Bernanke: Asian Consumer Spending, Cutting U.S. Deficit Are Keys to Avoiding Trade Imbalances

Asian countries need to rely less on export-led growth and encourage their consumers to spend more, while the United States needs to trim its deficit to avoid pre-recession trade imbalances, U.S. Federal Reserve Chairman Ben Bernanke said yesterday (Monday).

Governments in trade surplus countries - most of which include Asian nations - must act to cut the disparity between saving and investment so they can raise demand in their own economies, Bernanke said at a at a conference of the Federal Reserve Bank of San Francisco.

“Admittedly, just as increasing private saving in the United States is challenging, promoting consumption in a high-saving country is not unnecessarily straightforward,” Bernanke said, suggesting that governments remove its citizens’ motive for saving by making pension systems stronger and increasing spending on health care and education.

“Of course, such measures are likely to improve welfare and productivity as well as contribute to more balanced, robust and sustainable economic growth,” he said.

While Bernanke noted that stimulus efforts in countries like China have helped increase domestic demand throughout the region, he likened the removal of such policies to the situation the Federal Reserve faces in the United States.

“As in the advanced economies, unwinding the stimulative policies introduced during the crisis will require careful judgment,” said Bernanke. “In Asia, as in the rest of the world, the provision of adequate short-term stimulus must not be allowed to detract from longer-term goals such as the amelioration of excessive global imbalances or ongoing structural reforms to increase productivity and support balanced and sustainable growth.”

Bernanke did not offer suggestions on how the United States should trim its deficit, which will soar to a record $1.6 trillion this year, more than three times higher than 2008’s deficit of $455 billion.

Bernanke’s speech echoed the theme of last month’s Group of 20 (G-20) meeting where leaders called for developing countries to increase consumption and developed economies - like the United States - to increase their savings rates.

There’s a stark contrast between savings among consumers in the United States and Asian countries like China. Consumer spending in China makes up only 35% of its gross domestic product (GDP), half the amount in the United States. And Chinese citizens save an average of 35% of their income, while the U.S. personal savings rate is typically in the low-to-mid single digits.

In August, Congressional Budget Office (CBO) Director Douglas Elmendorf said Congress should pass measures that would reduce the deficit in the future, after the economy recovers, or the “out-years.” Doing so could reassure bondholders that Congress is serious about cutting the deficit, without stifling the recovery.

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