Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “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


Tuesday, April 7, 2026

AI Summary. About half of the 1990s gap between American and European hours worked had reversed by the end of the 2010s. The authors estimate US hours per person declined after the 2000s because of rising benefits for the non-employed—especially health benefits like Medicaid—while non-US hours rose with higher wages and lower work costs.

Serdar Birinci, Loukas Karabarbounis, and Kurt See National Bureau of Economic Research
Date Posted:
Is Database:
Database
Is Important:
Important

Work hours of Americans and Europeans were ~ equal in the early 1970s, but by the mid 1990s, Europeans worked much less than Americans. Half of this hours gap had vanished by 2019. The drop in US hours was collinear with an ~ doubling of Medicaid enrollment.

Why has the gap in hours worked between Americans and others narrowed?

Core argument: About half of the U.S.–Europe gap in hours worked that opened by the 1990s had reversed by the end of the 2010s, with the convergence concentrated on the extensive margin and observed for both men and women.

Whereas Americans and Europeans were working roughly the same hours in the early 1970s, by the mid 1990s, Americans were working much more than Europeans. We update Prescott’s observations on hours worked for advanced economies and document that about half of the hours gap in the 1990s has reversed by the end of the 2010s. While the decline in the U.S. hours is well documented in the literature, the increase in non-U.S. hours in the past two decades, both relative to the United States and in absolute levels, has not yet been analyzed systematically. The convergence in hours worked is concentrated on the extensive margin and is observed for both men and women. We offer a comparative study on the convergence of hours worked and ask, “Why do Americans no longer work so much more than non-Americans?” [Employing both nonstructural correlation analysis and a structural model of labor supply, we suggest that] U.S. hours per person declined after the 2000s because of the rise of benefits provided to the non-employed. Among these benefits, we find the most important role for health benefits and, in particular, Medicaid. For non-U.S. countries, the rise of labor supply is generally accounted for by a rise of wages and falling fixed costs and disutility of work.

Takeaways by Macro Roundup® AI

  1. About half of the U.S.–Europe gap in hours worked that opened by the 1990s had reversed by the end of the 2010s, with the convergence concentrated on the extensive margin and observed for both men and women.
  2. The authors attribute the post-2000s decline in U.S. hours per person to the rise of benefits provided to the non-employed, assigning the most important role to health benefits and, in particular, Medicaid.
  3. Rising labor supply outside the United States is generally accounted for by higher wages and falling fixed costs and disutility of work, according to the authors' correlation analysis and structural model of labor supply.

Related Articles:

  • Hours Worked and Lifetime Earnings Inequality — US survey data show large differences in lifetime hours of work, and a calibrated model of labor supply and human capital accumulation implies that nearly 20% of the variance in lifetime earnings is accounted for by these differences, with 90% of that effect due to heterogeneity in preferences for work.
  • Comparing EU-to-US Output Per Hour — European Union output per hour worked has risen from about 72% of the US level in the early 2000s to about 82%. The EU's 28% shortfall in GDP per capita versus the US is roughly two-thirds attributable to lower output per hour and one-third to fewer hours worked; Germany's shortfall reflects fewer hours alone.
  • Europeans ‘Less Hard-Working’ Than Americans, Says Norway Oil Fund Boss — Norway's sovereign wealth fund argues that American companies are outpacing European rivals on innovation and technology because the US more readily accepts failure and risk and because Americans work harder and are more ambitious. US shares now make up almost half of the fund's equity holdings, up from 32% a decade earlier, while UK holdings fell from 15% to 6%.

AI Summary. The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.

IMF Staff International Monetary Fund
Date Posted:
Is Database:
Database

As of 2024, the US, China, Germany, and Japan accounted for ~2/3 of total global imbalances (the sum of the absolute value of each economy’s current account deficit and surplus). The US CA deficit is between 0.8 and 1% of world GDP.

How persistent are global current account imbalances and which economies drive them?

Core argument: The US, China, Germany, and Japan together account for roughly two-thirds of global imbalances, with the US deficit equal to 4% of GDP in 2024, financed by capital inflows and portfolio investors seeking dollar assets.

Four economies—the US, China, Germany, and Japan—account for roughly two-thirds of global imbalances. The US deficit—equivalent to 4% of GDP as of 2024—has been financed by capital inflows and portfolio investors seeking dollar assets. Germany and Japan’s surpluses have been driven by high saving rates, joined by substantial surpluses in China beginning in the 2000s. Oil-exporting countries’ surpluses fluctuate with commodity prices, creating episodic contributions to global imbalances. In earlier decades, surpluses and deficits were more cyclical: countries moved in and out of surplus depending on business cycles, commodity shocks, and exchange rate movements. While there is no standard definition of persistence, the average duration of a deficit or surplus spell roughly doubled since the 1980s. Persistent surpluses over the past two decades have accumulated into very large net foreign asset positions for economies such as China, Germany, and Japan, with each holding net foreign assets equivalent to 3–3.5% of global GDP in 2024. Similarly, persistent deficits have built up into large net liability positions, most notably in the US where the NIIP stands at about -25% of global GDP in 2024, underscoring the central role of the US position in global balances (Figure 6).

Takeaways by Macro Roundup® AI

  1. The US, China, Germany, and Japan together account for roughly two-thirds of global imbalances, with the US deficit equal to 4% of GDP in 2024, financed by capital inflows and portfolio investors seeking dollar assets.
  2. The average duration of a deficit or surplus spell roughly doubled since the 1980s, when countries moved in and out of surplus with business cycles, commodity shocks, and exchange rate movements.
  3. China, Germany, and Japan each held net foreign assets equivalent to 3–3.5% of global GDP in 2024, while the US net international investment position stood at about -25% of global GDP.

Related Articles:

  • The Dangerous Triumph Of Neo-Mercantilism — Neo-mercantilism is thriving in both China, which pairs infant-industry promotion with large trade surpluses, and in a United States focused on external deficits and protecting domestic markets. The author argues this will likely fracture the world economy, and that a new multilateral treaty could include a mechanism to combat large structural trade surpluses.
  • Debt, Deficits & Global Imbalances — Taxes or restrictions on short-term capital inflows were argued to be a more direct and potentially superior tool than tariffs for shrinking the trade deficit, since tariffs risk retaliation and supply-chain distortions. Proponents said such measures could reduce reliance on household and government borrowing to sustain employment, if paired with efforts to strengthen domestic demand and tradables capacity.
  • US Notches One of Its Biggest Annual Trade Gaps Since 1960 — The US goods and services trade deficit reached $901.5bn for the year, one of the largest in data going back to 1960. US companies increased imports of computers and accessories by nearly $145bn from the prior year, an acceleration in demand that reflects large-scale artificial intelligence investment.

AI Summary. Using occupation-level federal labor data, the authors estimate that employment growth among computer programmers — an occupation heavily exposed to artificial intelligence — has been 3% lower since the release of ChatGPT, after controlling for industry-level shocks. They note this may reflect reallocation of tasks across occupations.

Leland Crane and Paul Soto Federal Reserve Board
Date Posted:

Controlling for industry-level shocks, coder employment growth is about 3pp lower than it was prior to the release of ChatGPT in November 2022.

Is AI displacing programmers rather than augmenting their work?

Core argument: Computer programmer employment growth has been 3% lower since ChatGPT's November 2022 release, after controlling for industry-level shocks, according to the authors' analysis of O*NET and CPS occupation-level data.

This paper leverages occupation level data from O*NET and the CPS to measure the impact of ChatGPT’s release in November 2022 on employment in computer programming, an occupation heavily exposed to AI. We find robust evidence that coder employment growth fell after that release. After controlling for industry-level shocks we find that coder employment growth has been 3% lower since the introduction of ChatGPT. This may reflect reallocation of tasks across occupations and we cannot control for all the relevant factors. Nonetheless, it suggests that AI is having a significant impact on this group of workers.

Takeaways by Macro Roundup® AI

  1. Computer programmer employment growth has been 3% lower since ChatGPT's November 2022 release, after controlling for industry-level shocks, according to the authors' analysis of O*NET and CPS occupation-level data.
  2. The authors find robust evidence that coder employment growth fell following ChatGPT's introduction, in an occupation they identify as heavily exposed to AI.
  3. The authors note the estimated decline may reflect reallocation of tasks across occupations and that they cannot control for all relevant factors, while arguing it suggests AI is having a significant impact on coders.

Related Articles:

  • Looking for the Ladder — The article argues that the hiring downturn in occupations most exposed to generative AI reflects interest-rate sensitivity rather than AI itself, since roughly 38% of workers in the most AI-exposed quintile work in information, finance and insurance, and professional and technical services, versus under 2% in the least-exposed quintile.
  • AI and the Fable of the ATMs — Bank tellers per branch fell steadily as automated teller machines spread, and total teller employment held up only because banking deregulation drove a rise in branch numbers; teller jobs are down nearly 40% from their peak. The author argues invoking this case for AI requires identifying an equivalent offsetting source of labor demand.
  • Tech Has Never Caused a Job Apocalypse. Don’t Bet on It Now — Labor Department data analyzed by researchers show the number of software developers up 5% year over year, a pace largely consistent with the past 23 years, while computer programmers declined slightly in line with a decades-long trend. The median young computer science graduate earned 63% more than the typical young graduate in 2024, up from 47% in 2009.

AI Summary. The widely cited estimate that the top 10% of US earners account for 45% of consumer spending comes from a method combining Federal Reserve survey and financial-accounts data. Its author says he is more confident in the trajectory—a significant, consistent rise in the top 10% and 20% shares over 30–35 years—than the level.

Justin Fox Bloomberg
Date Posted:
Is Database:
Database

Moody’s claim that the top 10% of Americans by income drove 45.8% of consumer spending in 2025 may be overstated. After taxes, the income share of the top 10% is only ~30–37%. But top earners also had big wealth gains, and “wealth effects are important.”

Has consumer spending grown more concentrated among top earners?

Core argument: Mark Zandi says he would not "die on the hill" of the estimate that the top 10% account for 45% of US consumer spending, but would fight hard that the top 10% and top 20% shares have risen significantly and consistently over the past 30–35 years.

“I feel more confident in the historical trajectory than I do in the actual levels,” said Mark Zandi, keeper of the spreadsheet that churns out its quarterly consumer spending estimates. “I wouldn’t die on the hill of the top 10% accounting for 45% of the spending, but I would fight hard that the share that’s going to folks in the top 10%, top 20% has risen significantly and consistently over the past 30, 35 years.” The method Zandi uses to estimate consumer spending combines data on asset holdings by income from the Federal Reserve’s triennial Survey of Consumer Finances with data on asset flows from its quarterly Financial Accounts of the US. The idea to merge the two originally came from then Fed Chairman Alan Greenspan in the late 1990s.“My understanding is he actually sketched it out on a napkin on an airplane flight,” said economist Dean Maki, who along with his Fed colleague Michael Palumbo was charged with making Greenspan’s idea operational and using it, in 2001, to estimate the “wealth effect” on consumer spending during the 1990s stock market boom. “One thing I learned from doing that research back when I was at the Fed was that wealth effects are important,” said Maki, now chief economist at asset manager Point72. “They were an important driver of consumer spending then and they still are today.”

Takeaways by Macro Roundup® AI

  1. Mark Zandi says he would not "die on the hill" of the estimate that the top 10% account for 45% of US consumer spending, but would fight hard that the top 10% and top 20% shares have risen significantly and consistently over the past 30–35 years.
  2. Zandi's consumer spending estimates combine asset holdings by income from the Federal Reserve's triennial Survey of Consumer Finances with asset flow data from its quarterly Financial Accounts of the US, an approach originally proposed by then-Fed Chairman Alan Greenspan in the late 1990s.
  3. Dean Maki, who with Fed colleague Michael Palumbo operationalized Greenspan's idea in 2001 to estimate the wealth effect during the 1990s stock market boom, says wealth effects were an important driver of consumer spending then and remain so today.

Related Articles:

  • Top 10% of Earners Drive a Growing Share of US Consumer Spending — An analysis of Federal Reserve data found the top 10% of US earners accounted for 49.2% of total consumer spending, up from 48.5% the prior quarter and the highest share in data going back to 1989. Spending by the bottom 80%, those making under roughly $175,000, has merely kept pace with inflation.
  • K-Shaped Economy? — Available spending data does not support the narrative of a bifurcated "K-shaped" consumer economy: surveys show households earning under $50,000 reported spending growth of 5%, versus 4.6% for those earning over $100,000. Government data show the top income decile's share of aggregate spending at 22.8%, down from 23.4% a year earlier.
  • What’s Missing in the Fed’s Data about Ultrarich Portfolios — The Federal Reserve's Distribution of Financial Accounts defines "private business" narrowly as proprietor's equity in noncorporate, nonfinancial businesses, excluding S-corporations, other private corporations, and private equity and hedge fund partnerships, which are lumped into "corporate equities." The Survey of Consumer Finances instead shows private business is roughly 45–50% of top 0.1% wealth.

AI Summary. The Starship heavy-lift rocket would make it possible to pre-position conventional munitions in low Earth orbit, with heat shields and inertial guidance, that could be deorbited with little warning to strike anywhere on Earth within minutes. Such a system would allow thousands of simultaneous precise strikes without aircraft or personnel at risk, removing the need to first establish air superiority.

Michael Hochberg Wall Street Journal
Date Posted:

Michael Hochberg estimates pre-positioning conventional weapons in orbit will become cost-effective at ~$100 a kilogram, which Starship Heavy could deliver. Currently, the cheapest launch platform is Falcon Heavy at ~$1,500 a kilogram.

Can orbiting weapons strike thousands of targets within minutes?

Core argument: Starship would allow the U.S. to pre-position conventional munitions in low Earth orbit with ablation shields and inertial guidance systems, enabling strikes anywhere on Earth within minutes.

Starship will make it possible to use low Earth orbit as a parking lot for a giant space-based arsenal. This would allow the U.S. to pre-position conventional munitions with ablation shields and inertial guidance systems to strike anywhere on Earth within minutes. New kinds of strikes would become feasible. Imagine a strike package of thousands of 200-pound bombs, each landing precisely, at the same time, on electric grid sites, government buildings, railway crossings, border stations and road intersections—without putting planes or military personnel at risk. This wouldn’t be limited by the number of available missile launchers or by the need for multiple sorties by strike aircraft. Such a system would obviate the need to establish air superiority before bringing in bombers and the need for large numbers of expensive cruise missiles. From an appropriately chosen low Earth orbit, munitions could be deorbited with very little warning.

Takeaways by Macro Roundup® AI

  1. Starship would allow the U.S. to pre-position conventional munitions in low Earth orbit with ablation shields and inertial guidance systems, enabling strikes anywhere on Earth within minutes.
  2. A strike package of thousands of 200-pound bombs could hit electric grid sites, government buildings, railway crossings, border stations and road intersections precisely and at the same time, without risking planes or military personnel.
  3. Orbital munitions would not be limited by the number of available missile launchers or by repeated strike-aircraft sorties, and would obviate the need to establish air superiority before bringing in bombers or to field large numbers of expensive cruise missiles.

Related Articles:

  • Has Starlink Already Won the New Space Race? — Starlink has launched more than 8,417 satellites, 39% of all satellites launched since the first artificial satellite reached orbit, and its roughly 7,300 operational satellites make up almost two-thirds of all operational spacecraft. It delivers low-latency broadband to over 5mn customers in 125 countries and is projected to generate $12bn in revenue and $2bn in free cash flow this year.
  • It’s Not a Space Race, It’s the Space Olympics — The US operates 81% of commercial satellites in orbit and 86% of global effective launch capacity, with NATO allies second in satellites at 11% and China second in launch capacity at 9%. China is pursuing mega satellite constellations and reusable rockets, in many cases copying approaches already proven by US companies.
  • Building an Enduring Advantage in the Third Space Age — The United States and China each logged their highest-ever annual launch rates, at 103 and 66 launches, while Russia fell to 19 and Europe recorded three. The US accounted for roughly half of global launches but 81% of effective launch capacity, since Falcon 9 and Falcon Heavy comprised 93% of US launches.

Wednesday, April 8, 2026

AI Summary. Anthropic says its Claude Mythos Preview model can autonomously conduct security research, including finding and exploiting previously unknown software flaws, often prompted by amateurs. The company claims the model has identified thousands of bugs across major operating systems and browsers, including a 27-year-old flaw in the OpenBSD operating system.

Kevin Roose New York Times
Date Posted:

Anthropic’s latest model is capable of identifying previously unknown security vulnerabilities in software. The new model has been given to major technology companies to “find and patch security vulnerabilities in critical software programs.”

Can AI models autonomously uncover software vulnerabilities that existing tools miss?

Core argument: Anthropic claims Claude Mythos Preview has identified "thousands" of bugs and vulnerabilities in popular software, including every major operating system and browser.

[Anthropic] executives say Claude Mythos Preview is already capable of carrying out autonomous security research, including scanning for and exploiting so-called zero-day vulnerabilities in critical software programs, flaws that are unknown even to the software’s developer. These efforts can often be triggered by amateurs with simple prompts. The company claims that the new model has already identified “thousands” of bugs and vulnerabilities in popular software programs, including every major operating system and browser. One of the vulnerabilities Claude found, the company said, was a 27-year-old bug in OpenBSD, an open-source operating system that was designed to be difficult to hack. Many internet routers and secure firewalls incorporate OpenBSD’s technology. Another was a longstanding issue in a piece of popular video software that automated testing tools had scanned five million times, without finding any problems.

Takeaways by Macro Roundup® AI

  1. Anthropic claims Claude Mythos Preview has identified "thousands" of bugs and vulnerabilities in popular software, including every major operating system and browser.
  2. Anthropic executives say Claude Mythos Preview can autonomously scan for and exploit zero-day vulnerabilities — flaws unknown even to a software's developer — often triggered by amateurs using simple prompts.
  3. Among the flaws Anthropic says Claude found were a 27-year-old bug in OpenBSD, whose technology is used in many internet routers and secure firewalls, and a longstanding issue in video software that automated testing tools had scanned five million times without detecting.

Related Articles:

  • Claude Code is the Inflection Point — Claude Code authors 4% of public GitHub commits, and the authors project it will reach 20%+ of daily commits by the end of 2026 and drive revenue growth that lets Anthropic outgrow OpenAI. They argue falling costs and rising quality of AI tokens have inverted the coder-tool relationship.
  • Emerging Details of Chinese Hack Leave U.S. Officials Increasingly Concerned — U.S. intelligence and national security officials have told major telecommunications companies to find a permanent way to expel Chinese hackers from the deepest parts of the nation's communications networks. Critical parts of the system date to the late 1970s or early 1980s and are too old to upgrade with modern cybersecurity protections.
  • Society’s Technical Debt and Software’s Gutenberg Moment — Every wave of technological innovation has been unleashed by something costly becoming cheap enough to waste, and large language models are collapsing the cost and complexity of producing software. The authors argue that decades of underproduced software have left society with immense technical debt that is poised to contract, releasing a wave of innovation.

AI Summary. Annual default rates of 10% for private credit direct lending are within the historical range, and with recovery assumptions implying roughly 50% losses given default, realized losses could run near 5% a year, or 10%+ for weaker credits. Many private credit funds are slow to mark down loans while allowing redemptions at 100 cents on the dollar.

Greg Obenshain Verdad
Date Posted:

Obenshain argues the stress in direct lending isn’t a default story but a flow story, which rhymes with how the junk bond market behaved in the early 1990s. “First, we need the outflows. Then the markdowns. Then come the defaults and the surprises.”

Are private credit funds valuing risky loans above what history supports?

Core argument: Annual default rates of 10% for private credit direct lending fall within the historical range, and at 50% loss given default that would imply realized default losses of 5% per year for a few years, rising to 10% or more for CCC-quality loans.

We don’t know where the default rate will go for private credit direct lending, but spikes to annual default rates of 10% are well within the historical range. And the highly levered, unitranche loans we are concerned with are not the same kind of secured loans that are in the Moody’s historic loss dataset. A better estimate may be losses on unsecured bonds, which have averaged 68%. If we split the difference, that would imply 50% losses given default. If default rates spike to 10%, realized default losses could run at 5% for a few years. For loans that are closer to CCC quality, those losses could run at or above 10% per year. These kinds of default losses are not unprecedented. According to Moody’s, the realized loss rate on single B bonds in 1990 was 8.5%, and in 1991 it was 8.3%. Right now, many private credit funds are slow to mark down their loans yet offer investors the ability to redeem their investments at 100 cents on the dollar. On average, single B debt does not trade at 100 cents on the dollar, and in times of stress can trade much lower. The redemption pressure we are seeing is completely rational. Private credit funds are offering to pay 100 cents on the dollar for assets that historically do not maintain that mark.

Takeaways by Macro Roundup® AI

  1. Annual default rates of 10% for private credit direct lending fall within the historical range, and at 50% loss given default that would imply realized default losses of 5% per year for a few years, rising to 10% or more for CCC-quality loans.
  2. Losses on unsecured bonds have averaged 68%, which may be a better estimate than Moody's historic secured-loan loss dataset for highly levered unitranche loans, with 50% loss given default splitting the difference.
  3. Moody's puts the realized loss rate on single B bonds at 8.5% in 1990 and 8.3% in 1991, indicating such default losses are not unprecedented.

Related Articles:

  • JPMorgan Marking Down Loan Portfolios Of Private Credit Groups — JPMorgan has marked down the value of certain loans in private credit funds' portfolios that serve as collateral for the funds' borrowing from the bank, limiting how much it will lend against them. Unlike most banks, which require triggers such as missed interest payments, JPMorgan reserves the right to revalue those assets at any time.
  • Private Credit: Characteristics and Risks — Private credit loans are negotiated bilaterally outside traditional regulatory requirements and are illiquid because no secondary market exists, leaving investors expected to hold them to maturity or face steep losses if they need to exit. Scarce data on this growing form of nonbank lending makes assessing its risks difficult.
  • 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. The direct lending market is roughly $2tn, or about 3% of total US household and business debt outstanding, compared with mortgages accounting for about 60% of total household and corporate debt at the peak of the housing bubble.

Torsten Sløk Apollo
Date Posted:
Is Database:
Database

Torsten Sløk notes the direct lending market is ~$2T or 3% of household and non-financial debt outstanding. To provide context, he shows that in 2006, on the eve of the crisis, mortgages accounted for ~60% of such debt.

Is direct lending too small to threaten the financial system?

Core argument: The direct lending market totals roughly $2 trillion, about 3% of total debt outstanding for US households and businesses.

The direct lending market is roughly $2 trillion, or about 3% of total debt outstanding for US households and businesses. By comparison, mortgages accounted for about 60% of total household and corporate debt at the peak of the housing bubble in 2006.

Takeaways by Macro Roundup® AI

  1. The direct lending market totals roughly $2 trillion, about 3% of total debt outstanding for US households and businesses.
  2. Mortgages accounted for about 60% of total US household and corporate debt at the peak of the housing bubble in 2006, compared with direct lending's roughly 3% share.

Related Articles:

  • JPMorgan Marking Down Loan Portfolios Of Private Credit Groups — JPMorgan has marked down the value of certain loans in private credit funds' portfolios that serve as collateral for the funds' borrowing from the bank, limiting how much it will lend against them. Unlike most banks, which require triggers such as missed interest payments, JPMorgan reserves the right to revalue those assets at any time.
  • Data Update 7 for 2026: Debt and Taxes — The author argues that companies are collectively over-investing in artificial intelligence and that markets will correct when that belief dissipates. Because debt, particularly private credit, now finances much of this investment, the author contends a correction would spread beyond equity holders and produce a banking-style crisis driven by non-bank lenders.

AI Summary. Among major economies, the UK has the highest 30-year government bond yield differential, which jumped during the 2022 liability-driven investment crisis and never normalized, leaving a gradually growing risk premium priced in. Japan's differential remains negative and far below other countries, which the author argues explains the weak yen and expects further declines.

Robin Brooks Robin Brooks Substack
Date Posted:

Brooks argues the 30-year trade-weighted differential of several advanced economies suggests, “Japan is in trouble, as is the UK and much of the Euro periphery…The US is the cleanest shirt in the hamper.”

How do long-term bond yield gaps reveal which countries lack fiscal space?

Core argument: The UK has the highest 30-year government bond yield differential of the countries compared, with the gap jumping during the 2022 LDI blow-up and never normalizing, leaving a permanent risk premium that is gradually growing.

The left chart shows monthly data for 30-year government bond yields. The right chart shows the corresponding 30-year yield differentials. A couple of points are worth making. First, the UK has the highest differential, so has the biggest problem. What’s interesting is that its differential jumped during the LDI blow-up in 2022 and never normalized. A permanent risk premium has been priced in and is gradually growing. Second, as much as Japan’s differential has risen, it remains negative and far below most other countries. This - in a nutshell - is why the Yen is so weak and in my opinion will keep falling. Japan’s long-term yields are still far below where they should be given the monstrous level of public debt. Third, without ECB yield caps with things like the Transmission Protection Instrument (TPI) and verbal as well as actual intervention, much of the Euro periphery plus France would have long-term yields in the double digits. I’m glossing over that here, but the reality is that - without the ECB - much of the Euro zone would be in severe crisis.

Takeaways by Macro Roundup® AI

  1. The UK has the highest 30-year government bond yield differential of the countries compared, with the gap jumping during the 2022 LDI blow-up and never normalizing, leaving a permanent risk premium that is gradually growing.
  2. Japan's 30-year yield differential remains negative and far below most other countries despite rising, which the author identifies as the reason the Yen is so weak and expects it to keep falling.
  3. Without ECB yield caps such as the Transmission Protection Instrument and both verbal and actual intervention, much of the Euro periphery plus France would have long-term yields in the double digits, the author argues.

Related Articles:

  • $14 Trillion in IG Supply Coming to the Market — About $14tn of investment-grade fixed income supply is coming to market, combining roughly $10tn of US government debt to be refinanced over the next 12 months, a budget deficit near $2tn, and about $2tn of gross corporate bond issuance boosted by data-center builders. The author argues this growing supply is putting upward pressure on interest rates and credit spreads.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • Are Government Bonds Safe in Times of War and Pandemic? — Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.

AI Summary. Peacetime defense spending booms—when the two-year average of defense outlays rises 1pp of GDP—are followed by sizable increases in real GDP, government consumption, investment, and the capital stock, with a short-lived rise in inflation. Imports accelerate while exports are broadly unchanged, widening current account and trade deficits.

Hippolyte Balima, Jared Bebee, Colombe Ladreit, Andresa Lagerborg, et al. International Monetary Fund
Date Posted:
Is Database:
Database

An IMF report notes defense spending booms are associated with an increase in TFP “over longer horizons, consistent with evidence showing that the R&D component of defense spending can boost innovation and crowd in private R&D spending.”

How do defense spending booms affect output, inflation, and productivity?

Core argument: Peacetime defense spending booms, defined as a 1pp of GDP rise in the two-year moving average of defense spending, are followed by a sizable increase in real GDP, a short-lived rise in inflation, and a roughly 9% increase in government consumption within three years.

Defense spending booms [periods when the two-year moving average of defense spending increases 1pp of GDP] in peacetime are followed by a sizable increase in real GDP and by a short-lived rise in inflation. Consistent with a large share of the stimulus being allocated to personnel and operating expenses, government consumption rises by about 9% within three years. Total investment shows a comparable positive response, reflecting both higher public investment in defense equipment and infrastructure and increased private investment, particularly in defense-related industries. Turning to the external sector, stimulus-driven demand leads to wider external imbalances, as both the current account and trade balance deteriorate. Imports accelerate—reflecting leakages from defense spending and stronger demand for foreign goods—while exports remain broadly unchanged. Defense spending booms are associated with a subsequent increase in the stock of capital, in line with the documented boost to investment, and an increase in total factor productivity, which may be explained by changes in capacity utilization and learning by necessity, as firms adapt to surging demand by improving productivity when facing capacity constraints. Total factor productivity [loses] its statistical significance once capacity utilization is controlled for. However, defense spending booms are followed by greater total factor productivity over longer horizons, consistent with evidence showing that the R&D component of defense spending can boost innovation and crowd in private R&D spending.

Takeaways by Macro Roundup® AI

  1. Peacetime defense spending booms, defined as a 1pp of GDP rise in the two-year moving average of defense spending, are followed by a sizable increase in real GDP, a short-lived rise in inflation, and a roughly 9% increase in government consumption within three years.
  2. Defense spending booms widen external imbalances, with both the current account and trade balance deteriorating as imports accelerate on leakages from defense spending and stronger demand for foreign goods while exports remain broadly unchanged.
  3. Defense spending booms are associated with a subsequent increase in the capital stock and in total factor productivity, though the productivity effect loses statistical significance once capacity utilization is controlled for, while greater total factor productivity follows over longer horizons.

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 Cold War and the U.S. Labor Market — The authors estimate that declining U.S. military procurement spending from the 1950s to the 1990s explains roughly 18–30% of the decline in manufacturing employment and just under 10% of the rise in top-decile income inequality. They argue Cold War procurement raised demand for manufacturing workers and helped sustain tight labor markets for low-skill workers.
  • 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.