Balance of Payments: Current Account

All right now, let's go into a little more detail about the balance of payments. Current account. Okay, So let's start here with the current account. Remember the balance of payments. We're talking about transactions with other countries, right? We're following these transactions and the current account records those short term Transactions, right? Things that are happening currently. Current current account short term stuff. Okay, so we talked about this a little bit, remember. So I have a snippet here from the us balance of payments from 2014 that we saw the full one in our introduction video. And here we have um remember our net exports. So we talked about our export of goods, imported goods, exported services, imported services. So this is our net exports right here. So we've got three main things we follow. We follow these net exports, we follow the investment income and the net transfers. Okay, so those are the three main topics here. Let's go one by one here. So let's start with the balance of balance on goods. Which is this first section here of net exports. Were talking about export of goods and import of goods. Okay, so this is the difference, the balance on goods. If you notice up above, we have the difference between the 21633 minus 2374 gives us the balance on goods. And remember, because it's negative, that means we're importing more stuff than we're exporting. Like you can see there uh imports being a bigger number. So the balance of trade, we sometimes call the balance on goods. The balance of trade. Okay. And it's it's just another name. They mean the same thing. But this is generally the focus when you see like the media talking about our balance, our trade balance and we're trading with other countries. We're importing a lot of stuff right? The U. S. Has had this what's called a trade deficit for a long time and it's it's because we've been importing more goods than we've been exporting. So when we think about our balance of trade were focused mostly on goods, okay we're thinking about the goods that were trading more than the services that we're trading with other countries. Okay so a trade surplus, well that's when the exports are greater than the imports. The trade deficit is when the exports are less than the imports. Okay. U. S. Trade deficit. Okay that has had a trade deficit for a while at this point. Okay so the US has had this trade deficit and it happens pretty much every year for a while. And that's from the trade of goods between other countries. Because if you look up above when we look at the balance on services, the export of services is bigger than the import of services. So we actually don't have this deficit when it comes to services. But in total when you look at these two numbers together there is a deficit in total as well. Okay But when we when we focus on that trade deficit we're thinking about those goods that are coming in and out of the country. Like when we import stuff from china, that's one of our biggest imports is importing goods from china and uh exporting goods in return. Right? So generally that's the biggest thing there. And when we think of these two together, we get to our net exports calculation. So I mentioned net exports in our other video as well. Right? Net exports. And we've seen it like this, we've seen exports minus imports as a way to think about our net exports. But now we have another way to calculate it, we can get our balance on goods plus our balance on services, right? Because the balance on goods is exports minus imports of goods, and then our balance on services is exports minus imports on services. Okay, so we're basically just breaking it up into exports minus imports of goods, the net exports of goods, and the net exports of services, and then we've got our total net exports there. Okay, so that's about it. The big thing to remember here is these trade surplus trade deficit, I think it's pretty logical a trade deficit is where we're importing more stuff. We're not we're not uh we're bringing in more than we're selling to other countries. Right? So we have this deficit, we're not bringing in money from exporting stuff. Okay, so the next category. So that was the that that's that's the the first category from above, right, This is where we are talking about net exports. Now let's talk about our net investment income. Okay so investment income, this basically comes down to interest and dividends, interest and dividends that are earned. And remember with the balance they can either be earned by U. S. Citizens or they can be earned by foreigners. So there's going to be this net amount based on the amount U. S. Citizens earn. And the amount foreigners earned. So remember there's gonna be these interest in dividends earned by us citizens who own foreign assets. So that's like I go to the japanese market and I buy a japanese bond right? And I I I own this bond and I'm getting paid interest from buying this japanese bond or you buy shares in some uh japanese company and when they pay dividends to you, well you're a U. S. Citizen earning these dividends from another from a foreign asset you see. So uh so that's like you buy japanese bond and earn interest, right? So the interest that you earn is in this net investment income. Now the opposite is when a foreigner owns a U. S. Asset. So now it's like a japanese person bis apple stock or something like that. I'm not even sure if Apple pays dividends Apple stock and gets dividends right? So now they own an american company and they're getting income from the american company being a foreigner. Right? So this net investment income deals with the income americans get from foreign investments and the income foreigners get from american investments. Okay and as you can see above when we look at our net investment income we've got a positive number. That means that americans are earning more than the foreigners from this net investment. Okay. And finally our third one is our transfers net transfers here. Ok so net transfers, this is basically just transferring funds. This is generally related to like charity or financial aid that's happening. So funds sent domestically to foreigners and vice versa. Mostly this is the U. S. Sending aid to foreigners. There's not as much foreign aid coming into the U. S. The U. S. Does a lot of of of helping other countries in giving money out. Um But it also includes other things. The main one here is that foreign aid but then we also have you know funds sent to family members. So you know when someone earns money in the US and say say like an immigrant from Mexico comes to the U. S. To get a job and then they send money back home to Mexico. Right? Something like that. That would be a net transfer. And then the last one here is pension payments received while living abroad. So that could be someone who retired who who had a pension in the U. S. Worked in the U. S. And then went to live in spain right? They got their retirement in Spain and they're receiving that money in Spain. That's a net transfer there. Okay. So like I said the U. S. Tends to have a negative balance because we're transferring out more funds generally through this foreign aid and funds that are being sent to family members more than money coming in. Right? So negative means money going out. So what I want you to notice here is that this is the biggest category. Okay. No one, the net exports is the biggest category of this. And you can see because the number is much larger. Right? We've got larger numbers here when it comes to our net exports than when it comes to the other two. Okay, so that's about it for the current account. It's just these three main categories to think about the net exports, the investment income and the transfers. Alright, let's go ahead and move on to the next