Bernanke Says Trade Imbalance Can Threaten Economic Recovery

Federal Reserve chairman Ben Bernanke said that if the trade gap between the U.S. and China did not shrink that the world economic recovery would be in danger.According to the Los Angeles Times, Bernanke told attendees at a conference on Asia and the global financial crisis in Santa Barbara on Monday that imbalances, such as the U.S. trade deficit with China, could contribute to another financial meltdown. He also warned about the need to cut the ballooning federal budget deficit and urged Americans to save more and the Chinese to spend more.

"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," he said.

Critics of China's economic policies have blamed Beijing's undervalued currency, among other factors, for fueling China's huge trade surplus with the United States. China used that surplus to purchase massive amounts of U.S. debt, which, in turn, drove down interest rates and freed up the money for further spending by Americans, said the LA Times.

The entire article can be found here.