Bernanke urges trade imbalance fix
So-called "global imbalances" occur when countries such as the U.S. run up bloated trade deficits, while other countries, such as China and oil-producing nations, produce big trade surpluses. The International Monetary Fund has been leading efforts over the years to reduce lopsided trade and investment patterns.
As for prospects of fixing the problem, Bernanke said, "Signs of progress have appeared but ... most countries have only just begun to undertake the policy changes that will ultimately be needed." He spoke at a conference in Berlin. Copies of his remarks were made available in Washington.
Economists increasingly believe the Fed at meeting next Tuesday will slice a key interest rate, now at 5.25 percent, by at least one-quarter percentage point to help protect the economy from the ill effects of a deepening housing slump and a painful credit crunch.
Worldwide long-term interest rates, which had been low for a long period, have gone up recently "in part because of the greater recent volatility in financial markets and investors' demands for increased compensation for risk-taking," Bernanke observed.
Those once unusually low long-term rate in the United States and other countries have puzzled policymakers. Former Fed Chairman Alan Greenspan -- Bernanke's predecessor -- once called the behavior of these low long-term rates a "conundrum." Bernanke once again said a number of factors probably influenced these low rate, including the desire of many countries to save a lot.
So far this year, the U.S. trade deficit is running at an annual rate of $711 billion, down from $758.5 billion in 2006. Last's year trade deficit marked the fifth year in a row where the trade deficit hit an all-time high.
Economists believe the trade balance will finally shrink this year as U.S. exporters benefit from strong economic growth in many countries overseas and a weaker dollar against many currencies. That makes U.S. products cheaper on foreign markets and imports more expensive for American consumers.
The United States larger current account deficit, which includes not only monthly trade figures but also investment flows, would be helped if the country boosts savings and continues to trim its federal budget deficit, Bernanke said.
China, meanwhile, has recognized the need to increase its domestic spending and scale back its reliance on exports, Bernanke said. Those and other measures will help global trade imbalances over time, he added.
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