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[OPE-L] Capital Income Balance (RE: [OPE-L] Trade Deficit Disorder)

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I think it is also interesting to see capital income balance as well
as asset balance.

Historically, it looks that US tends to allow depreciation of dollar
against european currencies when US capital income balance
decreases to zero. Depreciation of dollar makes foreign direct
investment income larger in dollar term and makes no change
in payment (mostly interest on US government bonds).
Thus US have been avoiding nagative capital income balance
although it has huge negative balance in assets.

Capital income balance in the 2005Q4 was $-944mil. It will
widen further unless dollar falls.

Iwao


From: Jurriaan Bendien <adsl675281@xxxxxxxxxx>
Reply-To: OPE-L <OPE-L@xxxxxxxxxxxxxxxx>
To: OPE-L@xxxxxxxxxxxxxxxx
Subject: [OPE-L] Trade Deficit Disorder
Date: Tue, 21 Mar 2006 17:28:37 +0100

The term trade deficit should not be equated with the current
account
deficit, because the latter refers not just to a negative balance of
imports
vs exports of goods and services, but also capital income flows. In
the US,
income receipts (as distinct from the payments relating to the value
of
goods and services traded internationally) were in 2004 about 26% of
total
current receipts from the rest of the world, and about 16% of
current
payments to the rest of the world.

Also, in the UK example, the balance of trade on goods is generally
negative, and the balance of trade on services is positive.

If a country imports more capital than it exports, then this has a
negative
effect on the current account balance, but nobody in the country
will object
to it much - the capital account will show a surplus. If a country
exports
more capital than it imports, it might be considered a bad thing
insofar
as it represents capital flight.

The real problem is with the current account concept itself, since
it does
not show clearly the disposition of capital funds (i.e. exactly
where they
go, where they are invested). The current account is itself not a
good
statement of the total investment position of a country. It's merely
a
current national debtor-creditor payments statement.

BEA comments: "The U.S. net international investment position at
yearend
2004 was -$2,484.2 billion (preliminary) with direct investment
valued at
current cost, as the value of foreign investments in the United
States
exceeded the value of U.S. investments abroad. The -$327.5 billion
change in
the net investment position from yearend 2003 to yearend 2004 was
largely
due to substantial net foreign purchases of U.S. Treasury securities
and
U.S. corporate bonds.  The impact of these net purchases was partly
offset
by appreciation of most foreign currencies against the U.S. dollar,
which
raised the dollar value of U.S.-owned assets abroad, especially of
U.S.-owned foreign stocks.  In addition, increases in stock market
prices
raised the value of U.S. holdings of foreign stocks somewhat more
than they
raised the value of foreign holdings of U.S. stocks."
http://www.bea.gov/bea/newsrel/intinvnewsrelease.htm

In reality, both US acquisitions abroad, and foreign acquisitions in
the US,
reached record levels

Jurriaan

There are many dangers
They could be in a toaster or a common thing
You must keep a lookout
Remember all the rules they have for everything

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