Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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 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
  • “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
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, May 18, 2026

AI Summary. China's export growth is concentrated in upstream, higher-tech goods: exports of intermediate inputs rose 26% and capital goods 32% between 2021 and 2024, while consumption goods exports were broadly flat. This shift embeds China deeper in global production systems and aligns with its long-running import substitution strategy of localizing entire value chains.

Camille Boullenois, Malcolm Black and Alessia Caruso Rhodium Group
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China’s exports of intermediate inputs rose 26% and of capital goods 32% from 2021 to 2024, while its exports of consumption goods were mostly flat, deepening China’s integration into global production systems by shifting to high-tech, upstream exports.

Is China shifting its exports toward upstream, higher-tech goods?

Core argument: China's exports of capital goods rose 32% and intermediate inputs 26% between 2021 and 2024, while exports of consumption goods remained broadly flat.

The aggregate growth in Chinese exports masks two important shifts: They are increasingly concentrated upstream in global value chains, and they are increasingly high-tech. China’s exports of intermediate inputs was up 26% between 2021 and 2024, while its exports of capital goods were up 32%. Meanwhile, exports of consumption goods have remained broadly flat. China is becoming further embedded in global production systems by shifting its exports away from final consumption goods and toward manufactured products that are used by firms in the manufacturing of other goods, such as chips or machines. This evolution is consistent with its long-running import substitution strategy, which has progressively localized entire value chains after initially relying on imported components for assembly.

Takeaways by Macro Roundup® AI

  1. China's exports of capital goods rose 32% and intermediate inputs 26% between 2021 and 2024, while exports of consumption goods remained broadly flat.
  2. China's aggregate export growth masks a shift upstream in global value chains and toward high-tech products such as chips and machines used by firms to manufacture other goods.
  3. China's shift toward upstream, high-tech exports is consistent with its long-running import substitution strategy, which has progressively localized entire value chains after initially relying on imported components for assembly.

Related Articles:

  • China Is Making Trade Impossible — Interviews with Chinese economists, technologists and business leaders yielded no clear answer to what products China would want to buy from the rest of the world in future, beyond commodities, luxury goods and higher education. The author argues China sees nothing it cannot eventually make better and cheaper itself, undermining trade as a two-way exchange.
  • China Is Reflating… — Chinese industries with the largest declines in fixed asset investment are also those with the largest increases in factory-gate producer prices, which the authors read as evidence that China's "anti-involution" campaign is curbing excess capacity and reflating manufacturing prices. If durable, this reflation would affect global prices through Chinese export prices.
  • The Real China Model — China generates more electricity annually than the United States and European Union combined, having added capacity equivalent to the United Kingdom's total supply each year. Electricity makes up nearly 30% of China's energy use, versus 22% in the US and 21% globally, and its share is growing about 6% a year.

AI Summary. Birth rates among teens and young adults in countries across the Americas, Europe, Africa and Asia began falling at different times, and each inflection point coincided with mass smartphone adoption in that market as measured by Google searches for mobile apps. The declines were most pronounced in the youngest age groups, mirroring smartphone usage patterns.

John Burn-Murdoch Financial Times
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The most striking finding in the global birth-rate collapse is that if one re-centers each country’s data by the year smartphones took off, every decline looks identical (US/UK 2007, France 2009, Mexico/Indonesia 2012, Nigeria/Senegal 2013–2015).

Do falling birth rates worldwide coincide with mass smartphone adoption?

Core argument: Birth rates for teens and young adults in the US, Britain and Australia were broadly flat in the early 2000s but fell markedly from 2007, with the same slide starting in France and Poland around 2009 and in Mexico, Morocco and Indonesia around 2012.

US, British and Australian birth rates for teens and young adults were broadly flat during the early 2000s but began to fall markedly from 2007. The same slide began in France and Poland around 2009, and in Mexico, Morocco and Indonesia around 2012. What had been steady declines in fertility in Ghana, Nigeria and Senegal became precipitous drops between 2013 and 2015. All of these inflection points coincided with the mass adoption of smartphones in local markets — as measured by Google searches for mobile apps. In country after country the birth rate plunged after the introduction of smartphones, no matter what the previous trend was. The younger the age group, the more pronounced the downturn — a mirror image of smartphone usage patterns.

Takeaways by Macro Roundup® AI

  1. Birth rates for teens and young adults in the US, Britain and Australia were broadly flat in the early 2000s but fell markedly from 2007, with the same slide starting in France and Poland around 2009 and in Mexico, Morocco and Indonesia around 2012.
  2. Steady fertility declines in Ghana, Nigeria and Senegal turned into precipitous drops between 2013 and 2015, and these inflection points coincided with mass smartphone adoption as measured by Google searches for mobile apps.
  3. Birth rates fell after smartphones were introduced regardless of the prior trend, with the downturn more pronounced in younger age groups, mirroring smartphone usage patterns.

Related Articles:

  • The Demographic Future of Humanity: Facts and Consequences — The authors estimate the world total fertility rate is around 2.17, below the global replacement rate of roughly 2.21, meaning humanity is already below replacement, with fertility and births falling faster than anticipated. They project middle-income countries' fertility may fall below that of rich countries outside East Asia, with emigration compounding population decline.
  • Depopulation Globally and in the Asia-Pacific: The Shape of Things to Come — Population aging and fertility below replacement levels are connected to a revolution in family structure in which families grow smaller, fewer people marry, and voluntary childlessness becomes common across countries. As a result, families become less able to bear the demands that may be placed on them.
  • The Collapse of Teen Fertility in the Digital Era — Teen fertility fell in countries with very different healthcare systems, welfare regimes, abortion laws, and religious traditions within roughly the same window, pointing to a global cause. Between 2007 and 2024 the US birth rate fell 71% among women 15–19 and 43% among those 20–24, while rising 9% among those 35–39.

AI Summary. Teen fertility fell in countries with very different healthcare systems, welfare regimes, abortion laws, and religious traditions within roughly the same window, pointing to a global cause. Between 2007 and 2024 the US birth rate fell 71% among women 15–19 and 43% among those 20–24, while rising 9% among those 35–39.

Nathan Hudson and Hernan Moscoso Boedo University of Cincinnati
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US birth rates over 2007–2024 were down 71% for women 15–19, 43% for those 20–24, and 23% for those 25–29, but up 9% for women 35–39. Hudson and Moscoso-Boedo argue that this monotone age gradient is the signature of a smartphone shock.

Does the worldwide drop in teen fertility share one cause?

Core argument: Between 2007 and 2024, the birth rate among women 15–19 fell 71 percent, 20–24 fell 43 percent, and 25–29 fell 23 percent, while the rate among women 35–39 rose 9 percent.

Teen fertility collapsed almost everywhere in the world starting around 2007. This is a striking fact. Countries with very different healthcare systems, welfare regimes, abortion laws, religious traditions, recessions, and demographic trends all saw similar breaks in the same window. Whatever caused it was something global—something that arrived in roughly the same form in all of these places at roughly the same time… between 2007 and 2024, the birth rate among women 15–19 fell by 71 percent, 20–24 by 43 percent, 25–29 by 23 percent, 30–34 by 1 percent, and 35–39 rose by 9 percent… U.S. teens reduced in-person socializing from 68 minutes per day in 2003 to 38 in 2019 while computer-leisure rose from 22 to 96 minutes… Under-18 conception rates accelerated from −1.3 percent per year pre-2007 to −8.9 percent post-2007, a 6.8x acceleration that nearly matches the U.S. 5.6x acceleration.

Takeaways by Macro Roundup® AI

  1. Between 2007 and 2024, the birth rate among women 15–19 fell 71 percent, 20–24 fell 43 percent, and 25–29 fell 23 percent, while the rate among women 35–39 rose 9 percent.
  2. Teen fertility broke downward around 2007 in countries with very different healthcare systems, welfare regimes, abortion laws, religious traditions, recessions, and demographic trends, indicating a cause that arrived globally in roughly the same form at roughly the same time.
  3. U.S. teens cut in-person socializing from 68 minutes per day in 2003 to 38 in 2019 while computer leisure rose from 22 to 96 minutes, and under-18 conception rates moved from −1.3 percent per year before 2007 to −8.9 percent after.

Related Articles:

  • The Happiness Crash of 2020 — Survey data show that after 2020 self-reported happiness fell across groups, compressing pre-existing differences — the black-white gap narrowed from 14 points to 6 — while the marital happiness premium of more than 30 points survived intact. Confidence in major public and private institutions declined nearly across the board, with double-digit drops common and losses spanning all parties and ideologies.
  • Why U.S. Test Scores Are in a ‘Generation-Long Decline’ — District-level test score data from the Educational Opportunity Project at Stanford show reading scores down over the past decade in 83% of districts with available data and math scores down in 70%, with declines spanning rich and poor districts and racial and geographic lines. Education experts attribute the declines to no single cause.
  • US College Students’ Well-Being — A study of US college students finds moderate-to-severe depression reported by 26% of students at one elite institution, 22% reporting moderate-to-severe anxiety and 10% contemplating suicide. Poorer mental health is associated with being female, little exercise, low grades, and financial aid; financial stress is associated with higher suicidal thoughts.

AI Summary. China's industrial policy is costly and wasteful, and China runs larger budget deficits relative to economic output than the U.S., with an economy outside advanced manufacturing weighed down by debt, deflation and aging demographics. Critics expect this approach to eventually collapse under its own contradictions, but it could persist longer than foreign competitors can remain solvent.

Greg Ip The Wall Street Journal
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In 2016, China controlled more than 50% of global export volumes in 163 industries. By 2024, 315 of ~ 2,000 categories tracked. Rhodium Group calls it the “industrial policy of everything.” Beijing’s latest five-year plan covers 24 priority sectors.

Can China sustain costly industrial policy longer than foreign competitors can survive?

Core argument: China runs larger budget deficits relative to economic output than the U.S., and cost and waste are the Achilles' heel of its industrial policy.

The Achilles’ heel of Chinese industrial policy is its cost and waste. China runs bigger budget deficits relative to economic output than the U.S. Outside advanced manufacturing, the economy is moribund, weighed down by debt, deflation and aging demographics. Many critics thus expect, even hope, that Chinese industrial policy will eventually implode under the weight of its own contradictions. But there is no guarantee that will happen soon. To paraphrase an adage about markets, China can stay irrational longer than foreign competitors can stay solvent.

Takeaways by Macro Roundup® AI

  1. China runs larger budget deficits relative to economic output than the U.S., and cost and waste are the Achilles' heel of its industrial policy.
  2. Outside advanced manufacturing, China's economy is moribund, weighed down by debt, deflation and aging demographics.

Related Articles:

  • 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.
  • Why Global Imbalances Matter — Countries running persistent trade surpluses, such as China, Germany and Japan, have built their economies around an excess supply of tradeable goods and services, leaving them dependent on deficit countries to absorb it. That dependence gives deficit countries bargaining power and exposes surplus countries to pressure to expand domestic demand.
  • China’s Next-Generation Industrial Policy — China's export growth is concentrated in upstream, higher-tech goods: exports of intermediate inputs rose 26% and capital goods 32% between 2021 and 2024, while consumption goods exports were broadly flat. This shift embeds China deeper in global production systems and aligns with its long-running import substitution strategy of localizing entire value chains.

AI Summary. The authors argue profits measure economic power because they show a firm can do what others can't, and by that metric U.S. firms dominate globally—with Japan and Europe significant and China second-tier—implying greater U.S. power than GDP or industrial output comparisons suggest. The gap favoring the U.S. is most pronounced in high-tech products.

Chris Miller Chris Miller's Newsletter
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Citing Brooks and Vagle, Miller argues profits are a better measure of economic power than output, and the US and its allies are ahead, especially in high tech. But, Miller asks, “Is perhaps profitability the right metric in peace but not in war?”

Do corporate profits measure national economic power better than GDP?

Core argument: Brooks and Vagle argue profit is evidence that a firm can do something others cannot, and their measurement of profits finds U.S. firms dominate, with Japan and Europe significant players and China a second-tier player.

Profit, [Brooks and Vagle] argue, is evidence that one company can do something others can’t. Monopolists have the highest profit. Oligopolists make good money. Manufacturers of toys and textiles have razor thin margins. When Brooks and Vagle measure profits, they find that U.S. firms dominate, while Japan and Europe remain significant players. China is a second-tier player. The U.S. and allies lead in profits across the board. When it comes to high tech products, the imbalance in America’s favor is particularly pronounced. If profitability is the result of power dynamics, then the U.S. is far more powerful than comparing GDP or industrial output implies. There are a couple of potential counterarguments. Is China pursuing a loss-leading strategy, accepting low profits in the short run to win market share in the long run? In solar power, China has commoditized the sector and produced overcapacity that has led to losses, not profits. There’s no moat in solar the way there is around tech. Is perhaps profitability the right metric in peace but not in war? China is betting that its production advantage will create more durable CATL-style moats that eventually enable both profit and power.

Takeaways by Macro Roundup® AI

  1. Brooks and Vagle argue profit is evidence that a firm can do something others cannot, and their measurement of profits finds U.S. firms dominate, with Japan and Europe significant players and China a second-tier player.
  2. The imbalance in America's favor is particularly pronounced in high-tech products, suggesting that, if profitability reflects power dynamics, the U.S. is far more powerful than comparisons of GDP or industrial output imply.
  3. China has commoditized solar power and produced overcapacity that has led to losses rather than profits, without the moat that surrounds tech, while betting its production advantage will create more durable CATL-style moats enabling both profit and power.

Related Articles:

  • The Real China Trump Card — Among the world's 2,000 largest companies, U.S. firms generated 38% of global profits and firms based in allied countries 35%, while Chinese firms including Hong Kong generated 16%. The U.S. leads in 20 of 27 industries and China in three, with profits used as a measure of economic chokepoints.
  • Underestimating China — China's productive capacity is three times that of the United States and exceeds the next nine countries combined, with its share of global manufacturing quintupling to 30% while the U.S. share halved to about 15%. The authors argue Washington must convert its alliances into a platform for pooled capacity building.
  • China’s Next-Generation Industrial Policy — China's export growth is concentrated in upstream, higher-tech goods: exports of intermediate inputs rose 26% and capital goods 32% between 2021 and 2024, while consumption goods exports were broadly flat. This shift embeds China deeper in global production systems and aligns with its long-running import substitution strategy of localizing entire value chains.

Tuesday, May 19, 2026

AI Summary. A ceasefire with Iran and reduced risk of extreme downside outcomes let markets compress risk premia, with US equities, high-carry and commodity currencies, and emerging markets recovering even as oil prices and yields stayed elevated. Shortages in commodities and the artificial intelligence supply chain are driving capital flows, pointing to higher volatility alongside further equity gains.

Dominic Wilson and Kamakshya Trivedi Goldman Sachs
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Goldman estimates the market is now pricing US growth at 2.5%, past their own 2027 forecast of 2.2%. After the Iran-ceasefire relief rally, AI-related equities are quietly taking credit for substantial macro benefits that haven’t been delivered yet.

Are shortages in commodities and AI supply chains driving markets higher?

Core argument: The Iran ceasefire and reduced deep downside tails have let markets compress risk premia across assets, a narrowing of the distribution often associated with sharp gains amid fundamental uncertainty.

The Iran ceasefire and the reduction in deep downside tails have allowed the market to look ahead and compress risk premia across a range of assets. That type of narrowing in the distribution is often associated with sharp market gains in situations of fundamental uncertainty, and this has proved to be the case again. Despite oil prices and yields staying elevated, a broad range of assets—including US equities, high carry/commodity FX, and EM—have recovered smartly, and renewed AI optimism has pushed those exposures to new cycle highs. The common element is that shortages—in commodities and the AI supply chain—are driving capital flows. Those tensions mean that even if we avoid the worst tails, we are likely to see volatility rise alongside further equity price increases.

Takeaways by Macro Roundup® AI

  1. The Iran ceasefire and reduced deep downside tails have let markets compress risk premia across assets, a narrowing of the distribution often associated with sharp gains amid fundamental uncertainty.
  2. US equities, high carry/commodity FX, and emerging markets have recovered despite elevated oil prices and yields, with renewed AI optimism pushing those exposures to new cycle highs.
  3. Shortages in commodities and the AI supply chain are driving capital flows, and those tensions point to rising volatility alongside further equity price increases even if the worst tails are avoided.

Related Articles:

  • Shattered Assumptions And The Energy Quandary — The author argues that energy, rather than fixed income, now serves as the true hedge to equity positions, pushing investors, companies and countries to review their energy allocations and policies. Chinese government bonds diversified equity risk when no other major bond market did, which the author attributes to China being the only major economy without a meaningful inflation problem.
  • Gold Heads for Longest-Ever Losing Streak on Iran War Turmoil — Gold is heading for an extended losing streak as the closure of the Strait of Hormuz and damage to Persian Gulf energy infrastructure send crude and natural gas prices surging, raising the prospect of higher interest rates from the Federal Reserve and other central banks.
  • Global Economics Comment: Global Economic Impacts of the War in Iran — The main economic risk to major economies from the war in Iran is that higher energy prices lift inflation and slow growth, with oil near $80/bbl, up 14% since late February. Analysts project oil moderating to $76/bbl and then $65/bbl as the risk premium fades in a structurally oversupplied market.

AI Summary. Foreign holdings of U.S. financial assets are valued at $69tn versus $41tn of U.S. holdings abroad, a gap that has been mounting for decades. With the net liability position in interest-bearing assets at -$15tn, a 1 percentage point rise in interest rates would subtract $150bn from the U.S. net investment income balance.

Matthew Higgins and Thomas Klitgaard Liberty Street Economics
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The US net international investment position worsened by about $16tn between 2019 and 2025, driven by roughly $5.5tn in net inflows and $10tn in valuation losses, as higher rates hit a larger net liability stock, raising interest rate-sensitivity.

How does a growing net liability position affect U.S. investment income?

Core argument: Official estimates put the current market value of foreign holdings of U.S. financial assets at $69tn, against $41tn of U.S. holdings of foreign assets, a shortfall that has been mounting for decades.

Foreign holdings of U.S. financial assets are immense, with official estimates putting their current market value at $69 trillion. U.S. holdings of foreign assets are also impressive but much smaller, at $41 trillion. The shortfall in U.S. foreign assets relative to foreign liabilities has been mounting for decades. Yet U.S. investment income receipts—in profits, dividends, and interest—comfortably exceeded income payments until recently. Payments on U.S. assets owned by foreign investors represent a servicing burden for the U.S. economy. Profits, dividends, and interest payments that would otherwise accrue to domestic investors instead flow abroad. Given the need to sell U.S. assets to finance ongoing trade deficits, this servicing burden seems likely to mount. The related buildup in the U.S. net liability position in interest-bearing assets will also make the income balance more sensitive to swings in interest rates. This increased sensitivity is already in evidence. At present, with the asset-liability gap at -$15 trillion, a 1 percentage point increase in U.S. and foreign interest rates would subtract $150 billion from the U.S. net income balance. (A 1pp fall in rates would result in a similar improvement.) Only five years ago, a 1 percentage point rise in rates would have subtracted $100 billion.

Takeaways by Macro Roundup® AI

  1. Official estimates put the current market value of foreign holdings of U.S. financial assets at $69tn, against $41tn of U.S. holdings of foreign assets, a shortfall that has been mounting for decades.
  2. With the U.S. asset-liability gap in interest-bearing assets at -$15tn, a 1 percentage point rise in U.S. and foreign interest rates would subtract $150bn from the U.S. net income balance, compared with $100bn five years ago.
  3. U.S. investment income receipts in profits, dividends, and interest exceeded income payments until recently, and the servicing burden on foreign-owned U.S. assets seems likely to mount given the need to sell U.S. assets to finance ongoing trade deficits.

Related Articles:

  • Understanding Global Imbalances — 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.
  • Tariffs and “International Payments Problems” — Foreigners are accumulating more financial claims on Americans than Americans are on foreigners across direct investment, stocks, bonds, currency, deposits, and loans, and the U.S. net international investment position has moved from -20% of GDP in 2010 to -89%. Almost all of that swing reflects valuation gains on U.S. stocks rather than added borrowing.
  • Foreigners Rebuff ‘Sell America’ and Buy a Net $1.6 Trillion in Assets — Treasury Department data show overseas investors bought a net $1.55tn of long-term US financial assets, up from $1.18tn the prior year, including $720bn in equities and just under $409bn in Treasury notes and bonds. China was a net seller of $208.6bn, with its Treasury holdings ending at $683.5bn.

AI Summary. Long-term government bond yields have risen simultaneously across the US, Japan, the UK and France, which Barclays attributes to too much debt, too little fiscal discipline, and no political appetite to address either. Equities have been resilient, though the 10-year Treasury yield now exceeds the S&P 500 earnings yield by the widest margin since the dot-com bust.

John Authers Bloomberg
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Barclays’ Rajadhyaksha on the synchronized bond breakout across the US, Japan, UK and France: “Four countries. Four different political systems. Four different central banks. But the same trade — ‘get me out of duration!’”

Are long-term bonds selling off worldwide while equities stay elevated?

Core argument: Barclays' Ajay Rajadhyaksha attributes the synchronized move out of high-duration bonds in the US, Japan, the UK and France to the developed world having "too much debt, too little fiscal discipline, and no political appetite for fixing either.".

Across the developed markets, bond markets are staging a slow-motion car wreck. Even Japan is joining in now, and the phenomenon is truly global. Looking at the drastic moves in the US, Japan, the UK and France, Barclays’ Ajay Rajadhyaksha commented: “Last week, long bonds broke. Not in one country. In all of them. Simultaneously. Four countries. Four different political systems. Four different central banks. But the same trade — ‘get me out of duration!’” Each country has its own contributing political problems, but the uniformity of the shift out of long-term bonds with high duration makes clear that something broader is afoot. For Rajadhyaksha, it is “simple and uncomfortable.” The developed world “has too much debt, too little fiscal discipline, and no political appetite for fixing either.” Further, equities seem almost alarmingly impervious. Earnings forecasts are surging, and the growth of AI spending is a major counterweight to the hit from Iran. Still, the yield on the 10-year Treasury bond now exceeds the earnings yield on the S&P 500 to an extent not seen since the tail-end of the dot-com bust early in 2002, which should be a major warning signal for stocks.

Takeaways by Macro Roundup® AI

  1. Barclays' Ajay Rajadhyaksha attributes the synchronized move out of high-duration bonds in the US, Japan, the UK and France to the developed world having "too much debt, too little fiscal discipline, and no political appetite for fixing either.".
  2. The 10-year Treasury yield now exceeds the S&P 500 earnings yield to an extent not seen since early 2002 at the tail-end of the dot-com bust, a warning signal for stocks even as earnings forecasts surge alongside AI spending.

Related Articles:

  • War Cost Sinks Long-Term Government Bonds on Deficit Worries — Investor concern that the Iran war will raise government spending and widen budget deficits has triggered a selloff in long-term government bonds, pushing the 30-year US Treasury yield near 4.90% and lifting yields from the UK and Germany to Australia and Japan. A global borrowing wave could further pressure the $31tn US Treasury market.
  • Sudden Japan Bond Crash Unleashes Turmoil on Trading Floors — A selloff in Japanese government bonds sent yields on some maturities to record highs, prompting hedge funds to unwind trades, life insurers to sell bonds, and at least one corporate bond investor to withdraw from a deal. Traders attributed the rout to doubts about Japan's fiscal health amid planned tax cuts and higher spending.
  • Bonds Are Heading for the Best Year Since 2020 — U.S. bonds are on track for their strongest annual returns since 2020 as falling interest rates outweighed earlier concerns that heavy government borrowing would strain the Treasury market. A cooling labor market has prompted two Federal Reserve rate cuts, and the 10-year Treasury yield has declined by nearly half a percentage point to about 4.15%.

AI Summary. Euro-area income per person falls behind the US when measured in constant 2021 prices but gains on the US when measured using each year's prices, suggesting Europe is holding its own in applying technology. The author argues Europe's real risk is being cut off from strategically important technologies.

Paul Krugman Paul Krugman Wonks Out
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In 2021 prices, per capita GDP in the Euro area is falling relative to that of the US, but the opposite is true if one takes into account the benefits to Europe from falling tech prices. “The big benefits of IT come from applying it, [not] creating it.”

Does Europe's income gap with the US depend on price measurement?

Core argument: Euro-area GDP per capita relative to the US declines over the past 25 years when measured in constant 2021 prices, as the World Bank does, but rises when measured at each year's prices (PPP).

Let’s start by looking at GDP per capita in Europe (actually the euro area) as a percentage of GDP per capita in the US. If we do this using constant prices — the World Bank uses 2021 prices — we get the line in Chart 1 labeled “2021 prices.” This line shows Europe falling behind over the past 25 years. If, however, we simply use prices in each given year, we get the line labeled “PPP,” which shows Europe gaining on the US. We get a similar picture if we look at GDP per worker-hour, where the black line is calculated using 2021 prices and the blue line is calculated using PPP. IT progress is passed on to all consumers via lower prices. The big benefits of IT come from applying it, rather than creating it. And as I’ve tried to show, the data show Europe holding its own in the relative value of the goods it produces, indicating that European economies are doing fine when it comes to applying technological advances. What should worry Europe, instead, are the geopolitical implications of US/Chinese leadership in advanced technology. The risk of being cut off from strategically important technologies, once minimal, is now very real. And that risk, rather than misleading numbers about trends in real GDP per worker hour, is what should concern European policymakers.

Takeaways by Macro Roundup® AI

  1. Euro-area GDP per capita relative to the US declines over the past 25 years when measured in constant 2021 prices, as the World Bank does, but rises when measured at each year's prices (PPP).
  2. The same divergence appears in GDP per worker-hour, where the constant-2021-price series and the PPP series point in opposite directions for Europe relative to the US.
  3. The author argues that Europe is holding its own in the relative value of the goods it produces and in applying technological advances, and that the real concern is the risk of being cut off from strategically important technologies amid US and Chinese leadership.

Related Articles:

  • Europe v America: Who’s Really Winning? — Real GDP data show the US economy growing substantially faster than the European Union's, yet on a purchasing-power basis adjusting for price levels, the EU economy remains only slightly smaller than the US, as it was earlier. The author argues US dominance in information technology, where productivity growth is rapid and passed on as lower prices, reconciles the two measures.
  • Europe’s Tech Lag: Does It Matter? — If technology producers face competition, faster measured productivity growth in a tech-specialized country is passed to consumers in both countries through lower prices rather than higher relative living standards. Real GDP per worker over 1998-2024 diverged more between California and the rest of the US than between the US and Europe, largely reflecting industry composition.
  • From IT to AI: What Explains US Productivity Outperformance? — Larger information-technology quality adjustments and hours-worked measurement distortions explain about 30% of the average annual US-Euro area total factor productivity growth gap since 1995, leaving an adjusted gap near 0.25pp. The authors estimate greater US intangible investment spillovers contribute about 0.1pp, more efficient resource allocation about 0.1pp, and better management and larger firms about 0.05pp.

AI Summary. China's holdings of U.S. assets began disappearing from U.S. custodial data after the G-7 immobilized Russia's reserves, and estimating them has grown harder as China diversified away from both U.S. and Belgium-based custodians. Estimates suggest a lower share in long-term Treasuries, more bills, and roughly 10% in agency bonds.

Brad Setser Council on Foreign Relations
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Once you add back what’s hidden in European custodial centers, China’s US bond holdings have fallen less than the headline “China” line suggests. Setser estimates that China’s total US assets are still 50–55% of its reserve portfolio.

Has China's holdings of U.S. assets become harder to track?

Core argument: China's total U.S. financial holdings remain between 50 and 55 percent of its reserve portfolio after an upward adjustment to its estimated Agency holdings, which stand at around 10 percent of total reserves, more than before 2020.

China hasn’t disclosed the currency composition of its reserves since 2020. But it isn’t clear that China’s central bank has shifted its currency composition of its foreign currency holdings around a lot, in part because the dollar share of its reserves was already low (5 percent) and going underweight the dollar means losing yield. But there is no doubt that China’s holdings did start to disappear from the U.S. data right after the G-7 immobilized Russian reserves in early 2022. There is a clear fall around this time in the bonds China holds in U.S. custodians. Estimating China’s true holdings of U.S. assets has gotten harder because it seems like China has diversified not just out of the US, but also out of Euroclear (a large Belgium-based custodian). The overall result suggests that China has reduced the share of its portfolio in long-term Treasuries, while increasing its bill holdings and maintaining a sizeable Agency portfolio of around 10 percent of total reserves (more than before 2020). Zooming the chart in highlights that the key implication of this upward adjustment to China’s estimated holdings of Agencies is that China’s total U.S. financial holdings remain between 50 and 55 percent of its reserve portfolio.

Takeaways by Macro Roundup® AI

  1. China's total U.S. financial holdings remain between 50 and 55 percent of its reserve portfolio after an upward adjustment to its estimated Agency holdings, which stand at around 10 percent of total reserves, more than before 2020.
  2. China's holdings began disappearing from the U.S. data right after the G-7 immobilized Russian reserves in early 2022, with a clear fall in the bonds China holds at U.S. custodians.
  3. China appears to have reduced the share of its portfolio in long-term Treasuries while increasing bill holdings, and estimating its true U.S. asset holdings has grown harder as it diversified out of Euroclear as well.

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  • Foreign Holdings of US Treasuries Climbed to Record in November — Foreign holdings of US Treasuries rose $112.8bn to a record $9.36tn, a figure reflecting both net purchases and valuation changes, according to US Treasury Department data. Increases in Norwegian, Canadian and Saudi holdings offset a $6.1bn decline in China's stockpile to $682.6bn, its lowest since 2008.
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AI Summary. China's technological progress and infrastructure do not refute claims of overinvestment, since overinvestment often produces real physical assets and technological gains yet still counts as overinvestment when it generates less real value than the resources, subsidies, and transfers it consumes. When such losses are capitalized, assets are carried above their real economic value.

Michael Pettis China Financial Markets
Date Posted:

China’s 5% GDP growth in Q1 2025, driven by an 8.9% rise in infrastructure investment, masks falling returns and a rising debt-to-GDP ratio, as political growth targets sustain overinvestment and deepen economic imbalances.

Does technological progress disprove claims of overinvestment?

Core argument: China's technological progress and first-rate infrastructure do not refute the claim of systematic overinvestment, since overinvestment often produces real physical assets and technological advances.

China's rapid technological progress and its first-rate infrastructure are often cited as refuting the claim that China has been systematically overinvesting in non-productive projects for many years. It does not imply that investment fails to produce physical assets or technological progress. On the contrary, overinvestment often results in real improvements in infrastructure and technology. It is nonetheless "overinvestment" if it generates less real value than it costs in resources—including subsidies and transfers. When losses are capitalized, however, they are incorrectly accounted for in the form of an asset that is carried at a value that exceeds its real economic value. They may well be two sides of the same coin and describe different aspects of the same underlying reality: an economy that has achieved extraordinary gains through investment but that must ultimately confront whether the costs of that achievement were justified economically.

Takeaways by Macro Roundup® AI

  1. China's technological progress and first-rate infrastructure do not refute the claim of systematic overinvestment, since overinvestment often produces real physical assets and technological advances.
  2. Investment counts as overinvestment when it generates less real value than it costs in resources, including subsidies and transfers, regardless of the physical assets it creates.
  3. Capitalizing losses records them as assets carried above their real economic value, leaving China to confront whether the costs of its investment-driven gains were economically justified.

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