Bernanke warns US and Asia on imbalances
ASIA’S export-promotion policies and the US’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.
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 – which enjoy large trade surpluses – should discourage excess saving and instead boost consumption.
At the same time, he said the United States needed to increase its saving and “substantially reduce federal deficits over time”.
“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,” Bernanke said.
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.
“One way to address it would be through some greater exchange rate flexibility,” Bernanke said.
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.
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’s success in controlling its budget deficit, he said.
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 – the largest deficit since World War Two at 10 per cent of GDP.