Текст книги "Английский язык в экономике, бухучете и банковско-финансовой деятельности"

purchasing power

were funded at less than face value

the debt stands at $2 bln

par (value)

borrower

use them as collateral for bank loans

lender

federal deficit

apply for a loan

transaction

interest payments

fiscal policy

principal repayments

tariff and land-sale revenues

debt/gnp ratio

to increase forty-two-fold

the issue of $2 million of bills of credit

budget surplus

indebtedness

revenue surpluses

arrears of smth

to retire all the callable federal bonds

foreign debt

at negotiated prices

domestic debt

Exercise 2. Answer the following questions.

1. What is the national debt and what can it include? 2. Why does a lender usually appraise a borrower’s income? 3. What is the ultimate source of interest and principal payments on the national debt? 4. What was the reason for inflation in the U.S. in 1780? 5. How can you describe indebtiness of the U.S. in 1789? 6. What did Alexander Hamilton called for as regards government debts? 7. Was Alexander Hamilton’s plan a success? Substantiate your answer. 8. How did wars and peace times influence U.S. debt before 1930? 9. What happened to the debt in 1930 when GNP collapsed. 10. What strategies of marketing the debt were used in the U.S? 11. What were Jay Cook’s techniques in settling debt issues? 12. How is marketing of national debt carried out nowadays?

Exercise 3. Translate into English.

1. В 1791 г. создавшийся в США национальный долг в сегодняшнем его понимании составил 75 млн долларов, или 18 долларов на душу населения при покупательной способности доллара в 1791 г. и 197 долларов на душу населения при покупательной способности доллара в 1982–1984 г.г. 2. Почти два века спустя национальный долг США составил 2600 млрд долларов. 3. Когда ссудополучатель обращается за кредитом, заемщик как правило производит оценку его доходов, которые обычно являются источником выплаты кредита и процентов по нему. 4. Большинство самых значительных колебаний в соотношении между национальным долгом и ВВП были вызваны колебаниями величины национального долга. 5. Государственный долг подтверждали государственные долговые обязательства, иностранные займы и облигации. 6. Чрезмерная эмиссия Континентальных долговых обязательств привела к крупнейшей в истории США инфляции, и к 1780 г. государственные долговые обязательства почти обесценились. 7. Задолженность США, включая задолженность по выплате процентов по кредитам, возросла, при этом внешний долг составил 13 млн долларов, внутренний долг – 40 млн долларов, а непогашенная задолженность правительств штатов – 18 млн долларов. 8. Он призывал консолидировать почти все правительственные обязательства, включая долги государства, в долгосрочные федеральные ценные бумаги, выплаты по которым производятся в твердой валюте. 9. Выплаты процентов по части внутренней задолженности были отсрочены. 10. В следующем году долг был погашен. 11. Резко возросли поступления в бюджет от продажи земельных участков. 12. Последующие поколения обслуживали национальный долг. 13. Правительство погасило федеральные облигации и начало выкупать правительственные долговые обязательства по ценам выше номинала.

Text 5. International investment

From the colonial era to 1914, the United States was a debtor nation in international accounts; that is, Americans owed more to foreigners than foreigners owed to Americans. From roughly 1917–1918 to the mid-1980s, this relationship was reversed: the United States became a creditor country. In the mid-1980s, another major transformation occurred as the nation moved from net creditor back to net debtor, at least as officially measured.

The American government had borrowed in Europe to help finance the Revolution, to assist Alexander Hamilton in his funding of national and state debts, and to purchase the Louisiana Territory. By year-end 1803, more than half of the U.S. public debt was held abroad, and 62 percent of the stock of America’s largest business, the Bank of the United States, was in the hands of nonresident foreigners.

Thereafter, foreign interests in America grew, following an uneven path; although the importance varied over the years, until 1875 the bulk of foreign holdings was in government securities (federal, state, city, county). In the 1830s and in the post-Civil War years, state government bonds were highly popular in Europe. In the early 1840s and the mid-1870s, major defaults on these securities soured European investors.

When Americans started to build railroads, it became necessary to raise added moneys abroad because U.S. savings were inadequate. New mines and cattle ranches also attracted European (especially British) moneys, as did mineral processing, meat packing, and flour making. In the early twentieth century, British, German, Dutch, French, and other foreign investors produced a variety of goods and services in America (including rayon, the first synthetic fabric, Mercedes cars, oil by Royal-Dutch Shell, and Michelin tires). With the large inflow of capital, America became the world’s greatest debtor nation.

Meanwhile, American businesses began to move abroad. In the colonial era, merchants had set up overseas units. During the nineteenth century, the number of enterprises abroad mounted slowly. Then, from the 1870s onward, as American companies grew at home, they also expanded over national borders. By the late nineteenth and early twentieth centuries, modern American multinational enterprises had emerged. Standard Oil of New Jersey, Singer, International Harvester, Western Electric, and by 1914, Ford Motor Company had major producing facilities outside the United States. Although foreign investment in the United States was of both a portfolio nature (investment in bonds and shares and bank lending that did not carry control) and of a direct investment nature (investment that carried management and control), the former was predominant; U.S. stakes abroad also consisted of both types, but foreign direct investment was supreme. The reason was that surplus capital in America was used at home. Thus, even while America was the great recipient of capital from abroad, its businesses were entering and growing in foreign lands, seeking new markets and sources of supply.

World War I was the watershed. The British sold American assets to finance the war, and German investments in America ended when the United States entered the war. The demand for capital abroad rose, and now Americans supplied it. American banks, once intermediaries in bringing capital to the United States, had developed the skills and contacts to play the opposite role – to dispatch U.S. moneys worldwide. Europe looked to America for loans to buy weapons. In 1917–1918 U.S. government lending became very important. Latin America attracted new U.S. business investments. Overnight, as it were, America was transformed into a creditor nation.

Businesses continued to expand in the 1920s and so did American lending. Excluding the U.S. intergovernmental credits, and with 1929 possibly an exception, American direct investment abroad always exceeded portfolio investment until the 1970s. During the 1930s, American lenders abroad faced major defaults and multinationals encountered difficulties. In 1934 the Johnson Act made it unlawful for U.S. bankers to lend to countries in default on U.S. government loans. World War II posed added hazards for international investors. In its aftermath, America emerged as economically strong and as the great creditor nation, the only economic giant in the world. Marshall Plan aid was vital to European recovery. Soon, American multinationals were spreading worldwide on a scale that dwarfed their past history. During the 1960s the American challenge – American investment accompanied by American technology – seemed unmatched.

While America was a creditor nation, foreign stakes in the United States were overshadowed. Yet they never entirely disappeared. Some foreign companies that had investments in the United States before 1914 remained and grew in size, and there were new entries. Certain portfolio holdings persisted and others were newly made. Indeed by the time of World War II, foreign investment had attained its 1914 level, even though the amounts were exceeded by U.S. investment abroad. After the Second World War, foreign investment in the United States was very much in the background.

In the 1970s, as the Organization of Petroleum Exporting Countries (opec) pushed oil prices up, its government members had capital surpluses that could not be absorbed into their domestic economies; these moneys were placed with U.S. banks and recycled into third world debt. With the new sources of funds, the character of American investment abroad changed. From being overwhelmingly investment by multinationals, it became increasingly made up of bank loans.

Americans, for balance of payments reasons, had sought to encourage foreign investment in the United States in the 1960s; by the 1970s and early 1980s, an awareness emerged of rising inward investment. America was both politically stable and provided a formidable market. While much of the new investment came from European (especially British, Dutch, and German) sources – often stimulated by the decline in the dollar after 1971–1973, which made American assets cheaper to foreign buyers – what attracted special concern was the newly conspicuous holdings of Arab investors and later of the Japanese.

Suddenly, in the mid-1980s, seemingly overnight, the United States had switched from net creditor to net debtor status in international accounts. And once again, by the end of the decade, America had become the world’s greatest debtor nation. The transitions of 1914–1918 and the mid-1980s had been rapid, yet in each case the foundations had been laid in prior years. Despite much unhappy talk about «foreign multinationals in America» – especially the Japanese «invasion» – foreign investors still had their holdings mainly in liquid assets, portfolio investments. And, as during most of American history, it was still the British who had the largest investments. Moreover, as foreign investment in America grew, U.S. investment abroad persisted and direct investments expanded.

Historically, Americans were always ambivalent about foreign investment. This was true before 1914 when, on the one hand, there was the wish for foreign capital to finance the railroads and, on the other, a deep resentment against British investors. So, too, in many parts of the world, American investment over the years provoked a «can’t live with it and can’t live without it» state of mind – hated for its symbolic «alien» implications and yet desired for its positive contributions. As sizable foreign investment in the United States took place in the 1970s and 1980s, it was both courted by state governments that wanted more employment within their jurisdictions and lambasted by critics who saw «America for Sale.» Despite economic integration worldwide, nations, the United States included, retained – as in times past – a mixed response toward outsiders’ investments.

Mira Wilkins, The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914 (1970); Mira Wilkins, The History of Foreign Investment in the United States to 1914 (1989); Mira Wilkins, The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (1974).

Mira Wilkins

EXERCISES

Exercise 1. Words and expressions. Provide Russian equivalents.

borrow v.

direct investments

debtor nation

assets

creditor country

intermediary

to fund national and state debts

moneys

company’s stock

intergovernmental credits

securities

in default on loans

holdings

OPEC

default on securities

funds

added moneys

capital surplus

raise money

encourage foreign investment

inflow of capital

liquid assets

portfolio investments

Exercise 2. Answer the following questions.

1. In the 19^th and 20^th century was the United States a debtor or a creditor country? 2. What American securities were most popular in Europe in the 19^th century? 3. Why has the US become the world’s greatest debtor nation in the 20^th century? 4. How can you describe portfolio investments and direct investments? 5. What was the aim of the Johnson Act in 1934? 6. Did WW II help to restore American economy? 7. How can you describe foreign investment before and after WW II? 8. How did high oil prices and OPEC countries in 1970s influence the caracter of American investment abroad? 9. Why did Americans encourage foreign investment in 1960s? 10. What is the feeling of Americans toward foreign investments? What was the attitude of state governments to foreign investments?

Exercise 3. Translate into English.

1. США брали кредиты в Европе для финансирования революции и консолидирования национального и государственного долга. 2. Большая часть акций крупнейшей американской компании принадлежала иностранцам-нерезидентам. 3. В середине 19 в. Крупнейшие дефолты в отношении этих ценных бумаг больно ударили по европейским инвесторам. 4. Когда США начали строительство железных дорог, возникла необходимость в получении дополнительных кредитов за границей. 5. До 1970 г. прямые инвестиции США за рубежом всегда превышали портфельные инвестиции. 6. В 1930-х г.г. американские кредиторы столкнулись с крупными дефолтами. 7. Закон Джонсона 1934 г. запрещал американским банкам кредитовать страны, невыполняющие обязательства по выплате займов, предоставленным правительством США. 8. Пока Америка оставалась страной-кредитором, доля иностранного капитала оставалась в тени. 9. Из преимущественно инвестиций многонациональных корпораций американские инвестиции за рубежом все больше принимали форму банковских кредитов.

Text 6. Dollar diplomacy

Dollar diplomacy is the term used to describe America’s efforts – particularly under President William Howard Taft – to further its foreign policy aims in Latin America and the Far East through the use of economic power. President Theodore Roosevelt laid the groundwork for this approach in 1905 with his Roosevelt Corollary to the Monroe Doctrine, maintaining that if any nation in the Western Hemisphere appeared politically or fiscally so unstable as to be vulnerable to European control, the United States had the right and obligation to intervene.

Taft continued and expanded this policy, starting in Central America, where he justified it as a means of protecting the Panama Canal. In 1909 he attempted unsuccessfully to establish control over Honduras by buying up its debt to British bankers. In Nicaragua, American intervention included funding the country’s debts to European bankers. In addition, the State Department persuaded four American banks to refinance Haiti’s national debt, setting the stage for further intervention in the future.

Dollar diplomacy was also pursued in China, where Taft’s secretary of state, Philander C. Knox, became convinced in 1910 that America’s free access to trade there was threatened by European financing of the new Hukuang Railroad. With some difficulty, the Taft administration arranged for American bankers to be included in the project and then prevailed on J. Pierpont Morgan to create an American syndicate for the purpose. Taft was also concerned about Russian and Japanese railroad activities in Manchuria and managed to persuade American bankers to join a six-power consortium that would give China the money instead.

This approach to foreign policy was repudiated by President Woodrow Wilson within a few weeks of his inauguration in 1913. Although he did not abstain from Caribbean intervention, dollar diplomacy was no longer an explicit national policy.

EXERCISES

Exercise 1. Answer the following questions.

1. What does the term «dollar diplomacy’ mean?

2. How did U.S. Administrations pursue «dollar policy’ in the 20^th century?

3. Does the U.S. adhere to «dollar diplomacy’ now?

Text 7. Banking

Not banks but merchants were the sources of money and credit in the colonial period of American history (1607–1783). It was only after independence that the first commercial bank received a charter of incorporation – the Bank of North America, in 1781. British merchant banking houses stood at one end of a long chain of credit that stretched to the American frontier. They gave short-term (less than a year) credits to American merchants who then extended them to wholesalers of their imports, and the wholesalers passed them on to both urban and rural retailers – country stores and wandering peddlers.

When the Constitution went into effect in 1789 the nation boasted three commercial banks, the Bank of North America, chartered by Congress at the behest of Robert Morris, the superintendent of finance, and two state banks, those of Massachusetts and New York. The primary function of these and later commercial banks was the making of short-term loans, which they did either by issuing their own bank notes or by creating a deposit in the name of the borrower (opening an account to the person’s credit) and dispersing checks to draw against it. Since the bank notes were promises to pay specie to the bearer on demand, banks had to maintain adequate reserves in order to do so. Defining adequacy, however, was no easy task, and numerous banks were forced into bankruptcy because they had overexpanded their loans and discounts.

Conservatism was the hallmark of the earliest commercial banks. The thinking of the time favored the establishment of a single quasi-governmental bank in each state that would operate in the public interest under private management. The overriding fear of political leaders was that excessive numbers of banks or loans too much in excess of specie reserves would hobble the taxing and spending functions of government by swamping the economy in depreciated paper. Political leaders also recalled very well the wild inflation resulting from unrestrained governmental issues of continental and state bills of credit (paper money) during the Revolution, and in the Constitution they barred the states from issuing them.

The management of the first Bank of the United States (bus), chartered by Congress in 1791, reflected these concerns. Although the bus was a large commercial bank providing loans to the private sector as well as to government, its board of directors managed the institution in a highly conservative manner. Balance sheets for the years 1792–1800 reveal a generally high degree of success in maintaining the Bank’s specie reserves. The ratio between bank notes in circulation and specie holdings was quite small.

Growing population and trade, however, created a need for comparable growth in the volume of money and credit – for a policy of accommodation rather than restraint. Sharp increases in the number of state banks and in their authorized capital stock represented a response to this need. During the life of the first bus (1791–1811) banks chartered by the states increased in number from 5 to 117, and their combined capital stock went from $4.6 million to almost $66.3 million.

The British raid on Washington in 1814 induced banks throughout the country (except in New England) to suspend specie payments. The bank note currency circulated at a variety of discounts from place to place, and since the government was compelled to accept it for taxes and imposts, the public finances became so disordered as to threaten the operations of the federal government. It was in this context of nationwide inflation and governmental derangement that Congress decided to charter a second bus (1816–1836). The expectation was that the institution would be able to force the state banks to resume specie payments and restore soundness to the currency.

The Bank’s success in achieving those objectives is mainly attributable to its president Nicholas Biddle (1823–1836). The mechanism was simple. The nation’s currency was largely made up of bank notes, most of it placed in circulation by state banks, so payments made to the federal government were likely to be in that form. And far more payments were made to that government than to any other transactor of business in the nation. In consequence, the government deposited large quantities of state bank notes in the bus and its branches, which therefore were creditors of the state banks and as such could insist on payment in specie. This threat, or its implementation, induced the state banks to keep their loans and discounts within bounds, which in turn enabled them to redeem their notes in specie at par.

But the bus could not succeed equally well in both its fiscal and its monetary functions. If, as a great commercial bank, larger than any other and receiver of the government’s deposits as well, it could succeed in maintaining sound money, it could not at the same time make available to the expanding population and economy the credit that was needed. The nation’s money was good, but there was not enough of it. Wholesale price indexes for all commodities from 1790 to 1860 reveal a long-term downward drift that commenced in 1820 and lasted till the eve of the Civil War, a drift that was interrupted only by speculative surges in the mid-1830s and mid-1850s. The policy of restraining credit expansion in the interests of monetary stability was the wrong policy for the times.

Not surprisingly, that policy was vigorously opposed by political forces determined not to renew the Bank’s charter. Although the «bank war» (1829–1832) between the administration of President Andrew Jackson and the supporters of the Bank had other elements – most notably, Jackson’s deep conviction that hard money rather than paper was the only sound money and that the economic power of the Bank threatened democratic government – it was Secretary of the Treasury Roger B. Taney’s belief in free competition that led him to stop the deposit of government funds in the Bank in 1833. Moreover, he objected to the Bank’s power to restrain the country’s economic development. The enactment of the Free Banking Act by New York in 1838 and later by other states reflected the same views. Previously, the states had granted charters to banks only by special legislative acts that were semimonopolistic in nature.

Meanwhile, since the government had stopped depositing its funds (mainly state bank notes) in the bus, that institution lost its power to influence the volume of business done by the state banks. Freed of restraint, the latter increased in number from 506 in 1834 to 901 in 1840 and 1,601 by the time of the Civil War. Some of these «pet» banks were for a while selected depositories of federal funds, but in the main those funds were deposited at sub-treasury offices in major cities. These offices represented an effort in the 1840s and 1850s to establish an independent system that would separate the operations of the U.S. Treasury from any connection with the banks. The effort was unsuccessful, however. The system fell far short of the purposeful influence over money and credit that a central bank would have been able to exercise. The vacuum created by the federal government’s withdrawal was later filled by the large Wall Street banks.

The effort to divorce government from the banking system came to an end in 1862 because of the chaotic condition of the currency caused by the government’s need to finance the costs of the Civil War. The National Bank Act of 1863 invited state banks to take out federal charters, thereby becoming known as national banks. Each was required to buy government bonds in an amount equal to one-third of its paid-in capital stock. The bonds had to be deposited with the U.S. Treasurer, who then turned over to the bank bank notes equal to 90 percent of the current market value of the bonds. To discourage undue credit expansion the act required national banks to keep reserves not only against their bank notes but also against their deposit liabilities. The amount of reserves depended on the size and location of the national banks. Small «country banks» had to maintain reserves of at least 15 percent of their notes and deposits. Reserves for large banks in «reserve cities» and for the «central reserve city» of New York were 25 percent (in 1887 Chicago and St. Louis were added to the category of central reserve cities).

The growth of the national banking system was slow until Congress imposed a prohibitive 10 percent tax on state bank notes in 1865. By the late 1860s the new system covered about three-fourths of the nation’s banking resources. The triumph was a brief one, for state banks possessed advantages over national banks – the latter being prohibited by law from making loans on real estate, for example. By the early 1870s the deposits of nonnational commercial banks roughly equaled those of national banks and from then until through the 1980s the deposits of the two classes of banks remained about equal in size.

Other disadvantages, indeed defects, of the new system proved more important. Arbitrary limits placed by the law on the quantity of national bank notes that could be issued were soon removed by the Resumption Act of 1875, but the scheme by which the notes were apportioned by Comptroller of the Currency Hugh McCulloch resulted in a maldistribution injurious to the less populous states of the South and Midwest (the less advanced states needed more rather than less currency because of the ability of more developed ones to use checks and other credit instruments for business transactions). A more serious defect resulted from the pyramiding of reserves in the national banks of New York City, but even more important was the system’s inability to do anything about periodic shortages of cash and credit. The entire system was based on cash reserves and the total amount of cash could not be quickly altered. What was lacking was a central institution that could hold the reserves of the commercial banks and, above all, could increase those reserves. It was in response to these needs that Congress passed the Federal Reserve Act in December 1913.

Instead of setting up a single powerful central bank, however, the act divided the nation into twelve districts and established a regional central bank in each. The nine-member boards of directors of the district Federal Reserve banks are subject to the direction of a seven-member Board of Governors appointed (since 1935) by the president and sitting in Washington. The system’s prime instrument of governance is its Open Market Committee, which meets about every three weeks to determine the monetary policy mix it believes best calculated to promote economic growth while dampening inflationary pressures.

Although far from infallible, these determinations are highly influential because most of the country’s banking resources are subject to the board’s regulations. (National banks were required by law to become members of the system.) Member banks – now classified as «reserve city» and «other» banks – are required to keep their reserves in the Federal Reserve Bank of the district in which they are located. The amount of reserves may range, for reserve city banks, between 10 and 22 percent of their demand deposits, and for «other» banks, between 7 and 14 percent. By raising or lowering percentages within these ranges the Board of Governors can either discourage or encourage member bank credit expansion.

But this is a blunt instrument that is seldom used. More sensitive are two other techniques available to the Fed. One is known as «open market operations,» which consist of purchases or sales of government securities by the manager of the system’s Open Market Committee, a vice president of the Federal Reserve Bank of New York. Purchases automatically increase and sales decrease the reserves of the member banks, thus permitting loan expansion or compelling contraction, respectively. The other involves altering the interest rate charged on loans and advances by Federal Reserve banks to member banks. These techniques affect the quantity of money and its cost – factors of great importance to the investment decisions of business managers, and hence to the tone of the national economy.

The present-day powers of the Federal Reserve System owe much to legislation enacted in response to the system’s inability to prevent widespread bank failures in the early years of the Great Depression. (President Franklin D. Roosevelt’s initial reaction to the failures was to issue an executive order in March 1933 temporarily suspending banking activities throughout the country and forbidding dealings in gold. No bank could reopen for business until its condition had been examined by the secretary of the treasury – in the case of member banks of the Federal Reserve – or by state authorities – in the case of state-chartered nonmember banks. Congress then followed with a law designed to get at the roots of the failures.)

The Glass-Steagall Banking Act of 1933 established the Federal Deposit Insurance Corporation and required all members of the Federal Reserve System to insure their deposits. The act also increased the authority of the twelve Federal Reserve district banks to control the amount of credit extended to their members and prohibited the payment of interest on demand deposits to discourage outlying banks from sending large sums to New York – where they might feed speculation in securities by being re-lent on the call loan market. In addition, the act required that banks belonging to the Federal Reserve divorce themselves from their security affiliates – necessitating that they choose between deposit and investment banking – and empowered the Federal Reserve Board to regulate bank loans secured by the collateral of stocks or bonds. Finally, partners or executives of security firms were barred from serving as directors or officers of commercial banks. For more than half a century this legislation secured bank depositors from loss. Regretfully, massive failures in the nation’s savings and loan institutions in the late 1980s – many of them tinctured by fraud and mismanagement – revealed deficiencies in federal deposit insurance, requiring both a huge federal bailout of more than $150 billion and structural changes in the insurance program. At the beginning of the 1990s the latter had not yet been provided.