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Bernanke at Bacara

By   /   Monday, October 26th, 2009  /   Comments Off on Bernanke at Bacara

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Federal Reserve Chairman Ben Bernanke swooped through a Santa Barbara conference on Oct. 19, warning that Asia’s new export policies could lead to renewed trade imbalances if the U.S. doesn’t work with trade partners across the Pacific.

During the invitation-only Asian Economic Policy Conference at the posh Bacara Resort & Spa, Bernanke said that low interest rates and big stimulus packages have helped Asian countries cope with the recession by boosting domestic demand.

That’s good news for Asia, but Bernanke and a few local experts say that policy could stall Asian demand for U.S. products, and if the United States wants durable growth and financial stability, it “must avoid ever-increasing and unsustainable imbalances in trade and capital flows,” Bernanke said in a prepared speech.

Bernanke said that for now, Asian countries seem to be weathering the global financial crisis because growth in domestic demand has been supported by aggressive fiscal and monetary policies. But what’s significant about that for the United States, Bernanke said, is that it means those countries aren’t increasing their demand for foreign goods — including ones from the U.S.

That model has served Asia well in many respects because it has led to rapid growth, Bernanke said. But, he warned, such “surplus countries” must now “act to narrow the gap between saving and investment and raise domestic demand” or face the consequences, which in this case are in the form of trade imbalances.

To achieve balance, “most Asian economies … should focus on boosting consumption,” said Bernanke, who admitted that promoting consumption in a high-saving country is not a straightforward process.

Bernanke’s speech resonated with many, including Bowman Business Services President Ray Bowman, who said Asian consumers have the resources to start buying soon. A recent Bloomberg report supported his conclusion, showing that China’s economy expanded 9 percent in the third quarter, the fastest pace since September 2008.

Uncle Sam’s job, Bowman said, is to make sure they’re buying from the United States.
“Our relations with Asia have become increasingly strained, and if we don’t handle those trade relations a little more carefully, we;re going to lose them,” Bowman, an Oxnard-based trade consultant, said. “They’ll take their business to Europe, where there is a higher level of trust — even if it costs them a bit more to do so. The worst thing to do at this point is fan the fire of a trade war.”
Bowman said recent trade restrictions imposed by the United States have added to the tension and have the potential to snowball into much bigger issues.

“This is not a war we want to start,” Bowman said. “It will be hard for us to have any leverage because we went through a year of cutting back on our orders, making commitments and not coming through on them. We do not have the high ground here.”

In his speech, Bernanke acknowledged that the U.S. still needs to increase its national savings rate and work to reduce federal deficits.

“It makes us look bad,” Bowman said. “There has been huge scaling back on orders by the U.S., and that really didn’t instill any confidence in us. So they are, understandably, being really, really cautious because their business has fallen 30 to 50 percent in a year. Asia — China in particular — is looking at America with a lot of uncertainty, and there is a lot of caution on their part in giving credit terms.”

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