Liberty Street Economics

May 21, 2025

Nonbanks and Banks: Alone or Together?

Nicola Cetorelli, Gonzalo Cisternas, and Asani Sarkar

Nonbank financial institutions (NBFIs) constitute a variety of entities—fintech companies, mutual funds, hedge funds, insurance companies, private debt providers, special purpose vehicles, among others—that have become important providers of financial intermediation services worldwide. But what is the essence of nonbank financial intermediation? Does it have any inherent advantages, and how does it interact with that performed by banks? In this Liberty Street Economics post, which is based on our recent staff report, we provide a model-based survey of recent literature on nonbank intermediation, with an emphasis on how it competes, or cooperates, with traditional banks.

Posted at 7:00 am in Banks, Nonbank (NBFI) | Permalink | Comments (0)

May 20, 2025

Why Does the U.S. Always Run a Trade Deficit?

Thomas Klitgaard

Photo: Shipping container in the middle of the ocean.

The obvious answer to the question of why the United States runs a trade deficit is that its export sales have not kept up with its demand for imports. A less obvious answer is that the imbalance reflects a macroeconomic phenomenon. Using national accounting, one can show deficits are also due to a persistent shortfall in domestic saving that requires funds from abroad to finance domestic investment spending. Reducing the trade imbalance therefore requires both more exports relative to imports and a narrowing of the gap between saving and investment spending.

Posted at 7:00 am in International Economics | Permalink | Comments (0)

May 15, 2025

The College Economy: Educational Differences in Labor Market Outcomes

Rajashri Chakrabarti, Thu Pham, Beckett Pierce, and Maxim Pinkovskiy

Photo: Split screen of Two women working, the first is a Housekeeper cleaning a hotel room. The second is thinking, laptop and typing businesswoman, bank consultant or working on research report, project or solution. Computer, administration analysis and professional person reading online account data.

It is intuitive that workers with higher levels of education tend to earn more than workers with less education. However, it is also true that workers with more education are much more likely to be employed, and this employment advantage of education has, if anything, grown in recent years. In this post, we document profound differences in labor market outcomes by educational attainment. Drawing on the Economic Heterogeneity Indicators, we find that the gap in employment rates between workers who have completed college and workers who have not is 12 percentage points—which is larger than the employment gaps between workers of different races/ethnicities or between men and women—and is wider than the pre-pandemic gap. Moreover, most of this gap and its recent movements are driven by differences in labor force participation rates rather than by differences in unemployment rates. Fostering higher labor force participation of workers without a college degree thus would be quite helpful in promoting maximum employment.

Posted at 7:00 am in Education, Employment, Labor Market | Permalink | Comments (0)

May 13, 2025

Student Loan Delinquencies Are Back, and Credit Scores Take a Tumble

Andrew F. Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der Klaauw

This morning, the Center for Microeconomic Data at the New York Fed released the Quarterly Report on Household Debt and Credit updated through the first quarter of 2025. Over the first quarter, overall household debt rose by $167 billion. An increase of $199 billion in mortgage balances and modest increases in home equity lines of credit (HELOC) and student loans were offset by declines in auto loans and credit card debt of $13 billion and $29 billion, respectively. The decline in credit card balances is a typical seasonal pattern associated with consumers paying down holiday spending from the fourth quarter, but the auto loan decline was atypical, the first such decline since the third quarter of 2020. The rates at which auto loans and credit cards became seriously delinquent improved slightly, while mortgage and HELOC transition rates edged up but remained low. However, the delinquency rate for student loans stands out: it surged from below 1 percent to nearly 8 percent, as the pause on reporting delinquent federal student loans ended. In this post, we focus on student loan delinquency, including which borrowers are past due and what it might mean for their access to credit.

Posted at 11:00 am | Permalink | Comments (2)

May 12, 2025

Who Finances Real Sector Lenders?

Nina Boyarchenko, Hyuntae Choi, and Leonardo Elias

Decorative Image: Internet Banking Technology concept

The modern financial system is complex, with funding flowing not just from the financial sector to the real sector but within the financial sector through an intricate network of financial claims. While much of our work focuses on understanding the end result of these flows—credit provided to the real sector—we explore in this post how accounting for interlinkages across the financial sector changes our perception of who finances credit to the real sector.

Posted at 7:00 am in Banks, Credit, Nonbank (NBFI) | Permalink | Comments (0)

April 24, 2025

Gauging the Strength of China’s Economy in Uncertain Times

Jeffrey B. Dawson and Hunter L. Clark

People walking on Nanjing Road, Shanghai, China

Amid increasing pressure on the Chinese economy from China’s trade conflict with the U.S., assessing the strength of the Chinese economy will be an important watch point. In this post, we provide an update on China’s recent economic performance and policy changes. While China is likely to counter growth headwinds from the escalating trade tensions with additional policy stimulus, the country’s complex fiscal dynamics and the varying interpretations of the strength of its economic growth made judgments of the efficacy of China’s policy response challenging even in a more predictable environment. In this respect, we argue that aggregate credit is a simple and effective measure to gauge policy stimulus in China. At present, China’s “credit impulse”—the change in the flow of new aggregate credit to the economy relative to GDP—appears likely sufficient to allow it to muddle through with steady but not strong growth over the next year despite the intensifying trade conflict.

Posted at 7:00 am in International Economics, Tariffs | Permalink

April 23, 2025

Stablecoins and Crypto Shocks: An Update

Kenechukwu Anadu, Pablo D. Azar, Marco Cipriani, Thomas M. Eisenbach, Catherine Huang, Mattia Landoni, Gabriele La Spada, Marco Macchiavelli, Antoine Malfroy-Camine, and J. Christina Wang

Photo of USD Coin price ticker with up arrows on +2.6% 22.4.

Stablecoins are crypto assets whose value is pegged to that of a fiat currency, usually the U.S. dollar. In our first Liberty Street Economics post, we described the rapid growth of stablecoins, the different types of stablecoin arrangements, and the May 2022 run on TerraUSD, the fourth largest stablecoin at the time. In a subsequent post, we estimated the impact of large declines in the price of bitcoin on cumulative net flows into stablecoins and showed the existence of flight-to-safety dynamics similar to those observed in money market mutual funds during periods of stress. In this post, we document the growth of stablecoins since 2019, including the evolution of the reported collateral backing major stablecoins. Then, we estimate the impact on the stablecoin industry of large bitcoin price increases that occurred between 2021 and 2025.

Posted at 7:00 am in Cryptocurrencies, Financial Markets | Permalink

April 21, 2025

The Origins of Market Power in DeFi

Pablo D. Azar, Adrian G. Casillas, and Maryam Farboodi

Photoillustration of blockchain in colors of blue.

In our previous Liberty Street Economics post, we introduced the decentralized finance (DeFi) intermediation chain and explained how various players have emerged as key intermediaries in the Ethereum ecosystem. In this post, we summarize the empirical results in our new Staff Report that explains how the need for transaction privacy across the DeFi intermediation chain gives rise to intermediaries’ market power.

Posted at 7:00 am in Cryptocurrencies, Financial Intermediation | Permalink

April 16, 2025

When College Might Not Be Worth It

Jaison R. Abel and Richard Deitz

Two young college students, woman and man, working on an engineering project together at a table.

In our last post, we showed that the economic benefits of a college degree still far outweigh the costs for the typical graduate, with a healthy and consistent return of 12 to 13 percent over the past few decades. But there are many circumstances under which college graduates do not earn such a high return. Some colleges are much more expensive than average, and financial aid is not guaranteed no matter which college a student attends. In addition, the potentially high cost of living on campus was not factored into our estimates. Some students also may take five or six years to finish their degrees, which can significantly increase costs. Further, our calculations were based on median wages over a working life, but half of college graduates earn less than the median. Indeed, even when paying average costs, we find that a college degree does not appear to have paid off for at least a quarter of college graduates in recent decades. In this post, we consider when college might not be worth it and explore differences in the return to college by major.

Posted at 9:01 am in Education, Human Capital | Permalink | Comments (4)

Is College Still Worth It?

Jaison R. Abel and Richard Deitz

Photoillustration of a college student in the foreground with a backpack. His back is to the viewer. He walking toward a campus building with other students in the distance.

A college degree was once viewed as a surefire ticket to a good job and a clear pathway for upward mobility. However, concerns about the rising cost of college and the struggles of recent college graduates to find good jobs have led many Americans to lose confidence in higher education. This shift in sentiment has become even more widespread since the pandemic, as opportunities and wages have grown for those without a degree as labor markets strengthened. Indeed, many have been left wondering whether college is still worth it. In a two-part blog series, we offer an economic perspective on the value of a college degree, updating our previous research and analysis. This first post examines the costs, benefits, and return for the typical college graduate. We estimate the return to college at 12.5 percent, a rate well above the threshold for a sound investment. Our second post looks beyond the typical graduate and finds a college degree might not be worth it for at least a quarter of college graduates.

Posted at 9:00 am in Education, Human Capital | Permalink | Comments (8)

Markets & Policy Implementation

Liberty Street Economics

Nonbanks and Banks: Alone or Together?

Why Does the U.S. Always Run a Trade Deficit?

The College Economy: Educational Differences in Labor Market Outcomes

Student Loan Delinquencies Are Back, and Credit Scores Take a Tumble

Who Finances Real Sector Lenders?

Gauging the Strength of China’s Economy in Uncertain Times

Stablecoins and Crypto Shocks: An Update

The Origins of Market Power in DeFi

When College Might Not Be Worth It

Is College Still Worth It?

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