Trade deficits keep growing

By Jeannine Aversa AP Economics Writer

WASHINGTON – Federal Reserve Chairman Ben Bernanke is warning anew of the potential risks to the economy posed by persistent and large trade and budget deficits.

Bernanke’s comments came in a written response to questions on these matters by Rep. Brad Sherman, D-Calif.

The United States racked up a $723.6 billion trade deficit last year, the fourth in a row where the annual shortfall set a record.

“Although U.S. trade deficits cannot continue to widen forever, these deficits need not engender a precipitous decline in the dollar, nor should such a decline, were it to occur, necessarily disrupt financial markets, production or employment,” Bernanke wrote in a letter released Wednesday.

“However, the possibility of a future disruptive correction of the U.S. trade deficit cannot be ruled out,” he said. The letter was dated Tuesday.

Bernanke has urged policymakers to take steps to trim both the trade deficit and the budget deficit, which reached stood at $319 billion last year.

This year, the White House is projecting the deficit will swell to $423 billion, which would set a record in dollar terms.

“I believe that reducing the federal deficit is very important especially in the light of the need to prepare for the retirement of the baby boom generation,” Bernanke wrote.

“I urge Congress to proceed on that effort in a timely manner and to pay particular attention to how its decisions on spending and tax programs will affect the U.S. economy over the long run.”

Bernanke, as he has done in the past, refrained from making