By Nell Henderson
Washington Post Staff Writer
Friday, February 17, 2006
Americans should save more and work to shrink the country's record trade deficit, Ben S. Bernanke told Congress yesterday, expressing more concern about these topics in his new job as Federal Reserve chairman than he did in his previous job as President Bush's top economic adviser.
Bernanke, in his former role as chairman of the Council of Economic Advisers, contributed to the Economic Report of the President, which was released Monday and generally played down such worries.
For example, Americans' personal saving rate -- which turned negative last year for the first time since the Great Depression -- "may not be cause for alarm," said the CEA's report.
Consumers collectively spent more than their total after-tax income last year, a sharp drop from saving 4.6 percent a decade earlier. The decline is "potentially misleading," the CEA wrote, because rising prices of houses and stocks have boosted household wealth, which provides consumers with more financial security and cash to spend.
But yesterday, Fed Chairman Bernanke told the Senate Banking Committee that he also believes "it would be desirable for Americans to save more."
Bernanke, who has pledged to be a nonpartisan and politically independent central banker, declined to endorse any specific policies to encourage greater personal saving, such as tax-advantaged saving accounts.
But he did say that he has long advocated teaching consumers more about financial markets and economics. "I agree that saving is something that needs to be promoted," he told the senators.
At the same time, Bernanke said he and other Fed officials expect household saving to rise gradually in the months ahead as the housing market cools.
Bernanke also said the nation's record trade gap, at $726 billion last year, was a source of concern to him.
Bernanke said the country cannot continue to finance a current account deficit -- the broadest measure of the trade gap -- equal to about 6 or 7 percent of the nation's total economic output.
"I think we ought to work to reduce the current account deficit over time," to limit the chances of "an uncomfortable adjustment process," he said, alluding to warnings from many economists that a growing trade gap could eventually cause the value of the dollar to plummet and interest rates to soar, possibly triggering a recession.
The CEA's report, however, was more sanguine, attributing the trade gap primarily to other countries that are saving too much or growing too slowly and are investing in the U.S. economy because it is more robust.
The CEA report said reducing these imbalances will require action by many countries. The United States can contribute by saving more, but China, Japan, Germany and other nations "should reduce their excess saving through policies and reforms that promote higher domestic demand."
Bernanke garnered compliments from the senators, as he did from House members the day before, for his clear speaking style when discussing financial issues.
"Congratulations on being able to speak in plain English and not move the markets," said Sen. Evan Bayh (D-Ind.). "That's quite an accomplishment."