Net lending (saving minus investment) by the private, government and foreign sectors, which must sum to zero by identity — one sector can only run a financial surplus if another runs it down. This is Wynne Godley's sectoral balances framework: it was precisely this chart that led him, around 2000, to call the private sector's persistent net-borrowing position unsustainable — flagging the dot-com bust and, later, the conditions behind the GFC.
This graph illustrates the net lending positions of the three sectors, calculated as the difference between saving and investment, adjusted for typically minor capital account transactions. A notable exception occurred in 2017Q4, when there was a significant capital account transaction exceeding $900 billion, representing a transfer from the corporate sector to the government sector due to the one-time deemed repatriation tax. Therefore, the sharp decline in the government deficit and private sector saving in 2017Q4 depicted in the chart should be disregarded.
After adjusting for the statistical discrepancy, the sum of net lending positions across the three sectors must equal zero. This identity holds because each lending transaction simultaneously creates offsetting entries in the balance sheets of different sectors. A notable insight from this chart is that, prior to both the dot-com bubble and the Global Financial Crisis, the private sector persistently held a net borrowing position for multiple quarters. Given the relative stability of the foreign sector’s net lending, this reduction in private net saving corresponds directly to a decreasing government deficit. In fact, throughout the entire postwar era, the government recorded a surplus only during the three quarters immediately preceding the dot-com crash. The statistical discrepancy, detailed in NIPA Table 5.1, represents measurement differences between GDP and GDI. The shaded areas on the chart indicate recession periods as defined by the NBER. You can toggle the visibility of the statistical discrepancy by checking the provided box.