TEXT-Fed's Bernanke's Asia/global crisis speech

To achieve more balanced and durable economic growth and to reduce the risks
of financial instability, we must avoid ever-increasing and unsustainable imbalances in
trade and capital flows. External imbalances have already narrowed substantially as a
consequence of the crisis, as reduced income and wealth and tighter credit have led
households in the United States and other advanced industrial countries to save more and
spend less, including on imported goods. Together with lower oil prices and reduced
business investment, these changes in behavior have lowered the U.S. current account
deficit from about 5 percent of GDP in 2008 to less than 3 percent in the second quarter
of this year. Reflecting in part reduced import demand from the United States, China's
current account surplus fell from about 10 percent of GDP in the first half of 2008 to
about 6-1/2 percent of GDP in the first half of this year.
As the global economy recovers and trade volumes rebound, however, global
imbalances may reassert themselves. As national leaders have emphasized in recent
meetings of the G-20, policymakers around the world must guard against such an
outcome. We understand, at least in principle, how to do this. 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.
Conclusion
The United States has benefited significantly from Asia's rapid development and
integration into the global economy, and the payoffs to the Asian economies from global
economic integration have been substantial as well. Indeed, the financial crisis has
starkly demonstrated the extent to which the fortunes of the United States, Asia, and the
rest of the global economy are intertwined. These powerful economic linkages, as well
as the importance of both the United States and Asia in the global economy, underscore
the need for consultation and cooperation in addressing common issues and concerns.
Our shared stakes in the prospects of the global economy bring with them a heightened
responsibility to work together to maintain those prospects. I am optimistic that the
United States and Asia will rise to the challenge and address in a mutually beneficial
fashion the range of issues confronting the global economy. Conferences such as this
one, which bring together policymakers and scholars from both sides of the Pacific, will
further the cause of this cooperation."
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FOOTNOTES:
1 The term "Asian tigers" refers to the economies of Hong Kong, Singapore, South Korea,
and Taiwan.
2 This estimate is based on purchasing power parity measures of GDP.
3 The Asian region here refers to Australia, China, Hong Kong, India, Indonesia, Japan,
Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South Korea, Taiwan,
Thailand, and Vietnam. The economic growth calculation weights these economies by GDP at
market exchange rates.
4 These growth rates are measured on a quarter-to-quarter basis at an annual rate.
China's quarterly growth rate is estimated from published four-quarter growth rates.
5 The nominal data are the sum of the total merchandise exports of 44 economies,
including the United States, expressed in U.S. dollars. The real data are calculated by
deflating these dollar-value nominal exports by export price indexes constructed from
local-currency deflators drawn from country sources and dollar exchange rates.
6 Specifically, the vertical axis shows each country's deviation of average GDP growth
from trend growth (at an annual rate) over 2008:Q4 and 2009:Q1. Trend growth is defined
as the average annualized growth rate during 2006 and 2007 of historical GDP data
smoothed using the Hodrick-Prescott filter. The horizontal axis shows each country's
trade openness as measured by the sum of its imports and exports as a fraction of its
nominal GDP in 2007.
7 A country's international assets are claims on foreigners by its residents, and
liabilities are foreigners' claims on the country's residents. Data on these claims are
from Haver and the U.S. Bureau of Economic Analysis.
8 Whether the relationship shown in Exhibit 3 is causal is not entirely clear, however,
as economies that are more exposed to the global financial system also tend to be those
economies most open to trade, as can be seen by comparing Exhibit 3 to Exhibit 2.
9 The data are quarterly through the second quarter of 2009. Exports are measured in U.S.
dollars.
10 In principle, some rebuilding of inventories for export could also be boosting
production, but such inventory data for the region that are available do not strongly
support this view.