“…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

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What’s the Renminbi Got to Do With it?

Brad Setser Council on Foreign Relations

Date Posted:: October 13, 2026

China’s export growth accelerated following the RMB’s depreciation in 2022, underscoring the role of exchange rates as a factor in external adjustment. Since rising domestic demand no longer lifts imports, Setser argues, reducing China’s trade surplus will require a stronger RMB.

The best evidence that exports responded to changes in the currency, and not simply to changes in the path of China’s internal demand, is the acceleration in China’s export growth after the RMB’s depreciation over the course of 2022. Those who believe the path of internal demand is critical to rebalancing and that exchange rate moves are secondary need to explain how an acceleration in domestic demand would, on its own, lead China’s external accounts to adjust. One important, stylized fact about China is that domestic demand growth is no longer feeding over to import growth (ex-gold, that is). Bottom line: China, which needs a 1.5 percentage point contribution from net exports every year, is on a collision course with its trading partners without a currency correction that provides the basis for more balanced trade even in the absence of trade restrictions. And there isn’t a realistic path towards balance that doesn’t involve a stronger RMB; there aren’t, as Paul Krugman once put it, immaculate transfers.

Takeaways by Macro Roundup^® AI

China requires a 1.5 percentage point contribution from net exports to growth each year, putting it on a collision course with trading partners absent a currency correction that supports more balanced trade even without trade restrictions.
The acceleration in China’s export growth following the renminbi’s depreciation over 2022 is the best evidence that exports responded to the currency rather than to the path of China’s internal demand.
Domestic demand growth in China no longer feeds through to import growth, excluding gold, and no realistic path toward external balance avoids a stronger renminbi.

Earnings Will Be Spectacular. It May Not Be Enough

John Authers Bloomberg

Date Posted:: October 8, 2026
Is Database:: Database

Since 2000, post-tax corporate profits as a share of GDP have trended upward across cyclical setbacks and are now near an all time high, above their 1929 level.

Throughout the 20th century, profit margins were regarded as one of the purest mean-reverting series in the economy. So far this century, however, margins have done nothing but rise. Measured with the National Income and Product Accounts, part of the GDP calculation, profits are currently taking a bigger share of the economy even than on the eve of the Great Crash in 1929. The series comes with a lag, so we can assume the profit share on this basis is comfortably at a record by now.

Takeaways by Macro Roundup^® AI

Corporate profits measured in the National Income and Product Accounts take a larger share of the U.S. economy than on the eve of the 1929 Great Crash.
Profit margins were regarded throughout the 20th century as one of the purest mean-reverting series in the economy, yet so far this century they have done nothing but rise.
The National Income and Product Accounts profits series comes with a lag, so the profit share on this basis can be assumed to be comfortably at a record.

The Anatomy of Tariff Pass-Through into Consumer Prices

Mary Amiti,Sebastian Heise and David Weinstein Federal Reserve Bank of New York

Date Posted:: October 7, 2026
Is Database:: Database

FRBNY estimates that a uniform 10% tariff raised consumer-goods prices 2.6% after 12 months: 1.7pp directly via imported final goods, and 0.9pp mainly via higher imported-input costs for domestically produced goods, with the latter effect building over 9–12 months.

Tariff pass-through into U.S. import prices is nearly complete. Instrumenting realized duty rates with statutory tariffs to account for endogenous sourcing and exemptions, tariff pass-through into consumer-goods import prices is about 90.5%; a 10% increase in the duty rate raises import prices about 9.1%. At twelve months, a uniform 10% tariff raises consumer-goods prices 2.639%: 1.694pp through the direct channel, 0.770pp through marginal costs, and 0.175pp through strategic complementarity. Import-price pass-through is essentially immediate, while domestic prices adjust gradually; the contribution of the two indirect channels roughly doubles between six and twelve months, with much of the overall adjustment occurring within nine to twelve months. For the actual 2025–26 tariffs, the direct channel accounts for about 70% of the estimated effect; the marginal-cost channel accounts for about 22%, with strategic complementarity accounting for the remainder. Because the regressions include date fixed effects, the tariff contribution is identified relative to less-exposed goods and should be read as illustrative rather than as the absolute contribution to aggregate goods CPI.

Takeaways by Macro Roundup^® AI

Amiti, Heise, and Weinstein estimate that a uniform tariff passes through to non-oil consumer goods prices at roughly 26 percent over twelve months, with a 10 percent tariff raising prices 2.6 percentage points, 1.7 points of it via the direct import channel.
The two indirect channels — marginal costs from imported inputs (0.77 percentage points) and strategic complementarity in domestic markups (0.17 points) — account for 36 percent of the total effect and roughly double between six and twelve months after tariff implementation.
Applied to the actual 2025–26 tariff schedule, the authors estimate the cumulative tariff contribution to goods CPI reached about 2.9 percentage points by February 2026, with import-price pass-through near 90 percent and retail pass-through of 0.56.

Demand-Driven Inflation

Domenico Giannone and Giorgio Primiceri Bookings Papers on Economic Activity

Date Posted:: October 1, 2026
Is Database:: Database

Giannone and Primiceri revisit the relative role of supply vs. demand shocks in generating the post-Covid inflation. Because aggregate demand curves estimated from pre-pandemic data are flat, supply shocks alone would not have generated large inflation in the absence of added demand stimulus.

Demand and supply curve slopes are estimated from pre-pandemic data using the essentially definitional restriction that supply shocks move prices and output in opposite directions along demand curves, while demand shocks move them together along supply curves; the plotted slopes represent Bayesian posterior medians rather than uniquely identified estimates. The estimated demand curves are relatively flat in both the US and euro area [Figure 7], reflecting the central banks’ strong pre-pandemic responses to inflation. With those slopes, adverse supply shifts cause large output losses but comparatively little inflation. [To successfully explain] the combination of inflation and output observed in 2022 therefore requires demand to shift outwards too. Strong demand, including unusually accommodative monetary policy [on top of strong fiscal expansion], cushioned the output losses while increasing inflation [Figure 7]. In 2021–22, both inflation and GDP as subsequently revised exceeded forecasts in the US and euro area. That combination is suggestive of unexpectedly strong demand, whereas an adverse supply surprise alone would raise inflation but lower output. [Figure 9].

Takeaways by Macro Roundup^® AI

Demand curves estimated from pre-pandemic US and euro-area data are relatively flat, reflecting central banks’ strong pre-pandemic responses to inflation, so adverse supply shifts produce large output losses but comparatively little inflation.
Explaining the 2022 combination of inflation and output requires an outward shift in demand, with strong demand — including unusually accommodative monetary policy atop fiscal expansion — cushioning output losses while raising inflation.
In 2021–22, both inflation and GDP as subsequently revised exceeded forecasts in the US and euro area, a combination suggestive of unexpectedly strong demand, since an adverse supply surprise alone would raise inflation but lower output.

The Bond Market Reckoning Has Only Begun

John Authers Bloomberg

Date Posted:: September 30, 2026
Is Database:: Database

The spread between 10-year French OATs and German Bunds has widened at a pace seen only during the eurozone sovereign-debt crisis. John Authers warns that France “satisfies all the classic conditions for a major debt crisis.”

Only in the worst days of the euro zone’s sovereign debt crisis, in 2011 and 2012, has the [spread of 10-Year French OATS over German Bunds] risen so fast. Talk of a second euro-zone crisis, this time with an epicenter in Paris, is growing, and it’s easy to see why. Why is this more of a problem for France and the UK? Beyond their deficits, they also shoulder much higher tax burdens than the US. Tax revenues are 25.2% of GDP in the US, the lowest of the major developed economies - but 35.3% in the UK and 43.9% in France. It’s hard to imagine after decades of tax-cutting, but a US politician could deal with the deficit fairly easily with a tax hike. It’s not clear that option is open to French lawmakers, even if they could somehow persuade voters to go along with them. The populist politicians of left and right, who currently look well placed in next year’s presidential elections, are in any case unlikely to try.

Takeaways by Macro Roundup^® AI

The spread of 10-year French OATs over German Bunds has risen at a pace matched only during the worst days of the euro-zone sovereign debt crisis in 2011 and 2012, fueling talk of a second crisis centered in Paris.
Tax revenues equal 25.2% of GDP in the US, the lowest among major developed economies, versus 35.3% in the UK and 43.9% in France, leaving American politicians more room to close the deficit with a tax hike.
Populist politicians of left and right, currently well placed for France’s presidential election, are unlikely to attempt tax increases to address the deficit.

Is The World Really Drowning In Debt?

Martin Wolf Financial Times

Date Posted:: September 30, 2026
Is Database:: Database

Wolf notes that the global debt-to-GDP ratio rose by less than 10pp btw 2018 and June 2026: after peaking at 337% in early 2021, it fell by 27pp by the end of 2023, as inflation boosted nominal GDP and eroded the value of existing debt.

The IIF shows that between 2018 and June 2026, the rise in the ratio of global debt to output was less than 10 percentage points. The story is striking: the ratio reached a post-Covid peak of 337% in early 2021, before falling by 27 percentage points by the end of 2023. What was this magical “debt-buster”? Good old-fashioned (and supposedly “unexpected”) inflation. This is — to put it mildly — not the first time inflation has wiped out debt. It was, to take one of countless examples, an important part of the UK’s elimination of its post-second-world-war debt. For countries able to print the money in which their debt is denominated, that is often what happens.

Takeaways by Macro Roundup^® AI

IIF data show the global debt-to-output ratio reached a post-Covid peak of 337% in early 2021 before falling by 27 percentage points by the end of 2023, with inflation identified as the force that eroded it.
Between 2018 and June 2026, the IIF shows the ratio of global debt to output rose by less than 10 percentage points.
Inflation has wiped out debt before, forming an important part of the UK’s elimination of its post-second-world-war debt, and often does so for countries able to print the currency in which their debt is denominated.

Foreign Capital Flows Into US Stocks Hit Record As Appetite For Debt Fades

Michael Taffe and George Steer Financial Times

Date Posted:: September 28, 2026
Is Database:: Database

Foreign investors bought a record net $426B of US equities and fund shares in Q2, up 62% y/y, part of a record $942B in the 12 months through July. Overseas investors bought a net $188B of US debt securities in Q2, down from $314B in Q1.

Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, accelerating a shift in overseas investment towards American stocks and away from debt. The flows represented the highest rolling 12-month total in Treasury data going back to 1985. Net purchases of US equities and investment fund shares by foreign investors jumped to $426bn in the second quarter, up 62% from the same period in 2025, and surpassing the previous quarterly record of $299bn in 2022, according to the Bureau of Economic Analysis. Foreign demand for US debt moved in the opposite direction. Overseas investors bought a net $188bn of US debt securities in the second quarter, down from $314bn in the first.

Takeaways by Macro Roundup^® AI

Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, the highest rolling 12-month total in Treasury data going back to 1985.
Net foreign purchases of US equities and investment fund shares reached $426bn in the second quarter, up 62% from the same period in 2025 and above the prior quarterly record of $299bn in 2022, according to the Bureau of Economic Analysis.
Overseas investors bought a net $188bn of US debt securities in the second quarter, down from $314bn in the first.

China’s export growth accelerated following the RMB’s depreciation in 2022, underscoring the role of exchange rates as a factor in external adjustment. Since rising domestic demand no longer lifts imports, Setser argues, reducing China’s trade surplus will require a stronger RMB.

Does balancing China's trade require a stronger currency?

Takeaways by Macro Roundup® AI

Related Articles:

Since 2000, post-tax corporate profits as a share of GDP have trended upward across cyclical setbacks and are now near an all time high, above their 1929 level.

Have corporate profit margins stopped reverting to the mean?

Takeaways by Macro Roundup® AI

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FRBNY estimates that a uniform 10% tariff raised consumer-goods prices 2.6% after 12 months: 1.7pp directly via imported final goods, and 0.9pp mainly via higher imported-input costs for domestically produced goods, with the latter effect building over 9–12 months.

How much of a tariff reaches consumer prices within a year?

Takeaways by Macro Roundup® AI

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Giannone and Primiceri revisit the relative role of supply vs. demand shocks in generating the post-Covid inflation. Because aggregate demand curves estimated from pre-pandemic data are flat, supply shocks alone would not have generated large inflation in the absence of added demand stimulus.

Did outward demand shifts, not supply shocks alone, drive recent inflation?

Takeaways by Macro Roundup® AI

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The spread between 10-year French OATs and German Bunds has widened at a pace seen only during the eurozone sovereign-debt crisis. John Authers warns that France “satisfies all the classic conditions for a major debt crisis.”

Do high tax burdens limit France and the UK's deficit options?

Takeaways by Macro Roundup® AI

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Wolf notes that the global debt-to-GDP ratio rose by less than 10pp btw 2018 and June 2026: after peaking at 337% in early 2021, it fell by 27pp by the end of 2023, as inflation boosted nominal GDP and eroded the value of existing debt.

Does inflation reduce the global debt burden?

Takeaways by Macro Roundup® AI

Related Articles:

Foreign investors bought a record net $426B of US equities and fund shares in Q2, up 62% y/y, part of a record $942B in the 12 months through July. Overseas investors bought a net $188B of US debt securities in Q2, down from $314B in Q1.

Are foreign investors shifting from US debt into US stocks?

Takeaways by Macro Roundup® AI

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