The sectoral balances identity is derived from two equations, one which gives the GDP calculated by summing the income from sources, and the other which calculates GDP by summing the uses to which the GDP is put. By setting two expressions of GDP equal we have an identity, that is, an equation that holds no matter what happens in the economy. It is called the Sectoral Balances Identity, given below..
(S - I) =* (G - T) + (X - M)
This identity says that total private savings (S) minus private investment (I) has to equal the public deficit (spending, G minus taxes, T) plus net exports (exports (X) minus imports (M)), where net exports represent the net savings of non-residents.
All these relationships (equations) hold as mathematical identities of accounting and not as matters of opinion or theory.
At click here we find the following chart. The Foreign Sector should be a graph of (X-M). However, it is instead, -(X-M).
At any year (on the abcissa) the graph gives the Private Sector balance, (S - I), the Government Sector balance, (G - T), and the negative of the Foreign Sector balance, (X - M).
You can see that the relationship between the three sectors is consistent with the identity. That is, at any time the levels of the Private sector, the Government sector, and the Foreign sector seem (by eyeball estimate) to obey the identity.
Sectoral Balances of the US Economy 1990-2015 (FED Database)
In the run-up to the 2008 crash this graph shows that the private sector was in deficit (negative) for about 5 years. But look at what happened when Paulson and Bernanke told President G.W. Bush on September 18 that if the government didn't bail out the bankrupt Wall Street banksters immediately, the economy would crash.
There was a sudden huge government expense, and simultaneously a sudden rise in the Private Sector balance. But wait! We know that there was no windfall on Main Street, so what was going on?
- The government was complicit in trying to hide this disaster from the public because various explanations, all lies, were floated-- a) it was short term loans all paid back, b) the foreclosed homes were accepted by the government as part of the repayment c) it's no big deal that the people who were suckered into taking on the huge mortgages lost everything and were totally forgotten.