After reading Randall Wray's piece on sectoral balances and Edward Harrison's analysis of the situation (hat tip to Scott) I thought I'd draw up the equivalent chart for the UK.
However its not who you think that appears to be doing all the net-saving. The traditional UK five sector analysis shows a disturbing lack of saving by the Household sector in the last few quarters. And which private corporations are hoarding all this money?
Source: Office of National Statistics, tables RPZD, RPYN, RQAW, RPZT, RQCH, DJDS (Seasonally adjusted Net Lending/Borrowing per sector plus residual error) and YBHA (Gross domestic product at market prices, seasonally adjusted)
Updated to include public corporations in non-financials and to show residual error 23-Feb-2011
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19 comments:
This is brilliant Neil - it's on my favourites - would it be possible to keep this updated?
Neil,
Is there any where that the non financial balance is broken down, so we can find out where the spending flows are going?
Perhaps the spending flows are too weak to overcome the price increases and so are simply being eaten into by those rises to support company profit margins.
Are you graphing nominal sector balances against real GDP here, Neil?
Charles
Table 8.1M in the Financial Statistics bulletin has a breakdown of the financial flows. Looks to me like heavy deleveraging of loans.
vimothy,
Dang. That's because GDPC isn't seasonally adjusted.
Switched to table YBHA
Ta.
Financial sector balances seem to have been smaller before the dot.com bubble (or thereabouts). Has there been a genuine change in the pattern, or just a change in the accounting at some point? Is it increasing cross-jurisdiction flows within companies?
Neil,
Is the second graph a breakdown of the first? If so, why don't the sectors add up to 0? I'd say it is a statistical discrepancy because you are using the capital account figures instead of the actual current account figures.
Secondly, are these graphs the transactions/flows between the sectors i.e. the net-lending/borrowing. They don't actually show the Net-Financial Wealth of the various sectors, so if I was to check the actually balance sheet of the household sector there would be a reduction in net-financial wealth.
Regards,
Geoff
The second is a breakdown of the first.
The ONS state: "The sum of net lending by sector is equal (but opposite sign) to the residual
error between the expenditure and income based estimates of GDP"
And of course these are seasonally adjusted as well.
Table 9.1M has the current nominal totals.
Neil,
Much better. Nice one for doing this! +1 for updates too.
Neil - you have taken series RQBV for PNFC. In fact, the ONS' excel spreadsheet "Table 1.12", (which sums to zero for all periods before 2009) uses RQAW instead, which includes RQBV as well as RQBN (public corporations).
Anders
The RQAW table isn't in Financial Statistics.
Which publication is it in?
I'd probably want to roll public corporations into the government sector - given that's where the control lies.
The Royal mail isn't going to do a rights issue after all until they finally sell it off.
RQAW is in UKEA, which is only quarterly but the sector financial balances are obviously only done quarterly anyway - table A12.
Note that, if you're feeling lazy and don't mind (wrongly) allocating the Royal Mail to PNFCs, the ONS do a table for this:
http://www.statistics.gov.uk/elmr/downloads/table1-12.xls
Best, Anders
OK. Probably best to keep it consistent with ONS to avoid confusion and any argument.
Updated.
Hi Neil
I thought I'd try you on this as I can't get an answer in BillyBlog.
MMT teaches that only the sovereign currency isuer can add to net financial assets in the non-government sector but I've been looking at a few accounts of banks and they write off bad loans to customers against profit (with a tax credit).
Surely when this happens they are increasing the net financial assets in the non-government sector because no deposit will ever be used to repay that original debt.
I don't see how the sectoral balances can balance in term of money flows without an adjustment
I like the site by the way
If you write off a loan (an asset) then you have to write it out against equity (which includes retained profits is a liability).
So the balance sheet shrinks - but by equal amounts on both sides.
Of course if the bank writes off too many loans then they run out of equity and go insolvent.
Only if the bank goes insolvent and the central bank has to step in to stop depositors taking a hit are there additional financial assets injected into the system.
Thanks. I think I'm starting to get it.
You're saying the shareholders effectively pay the debt through a reduction in their equity as represented by the change to the nominal value of assets in the bank's balance sheet (adding back the tax credit of course)
Have I got this right ?
Yep.
Generally with banks the ordinary shareholders get it in the neck first (risk equityi liability), then the investment bond holders (long term debt liabilities) and finally the retail deposit holders (short term debt liabilities).
The latter group are usually insured by the central bank - since the central bank is supposed to make sure there is enough equity and investment bond money to cover losses.
Great! Thanks.
I can stop bugging everyone about it now and start on something else.
I appreciate your help
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