salient prices explain roughly two-thirds of that peak increase.

We look at the extent to which the usual association between salient prices and household inflation expectations explains the four inflation-expectation spikes since 1960 [and particularly] the extent to which the recent surge in inflation expectations reflects changes in salient prices. Figure 4 zooms in on the post-pandemic period. It shows that in 2021 and 2022, sharp increases in gasoline prices, food prices, and underlying inflation together contributed about 4pp to the surge, while unexplained factors contributed to 2pp. - i.e. about 2/3 of the period’s peak increase in inflation expectations can be explained by households observing changes in salient prices [on top of] increased broad-based inflation. By contrast, changes in the salient prices and underlying inflation explain little—less than 1pp—of the most recent surge, leaving about 7.5pp unexplained at the 8pp peak. Indeed, unexplained factors have played a much larger role than usual. This could be partly attributable to tariff-related price uncertainty, but remains far larger than the estimated inflationary impact .8 to 2pp that the new tariffs would imply. [Editor’s note: the quantitative extent of the overall surge in inflation expectation in 2025 appears unreasonable by almost any measure, though qualitatively it may convey an important signal.]

Takeaways by Macro Roundup® AI

  1. Gasoline prices, food prices, and underlying inflation together contributed about 4pp of the 2021–2022 surge in household inflation expectations, with unexplained factors adding 2pp, so salient prices explain roughly two-thirds of that peak increase.
  2. Salient prices and underlying inflation explain less than 1pp of the most recent inflation-expectations surge, leaving about 7.5pp of the 8pp peak unexplained, a larger unexplained role than usual.
  3. The unexplained portion of the recent surge could be partly attributable to tariff-related price uncertainty, but it remains far larger than the estimated 0.8–2pp inflationary impact the new tariffs would imply.

Related Articles:

  • Are We Heading For A New Inflation Surge? — The analysis finds post-pandemic headline and core inflation closely tracking the pattern of the early 1970s, with the spike in each case taking about three years to be brought under control and followed by roughly 18 months of relative stability. If the parallel holds, a renewed inflation flare-up would be expected.
  • What We Know About Rising Gold Prices — Gold prices have risen in a near-straight line even as the dollar held stable and the Federal Reserve turned more hawkish than expected, indicating the rally is not a flight out of the dollar specifically. The author argues it instead reflects a broader flight out of all major developed-market currencies, a "global debasement trade.
  • The Speed of Firm Response to Inflation — The authors estimate that a 1 percentage point increase in reported consumer price inflation is associated with a roughly 0.6 percentage point rise in firms' expectations for their own prices over the year ahead, with the effect appearing only after the inflation data is published.

AI Summary. Speculation now extends beyond stocks, bonds and property to crypto, valued at roughly $4tn, and sports betting, where Americans wagered $150bn in a year, up 24%, according to the American Gaming Association. Gold, traditionally a hedge against bubbles, itself looks bubbly, and working-class investors are flocking to these markets.

Greg Ip Wall Street Journal
Date Posted:

Citing the AI-related equity boom, crypto and the rise of sports betting, Greg Ip argues that “speculation has become woven into today’s political, economic and cultural psyche.”

Is speculation spreading beyond stocks into crypto, betting, and gold?

Core argument: Americans bet $150 billion on sports last year, up 24% from 2023, according to the American Gaming Association, while crypto, a brand new asset class, is now valued at some $4 trillion.

The speculative fever has spread well beyond the usual stocks, bonds and property. Crypto, a brand new asset class, is now valued at some $4 trillion. Americans bet $150 billion on sports last year, up 24% from 2023, according to the American Gaming Association. Gold, a hedge against bubbles, is looking bubbly itself. Speculation has become woven into today’s political, economic and cultural psyche. Working-class investors are flocking to all these markets: stocks, betting and crypto. They are beneficiaries of a new age of democratic finance. Or the last invitees to a party that’s going to end. The Fed has refilled the speculative party’s punch bowl. If Trump gets his way, the Fed could spike the punch bowl even more.

Takeaways by Macro Roundup® AI

  1. Americans bet $150 billion on sports last year, up 24% from 2023, according to the American Gaming Association, while crypto, a brand new asset class, is now valued at some $4 trillion.
  2. Speculative fever has spread beyond stocks, bonds and property to crypto, sports betting and gold, a hedge against bubbles that is itself looking bubbly.
  3. The Federal Reserve has refilled the speculative party's punch bowl and could spike it further if Trump gets his way, as working-class investors flock to stocks, betting and crypto.

Related Articles:

  • Why We Are Not In A Bubble….Yet — The 5 largest US technology companies are worth about 16% of the global public equity market, and the top 10 US stocks nearly 25%, almost $25tn. The author argues valuations are high but not bubble-level, with the "Magnificent 7" median forward price-to-earnings ratio at 27x, roughly half that of the late-1990s leaders.
  • What If The AI Stockmarket Blows Up? — Total annual revenue from AI at the West's leading AI firms is estimated at $50bn, less than 2% of the $2.9tn in global data-centre investment Morgan Stanley forecasts over a four-year period, excluding energy costs. The average American tech firm's assets are estimated to last nine years, versus 15 for 1990s telecoms assets.
  • 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. Survey data show 43% of U.S. adults say legalized sports betting is a bad thing for society, up from 34% three years earlier, and 40% say it is bad for sports, up from 33%. The largest shift came among men under 30, 47% of whom now call it bad for society versus 22% earlier.

John Gramlich Pew Research Center
Date Posted:
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43% of American adults say widespread betting on sports is “a bad thing for society,” up from 34% in 2022. 47% of men under 30 say legal sports betting is bad for society, up from 22% in 2022.

Are Americans turning against legal sports betting?

Core argument: 43% of U.S. adults say the legality of sports betting in much of the country is a bad thing for society, up from 34% in 2022.

Today, 43% of U.S. adults say the fact that sports betting is now legal in much of the country is a bad thing for society. That’s up from 34% in 2022. And 40% of adults now say it’s a bad thing for sports, up from 33%. The biggest shifts in attitudes about sports betting’s societal impact have come among young Americans – especially young men. Today, 47% of men under 30 say legal sports betting is a bad thing for society, up from 22% who said this in 2022. Women under 30 have also become more likely to express this view: 35% see legal sports betting as bad for society, up from 25% three years ago.

Takeaways by Macro Roundup® AI

  1. 43% of U.S. adults say the legality of sports betting in much of the country is a bad thing for society, up from 34% in 2022.
  2. Among men under 30, 47% call legal sports betting a bad thing for society, up from 22% in 2022, while women under 30 rose from 25% to 35%.
  3. 40% of U.S. adults say legal sports betting is a bad thing for sports, up from 33%.

Related Articles:

  • America the Addicted — Evidence suggests gambling — including sports betting, stock trading, and crypto — has become a national epidemic in the United States, with apps making it steadily easier to gamble. One investor argues social media can coordinate crowds rather than keep them independent, undermining market wisdom.
  • More Men Are Addicted to the ‘Crack Cocaine’ of the Stock Market — Trading in options contracts that expire the same day has risen to more than half of all trades in the market for S&P 500 index options, according to data from SpotGamma. These contracts are the riskiest type, able to surge or fall to zero within minutes as traders speculate on intraday moves.
  • 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. China has dismissed its second-most senior general — a vice chairman of the Communist Party's top military decision-making body and Politburo member — along with eight other high-ranking officers, citing severe disciplinary violations and abuses of power. The ousted general was a protégé handpicked by China's leader.

Chun Han Wong Wall Street Journal
Date Posted:

China’s second most senior military officer and eight other high-ranking officers have been arrested for “severe violations of party discipline” and “serious duty-related crimes.”

Is China expanding its purge of top military leadership?

Core argument: China has purged Gen. He Weidong and eight other high-ranking military commanders, as Xi Jinping escalates a crackdown on corruption and disloyalty in the armed forces.

China has purged its second-most senior general and eight other high-ranking military commanders, as leader Xi Jinping dials up a crackdown on corruption and disloyalty in the armed forces with the ouster of a handpicked protégé. Gen. He Weidong, the lower-ranking of two vice chairmen on the Communist Party’s top military decision-making body and a member of the 24-man Politburo, has been dismissed from the party and the military for severe disciplinary violations and abuses of power, a spokesman for China’s Defense Ministry said. The party also purged eight other senior officers.

Takeaways by Macro Roundup® AI

  1. China has purged Gen. He Weidong and eight other high-ranking military commanders, as Xi Jinping escalates a crackdown on corruption and disloyalty in the armed forces.
  2. Gen. He Weidong, the lower-ranking of two vice chairmen on the Communist Party's top military decision-making body and a member of the 24-man Politburo, was dismissed from the party and military for severe disciplinary violations and abuses of power, according to a Chinese Defense Ministry spokesman.
  3. The ouster of Gen. He Weidong, China's second-most senior general, removes a protégé handpicked by Xi Jinping.

Related Articles:

  • Xi Jinping Says He Is Preparing China for War — China's leadership has emphasized war readiness, announcing a 7.2% increase in the defense budget—which has doubled over the past decade—and plans to reduce dependence on foreign grain imports. China has also opened National Defense Mobilization recruitment offices across the country, while cities in Fujian Province opposite Taiwan build or upgrade air-raid shelters.
  • US Intelligence Shows Flawed China Missiles Led Xi to Purge Arm — US intelligence assesses that corruption in China's Rocket Force and defense industrial base is extensive enough to undermine military modernization, citing missiles filled with water instead of fuel and missile silos with lids that would not allow effective launch. US officials believe this makes Xi Jinping less likely to contemplate major military action than he otherwise would be.
  • The Sinister Disppearances Of China’s Bosses — China's liuzhi detention system operates alongside normal policing, requiring no court approval and denying detainees lawyers, with windowless cells, constant lighting and round-the-clock supervision. Stock-exchange filings show 39 executives at listed companies disappearing into the system by the end of September, exceeding the prior year's record.

Monday, October 20, 2025

AI Summary. Measures of the extra value investors place on U.S. Treasuries for their liquidity and safety have declined, with the AAA-corporate-to-Treasury spread falling from 67 to 36 basis points and the 10-year swap spread moving from 2 to 26 basis points. Such declines are consistent with large fiscal deficits and higher government debt.

Julian Kozlowski and Nicholas Sullivan Federal Reserve Bank of St. Louis
Date Posted:

The “convenience yield” of US Treasuries, as measured by the yield of AAA corporates over government bonds, fell from a mean 67bps over 2012–19 to 36 bps in 2025, consistent with the increased relative supply of government debt raising financing costs.

Has the extra value investors place on Treasuries declined?

Core argument: The AAA–U.S. Treasury spread fell from a 2012–2019 mean of 67 basis points to a 2025 mean of 36 basis points.

The convenience yield of U.S. Treasuries reflects the extra value investors place on Treasuries beyond the present value of the securities’ cash flows - it reflects the value of the liquidity and safety provided by the Treasuries. The convenience yield lowers the interest payments on government debt, which is a source of seigniorage [implicit government revenue]. The reduction in the convenience yield of U.S. Treasury securities, particularly for long-maturity spreads, has been notable. Specifically [comparing the mean 2025 value of each spread measure to its 2012 to 2019 mean], the AAA-UST spread has decreased from 67 to 36 basis points. Additionally, the 10-year swap spread has shifted from 2 to 26 basis points, and the 18-month box spread [the difference between the Treasury rate and an estimate of the implicit risk-free rate used to price call and put options on the S&P 500] has contracted from 34 to 9 basis points. These changes appear consistent with the current environment of elevated fiscal deficits and increased government debt. Such conditions typically reduce the convenience yield and contribute to higher long-term yields.

Takeaways by Macro Roundup® AI

  1. The AAA–U.S. Treasury spread fell from a 2012–2019 mean of 67 basis points to a 2025 mean of 36 basis points.
  2. The 10-year swap spread shifted from 2 basis points in 2012–2019 to 26 basis points in 2025, and the 18-month box spread contracted from 34 to 9 basis points.
  3. The convenience yield on Treasuries, reflecting the value investors place on their liquidity and safety, lowers government interest payments as a form of seigniorage, and its decline appears consistent with elevated fiscal deficits and increased government debt.

Related Articles:

  • Fiscal Risk from Rising Bond Yields — US interest rates fell for roughly 40 years before the pandemic, allowing maturing high-coupon debt to be refinanced at lower rates and keeping federal interest expense manageable even as debt rose. Because Congressional Budget Office projections assume the 10-year Treasury yield drifts down to 3.8% from about 4.1%, the author argues its debt-service projections face upside risk.
  • Why Microsoft Has Lower Borrowing Costs Than the U.S. — Two AAA-rated Microsoft bonds trade at yields slightly below equivalent U.S. Treasurys, an unusual negative spread given that companies are more likely to default than a government able to tax and that corporate bonds are harder to sell. Demand for high-quality corporate debt has compressed the AAA corporate spread to 0.3 percentage point over Treasurys.
  • JPMorgan Is Worried About Who’s Going to Buy All the Bonds — JPMorgan analysts estimate that the Federal Reserve's Treasury holdings have fallen $180bn as it pursues quantitative tightening, while commercial banks' holdings are down $60bn and foreign official holdings down $50bn. The analysts describe simultaneous negative demand from all three buyer types as rare and say they remain concerned about the lack of structural demand for Treasuries.

AI Summary. The Bank of Japan's holdings of Japanese government bonds are so large that maturing bonds exceed gross purchases, making it a net seller equal to -2.6% of GDP over a recent one-year period. Further cuts to gross buying would deepen the decline in its holdings and likely push longer-term Japanese yields higher.

Robin Brooks Robin Brooks Substack
Date Posted:
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In 2025H2, BoJ was a net seller of JGB’s to the tune of 2.6% of GDP, as maturing debt exceeded mean gross monthly purchases of ¥4.7T. A planned reduction in purchases to a mean of ¥2T “will likely send longer-term yields even higher.”

Is Japan's central bank now a net seller of government bonds?

Core argument: The Bank of Japan was a net seller of Japanese government bonds equal to -2.6% of GDP in the year through Q2 2025, as maturing holdings exceeded gross purchases.

BoJ’s holdings of JGBs are so massive that a huge amount of these bonds are maturing every month. This means that net purchases of JGBs by the BoJ are already substantially negative, even as it remains a buyer on a gross basis. The chart shows how important this phenomenon is. It shows net new supply (black line) of JGBs, which is basically Japan’s budget deficit, and the various buyers of that debt. In the year through Q2 2025, the BoJ was a net seller of JGBs to the tune of -2.6% of GDP (blue bars). During this time, the BoJ bought on average ¥4.7 trillion in JGBs on a gross basis every month. Taking this number down to ¥2 trillion implies a massive fall in BoJ holdings of JGBs on a net basis, which will likely send longer-term yields in Japan even higher than they already are.

Takeaways by Macro Roundup® AI

  1. The Bank of Japan was a net seller of Japanese government bonds equal to -2.6% of GDP in the year through Q2 2025, as maturing holdings exceeded gross purchases.
  2. The Bank of Japan bought an average of ¥4.7 trillion of JGBs monthly on a gross basis in that period, and cutting that pace to ¥2 trillion implies a large fall in its net holdings.
  3. A further decline in Bank of Japan net JGB holdings will likely push Japan's longer-term yields higher still, with net new supply of JGBs corresponding to Japan's budget deficit.

Related Articles:

  • Global Debt Report 2025 — About 60% of fixed-rate government debt in advanced economies maturing by 2027 — roughly $9tn — was issued before the recent interest-rate tightening, with weighted average yields below 2% versus projected 10-year rates near 3.6%, implying refinancing at nearly double the original cost. France, Spain, the UK, and the US face heightened vulnerability, with maturing debt exceeding 15% of GDP.
  • The Global Debt Crisis — Market pricing for Japan's 10-year government bond yield 20 years from now stands at 4.52%, far above its current 10-year yield of 1.69%, while France's equivalent forward yield is 5.03% versus a 3.57% 10-year yield. The author argues these large risk premiums, alongside a falling Yen, signal mounting fiscal stress.
  • Japan’s Labor Market Under Demographic Decline: Evolving Dynamics and Macroeconomic Implications — Japan's fertility rate stood at 1.15 in 2024 and its working-age population peaked in 1995, with the total population peaking in 2008. Rising labor force participation among women and people 65 and over has more than offset the shrinking working-age population, but further gains are limited since both rates already rank among the highest internationally.

AI Summary. An analysis estimates most rich countries could keep debt stable as a share of their economies with only small primary surpluses—Britain's required surplus is 0.3% of GDP—even if all debt were refinanced immediately at current rates, but the tightening needed to stabilize debt ratios exceeds 2% of GDP in Britain and America and 3% in France.

Henry Curr The Economist
Date Posted:
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At current 5-year yields, stabilizing debt/GDP would require a reduction in the primary deficit of 2.3% of GDP in the UK and the US, and 3% in France. Maturing American debt will be refinanced at rates ~200bps higher than today’s.

How much tightening do rich countries need to stabilize debt ratios?

Core argument: The Economist calculates that most rich countries could still run small primary deficits and keep debt stable as a share of GDP even if all their debt were refinanced immediately at today's rates, with Britain needing the largest primary surplus at 0.3% of GDP.

The Economist calculates that most rich countries could still run small primary deficits [deficits net of interest payments] and keep debts stable as a share of their economies, even if they had to refinance all their debt immediately at today’s rates. The largest primary surplus required to balance debts is in Britain, at just 0.3% of GDP. That is not large for countries in a pinch. In the late 1990s Italy ran primary surpluses of 3-6% of GDP to bring down debts before joining the euro. In Britain and America, deficits are large. The belt tightening needed to stabilise the debt-to-GDP ratio exceeds 2% of GDP; in France it is greater than 3% of GDP. Things look worse still when you consider the coming wave of spending on ageing populations, defence and the climate transition. And higher debt interest costs to come are not yet fully accounted for. About half of outstanding debt with a fixed interest rate in the OECD club of rich countries costs less than 2% a year to service —a legacy of having issued the debt when rates were low. American debt worth a quarter of the country’s GDP will come due between 2025 and 2027. Reissuing it at 2024 yields would increase the interest rate paid by about two percentage points.

Takeaways by Macro Roundup® AI

  1. The Economist calculates that most rich countries could still run small primary deficits and keep debt stable as a share of GDP even if all their debt were refinanced immediately at today's rates, with Britain needing the largest primary surplus at 0.3% of GDP.
  2. Belt tightening needed to stabilise the debt-to-GDP ratio exceeds 2% of GDP in Britain and America and 3% of GDP in France, before accounting for coming spending on ageing populations, defence and the climate transition.
  3. About half of outstanding fixed-rate debt in the OECD costs less than 2% a year to service, and American debt worth a quarter of GDP comes due between 2025 and 2027, with reissuance at 2024 yields raising the interest rate paid by about two percentage points.

Related Articles:

  • 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.
  • Fiscal Risk from Rising Bond Yields — US interest rates fell for roughly 40 years before the pandemic, allowing maturing high-coupon debt to be refinanced at lower rates and keeping federal interest expense manageable even as debt rose. Because Congressional Budget Office projections assume the 10-year Treasury yield drifts down to 3.8% from about 4.1%, the author argues its debt-service projections face upside risk.
  • 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.

AI Summary. Outside the AI-driven data center buildout financed from large tech companies' cash flows, U.S. business capital spending shows little sign of a broader cycle, with bank commercial and industrial loans showing almost no growth at both large and small banks. Most bank loan growth has instead gone to non-depository financial institutions.

Joseph Wang Fed Guy Blog
Date Posted:

Noting that revised data show essentially “no growth” in loans from commercial banks over the course of the year, Joseph Wang argues that “outside of the AI-driven capex boom, U.S. businesses do not appear to be embarking upon a capex cycle.”

Is business capital spending broadening beyond the data center buildout?

Core argument: U.S. bank commercial and industrial loans show almost no growth despite the Administration's tax incentives and push for banking deregulation, and revisions that more accurately classify loans have reduced C&I loans outstanding.

Outside of the AI driven capex boom, U.S. businesses do not appear to be embarking upon a capex cycle. The large tech companies are undertaking massive data center projects financed out of their cash flows, but most other businesses require financing to undertake capex projects. The Administration provided tax incentives and pushed for banking deregulation, but bank C&I [Commercial and Industrial] loan data show almost no growth. A series of revisions that more accurately classify loans have actually reduced the amount of C&I loans outstanding. Limited C&I loan growth is seen in both large and more lightly regulated small banks, so it is unlikely a regulatory constraint. The bulk of bank loan growth this year has instead gone to non-depository financial institutions.

Takeaways by Macro Roundup® AI

  1. U.S. bank commercial and industrial loans show almost no growth despite the Administration's tax incentives and push for banking deregulation, and revisions that more accurately classify loans have reduced C&I loans outstanding.
  2. Outside the AI-driven capex boom, U.S. businesses do not appear to be embarking upon a capex cycle, as large tech companies finance data center projects out of cash flow while most other firms require financing.
  3. Limited C&I loan growth at both large banks and more lightly regulated small banks makes a regulatory constraint unlikely, with the bulk of bank loan growth instead going to non-depository financial institutions.

Related Articles:

  • Goosing Credit Supply — Faster loan growth at lightly regulated smaller banks, credit unions, and private credit compared with large banks suggests post-2008 rules that raised capital and liquid-asset requirements with bank size have constrained large-bank lending. With loan growth currently limited more by demand than supply, easing large-bank requirements may mainly shift existing loans toward large banks.
  • The Secular Decline of Bank Balance Sheet Lending — Traditional bank balance sheet lending has declined as a share of credit intermediation, with credit increasingly channeled through arms-length transactions such as securitization. A structural model attributes falling lending shares to lower securitization costs, savers' behavior driving bank balance sheet size, and implicit bank costs and subsidies shaping balance sheet composition.
  • Has Private Credit Broken the High-Yield Spread Signal? — The high-yield bond market has stayed at about $1.4tn while private credit assets have grown to as much as $2tn, and the highest-rated BB portion of the high-yield index has risen from 41% to 51%. Private markets have shifted riskier borrowers out of high yield, making that index safer.

AI Summary. California's share of US tech jobs has fallen from nearly 19% before the pandemic to nearly 16%, including a further 0.4% decline over the past year. The remaining jobs skew high-paying: California's share of information-sector compensation is slightly above its pre-pandemic peak, with nearly a third of all tech wages and benefits going to state residents.

Joseph Politano Apricitas Economics
Date Posted:

California’s share of US tech jobs is the lowest in a decade, falling from nearly 19% in late 2019 to just over 16% today. Californians maintain an advantage in high-end jobs, earning ~⅓ of the industry’s total compensation – above the 2019 level.

Is California losing tech jobs while keeping the highest-paying ones?

Core argument: California's share of US tech jobs has fallen from nearly 19% before COVID to nearly 16%, including a further 0.4% decline over the last year.

Before COVID, nearly 19% of all US tech jobs were located in the Golden State; today that share is down to nearly 16%. Over the last year alone, California's share of tech employment has declined by another 0.4%. The good news for Californians is that while tech-sector jobs continue to leave the state, the jobs that remain are disproportionately high-paying. The share of information sector compensation going to Californians is actually up slightly from its pre-pandemic peak even as the share of information-sector employment has shrunk dramatically. Nearly one-third of all tech-related wages and benefits still go to residents of the Golden State.

Takeaways by Macro Roundup® AI

  1. California's share of US tech jobs has fallen from nearly 19% before COVID to nearly 16%, including a further 0.4% decline over the last year.
  2. California's share of information-sector compensation is up slightly from its pre-pandemic peak even as its share of information-sector employment has shrunk, with the tech jobs remaining in the state disproportionately high-paying.
  3. Nearly one-third of all US tech-related wages and benefits still go to California residents.

Related Articles:

  • California Mints Millionaires Faster Than They Can Leave — The number of California residents with incomes of $1m or more grew by 61,900, or 66%, from 2019 to 2021, lifting the state's share of US millionaires to 17.9% from 17% while the shares of New York, Texas, and Florida fell. Rising in-state incomes minted more new millionaires than the net outflow of higher-earning taxpayers to other states.
  • Behavioral Responses to State Income Taxation of High Earners: Evidence from California — A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.
  • Where is Standard of Living the Highest? Local Prices and the Geography of Consumption — The authors estimate that geographical differences in cost of living are especially large for low-income US households, and that expensive cities offer college graduates a standard of living similar to affordable cities while offering less-educated households a lower one. A high school dropout household moving from the most affordable to the most expensive commuting zone would see consumption fall 18.5%.

AI Summary. State regulators have approved home insurance rate increases averaging 50% and auto increases averaging 42%, outpacing a 26% rise in consumer prices over the same period, according to S&P Global Market Intelligence and Labor Department data.

Jean Eaglesham Wall Street Journal
Date Posted:

Over the past five years, state regulators nationwide have approved cumulative mean rate increases of 50% for home insurance and 42% for automotive insurance, outpacing the 26% rise in consumer prices over the period.

Are insurance rates rising faster than consumer prices?

Core argument: State regulators have approved home insurance rate increases averaging 50% and auto increases averaging 42% since the start of 2020, according to S&P Global Market Intelligence data.

Since the start of 2020, state regulators have agreed to rate increases averaging 50% for home insurance and 42% for auto, far outstripping the 26% increase in consumer prices through August, S&P Global Market Intelligence and Labor Department data show.

Takeaways by Macro Roundup® AI

  1. State regulators have approved home insurance rate increases averaging 50% and auto increases averaging 42% since the start of 2020, according to S&P Global Market Intelligence data.
  2. Approved home and auto insurance rate increases since the start of 2020 far outstrip the 26% rise in consumer prices through August, according to Labor Department data.
  3. Rising home and auto insurance costs have revived discussion of price caps on insurance rates.

Related Articles:

  • Insurance: Climbing Costs Cut Into Consumer Budgets — Bank of America internal data show median household property insurance payments (auto and home) rose 6% year-over-year and more than 40% over five years, lifting such payments to 5% of income. Younger generations saw the largest increases, though Gen X payments also rose 45%.
  • The World Is Getting Riskier. Americans Don’t Want to Pay for It — Americans' resistance to paying to insure against risks from illness, old age, and natural and financial disasters is growing alongside those risks; JPMorgan estimated wildfires around Los Angeles caused $50bn in losses, of which only $20bn were insured. Socializing risk removes the price signal that encourages the insured to mitigate their own exposure.
  • Catastrophe Bond Sales Hit Record as Insurers Offload Climate Risks — Insurers are issuing catastrophe bonds, which transfer risk from events such as wildfires, hurricanes and earthquakes to bondholders, at a record pace, with issuance reaching $18.1bn against a prior full-year record of $17.7bn. A Swiss Re index of total returns on these bonds has risen 14% over the past year.