Project #86005 - small project

Analytical Assignments

Are the US current account deficit and external debt sustainable?

(a). Make a chart of the U.S. current account deficit, both in absolute $ value and as a share of GDP from 1990 to 2014. Find also the most recent estimate of the U.S. current account deficit for 2015 (Q1 and Q2).

(b). For the same sample period (1990-2014), chart the evolution of the net foreign assets of the U.S. (NIIP) and decompose the total NIPP in the part that is the net stock of foreign direct investment from the part that is the rest (portfolio, banks, other forms of debt).

(c). Discuss the evolution of the U.S current account deficit and net foreign assets: how much of the evolution of the deficit (as a share of GDP) is due to changes in private savings, public savings (fiscal deficits) and investment rate (all as a share of GDP) and how much has the role of different factors changed over time?

(d). Based on this analysis, are the U.S. current account and external debt sustainable? Does the U.S. differ or not from emerging markets or not and why?

(e). How likely are the risks of a crash of the U.S. dollar triggered by foreign investors reduced willingness to lend to the U.S. and accumulate U.S. assets?

(f). Will the U.S. dollar strengthen or weaken in the next 2 years and relative to which currencies and why?

Data for the U.S. current account, GDP and components of GDP are available from the statistical tables in the Appendix of the 2014 Economic Report of the President. This web link also includes a link to the statistical tables from the Appendix as spreadsheet files (1997-forward): 
To get exactly CA = S - I (apart from the statistical discrepancy), use the two sheets of table B32 from this source. where the Current Account is the Net Lending or Net Borrowing column.

Data on Savings, Investment and Current Account (on a quarterly and annual basis including Q1 and Q2 2015) are also available from the Bureau of Economic Analysis; see:
http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=137

Note that both BEA and Economic Report of the President (ERP) give you data on US savings and investment. However, the way they present the data on the current account is slightly confusing; instead of referring to the current account, they refer to Net Lending or Net Borrowing (implicitly from/to the rest of the world). So, the item representing such Net Lending or Net Borrowing is the current account.

For example in BEA Table 5.1 under the tab Savings and Investment by Sector http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=137
the Row 1 gives you gross savings.  Row 21 gives you gross investment. Row 35 gives you the current account deficit, where the current account deficit is the item that is defined (as I explained above) as Net Lending or Net Borrowing (Row 35). Row 42 gives you the statistical discrepancy that should be added to Saving to have an item that is Savings (net of the statistical discrepancy). 

So, for example in 2013 Q1:

CA     =              S               -    I
-456.6   =   (2,930.0 - 250.3)   - (3,135.7)

Data on the net foreign assets of the United States can be obtained from the table on the (Net) International Investment Position (NIIP) of the United States published in the Survey of Current Business, Bureau of Economic Analysis, U.S. Department of Commerce. A recent online version of the table for 2014 is available at: http://www.bea.gov/international/index.htm#iip under "International Investment Position".

Subject Business
Due By (Pacific Time) 10/15/2015 07:00 pm
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