The Balance of Payments: Linking the United States to the International Economy. The Current Account. Trade Flows for the United States and Japan, 2006. The Balance of Payments of the United States, 2006 (billions of dollars). Don’t forget net compensation of nationals working abroad
The Current Account
Trade Flows for the United States and Japan, 2006
The Balance of Payments of the United States, 2006 (billions of dollars)
Don’t forget net
compensation of nationals working
(= Labor Services)
The Balance of Payments
U.S. Imports and Exports, 1970–2006
Current account Records payments for currently produced goods and services, including capital and labor services.
Financial account The part of the balance of payments that records purchases of assets a country has made abroad and foreign purchases of assets in the country.
Net foreign investment The difference between capital outflows from a country and capital inflows.
Also equal to net foreign direct investment (fdi) plus net foreign portfolio investment.
Capital account The part of the balance of payments that records relatively minor transactions, such as migrants’ transfers, and sales and purchases of nonproduced, nonfinancial assets.
Balance of Payment Arithmetic
Current Account Balance + Financial Account Balance = 0
Current Account Balance = -Financial Account Balance
Net Exports = Net Foreign Investment … NX = NFI
Why Is the United States the “World’s Largest Debtor”?
Large current account deficits have resulted in foreign investors purchasing large amounts of U.S. assets.
Can the U.S. Current Account Deficit Be Sustained? Rebalancing!
Sustaining the Unsustainable
U.S. trade-weighted exchange index: Major currencies.