Tags: morici | recovery | trade | energy

Morici to Newsmax: Energy, Trade Keys to Recovery

Friday, 03 Aug 2012 03:31 PM

By Forrest Jones and Kathleen Walter

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Federal Reserve policies won’t spur lasting recovery and neither will a successful push in Congress to steer the country away from a fast-approaching “fiscal cliff,” said Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland.

Tougher responses against Chinese trading policies and increased drilling for energy at home will fuel a more robust recovery.

Otherwise, expect America’s lackluster recovery to continue.

“There’s really not much more that monetary policy can do. What the Fed can’t say, but should for political reasons, is that the trade deficit with China and our energy policy, it’s really holding back the country,” Morici told Newsmax.TV in an exclusive interview.

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Since the downturn, the Fed has cut interest rates to near zero and has rolled out more unorthodox measures, such as asset purchases from banks that pump liquidity into the economy — a policy tool known as quantitative easing — to spur recovery.

Such policies might lower borrowing costs but don’t create demand, according to Morici.

“If we did something about the trade deficits, $600 billion a year, more than 3 percent of [gross domestic product], we could dramatically stimulate the economy,” he said. “That requires addressing Chinese currency market intervention and, essentially, drilling for more oil in the Gulf. Not particularly popular, but absolutely essential if you want to get out of this funk.”

The Labor Department reported Friday that the U.S. economy added a net 163,000 jobs in July, well above expectations. The news sent stock markets soaring.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Still, the number does not paint a picture of an economy that is finally turning a corner from tepid recovery to seriously gaining steam, Morici said. Rather, it is merely looking good next to the dismal jobs reports from the past several months.

“Well, 160,000 plus is certainly not a turning point. It seems like a lot because we’ve been in double digits, you know, 75, 80,000 for the last several months,” Morici noted.

“You know, when you’re below a snake’s belly, climbing up on its saddle makes you think you feel good, but you’re not.”

To drive lasting improvement, demand must rise, but fear and uncertainty keeps demand at bay.

At the end of the year, tax breaks, including the Bush-era tax cuts, are set to expire, while automatic cuts to public spending kick in, a combination known as a fiscal cliff that could sent the country back into recession next year if left unchecked by Congress.

The fiscal cliff repeatedly grabs headlines, but it isn’t as big of a threat to the economy as many would think, Morici said, as Congress will address the issue, likely at the last minute.

Fears that economic policies won’t change after elections are what’s really hampering demand and with it, recovery.

“Chambers of Commerce around the country say that businesses need more certainty. They’ve got more certainty right now. It is very likely that Mr. Obama will win re-election, looking at the polling data in the swing states, and they recognize this,” Morici stated.

“They’re not hiring not because the Congress isn’t coming to some conclusion on the fiscal cliff; they never expect to jump off it, but rather because they don’t expect economic policy to change again for another four years.”

Meanwhile, forcing China to strengthen its currency and drilling for more energy at home would bring lasting improvement.

China has long been accused of keeping its currency artificially weak to give itself an unfair advantage in global trade arenas.

“With China it relates to China’s undervalued currency and almost daily manipulation of the Chinese yuan by Beijing’s financial agencies. We need to counter that with attacks on the conversion of dollar into yuan to force China’s hand,” he explained.

“With regard to energy, we could cut our oil imports in half by developing the Gulf, offshore resources in the Atlantic and Pacific and developing Alaska,” Morici said. “That would create 2.5 million jobs, as would addressing the trade deficit with China.”

“Get the economy growing again more like 4 percent a year and get us out of this mess,” he said. “When Mr. Obama was running for president he acknowledged the need to forcefully address the trade deficit with China but since that time he’s come up lacking. It’s that simple.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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