Fed Chairman upbeat about the economy

Bernanke tells Congress inflation could still be issue

 

By Jeannine Aversa

Associated Press writer

 

WASHINGTON – Federal Reserve Chairman Ben Bernanke told Congress Wednesday the economy should grow modestly this year and the inflation should continue to wane, reasons enough for the central bank to keep interest rates steady for the time being.

Still, Bernanke wasn’t prepared to declare victory over inflation just yet and thus didn’t close the door on the possibility of further interest rate increases down the road. Even with recent improvements in “core” or underlying inflation, the situation remains “somewhat elevated,” he said.

Delivering the Fed’s first economic report for 2007 to Capitol Hill, Bernanke offered a mostly unbeat assessment of the economy’s outlook. Besides improvements on the inflation front, the Fed chief also cited some signs of stabilization in the ailing housing market.

“Overall, the U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes,” the Fed chief told the Senate Banking Committee.

Currently, interest rates are at a level that is “likely to foster sustainable economic growth and a gradual ebbing of core inflation,” he added.

The Fed has held a key interest rate steady at 5.25 percent since August. Before that, the central bank had steadily boosted rates for two years, the longest stretch of increases ever, to fend off inflation.

Many economists predict the Fed will leave rates alone for much of this year and said the Fed chief’s testimony would support that approach.

 

Hedging his bets

Even with his mostly positive assessment, Bernanke was careful to hedge his bets and pointed out risks that could upset the generally good economic outlook.

A predominant one is that inflation might flare up, which is why the Fed is still keeping open the option of another rate increase.

It will “be some time before we can be confident that underlying inflation is moderating as anticipated,” Bernanke said. If inflation doesn’t wane as the Fed expects, policymakers are “prepared to take action,” Bernanke said.

On the other hand, there is the risk that a deeper than expected residential real-estate bust could yet unfold, which could hurt overall economic growth, the Fed chairman said.

If that were to happen, the Fed in theory might be inclined to lower rates to help bolster the economy.

Bernanke, however, did not specifically mention the possibility of a rate cut.

A former college professor, Bernanke marked his first anniversary at the Fed on Feb. 1. President Bush tapped him to succeed longtime Chairman Alan Greenspan, who rose to iconic status in his 18-plus years at the helm of the Fed.

Bernanke said that bolstering education and helping workers acquire new skills should help the situation.

On trade, Bernanke said he is not happy with the United States’ record-high deficits but suggested erecting protectionist barriers would do more harm than good.

1. Read the text and translate the words and expressions in bold.

2. Do sight translation of the text.

 

Text 3. BORN FREE

1. Do critical analysis of the following text translation. Underline mistakes in meaning, expression and style in the target text and offer your own translation variants.

BORN FREE   Politicians and commentators nowadays agree that central-bank independence is a good thing. Recent studies raise doubts These are testing times for the new European Central bank (ECB). Designed to be the most independent monetary authority in the world, it already faces intense pressure from European (especially German) politicians, who are trying to persuade it to cut interest rates. The case for this is strong. Wim Duisenberg, the bank’s boss, might even be willing to act on it – but for the danger of being seen to cave in, barely two months after his new bank took the euro’s monetary reins. An independent central bank, the argument goes, must guard its “credibility” jealously. If the markets suspect that the bank is not truly independent, long-run inflation and the cost of controlling it will both be higher. No question, this is a plausible theory. Politicians are ever tempted to exploit the short-term trade-off between inflation and unemployment, even though the long-term consequence of easing policy in this way (most economists insist) is the unemployment rate you started with and higher inflation as well. Therefore, give control of monetary policy to an independent central bank. Its promise to keep inflation down (unlike any such promise a government might make) will be believed. Not only will inflation be lower, but the output costs of getting it down will be smaller too. The theory has empirical backing: many studies show that countries with independent central banks are better at keeping inflation low. The mixture of theory and evidence has been influential. The Economist, for instance, has long been convinced. And, more important, so have most governments - witness moves in many countries (including Britain) to make their central banks more independent, not to mention the Maastricht design of the ECB itself. What was it Keynes said about “practical men” and “defunct economists”? Having changed the way monetary policy is conducted all over the world, the academic consensus on central-bank independence is wobbling. There are two problems. One is that the supposed correlation between central-bank independence and low inflation is being questioned. The other is that, even if the correlation turns out to be correct, the story about credibility cannot be the reason why. At best, the theory and its (now contested) facts no longer tie up. First, the “facts”. James Forder of Balliol College, Oxford, has drawn attention to defects in the most influential series of papers on the correlation between independence and low inflation. This series starts 20 years ago with a definition of “independence” suggested by Michael Parkin (now at the University of Western Ontario); it includes along the way articles by Alberto Alesina (of Harvard), cited in the Economist and many other places; and it concludes with the pro-EMU manifesto, “One Market, One Money”, published in 1992 by Michael Emerson, at that time the top economist at the European Commission. Mr Forder points to blunders and obscurities; he shows that the definition of independence fluctuates from paper to paper, generally in ways that bolster the supposed correlation; and when he reworks the data the correlation disappears altogether. For now, the issue is unresolved. Part of the trouble is that it is genuinely difficult to define “independence” objectively: it tends to be in the eye of the beholder, and beholders are liable to be influenced by what they know about inflation in the country concerned. At the same time, though, a variety of other, unconnected, studies do also find the sought-after correlation. It may turn out to be true after all – but Mr Forder has certainly cast doubt on the point. What then of the underlying rationale? Here, the findings seem clearer: the orthodox story, which says that (a) independence increases credibility and (b) credibility reduces the cost of getting inflation down, is wrong. To begin with, independence does not seem to increase credibility. If it did, you would expect to see greater rigidity in the setting of nominal wages – reflecting the fact that the bank’s promise to keep inflation low had been believed. Likewise, you would also expect to see greater rigidity in the setting of nominal prices. According to research on 17 OECD countries, using data from 1950 to 1989, by Adam Posen of the Institute for International Economics, you see neither. Moreover, turning from (a) by itself to (a) and (b) taken together, independence not merely fails to reduce the cost of disinflation; it actually seems to increase it. On average, getting inflation down takes as long and calls for a bigger “sacrifice” of output and jobs in countries with relatively independent central banks. As before, the problem may lie in getting the definition of independence right. But suppose, for now, that central-bank independence is correlated with low inflation and that credibility is not the reason why. The question would then be: how does independence come to have this inflation-reducing effect? There are several possibilities. One is correlation without causation: perhaps independence and low inflation are jointly the result of some third factor, such as society’s willingness to tolerate high inflation. Or the causation could be genuine, after all. Perhaps central bankers are more far-sighted than politicians – or (whisper it softly) less concerned about unemployment. Independence might then lead to lower inflation, even if central bankers’ promises were no better believed than those of politicians. Further research, as they say, is required. Meanwhile, the central bank designed to be the most independent in the world goes about its business.

ИЗНАЧАЛЬНО НЕЗАВИСИМЫЙ В настоящее время политики и комментаторы согласны с точкой зрения, что независимость центральных банков это стоящая вещь. Но последние исследования упрочили подозрения. Сегодня Европейский Центробанк проходит испытательный срок. Несмотря на то, что он был изначально запланирован как самый независимый монетарный орган в мире, он все же испытывает на себе значительное давление со стороны европейских политиков (особенно немецких), пытающихся заставить его понизить процентные ставки. И этому есть веские доказательства. Директор банка, Вим Дуизенберг, возможно и хотел действовать в соответствии с ним, но спустя 2 месяца, из боязни показаться неудачником, его новый банк принял евро как основную валюту. Независимый Центробанк должен бдительно контролировать свою «надежность». В том случае, если рынки заподозрят банк в частичной независимости, будут увеличены длительная инфляция и расходы на ее контролирование. Нет сомнений, что эта теория наиболее вероятна. Политики склоняются использовать кратковременный компромисс между инфляцией и безработицей. Но даже тогда долгосрочным последствием политики смягчения (как утверждает большинство специалистов) станет прежний уровень безработицы и высокий уровень инфляции. Следовательно, необходимо предоставить независимому Центробанку контроль над монетарной политикой. Его обещаниям обеспечить низкий уровень инфляции (в отличие от любых обязательств правительства) проявляется доверие. Не только уровень инфляции будет снижен, но также и издержки производства на его осуществление. Эта теория сопровождается опытными данными: многочисленные исследования показали, что в странах с независимыми Центробанками уровень инфляции сохраняется на низком уровне. Соединение теории и практики имеет большое значение. Например, газету «Экономист» долго убеждали в том, что большинство правительств способствует перемещению доказательств во многих странах (в том числе и Великобританию) добиваясь тем самым большей независимости Центробанка, не заостряя внимание на Маастрихтский план Европейского Центробанка. Что сказал бы Кейнс о «практичных людях» и о «вымерших экономистах»? Изменив метод воздействия монетарной политики в мире, на научном консенсусе, посвященному независимости Центробанка, была проявлена нерешительность. Существуют 2 проблемы. Во-первых, ставится под сомнения предполагаемая взаимосвязь независимости Центробанка и низкого уровня инфляции. И, во-вторых, даже если взаимосвязь и окажется правдивой разговор о надежности не может быть обоснованной причиной. В лучшем случае, теория и ее (оспариваемые) аргументы не связаны. Во-первых, аргументы. Джеймс Фордер из Balliol College из Оксфорда обращает внимание на недостатки большинства значительных работ, посвященных взаимосвязи независимости и низкого уровня инфляции. Началом настоящего исследования послужило определение термина «независимость», предложенного Майклом Паркином (работающего в настоящее время в университете Западного Онтарио) 20 лет назад, туда также включены работы Альберто Алесина (из Гарварда), на которые ссылается «Экономист» и многие другие. Исследование заканчивается манифестом за европейскую денежную единицу «Единый рынок, единая валюта», изданного в 1992 году Майклом Эмерсоном, ведущим экономистом Европейского комитета. Мистер Фордер отмечает грубые ошибки и неизвестность. Он доказывает, что определение независимости изменяется в каждом издании, в основном поддерживая предполагаемые взаимосвязи. В то время, когда он все переделывал, исчезли данные взаимосвязи. На сегодняшний день вопрос остается открытым. Частично проблема заключается в том, что действительно трудно определить «независимость». Это зависит от наблюдателей, а они в свою очередь подвержены влиянию своих знаний об инфляции в стране. В то же время, разнообразие остальных не связанных между собой учений проявляют модные взаимосвязи. Помимо всего прочего это может оказаться правдой. Но Мистер Фордер все-таки сомневается в этом. А что же насчет основного логического обоснования? Заключения не оставляют сомнений: очень популярной общепринятая история о том, что (а) независимость повышает надежность, а (б) надежность уменьшает расходы на уменьшение уровня инфляции. В действительности же независимость не повышает надежность. А если и повышает, то вы вправе ожидать значительной неизменяемости номинальной заработной платы, отражая тот факт, что обещаниям банка снизить уровень инфляции доверяют. Таким же образом, вы в праве ожидать значительную жесткость номинальных цен. Но и в исследовании 17 стран Организации экономического сотрудничества и развития Адама Посена, основанных на данных с 1950 по 1989 годы, вы ничего не найдете. Более того, принимая во внимание не только (а), но и (б) независимость не уменьшает затраты на деинфляцию, а наоборот повышает их. В среднем, процесс снижения уровня инфляции продолжается длительное время и приносит еще большую продукционную «жертву», а также осуществляется в странах с относительно независимыми Центробанками. Как и прежде, суть проблемы находится в определении прав независимости. Предположим, что на сегодняшний день независимость Центробанков связана с низким уровнем инфляции и их надежность не является обоснованной причиной. Вопрос состоит в следующем: как независимость сможет понизить уровень инфляции? Существует несколько способов. Во-первых, это взаимосвязь с причинной обусловленностью: возможно независимость и низкий уровень инфляции являются причиной такого третьего фактора, как готовность общества перенести высокий уровень инфляции. Или же причинная обусловленность может стать истинной. Возможно, банкиры более предусмотрительны, чем политики, или же менее обеспокоены проблемой безработицы. Независимость может привести к снижению уровня инфляции, даже если обещаниям банкиров доверяют не более чем обещаниям политиков. По их мнению необходимы дальнейшие исследования. Между тем тот факт, что Центробанк был изначально запланирован как самый независимый в мире, не соответствует действительности.

 

UNIT 3

FINANCIAL STATEMENT

1. Read the following information and translate expressions in bold.

Financial statements (or financial reports) are formal records of a business' financial activities. These statements provide an overview of a business' profitability and financial condition in both short and long term. There are four basic financial statements:

1. Balance Sheet - also referred to as statement of financial condition, reports on a company's assets, liabilities and net equity as of a given point in time.

2. Income Statement - also referred to as Profit or loss statement, reports on a company's results of operations over a period of time.

3. Cash Flow Statement - reports on a company's cash flow activities, particularly its operating, investing and financing activities.

4. Statement of Retained Earnings - explains the changes in a company's retained earnings over the reporting period.

Because these statements are often complex, an extensive set of Notes to the Financial Statements and management discussion and analysis is usually included.

Financial statements are used by a diverse group of parties, both inside and outside a business. Generally, these users are:

1. Internal Users: are owners, managers, employees and other parties who are directly connected with a company.

· Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis are then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's report to its stockholders, as it form part of its Annual Report.

· Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings.

2. External Users: are potential investors, banks, government agencies and other parties who are outside the business but need financial information about the business for a diverse number of reasons.

· Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analysis is often used by investors and is prepared by professionals (financial analysts), thus providing them with the basis in making investment decisions.

· Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures.

· Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company.

· Media and the general public are also interested in financial statements for a variety of reasons.

 

2. Answer the following questions:

A) What are the basic financial statements?

B) What’s the purpose of the financial statement?

C) Why is the financial report of a company of some interest to the media?

D) What are other entities interested in financial reports?

3. Do sight translation of the information above.

4. Read the information below.