1) National Income Equilibrium Identity demands that the sum total of ‘Budget Deficit’ and ‘Trade Surplus’ should be equal to (or greater than) the ‘savings-investment gap’ for a balance. But since 1996 US has entered a period of ‘Negative Savings-Investment Balance’. The imbalance is at record highest as a percentage of GDP as on third quarter of 1998 in last 30 years and the trend continues till now.

The statistical observations are as follows:

BUDGET BALANCE TRADE BALANCE

GOODS A/C GOODS & SERVICES A/C CURRENT A/C

FED -3.22% -2.52% -2.97%

TOTAL GOVT -4.95% -4.25% -4.7%

(Figures as a % of GDP)

2) Since the second quarter of 1995, US savings figures is seemingly enjoying what may be called a ‘Favorable Statistical Discrepancy’. As on the third quarter of 1998, it stood at 7% of US Gross Savings; 25% of Govt. Savings; 1.19% of US GDP. It is also record highest in 30 years.

3) The quantum of ‘decrease in Budget Deficit’ (or ‘increase in Budget Surplus’) is almost equal to the quantum of ‘increase in favorable discrepancy’ since the second quarter of 1995. There seems to be a pattern.

4) Since 1995 USA seems to be basking in the relative warmth of US $ 5 TN ‘wealth-effect’. But almost US $ 1.4 TN of output has been contributed by ‘favorable statistical discrepancy’. This can be illustrated by the following figures taken from the mentioned report.

Year Stat Disc Output/Savings ratio Output

(US $ bn) (US $ bn)

1995 43 5.94 255

1996 33 5.96 196

1997 67 5.78 387

1998III 102 5.81 592

Total US $1430 bn

From 1995 to the third quarter of 1998, US GDP has grown by US $ 1360 bn. By a crude estimate, ‘wealth-effect’ to GDP ratio being 5 (approx.), the entire magic can be termed as ‘Statistical Discrepancy Led Growth’. That about explains the so-called ‘wealth-effect’ of record low inflation, highest employment rate, highest positive consumer sentiment, record DOW Jones Index and many other related myths.

There is a serious doubt from the above observations whether USA economy is bankrupt today!

Data Source: - Table nos. B – 1, B – 32, B – 83, B – 103 of ‘Economic Report to the President, Feb ’ 99 ’