Английский язык в экономике, бухучете и банковско-финансовой деятельности

Exercise 1. Words and expressions. Provide Russian equivalents.

output of goods and services

per capita

Gross national product (gnp)

growth at a retarded rate

Net national product (nnp)

output per capita

double counting

product per capita

current prices

manufacturing productivity

constant prices

downward trend

material welfare

foreign-made goods

rate of growth

intimately connected

Exercise 2. Answer the following questions.

1. What do economists mean when speaking of «economic growth»? 2. What is national product? 3. What is the difference between GNP and NNP? 4. Is national income related to national product? 5. How do economists measure national income? 6. How can you describe growth cycles in a country’s output? 7. How are surges in economic growth explained? 8. What were Thomas Maltus’ views on the relationship between increase in output and population growth? 9. What problems influence prospects of economic growth in a country now? 10. What can be said about the rate of increase in manufacturing productivity in the U.S. in the late 1940s till 1980s?

Exercise 3. Translate into English.

1. Национальный доход – денежный эквивалент национального продукта – можно измерять несколькими способами. 2. Каждый из этих способов отражает различные стороны процесса производства, распределения и потребления продукции в государстве, и все они применяются для различных целей. 3. Изменения в национальном доходе можно измерять в постоянных либо в текущих ценах. 4. В целях исследования экономического роста желательно применять постоянные цены. 5. В расчетах экономического роста для определения изменений материального благосостояния необходимо учитывать два дополнительных требования. 6. Самые высокие темпы экономического роста на душу населения в странах Юго-Восточной Азии. 7. Рост производства не должен быть временным. 8. В данных о производстве продукции в различных странах ученые обнаружили циклы роста (часто называемые «долговременными колебаниями») меняющейся продолжительности, некоторые 10 лет, другие 60 лет, а некоторые даже 100 лет. 9. Колебание – это изменение темпов роста. 10. В фазе спада темпы роста чрезвычайно низкие или отрицательные. 11. В каждом из долговременных колебаний ученые обнаружили период подъема. 12. Следует подчеркнуть, что долговременные колебания имели место не в общем объеме производства (который рос без существенных перерывов), а скорее в темпах роста этого общего объема производства.

Text 4. National debt

The national debt of the United States is the total of all the obligations of the Treasury to pay money to the federal government’s creditors. It consists of bonds, notes, and bills issued to the creditors when they lend money to the government. When the national debt was created in its current form in 1791, it stood at $75 million, or about $18 per capita in dollars of 1791 purchasing power and $197 per capita in dollars of 1982–1984 purchasing power (see accompanying table). Nearly two centuries later in 1988, the debt stood at $2,600.8 billion, or $10,572 per capita in 1988 dollars and $8,937 in 1982–1984 dollars.

Such data, however, are not very informative. When a borrower applies for a loan, a lender usually appraises the borrower’s income because that typically is the source of interest payments and repayments of principal. By analogy, in judging whether a national debt is large or small, one ought to compare it to the income (or product) of the national economy because that income, through taxation or further borrowing, is the ultimate source of interest and principal payments on the national debt. The accompanying figure presents the ratio of the national debt to the gross national product (gnp) of the United States from 1791 to 1988. It is apparent that the national debt has varied widely in comparison to the gnp over two centuries. Since we know that the gnp, the annual dollar value of all the goods and services produced by the American economy, has grown at relatively steady rates over long periods of time, most of the major fluctuations in the debt/gnp ratio have been caused by fluctuations in the national debt. Indeed, the history of the debt – its origins and its expansions and contractions over two centuries – reflects many of the key episodes of the American experience.

The national debt was born in the War of Independence. Within a week of the Battle of Bunker Hill in 1775, the Continental Congress, following colonial precedents, authorized an issue of $2 million of bills of credit called Continentals to finance the war. By the end of 1779, $241.6 million of Continentals had been authorized. U.S. loan certificates, foreign loans, state-issued bills of credit, and other evidences of public debt completed the stock of borrowing for the Revolution. The worst inflation in U.S. history resulted from the overissue of Continentals, and the bills became nearly valueless by 1780. The other evidences of revolutionary debt also depreciated greatly in value. After the war, starting in 1782, Congress authorized commissioners to travel around the country to examine claims against Congress and the Continental army and revalue them in terms of hard money. The revalued debt amounted to some $27 million.

Under the Articles of Confederation, Congress had no independent power to raise revenue. At the same time, the states, with debts of their own, were reluctant to respond to Congress’s requisitions for revenue. As a result, interest payments in the 1780s were met by issuing certificates of interest indebtedness. The Constitution of 1787 solved the revenue problem by giving the new federal government the power to tax, but by the beginning of 1790 the indebtedness of the United States, including arrears of interest, had increased to $13.2 million of foreign debt and $40.7 million of domestic debt, while state governments had outstanding debts of $18.3 million. In 1789, as the new government under the Constitution was being organized, the market priced the existing evidences of debt at only fifteen to thirty cents on the dollar because of uncertainties about if, how, and when they would be repaid. The new nation had a poor credit rating.

In January 1790, Alexander Hamilton, installed as the first secretary of the treasury, submitted his Report on the Public Credit to Congress. He called for funding nearly all the government’s obligations, including the state debts, into long-term federal securities payable in specie – that is, hard money. After considerable debate Hamilton’s proposals were adopted in August 1790. The foreign debt was fully funded, as was most of the domestic debt, although interest payments were deferred on part of the latter and another portion carried interest rates below the market rate. Only the depreciated Continental bills, nearly valueless, were funded at less than face value; one hundred dollars of Continentals were accepted as payment for one dollar of the new bonds. The most controversial part of Hamilton’s plan, because some states had paid off the bulk of their debts while others had not, was the assumption of remaining state debts by the federal government. (To gain the support of Thomas Jefferson and his followers for the plan, Hamilton and the Federalists agreed to a compromise that located the future capital of the nation on the banks of the Potomac.)

Hamilton’s refunding plan was generous to the government’s creditors, who replaced securities selling for as little as fifteen cents on the dollar in 1789 with new federal bonds that soon rose toward par. How was such generosity justified? Hamilton argued in his report that his plan would restore faith in the government and public credit, attract foreign capital to the United States, and increase the effective stock of money, thereby stimulating the economy. Subsequent experience proved him correct. The U.S. government was nearly bankrupt in the 1780s; in 1803 it had no trouble borrowing $11.25 million on short notice, mostly from foreign subscribers, to finance the Louisiana Purchase, which doubled the size of the nation. By that time nearly 60 percent of the national debt had been purchased by foreigners, who in effect lent money to Americans in return for the government’s promises to repay them in the future. Within the United States, debt owners could sell their federal securities for money or use them as collateral for bank loans. In retrospect, Hamilton’s plan was a political and economic masterstroke for the new Republic. As Daniel Webster would later say, Hamilton «touched the dead corpse of the public credit, and it sprung upon its feet.»

The subsequent history of the debt can be traced through the accompanying table and the figures’ portrayal of the expansion and contraction of the debt/gnp ratio. A national debt of $75 million in 1791, when Hamilton’s funding plan was implemented, may seem small to the modern observer. But it represented about 40 percent of the gnp then, and a debt/gnp ratio that high was not seen again in U.S. history until the 1930s when the Great Depression led to large federal deficits and increases in the debt at the same time the gnp was collapsing.

The national debt reached a high in 1804, when the Louisiana Purchase added $11.25 million to it in one transaction. But aside from this extravagance, the administrations of Jefferson and James Madison were noted for fiscal frugality. Although some of the old Federalist taxes were cut in those years, Treasury Secretary Albert Gallatin was nonetheless able to cut the debt nearly in half between 1804 and 1811. Another notable event in the history of the debt was its elimination in 1835 and 1836, an occurrence unprecedented in the history of modern nations. This was during the administration of Andrew Jackson who, like his Jeffersonian predecessors, was fiscally frugal. But the main reason was the rapid economic growth that swelled federal tariff and land-sale revenues.

Much of the rest of the history of the national debt before 1930 can be generalized as following a pattern of rapid expansion in times of war and gradual reduction in times of peace. Reliance on debt financing during wars can be justified in economic theory by treating war expenditures as investments (in national survival or territorial expansion, for example) benefiting later generations who ought to help pay for the benefits by servicing the debt. A more likely explanation is one of expedience: wars call for rapid increases in expenditures, but equally rapid increases in compulsory taxation would be less popular than borrowing.

The pattern of wartime debt expansion can be seen in the War of 1812 when the national debt nearly tripled between 1811 and 1816, in the Mexican War era when the debt more than quadrupled between 1845 and 1851, in the Civil War when the debt increased forty-two-fold between 1860 and 1866, in the Spanish-American War era when the debt rose 50 percent between 1893 and 1899 (although the larger part of this increase occurred before the war), and in World War I when the debt increased twenty-one-fold between 1914 and 1919. World War II also fit the pattern: the debt increased nearly sixfold between 1939 and 1946.

The longest sustained period of debt reduction occurred after the Civil War, from 1866 to 1893, when the federal government ran a budget surplus every year and cut the debt to about a third of its initial value. On the whole, this was a positive development for the U.S. economy, as the government freed up funds for private investment and high levels of investment at some of the lowest interest rates in U.S. history fueled rapid economic growth. But debt reduction was controversial because it resulted from administrations, mostly Republican, that combined fiscal frugality with high tariff rates, producing revenue surpluses while protecting American manufacturers from foreign competition. The administration of Grover Cleveland was embarrassed in the late 1880s when, having retired all the callable federal bonds, it had to enter the market and buy up government debt at prices well in excess of par. Some modest debt reduction occurred between 1899 and 1914. The last sustained reduction came in the 1920s when the debt was reduced to less than two-thirds of its 1919 level. This was a favorite policy of Treasury Secretary Andrew Mellon, a conservative banker.

The year 1930 represented a watershed in the history of the national debt. Since that date the debt has never been reduced for more than a year or two in peacetime or, of course, in wartime. In the depressed 1930s the collapse of the gnp led to federal fiscal deficits and debt growth. World War II, as can be seen in the figure, saw the debt rise to by far its highest level in relation to gnp in previous or subsequent experience. The national debt peaked at 128 percent of gnp in 1946. After the war, although the debt continued to rise, the gnp until the 1980s rose much faster, so that by 1979–1981 the debt/gnp ratio was only 33 percent. From 1981 to 1988, the policies of the Reagan administration – tax cuts and increased defense spending – coupled with Congress’s and the administration’s reluctance to cut spending on inflation-swollen entitlement programs, produced large deficits that raised the debt/gnp ratio to 53 percent, its highest level in U.S. history apart from the World War II era, with no end to the rise in sight as of 1991. This trend disturbed many Americans, and federal deficits and rises in the national debt once again became major national issues. Even in 1988, however, the debt/gnp ratio was no larger than it was during the period 1943–1961.

Various strategies for marketing the debt have been followed through the years. The funded national debt of 1791 was created by exchanges of various Revolution era obligations for long-term bonds payable, principal and interest, in hard money. Before the Civil War, when new funds had to be raised, the Treasury usually relied on loan contractors to buy large amounts of new securities at negotiated prices and resell them to state and local governments, institutions, and wealthy individuals. Secondary trading markets emerged, allowing holders of the debt continuously to buy and sell their holdings of federal securities. Since much of the debt was held in Europe, arrangements were made to make it payable in European centers. Thus, $6.25 million of the Louisiana Purchase loan was made payable in London and $5 million in Amsterdam.

The Civil War brought sudden financial requirements and uncertainties that were too great for the old system of debt marketing. Jay Cooke, a private banker, contracted with the Treasury to place large war-debt issues with small investors throughout the Union. Cooke relied on heavy advertising expenditures and patriotic appeals to sell bonds. The newly created National Banks also bought large amounts of wartime issues, against which they could issue national currency. Jay Cooke’s techniques of mass marketing Treasury debt within the United States introduced many Americans to ownership of paper wealth – a major development in the history of U.S. financial markets.

Cooke’s techniques were employed again when the debt soared in World Wars I and II. Then, however, a central bank, the Federal Reserve System, was present to aid Treasury financing by creating new money to be exchanged for federal debt. Nonmarketable savings bonds were introduced, but they never became a major part of the total debt.

Today, the marketing of the national debt is almost continuous, with new issues of Treasury bills, for example, being sold every week. New notes and bonds are issued quarterly. Many new issues simply replace old ones, but in the 1980s a great deal of new money had to be raised to finance the large Reagan era federal deficits. In 1988, U.S. government agencies, trust funds, and Federal Reserve banks owned about 30 percent of the debt, private financial institutions held nearly 40 percent, and the remainder was owned by state and local governments (11 percent), U.S. individuals (7 percent), and foreign/international holders (13 percent).

Robert Heilbroner and Peter Bernstein, The Debt and the Deficit (1989).

Richard Sylla

EXERCISES

Exercise 1. Words and expressions. Provide Russian equivalents.

obligations

outstanding debts

bonds

fund the government’s obligations

notes

securities

bills

defer payments