Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…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 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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, December 22, 2025

AI Summary. China's growth is forecast at 4.8%, above the 4.5% consensus, with robust manufacturing offset by a housing drag on output estimated at about 1.5 percentage points as property sales run 60% below peak. Strong manufacturing and weak domestic demand are projected to lift China's current account surplus toward 1% of global output.

Jan Hatzius, Dominic Wilson, Joseph Briggs, Vickie Chang, et al. Goldman Sachs
Date Posted:

Property starts in China are down 80% from peak, and GS estimates that housing’s drag on GDP will remain at ~1½pp in 2026. GS forecasts that strong manufacturing and weak domestic demand will raise China’s surplus to ~1% of global GDP over the next 3–5 years.

Can strong manufacturing keep China's growth above consensus despite housing drag?

Core argument: The 2026 forecast for China's growth is 4.8%, above the 4.5% consensus, with the manufacturing sector expected to continue growing robustly.

Our 4.8% growth forecast for China is above the 4.5% consensus.  The Chinese manufacturing sector should continue to grow robustly. Property sales are down 60% and property starts down 80% from the peak—we estimate that the housing drag on GDP will remain around 1½pp in 2026. The combination of a strong manufacturing sector and weak domestic demand is pushing China’s current account surplus ever higher. Over the next 3-5 years, we expect an increase to almost 1% of global GDP, the biggest surplus of any country in recorded history. This is likely to weigh heavily on growth in economies that compete intensively with China such as the Euro area, and particularly Germany.

Takeaways by Macro Roundup® AI

  1. The 2026 forecast for China's growth is 4.8%, above the 4.5% consensus, with the manufacturing sector expected to continue growing robustly.
  2. Chinese property sales are down 60% and property starts down 80% from the peak, and the housing drag on GDP is estimated to remain around 1½pp in 2026.
  3. China's current account surplus is projected to rise to almost 1% of global GDP over the next three to five years, the biggest surplus of any country in recorded history, likely weighing on growth in the Euro area and particularly Germany.

Related Articles:

  • Can China Continue to Export its Way Out of its Property Slump? — The International Monetary Fund estimates Chinese public sector debt near 125% of GDP and a combined on- and off-balance-sheet fiscal deficit possibly above 12% of GDP. Since the property bubble burst, net exports have added over a percentage point to annual growth on average, with the goods surplus approaching $1.2tn, or 6% of GDP.
  • Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push — Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.
  • Power Politics: Energy Self-Sufficiency in a Modern Mercantilist World — China leads in adding power to the grid, with more than 30,000 miles of ultra-high-voltage transmission lines versus zero in the US and lead times for large transformers of 48 weeks against a US average of 143 weeks. This positions China to accommodate new demand sources such as artificial intelligence.

AI Summary. Self-employed workers make up about 30% of China's nonagricultural workforce, up from 20% in 2013, while the number of ride-hailing drivers tripled to 7.5 million over four years even as rides grew about 60%. The influx of workers into gig work is putting downward pressure on pay.

Yoko Kubota Wall Street Journal
Date Posted:

Btw 2020–24, the number of ride-hailing drivers in China tripled to 7.5mm – while the number of rides grew only 60%, putting downward pressure on wages. Overall, 30% of the nonagricultural workforce is self-employed – up from 20% in 2013.

Is China's growing gig workforce pushing down wages?

Core argument: Self-employed workers make up about 30% of China's nonagricultural workforce, up from 20% in 2013, according to data from Gavekal Dragonomics.

Self-employed workers now make up about 30% of the nonagricultural workforce in China, up from 20% in 2013, data from Gavekal Dragonomics showed.  The number of ride-hailing drivers in China tripled to 7.5 million in the four years to 2024, even though the number of rides grew only by about 60% during the same period, government data shows. So many people are entering the gig economy that it is putting downward pressure on wages, as people laid off from other industries or unable to find full-time work compete for pay.

Takeaways by Macro Roundup® AI

  1. Self-employed workers make up about 30% of China's nonagricultural workforce, up from 20% in 2013, according to data from Gavekal Dragonomics.
  2. China's ride-hailing drivers tripled to 7.5 million in the four years to 2024, while the number of rides grew only about 60% over the same period, according to government data.

Related Articles:

  • US Exceptionalism Versus Chinese Uninvestibility (Part I) — China redirected domestic savings toward de-Westernizing its industrial supply chains through tighter capital controls, suspended stock listings, and concentrated bank lending, which the author argues was deflationary and produced poor investor returns. The author argues that if the US pursues comparable supply-chain separation from China, capital would shift into lower-return activities.
  • The True Cost of China’s Falling Prices — Prices fell for 51 of 67 consumer items tracked over a two-year period in China, while the broader GDP deflator, which includes upstream sectors, declined for 10 straight quarters, indicating deflation is more entrenched in industry. The share of "zombie" firms whose profits cannot cover debt interest rose from 19% to 34% over five years.
  • China is Suffering its Own ‘China Shock’ — Academic analysis of 12 labour-intensive Chinese manufacturing industries estimates average employment fell about 14%, or nearly 4mn jobs, between 2011 and 2019, with textile roles down 40%; a further analysis of the same sectors found 3.4mn more jobs lost through 2023. Researchers argue industrial upgrading and automation are cutting demand for lower-skilled workers and depressing their wages.

AI Summary. Germany plans to nearly triple annual military spending to about $180bn by 2029, and German industrial production has posted significant gains in sectors geared toward military spending. Those gains more than offset declines in other mainstays of German industry such as vehicles and chemicals, supporting a manufacturing sector that has shrunk for seven years.

Tom Fairless Wall Street Journal
Date Posted:

The tripling of Germany’s defense spending to ~$180B annually is helping its embattled manufacturing sector. For example, Schaefer, an automotive supplier, recently signed a deal with Munich‑based defense startup Helsing to scale up production of drones.

Is military spending lifting Germany's shrinking manufacturing sector?

Core argument: Germany plans to nearly triple annual military spending to around $180 billion in 2029, a buildup that is beginning to appear in the country's economic data.

Germany plans to nearly triple its annual military spending over the coming years to around $180 billion in 2029. The splurge is starting to show up in economic data. German industrial production for October showed significant gains in sectors geared toward military spending, said Holger Schmieding, chief economist at Berenberg Bank. That helped to more than offset declines in other mainstays of German industry, such as vehicles and chemicals. This is a godsend for Germany’s embattled manufacturing sector, which has steadily shrunk for seven years, squeezed by high energy prices, aggressive competition from China and U.S. tariffs.

Takeaways by Macro Roundup® AI

  1. Germany plans to nearly triple annual military spending to around $180 billion in 2029, a buildup that is beginning to appear in the country's economic data.
  2. German industrial production in October posted significant gains in sectors geared toward military spending, more than offsetting declines in vehicles and chemicals, according to Berenberg Bank chief economist Holger Schmieding.
  3. Germany's manufacturing sector has shrunk steadily for seven years, squeezed by high energy prices, aggressive competition from China and U.S. tariffs.

Related Articles:

  • Will Higher Defence Spending Boost The European Economy? — Defense spending typically has a fiscal multiplier below one, meaning each euro spent raises GDP by less, so it is not a short-term growth strategy. One estimate holds that extra military spending worth 1% of GDP could lift output up to 2% long term if concentrated on research and development.
  • Europe’s Defence Tech Start-Ups Attract Investment Surge — European defence technology start-ups have raised €2.4bn since the start of 2022, including €1.4bn in the first seven months of the most recent year, up from €30mn in 2020 and €150mn in 2021, according to PitchBook data. Three of them — drone makers Helsing, Quantum Systems and Tekever — are valued above €1bn.
  • From Trains to Tanks: Germany’s Rearmament Marks Industrial Shift — Germany's defense spending has risen almost 80% since 2020 to over €90bn, according to NATO estimates, offering hiring growth in a country where nearly 250,000 manufacturing jobs have disappeared since the pandemic began. Four major defense contractors added more than 16,500 employees over three years, a gain exceeding 40%, and plan roughly 12,000 more hires.

AI Summary. US incomes at the 60th percentile of the distribution, currently $106,000, have fallen from 43% of incomes at the 95th percentile, currently $336,000, to 31% over roughly half a century. The author argues this widening gap may make an affluent lifestyle seem unattainable to most Americans.

Paul Krugman Krugman Wonks Out
Date Posted:
Is Database:
Database

In 1979, 60th percentile American families earned 43% as much as 95th percentile families – the high end of their “reference group.” Today, they earn 31%. Krugman argues such gaps are driving the “general sense of declining social inclusion.”

Has the income gap between middle-class and affluent Americans widened?

Core argument: U.S. incomes at the 60th percentile, currently $106,000, equal 31% of incomes at the 95th percentile, currently $336,000, down from 43% half a century ago.

The vast majority of Americans never see how the 1%, let alone the .01%, lives. They are, however, well aware that some of the people they grew up with have bigger houses in nicer locations than they do, take more and more luxurious vacations, can give their children a better education, and so on. Let me suggest a measure that may get at the general sense of declining social inclusion: the ratio of incomes at the 60th percentile of the income distribution, currently $106,000, to incomes at the 95th percentile, currently $336,000. The cutoffs are arbitrary, partly reflecting easily accessible data. But the 60th percentile is probably a good placeholder for people who are middle class but not affluent, while the 95th percentile may be a good indicator of the very affluent who aren’t so affluent as to be removed from ordinary Americans’ reference group. Here’s what the ratio of incomes at the 60th to the 95th percentiles looks like over time. Half a century ago, middle-income families by this definition made 43% as much as upper-income — a large gap, but not enough to put the affluent in a completely different material universe. Now the ratio is down to 31%, which may well make an affluent lifestyle seem unattainable to most Americans.

Takeaways by Macro Roundup® AI

  1. U.S. incomes at the 60th percentile, currently $106,000, equal 31% of incomes at the 95th percentile, currently $336,000, down from 43% half a century ago.
  2. Paul Krugman proposes the ratio of 60th- to 95th-percentile incomes as a measure of declining social inclusion, with the 60th percentile standing in for the middle class and the 95th for the affluent still within ordinary Americans' reference group.
  3. Most Americans never see how the top 1%, let alone the top 0.01%, lives, but are aware that people they grew up with have bigger houses, more luxurious vacations, and better education for their children.

Related Articles:

  • Income in the United States: 2024 — U.S. median household income was $83,730, not statistically different from the prior year's $82,690, according to Census Bureau estimates. Across most demographic subgroups, median household income was higher or not statistically different from the prior year, with the exception of Black households, which saw a decline.
  • How To Get Rich in 2025 — Academic estimates compiled by The Economist indicate inheritances, after falling over the 20th century, were worth about 10% of GDP on average by the end of the 2010s, with roughly $6tn inherited across the rich world in a year. Falling family sizes mean each inheritance is spread across fewer heirs.
  • 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. California's Department of Finance projects that Medi-Cal coverage for adults with "unsatisfactory immigration status" will cost $12.5bn this fiscal year, with overall Medi-Cal spending projected at $197bn, up from $104bn in the fiscal year ended mid-2019 before eligibility was expanded. The state's nonpartisan Legislative Analyst Office projects general-fund spending will exceed revenue by 4.3%, or $9.6bn.

Paul Kiernan Wall Street Journal
Date Posted:

California is currently providing healthcare for 1.8mm illegal immigrants via its Medicaid program, Medi-Cal. Facing a budget deficit of 4.3% in the current fiscal year and 11% next year, the state has begun to roll back the program.

How much does expanding state health coverage to unlawful immigrants cost?

Core argument: California's Department of Finance projects Medi-Cal coverage for adults with "unsatisfactory immigration status" will cost $12.5 billion in the current fiscal year, borne largely by state taxpayers because the federal government does not cover most such Medicaid spending.

The federal government doesn’t cover most Medicaid spending for immigrants in the U.S. unlawfully. So California taxpayers had to foot the bill for the state’s expansion [of health care for illegal-immigrants], and a lot more people signed up than expected. The cost of Medi-Cal coverage for adults with “unsatisfactory immigration status” ballooned to a projected $12.5 billion for the current fiscal year, the state’s Department of Finance says. Overall Medi-Cal spending is projected to reach $197 billion, up from $104 billion in the fiscal year ended mid-2019, before Newsom gradually began expanding immigrants’ eligibility between 2020 and 2024. California’s nonpartisan Legislative Analyst Office projected that general-fund expenses will exceed revenue by 4.3%, or $9.6 billion, in the current fiscal year, and 11% in the next year. The budget difficulties have raised red flags since they are coming in a time of economic growth, and as the artificial-intelligence boom lifts compensation for California’s tech workers, boosting income taxes.

Takeaways by Macro Roundup® AI

  1. California's Department of Finance projects Medi-Cal coverage for adults with "unsatisfactory immigration status" will cost $12.5 billion in the current fiscal year, borne largely by state taxpayers because the federal government does not cover most such Medicaid spending.
  2. Overall Medi-Cal spending is projected to reach $197 billion, up from $104 billion in the fiscal year ended mid-2019, before Governor Newsom gradually expanded immigrants' eligibility between 2020 and 2024.
  3. California's nonpartisan Legislative Analyst Office projects general-fund expenses will exceed revenue by 4.3%, or $9.6 billion, in the current fiscal year and by 11% the next year, even as economic growth and an artificial-intelligence boom lift tech compensation and income taxes.

Related Articles:

  • The Fiscal Impact of Immigration (2025 Update) — An analysis estimating immigrants' effects on output, capital, tax revenue, and descendants finds admitting one 30-year-old without a high school diploma costs the federal government $20,000 over 10 years and over $130,000 over 30 years, while a college-educated 30-year-old yields over $200,000 and $1.6m respectively.
  • Two New Estimates of the Fiscal Impact of Immigration — Estimates of immigrants' fiscal impact depend heavily on the assumptions used: the lifetime fiscal impact of a 22-year-old high school dropout shifts from negative $315,000 under one set of assumptions to a small negative number under another. The author argues the accounting approach common in this literature understates immigrants' contribution to fiscal sustainability.
  • The Fiscal Impact of Immigration: An Update — The US foreign-born population reached 51m, or 15.4% of the total, exceeding the previous high set in 1910. Estimated lifetime fiscal impact varies by education: an immigrant arriving at 25 without a high school degree imposes a $246,000 cost, while one with a graduate degree contributes $795,000.

AI Summary. El Segundo, California has developed a self-reinforcing entrepreneurial cluster of defense and hardware startups founded by former employees of SpaceX, Palantir and Anduril who cashed in stock options to launch their own firms. One of them, drone maker Neros, says it has America's highest drone production rate and has worked to remove Chinese technology, including circuit boards, from its products.

Economist Staff The Economist
Date Posted:

An aerospace cluster has emerged in El Segundo, CA. Many of the firms have been founded by alumni of SpaceX, which was initially located in town. “Gundo” is an increasingly important part of America’s attempt to win a high-tech arms race against China.

How is a defense hardware startup cluster forming in California?

Core argument: El Segundo, California has become a self-reinforcing entrepreneurial cluster built by former employees of SpaceX, Palantir and the defence-tech firm Anduril, whose early staff cashed in multi-million-dollar stock options and became founders themselves.

El Segundo (“Gundo”) is a bottom-up example of something that countries around the world try in vain to replicate: a genuine entrepreneurial cluster. Many of the startups are built by former employees not just of SpaceX, but of Palantir and Anduril, a defence-tech pioneer. Their early employees, cashing in multi-million-dollar stock options, became founders in their own right. This trend has grown big enough to become self-reinforcing. Many startups fail. But when they do, there are enough opportunities nearby to give employees the confidence that they will find other jobs. The sense that Gundo’s founders are quietly working on a Plan B for America as tensions rise with China is palpable at Neros, a manufacturer of lethal drones that Soren Monroe-Anderson, its co-founder, says has the highest production rate of drones in America, mostly for sale for use in Ukraine. He shows how Neros has sought to strip all traces of Chinese technology from the products, including their circuit boards. Asked why Neros does this in California, rather than in Texas, he smiles mockingly. “The best engineers in the world don’t want to live in Texas,” he snorts.

Takeaways by Macro Roundup® AI

  1. El Segundo, California has become a self-reinforcing entrepreneurial cluster built by former employees of SpaceX, Palantir and the defence-tech firm Anduril, whose early staff cashed in multi-million-dollar stock options and became founders themselves.
  2. Neros, an El Segundo drone maker, has the highest production rate of drones in America according to co-founder Soren Monroe-Anderson, with most sold for use in Ukraine, and has sought to strip Chinese technology from its products, including circuit boards.
  3. Startups in El Segundo often fail, but enough opportunities exist nearby to give employees confidence that they will find other jobs.

Related Articles:

  • The Intellectual Spoils of War? Defense RD, Productivity and International Spillovers — The authors estimate that a 10% increase in government-financed R&D, largely defense, is associated with a 4.3% rise in privately funded R&D across OECD countries, indicating "crowding in" rather than "crowding out." They also find international spillovers raise private R&D abroad, though the overall effect on US productivity growth is modest.
  • The Effect of High-Tech Clusters on the Productivity of Top Inventors — The authors estimate that inventor productivity rises with local high-tech cluster size, with an elasticity of patent output to cluster size of 0.0662; a 49.2% shrinkage of Rochester's cluster is associated with a 20.6% productivity drop for other local inventors. They estimate that spreading inventors uniformly across US cities would cut patent output by 11.07%.
  • ‘We Do Fail … a Lot’: Defense Startup Anduril Hits Setbacks With Weapons Tech — Defense startup Anduril has hit setbacks across several weapons programs, including engine damage to its unmanned Fury jet fighter in a ground test, a 22-acre fire caused by a counterdrone system test, and software that struggled to command unmanned boats. Former employees report its systems in Ukraine proved vulnerable to jamming.

Tuesday, December 23, 2025

AI Summary. The authors estimate that tariff pass-through into US import prices was 80% in 2018–2019 and 94% more recently, while exchange-rate pass-through was low in both periods. Because imported inputs matter for US manufacturing, they argue much of the tariff burden falls on US producers, roughly a 1–2 percentage-point tax on manufacturing.

Gita Gopinath and Brent Neiman Harvard University
Date Posted:
Is Database:
Database

Actual 2025 tariff rates are, to date, far less than statutory rates, but the costs of the tariffs are mostly borne by the US – estimated tariff pass-through to US prices in 2025 is 94%. Tariffs on imports act like a 1 to 2pp tax on US manufacturing.

Who bears the burden of tariffs on US imports?

Core argument: The authors estimate tariff pass-through into U.S. import prices at 94% in 2025, up from 80% in 2018–2019, with few imports showing low pass-through, while exchange rate pass-through is low in both periods.

After peaking at 32.8% in April, the statutory rate in September was 27.4%. To calculate the “actual” rate, we divide the tariff revenues that the U.S. government collects each month on imports from each exporter-HTS pair by the value of those imports. [HTS stands for Harmonized Tariff Schedule, a standardized system of codes used to classify products for customs purposes]. The ex-tariff price of U.S. imports from China declined by 2.5% and the price of imports from the others were essentially unchanged or rose by two percent or less. Our preferred methodology results in an estimated tariff pass-through rate of 80% during 2018-2019 and 94% during 2025. There are few indications of any meaningful set of imports exhibiting low pass-through. By contrast, exchange rate pass-through into U.S. import prices is low across both periods. The tariffs have led to striking changes in sourcing patterns. The share of Chinese exports in U.S. goods imports collapsed from 22% at the end of 2017 to about 12% at the end of 2024. By September 2025, China’s share was only 8%. Given the high pass-through to import prices and the importance of imported inputs in U.S. manufacturing, much of the incidence of the tariffs falls on U.S. producers [roughly equivalent to a tax on manufacturing of 1 to 2 ppt].    

Takeaways by Macro Roundup® AI

  1. The authors estimate tariff pass-through into U.S. import prices at 94% in 2025, up from 80% in 2018–2019, with few imports showing low pass-through, while exchange rate pass-through is low in both periods.
  2. China's share of U.S. goods imports fell from 22% at the end of 2017 to about 12% at the end of 2024 and 8% by September 2025, while ex-tariff prices of U.S. imports from China declined 2.5%.
  3. Given high pass-through and the importance of imported inputs, the authors argue much of the tariffs' incidence falls on U.S. producers, roughly equivalent to a 1 to 2 percentage point tax on manufacturing; the statutory rate was 27.4% in September after peaking at 32.8% in April.

Related Articles:

  • Who Pays Trump’s Tariffs? — Amalgamated estimates from Goldman Sachs, the Yale Budget Lab and Allianz Trade indicate U.S. importers initially absorbed 64% of U.S. tariff costs, with 14% borne by foreign exporters and 22% passed to consumers. The estimates project the consumer share rising to about 67%, leaving the price level 1–1.5 percentage points higher than without the tariffs.
  • 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.
  • CBO’s New Projections Show $1 Trillion Less in Tariff Savings — The Congressional Budget Office now projects tariffs enacted this year will reduce debt including interest by $3.0tn through 2035, down from $4.0tn, reflecting policy changes and revised assumptions about duty-free imports and costs absorbed by foreign exporters. If courts strike down the emergency-powers tariffs, the debt reduction would fall to roughly $0.9tn.

AI Summary. Slowing US growth — attributed to trade frictions, immigration restrictions and risks from a K-shaped economy — combined with inflation stuck near 3% amounts to a stagflation environment, even as the medium-term outlook looks strong. Real business investment growth is concentrated in information processing equipment such as computers, data centers and software, while non-AI capital spending growth is roughly zero.

Torsten Sløk Apollo
Date Posted:

Sløk sees the US entering 2026 “squarely in a stagflation environment,” noting that real private fixed investment net of AI spending saw no growth y/y, residential investment declined y/y, and inflation is “stuck near 3%.”

Is the US economy in stagflation with business investment concentrated in AI?

Core argument: The authors place the US in a stagflation environment in the short term, with inflation stuck near 3% and growth slowing on trade frictions, immigration restrictions, and risks from a deepening K-shaped economy.

We are bullish on the medium-term outlook for the US economy. However, in the short term, slowing growth — driven by trade frictions, immigration restrictions and risks from a deepening K-shaped economy— combined with inflation stuck near 3% puts the US squarely in a stagflation environment. AI’s dominance points to potential weakness in the broader macroeconomic picture. Take, for example, capex and business investment levels. This chart shows real private fixed investment, which is a different way of saying business investment. The dark blue line represents investment in information processing equipment including computers, data centers and software. Essentially, everything that has to do with AI. And not surprisingly, there’s been strong growth there. Compare that with a light blue line, which is growth in non-AI business spending. That line is basically at zero, meaning there has been no growth in corporate capex outside of AI.

Takeaways by Macro Roundup® AI

  1. The authors place the US in a stagflation environment in the short term, with inflation stuck near 3% and growth slowing on trade frictions, immigration restrictions, and risks from a deepening K-shaped economy.
  2. Real private fixed investment in information processing equipment — computers, data centers and software tied to AI — has grown strongly, while growth in non-AI business spending is basically at zero.
  3. The authors remain bullish on the medium-term US economic outlook while arguing that AI's dominance points to potential weakness in the broader macroeconomic picture.

Related Articles:

  • Let Them Eat Compute: Data Centers’ Implications for Mortgage Finance — The author argues the housing affordability crisis stems from the sharp decline in 30-year fixed mortgage rates rather than their subsequent rise, since fixed rates let rate dips boost purchasing power, lifting existing-home sales 25% and prices 32% relative to rents. A costly data center buildout is crowding out for-sale housing.
  • How America’s AI Boom Is Squeezing The Rest Of The Economy — About a sixth of America's 2% real GDP growth over the past year came from investment in computer and communications equipment and data centres, and one estimate puts the artificial intelligence boom's total contribution to growth at 40%. Average electricity bills rose 7%, attributed in part to data-centre demand, while housebuilding and non-AI business investment slumped and real consumption flatlined.
  • Does Gemini Show That Scaling Still Works? No. — The author argues that frontier model pre-training is becoming uneconomic, delivering only marginal capability gains for enormous spending on chips, power, and compute. Meaningful advances have shifted to post-training, inference-time compute, and tool-augmented reasoning rather than raw model size.

AI Summary. China's annual goods trade surplus surpassed $1tn for the first time, and analysts project its current account surplus as a share of global GDP will exceed levels last seen during the mid-2000s "China shock." The Chinese currency is estimated to be undervalued to a comparable degree, and the analysts expect gradual appreciation to continue.

Kamakshya Trivedi, Dominic Wilson, Vickie Chang and Victor Engel Goldman Sachs
Date Posted:

The first “China Shock” in the mid-2000s was followed by significant yuan appreciation. GS expects “gradual appreciation pressure on the undervalued CNY” in 2026, and forecasts that the Chinese surplus will flow into global assets beyond US fixed income.

Is China's trade surplus set to exceed the first China shock?

Core argument: China's annual goods trade surplus exceeded $1 trillion for the first time in November, and the authors' China team forecasts the current account surplus, as a share of global GDP, to exceed levels last seen during the mid-2000s "China Shock.".

China's annual goods trade surplus exceeded $1 trillion for the first time in November and, as a percent of global GDP, our China team forecasts the current account surplus to exceed the levels last seen at the time of the first China shock in the mid-2000s.The sustained export growth is a testament to the competitiveness of China's currency. The degree of CNY undervaluation is also comparable to the period of the "China Shock" in the mid-2000s, and that was followed by large currency appreciation. We have already seen a shift towards CNY appreciation this year, with the USD/CNY fix gradually but steadily moving stronger since 'Liberation Day'. We expect that move to extend in the year ahead. Although the currency is tightly managed, policymakers should be comfortable with a gradual appreciation pace that helps advance RMB internationalisation while still leaving the currency cheap. Indeed, given the negative competitive impact [of the Chinese trade surplus] on other countries, allowing modest but sustained appreciation is part of the equilibrating mechanism and can serve to ensure that the protectionist pushback is not too severe. A recycling of the current account surplus into global assets is another outcome but, given geopolitical and portfolio considerations, these investments may support a more diversified pool of global assets beyond US fixed income.

Takeaways by Macro Roundup® AI

  1. China's annual goods trade surplus exceeded $1 trillion for the first time in November, and the authors' China team forecasts the current account surplus, as a share of global GDP, to exceed levels last seen during the mid-2000s "China Shock.".
  2. The authors judge CNY undervaluation comparable to the mid-2000s China Shock period, which was followed by large appreciation, and expect the gradual strengthening of the USD/CNY fix seen since "Liberation Day" to extend in the year ahead.
  3. The authors argue that modest but sustained CNY appreciation forms part of the equilibrating mechanism limiting protectionist pushback while advancing RMB internationalisation, and that recycling the current account surplus may support a more diversified pool of global assets beyond US fixed income.

Related Articles:

  • China’s Yuan Is 25% Undervalued on Trade Basis, Goldman Says — Goldman Sachs estimates the Chinese yuan is about 25% undervalued on a weighted average of two of its models: one based on productivity and terms of trade puts fair value at 5 per US dollar versus roughly 7.06 in the market, while a current-account-based model finds it 12% undervalued.
  • Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push — Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.
  • US Exceptionalism Versus Chinese Uninvestibility (Part I) — China redirected domestic savings toward de-Westernizing its industrial supply chains through tighter capital controls, suspended stock listings, and concentrated bank lending, which the author argues was deflationary and produced poor investor returns. The author argues that if the US pursues comparable supply-chain separation from China, capital would shift into lower-return activities.

AI Summary. Gold reached a record high amid escalating geopolitical tensions and expectations of further US interest-rate cuts, rising as much as 1.2% to just below $4,500 an ounce. Silver also set an all-time peak near $70 an ounce, with its roughly 140% rally supported by speculative inflows and lingering supply dislocations across major trading hubs.

Mark Burton, Robin Paxton and Yvonne Yue Li Bloomberg
Date Posted:

Gold’s spot price has risen 70% this year, hitting an all-time high of just under $4,500 an ounce – its best performance since 1979. When gold hit $850 nominal in January 1980 (~ $3,590 in 2025 dollars), the US dollar was collapsing amid stagflation.

Are rate-cut expectations and geopolitical tensions driving gold and silver to records?

Core argument: Spot gold rose as much as 1.2% to just below $4,500 an ounce, its 50th record high this year, on escalating geopolitical tensions and prospects for further US rate cuts.

Gold rose to a record high — the 50th day it’s done so this year — on escalating geopolitical tensions and prospects for more US rate cuts. Silver also set an all-time peak. Spot gold climbed as much as 1.2% to just below $4,500 an ounce, extending gains after its biggest one-day jump in more than a month. Silver rose as much as 1.4% to within a cent of $70 an ounce. The white metal’s rally of around 140% this year has been even more spectacular than gold’s, with its most recent advance buoyed by speculative inflows and lingering supply dislocations across major trading hubs following a historic short squeeze in October.

Takeaways by Macro Roundup® AI

  1. Spot gold rose as much as 1.2% to just below $4,500 an ounce, its 50th record high this year, on escalating geopolitical tensions and prospects for further US rate cuts.
  2. Silver rose as much as 1.4% to within a cent of $70 an ounce, an all-time peak, with a rally of around 140% this year outpacing gold's gains.
  3. Silver's most recent advance was buoyed by speculative inflows and lingering supply dislocations across major trading hubs following a historic short squeeze in October.

Related Articles:

  • The Crazy Precious Metals Rally Starts Again — Precious metals prices for gold, silver, platinum and palladium have rallied following Federal Reserve meetings, with silver's gains spilling over into platinum and palladium. The author argues the rally reflects retail investors chasing a price spike rather than emerging-market central bank gold buying, occurring while the dollar is stable against other major currencies.
  • China’s Secretive Gold Purchases Help Fuel Record Rally — China's central bank has officially reported buying just 25 tonnes of gold this year, but Société Générale estimates from UK export and trade data that actual purchases could reach 250 tonnes, more than a third of global central bank demand. Buying also occurs through China's sovereign wealth fund and military, which need not disclose holdings promptly.
  • De-Dollarization? Diversification? Exploring Central Bank Gold Purchases and the Dollar’s Role in International Reserves — Central banks' gold accumulation is generally not associated with reducing the dollar's share of international reserves at the country level, apart from a few prominent cases, and is more consistent with modest overall diversification. Gold's role as an official-sector store of value has grown, but its use as a unit of account and medium of exchange remains limited.

AI Summary. Currencies of low-public-debt countries such as Switzerland and Sweden are showing increasing correlation with daily moves in gold and silver prices. Sweden's krona has traditionally been highly volatile without safe-haven attributes, a pattern the article attributes to the "debasement trade.

Robin Brooks Robin Brooks Substack
Date Posted:

Currencies of advanced economies with low public debt, such as Switzerland and Sweden, are becoming increasingly correlated with gold and silver prices, as investors seek safe havens from fiat “debasement.”

Are low-debt currencies now trading like gold and silver?

Core argument: Currencies of low-public-debt countries such as Switzerland and Sweden are showing increasing correlation with daily moves in gold and silver prices against the Dollar across G10 currencies.

Countries with low public debt levels like Switzerland or Sweden are seeing their currencies become increasingly correlated with moves in gold and silver prices. The chart shows the correlation of daily changes across G10 currencies against the Dollar with gold (blue) and silver (red) prices. It’s noteworthy that Sweden is so much in focus. The Krona has traditionally been a highly volatile currency that didn’t have safe haven attributes. The debasement trade is changing that.

Takeaways by Macro Roundup® AI

  1. Currencies of low-public-debt countries such as Switzerland and Sweden are showing increasing correlation with daily moves in gold and silver prices against the Dollar across G10 currencies.
  2. The Swedish Krona, traditionally a highly volatile currency without safe haven attributes, is now in focus, a shift attributed to the debasement trade.

Related Articles:

  • Across The Rich World, Fiscal Crises Loom — 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.
  • 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 Dollar Is Weaker Than You Think — Weakness in the Japanese Yen is masking dollar declines against other major currencies such as the Swedish Krona and Swiss Franc, so a trade-weighted dollar index excluding the Yen sits below the standard measure. The author argues this reflects a broader "debasement trade," with investors seeking safe havens including precious metals and other currencies.

AI Summary. A decades-old stockpile of samarium nitrate held at a chemical plant in France was refined into usable metal, allowing a U.S. maker of samarium-cobalt magnets to source the rare-earth material outside China. Samarium processed outside China costs 5–8x as much, and the French plant had stopped separating rare-earth elements as uneconomical.

Farah Stockman New York Times
Date Posted:

A stash of samarium nitrate in France can provide a workaround of more than a year for the American defense industry in the face of Chinese export controls.

How did a U.S. magnet maker source rare earths outside China?

Core argument: Samarium processed outside China costs five to eight times as much, and Solvay stopped separating rare-earth elements at its French factory two decades ago because the work had become "uneconomical," according to a company spokeswoman.

Arnold Magnetic Technologies, a Rochester, N.Y.-based manufacturer of samarium-cobalt magnets turned to Grant Smith, the chairman of Less Common Metals near Liverpool, England, one of the last remaining manufacturers of rare-earth metals in the Western world. Mr. Smith had already spent years hunting for alternatives to Chinese samarium. He found one: a decades-old cache of samarium nitrate in a factory in France. The material was owned by Solvay, a Belgian chemical company with a factory in France that was once one of the world’s largest producers of rare-earth oxides. Turning rock into magnets requires separating the 17 rare-earth elements from one another using massive vats of solvents, a process Solvay helped pioneer. Solvay had stopped separating rare-earth elements in France two decades ago, according to a spokeswoman, who said it had become “uneconomical.” Samarium processed outside China is five to eight times as expensive. But Solvay kept its stock of semifinished materials and still had the know-how and equipment to refine it into a form that Mr. Smith could use. And Less Common Metals happened to have an old furnace that could handle the job.

Takeaways by Macro Roundup® AI

  1. Samarium processed outside China costs five to eight times as much, and Solvay stopped separating rare-earth elements at its French factory two decades ago because the work had become "uneconomical," according to a company spokeswoman.
  2. Arnold Magnetic Technologies, a Rochester, N.Y., maker of samarium-cobalt magnets, turned to Grant Smith, chairman of Less Common Metals near Liverpool, England, one of the last remaining manufacturers of rare-earth metals in the Western world.
  3. The alternative supply relied on a decades-old cache of samarium nitrate owned by Solvay in France, Solvay's retained know-how and equipment to refine it, and an old furnace at Less Common Metals able to handle the job.

Related Articles:

  • China Hatches Plan to Keep U.S. Military From Getting Its Rare-Earth Magnets — China is designing a "validated end-user" system that would fast-track rare-earth and other restricted material export approvals for U.S. firms while excluding companies tied to the U.S. military. The arrangement would let China ease export flows while keeping the materials away from U.S. military suppliers.
  • China Cracks Down On Foreign Companies Stockpiling Rare Earths — China is warning foreign buyers of rare earths and derived products such as magnets that building large inventories will bring supply restrictions, and is limiting approved export volumes to prevent stockpiling, according to people familiar with the matter.
  • Pentagon Steps Up Stockpiling Of Critical Minerals With $1bn Buying Spree — The US Defense Logistics Agency has signaled plans to buy up to $500m of cobalt, $245m of antimony, $100m of tantalum and a combined $45m of scandium for its critical minerals stockpile, valued at $1.3bn. Stockpiled materials can be released only by the president in declared war or when deemed necessary for national defense.