The Balance of Payments in 1970.

This article analyzes developments in the 1970 balance of payments in the U.S. Lawrence Krause asked whether the trade balance was tracking its usual relationships to demand changes in the U.S. and abroad. This paper extends his question to (a) the basic balance, defined as the current account plus the net direct investment account and (b) the balance on private financial capital, that is, private capital flows other than direct investment. In 1970 the balance on merchandise trade was $2.2 billion, up from $0.6 billion in 1969. Exports rose from $36.5 billion in 1969 to $42.0 billion in 1970, an increase of $5.6 billion, or 15 percent. Adjusted for the 1969 dock strike, which shifted exports from late 1969 into early 1970, exports rose by 12 percent in 1970, compared with 13 percent in 1969. Imports rose from $35.8 billion in 1969 to $39.8 billion in 1970, an increase of $4.0 billion, or 11 percent. The usual definition of the basic balance includes, above the line, the balance on current account plus net flows of private long-term capital, both direct and portfolio investment. In the wake of the sharp decline of interest rates that began in 1970, there occurred a substantial outflow of private financial capital in 1970, which will probably continue, at a diminished rate, in 1971.