Federal Reserve Chairman Ben Bernanke on Monday called for the United States to whittle down its record-high budget deficits and for countries like China to get their consumers to spend more, moves that would help combat skewed global trade and investment flows that contributed to the financial crisis.
Bernanke's remarks to a Fed conference in Santa Barbara, Calif., comes just days after the federal government on Friday reported a $1.42 trillion deficit for 2009 budget year that ended Sept. 30. The previous year's deficit was $459 billion.
The Fed chief's comments were aimed at reducing global imbalances, and echo pledges made by leaders of the Group of 20 nations at their summit in Pittsburgh last month.
"As the global economy recovers and trade volumes rebound, however, global imbalances my reassert themselves," Bernanke warned. For the United States' part, "the most effective way" to boost national savings in this country "is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time," Bernanke said. He didn't suggest ways to do so.
And, for trade surplus countries like China and most Asian economies, they need to get their consumers to spend more and rely less on export-led growth, Bernanke said.
"In large part, such action should focus on boosting consuption," Bernanke said.
The bulk of Bernanke's remarks largely offered a scholarly assessment of Asia and how it fared during the global financial crisis, the focus of the Fed's conference. The Fed chief didn't discuss the state of the U.S. economy or the future course of interest rates.
Bernanke and his colleagues last month held a key bank lending rate at an all-time low near zero and pledged to hold it there for an "extended period." Many economists believe that means through the rest of this year and into next year.
Deciding when to boost interest rates and reel in the unprecendented amount of money plowed into the U.S. economy will be one of the biggest challenges facing the Fed in the coming months. Remove the supports too soon and the recovery could be derailed. Leave the supports in place for too long risks unleashing inflation.
In terms of the world economy, "Asia appears to be leading the global recovery," Bernanke said. "Recent data from the region suggest that a strong rebound is, in fact, under way."
Many economists predict the U.S. economy — the epicenter of the financial crisis —started growing again in the third quarter at a pace of at least 3 percent, and is still expanding in the current quarter. Economic activity contracted in the second quarter at an annualized rate of 0.7 percent, marking a record four straight quarters of decline.