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Chapter 1: Why is the share of U.S. debt held by foreign countries declining?
You know what we need right now? A little macroeconomic analysis. That's what we need right now. From American Public Media, this is Market Flash. In Los Angeles, I'm Kyle Rizdahl. It is Wednesday. Today, this one is the 8th of April. Good as always to have you along, everybody. Well, here we are, the day after.
A moment, despite all of the continuing unknowns of both the known and unknown variety, to perhaps take stock of where things stand. To do that, we've gotten Mohamed El-Erian on the phone. He's a professor at the Wharton School at the University of Pennsylvania, also the chief economic advisor at Allianz. Professor El-Aryan, welcome back to the program, sir. Thanks for having me on.
The answer to this question will obviously be different than it would have been yesterday at this time.
Chapter 2: How does the shrinking foreign investment impact American consumers?
But I wonder, given the events of the day, the week, the month, your short-term, medium-term thoughts on the global economy.
Wow, that's a really difficult question because there's so much uncertainty about the war. But let me think in terms of the four phases. And we are now, the U.S. in phase two and phase three elsewhere. While we started the year well, we got a massive shock in the shape of the war.
We had the first phase, which is done, and we are living with it, higher energy prices than would have been otherwise and higher interest rates than would have been otherwise. We then got phase two, which is more inflation in the pipeline. That's where the U.S. is now as the largest economy. Parts of Asia, unfortunately, have moved to phase three,
which is not only do you get phase one and phase two, but you also get demand destruction. So you start worrying about economic growth. And of course, phase four, which I hope we never get to, would be financial instability undermining the economy. So we are looking at a world in which the U.S.
Chapter 3: What are the implications of Delta Airlines' recent earnings report?
outperforms the rest of the world. And parts of the rest of the world, Asia in particular, parts of Europe, risk recession.
A word here about the United States doing better than most of the rest of the world. You wrote the other day a piece, the headline of which was, America should beware of economic hubris. And setting aside for a second the fact that hubris is basically American government policy now in virtually all areas, what do you mean by that?
So Americans are proud, and rightly so, that we are energy independent. As such, we don't have to worry about physical supplies. But this sort of shock, Kai, hits virtually every single country. So the warning I was trying to send out is don't think that relative matters as much as absolute. Yes, the U.S. will outperform other countries,
But in absolute terms, there will be higher inflation, there'll be a bigger affordability crisis, and some segments of the population are going to feel income insecure. So let's not celebrate too much our relative outperformance, because ultimately, it's the absolute performance that matters to people, especially people in the low-income segments of the household.
Step back for a minute then and talk to me about America's place in this global economy, because it certainly seems self-evident. And there are those who will disagree when they hear this.
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Chapter 4: How do rising jet fuel prices affect airline operations?
But America's place in the global economy has been intentionally lessened by the Trump administration through its policies, tariffs specifically, but also. at least incidentally, by this war and how it's been conducted and what it has done to the global economy. So what are we looking at now in a global economy where the American position is lessened at best?
The U.S. is still at the core of the system. Well, that wall is being eroded. It started in 2008 and when the global financial crisis originated in the U.S., it has continued with the weaponization of tariffs and investment sanctions, and this war is eroding it further. Now, the good news for us is there's no one to replace us. You cannot replace something with nothing. Europe can't step in.
China can't step in. However, what's happening is that countries are slowly building little pipes, Guy, around the core, which is the U.S., And that means that if this continues, the U.S. ability to inform and influence outcomes is going to come down.
Chapter 5: What is the difference between PCE and CPI in measuring inflation?
The U.S. ability to take advantage of its reserve currency status and our deepest financial system in the world, that advantage will come down and the U.S. will be worse off than it would have been otherwise. That seems bleak. The good news is there's a long runway because there's no one here to step in. But you have to be careful.
And I didn't even mention that our fiscal position is bad and getting worse. We're now looking at a fiscal deficit as high as 7% of GDP, which is very high when your unemployment rate is as low as 4.3%.
How long is the runway, sir? And look, I asked, sorry, I asked this not to be a downer, but it took us winning a world war, helping to win, and 80 years of crafting policies that greatly favored the United States. And now we have here in the space of, as you just pointed out, something less than 20 years started to tear it all apart.
Yeah. And answering the question is hard because these dynamics are nonlinear, right? It takes a lot longer than you expect to begin with, and then it happens a lot faster. You know, we used to be respected for two principles.
Chapter 6: Why is the U.S. Treasury borrowing more domestically?
One is what was called the Washington Consensus. It was very simple. If you want to prosper, follow America. Liberalize, deregulate, be fiscally responsible, and respect the independence of your central bank. We no longer lead on the Washington Consensus. We also led the globalization process. And now we are the leader in undermining the notion of globalization.
At best, we will end up with some type of managed globalization light. So we no longer have these unifying themes that the U.S. used to lead. And they were good for most countries, but they were certainly good for the U.S.,
Mohamed El-Erian is a professor at the Wharton School at the University of Pennsylvania. He's also the chief economic advisor at Allianz. Dr. El-Erian, thanks for your time, sir. It's always good to have you on.
Chapter 7: How does increased domestic borrowing affect interest rates for consumers?
Please call me Mohamed. Thank you. Tenuous, though that ceasefire seems to be, traders just didn't care. We'll have the details when we do the numbers. Not that we need more items economic to keep our eye on right now, but we've wandered into earnings season for the last quarter, January to March, which was... Oh, how should I put it? Interesting. Also challenging for corporate America.
Delta Airlines reported this morning a bellwether of the travel industry and also a company that is smack in the crosshairs of all of the war's disruptions. Soaring jet fuel prices, consumers jittery about geopolitical conflict and that shutdown induced hours long lines thing we went through at TSA. How then did Delta do? Well, pretty darn well, actually.
Marketplace's Mitchell Hartman explains what's going on there.
Delta's certainly not immune to developments in the Strait of Hormuz and soaring jet fuel prices, says analyst Nicholas Owens at Morningstar. They did say they had $2 billion of incremental fuel cost, and the price per gallon is almost double what it was a year ago.
Chapter 8: What role does sync music play in the current music industry?
And the airline's responding aggressively, says Alex Faciano at CFRA Research.
Delta plans to raise airfare, raise baggage fees.
And that's not likely to drive away too many customers, says Nicholas Owens at Morningstar. Delta is the most profitable North American airline, and that gives them some cushion to absorb the temporary hit from spike in fuel cost. A big reason is Delta's relatively affluent customer base. In Q1, its revenue at the front of the plane, so the fancy seats, was up 14%.
They're seeing persistent demand. People are paying the higher fares regularly. They have these premium seats and a well-heeled, less price-sensitive customer. So what about the other major U.S. airlines? They're dealing with the same soaring jet fuel costs, and they're more dependent on selling economy seats.
Some are also raising their prices, which could turn off inflation-stressed consumers, says Johnny Sawyer at public opinion firm Ipsos. He points to a recent poll that found two in three Americans spending less on experiences. Lower income Americans were definitely more likely to say that they'll either avoid bookings just by plane or just cancel their trips entirely.
Different pattern emerging for higher income Americans, though. According to Morning Consult, their spending on airfare and hotels shot up in March. Senior economist Sophia Baig says geopolitical conflict clearly isn't much of a deterrent.
Some people don't see this conflict as here to stay, and so it's just a blip, and they're just continuing to behave as normal.
And plan their summer vacations. I'm Mitchell Hartman for Marketplace.
We, the United States, that is, spend way, way more than we take in. The way we cover that shortfall, the deficit that accumulates every year and that adds up to the national debt, the way we cover that is by borrowing a lot. And who the Treasury Department borrows from does make a difference. Over the past couple of decades, the share of U.S.
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