WASHINGTON — U.S. 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 US$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 last month in Pittsburgh.
“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.
Fielding questions after his speech, Bernanke said the United States is in a “difficult fiscal situation” and that Congress and the White House will need to develop an “exit strategy.”
That’s important to maintain confidence in the U.S. economy and the dollar, Bernanke said. The Fed chief said he believes those stakes are “very well understood in Washington.”
Red ink from the budget deficit reflects costs of spending on wars in Iraq and Afghanistan and on fighting the financial crisis at home. It also reflects the bite of the recession on tax revenues, which plunged.
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 consumption,” 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.”