From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Tue Mar 21 2006 - 11:28:37 EST
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 - Crash Test Dummies
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