Balance of Payments.ppt

Balance of Payments Current Account data is for 1998 Balance of Payments Accountingcurrent acct + nonofficial capital acct + official capital acct + ) SDR + SD / 0 Two important Rules Credit sales of U.S. goods, services, and assets to foreigners. Debit purchases of foreign goods, services and assets by U.S. residents. Every transaction involves a simultaneous credit and debit = identity: sum of the credits and debits = 0. Current Account Includes transactions dealing with: goods services = royalties, license fees, traveling, shipping, banking, insurance, consulting fees transfer payments income receipts = dividends, interest earnings, repatriated profits, compensation of employees sub-accounts: merchandise trade balance balance on goods and services income account (old investment income account + compensation of employees) Depends on: Domestic versus foreign prices Exchange rate movements Foreign income Domestic income Market impediments Current Account for North and South American Countries Current Account for Asian Countries Current Account for European Countries and South Africa Current Account as a percent of GNP for North and South American Countries Current Account as a percentage of GNP for Asian Countries Current Account as a percentage of GNP for EuropeanCountries and South Africa Investment Income Account Positive from 1946 to 1993, but started to decline in 1983 Negative in 1994: U.S. owned $2.6 trillion (market value) of foreign assets and foreigners owned $3.5 trillion of U.S. assets In 1999, investment income receipts on U.S. assets abroad = $274 billion and income payments to foreigners = $287 billion = $13 billion dollar deficit Are Deficits a Problem? Deficit with Japan: Japanese import more per capita from U.S. than U.S. does from Japan. According to Kenneth Kasa (San Francisco Fed) As U.S. baby boomers come to age saving will increase and as Japanese retire their spending will increase = U.S. current account deficit will shrink.