Britains net investment income has fallen from a peak of 3 of GDP in the second

Britains net investment income has fallen from a peak

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Britain’s net investment income has fallen from a peak of 3% of GDP in the second quarter of 2005 to minus 2.8% today. That has caused the current-account deficit to swell to 6% of GDP —a level last seen in the 1980s—even as the trade balance has improved. Source: Britain s biggest export: wealth, The Economist , January 10, 2015, p. 29 2-78 The case of the UK, 2014 UK BOP Accounts Credit (+) transactions resulting in receipts from foreigners Debit (-) transactions resulting in payments to foreigners current account trade deficit # net investment income current account deficit " (> trade deficit)
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24/02/18 40 2-79 The case of the UK (3) Ultimately, a current-account deficit represents a country flogging [selling; lvh] its assets or incurring debts to finance spending . That makes sense if the spending is on investments that will pay off in future. But Britain is on a consumption binge. The household savings rate is negative, … (cartoon is mistaken, btw!) Source: Britain s biggest export: wealth, The Economist , January 10, 2015, p. 29 2-80 Table 2-2: U.S. Balance of Payments Accounts for 2012 (billions of dollars)
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24/02/18 41 2-81 Table 2-2: U.S. Balance of Payments Accounts for 2012 (billions of dollars) 2-82 until July 1999: current account / capital account now: current account / capital account / financial account why the change in rules? clearer picture of current transfers (that affect income in current period) capital account = non-market international asset transfers 2.3.4. The capital account (p. 52)
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24/02/18 42 2-83 2.3.5. The financial account (p. 53) BOP accounts follow rule of double-entry bookkeeping every international transaction enters the BOP twice, once as a credit and once as a debit i.o.w. paired transactions, two offsetting entries (see examples in book) fundamental BOP identity current account + (capital account) + financial account = 0 remember: CA = Δ foreign wealth => CA = purchases of assets from foreigners - sales of assets to foreigners = - financial account 2-84 The financial account U.S. BOP Accounts Credit (+) transactions resulting in receipts from foreigners Debit (-) transactions resulting in payments to foreigners current account exports financial account exports (sale) of US assets increase in foreign- owned US assets (increase in ECB s USD reserves) imports imports (purchase) of foreign assets increase in US-owned foreign assets (increase in Fed s reserves)
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24/02/18 43 2-85 The US current account deficit U.S. BOP Accounts Credit (+) transactions resulting in receipts from foreigners Debit (-) transactions resulting in payments to foreigners current account exports financial account SURPLUS exports (sale) of US assets increase in foreign-owned US assets = CAPITAL INFLOW imports DEFICIT imports (purchase) of foreign assets increase in US-owned foreign assets 2-86 Table 2-2: U.S. Balance of Payments Accounts for 2012 (billions of dollars)
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24/02/18 44 2-87 The U.S. financial account • what you see are balances; cf. “net” • (5) net U.S. acquisition of financial assets net import of assets debit • (6) net U.S. incurrence of liabilities
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