Peter Morici on Inflation Spike: Cheap Money Doesn't Create Growth

Wednesday, 18 Jun 2014 07:07 PM

By Courtney Coren

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Consumer inflation spiked in May, according to the most recent report, and economist Peter Morici says that it's proof that "cheap money" doesn't create growth. 

"This notion that somehow or other pumping a lot of money into the economy and inflating it creates growth is silly," Morici told Ed Berliner on "MidPoint" on Newsmax TV on Wednesday. 

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"We've had cheap money for a very long time, and the economy isn’t growing any better than it did during the George [W.] Bush years simply because the Obama administration hasn't fixed what's broken," the University of Maryland professor explained. "And the things that are broken are far beyond the reach of the Federal Reserve."

Economist Robert Wiedemer, author of the New York Times Bestseller "Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown," told Newsmax that those in charge of the Federal Reserve as well as most mainstream economists are "inflation deniers" if they can't see the connection between printing money and inflation.

"This is the problem with the Fed is that so far printing money has only produced positive results," Wiedemer explained. "But if all this printed money is so great, why does the Fed always taper?"

"They know more than they're saying, they're inflation deniers and even inflation liars," he added.

Wiedemer predicts that Federal Reserve Chairwoman Janet Yellen will respond to the inflation news by tapering back the amount of money the Fed is printing, but that "she will reverse that tapering" if she sees the stock market start to drop because "she's much more aware of the stock market than we all believe and very focused on it."

Morici agrees that the Fed will likely taper, but said that "it's the wrong policy."

The University of Maryland economics professor said that the other thing to keep in mind is that "now we have a member of the Democratic Party running the Fed and while she's not willing to go as far as the White House economic advisers and say a higher minimum wage would not cause unemployment, she's willing to avoid dealing with interest rates until after the election."

"I mean the president is already in tough shape, the Democrats are in very tough shape for the fall elections," Morici explained.

"Think about what it would mean if all the folks who write the checks in New York to finance Chuck Schumer's Democratic machine had to deal with a bear market and if she raised interest rates after this meeting like she should?" he asked.

"It would be bad for stock prices — that doesn't mean it would be bad for the country," he said.

"Stock prices should be a symptom of a good running economy not something created by artificial money printing, which is what's been going on."

The Federal Reserve just completed a two-day meeting on Wednesday, after which Yellen said that it will continue to taper back the bond-buying program and will begin to increase interest rates in 2015, The Wall Street Journal is reporting. 

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