Brad Setser Profile picture
Aug 23 8 tweets 2 min read Twitter logo Read on Twitter
The real Irish economy (GNI*) is about half the size of the reported Irish economy -- the gap is a measure of profit shifting by big US companies, and it continues to grow ...

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It is hard for me to believe that a well designed US tax reform wouldn't lead some of the current Irish profits -- and the associated tax revenue -- to move back to the US. The sums are no longer small ..

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"multinational companies’ ... profits helped to boost Irish corporation tax receipts by 48 per cent last year to a record high of €22.6bn" -- that is about 9% of the size of Ireland's "true" economy (GNI*) ... and not a small gift to Ireland from the TCJA + BEPS.

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@Alea_ Put differently, Joe Biden would be just as fond of a EUR 250 Ireland as a EUR 500b Ireland -- unlike some of Ireland's current tax friends ...
@countdraghula @FionaMullenCY @danobrien20 walk around certain parts of Dublin and look at the bass signs on the door -- international business consultants, international advisories etc. visit Dublin's docklands - and see the EU tax HQs of firm after firm. there are spill-outs. hence the appeal of the approach
@countdraghula @FionaMullenCY @danobrien20 I think the real production of Apple and Microsoft and some other tech firms in Ireland is at best debatable, but these companies are using Ireland to avoid paying 21% in the US on their non US profit. & the tax game requires hiring plenty of accountants and tax lawyers
in the Irish BoP Ireland imports a ton of phones (from China) and reexports them at a huge markup (merchanting) b/c Apple Ireland contracts with Foxconn. that is what the FT story refers too. nothing real in that transaction other than the markup and booking the profit in Ireland not the Us

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More from @Brad_Setser

Aug 25
Nice summary of China's economic troubles from the Economist.

Think this Goldman chart more or less nails the core problem

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I am also pleased to see that the need for China's central government to use its own balance sheet to do a household focused stimulus is (almost) now conventional wisdom.

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Until recently, only a few careful observers knew that China's stimulus typically came from local levels of government

& it certainly didn't feel like centrally financed fiscal support was a consensus recommendation back when I wrote this in 2016

3/

cfr.org/blog/asias-per…
Read 4 tweets
Aug 24
One of my favorite charts - updated with data through q2.

China's dollar portfolio -- at least its reserve portfolio -- historically can be tracked using the US balance of payments/ TIC survey data.

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China has disclosed that it reduced the dollar share of its reserves from 79% to 58% between 2005 and 2015.

Guess what -- they is what the US data shows (if you remember to adjust for the euroclear account in Belgium/ include equities)

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If you look closely at the first chart, there looks to be a bit of tracking error -- Chinese purchases of US financial assets were a bit stronger than needed to keep a 60% portfolio share in 2022 ...

3/
Read 9 tweets
Aug 21
Superb summary of China's current policy predicament from @Lingling_Wei and @yifanxie --

Captures both the current moment, and set of decisions over the last twenty years that created today's unbalanced Chinese economy.

1/

wsj.com/world/china/ch…
I particularly appreciated the attention paid the key macroeconomic variables -- like household consumption (note the steep fall in consumption v GDP from 2000 to 2010 ... before Xi ... this fall coincides with the rise in China's external imbalances)

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Note that investment -- which was thought to be unsustainably high in the years before the global financial crisis -- remains substantially higher now than it was from 2005 to 2007 ...

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Read 14 tweets
Aug 18
With China defending the yuan (so far through the state banks) and the yen approaching levels where Japan might intervene, the impact of foreign central bank reserves on the Treasury market is getting new attention ...

So it is worth reviewing the basics.

1/
One, is that central banks often buy longer dated maturities than they tend to sell, for fairly obvious reasons (the most obvious source of liquidity = maturing securities) so the flow impact of purchases and sales might not be symmetric ...

2/
But more importantly, the foreign central bank bid for Treasuries hasn't been constant over time: think of 3 eras:

03 to 08 (dollar reserve growth exceeds UST issuance)
09 to 14 (big increase in dollar reserves and UST supply)
15 on (no net increase in dollar reserves)

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Read 13 tweets
Aug 18
Very sensible points from JP Morgan --

Central banks don't hold many long-dated Treasuries.

Their portfolios are concentrated at the short-end

bloomberg.com/news/articles/…
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Central banks that in the past bought longer dated notes to generate a bit of yield and that have very large portfolios (cough, China) also have a strong incentive not to sell their long-duration Treasuries -- they often carry the bonds at book and don't want to realize losses.
The Chinese state banks that are carrying out the PBOC's command to stabilize the yuan also likely have a substantial liquidity buffer of their own -- they wouldn't immediately need to dip into their $300b or so bond portfolio. Estimated sales so far aren't huge ...
Read 9 tweets
Aug 17
After the global financial crisis, China become a construction dependent economy.

Great Rogoff and Yang chart highlighted by @MESandbu today

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Actually a construction and export driven economy -- China's manufacturing export surplus in the past few years has actually returned to its pre GFC levels (the manufacturing surplus is about 10% of GDP) ....

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Hence China's current funk -- the proactive policy tightening to avoid a housing bubble triggered a property market crash (and the effective bankruptcy of the biggest private developers.

And US consumers now want vacations not goods.

3/
Read 7 tweets

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