Tonight on The Kudlow Report

On tonight's program:

MARKET DRILLDOWN
CNBC’s Sharon Epperson reports.

BYE BYE “BAD BANK” PROPOSAL?
CNBC ace Charlie Gasparino reports the latest developments.

A LOOK AHEAD AT THE TARP & STIMULUS PLAN

On board:

*Art Laffer, economist, chairman of Laffer Associates
*Charlie Gasparino, CNBC on-air editor
*Morris Reid, political strategist with Westin Rinehart
*Will Straw, associate director at the Center for American Progress

BULL VS. BEAR
*Dawn Bennett, CEO of Bennett Group Financial Services
*Debra Brede, president of D.K. Brede Investment Management

WASHINGTON TO WALL STREET REPORT
Obama & Biden…A Middle Class Task Force?…Wall Street Attack
CNBC chief Washington correspondent John Harwood reports.

CLASS WARFARE DEBATE
Wall Street versus Main Street
Squaring off will be Jimmy Pethokoukis, money and politics blogger for U.S. News & World Report and political columnist Harold Meyerson.

SUPER BOWL XLIII & THE RECESSION
CNBC’s Darren Rovell will report live from Tampa.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Shelve the Stimulus

A $3 trillion government overdose must be stopped.

Wednesday night’s House tally on the Democratic stimulus package, where not a single Republican voted in favor, was another shot across the bow for this incredibly unmanageable $900 billion behemoth of a program that truly will not stimulate the economy. Sure, the Democrats won on a party-line count. But Team Obama is now regrouping in the face of mounting criticism of this package.

GOP economist Martin Feldstein revoked his prior support of a stimulus plan in Wednesday’s Washington Post. "In its current form," Feldstein wrote, "[the plan] does too little to raise national spending and employment. It would be better for the Senate to delay legislation for a month, or even two, if that’s what it takes to produce a much better bill. We cannot afford an $800 billion mistake."

Clinton economic adviser Alice Rivlin made the same point in testimony before the House Budget Committee. Her message: Divide up the package and slow down the process.

And Sen. Richard Shelby told CNBC that Washington should "shelve the stimulus package" and instead attack the banking and credit problem first -- probably with a government-sponsored bad bank that would relieve financial institutions from their toxic-asset problem. Mr. Shelby believes the credit crunch remains the biggest obstacle to economic recovery.

Later in the day when I interviewed Senate Republican leader Mitch McConnell, he agreed with Shelby that the stimulus plan should be shelved. For the first time -- as far as I know -- McConnell pledged to vote no on the package. Instead he wants larger tax cuts and smaller spending. McConnell might be willing to change his mind if the package changes, but he told me he didn’t expect that to happen.

And in what may prove to be the biggest stimulus-package hurdle of all, news reports suggest that Team Obama is contemplating as much as $2 trillion in TARP additions to rescue the banking system in one form or another. That would be $2 trillion on top of the nearly $1 trillion stimulus package.

Government spending, deficits, and debt creation of this magnitude is simply unheard of. So the added TARP money will surely imperil the entire stimulus package as taxpayers around the country begin to digest the enormity of these proposed government actions. Financing of this type would not only destroy the U.S. fiscal position for years to come, it could destroy the dollar in the process. What’s more, the likelihood of massive tax increases -- which at some point will become front and center in this gargantuan funding operation -- would doom the economy for decades.

By the way, Scott Rasmussen’s latest poll shows that already -- before the new TARP money is included -- public support for the humongous stimulus package has dropped to 42 percent.

It remains to be seen whether Republicans can in fact stop the stimulus package, but that certainly would be a very good idea. The long-run financial consequences will certainly force higher future tax rates -- a prosperity killer feared by Arthur Laffer. And while all the social spending gets baked into the long-run budget baseline, the short-run implications of the plan have little economic-growth potential.

Meanwhile, there’s no shortage of alternative tax proposals that would truly re-ignite the economy. Former Ronald Reagan and George W. Bush economist Larry Lindsey criticized the Democrat package in Wednesday morning’s Wall Street Journal, describing it as "heavily weighted toward direct government spending, transfers to state and local governments, and tax changes that have virtually no effect on marginal tax rates." Instead, Lindsey proposes a big payroll tax cut that would slice three points off the rate for both employer and employee.

Rush Limbaugh also made an appearance in the Journal. He has a clever idea to give Obama 54 percent of the $900 billion package -- equating that amount to the new president’s electoral majority -- while 46 percent, which was John McCain’s electoral tally, would go to a plan that would halve the U.S. corporate tax rate and provide a capital-gains tax holiday for one year, after which the investment tax would drop to 10 percent.

It was Sen. John McCain on Fox News last Sunday who started the stimulus revolt when he said he couldn’t support the package and called for less spending along with a large corporate tax cut. Over in the House, Republican leaders John Boehner and Eric Cantor have successfully launched an opposition drumbeat by attacking congressional Democrats rather than directly hitting President Obama. Now all eyes will turn to Republican Senate leader Mitch McConnell to see if he can keep up this drumbeat.

Will commonsense Americans really support a massive overdose of government run amok? I seriously doubt it. This whole story has to be completely rethought.

Tonight on The Kudlow Report

On tonight's program:

MARKET DRILLDOWN
CNBC’s Melissa Lee reports.

MARKET DEBATE
A Bull, a Nibbler & a Toe Dipper

*Jack Gage, Forbes magazine associate editor
*Jim LaCamp, RBC Dain Rauscher Sr. VP, Portfolio Manager & Financial Advisor
*Stefan Abrams, Bryden-Abrams Investment Management Managing Partner

STATUS OF THE STIMULUS
Senate Minority Leader Mitch McConnell (R-KY) will fill us in on the status of the stimulus package in the Senate, and whether the GOP will offer an economic choice, not an echo.

BIDEN & OBAMA/SENATE STIMULUS
CNBC chief Washington correspondent John Harwood reports.

NEW HOME SALES
CNBC Diana Olick reports.

HOW ABOUT A "REAL" STIMULUS PLAN?
FedEx CEO Fred Smith will join us from Memphis with his perspective.

RUSH LIMBAUGH'S BIPARTISAN STIMULUS PLAN IDEA
Squaring off this evening will be Keith Boykin, editor of The Daily Voice and Jerry Bowyer, chief economist at Benchmark Financial Network.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tonight's Special Guests

Senate Minority Leader Mitch McConnell (R-KY) will join me for an exclusive interview. He’ll fill us in on the status of the stimulus package in the Senate, and whether the GOP will offer an economic choice, not an echo.

FedEx CEO Fred Smith will also be aboard. We’ll talk real stimulus. He’ll weigh in on business tax reform, the economy and more.

Please join us. The Kudlow Report. CNBC. 7pm ET.

Tonight on The Kudlow Report

On tonight's program:

TODAY'S MARKET ACTION
CNBC’s Rebecca Jarvis reports.

STATUS OF THE STIMULUS/OBAMA & THE CEOs
CNBC chief Washington correspondent John Harwood reports from Washington.

STIMULUS REACTION
*Rep. Jeb Hensarling (R-TX)
*Rep. Bill Pascrel (D-NJ)

THE FED, TARP & THE “BAD BANK” PLAN
CNBC senior economics reporter Steve Liesman will offer perspective.

Debate:

*Bill Seidman, former FDIC Chairman
*Bill Isaac, former FDIC Chairman, The Secura Group, LLC Founder & Chairman
*Bob McTeer, former President of the Federal Reserve Bank of Dallas

BULL VS. BEAR DEBATE
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Zachary Karabell, president of River Twice Research

BEST MUTUAL FUNDS
Forbes Senior Editor Neil Weinberg will be aboard with his findings.

Please join us. The Kudlow Report. 7pm ET. CNBC.

The Fed Is Doing Its Job, Though I Can’t Say as Much for Washington

The Fed was very gloomy in its Open Market Committee statement today. It suggested a gradual recovery could begin later this year, although there are plenty of downside risks. The Fed will keep its target rate near zero, and will keep expanding its balance sheet by purchasing plenty of government-sponsored debt and mortgage-backed securities. Its so-called TALF plan to finance consumer-related bonds will begin soon. It might even buy Treasuries, even though it can’t quite make its mind up on that. Taken together, these actions will keep injecting more cash into the financial system.

All of this is reasonably good, and one wonders why the Fed can’t unclog the credit system on its own without new government banks to purchase toxic assets. It’s possible to design a so-called government “bad bank” to buy distressed assets without nationalizing the banks. Team Obama seems to be leaning against nationalization. As Holman Jenkins points out, we know that depositors and creditors are secure. But bank stocks have had a terrible ride because shareholders have no such security.

There’s a lot of talk that a government bad bank could be modeled after something like the old Resolution Trust Corp. But this would require regulatory accounting forbearance of the punitive mark-to-market approach. It could be done if the SEC would work in connection with a new bad bank. And it might help get private investors engaged in buying toxic assets from the bad bank if the capital-gains tax was suspended for a couple of years.

Meanwhile, important forward-looking economic indicators suggest we have seen the bottom — believe it or not.

First and foremost, stocks bottomed in late November and are about 15 percent higher today. Raw commodity indexes have bottomed. 10-year Treasury rates have bottomed and yields today are about 50 basis points higher. Oil prices have bottomed. And the dollar bottomed many months ago. Plus, the Fed’s monetary-base expansion has produced about a $550 billion increase in the M2 money supply, which could start raising the economy as early as this spring.

If the turnover rate of money — that is, velocity — moves back to its 10-year average, then we could all be surprised by a substantial economic rebound starting this spring or summer.

I’m not even gonna mention the goofy stimulus package in Congress, because it’s not gonna stimulate much of anything except a zillion Democratic political-interest groups. This package is completely porked up with massive social spending and other political targets — none of which will create any jobs or growth. It’s just a massive resource transfer.

And the infrastructure bailout turns out to be vastly smaller than originally advertised. In the 1950s, Ike launched a $550 billion highway-building plan. Today’s stimulus package has $30 billion in highway-related projects, and perhaps another $40 billion way down the road for broadband and electric-grid-type developments.

The public expected an infrastructure build-out that actually made some sense. That’s not what they’re getting. And if Republicans keep hammering away at this they are going to make important political points and slow down the Obama train.

In the meantime, the Fed is doing its job. So is the big energy tax cut. As free-market indicators suggest, the economy may well be healing faster than Washington can cobble together the most unmanageable fiscal activity anyone has ever seen.

Tonight on The Kudlow Report

On tonight's program:

STIMULUS SHOWDOWN
The GOP Meets with President Obama
CNBC’s Hampton Pearson reports the latest developments.

Discussion:
Sen. Bob Corker (R-TN)
Rep. David Dreier (R-CA)

IS THE GAP BETWEEN WALL ST. & MAIN STREET GROWING?
-CNBC’s Mary Thompson reports on the latest Ponzi scheme and the Madoff hearing on Capitol Hill.

-CNBC’s Charlie Gasparino reports on Cosmo, Cuomo’s Thain subpoena, and Citigroup’s decision to abandon their plans to purchase a new jet.

Also...Don Luskin, chief investment officer at Trend Macro will join in the discussion.

MARKET DRILLDOWN
Winners/losers of the day, YHOO, etc
CNBC’s Melissa Lee reports.

Discussion:

*Don Luskin, chief investment officer at Trend Macro
*Quentin Hardy, Forbes Silicon Valley Bureau Chief
*Dennis Gartman, editor of the Gartman Letter

IS BILL DUDLEY THE RIGHT GUY TO RUN THE NY FED?
And a Look at Geithner's Comments on China

*Vince Reinhart, former Director of the Federal Reserve Board's Division of Monetary Affairs
*Steve Liesman, CNBC senior economics reporter

Please join us. The Kudlow Report. 7pm ET. CNBC.

Blast from the Past

Here’s an interesting little transcript I discovered in the vault earlier this morning. It’s a transcript of a Fed debate I had on Nightly Business Report with former Goldman Sachs chief economist Bill Dudley, back in 2000, when I was chief economist at ING Barings. As you may have heard, Mr. Dudley was just selected to succeed Tim Geithner as head of the NY Fed.

Take a look at the exchange. Looks like I nailed all the key points. The Phillips Curve is bunk. The Fed should not have raised rates. They tightened the screws too much, and that ultimately laid the foundation for the ensuing recession and stock market meltdown.

Here’s the money quote:

I think the 50 basis point hike last month was a very radical and ill advised move. I don't think inflation is caused by too many people working or prospering or producing or by economic growth. I think inflation is essentially a monetary problem created by the creation of too much money or excess liquidity by the Fed.

Still sounds pretty good to me.

* * *

Nightly Business Report – June 27, 2000

SUSIE GHARIB: Policymakers at the Fed began their two day meeting today to decide what to do next about interest rates. They've raised rates six times in the past 12 months. Most economists don't expect a rate hike tomorrow, but expect the Fed to issue another stern warning on inflation risks. The final decision will be made public at 2:15 Eastern Time tomorrow afternoon. So, is the Fed making the right moves for the economy? Joining me live in New York to debate this, two top wall Street economists, Bill Dudley, Chief Economist at Goldman Sachs and Larry Kudlow, Chief Economist at ING Barings. And welcome to both you of. Bill, let me start with you. You think that the Fed's interest rate policy has been right on track. Tell us why.

WILLIAM DUDLEY, CHIEF U.S. ECONOMIST, GOLDMAN SACHS: Well, I think the economy has grown above trend for quite some time. You can see that in the declines in the unemployment rate. That's putting pressure on the labor markets. We're starting to see an up trend in wage costs and I think probably the very best news on inflation is behind us now. So the Fed's, the Fed basically has to plan for the worst, hope for the best, and I think that's what they're doing.

GHARIB: All right now, Larry, what Bill is saying is the majority of you, you are in the minority who are saying that the Fed doesn't need to raise interest rates. Tell us your case.

LAWRENCE KUDLOW, CHIEF ECONOMIST, ING BARINGS: No, I think the 50 basis point hike last month was a very radical and ill-advised move. I don't think inflation is caused by too many people working or prospering or producing or by economic growth. I think inflation is essentially a monetary problem created by the creation of too much money or excess liquidity by the Fed. And I think a careful glance at some of the leading market price movements, for example, gold, for example, commodities, spot commodities excluding the temporary oil shock, they're both at 20 year lows, I see long-term interest rates coming down. I see spreads in the bond market beginning to narrow. These are disinflationary signs.

GHARIB: So what do you think the Fed should be doing?

KUDLOW: Oh, I think the Fed should end the tightening cycle. I think if they follow through with this Phillips curve idea that unemployment is too low, if they follow Larry Meyer's view that we need a five percent unemployment rate, that will throw two million people out of work. And I think that would be just a dreadful policy response. That punishment simply does not fit the non-inflation, non-crime.

GHARIB: Bill, if the Fed listened to Larry what would be the outcome?

DUDLEY: Well, I think the reality is nobody knows for sure because we have a lot of uncertainties in this economy. We don't know what sustainable productivity growth is. We don't really know what unemployment rate we can operate at safely. I think what Chairman Greenspan, though, has concluded is that if it really is a new economy and we really have a higher productivity growth, neutral monetary policy probably means higher real interest rates than before. If you've got all these great investment projects out there that people can undertake, you need a little bit higher interest rates to allocate that supply of credit among all
those projects. I think that's really why Chairman Greenspan, who I think is very dovish and would agree with Larry in a large number of respects, thought some modest amount of tightening was warranted.

GHARIB: I was going to ask you, do you think that the Fed should be cutting interest rates?

DUDLEY: I think the Fed is going to be cutting interest rates later this year or early next year. I think the economy is going to be slowing quite apart from the Fed. There are two issues here people have forgotten about. Number one, consumers spent heavily in the run up to Y2K last year. It turned out to be a nonevent. But that consumption was borrowed from this year and you're going to see downturn now. Number two, there are some pretty painful gas pump price increases going on and my own view is the federal government should be using the surplus to cut gasoline taxes but they probably won't. That's going to cause a slowdown right there. On top of that, the Fed has layered on a liquidity squeeze and they've raised the cost of capital. So I think that the damage has already been done. Don't do any more damage. But the key point is this, neither the inflation indexes themselves, excluding oil-Greenspan's favorite is the consumption deflator, 1.6 percent last 12 months-not the gold price, not commodity prices, not interest rates, I think the proof has to be on my friends on the Philip's curve, and they rule economic growth is bad side. Where exactly is this inflation?

GHARIB: OK, let me ask both of you this because we have very little time left. If the market rallies this summer based on whatever the Fed does, do you think that would be good for the economy or would that worry you? Real quickly, a quick answer.

KUDLOW: Oh, it would be good for the economy for sure. I think one reason why monetary policy has not restrained the economy up to now is because the markets have so much confidence in Chairman Greenspan. So you haven't had the backup in bond yields or the sell-off in the stock market that you typically get. If the markets rally, that will make the economy stronger.

GHARIB: Real quickly, in a word or two. We're running out of time.

DUDLEY: Listen, a good stock market creates wealth. That creates investment. That creates productivity and jobs. The Fed should keep its nose out of the stock market. Take a rest this summer, Fed.

GHARIB: I'm glad the two of you agree on something here. Thank you for very much for joining us this evening. And we've been speaking with Bill Dudley of Goldman Sachs and Larry Kudlow of ING Barings.

Obama's Wounded Treasury Man

As a bleeding Tim Geithner is confirmed by the Senate, prosperity-killing threats loom large.

Over a third of the Senate voted against Tim Geithner’s confirmation as Treasury secretary, though he did pass the test by 60 to 34 early Monday evening. That is the closest post-WWII margin for a Treasury secretary. According to Bloomberg, seven of the last 23 Treasury-secretary nominees -- under which actual Senate roll-call votes were taken -- were confirmed by an average vote margin of 95 to one. (The others were confirmed without an official vote count.)

Interestingly, three Democrats voted against: Tom Harkin of Iowa, Robert Byrd of West Virginia, and Russ Feingold of Wisconsin. Independent Bernie Sanders also voted no. Noteworthy on the Republican side, Susan Collins of Maine voted against Geithner, accusing him of "inexcusable negligence" in his non-payment of taxes ($43,000) during his IMF days.

Arlen Specter told reporters early on Monday that he would vote yes, but he changed his mind and voted no. Robert Byrd, by the way, captured the sentiments of John Kyl, Jim Bunning, and many others when he said: "Had [Geithner] not been nominated for Treasury secretary, it’s doubtful that he would have ever paid these taxes."

The surprising number of no votes suggests that both parties will keep Geithner on a short leash. And it was President Obama who ran over to the Treasury Department to swear Geithner in right after the Senate vote. This was unusual, but it’s clear the new president is trying to stop the bleeding of his new Treasury man. Instead of a hoped-for early confirmation to get the next stage of the financial-bailout package moving, Geithner wound up being one of the last cabinet officers confirmed.

But Geithner’s gaffes are not all tax related. He tripped up again last Friday when it was discovered that he attacked China in written responses to Senate Finance Committee questions. This caused quite a stir on Wall Street, as gold soared and the dollar fell. Mr. Geithner will be the biggest bond salesman in American history as he attempts to successfully finance what will be trillions of dollars in new debt obligations. That’s why it’s hard to understand how he would poke a stick in the eyes of his biggest banker, namely China, by labeling them a "currency manipulator."

Currency manipulator is an actionable phrase that could trigger a 27 percent tariff on Chinese imports, according to the highly protectionist resolution sponsored by Republican Lindsey Graham and Democrat Charles Schumer. Henry Paulson took great care to avoid that phrase during his tenure.

The yuan appreciated close to 20 percent in recent years, before falling as China moved to help its sagging economy by stopping its deflationary currency policy. And during Obama’s presidential campaign there were numerous protectionist overtones aimed at halting trade deals with Colombia, Panama, and South Korea, and at rewriting NAFTA. But the China card is a new one.

During the Clinton years, Treasury man Robert Rubin and economic advisor Larry Summers, under whom Geithner served, maintained a strong and stable dollar policy. So with all these government bonds to sell, you would think Mr. Geithner would also want a stable currency to help his funding efforts. But his attack against China undermines the stable-dollar idea, and could force Treasury rates much higher during his term.

Since Geithner is something of a wounded warrior from the tax non-payment controversy, Team Obama’s economic policy is shifting toward a Larry Summers power-center right now. So it is equally important to note Summers’s clear statements on Meet the Press on Sunday, when he called for repeal of the Bush tax cuts on investors and successful high-end economic activists.

However, investor capital is on strike against stocks, real estate, and distressed toxic assets. So it’s puzzling that Summers told NBC’s David Gregory that the Bush tax cuts must be repealed. He left open the date. But he left no uncertainty about the intent.

Of course, this could have a significant deterrent effect on investor decisions. It certainly connects the dots between Obama policy and the rantings of House Speaker Nancy Pelosi, who has similarly called for repeal of the Bush tax cuts. One would think, in today’s deflationary investor environment, that pro-growth economic policies would seek to reward investors, not punish them.

If Summers and Geithner propose a new government "bad bank" to purchase toxic assets, then somebody in the private sector is going to have to buy them at resale. This is why some economists have proposed a multi-year capital-gains tax holiday, including a significant increase in capital-loss write-offs against future tax liabilities. Or at a minimum, the new administration could spur interest in distressed assets by extending the Bush tax cuts, not repealing them.

But even before Mr. Geithner settles into his new job, prosperity-killing threats from investor tax hikes, protectionism, and a weak dollar could throw a wet blanket over economic recovery.

Tonight on The Kudlow Report

On tonight's program:

WASHINGTON TO WALL STREET UPDATE
CNBC chief Washington correspondent John Harwood will fill us in on the details of the Tim Geithner vote as well as the latest stimulus plan developments.

Also…Sen. Chuck Grassley will join us for an exclusive one-on-one interview.

Discussion:

*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary

MARKET REPORT
After the bell earnings…winners & losers of the day.
CNBC veteran Tyler Mathisen reports.

LATEST ON THAIN
CNBC ace Charlie Gasparino reports.

ANOTHER WALL STREET SCANDAL?
CNBC’s Mary Thompson reports.

LEADING INDICATORS/HOME SALES
CNBC’s Hampton Pearson reports.

Discussion:
*Jerry Bowyer, chief economist at Benchmark Financial Network
*Gary Shilling, president of A. Gary Shilling & Co.

WHY AREN’T BANKS LENDING?
CNBC senior economics reporter Steve Liesman will be on board with Joshua Siegel, managing principal at StoneCastle Partners.

WHERE TO INVEST?
Neil Hennessy, Neil Hennessy, president of Hennessy Funds will join us.

Please join us. The Kudlow Report. 7pm ET. CNBC.

We are pleased to announce the premiere of The Kudlow Report this evening on CNBC at 7pm ET. Washington. Wall Street. Worldwide.

So-Called Stimulus

“Only in the upside-down world of Washington do people think that making government bigger is a recipe for economic growth.”

So begins Dan Mitchell of the Cato Institute in his latest mini-documentary discussing Obama’s stimulus plan. As you may have guessed, I agree.



As I wrote today, all of the proposed government spending is just a transfer of resources. There’s no net growth impact. We should be fighting the credit-deflationary recession with reduced tax rates and expanded money growth. Lower tax rates will address the downturn and expanded money growth will offset the credit problem. We don't need Bailout Nation. What we need is pro-growth tax policy.

In other words, Washington should be curbing its spending growth, not expanding it.

Reigniting Growth

The best way to buttress the financial system is to reignite economic growth. Instead of nationalizing the banking system, or making our big financial institutions wards of the state, or interfering with real estate markets through foreclosure bailouts, or expanding any other aspects of Bailout Nation, let’s have some pro-growth tax policies.

All our problems can be solved if the economy grows and asset values rise in the process. Growth also will correct the problems associated with asset-backed bonds for mortgage, consumer, student, and other loans.

Right now capital is on strike and so are investors. Let’s help them out.

Here are some possible courses of action:

1. Reduce the capital-gains tax rate—or initiate a capital-gains tax holiday—and substantially increase tax write-offs for capital losses. In other words, rejuvenate investor incentives.

2. To promote business investment, slash the tax rate on large and small companies, allow full cash-expensing of capital put into service, and reduce the business capital-gains tax rate.

3. For individuals, my perennial first choice is a 15 to 20 percent flat tax rate. Failing that, abolish the 28 and 25 percent brackets, get rid of the 10 percent bracket, and flatten the code so the whole middle class is paying 15 percent.

All of the proposed government spending is just a transfer of resources. There’s no net growth impact. I agree with Harvard professor Robert Barro, who says the Keynesian government-spending multiplier is virtually zero. On the other hand, the Federal Reserve has already created about $550 billion of new M2, which is going to be a big stimulant for the economy.

Almost 30 years ago President Reagan successfully fought inflationary recession with reduced tax rates and tight money. Today we should fight the credit-deflationary recession with reduced tax rates and expanded money growth. Lower tax rates will address the downturn and expanded money growth will offset the credit problem.

If anything, Washington should be curbing its spending growth, not expanding it.

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

MARKET REPORT
CNBC's Brian Shactman reports.

SHAME ON THAIN
CNBC ace Charlie Gasparino reports on the John Thain imbroglio.

DEBATE: TARP, THAIN & FREE MARKETS
U.S. News & World Report’s Jimmy Pethokoukis will join CNBC’s Charlie Gasparino.

STIMULUS UPDATE & DEBATE
CNBC’s Hampton Pearson reports from Washington.

Squaring off on the taxes vs. spending issue will be Dean Baker, co-director at the Center for Economic and Policy Research and economist Art Laffer.

GE MEETS THE STREET
CNBC’s Mary Thompson reports.

PHARMA: FDA GIVES STEM CELL GREENLIGHT
CNBC’s Mike Huckman reports the latest developments.

KEEPING YOUR MONEY SAFE
*Debra Brede, president of D.K. Brede Investment Management
*Peter Schiff, chief global strategist at Euro Pacific Capital
*Jerry Bowyer, chief economist at Benchmark Financial

Also…Energy and commodities expert Kevin Kerr, president of Kerrtrade.com & editor of MarketWatch's Global Resources, will be on to discuss gold.

Please join us. 7pm ET. CNBC.

Tough GOPers Stand Up to Geithner; All GOPers Should Counter Keynesian Stimulus

Team Obama has gotten its way on the Tim Geithner nomination for Treasury secretary, as all the Democrats on the Senate Finance Committee voted for Geithner despite his embarrassing non-payment of payroll taxes while at the IMF. But the Democrats may rue the day, since Geithner’s lack of character and truth-telling will surely take its toll and sully President Obama’s new era of responsibility.

The jokes are already beginning. Last night Jay Leno cracked that while Geithner may not be a criminal, the new head of the IRS is a total incompetent. More of this will make the rounds.

As Byron York has so ably reported, Geithner refused to answer senators Bunning and Kyl when they asked if he would have paid his 2001 and 2002 taxes had he not been nominated for Treasury secretary. In today’s committee vote, an honor roll of five Republicans kept their integrity by voting against Geithner: Grassley, Kyl, Bunning, Roberts, and Enzi. Good for them.

Meanwhile, a new CBO report has pulled the rug out from under the Obama stimulus package. Of $355 billion in infrastructure and other cash outlays, only $136 billion would be spent by October 2010. And out of the roughly $100 billion in infrastructure spending, only $26 billion would be spent in fiscal 2009. So much for a quick and immediate jolt to the economy. Oh, by the way, even if the entire stimulus package were put into play, various people have calculated that the estimated 3.5 million new jobs would cost $225,000 per job.

In today’s Wall Street Journal, distinguished Harvard economist Robert Barro estimated that the so-called government-spending multiplier for GDP associated with peacetime government purchases would be “insignificantly different from zero.” While left-wing economist Paul Krugman rants on about opponents to Keynesian stimulus — calling them quacks — a growing list of prominent academic economists oppose the Keynesian approach. In yesterday’s Journal, economists Alberto Alesina of Harvard and Luigi Zingales of the University of Chicago rejected the Keynesian spending approach while suggesting that a capital-gains tax holiday would bring private investors back into the market.

Stanford economist John Taylor also opposes the stimulus package. So does University of Chicago’s Eugene Fama. So does University of Chicago Nobelist Gary Becker. So does New York University professor Thomas Sargent. And Harvard economist Greg Mankiw, who similarly opposes the Keynesian stimulus, has used his highly popular blogsite as a clearinghouse of opposition.

It really is time for the congressional Republicans to come up with a tax-cutting alternative that includes slashing the marginal tax rate for large and small businesses and individuals, and brings the investor class back into play. Not only with a cap-gains tax holiday, but also with a much larger capital loss deduction. Add to this immediate cash expensing for all businesses.

Right now capital is on strike. So are investors. Supply-side incentives will bring them back. This is where the GOP must go.

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

MARKET DRILLDOWN
CNBC’s Melissa Lee will report.

JOHN THAIN OUSTED FROM BofA
Compensation Questions, Decorating Expenses & More
CNBC ace Charlie Gasparino reports the latest.

GEITHNER, OBAMA’S STIMULUS PLAN & CBO INFRASTRUCTURE REPORT
CNBC’s Hampton Pearson reports from Washington.

DEBATE: NATIONALIZE THE BANKS?
*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, author, public policy professor & former Clinton labor secretary

THE CBO’S INFRASTRUCTURE REPORT
Too much, too late?
*David Malpass, president of Encima Global
*Christian Weller, Senior Fellow at the Center for American Progress
*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, author, public policy professor & former Clinton labor secretary

TECH CHECK
Fortune’s Jon Forte will provide perspective.

MARKETS & YOUR MONEY
*Dennis Gartman, editor of the Gartman Letter
*Jeff Kleintop, chief market strategist, LPL Financial Services
*Zach Karabell, president of River Twice Research

MADOFF
CNBC’s Scott Cohn has the latest news and developments.

Please join us. 7pm ET. CNBC.

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

PRESIDENT OBAMA'S 1ST DAY
CNBC chief Washington correspondent John Harwood reports.

GEITHNER GETS GRILLED ON CAPITOL HILL
CNBC senior economics reporter Steve Liesman reports on Treasury Secretary nominee Timothy Geithner’s Senate hearings.

Also on board:

*Sen. Judd Gregg, (R-NH)
*Sen. Jim Bunning, (R-KY)

MADOFF'S PITCH-BOOK
CNBC’s Scott Cohn will report on the 19-page pitch-book Bernie Madoff used to lure investors to his Ponzi scheme.

***Home Depot co-founder Ken Langone will join us on-set to discuss how Madoff tried to bait him on board.

SEC'S APPLE INVESTIGATION
CNBC’S Jim Goldman reports.

THE MARKETS & YOUR MONEY
*Mario Gabelli, chairman & CEO of GAMCO Investors
*Ken Langone, investor, co-founder of Home Depot

WHAT’S GOING ON WITH GE?
CNBC’s Mary Thompson reports.

Please join us. 7pm ET. CNBC.

Special Guests Tonight

Outspoken Home Depot co-founder Ken Langone will be joining us to discuss the Bernie Madoff scandal, as well as his decision to forego investing any of his own money with Madoff when the disgraced Ponzi scheme operator approached him shortly before Thanksgiving.

Veteran investor Mario Gabelli will also be aboard. The chairman & CEO of GAMCO Investors, Inc will offer some of his key stock market and economic insights for 2009 and beyond.

Please join us. 7pm ET. CNBC.

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

PRESIDENT OBAMA’S INAUGURATION
CNBC’s Bertha Coombs reports from Washington.

MARKET REPORT
CNBC’s Melissa Lee from the NYSE.

Also …CNBC’s Rick Santelli with the latest on the bond market. The New York Times’s Andrew Ross Sorkin and Andy Busch, global FX strategist at BMO Capital Markets, will be on board with their take on banks.

MARKET PANEL
*Dr. Bob Froehlich, chief investment strategist, DWS Scudder
*Peter Schiff, chief global strategist at Euro Pacific Capital
*Andy Busch, global FX strategist at BMO Capital Markets
*Jim LaCamp, RBC Dain Rauscher Sr. VP, Portfolio Manager & Financial Advisor

FIAT/CHRYSLER DEAL
Plus a look at the Inaugural Cadillac
CNBC’s Phil LeBeau will be aboard with the market panel.

OBAMA CHALLENGES: TARP, GEITHNER, NEW RTC
CNBC chief Washington correspondent John Harwood reports from Washington.

OBAMA & THE MARKETS/ECONOMY
*Bob Shrum, Democratic strategist
*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, author, public policy professor & former Clinton labor secretary

Please join us. 7pm ET. CNBC.

What Did Reagan’s Inaugural Say?

“Government is not the solution to our problems; government is the problem.”

On the eve of Barack Obama’s inaugural speech, with a tough economic downturn and the ongoing threat from global terrorism, perhaps it is useful to recall Ronald Reagan’s first inaugural address, delivered on January 20, 1981.

Reagan faced a terrible economy, too, and the growing Soviet threat loomed large. Spirits at home were low then, just as they are today. Problems seemed insurmountable then, just as many believe they are today.

Early in his speech Reagan set it all out: “These United States are confronted with an economic affliction of great proportions.” He then defined the central problem: “We suffer from the longest and one of the worst sustained inflations in our national history. It distorts our economic decisions, penalizes thrift, and crushes the struggling young and the fixed-income elderly alike. It threatens to shatter the lives of millions of our people.”

Media commentators regularly compare the current downturn with the Great Depression, which seems like a big stretch. And there’s a good chance Reagan was dealt a much tougher hand than the one Obama is holding today.

For one thing inflation today is zero. Back in Reagan’s time it was double-digits. Interest rates today are historically low. In Reagan’s day they were 15 to 20 percent. We have suffered a tremendous oil shock, as did Reagan. But today’s shock has completely reversed. And while today’s recession is over a year old, Reagan inherited a recession that began in 1979 and didn’t end until late 1982.

Obviously, we now have the housing problem and the bank credit crunch. But some of that was present in Reagan’s challenge, too. And a recent study from the Minneapolis Fed shows that several measures of output and employment haven’t come close to the severe levels reached during many post-WWII recessions, much less the Great Depression.

Rising to these challenges, Reagan gave his Fed chairman, Paul Volcker, the political ground to stand on to slay inflation with tough monetary restraint and a strong dollar. It was a signature achievement, and it opened the door to more than 25 years of unbelievable prosperity and wealth creation. Reagan also fingered excessive taxes as a chief recessionary factor. His second great achievement was dropping the top marginal tax rate on individuals from 70 percent to 28 percent.

It’s interesting how Obama has also cast himself as a tax cutter, even though he’s not slashing marginal tax rates. He instead opts for tax credits. But there’s a similarity here to Reagan. So far we don’t know if Obama will repeal the Bush reductions in marginal tax rates on investment, but he seems to be leaning against it (even as House Speaker Nancy Pelosi wants immediate repeal).

One inaugural line of Reagan’s in some sense encapsulates his philosophy: “In this present crisis, government is not the solution to our problems; government is the problem.” It arguably is the most famous line of the speech. Fifteen years later, in a State of the Union message, President Bill Clinton said “the era of big government is over.” Yet Barack Obama has said that only government can solve our current economic problems. Will he say as much in his inaugural address, and will it represent a complete reversal of the past three decades?

Reagan, of course, was the quintessential optimist, and his inaugural speech is chock full of optimism: “It is time to reawaken this industrial giant. . . . And as we renew ourselves here in our own land, we will be seen as having greater strength throughout the world. We will again be the exemplar of freedom and a beacon of hope for those who do not now have freedom.”

He also said, “We are not, as some would have us believe, doomed to an inevitable decline. So, with all the creative energy at our command, let us begin an era of national renewal. Let us renew our determination, our courage, and our strength. And let us renew our faith and our hope.” One can only hope that Obama, who has been sounding very bearish lately, can strike such a bullish and optimistic tone about America’s economic future.

Finally, regarding our enemies, Reagan spoke of “the will and moral courage of free men and women.” He said, “Let that be understood by those who practice terrorism and prey upon their neighbors.” Reagan mentioned George Washington, Thomas Jefferson, and Abraham Lincoln. He praised all those who gave their lives in defense of America’s freedom and national security. He said, “We are a nation under God, and I believe God intended for us to be free.”

It is reported that Barack Obama is reading past inaugural speeches in preparation for his own. Let’s hope he has read the great words of Ronald Reagan’s inaugural address in 1981.

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

THE GREAT BANK RESTRUCTURING
CNBC’s Mary Thompson will deliver a report on the fate of Citigroup and Bank of America.

THE MARKETS
CNBC’s Michelle Caruso-Cabrera will report on today’s market news and developments.

Investor Panel

*Jon Najarian, co-founder of OptionMonster.com
*Jerry Bowyer, chief economist at Benchmark Financial
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Vince Farrell, Soleil Securities Chief Investment Officer

A LOOK AT AUTOS
CNBC’s Phil LeBeau reports.

END OF RECESSION…SOONER THAN WE THINK?
Nicholas Bloom, Stanford University economics professor will join the aforementioned market panel with perspective.

THE MADOFF LATEST
CNBC’s Brian Shactman reports.

THE TRANSITION: BUSH TO OBAMA
CNBC chief Washington correspondent John Harwood reports.

DEBATE: BUSH TO OBAMA
Renewables vs. drilling, Inauguration & more
Former labor secretary Robert Reich and The Wall Street Journal’s Steve Moore will debate.

Please join us. 7pm ET. CNBC.

The CPI Plunge Is a Great Thought

Today’s consumer price index dropped for the fifth consecutive month. This is part of the unwinding of the great oil shock that was an important, if overlooked, factor in the current economic downturn.

I noticed today that there is not much talk about the CPI amidst the hullabaloo of the government effectively nationalizing Citigroup and the Bank of America. Making these giant banks wards of the state is a terrible idea.

But the plunge in consumer prices is a great thought. It is a tax cut of massive proportions. The drop in retail gas prices alone has been variously estimated at $350 billion in new consumer purchasing power. In fact, real average weekly earnings have now risen four straight months on the back of the CPI drop. Over the past year, this key measure is up nearly 3 percent.

And while consumer prices are deflating, producer prices — which represent wholesale costs to business — have been deflating even faster with the plunge in energy and other commodities. Consequently, corporate profit margins are improving as costs drop faster than prices. This important development is also overlooked.

Inflation is the cruelest tax of all. It is a prosperity killer. But the inflationary decline is the most pleasant tax cut of all, and is a key part of the recovery process.

Although the stock market has stumbled in the new year, it too will benefit from the inflation tax cut. Remember, the capital-gains tax is un-indexed for inflation. As prices moved up towards 6 percent last summer, stocks moved down big-time. Now, however, the decline of inflation is reducing the effective tax rate on real capital gains from roughly 40 percent last summer to only 15 percent through December. This is a huge tax cut on stocks and wealth-creation. While President-elect Obama appears to be willing to leave the Bush tax cuts untouched in 2009, and perhaps 2010, the falling consumer price index is slashing the cap-gains tax rate in real terms.

In fact, this whole process of disinflation and its tax-cut impact on the economy is vastly more stimulative to future growth than the entire $825 billion so-called stimulus package announced by the House Democrats this week. Taxes matter. So does inflation. Recovery by mid-year looks more and more likely as a result.

And one of these days there’s gonna be a panic rally in stocks that will signal the next economic boom.

An Interview with John Boehner

House Republican Leader John Boehner told me last night that the GOP will come up with an alternative economic plan. Will it be a choice, not an echo? Here is the transcript of my CNBC interview with him regarding the Democrats’ mammoth stimulus spending proposal.

LARRY KUDLOW: A short time ago, I spoke with House Republican Leader John Boehner. I asked him for his response to the Democrats’ massive $825 billion stimulus proposal. Here's what the Republican leader said.

REP. BOEHNER: Larry, I was looking at this over lunch. And just the outline of the bill, here is over a half of a trillion dollars worth of spending on liberal Democrat ideas that have been stuck in the back of a file cabinet for the last 14 years. You know, it's just more money for government, whether it's Community Development Block Grants and Community Services Block Grants and $6 billion for community action programs. This is not going to stimulate the economy, or create jobs, or preserve jobs. And I thought that was the goal of this plan.

And secondly, I think the tax cuts that the President-elect promised, they don’t seem to measuring up to the 40 percent of the package that he called for. And so I’m hopeful that when we see more details from the President-elect, that we’ll have a plan that really will create jobs in America and help preserve jobs in America. And the only way to do that is to allow American families and small businesses to keep more of what they earn.

KUDLOW: Well the chances are Mr. Obama’s formal plans are going to probably look a lot like this Democratic plan. But let me ask you, you’re the leader of the House Republicans, and this is a difficult moment for them. Do you and the GOP caucus in the House expect to offer up an alternative package that some are calling a “choice, not an echo”?

BOEHNER: We are going to have a package. I’ve asked Eric Cantor, who’s our Whip, our number two leader, to head up a working group. And they’ve been working for the last several weeks, including today -- we had a hearing with Mitt Romney, we had Meg Whitman in, we had other economists in, to help us develop our ideas. We’re sharing those ideas with the President-elect. He’s reached out, and we’re going to comply. But we’re also probably going to have an alternative that really will re-invest in our economy, and give people reasons to re-invest in our economy, incentives to invest. Because at the end of the day, the only real jobs that are going to be there short-term and long-term are jobs that are created in the private sector.

KUDLOW: There are business provisions in this plan and Team Obama has had some business provisions. But I want to ask you, do you intend in your program to lower tax rates on large and small businesses? An awful lot of people are looking for that as a true stimulant to the economy.

BOEHNER: I think you’ll see our plan will lower taxes for virtually all Americans, and make it clear that depreciation schedules ought to be sped up. We’ve got to make it easier for small businesses to expense items, the net operating loss carryback for probably five years. Some of these are in the tax package we saw today, but I believe that we will expand upon that.

KUDLOW: Also moving through is the so-called second TARP, or son of TARP, $350 billion. From what I hear today, $50 to $100 billion of that might be set aside for mortgage foreclosures. Will your caucus vote for son of TARP?

BOEHNER: Well I don’t believe so. You know, the first $350 billion tranche, we really don’t know where it all went. We don’t know what conditions it was there to prevent. And the kind of transparency and accountability that we would expect, we haven’t seen. And so I’m not about to vote for a second $350 billion for a plan that I haven’t seen, a need that I haven’t seen, and a lack of transparency and accountability. And I don’t believe that you’ll see very many members of the House – both sides of the aisle – that are going to vote for this.

KUDLOW: Do you think that there are Blue Dog Democrats, fiscally conservative Blue Dog Democrats, who might join Republicans to slow down the big spending stimulus package and TARP?

BOEHNER: I do believe that on TARP, there is no question that there are going to be an awful lot of Democrats join Republicans in voting no. But you know, because this is a motion of disapproval, and the Senate has rejected the motion of disapproval, there will be a vote in the House, but frankly, it’s largely symbolic.

On the stimulus package, I think we’re going to have to wait and see. We’re just starting to see the details of this package. I know that I’m a bit alarmed by what I see so far. That’s why when I looked at it, I said, “Oh, my God.” This is $825 billion. And the chairman of the House Appropriations committee, Dave Obey, said, “we’re probably going to have to spend more.” I think that it’s clear we can’t borrow and spend our way to prosperity. We’re putting mountains of debt on the backs of our kids and their kids. We need to act, but we need to act responsibly. And we need to take actions that will stimulate the economy, not stimulate government spending.

KUDLOW: Now Mr. Leader, President-elect Obama has been reaching out across the aisle. I know you have talked with him and met with him. A bunch of us conservatives even had dinner with him the other night. He’s very popular. His polls are very, very high. How do you deal with that as the so-called loyal opposition?

BOEHNER: Well the President has made it clear that he wants to go down a middle path. He’s asked for our ideas on the stimulus package. We are going to comply with his request. We’re going to work with him. And when it’s in the best interest of the American people, I’m going to be for it. That’s kind of my test. If I think that what he’s calling for really does solve problems in America, I’ll be there. When he offers things that I disagree with, I’m going to try to offer up a better idea.

But you know, listen, everybody wants the President to succeed. Frankly, the country needs the President to succeed. But as we get into these issues, we’re going to deal with them one by one, just like he will. And you have to remember that governing and being President of the United States is a lot different than running for election. And so as we get into these, we’re going to have real decisions that are going to have real consequences. And we’re going to have a real debate over them.

KUDLOW: House Republican Leader John Boehner, we thank you ever so much for your time.

BOEHNER: Larry, thank you.

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

THE LATEST DEVELOPMENTS ON TARP & THE STIMULUS PLAN
CNBC chief Washington correspondent John Harwood reports.

THE SEC, MARY SCHAPIRO & THE SENATE
CNBC’s Hampton Pearson reports on President-elect Obama’s SEC selection who appeared before the Senate today.

REACTION TO THE STIMULUS PLAN
House Minority Leader John Boehner will respond to the Democrats’ plan.

BUSH’S FINAL FAREWELL ADDRESS
A look at the legacy.
Offering their perspective will be former Labor Secretary Robert Reich and Grover Norquist, president of the national taxpayer coalition Americans for Tax Reform.

THE MARKETS
CNBC’s Melissa Lee will report on all of the news and developments.

BANK OF AMERICA, THE TREASURY & VOLCKER
CNBC senior economics reporter Steve Liesman will report.

CITI NATIONALIZATION?
CNBC’s Charlie Gasparino and Steve Liesman report.

RESTORING TRUST IN THE MARKETPLACE
*Rich Karlgaard, Forbes Publisher; "Life 2.0" Author
*Jack Gage, Forbes magazine associate editor
*Peter Schiff, chief global strategist at Euro Pacific Capital
*Jim LaCamp, RBC Dain Rauscher Sr. VP, Portfolio Manager & Financial Advisor

Please join us. 7pm ET. CNBC.

Behind the Stock Swoon

Stocks are swooning again — down seven straight days — and threatening to break below a November 20 bottom. Part of this stems from bad economic data, including today’s announced plunge in December retail sales. This of course follows last Friday’s outsized drop in payroll employment.

Bank stocks are getting clobbered as Citigroup is falling apart. This bank has virtually become a ward of the state, including $45 billion of government capital and a roughly $300 billion government guarantee for toxic assets. Robert Rubin is out, and there’s talk of a bank breakup that would leave Citi only one-third its current size.

Speaking of wards of the state, the TARP debate has unsettled banks big-time, and investors are now pulling out left and right. If some of TARP is passed for the next $350 billion, conditions will be very onerous: dividend limits, restraints of stock buybacks for bank mergers, the usual ranting about compensation and bonuses and airplanes, and even a retroactive clawback of past executive bonuses. Private investors don’t much like the idea that the House and Senate banking committees are gonna run our biggest lenders.

But now comes the news that Obama Treasury-designate Tim Geithner might not make it because of his failure to pay payroll taxes totaling about $45,000 when he worked at the IMF. Geithner paid some of the back taxes in 2006 after an IRS audit, but it was only recently — after his Treasury appointment by Obama — that he paid back earlier taxes from 2001 and 2002. For a guy who will reside over the IRS, this is certainly a major embarrassment.

The financial world likes Geithner because of his detailed knowledge of the banking and credit crunch. And the possibility now that for a while there will be no Treasury secretary to handle a possible emergency is quite unsettling.

Team Obama is putting it out that Geithner will survive. And in fact senators on both sides of the aisle are generally supportive. But a Wall Street Journal story this afternoon reports that Geithner’s Friday hearing has been postponed, and that it is now scheduled for next Wednesday, January 21 — the day after Obama’s inauguration. The delay was prompted by senators Kyl and Bunning. So Mr. Obama will be president, but he won’t have a Treasury man.

But back to the market problem overall: Investors continue to ignore one of the very brightest spots in the firmament: Namely, the credit freeze is thawing, according to all manner of key interest rates and spreads. In fact, LIBOR is around 1 percent now, back to where it was in the early summer of 2007 before the crunch started. This means that much of the uncertainty about lending, borrowing, investing, and hiring is receding from the market. This is a very positive sign. While retail sales and jobs are lagging indicators, the credit-market improvement is a leading indicator — pointing to recovery in the economy sometime this spring or summer.

I’m gonna bet that after the bank earnings come out in the next week or so that we’ll see a better stock market. But investors will certainly be happier with a strong Treasury secretary confirmed, in place, and on the job.

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

**Apple CEO Steve Jobs Takes Medical Leave**

Our stable of CNBC reporters and guests will report the latest news and developments surrounding Apple co-founder and Chief Executive Steve Jobs' announcement late this afternoon that he is taking a medical leave of absence.

Our market guests this evening include BlackRock CIO Bob Doll; Yale University economics professor Robert Shiller; Forbes magazine's Neil Weinberg; and Stefan Abrams, managing partner at Bryden-Abrams Investment Management.

Please join us. 7pm ET. CNBC.

KUDLOW OFFERS DETAILS OF OBAMA DINNER
Wed Jan 14 2009 12:15:47 ET

CNBC’s Melissa Francis: I HAVE TO ASK LARRY, I'M DYING TO HEAR ABOUT IT, YOU HAD DINNER LAST NIGHT WITH PRESIDENT-ELECT BARACK OBAMA. WHAT WAS THE TONE LIKE? WAS HE TRYING TO WIN OVER THE CONSERVATIVES? IS THAT WHAT IT WAS?

THERE WERE ABOUT TEN OF YOU THERE, RIGHT?

CNBC’s Larry Kudlow: THIS WAS AN OFF-THE-RECORD DINNER AND I'M GOING TO KEEP IT OFF THE RECORD IN TERMS OF DEEP CONTENT, BUT PEGGY NOONAN WAS THERE, PAUL GIGOT OF THE WALL STREET JOURNAL, BILL KRISTOL, MYSELF, CHARLES KRAUTHAMMER, SOME OTHERS. NINE OR TEN OF US. I DON'T THINK HE'S TRYING TO WIN US OVER, BUT HE'S TRYING TO CONNECT WITH US AND ENGAGE WITH US TO HIT GREAT CREDIT.THIS WAS A VERY CORDIAL DINNER.

Francis: HE IS CHARMING, RIGHT?

Kudlow: HE IS CHARMING, HE IS TERRIBLY SMART, BRIGHT, WELL-INFORMED, HE HAS A GREAT SENSE OF HUMOR. AT THE BEGINNING WHEN HE WALKED INTO THE LIVING ROOM, YOU KNOW, WE'RE ALL WAITING --

Francis: WHERE WERE YOU?

Kudlow: THIS IS AT GEORGE WILL'S HOUSE….HE COMES IN AND HE CAME UP TO ME, I HAD NEVER MET HIM BEFORE. I THINK HE MAY HAVE WATCHED ‘KUDLOW AND COMPANY’ PERIODICALLY. SOMEBODY GAVE HIM A COLUMN I HAD WRITTEN DEFENDING HIS BUSINESS INVESTMENT TAX CUTS. HE LIKED THAT A LOT. I SAID, ‘YOU KNOW, SIR, SINCE BARNEY FRANK AND NANCY PELOSI, JOHN KERRY, ATTACKED HIM I KNEW I MUST BE ON TO SOMETHING GOOD.’ HE LAUGHED A LOT. I SAID ‘YOU TOOK MY BEST PEOPLE FROM THE PROGRAM. YOU TOOK AUSTAN GOOLSBEE.’ HE LAUGHED AND SAID THEY'RE GOOD MEN. I SAID, BUT MR. PRESIDENT, LET ME CAN YOU, WHY DID YOU LEAVE US ROBERT REICH, WHO I ADORE, AND HE LAUGHED AND SAID I WANT SOMEBODY FIGHTING FOR ME, LARRY,

INTERESTING THING. THIS IS JUST GENERALLY SPEAKING, HE IS SO WELL-INFORMED, AND HE LOVES TO DEAL WITH BOTH SIDES OF AN ISSUE, AND I'M NOT GOING TO DIVULGE WHAT WAS SAID THERE AND I'M NOT GOING TO GO INTO ANY OF THE SPECIFICS, BUT HE ENJOYS THE BACK AND FORTH, AND HE IS NOT, YOU KNOW, TOUGH, MEAN, INSULTING, SNARLING, NONE OF THAT STUFF, AND WE WEREN'T EITHER.

THIS WAS A GOOD CONSERVATIVE GROUP AND WE JUST HAD A GREAT BACK AND FORTH, AND HE WANTS TO KEEP THE DIALOGUE GOING WITH CONSERVATIVES. I WOULD SAY I AM HONORED TO BE AT THAT DINNER. I WAS HONORED TO MEET HIM. HE IS A VERY IMPRESSIVE MAN, AND I WISH HIM ALL THE LUCK IN THE WORLD BECAUSE WE'VE GOT SOME ISSUES TO DEAL WITH.

Francis: WHAT DID YOU EAT?

Kudlow: I CAN'T REMEMBER. I WAS SO FOCUSED ON HIM. I WAS SITTING ACROSS FROM HIM --

Francis: YOU PROBABLY DIDN'T EAT. MAYBE YOU DIDN'T TOUCH ANYTHING.

Kudlow: THE FOOD WAS EXCELLENT. I PROBABLY DIDN'T EAT A WHOLE LOT. IT WAS ALL VERY INTERESTING, AND HE'S A GOOD MAN, AND WE WILL SEE

HOW HE DOES. THAT'S ALL I CAN SAY. WE WISH HIM THE BEST.

On Tonight's Show...

***PLEASE NOTE: CNBC'S Dennis Kneale will be hosting tonight's 7pm show.

On this evening's program:

TIM GEITHNER’S TAX TROUBLE
Treasury confirmation in jeopardy?
CNBC senior economics reporter Steve Liesman reports the latest.

TARP TWO HEARINGS
CNBC’s Hampton Pearson reports.

INSIDE THE MARKETS
CNBC’s Rick Santelli, Michelle Caruso-Cabrera, Steve Liesman & Charlie Gasparino will all be reporting.

Also on board…The Wall Street Journal’s Steve Moore and Dean Baker from the Center for Economic and Policy Research.

CITI/MORGAN DEAL
CNBC’s Charlie Gasparino delivers the latest.

BERNANKE SPEAKS
CNBC’s Steve Liesman reports.

DEBATE: THE FED & CREDIT MARKETS
Former Fed governor Wayne Angell will join Messrs. Liesman, Santelli, and Gasparino.

A MADOFF PLEA DEAL?
CNBC’s Bertha Coombs reports.

SEARCH FOR MISSING PILOT/INVESTMENT ADVISOR
CNBC’s Jane Wells reports.

STOCK MARKET PANEL
*Zachary Karabell, president of River Twice Research
*Quentin Hardy, Forbes Silicon Valley Bureau Chief
*Jerry Bowyer, chief economist at Benchmark Financial

YAHOO'S NEW CEO
CNBC’S Jim Goldman reports.

Please join us. 7pm ET. CNBC.

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

OBAMA & BUSH, TARP II & THE STIMULUS PLAN
CNBC chief Washington correspondent John Harwood will deliver a report.

STIMULUS DEBATE
Supply-side economist Art Laffer will square off with Keith Boykin, editor of The Daily Voice.

Also on board…Rep. Charlie Rangel (D-NY).

SELLING CITI
CNBC ace Charlie Gasparino reports the latest.

FINANCIALS & TARP
Robert Albertson, chief strategist at O'Neill & Partners will discuss with CNBC’s Charlie Gasparino.

TODAY'S MARKETS
CNBC’s Rebecca Jarvis reports.

MARKET PANEL
*Don Luskin, chief investment officer at Trend Macro
*Dennis Gartman, editor of the Gartman Letter
*Steve Grasso, managing director, Stuart Frankel & Co.

DETROIT AUTO SHOW
Too little, too late?
CNBC’s Scott Cohn reports from the Detroit Auto Show.

MADOFF DODGES A BULLET
CNBC’s Mary Thompson reports.

DEBATE: BAIL OR JAIL?
Chicago securities attorney Andrew Stoltmann will square off with former federal prosecutor Stephen Feldman, a partner in the white-collar defense practice at law firm Herrick Feinstein LLP.

Please join us. 7pm ET. CNBC.

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

ROBERT RUBIN LEAVES CITI
CNBC ace Charlie Gasparino is on the story.

TODAY’S JOBS REPORT
CNBC senior economic reporter Steve Liesman reports.

BARNEY FRANK & TARP TWO
CNBC’s Diana Olick reports.

TARP II DEBATE
*Steve Liesman, CNBC senior economics reporter
*Keith Boykin, editor of The Daily Voice
*Dan Clifton, head of policy research for Strategas Research Partners

OIL, ENERGY & OBAMA
Legendary oilman Boone Pickens will join us live from Dallas, TX.

STOCK MARKET REPORT
CNBC’s Brian Shackman reports today’s top news and developments.

THE JOBS PICTURE, ECONOMY, STOCKS & OBAMA
*Vince Farrell, Soleil Securities Chief Investment Officer
*Michael Pento, Delta Global Advisors, Inc. Senior Market Strategist
*Dan Clifton, head of policy research for Strategas Research Partners

PENSION CONCERNS
Charles Millard, Pension Benefit Guaranty Corp (PBGC) director will be aboard.

Please join us. 7pm ET. CNBC.

7.2 Percent Unemployment Is Not the End of the World

December’s terrible jobs report, featuring a 7.2 percent unemployment rate, a 524,000 loss of payrolls (actually 678,000, with downward revisions to the prior two months), and an 806,000 drop in household jobs virtually suggests a never-ending recession. However, the future may be rosier than the past.

A series of market-price indicators suggests a bottoming economy that may gradually rise in the months ahead — believe it or not.

In the money and credit markets all manner of Treasury swaps spreads and short-term interest rates are declining. In other words, the credit freeze is thawing. Corporate bond rates are coming down. The LIBOR rate is way down. And commodity indicators are coming off the bottom. This includes oil, gasoline, the Dow Jones-AIG Commodity Index, and the Baltic Dry Index.

So the intense deflation that has marked this recession appears to be coming to an end. Undoubtedly this can be traced to the massive money-creation by the Fed which began in September and will start to show up in the economy this spring at the latest.

Meanwhile, one bright spot in today’s jobs report is wages. Average hourly earnings continue to rise at a 3.7 percent pace over the past year and a 4.2 percent rate over the past three months. Inflation is near zero as a result of plunging retail gas prices. So the tax-cut effect from falling energy and overall inflation will continue to support rising consumer spending.

The message? An unemployment rate of 7.2 percent is not the end of the world. It’s not a high point, but it’s also not the apocalypse.

And finally, in one of the most predictable events of the year, House Speaker Nancy Pelosi is calling for an immediate repeal of the Bush tax cuts — running counter to Obama’s deferral of those tax-cut rollbacks. Over in the Senate the natives also are restless. Kent Conrad, John Kerry, and Ron Wyden oppose all the Obama tax cuts. They want more FDR/Keynesian spending increases. Talk about running true to form.

As I mentioned in my column yesterday, there is a tiny bit of Reagan in the Obama plan. But the congressional Democrats don’t want any Reagan at all.

How Big-Government Is Obama?

Tax cuts are now 40 percent of his new stimulus package.

Obama spoke Thursday at George Mason University about his American Recovery and Reinvestment Plan — a.k.a. the stimulus package. There’s an interesting section that would warm the heart of John Maynard Keynes. It goes like this:

It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe.

Well, 28 years ago Ronald Reagan said government was the problem, not the solution. Dealing with a bad recession like this one, the Gipper lowered taxes and domestic spending. Obama on the other hand has offered an $800 billion package, with plenty of infrastructure spending that alleges to create three million jobs.

Nobody really believes infrastructure spending will end the recession or create permanent new jobs. However, it’s interesting just how much the Obama plan has changed since the election. The size has been roughly constant. But the mix of tax cuts and spending increases is now totally different.

Instead of $100 billion worth of tax credits, there are now $300 billion worth of tax cuts. This includes a big new piece for business, more cash-expensing for small-business investment, and a restoration of the five-year tax-loss carry-back, which will especially help banks and homebuilders. It might even result in tax refunds for businesses, and might also allow banks to rid themselves of toxic assets, since the losses will now be spread over many years.

So what we have now is an $800 billion stimulus package with $300 billion of so-called tax cuts which could infer less spending than before — maybe only $500 billion worth.

Obama’s economic advisers are bragging to me about their new tax-cut package. They say they’re very pro-growth. And you know what? I acknowledge it. People like Larry Summers, Austan Goolsbee, Christy Romer, and Tim Geithner are no left-wing big-government whackos. They may not be hard-core supply-siders. But in terms of the economics profession, I would call them center-right.

And they absolutely understand the importance of private business and investment in the job-creating economic-growth process. And I think they’re views are the main reason for the reshaping of the Obama package between the campaign trail and the eve of inauguration.

The problem is that they’re not reducing marginal tax rates on large and small businesses or individuals. Their tax credits will be two-year’s worth, not permanent. There will be no incentive effects to maximize growth. And many of the tax cuts are refundable credits, which really are a form of government spending.

So it’s not a supply-side package. However, I’ve really never met a tax cut I didn’t like. And any tax cut is better than a spending increase since private companies and individuals will at least get the money instead of government.

This is the interesting part of the Obama plan. Somewhere in there the tax cuts will have a small positive economic effect. I would have designed it differently, but then again Team Obama won the election. I guess I could say it could have been worse.

Of course, Team Obama will have to contend with the sticker shock of a $1.2 trillion deficit for 2009, just printed by the Congressional Budget Office. And that’s before the Obama stimulus plan. But I don’t think Republicans really have a leg to stand on with the deficit argument — or for that matter the spending argument.

Yes, Obama is raising the ante, and the new numbers are just about over the edge. But a lot of that new deficit is TARP money that should be scored as investment — not real spending. And in view of all the economic pessimism out there, I doubt if the public is very worried about deficits.

What’s most regrettable is that congressional Republicans have yet to make the alternative case. They haven’t pressed for marginal tax-rate cuts as an option to Obama’s credits. So far, the GOP is me-too. They’ve offered an echo instead of a choice.

Meanwhile, polls now say the public favors Obama’s plan by 55 to 65 percent. His personal approval rating is even higher. And he’s being politically astute by reaching out to Republicans. He has virtually removed partisan rhetoric. Simply put, Obama is in the driver’s seat right now.

Sure, the Democratic Congress may mangle Obama’s plan. They might even repeal the Bush tax cuts this year. So there is considerable uncertainty about the details of the final package. But I must say, a crafty Obama is doing his best to employ his version of the Reagan tax-cut plan. Obama talks big government. But so far his program actually reduces the government-spending share and increases the private tax-cut share.

Very interesting.

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

CITI: SENATORS REACH MORTGAGE DEAL
CNBC's Diana Olick reports.

OBAMA’S ECONOMIC SPEECH
CNBC chief Washington correspondent John Harwood reports.

DEBATING OBAMA-NOMICS
Tax Cuts vs. Spending…The Dollar…Is China Backing Away From U.S. Debt?…A Steel Bailout?

*Senator Tom Coburn (R-OK)
*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, author, public policy professor & former Clinton labor secretary
*John Harwood, CNBC chief Washington correspondent

THE LATEST ON MADOFF
CBNC's Charlie Gasparino and Scott Cohn report the latest twists and turns including the fallout with union pensions.

THE MARKET
CNBC’s Matt Nesto will report on today’s news and developments.

*Jack Gage, Forbes magazine associate editor
*Gary Shilling, president of A. Gary Shilling & Co.

FRIDAY’S JOBS NUMBER
*Joe LaVorgna, chief U.S. economist at Deutsche Bank
*Brian Wesbury, chief economist at First Trust Advisors

Please join us. 7pm ET. CNBC.

Bottoming Signs

Here and there are some small signs that the economy is at least bottoming — a crucial stepping stone to meaningful recovery.

For example, the ISM non-manufacturing services report released today for December came in at 40.6 on the composite index, compared to 37.3 in November. New orders, employment, backlogs, and exports all ticked higher than the previous month. So did the overall-business-activity index. It’s still a recession reading, but a small increase is better than a decline.

The November factory-orders report showed non-defense capex rising at a 3.9 percent annual pace, the first increase in four months and the best gain in 10 months. Computer orders surged 12.5 percent.

Pending home sales — which tracks home re-sales under contract, according to the National Association of Realtors — declined again overall. But out West pending sales continued to increase, and they are up 27 percent since the August 2007 bottom.

Commercial construction rose 0.7 percent annually in November, and is up 12.1 percent over the past three months.

And in the November personal-income report, real disposable income jumped 1 percent for the month and is up 7.1 percent at an annual rate over the past three months. Real consumer spending in that report rose 0.6 percent in November.

These income and spending gains were largely a function of plummeting inflation, where the PCE deflator has fallen 6.1 percent annually over the past three months. That, of course, is largely a function of collapsing oil and retail gas prices. The gasoline drop is probably worth $350 billion as a consumer-purchasing-power tax cut. This is a key recovery mustard seed. So is the outsized growth in the money supply as measured by M1 and M2, fueled by the gigantic increase in the monetary base as the Fed continues to expand its balance sheet.

Additionally, the credit freeze continues to thaw. The three-month LIBOR rate is all the way back to 1.4 percent. And corporate bond rates continue to decline, a signal that private capital markets are starting to function again. The 30-year mortgage rate is holding around 5.3 percent.

At a recent conference in San Francisco, academic economists were very pessimistic, expecting recession to last through the whole year. But easy money and low retail gas prices may be a lot more stimulative than the academics think.

President-elect Obama said today that we should expect trillion dollar budget deficits for the next few years. But do we really need this unbelievable increase in the size and scope of government? Art Laffer is very gloomy about big-government spending and borrowing. He believes deficits of this magnitude and a large increase in the government share of GDP are liens on future tax hikes that will slow the economy’s potential to grow.

It was Milton Friedman years ago who taught us that the real tax burden on the economy is best measured as the government spending share of GDP. That measure has been falling for over 20 years, until President Bush’s second term. Now Obama’s plan will ratchet this tax burden much higher.

My point? We don’t need all this. Lower tax rates for large and small businesses along with easier money and lower gasoline prices will get us on the right track to increase the economy’s potential to prosper.

Once again, I ask what the Republican party intends to do. Will it be me-tooism? Or will they provide a choice, not an echo?

On Tonight's Show...

Please join us tonight at 7pm ET on CNBC.

On this evening's program:

TAKING STOCK OF THE NEW CONGRESS
CNBC chief Washington correspondent John Harwood reports.

OBAMA’S STIMULUS PLAN & TRILLION DOLLAR DEFICITS
*Keith Boykin, editor of The Daily Voice
*Jerry Bowyer, chief economist at Benchmark Financial
*John Harwood, CNBC chief Washington correspondent

A LOOK AT THE FED MINUTES
CNBC senior economic report Steve Liesman reports.

WASHINGTON TO WALL STREET ECONOMIC DEBATE
Trillion dollar deficits? Impact on the Dollar/Treasuries /Bond Market & More
CNBC’s Michelle Caruso Cabrera and Steve Liesman will be aboard.

MADOFF - WHERE'S THE RUSSIAN MOB CONNECTION?
CNBC’s Charlie Gasparino and Former NYPD detective Pat Brosnan will take a look.

THE MARKETS
*Don Luskin, chief investment officer at Trend Macro
*Peter Schiff, chief global strategist at Euro Pacific Capital
*Dennis Kneale, CNBC media & technology editor

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Top 10 Best Dressed List

Here’s an amusing little award bestowed upon yours truly by hard-hitting GOP political consultant and fashion aficionado Roger Stone. As you’ll see, I’m surrounded by a colorful cast of characters -- just behind #1 best-dressed President-elect Obama, and ahead of Calvin Klein and rapper Jay-Z.

Not bad.

My only gripe? The Fox News attribution. Of course, I remain -- quite happily -- with CNBC.