Fed Chair Ben Bernanke.

Federal Reserve Chair Ben Bernanke on Monday told a San Francisco audience that the U.S. must cut its deficits and Asians must consume more. (Mark Wilson / Getty Images)

By Frank James

Federal Reserve Chairman Ben Bernanke told a San Francisco audience during a Monday speech that the U.S. and Asian nations must reverse their long-term behavior patterns for the sake of the global economy -- Americans must cut their federal deficits, Asians must consume more.

Only by doing so will the U.S. be able to shrink its trade deficits which require vast amounts of borrowing from abroad, especially China, to finance.

A snippet of Bernanke's speech:

The United States must increase its national saving rate. Although we should deploy, as best we can, tools to increase private saving, 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.
For their part, to achieve balanced and sustainable growth, the authorities in surplus countries, including most Asian economies, must act to narrow the gap between saving and investment and to raise domestic demand. In large part, such actions should focus on boosting consumption. Admittedly, just as increasing private saving in the United States is challenging, promoting consumption in a high-saving country is not necessarily straightforward.
One potentially effective strategy is to reduce households' precautionary motive for saving by strengthening pension systems and increasing government spending on health care and education. Of course, such measures are likely to improve welfare and productivity as well as to contribute to more balanced, robust, and sustainable economic growth.

It's worth noting that Bernanke didn't stress U.S. consumers increasing their savings rate since that's really the last thing economists want consumers to do right now since consumer-spending represents perhaps 70 percent of the U.S. economy.

If the economy is ever to grow at a fast enough rate to create new jobs, consumer spending is going will need to rise significantly above current levels.

So better to talk about the need for greater U.S. savings in the context of federal budget deficits.

Also, overseas investors have expressed continuing concerns about the size of those U.S. deficits. So U.S. officials have repeatedly stressed that they understand such anxieties and that lowering those deficits is a priority. Bernanke's comments were one more bit of reassurance to foreign investors in U.S. Treasuries that U.S. monetary and fiscal policymakers "get it."

categories: Economy

3:07 - October 19, 2009

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