Bernanke warns US and Asia on imbalances

ASIA&rsquo;S export-promotion policies and the US&rsquo;s massive budget deficit could refuel global economic imbalances and put efforts to achieve more durable growth at risk if not curbed, US Federal Reserve Chairman Ben Bernanke warned last night.<br /><br />Throwing his weight behind a recent call by leaders of the G20 nations to rebalance the global economy in the wake of a devastating financial shock, Bernanke said Asian nations like China &ndash; which enjoy large trade surpluses &ndash; should discourage excess saving and instead boost consumption.<br /><br />At the same time, he said the United States needed to increase its saving and &ldquo;substantially reduce federal deficits over time&rdquo;.<br /><br />&ldquo;To achieve more balanced and durable economic growth and to reduce the risks of financial instability, we must avoid ever-increasing and unsustainable imbalances in trade and capital flows,&rdquo; Bernanke said.<br /><br />Trade imbalances have started to narrow as US households ramp up saving in response to a deep recession that ate at their wealth, but they may resume growing as the global economy recovers and trade volumes rebound, Bernanke said.<br /><br />&ldquo;One way to address it would be through some greater exchange rate flexibility,&rdquo; Bernanke said.<br /><br />However, he also acknowledged the part the US must play in addressing global imbalances by increasing savings and embarking on a more sustainable fiscal path.<br /><br />The performance of the US economy and the dollar, which has fallen seven per cent against a basket of currencies this year, will depend on the government&rsquo;s success in controlling its budget deficit, he said.<br /><br />The Obama administration said on Friday that the budget shortfall hit a record $1.4 trillion in the fiscal year that ended on 30 September &ndash; the largest deficit since World War Two at 10 per cent of GDP.