The US Economy

Economics Project

Economics for Business

IMT Dubai

The USA Economy

Project Report submitted to Dr. Sujit

Dhruv Bhasin SMBA13019

Maneck Debara SMBA13032
Charan Teja SMBA12010

Introduction of the country

The United States of America (USA or the United States), commonly known as the United
States is a federal republic consisting of 50 states and a federal district. The 48 contiguous
states and Washington, DC, are in the center of North America between Canada and Mexico.
The United States is a developed country and has the largest national economy in the world.
The economy is fueled by abundant natural resources and high worker productivity. While
the economy of the United States is considered post-industrial, it continues to be one of the
largest manufacturers in the world. The country accounts for 37% of global military
spending, being primarily economic and military power in the world, a political and cultural
force foreground, and a leader in scientific research and technological innovation.
Economy
The United States has a capitalist mixed economy, which is fueled by abundant natural
resources and high productivity. The International Monetary Fund, the US GDP of $ 16.8
trillion constitutes 24% of the gross world product at market exchange rates and over 19% of
the gross world product at purchasing power parity (PPP). Its national GDP was about 5%
higher than the PPP in 2014 in the European Union, whose population is about 62% higher.
However, the nominal GDP of the United States is estimated at $ 17.528 trillion in 2014,
representing about 5% lower than in the EU. Annual growth from 1983 to 2008, real US GDP
worse was 3.3%, compared to a weighted average of 2.3% for the which is about 5% smaller
than that of the European Union.1 From 1983 to 2008, U.S. real compounded annual GDP
growth was 3.3%, compared to a 2.3% weighted average for the rest of the G7.2 The country
ranks ninth in the world in nominal GDP per capita and sixth in GDP per capita at PPP.3 The
U.S. dollar is the world's primary reserve currency.
The United States is the largest importer of goods and second largest exporter, though exports
per capita are relatively low. In 2010, the total U.S. trade deficit was $635 billion.4Canada,
China, Mexico, Japan, and Germany are its top trading partners.5 In 2010, oil was the largest
import commodity, while transportation equipment was the country's largest export.6 China is
the largest foreign holder of U.S. public debt. The largest holder of the U.S. debt is American
entities, including federal government accounts and the Federal Reserve, who hold the
majority of the debt.
Consumer spending comprises 71% of the US economy in 2013. In August
2010, the American workforce consisted of 154,100,000 people. With 21.2
million people, government is the leading field of employment. The largest
private employment sector
is health care and social assistance, with 16.4 million people. About 12%
of workers are unionized, compared to 30% in Western Europe. The World
Bank ranks the United States first in the ease of hiring and firing. The
United States is the only advanced economy that does not guarantee its
workers paid vacation and is one of the few countries in the world without
1
2
3
4
5
6

paid family leave as a legal right, with the other being the Papua New
Guinea, Suriname and Liberia. In 2009, the United States had the third
highest labor productivity per person in the world, behind Luxembourg
and Norway. It was the fourth in productivity per hour, behind those two
countries and the Netherlands.
Income, poverty and wealth
Americans have household income and the employee the highest average
among OECD countries and in 2007 had a median household income in
the second row. The real income of the median household Census Bureau
was $ 50,502 in 2011, a decrease of $ 51,144 in 2010. The Global Food
Security Index ranked number one for US food affordability and the overall
safety of food in March 2013. Average Americans more than twice the
surface area per unit per person as residents of the European Union, and
of all EU nations. For 2013, the United Nations Development Program
ranked 5th US among 187 countries in the Human Development Index and
28th in the Inequality-adjusted HDI (IHDI).
National income
The net national income (NNI) is a term used in the economy in the
national income accounting. It can be defined as the net national product
(NNP) minus indirect taxes. Net national income includes the income of
households, businesses and government.
It may be expressed as:
NNI = C + I + G + (NX) income + net external factors - indirect taxes made capital depreciation
Where C = Consumption, i = investment, G = government expenditure,
NX = net exports (exports minus imports)
This formula uses the expenditure method of accounting of national
income.
When adjusted net national income to the exhaustion of natural resources,
it is called Adjusted net national income expressed as below:
NNI * = C + I + G + NX + Net foreign income Factor - Indirect taxes - the
depreciation of manufactured capital - depletion of natural resources
Natural Resources refers to non-critical natural capital such as minerals.
NNI * does not take into account critical natural capital. Examples are air,
water, land, etc.
United states gdp
The gross domestic product (GDP) in the US was worth $ 16.8 trillion in
2013. The value of the US GDP represents 27.10 percent of the global
economy. GDP in the United States averaged $ 6,145.56 billion from 1960
to 2013, reaching a record high of USD 16 800 billion in 2013 and a record
high of 520.53 billion USD in 1960. The World Bank reports

GDP in the United States

Adjusted net national income (annual % growth)

The value for adjusted net national income (annual % growth) in United States was -0.72 as
of 2011. As the graph below shows, over the past 40 years this indicator reached a maximum
value of 8.80 in 1984 and a minimum value of -4.19 in 1974.7

Year

GDP % Growth

2004

3.73

2005

2.84

2006

3.24

2007

0.02

2008

-2.35

2009

-2.56

2010

4.27

2011

-0.72

2004

3.73

Economic Indicators
Markets

Last

Referenc
e

Previous

Range

Frequenc
y

Currency

88.31

Nov/14

88.31

71.58 : 165

Daily

Government Bond 10Y

2.31

Nov/14

2.31

1.4 : 15.82

Daily

Stock Market

17810

Nov/14

17810

41.2 : 17810

Daily

GDP

Last

Referenc
e

Previous

Range

Frequenc
y

GDP

16800

Dec/13

16800

521 : 16800

Yearly

GDP Growth Rate

3.5

percent

Aug/14

3.5

-10 : 16.9

Quarterly

GDP Annual Growth

Rate

2.3

percent

Aug/14

2.3

-4.1 : 13.4

Quarterly

Gross National Product

16190

USD Billion

May/14

16190

2096 : 16190

Quarterly

GDP per capita

45863

USD

Dec/13

45863

15469 : 45863

Yearly

Employed Persons

147283

Oct/14

147283 57635 : 147283

Monthly

Unemployed Persons

8995

Oct/14

8995

Monthly

percent

Index points

USD Billion

Thousand

Thousand

1596 : 15382

Markets

Last

Referenc
e

Previous

Range

Frequenc
y

Currency

88.31

Nov/14

88.31

71.58 : 165

Daily

Government Bond 10Y

2.31

Nov/14

2.31

1.4 : 15.82

Daily

Stock Market

17810

Nov/14

17810

41.2 : 17810

Daily

GDP

Last

Referenc
e

Previous

Range

Frequenc
y

Job Vacancies

4762

Thousand

Sep/14

4762

2134 : 5771

Monthly

Productivity

107

Index Points

Aug/14

107

27.55 : 107

Quarterly

Wages

10.34

Oct/14

10.34

9.88 : 10.41

Monthly

Labour Costs

105

Index Points

Aug/14

105

17.12 : 105

Quarterly

Population

317

Million

Dec/13

317

76.09 : 317

Yearly

Job Offers

4735

Sep/14

4735

2146 : 5273

Monthly

Minimum Wages

7.25

Jan/14

7.25

0.25 : 7.25

Yearly

Prices

Last

Referenc
e

Previous

Range

Frequenc
y

Inflation Rate

1.7

Oct/14

1.7

-15.8 : 23.7

Monthly

Inflation Rate Mom

Oct/14

-1.77 : 1.81

Monthly

Consumer Price Index

CPI

238

Oct/14

238

23.51 : 238

Monthly

Core Inflation Rate

1.8

Oct/14

1.8

0 : 13.6

Monthly

Core Consumer Prices

239

Index Points

Oct/14

239

28.5 : 239

Monthly

GDP Deflator

109

Index Points

Aug/14

109

13.49 : 109

Quarterly

percent

Index points

USD

Hundreds

USD

percent

percent

Index Points

percent

Markets

Last

Referenc
e

Previous

Range

Frequenc
y

Currency

88.31

Nov/14

88.31

71.58 : 165

Daily

Government Bond 10Y

2.31

Nov/14

2.31

1.4 : 15.82

Daily

Stock Market

17810

Nov/14

17810

41.2 : 17810

Daily

GDP

Last

Referenc
e

Previous

Range

Frequenc
y

Producer Prices

111

Oct/14

111

100 : 111

Monthly

Producer Prices Change

1.5

Oct/14

1.5

-6.86 : 19.57

Monthly

Export Prices

131

Index Points

Oct/14

131

82.4 : 135

Monthly

Import Prices

136

Index Points

Oct/14

136

75 : 148

Monthly

Food Inflation

3.1

Oct/14

3.1

-0.47 : 18.68

Monthly

Trade

Last

Referenc
e

Previous

Range

Frequenc
y

Balance of Trade

-43030

Sep/14

-43030

-67823 : 1946

Monthly

Exports

195590

USD Million

Sep/14

195590 772 : 198570

Monthly

Imports

238620

USD Million

Sep/14

238620 577 : 239858

Monthly

Current Account

-98500

May/14

-98500

-216063 : 9957

Quarterly

Current Account to GDP

-2.3

Dec/13

-2.3

-6 : 0.2

Yearly

Terms of Trade

97.27

Aug/14

97.27

91.05 : 167

Quarterly

Foreign Direct
Investment

-117086

Feb/14

-117086 :
117086 140759

Quarterly

Gold Reserves

8133

May/14

8133

Quarterly

percent

Index points

Index Points

percent

percent

USD Million

USD Million

percent

Index Points

USD

Million

Tonnes

8133 : 8149

Markets

Last

Referenc
e

Previous

Range

Frequenc
y

Currency

88.31

Nov/14

88.31

71.58 : 165

Daily

Government Bond 10Y

2.31

Nov/14

2.31

1.4 : 15.82

Daily

Stock Market

17810

Nov/14

17810

41.2 : 17810

Daily

GDP

Last

Referenc
e

Previous

Range

Frequenc
y

Crude Oil Production

8648

Aug/14

8648

3983 : 10044

Monthly

Government

Last

Referenc
e

Previous

Range

Frequenc
y

Government Budget

-2.8

percent of GDP

Sep/14

-2.8

-12.1 : 4.6

Yearly

Government Debt to
GDP

102

percent

Dec/13

102

31.7 : 122

Yearly

Government Budget
Value

-121713

Oct/14

-231677 :
121713 189796

Monthly

Government Spending

2913

Aug/14

2913

Quarterly

percent

Index points

BBL/D/1K

USD

Million

USD Billion

557 : 3113

Role of fiscal and monetary policy during global recession period

(2007-2009)
Monetary policy
In the years since the financial crisis began in 2007, the Federal Reserve and other central
banks took extraordinary measures and often unprecedented, first to respond to the crisis, and
later trying to adjust policy economic conditions that have prevailed since. These actions
were for outstanding loans from the central bank, the expansion of central bank balance
sheets and the banking system reserves, expanding the range of assets purchased and the
communication on future policy settings.
While these unconventional policies of central banks may sometimes be necessary to meet
the unconventional developments in the national and global economies, there are
accompanying risks that are important to keep in mind. By examining these tools and their
associated risks, it is useful to be clear about what constitutes conventional politics.

Before the financial crisis, the typical central bank conducted monetary policy by controlling
a nominal interest rate in the short term - usually a charge rate in interbank or other wholesale
money market operations. In the United States, as in many other countries, this control was
achieved by manipulating the supply of monetary liabilities of the central bank. Before the
crisis, the relatively stable demand for interest-sensitive reserves by US banks to the range of
regulations surrounding the use of these balances. Reservations required by law were small
and without interest earned on reserves, banks sought to save on excess reserves. Against this
incentive to minimize reserve assets, banks demand was supported by the use of reserves in
settlement of interbank obligations and by the desire to avoid costly overdrafts.
The Fed has managed the supply of reserves by purchases and sales of US Treasury securities
- or repo transactions in such securities - so that the overnight interest rate on the interbank
lending market stocks hit target of the federal Open Market Committee. The FOMC in turn
adjusted its target in response to changes in economic conditions and the economic outlook in
order to achieve low and stable inflation in a manner consistent with its mandate to Congress
(which also includes the pursuit of maximum employment and moderate long-term interest
rates).
Unconventional policy
In the wake of the financial crisis and the recession that followed the Fed's policy has
deviated in a number of ways to approach this classic before the crisis - as well as the policies
of many other central banks. During the period from late 2007 to 2008, as the crisis unfolded,
the Fed has conducted a number of emergency lending that exceeded the scope of previous
precedents. At first, these loans have not been allowed to influence the stock of Federal
Reserve monetary liabilities. This necessary compensation of US Treasury securities sales
Fed's portfolio to drain reserves and avoid driving the interbank interest rate below the target
of the Fed. These lending changed the composition of the Fed's asset portfolio without
changing the monetary liabilities of the Fed, and constituted "the credit policy," not monetary
policy. These loans raises important issues related to the independence of central banks and
their role in the financial system.
As the economy weakened in the fall of 2008, the Fed led the interbank interest rate to near
zero. In general, the unconventional monetary policy is associated with the extended period
of time since then, during which the Fed's interest rate target was essentially as low as it can
go - in d other words, the "zero lower bound." The ability of banks and other members of the
public to hold currency limit the ability of the central bank to implement a nominal target less
than zero interest. But in an extremely economy low, the real interest rate may be appropriate
negative a central bank that has credibility of low and stable inflation. - so that inflation
expectations are reasonably well anchored - will struggle to make the rate of real interest plus
a little negative.
One strategy to the zero bound is to seek a lower real interest rate by designing an increase in
expected inflation, above the rate of the central bank would be contrary to target. Away from
its inflation target for a time, a central bank may be able to support economic growth by
lowering the real interest rate, although being only able to reduce the nominal interest rate
below scratch. Central banks operating at the lower zero bound have generally avoided this
approach, and for good reason.
In the US, for example, the process of achieving credibility of low inflation was difficult and
expensive, taking the best part of two decades. This experience suggests that engineering
medium-term changes in inflation expectations would be very difficult to implement and
create precedents that pose longer-term risks to the credibility of the central bank.
Forward direction
Putting aside the strategies for change in expected inflation, the Fed and other central banks
to the zero bound have focused on long-term interest rates. They tried to strengthen the
sensitive areas of interest by reducing long-term rates at lower levels. Two major strategies
have been employed to try to reduce long-term rates: A provides "guide before" affect public

beliefs about the future course of policy, including short-term rates, the other is based on
direct purchases of long-term assets.
The Fed has deployed a number of approaches to communicate its intentions and
expectations for future short-term rates in recent years. The FOMC started including
qualitative language in its policy statements characterizing the period during which it should
exceptionally low interest rates are appropriate: Initially, it was "a while" (December 2008
and January 2009) then "an extended period" (March 2009-June 2011). In August 2011, the
Committee focused its guidance by specifying the time within which an increase in the
federal funds rate seemed unlikely - and then moving again in future that date several times.
Finally, in December 2012, the Committee has replaced this guide before based on the date
with a threshold for unemployment, saying that "exceptionally low range for the federal
funds rate will be appropriate at least as long as the rate of unemployment remains above 6
percent inflation between one and two years ahead should be no more than half a percentage
point above the 2 percent of the long-term objective of the commission, and long-term
inflation expectations remain well anchored. "This guidance shape of the front still in place
today.
These communication efforts have generally been designed to ease financial conditions by
pushing the dates on which market participants believe short-term rates are likely to increase.
These communications by the central bank, but inevitably face a conundrum. Forward
guidance is effective when it changes the model public perception of behavior of the central
bank in response to incoming data -. "Reaction function" in essence, the central bank But
there is always the possibility that the public will interpret the forward direction in terms of
the future development of the economy in which the central bank reacts. The public may
think that, under its current structure of behavior, the central bank is expected to be low rates
guaranteed for a longer period because they expect the economy is weaker. In this case, the
orientation of the front could have the paradoxical effect of reducing the current economic
activity, reducing expectations about the level of future economic activity.7 It can be difficult
to craft advice before in a way that definitely separates these two interpretations. The use by
the FOMC numerical thresholds is partly an attempt to clarify the orientation of the front on
short-term interest rate is about the Commission's reaction function, not its economic
outlook .
Ideally, a central bank can understand that communications concerning future reactions of
incoming economic data. Forward-looking Information concerning reaction schemes of the
central bank often takes the form of criteria for particular decisions, as in the case of the
FOMC thresholds for raising interest rates or the conditions in which the asset purchase
program indefinite will probably be awarded.
Design such conditional orientation involves tradeoffs, however. Credibility requires
consistency, over time, between the statements of a central bank and its real after. The
statements of the central bank will have more immediate effect on public expectations more
they are seen as limiting future choices of the central bank. Yet there are probably
circumstances, ex post, in which the central bank feels constrained by past statements.
Yielding to the temptation to deny implicitly reworking the decision criteria or citing
unforeseen economic developments may have short-term appeal but widely perceived
discrepancies between actual behavior and foreshadows inevitably reduce the faith people
place in future statements of the central bank . So, central banks face a trade-off ex ante, and
between the short-term value of the exercise of the discretion and the ability to communicate
effectively and credibly in future
Recent fiscal policy
In a Financial Times interview, Blackrock Chief Executive Larry Fink said he believes it is
time for the Fed to move forward. From the interview:
"We have a central bank that did not agree, we have structural unemployment. Factories that
employed thousands now employ 200. For the United States above-trend growth, it must be
on the government not the policy of the central bank policy. "

The company has produced what he calls Yellen index. This is an exclusive measure that
examines employment and inflation indicators Fed chairman said in the past are important to
her to predict what it might choose to do in the future. Regarding monitoring, we believe that
for the first time monetary policy did what he will do. A 0% funds rate is not significant in
terms of more transmission mechanism in the economy. Second, it is expected that for the
first time, student loans, housing, discussion of infrastructure will begin to see a movement
there for the first time in a while.
They are right in the abstract that monetary policy can do some things, and it is for
governments to do other things through the budgets and tax law. But in the United States
since 2010, things have not happened. The United States does not follow a fiscal policy more.
They do not spend makes laws to help or change anything about the country and go penalty
laws, once a year, or a wildly inefficient to keep any kind of trouble while working.
Infrastructure is a concern and certainly there is a long list of infrastructure projects that need
funding. The recent highway bill has only barely extended funding for existing projects. Not
raising money from people who use the highways. However, depending on the version of the
bill, he is the president, an independent accounting stunt that allows companies to temporarily
less money in their pension plans, increasing the taxable income.
Recent monetary policy
The main innovation after the crisis in the US is a long time with the interest rate short-term
policy to near 0%. This was combined with the payment of interest on reserves, an increase in
the size of the Fed balance sheet, a radical change in the composition of the assets on the
balance sheet, increasing the use of forward guidance and a change in the interpretation of the
dual mandate.
Subsequently, the FOMC has apparently become much more militant. There seems to be a
consensus among its participants, including doctoral economists with high-level research
issues are becoming increasingly important, the Fed can and must make the world a better
place. To reflect on monetary policy to the zero lower bound (the nominal interest rate in the
short term), it is necessary to provide a rationale for why it may be optimal for a central bank
to choose the zero target rate the overnight. In the new simple Keynesian models such as
Werning, which is done by assuming that the discount factor of the representative agent is
high for a certain period of time. Then, the real interest rate should be low optimally, but at
the zero bound the real interest rate is too high, given the price rigidity. With this model, the
central bank would reduce more than the lower limit of zero, but the prevailing attitude is to
make promises about future actions of central banks. In addition, these promises can not be
consistent time, so the commitment of the central bank is essential to the political work.
In a New Keynesian model, it is clear how forward guidance. He will tell us when the central
bank should choose a short-term nominal interest rate target to zero, when the takeoff
(departure terminal of the lower zero) should occur, and that the nominal interest rate target
should be away from the zero bound. The path followed by the exogenous shocks to the
economy determines all these things. In practice, we do not know how the model is, we can
not observe shocks, and even if we believe that the model that will not allow us to identify
the shocks. Thus, the orientation of the front should be loosely specified in terms of
something we monitor effectively. Ultimately, the FOMC has chosen the unemployment rate.
Probably the key element in the novel post-financial crisis US monetary policy is
Quantitative Easing (QE), and the associated increase in the size of the Fed's balance sheet.
Fed officials want to convince us that QE works and they have tended to minimize the
experimental nature of its programs. Fed officials say that QE works just like conventional
monetary policy. Other than the fact that QE has its effect by reducing the yields on long-term
bonds rather than the decline in short rates, demand is that the monetary policy transmission
mechanism is more or less similar.

Finally, even if the Fed is now borrowing short and lending long, massive way, we should not
worry if the Fed starts to earn negative profits. Economically, it does not matter. What matters
is the consolidated balance sheet of the Fed and the US Treasury, and it is immaterial whether
the Fed pays interest of the private sector in the reserves or the US Treasury pays the interest
of the private sector on the public debt.
Perhaps the most important sustainable change in policy out of the Bernanke era is a greater
tendency of the Fed to focus on short-term goals rather than long-term goals. Indeed, the
concern of the Fed to the state of the labor market, as evidenced by recent public statements
by Fed officials may have evolved into a belief that the Fed may have long-term effects on
participation in the labor market and the employment / population ratio. This seems to be
supported by theory or empirical evidence. In addition, it is possible that two or three more
years with the Fed's key interest rate near zero lower limit will not help to solve all the ills of
the labor market, nor does it increase the rate of inflation, low nominal interest rates (such as
in Japan since the early 1990s) typically lead to lower long-term inflation. If the Fed is well
below its inflation target of 2% for a period of time, it is not clear that would be so
dangerous, but at least, it undermines the credibility of the Fed.
Balance of payments
The US trade deficits have been in compliance since 1976 due to strong imports of oil and
consumer products. In recent years, the biggest trade deficits were recorded with China,
Japan, Germany and Mexico. United States recorded trade surpluses with Hong Kong,
Netherlands, United Arab Emirates and Australia.
In November 2014, the budget deficit fell by 58% to $ 56.8 billion compared with a
difference $ 182.5 billion a year earlier than spending fell and revenue increased. In this
month, revenues totaled $ 191.4 billion, up 4.8 percent from the same period a year ago while
spending amounted to $ 248.3 billion, down 21 8 percent.
Fiscal performance has been affected by differences in the timing that some payments came
out in October this year instead of November.
Current account
The current account deficit of US net measure of transactions between the US and the rest of
the world in goods, services, primary income (compensation of income and investment) and
the secondary income (current transfers) -decreased to $ 98.5 billion (preliminary) in the
second quarter of 2014 of $ 102.1 billion (revised) in the first quarter. The deficit decreased
to 2.3 percent in current dollars of gross domestic product (GDP) of 2.4 percent in the first
quarter. The decrease in the current account deficit is largely due to a decrease in the highincome deficit. In addition, the increased surpluses on services and primary income. These
changes were partially offset by an increase in the deficit on goods.

Goods and services

The deficit on goods and services increased 130.3 billion in the second quarter of $ 124.5
billion in the first quarter.
Goods
The goods deficit increased by $ 189.2 billion in the second quarter from $ 182.3 billion in
the first quarter.

Merchandise exports increased to $ 408.8 billion from $ 399.5 million. Exports increased in
five of the six major categories of final goods general use. The largest increases were in
industrial supplies and materials; capital goods, with the exception of the automobile; and
motor vehicles, parts and engines. Most of the increase in industrial supplies and materials
reflects an increase in exports of oil and products, much of that in oil. The increase in capital
goods, except automotive reflects an increase in exports of civil aircraft. The increase in
motor vehicles, parts and engines was largely due to an increase in exports of passenger cars.
Non-monetary gold fell.
Merchandise imports increased to 598.0 billion from $ 581.9 billion. Imports increased in
five of the six major categories of final goods general use. The largest increases were in
motor vehicles, parts and engines; capital goods, with the exception of the automobile; and
consumer goods, excluding food and automotive. The increase in motor vehicles, parts and
engines was largely due to an increase in passenger car imports. Much of the increase in
capital goods, with the exception of the car was due to higher imports of other industrial
machinery and computers. The increase in consumer goods, except food and automotive
primarily reflects the increase in imports of durable goods, most of which was in cell phones.
Services
The services surplus increased to $ 58.9 billion in the second quarter to $ 57.8 billion in the
first quarter.
Exports of services increased to $ 177.4 billion from $ 174.7 million. Eight of the nine major
categories of services has increased. The largest increases were in travel (for any purpose,
including education) -much of it in "Other personal travel" -and in transportation, which
includes freight and ports and passenger fares.
Imports of services increased to $ 118.5 billion $ 116.8 million. Six of the nine major
categories of services has increased. The largest increase has been in Travel (for any purpose,
including education).
Primary income
The surplus on the primary income increased to $ 53.1 billion in the second quarter to $ 52.4
billion in the first quarter.
Investment income
Foreign income receipts on US securities of financial assets abroad rose to 200.0 billion from
$ 198.5 billion. The increase was explained by an increase in portfolio investment income
receipts. Much of the increase was in dividends on equity, which reflect to the US holdings of
foreign equities. The increase in income from portfolio investment was partly offset by lower
revenues from direct investment income, especially income from foreign subsidiaries
(American parents) in the wholesale and manufacturing.
Income payments to foreigners on US liabilities increased to $ 144.6 billion from $ 144.0
billion. This increase reflects the increase in payments of direct investment income and other
investment income payments. The increase in direct investment income was mainly explained
by income payments of US subsidiaries (of foreign parents) in manufacturing and petroleumrelated industries.
Compensation of employees

Receipts for compensation of US residents paid by non-residents remained at $ 1.7 billion in

the second quarter. Compensation payments of foreign residents paid by US residents
increased to 4.0 billion from 3.8 billion.

Secondary income (current transfers)

The deficit in secondary income decreased to $ 21.4 billion in the second quarter of $ 30.0
billion in the first quarter. Receipts and payments secondary income include US government
and private transfers, such as US government subsidies and pensions, fines and penalties,
withholding, personal transfers (remittances) transfers related to insurance, and other current
transfers.
Revenues secondary income increased to $ 39.9 billion $ 31.7 billion, reflecting an increase
in fines and penalties paid to the United States government (one of the US government
transfer component).
Secondary income payments decreased $ 61.3 billion $ 61.7 billion, reflecting a decrease in
subsidies from the US government.
Capital account
The capital account transactions are not available for the second quarter, because the source
data is not yet available. Capital account transactions in the second quarter will be published
with the release of third quarter US International Transactions 17 December 2014. In the first
quarter, the capital account deficit was 0.04 billion.
Financial account
Net borrowing of the United States as measured by financial transactions account was $ 17.6
billion in the second quarter, down $ 91.2 billion in the first quarter. Both US net acquisition
of financial assets excluding financial derivatives and net incurrence of liabilities excluding
US financial derivatives were higher than in the first quarter, but the acquisition of financial
assets excluding derivatives increased more. The shift to a negative net transactions in
financial derivatives other than reserves moderate decline in net debt.
US net acquisition of financial assets excluding financial derivatives
US net acquisition of financial assets excluding financial derivatives was $ 232.7 billion in
the second quarter, against $ 143.3 billion in the first quarter.
Direct investment assets (equity instruments and debt)
Net acquisition of direct investment assets $ 89.2 billion in the second quarter, up $ 31.6
billion in the first quarter. This increase reflects equity investments higher than in the first
quarter. Transactions (inter) of debt shifted to net acquisition.
Portfolio investment assets (shares and investment fund shares and debt securities)
Net acquisition of the US investment portfolio of foreign assets (acquisitions more sales) was
$ 184.9 billion in the second quarter, against $ 100.7 billion in the first quarter.

US net purchases of foreign equity and investment fund shares increased to $ 85.6 billion
from $ 81.3 billion. US net purchases of foreign debt securities increased to $ 99.3 billion $
19.4 billion US reflects, in part, the increase in net purchases of commercial paper and
corporate bonds and notes.

Other investment assets (currency and deposits, loans, insurance technical reserves, credit and
trade and advances)
US Sales of other investment assets abroad (sales of more acquisitions) was $ 42.2 billion in
the second quarter, a change in net purchases of $ 12.0 billion the first quarter. The shift in
net sales reflects a change in net foreign loan repayment (refund exceeding US foreignresident provision of loans).
Reserve assets
Transactions in US reserve assets increased holdings of $ 0.8 billion in the second quarter
after declining assets of $ 1.0 billion in the first quarter. The change reflects an increase in the
reserve position of the United States in the International Monetary Fund that the Fund has
drawn on the US credit through the New Arrangements to Borrow. Based on US credit is
exceeded net repayments of dollars by countries that had borrowed from the IMF in previous
quarters, the increase in the US reserve position.
US net birth liabilities excluding financial derivatives
US net foreign liabilities birth excluding financial derivatives was
$ 247.4 billion in the second quarter, against $ 239.8 billion in the first quarter.
Direct investment liabilities (equity instruments and debt) Net incurrence of liabilities of
foreign direct investment was $ 72.0 billion in the second quarter, a change in net debt
repayments of $ 121.7 billion in the first quarter. The transition to the net increase primarily
reflects a change to the investment of equity other than reinvestment of earnings of the first
quarter of divestment. In addition, transactions in instruments (business) debt shifted to the
net increase in net refund.
Liabilities related to portfolio investments (equities and investment funds units and debt
securities)
The net increase US investment portfolio liabilities to foreigners was 74.8 billion in the
second quarter, against $ 237.9 billion in the first quarter. Foreign net purchases of

Figure 1 : Balance of Payment

Foreign Reserve
Foreign Exchange Reserves in the United States decreased to 136285 USD Million in
October of 2014 from 137054 USD Million in September of 2014. Foreign Exchange
Reserves in the United States averaged 51845.24 USD Million from 1957 until 2014,
reaching an all-time high of 153075 USD Million in September of 2012 and a record low of
12128 USD Million in August of 1971. Foreign Exchange Reserves in the United States is
reported by the Federal Reserve.

Figure 2 : Foreign Exchange Reserves

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