Edward Conard

Top Ten New York Times Bestselling Author

  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard 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 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 represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, August 4, 2026

AI Summary. Japan's two traditional options for supporting a weak yen — much higher Japanese interest rates or large sales of dollars and US Treasuries — would both pressure US yields, as Japan holds about $1tn of Treasuries. US willingness to back Japan via its exchange stabilization fund and the Federal Reserve's international repo facility suggests officials see that risk.

Katie Martin Financial Times
Date Posted:
Is Database:
Database

To shield Treasuries from selloffs and higher yields, the US prefers its own yen support tools: ESF yen purchases as a signal and the Fed’s rarely used FIMA facility, lending Japan dollars against Treasuries to forestall direct Japanese Treasury sales.

Does supporting the yen serve US Treasury market interests?

Core argument: Japan holds $1tn of US Treasuries, the world's largest such holdings and just under 4% of the total outstanding, so Japanese dollar sales to prop up the yen would add a large seller to the Treasury market.

Japan has two traditional routes to push up the battered yen. One is a massive rise in Japanese interest rates, and the other is massive sales of dollars — i.e., of US Treasuries. Neither would be good news for the US. Japanese yields are already seriously elevated by historical standards — 2.8% on the 10-year and 4% on the 30-year. The US is just not in a position to lose a big buyer of Treasuries when its own 10-year yield is tickling 4.7% and the 30-year is well over 5. And it certainly can’t tolerate a big seller of Treasuries, in the form of Japanese authorities selling dollars, hoping to prop up the yen. (Japan’s Treasury holdings already lead the world, at $1tn, or just below 4% of the total outstanding.) Much better to stand behind Japan and hope to scare off the yen sellers. Recent use has been made of the Exchange Rate Stabilization Fund [ESF] to signal that intent. Bessent has also said he will encourage the Fed to bump up Fima, the Fed’s international repo facility, in the coming months. This tool has rarely been wheeled out since it was established during the 2020 Covid shock. Its current $60bn per counterparty, per day limit has been reached just once. The fact that US authorities approved the use of this facility suggests the US side sees potential risk that fx intervention could push up US Treasury yields.

Takeaways by Macro Roundup® AI

  1. Japan holds $1tn of US Treasuries, the world's largest such holdings and just under 4% of the total outstanding, so Japanese dollar sales to prop up the yen would add a large seller to the Treasury market.
  2. Japan's two traditional routes to lift the yen — a massive rise in Japanese interest rates or massive sales of dollars — are both unwelcome for the US, whose 10-year yield is near 4.7% and 30-year above 5%.
  3. US authorities have used the Exchange Rate Stabilization Fund to signal support for the yen, and Bessent said he will encourage the Fed to raise its Fima international repo facility, whose $60bn per counterparty per day limit has been reached once.

Related Articles:

  • US and Japan Aim to Transform Yen Landscape With Joint Moves — The yen's rebound from a four-decade low points to US-Japan joint intervention larger than earlier episodes in which US contributions stayed under $1bn, with Japan alone estimated to have spent $53bn in a single day. Expectations are building for interest-rate increases by both the Federal Reserve and the Bank of Japan.
  • Shadow Government Bond Yields in the G10 — The author estimates "shadow" 30-year government bond yields for Germany, Spain, Italy, Greece and Japan — what long-term yields would be if central banks withdrew support such as Japanese government bond purchases and the European Central Bank's backstop facilities. These estimates assume no outright central bank selling, so they represent a lower bound on how high yields could go.
  • 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%.

AI Summary. Currency intervention can't stem yen depreciation in the medium term because the decline is driven by Japanese government bond yields capped by the Bank of Japan to avert a debt crisis, and Japan can't afford higher yields. The author argues Japan could instead sell government financial assets to pay down gross debt and strengthen the yen.

Robin Brooks Robin Brooks Substack
Date Posted:

Despairing of stabilizing the yen by the usual interventions and claiming Japan’s gross debt is partially offset by assets worth ~100–110% of GDP, Brooks exhorts Japan to sell assets worth 10% of GDP to prevent yen depreciation without higher yields.

Can currency intervention stop the yen's decline?

Core argument: Brooks argues FX intervention cannot stem Yen depreciation in the medium term because the decline is driven by Japanese government bond yields capped by the Bank of Japan to prevent a debt crisis, and only higher yields could stabilize the Yen sustainably.

My basic view is that intervention can’t possibly hope to stem Yen depreciation in the medium term because that is driven by Japanese government bond yields that are being capped by the Bank of Japan (BoJ) to prevent a debt crisis. Only higher yields can stabilize the Yen sustainably. Japan can’t afford those, and there’s nothing FX intervention - even with US involvement - can do to change that. So what should Japan do? Japan’s net debt is a lot lower than its gross debt. The difference is financial assets, which can be sold to pay down gross debt. Even a small sale of government assets - say ten percent of GDP - would get huge recognition in markets and would help strengthen the Yen without needing to let bond yields rise. The current political equilibrium is still one of denial on this; however, which is why, in my opinion, the Yen will ultimately resume its march towards $/JPY 180. [Ed. note] Brooks uses the older IMF-style gross/net comparison, not the revised figures - approximately 207% gross, 137% standard net, and hence a 70-point gap. Brooks does not claim all 110% is readily saleable. Rather, at least some can be sold “in fairly short order.”

Takeaways by Macro Roundup® AI

  1. Brooks argues FX intervention cannot stem Yen depreciation in the medium term because the decline is driven by Japanese government bond yields capped by the Bank of Japan to prevent a debt crisis, and only higher yields could stabilize the Yen sustainably.
  2. Brooks contends Japan could sell government financial assets equal to roughly 10% of GDP, drawing wide market recognition and helping strengthen the Yen without letting bond yields rise, since Japan's net debt is well below its gross debt.
  3. Brooks expects the Yen to resume its march toward $/JPY 180, as Japan's political equilibrium remains one of denial about selling government assets.

Related Articles:

  • US and Japan Aim to Transform Yen Landscape With Joint Moves — The yen's rebound from a four-decade low points to US-Japan joint intervention larger than earlier episodes in which US contributions stayed under $1bn, with Japan alone estimated to have spent $53bn in a single day. Expectations are building for interest-rate increases by both the Federal Reserve and the Bank of Japan.
  • Shadow Government Bond Yields in the G10 — The author estimates "shadow" 30-year government bond yields for Germany, Spain, Italy, Greece and Japan — what long-term yields would be if central banks withdrew support such as Japanese government bond purchases and the European Central Bank's backstop facilities. These estimates assume no outright central bank selling, so they represent a lower bound on how high yields could go.
  • 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%.

AI Summary. Oracle's cost of capital appears to be rising fastest among major players: its shares have lost roughly 60% of their value, S&P Global Ratings has cut it to BBB- (just above junk), and its debt trades above BB yields. Oracle reported $55.7bn capital expenditure, negative free cash flow of $23.7bn, and long-term debt rising to $124.7bn.

Louis-Vincent Gave Gavekal
Date Posted:

Louis-Vincent Gave notes Oracle’s outstanding debt represents ~7% of the total junk bond market and suggests a downgrade “could create genuine issues for the broader US high-yield debt market.”

Is one major AI spender facing a sharply rising cost of capital?

Core argument: Oracle reported fiscal 2026 capital expenditure of $55.7bn, or 82.6% of revenue, and negative free cash flow of -$23.7bn, funded by long-term debt rising from $76.3bn to $124.7bn.

Of the major players, Oracle seems to be experiencing the fastest increase in its cost of capital. Since last September, the Oracle share price has lost roughly -60% of its value. But perhaps more worrying is the debt. Oracle has now been downgraded to BBB- by S&P Global Ratings (just above junk) though Oracle debt is trading well above the yields offered on BB debt. Today, the five-year credit default swap on Oracle trades at 200bp, while the five-year CDS on the BB index changes hands at roughly 115bp. A gap that will likely push the ratings agencies to downgrade Oracle further? A downgrade would reflect the fact that the numbers simply do not look good. Oracle reported fiscal 2026 capital expenditure of US$55.7bn, or 82.6% of revenue. The company delivered a negative free cash flow of -US$23.7bn, all this funded by an increase in long-term debt from US$76.3bn to US$124.7bn. On top of this, the company reported a further US$248bn of future data-center lease obligations not yet on the balance sheet!

Takeaways by Macro Roundup® AI

  1. Oracle reported fiscal 2026 capital expenditure of $55.7bn, or 82.6% of revenue, and negative free cash flow of -$23.7bn, funded by long-term debt rising from $76.3bn to $124.7bn.
  2. Oracle's five-year credit default swap trades at 200bp versus roughly 115bp for the five-year BB index, even though S&P Global Ratings rates Oracle BBB-, just above junk.
  3. Oracle's share price has lost roughly 60% of its value since September, and the company reported a further $248bn of future data-center lease obligations not yet on the balance sheet.

Related Articles:

  • They’re Shooting at Everyone!: The Yossarian Effect in Capital Markets — A concentrated set of highly correlated assets financed with 3-4x leverage meant a large move in one part of the market forced selling elsewhere. Funds holding no idle cash sold liquid winners such as semiconductors and other artificial intelligence names to fund SpaceX purchases, with index inclusion triggering further forced reallocation.
  • The Market Is Asking Questions — Markets are weighing whether the trillions committed upfront to AI data centers, chips, and power will generate returns above the cost of capital before those assets depreciate. With the buildout increasingly funded by debt rather than internal cash flow and borrowing spreads widening, financing costs could rise until new data-center spending no longer clears its return hurdle.
  • A Slower AI Payoff Would Be Everyone’s Problem — If artificial intelligence profits arrive later than expected, committed capital spending and depreciation would still hit on schedule, squeezing margins, stretching balance sheets toward more debt and possible ratings downgrades, and repricing equities. Because a handful of large technology firms dominate the indices, the author argues the damage would spread to chips, power, data centers and the broader market.

AI Summary. The US is projected to cut greenhouse gas emissions 27–41% below 2005 levels by 2040 under federal and state policies currently on the books. In the high-emissions scenario, reductions slow through the early 2030s and then reverse, while in the low-emissions scenario, clean technologies' cost competitiveness accelerates declines through 2040.

Hannah Kolus, Ben King, Parker Case, Michael Gaffney, et al. Rhodium Group
Date Posted:

Rhodium projects that under current policy, US GHG emissions will be 26–29% under the 2005 level in four years, driven by an influx of natural gas and renewable production. Their forecast for 2040 is 27-41% below the 2005 level.

How much will US greenhouse gas emissions fall under current policies?

Core argument: The US is on track to cut greenhouse gas emissions 27–41% below 2005 levels in 2040, considering all federal and state policies on the books as of June 2026.

The US is on track to reduce greenhouse gas (GHG) emissions by 27-41% below 2005 levels in 2040, considering all relevant federal and state policies on the books as of June 2026. These emissions outcomes represent divergent futures after the late 2020s. In the high-emissions scenario, the emissions reductions that have characterized the last 20 years slow through the early 2030s before reversing direction altogether, with growing emissions through most of that decade. In the low-emissions case, the economic competitiveness of clean technologies relative to fossil incumbents, alongside an imperative for “speed-to-power” for large loads, continues—and accelerates—GHG emission declines through 2040.

Takeaways by Macro Roundup® AI

  1. The US is on track to cut greenhouse gas emissions 27–41% below 2005 levels in 2040, considering all federal and state policies on the books as of June 2026.
  2. In the high-emissions scenario, the emissions declines of the past 20 years slow through the early 2030s and then reverse, with US emissions growing through most of that decade.
  3. In the low-emissions scenario, the economic competitiveness of clean technologies relative to fossil incumbents and a "speed-to-power" imperative for large loads accelerate US emissions declines through 2040.

Related Articles:

  • Fighting Words: The Energy Transition in 2026 — Estimates based on primary energy overstate how much electricity is needed to replace oil in passenger cars, since electric motors convert 80%-90% of electricity into motion versus about 18% for gasoline cars. Measuring useful final energy net of waste heat avoids this "primary energy fallacy": the US consumed 45 exajoules of useful final energy versus 95 exajoules of primary energy.
  • The Most Amazing Climate Policy Figure — U.S. carbon dioxide emissions from fossil fuels moved closely with GDP from 1992 to about 2005, after which the two decoupled, with GDP continuing to rise while emissions fell.
  • The U.S. Is Forfeiting the Clean-Energy Race to China — China installed 277 gigawatts of wind and solar capacity in seven months, roughly four times the utility-scale additions U.S. federal analysts project for all power sources over a full year. Chinese firms' global market share in batteries and solar modules has reached 75% or higher, according to BloombergNEF.

AI Summary. Chinese patent data indicate that critical technology patenting is dominated by private firms and public universities rather than state-owned enterprises, with universities playing a larger role and large firms a smaller share than in the United States. Fewer than 10% of these patents involve inventors with U.S. training or employment.

Josh Lerner, Namrata Narain, Dimitris Papanikolaou, Amit Seru, et al. National Bureau of Economic Research
Date Posted:

China’s critical-technology innovation is produced chiefly by private firms and universities, not directly by state-owned enterprises or the PLA.

Who drives China's critical technology patenting?

Core argument: Fewer than 10% of Chinese critical technology patents involve inventors with U.S. training or employment, and the U.S. patent system relies substantially more on inventors with foreign backgrounds than the Chinese system does.

Patents, while an imperfect measure, have long been used to understand innovation in Western nations. In this paper, we use Chinese domestic awards to shed light on the Chinese innovative ecosystem. We suggest that many preconceptions about Chinese innovation are at odds with what is revealed by the patent data. Chinese critical technology patenting is dominated by private firms and public universities rather than state-owned enterprises, with universities playing a far larger role than in the United States. Also distinct from the United States is the low overall share of large firms. Direct foreign inventor linkages remain limited: fewer than ten percent of Chinese critical technology patents involve inventors with U.S. training or employment, while the U.S. patent system itself exhibits substantially greater reliance on inventors with foreign backgrounds than the Chinese system. Finally, the increase in Chinese critical technology patenting has not come at the cost of quality. Chinese patents have converged towards or even exceeded U.S. patents using several textual measures in most critical technologies, despite the massive increase in volume.

Takeaways by Macro Roundup® AI

  1. Fewer than 10% of Chinese critical technology patents involve inventors with U.S. training or employment, and the U.S. patent system relies substantially more on inventors with foreign backgrounds than the Chinese system does.
  2. Chinese critical technology patenting is dominated by private firms and public universities rather than state-owned enterprises, with universities playing a far larger role and large firms a smaller share than in the United States.
  3. The rise in Chinese critical technology patenting has not come at the cost of quality, as Chinese patents have converged toward or exceeded U.S. patents on several textual measures in most critical technologies.

Related Articles:

  • China and the Future Of Science — China graduates about 5x as many medical and biomedical students as the US each year, 7x as many engineers, and nearly double the number of science and engineering PhDs, while one-sixth to one-fifth of US science and engineering graduates are themselves Chinese. One study found returning Chinese scientists lead-author 2.5x more papers than peers who stay in the US.
  • The Growing Self-Reliance of Chinese Innovation — Linking patents to scientific papers through shared phrases, the authors find China's innovation has grown markedly more self-reliant across nearly all technology areas the U.S. treats as strategically important. In an aggregate grouping of these areas, the share of patent phrases traced to Chinese-produced articles rose from 2% to 24%, while the U.S.-produced share fell from 31% to 18%.
  • 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. China's economy runs on parallel tracks: a property crash, a booming high-tech manufacturing sector, and university graduates trained for traditional white-collar jobs entering a labor market geared toward advanced manufacturing. Researchers at Stanford and Harvard found a swing from optimism to pessimism, with about 28% of citizens expecting living standards to improve.

Evan Osnos The New Yorker
Date Posted:

Reporting from a “quiet” Beijing, Evan Osnos observes, “For a long time, China looked west for visions of the future. These days, it favors its own.”

How does China's high-tech manufacturing boom coexist with public pessimism?

Core argument: About 28% of Chinese citizens expect their standard of living to improve, roughly half the share earlier this century, according to a Stanford and Harvard study of Chinese public opinion that found a swing "from optimism to pessimism.".

China now contains a series of parallel economies: alongside the wreckage of the property crash and the thriving hive of new technologies, there are legions of university graduates who trained for traditional white-collar jobs but entered a labor market increasingly geared toward high-tech manufacturing. A study of Chinese public opinion published last year by researchers at Stanford and Harvard offered a rare in-depth look at local attitudes and found a pronounced swing “from optimism to pessimism.” The share of citizens who expect their standard of living to improve has dropped to about twenty-eight percent, roughly half of what it was earlier this century. Xu Zhiyuan, an influential writer, has called this “a profoundly confused era,” marked by “an economic downturn, the uncertainty of international geopolitics and the enormous impact of A.I. all at once.” Last fall, government censors launched a campaign against “excessively pessimistic sentiment” online, including comments such as “Hard work is useless.”

Takeaways by Macro Roundup® AI

  1. About 28% of Chinese citizens expect their standard of living to improve, roughly half the share earlier this century, according to a Stanford and Harvard study of Chinese public opinion that found a swing "from optimism to pessimism.".
  2. China contains parallel economies: the wreckage of the property crash alongside thriving new technologies, with legions of university graduates trained for traditional white-collar jobs entering a labor market increasingly geared toward high-tech manufacturing.
  3. Chinese government censors launched a campaign against "excessively pessimistic sentiment" online, including comments such as "Hard work is useless.".

Related Articles:

  • 2025 Letter — China's economy features intense market competition, with firms continually expanding into each other's core businesses, a dynamic the author argues involves greater capitalist competition and greater capitalist excess than in the United States. The author attributes China's sideways-trending stock market in part to profits being competed away.
  • Is China’s High-Quality Investment Output Economically Viable? — 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.
  • Litigation Nation, Engineering Empire — Regrouping US college majors to match Chinese disciplines yields a 2:1 ratio of science and engineering to humanities and social sciences, the same ratio as in China. The author argues America's building slowdown reflects structural economic shifts—urbanization reached 70% by 1960 and 85% by 2020, shifting needs toward maintenance—rather than a lawyerly culture.

Wednesday, August 5, 2026

AI Summary. Measured total factor productivity growth is estimated to come almost entirely from higher input utilisation rather than underlying efficiency gains, based on a method that infers unobserved capital and labour utilisation from movements in hours per worker. On this evidence, recent productivity gains reflect "working harder" rather than "working smarter.

Shane Boyle, John Fernald and Huiyu Li Center For Economic and Policy Research
Date Posted:
Is Database:
Database

US labor productivity has accelerated, with output per hour growing at a mean annual rate of 2.5% btw 2023–2026Q1, ~1pp above its 2005–2019 pace. The gains have largely been driven by higher input utilisation, which is ‘inherently temporary.”

Does higher input utilisation explain recent measured productivity growth?

Core argument: Since the beginning of 2024, utilisation growth accounts for essentially all measured total factor productivity growth, suggesting the measured productivity gains derive from "working harder" rather than "smarter".

Input utilisation is not observed directly for the entire economy;  it must be inferred. Consider a firm that wants to meet strong demand but has a given capital stock, workforce, and technology. It can ask its existing workers to work longer (which we observe). It can also run its capital longer. Each margin is costly, for example, overtime pay, so firms typically use all of them at once. The observed margin serves as a proxy for the unobserved ones. The method infers changes in industry utilisation from observed movements in hours per worker, scaled by an estimated pass-through of those movements into labour productivity. Industry estimates are aggregated using Domar weights, which reflect each industry’s importance. The stacked bars in Figure 2 show measured TFP growth split into [Fernald's] measure of utilisation growth in light grey and utilisation-adjusted TFP growth in dark grey. In 2023, utilisation growth was a drag on measured TFP growth, and utilisation-adjusted TFP growth soared. Since the beginning of 2024, however, utilisation accounts for essentially all TFP growth. For now, the measured productivity gains appear to derive from “working harder” rather than “smarter.”

Takeaways by Macro Roundup® AI

  1. Since the beginning of 2024, utilisation growth accounts for essentially all measured total factor productivity growth, suggesting the measured productivity gains derive from "working harder" rather than "smarter".
  2. In 2023, utilisation growth was a drag on measured TFP growth while utilisation-adjusted TFP growth soared, according to Fernald's decomposition of measured TFP.
  3. Economy-wide input utilisation is not observed directly and is inferred from movements in hours per worker, scaled by an estimated pass-through into labour productivity, with industry estimates aggregated using Domar weights.

Related Articles:

  • Productivity During and Since the Pandemic — Total factor productivity growth since early 2021 has run only slightly above its 2010–19 average, suggesting the 2020 productivity surge reflected cyclical dynamics layered on a continuation of the slow pre-pandemic trend. Productivity has since grown somewhat faster than the authors' analysis predicted, but remains well below the 1995–2004 pace.
  • The Impact of AI on the U.S. Labor Market — Using observed AI usage data across 321 U.S. occupations, the authors estimate that highly exposed occupations saw a 6.7% decline in real wage growth with no detectable employment effects. The estimated declines are concentrated among the lowest earners, with service workers down 24.3% and the bottom wage quartile down 10.7%, while top earners show no significant effect.
  • Why Wages And Productivity Look Set To Diverge Further — In the US, Europe and Japan, pay growth has decoupled from productivity growth, with productivity pulling ahead. US labor productivity, measured as real GDP per hour worked, is more than 5x its 1947 level while real hourly compensation is only about 3x, and median wage growth lags even further behind.

AI Summary. A San Francisco Federal Reserve model estimates that the growth contribution from rising resource utilization in recent quarters has been larger than in almost any comparable five-quarter stretch since 1947 outside recoveries from downturns. That measure is based on a modified version of the average worker's weekly hours rather than unemployment or capacity utilization.

Matt Klein The Overshoot
Date Posted:

The recent growth contribution from rising utilization, as measured by the FRBSF, is outsized “except for the brisk—and unsustainable— growth that characterized the mid-1960s and parts of the 1970s.”

What is driving the recent surge in measured resource utilization growth?

Core argument: The San Francisco Fed model shows the growth contribution from rising "resource utilization" in 2024Q4–2026Q1 exceeding almost any other 5-quarter stretch since 1947, outside periods of recovery from a downturn.

Outside of periods when the economy was in the midst of recovering from a downturn, the growth contribution from rising “resource utilization” in 2024Q4-2026Q1 has been larger than over almost any other 5-quarter stretch since 1947, according to the SF Fed model. While the absolute level of this estimate of “resource utilization”, based on cumulative growth since 1947, remains relatively low, the recent pace of growth has been rapid. The main precedents were the periods of brisk—and unsustainable— growth that characterized the mid-1960s and parts of the 1970s. I was puzzled by this at first, since it does not fit with other data we have such as the unemployment rate or industrial capacity utilization. Neither unemployment nor underemployment have worsened since 2023, but they have not dramatically improved, either. Meanwhile, the Fed’s estimate of manufacturing capacity utilization ground steadily lower from the post-pandemic peak in 2021H2-2022H1 until 2024Q4, where it has remained ever since. (Manufacturing production itself has done much better, but the rise in output has coincided with an increase in capacity, hence the relatively low level of aggregate capacity utilization.) The explanation is that the SF Fed measure is not based on those indicators, but on a modified version of the average worker’s weekly hours.

Takeaways by Macro Roundup® AI

  1. The San Francisco Fed model shows the growth contribution from rising "resource utilization" in 2024Q4–2026Q1 exceeding almost any other 5-quarter stretch since 1947, outside periods of recovery from a downturn.
  2. The main precedents for such rapid growth in the San Francisco Fed's resource utilization measure were the brisk and unsustainable growth periods of the mid-1960s and parts of the 1970s, though the absolute level of the estimate remains relatively low.
  3. The San Francisco Fed's resource utilization measure is based on a modified version of the average worker's weekly hours rather than on the unemployment rate or manufacturing capacity utilization, which fell from its 2021H2–2022H1 peak through 2024Q4 and has stayed there.

Related Articles:

  • AI and Productivity — The recent pickup in US labor productivity appears driven by higher utilization of existing capital—running factories, server racks, and hotel rooms harder—rather than by firm-level efficiency gains from AI. Adoption remains too thin and the cross-sectional evidence too weak to conclude that AI-driven productivity gains are already widespread.
  • Have We Entered an Era of High Productivity Growth? — Labor productivity has grown solidly while the San Francisco Federal Reserve's total factor productivity index, which adjusts for the equipment and technology workers use, has grown modestly, suggesting gains so far reflect better tools rather than broader advances. A regime-switching model puts the probability of a high-productivity regime at 57% using labor productivity and 21% using total factor productivity.
  • America Is Experiencing A Productivity Miracle — America's post-2019 productivity acceleration came largely from professional services and management—about 10% of output and heavy users rather than producers of new technology—and from oil and gas. The information industry grew productivity around 6% annually, no faster than its 2000-19 average, with its output share steady at 5.3–5.5%.

AI Summary. A US-backed intervention to support the yen was funded largely by selling euros rather than dollars, limiting the volume of dollar sales required. The author argues this signals that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks deploy their dollar reserves in unlimited quantities.

Barry Eichengreen Financial Times
Date Posted:

Eichengreen argues that Treasury’s reluctance to see the BOJ use their dollar reserves for exchange intervention suggests that “the dollar is not the attractive reserve currency it once was,” and thus “reserve diversification is apt to gather steam.”

Is Washington reluctant to let central banks sell dollar reserves?

Core argument: The US Exchange Stabilization Fund purchased yen primarily with euros rather than dollars in the intervention, limiting the volume of dollar sales required from Japanese authorities.

Last week’s intervention [in which the Exchange Stabilization Fund purchased yen, primarily with Euros] contains troubling information about the dollar. Central banks are accustomed to holding foreign reserves in dollars because markets in US Treasury securities are liquid. Central banks hold US Treasuries because they can be freely bought and sold and used in interventions. But not now, at least not in unlimited quantities. Instead, we see the US Treasury stepping in with euro sales as part of its contribution to the intervention, thus limiting the volume of dollar sales needed by the Japanese authorities. The bottom line is that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks use their dollar reserves.

Takeaways by Macro Roundup® AI

  1. The US Exchange Stabilization Fund purchased yen primarily with euros rather than dollars in the intervention, limiting the volume of dollar sales required from Japanese authorities.
  2. Central banks hold reserves in US Treasuries on the premise that those securities can be freely bought, sold, and deployed in interventions, a premise the author argues no longer holds in unlimited quantities.
  3. The author concludes that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks draw on their dollar reserves.

Related Articles:

  • Q&A on Yen Intervention — Currency intervention can't stem yen depreciation in the medium term because the decline is driven by Japanese government bond yields capped by the Bank of Japan to avert a debt crisis, and Japan can't afford higher yields. The author argues Japan could instead sell government financial assets to pay down gross debt and strengthen the yen.
  • The International Role of the U.S. Dollar – 2025 Edition — The US dollar accounted for 58% of disclosed global official foreign reserves, versus 20% for the euro and 2% for China's renminbi, and roughly 50% of international payments made through the SWIFT messaging system. About 55% of international claims and 60% of liabilities are denominated in dollars, a share relatively stable since 2000.
  • Top Dollar — Foreign holdings of U.S. financial assets exceed American holdings abroad, making the United States a net debtor whose liabilities are denominated in dollars while its foreign assets are largely in other currencies. U.S. foreign liabilities grew from $30tn to over $51tn while U.S. foreign assets grew from $24tn to $33tn, tripling the net debtor position from $6tn.

AI Summary. Model-based simulations suggest that industrial policies using quantity targets to boost tradable output create shortages of nontradable goods, raising their prices and appreciating the real exchange rate — effects that can be reversed by repressing consumption, turning the current account effect positive. Appreciating a surplus country's nominal exchange rate alone would only add deflationary pressure.

Pierre-Olivier Gourinchas, Gene Kindberg-Hanlon, Manasa Patnam, Lorenzo Rotunno, et al. Journal of Economic Perspectives
Date Posted:
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Industrial policy that stimulates exports also raises domestic spending. To generate a current-account surplus, it must be paired with forced saving, financial repression, or related features of the Chinese model.

How does repressing consumption change industrial policy's trade effects?

Core argument: Model-based simulations show that quantity targets boosting tradable output create a lopsided economy with a shortage of nontradable goods, raising domestic nontradable prices and the overall price level and appreciating the real exchange rate.

Consider the example of policy directives to boost tradable output through the use of quantity targets. [This] creates a lopsided economy, resulting in a shortage of nontradable goods. To restore balance, the price of domestic nontradable goods would rise, increasing the overall price level and appreciating the real exchange rate, as the model-based simulations in Figure 9 show. However, these side-effects of the policy can be reversed by suppressing consumption, for instance through forced saving policies. In this case, reduced aggregate demand contains the rapid rise in nontradable prices and overall inflation. A sufficient degree of consumption repression can fully reverse the fall in saving and appreciation of the real exchange rate that would otherwise occur, subdue the relative nontradable price increase, and turn the current account balance effect from negative to positive. A policy that would seek to appreciate the nominal exchange rate of surplus countries without a change in the underlying drivers of saving and investment would only result in stronger domestic deflationary pressures. In this sense, focusing on the nominal exchange rate alone risks overstating its ability to correct external imbalances without accompanying changes in domestic demand and saving.

Takeaways by Macro Roundup® AI

  1. Model-based simulations show that quantity targets boosting tradable output create a lopsided economy with a shortage of nontradable goods, raising domestic nontradable prices and the overall price level and appreciating the real exchange rate.
  2. A sufficient degree of consumption repression, such as forced saving policies, can fully reverse the fall in saving and the real exchange rate appreciation, subdue the relative nontradable price increase, and turn the current account balance effect from negative to positive.
  3. Appreciating surplus countries' nominal exchange rates without changing the underlying drivers of saving and investment would only produce stronger domestic deflationary pressures, so focusing on the nominal rate alone risks overstating its ability to correct external imbalances.

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.
  • 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.
  • 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.

AI Summary. High-achieving Chinese high school graduates are increasingly applying to police and military academies and other schools offering a clear path to public-sector jobs, pushing required entrance-exam scores up. Some programs now demand more than 650 points out of 750, rivaling the least competitive courses at China's most prestigious universities.

Sun Yu Financial Times
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Gaokao scores are rising at police and military academies in China as the labor market deteriorates. Applicants to the top courses at a top police academy fell only three points short of the minimum score for early admissions to the least competitive course at Tsinghua.

Are China's top students turning to police and military academies?

Core argument: Applicants to the most competitive programmes at the People's Public Security University of China needed 652 of 750 points on this year's gaokao in Jiangsu, three points below early admission to Tsinghua University's least competitive course.

Chinese high school graduates are increasingly shifting their sights towards police and military academies and other institutions that offer a clear path to public-sector jobs. Admission scores needed for some of these institutions have jumped — with some undergraduate courses requiring more than 650 points out of a maximum of 750 — reflecting strong demand from high-achieving students. Some of their courses are now as tough to enter as the least competitive subjects at top-tier universities. Applicants to the most competitive programmes at the People’s Public Security University of China (PPSUC) needed 652 points out of 750 in this year’s gaokao in Jiangsu, one of China’s wealthiest provinces. That was just three points below the minimum score for early admissions to the least competitive course at Beijing’s Tsinghua University, the country’s most prestigious university. China’s defence ministry said that students admitted to military academies this year ranked, on average, among the top 6% of gaokao candidates in their provinces.

Takeaways by Macro Roundup® AI

  1. Applicants to the most competitive programmes at the People's Public Security University of China needed 652 of 750 points on this year's gaokao in Jiangsu, three points below early admission to Tsinghua University's least competitive course.
  2. China's defence ministry said students admitted to military academies this year ranked, on average, among the top 6% of gaokao candidates in their provinces.
  3. Chinese high school graduates are increasingly shifting toward police and military academies and other institutions offering a clear path to public-sector jobs, with some undergraduate courses now requiring more than 650 points out of 750.

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  • Do Adults Have the Skills They Need to Thrive in a Changing World? — An international assessment of adult skills describes numeracy proficiency levels ranging from counting objects and adding small whole numbers at the lowest level, to extracting information from tables and graphs and performing basic arithmetic with money and percentages at Level 1, up to analysing complex mathematical information and critically evaluating whether data support a claim at Level 5.
  • Military Officer Quality in the All-Volunteer Force — The authors find a steady decline in U.S. Marine Corps officers' General Classification Test scores, which is statistically associated with the expansion of college attendance and explains 96% of the measured change. They also find a positive association between African American officers and mean test scores, arguing affirmative action has not lowered officer quality.