April 25, 2000 When the International Monetary Fund released its spring World Economic Outlook earlier this month, it was discovered that the world imported about $172 billion worth of goods and services more than it exported last year.  In effect, the IMF statistics indicate that planet earth is running a current account deficit on its balance of payments.  "We are net importing from extraterrestrials if you believe the officially reported results," quipped Michael Mussa, Director of the IMF Research Department, at the April 12 press conference in Washington, D.C.  "The global discrepancy has grown from 1997, when it was very low, to what we now estimate for 1999," Mussa stated.  "And in the projections, it's projected to grow even more -- up to $300 billion [annually!] or something like that by 2004."

It would appear that some aliens are rapidly becoming billionaires from their export sales to earthlings.  Some important questions regarding this revelation naturally arise:  What are earthlings buying from aliens, and who's doing the buying?  Many suspect the United States, because it is running such a large and growing current account deficit on its balance of payments.  "Indeed, the counterpart of most of the expansion of the U.S. current account deficit, when you add up the rest of the world, is the expansion of the global discrepancy," Mussa remarked.  "So it's not that Europe or Japan or Asia is exporting more to the United States; it's all coming from the great beyond, which is evidence that it should no doubt be reported to the National Enquirer of the existence of extraterrestrials."

Some surmise that earthlings are quietly buying resources such as exotic precious metals and new potential energy sources from space aliens.  Others suspect that earthlings are traveling to distant planets for extended vacations and paying aliens for travel expenses, meals, and hotel accommodations.  Some world citizens claim to have experienced these journeys.  Another theory is that earthlings are purchasing unusual medical services such as cosmetic surgery and personality transplants from alien physicians.  Still others suspect that earthlings are purchasing or leasing space ships capable of interplanetary travel at speeds faster than light.  The price of a new space ship is said to be approximately $2 billion, and aliens seem to have captured the largest market share of this new and emerging growth industry.  The fact is, however, that no one is really sure what is being purchased and by whom.

That's why it's called a statistical discrepancy.  By definition, a balance of payments must balance, because it is (theoretically) double entry bookkeeping.  Each transaction between one nation and its trading partners would be entered twice -- once as a credit and once as a debit.  The sum of the credits must be offset by the sum of the debits.  An export of merchandise, for example, is treated as a credit (+), because it gives rise to an offsetting incoming payment which is entered as a debit (-); and a merchandise import is treated as a debit (-), because it gives rise to an offsetting credit (+) payment.  For example, if the United States imports a dollar's worth of merchandise from the rest of the world, it exports a dollar to pay for it.  The merchandise import is entered as a debit (-), and the payment is entered as an export of capital credit (+).  Although this would reflect a balance of trade deficit, the overall balance of payments would be zero.

However, international bookkeeping is not the same as that used by businesses that keep track of every transaction by invoice.  International accountants use statistical sampling and extrapolation techniques to estimate each category in a nation's balance of payments.  When the debits don't equal the credits using this technique, international accountants are required to add a number (the statistical discrepancy) to the payments accounts equal to the sum of all the recorded entries with the opposite sign.  In the case of the IMF 1999 report, the accountants had to add a $172 billion credit (unknown export of capital) to account for the apparent $172 billion deficit on the world's current account.

Arithmetically, the world's current account -- the export and import of merchandise, services, and unilateral transfers -- should sum to zero.  All nations' exports must equal all nations' imports, and vice versa.  Given the fact that IMF statistics indicate that world imports exceeded world exports by $172 billion in 1999, it would appear that exports are under reported.  That is Mr. Mussa's more serious interpretation of the discrepancy: "We are probably getting under reporting of exports as the principal source of the growing global current account discrepancy," stated Mussa at the press conference.

The chronic and escalating current account deficit for the United States is alarming to some, but it is not the explanation for the world's current account deficit.  In fact, according to the U.S. Department of Commerce, the reported statistical discrepancy for the United States balance of payments in 1999 was a $39 billion debit, not a credit.  That means that the United States' imports of merchandise, services, and goodwill are more than accounted for in its balance of payments capital account.  Put another way, the United States did not export money to pay for unaccounted or mysterious imports in 1999.  Therefore, the United States current account deficit probably accurately reflects the fact that the United States is really importing more stuff from the rest of the world -- not from aliens.

The United States Balance of Payments, 1999 ($' billion)
Merchandise Exports
+  683

Merchandise Imports
- 1030

Balance of Trade
- 347
Net Military Transactions
+     2

Net Travel and Transportation
+     7

Other Services, Net
+   70

Income Receipts
+  274

Income Payments
-  299

Balance on Goods, Services, and Investment Income
-  293
Unilateral Transfers, Net
-  46

Balance on Current Account
-  339
Exports of Capital Assets to Foreigners, Private
+  706

Imports of Capital Assets from Foreigners, Private
-  381

Statistical Discrepancy
-   39

Change in Official Reserve Assets
+   9

Liabilities to Foreign Official Agencies
+  44
Overall Balance of Payments
Sources: U.S. Department of Commerce and U.S. Department of the Treasury.

Whether or not the United States can continue running a large and growing current account deficit in its balance of payments is a matter of both concern and conjecture.  Basic instinct and common sense would suggest that it cannot.  At the present time, the US current account deficit is about 4 per cent of its GDP.  The US could sustain a chronic current account deficit, if the deficit grows slower than its GDP.  What is unsustainable is a current account deficit growing faster than GDP.  Most estimates place the long term US real GDP growth potential at about 3.5 per cent per year. The current account deficit has recently been growing much faster than that, so eventually something will have to give way.  Either real GDP will have to grow faster (unlikely) or the current account deficit will have to stabilize or decline (more likely).  Depreciation of the dollar is the most plausible means by which this would occur.  A dollar depreciation would stimulate US exports and curtail imports, causing the current account deficit to stabilize or shrink.  The problem is that if the United States starts importing less from the rest of the world (and not from aliens), then the global economy would suffer.  That's one of the major uncertainties facing the world economic outlook in the near term.

Recommended Links:

World Economics News:  Bright Outlook for Global Economy 2000

International Monetary Fund Home Page. http://www.imf.org

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