The United States should look at emerging markets for clues on how to sustain economic growth, according to U.S. Federal Reserve Chairman Ben S. Bernanke.
While the advanced economies of the world have stagnated since 2008, countries like China, Brazil and parts of Southeast Asia have enjoyed growth rates in the 7% to 9% range. Although several have slowed this year, they're still faring better than the economies of the United States and Europe.
"Advanced economies like theUnited Stateswould do well to re-learn some of the lessons from the experiences of the emerging market economies,"Bernanke said in a speech delivered yesterday (Thursday) at a Cleveland, OH forum.
Specifically, Bernanke attributed growth in emerging markets to "disciplined fiscal policies, the benefits of open trade, [and] the need to encourage private capital formation while undertaking necessary public investments."
The so-called advanced economies certainly could benefit from more fiscal discipline. Decades of profligate government spending have created debt problems that are crippling those economies.
In the United States, which has the world's largest debt at $14.7 trillion, the issue triggered a political crisis over the debt ceiling this past summer that roiled stock markets. Although the United States is unlikely to default, the growing debt - 98% of the nation's gross domestic product (GDP) -- hangs over the economy, hindering growth.
In Europe, the situation is far worse. Greece has been teetering on the edge of default for more than a year. It's been sustained only by the flow of bailout money from stronger European Union countries like Germany.
Greece isn't alone, either. Countries like Italy, Ireland, Portugal and Spain also have dangerously high sovereign debts. The crisis has hobbled the economy of the entire European Union (EU), with no end in sight.
One of the main reasons many emerging economies have thrived is that they have avoided the rampant deficit spending that created the crippling debt in the advanced countries.
And because they haven't been struggling, most emerging market economies have much greater flexibility in their monetary policy - they have leeway to lower interest rates - to cope with the current global slowdown.
Bernanke noted that emerging markets account for more than half of total economic activity today, up from less than one-third in 1980.
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