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

From: Kitamura Iwao (iwao_kitamura@HOTMAIL.COM)
Date: Tue Mar 21 2006 - 18:19:32 EST

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.


>From: Jurriaan Bendien <adsl675281@TISCALI.NL>
>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
>deficit, because the latter refers not just to a negative balance of
>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
>goods and services traded internationally) were in 2004 about 26% of
>current receipts from the rest of the world, and about 16% of
>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
>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
>more capital than it imports, it might be considered a bad thing
>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
>statement of the total investment position of a country. It's merely
>current national debtor-creditor payments statement.
>BEA comments: "The U.S. net international investment position at
>2004 was -$2,484.2 billion (preliminary) with direct investment
>valued at
>current cost, as the value of foreign investments in the United
>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
>due to substantial net foreign purchases of U.S. Treasury securities
>U.S. corporate bonds.  The impact of these net purchases was partly
>by appreciation of most foreign currencies against the U.S. dollar,
>raised the dollar value of U.S.-owned assets abroad, especially of
>U.S.-owned foreign stocks.  In addition, increases in stock market
>raised the value of U.S. holdings of foreign stocks somewhat more
>than they
>raised the value of foreign holdings of U.S. stocks."
>In reality, both US acquisitions abroad, and foreign acquisitions in
>the US,
>reached record levels
>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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