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estimated 90.4% this year and touch the 100% mark in 2011, after which the projected debt will continue to equal or exceed America’s entire annual economic output through 2019.

The U.S. is thus slated to join the ranks of those countries – Zimbabwe, Japan, Lebanon, Jamaica – with the highest government debt-to-GDP ratio (which measures debt against a nation’s capacity to repay). In 2008, the U.S. ranked 23rd on the list – crossing the 100% threshold vaults the country into seventh place.

If you were a foreign government, would you increase your holdings of Treasury securities knowing the U.S. has no plans to balance its budget in the next decade, let alone achieve a surplus?

European Union countries wishing to adopt the euro must first limit government debt to 60% of GDP. It’s the reference criterion for “soundness and sustainability of public finances.” Politicians find it all too tempting to print money – something Europeans have understood since the Weimar Republic – and excessive government borrowing poses a threat to monetary stability.

Valuable lessons also emerge from Japan’s unsuccessful experiment with quantitative easing in the aftermath of its ruptured 1980s bubble economy. The Bank of Japan’s desperate efforts to fight deflation through a zero-interest rate policy aimed at bailing out zombie companies, along with massive deficit spending, only contributed to a decade of stagnant growth. Japan’s government debt-to-GDP ratio escalated to more than 170% now from 65% in 1990. Over the same period, the yen’s use as an international reserve currency went from comprising 10.2% of official foreign-exchange reserves to 3.3% today.

The U.S. has long been the world’s “indispensable nation” and the dollar’s role in the global economy has likewise seemed to testify to American exceptionalism. But Washington’s passivity toward the nation’s dismal fiscal future, and its inevitable toll on U.S. economic influence, suggests that American leadership is no longer a priority and that U.S. money cannot be trusted.

If money is a moral contract between government and its citizens, Americans are being violated. The rest of the world, meanwhile, simply wants to avoid being duped. That is why China and Russia – large dollar holders – are angling for some new kind of global currency for denominating reserve assets. It’s why oil producing Gulf States are fretting over whether to continue pricing energy exports in depreciated dollars. It’s why central banks around the world are dumping dollars for alternative currencies, even as reduced demand exacerbates the dollar’s

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decline. Until the U.S. sends convincing signals that it believes in a strong dollar – rhetorical assertions ring hollow – the world has little reason to hold dollar-denominated securities.

Sadly, due to the fiscal quagmire, The Federal Reserve may be forced to raise interest rates to draw foreign capital even if it hurts the domestic economy. That’s the price of having already succumbed to symbiotic fiscal and monetary policy. If Washington could genuinely commit to private-sector growth by reducing taxes, while significantly cutting future spending, it might be able to turn things around. Under President Reagan, the Fed slashed inflation and strengthened the dollar by dramatically tightening credit. It was a painful process, but the economy ultimately boomed.

Whether the U.S. can once more summon the resolve to address its problems is an open question. But the world’s growing dollar disdain conveys a message: Issuing more promissory notes is not the way to renew America’s promise.

Deflation’s return weighs on Japan

The Bank of Japan faces mounting pressure to loosen its policy as deflation tightens its grip on the nation’s economy, even as some other central banks begin to roll back stimulus steps amid signs of economic recovery.

The Japanese central bank on Friday kept rates unchanged and upgraded its assessment of the economy, citing rising exports and industrial output. The bank, which has stuck with super-easy monetary policy for more than a decade, has hoped to follow other central banks in looking at ways to tighten policy. Instead, Japan’s government and economists are urging it to adopt new easing steps, such as purchasing long-term government bonds.

The calls grew louder Friday after the government declared that the nation’s economy was in deflation – a decline in the general level of prices for goods and services – for the first time since 2006. That year, policy makers concluded the nation had finally shaken off the deflation that had hindered the economy since the late 1990s. The heightened

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pressure for easing also follows a spate of recent data showing accelerating price declines in broad parts of the economy.

During the third quarter, the domestic demand deflator – a measure of changes in prices of goods and services except for exports and imports – fell 2.6%, its fastest pace since 1958.

Bank Governor Masaaki Shirakawa didn’t hint that any new steps were in the offing. BOJ officials in recent months have signaled their reluctance to take further loosening steps. With its key interest rate already at 0.1%, the BOJ has few weapons left in its arsenal if the economy slumps again. The central bank has decided to end buying of commercial paper and corporate bonds in December and pledged to end a special lending program for banks in March.

Economists are debating the effects of the last time the central bank pursued a policy of what’s known as quantitative easing, which includes pouring money into the government bond market. Some blame the move for contributing to the global asset-price run-up that led to last year’s world financial crisis.

Outside of Japan, central banks are beginning to reverse extraordinary steps adopted during the recent downturn. Central banks in Australia, Norway and Israel have already raised rates, while others have taken more modest steps. The U.S. Federal Reserve late last month ended its purchase of Treasury bonds. Such moves come amid growing concerns that prolonged easing by large economies such as the U.S. and Japan could pave way for another financial bubble. The Bank of England, which has been buying government securities, is one exception.

The mounting pressure on the Bank of Japan reflects the difficulty Japan faces in finding ways to buttress its fragile economy, which grew 1.2% in the third quarter over the previous period, its second consecutive quarter of growth after four quarters of sharp contraction. As the sputtering economy squeezes tax revenue, Japan’s already troubled fiscal conditions are deteriorating.

This makes it difficult for Tokyo to come up with more stimulus measures without issuing new bonds – a step that would make the bond market jumpy. The Organization for Economic Cooperation and Development predicts Japan’s national debt will rise to more than 200% of its gross national product in 2011 from 170% in 2007, already the highest among rich nations.

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Ex. 8. Translate the following into Russian.

Core inflation, bubble in the housing market, risky assets, rate of inflation, headline inflation, overheated economy, hard landing, dollar peg, yields on Treasury bonds, profit margin, floating rate, to offset the impact of the rising euro.

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