Federal Reserve chairman Ben Bernanke recognized today that America's trade deficit played a central role in the global economic crisis. Then after he recognized the problem, he went on to solve a different one.
Start with the real problem, America's trade deficit. America is spending more than it earns, and buying more than it's selling. Our trade deficit in 2008 was $706 billion.
We know we're addicted to oil. We're also addicted to cheap stuff imported from China (made cheap by devalued currency and near-zero workplace or environmental protections). America's problem is a huge efflux of dollars, as our wealth departs for foreign lands.
The Asian export tigers have a smaller problem, but they have one too -- an excessive reliance on excessive American consumption. The danger is, in Bernanke's own words, "ever-increasing and unsustainable imbalances in trade and capital flows."
So America has a trade deficit. The world has an unsustainable imbalance. That's ungood.
Bernake's solution to this trade deficit? Reduce the federal budget deficit.
If you listen quickly, it may sound like reducing a deficit to reduce the deficit. But listen carefully. Bernanke wants to reduce a different deficit.