why capital . . .

Doug Henwood dhenwood at panix.com
Mon Mar 8 20:39:09 PST 1999


christian a. gregory wrote:


>thanks for that clear explanation. i was (and still am) a little confused at
>the debt figures that you and doug cite. doug had said that the u.s. was
>living $400 billion beyond its annual means. you cite $1.7 trillion as the
>total debt on international investment position. these numbers seem out of
>whack--doug's would imply a much bigger total debt figure than you cite, in
>my mind. and, i'm not clear which of these figures (if either one)
>corresponds to the capital account and in what measure. could you explain?

The $400b figure was the apparent capital inflow in 1998 according to the flow of funds stats - but they don't match the Commerce Dep't's capital account numbers. I must get to the bottom of this soon.

But the theory is that a deficit on the current account (trade in goods and services and net investment income) must be matched by an inflow on the capital account; if you spend more than you earn you borrow the difference and tack it onto your running tab. This deficit is running $200-250b a year, the amount by which U.S. international debt has been increasing, to a total now of $1.7t or $2t. (The difference can be accounted for by when the accounting is taken, and what's included exactly. The numbers are big enough and close enough that the difference hardly matters.)

What struck me in looking at the flow of funds numbers was that the inflow seemed even larger than the current account deficit, an amount that I speculated might be sloshing around on Wall Street. The statistical discrepancies (i.e., numbers not adding up) on both the national income accounts and the international accounts have been very large for the last couple of years, and this may be what's causing the problem. 100% speculation right now, though.

Doug



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