“Globally, both growth and trade are unbalanced. Because a strong expansion in the emerging-market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favor of slow growth for everyone if the recovery in the advanced economies falls short,” Fed chair Ben Bernanke said at the Sixth European Central Bank Central Banking Conference in Frankfurt. The Chinese were probably listening, and the warning could not have been more plain.

The purpose for Bernanke’s trip and speech was to defend his QE2 program’s effort to jumpstart the US economy. The FMOC, he said, will maintain its current policy of reinvesting principal payments from its securities holdings in longer-term Treasury securities. Financial conditions eased notably in anticipation of the Committee’s announcement, suggesting that this policy will be effective in promoting recovery.

He was also abroad to hail the cooperation among central banks around the world as they strained to salvage the global economy after the credit crisis.

The Fed chair’s job is not a political one, so Bernanke has either changed that or believes the global trade imbalance and recovery problems go well beyond the realm of politics. His argument is hard to refute. If the West and Japan move back into recession, then China will lose the momentum it needs to grow. China will no longer be able to expand, unemployment in the People’s Republic will rise, consumers spending in the world’s most populous nation will drop. That will be the end of the “Chinese Miracle.”

Bernanke showed a willingness in his address to agree with critics who view the value of the yuan as China’s best weapon in its global trade arsenal. Many members of Congress have insisted that is true. Obama and Geithner have come around to open statements about bad faith when it comes to the manipulation of China’s currency. Bernanke lives more often on Olympus that the other critics do. His opinion counts more among other central bankers and probably among other powerful politicians outside the US who have complex relationships with Obama.

And Bernanke’s analysis is nearly elementary. If the world has become one world economically, the largest economy cannot be left behind as most other nations advance financially.

Douglas A. McIntyre

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