Bernanke calls for budget deficit cuts
WASHINGTON - Federal Reserve chairman Ben Bernanke called yesterday for the United States to whittle down its record-high budget deficits and for countries like China to get their consumers to spend more.
Bernanke said those moves would help reduce “global imbalances’’ - uneven trade and investment flows among countries that contributed to the financial crisis.
The Fed chief’s remarks to a Fed conference in Santa Barbara, Calif., came after the government said Friday that the US budget deficit hit a $1.42 trillion deficit for the 2009 budget year that ended Sept. 30. The previous year’s deficit was $459 billion.
Bernanke’s comments also followed pledges made by leaders of the Group of 20 nations at their summit last month in Pittsburgh to reduce global imbalances, such as Asians savings too much and Americans savings too little.
Money from countries with trade surpluses like China has flowed into the United States, a factor thought to have contributed to the low interest rates that helped feed the US housing bubble.
Bernanke said the best way for the United States to increase savings is to steadily reduce the federal budget deficits. 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 must find ways to boost confidence in the US economy and the dollar. He said he thinks 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 revenue, which plunged.
Countries with trade surpluses, like China and most Asian economies, must 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 speech was a scholarly assessment of Asia and how it fared during the global financial crisis, the focus of the Fed’s conference.