When the capital inflow is bigger than the current account gap, won't that just push up the value of the dollar (or whatever currency)? And isn't the reverse true, too? My point is that the two numbers don't always have to match -- but when they don't it always shows up in the exchange rate. Right?
Seth
Doug wrote:
[Seth Ackerman] << 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. [Seth Ackerman] >>
>
> Doug