Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, January 23, 2026

AI Summary. Means-tested transfers rose as a share of income before transfers and taxes, driven mainly by higher Medicaid spending and concentrated among households near the bottom of the income distribution. Income inequality rose both before and after transfers and taxes, while the extent to which transfers and taxes reduce inequality increased over four decades.

Daniel Page Congressional Budget Office
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Btw 2000 and 2022, means-tested transfers as a fraction of average income before transfers and taxes rose from 44.4 to 72.3% for the bottom quintile, from 6.7 to 16.2% for the 2nd quintile, and from 1.8 to 6.0% for the 3rd, driven by Medicaid and CHIP.

Do transfers and taxes reduce income inequality more than before?

Core argument: Means-tested transfers rose as a share of income before transfers and taxes, driven primarily by increased Medicaid spending and concentrated among households near the bottom of the income distribution.

Means-tested transfers’ contribution to income grew, especially for households near the bottom of the income distribution. As a percentage of income before transfers and taxes, means-tested transfers rose over time, driven primarily by an increase in Medicaid spending and especially for households near the bottom of the income distribution. Income inequality, whether measured in terms of income before transfers and taxes or income after transfers and taxes, rose. [However], the degree to which transfers and taxes reduced income inequality increased over the past four decades.

Takeaways by Macro Roundup® AI

  1. Means-tested transfers rose as a share of income before transfers and taxes, driven primarily by increased Medicaid spending and concentrated among households near the bottom of the income distribution.
  2. Income inequality rose whether measured by income before transfers and taxes or income after transfers and taxes.
  3. The degree to which transfers and taxes reduced income inequality increased over the past four decades, even as measured inequality rose.

Related Articles:

  • The Great “Transfer”-mation — Government transfers rose from 8.2% of Americans' total personal income in 1970 to 17.6% in 2022, making them the third largest income source after work and investments. The share of U.S. counties drawing a quarter or more of personal income from transfers rose from under 1% in 1970 to 53% in 2022.
  • The Economic Geography Of The 2024 Elections — Counties where government transfer programs such as Social Security, Medicare, Medicaid, and unemployment insurance make up at least a quarter of personal income gave Trump 63% of the vote, while counties where transfers account for less than 15% gave Harris 56%. Transfers supplied 18% of total US personal income.
  • How Progressive is the U.S. Tax System? — Three independent datasets on U.S. taxes and transfers all show the tax system has become more progressive and redistributive over recent decades. The authors find this shift is driven mainly by a large increase in transfers to households in the bottom half of the income distribution, a change missed by analyses focused on the top 1%.

AI Summary. The author argues that the dollar's value against emerging-market currencies is the most reliable leading indicator of the dollar's direction, and it has kept making new lows since the Federal Reserve's rate cut. The trade-weighted dollar against other advanced economies remains noisy and within its recent range.

Robin Brooks Robin Brooks Substack
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The dollar has been falling against emerging market currencies since the Fed cut rates on December 10th. Robin Brooks argues that this is “the most reliable leading indicator” of incipient dollar depreciation.

Is the dollar against emerging markets the best signal of its direction?

Core argument: The Dollar against emerging-market currencies has fallen since the Fed's December 10 rate cut and keeps making new lows, a measure the author calls the most reliable leading indicator of Dollar direction.

The Dollar versus emerging markets (EM) has proven itself to be the most reliable leading indicator of Dollar direction. This measure has been falling ever since the Fed cut rates on December 10, a sign Dollar weakness is about to assert itself again. The black line is the trade-weighted Dollar against other advanced economies (the G10). The blue line is the Dollar versus EM. The Dollar versus the G10 is incredibly noisy and - although it’s fallen in recent days - it hasn’t yet moved below the range it’s bounced around in since the middle of 2025. But the Dollar versus EM keeps making new lows. This is the signal to watch. Dollar debasement has begun.

Takeaways by Macro Roundup® AI

  1. The Dollar against emerging-market currencies has fallen since the Fed's December 10 rate cut and keeps making new lows, a measure the author calls the most reliable leading indicator of Dollar direction.
  2. The trade-weighted Dollar against the G10 advanced economies remains within the range it has traded in since the middle of 2025 despite falling in recent days, a measure the author describes as incredibly noisy.
  3. The author concludes that Dollar debasement has begun, pointing to the Dollar-versus-emerging-markets measure rather than the G10 gauge as the signal to watch.

Related Articles:

  • Different Dollar Downside — The authors estimate the US dollar remains roughly 15% overvalued and argue a sharper depreciation could follow if US labor-market weakness forces deeper Federal Reserve rate cuts, particularly against a highly undervalued yen. They also flag a derating of US tech exceptionalism as a risk, since demand for US equities has helped fund the current account deficit.
  • 2026 Outlook: Tech Tonic — A Broadening Bull Market — Most major equity markets have outperformed the US, with Europe, China and Asia generating almost double US total returns in dollar terms and gains of 54% in Italy, 73% in Spain and 71% in Korea. US returns have been driven by strong earnings, particularly in technology, while Europe's have come largely from rising valuations.
  • Return of the Three-Headed Bond Monster Over Tokyo — Bloomberg's precious metals index, covering silver, platinum and palladium, stands at a level last seen in 1980, when repeated rounds of stagflation drove a crisis of confidence in government-issued currencies. Such a rally amid growth and moderate inflation signals something serious is amiss.

AI Summary. Bank of America account data show the number of people moving in the US has more than halved since 2021, with moves to a different state or metropolitan area declining more than moves within the same area. When people do relocate across states or metro areas, they are more likely to remain within the same US Census region.

Joe Wadford Bank of America
Date Posted:

Bank of America internal data show that since 2021, the number of Americans who have moved to a different state or metropolitan statistical area has more than halved. Movers are increasingly “likely to stay in the same US Census region.”

Are Americans moving less and staying closer to home?

Core argument: The number of Americans moving has more than halved since 2021, according to Bank of America account data showing annual declines in relocations.

Fewer and fewer people are moving every year in the US, according to Bank of America account data. In fact, the number of those picking up stakes has more than halved since 2021. Diving deeper, we see the number of people moving to different states or MSAs (metropolitan statistical area) has consistently declined more than those moving within the same area over the past few years. When people do leave for another state or MSA, they are more likely to stay in the same US Census region. That trend has persisted for the past five years, despite changes in the labor market and affordability of housing. In other words, in our view, based on Bank of America data, the majority of people would rather not move too far from home no matter the circumstances.

Takeaways by Macro Roundup® AI

  1. The number of Americans moving has more than halved since 2021, according to Bank of America account data showing annual declines in relocations.
  2. Moves to different states or metropolitan statistical areas have declined more than moves within the same area in recent years, according to Bank of America data.
  3. Americans who leave for another state or metropolitan statistical area are more likely to remain within the same US Census region, a pattern that has held for five years despite changes in the labor market and housing affordability.

Related Articles:

  • Nobody’s Buying Homes, Nobody’s Switching Jobs—and America’s Mobility Is Stalling — The share of Americans moving each year has declined from about 20% in the 1950s and '60s to 7.8% in 2023, the lowest since U.S. Census records began in 1948, with moves within the same county down roughly 47% over three decades. An aging population and the rise of two-earner households are among the contributing factors.
  • Housing and the American Worker — Wages net of housing costs were once substantially higher in high-density areas than low-density areas for workers both with and without college education, but over the past half-century that urban wage premium has persisted only for college-educated workers, not for those with a high school degree or less.
  • 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. In China, about 30% of 30-year-olds were unmarried in 2023, up from 14.5% a decade earlier, while the share of 40-year-olds who were divorced roughly doubled from 2.6% to 5%. Women have outnumbered men in Chinese undergraduate and postgraduate programs since 2009, even as men outnumber women nationally.

Eleanor Olcott, Tina Hu and Haohsiang Ko Financial Times
Date Posted:

The share of Chinese 30-year-olds who were unmarried doubled btw 2013 and 2023 to ~30%. Over that period, the share of 40-year-olds who were divorced increased from 2.6% to 5%.

Are fewer marriages and more education behind China's falling birth rate?

Core argument: About 30% of Chinese 30-year-olds were unmarried in 2023, up from 14.5% in 2013, according to official data.

About 30% of 30-year-olds were unmarried in 2023, compared with 14.5% in 2013, according to official data. The rising number of people divorcing also serves as a cautionary tale for many, particularly young women. In 2013, about 2.6% of people aged 40 were divorced. A decade later, the figure was 5%. The average Chinese woman is often far more educated than her male peer. Since 2009, women have outnumbered men in undergraduate and postgraduate programmes at Chinese universities. Men outnumber women on average across the country in part due to the common practice of sex-selective abortions during the one-child policy era.

Takeaways by Macro Roundup® AI

  1. About 30% of Chinese 30-year-olds were unmarried in 2023, up from 14.5% in 2013, according to official data.
  2. The share of 40-year-olds in China who were divorced rose from about 2.6% in 2013 to 5% a decade later, a trend that serves as a cautionary tale particularly for young women.
  3. Women have outnumbered men in Chinese undergraduate and postgraduate programmes since 2009, and the average Chinese woman is often far more educated than her male peer, while men outnumber women nationally in part because of sex-selective abortions during the one-child policy era.

Related Articles:

  • China Registers Lowest Number Of Births Since Records Began — China recorded 7.92mn births, down from 9.54mn a year earlier and the lowest since 1949, while 11.31mn people died and the population fell 3.39mn to 1.405bn. The figures indicate China is still not seeing benefits from measures to bolster its fertility rate after loosening the "one-child" policy.
  • 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.
  • East Asia’s Coming Population Collapse — United Nations projections show China's population falling 8%, Japan's 18%, South Korea's 12%, and Taiwan's 8% between 2020 and 2050, while the US population rises 12%. Working-age people per person over 65 are projected to drop to about 1.8 in China and 1.2 in Japan and South Korea.

Monday, January 26, 2026

AI Summary. Data on over 5,000 German fighter pilots show performance rose markedly as pilots approached the eligibility threshold for each medal in a tiered awards ladder and slumped immediately after receiving it, with the effect repeating at each successive rung. The authors estimate the ladder added 3,000–5,000 aerial victories, 5–10% of the total.

Leonardo Bursztyn, Ewan Rawcliffe and Hans-Joachim Voth National Bureau of Economic Research
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Performance of Nazi fighter pilots rose as they neared eligibility for a medal and fell off upon receipt, prompting periodic offerings of new medals. This “hierarchical system of status-based incentives” raised net shootdowns by an estimated 5 to 10%.

Do tiered status awards repeatedly boost worker performance?

Core argument: The authors estimate that the German air force's ladder of successive medals added 3,000–5,000 aerial victories to German pilots' wartime tally, 5–10% of the total 54,835 victories in their data.

We provide direct evidence from WWII that one organization, the German air force, successfully created a ladder of highly coveted medals, providing status-based incentives for fighter pilots. The number of rungs on the ladder increased periodically as more workers earned the top awards. The successive medals potentially provided pilots with an incentive to keep exerting effort. Our study demonstrates that this system successfully increased performance. Of the total 54,835 aerial victories in our data, 39.5% were scored by the 10% most able pilots by our measure of ability. Moreover, 8.6% were scored the top 1% of pilots alone. We first employ a modified event-study design and data on the monthly performance of over 5,000 German pilots to demonstrate that pilot performance increases markedly as they approach the eligibility threshold for a medal. Success rates in aerial combat immediately slump after receiving the award, suggesting a sharp change in incentives and effort. We show that this incentive effect is weaker for pilots who already possess other markers of high social status, in line with predictions from a standard signaling game. As pilots approach the successive medal in the ladder, the same effort path repeats itself. Our empirical results show that a hierarchical system of status-based incentives can repeatedly elicit effort due to status concerns. The net effect of the medal ladder was substantial—we estimate that it added between 3,000 and 5,000 victories to German pilots’ tally during the war (5-10% of the total). [Only 19% of the sample survived the war.]

Takeaways by Macro Roundup® AI

  1. The authors estimate that the German air force's ladder of successive medals added 3,000–5,000 aerial victories to German pilots' wartime tally, 5–10% of the total 54,835 victories in their data.
  2. Using a modified event-study design on monthly performance of over 5,000 German pilots, the authors find performance rises markedly as pilots approach a medal's eligibility threshold and slumps immediately after the award, with the pattern repeating for each successive medal.
  3. The top 10% of pilots by the authors' ability measure scored 39.5% of all aerial victories and the top 1% scored 8.6%, while the incentive effect was weaker for pilots already holding other markers of high social status.

Related Articles:

  • Killer Incentives: Status Competition and Pilot Performance during World War II — Analysis of over 5,000 German World War II fighter pilots finds that public peer recognition was associated with higher victory scores among skilled pilots without higher mortality, while average pilots gained little in victories but died at higher rates. The authors conclude status-based awards can have uneven effects in high-risk settings.
  • Ed Conard Debates Furman On “The Expected Value of Risk Taking” — A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. An implied equity risk premium computed from the US stock index level and expected cash flows from dividends, buybacks and earnings growth yields an expected stock return of 8.41%, or 4.23% above the 10-year Treasury yield of 4.18%. That premium sits in the middle of its historical range, unlike the 2.05% low reached at the end of 1999.

Aswath Damodaran Musings on Markets
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Using nominal cash flow projections, the IRR for the S&P 500 was 8.41% on Jan 1. Subtracting the 10-year Treasury rate (4.18%) yields an ERP of 4.23%. Damodaran notes, “The current ERP is almost exactly equal to the average for the 1960–2025.”

Is the US equity risk premium within its historical range?

Core argument: Damodaran computes an implied equity risk premium of 4.23% for US stocks on January 1, 2026, from an expected return of 8.41% at an index level of 6845.5 minus the 4.18% US 10-year Treasury bond rate.

I will revert to my favored metric for the US equity market, the implied equity risk premium, which in addition to looking at stock price levels, the growth in earnings and the cash return, also brings in the level of rates. The implied equity risk premium, as I compute it, is based upon the index level and the expected cash flows (from dividends and buybacks, augmented by earnings growth), and [the computation of] an internal rate of return for stocks. Netting out the riskfree rate yields an equity risk premium. Given the index level on January 1, 2026, of 6845.5, and the expected cash flows that I computed on that date (using the dividends and buybacks in the trailing 12 months as my starting point, and growing them at the same rate as earnings), I obtain an expected return on stocks of 8.41%. Subtracting the US 10-year T Bond rate of 4.18% on that day yields an equity risk premium of 4.23% for the US. [Taking into account the May 2025 downgrade of US sovereign debt from AAA to AA1 and subtracting the implied 23bp default premium from the T Bond lowers the riskless nominal rate to 3.95 and raises the ERP to 4.46]. Unlike the end of 1999, when the ERP got as low as 2.05%, the current ERP is more in the middle of the historic range.

Takeaways by Macro Roundup® AI

  1. Damodaran computes an implied equity risk premium of 4.23% for US stocks on January 1, 2026, from an expected return of 8.41% at an index level of 6845.5 minus the 4.18% US 10-year Treasury bond rate.
  2. Adjusting for the May 2025 downgrade of US sovereign debt from AAA to AA1 by subtracting an implied 23bp default premium lowers the riskless nominal rate to 3.95% and raises the equity risk premium to 4.46%.
  3. The current implied equity risk premium sits in the middle of its historic range, unlike the end of 1999, when Damodaran's measure fell as low as 2.05%.

Related Articles:

  • Stocks Near Highest Valuations Since 1880 — The cyclically adjusted price-earnings ratio, which divides stock prices by the average of the past 10 years of inflation-adjusted earnings to smooth business-cycle swings, stands near its highest level since 1880. Because it uses a decade of earnings rather than one year, it is a gauge of sustainable earnings power.
  • Smothering Heights — The four largest cloud computing firms are devoting rising shares of revenue to capital spending and research, with Meta's combined share reaching 70%. Unlike past investment booms, this one has been financed mostly from internal cash flow: 28 direct AI stocks make up 50% of S&P 500 market value but just 5% of its net debt.
  • American Unexceptionalism — The S&P 500 has outperformed other developed-market equities by a cumulative 150% over the past fifteen years, but the authors attribute about 80% of that gap to a strengthening dollar and expanding relative valuations rather than fundamentals such as dividends, buybacks, and organic growth. U.S. valuations sit around the 90th percentile on price-to-earnings measures.

AI Summary. All of the increase in the S&P 500's operating margin over the past 20 years has come from tech-related sectors — information technology, communication services and consumer discretionary — while operating margins for non-tech companies have stayed near 9%.

Torsten Sløk Apollo
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Since 2007, the S&P 500’s operating margins have grown 4pp to 16% as a share of revenue. All of the increase has come from tech-related sectors. Operating margins for non‑tech firms have been stable at ~9%.

Is all S&P 500 margin expansion coming from tech sectors?

Core argument: All of the increase in the S&P 500's operating margin over the past 20 years has come from tech-related sectors, defined as communication services, consumer discretionary and information technology.

Operating margin measures the share of revenue left after covering operating expenses such as wages, materials and overhead. The chart shows that over the past 20 years, all of the increase in the S&P 500’s operating margin has come from tech‑related sectors [Tech related includes communication services, consumer discretionary and information technology], while operating margins for non‑tech companies have stayed near 9%.

Takeaways by Macro Roundup® AI

  1. All of the increase in the S&P 500's operating margin over the past 20 years has come from tech-related sectors, defined as communication services, consumer discretionary and information technology.
  2. Operating margins for non-tech S&P 500 companies have stayed near 9% over the past 20 years.
  3. Operating margin measures the share of revenue remaining after operating expenses such as wages, materials and overhead.

Related Articles:

  • Concentrated Growth: The Role Of The IT Sector — Since 1988, total factor productivity in the information technology sector has risen about 178%, versus about 12% across all non-IT sectors combined, while aggregate productivity rose about 40%. The IT sector accounts for roughly 45% of cumulative aggregate productivity growth, once sectoral linkages to downstream industries are weighted in.
  • Smothering Heights — The four largest cloud computing firms are devoting rising shares of revenue to capital spending and research, with Meta's combined share reaching 70%. Unlike past investment booms, this one has been financed mostly from internal cash flow: 28 direct AI stocks make up 50% of S&P 500 market value but just 5% of its net debt.
  • End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns — The authors estimate that declining interest and corporate tax rates accounted for over 40% of real corporate profit growth from 1989 to 2019, while falling risk-free rates explain the entire expansion in price-to-earnings multiples. Real earnings before interest and taxes grew slightly more slowly than in 1962–1989, at 2.2% versus 2.4% per year.

AI Summary. Yields on Japan's 30-year government bonds have exceeded those in Germany and China, with Goldman Sachs suggesting they could eventually match equivalent US Treasury yields. Absent a policy shift in Japan, one asset manager projects the 10-year yield could jump at least 1.25 percentage points to 3.5%.

Mia Glass, Ruth Carson, and John Cheng Bloomberg
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Early in 2025, Japan’s 30-year yield was 300bp below the average yield on developed-market bonds. Over the last year that gap has ~halved. Currently Japanese investors own ~$5T of foreign assets.

Are rising Japanese bond yields a risk for global markets?

Core argument: Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management, said Japan's 10-year government bond yield may jump at least 1.25 percentage points to 3.5% absent a policy shift in Japan.

Yields on 30-year JGBs were above those in Germany and China by last year. A recent trading note from Goldman Sachs suggests that at some point the yield will climb to mirror that of the equivalent Treasury. The march higher is also evident on the closely watched 10-year bond — a benchmark that is so pivotal to borrowing costs across financial markets that it was a cornerstone of the BOJ’s former yield-curve control regime. Without some kind of policy shift in Japan, the 10-year yield may jump at least 1.25 percentage points to hit 3.5%, said said Masayuki Koguchi [executive chief fund manager at Mitsubishi UFJ Asset Management].

Takeaways by Macro Roundup® AI

  1. Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management, said Japan's 10-year government bond yield may jump at least 1.25 percentage points to 3.5% absent a policy shift in Japan.
  2. Yields on 30-year Japanese government bonds exceeded those in Germany and China by last year, and a Goldman Sachs trading note suggests the yield will at some point climb to mirror the equivalent Treasury.
  3. Japan's 10-year government bond yield is also marching higher, a benchmark so pivotal to borrowing costs across financial markets that it was a cornerstone of the Bank of Japan's former yield-curve control regime.

Related Articles:

  • Five Charts On The Global Bond Market Sell-Off — Japan's debt overhang remains unaddressed, and the argument is that the yen is only in the early stages of debasement, with further depreciation ahead. On this view, the decoupling between interest rate differentials and the yen has much further to run, and policy will change only once yen devaluation forces it.
  • Is Japan “Normal” Again? — Yields on long-term Japanese government debt have risen to their highest since the 1990s while the yen remains cheap relative to its history. One benign reading is that Japan has exited post-bubble stagnation, with modest inflation and faster wage and income growth aligning with higher interest rates.
  • Japan’s Debt Puzzle: Sovereign Wealth Fund from Borrowed Money — Japan's public sector operates as a highly leveraged sovereign wealth fund, funding risky assets by borrowing from banks and depositors at below-market rates, with returns sustaining its debt-to-GDP ratio above 200% without primary surpluses. The authors argue the resulting duration and currency mismatches expose Japan to mark-to-market losses that could trigger a fiscal crisis or a run on the yen.

AI Summary. The historical relationship in which gold prices fall as real 10-year Treasury yields rise has broken down, since gold pays no interest and would normally become less attractive as rates rise. The author argues this reflects a "debasement trade," with investors seeking safe havens on fears governments will inflate away unsustainable public debt.

Robin Brooks Robin Brooks Substack
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Gold has risen 50% since Powell’s Jackson Hole speech. Identifying a breakdown of the historical relationship between gold and the real 10-year yield, Brook notes “Historically, gold prices fall when real rates rise.”

Why has gold stopped falling when real interest rates rise?

Core argument: The historical inverse relationship between gold prices and real 10-year Treasury yields has broken down, which the author characterizes as a structural break in the debasement trade.

Gold is a symptom of something much bigger. We’re at the start of a global debt crisis, with markets increasingly fearful governments will attempt to inflate away out-of-control debt. Gold is just one of many assets that are getting a “safe haven” bid as part of this phenomenon. The debasement trade is a “structural break:” the black line in the chart shows the natural log of the XAU/$ gold price in Bloomberg, while the blue line shows the real 10-year Treasury yield, which I have inverted and am showing on the right axis. Historically, gold prices fall when real rates rise. That makes sense because gold doesn’t pay interest, so the opportunity cost of holding it goes up when interest rates rise. The problem is that this relationship has broken down in spectacular fashion. The “fear factor” from unsustainable fiscal policy in so many countries is large. Countries with lots of public debt ignore this at their peril.

Takeaways by Macro Roundup® AI

  1. The historical inverse relationship between gold prices and real 10-year Treasury yields has broken down, which the author characterizes as a structural break in the debasement trade.
  2. Gold's rise reflects the start of a global debt crisis, according to the author, as markets increasingly fear governments will attempt to inflate away out-of-control debt.
  3. Gold is one of many assets receiving a safe-haven bid driven by a large fear factor from unsustainable fiscal policy in many countries, which heavily indebted governments ignore at their peril.

Related Articles:

  • Return of the Three-Headed Bond Monster Over Tokyo — Bloomberg's precious metals index, covering silver, platinum and palladium, stands at a level last seen in 1980, when repeated rounds of stagflation drove a crisis of confidence in government-issued currencies. Such a rally amid growth and moderate inflation signals something serious is amiss.
  • 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.
  • Brazil’s Slow-Burning Economic Crisis Might Be the U.S. Future — Brazil illustrates a feedback loop in which higher interest rates raise debt-servicing costs—now over 7% of GDP—which in turn lift risk premia and inflation expectations, making fiscal policy less sustainable still. U.S. long-term rates have not fallen despite Federal Reserve cuts, partly reflecting an $11tn debt increase and markets pricing the risk that debt is managed through higher inflation.

AI Summary. China's military newspaper has accused two top generals — the vice chair of the Central Military Commission and the People's Liberation Army's chief of staff — of trampling the "chairman responsibility system" that gives China's leader supreme decision-making power over the armed forces, alongside corruption charges.

Kathrin Hille, Demetri Sevastopulo and Joe Leahy Financial Times
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The two remaining professional officers on China’s Central Military Commission are under investigation by the CCP for undermining Xi’s control of the military. Only Xi and a political commissary now remain, giving Xi sole operational control.

Is China purging top generals to protect the leader's command authority?

Core argument: China's military accused Central Military Commission vice chair Zhang Youxia and CMC member Liu Zhenli, the People's Liberation Army's chief of staff, of having "severely trampled on and damaged the chairman responsibility system," which vests supreme military decision-making power in Xi Jinping.

China’s military has accused its top general of undermining the command authority of Xi Jinping, suggesting that ensuring the powers of the Chinese leader is behind a probe of Zhang Youxia announced on Saturday, rather than just charges of corruption. Zhang, vice chair of the Central Military Commission, and Liu Zhenli, another CMC member and the People’s Liberation Army’s chief of staff, had “severely trampled on and damaged the chairman responsibility system”, the military’s official newspaper PLA Daily said in an editorial published on Sunday. Under the Chinese constitution, the leader of the state and Chinese Communist Party (CCP) chairs the CMC and has supreme decision-making power over the military. This “chairman responsibility system” is designed to secure the party’s absolute control over the armed forces. The PLA mouthpiece’s editorial said the two generals had “seriously abetted political and corruption problems that affect the [Communist] party’s absolute leadership over the military and endanger the foundation of the party’s rule”.

Takeaways by Macro Roundup® AI

  1. China's military accused Central Military Commission vice chair Zhang Youxia and CMC member Liu Zhenli, the People's Liberation Army's chief of staff, of having "severely trampled on and damaged the chairman responsibility system," which vests supreme military decision-making power in Xi Jinping.
  2. A PLA Daily editorial framed the investigation of Zhang Youxia around the undermining of Xi Jinping's command authority rather than corruption charges alone.
  3. The PLA Daily said Zhang Youxia and Liu Zhenli "seriously abetted political and corruption problems" affecting the Communist Party's absolute leadership over the military and endangering the foundation of the party's rule.

Related Articles:

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