Bernanke urges US to be frugal, Asia to spend

Washington Post

The United States must reduce its budget deficit and Asian nations must encourage more consumption in order to prevent a recurrence of the global imbalances that contributed to the financial crisis, Federal Reserve Chairman Ben Bernanke said Monday.

Bernanke, speaking at a conference on Asia and the financial crisis, attributed the global crisis in part to a long-standing pattern in which Asians saved too much and spent too little, while Americans spent too much and saved too little. As the global economy starts to recover, the Fed chairman said that “global imbalances may reassert themselves.”

To keep that from happening, the United States must “increase its national savings rate,” Bernanke said at the conference, sponsored by the Federal Reserve Bank of San Francisco. The best way to do that, he added, is to reduce the federal budget deficit.

While Americans individually started saving more during the recession, the government has boosted spending and increased borrowing dramatically. The national savings rate combines saving by individuals, businesses and the government.

“Although we should deploy, as best we can, tools to increase private saving,” Bernanke said, “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.”

When asked later what action the country might take to eliminate those imbalances, he stressed finding ways to wind down efforts to stimulate the economy.

Bernanke has repeatedly urged Congress and the Obama administration to chart a course toward a lower long-term budget deficit, even has he endorsed the idea of a government stimulus program to try to prop up growth in the short term.

Bernanke usually declines to take a stand on specific tax or spending proposals, saying those matters are outside the bounds of his role as an unelected official. But he has argued openly for bringing taxes and spending into better alignment over time. In Monday’s comments, he made that point more explicitly than before, calling the restoration of global fiscal balance as essential to avoiding a repeat of the current crisis.

Asian leaders also have to take action, Bernanke said, to encourage their citizens to spend more. Authorities in countries running trade surpluses, which includes most in Asia, “must act to narrow the gap between saving and investment and to raise domestic demand,” he said. “In large part, such actions should focus on boosting consumption.”