Abstract
In general, the balance of payments records a country’s trade in goods, services, and financial assets with the rest of the world. Such trade is divided into useful categories that provide summaries of a nation’s trade. A distinction is made between private (individuals and business firms) and official (government) transactions. This chapter shows that the balance of payments is based on double-entry bookkeeping, providing examples of entries made as credits and debits. The current account is defined as including the value of trade in merchandise, services, and primary and secondary income. The chapter examines the recent history of US international capital flows, looking at direct investment, security purchases, bank claims and liabilities, foreign official assets in the United States, and US government assets abroad. In order to provide a better understanding of transaction classification, the chapter analyzes six transactions and their placement in a simplified US balance of payments. Finally, the chapter considers the balance of payments equilibrium and in particular the US foreign debt.
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