Monday October 19, 04:50 PM
Bernanke warns against trade imbalances
WASHINGTON (AFP) - The United States and Asia should work to avoid "unsustainable" imbalances in trade and capital flows that can destabilize the global financial system, Federal Reserve chairman Ben Bernanke said Monday.
Bernanke, speaking at a California conference on Asia and the global financial crisis, said the United States needs to save more and most Asian economies need to boost effort to spur consumption to achieve a better balance.
The Fed chief said Asia's economies are emerging from the crisis but may be too dependent on exports.
"The crisis strengthened Asia?s commitment to export-led growth, backed up with large current account surpluses and mounting foreign exchange reserves," he said, according to the text of his prepared remarks.
"In many respects, that model has served Asia well, contributing to the rapid growth rates in the region over the past decade...However, too great a reliance on external demand can also pose problems."
He said that economic policies designed to spur trade surpluses "distort the mix of domestic industries and the allocation of resources, resulting in an economy that is less able to meet the needs of its own citizens in the longer term."
The United States on the other hand, Bernanke said, has the opposite problem, in which consumers buy increasing amounts of cheap imports and save little, resulting in big trade and capital deficits.
Although some of the deficits have been reduced during the crisis, Bernanke said it remains unclear if those deficits will increase again as the economy recovers.
"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," he said.
"As the global economy recovers and trade volumes rebound, however, global imbalances may reassert themselves...The United States must increase its national saving rate.
"Although we should deploy, as best we can, tools to increase private saving, the most effective way to accomplish this goal is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time."
The comments come just days after the US government said its budget deficit hit a record 1.4 trillion dollars in the fiscal year ended September 30. Much of the deficit comes from abroad, with China the largest holder of US Treasury bonds.
China in August held to 797.1 billion dollars in US Treasury securities, down from 800.5 billion dollars in July.
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