February 2012

William Dudley On U.S. Sectoral Balances

29 February 2012

Discussions of the U.S. public debt and fiscal deficits curiously miss on the connection with the external sector. Even the Congressional Budget Office (CBO)’s The Budget And Economic Outlook report misses this connection when projecting the public debt over many scenarios. Last week the President of the Federal Reserve Bank of New York, William Dudley gave […]


National Saving

28 February 2012

Some of the previous posts went into the economic concept of Private Saving and Private Saving Net of Investment. For a closed economy these are: Private Saving = Private Investment + Budget Deficit Private Saving Net of Investment = Budget Deficit For an open economy, we add the current balance of payments to the right […]


Saving And Borrowing

25 February 2012

I recently heard from an online commentator that saving is the opposite of borrowing. While there is some “intuition” to this, the following exercise is show it is possible to have a positive saving and incur huge liabilities at the same time. To complicate the matter the word “Savings” is used. Now, in national accounts, this […]


The Un-Godley Private Sector Deficit

24 February 2012

Economists worry too much about the government’s deficit although they seem to not know about the private sector deficit. Goldman Sachs’ chief economist Jan Hatzius came to know about the sectoral balances approach and called the difference between United States’ private expenditure and income in “The Un-Godley Private Sector Deficit”. He later included the sectoral balances […]


Reply To A Comment On Saving Net Of Investment

22 February 2012

My previous post Saving Net Of Investment was written to disprove claims made by Neochartalists such as Without a government deficit, there would be no private saving. I don’t publish comments and respond privately and I had two comments from someone whom I couldn’t track back. So here’s a reply. Hi Ramanan, Great work here.  Thanks. Two questions. 1. […]


Saving Net Of Investment [Updated]

21 February 2012

There is a tendency of some economic commentators going for the overkill to make inaccurate statements such as Without a government deficit, there would be no private saving. See here and here. (h/t Steve) But this is mixing up saving for saving net of investment. Now, “saving net of investment” is sometimes called “net private saving”, although the […]


Martin Wolf Pays A Generous Tribute To Anthony Thirlwall

20 February 2012

Readers of this blog will notice how I attach special importance to the balance of payments in telling the story of how economies work. In a recent blog post Can one have balance of payments crises in a currency union? at FT, Martin Wolf refers to the work of Anthony Thirlwall – who has made great contributions to the […]


Banco de España’s TARGET2 Liabilities

16 February 2012

Spain as a nation owes the rest of the world around €995bn according to the Banco de España International Investment Position data which is very high when compared to the 2011 GDP of €1,073bn. (And according to today’s release, real GDP fell 0.3% q/q in Q4 2011.) Although, credit conditions in domestic and international money markets and capital markets in […]


Net Worth: Part 2

16 February 2012

A commenter on my post on Net Worth asked me if I could do an example. Here it goes. First I do it as done by national accountants as per 2008 SNA – the System of National Accounts and then by the method used by the Federal Reserve’s Z.1 Flow of Funds Accounts. The example is from a […]


Imbalances Looking For A Policy

14 February 2012

… and not Infernal Muddles Readers of this blog may be aware of my fanhood for Wynne Godley and the title of this post is from a paper by him from 2004, although it was US-centric. This post is on imbalances in the Euro Area. Wynne had not only always foreseen crises, but also knew […]