Fed Chairman Ben Bernanke did not address the current financial market turmoil or the credit crunch during his talk in Berlin today; however, he did note that there has been some progress in recent months in reducing the global trade imbalances. As per usual, Bernanke stuck to his script of discussing the troubling issue of the large U.S. current account gap and corresponding surpluses in China and oil-exporting countries. Bernanke said that 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. Bernanke added that 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.

Bernanke also noted, 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. While Bernanke noted that the U.S. external imbalance has improved recently, more action is needed, and the sooner the better.