Bangkok--3 Jun--Standard & Poor's In recent years, Asian economies and commodity producers' trade surpluses have both grown rapidly--and there's no end in sight--said an article published today by Standard & Poor's. The article, which is titled "The Great Rebalancing: What's Behind The Dramatic Shift In Global Wealth To Asia," says that this has created a more even distribution of world wealth. However, it has also caused enormous and unsustainable imbalances in world trade. Governments must reduce the current trade imbalances, but are they willing to endure the painful adjustments this will require? The U.S. has had a bias toward a trade deficit and a capital surplus for many years. There are several explanations for the bias, including the use of the dollar as the major reserve currency, the positive capital balance of the U.S. after World War II, Americans' low national saving rate, and the tendency of U.S. investors to hold higher-yielding but riskier foreign assets. The trade gap has continued to hit new records, both in nominal terms and as a share of GDP. Until recently, however, a large capital account surplus, attracted by the high returns and low risk in the U.S. financial markets, offset the trade deficit. In 2006, net capital inflows hit a record $1.2 trillion. However, U.S. yields have dropped, while European yields have increased. The falling dollar and, at least for nongovernment markets, the continued problems in the U.S. mortgage market have also undercut the perception of low risk. As a result, the inflow of foreign funds has slowed, pushing the dollar lower. The positive impact of this is that it helps U.S. exports and curtails imports. The downside is higher inflation and bond yields. One problem is that if the U.S. deficit narrows, someone's surplus has to narrow as well (or somebody else's deficit has to widen). Most other countries are very protective of their surpluses. The oil-producing countries have a combined surplus of $600 billion; China and Japan have a combined surplus of $400 billion. Someone has to have $1 trillion of trade deficits, or the surpluses must be cut. It seems unlikely that the OPEC countries will be reducing their surpluses anytime in the near future. That will mean more pressure on Japan and China to cut their surpluses. The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected]. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided. Media Contact: David Wargin, New York (1) 212-438-1579, [email protected] Analyst Contacts: David Wyss, New York (1) 212-438-4952 John Chambers, CFA, New York (1) 212-438-7344