Bernanke sees some progress in reducing global imbalances

MarketWatch ^ | Sep 11, 2007 11:53 AM ET | Greg Robb, MarketWatch

[Ernest_at_the_Beach]

Stays away from topic of financial market turmoil

In a speech in Berlin on Tuesday, Bernanke did not address the current financial market turmoil or credit crunch.

His comments stuck to the troubling issue of the large U.S. current account gap and corresponding surpluses in China and oil-exporting countries. Many economists and the International Monetary Fund have worried for years that there might be a sudden, sharp decline in foreign appetite for U.S. dollars, requiring higher U.S. interest rates to attract the necessary foreign capital to fund American's spendthrift ways.

"What are the prospects for a gradual and orderly rebalancing of spending and external accounts around the world? The brief answer is that signs of progress have appeared but that most countries have only just begun to undertake the policy changes that will ultimately be needed," Bernanke said. Read his speech.

Bernanke said the U.S. current account deficit is not sustainable, but U.S. liabilities to foreigners "are not, at this point, putting an exceptionally large burden on the American economy."

"And, as best we can tell, the share of U.S. assets in foreign portfolios does not seem excessive relative to the importance of the United States in the global economy," he said.

However, without progress, "foreign investors would ultimately become satiated with dollar assets," he said.

[RetiredArmy]

Does this mean we are doomed or we are saved?

[Toddsterpatriot]

Yes.

[Ernest_at_the_Beach]

A FR Thread from 2006:

U.S. AND GLOBAL IMBALANCES: CAN DARK MATTER PREVENT A BIG BANG?

***********************Intro EXCERPT**********************

Over the last couple of years the bludgeoning of the US current account deficit, currently ticking at over 700 billion dollars a year in 2005 alone, has led to significant concerns about the future of the US and the possibility of a major global crisis. It comes after 27 years of unbroken deficits which have totaled over 5 trillion dollars. Once the massive financing required to keep on paying for such a widening gap dries up, perhaps because foreigners become satiated of owning such a large and rapidly growing amount of American debt, there will be an ugly adjustment in the world economy. The dollar will collapse, triggering a stampede away from American debt, interest rates will shoot up and a sharp global recession will ensue. Martin Wolf calls this situation an “unsustainable black hole” and points that “The U.S. is now on the comfortable path to ruin”.

[Ernest_at_the_Beach]

LOL......See post #4....

[Hydroshock]

I still think it is 50/50 on a rate cut, but if there is one it will only be .25%. The fed does not want to cut.

[RegulatorCountry]

My radar perks up, whenever this Fed Chairman starts prattling about “imbalances.” The guy’ has come off like some sort of socialist egghead, talking about “wealth distribution” in the recent past. He makes me very nervous.

[RegulatorCountry]

The fed does not want to cut.

Capital inflows from abroad, versus domestic economic concerns. Rock and a hard place.

[Ernest_at_the_Beach]

The Housing Market and Wall Street really want a rate cut.....bad!

The Big headline Graphic of the Orange County (California ) Was ....

**************************************

in Santa Ana, it could theoretically take nearly

4 Years

To Sell Everything on the Market

There was a bit above about Six years later

Readers offer memories of 9/11

see the Life section/......

Then they had a yellow sticker pasted over most of that headline that had

EMERGENCY

Land Auction....

180 Properties Must be Sold....

Free Admission and Parking

Sunday Sept 30...9:30 am

Anaheim Convention Center

[expatpat]

We are doomed — until we are saved.

[expatpat]

We are doomed — until we are saved.

[US at Risk]

There used to be a great paper about this on the Fed website, can't find it anymore.

It went into great detail, with charts and all, about how matching trade deficits to the federal spending deficit kept inflation in check. The dollars leave the country and become 'world currency', so no inflation at home. Voila, Reaganomics and an illusion of prosperity, furnished by oil and Chinese goodies essentially purchased with the budget deficit.

Everybody wins: business, consumers, and our big-spending electeds. About as responsible as a teenager with a MasterCard, IMO.

To my mind, this is as big issue as illegal immigration, in terms of the toll it could take on our economy. Speaking of illegals, it just occurred to me the Mexicans don't mind taking our money, which helps to perpetuate the illusion.

[mysterio]

Bernanke sees some progress in reducing global imbalances

Yeah, America had an imbalance of good paying jobs, but now we're fixing that by sending them to China and Mexico.

[Ernest_at_the_Beach]

From Businessweek:

Five Key Questions for Bernanke

************************Excerpts.... the Points:

1. How weak is the U.S. job market, really?

2. Why are the credit markets still so troubled?

3. Since the housing downturn is the core of the problem, when will housing recover?

4. How much of a risk is inflation?

5. How much good would rate cuts do now?

[TexanToTheCore]

“guy’ has come off like some sort of socialist egghead, talking about “wealth distribution” in the recent past. He makes me very nervous.”

He also make me nervous. Not sure about him at all.

[DoughtyOne]

Why would a guy addressing our exposure, to vast sums of dollars held by foreign nations, on foreign soil make you nervous? /s

I sure wouldn’t do it. I’d probably keep my shut about it inside our nation as well except in meetings where remedies could be discussed, divised and implementations coordinated.

[markman46]

bump

[Toddsterpatriot]

Sooner or later, the doomers will get one right. And they’ll say they told us so. Even if it’s 7 years later and even if the economy is 30% larger when they started warning about the coming collapse.

[Petronski]

I still can’t get over how he reduced the rate before the open on triple-witching day, kicking the bears in the teeth.

Oh my that was great fun to watch. Talk about your schadenfreudische feast!

[Toddsterpatriot]

Perfect timing. This month it’ll be 4 days before expiration.