updated 10/19/2009 2:04:54 PM ET 2009-10-19T18:04:54

Federal Reserve Chairman Ben Bernanke called Monday for the United States to whittle down its record-high budget deficits and for countries like China to get their consumers to spend more.

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Bernanke said those moves would help reduce "global imbalances" — uneven trade and investment flows among countries that contributed to the financial crisis.

The Fed chief's remarks to a Fed conference in Santa Barbara, California, came after the government said Friday that the U.S. budget deficit hit a $1.42 trillion deficit for the 2009 budget year that ended Sept. 30. The previous year's deficit was $459 billion.

Bernanke's comments also followed pledges made by leaders of the Group of 20 nations at their summit last month in Pittsburgh to reduce global imbalances, such as Asians savings too much and Americans savings too little. Some improvement has been made in this area, but more progress is needed, he said.

Money from countries with trade surpluses like China has flowed into the United States, a factor thought to have contributed to the low interest rates that helped feed the U.S. housing bubble.

Bernanke said the best way for the United States to increase savings is to steadily reduce the federal budget deficits. He didn't suggest ways to do so.

Fielding questions after his speech, Bernanke said the United States is in a "difficult fiscal situation" and that Congress and the White House must find ways to boost confidence in the U.S. economy and the dollar. He said he thinks those stakes are "very well understood in Washington."

Red ink from the budget deficit reflects costs of spending on wars in Iraq and Afghanistan and on fighting the financial crisis at home. It also reflects the bite of the recession on tax revenue, which plunged.

Countries with trade surpluses, like China and most Asian economies, must get their consumers to spend more and rely less on export-led growth, Bernanke said.

Boosting consumption
"In large part, such action should focus on boosting consumption," Bernanke said.

The bulk of Bernanke's speech was a scholarly assessment of Asia and how it fared during the global financial crisis, the focus of the Fed's conference. He didn't discuss the state of the U.S. economy or the future course of interest rates.

Bernanke and his colleagues last month held a key bank lending rate at an all-time low near zero and pledged to hold it there for an "extended period." Many economists think that means through the rest of this year and into next year.

Deciding when to boost interest rates and reel in the money plowed into the U.S. economy will be one of the biggest challenges facing the Fed in coming months. Removing those supports too soon could derail the recovery. But leaving them in place for too long risks unleashing inflation.

"Unwinding the stimulative policies introduced during the crisis will require careful judgment," Bernanke said, not only for industrialized countries like the United States but others countries as well.

Internationally, "Asia appears to be leading the global recovery," Bernanke said. "Recent data from the region suggest that a strong rebound is, in fact, under way."

Many economists say they think the U.S. economy — the epicenter of the financial crisis — started growing again in the third quarter at a pace of at least 3 percent and is still expanding in the current quarter. Economic activity contracted in the second quarter at an annualized rate of 0.7 percent, marking a record four straight quarters of decline.

Uneven trade and investment flows among countries contributed not only to the most recent financial crisis but also to others, like the 1990s Asian financial crisis, Bernanke said.

That's why guarding against another is so "extraordinarily urgent," he said.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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