'Free Money' About to Cause Big Problem: Welch

Too much money in the wrong hands is about to create a serious problem in the US, author and former General Electric CEO Jack Welch said.

Jack Welch
Jack Welch

Speaking as Americans celebrate the killing of terrorist leader Osama Bin Laden, Welch said the event is cause for pride and hopes it will be used as a rallying point as the country recovers from the financial crisis.

But he warned that policies aimed at jump-starting the economy are sowing the seeds for more trouble later.

"Free money in the hands of very smart people for too long is going to create something that's not very pleasant," Welch said. "I don't know what it exactly is. But every time we get free money to lots of people who are very, very smart and know how to use it you end up with a bubble or a problem that we don't quite see in front of us."

Policy makers responded to the collapse of the global financial system in 2008 with a combination of government stimulus and monetary easing that saw the Federal Reserve balance sheet expand by about $2.4 trillion and the budget deficit swell to about $1.5 trillion.

Though the economy has struggled to regain its footing, there are now worries that all that liquidity will create an inflation problem as the dollar has slid and commodity prices soared.

Welch said the real key to recovery will come from US companies that find ways to bring new products to market and help the economy grow organically and not through government intervention.

"People have found ways during this recession to do more with less, there's no question about that," he said. "Our job is to innovate, innovate, innovate in everything we are doing."