US Economy

US Economy

1. Balance of payment

   • Current account
     • Difference between exports and imports
     • Goods
     • Services
     • Other income( income from investments)
       • Payments to capital
       • Interest on loans
     • Transfers accounts
       • International Remittances
   • Financial accounts
     • Tracks changes in assets and liabilities
     • Inward foreign investmnets
     • Outward direct investments in foreign countries
   • Capital accounts
   • Reserves accumulation
     • Foreign assets that central banks owns
     • Use to manage forex

2. US consumption

   • Growing due to
     • Growing population
     • Low uNemployment
     • Cheaper goods abroad
     • Incentivizing consumers to continue to import
     • Appetite for energy, oil, which was imported

3. For this high deficit

   • US has to be financed by other countries, through exports
   • One country following a strong export strategy
     • China
     • Japan
     • Europe
     • How?
       • They are buying companies in the US
       • US is perceived to be a safe country to invest in
       • Strong US dollar:
         • Exports go down, because it's expensive to the rest of the world
           • Imports become relatively cheaper, leading to more importations
             • Induces consumption
       • Low interest rate
         • Leads to low savings, consumption rises
         • Low interest rates Leads to low US loans to foreigners
           • Who's buying these assets?
             • Central banks
             • Sovereign funds
             • Why?
               • Feel comfortable with the 'safe' asset
               • Export led growth: have pressure to appreciate their currencies
                 • Then they will be less competitive
                   • So their central banks will start buying US dollars and create demand for foreign currecy thus stopping their currency from appreciating
             • When these assets are big volume, changes in US dollar affects the values of their holdings
               • Thus they become sensitive to these changes
         • International reserves
           • World saves in dollars
     • Korea
     • Japan