The global imbalances that sparked the devastating financial crisis last year could return if the U.S. and Asia don’t learn the right lessons, U.S. Federal Reserve Chairman Ben Bernanke said Monday.
The U.S. central bank chief said Asian powers like China should stop incentives that “distort” their market towards exports and instead adopt policies that would boost domestic demand. The U.S. must cut its skyrocketing budget deficit and encourage consumers to save more.
The worldwide recession has naturally started the shift in both regions. The U.S. trade deficit narrowed to 3 per cent of economic output in the second quarter from 5 per cent in 2008. China’s trade surplus fell to 6.5 per cent from 10 per cent over the same period last year.
“As the global economy recovers and trade volumes rebound, however, global imbalances may reassert themselves,” Mr. Bernanke told a conference on Asia in Santa Barbara, California. “Policymakers around the world must guard against such an outcome.” Global imbalances bear some responsibility for a financial crisis that plunged the world into its worst recession since World War II.
Trillions of dollars in Asian reserves encouraged an unsustainable, debt-fuelled boom in the U.S. over the past decade.
Leaders of the Group of 20 nations agreed in September to monitor each other’s fiscal policies to help put the global economy on a more stable footing.
“Our shared stakes in the prospects of the global economy bring with them a heightened responsibility to work together to maintain those prospects,” Mr. Bernanke said.
