A Model of U.S. Financial and Nonfinancial Economic Behavior

Abstract

AT THE BEGINNING of this or any calendar quarter, economic agents in the United States-households, business firms, financial institutions, governments-held certain measurable quantities of a variety of assets, financial and real. The great bulk of financial assets were the debts of other resident agents; some were debts of foreigners. The bulk of real assets were land and reproducible consumers' or producers' durable goods located within the country. We also owned real properties abroad, just as foreigners owned some here. These asset and debt positions were the cumulative results of past saving and investment, past portfolio behavior, and past capital gains and losses, realized or unrealized. During the current quarter, these balance sheets will change. Households will be deciding how much to add to their wealth and in what form. Businesses will be deciding how much real capital to accumulate and how to finance their investments. Governments will be running and financing budget surpluses or deficits; in this particular quarter no doubt they will be on balance in deficit and will have to issue new interest-bearing debts or new monetary liabilities. Probably they will issue some of each. The country's net position vis-a-vis the rest of the world will decline by the deficit in the external current account. This deficit too will have its financial counterparts. At the same time, all these agents, and foreigners as well, will be reshuffling their initial balance sheets. The transactions and revaluations resulting