Scott Bessent, at his confirmation hearing in Jan/2025 to be Treasury Secretary: "the tragedy going on in Ukraine is one of the greatest tragedies of my adult life ... I believe that the sanctions [on Russia] were not fulsome enough. I believe that the previous administration was worried about raising US energy prices during an election season... if I'm confirmed and if President Trump requests ...I will be 100% on board for taking sanctions up." Mark Warner (D-VA): "I very much appreciate your willingness and I hope you will be an advocate for keeping those sanctions on and actually advancing them even further."

Well, relative to France, the U.S. fiscal position is more sustainable (more precisely, less unsustainable) by virtue of its much higher growth, which makes its debt dynamics less dangerous.

Deep dive into how Scott Bessent runs Treasury. In January, he confronted the agency’s undersecretary for terrorism and financial intelligence, yelling at him in front of aides and unleashing profanities. Bessent shouted so loudly that staff working nearby could hear him, according to people with direct knowledge of the matter, @schwartzbWSJ @jdawsey1 @PhilipWegmann @GZuckerman report. People who have worked with Bessent said he often appears calm but can excoriate staff when he is frustrated. Some aides said they ask colleagues about the secretary’s mood before coming into contact with him, and trade advice on how to avoid him when he is angry. Several officials described feeling relieved when Bessent was away from the office. But Trump has only pulled Bessent closer, empowering him to solve stubborn problems in the economy. Bessent’s defenders argue his intense approach to the job is an asset.

1/ Mind blowing story about Trump accounts by @RichardRubinDC & @ashleaebeling. Under Treasury's new rules, a company can donate stock to a child's Trump account; parents can’t pick the stocks, reject donated shares, or sell for 5 years. Some possible implications...

Nominal gross domestic product & income growth are fastest since 2006 ex-pandemic years. A simplistic regression suggests that growth is consistent with 10 year yields of 5.5%-5.8%. Read more in our newsletter

Random thought. It was luck that the companies best suited to building out AI happened to be immensely profitable quasimonopolists. They could finance the first leg of the buildout internally without having to meet external ROIC tests. Though they are now issuing debt, that debt is backed by the hyperscalers' non-AI cash flows, not the AI itself. In other words, the AI capex boom has been possible because the technology has never had to prove its profitability. That wasn't the case with the TMT or other prior booms, which went bust when the capex ran too far ahead of the prospective profits.

You would need an extra full percentage point of additional total factor productivity growth every year for the next 10 years just to stabilize debt-to-GDP. It's plausible we may get that magnitude of boost from AI for *some* years. But I would not bet we get that for *ten* years

Scott Bessent to Reuters: “The world cannot have a China with a $1.2 trillion trade surplus…They need to rebalance their economy…The rest of the world is going to have to examine their terms of trade with China.”

Thanks @Brad_Setser. Your work on estimating the true size of China's current account surplus is thoughtful and helpful. Agree that there are important measurement issues and the income balance of China seems badly off. No disagreement here. The question is how does the measure of the current account surplus map to estimates of undervaluation. Here your procedure is the same as the IMF's, except that you start out with a larger CA surplus. My concern is with people reading more into what this estimate is relative to what it can possibly convey. As I mentioned in my previous post the IMF methodology involves estimating how much the renminbi would need to appreciate (given an empirical estimate of elasticity of the current account to the real exchange rate) to close the current account gap over the medium-term *IF* all else was held equal, that is if there was a way to do this with no change in any component of aggregate demand in the country, and *IF* there was no feedback from changes in the real exchange rate to aggregate demand. It is therefore not a statement that the problem is necessarily the exchange rate. For instance, the IMF estimates the dollar to be overvalued by around 20%. This does not mean that the expectation is that over the next 3-5 years the dollar will necessarily need to depreciate by 20%. Many combinations of real exchange rate movements, demand, supply, can close the gap. This is why, ultimately, when discussing how to adjust imbalances the approach of what macropolicies will generate balanced growth and fix imbalance is my preferred approach. I know it is not yours, but we can agree to disagree :)

NEW: Trump spent months declaring Maduro's ouster secured Venezuela's oil for America. When US oil companies resisted investing, his administration devised an extraordinary solution to turn his vision into reality: make the U.S. government itself an investor through the Pentagon. We have the details.

I very much agree Without a significant currency appreciation -- or massive change in China's growth model that leads to a currency appreciation -- China will continue to grow through net exports 2/

China's surplus is becoming a collective action problem for the rest of the industrial world. If America alone closes its market, Chinese production spills more heavily into Europe, Canada, Latin America, etc. Ip's proposal of a new Plaza Accord for the yuan is similar to Michael Pettis' call for a customs union. Both ideas speak to the same conclusion: coordinated refusal to continue absorbing China's surplus. Failure to do risks the entire Western effort toward reindustrializing, especially in the U.S. where the location of productive capacity is increasingly a national security question rather than a purely economic one. This is why America increasingly wants more unified policing from allies in its trade negotiations. The system has to change.

"A currency accord, enforced with tariffs, might be the only way to get China to act. The time may be ripe. Frustration with China is boiling over, especially in Europe." @greg_ip via @WSJ

Indeed. My work suggests China's current account surplus should have tracked the movement in its non gold customs surplus -- and thus the true surplus is $1.2 trillion/ 5.5% of GDP or so, 1.5 pp of GDP more than the reported 4 pp surplus

We need a new Plaza Accord, to revalue the yuan. China's exploding trade surplus hurts everyone else, but it ignores pleas to pivot from exports to consumption. A yuan revaluation, backed w/threat of tariffs, may be the only solution. My latest: