Re: Balance of payments

On Sat, 09 Apr 2005 06:09:47 GMT, Mason A. Clark
<masoncNOT@xxxxxxxxxxxxxxxxxxxx> wrote:

>On Fri, 08 Apr 2005 21:43:01 -0700, William F Hummel <wfhummel@xxxxxxxxxxx>
>wrote:
>
>>On Fri, 8 Apr 2005 23:28:10 -0400, "Matt Timmermans"
>><mt0000@xxxxxxxxxxxxxxxxxxxxxxxxxx> wrote:
>>
>>>
>>>"William F Hummel" <wfhummel@xxxxxxxxxxx> wrote in message
>>>news:jca851ti8de5r9he1l0hmcsiu8qcj5kb8p@xxxxxxxxxx
>>>> The basic rule is: a current account deficit is financed by a net
>>>> capital inflow, otherwise known as capital account surplus.
>>>
>>>I believe the point of whomever Mason quoted was that the "balance" only
>>>exists because we assume it to be so, and then measure the value of that
>>>capital by what got paid for it.
>>
>>The "current account" and the "capital account" are defined such that
>>they balance in an accounting sense. So it is a matter of definition,
>>not assumption.
>>
>>A country has to offer something to acquire something from abroad.
>>If it doesn't trade goods or services to acquire foreign goods, it
>>must trade financial claims of equal value. Of course the value of
>>the claims can subsequently vary, depending on a exchange rates,
>>market conditions, etc.
>
>However, this *defines* them balanced even though the capital paid stays
>forever overseas. Which it has been doing to some extent. So the
>balance seems a bit of a white lie.

No, the dollars paid to purchase foreign goods remain in the U.S.
except for whatever is converted to paper dollars for use overseas,
in which case they represent a pure gift to the US economy -- goods
for paper that is no longer a claim on US residents.

>Does anyone actually measure the
>capital account? (of course, I can't imagine how they measure *any* of
>these things )
>
Yes, but the measurement is never exact, though surprisingly close.
For example in the year 2000, according to the "Economic Report of the
President 2002", there was a discrepancy of $1.4 billion between the
current account record and the capital account record in total
payments of about $1.6 trillion.
.

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