President George W. Bush was strong and in good spirits as he met this morning with a small group of journalists for about 90 minutes in the Oval Office. Topics across the board were discussed. As always in these meetings, some of the juiciest stuff is off the record. Too bad, because the president has an awful lot of important things to say on so many of these issues. But ground rules are ground rules. I hope I don’t get into trouble by mentioning a few economic points that came up.
First, the president will continue his strong push on energy deregulation to open up the offshore outer continental shelf, ANWR, and the shale fields. When asked if he would revoke the executive order moratorium on drilling, he said he was thinking about it. When asked whether he would give a prime-time nationally televised speech on the subject, he said he would think about that too.
He made it clear that the root cause of high gas pump prices and the $140 barrel price of oil is a lack of supply. He said we’re in a transition period from hydrocarbons to alternative technologies, but that drilling for more oil and gas is essential at this stage. He said taxing oil companies will not create any new supply. He also asserted that the marketplace works more effectively than a variety of new regulations.
When asked about the dollar, the president stated clearly that he is for a strong dollar. But he hinted that the non-intervention policy would remain in place. Instead of intervention, he felt that free-trade policies to open markets and expedite the free transfer of capital would send positive signals that would strengthen the currency. He said the Columbia free-trade debate in Congress has undermined the dollar, and he continues to believe that passage of Columbia free trade is a “no-brainer.”
He also believes the European banks have done far less to repair their balance sheets than the American banks. And he hinted that our financial and economic position is stronger than Europe’s, another factor working to strengthen the value of the dollar.
Toward the end of the session he talked in very clear terms about the need to maintain his policy regarding the spread of freedom worldwide and what he called the “universality” of freedom. He quoted from Lincoln that “all men are created equal under God.” He pointed out that there’s a picture of President Lincoln on the wall of the Oval Office. I would add that there’s also a sculpted bust of Lincoln, another bust of Winston Churchill, and a magisterial portrait of George Washington.
Mr. Bush reiterated what he has said in a number of these meetings, that in the office of the president, character matters a lot. He said you have to have clear principles and strong beliefs to execute all the responsibilities that are part of the job.
I’m gonna leave it to others to talk about some of the foreign-policy issues that came up. But I would say as someone who has been privileged to attend these gatherings in the past, not only did the president show the inner strength he always has, but when he does reflect on the tumultuous events of his tenure, he is completely at peace with himself and his decisions.
Monday, June 30, 2008
Monday Night Lineup - From Washington D.C.
On CNBC's Kudlow & Company at 7pm ET tonight:MAKING SENSE OF THE MARKETS AND ECONOMY...Our stock market and economic all-stars will weigh in with their perspective on all the latest news and developments affecting investors.
On board:
*Dennis Gartman, economist & editor of the Gartman Letter
*Jerry Bowyer, chief economist, BenchMark Financial Network
*Andy Busch, global FX strategist, BMO Capital Markets
*Gary Shilling, president of A. Gary Shilling & Co.
RECESSION OR NOT?...Squaring off on the state of the economy will be Washington Post business columnist Steven Pearlstein and economist Jerry Bowyer.
BUSH ON THE DOLLAR & ENERGY, WES CLARK'S ATTACK ON MAC & MORE...Our Washington pros will discuss and debate all the latest political news and developments.
On board:
*Bob Shrum, Democratic strategist
*Ramesh Ponnuru, author & senior editor for National Review
*Scott Rasmussen, pollster & president of Rasmussen Reports
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Friday, June 27, 2008
Friday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:OIL, STOCKS, THE ECONOMY & MORE...Our stock market and economic all-stars will discuss and debate all the latest news, trends and developments affecting investors including sagging stocks, continued dollar weakness, and the rise in gold and energy prices.
On board:
*David Kotok, co-founder & CIO, Cumberland Advisors
*Dennis Gartman, economist & editor of the Gartman Letter
*Don Luskin, chief investment officer, Trend Macro
*Stefan Abrams, Bryden-Abrams Investment Management managing partner
Also...Oil expert Dan Yergin, chairman of Cambridge Energy Research, will be aboard with his perspective on $140 oil and what may lie ahead.
GOLD, INFLATION & THE DOLLAR...Chip Hanlon, president of Delta Global Advisers, will join the market panel with his take on all the latest developments and what to expect in the weeks and months ahead.
PRIMARY POLITICS...On to discuss the presidential election battle between Obama and McCain will be Wall Street Journal writer John Fund and Keith Boykin, New York Times bestselling author and former Clinton White House aide.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Thursday, June 26, 2008
Where’s Bernanke’s Inner Volcker?
The Fed turned its back Wednesday on the very inflation-tax problem it helped create.
On the day after an unusually important Fed policy meeting both gold and stocks severely rebuked the central bank’s decision to take no action in support of the weak dollar or to curb rapidly growing inflation. Gold spiked $30, a clear message that Bernanke & Co. won’t stop inflation. Stocks plunged over 200 points, an equally clear message that the Fed’s cheap-dollar inflation is damaging economic growth.
These market warnings are two sides of the same coin. Inflation, which is caused by excess dollar creation, is the cruelest tax of all. It is a tax on consumer and family purchasing power. It is a tax on corporate profits. It is a tax on the value of stocks, homes, and other assets. Crucially, the capital-gains tax — the most important levy on all wealth-creating assets — is un-indexed for inflation. Hence, long before Barack Obama or Congress can legislatively raise the capital-gains tax rate, rising inflation is increasing the effective tax rate on real capital gains. That’s an economy-wide problem.
By doing nothing at the June 25 meeting the Fed turned its back on the very inflation-tax problem it helped create. The spanking it received from the markets was well deserved.
Former Fed chairman Paul Volcker, who is advising Sen. Obama’s presidential campaign, issued a stern warning at the New York Economics Club a few months back. He said inflation is real and the dollar is in crisis. Soon after, Fed head Ben Bernanke changed his tune in public speeches, pledging greater vigilance on inflation and hinting at a defense of the dollar. Treasury man Henry Paulson and President Bush also stepped up their rhetoric regarding a stronger greenback.
But words were no substitute for actions this week.
It is an interesting historical footnote that Paul Volcker is still highly regarded as the greatest inflation fighter of our time. Working with Ronald Reagan, it was Volcker who slew the inflation dragon in the 1980s. Indeed, the combination of tighter monetary control from the Fed and abundant new tax incentives from Reagan launched an unprecedented twenty-five-year prosperity boom characterized by strong growth and rock-bottom inflation. At the center of the boom was a remarkable 12-fold rise in stock market values, a symbol of the renaissance of American capitalism. But that was then and this is now.
Talk of major new tax hikes is in the air today, while the inflationary decline of the American dollar is plain fact. It’s as though our economic memory is being erased, both in tax and monetary terms. Staunchly optimistic supply-siders Arthur Laffer and Steve Moore are even finishing a book on the subject. Called The Gathering Economic Storm, its concluding chapter is titled: “The Death of Economic Sanity.”
The Volcker anti-inflation model presumably handed down to Alan Greenspan and Ben Bernanke always argued that price stability is the cornerstone of economic growth. Yet it appears that today’s Fed has reverted to a 1970s-style Phillips-curve mentality that argues for a trade-off between unemployment and inflation, rather than the primacy of price stability.
History teaches us otherwise. It states that since rising inflation corrodes economic growth, inflation and unemployment move together — not inversely. Even in the last 18 months this is proving true. Inflation bottomed around 1 percent in late 2006. Unemployment bottomed at 4.4 percent about 6 months later. Today, the CPI inflation rate has climbed to over 4 percent, wholesale prices have jumped to 7 percent, and import prices have spiked to 18 percent. Unemployment, meanwhile, has moved up to 5.5 percent.
Over the past five years the greenback has lost 40 percent of its value. Oil is close to $140 a barrel. And gold, now trading above $900 an ounce, is warning that if the Fed fails to stop creating excess dollars, inflation could rise to 6 or 7 percent.
I had hoped Ben Bernanke would reveal his inner Volcker at Wednesday’s meeting. He didn’t. While the Fed acknowledged that “the upside risks to inflation and inflation expectations have increased,” it took no action taken to raise the fed funds target rate, which now stands at 2 percent and is actually minus-2 percent adjusted for inflation. Even a quarter-point rate hike — merely taking back the last easing move in April — would have been a shot heard ’round the world in defense of the beleaguered dollar. It didn’t happen.
Only Richard Fisher, president of the regional Dallas Fed, dissented in favor of a higher target rate. That leaves the hard-money Fisher as the lone remaining protégé of Paul Volcker.
Of course, if Fed policymakers reconvene immediately to right their wrongheaded mistake, the value of our money could be quickly restored. The next scheduled Open Market meeting is August 5, but they needn’t wait that long.
Let’s hope they come to their senses.
On the day after an unusually important Fed policy meeting both gold and stocks severely rebuked the central bank’s decision to take no action in support of the weak dollar or to curb rapidly growing inflation. Gold spiked $30, a clear message that Bernanke & Co. won’t stop inflation. Stocks plunged over 200 points, an equally clear message that the Fed’s cheap-dollar inflation is damaging economic growth.
These market warnings are two sides of the same coin. Inflation, which is caused by excess dollar creation, is the cruelest tax of all. It is a tax on consumer and family purchasing power. It is a tax on corporate profits. It is a tax on the value of stocks, homes, and other assets. Crucially, the capital-gains tax — the most important levy on all wealth-creating assets — is un-indexed for inflation. Hence, long before Barack Obama or Congress can legislatively raise the capital-gains tax rate, rising inflation is increasing the effective tax rate on real capital gains. That’s an economy-wide problem.
By doing nothing at the June 25 meeting the Fed turned its back on the very inflation-tax problem it helped create. The spanking it received from the markets was well deserved.
Former Fed chairman Paul Volcker, who is advising Sen. Obama’s presidential campaign, issued a stern warning at the New York Economics Club a few months back. He said inflation is real and the dollar is in crisis. Soon after, Fed head Ben Bernanke changed his tune in public speeches, pledging greater vigilance on inflation and hinting at a defense of the dollar. Treasury man Henry Paulson and President Bush also stepped up their rhetoric regarding a stronger greenback.
But words were no substitute for actions this week.
It is an interesting historical footnote that Paul Volcker is still highly regarded as the greatest inflation fighter of our time. Working with Ronald Reagan, it was Volcker who slew the inflation dragon in the 1980s. Indeed, the combination of tighter monetary control from the Fed and abundant new tax incentives from Reagan launched an unprecedented twenty-five-year prosperity boom characterized by strong growth and rock-bottom inflation. At the center of the boom was a remarkable 12-fold rise in stock market values, a symbol of the renaissance of American capitalism. But that was then and this is now.
Talk of major new tax hikes is in the air today, while the inflationary decline of the American dollar is plain fact. It’s as though our economic memory is being erased, both in tax and monetary terms. Staunchly optimistic supply-siders Arthur Laffer and Steve Moore are even finishing a book on the subject. Called The Gathering Economic Storm, its concluding chapter is titled: “The Death of Economic Sanity.”
The Volcker anti-inflation model presumably handed down to Alan Greenspan and Ben Bernanke always argued that price stability is the cornerstone of economic growth. Yet it appears that today’s Fed has reverted to a 1970s-style Phillips-curve mentality that argues for a trade-off between unemployment and inflation, rather than the primacy of price stability.
History teaches us otherwise. It states that since rising inflation corrodes economic growth, inflation and unemployment move together — not inversely. Even in the last 18 months this is proving true. Inflation bottomed around 1 percent in late 2006. Unemployment bottomed at 4.4 percent about 6 months later. Today, the CPI inflation rate has climbed to over 4 percent, wholesale prices have jumped to 7 percent, and import prices have spiked to 18 percent. Unemployment, meanwhile, has moved up to 5.5 percent.
Over the past five years the greenback has lost 40 percent of its value. Oil is close to $140 a barrel. And gold, now trading above $900 an ounce, is warning that if the Fed fails to stop creating excess dollars, inflation could rise to 6 or 7 percent.
I had hoped Ben Bernanke would reveal his inner Volcker at Wednesday’s meeting. He didn’t. While the Fed acknowledged that “the upside risks to inflation and inflation expectations have increased,” it took no action taken to raise the fed funds target rate, which now stands at 2 percent and is actually minus-2 percent adjusted for inflation. Even a quarter-point rate hike — merely taking back the last easing move in April — would have been a shot heard ’round the world in defense of the beleaguered dollar. It didn’t happen.
Only Richard Fisher, president of the regional Dallas Fed, dissented in favor of a higher target rate. That leaves the hard-money Fisher as the lone remaining protégé of Paul Volcker.
Of course, if Fed policymakers reconvene immediately to right their wrongheaded mistake, the value of our money could be quickly restored. The next scheduled Open Market meeting is August 5, but they needn’t wait that long.
Let’s hope they come to their senses.
Drill, Drill, Drill: My Interview with Alaska Governor Sarah Palin
Alaska Governor Sarah Palin, frequently touted by conservatives as Sen. McCain’s running mate, gave an outstanding performance last night on Kudlow & Co. It was drill, drill, drill -- all the way. In particular, she said look, if the people of Alaska want to drill in ANWR, why should the Congress in Washington stop this? She added that there are tens of billions of more barrels of oil both onshore and offshore Alaska. Yes, it might take five years to get ANWR on line. But we have to start sometime to solve a problem of massive oil prices.Gov. Palin also said John McCain is wrong about ANWR and that she hopes to persuade him of that. And she agreed with me that we need an America-first energy policy that deregulates and decontrols all possible energy sources, unleashing the U.S. energy business.
She was clearheaded and plainspoken. Very impressive. The unofficial transcript follows below.
Kudlow: All right, drill, drill, drill! Nobody does it better than Alaska, if only Congress would let it. So here to tell us all about it, Alaska Republican Governor Sarah Palin.
Governor Palin, thank you ever so much for coming on. We appreciate it. I want to start with this, it’s an oddball question. I mean, Senator McCain says it's too pristine to drill. Senator Obama says the drilling won't work. What is your response to this? How do you fight back?
Palin: Well it will work. And Senator McCain is wrong on that issue. He’s right on a whole lot of other issues, so thank goodness that he’s understanding and evolving with his position on OCS [Outer Continental Shelf]. So that’s encouraging. I think he’s going to evolve into, eventually, supporting ANWR opening also.
Obama is way off base on all that. I think those politicians who don’t understand that we need more domestic supply of energy flowing into our hungry markets, you know, they’re living in La-La Land. And we’re in a world of hurt if their agenda continues to be to lock up these safe, secure domestic supplies of energy.
Kudlow: Tell me about the “world of hurt” in your judgment. The criticism of ANWR is - this is what you hear from people in both political parties - there’s not enough to matter, it’ll take too long, and it won’t impact the price of oil internationally or gas at the pump. How do you respond to that?
Palin: Well it will impact, in a positive sense, the price of fuel eventually. We’ve got to start somewhere. Again, we’ve got domestic supplies sitting there underground. The reserves are ready to be tapped. And you know, nowhere more than Alaska – Alaskans - would be impacted by development in ANWR. And here in Alaska, our constituents, the people who live here, want it drilled. So that tells you that we have confidence in the safety and the responsibility that we’ll see there with the development of ANWR.
Remember too Larry, we’re talking about a sliver of the coastal plain of Alaska being explored and drilled for oil. It’s about a footprint of a 2000-acre plot of land. That’s smaller than the footprint of LAX, for instance. So it’s not so grandiose an acreage that it is out of the realm of possibility for others to start understanding why it is that we can do this safely. We can have a small footprint, and not adversely impact the land, the wildlife, that’s part of Alaska.
Kudlow: Well what do you have up there around ANWR? Is it a bunch of big fat blue flies? People say nobody goes up there. Humanoids don’t populate it. It’s just the blue flies. I mean, I want to keep blue flies healthy. Maybe you can tell us about that?
Palin: Well sure, we want to keep the blue flies healthy also. [Laughter]. But again, it’s a small portion of land up there. Alaskans understand that while we have these reserves underground, ready to be tapped, you know, we want to invite safe responsible development. We want those who can safely develop it. We want them to compete for the right to tap those resources and start feeding these hungry markets.
Kudlow: How long would it take? How long would it take? I hear so many, Senator Obama says this, and a lot of Democrats say this, some Republicans, how long will it take Governor? What’s your estimate on this? To start lifting out of ANWR?
Palin: It’s going to take at least five years. You know, and there are other areas in Alaska too, that have the reserves that need to be tapped, certainly offshore. There’s trillions of cubic feet of natural gas, and billions of barrels of oil there too that need to be tapped. We also have a natural gas pipeline that is underway now, a process to get that constructed, where we can build infrastructure and allow known reserves of natural gas up on our North Slope - it’s already there, it’s already proven – to be tapped and flow through a natural gas pipeline. Our legislature is dealing with that issue right now, getting ready to license a company to build that gas line. Again, to feed these hungry markets.
Kudlow: Alright, so now you’ve got another case where both candidates seem to be off course. Senator Obama wants a windfall profits tax on oil companies. And Senator McCain talks about obscene profits, which I regard as the near cousin to the windfall profits tax. What’s your response to these criticisms?
Palin: Well we just went through a process of making sure that the oil and gas resources that Alaskans own are properly taxed. And we just increased a tax on profits of oil companies up here, because an earlier version of Alaska’s tax formula had been corrupted by some politicians who are now in prison for the corruption. But we had to revisit the way that we were going to tax profits on oil companies. We just got through that, and it wasn’t an obscene amount of tax placed upon them. In fact, it’s driven more by a desire to explore and to develop with independent companies coming into Alaska. So you know, on a national level, they’re going to have to deal with that, but we just dealt with it on Alaska’s level. And we have a healthy valuation of our oil and gas reserves, and we’re deriving healthy revenue for our state off that.
Kudlow: Well are profits a dirty word? In energy, or other businesses?
Palin: Well no, of course not. And low taxes of course, we know spur the economy. I’m a Republican. I am for low taxes. We have to make sure though that an appropriate value is placed oil and gas resources. And that the people who own these resources are able to benefit from the development of them. But no, profit is not a dirty word.
Kudlow: Why don’t we just liberate, and decontrol, and deregulate the whole bloody energy business – whether it’s oil, gas, shale, nuclear, coal, natural gas, as well as wind and solar – why don’t we just decontrol, deregulate, go for an America first energy policy? Get independent of Saudi Arabia? America first. Create all of these millions of high paying jobs. Why isn’t anybody talking about that in this race? That’s the natural, Reaganesque thing to do. Isn’t it?
Palin: Yeah absolutely! You’re hitting the nail right on the head. That’s what so many of us normal Americans are asking. The same thing. Why aren’t the candidates talking like that? Where we can secure America and we can be more independent when we talk about energy sources if we could drill domestically.
Here we sent [Energy] Secretary Bodman overseas the other day, and our president had to visit the Saudis a few weeks ago, to ask them to ramp up development. That’s nonsense. Not when you know that we have the supplies here. You have the supplies in your sister state called Alaska, where we’re ready, willing and we’re able to pump these supplies of energy, flow them into hungry markets across the U.S. We want it to happen. It’s Congress holding us back.
Kudlow: Alright. I’ve got some sound from Senator John McCain. Please take a listen.
[Video Clip:
Audience member: Would you consider Alaska Governor Sarah Palin for a vice-presidential running mate?
McCain: Could I say that this meeting is adjourned? [Laughter]. We’re still going through the process, but the governor of Alaska is a wonderful person, and very popular in her state, and very honest and straightforward, and I think has a future in our party]
Kudlow: Alright Governor, you probably heard Senator McCain waltz his way through that one. Let me just ask you. If he asked you to be his vice-president, would you accept in light of your disagreement, apparently, over ANWR drilling?
Palin: Well I’d like the opportunity to get to change his mind about ANWR, I’ll tell you that. But Larry, I’m gonna give you the same answer that any other potential VP gives you and that is you know, I really enjoy my job here in Alaska as governor. I believe that there’s a lot that Alaska could be and should be doing to contribute to the rest of the U.S. And I think I can do that in my job here in Alaska. And I know that, again, the other potential VPs are saying the same thing that they like where they are today. So I also have to say though that it’s really probably out of the realm of possibility to be tapped for that position, so I don’t even have to worry about it.
Kudlow: Well okay. You’ve got a lot of work to do drilling up there to help the rest of America. But let me ask one final question. In your judgment, is it time for the Republican Party to put a woman on the ticket?
Palin: Oh, we’re overdue for that. Absolutely. I would love to see that happen.
Kudlow: Alright. Governor Sarah Palin, Alaska. Thank you very much Governor. Appreciate it.
Thursday Night's Special Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:TODAY'S STOCK MARKET PLUNGE, THE FED'S ROLE, OIL'S SPIKE & MUCH MORE...Our stock market and economic all-stars will weigh in with their thoughts and perspective on today's tough 300-plus point market sell-off, $5 oil spike and other pressing issues facing investors.
On board:
*Michael Pento, Delta Global Advisors, senior market strategist
*Vince Farrell, managing director, Scotsman Capital
*Jack Gage, Forbes magazine associate editor
*Dennis Kneale, CNBC media & technology editor
PRIMARY POLITICS...Our political pros will offer up all their latest Washington to Wall Street insight on the race between McCain and Obama and whether too much is being made out of Obama's current lead in the polls.
On board:
*Scott Rasmussen, president of Rasmussen Reports
*Frank Newport, editor in chief of the Gallup Poll
*Larry Hugick, chairman of Princeton Survey Research Associates International
MORE ON THE MARKETS & ECONOMY...Our experts will discuss and debate all the latest news, trends and developments.
On board:
*Art Laffer, economist and chairman of Laffer Associates
*Steve Moore, senior economic writer, Wall Street Journal
*Robert Reich, former Clinton labor secretary, author & Berkeley professor of public policy
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Wednesday, June 25, 2008
Wednesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE STOCK MARKET, ECONOMY FED & MORE...Our stock market and economic all-stars will discuss and debate all the latest news, trends and developments affecting investors including today's Fed decision.
Market Panel:
*Jerry Bowyer, chief economist, BenchMark Financial Network
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Jim Lacamp, portfolio manager at RBC Dain Rauscher
Fed Panel:
*Wayne Angell, former Federal Reserve Governor
*Lyle Gramley, former Federal Reserve Governor
*Michelle Girard, senior economist at RBS Greenwich Capital
AN INTERVIEW WITH GOVERNOR SARAH PALIN...Joining us live from Anchorage, Alaska will be the much talked about possible McCain vice-presidential pick Sarah Palin. She'll discuss drilling for oil on the Outer Continental Shelf and the Arctic National Wildlife Refuge.
WASHINGTON TO WALL STREET....The Wall Street Journal's Steve Moore will debate former Clinton labor secretary/Berkeley professor/author Robert Reich on a host of issues including the housing bill, energy and more.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Tuesday, June 24, 2008
Is the Inner Bernanke Up to the Task?
All eyes are on the Fed meeting to see if the inner Ben Bernanke will lean toward inflation hawk Paul Volcker and follow through to stop inflation and defend — indeed recreate — King Dollar. Volcker told us a few months ago that we were in a dollar crisis. Since then, Bernanke has been talking tough. No one expects a rate-hike announcement tomorrow at 2:15 p.m., but all eyes will be watching and reading the Fed policy statement to see if inflation is rated public-enemy number one. The artful term among Fed watchers is “inflation bias.”
Is inflation really a problem? Well of course sky-high oil and fuel prices make it thus. Check out today’s consumer confidence report: 12-month inflation expectations have skyrocketed to 7.7 percent! As recently as early 2003, that number was 4 percent — a rock-bottom reading that is seldom violated in these surveys.
And inflation is rising all over the world, especially for countries whose currencies are tied or shadowing the sinking U.S. dollar: China, India, South Korea, Thailand, Vietnam, Saudi Arabia, and Russia. Whenever the dollar sinks, global inflation is sure to follow. Even the strong-minded euro, piloted by inflation hawk Jean-Claude Trichet, has jumped to 3.7 percent from just over 1 percent a few years ago.
Many on Wall Street and in Washington say the Fed can’t tighten policy because the economy is weak. But you know what? The economy is weak in large part because of rising inflation, which is the cruelest tax of all. It diminishes corporate profits and family incomes. It also is forcing the unemployment rate higher.
Now the Phillips curve argues a tradeoff between unemployment and inflation. That Keynesian view is why all the Keynesian Wall Street and Washington economists are telling the Fed not to get tough. But check out some facts: The U.S. consumer price index bottomed in October 2006 at 1.3 percent. The unemployment rate bottomed six months later in March 2007 at 4.4 percent. Through May 2008, the latest readings have U.S. inflation at 4.2 percent and the unemployment rate at 5.5 percent. This is what we learned in the 1970s. Instead of moving in opposite directions, unemployment and inflation are moving up together. When you tax something you get less of it. By raising the inflation tax we are getting less job creation and higher unemployment.
This is not to say that the housing problem and the credit crunch haven’t weakened the economy. But it is to say that if the Fed can bring down inflation by taking back its easy-money rate cuts in the next 4 or 5 months, it will lower the inflation tax, resurrect King Dollar, and just maybe save the economy.
Is the inner Bernanke up to the task? We will soon know.
Drill, Drill, Drill: My Interview with Anadarko Petroleum CEO James Hackett
What follows below is an unofficial transcript of my interview last night with James Hackett. Mr. Hackett is the president & CEO of Anadarko Petroleum. He also happens to be an incredibly bright man whose thoughts and ideas on energy are right on the money.Kudlow: Alright, drill, drill, drill. So here to talk about the whole energy situation is James Hackett, president and CEO of Anadarko Petroleum. Mr. Hackett, welcome. Let me just ask you, drilling, this big debate, you know all about it. Ending the moratorium. Decontrolling. Allowing us to produce more supply. First of all, let me get your quick take. How long would it take to bring some oil online if we go to the Outer Continental Shelf?
Hackett: Generally five to seven years from the initial leasing until you actually have production. And we’ve proven that in 8100 feet of water, in a platform that we operate in the eastern Gulf of Mexico right now.
Kudlow: So why are these senators – and I’m not even gonna even say which political party they’re from, because I would never politicize an issue – why are these senators saying it would take five to ten years and the price impact wouldn’t be felt until 2030? In fact, listen for one second, it’s a non-senator, I’ve got some sound from former Energy Secretary Bill Richardson. Hang on a second. Here he comes.
[Bill Richardson video clip courtesy of CBS/"Face the Nation": “I was Energy Secretary, and I can tell you that every bipartisan administration has opposed offshore drilling for pristine reasons, the ecosystem. But also, the fact that you’re not going to get any of this oil out offshore for the next ten years, and prices won’t go down till the year 2030 according to the Energy Information Agency which is part of the Department of Energy."]
Kudlow: Mr. Hackett, you heard him. Ten years to get it out and then nothing until 2030 on prices. What’s he talking about?
Hackett: Well, I think that it’s one man’s view. We happen to be operators in the Gulf of Mexico. I don’t think Secretary Richardson actually did operate a well in the deep offshore areas. As I mentioned, we’ve got a world class project that is the deepest producing well in the history of the world. It’s providing clean, natural gas to America, about 1.5 percent of all of our gas supply. Everyday it’s being provided from a football field and a half sized environmental footprint, a two-hour flight away from the shoreline. So it’s not in any visual contact with any human being. These platforms have gone through 200-year hurricanes, back in 2005, without any environmental consequences. It’s a bit of a fiction hoisted on us by people who don’t know better.
Kudlow: Alright, I hear you. People who don’t know better. What’s the price impact and how much is out there? I mean, there’s a lot of estimates. What is it, 86 billion barrels in theory, maybe 20 billion barrels are going to be available and provable. What’s your take on the volume that you could put on the market? And when would the price adjust?
Hackett: Well I think that the price would adjust actually as soon as you started drilling it. There’s a psychology with regard to speculative elements in any commodity market, whether it’s grains, or metals, or oil and gas. If the world really felt that there were plenty of places to go look for oil and gas, the markets would start trading as if that were a reality. Today it’s quite the opposite reality, especially with the geopolitical elements overlaying that. So, every time we say to the world, ‘We want energy security, but we want you to produce it, and we’re not going to do anything,’ the elements in the trading community say, ‘well that means that access is getting tougher.’
If you want the things that everybody says we want, we should go and open up our own shores to drill. We can do it environmentally well. We’ve got the proven technology. And we don’t know how much is left out there. Every time we go and find new resources, we find there are more than we thought there were. You could have gone back fifty years, and said that there were less resources, now there are more because we actually went and did good science, produced it responsibly, and have found new horizons in deeper and deeper areas of the horizon to be able to test and bring out.
Kudlow: What about this other argument that is sort of the political talking points of one of the two major parties, although nobody is really totally clean on analyzing this. The leases. I heard a U.S. senator on one of the talk shows yesterday say well, ‘there’s 41 million acres worth of leases out there, but they’re only using 10 million.’ What’s that all about? What is your response to that argument?
Hackett: Well one, it shows a very poor understanding of how the oil and gas business actually works. It’s a bit like the real estate development arena. If you were developing a real estate development, you wouldn’t just do it on one acre, you wouldn’t just build one house. To make it economic you’d actually buy, let’s call it fifty acres and you’d build a housing development. In our case, we don’t just take just one lease to get a well drilled. We actually take several leases if we’re lucky enough to get them. It’s all competitively bid. The federal government collects billions of dollars from this stuff. It’s as if they don’t get anything if you listen to the soundbites. We also pay annual rentals.
So we’re putting together an economically developable area, because remember, we’re drilling miles into the ocean sometimes, miles into the ground, without knowing there’s anything there. So to assume it’s on that one acre that you actually bought is crazy. And so what we’ll do is we’ll actually get ten or fifteen leases, and then we’ll drill, and then we’ll figure out if it’s there or if it’s on the next lease next door. And these things take time. You have to permit them. You have to shoot seismic to be able to do the right science, image it below salt. And then you go and drill it, if you’re lucky enough to get a permit, after you’ve done all your environmental studies.
But they’re talking about offshore. You go onshore, there’s places where we wait on permits for two months to two years. And even though it’s leased, it can’t actually physically be drilled. And that’s what people don’t really understand. With the environmental restrictions and environmental lawsuits, there are lots of places where we hold leases, [but] we’re not allowed to drill because the federal government that leased it to us actually won’t give us the permits.
Kudlow: Yup. Alright before we break, let me just ask you a couple others. What would cap-and-trade do to drilling?
Hackett: Cap-and-trade would probably hurt drilling. Because there’s a lot of risk that it would not actually be implemented properly. And the unintended consequences of a very complex system, that’s administered by governmental agencies, would have to be one that I would predict would actually make supply harder to get to consumers which I think is a mistake.
Kudlow: What about those who are saying now the energy business in general is much too profitable, it’s time to charge a windfall profits tax and use the proceeds of that tax for consumers so they can buy more gasoline at the pump? What’s your response to that one?
Hackett: Well first of all, I hope any American that is as old as I am, and was around in the ‘70s, realized that failed once. We actually started importing about 13 percent more oil, after we slapped a windfall profits tax on it. That money is much better spent within the private enterprise sector that’s good at finding new supplies. You’re actually discouraging supplies from being developed. A much healthier tax is actually opening up access, where you actually generate tax revenues for the government from the additional drilling. You get supplies, plus you get additional taxes. And that’s where we ought to be headed. It’s good for consumers.
Kudlow: Do you have a problem giving some of those royalties to the states if they let you drill off their shores?
Hackett: We’ve been huge supporters of that because it provides them an incentive to provide education, coastal restoration or any kind of fish and wildlife type of activity. We’ve been very active as part of our association, we’re trying to get that done.
Kudlow: What about the shale story? President Bush talked about shale in his speech the other day. Green River Formation, they’re talking about maybe 800 billion in recoverable barrels equivalent. Some people like the Rand Corporation have said close to 2 trillion. And also the Bakken Shale formation, which is to the north of that. Are you doing any shale? It’s not drilling, I guess it’s extraction. Are you in that business? Is that a promising business?
Hackett: Well we have huge amounts of shale exposure if you will, because of our old land grant with the Union Pacific Railroad. But I think it is a long-dated technology. We tried it in the 70s. We will try it again ultimately if oil stays high. I think there are other answers we should be searching for as well. But I think everything is up for consideration in an environment where we ought to be looking for more supplies and more alternative fuels. Just remembering that we’ve got a bridge we’ve got to make until we get to that ideal future of alternative energy. And recognizing that gasoline doesn’t come from wind power. Gasoline doesn’t come from solar firms. Gasoline comes from sometimes, really bad alternatives like corn-based ethanol. And we’ve got to be real careful not to prescribe political solutions, as opposed to funding research and letting science lead us to the right answers.
Kudlow: …What do you say to the peak oil crowd? You don’t sound like you believe in peak oil.
Hackett: I think that the peak oil is determined by price. And I think that it is also determined by what you allow to be alternative forms of energy. I think there are places in the world where peak oil has not occurred. I do think that oil will not be able to grow to the sky in terms of supply, forever and ever. I think it’s harder to get. It’s getting more expensive to get. I think that we need to continue to develop a broad based fuel sourcing, including nuclear energy. But prices are having some effect. It’s both impacting demand, which we all need to conserve a lot more than we do. We’ve become a very lazy country since the late 70s. Nobody talks about conservation. They’re talking about taxing the oil industry, instead of talking about turning off your air-conditioners, or driving smaller cars, which is what we really need to do. It has that immediate impact.
Kudlow: Well isn’t the high price a blessing? Doesn’t the high price cause conservation? And doesn’t the high price cause production, if it were deregulated?
Hackett: Absolutely. It’s Economics 101. We don’t have to have the government necessarily solve this for us. But it’s not to say that anybody likes [higher] prices. Because it’s not necessarily good for companies like us. It’s not good for demand. But it is having the intended effect. People are riding in buses. They’re taking mass transit. And they’re [creating a smaller] environmental footprint by virtue of doing that. We are finding new supplies in more and more remote parts of the world where you can’t do that at $30 oil.
Kudlow: Alright, I got to take a commercial break Mr. Hackett. You’re gonna stay with us. I really appreciate your time very much, sir. Our distinguished panel is going to join us to drill down – pardon the phrase – on many of these issues we’ve discussed. By the way, Mr. Hackett is chairman of the board of directors of the Dallas Federal Reserve. So we might even go in that direction too. We’re for keeping America on the right track. You heard Mr. Hackett, we have a lot of drilling, profitably, to do. We can get it done. This is America. America first. Let us stay away from Saudi Arabia. We can do it right here. Kudlow and Company straight ahead.
Monday, June 23, 2008
Will the Fed Get Tough?
The gold market has sold off $20 today, and my hunch is it has something to do with the Federal Reserve policy meeting that begins tomorrow and will conclude with a public announcement at 2:15 p.m. Wednesday. A big gold drop strongly hints at market expectations for a tough-minded Fed that will defend the dollar and move to contain rising inflation.
Nobody expects the central bank to raise its target rate this week — although frankly I wish it would. In effect, it would be taking back some of the excessive rate cuts made last winter. And I think those rate cuts have a lot to do with the high price of oil and the cheap dollar.
But the gold plunge today might be suggesting some tougher language from the FOMC policy statement on Wednesday. If, for example, the Fed language is biased against inflation, and perhaps even mentions the dollar, it would be a clear signal that rate hikes are coming sooner rather than later.
There’s been a big debate about this, with hawks versus doves arguing over how tough the Fed’s gonna be on inflation. Bernanke sounded very tough, but then Donald Kohn and others seemed to be leaking to the media that they wouldn’t be so tough. Today’s gold drop suggests that Bernanke is going to win the day and pave the way for a quarter-point rate hike either next month or in August. The futures market is pricing in several more rate hikes after that.
I continue to believe that fighting inflation and appreciating the dollar would be the best medicine for the economy, and in the short term would be strong medicine to reduce world energy prices, including gasoline at the pump. If Paul Volcker were running the Fed, speculation would be high today that the central bank would beat the market with a dramatic rate hike announced on Wednesday. Nobody today equates Bernanke with Volcker. And today’s stagflation is certainly a smaller dose than we had in the 1970s. But who knows? Maybe Gentle Ben will surprise us all with a Volckeresque action.
Nobody expects the central bank to raise its target rate this week — although frankly I wish it would. In effect, it would be taking back some of the excessive rate cuts made last winter. And I think those rate cuts have a lot to do with the high price of oil and the cheap dollar.
But the gold plunge today might be suggesting some tougher language from the FOMC policy statement on Wednesday. If, for example, the Fed language is biased against inflation, and perhaps even mentions the dollar, it would be a clear signal that rate hikes are coming sooner rather than later.
There’s been a big debate about this, with hawks versus doves arguing over how tough the Fed’s gonna be on inflation. Bernanke sounded very tough, but then Donald Kohn and others seemed to be leaking to the media that they wouldn’t be so tough. Today’s gold drop suggests that Bernanke is going to win the day and pave the way for a quarter-point rate hike either next month or in August. The futures market is pricing in several more rate hikes after that.
I continue to believe that fighting inflation and appreciating the dollar would be the best medicine for the economy, and in the short term would be strong medicine to reduce world energy prices, including gasoline at the pump. If Paul Volcker were running the Fed, speculation would be high today that the central bank would beat the market with a dramatic rate hike announced on Wednesday. Nobody today equates Bernanke with Volcker. And today’s stagflation is certainly a smaller dose than we had in the 1970s. But who knows? Maybe Gentle Ben will surprise us all with a Volckeresque action.
Monday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:OIL POLITICS, MAC'S $300 MILLION ENERGY PROPOSAL & MORE...The Dynamic Duo will be aboard once again this evening to debate the politics of oil and what steps need to be taken to alleviate high energy prices.
Joining us will be Robert Reich, former Clinton labor secretary/UCal Berkeley professor/author and Steve Moore, senior economics writer at The Wall Street Journal.
AN EYE ON THE STOCK MARKET, ECONOMY, OIL & FED...Our stock market and economic all-stars will weigh in with their perspective and debate all the latest news, trends and developments affecting investors.
On board:
*Dennis Gartman, economist and editor of the Gartman Letter
*Michael Ozanian, Forbes Magazine Senior Editor
*Shawn Tully, editor at large of Fortune magazine
*Vince Farrell, managing director, Scotsman Capital
Also...James Hackett, president & CEO of Anadarko Petroleum will be joining us with some of his insight on the energy issue.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Friday, June 20, 2008
Understanding “Speculators”
The stock market plunged 170 points this morning and oil jumped over $3, allegedly based on a New York Times story that Israel is carrying out military exercises as a rehearsal to bombing Iran. But actually, the Times story, written by the very able war correspondent Michael R. Gordon, is talking about Israeli training exercises from early June, not now. It’s a rehash story with some new details. And it does in fact confirm the market rumors of June 5 and 6 that Israel was planning an Iranian attack to stop the rogue state’s nuclear-weapons program.
Recall that oil jumped almost $15 on Thursday, June 5, and Friday, June 6, largely in response to Middle East war worries. In fact, on Friday, June 6, stocks plunged 400 points as oil jumped $11 to close at its peak price of $140 a barrel. It was this oil spike that helped trigger various Washington and presidential-campaign attacks on so-called oil “speculators.” But what the heck? Anybody with half a brain operating in the oil markets who thought there was going to be an Israeli-Iranian war would be buying spot and futures contracts — which is exactly what happened.
So far as I know, there is no new news coming out of Israel. Today’s Times story is a look backwards.
But I want to make a separate point. Oil-market traders react rationally to new information. Instead of blaming them, senators McCain and Lieberman might want to visit with some traders on some of the big Wall Street trading floors to better understand the relationship between global news and price discovery.
There’s something more here. Democrats reading from their talking points are completely opposed to Bush and McCain proposals to open up new oil drilling offshore and onshore. The Democratic argument — which I heard again last night on my show from Robert Reich — is that it will take ten years to lift new oil, which will never help today’s price problem. Obama says exactly the same thing, as do Harry Reid, Nancy Pelosi, and all the rest. But they’re forgetting the role of oil traders.
Oil futures markets have contracts that run out five years and beyond. If these traders — or “speculators” — believe new oil supplies are on the way in the future, they will sell those out-year contracts. And before long market arbitragers will backward-ize those price drops toward the spot market, bringing prices down there as well.
In other words, trader/speculators can be very handy instruments of energy (and economic) policies. If demand exceeds supply they are buyers. But a prospective future supply increase makes them sellers. In a free market prices move both ways. And if Sen. McCain would take the time to learn this he could respond accordingly to Obama’s silly criticism that we shouldn’t drill because it will “take too long.”
This is all part of the key point that McCain can turn record energy prices to his political advantage, as polls now show 65 percent, or two-thirds, of the public favors drilling. But to do this the whole GOP must understand the role of oil traders and their speculations.
Recall that oil jumped almost $15 on Thursday, June 5, and Friday, June 6, largely in response to Middle East war worries. In fact, on Friday, June 6, stocks plunged 400 points as oil jumped $11 to close at its peak price of $140 a barrel. It was this oil spike that helped trigger various Washington and presidential-campaign attacks on so-called oil “speculators.” But what the heck? Anybody with half a brain operating in the oil markets who thought there was going to be an Israeli-Iranian war would be buying spot and futures contracts — which is exactly what happened.
So far as I know, there is no new news coming out of Israel. Today’s Times story is a look backwards.
But I want to make a separate point. Oil-market traders react rationally to new information. Instead of blaming them, senators McCain and Lieberman might want to visit with some traders on some of the big Wall Street trading floors to better understand the relationship between global news and price discovery.
There’s something more here. Democrats reading from their talking points are completely opposed to Bush and McCain proposals to open up new oil drilling offshore and onshore. The Democratic argument — which I heard again last night on my show from Robert Reich — is that it will take ten years to lift new oil, which will never help today’s price problem. Obama says exactly the same thing, as do Harry Reid, Nancy Pelosi, and all the rest. But they’re forgetting the role of oil traders.
Oil futures markets have contracts that run out five years and beyond. If these traders — or “speculators” — believe new oil supplies are on the way in the future, they will sell those out-year contracts. And before long market arbitragers will backward-ize those price drops toward the spot market, bringing prices down there as well.
In other words, trader/speculators can be very handy instruments of energy (and economic) policies. If demand exceeds supply they are buyers. But a prospective future supply increase makes them sellers. In a free market prices move both ways. And if Sen. McCain would take the time to learn this he could respond accordingly to Obama’s silly criticism that we shouldn’t drill because it will “take too long.”
This is all part of the key point that McCain can turn record energy prices to his political advantage, as polls now show 65 percent, or two-thirds, of the public favors drilling. But to do this the whole GOP must understand the role of oil traders and their speculations.
Friday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE FED, STOCK MARKET & ECONOMY...Our stock market and economic all-stars will discuss and debate all the latest news, trends and developments affecting investors including today's 200-plus point market sell-off.
On board:
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Art Laffer, economist and chairman of Laffer Associates
*Jim Lacamp, portfolio manager at RBC Dain Rauscher
*Brian Wesbury, chief economist at First Trust Advisors
OIL, DEFENSE & THE MARKETS...Our panel of experts will weigh in with their perspective on some of the key economic and national security issues facing investors and the nation.
On board:
*Ken Timmerman, executive director of the Foundation for Democracy in Iran & author of "Countdown to Crisis: the Coming Nuclear Showdown with Iran."
*Stefan Abrams, Bryden-Abrams Investment Management managing partner
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Jim Lacamp, portfolio manager at RBC Dain Rauscher
OIL & ENERGY INTERVIEW...Marcel Coutu, CEO of Canadian Oil Sands Trust will be aboard to discuss his company's efforts and the role oil sands can play in the quest for greater energy independence.
DEBATE: THE HOUSING BILL...The Dynamic Duo is back. Squaring off on the controversial housing bill this evening will be former Clinton labor secretary & UCal Berkeley professor/author Robert Reich and The Wall Street Journal's Steve Moore.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Thursday, June 19, 2008
Drill, Drill, Drill: My Interview with Diamond Offshore Drilling CEO Larry Dickerson
The following is an unofficial transcript of my interview last night with Larry Dickerson. Mr. Dickerson is the CEO of Diamond Offshore Drilling.
Kudlow: Alright, more on drill, drill, drill. The question is how deep? How much? How green? Here’s Larry Dickerson, CEO of Houston based Diamond Offshore Drilling. Larry, great to see you. Just to put a quick picture up on the full screen, your stock has been off the charts in the last three or four years. I got you up 500 percent. Your profits are growing near 70 percent per year, with 30 percent annual growth in sales. Welcome to the show. Now I want to ask you. Okay, we had on CNBC one of those cute looking greenies, tree huggers were on, and they were debating somebody about this drilling business. And they say, ‘Okay, you drill offshore, outer continental shelf, you’re gonna wreck the beaches of the coastal states. You’re gonna ruin the tourist trade and destroy their economies.’ What’s your response?
Dickerson: Well Larry, there hasn’t been any significant – even insignificant that I can think of – oil spill from U.S. waters in over thirty years. We have an excellent environmental record. The amount of redundancy testing and government regulation put in place I think all but eliminate that as a possibility.
Kudlow: So they’re basically just mau-mauing the business, the drillers. They’re mau-mauing the oil companies. They’re mau-mauing the American people, right?
Dickerson: Well, I suppose there’s some logic to that. But at the end of the day, there’s the issue of supply and there’s the issue of jobs. People are paying $4 dollars a gallon for gasoline and we can recycle significant parts of that back to the economy in jobs – high paying blue-collar jobs and white collar jobs. We can recycle that through taxes. As Secretary Kempthorne said, a lot of that could go back to the states and help them with their budget problems.
Kudlow: How far offshore can you go? You’re a deep-water driller aren’t you?
Dickerson: Yeah, our deepest rigs can go 10,000 feet of water.
Kudlow: How many miles out?
Dickerson: Oh, we’ll go right out to 200. It really depends on the water depth, of how far it is. In some parts of the world it’s pretty shallow.
Kudlow: What’s out there Larry? There estimates of 86 billion barrels out there. Is that true?
Dickerson: Well, we really don’t know. All we’ve really significantly explored or really looked at with seismic is in the central and western parts of the U.S. Gulf of Mexico. I suppose that estimate is as good as any. But until we get out and work off the eastern Gulf and work up and down the Atlantic Coast and California’s been shut in for many years, I just don’t think we’ll know. But the history has been that there’s always been more than the initial estimates indicate.
Kudlow: If Congress gave you the green light tomorrow – which they won’t – but if they gave you a green light to drill offshore, how long would it take you to start lifting oil?
Dickerson: Unfortunately that is going to be some period of time. Demand is such all over the world that we’ve been taking rigs out of the U.S. Gulf. There’s probably 30 percent less rigs at work today than there was even three years ago. And the rigs that we have are booked up quite a bit in advance. So we’d have to do that. But while we were building new rigs, or relocating rigs here, our oil company customers would be doing the seismic and would be getting ready for that. So I would guess that it would be, by the time they got the studies and all that, drill bits wouldn’t be going into the ground for a couple years. And then maybe another couple years after that.
Kudlow: So four or five years?
Dickerson: Yeah probably.
Kudlow: So wouldn’t the futures traders who are much maligned, wouldn’t they pick that up right away? They see you going out there, they see you mobilizing. Wouldn’t the traders start lowering the futures prices? Those futures markets go out, heck, they go out ten years.
Dickerson: Well it certainly couldn’t hurt. But it’s going to require a number of efforts all across the board. We’re not ruling anything out. But to take this action [against drilling], which is not followed in any other part of the world, and to take it off the table, just doesn’t make any sense to me.
Kudlow: Well no other country is so dominated by greenies, and mau-maued by greenies. But let me just ask you Larry, is there a twitter, is there a buzz about the McCain statement and the Bush statement? What are your colleagues saying in the drilling business?
Dickerson: Well I think we’re encouraged. But I mean, we’ve been down this for twenty years of ups and downs. But certainly this is a significant step forward. And as far as we’re concerned, you’ve indicated what our stock price and our income have done, primarily off some limited Gulf of Mexico, but off the rest of the world. So we’re going to do okay. But we would like to see jobs remain in America. We’d like to help this country out on this issue.
Kudlow: Alright, more on drill, drill, drill. The question is how deep? How much? How green? Here’s Larry Dickerson, CEO of Houston based Diamond Offshore Drilling. Larry, great to see you. Just to put a quick picture up on the full screen, your stock has been off the charts in the last three or four years. I got you up 500 percent. Your profits are growing near 70 percent per year, with 30 percent annual growth in sales. Welcome to the show. Now I want to ask you. Okay, we had on CNBC one of those cute looking greenies, tree huggers were on, and they were debating somebody about this drilling business. And they say, ‘Okay, you drill offshore, outer continental shelf, you’re gonna wreck the beaches of the coastal states. You’re gonna ruin the tourist trade and destroy their economies.’ What’s your response?
Dickerson: Well Larry, there hasn’t been any significant – even insignificant that I can think of – oil spill from U.S. waters in over thirty years. We have an excellent environmental record. The amount of redundancy testing and government regulation put in place I think all but eliminate that as a possibility.
Kudlow: So they’re basically just mau-mauing the business, the drillers. They’re mau-mauing the oil companies. They’re mau-mauing the American people, right?
Dickerson: Well, I suppose there’s some logic to that. But at the end of the day, there’s the issue of supply and there’s the issue of jobs. People are paying $4 dollars a gallon for gasoline and we can recycle significant parts of that back to the economy in jobs – high paying blue-collar jobs and white collar jobs. We can recycle that through taxes. As Secretary Kempthorne said, a lot of that could go back to the states and help them with their budget problems.
Kudlow: How far offshore can you go? You’re a deep-water driller aren’t you?
Dickerson: Yeah, our deepest rigs can go 10,000 feet of water.
Kudlow: How many miles out?
Dickerson: Oh, we’ll go right out to 200. It really depends on the water depth, of how far it is. In some parts of the world it’s pretty shallow.
Kudlow: What’s out there Larry? There estimates of 86 billion barrels out there. Is that true?
Dickerson: Well, we really don’t know. All we’ve really significantly explored or really looked at with seismic is in the central and western parts of the U.S. Gulf of Mexico. I suppose that estimate is as good as any. But until we get out and work off the eastern Gulf and work up and down the Atlantic Coast and California’s been shut in for many years, I just don’t think we’ll know. But the history has been that there’s always been more than the initial estimates indicate.
Kudlow: If Congress gave you the green light tomorrow – which they won’t – but if they gave you a green light to drill offshore, how long would it take you to start lifting oil?
Dickerson: Unfortunately that is going to be some period of time. Demand is such all over the world that we’ve been taking rigs out of the U.S. Gulf. There’s probably 30 percent less rigs at work today than there was even three years ago. And the rigs that we have are booked up quite a bit in advance. So we’d have to do that. But while we were building new rigs, or relocating rigs here, our oil company customers would be doing the seismic and would be getting ready for that. So I would guess that it would be, by the time they got the studies and all that, drill bits wouldn’t be going into the ground for a couple years. And then maybe another couple years after that.
Kudlow: So four or five years?
Dickerson: Yeah probably.
Kudlow: So wouldn’t the futures traders who are much maligned, wouldn’t they pick that up right away? They see you going out there, they see you mobilizing. Wouldn’t the traders start lowering the futures prices? Those futures markets go out, heck, they go out ten years.
Dickerson: Well it certainly couldn’t hurt. But it’s going to require a number of efforts all across the board. We’re not ruling anything out. But to take this action [against drilling], which is not followed in any other part of the world, and to take it off the table, just doesn’t make any sense to me.
Kudlow: Well no other country is so dominated by greenies, and mau-maued by greenies. But let me just ask you Larry, is there a twitter, is there a buzz about the McCain statement and the Bush statement? What are your colleagues saying in the drilling business?
Dickerson: Well I think we’re encouraged. But I mean, we’ve been down this for twenty years of ups and downs. But certainly this is a significant step forward. And as far as we’re concerned, you’ve indicated what our stock price and our income have done, primarily off some limited Gulf of Mexico, but off the rest of the world. So we’re going to do okay. But we would like to see jobs remain in America. We’d like to help this country out on this issue.
Thursday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:MAKING SENSE OF THE MARKETS, ECONOMY, OIL & MORE...Our stock market all-stars will weigh in with their perspective on all the latest news, issues and developments affecting investors.
On board:
*Ken Langone, Home Depot co-founder
*Dan Yergin, Cambridge Energy Research Chairman
*Jack Gage, Forbes magazine associate editor
*Andy Busch, global FX strategist, BMO Capital Markets
*Mark Skousen, financial economist, author, editor of the financial advice newsletter Forecasts & Strategies
Also..CNBC ace reporter Charlie Gasparino will be aboard with all his latest insight.
NUCLEAR ENERGY...Gary Rainwater, Ameren CEO, will be joining us with a look at nuclear energy's controversial role in U.S. energy policy.
OIL POLITICS...Duking it out on all things energy will be former Clinton labor secretary and Cal Berkely professor/author Robert Reich and Forbes's Jack Gage.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Wednesday, June 18, 2008
Mac’s Oil-Drilling Flip-Flop Is a Good First Step
Warts and all, John McCain’s flip-flop on offshore drilling is a very welcome development. When circumstances change, political leaders should change their policies. And $4 at the pump and $140 in the open market is certainly enough changing circumstances to warrant McCain’s constructive shift on offshore drilling. Regrettably, McCain still talks about the “pristine” ANWR patch. But he’s just not gonna move on that.
Obama, meanwhile, is repeating the tired old Democratic response that there’s no way offshore drilling will lower prices now. But he is wrong. And McCain has an opening here if he’d only stop his silly attacks on “reckless speculators.”
The Arizona senator doesn’t know anything about speculators or investors or commodity trading or any of that stuff. The reality is, should Congress overturn its offshore-drilling moratorium, those very same speculators are gonna start selling crude-oil futures contracts and price declines will filter backwards from the longer-term contracts to the cash market. In other words, what can be bought will be sold. If drilling expectations change on the hope that future oil supplies will rise, prices will adjust lower and it will happen fast.
This is what Obama doesn’t understand. It’s also what McCain doesn’t understand. Price changes are pulled forward in response to shifting oil-supply policies. Ironically, one of McCain’s senior economic advisors, Kevin Hassett of the AEI think-tank, has just written a column on this very subject. So I don’t know who McCain is talking to, but he ought to talk to Kevin Hassett, who is a very smart guy.
Regarding the investigation of commodity futures undertaken by the CFTC, acting chairman Walter Lukken has said they have not found a smoking gun. And this whole exercise in investigating traders reminds me of the nonsensical investigations of so-called price gouging, which for decades have come to nothing.
In addition, McCain should get off this “obscene profits” song about oil-company earnings. Obscene profits are the near cousin of the windfall profits tax. Once again that puts McCain on the liberal-Democratic side of the issue. What you don’t want is to deter oil drillers and producers from going into new fields offshore and onshore if Congress lets them.
One reason for all this is economic growth and jobs. A Wharton Econometrics study (hat tip to Mark Perry at Carpe Diem) shows that total employment at full production in ANWR would come to 735,000 new jobs created across the country, not just in Alaska. So not only would offshore drilling and ANWR and other domestic sources of energy reduce prices, they would also be huge job creators to spur the economy. This is something McCain should push.
Finally, President Bush made a very strong statement today to lift the moratorium on domestic and offshore production. In his statement he emphasized the oil-shale fields in the Green River Basin of Colorado, Utah, and Wyoming. There is the equivalent of 800 billion barrels of recoverable oil in this area, more than three-times larger than the proven oil reserves of Saudi Arabia.
Now get this: Bush charged that in last year’s budget bill Democrats inserted a provision blocking oil-shale leasing on federal lands. That’s unbelievable. McCain should pick up on that point, too. That oil shale could create another million jobs, bringing oil prices back down to about $75 a barrel and pushing gas pump prices way down as well.
Onshore, offshore, oil shale. The mantra here is drill, drill, drill. Oil, jobs, and the economy may determine this year’s election. Sen. McCain has made a very good start but he has much more work to do.
Obama, meanwhile, is repeating the tired old Democratic response that there’s no way offshore drilling will lower prices now. But he is wrong. And McCain has an opening here if he’d only stop his silly attacks on “reckless speculators.”
The Arizona senator doesn’t know anything about speculators or investors or commodity trading or any of that stuff. The reality is, should Congress overturn its offshore-drilling moratorium, those very same speculators are gonna start selling crude-oil futures contracts and price declines will filter backwards from the longer-term contracts to the cash market. In other words, what can be bought will be sold. If drilling expectations change on the hope that future oil supplies will rise, prices will adjust lower and it will happen fast.
This is what Obama doesn’t understand. It’s also what McCain doesn’t understand. Price changes are pulled forward in response to shifting oil-supply policies. Ironically, one of McCain’s senior economic advisors, Kevin Hassett of the AEI think-tank, has just written a column on this very subject. So I don’t know who McCain is talking to, but he ought to talk to Kevin Hassett, who is a very smart guy.
Regarding the investigation of commodity futures undertaken by the CFTC, acting chairman Walter Lukken has said they have not found a smoking gun. And this whole exercise in investigating traders reminds me of the nonsensical investigations of so-called price gouging, which for decades have come to nothing.
In addition, McCain should get off this “obscene profits” song about oil-company earnings. Obscene profits are the near cousin of the windfall profits tax. Once again that puts McCain on the liberal-Democratic side of the issue. What you don’t want is to deter oil drillers and producers from going into new fields offshore and onshore if Congress lets them.
One reason for all this is economic growth and jobs. A Wharton Econometrics study (hat tip to Mark Perry at Carpe Diem) shows that total employment at full production in ANWR would come to 735,000 new jobs created across the country, not just in Alaska. So not only would offshore drilling and ANWR and other domestic sources of energy reduce prices, they would also be huge job creators to spur the economy. This is something McCain should push.
Finally, President Bush made a very strong statement today to lift the moratorium on domestic and offshore production. In his statement he emphasized the oil-shale fields in the Green River Basin of Colorado, Utah, and Wyoming. There is the equivalent of 800 billion barrels of recoverable oil in this area, more than three-times larger than the proven oil reserves of Saudi Arabia.
Now get this: Bush charged that in last year’s budget bill Democrats inserted a provision blocking oil-shale leasing on federal lands. That’s unbelievable. McCain should pick up on that point, too. That oil shale could create another million jobs, bringing oil prices back down to about $75 a barrel and pushing gas pump prices way down as well.
Onshore, offshore, oil shale. The mantra here is drill, drill, drill. Oil, jobs, and the economy may determine this year’s election. Sen. McCain has made a very good start but he has much more work to do.
A Real Energy Policy
Take a look at what my former boss had to say on this subject over twenty-five years ago. Now this is what I call a good-looking energy policy.“America must get to work producing more energy. The Republican program for solving economic problems is based on growth and productivity.
Large amounts of oil and natural gas lay beneath our land and off our shores, untouched, because the present administration seems to believe the American people would rather see more regulation, more taxes and more controls than more energy.
Coal offers great potential. So does nuclear energy produced under rigorous safety standards. It could supply electricity for thousands of industries and millions of jobs and homes. It must not be thwarted by a tiny minority opposed to economic growth which often finds friendly ears in regulatory agencies for its obstructionist campaigns.
Make no mistake. We will not permit the safety of our people or our environment heritage to be jeopardized, but we are going to reaffirm that the economic prosperity of our people is a fundamental part of our environment.”
-From Ronald Reagan’s Acceptance Speech at the 1980 Republican Convention, July 17 1980.
Tuesday, June 17, 2008
Tuesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:MAKING SENSE OF THE MARKETS & THE FED...Our stock market and economic all-stars will discuss and debate all the latest news and developments facing investors.
On board:
*Ken Heebner, co-founder of Capital Growth Management
*Wayne Angell, former Federal Reserve Governor
*Quentin Hardy, Forbes Silicon Valley bureau chief
*Dennis Kneale, CNBC media & technology editor
DRILL! DRILL! DRILL!...Tom Fry, president of the National Ocean Industries Association (NOIA), the only trade association representing all facets of the offshore energy exploration and production business, will join us with his thoughts and perspective.
DEBATE: MCCAIN'S ENERGY PLAN...Squaring off this evening are Dan Tarullo, economic adviser to Barack Obama and Nancy Pfotenhauer, domestic policy adviser to Senator John McCain.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Monday, June 16, 2008
The Dollar and Bernanke’s Reputation
Robert Novak’s column today argues that Wall Street speculation over Fed rate hikes “appears to be dead wrong.” Novak says Fed head Ben Bernanke is more worried about spiking oil prices causing recession than he is about inflation.
If Novak is right, the central bank is going to suffer a big credibility loss by not acting. Perhaps on word of Novak’s column, gold jumped $16 this morning to $889. The greenback itself fell.
In the May report released last week, U.S. CPI jumped six-tenths of 1 percent to 4.1 percent over the past year. It has been running around 4 percent for the past six months. Food and energy are the big drivers, with gas prices at the pump rising 21 percent annually over the past three months and food prices by 6 percent.
Oil is up $3 this morning to $138. In Europe, the May CPI came in at 3.7 percent, with ECB head Jean-Claude Trichet signaling another rate hike.
Bernanke recently said the Fed would “strongly resist” inflationary pressures. And he has talked openly about defending the dollar. President Bush and Treasury man Paulson have made similar sounds, including at this weekend’s G8 meetings.
Bond-market futures are pricing in a 100-basis-point rise in the Fed’s target rate over the next seven months. For the August meeting there is a 70 percent probability of a one-quarter-point rate hike. By this January the target rate is predicted to reach 3 percent. Currently it is 2 percent.
In the open market for Treasuries, the 2-year note is now yielding about 3 percent. Last March, it was only 1.35 percent. Many traders use the 2-year note as a proxy for the fed funds rate. The huge increase in the 2-year rate is signaling a stronger U.S. economy, somewhat higher inflation, and a series of fed rate hikes.
If market expectations are foiled by a passive Fed that fails to deliver on its promise of a stronger greenback and its much-touted pledge to hold down inflation, it is likely the dollar will tank once again and drive up oil prices to new record-high levels.
Mr. Bernanke surprised almost everyone with his tough statements on the dollar and inflation. But if Novak is right, and there is no Fed follow through, both the dollar and Bernanke’s reputation are really going to sink.
My thought? I believe the Fed should raise its target rate one-quarter of a point at its meeting next week. It would be the shot heard around the world. The greenback would surge, oil and gold would collapse, and a lot of investment liquidity would come into the U.S. economy.
Let’s see what happens.
If Novak is right, the central bank is going to suffer a big credibility loss by not acting. Perhaps on word of Novak’s column, gold jumped $16 this morning to $889. The greenback itself fell.
In the May report released last week, U.S. CPI jumped six-tenths of 1 percent to 4.1 percent over the past year. It has been running around 4 percent for the past six months. Food and energy are the big drivers, with gas prices at the pump rising 21 percent annually over the past three months and food prices by 6 percent.
Oil is up $3 this morning to $138. In Europe, the May CPI came in at 3.7 percent, with ECB head Jean-Claude Trichet signaling another rate hike.
Bernanke recently said the Fed would “strongly resist” inflationary pressures. And he has talked openly about defending the dollar. President Bush and Treasury man Paulson have made similar sounds, including at this weekend’s G8 meetings.
Bond-market futures are pricing in a 100-basis-point rise in the Fed’s target rate over the next seven months. For the August meeting there is a 70 percent probability of a one-quarter-point rate hike. By this January the target rate is predicted to reach 3 percent. Currently it is 2 percent.
In the open market for Treasuries, the 2-year note is now yielding about 3 percent. Last March, it was only 1.35 percent. Many traders use the 2-year note as a proxy for the fed funds rate. The huge increase in the 2-year rate is signaling a stronger U.S. economy, somewhat higher inflation, and a series of fed rate hikes.
If market expectations are foiled by a passive Fed that fails to deliver on its promise of a stronger greenback and its much-touted pledge to hold down inflation, it is likely the dollar will tank once again and drive up oil prices to new record-high levels.
Mr. Bernanke surprised almost everyone with his tough statements on the dollar and inflation. But if Novak is right, and there is no Fed follow through, both the dollar and Bernanke’s reputation are really going to sink.
My thought? I believe the Fed should raise its target rate one-quarter of a point at its meeting next week. It would be the shot heard around the world. The greenback would surge, oil and gold would collapse, and a lot of investment liquidity would come into the U.S. economy.
Let’s see what happens.
Monday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE STOCK MARKET, ECONOMY, OIL & MORE...Our stock market all-stars will discuss and debate all the latest news, trends and developments affecting investors.
On board:
*Don Luskin, chief investment officer, Trend Macro
*Gary Shilling, president of A. Gary Shilling & Co.
*Dr. Bob Froehlich, chief investment strategist, DWS Scudder
*Rich Karlgaard, publisher of Forbes magazine
Also...Energy expert Chris Edmonds, managing principal of FIG Partners Energy Research & Capital Group, will be aboard with his latest thoughts and ideas.
A LOOK AT THE POLLS & POLITICS OF OIL...Pollsters Scott Rasmussen from Rasmussen Reports and Frank Newport, editor-in-chief of Gallup, will join us with all the latest polls and perspective.
ROBIN HOOD RETURNS?...Squaring off on Obama's Social Security plan will be Jared Bernstein, senior economist at the Economic Policy Institute and Dan Clifton, head of policy research for Strategas Research Partners.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Friday, June 13, 2008
The Ambiguous Economics of John McCain
Who can figure out what Sen. John McCain really stands for on the economy?
In recent days the Republican standard bearer gave a really strong supply-side taxpayer-friendly speech, hitting all the right notes. Undoubtedly his best economic statement of the campaign to date. And then, yesterday, he appears to embrace King Dollar in his New York town hall meeting. Here’s the money quote: “We have to talk up the dollar, obviously, and I’m glad that Bernanke did the other day, and take certain short-term steps to try and strengthen the dollar.”
This is good. Very good. I’ve been worried that Obama, listening to Paul Volker, would get to King Dollar before McCain. But it looks like Big Mac, listening to Steve Forbes and Jack Kemp, is getting there first. So now we have McCain arguing for lower tax rates and a strong greenback, which is the ultimate supply-side Reaganesque message. Doesn’t get any better. In fact, from here, it only gets worse.
In that town hall meting yesterday, McCain also teed off on oil companies and so-called financial-market speculators. From today’s New York Sun, McCain endorsed a federal probe into speculation in the oil market: “I believe there needs to be a thorough and complete investigation of speculators to find out whether speculation has been going on and, if so, how much it has affected the price of a barrel of oil.” Well, this puts Big Mac in cahoots with Obama and the liberal Democrats who are calling for the same thing.
I don’t know if Mr. McCain realizes that in the last six months or so there has been a run on the dollar. That’s been a key driver of higher oil prices, along with various supply bottlenecks around the world. A strong dollar would cure this without having to blame “speculators” who actually enhance markets by adding liquidity. And anyway, so-called speculators are also investors — including, by the way, large state pension funds that represent tens of millions of cops, firefighters, teachers, and others. Free-market capitalism includes all investors, private and public. There are long-term investors and short-term momentum traders, and those momentum guys can turn markets on a dime. If they see a strong dollar, they’ll sell oil (and gold).
Then Mr. McCain lashes out at oil companies: “I am very angry, frankly, at the oil companies. Not only because of the obscene profits they’ve made, but at their failure to invest in alternative energy to help us eliminate our dependence on foreign oil.”
Well, Senator, my response is drill, drill, drill. Why aren’t you working to deregulate offshore drilling, ANWR drilling, and oil-shale drilling? By some estimates there are nearly two trillion barrels of oil to be lifted. And American oil companies can do it better than anyone in the world. Not only would so-called speculators take a look at this new drilling, they would start selling oil futures contracts immediately and pretty soon the spot-market price would come down.
And by the way, the drill-drill-drill strategy would create hundreds of thousands of high-paying jobs. Think of it. Plus, the oil companies are already paying a bloody fortune in record taxes to the federal Treasury. This is all free-market capitalism. Why not let it work, senator?
McCain is scoring poorly with the investor class because of his economic ambiguities. As we know, the investor class is one of the highest-turnout blocks each election, comprising two of nearly every three votes cast. It should be a natural core GOP constituency. But wait a minute, look at this: The latest numbers from the highly respected IBD/TIPP poll show McCain with a slim 44 percent to 41 percent lead over Obama in June. Last April, McCain was ahead 49 to 41 percent. He should win this investor poll by at least 15 percentage points, given the anti-investor and anti-business sentiment loudly proclaimed by Obama. However, if investors are on the fence about this election, it could spell trouble for Senator Mac.
In recent days the Republican standard bearer gave a really strong supply-side taxpayer-friendly speech, hitting all the right notes. Undoubtedly his best economic statement of the campaign to date. And then, yesterday, he appears to embrace King Dollar in his New York town hall meeting. Here’s the money quote: “We have to talk up the dollar, obviously, and I’m glad that Bernanke did the other day, and take certain short-term steps to try and strengthen the dollar.”
This is good. Very good. I’ve been worried that Obama, listening to Paul Volker, would get to King Dollar before McCain. But it looks like Big Mac, listening to Steve Forbes and Jack Kemp, is getting there first. So now we have McCain arguing for lower tax rates and a strong greenback, which is the ultimate supply-side Reaganesque message. Doesn’t get any better. In fact, from here, it only gets worse.
In that town hall meting yesterday, McCain also teed off on oil companies and so-called financial-market speculators. From today’s New York Sun, McCain endorsed a federal probe into speculation in the oil market: “I believe there needs to be a thorough and complete investigation of speculators to find out whether speculation has been going on and, if so, how much it has affected the price of a barrel of oil.” Well, this puts Big Mac in cahoots with Obama and the liberal Democrats who are calling for the same thing.
I don’t know if Mr. McCain realizes that in the last six months or so there has been a run on the dollar. That’s been a key driver of higher oil prices, along with various supply bottlenecks around the world. A strong dollar would cure this without having to blame “speculators” who actually enhance markets by adding liquidity. And anyway, so-called speculators are also investors — including, by the way, large state pension funds that represent tens of millions of cops, firefighters, teachers, and others. Free-market capitalism includes all investors, private and public. There are long-term investors and short-term momentum traders, and those momentum guys can turn markets on a dime. If they see a strong dollar, they’ll sell oil (and gold).
Then Mr. McCain lashes out at oil companies: “I am very angry, frankly, at the oil companies. Not only because of the obscene profits they’ve made, but at their failure to invest in alternative energy to help us eliminate our dependence on foreign oil.”
Well, Senator, my response is drill, drill, drill. Why aren’t you working to deregulate offshore drilling, ANWR drilling, and oil-shale drilling? By some estimates there are nearly two trillion barrels of oil to be lifted. And American oil companies can do it better than anyone in the world. Not only would so-called speculators take a look at this new drilling, they would start selling oil futures contracts immediately and pretty soon the spot-market price would come down.
And by the way, the drill-drill-drill strategy would create hundreds of thousands of high-paying jobs. Think of it. Plus, the oil companies are already paying a bloody fortune in record taxes to the federal Treasury. This is all free-market capitalism. Why not let it work, senator?
McCain is scoring poorly with the investor class because of his economic ambiguities. As we know, the investor class is one of the highest-turnout blocks each election, comprising two of nearly every three votes cast. It should be a natural core GOP constituency. But wait a minute, look at this: The latest numbers from the highly respected IBD/TIPP poll show McCain with a slim 44 percent to 41 percent lead over Obama in June. Last April, McCain was ahead 49 to 41 percent. He should win this investor poll by at least 15 percentage points, given the anti-investor and anti-business sentiment loudly proclaimed by Obama. However, if investors are on the fence about this election, it could spell trouble for Senator Mac.
Friday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE STOCK MARKET & ECONOMY...Our stock market all-stars will discuss and debate all the latest news, trends, and developments affecting investors.
On board:
* Doug Kass, president, Seabreeze Partners Management
* Steve Moore, senior economics writer, Wall Street Journal
* Vince Farrell, managing director of Scotsman Capital
* Stefan Abrams, Bryden-Abrams Investment Management managing partner
Also on board...Economists Joe LaVorgna, chief US economist at Deutsche Bank and Brian Wesbury, chief economist at First Trust Advisors - both will debate the latest economic news.
LOOKING AHEAD: THE G7 MEETING ...Bob Hormats, Goldman Sachs International vice-chairman, will join us with his thoughts on what to be on the lookout for when finance ministers and central bank chiefs from the G7 nations gather in Japan for their two-day meeting.
The market panel will participate in the discussion.
A LOOK AT THE POLLS...Pollster Scott Rasmussen from Rasmussen Reports will fill us in on the latest polling data.
MONEY POLITICS...Our Washington to Wall Street panel of experts will duke it out over all the latest money politics election issues including what to make of Sen. McCain's economic positions.
*"Jimmy P"Pethokoukis, senior writer, U.S. News & World Report
*Steve Moore, senior economics writer, Wall Street Journal
*Lawrence O'Donnell, political commentator, former West Wing writer/producer
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Thursday, June 12, 2008
Inflation Is Real. Bernanke’s Right. Kohn’s All Wet.
Driven up by the cheap dollar, U.S. import prices surged nearly 18 percent above year-ago levels, according to a new report out today. Even removing all energy-related fuels, the surge is still 6 percent. As recently as late 2006, total import inflation was zero. And the core rate was one-half of 1 percent in early 2006. So inflation is getting worse and we may see these price hikes filter into tomorrow’s consumer price report.
So let’s give a couple of cheers to Fed head Ben Bernanke, who has belatedly woken up to the inflationary perils of the cheap dollar. Recently Bernanke pledged to “strongly resist” any decline in public confidence over stable prices. Essentially he has put a floor underneath the dollar. He may even take back the last quarter-point rate cut in July, raising the Fed’s target rate to 2.25 percent. And today’s strong retail sales report, with upward revisions to April and March, confirm Bernanke’s view that the economy is likely getting better, not worse.
Now here’s the rub. Incredibly, Bernanke’s number two, Donald Kohn, gave a speech in Boston contradicting the Fed chairman. Relying on a Phillips-curve tradeoff between inflation and unemployment used by liberal economists who disagree with Milton Friedman’s principle that inflation is a monetary phenomenon, Kohn tells a Boston audience that “appropriate monetary policy following a jump in the price of oil will allow, on a temporary basis, both some increase in unemployment and some increase in price inflation.” And then he goes on to say that too much attention to inflation will cause unemployment to go too high.
In other words, right out of the Jimmy Carter 1970’s stagflationary playbook, a little more inflation is always okay if it creates a little less unemployment.
This flawed thinking decimated the 1970’s economy and drove both inflation and unemployment sky high. Kohn not only undercut his own boss Bernanke, he also undermined efforts by President Bush and Treasury man Henry Paulson to restore confidence in the U.S. greenback at the G8 meeting about to begin.
Although Kohn was originally appointed to the Fed by President George W. Bush, one has to wonder if Kohn isn’t thinking about an Obama presidency, and perhaps even damaging today’s economy to make Republicans look worse and Obama’s pessimistic economic view look better.
So let’s give a couple of cheers to Fed head Ben Bernanke, who has belatedly woken up to the inflationary perils of the cheap dollar. Recently Bernanke pledged to “strongly resist” any decline in public confidence over stable prices. Essentially he has put a floor underneath the dollar. He may even take back the last quarter-point rate cut in July, raising the Fed’s target rate to 2.25 percent. And today’s strong retail sales report, with upward revisions to April and March, confirm Bernanke’s view that the economy is likely getting better, not worse.
Now here’s the rub. Incredibly, Bernanke’s number two, Donald Kohn, gave a speech in Boston contradicting the Fed chairman. Relying on a Phillips-curve tradeoff between inflation and unemployment used by liberal economists who disagree with Milton Friedman’s principle that inflation is a monetary phenomenon, Kohn tells a Boston audience that “appropriate monetary policy following a jump in the price of oil will allow, on a temporary basis, both some increase in unemployment and some increase in price inflation.” And then he goes on to say that too much attention to inflation will cause unemployment to go too high.
In other words, right out of the Jimmy Carter 1970’s stagflationary playbook, a little more inflation is always okay if it creates a little less unemployment.
This flawed thinking decimated the 1970’s economy and drove both inflation and unemployment sky high. Kohn not only undercut his own boss Bernanke, he also undermined efforts by President Bush and Treasury man Henry Paulson to restore confidence in the U.S. greenback at the G8 meeting about to begin.
Although Kohn was originally appointed to the Fed by President George W. Bush, one has to wonder if Kohn isn’t thinking about an Obama presidency, and perhaps even damaging today’s economy to make Republicans look worse and Obama’s pessimistic economic view look better.
Thursday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKETS & ECONOMY...Our stock market and economic all-stars will discuss and debate all the latest news, trends, and developments affecting investors.
On board:
*Art Laffer, economist and chairman of Laffer Associates
*Gary Shilling, president of A. Gary Shilling & Co.
*Andy Busch, global FX strategist, BMO Capital Markets
*Jared Bernstein, senior economist, Economic Policy Institute
*Jerry Bowyer, chief economist, BenchMark Financial Network
Also...New York Times M&A reporter Andrew Ross Sorkin will be aboard to dicuss all the latest news regarding Lehman and Yahoo/Microsoft.
WHY NOT COAL?...Arch Coal chairman and CEO Steven Leer will join us with his thoughts and perspective on this critically important and controversial national resource.
OIL DEBATE: WHY AREN'T WE DRILLING HERE AT HOME?...Joining us from Washington to debate this controversial political and economic topic are Sen. Bernard Sanders (I-VT) and Sen. John Barrasso (R-WY).
OBAMA'S ECONOMIC ADVISOR RUFFLES UNION FEATHERS...We'll discuss how Obama's appointment yesterday of Jason Furman as his top economic aide is agitating labor union leaders. On to discuss are economists Jared Bernstein and Jerry Bowyer.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Plosser is Right on the Money
Is there a July Fed action coming to take back a one-quarter rate cut? I think so. That would put up the target to 2.25%. It would be a shot heard round the world, strengthening the dollar and attracting new liquidity and capital flows into the US economy. Bullish for containing inflation, keeping down the unindexed capital gains tax and helping stocks and the economy to recover. Plosser is right on the money.
And then: Drill, drill, drill.
From CNBC.com:
Fed's Plosser: Rates Will Have to Rise to Curb Inflation
The Federal Reserve's leading inflation hawk told CNBC that interest rates will have to rise soon in order to keep a lid on rising prices."We need to take steps to ensure that inflation does not get out of control," Philadelphia Fed President Charles Plosser said in a live interview. "It is certainly clear that rates will have to rise. The question is when."
Plosser comments are the latest in a series of speeches by Fed officials about the dangers of inflation, though the messages have been somewhat mixed.
On Wednesday, Fed Vice Chairman Donald Kohn hinted that the central bank is inclined to leave rates steady despite rising inflation worries among US consumers.
Kohn said that when the economy is hit with an oil price shock as it has been this year, the "appropriate" Fed policy will permit -- temporarily -- both higher inflation and higher unemployment.
And on Monday, Fed Chairman Ben Bernanke said the centeral bank would work to restrain consumer expectations of higher prices, hinting that the Fed may be inclined to boost rates if inflation worsens.
The Fed is hoping tough talk on inflation will do the job of moderating recent price increases, giving it room to avoid raising interest rates as the economy remains fragile.
Plosser, however, stressed that the Fed may need to act soon against inflation.
"We can't control the price of oil directly, but we can control the underlying inflation pressures for the economy," he said.
Plosser also said he and his central bank colleagues must work to lessen the effects of the crisis in the financial system as well as inflation.
"I think they're both real threats, and I think we have to manage both of them," he said.
Plosser said the Fed has taken aggressive steps to counter both problems, but he urged continued vigilance, saying the base of inflation is broadening, and the Fed is in a unique position to act.
Plosser feels the Fed mishandled inflation in the 1970s by acting too late, allowing a relative price shock in oil to translate into higher inflation.
Plosser endorsed Fed efforts to tackle the credit crunch -- such as opening the discount window -- with some reservations.
"I think the Fed has been very creative and aggressive in trying to contain the crisis in the financial markets and the turmoil, and we've done some very interesting, innovative things," he said. "Those decisions and choices we've made have cost some benefits. They contain some risk and challenges."
He also expressed reservations about government efforts to stimulate the economy through tax-rebate checks.
"I am not counting on that having substantial impact on the economy going forward," he said.
Wednesday, June 11, 2008
McCain Is Exactly Wrong on Energy
Sen. John McCain delivered a nearly pluperfect supply-side tax-cut plan yesterday, one that is worthy of conservative support, and frankly a real eye-opener showing just how good he can be. I wrote about it in my latest column.
But then he goes on NBC’s Today Show this morning and gets the whole energy story wrong. Oh my gosh.
When asked about gas prices at the pump, and whether they could go any lower, Sen. McCain said he didn’t think so because “You’ve got a finite supply, basically, and a cartel controlling it.”
This is exactly wrong. There is no finite supply, or if there is we are 100 years away from it. I don’t know who has put this thought into the senator’s mind, but it is a bad thought in terms of energy and a bad thought in terms of the politics of this campaign.
Look, we have the Bakken fields, the outer continental shelf and all the offshore drilling opportunities, ANWR, and so forth. There’s probably over a trillion barrels worth of reserves out there. And Republicans in the Senate are trying to move a deregulated drilling bill through the process. McCain should be backing this and talking about it.
Democrats are out there pushing cap-and-trade, which would jack up gasoline and oil energy prices, damage the economy, and create a massive central-planning exercise. The Democratic Congress has done nothing to alleviate the oil shortage. They’re captured by the greenies. They should be blamed.
This is a real turnaround issue for the Republicans and Mr. McCain. But McCain’s not going there.
Incidentally, in the Today Show interview, the senator takes a whack at oil-company profits, suggesting they should return some of these profits to consumers. And he would consider voting for a windfall profits tax. And then he used the phrase “obscene profits.” Make that two oh my goshes.
But then he goes on NBC’s Today Show this morning and gets the whole energy story wrong. Oh my gosh.
When asked about gas prices at the pump, and whether they could go any lower, Sen. McCain said he didn’t think so because “You’ve got a finite supply, basically, and a cartel controlling it.”
This is exactly wrong. There is no finite supply, or if there is we are 100 years away from it. I don’t know who has put this thought into the senator’s mind, but it is a bad thought in terms of energy and a bad thought in terms of the politics of this campaign.
Look, we have the Bakken fields, the outer continental shelf and all the offshore drilling opportunities, ANWR, and so forth. There’s probably over a trillion barrels worth of reserves out there. And Republicans in the Senate are trying to move a deregulated drilling bill through the process. McCain should be backing this and talking about it.
Democrats are out there pushing cap-and-trade, which would jack up gasoline and oil energy prices, damage the economy, and create a massive central-planning exercise. The Democratic Congress has done nothing to alleviate the oil shortage. They’re captured by the greenies. They should be blamed.
This is a real turnaround issue for the Republicans and Mr. McCain. But McCain’s not going there.
Incidentally, in the Today Show interview, the senator takes a whack at oil-company profits, suggesting they should return some of these profits to consumers. And he would consider voting for a windfall profits tax. And then he used the phrase “obscene profits.” Make that two oh my goshes.
Big Mac: The Taxpayer-Friendly Candidate
McCain has called himself a foot soldier in the Reagan revolution. His tax speech clinches it.
Sen. John McCain moved decisively to the supply-side Tuesday in a strong speech to the National Small Business Summit in Washington, D.C. For investors, small-business owner-operators, and the vast majority of middle-class Americans who go to work every day and are concerned about Sen. McCain’s tax vision, this speech is good news. Big Mac is the taxpayer-friendly candidate.
The Republican candidate for president embraced low-tax-rate incentives to grow the economy, promising a combination of pro-growth tax reform and simplification along with significant spending restraint. He has called himself a foot soldier in the Reagan revolution. This tax speech clinches it.
McCain pledged to keep taxes low for families and employers, putting himself squarely in Ronald Reagan’s camp and offering to extend the long prosperity wave started by the Gipper over twenty-five years ago. In contrast, McCain charged Obama — who gave his economic speech on Monday — with proposing the single-biggest tax hike in the entire post-WWII period.
McCain asserted that “no matter which of us wins in November, there will be change in Washington. The question is what kind of change?” Obama says a McCain victory will hand Bush a third term. McCain says an Obama victory gives Jimmy Carter a second term.
I think McCain gets it right.
Getting down to specifics, McCain said he will maintain the low income and investment tax rates put in place by President Bush. He singled out the need to keep the capital-gains tax rate at a low 15 percent, so that businesses will have the investment necessary to expand jobs, productivity, and real wages.
Completely unlike Obama, McCain is saying you can’t have capitalism without capital. And he recognizes that investors must have high after-tax returns in order to take risks and fuel entrepreneurial activity. On this point, think high-risk energy technologies for clean coal, natural gas, oil shale, and nuclear and cellulosic power.
McCain repeated his plan to reduce the corporate tax rate to 25 percent from 35 percent. This could be his single-most-important tax reform. Not only will it enhance America’s global competitiveness, since we have the second highest corporate tax among large countries. But a number of studies show that roughly 70 percent of the benefits from a lower corporate tax will flow to the workforce in the form of higher real wages and more jobs.
McCain also pledged to keep the estate tax low to reward family businesses. Overall, he would seek a flatter and simpler tax system, probably modeled on Rep. Paul Ryan’s idea of two rates of 25 and 15 percent. McCain also discussed several middle-class tax cuts, such as doubling the child tax exemption and phasing out the alternative minimum tax. For businesses, McCain added a first-year cash-expensing provision for the write-off of new equipment and technology.
McCain coupled all this with a pledge to veto earmarks and pork-barrel spending. He held out as an example the outrageous $300 billion farm bill that drew Obama’s vote. McCain would go after corporate welfare and freeze discretionary spending outside of the military. And he made an especially strong case for the free-trade policies that have been so important to U.S. economic growth.
The McCain-Obama contrast couldn’t be more stark. Obama wants to use the tax system to redistribute income and wealth, not to grow the economy. He constantly talks about rewarding work over wealth. This is pure class warfare.
Obama doesn’t seem to understand that our nation was founded on the principle of equality of opportunity, and that private enterprise, not government, is the main economic driver. Obama intensely dislikes businesses. He would repeal all the Bush tax cuts and raise the corporate tax.
Obama talks about the need for bottom-up economic growth. But this is a canard. He’s pure top-down when it comes to big-spending government programs.
Obama singled out the ownership society, calling it a “worn dogma.” In fact he misjudges modern America, which is dominated today by 100 million investors, 25 million small-business owners, nearly 70 million homeowners, and roughly 140 million people who go to work everyday in the corporate world.
Obama opposes free trade. And though he has tried to hedge his bet on this point, it will never sell in this YouTube election.
Earlier in the campaign, Obama became the candidate of 1970’s scarcity and limits when he asserted that “we can’t drive our SUVs and eat as much as we want and keep our homes on, you know, 72 degrees Fahrenheit at all times, and then just expect that every other country is going to say okay.”
Ironically, it’s Sen. McCain who is saying “Yes we can.” We can grow. We can prosper. We can be confident about the future. He’s saying that with the right economic policies, America’s outlook will know no bounds.
Sen. John McCain moved decisively to the supply-side Tuesday in a strong speech to the National Small Business Summit in Washington, D.C. For investors, small-business owner-operators, and the vast majority of middle-class Americans who go to work every day and are concerned about Sen. McCain’s tax vision, this speech is good news. Big Mac is the taxpayer-friendly candidate.
The Republican candidate for president embraced low-tax-rate incentives to grow the economy, promising a combination of pro-growth tax reform and simplification along with significant spending restraint. He has called himself a foot soldier in the Reagan revolution. This tax speech clinches it.
McCain pledged to keep taxes low for families and employers, putting himself squarely in Ronald Reagan’s camp and offering to extend the long prosperity wave started by the Gipper over twenty-five years ago. In contrast, McCain charged Obama — who gave his economic speech on Monday — with proposing the single-biggest tax hike in the entire post-WWII period.
McCain asserted that “no matter which of us wins in November, there will be change in Washington. The question is what kind of change?” Obama says a McCain victory will hand Bush a third term. McCain says an Obama victory gives Jimmy Carter a second term.
I think McCain gets it right.
Getting down to specifics, McCain said he will maintain the low income and investment tax rates put in place by President Bush. He singled out the need to keep the capital-gains tax rate at a low 15 percent, so that businesses will have the investment necessary to expand jobs, productivity, and real wages.
Completely unlike Obama, McCain is saying you can’t have capitalism without capital. And he recognizes that investors must have high after-tax returns in order to take risks and fuel entrepreneurial activity. On this point, think high-risk energy technologies for clean coal, natural gas, oil shale, and nuclear and cellulosic power.
McCain repeated his plan to reduce the corporate tax rate to 25 percent from 35 percent. This could be his single-most-important tax reform. Not only will it enhance America’s global competitiveness, since we have the second highest corporate tax among large countries. But a number of studies show that roughly 70 percent of the benefits from a lower corporate tax will flow to the workforce in the form of higher real wages and more jobs.
McCain also pledged to keep the estate tax low to reward family businesses. Overall, he would seek a flatter and simpler tax system, probably modeled on Rep. Paul Ryan’s idea of two rates of 25 and 15 percent. McCain also discussed several middle-class tax cuts, such as doubling the child tax exemption and phasing out the alternative minimum tax. For businesses, McCain added a first-year cash-expensing provision for the write-off of new equipment and technology.
McCain coupled all this with a pledge to veto earmarks and pork-barrel spending. He held out as an example the outrageous $300 billion farm bill that drew Obama’s vote. McCain would go after corporate welfare and freeze discretionary spending outside of the military. And he made an especially strong case for the free-trade policies that have been so important to U.S. economic growth.
The McCain-Obama contrast couldn’t be more stark. Obama wants to use the tax system to redistribute income and wealth, not to grow the economy. He constantly talks about rewarding work over wealth. This is pure class warfare.
Obama doesn’t seem to understand that our nation was founded on the principle of equality of opportunity, and that private enterprise, not government, is the main economic driver. Obama intensely dislikes businesses. He would repeal all the Bush tax cuts and raise the corporate tax.
Obama talks about the need for bottom-up economic growth. But this is a canard. He’s pure top-down when it comes to big-spending government programs.
Obama singled out the ownership society, calling it a “worn dogma.” In fact he misjudges modern America, which is dominated today by 100 million investors, 25 million small-business owners, nearly 70 million homeowners, and roughly 140 million people who go to work everyday in the corporate world.
Obama opposes free trade. And though he has tried to hedge his bet on this point, it will never sell in this YouTube election.
Earlier in the campaign, Obama became the candidate of 1970’s scarcity and limits when he asserted that “we can’t drive our SUVs and eat as much as we want and keep our homes on, you know, 72 degrees Fahrenheit at all times, and then just expect that every other country is going to say okay.”
Ironically, it’s Sen. McCain who is saying “Yes we can.” We can grow. We can prosper. We can be confident about the future. He’s saying that with the right economic policies, America’s outlook will know no bounds.
Tuesday, June 10, 2008
Tuesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE STOCK MARKET & ECONOMY...Our stock market and economic all-stars will discuss and debate all the latest news, trends, and developments affecting investors.
On board:
*Jerry Bowyer, chief economist, Benchmark Financial
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Jack Gage, Forbes magazine associate editor
*Vince Farrell, managing director, Scotsman Capital
OIL & FOOD PRICES...Our market experts will offer their thoughts and perspective on energy and commodity prices.
On board:
*Shawn Tully, editor at large of Fortune magazine
*Kevin Kerr, president of Kerrtrade.com & editor of MarketWatch's Global Resources
The market panel will also join in the food & energy discussion.
YOUR MONEY, YOUR VOTE...We'll take a look at all the latest McCain/Obama election matchup news and developments with CNBC aces Maria Bartiromo and John Harwood who will be hosting tonight's CNBC election special at 8pm.
THE ECONOMY: MCCAIN VS. OBAMA...Dan Tarullo, economic adviser to Barack Obama will square off against McCain chief economic advisor Douglas Holtz-Eakin on all the key economic issues.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Monday, June 09, 2008
Voters Say 'Drill'
Neither candidate gets it.
The recent spike in oil prices and unemployment is dramatically changing this presidential campaign -- virtually overnight. The near $20 jump in oil to $140 a barrel, the unexpected half-point increase in the jobless rate to 5.5 percent (the biggest monthly increase in twenty years), and the resulting 400-point plunge in stocks has created a new campaign issue right before our eyes.
Public worry number one is now oil, jobs, and the economy, with the inflationary woes of the U.S. dollar right underneath. The candidate who can connect with these issues will win in November. But so far neither Obama nor McCain are dealing with the new political reality.
In fact, it’s all about oil right now. The price has doubled over the past year while the economy has slumped.
But here’s an eye opener. Recent polling data from Gallup show the percentage of voters blaming oil companies for skyrocketing gasoline prices has dropped from 34 percent to 20 percent over the past year. At the same time, support for more drilling in U.S. coastal and wilderness areas has increased to 57 percent from 41 percent.
And the candidates remain blind to these shifts.
Obama continues to lambaste oil companies while congressional Democrats push for cap-and-trade. They’re missing the point, big time. The public wants more energy and more fuel to cut high prices and spur economic growth. But the costly cap-and-trade plan would produce less fuel and less growth. It would only raise gas pump prices while mounting a Gosplan-type taxing, spending, and regulating program that would be the moral equivalent of Hillarycare on nationalized medicine.
Sen. McCain has an opening here. Yet he, like Obama, would have voted for cap-and-trade, which went down to defeat in last week’s Senate vote. And while Mr. McCain favors some off-shore production and has been strong on nuclear development, he is against drilling in ANWR Alaska.
Then there’s the oil nobody is talking about. The Bakken fields beneath North Dakota, Montana, and Canada hold an estimated 400 billion barrels of oil. In comparison, Saudi Arabia’s biggest field, Gahawar, has an estimated 55 billion barrels, while ANWR has an estimated 10.4 billion barrels.
Hat tip to Mark Perry at the Carpe Diem blog site for these figures. Perry also is reporting a Bureau of Land Management study showing 279 million acres under federal management where oil and gas could potentially be extracted. But more than half of this is totally off limits. Off-shore, where another 86 billion barrels lie in wait, is also restricted. Then there’s liquefied natural gas, oil shale, and the various coal-to-liquid carbon-capture and sequestration technologies that would be priced out of the market by cap-and-trade.
The U.S. is the Saudi Arabia of coal, but we can’t produce. We’re still the world’s third-largest oil producer, but we could be the Saudi Arabia of oil if our companies were free to drill. Oil CEOs like Rex Tillerson of ExxonMobil and David O’Reilly of Chevron keep saying this. But politicians aren’t heeding their message.
Israeli saber-rattling against Iran could have accounted for some of last week’s huge oil spike. And the unemployment story may not be as bad as the May jobs report suggests. An unexpected inflow of teenagers probably bloated the jobless figure by a couple tenths of 1 percent. And economist Jerry Bowyer points out that an unprecedented hike in the minimum wage may be derailing students looking for summer work. However, in a sign of future job improvement, the civilian labor force grew by nearly 600,000, meaning that more people looking for work could signal recovery. Weekly jobless claims are near 350,000, not the 500,000 of past recessions. Overall, at 5.5 percent, unemployment continues to be historically low.
But the economy is still in a slump, not a boom. And the fact remains that Americans are very worried about the economic outlook. This could be a recession election. And right now voter economic anxieties are all about oil, even more than the sub-prime housing credit problem.
Sen. McCain has a great pro-growth plan to slash corporate tax rates, a move that would be a strong tonic for jobs and wages. But he must bolster that plan with a new emphasis on deregulated energy markets that can produce a total portfolio of conventional and non-conventional energy, including major new drilling. He should couple that with a strong-dollar message to curb both energy and non-energy inflation, which is shrinking consumer paychecks and damaging corporate profits.
More oil, more jobs, better wages, and low inflation. That’s a winning GOP message this fall. But what if Sen. Obama gets there first? It’s unlikely, but not out of the question. Either way, voters will move to the candidate who connects with their worries. Right now those worries are up for grabs.
The recent spike in oil prices and unemployment is dramatically changing this presidential campaign -- virtually overnight. The near $20 jump in oil to $140 a barrel, the unexpected half-point increase in the jobless rate to 5.5 percent (the biggest monthly increase in twenty years), and the resulting 400-point plunge in stocks has created a new campaign issue right before our eyes.
Public worry number one is now oil, jobs, and the economy, with the inflationary woes of the U.S. dollar right underneath. The candidate who can connect with these issues will win in November. But so far neither Obama nor McCain are dealing with the new political reality.
In fact, it’s all about oil right now. The price has doubled over the past year while the economy has slumped.
But here’s an eye opener. Recent polling data from Gallup show the percentage of voters blaming oil companies for skyrocketing gasoline prices has dropped from 34 percent to 20 percent over the past year. At the same time, support for more drilling in U.S. coastal and wilderness areas has increased to 57 percent from 41 percent.
And the candidates remain blind to these shifts.
Obama continues to lambaste oil companies while congressional Democrats push for cap-and-trade. They’re missing the point, big time. The public wants more energy and more fuel to cut high prices and spur economic growth. But the costly cap-and-trade plan would produce less fuel and less growth. It would only raise gas pump prices while mounting a Gosplan-type taxing, spending, and regulating program that would be the moral equivalent of Hillarycare on nationalized medicine.
Sen. McCain has an opening here. Yet he, like Obama, would have voted for cap-and-trade, which went down to defeat in last week’s Senate vote. And while Mr. McCain favors some off-shore production and has been strong on nuclear development, he is against drilling in ANWR Alaska.
Then there’s the oil nobody is talking about. The Bakken fields beneath North Dakota, Montana, and Canada hold an estimated 400 billion barrels of oil. In comparison, Saudi Arabia’s biggest field, Gahawar, has an estimated 55 billion barrels, while ANWR has an estimated 10.4 billion barrels.
Hat tip to Mark Perry at the Carpe Diem blog site for these figures. Perry also is reporting a Bureau of Land Management study showing 279 million acres under federal management where oil and gas could potentially be extracted. But more than half of this is totally off limits. Off-shore, where another 86 billion barrels lie in wait, is also restricted. Then there’s liquefied natural gas, oil shale, and the various coal-to-liquid carbon-capture and sequestration technologies that would be priced out of the market by cap-and-trade.
The U.S. is the Saudi Arabia of coal, but we can’t produce. We’re still the world’s third-largest oil producer, but we could be the Saudi Arabia of oil if our companies were free to drill. Oil CEOs like Rex Tillerson of ExxonMobil and David O’Reilly of Chevron keep saying this. But politicians aren’t heeding their message.
Israeli saber-rattling against Iran could have accounted for some of last week’s huge oil spike. And the unemployment story may not be as bad as the May jobs report suggests. An unexpected inflow of teenagers probably bloated the jobless figure by a couple tenths of 1 percent. And economist Jerry Bowyer points out that an unprecedented hike in the minimum wage may be derailing students looking for summer work. However, in a sign of future job improvement, the civilian labor force grew by nearly 600,000, meaning that more people looking for work could signal recovery. Weekly jobless claims are near 350,000, not the 500,000 of past recessions. Overall, at 5.5 percent, unemployment continues to be historically low.
But the economy is still in a slump, not a boom. And the fact remains that Americans are very worried about the economic outlook. This could be a recession election. And right now voter economic anxieties are all about oil, even more than the sub-prime housing credit problem.
Sen. McCain has a great pro-growth plan to slash corporate tax rates, a move that would be a strong tonic for jobs and wages. But he must bolster that plan with a new emphasis on deregulated energy markets that can produce a total portfolio of conventional and non-conventional energy, including major new drilling. He should couple that with a strong-dollar message to curb both energy and non-energy inflation, which is shrinking consumer paychecks and damaging corporate profits.
More oil, more jobs, better wages, and low inflation. That’s a winning GOP message this fall. But what if Sen. Obama gets there first? It’s unlikely, but not out of the question. Either way, voters will move to the candidate who connects with their worries. Right now those worries are up for grabs.
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