Kudlow's Money Politic$

One-on-One with Senator Marco Rubio

2012-02-01T10:01:00.002-05:00

Rising Republican star, Senator Marco Rubio of Florida, was right on message concerning pro-growth tax reform, spending cuts, deficits and debt. He told me that President Obama never responded to the Rubio letter blaming the prez for creating a deadbeat nation that looks more and more like Western Europe. And Rubio told me he didn’t have all the answers, but he wants the GOP to be the party of legal immigration.

One-on-One with Newt Gingrich

2012-01-27T10:54:00.002-05:00

Newt Gingrich and I go a long way back to the beginning of the Reagan supply-side revival of free market capitalism. I thought we shared that philosophy. But his attacks on Bain Capital using the class envy language of the left against capitalist success is a great disappointment to me. Newt resumed that Bain attack when he said in Florida that Mitt “lives in a world of Swiss bank accounts and Cayman Island accounts and automatic $20 million income for no work.”

Romney’s success earned his income. And his successful investments all represent market opportunities. However, once again I fear that Newt is all too willing to sacrifice his principles for political expediency in the heat of the campaign. Here is the interview with my criticisms and Newt’s responses (in two parts):

Obama's Tax Hike 'Designed to Come at Me': Romney

2012-01-26T09:15:00.002-05:00

President Obama's proposal to increase taxes on the rich is "designed to come at me," GOP presidential contender Mitt Romney told me in an exclusive interview yesterday.

In his State of the Union speech Tuesday night, Obama proposed a minimum 30 percent tax rate on Americans earning more than $1 million a year.

The proposal—known as the "Buffett Tax" after Warren Buffett famously said his secretary pays a higher tax rate than he does— was a key part of the president's populist push for "fairness" in his speech to the nation.

The plan is "designed to come at me if I'm the nominee," Romney said in a taped interview. "If I happen not to be the nominee, he'll still take the 99-versus-one attack. He's really trying to divide America."

Romney, who gave a glimpse inside his personal fortune on Tuesday by releasing his U.S. tax returns, paid an effective tax rate of 13.9 percent in 2010 and expects to pay a 15.4 percent effective rate when he files his return for 2011.

Those rates are far below the top income tax rate on wages, which is 35 percent, because the U.S. tax code favors capital gains and other investment income by taxing them at 15 percent.

"The question is whether we're going to eliminate the capital gains tax break," Romney said. "So if you say we're going to raise that dramatically, you're going to choke off a lot of the capital that goes into creating new enterprises and creating jobs. It's the wrong way to go."

Romney said Republicans are not all about the rich. "I'm fighting to help middle class Americans get better jobs and better incomes. People who have been successful understand the path to success — we want everyone to enjoy success in America."

Blame Obama for Washington Gridlock: Senator Mitch McConnell

2012-01-24T15:44:00.001-05:00

When President Obama outlines his goals for 2012 during Tuesday’s State of the Union address, he shouldn’t expect a lot of cooperation from Republicans, senate Minority Leader Mitch McConnell (R-Ky.) told “The Kudlow Report” Monday.

“With the Obama economy established now … unemployment is still at 8 ½ percent,” McConnell said. “It didn’t work, and we’re not interested in doing more of the things that don’t work.”

Obama will use his State of the Union address to outline a lasting economic recovery that will “work for everyone, not just a wealthy few.” He is expected to call for higher taxes on the rich, among other things.

While it sounds like more gridlock ahead in Washington, McConnell put the blame squarely on the president.

He said Obama was “AWOL” last year on his bus tour when Republicans wanted to tackle tax reform and entitlements, and he expects more of the same this year.

“He was not involved whatsoever,” McConnell said. “So I’m not optimistic, frankly, that in an election year that he’s likely to be any more engaged than he was last year.”

What’s more, he thinks the logjam in the nation’s capital is part of Obama’s agenda.
“That’s his strategy … to demonize Congress, to complain because he can’t continue to get everything he wants, like he did the first two years,” he said. “It’s all about his re-election and not about the country.”

One thing that McConnell thinks will get done is the payroll tax cut extension, which was extended for only two months in December when Congress couldn’t come to an agreement.

“We’ll be back at trying to figure out how to do that for the balance of the year and how to pay for it,” he said. “We don’t want to add to the deficit.”

Tonight's Debate

2012-01-19T20:00:00.001-05:00

Might a strong Newt Gingrich debate performance tonight trump the ABC Nightline interview with Newt’s ex-wife Marianne? Remember, the debate comes before Nightline. And the roughly five million to six million people who watch the debate will be a lot more than the roughly two million folks who turn on Nightline. Plus, the Nightline crowd is largely liberal, and these viewers are not going to favor Newt Gingrich.

I’m not saying the ABC Brian Ross interview with Marianne isn’t something. But I’m not sure how important it really is.

Here’s what’s more important: Newt has opportunities in the debate tonight to push his Reagan 2.0 supply-side tax-reform plan. If he stays on message about growth, jobs, and prosperity, he can point to Mitt Romney’s more timid tax-reform plan.

Plus, Newt needs to explain how the numbers work both for his 15 percent flat tax and his plan for Social Security personal accounts. Growth is great, but we also have this problem called the budget deficit. Newt needs to explain.

Mitt Romney has opportunities tonight also. He needs to announce an early release of his tax returns. He also should explain that his investment income, which is taxed at a 15 percent effective rate, is also taxed at the corporate level. So in fact, Mitt is paying a combined 45 percent tax rate on his income.

And while he’s at it, Mitt should unveil (unleash?) his own bolder tax-reform plan. Most people agree that Mitt has the business experience and the better understanding of how the economy works. But he needs a bolder solution. Tonight could be the night.

And while he’s at it, Mitt should give a more detailed defense of both the successes and failures of Bain Capital. Details matter. And perhaps he can aggressively tell folks how a Bain-turnaround approach is exactly what’s needed for that troubled and near-bankrupt company, U.S. Government, Inc.

Finally, both Newt and Mitt should take on the cronyism in Washington. They should describe how they would end corporate welfare; how they would remove the costly and unnecessary deductions, exemptions, and carve outs in the tax code; and how they would get rid of all the government subsidies to big business for energy, exports, and agriculture (and ethanol). Changing Washington’s culture of cronyism is a key path to tax reform, deep spending cuts, and deficit reduction -- along with growth.

In other words, in a dead-heat race in South Carolina, both Newt and Mitt have big opportunities in tonight’s debate.

One-on-One with Ron Paul

2012-01-18T11:40:00.002-05:00

After Congressman Ron Paul's strong second-place finish in New Hampshire, he's winning plaudits everywhere. Can the GOP find a home for the principles with the free market Austrian economic message? Take a listen:

Jon Huntsman: Romney Making Himself 'Completely Unelectable'

2012-01-10T09:36:00.000-05:00

Republican presidential hopeful Jon Huntsman took aim at front-runner Mitt Romney on the eve of the New Hampshire primary, and told Larry Kudlow he’s the best candidate to unseat President Obama in November.

Huntsman, former governor of Utah and U.S. ambassador to China, said Romney is making himself “completely unelectable” when he makes statements like the one he made earlier Monday about firing people. During a speech to business leaders, the former Massachusetts governor said, “I like being able to fire people who provide services to me” when talking about how people should be able to chose their own health insurance.

“Words and statements matter and when you are in a heated campaign,” Huntsman said. “I just want to make sure we can get somebody who can go up against Barack Obama and not be chewed up by the political machine that’s going to have a billion dollars to spend on it.”

To take on Obama, the candidate has to be able to get more than just Republican votes, and Huntsman said he’s the man who can deliver.

“In order for someone to beat Barack Obama this year, they’re going to actually have to convince people who supported Barack Obama last time to support them,” he said. “If you can’t come out of New Hampshire or any other primary state with the Republicans and also a whole lot of independents, than we’re not going to have an electable candidate at the end of the exercise.”

Huntsman, who skipped the Iowa caucuses last week to focus on New Hampshire, is pinning his hopes on a strong showing in the Granite State's first-in-the-nation primary Tuesday. While he lags far behind Romney, some polls show him moving into third place. According to Monday's Suffolk University tracking poll, Huntsman has 13 percent of likely voters supporting him. Romney has 33 percent, down from 43 percent one week ago, and Rep. Ron Paul is at 20 percent.

Huntsman also took issue with Romney’s criticism of his service as ambassador to China under President Obama. During Saturday’s debate, Romney reprimanded Huntsman for implementing the policies of the Obama administration instead of helping Republicans across the country get elected. But Huntsman said his dedication to his former job should win him favor with voters.

“People want a leader who actually believes in putting their country first,” Huntsman told Kudlow. “And Governor Romney made it very clear yesterday that he believes in putting politics first.”

He also disagrees with Romney's stance on penalizing China for currency manipulation.

“If he imposes a tariff the first day he’s in office, as he has threatened to do, you will have retaliation immediately on the part of the Chinese and it will result in a trade war,” he said. “That is an absolutely nonsensical approach to doing business.”

While the Chinese aren’t appreciating their currency at a speed he’d like, he said the solutions need to be found during negotiations.

But he wouldn't join in the chorus of Republican candidates attacking Romney for his work as a venture capitalist. Instead, he thinks the front-runner’s record as governor is the bigger issue.

“They placed 47th in job growth in this country,” Huntsman said. “He didn’t put forward any big bold tax cut proposals, he didn’t put forward any tax cut offerings to his legislator, he didn’t do anything big, bold and courageous.”

Utah, on the other hand, was number one in job growth, delivered a flat tax, and reformed health care and education during his tenure, Huntsman said.

"What's most germane here is our records as governor," he said.

News From The Tax Foundation

2012-01-06T17:31:00.002-05:00

A new video from Scott Hodge, president of the Tax Foundation, shows how our current "worldwide" tax system of taxing foreign profits is a toll charge for investing cash back in the U.S. and why moving to a "territorial" tax system will boost U.S. competitiveness, jobs, and domestic investment.

Tim Carney's Retraction

2012-01-06T10:03:00.002-05:00

Blue-Collar Workers, Santorum, Kudlow
By Tim Carney, The Washington Examiner Senior Political Columnist
January 5, 2012

Tonight on CNBC, host Larry Kudlow had some forceful objections to my column today on Rick Santorum's popullsm, and the resistance that meets in Republican and conservative circles.

My column quoted Kudlow calling Santorum's economic plan "terrible," because it favors manufacturers by lowering their corporate income tax rate to 0%, while not doing the same for non-manufacturers. Kudlow says I accused him in the column of being anti-blue-collar. I certainly wrote that many Republicans are, but I don't agree that my column leveled this accusation specifically at Kudlow.

In fact, Kudlow wrote a column recently which sticks up for blue-collar workers.

He wrote: The Keystone opposition coming out of the White House is completely alienating all these people, the folks who work with their hands. And it’s these workers who have been decimated in the recession far more than any other group in the economy.

Kudlow and I have our disagreements about bailouts and taxes (and the meaning of my latest column), but on these points, we agree: (1) Santorum is wrong to pick winners & losers, and (2) many economy-distorting policies need to be fixed, but the policies that hurt blue-collar workers impose unique costs.

Ron Paul: Rick Santorum a Typical Big Government Republican

2012-01-05T10:07:00.003-05:00

A day after coming in third in the Iowa Republican presidential caucuses, Rep. Ron Paul (R-Texas) set his sights on New Hampshire and took aim at Rick Santorum. He also declared he had no intention of leaving the Republican party.

Santorum is a typical “big government Republican” who is not really conservative, Paul told Larry Kudlow Wednesday.

Paul said he’s the true fiscal conservative, who believes in free market economics—a concept that both Santorum and Newt Gingrich don’t understand.

“I think they think in terms of patching up things, and maintaining the status quo, and don’t rock the boat and you can’t cut anything,” Paul said.

However, former Massachusetts governor Mitt Romney deserved a “little bit of credit” for working in the private sector, he said.

Santorum, a former U.S. senator, finished just eight points behind Romney during Iowa’s caucuses Tuesday. The presidential battle has now shifted to New Hampshire, which hosts the first in the nation primary next week.

The congressman from Texas, who did well among independents and younger voters during Tuesday’s caucuses, told Kudlow he’s candidate who can bring those votes to the GOP. He also slammed those who tried to vilify his supporters throughout the campaign.

“I thought the party was a broad tent, a big tent, [that] brings people in … but aren’t young people pretty important?” Paul said. “I get real energized when I go to the campuses and talk about economic policy and talk about gold standards and things like this, but they don’t want to invite these people in.”

But while his libertarian views may have brought in independent voters, Paul dismissed the idea of running of an independent.

“Right now I’m doing so well, why would I think about it?” he said. “I was raised in a Republican family. I was elected twelve times to Congress as a Republican.”

Art for Newt

2011-12-29T15:03:00.002-05:00

“The purpose of economic policy is growth, jobs, and prosperity,” supply-side founder Art Laffer told me today. As such, Laffer has endorsed Newt Gingrich and the Gingrich 15 percent flat-tax plan, which includes the 12.5 percent corporate-tax reform. “It’s nothing against the other candidates,” Laffer said. “But Newt’s plan is right, and therefore endorsing him is the right thing to do.”
Laffer is concerned with the fact that Mitt Romney has no tax-reform plan, and he worries that Romney doesn’t believe in the incentive model of economic growth. “He’s a good man,” Laffer said. “And he would make a good president. But he needs a bold tax plan.”

Art Laffer believes the Gingrich plan would help jolt the economy to 4 or 5 percent growth. And he also is impressed that Gingrich has been talking about King Dollar on the campaign trail along with his supply-side tax strategy.

Was Gingrich actually one of the original supply-siders? Well, no. But he did hang around with Jack Kemp and others during the early 1980s in what became known as the Opportunity Society. So Newt’s bona fides are there.

Laffer also is impressed with Gingrich’s bipartisan abilities. He noted that Newt worked with Bill Clinton during the “Contract with America” 1990s to get welfare reform and a lower capital-gains tax.

What about the inevitable criticism from Obama that a flat tax is a huge tax cut for the rich? “Listen,” Art told me. “We want to make the poor, rich. And you can’t love jobs while hating job-creators.”

Whether Gingrich’s supply-side bus tour and Art Laffer’s endorsement help him in the remaining days of the Iowa campaign remains to be seen. Polls suggest that Newt is a stock still looking for a bottom. His campaign to use federal marshals to haul judges before Congress is way off the economic-growth message and did him a lot of damage. That’s what the latest polls suggest.

Now, if Gingrich can stay on message, and stick with supply-side solutions for growth, jobs, and prosperity, he could still bounce back over the next five days. But he must be disciplined and stay on message.

Market Better Off Now than a Week Ago: Bob Doll

2011-12-13T15:28:00.002-05:00

While Europe still struggles with its debt crisis, things are moving in the right direction in the United States and China, Bob Doll, Chief Equity Strategist at BlackRock, told Larry Kudlow Monday. And he thinks cyclical stocks will reap the benefits.

According to him, a few months ago, “the U.S. was heading into a recession, Europe was falling apart, China was going to have a strong landing and we had a lot of tightening going on.”

Now, the U.S. economy is showing a little growth and China is “a little less bad, maybe eventually good,” Doll said. “I think cyclicals will benefit.”

Stocks tumbled Monday, with the Dow dropping 163 points, after investors soured on a European Union plan adopted last week to enhance fiscal discipline in the euro zone in the hopes of quelling a two-year-old debt crisis.

There will be days like this when the market doesn’t think Europe can rescue its banks in time, Doll said. But he pointed out that it is not a “one way street.” And despite the volatile market, he thinks things are looking a little better.

“I think we are better off today than we were a week ago, but we’re still not where we need to be,” Doll said.

He also added, what’s happening in China is important to the global economy, noting that China’s inflation rate in November fell to the lowest level in more than a year.

“This is a step in the right direction that should allow more reserve requirement reductions.”

Obama's Big Class-Warfare Theme

2011-12-13T10:28:00.001-05:00

Following the GOP debate that nearly the whole world watched on Saturday night, the president on Sunday made it very clear that he will not back off his class-warfare vision in the coming year. Obama told Steve Kroft on 60 Minutes that middle-class inequality will be his big theme, and that somehow successful earners, investors, and small-business owners are to blame.

The president said that while fat-cat incomes went up 200 to 300 percent over the last few decades, middle-class incomes didn’t grow. This is not true, according to James Pethokoukis, whose blog posts citing various studies show that real median income rose at least 40 to 50 percent.

In any case, whatever the exact numbers, it’s still a mystery to me why successful people getting ahead cause anybody to fall behind. The Jack Kemp idea was always to foster a rising tide that would lift all boats. How can this happen if we penalize success and raise top tax rates on work and investment to 50 percent or more? That’s a mystery.

I should think, in a system of democratic capitalism, that more millionaires are a good thing. Show me a system of redistribution, and I’ll show you a system of economic stagnation.

Elsewhere in the interview the president said he did not overpromise on the results of his stimulus package. But actually, according to the original February 2009 stimulus documents, today’s unemployment rate should be close to 6 percent, not 8.6 percent. The president is now backing off by saying economic recovery is a long-term project that will take more than one term and more than one president.

By the way, Obama told the Today Show’s Matt Lauer in February 2009 that if he doesn’t “have this done in three years, then it’s going to be a one-term proposition.”

Which leads me to this thought regarding the GOP race: Since we basically know what Obama’s vision will be, which candidate will be better at besting Obama and his vision?

It’s going to be a battle between FDR’s 1930s and Ronald Reagan/Jack Kemp prosperity optimism.

One-on-One with Newt Gingrich

2011-12-07T10:29:00.002-05:00

It’s now just 29 days until voters head to the polls in Iowa. There's a clear new front-runner in the GOP race for president. The latest in national Gallop poll shows former House Speaker Newt Gingrich soaring to a 15 point lead over Mitt Romney, 37-to-22. Ron Paul and Rick Perry are trailing in single digits.

Joining me now for a first on CNBC interview is the aforementioned GOP front-runner, Newt Gingrich.

Mr. Speaker, welcome. We appreciate it very much.

Mr. NEWT GINGRICH: Thanks. It's great to be here, Larry.

KUDLOW: I want to ask you about Barack Obama on the campaign trail today, or whatever trail he's on. He's pushing his temporary payroll tax cut in order to have a permanent increase on millionaires and billionaires. And he says Republicans who oppose this are discredited, "you're-on-your-own style of economics." You're-on-your-own style of economics.' What is your response to that?

Mr. GINGRICH: I think we all have to recognize that the president is a student of Saul Alinsky. He represents a hard-left radicalism. He is opposed to free enterprise. He is opposed to capitalism. He's opposed to virtually everything which made America great, and he keeps using wild rhetoric that is simply false. I happen to favor keeping the tax cut because I like tax cuts.

KUDLOW: Why is that, though? That's a--you want to finance by higher taxes on millionaires?

Mr. GINGRICH: No. I want to finance it by cutting government.

KUDLOW: Well, that's what they want. They want to finance it with higher taxes on millionaires.

Mr. GINGRICH: But that's--but that's because--look, they know they want higher taxes on millionaires, they just need to know what this week's argument is. But they know what the answer is. My answer is government's too big. We don't have a problem of being undertaxed, we have a problem of being overspent. And so I would cut a tremendous amount out of the federal government. And I would--one of the things that we've developed with Peter Ferrara's help is a block grant program. There are 185 different federal programs to help the low-income American, 185 separate bureaucracies. Put them into two or three block grants, cut out all the federal bureaucracy, send it back to the states. You save hundreds of billions of dollars. The people at Strong America Now have a program on applying lean six sigma to the federal government. You can save, they believe, $500 billion a year through better government.

So my attitude is, I like the lowest possible taxes. If the Democrats want to give me a tax cut on working Americas by--on the Social Security level, fine.

KUDLOW: Yeah, but, Newt Gingrich, I'm going to challenge you on that. You were a close friend and associate of my mentor Jack Kemp.

Mr. GINGRICH: Right.

KUDLOW: We never believed in temporary one-yearlong tax cuts.

Mr. GINGRICH: Right.

KUDLOW: Whatever. They're just rebates. We believed in lower marginal tax rates which would improve after tax incentive to work and invest.

Mr. GINGRICH: I do, too.

KUDLOW: Are you going to sell me that this temporary one-year cut, which did nothing last year except waste money, is going to do nothing this year? Why are you so--why do you favor it?

Mr. GINGRICH: Look, I don't think...

KUDLOW: Why aren't you out there asking for pro-growth tax reform...

Mr. GINGRICH: I do.

KUDLOW: ...across the board?

Mr. GINGRICH: If you go to newt.org and you look at the things I recommend...

KUDLOW: Ah.

Mr. GINGRICH: ...you'll see lots of stuff I favor that's exactly what you believe in. All right? And I like pro-growth tax cuts. Listen, I'm for zero capital gains tax.

KUDLOW: Mm-hmm.

Mr. GINGRICH: I'm for abolishing the death tax. I'm for 100 percent expensing for all new equipment. I'm for a 12 1/2 percent corporate tax rate. I'm for an optional 15 percent flat tax on the--on the Hong Kong model. So I'm happy to match--you know, I was with you and Wanniski and Laffer and Kemp when this game started.

KUDLOW: Mm-hmm. That's...

Mr. GINGRICH: But, politically, psychologically, middle-class Americans sitting out here going, `OK, you don't want--you don't want to repeal the Bush tax cuts. You want to keep all those tax cuts. You say don't, don't let them go back up. But now we're going to let taxes go back up on every single working American.' I don't think psychologically you can make that case.

KUDLOW: All right.

Mr. GINGRICH: And so--and so I'd rather say to every single working American, `Not only am I with you, I want to pay for it by cutting out government waste, unlike Obama.'

KUDLOW: But the GOP has got to make that clear.

Mr. GINGRICH: Yeah, exactly.

KUDLOW: I mean, they really have to make--now I want to ask you a related question. I want to stay with President Obama for second. You can see with clarity on the campaign trail, and including this tax proposal which is about raising tax rates on the rich, is the whole election in 2012--if you're the candidate or whoever is the candidate against Obama, is it going to be about class warfare? Is it going to be about the 1 percent vs. the 99 percent?

Mr. GINGRICH: Absolutely.

KUDLOW: And what's your response? How will you rebut that?

Mr. GINGRICH: This is going to be the finest exercise in self-government in your lifetime. We're going to have the candidate of food stamps, the finest food stamp president in American history in Barack Obama, and we have a candidate of paychecks. And I'm going to make a simple case. You want class warfare, fine. You're going to get stuck on food stamps because it's going to kill jobs. You want really high tax rates? Fine. You're going to get stuck on food stamps because it's going to kill jobs. You want to watch America decay and China become the leading country in the world? Obama's got a model for getting you there. It's called Sal Alinsky's entire book.

Now, would you like to create jobs? The kind--I want to get equality by bringing people up. He wants to get equality by bringing people down. You know, Reagan use to have this great line about the British worker who stood by the road with his son or daughter, and a man goes by in a Rolls Royce, he says, `Someday we'll get him out of that car.' American worker stood by the side of the road with his son or daughter. A Cadillac went by and he said, `Someday you'll buy that car.'

KUDLOW: Ah, right.

Mr. GINGRICH: So I want to be the guy who says, `I want to help every American have a better future.' He wants to make sure that he levels Americans down so we all have an equally mediocre future.

KUDLOW: And yet, he is now calling himself a follower of Theodore Roosevelt, Teddy Roosevelt. And you have called yourself a follower of Teddy Roosevelt. And I'm trying to figure out--I know what his message is. Roosevelt did want to raise taxes on the--Roosevelt was a government activist. He was a regulator.

Mr. GINGRICH: Sure.

KUDLOW: But you're not. Why do you say you favor Teddy Roosevelt? And are you actually the conservative candidate that so many people are hoping you are?

Mr. GINGRICH: Well, first of all, there are a lot of different Teddy Roosevelts. He was a very complicated man. And the Theodore Roosevelt as president is very different than the Theodore Roosevelt in 1912 running for president on a very aggressive big government strategy. I like Roosevelt, first of all, because he was for conservation. I liked what he did in saving forests and saving national parks and doing things, caring about the inheritance we give our children and grandchildren of a wonderful country. I like the Roosevelt who is common sense about regulations. We got a food and drug act because back then there were no rules, and people were eating meat that was basically poisonous. People were literally dying from food.

When I was a kid, and we were stationed in Europe--my dad was in the Army—the sense that America actually had clean water was remarkable. I mean, I go anywhere in America, I'm relatively confident the water is good.

KUDLOW: But we don't--we don't lack for regulations.

Mr. GINGRICH: No.

KUDLOW: I mean, it's a different era than TR.

Mr. GINGRICH: But, no, it's a different era. But I'm just saying, but here was a guy who, as a pragmatic person looked around and said, `I want to fix these things. I want to find solutions.' He's also a great American nationalist. I mean, he's the guy who--the modern Navy was in part built by guys like Theodore Roosevelt.

KUDLOW: All right. I'm going to leave it there. Some people are going to say you're a big government conservative, a big government conservative rather than a small government conservative. I mean, why aren't you saying, `I'm a Ronald Reagan conservative.'

Mr. GINGRICH: I am a Ronald Reagan conservative.

KUDLOW: Or, `I'm a Jack Kemp conservative.'

Mr. GINGRICH: Look, I'm...

KUDLOW: I don't want to get stuck up on TR, but I just...

Mr. GINGRICH: Wait a second. Wait a sec--wait a second.

KUDLOW: I just want...

Mr. GINGRICH: Wait a second. I...

KUDLOW: You're a historian, and you're an intellectual historian. You know this stuff.

Mr. GINGRICH: Yeah. But you take a line out of context. I've done a movie on Ronald Reagan called "Rendezvous with Destiny."

KUDLOW: I understand.

Mr. GINGRICH: Callista and I did. We've done a book on Ronald Reagan. You know, I campaigned with Reagan. I first met with Reagan in '74. I'm very happy to talk about Ronald Reagan. And, in fact, I would argue that the 1994 contract was just Reaganism revisited. So I'm very comfortable. If you look at my speeches and things, I drive the left crazy by quoting Reagan.

KUDLOW: All right. We'll leave that one there.

Now, let me ask you some nastier stuff, not coming from me, but I want you to react. Big story at the top of Drudge today. Ron Paul is running ads slamming you, basically. OK? He's calling you hypocritical. He's saying you are an influence peddler for Freddie Mac and for drug companies and pharmaceutical associations. What's your reaction to that? He's running a lot of ads in Iowa.

Mr. GINGRICH: You know, he's got to make up a lot of lost ground. He's going to say something. My reaction is, you know, I'm a 90 percent American Conservative Union conservative, lifetime voting record. I am the only person in your lifetime--the only speaker of the House in your lifetime who has balanced the budget for four consecutive years. I helped craft and pass welfare reform, the largest entitlement reform in your lifetime. Two out of three people went back to work or went to school. I helped pass the first tax cut in 16 years and the largest capital gains tax cut in history. Unemployment dropped to 4.2 percent. In the four years I was speaker, we—11 million new jobs were created. We went from a projected deficit over 10 years of 2.7 trillion when I came in. Four years later when I left, there was a projected surplus of 2.3 trillion over the next 10 years. That's a swing of $5 trillion.

KUDLOW: I think it's all...

Mr. GINGRICH: OK. So my point...

KUDLOW: I think it's all great, and I think it's all factual.

Mr. GINGRICH: OK.

KUDLOW: But I want to ask you, do you regret, in hindsight, do you regret working for Freddie Mac to defend their point of view? Do you regret working for the pharmaceutical companies...

Mr. GINGRICH: Well, I...

KUDLOW: ...working for the drug entitlement, which so many...

Mr. GINGRICH: Wait a second.

KUDLOW: ...tea party, grassroots, conservative Republicans were appalled when George W. Bush pushed through that entitlement. Do you regret working on that side?

Mr. GINGRICH: Let me draw a distinction. First of all, I do no lobbying. I have never done any lobbying. It's written in our contracts that we do not do any lobbying of any kind. OK? I offer strategic advice. I--by--the advice I offered Fannie Mae was in--or Freddie Mac, was, in fact, aimed at how do you help people get into housing, and how do you--and I don't think government-sponsored enterprises are inherently evil. I think they've been bad--these two have been badly run. I favor breaking them up into four or five smaller units each because I think they're unmanageable at their current size. But I don't think the concept of a government-sponsored enterprise, which is as old as the country, is an inherently bad thing.

Second, I was--I was for the drug benefit for a practical reason. When Medicare was developed in 1965, there were no pharmaceuticals that mattered, so they designed a health benefit that didn't take care of pharmaceuticals. We were in a position, and we said to people, `We will give you kidney dialysis for the rest of your life, but we will not help you get insulin.' Now, that's both inhumane, and it's really a bad health policy, and it's stupid fiscally.

KUDLOW: I liked--I loved the health. I love the science. I didn't like the fiscal side of it. It was never paid for.

Mr. GINGRICH: Well, I don't like that, but what we....

KUDLOW: And it pushed--put Bush behind the--I mean, it really helped spawn the tea party. And so I just wonder, in retrospect, would you rather not have been on that side or would you rather have had your own plan, which would have financed it properly.

Mr. GINGRICH: Well, no. I'd--well, first of all, I think we're going to have to reform Medicare. I led the Medicare reform task force in 1996. We saved $200 billion over 10 years. We did it so well that nobody opposed us. I mean, we've never gotten any credit for having saved Medicare in '96, but, in fact, we did. But we did it with AARP being happy and with Clinton not fighting with us; and, therefore, it became a non-event in this city.

I think you're going to have to rethink all health care. I helped found the Center for Health Transformation. But the two big sidesteps that you had in--that are important in the Medicare bill in 2003 were, we created a
Medicare advantage option...

KUDLOW: Yes.

Mr. GINGRICH: ...which really began to allow Medicare to reach in...

KUDLOW: The best part of the bill. The single best part of the bill.

Mr. GINGRICH: Well, and, we also created health savings accounts.

KUDLOW: Yes. Yes.

Mr. GINGRICH: OK. Those two, in my mind, were the beginning of the right direction. And I tried for five years and couldn't get the Bush administration to realize they had begun a transition that would, frankly, have pre-empted the Obamacare approach.

KUDLOW: All right. So the Ron Paul ad also attacks you for your TV ad with Nancy Pelosi on global warning. I interviewed Ron Paul. I said, `Newt has said it was a bad, dumb thing to do. Will you forgive him?' And I think Ron Paul forgave you for that.

Mr. GINGRICH: Good.

KUDLOW: But I am impelled, I have to ask you, regarding Nancy Pelosi, her latest charge...

Mr. GINGRICH: Sure.

KUDLOW: ...that she has new information on your ethics investigation years ago. What's your response to that?

Mr. GINGRICH: Well, first of all, it tells you how political she was on the ethics committee. And it tells you--I called it a Christmas gift. And she can't--if she releases any of it, she has violated the rules of the House. But it also, just a reminder, that committee was extraordinarily partisan. The job of the Democrats was to get Newt Gingrich. They couldn't beat any of our ideas, so they decided to try to beat the messenger. And I think it actually will help people understand what happened in that period and how much of it was partisan.

KUDLOW: She--all right. Granted. But she's saying that she's not going to give unpublished information. She's going to help people cull through the public information. Is there anything in there that you can imagine that's going to pop out?

Mr. GINGRICH: We turned over a million pages of material. We cooperated in every way. They published a report. One of the things that made her mad was I said, at one point in a planning session--this was in the documentary turnover--that, you know, Bill Clinton might well decide to sell out the left and sign welfare reform, and if he did there's nothing we can do about it.

KUDLOW: She didn't like that.

Mr. GINGRICH: Well, she said, `Why would you say that?' I said, `Now, don't be mad at me. It's Clinton who sold you out, not me.'

KUDLOW: But didn't you help cut that deal?

Mr. GINGRICH: Of course I did, because it got us welfare reform.

KUDLOW: All right. Let me go on. Final point. And I appreciate your being here. Mitt Romney. Romney says you don't understand the economy and you can't recover it and grow it because you spent your entire life in professional politics. What's your answer to Mr. Romney?

Mr. GINGRICH: You are the worst possible questioner.

KUDLOW: The worst.

Mr. GINGRICH: You and I worked together with...

KUDLOW: I...

Mr. GINGRICH: ...with Richard Rahn, Jude Wanniski...

KUDLOW: I understand. But I'm doing my job.

Mr. GINGRICH: ...Art Laffer. I'm just saying.

KUDLOW: I'm doing my job.

Mr. GINGRICH: But you're a witness to this. I was part of Kemp's little cabal of supply-siders who, I think, largely by helping convince Reagan and then working with Reagan, profoundly changed the entire trajectory of the American economy in the 1980s. You can make an argument that I helped Mitt Romney get to be rich because I helped pass the legislations that...

KUDLOW: Not a bad argument. Have you ever made that argument to him?

Mr. GINGRICH: I am as of right this minute. Just occurred to me.

KUDLOW: You--you're the incentive models, the lower tax rates, the smaller government and the welfare reform...

Mr. GINGRICH: That's right.

KUDLOW: ...helped make him rich from Bain Capital.

Mr. GINGRICH: He should be thanking me. He should be thanking me because I did the macroeconomic things necessary to make his career possible.

KUDLOW: Yeah. Well, I'm going to get a response on that.

Mr. GINGRICH: I bet you will.

KUDLOW: I want to ask you--regarding Bain Capital, this is a tough time. I mean, the country has turned against Wall Street.

Mr. GINGRICH: Yeah.

KUDLOW: Against the Wall Street bailouts. Because Mr. Romney was successful--and I say God bless him he was successful--can he win as a financial guy, as a Wall Street guy?

Mr. GINGRICH: Sure.

KUDLOW: Is that a big issue for him?

Mr. GINGRICH: Sure. Can he win against Obama?

KUDLOW: Can he win against you in the Republican primaries?

Mr. GINGRICH: No. But that's--I hope not.

KUDLOW: Why...

Mr. GINGRICH: I can't--I can't sit here and offer advice on how he could
beat me.

KUDLOW: Well, you've done well. You've already said you've helped him.

Mr. GINGRICH: Look, I think Mitt Romney's a very smart man. I think—I think that he--any Republican could be proud to have him as their nominee, and I think he'd be very formidable against Obama. I happen to think I would be a better candidate than Mitt, but that's, I mean, we are, after all, competing here. But I'm not going to say anything negative about him. I think he's a terrific person. And, candidly, we, all of us who believe in free enterprise, have to be committed to explaining to people that the process of improving the economy, the process of becoming more competitive, the process of being more effective in the world market is best done in the private sector by people who, literally, in the tradition of Adam Smith, while following their own interest, create a dramatically better general interest. And we can't allow socialist and left-wing radicals to browbeat us and seize the moral high ground. Because they represent the future of poverty and impoverishment, and destruction and food stamps, and that isn't a good enough future for any American.

KUDLOW: And economic freedom is a moral issue.

Mr. GINGRICH: It is a moral issue, and it's at the heart of freedom. If you don't--the Founding Fathers almost wrote in "the right to property" instead of "the pursuit of happiness."

KUDLOW: That's right. That's what it was. Thank you. Newt Gingrich...

Mr. GINGRICH: Good to be with you.

KUDLOW: ...former speaker of the House, Republican front-runner. We appreciate you're here...

Mr. GINGRICH: Thank you.

One-on-One with Jon Huntsman

2011-12-06T13:23:00.002-05:00

GOP Presidential Candidate Jon Huntsman dismissed Donald Trump and the debate the real estate mogul and reality TV star will be moderating, and told Larry Kudlow he’s the only consistent conservative in the race.

The former Utah Governor and former ambassador to China likened the Newsmax-sponsored presidential debate to a reality show, and said he would not be participating.

“There’s some dignity associated with a run for the highest office in the land, and it shouldn’t be trivialized and it shouldn’t be dumbed down,” he said. “If Don Trump cares about our nation’s future, he should have been a candidate for president. He shouldn’t be manipulating the process from the sidelines.”

His statement was the latest in an ongoing war of words with Trump. Huntsman also denied Trump’s claim that he called several times to schedule a meeting in hopes of getting Trump’s endorsement.

“I called him once after he got out of the race, just like I called Tim Pawlenty, as a courtesy call,” Huntsman said. “Not looking for a meeting, not looking for support or anything else.”

One debate Huntsman said he will be doing is the “Lincoln-Douglas” debate Newt Gingrich in New Hampshire on December 12. He thinks it will provide an opportunity for an in-depth discussion of the issues.

“You can only get so much in 30 second sound bites,” he said. “People fall back on rehearsed lines and that doesn’t serve the purpose of educating the voting public about who you are and what it is you stand for.”

Huntsman also touted his conservative credentials, saying “You’re not going to find a more committed conservative in the race … I am a consistent conservative.”

He pointed to his pro-life, pro-second amendment stances. He also said as governor of Utah he delivered the largest tax cut in the history of the state and signed the second school choice voucher bill in the country.

Mitt Romney, on the other hand is a “flip-flopper conservative,” Huntsman said, adding that he thinks Newt Gingrich is “grandiose and a little bombastic.”

And while many may not know of his conservative views, Huntsman said he’s not going to pander for votes.

“I’m going to be who I am. I’m not going to contort myself into a pretzel,” he said. “I want a steady, substantive rise and that’s exactly what we’re getting in New Hampshire.”

Slamming Economic Inequality -- Not a Slam Dunk

2011-12-06T11:37:00.001-05:00

By Ronald Schmidt and Janice Willett
November 16, 2011

Ronald Schmidt is the Janice M. and Joseph T. Willett Professor of Business Administration, for Teaching and Service, at the University of Rochester’s William E. Simon Graduate School of Business Administration.

Janice Willett is a freelance editor and an alumna of the University of Rochester’s William E. Simon Graduate School of Business Administration.

Politicians and pundits, not to mention Occupy Wall Street participants and now Warren Buffett as well, voice concern that economic inequality is increasing and propose to reverse this trend by raising taxes on big earners. But whether or by how much inequality has actually changed is open to question, because the statistical analysis is often misleading.

The recent Congressional Budget Office report on income distribution is a case in point. It states that for the top 1 percent of households, “average real after-tax household income grew by 275 percent between 1979 and 2007,” compared with much smaller rates of increase for the other 99 percent. But a closer look shows that income inequality basically hasn’t changed since a quarter-century ago.

Why the discrepancy? For starters, the CBO report covers the period 1979 to 2007. According to the authors, 1979 was the earliest year for which certain Census Bureau data are available. Fair enough. The report also chose 1979 and 2007 as its beginning and end dates because “both were economic peak years just prior to a recession.” But the peaks were by no means equally intense—and the economic downturn of 2008 and 2009 can hardly be characterized as just “a recession.” It started from a much higher level of economic activity, occurred much more rapidly, and involved a much bigger increase in unemployment than did the recession following 1979.

So does the choice of 2007 as an end date affect the CBO results? The report itself says in passing (and perhaps disingenuously) that “the turmoil in financial markets in 2008 probably reversed some of that growth [in real after-tax income for the top 1 percent of households] but it is not clear by how much or for how long.” And yet the report was released late in 2011—surely the CBO has access to data that would have allowed a more definitive analysis.

According to IRS data, which extend through 2009, the average nominal Adjusted Gross Income (AGI) for filers with AGI of at least $500,000 declined by 17.8 percent from 2007 to 2009, and their average after-tax income declined by 19.9 percent. For those with AGI of less than $500,000, AGI declined by only 2.6 percent, and after-tax income declined by only 1.5 percent. These numbers certainly do not indicate an increase in income inequality.

In fact, there has been a marked decline in income inequality over the last decade. From 2000 to 2009, average AGI declined by 15.0 percent and average after-tax income declined by 11.0 percent for returns with AGI of at least $500,000. (Filers with an AGI of at least $500,000 represent 0.5 percent of all returns in both years, so this comparison is similar in spirit to the CBO report, which looks at the top 1 percent of households.) For all other returns, there were increases of 14.6 percent for average AGI and 17.3 percent for average after-tax income.

The CBO report also examines inequality trends on the basis of a Gini index for “market” income (which includes capital gains but not transfers such as welfare payments) and after-tax income. The Gini index can range from 0 to 1, with higher values signaling a more unequal income distribution. The CBO report shows the index increasing from 1979 to 2007—although almost all of the increase occurs over two periods, 1979 to 1986 and 2002 to 2007. And there’s still the question of what happened in 2008 and 2009.

As it turns out, a Gini index calculated on the basis of IRS data alone closely tracks the CBO Gini index for market income from 2000 to 2007 (the average difference is only .0023)—and its level in 2009 was essentially the same as in 2002. In short, most of the increase in the index from 2002 to 2007 was wiped out by the Great Recession—which means that most of the increase over the full 1979 to 2009 period covered in the CBO report had already occurred by 1986. Basically, the income distribution is the same as it was 25 years ago.

What about the common view that the top 1 percent are always the same people? The Occupiers, with their signs pitting the 99 percent against the 1 percent, have clearly fallen prey to this fallacy. But IRS data reveal that the business cycle creates and destroys high earners, as evidenced by swings in the number of ultra-high-income returns—those with AGI of at least $10 million, for which data were first published in 2000. From 11,215 in 2000, the number of these filers fell by more than half to 5,309 in 2002 before tripling to 18,394 in 2007 and then falling again by more than half to 8,274 in 2009. This does not square with the rich consistently getting richer—or even staying richer.

What could give rise to income inequality in the first place? Consider three males who graduated from high school in 1980 and worked full-time for the next three decades. (We use males and full-time workers only to abstract from variables such as changes in the gender composition of the labor force that could twist historical comparisons of earnings.) For one of them, education ends with high school, while the second gets a college degree and the third earns a graduate degree. In 1987, when these three were between the ages of 25 and 34, the average high school graduate earned $22,595, while a college graduate earned $31,631 and a holder of a graduate degree earned $36,667. But 20 years later, in 2007, the corresponding averages for male full-time workers ages 45 to 54 were $46,667, $88,242, and $120,391.

Unequal? Yes. But the increase in inequality arose because these individuals made different decisions about their education, not because tax policy favors the rich. In essence, economic inequality is another term for incentives that encourage investment in education—or, for that matter, starting a new business. Of course, most new start-ups fail, so there’s a lot of risk involved. But taxing the successful ones will not make failures less likely—and it will discourage the risky investments that are the engine of economic growth. Just ask your local lottery retailer if more tickets are sold when the prizes are large or when they are small.

In short, there has been no significant deterioration in economic equality that could serve as a pretext for raising tax rates. And as has been pointed out elsewhere, there simply aren’t enough rich people—nor do they earn enough money—to close the budget deficit. If we want to solve our budget problems, we need to cut spending. And if the Occupiers really want to help, they might consider that instead of heckling bankers and spending cold nights in a public park, they could study for the LSAT, MCAT, or GMAT and become high-tax-paying citizens.

The Dems and the Supercommittee Debate

2011-11-22T10:45:00.001-05:00

Didn’t our Democratic friends always intend to derail the supercommittee over the top Bush tax rates? You remember that $800 billion revenue number always floating around from the Democratic leaks? Well, that’s the static-revenue estimate of repealing the 35 percent and 33 percent Bush rates. And sometimes that Democratic revenue number moved up to $1.2 trillion. Well, that would include the static-revenue estimate of the 5.6 percent millionaire surtax. Get it?

In an important sense, the whole supercommittee debate from the Democratic side was about taxing the rich. They never went quite as far as Obama’s populist class-warfare rant, at least not publically. But basically this logjam was about so-called tax fairness.

Ironically, when the automatic spending cuts trigger in, Speaker John Boehner will win out. His original vision -- going back to the debt-ceiling debate last summer -- was $1 in spending cuts for each $1 of debt increase. So the sequester will get $1.2 trillion in spending cuts on top of last summer’s $1 trillion.

No it’s not great. We should have done $4 trillion to $6 trillion by reforming entitlements and undergoing pro-growth tax reform for individuals and corporations. But at the end of the day, we dodged a super tax hike and got a couple trillion dollars of lower spending. Not the worst thing in the world.

Junk the Trigger? It's an X-Rated Option

2011-11-19T08:39:00.002-05:00

Instead of a super tax hike from the supercommittee, a much better option for the economy and budget-cutting credibility would be to implement plan B, which is the automatic spending-cut trigger known as sequestration.

The Wall Street Journal editorial on the sequester scenario shows a roughly $70 billion budget cut in 2013 and probably more in the future as the budget baseline is pulled down. A $70 billion cut would be one of the largest on record -- maybe the largest. It would show real budget discipline. And it is vastly superior to the economy-killing $500 billion to $800 billion tax hike supported by Democrats who oppose true tax reform that would lower marginal rates and broaden the base.

But both parties are quaking in their boots over the automatic budget-cutting trigger.

I interviewed senator and supercommittee-member Pat Toomey last night on CNBC. He has the best tax-reform plan, which would drop the top rate to 28 percent, bring other rates down, and limit upper-income deductions and exemptions. Unfortunately, Sen. Toomey’s plan does not at this point appear to have bipartisan support.

Nevertheless, Toomey told me that the automatic trigger has big problems. Specifically, he noted that half the trigger would be concentrated on defense. Then he said, “In the very unfortunate event that our committee were not to be successful, and I still hope we will, but if not, then I think we would have a very concerted effort to reconfigure the sequestration.”

Mr. Toomey’s Republican colleagues undoubtedly agree with this reconfiguration. But you can bet the Democrats on the committee will not. So the only way out would be the most irresponsible way out: junking the automatic spending-cut trigger altogether.

And that option would be a disaster for financial markets. Stocks would plunge. Think back to last July and August during the debt-ceiling debate. Junking the trigger would be a fiscal blight and would mean a sure credit downgrade.

For those who worry about the defense problem, leave it to a post-election Congress that could provide a supplemental to add back some defense spending if necessary. All the budget issues will be revisited post-election anyway.

But junking the trigger would be a fiscal calamity for the United States. It’s an X-rated option. Don’t even think about it.

The U.S. Is Stronger than Most Folks Think

2011-11-18T10:37:00.001-05:00

You wouldn’t know it from yesterday’s down day in the stock market. But the daily numbers continue to show an economy that is stronger than most folks think.

Today, for example, initial jobless claims fell to 388,000 -- the lowest level in seven months. And the Philly Fed manufacturing index, which translates to 53 on an ISM basis, shows a very strong employment component.

Earlier in the week, the index of industrial production beat estimates with an especially strong reading on business equipment. That spells strong capital-goods investment, itself a job creator.

Retail sales in October also beat estimates, and are rising over 7 percent against year-ago. Both producer and consumer price inflation dropped slightly in October.

Smart economists like John Ryding and Conrad DeQuadros are predicting 3 percent real GDP for Q4. Another luminary, Joe LaVorgna, thinks GDP could actually be 4 percent for the quarter ending in December.

All these better readings continue to clash with market pessimism over Europe’s debt and banking problems. Today on CNBC, however, St. Louis Fed president Jim Bullard said the European problem will be contained, and that it won’t have much effect on the U.S. economy.

And eminent economist Art Laffer believes the new Italian government run by Mario Monti is putting together a pro-growth economic plan to extend the retirement age of public workers, knock out 300,000 government-sector jobs, overhaul the tax system, and privatize state-owned properties. Laffer believes Monti, the former European commissioner for taxes, favors pro-growth reform and simplification. Laffer also thinks Germany will knock its budget deficit under 3 percent, with spending cuts combined with a small tax cut.

In other words, the European story may not be quite as bad as the bond-market vigilantes believe.

There’s no question that the Eurozone is close to recession, and that many of its members still have massive work to do. They need to live within their means, thwart the social-welfare entitlement system, and curb government-union excess. Plus there’s the need for flatter-tax simplification to promote growth.

But I can’t help but think that whatever the state of decline in Europe may be, it is the U.S. that ultimately will benefit. Despite the class-warfare mistakes coming out of Washington and a weak-kneed supercommittee, political regime change is coming. Meanwhile, the U.S. economy is more resilient and perhaps even stronger than people think.

Five Lessons for America from the European Fiscal Crisis

2011-11-17T12:27:00.003-05:00

Here's a very timely video on Europe's fiscal crisis, narrated by an Italian student who was an intern at Cato Institute. The text is written by Dan Mitchell, a senior fellow at Cato and a top expert on tax reform and supply-side tax policy.

I’ve written about the fiscal implosion in Europe and warned that America faces the same fate if we don’t reform poorly designed entitlement programs such as Medicare and Medicaid.

But this new video from the Center for Freedom and Prosperity, narrated by an Italian student and former Cato Institute intern, may be the best explanation of what went wrong in Europe and what should happen in the United States to avoid a similar meltdown.

particularly like the five lessons she identifies.

1. Higher taxes lead to higher spending, not lower deficits. Miss Morandotti looks at the evidence from Europe and shows that politicians almost always claim that higher taxes will be used to reduce red ink, but the inevitable result is bigger government. This is a lesson that gullible Republicans need to learn – especially since some of them want to acquiesce to a tax hike as part of the “Supercommitee” negotiations.

2. A value-added tax would be a disaster. This was music to my ears since I have repeatedly warned that the statists won’t be able to impose a European-style welfare state in the United States without first imposing this European-style money machine for big government.

3. A welfare state cripples the human spirit. This was the point eloquently made by Hadley Heath of the Independent Women’s Forum in a recent video.

4. Nations reach a point of no return when the number of people mooching off government exceeds the number of people producing. Indeed, Miss Morandotti drew these two cartoons showing how the welfare state inevitably leads to fiscal collapse.

5. Bailouts don’t work. This also was a powerful lesson. Imagine how much better things would be in Europe if Greece never received an initial bailout. Much less money would have been flushed down the toilet and this tough-love approach would have sent a very positive message to nations such as Portugal, Italy, and Spain about the danger of continued excessive spending.

If I was doing this video, I would have added one more message. If nations want a return to fiscal sanity, they need to follow “Mitchell’s Golden Rule,” which simply states that the private sector should grow faster than the government.

This rule is not overly demanding (spending actually should be substantially cut, including elimination of departments such as HUD, Transportation, Education, Agriculture, etc), but if maintained over a lengthy period will eliminate all red ink. More importantly, it will reduce the burden of government spending relative to the productive sector of the economy.

Unfortunately, the politicians have done precisely the wrong thing during the Bush-Obama spending binge. Government has grown faster than the private sector. This is why this new video is so timely. Europe is collapsing before our eyes, yet the political elite in Washington think it’s okay to maintain business-as-usual policies.

Super Committee Co-Chair: Tax Hikes Won't Happen

2011-11-16T10:16:00.001-05:00

The 12 member congressional “super committee” is still working on a deficit deal, but Co-chairman Jeb Hensarling (R-TX) said on the Kudlow Report that "super" tax hikes will not be part of any compromise.

“We’re facing a jobs crisis and a debt crisis,” he said. “We’re certainly not going to exacerbate one by trying to address the other. Frankly, that’s one of the reasons we are stymied at the moment.”

Hensarling denied any knowledge of what the Wall Street Journal said was a plan for $300 billion in tax revenues up front and $500 billion in tax revenues later.
“As the co-chairman of the committee, I don’t know what agreement you are talking about," he said. "It certainly hasn’t been presented to me.”

The super committee has until November 23rd to agree on a plan to cut the federal deficit. The legislation that established the panel of six Democrats and six Republicans put in place an enforcement mechanism that will trigger automatic cuts if the committee fails to reach an agreement on $1.2 trillion in deficit cuts over 10years.

Hensarling told me that Republicans have gone as far as they feel they can go.
“We put $250 billion of what is known as static revenue on the table, but only if we can bring down rates,” he said.

Hensarling believes they can bring down the top individual tax rate to between 28 and 30 percent and the corporate rate to 25 percent.

"On balance, we think that would be pro-growth," he added. "But, listen, any penny of increased static revenue is a step in the wrong direction. We can only balance that with pro-growth reforms. And, frankly, the Democrats have never agreed to that.”

U.S. Banks Benefiting from European Crisis

2011-11-15T09:27:00.002-05:00

Fears over the European debt crisis sent the market lower Monday, with financial stocks leading the way, but Rochdale Securities' Dick Bove said that what’s happening in the euro zone is actually helping banks.

“The irony of what’s going on right now is that the banks are benefiting at the moment from what’s going on in Europe,” he said on The Kudlow Report. “The European banks are selling American assets to American banks at discounted prices which is creating a benefit for the American banks.”

The fact of the matter is banking companies are in pretty good shape, Bove noted.
U.S. banks, however, are flush with cash and therefore there should be no fears over funding issues, Bove said. In fact, he thinks they are overcapitalized.

“If you take all the numbers going back 75 years to when the FDIC was first created,” he said, “we’ve never had this high a level of capital plus reserves as a percentage of assets in the banking industry, ever.”

Plus, deposits are pouring in because when people are afraid of what’s happening in the market, they put their money in the bank.

“The banks have too much liquidity right now, too much capital right now,” he said. “There is no funding issue.”

What banks are Bove’s picks? He likes JP Morgan Chase, U.S. Bancorp, and Morgan Stanley.

One-on-One with Newt Gingrich

2011-11-09T09:44:00.000-05:00

The idea of 99 percent of the population versus 1 percent of the rich, which Occupy Wall Street protestors have made their mantra, is just wrong, GOP presidential candidate Newt Gingrich said on “The Kudlow Report” last night.

“I am for 100 percent,” he said. “I think this idea of 99 percent and 1 percent is grotesque European socialist class warfare baloney.”

And President Obama is playing right along with that class warfare by expressing sympathy for the protesters, he added.

“I repudiate anybody who wants to divide Americans and I think that that there is a fundamental destructive quality to this 99 percent idea,” Gingrich said. “I think that it is shameful the president of the United States would engage in class warfare and pit Americans against each other in way which can only be destructive of the fabric of American society.”

The former Speaker of the House, who is set to join the other seven candidates in a CNBC debate Wednesday, has been rising in the polls recently. An NBC News/Wall Street Journal poll on Monday put him in third place. In another survey, he’s just six points behind President Obama in a hypothetical match up.

If elected president, Gingrich plans to jump start the economy and create jobs by taking a page from Ronald Reagan.

The plan, he said, is simple—“lower taxes, less regulation, more American energy and work with the people who create jobs and don’t engage in class warfare against them.”
Gingrich noted that while he was Speaker of the House, he worked with President Clinton on reforming welfare and cutting taxes. But Clinton was a centrist, he said, while Obama is a genuine “radical” who has difficulty negotiating.

The candidate also addressed the sexual harassment allegations plaguing his rival Herman Cain, telling Kudlow that Cain did the right thing by addressing the claims.
“He was clear, he was forceful and he certainly deserves people giving him the benefit of the doubt," he said.

But, he noted, we'll have to wait and see how it plays out. “It’s not over yet,” he added.

Stronger Than We Think?

2011-11-08T20:55:00.000-05:00

Is the American economy stronger than we think?

Small-business jobs in the Labor Department household survey have increased by an average 335,000 in each of the last three months. Kelly Evans of the Wall Street Journal notes that the ADP survey is showing stronger small-business employment. Earlier reports on business-capital investment show considerable strength. Despite all the debt and banking-contagion worries over in Europe, the U.S. stock market continues to creep higher. Initial jobless claims have slipped under 400,000. Oil prices continue to rise, gaining almost $20 over the past few months. Bank loans to businesses are rising in double digits. So is the M2 money supply. And corporate profits have exceeded expectations once again.

No, Washington is not helping. Neither is Europe. China looks shakier and shakier. And we know that consumer real incomes and housing are still problematic.

But let me wonder out loud: Is the American economy stronger than we think?

Will Bernanke Soon Surprise the U.S.?

2011-11-04T08:20:00.001-04:00

Will the Federal Reserve’s Ben Bernanke soon follow the European Central Bank’s Mario Draghi? In his first action as Jean-Claude Trichet’s replacement, Draghi cut the ECB target rate by a quarter percent to 1.25 percent from 1.5 percent. It was a surprise.

Given the hullabaloo over Greece’s bailout referendum (which is now dead in the water) and the likelihood of a new Greek government, Draghi’s liquidity addition is a modest but useful antidote to major financial stress and uncertainty in the Eurozone. He’s probably going to cut rates a lot more in view of Europe’s perilous financial and economic situation.

So that leads to this question: Will Bernanke soon surprise the U.S.?

At his news conference yesterday, the Fed head emphasized the ongoing weakness in housing as a key factor in the sluggish economy and high unemployment rate. He openly acknowledged that the door is wide open for a new Fed action to purchase mortgage-backed bonds in order to provide additional support for the weak housing market. This goes beyond Fed actions to reinvest MBS bonds as they mature. In other words, quantitative easing.

Wall Street may be impressed with recent economic data, like the ISMs and other stats that show the economy is not now flipping into recession. But Bernanke is less impressed. The Fed downgraded its 2012 forecast for real growth from 3.5 percent to 2.7 percent. And it raised its unemployment estimate for next year from 8 percent to 8.6 percent by year-end 2012. And despite continued inflation pressures, the central bank essentially kept its inflation target at a low 1.7 percent.

So it’s not unreasonable to suggest that Bernanke is setting the stage for a new round of QE. Growth at 2.7 percent is insufficient to significantly reduce unemployment. And housing remains a big problem. So while the U.S. doesn’t face the kind of financial stress that Europe does, Bernanke may follow Draghi with a U.S. easing move.

One-on-One with Ron Paul

2011-11-03T11:36:00.001-04:00

The Federal Reserve is still in quantitative easing mode despite the fact that it announced Wednesday it would hold off any new actions to aid the economy, Republican presidential candidate and Congressman Ron Paul said on the Kudlow Report last night. Take a listen:

One-on-One with Dick Bove

2011-11-02T18:45:00.000-04:00

Investors dumping U.S. bank stocks are overreacting to all the European debt crisis speculation, Rochdale Securities’ Dick Bove said last night on the Kudlow Report.

“I think we’ve gone nuts,” he said. “I think these [U.S. bank] stocks are so cheap, that people should be buying them as aggressively as they could.”

The financials led the S&P lower Tuesday after investors fled the market on fears that the European debt deal could fall apart. After conflicting reports on whether Greece plans to hold a referendum on the debt agreement reached last week, the government jumped in to say the vote is on.

But what's happening in Europe should not affect U.S. banks, Bove said, because most have virtually no exposure to the EU. Plus, most banks beat their earnings estimates for the third quarter.

As for the “five big American banks” that do have exposure to Europe, their risk is “not very great at all.”

That’s because Bove believes the EU will not let its banks fail.

“The ECB will do, if you want, a QE2,” he said. “It’s going to save all of the major European banks. It’s already shown its will to do so.”

No Reason for More Fed QE

2011-11-01T08:22:00.002-04:00

The Fed is meeting Tuesday-Wednesday on monetary policy. The FOMC statement will be released at 12:30 p.m. on Wednesday, and then Ben Bernanke will have a news conference at 2:15 p.m.

With both real GDP and inflation at 2.5 percent, there doesn’t seem to be much of a case for new Fed quantitative easing. While unemployment is high, that’s a function of regulatory and tax obstacles -- certainly not tight money. Both QE1 and QE2 have failed to bring down unemployment. There’s a lesson there.

The real side of the economy is governed more by tax and regulatory policies that either create new incentives for growth or take those incentives away. And massive spending stimulus threatens higher future tax rates -- a disincentive for growth and job creation.

The monetary-policy lever affects the level of prices and the inflation rate, along with the dollar’s value. But money has no permanent impact on jobs and growth.

Now here are some interesting statistics. Believe it or not, business loans are picking up. According to the Fed, commercial and industrial loans by banks to business have increased 16 percent annually over the last 13 weeks and 11.9 percent annually over the last 26 weeks. So some expansion is going on out there. And that’s what the strong business capital-goods-investment numbers showed in Q3 GDP.

Here’s a second stat. Over the past year, the M2 money supply has grown at 10.2 percent while C&I loans have increased 9.2 percent. So as credit is expanded to business, the deposit base of the banking system is also expanding. And as those $1.6 trillion in excess bank reserves on deposit at the Fed are put to work, credit expansion is going to be that much stronger.

Cain Charges Are Clearly Vague

2011-10-31T17:39:00.001-04:00

We all know that Herman Cain is strongly denying the sexual harassment charges written up in the Politico story. And he has said that he was falsely accused while at the National Restaurant Association.

But there’s a sentence in the Politico story that I wanted to point out to everyone. It makes no sense at all: “There were also descriptions of physical gestures that were not overtly sexual but that made women who experienced or witnessed them uncomfortable and that they regarded as improper in a professional relationship.”

What does this mean?

The gestures weren’t overtly sexual, but the women were uncomfortable and believed the gestures were improper in a professional relationship. These are all second-hand testimonies from “close associates” of the women accusers, but I don’t know what standards are being talked about.

I mean, based on this sort of thing, anybody could think anything about almost anything. I’m not blasting the Politico people per se. I just don’t understand the meaning of what they’re reporting.

Basically, if Herman Cain faces new and additional charges, I guess he’s gonna have a big problem. But right now this is just too vague for me. It may well be that it was cheaper to send the women packing with a settlement than go through a long hearing with huge legal fees. I just don’t know.

But with so many of Cain’s fellow board members and co-workers praising him, as Politico reported, I just don’t think there’s much behind this.

One-on-One with Charles Dallara

2011-10-28T09:06:00.002-04:00

Fresh back from Brussels, former assistant US Treasury Secretary Charles Dallara. He is the managing director for the Institute of International Finance. He was the lead negotiator for the banks and the private creditors regarding the Greek debt.

Rick Perry: Flat Tax is 'Tax Cut for Everyone'

2011-10-26T09:47:00.003-04:00

GOP presidential candidate Rick Perry, who unveiled his 20 percent flat tax Tuesday, said his economic plan will “lower taxes across the board” and pull back every regulation that has been implemented since the 2008 financial crisis. He also dismissed criticism that it would raise taxes on the middle class.

“This is a tax cut for everyone in this country. Those who want to pick this apart, those that want to play class warfare, that’s their business,” Perry said. “Let’s not get down in the weeds here from the standpoint of going and saying this person over here is going to get a little bit different tax.”

The Texas governor is hoping his “Cut, Balance and Grow” plan will help jump-start his fading presidential campaign. He’s now trailing four other contenders for the 2012 Republican nomination in a new CBS/New York Times poll. He stands at 6 percent, Herman Cain is leading the pack with 25 percent and Mitt Romney is in second place with 21 percent.

His plan calls for a 20 percent flat rate on individual and corporate income and has a $12,500 exemption per person. It will keep deductions for mortgage interest, charitable deductions and local taxes.

“We need to get America working,” Perry said. “We need a president who understands that the way to get this country back on track is by lowering the tax burden and particularly the regulatory climate and that’s what this plan does.”

In fact, he plans on “pulling back every regulation that’s gone into effect since 2008.” He would repeal Dodd Frank, section 404 of the Sarbanes-Oxley Act—which requires companies to provide an auditor's report on the adequacy of their internal controls—and “Obamacare.”

“Let me tell you, if you do just those things, put this flat tax in place and the stock market would go through the roof,” he said. “But more importantly, there are going to be a lot of people who don’t have a job today that will have one.”

Perry also vowed that his economic plan, which cuts government spending and overhauls the Social Security program, will balance the budget by 2020.

And if you don’t like the flat tax, you can stay in the old system, he said.

As for his rivals, Perry dismissed Herman Cain’s 9-9-9 plan, saying the new sales tax “will not happen.” He said Mitt Romney’s economic plan "nibbles around the edges.”

“We need to clearly put in a tax structure that’s flat, that’s simple, that’s fair,” he said.

What Needs to Happen in Europe

2011-10-18T16:11:00.002-04:00

The fear level in the market is so high right now that there has to be some solution to the greater problems before we can start to look at bank stocks on a fundamental basis, Rochdale Securities’ Dick Bove said in an interview on The Kudlow Report.

Stocks suffered their worst loss in two weeks on Monday after comments from Germany's finance minister caused investors to fear Europe's solution to its debt crisis may not come fast enough.

The solution, Bove said, starts with the recapitalization of European banks.

“The problem is you cannot resolve the Greek problem without debt forgiveness and you can’t give Greece debt forgiveness unless you allow the banks to writedown the Greek debt,” he said. “And you can’t allow the writedown of the Greek debt until you get equity capitalization of those banks.”

And that equity recapitalization has to come from the private sector, he added.

“I’m taking about the private sector putting the money into those banks to rebuild the capital similar to what happened in the United States in the last crisis here in 2008 and similar to happened in the United States in the late 1980s, early 1990s,” Bove said.

Once that debt forgiveness happens, he said, the Europeans can start to rebuild their economies.

One-on-One with Governor Rick Perry

2011-10-14T10:56:00.002-04:00

I had the pleasure of interviewing Gov. Rick Perry last night on The Kudlow Report. The GOP presidential hopeful said he wants to dramatically increase oil and gas exploration and in the process create more than a million jobs.

Dexia and the European Wake-up

2011-10-12T08:23:00.002-04:00

Yesterday’s massive 330-point stock market rally was generally linked to an expected Merkel-Sarkozy summit in a couple of weeks to nail down a new European rescue plan for bad government debt and troubled banks. But I think the more immediate cause of yesterday’s rally was the news that European leaders are rescuing the underwater bank Dexia. This bank-rescue mission looks to me like a new model to save all the European banks from the risk of catastrophic meltdown and contagion.

There are some key principles in the rescue -- nationalization, good-bank/bad-bank breakup, asset sales, and long-term guarantees of bank deposits and liabilities -- that could make Dexia a seminal event if it is saved. And it appears as though the authorities are road-testing the rescue as a model for bigger banks that may be in deeper trouble.

I am especially interested in the deposit and liability guarantees. I think these will be part of a big Euro-TARP capital-injection program based on the EFSF rescue fund of the ECB and IMF. In other words, like the FDIC, Treasury, and Fed guarantees of all bank and money-market funds in late 2008, the Europeans may do likewise as Greece defaults. The rescue funds will then support the banks, probably inject some debt capital or preferred shares, and then with those guarantees have the banks raise private-equity capital in the marketplace as soon as possible.

Dexia looks to me like the first example of the European wake-up. As such, it triggered a big bank-stock rally which led to the overall market rise.

One thing I don’t favor is a bailout of the sovereign countries. Greece should default, at least in a structured way, with large bond haircuts. Portugal, Italy -- they should not be bailed out. But the banks will have to be bailed out, as distasteful as that may be, in order to avoid a global catastrophe.

This is where the troika support is necessary, and the principle of guaranteeing all deposits and liabilities will be very helpful.

A final thought: I am persuaded that the ECB should cut rates and move to quantitative easing as part of the solution to the deep financial stresses that are pulling down the European economy. And I have a sneaking suspicion that Ben Bernanke will move to QE if the ECB does, even though it hasn’t worked up to now. Maybe this talk of pouring in money to raise nominal GDP will be the Fed’s new raison d’être.

But if the ECB runs a big QE to pump in liquidity (following the Bank of England), then the dollar is going to keep shooting up, imparting deflationary pressures on the U.S. economy that we cannot afford.

Whether Bernanke thinks in these terms remains to be seen.

One-on-One with Jack Welch

2011-10-07T09:29:00.003-04:00

Yesterday I spoke to the legendary Jack Welch, former Chairman and CEO of GE. In addition to his comments on a variety of issues, I began asking Mr. Welch about the very sad passing of Steve Jobs. Take a listen:

One-on-One with Bank of America's Brian Moynihan

2011-10-06T08:58:00.002-04:00

I had the chance to sit down with Bank of America CEO Brian Moynihan yesterday at the Washington Ideas Forum. We cover a lot of ground. Take a listen:

Chris Christie's Decision

2011-10-05T10:08:00.001-04:00

So, Gov. Chris Christie gracefully, elegantly, and forcefully decided to stay out of the race.

Fortunately, the logic was consistent with past statements these many months that he has a job to do in New Jersey, he can’t leave that job unfinished, and he’s not going to walk away from the people who elected him. He has a loyalty to the state of New Jersey.

In the end, he said, “Now is not my time.”

No one will know that for sure, but if that’s what the governor believes, then he is right. I think he showed a lot of character in his news conference. And Chris Christie is full of good character.

Also, he continues to criticize President Obama. Christie said he has failed the leadership test. On the attack, Christie said, “Make sure President Obama is a one-termer.”

So you can bet Governor Christie will be on the campaign trail fighting to make Obama a one-termer. He’s not going to endorse in the GOP primary yet. But he’ll be on the hustings. I go back to what I think was the key point in Christie’s Reagan Library speech: Obama’s class-warfare, soak-the-rich policies are dividing the country, demonizing success, and sending a demoralizing message.

I hope Christie keeps the drumbeat going.

Still Front End of Recession

2011-10-04T09:32:00.002-04:00

The stronger-than-expected ISM manufacturing-index reading for September might normally suggest that the economy, at least for now, has dodged a recession bullet. After zero jobs and zero real consumer spending in August, which put the stalled economy on the front end of recession, the ISM number is the first major September reading.

But economist Michael Darda says hold the applause: Inside the ISM, new orders and order backlogs either flat-lined or declined and remain below 50 -- the DMZ recession marker on the index.

Darda believes weak data in the U.S., plus the ongoing European crisis, plus the China slowdown, plus widened corporate credit spreads and stressful financial conditions, all point to a declining economy and additional stock market drops.

Lakshman Achuthan of the Economic Cycle Research Institute (ECRI) is also on the bear side. He has a falling weekly leading index that signals recession is inevitable. “It’s either just begun, or it’s right in front of us,” he told CNN Money.

Tough stuff.

But another deepening economic problem is a lack of confidence. Scott Rasmussen, one of the nation’s best political pollsters, also publishes important and accurate consumer-confidence indexes. On a monthly basis, he is showing a huge confidence drop of 26 percent, from 88.3 last January to 65.6 through August. His reasons? There are several.

First, the majority of Americans believe we are still in recession and that the recession is dragging on. Second, the housing market is a killer (for the economy, as well as consumer sentiment). According to Rasmussen, fewer than half believe their homes are worth more than their mortgages. Only 23 percent expect their home values to go up this year. And with the market still at fall 2008 levels, people are obviously much less well off than they used to be.

And there’s more. Today, only 29 percent rate their finances as good or excellent. The night before Lehman collapsed, 43 percent rated their finances as good or excellent.

And on the political front, while people are rejecting Obama, they are also rejecting both political parties and the entire political process. According to Rasmussen, 73 percent don’t expect any deficit reduction before the 2012 election. Folks want any deal to include mostly spending cuts, but expect it will include mostly tax hikes. And if tax hikes are agreed to, 62 percent say the money will be spent on new programs rather than deficit reduction.

On top of all that, economist Alan Reynolds reminds us that the president’s so-called jobs plan proposes large and permanent increases in the highest income-tax rates in order to “pay for” a small and temporary cut in payroll taxes. Reynolds goes on to say that permanently higher tax rates on income to pay for temporarily lower tax rates on payrolls is not stimulus by anybody’s definition.

And of course, taxing millionaires and billionaires -- especially the Warren Buffet plan to raise the minimum tax rate on capital gains -- demonizes success and makes war on capital formation. Gov. Chris Christie calls this a demoralizing message.

So for now, I’ll stay with my take: We’re still on the front end of a recession.

Obama as Demoralizer-in-Chief

2011-09-29T20:32:00.000-04:00

So just when everyone had concluded the Chris Christie matter — saying “Great speech at the Reagan Library, but he’s not gonna run for president” — the New York Post comes along with a story that says the New Jersey governor is seriously considering a 2012 run. Apparently the Reagan Library experience had a big impact on Christie, and others. He’s now being urged to go for it by Nancy Reagan, Henry Kissinger, former president George W. Bush, and former first lady Barbara Bush.

According to the Post story, even Christie’s wife Mary Pat is warming to the idea.

I don’t have anything to add to this in the way of a forecast. But it does give me a hook to weigh in on Christie’s speech. It was uplifting and inspiring. As many have commented, it was a Reagan leadership speech on exceptionalism, or “earned American exceptionalism,” as the Wall Street Journal editors put it. I agree.

There are a couple a points that I want to emphasize, though.

First, Christie gets the linkage between domestic economic growth, national security, and foreign-policy influence. This was an absolute key Reagan principle.

Reagan’s firing of the PATCO workers was heard around the world by the old Soviet Union. But it was Reagan’s tax cuts, limited government, deregulation, disinflation (with Paul Volcker), and free-trade policies that grew the economy by nearly 5 percent annually during the recovery period of the 1980s, with nearly 20 million new jobs added. That ultimately knocked out the Soviet Union. (Throw in deregulated oil prices, too. They decimated Soviet coffers.)

Second, at the Reagan Library, Christie talked about the New Jersey model, where in a tough war against government unions and teachers, divided government worked to reform the state’s pension and health benefits, cap property taxes, and hold down arbitration awards for union salaries. (Christie didn’t mention this, but he also stopped the millionaire’s tax in New Jersey.)

And while the governor said there was compromise on a bipartisan basis, and while he emphasized leadership in compromise several times in his speech, he noted that he balanced two budgets with over $13 billion in deficits without raising taxes.

So there’s compromise, and there’s compromise.

In New Jersey, Christie has set an example for the U.S. Congress. What he seems to be saying is that compromises should occur in the spending areas, with particular emphasis on entitlements and a general curbing of the public sector. That’s a strong, positive message.

Third, Christie is a growth guy. He gets that. Numerous times in the speech the governor spoke about pro-growth tax reform along with entitlement reform and free trade. He came down on the side of the entrepreneur, not the government planner. And he said he’d opt for free-market reform in education. These are important policy markers if he decides to run.

Additionally, in what may have been the speech’s toughest passage, Christie blasted President Obama for dividing the nation along class-warfare lines: “Telling those who are scared and struggling that the only way their lives can get better is to diminish the success of others . . . trying to cynically convince those who are suffering that the American economic pie is no longer a growing one . . . insisting that we must tax and take and demonize those who have already achieved the American dream . . . is a demoralizing message for America.” (Italics mine.)

That helped make the Christie speech truly superb.

American economic psychology today is depressed and dispirited. It is, in fact, demoralized. And President Obama’s contribution as a divider is a key part of this demoralization. Not the only part. There are other culprits. But a key part.

In effect, Christie has labeled Obama the demoralizer-in-chief. He is the first to do so. It was an exceptional addition to an exceptional speech.

I am not choosing sides here in the GOP primary. I am not endorsing. I am merely trying to report what I think is a very important political statement, one that should be incorporated into the various GOP campaigns and the national debate.

Governor Christie is holding President Obama responsible. No excuses. And that, by itself, is a big contribution.

A Twisted Outlook

2011-09-22T21:52:00.000-04:00

Stocks collapsed roughly 700 points over two days after the Federal Reserve launched its “Operation Twist.” The market correctly perceives that the central bank’s plan to swap $400 billion of short-term notes for long-term bonds adds no new reserves to the financial system. So it wasn’t QE3, that’s for sure. No stimulus. In fact, with the Treasury yield curve flattening, the Fed’s sterilized asset swap actually tightened financial markets.

The Fed should have listened to the GOP congressional leadership, which in a letter advocated no more stimulus and no more market-subverting interference.

But the real issue is the new FOMC forecast: “There are significant downside risks to the economic outlook, including strains in global financial markets.” That was the killer statement.

So let me repeat: We are on the front end of a recession. The profits picture is very much in doubt. More Obamanomics tax hikes are in the air. Europe is unsolved. U.S. finances are a mess. All this is being discounted by slumping stocks.

Corporate credit risk spreads have been widening, which is a negative for the profits picture, as economist Michael Darda has pointed out. Profits are the mother’s milk of stocks. And the European funding markets have tightened substantially, as their much-wider financial-stress spreads all indicate.

Indeed, the European banking and sovereign-debt crisis is still a shoe waiting to fall. Greece may get bailed out again in a couple of weeks. But so far, the European Union’s authorities have not agreed on a bailout or bankruptcy plan to backstop debt-restructurings, or to recapitalize banks in the wake of those default restructurings.

Meanwhile, September purchasing managers’ indexes for European manufacturing and services teeter on the brink of recession. In Asia, Hong Kong shipping volumes are way down, and China’s PMI came in weak. The global transportation-delivery powerhouse FedEx just lowered its worldwide earnings and sales outlook.

And coming back home, the Obama $1.5 trillion tax-hike plan, and his veto threat for any deficit package that doesn’t include big tax hikes on successful earners, investors, and businesses, is another sword of Damocles hanging over the economy and the stock market.

Is the U.S. stock market now predicting recession? Well, the cyclical economic sectors are in bear-market mode, with roughly 25 percent declines since late April for energy, industrials, and materials. Banks, which are being hurt by credit downgrades and yield-curve flattening, are off over 30 percent.

How bad might the recession be? Well, it’s hard to say. But in all likelihood the answer is not so bad. The yield curve has narrowed from 10s to 2s, from nearly 300 basis points in March to about 150 basis points currently. But the curve is not inverted, and that’s important as a recession signal. And over the past ten years or so, the average spread has been about 160 basis points, not far from today’s reading.

Also, the U.S. banking system is flush with cash, as is corporate America. And for better or worse, interest rates in the Treasury market are negative (easy money). Business profits will slow significantly, but are still likely to rise a bit. And with oil dropping to about $80, a price shock that was a key slowdown factor is going away.

Housing is still in the tank, and consumer spending looks very iffy. And we had zero jobs and zero retail sales in August — two very bad signs. On the other hand, exports and business investment are still rising.

So it’s not 2008. Not by a long shot. But it’s not a pretty picture either.

Obama’s Bizarre Tax Attack

2011-09-20T09:08:00.000-04:00

It could almost make your head spin. With an economy on the front end of another recession, President Obama’s tax attack on the folks who are most likely to succeed, invest, start new businesses, and create jobs is nothing short of staggering. Only liberal-left class-warfare ideology can explain this.

In his speech on Monday, Obama laid out $1.5 trillion in tax hikes over ten years, aimed almost entirely at America’s well-to-do. This includes $800 billion from rolling back the top rates in the Bush tax-cut plan, $470 some-odd billion to reduce itemized deductions for upper-bracket payers, and — oh yes — a millionaire’s tax called the “Buffett Rule.”

Pause a moment on the Buffett Rule. Almost all of Warren Buffett’s income comes from capital gains taxed at 15 percent. He only pays himself $100,000 a year, which would be taxed at the top rate. Most of his wealth is untaxed as unrealized capital gains. So his effective income-tax rate is lower than his secretary’s.

So what?

The vast majority of millionaires pay a 35 percent current tax rate on personal income from salaries, bonuses, and small-business income. Their effective tax rate is around 30 percent, much higher than the roughly 20 percent effective rate for the so-called middle class (depending, of course, on how you define the middle class).

Remember that the top 1 percent of income-tax payers shoulders 40 percent of all income taxes. They are paying their fair share. Then remember that 50 percent of income-tax filers don’t pay any income tax at all.

Obama refuses to tell us what the new millionaire tax rate would be, or what the formula might be in relation to middle-class taxpayers. But one thing’s for sure: This new Buffet tax is a penalty on investment, risk-taking, and job-creation.

No one even knows what the targeted group is going to be. A New York Times story suggests that the Buffet tax will hit three-tenths of 1 percent of taxpayers, which could be 450,000 people out of 144 million tax returns.

A Wall Street Journal story suggests the Buffet tax would have hit just 22,000 people in 2009, those households making more than $1 million annually and paying less than 15 percent of income in federal income taxes. According to the Tax Policy Center, doubling the tax burden of those 22,000 would raise just $19 billion a year. How silly is this?

And let’s also not forget that over the past four decades the evidence is absolutely clear that a lower capital-gains tax produces huge gains in revenues. Raising the cap-gains tax lowers revenues. It’s a pure Laffer-curve effect.

Clearly, the logic here is political, not economic. And it’s equally clear that Mr. Obama is now catering to his liberal-left base. I guess his logic is that even though so many people don’t have jobs, they’ll feel much better knowing that 22,000 rich people will have a higher tax rate.

Make sense?

Adding to this bizarre scenario, Obama knows full well that the debt-ceiling deal now moving to the phase-two super committee rules out tax increases. He also knows full well that none of these tax hikes will ever get through the GOP House. Perhaps, as Congressman Paul Ryan notes, class warfare makes for good politics. Perhaps.

But Ronald Reagan was branded a class warrior for the Kemp-Roth tax cuts, and he was overwhelmingly reelected. Why? Because low tax rates reignited economic growth and job-creation. Today, the president’s militant tax-hike threats, along with Obamacare and unmanageable regulatory costs, are holding back job-creators.

And Paul Ryan makes another key point: Tax investment more, and you’ll get less of it. If these kinds of tax hikes are ever passed, the economy will be doomed to stagnation over the long-run. Penalizing incentives will do that. And lower growth means higher deficits.

Why in the world doesn’t President Obama follow the overwhelming consensus for fundamental tax reform to lower marginal rates and broaden the income base? Economists of all stripes agree on this.

At the end of the day, it sure looks like our president wants to raise taxes on wealthy Americans and large corporations in order to spend more and enlarge the size and scope of government. From the standpoint of jobs, growth, and prosperity, it just won’t work.

Mike Bloomberg’s Irresponsible Riot Tactic

2011-09-16T21:12:00.001-04:00

New York City mayor Mike Bloomberg, in a radio interview on Friday, warned that high unemployment could lead to widespread rioting. That’s right. He actually said that. At a time when European cities have suffered massively from hooliganism, and at a time when U.S. towns like Philadelphia and Kansas City have suffered huge human and commercial tolls from so-called flash riots.

For Bloomberg to come out with this statement is irresponsible and incendiary. But you know what? He’s got a personal agenda. This is a desperate talking point to sell Obama’s jobs plan, which Bloomberg favors as a solution to high unemployment and zero growth.

There’s a whole history here of liberals threatening riots if they don’t get their way. WABC radio host Mark Simone reminded me that back in 1994, Matilda Cuomo warned there would be race riots in New York if her husband Mario weren’t reelected governor in his race against George Pataki.

So now the liberal Mike Bloomberg is trying to go to bat for his pal Obama. And he’s doing so in a very clumsy and inappropriate way.

In fact, Bloomberg is pitching for the whole Obama jobs package -- the $450 billion stimulus plan and the $470 billion tax hike. The package is totally unpopular. A recent Bloomberg poll (how ironic) showed that voters disapprove of more Obama stimulus by 51 to 40 percent, and that 56 percent of independents oppose it. Other polls show that more than 60 percent of Americans disapprove of Obama’s handling of the economy.

Memories are long. The $800 billion stimulus package nearly three years ago didn’t work. So why do it again? Large dollops of government spending combined with temporary tax cuts do not promote investment or entrepreneurship, which are the true job-creators. Tax-rate incentives must be permanent in order to grow the economy. Digging holes for infrastructure may be necessary, but it’s no job-creator for the private sector.

And that $470 billion tax-hike bill, due in 2013, comes on top of other scheduled tax hikes, such as higher personal tax rates on successful earners and small businesses and the Obamacare payroll-tax increases that encompass investors.

The Wall Street Journal’s Steve Moore calls this a steep tax cliff. It’s exactly what the economy doesn’t need for the simple reason that business people today have at least a three-to-five-year time horizon when it comes to making decisions to invest and employ. They know a temporary-tax-cut red herring when they see one.

As a formerly successful entrepreneur, Mike Bloomberg should know this. But he supports Obama’s tax increases along with the rest of the futile stimulus package. And he has taken to the radio airwaves to support these policies in an incendiary and self-defeating fashion.

Some political insiders I spoke to believe Bloomberg desperately wants Obama to win a second term. They say the New York City mayor wants to be Obama’s new treasury secretary. Therefore, Bloomberg is hammering Republicans today and absolving Obama from taking any blame or ownership of the current economic mess, which has placed the nation on the front end of yet another recession.

Riots are not the answer to our economic problems. Promoting private-sector investment is. As Bloomberg well knows from his own experience, businesses create the jobs that provide incomes for families and consumers. And businesses require capital investment. But if we keep raising taxes on investment, we will get less of it.

The American economy will continue to stall until we get a right-thinking new administration.

The Downturn Scenario

2011-09-15T21:22:00.000-04:00

Is the economy standing on the front end of a new recession? As IMF executive director Christine Lagarde and World Bank president Robert Zoellick warn that the global economy is entering a new economic danger zone, there’s plenty to be worried about right here in the U.S.A.

The August batch of economic stats shows zero jobs and zero retail sales. Industrial production rose slightly to save us from a clean zero sweep, but it was only two-tenths of 1 percent. However, manufacturing registered by the New York Fed and the Philly Fed showed continued declines. Jobless claims continue to rise. On top of all that, consumer prices showed a surprising increase.

So at best, we have a stagflationary stall in the economy, while at worst a recession could take hold.

Even on the profits front, which has been strong, top Wall Street economist Ed Yardeni reports a large drop in the growth of corporate tax receipts, suggesting a major profits slowdown. A Wall Street Journal story reports a profits squeeze from manufacturers. With productivity slipping, unit labor costs paid by business are rising faster than the prices business can get. Echoing that, producer prices are rising much faster than consumer inflation at retail.

The recession call is not conclusive. I’m the first to admit it. And my optimistic instincts rebel against the downturn scenario. But facts are facts. They must be reported. And the numbers aren’t good.

At this stage there’s virtually nothing the Federal Reserve can do. It caused the huge oil shock by depreciating the dollar during QE2. That’s been a killer. Now it’s time for some pro-growth fiscal policy. The Obama stimulus package repeats all the president’s past mistakes: temporary tax cuts, big spending, government planning (think Solyndra), and all these targeted clean-energy and infrastructure plans that spend the public’s money but do not on balance create new jobs -- and certainly do not create new entrepreneurial start-up businesses.

House Republicans ought to take a look at the revolt against Obamanomics. All the polls show it. Republican Bob Turner’s dramatic election win in Queens, N.Y., shows it. The voter zeitgeist has turned against the president’s policies. The GOP should rip up the Obama plan and come down with fundamental tax and regulatory reform to generate new economic-growth incentives and roll back the big-government regulatory costs on business.

The force is with the Republican party as the country awaits bold new action to get us out this economic mess.

The King Dollar Frontrunners

2011-09-13T20:33:00.001-04:00

Watching the two GOP frontrunners in last night’s debate — Mitt Romney and Rick Perry — a couple of policy points jumped out at me.

First, regarding the Fed, both candidates strongly supported King Dollar. This is interesting because monetary policy continues to be a GOP campaign issue. That is rare in politics, but it’s a good thing in the context of today’s sputtering economy and failed quantitative easing.

For Governor Romney, who said he would not reappoint Bernanke in the last debate, this is a switch from April when he defended Bernanke in an interview with me. Last evening, Romney made it clear that “the Federal Reserve has a responsibility to preserve the value of our currency, to have a strong American currency, such that investors and people who are thinking about bringing enterprises to this country have confidence in the future of America and in our currency.”

As for Governor Perry, he too spoke against the devalued dollar and argued for a “sound monetary policy” with a strong dollar. Perry also repeated his charge of a month ago that if the Fed conducts policy for “political purposes” it would be “almost treasonous.” While I personally disagree with Bernanke’s QE2 dollar-depreciation, which harmed the economy, I still believe the word “treasonous” is inappropriate. (I argued this point in an August column, “Perry’s Red-Hot Bernanke Slam.”) But Perry’s push for a reliable King Dollar is spot on.

What is noteworthy about all this is the growing likelihood that a Republican president following the November 2012 election will appoint a new man at the Fed to conduct a new strong-dollar policy. Reagan used King Dollar in his first term to conquer inflation and ignite tax-cut incentives to grow the economy. Bill Clinton used a strong dollar in his second term to spur the economy. But we’ve had a weak-dollar policy during the George W. Bush and Barack Obama years as the economy has badly sputtered.

A second point on the debate: Neither frontrunner outlined a true reform plan for Social Security. So far as I recall, Romney and Perry avoided commitment to extending the retirement age, shifting cost-of-living adjustments, or establishing personal savings accounts. At some point, as the Ponzi issue over Social Security continues, they are both going to have to play their cards and talk specifically about solving the problem.

That said, both leading candidates agree on flatter-tax reform, light regulations, and a strong currency. That’s a pro-growth economic policy mix. Obviously, it’s totally different from what President Obama is offering.

On CNBC's Kudlow Report Tonight

2011-09-07T16:11:00.002-04:00

Please join us at 7pm ET tonight on CNBC.

MARKETS
- Brian Kelly, Brian Kelly Capital President
- Brett Arends, Wall Street Journal Columnist
- Jack Bouroudjian, Index Futures Group CEO

SHOULD BofA BE BROKEN UP? IS MOYNIHAN NEXT?
- CNBC’s John Carney discusses the latest.

CORNER OFFICE PERSPECTIVE ON ENERGY, JOBS & THE ECONONY
- Tom Farrell, Dominion Resources CEO

OBAMA'S JOBS PLAN PREVIEW
- CNBC's John Harwood reports.

REPATRIATION TAX STUDY
- Douglas Holtz-Eakin, Fmr. CBO Director; Fmr. White House Chief Economist; American Action Forum President

OBAMA JOBS PLAN
- Howard Dean, (D) Former Vermont Governor; Fmr. Democratic National Committee Chairman
- Dick Armey, FreedomWorks Co-Chairman

GOP DEBATE PREVIEW: ROMNEY V. PERRY -- WHO CAN BEAT OBAMA?
- Ford O'Connell, CivicForumPAC Chmn
- Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor
- Steve Forbes, Forbes Media Chairman & Editor-in-Chief

An Interview with Mitt Romney

2011-09-07T08:56:00.003-04:00

Former Massachusetts Governor Mitt Romney joined me in Las Vegas yesterday to discuss his new jobs and economic plan. He also shared some thoughts on his new Republican rival, Texas Governor Rick Perry.

Full transcript follows below.

LARRY KUDLOW, host:

North Las Vegas, an international truck dealership, we welcome Governor Mitt
Romney back to the show. Thank you very much.

Governor, zero jobs in August; but actually we haven't created a net new job
in 10 years in this country. We may be on the front end of another recession.
The stock market is plunging. OK. How can you fix that if you were elected
president? What's in your new plan?

Former Governor MITT ROMNEY: Well, you have to recognize that the world has
changed, the economy has changed. We're still following the old policy, the
old strategy. It's not working anymore. I joked that President Obama is
following a pay phone strategy, we're in a smartphone world. And so what we
have to do is recognize that our companies are competing globally. We got to
bring our employer tax rates down to be competitive. Bureaucracy regulation
and government...

KUDLOW: Corporate. Corporate tax rates?

Gov. ROMNEY: Corporate tax rates. Bureaucracy regulation has to be
modernized, streamlined. Government has to see itself as an ally of
enterprise, not an opponent. We got to open up trade for American goods. The
last two and half years, the president sat on his hands with regards to trade.
We got to get markets open to American products, push them into those
products. We got to clamp down on nations like China that are cheating,
stealing our intellectual property. We got to get serious about energy.
Look, we're an energy rich nation. We're acting like an energy poor nation.
Let's use the energy that we have. The list goes on.

I've got 40--excuse me, 59 items that we have to address to get America's
economy structured for the new economy, and that's going to put Americans back
to work.

KUDLOW: All right. A lot of meat on the bones, a lot of topics. Before I
can throw--toss is back to Bill Griffith, my colleague, let me just ask you,
on the campaign trail you took some flack for saying that corporations are
people, but you are sticking to your guns. Can you tell us, we're the
business and financial station, why are corporations people? What are you
thinking?

Gov. ROMNEY: Well, I hope people understand that when you tax corporations
that the concrete and the steel and the plastic don't pay. People pay. And
so when you tax corporations, either the employees are going to pay or the
shareholders are going to pay, or the customers are going to pay. And so
corporations are people. This old 1960s "We don't like companies" shtick
isn't working anymore for President Obama. That's just not the right course.
We recognize we want small businesses, middle businesses, even big ones to
grow and thrive and hire people. We like business. We're not anti-business,
we're pro-business in this country.

KUDLOW: All right. Let me go and toss it over to my friend and colleague
Bill Griffith up in Englewood Cliffs. Go ahead, Bill.

BILL GRIFFITH reporting:

Larry, thank you.

Governor Romney, we welcome you here. Let me ask you a more market oriented
question, if I may. Right now Wall Street is focused sole--to a great degree
on what's going on in Europe as they wrangle with their debt crisis, and
they're doing a lot of soul searching over there on how to restructure the
Eurozone to solve that crisis. One extreme is to create what the New York
Times labeled the United States of Europe, a central authority. On the other
end it would be just to disband the Eurozone altogether. In your view, what
would be in the best interest of the US economy and our banking interests here
and there for Europe to do? Should there be the central authority or should
they disband the Eurozone, or is there something in between?

Gov. ROMNEY: Well, I got to be honest with you, it is tough enough to figure
out what we have to do for America to continue to lead the world and to put
our people back to work and to help the middle class, and so I'm not going to
weigh in on what I think Europe has to do. But clearly, their problems are
not just temporary, their problems are structural. You have nations that are
cobbled together with one monetary policy, despite having very different
fiscal policies, and that simply can't go on on an indefinite basis. And
either those nations on the periphery are going to have to adopt fiscal
policies that are consistent with those of nations like France or Germany, or
you're going to see continued stress in the euro. My own view is they have to
recognize that, show the world that they do recognize that, that they've taken
structural change. And on that basis, you'll get investors to once again have
some confidence in the future of the--of the European currency markets.

KUDLOW: All right, let me just pick up. I want to come back to the
corporate. You're going to drop the corporate rate to 25 percent, is that
correct?

Gov. ROMNEY: That's correct.

KUDLOW: And what will you do about taxing overseas profits of US companies?
A lot of people think repatriation would give the whole economy a shot in the
arm.

Gov. ROMNEY: Yeah. I've been talking about that for a long, long time. As
you know, it makes absolutely no sense to say to a company, `If you've got
money overseas and you keep it there and invest it there, you won't pay US
tax. But if you bring your money home and invest here and create jobs here,
we're going to tax you.' It doesn't--that just doesn't make any sense at all.
We got to go to a territorial tax system which says, `Look, you're going to
pay taxes in the territories where you're competing. We want you to bring
money home without having a repatriation tax.' Let's get the trillion dollars
or so some estimate is parked outside the country back home, creating jobs
here. My Democrats friends say, `Well, some companies will just send it out
as dividends.' It's like, `Yeah.' And that'll go to shareholders, and it will
go to pension funds and retirees.

KUDLOW: Just terrible things.

Gov. ROMNEY: It's not all bad.

KUDLOW: That would be a terrible thing.

Gov. ROMNEY: And they'll--and they'll buy stuff. That's a heck of a lot
better than having the government take money from one person and give it to
another...

KUDLOW: And it'll pay for itself.

Gov. ROMNEY: Take the--yeah, it'll pay for itself.

KUDLOW: Yeah. And then some. It'll pay for itself.

Gov. ROMNEY: It'll do more than pay for itself.

KUDLOW: But I was surprised in your documents that you're not going for
fundamental tax reform for the individual personal tax code. Explain to me.
As I understand it, you want to keep the Bush tax cuts in place.

Gov. ROMNEY: Yeah. Yeah.

KUDLOW: But you don't want, for example, Governor Huntsman, your friend and
colleague and so forth, he wants to go, what, eight, 14 and 23, and he wants
to eliminate most of the deductions. Why did you stay away from fundamental
personal tax reform?

Gov. ROMNEY: Well, I lay out in our plan that I do want to see down the road
a restructuring of our tax system with a broader base and lower rates. But my
plan is about getting Americans back to work right away. And the place I've
targeted is on middle income Americans. The people who have been most hurt by
the Obama economy are middle income Americans, and so I say to anybody who's
making under $200,000 a year, we're going to eliminate all taxation on
interest dividends and capital gains for you so that you can save, so that you
can invest, so you have more money, so you're able to care for your kids and
their future and your retirement as you think is best. That, for me, is the
place we need to move immediately.

KUDLOW: All right, I'm going to sign off here. We're going to continue with
Governor Mitt Romney in a second. I'm going to just toss it back to Bill
Griffith on "Closing Bell." Thank you, Bill.

GRIFFITH: You bet, Larry. Thank you.

And, Governor Romney, thank you for being with us here. And don't forget, you
can see the rest of Larry's interview with the governor tonight at 7 PM
Eastern time right here on CNBC on "The Kudlow Report."

(Announcements)

KUDLOW: All right. Let me continue with you on this issue. Now you're going
to eliminate--I'm sorry--you're going to abolish capital gains and
dividends...

Gov. ROMNEY: Yeah.

KUDLOW: ...for singles earning $200,000 a year, is that correct?

Gov. ROMNEY: Or less, that's correct.

KUDLOW: All right. Now about the top people? Why are you not including
them? And I raise this because you've got some people who have who have been
ankle biting you on this question. They said years ago, in the middle 1990s,
you argued that the flat tax--Steve Forbes' flat tax was a fat cats tax, and
George Will rhetorically in a column asked, `What does Governor Romney think?
What constitutes a rich person? What constitutes a fat cat? What's the
dividing line?' Tell us why you made it 200,000.

Gov. ROMNEY: You know, there's nothing magic about a particular dividing
line. You pick a point where you're getting the great majority of Americans.
Look, there are many people who think we should have zero tax on capital
gains, interest and dividends for everybody, as--the very, very wealthy. But
recognize that means that Bill Gates and Warren Buffett would pay no income
tax at all. And some people say, `Well, that's a good thing for growth of the
economy.'

KUDLOW: But you're referring to the capital gains tax?

Gov. ROMNEY: And I--yes, exactly.

KUDLOW: And the dividend tax, those are different.

Gov. ROMNEY: No. If we eliminated capital gains, all tax for the--for
everybody, even those making millions a year on interest dividends and capital
gains, then Bill Gates and Warren Buffett would pay no tax at all because
their income is overwhelmingly if not entirely capital gains interest and
dividends. And so the very, very wealthiest would pay no tax at all. My
guess is that the American people would feel that, you know, right now the
people that are hurting in this country are not the very wealthy but the
middle income folks. And so the place I want to focus my effort and my break
and also encourage more investment savings is for middle income Americans.

KUDLOW: So you agree with Buffett then, there should be higher taxes on the
upper income people.

Gov. ROMNEY: Well, listen, I believe in keeping...

KUDLOW: But would you also tax wealth?

Gov. ROMNEY: I believe, Larry, I believe...

KUDLOW: Would you tax wealth?

Gov. ROMNEY: Well, of course not. We have right now a 15 percent tax on
capital gains. That's the rate that I would keep in place for now. And what
I would say is we would remove the tax for people in middle incomes. Their
tax would go to zero. The tax for higher income folks would stay the same.

KUDLOW: All right. Let me move on. You talked about trade and you sort of
have a two-edged sword going here in your package. You want free trade deals
but you're very tough on China, in fact, uncharacteristically tough on China.
Piracy, counterfeiting, I get that. How can China be brought into the WTO or
play by--at an all-out...(unintelligible).

Gov. ROMNEY: Well, the people are going to always threaten that if they
don't get their way, they're going to do something that's hurtful. And
sometimes people get frightened and say, `Oh, I better give them what they
want.' But, you know, we've been doing that for a long time and China
continues to steal our intellectual property. They hack into our computer
systems. They manipulate their currency such that their products have a
substantial disin--excuse me, substantial advantage relative to our products
in the world. They buy far more--excuse me, we buy far more of their products
than they buy from us. Their government doesn't buy anywhere near the
products from America they should be buying.

KUDLOW: How can we force them?

Gov. ROMNEY: And so, look, what you say is, `Hey, look, you signed
agreements.'

KUDLOW: All right.

Gov. ROMNEY: `You've agreed to follow certain practices. If you don't
follow those practices, why, then, we're going to take the corrective actions
which are outlined.'

KUDLOW: What would the correction actions be?

Gov. ROMNEY: Well, you take a--when you negotiate, you let them know that
you're willing to take whatever action is necessary, and that would include,
for instance, if they've stolen intellectual property on a particular series
of goods that you're going to put tariffs on their products if they don't
abide by the rules.

KUDLOW: So you agree with Don Trump. Essentially Donald Trump wants to put
tariffs on their imports.

Gov. ROMNEY: You know, I'm not going to adopt the policies of someone else
that I haven't read. I can tell you that I agree with my policies that I
describe in my book, which is to say that in places where people have taken
advantage of us and have killed American jobs or are threatening to do so,
that we're not going to sit back and just say, `Oh, we got to do this because
we owe them a lot of money.' We're going to say, `You know what? We don't
want a trade war, but we're not going to endure a trade surrender.'

KUDLOW: All right. So tax cuts for corporations. Tax cuts for the middle
class, keeping the Bush tax cuts in place, free trade but tough on China,
deregulation. You have a big deregulation point.

Gov. ROMNEY: Yeah.

KUDLOW: Let me ask you this, economics on the campaign trail, it's getting
pretty rough and tumble. Yesterday, once again, Governor Perry slammed you.
He said Governor Mitt Romney did not create jobs in Massachusetts and he,
Governor Perry, created jobs in Texas. What's your response to Governor
Perry?

Gov. ROMNEY: You know, I'm not responding to Governor Perry right here.
He's not here. I'll probably get the chance to do that at some point. But
I'll talk about my record on that.

KUDLOW: But it must get under your skin?

Gov. ROMNEY: Why would I be worried about what other people say? I've been
in politics now for long enough to not worry about what others are saying, but
instead to talk about what I believe.

KUDLOW: Did you create jobs in Massachusetts?

Gov. ROMNEY: Well, of course I did. Of course I did. The unemployment rate
went down as I was governor of Massachusetts. We were losing jobs every month
when I came into the state. We turned that around and created jobs every
month. And, you know, I'm proud of the fact that when I was governor, the
three of the four years I was there, our unemployment rate was below the
national average. You know, each state has some differences. I'm pulling out
those differences and we'll talk about the prospects we have for seeing the
entire country have as its leader a person who has not just watched other
people create jobs but someone who's actually created jobs. In 25 years in
business and at the Olympics, I created jobs.

KUDLOW: All right, that's where I was going. OK. You give as good as good
as you take. You have charged that Governor Perry is a career politician and
that you have spent the bulk of your career in the private sector. Do you
understand how the economy works better than Governor Perry?

Gov. ROMNEY: You know, I haven't spoken about Governor Perry, but what I
have said is that career politicians don't know what it takes to get this
economy going again, and, you know, evidence number one is what's going on in
Washington, DC. You're seeing the president come out with more of these
stimulus plans. Plan one, two, three, four and five didn't work. He's going
to do another one that's going to have the same output because they don't
understand what it takes to get businesses to invest in America and to hire
people. I do. I've done that. I've competed around the world. If people
want somebody-if they think the most characteristic of a president is someone
who understands how the economy works and is expert in turning around
enterprises, then I'm the guy. If there are other measures that they want to
select upon, well, maybe I'm not the guy. That's the choice that they'll have
to make.

KUDLOW: Well, just interesting on these choices. People are kind of freaked
out by the debt limitation debate, and there's a lot of economists who are
actually saying that that whole debate, which came right up to the edge of a
default and still really didn't make a dent in our spending and our borrowing,
damaged the economy. That what we're seeing now in a potential double dip is
in part caused by that. I want to ask you, is it possible for you and other
Republicans to make any common ground at all with President Obama, who gives
his jobs speech on Thursday night?

Gov. ROMNEY: Well, of course. We'll see what he has to say in his jobs
speech. But I've found in my interactions with people on the opposite side of
the aisle that we can find ways for us to find common ground. There are a lot
of Democrats who realize that spending is too much. But, Larry, you have to
understand, back in the days of John F. Kennedy, government at all
levels--federal, state and local--consumed about 27 percent of the economy.
Today it consumes 37 percent of the economy. And Republicans like me are
saying, `Look, that's too much. We're not going to keep growing the
government.'

KUDLOW: Where would you target it?

Gov. ROMNEY: I'd get the federal government down to 20 percent. Right now
it's close to 25. Get it down to 20 percent. We've got to cap the amount
that the federal government is spending. We can't let government keep growing
and growing because you're seeing in Washington a class of people, permanent
politicians, career politicians who have never worked in the private sector,
never really built an enterprise, never signed the front of a payroll check,
and they think they know what's right for America. And they don't. They need
to go home and get a job.

KUDLOW: What about President Obama's infrastructure bank proposal? He also
talks about targeted tax credits. But I want to go into infrastructure bank.
Is that the answer to an economy that hasn't really grown in 10 years?

Gov. ROMNEY: Well, I'm afraid we do need to see better infrastructure in
this country and we need to encourage the investment in airports, in new
flight systems, in highways and bridges. Our bridges are in terrible
disrepair. And there are a wide array of ideas about how to do that.

KUDLOW: Could you support a government project bank?

Gov. ROMNEY: Well, I...

KUDLOW: It sounds like Fannie Mae.

Gov. ROMNEY: I will--look, I don't want the government getting into more and
more enterprises like Fannie Mae and Freddie Mac. I'll look at ways to see if
we can't get our highway system updated and get our bridges rebuilt. That's
something that we can do. And there--and there--what I want to make sure is
that we have revenue streams to pay for it, not just more money coming out of
the general fund. And guarantees. Look, this idea of the government
guarantees, that that doesn't cost anything, that's wrong, as we've learned.
Government guarantees are real cash and can end up hurting the taxpayers.

KUDLOW: All right, Governor Mitt Romney, we're going to leave it there.
Thank you for visiting us. It's a warm day here in North Las Vegas, but it's
a great pleasure to have you back. All best on the campaign trail.

I'm Larry Kudlow, folks. We'll be right back with "The Kudlow Report" in just
a moment.

On CNBC's Kudlow Report Tonight

2011-09-06T14:52:00.002-04:00

Please join us at 7pm ET tonight on CNBC.

MARKETS IN TURMOIL
- Jason Trennert, Strategas Research Partners; Chief Investment Strategist & Managing Partner
- Art Hogan, managing director at Lazard Freres & Co

FINANCIALS UNDER FIRE: MORTGAGE LAWSUIT
- CNBC’s Diana Olick reports.

THE GLOBAL ECONOMY, BONDS AND MARKET
- Peter Fisher, BlackRock Global Head of Fixed Income; Fmr. Under Secy of Treasury

ONE-ON-ONE WITH MITT ROMNEY
The GOP presidential candidate and former Massachusetts governor will discuss his new jobs plan and the Republican presidential race.

DYNAMIC DUO REACT TO ROMNEY'S JOBS PLAN AND THE GOP RACE
- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor; Univ. of CA., Berkeley, Prof.
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author; Founder & Fmr. President of the Club for Growth

A Reagan Moment: Stop Our Economic Decline

2011-09-02T21:39:00.002-04:00

No sooner had President Obama shocked the political world with a gloomy economic forecast — projecting 9.1 percent unemployment for this year and a reelection-killing 9 percent for 2012 — than the dismal August jobs report arrived showing no gain in nonfarm payrolls. That’s right, no gain at all. Private jobs increased a scant 17,000, while hours worked and wages actually declined. Obama’s economic policies have failed.

Are we on the front end of yet another recession? This report alone suggests that we could be, although other data points disagree. But on the eve of President Obama’s so-called jobs speech, there’s a much bigger question here: Has the U.S. entered into long-term economic decline?

As a quintessential optimist who believes in American exceptionalism, I don’t even want to raise this issue. But the data tell me that I must.

For example, over the past ten years, the U.S. has actually lost jobs on a net basis. In August 2001, nonfarm payrolls calculated by the Bureau of Labor Statistics stood at 132 million. Through August 2011, payrolls stand at 131.1 million.

In fits and starts, a 4 percent unemployment rate has moved up to some kind of permanent 9 percent plateau. Following the Bush tax cuts of 2003, 8 million new jobs were created. But in the aftermath of the financial meltdown those jobs have disappeared. The so-called Obama recovery over the past two years has made no dent in this gloomy picture.

And through this whole period our economy has barely grown at a subpar 1.6 percent yearly rate for real GDP.

Meanwhile, the stock market — perhaps the best measure of our wealth and well-being — has essentially been flat for the past decade. And while the free-enterprise private sector has barely muddled along, the government has grown fat.

During the Bush years, the federal government increased from 18 percent of GDP to 21 percent. The debt went up $2.5 trillion, from roughly 32 percent of GDP to 40 percent. And now, during the Obama period, spending has moved even higher to at least 24 percent of the economy, while total federal debt has ballooned near 100 percent of GDP.

It’s almost a mirror image: The expansion of the public sector and the decline of the private sector. This is completely inimical to the American peacetime experience. And it forces us to think seriously about whether we are losing our world economic leadership. Are we? And if so, does this loss of economic leadership threaten our national security and foreign-policy stature?

And all while jobs, the economy, and stocks slumped over the past ten years, the dollar dropped 37 percent and gold increased by nearly 500 percent, from $250 to nearly $1,900 an ounce.

We don’t have the kind of inflation today that we experienced in the 1970s. But it is certainly worth noting that a collapsing currency and a skyrocketing gold price are key barometers of a loss of confidence in the American economic story.

And because most foreign currencies and gold denominated in those currencies have shown the same problems — paper money going down and the yellow metal going up — it’s not farfetched to suggest that America’s funk is leading the rest of the world in the wrong direction.

My key thought is that the U.S. in the last decade has adopted a wrongheaded policy of government expansion — primarily spending and regulating — financed by ultra-easy monetary policy and rock-bottom interest rates.

Tax rates haven’t moved much. But the whole tax system is badly in need of pro-growth flat-tax reform and simplification. However, the expansion of spending and regulating is robbing the private sector of its entrepreneurial vitality. Here’s the new fear: More big-government spending stimulus from Obama’s jobs plan. More EPA. More NLRB. More Dodd-Frank. More Obamacare.

And as the policy mantle for growth has swung to Federal Reserve stimulus, we are learning once again what Milton Friedman taught us 40 years ago: The central bank can produce new money, but there is no permanent production of jobs and growth from that pump-priming.

Big government financed by easy money is a lethal economic combination. It must be reversed. We should be reducing the regulatory and spending state while keeping money predictably stable (and even re-linked to gold). The supply-side nostrum that worked so well for 20 years, beginning with Ronald Reagan, was low tax rates, light regulation, limited government, and a hard dollar. Gold collapsed between 1980 and 2000 as stocks, jobs, and the economy roared. The last ten years? We’ve gotten the policy mix completely backwards. The results show it.

This is a Reagan moment. We need a new leader who can get the economics right and reverse our decline. Literally, for the whole world, nothing is more important.

An Interview with Dick Cheney

2011-09-02T10:46:00.004-04:00

Earlier this week, I had the honor and pleasure of sitting down with former Vice President Dick Cheney on CNBC’s Kudlow Report to discuss his new book, "In My Time" about his 40-year political and business career.

The full transcript and video follow below.

LARRY KUDLOW, host: I am pleased and honored to welcome back to this program former Vice President Dick Cheney, who has written a terrific new book called "In My Time" about his 40-year career in politics and, I might add, business. I think people forget you were the CEO of Halliburton for a bunch of years.

Former Vice President DICK CHENEY: Right.

KUDLOW: And you served on a whole bunch of corporate boards.

Mr. CHENEY: I did, indeed.

KUDLOW: So you come at it from both sides. Anyway, Mr. Vice President, thank you very, very much.

Let me just begin. Before I get into the book, I want to do some current events with you. I am worried, as are others, that America is in financial and economic decline right now. And I want to get your take on this. Our economy hasn't really grown in 10 years. Stock market hasn't really moved in 10 years. The budget is bankrupt, we've just been downgraded, the debt continues to rise, the dollar is falling, gold is rising. How worried are you that we are in decline? How do you see the future of the great American economy, which ain't so great anymore?

Mr. CHENEY: Well, I'm worried, too, Larry. I'm--you're somebody I follow who we've worked together over the years, back our days in government. If you're worried, I'm worried. And I think most Americans are concerned, not just about the problems of the moment, but about the long term. Finally, our debt problems are catching up with us, and we've got to find some way to get back on top if we're going to pass on the country to our kids and grandkids in as good as shape as we found it.

KUDLOW: The Chinese are nipping at our heels and they're criticizing us at every turn, particularly on the budget and the debt and the decline of the US dollar currency, which frankly, started during the Bush-Cheney years. The dollar's been falling now for 10 years, gold has been rising, China's been yelling. Again, what should we be doing about that? How serious a decline is this?

Mr. CHENEY: Well, in terms of the financial standpoint, I think it's very serious. I'm not ordinarily a pessimist. I basically believe deeply in the capabilities of the United States. We've done some tremendous things over the years, and I think we're capable of doing that again. But we have to face up to the fact that we've got these very real problems that we've created for ourselves, in large part, especially with respect to the debt, and we, in fact, have to put in place policies that'll stimulate growth, stimulate expansion, job creation, the private sector; and, at the same, time get a handle on entitlement spending in the federal government.

KUDLOW: Now you know the president constantly blames the--your administration for it. He says the Bush-Cheney people drove the economy into the ditch. That's his stock phrase. And that he's got to rescue us. And also, democratic talking points about all this, that we didn't pay for the war, that we didn't pay, we--the administration, the government, did not pay for the so-called tax cuts for the rich, they didn't pay for the healthcare drug entitlement. What is your reaction to their blaming the Bush-Cheney administration?

Mr. CHENEY: Well, I think after nearly three years in office now, the effort to sort of pass all the problems back to George Bush's platter, if you will, don't sit very well. We're getting to the point where, after you've been there for three years, you've made a lot of promises, campaigned from coast to coast across the country as President Obama did, sooner or later it becomes your economy. And I think we're to that point now. He's going to be measured very much next year against his performance.

KUDLOW: Do you--do you take some--do you take some of the blame for it? I went through some numbers. These are just broad numbers. Spending did increase during the Bush-Cheney years from 18 percent of GDP to 21 percent. The debt did go up $2 1/2 trillion from 32 percent of GDP to 40 percent. Now the debt is running close to 100 percent of GDP now. I get that. But do you take some of the blame? Could Bush-Cheney fiscal policies have been tighter and more disciplined?

Mr. CHENEY: Well, perhaps, but we were faced with some unique situations. I mean, when 9/11 happened, all of a sudden we're hit with a terrorist attack against the homeland, 3,000 dead Americans in an hour and a half one morning. That required us to take some major steps that were expensive with respect to getting on top of that and making certain that we weren't faced with another attack like that on our watch. So no question it cost money, but it was something that you absolutely have to do. It's war time. And we've been able in the past to meet those kinds of challenges, as we did during World War II, for example, and then ultimately get on with our business. Now, in terms of adding to the debt, Obama has added as much to the debt in two and a half years as we did in eight years. The fact of the matter is, if we talk about unrestrained spending and a lack of discipline with respect to spending, I think the Obama administration's record is the worst we've seen.

KUDLOW: I want to go back into the book. You don't really spend too much time on the economy and financial stuff. It's mostly a book about the terror war, and I appreciate that, but you do talk towards the end of the book about the big banking crisis in late 2008.

Mr. CHENEY: Right.

KUDLOW: And specifically you say the $700 billion TARP package, you mention this, and you said, `Look, I have long been an advocate of keeping government intervention in the private sector to a minimum. What we were talking about now was the largest such intervention in the history of the republic and I was a strong supporter.' Now, as you know, the Republican Party en masse, especially in the last couple of years, have been totally against TARP. What do you say? Why were you such a strong supporter? Do you really think it worked?

Mr. CHENEY: Well, I--yes, I do think it worked. And I was a strong supporter because I concluded, as I think many of us did at the time, that the federal government is the one with the ultimate responsibility in terms of the nation's financial system. Federal Reserve's a part of that, Treasury's a part of that, but the fact is there isn't anybody else in the--in our system that can address those issues that were raised by that financial crisis except for Uncle Sam, for the federal government. And TARP was the response to that. And I think TARP has worked in the sense that we did stabilize the situation, that government is collecting in terms of money being paid back, so that virtually all of it has been or will be paid back. Though, from the standpoint of a lot of the criticism that was leveled against it, I don't think it was valid.

KUDLOW: Did we learn wrong lessons? Is it government bailouts? Is it too big to fail? What came out of this was the Dodd-Frank Bill, which is a massive regulatory bill, almost ineffectively governmentizing the banking systems. Did we wrong--learn the wrong lessons from that emergency?

Mr. CHENEY: Well, possibly. I'm certainly not a fan of Dodd-Frank. I hark back to my early experience in government, which was a little thing called the Wage Price Control Program...

KUDLOW: Oh, yes, of course.

Mr. CHENEY: ...under Richard Nixon. And my job then, I was the director of operations for the Cost of Living Council. I had 3,000 IRS agents who worked under my guidance to enforce those controls. I came away from the experience convinced it was a disaster. It was a classic case of trying to substitute government judgment for what ought to be a private sector enterprise, that millions of Americans would make better decisions for the country on a daily basis as they had addressed all those issues of wages and prices and profits than would a bureaucracy trying to operate in accordance with a set of bureaucratic rules. I think wage price controls were a disaster. I came away from that more conservative in terms of my view of what government's role ought to be in this society. But this was different. I thought the financial crisis that we faced in '08 really, all of a sudden, the financial system seized up, major firms with no significant financial problems can't get short-term operating cash. I mean, we had a lot of major, major indicators, if you will, that the financial system was coming to a screeching halt. And TARP was the system that was devised on short notice to get us out of that. And I frankly--I think it worked.

KUDLOW: Let me go to the--let me switch to the here and now. We have terrible unemployment problem, 9 percent, 16 percent including marginally unemployed. Something like 20 million people out of work or those who would like to have a better job. It's a really bad situation. The economies in trouble. We're growing at 1 percent or less. Now, President Obama next week will unveil another stimulus plan. I don't know whether it's stimulus three or four or five. He's talking about an infrastructure bank, he's talking about more unemployment benefits, he's talking about temporary targeted tax credits. I want to get your take on this. And, again, I remind everybody, you yourself were a former businessman for years. You ran Halliburton, you served on a lot of boards, Procter & Gamble, Union Pacific. What should Obama do to trigger businesses that are sitting on $2 trillion in cash to get this economy moving again? What do you think of his so-called jobs plan as we know it from the leaks?

Mr. CHENEY: Well, of course, I haven't seen the plan yet. We're speculating about it and dealing with the leaks, but I'm not optimistic about what he'll produce. I think his mind-set is very much along the lines of road-building projects, so-called stimulus, enhanced unemployment benefits. That it doesn't go to the heart of the problem and that what we need to do is create an environment in which the private sector is prepared to invest, where there's enough certainty there so that they can move forward in terms of making decisions about ways in which they can expand their businesses and create jobs. We need to do more to reduce the regulatory burden. I see, you know, a big regulatory burden being imposed on the private sector by the administration. That doesn't appear to be addressed at all by President Obama. I think we need to seriously look at tax policy. I think, you know, left to his own devices, he was arguing for tax increases. I think the private sector is still concerned out there that, first chance he gets, he's going to be for tax increases.

KUDLOW: Mm-hmm.

Mr. CHENEY: And all of those kinds of things will retard the restoration, if you will, of the kind of confidence that's needed for the private sector, long term, to enter a period of rapid growth and job creation. That's really the only way out of this. I don't think government can do it by itself.

KUDLOW: I've got a couple more questions. I just want to make sure you and the batteries there are working OK.

Mr. CHENEY: Mm-hmm. Well, they are.

KUDLOW: What have you got going in there? You've got this lovely--looks like a fishing vest.

Mr. CHENEY: It is.

KUDLOW: And what's--what are the hookups to keep your ticker going?

Mr. CHENEY: Well, I've got a--this is a control element. Sort of a small computer.

KUDLOW: Uh-huh.

Mr. CHENEY: I've got two of these batteries.

KUDLOW: Oh, don't move it, it makes me nervous!

Mr. CHENEY: They operate for about 10, 12 hours. Then what it does is it runs a heart pump called the HeartMate II that's inside my chest, plugged into the heart, that takes blood out of the left ventricle, the pumping chamber...

KUDLOW: Hm.

Mr. CHENEY: ...and moves it into the aorta. It operates at about 7,000 RPMs. Instead of a heartbeat, it's sort of like having a Ferrari in your chest.

KUDLOW: Yeah.

Mr. CHENEY: I mean, it gives you that kind of noise when you listen to it. But it's wonderful technology. It was originally built to tide over patients until they could get a transplant. It's now gotten good enough so that a lot of people are living for several years with this equipment. It's a little awkward, but you get used to it. I get everything into this vest that's specially made for that purpose.

KUDLOW: How is your outlook with this?

Mr. CHENEY: Well...

KUDLOW: You look great. You sound great.

Mr. CHENEY: ...so far, so good.

KUDLOW: You're snapping right back at me just like you always did.

Mr. CHENEY: Fourteen months ago, I was in big trouble. I was in end-stage heart failure. My heart was not moving enough blood to service my kidneys and my liver. I was close to--close to the end when we went in and put in the heart pump. Now, it's not an artificial heart, but what it does is supplement your heart and move a significantly larger volume of blood than was possible...

KUDLOW: Hm.

Mr. CHENEY: ...before it was installed. And it really is--has done wonders for me.
KUDLOW: All right.

Mr. CHENEY: I fish, I hunt, I'm not playing tennis, but I'm doing just about everything else.

KUDLOW: God bless. God bless. All right. Just the last round then, I appreciate this very much and thank you for showing us that. Back to my worries that America's in decline.

Mr. CHENEY: Mm-hmm.

KUDLOW: I've taken to calling this a Reagan moment. We need to find a Reagan-like figure to reverse the decline of the United States, at last in the economic and financial sphere. National security, we look much better, as your book chronicles, but on economic and financial. Now, let me ask you a couple of questions, political questions. The role of the tea party. How do you see the role of the tea party?

Mr. CHENEY: I think they've had a significant impact on sort of putting some spine in the backs of a lot of my friends in the Congress. That, in fact, I've realized it was controversial for the--for my colleagues to threaten, for example, the--not to grant the commitment to pay the debt, to raise the debt ceiling. That was, without question, controversial, but I think that threat was effectively used to force the administration to sign on to some significant deficit reduction measures. So I don't think we would've gotten as far as we have without them sort of holding the feet to the fire of members of Congress, but that they were deadly serious about wanting to go after the deficit problem. Now we've not yet solved the problem by any means. I'm not totally happy with the package that was approved. I worry very much that defense is going to be on the short end of the stick when it gets down to the point of actually adopting a policy. But we've got to start. I think the special committee that's been established has some good members on it.

KUDLOW: Yeah.

Mr. CHENEY: But I think others like Erskine Bowles and Al Simpson have done some good...

KUDLOW: Did a fine job.

Mr. CHENEY: A fine job.

KUDLOW: Democrat Bowles, Republican Simpson.

Mr. CHENEY: Yeah.

KUDLOW: Simpson's a great pal of yours from Wyoming.

Mr. CHENEY: He is indeed a very close friend.

KUDLOW: But they did a fine job.

Mr. CHENEY: And...

KUDLOW: It's a pity the president didn't really just enact their proposals.

Mr. CHENEY: Totally ignored them. Totally ignored them. And we've got to continue to aggressively pursue it, and I think the tea party crowd has had a big impact on moving the political dialogue over to a more responsible...

KUDLOW: All right. On the campaign trail, Governor Rick Perry is the new front-runner. Governor Mitt Romney is a tough competitor. You also have Congresswoman Michele Bachmann. You also have Congressman Ron Paul. Are these people that can step into the Reagan and reverse America's decline? Do you have confidence in the Republican field or are you looking for other candidates to run?

Mr. CHENEY: I haven't endorsed anybody yet, Larry. I'm not sure that would be necessarily helpful. There's some quarters where my endorsement probably wouldn't be welcome. But I--we're sort of at that moment where, as I look at it, the question is whether or not we can elect the equivalent of Ronald Reagan in 1980 or whether we're going to get a Jimmy Carter-like figure.

KUDLOW: Mm-hmm.

Mr. CHENEY: And I worry that Obama--President Obama represents the Carter wing, if you will, of the political spectrum, and we badly need a Ronald Reagan. Now, do we have that yet in the Republican field? I don't know. That's going to depend a lot on what happens in the months ahead in terms of a candidate...

KUDLOW: But you're not convinced. I'm hearing some--I'm hearing some skepticism and doubt in your--in what you're saying here.

Mr. CHENEY: I have to say, I haven't...

KUDLOW: You haven't seen it yet.

Mr. CHENEY: I haven't endorsed anybody yet, and I expect to support the Republican nominee, but they have a lot to show me before I'll be enthusiastic about any one of those candidates.

KUDLOW: All right. I hear you. Last one, sir. Tenth anniversary of 9/11 approaches. It's just going to be in a few weeks. Osama bin Laden is dead, the number two and threes of al-Qaeda, they're dead and gone. We've really decimated them. We've killed them, we've crippled them. It looks like democracy, this was the Cheney vision and the Bush vision. Democracy is spreading--Tehran, Cairo, Tripoli, perhaps Kabul. First of all, on the 10th anniversary of 9/11, are you satisfied that our country is safe? And second of all, are we wining the global war on terror?

Mr. CHENEY: I think we're making progress. I can't say definitively that we've won. I think it's important that we not let our guard down. I think there's still folks out there who wish us harm, and I'm still worried that the biggest threat we face is a terrorist organization equipped with a weapon of mass destruction, a nuke or a biological agent of some kind that they'd try to unleash on one of our cities. So I'm not relaxed from that perspective. On the other hand, I think you're right. I think our intelligence and military capabilities have been significantly improved over the years. We've worked hard on that, and I think it's produced results. The demise of Osama bin Laden is proof positive of that.

KUDLOW: For which you have given the president some credit for pulling the trigger.

Mr. CHENEY: I have, indeed. He made the decision to send in Seal Team 6 at that moment on that raid, and that was a good decision. I think the groundwork for it was laid over the 10 years previously and that a lot of the credit goes to our professionals in the military and in the intelligence fields who really produced the information that ultimately led to bin Laden's demise.

KUDLOW: All right. I'm going to leave it there, Vice President Dick Cheney. First of all, all best, God speed on your health. All best on the success of this book. And thank you for helping THE KUDLOW REPORT down through the years. You know we've had about a half a dozen interviews.

Mr. CHENEY: We have.

KUDLOW: You've been wonderful. Thank you, thank you, sir.

Mr. CHENEY: Well, great to see you again, Larry. I love the show.

KUDLOW: All right, thank you. We'll be right back with more from this evening's THE KUDLOW REPORT as we thank Vice President Dick Cheney and wish him all God speed.

A Real Recipe for U.S. Job Recovery

2011-09-01T22:01:00.000-04:00

I’ve got a few thoughts on this so-called Obama jobs plan, scheduled for release next week.

For starters, let’s be clear: Government doesn’t create jobs. It’s the private sector that creates jobs. And that’s precisely what President Obama has been missing for nearly three years now.

Ronald Reagan knew this. John F. Kennedy knew this. And Bill Clinton eventually learned this.

The trick here is to create new incentives for workers, investors, and business. But first and foremost, we need to remove the regulatory obstacles. Here are some examples:

– Stop the EPA and its environmental overkill.
– Stop the National Labor Relations Board’s war against business.
– Stop Dodd-Frank’s financial attack.
– And take out Obamacare.

And when that’s done, call off the high-tax dogs. Let C-Corps and small-business S-Corps pay no more than a 25 percent tax rate. Move to territorial taxation. Repatriate foreign earnings, bringing the money home. And make the Bush tax cuts permanent, or else move in the direction of a true flat tax.

And on money, until the dollar is properly re-linked to gold, the Fed should do nothing right now. Since QE2 ended, the greenback has actually stabilized. That’s a hopeful sign for lower inflation.

So the only role for government is to set the stage to make it pay more after regulations, taxes, and inflation to work, invest, and take risks. Revive the animal spirits of America’s private entrepreneurial economy with fewer government obstacles and more take-home pay.

Think of it.

On CNBC's Kudlow Report Tonight

2011-09-01T16:54:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

OBAMA'S JOBS PLAN
-CNBC chief Washington correspondent John Harwood reports from Washington.

- Sen. David Vitter, (R) Louisiana
- Denny Strigl, Fmr. CEO & Presient of Verizon Wireless

JOBS REPORT PREVIEW
- Joe LaVorgna, Deutsche Bank Chief U.S. Economist
- John Silvia, Wells Fargo Securities Chief Economist

GM, CHRYSLER, NISSAN REPORT STRONG SALES; OBAMA'S JOBS PLAN
- Bob Lutz, Fmr. GM CEO; CNBC Contributor

MARKETS
- Jeff Kleintop, LPL Financial Chief Market Strategist
- Joe Grano, Centurion Holdings CEO
- Stephanie Link, Director of Research & Vice President of Strategy for The Street.com

INDIE FILM SCAM
- CNBC’s Scott Cohn reports from Hollywood.

OBAMA ADMIN'S FORCIBLE UNIONIZATION OF AMERICAN WORKERS
- Jared Bernstein, Center on Budget and Policy Priorities Sr. Fellow; Fmr. Chief Economist to V.P. Joe Biden; CNBC Contributor
- Dan Mitchell, CATO Senior Fellow

An Interview with Pimco's Bill Gross

2011-08-31T12:43:00.003-04:00

Last night I had the pleasure of speaking with Pimco's Bill Gross, one of America’s most famed investors, on CNBC’s Kudlow Report. Mr. Gross has generated big buzz over his admission that betting against U.S. debt was a mistake.

The full interview transcript and video follow below.

LARRY KUDLOW, host:

And most important, at the top, PIMCO's Bill Gross, one of America's most
famous and successful investors. He's generating big buzz today with his
superimportant and much talked about interview in The Wall Street Journal and
elsewhere. Mr. Gross says he has, quote, "lost sleep," end quote, over a bad
bet on Treasury rates. He acknowledged that selling all his funds, Treasury
holdings last February was a, quote, "mistake." And he went on to say, and I
quote, "We try to be very intellectually honest and honest with the public,"
end quote.

All right, for my part, I just want to say to my old friend Bill Gross that I
have nothing but admiration for his taking ownership and admitting a mistake.
We all make them. And by the way, he's setting a very good example for the
rest of us. That's just my take.

Anyway, it is always a real pleasure, especially tonight, to welcome back to
the show a special Kudlow exclusive, Bill Gross. He's founder and co-chief
investment officer of PIMCO.

All right, Bill. You admit to a big Treasury bond miss. Rates this year went
way down, not up. Can you tell us, please, why the interviews right now and
what message are you sending?

Mr. BILL GROSS: Well, I, you know, I think at PIMCO we always try and be
open with the press and the public. I mean, isn't that what voters want from
their politicians? Mohamed El-Erian, our CEO, write several op-eds a week. I
tweet daily and publish a monthly investment outlook, which came out this
morning, by the way. So we try to give an honest answer to an honest
question.

And by the way, in terms of the interview with the Journal and with the FT,
what I said was that--something that I think all bond and--bond managers would
say if they were honest. They would say, `Wish I'd own more Treasuries.' To
say otherwise would be to say something like you'd wished you bet on the Miami
Heat instead of the Dallas Mavericks. I mean, it's obvious who won, right?

KUDLOW: Obviously wrong. All right, well, anyway, you're very outspoken and
I respect you for it.

Listen, you were here--I looked back--June 8th we spoke. So what's that?
Three months ago. At that point, Bill, you repeated the call to get out of
bonds. Now the bonds rally more or less from 3 percent to 2 percent, today
they're at 2.20. What went wrong? How do you assess what went wrong with
your bond call?

Mr. GROSS: Well, first of all, I didn't say get out of bonds. I said get
out of Treasuries and move...

KUDLOW: Treasuries.

Mr. GROSS: ...and move into Canadian bonds and to Australian bonds and other
alternatives. What went wrong in terms of the Treasury call from 3 percent
down to close to 2 percent? Well, the economy slowed down dramatically. We
had a freeze-up, so to speak, in terms of Washington with the politicians and
policy options. It was recognized that fiscal stimulation, you know,
certainly wasn't going to be something undertaken for the next six to 12
months, if at all. It was recognized that the Fed was running out of policy
options and so the economy was slowing down and was--seemed to be slowing
almost permanently in terms of a 0 to 2 percent growth category.

KUDLOW: Have you basically lost confidence in the economy? You mention, I
think, in the FT article, Bill, you call it, quote, "a new normal minus." Have
you lost all confidence in our capacity to grow the economy?

Mr. GROSS: Well, no. You know, but the problem I have with the free market
capitalism, Larry, which is your philosophy, is not with the concept. In
fact, you know, PIMCO is an epitome of its historical thrust. We're very
successful and because of free market capitalism. But the problem I have is
with its apparent exhaustion in the face of three equally dynamic economic
influences. Let me mention them briefly.

First of all globalization has weakened American and developed economies by
syphoning off investment and, more importantly, jobs to emerging nations at
1/10th the wage cost. Take China, for example, Free market capitalism, in
other words, is working for China, it's working for Brazil, but it's not
working for America or Euroland.

Secondly and just briefly, free market capitalism depends on a balanced market
between labor and capital. And clearly we're reaching a point where
impoverished Main Street cannot afford to buy the goods that capitalism so
magnificently produces. So I think there's an exhaustion here in terms of
free market capitalism that has worked so well for 20 to 30 to 40, 50 years,
but now is reaching structural impediments that prevent, you know, strong
growth that we're used to.

KUDLOW: I want to come back to that towards the back end, Bill, but I just
want to narrow down for a moment. I want to drill down. According to the
reports, you are buying Treasuries. You're accumulating Treasuries. You have
a net positive exposure for the first time. Let me ask you, what if the
bond--the Treasury market has discounted a recession that doesn't happen? Are
you chasing the market? Is there a risk that the rate hikes that you foresaw
this year might still come to pass if the economy surprises on the upside?

Mr. GROSS: Well, that's possible. We read in the Fed minutes today of the
last meeting that the--that the two-year 0 percent or 25 basis point Fed funds
level is conditional, and we know that there are hawks, that there are doves,
and that should the economy recover to a 2 to 3 to 4 percent rate, that, you
know, perhaps inflation looms larger in terms of a threat. So anything is
possible. What I would say at the moment, though, is since the economy is
really moving closer to the zero level, since inflation probably will come
down gradually, you know, the Fed is at 0 percent for the next two years and
perhaps even longer than that, and that determines significantly the level of
Treasury rates in five-year space, 10-year space and even 30-year space.

KUDLOW: But, you know, it's interesting. We had Byron Wein on, a
distinguished investment guru on his own part. He predicted the S&P would
rally to 1400. OK? It's just over 1200 today, as you know, If that sort of
thing happened with better corporate profits, even consumer sentiment, which
tanked today but people are still buying washing machines and cars, retail
sales are holding up. If you had a big rally in stocks, the risk trade is
back on. That'll come out of Treasury bonds, and those could--that could
drive those bond rates back to 3 percent. You're buying bonds now. Are you
worried that there's a potential for whiplash?

Mr. GROSS: Well, I'm suggesting that the probability--that the high
probability is for interest rates to stay low for a long time. I mean, Byron
Wein basically is a a mean reversion cyclical type of--type of analyst. What
we're suggesting is that there are structural impediments to the US economy to
develop market economies that will prevent growth in the 3 to 4 percent
category.

Let me ask you, in terms of consumerism, in terms of the US consumer, if
unemployment stays at 9 percent plus and if wage gains--if real wage gains are
nonexistent, then were is the spending power coming from? It has to come from
the consumer as opposed to businesses. Businesses are waiting on the
consumer. The consumer is waiting on business. We have what we call a
liquidity trap. So what we're suggesting is not a reversion to the mean, not
a cyclical upthrust, but basically a structural impediment that produces
growth in the 0 to 2 percent category for a long time. Not just in the US,
but in Euroland, as well.

KUDLOW: All right. So let me--have you had any trouble with your fund--I
guess the Total Return Fund, because of the bond miss this year, rates went
down instead of up? Have people withdrawn from the fund? What are your
customers saying right now?

Mr. GROSS: We have a $245 billion customer base. You know, that customer
base is growing. We just got a billion dollar contribution from a large
corporation this week. There's been no lack of confidence. You know, to
suggest that a six to seven month timeframe for the PIMCO Total Return Fund,
which has produced results for the last 20, 30 or 35 years, is, you know, a
stretch of the imagination. We continue to produce fine results for our
clients.

KUDLOW: Oh, that's what everybody says. That's--everybody I talked to today
on this story said exactly what you said. Your record down through the years
has been superb.

Let me ask you this, are you still buying some corporate bonds and are you
still buying foreign bonds? You talked to me about that when you last
visited.

Mr. GROSS: Well, corporate bonds of the highest quality, yes. And that
would be A and AA-types of corporates, not high-yield bonds because they don't
do well, you know, if we near the recessionary level of 0 percent. In terms
of foreign bonds, let me just cite the comparison: a five-year Treasury in
the United States at 1 percent, actually little bit less; in Canada 1.7
percent; in Euroland 2.1 percent; in Mexico 5.4 percent; in Brazil 11 percent.
And these are countries, by the way, Larry, which have what we call clean or
dirty shirts. Mexico has half the debt of the United States. Brazil has half
the debt of the United States and has treasury reserves as opposed to
deficits. And so these are countries with higher yields and better balance
sheets.

KUDLOW: All right, last one. I'm going to come back to where you were on the
breakdown of free market capitalism, which is fair enough. I would
acknowledge that America's economy has been on the decline now for about 10
years. But I ask you, Bill, everybody is so profitable. Businesses are so
profitable, so much cash. Banks have more liquidity than they know what to do
with. Is it possible there's a buyer's strike, that there's a capital strike,
that the spending and taxing and regulatory threats out of Washington are
really the problem, not the free market capitalist system?

Mr. GROSS: Well, I'd have to say that that doesn't help. I mean, let's come
together on that point that regulation and too much of it--that taxation in
terms of the necessary reforms that probably lie ahead, you know, don't help
either in terms of the current economic environment. What I would say in
terms of corporate tax reform is, yes, let's reform taxes, let's reform
corporate taxes and let's reform individual taxes. But at the same token,
let's not lower them, because corporate taxes are 10 percent of total federal
revenues. They're at an all-time low, Larry. And to suggest that
corporations are the poor baby in this particular story, I think, is an
absurdity.

KUDLOW: All right. I'm going to leave that for the next discussion we have.
We have much more to discuss on corporate tax reform. But, Bill Gross, thank
you for your honesty. Thank you for your forthrightness.

Mr. GROSS: Thank you, Larry.

KUDLOW: And thanks for coming on tonight. I appreciate it.

Mr. GROSS: Yeah.

Irene’s Broken Windows

2011-08-29T20:36:00.003-04:00

Get ready for a bunch of demand-side economists to tell you that the post-Hurricane Irene rebuilding phase is actually a good thing for future economic growth. But don’t believe it.

Who has it right?

Joshua Shapiro, chief U.S. economist at MFR, Inc., delivered my favorite quote on the subject to the New York Times: “If you’re in the middle of recession, you just wander around blowing up buildings, and that would be your path to prosperity. And clearly that’s not the case. It’s not the case with a natural disaster either.”

Echoing this thought, Ian Shepherdson, the chief U.S. economist at High Frequency Economics, bluntly noted on CNBC’s website that “no one is made better off by the destruction of their home or workplace.” He acknowledged the benefits of reconstruction work, but he dismissed the idea that somehow this is a net win for the economy.

It sounds to me like both of these gentlemen are recalling the parable of the broken window, introduced by French free-market philosopher Frederic Bastiat in an 1850 essay called “That Which Is Seen, and That Which Is Unseen.” While Bastiat agrees that repairing broken windows is a good thing, encouraging the glazier’s trade and income, he argues that it is quite different from the idea that breaking windows is a good thing, in that it would cause money to circulate and encourage industry in general.

Why? Because a shopkeeper who spends money to fix broken windows cannot spend or invest that money on new ventures.

“It’s not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library,” wrote Bastiat. “In short, he would have employed his six francs in some way, which this accident has prevented.”

In other words, the business people who are spending to fix the damage of Hurricane Irene are not spending or investing that money on brand-new ventures or start-ups, or on ordinary goods and services. That’s the real economics of Hurricane Irene.

There was a lot of damage incurred along 1,100 miles of U.S. coastline. Tragically, 28 deaths have been reported so far. There were toppled trees, power-line disruptions, and flooding on damaged roads. Homes, commercial buildings, and factories all stopped for at least a couple of days. In some sense, the human distress has been even greater than the economic distress.

On the other hand, lost sales, foregone consumer spending, and temporary stoppages of production and employment will all be recouped in a relatively short period of time. Mark Zandi of Moody’s Analytics suggests that the economic toll will be in the billions, but not the tens of billions. (Remember, total U.S. GDP is roughly $15 trillion.) So there’s no black-swan event here that will throw our fragile economy into a double-dip recession.

Yes, the economic blow from Irene is noticeable, but it’s temporary. In fact, what makes this economic setback even less worrisome is that it occurred over a weekend. You really didn’t even lose two days of economic activity.

Restaurants, retailers, baseball games, and Broadway shows all shut down, but only for a short bit. And actually, there was a lot of consumer buying in the days leading up to Irene. People went to Home Depot and Lowe’s to find stuff to board up their windows. They went to Costco for food. And they went to Wal-Mart and Dollar General for all sorts of things.

When the final tally is in, Irene may or may not qualify as a top-ten hurricane. But the history of such disasters is that the national economy rebuilds and snaps back shortly thereafter. Nonetheless, the economic rebuilding essentially gets you back to where you were before the storm. Unfortunately, there is virtually no net new investment from all of this.

That said, if President Obama tries to use Hurricane Irene as an excuse to pour tens of billions of new infrastructure dollars into the economy, he’s barking up the wrong tree.

For just as Bastiat’s seen-and-unseen analysis holds for the shopkeeper repairing his window, it also holds for the impact of massive government spending on the whole economy. It’s a huge mistake, and a consequence of our fiscal profligacy, when private money is not spent on new investment because funds are absorbed by big-government borrowing.

If we are to restore strong economic growth and job creation we require measures like pro-growth tax reform or regulatory rollback and repeal. In this sense the new House Republican plan just released by Majority Leader Eric Cantor to repeal job-destroying regulations -- especially on labor and the environment -- makes a lot more sense than throwing money at FEMA for new infrastructure banks.

Breaking fiscal windows is just as ineffective as breaking the shopkeeper’s pane of glass.

An Interview with Richard Fisher

2011-08-19T08:47:00.002-04:00

Richard Fisher, Dallas Fed president, explains his dissent on two more years of a zero interest rate target. He believes the Fed has created enough liquidity, but it's tax and regulatory barriers that have blocked growth and job creation. He also responds to GOP attacks on the Fed. You're looking at a future Treasury secretary here.

LARRY KUDLOW, host: Welcome back to this special edition of THE KUDLOW REPORT. We're continuing our discussion of today's stock market route, this time from the perspective of the Federal Reserve. We are honored to have a very special guest joining us this evening. Here now for an exclusive CNBC interview Richard Fisher. He's president and CEO of the Federal Reserve Bank of Dallas. Richard, welcome. You picked a hell of a day.

Mr. RICHARD FISHER: Well, wait, wait, wait. Not only am I president of the Federal Reserve Bank of Dallas, but I've been a friend of Larry Kudlow's for over 30 years, since we were embryos.

KUDLOW: Yes.

Mr. FISHER: So we started out as babies, of course.

KUDLOW: Thank you for that. I appreciate it. All right, Richard, let me just get your general impressions. Today was another plunge in stocks. We're in the throws of a 16 percent correction. What's your reaction to this kind of correction? What do you think is behind it?

Mr. FISHER: Larry, I'm a central banker. I thought your panel, by the way, earlier was very informative and very helpful. The message on that panel that don't panic. I'm a central banker. The Federal Reserve does not panic. I think we watch things carefully. You and I both know that markets are manic-depressive mechanisms. There are always some trip wires there, depending on what people are looking for. I'd just like to make two comments.

One is on Philly Fed Index. It's a wonderful index. You might wish to note to your viewers that its correlation with the PMI, that is the manufacturer's index, is .08. The two of the Fed indexes that have a good correlation are the Empire State, and then, even more than that, believe it or not, is the Dallas Fed's manufacturing survey. So I think there's a bit of an overreaction there.

And then secondly, one of the key points that was made is you have to think about the kind of dividends that are there. As I understand it, if the numbers I looked at correctly today, 60 percent of the S&P 500 is out yielding the Treasury 10-year. So I think your panel's advice don't panic is very good. Certainly we at the Central Bank have to look at things in a very calm, steady-handed way, and we'll continue to do so.

KUDLOW: Richard, I guess a two-edged question. Number one, your assessment of the outlook for recession. You had a bunch of banks today, Morgan Stanley earlier...

Mr. FISHER: Mm-hmm.

KUDLOW: ...and I'm told, as we're on the air day, Citi is downgrading its economy, its economic forecast, as is JPMorgan. Do you think--do you personally think we're going into recession?

Mr. FISHER: I've said from the very beginning this is will be a slow slog. I think it'll continue to be a slow slog. You pointed out some numbers earlier, Larry, in terms of the retail sales number, the production numbers. There have been setbacks to that in terms of various surveys. But I still think we have positive momentum. I'm not saying it is sufficient momentum to create the kind of jobs we want to create in America, but I do think we're going to have a positive third quarter. And my own personal feeling is, at least before the debt ceiling negotiations took place, I was looking for 3 percent or so in the third quarter. Still want to see that. I don't know much a retardant that comic opera was on people's willingness to commit capital to build into hire or to consume. But I'm still of the feeling that we're going to have positive momentum, Larry.
KUDLOW: Well that sort of leads to my next question. It's a puzzlement question. I've never seen so much cash and liquidity around.

Mr. FISHER: Boy, you're right.

KUDLOW: Banks have more money than they know what to do with. Corporations have more money than they know what to do with.

Mr. FISHER: Mm-hmm.

KUDLOW: And yet they all seem immobilized, not investing it, not taking risks, not hiring. Why is that?

Mr. FISHER: Mm-hmm. Well, my opinions are pretty well known there. It's not because of monetary policy. We have filled the gas tank. We got lots of fuel in there. Someone needs to step on the peddle and gauge the transmission mechanism, and I really do think the corporations have been discouraged from doing so. Obviously they're worried about weak demand. But remember, we're a consumption driven country. Unless you hire people, you can't have more consumption because you won't have more employment. And there's so much confusion on the regulatory side. There's such an uncertainty, Larry, in terms of what kind of tax regime, what kind of spending and what kind of subsidies are going to be added to, taken away, what the incentives will be that come out of this group of 12, or if they fail, will be laid down. That, to me, is not only depressing production, hiring, CAPEX and all the good things we need to see, it's also scaring the heck out of the consumer.
If you had watched that whole debacle of the debt ceiling negotiations, I would have turned to--as I did--to my wife, `Honey, we just can't afford to go on this vacation,' or, `We can't afford to buy that gizmo or that service.' I think it is a retardant. We have to get more certainty. Business operates under conditions of uncertainty, as you know. That's the way capitalism works. But extreme uncertainty freezes decision making, and I'm afraid that's the position we're in.

The Central Bank has reliquefied the system. That's what the Federal Reserve has done. The fiscal authorities, however, have to incent people, or at least help incent people, to have the confidence to go ahead and engage, expand the economy, in addition, of course, to seeing the whites of the eyes of a stronger recovery. But it can't occur unless businesses are incented to invest and hire more people.

KUDLOW: Well, in terms of Federal Reserve...

Mr. FISHER: I have very strong feelings about that.

KUDLOW: Yes, I can tell. And that, you know, I hear you on that. I get that. I hear you completely.

Mr. FISHER: Yeah. Good.

KUDLOW: But I want to--let me bring it back to the Federal Reserve. You did dissent from the last meeting.

Mr. FISHER: Yes, I did.

KUDLOW: The two year extension of the zero interest rate target. In Midland, Texas, yesterday--apparently, according to all the reports.
Mr. FISHER: Mm-hmm.

KUDLOW: You said that that zero interest rate target for two years reduces business incentives to grow and hire. Could you expand on that, because it sounds like you're suggesting the Federal Reserve's interest rate policy, the zero target is itself a disincentive, an obstacle, and may be adversely affecting the stock market?

Mr. FISHER: Well, this is my personal opinion, but there could be the unintended consequence that in addition to not knowing how you're going to be taxed or what kind of spending patterns are going to change, how it's going to affect not only your company, but your consumer base. Now you know that you can wait to borrow because the rates are going to be locked in at very low levels for a two year period. So my suggestion is and one of my arguments was that this might well further retard recovery and commitment. Again, you can't have recovery unless we have employment go up, unemployment go down. We will not have that unless people decide to expand. And right now there's almost no incentive to expand, and I was worried--this is my personal opinion--obviously I was in a minority and I respect the majority of my colleagues--that this would be a further retardant.

KUDLOW: Haven't all these zero interest--it's been several years now that we've had a zero interest rate. Hasn't it just benefited the speculators, the traders, the hedge funds? Not that they're bad people, but I just want to say, if you can borrow at zero and invest in anything with a higher yield, you win. At the same time, it's doing great damage to savers. I mean, isn't this a lopsided policy?

Mr. FISHER: Yep. Well, again, I've voiced concern about that. There's always a cost-benefit analysis takes place. Clearly one of the costs--and we're all aware of it--is the people that played by the rules, as they got older--like you and me, Larry--began to save more, shorten up on a yield curve, particularly those who don't have the benefit of sophisticated advice, have really been hammered here because it--they're getting low, in fact, negative real returns on their investment, and I think it's hurting the poor, and I think it's hurting those savers, and I think it's hurting the middle class that have played by the rules, socked away some money for retirement. And that's one of the prices we pay to try to reliquify the system.

I'm a little concerned as to how tolerant those people will be over the long term unless they see a pickup over time in the returns on their savings. But...

KUDLOW: Well, I think there's...

Mr. FISHER: It's very, very hard for retirees, and you and I agree on that front.

KUDLOW: I think there's a--I think there's a demoralization going on out there by savers and by businesses.

Mr. FISHER: Mm-hmm.

KUDLOW: But let me ask another question. I'm not going political on you, I just want a general sense. Out on the campaign trail, many if not most of the Republican candidates...

Mr. FISHER: I know what it is.

KUDLOW: I'm not going to name names, just because they're--because really many of them are attacking the Fed, sometimes in very harsh terms. I think what people want to know, not so much whether this guy is right or that lady is wrong or whatever. They want to know what kind of impact this has, these attacks on the Federal Reserve.

Mr. FISHER: Well, first of all, I come from Texas, Larry, so I come from the history of Wright Patman and Henry B. Gonzalez, and at least one of the individuals you refer to is a Texan--at least two of the individuals you refer to are Texans. I understand their sentiment--that's sort of the way we're geared down here--but I worry about it from the standpoint of if they're pointing fingers at us, I'm worried they're not focusing on really need--is needed here, which is to change the whole fiscal mix to reboot the way we tax, spend, incentivize and get our economy moving again. That's what they do as leaders if they're running for the White House, as president, working with the Congress of the United States.

As far as the impact on our decision making, whether it's Chairman Bernanke or whether it is the rest of us that sit around that table, we just don't pay attention to this. I think it's very, very important you have a central bank.

KUDLOW: No attention whatsoever?

Mr. FISHER: It is independent.

KUDLOW: Front page story, no attention whatsoever.

Mr. FISHER: That it is...

KUDLOW: I mean, they're trying to put monetary policy and Fed and...

Mr. FISHER: That this...

KUDLOW: ...the dollar square in the middle of the campaign, Richard. You're saying it has no impact at all on the Fed?

Mr. FISHER: I think it's very important that we resist the temptation to react to that criticism any way, shape or form. We know, historically, when legislatures have taken over central bank functions, you end up with Argentina...republic, nationalist China and so on. So if we don't allow it to permeate our thinking, we just do what we're suppose to do for a living, then I think we'll stand in the best stead.

KUDLOW: All right, Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas. We appreciate your views very, very much. It's great to have you visit with us again. All the best.

On CNBC's Kudlow Report Tonight

2011-08-18T16:38:00.002-04:00

Please join us at 7pm ET tonight on CNBC.

MARKET SELL-OFF: WHAT'S GOING ON HERE?
- Mike Holland, Holland & Company Chairman; The China Fund Board of Directors (CHN)
- Jim Iuorio, Director, TJM Institutional Services
- Art Hogan, Lazard Capital Markets Managing Director
- Joseph Grano, Centurion Holdings CEO; Former UBS Wealth Management USA Chairman & CEO

ONE-ON-ONE WITH RICHARD FISHER … IS THE FED BETWEEN A ROCK AND A HARD PLACE
- Richard Fisher, Dallas Fed President & CEO

THE SAFETY & SOUNDNESS OF BANKS: ARE NY & EUROPEAN BANKS FUNDED?
- David Malpass, Encima Global President; Fmr. Bear Stearns Chief Economist; GrowPac Chairman; Fmr Reagan Deputy Asst Secy of Treasury
- Bill Rhodes, Fmr. Citi Senior VP
- Bill Isaac, The Secura Group Founder & Chmn; Fmr. Fifth Third Bank Chmn; Fmr. FDIC Chmn

MARKET DRILLDOWN
- CNBC’s Bob Pisani
- CNBC’s Rick Santelli
- Bob Lutz, Former GM Motors Vice Chairman; CNBC Contributor
- Warren Meyers, DME Securities Vice President of Floor Operations & CNBC Market Analyst

An Interview with Austan Goolsbee

2011-08-17T23:11:00.002-04:00

Departing Council of Economic Advisers chairman Austan Goolsbee defends Obamanomics. I push back. But he's for pro-growth tax reform. I'm for it. So where's the President?

LARRY KUDLOW, host:

So now I am personally honored to be joined for an exclusive interview by the
former chairman of the President's Council of Economic Advisers, that being
Austan Goolsbee. He is returning to the faculty of the University of
Chicago's Booth School of Business this week. An old friend of the show.

Good evening, Austan. Let me just say congratulations on your government
service.

Mr. AUSTAN GOOLSBEE: Hey, thank you, Larry, and it's great to be back and
see you again.

KUDLOW: All right, that's the good news. The bad news, Austan, as you well
know, America is not working. Many fear a double-dip recession. There has
already been a debt downgrade. What is your man, President Obama, going to
do? Can you tell us what he's going to say in this so-called new economic
growth plan?.

Mr. GOOLSBEE: Well, you know, I'm not going to give away any secrets. It's
his to make. You and I, Larry, for many, many years, have been the growth
guys. And while we may disagree on this or that or some other policies,
fundamentally we got to get the country growing if we're going to be
generating jobs, and we saw that last year when the economy was growing at a
faster clip. We added more than two million jobs, as well as the stock market
was doing well and you were starting to see more business investment. As we
slowed down this year, we took a hit on all of those fronts. So hopefully
it's going to be in the style of the education, innovation and investment,
which I kind of think is--has got to be the fundamentals of any growth
strategy.

KUDLOW: Yeah, but Austan, I don't--look, let's go back to basics. The $800
billion stimulus package hasn't worked. The $2 1/2 trillion Fed stimulus
package hasn't worked. Cash for clunkers hasn't worked. These green energy
ideas hasn't worked.

Mr. GOOLSBEE: Well...

KUDLOW: Your president is out there talking about raising taxes on
millionaires and billionaires.

Mr. GOOLSBEE: Well, let's--now hold on a second, Larry.

KUDLOW: What kind of message does that send to entrepreneurs and free
enterprise business people who, frankly, are immobilized and don't want to
create jobs, Austan? Isn't it time to turn over a new leaf and start
something new?

Mr. GOOLSBEE: Have you been saving this all up since I've been--last been
on, Larry?

KUDLOW: Only for you, my friend. Only for you, because you're such a good
guy.

Mr. GOOLSBEE: Well, look--look, what I will say is this, I don't agree--if
you start looking at the impact of various programs. We avoided a depression,
which was a scary moment, but all of that stuff was two-and-a-half years ago.
If you look at the president cutting the capital gains rate to zero for people
starting their own businesses, cutting taxes 17 different times for small
business, I'd a thought you'd be for that stuff, Larry.

KUDLOW: Those are not tax cuts. You see, the whole...

Mr. GOOLSBEE: How is that not a tax cut?

KUDLOW: One of my problems with your line of thinking is you believe that
little teensy-weensy, temporary, targeted tax cuts; and from what I gather
from our John Harwood, you're going to go there again. Another one year
payroll tax cut will not do it, Austan. Don't you understand, businesses
think longer term. Is there anybody in the White House that's ever worked in
a business that sees a five-year horizon, permanent reductions in tax rates
work? These teensy-weensy tax credits never work, Austan. That's why we're
at 1 percent growth in the economy.

Mr. GOOLSBEE: Look--oh, you and I are both for a low rate and a broad base.

KUDLOW: Yes!

Mr. GOOLSBEE: Now when the president has proposed...

KUDLOW: Where is that? Where is that, Austan?

Mr. GOOLSBEE: Well...

KUDLOW: Where is his broad base? Yes, let's start there.

Mr. GOOLSBEE: Go ask the members...

KUDLOW: We can agree on that.

Mr. GOOLSBEE: ...of Congress. When the president proposed a grand bargain
with a low rate and a broad base, they said, `What do you mean broaden base?
We don't want to broaden the base. That would be a tax increase.'

KUDLOW: Well, but if you lowered the rates and broaden the base, if you
rolled back regulations, if you stopped the National Labor Relations Board
from attacking businesses, Austan, you would see companies spending the
several trillion dollars of cash that they're not spending now, my friend.

Mr. GOOLSBEE: Well, now, hold on, Larry. You see that same accumulation of
cash in other countries that have totally different policies than we have in
the US. So I think it's very unlikely to attribute that to the policy
decisions that are taking place in the US, first of all. And second of all,
you have seen that the president has actively been trying to streamline
regulations. And just going back to the policies that led to the downturn
hardly strikes me as the wisest course of action.

KUDLOW: I don't see...

Mr. GOOLSBEE: We ought to do some third thing.

KUDLOW: Well...

Mr. GOOLSBEE: And I think you will likely see the president proposing that.

KUDLOW: I mean, I don't see--you've tried all this big government spending
and regulate. Why not have flat tax reform? Why not roll back regulations?
Why not put yourself in the position of a small business, Austan? They're
worried about Obamacare. They're worried about...

Mr. GOOLSBEE: Look, the president has done that.

KUDLOW: They're worried about Dodd and Frank. Why not understand that
community banks are afraid to make a loan because of overregulation?

Mr. GOOLSBEE: Well, Larry, again, I think you're being highly unfair. The
president has cut taxes for small business 17 times. It's not my job to come
down and get in a big battle over things that happened two
years--two-and-a-half years ago in the stimulus. If you look from this point
forward, what do we need to grow? As I look at what the administration is
doing, where they are in those areas where streamlining of regulation can be
effective, trying to streamline the regulations. They're trying to cut taxes
for small business. And they're trying to make the investments. It seems
like you were making fun of an infrastructure bank.

KUDLOW: Yes.

Mr. GOOLSBEE: That's one of the only things that the Chamber of Commerce and
the labor unions agree on...

KUDLOW: I don't care if the chamber is for it.

Mr. GOOLSBEE: ...that the infrastructure will be critically important.

KUDLOW: Austan, you spent a lot of money.

Mr. GOOLSBEE: With...

KUDLOW: And the president himself said those jobs were not shovel ready. I
don't think an infrastructure bank or any other form of additional spending is
going to help grow the economy and unleash entrepreneurship, with all do
respect.

Mr. GOOLSBEE: Well, you know...

KUDLOW: And I want to ask you about another one. Is the president going to
extend unemployment benefits for another 99 weeks, because many economists, as
you well know, believe that this kind of unemployment benefit extension is
actually keeping unemployment high?

Mr. GOOLSBEE: Well, the evidence that I've seen on that suggests that it's
not keeping unemployment high. You have to be looking for a job to get
unemployment benefits. If you stop looking for work, you are no longer
eligible to receive and benefits. And though it's come down substantially, we
still have more than four-and-a-half people looking for a job for every job
that's out in the economy. So I, you know, I think that's a little unfair to
be trying to pin our economic problems on the fact that we're trying to give
people some time to help them find a job.

KUDLOW: All right, my last one is--look it, you've been very patient. I
appreciate that. But this is such important stuff, Austan. You've a good
man. We've known each other long time. All this green energy stuff has been
an abject value. You're never going to do more than 1/2 percent or 1 percent
of American energy. Why doesn't that administration come out full throated
for American energy production? We've got the oil shale. We've got the
natural gas shale.

Mr. GOOLSBEE: We did.

KUDLOW: No, see...

Mr. GOOLSBEE: How can you say that?

KUDLOW: They don't...

Mr. GOOLSBEE: They did. Domestic production is the highest it's...

KUDLOW: They refused to call off the EPA dogs.

Mr. GOOLSBEE: ...been since the--for many years.

KUDLOW: I understand. But they refuse to call off the EPA dogs that are
investigating the infras--the fracking structure and the water levels. And
this is one of the great job...

Mr. GOOLSBEE: Wait, look, look.

KUDLOW: ...creators of all time.

Mr. GOOLSBEE: Look, we have to--we have to promote domestic energy
consumption. We have to do that in a way that's safe. We don't want to have
the biggest oil spill again that has ever been had. We don't want to poison
the ground water. But the president, as I've viewed it, the administration
believes that we can do that in a safe way, and domestic production is ramping
up quite dramatically. Now it seems like you're making fun of some of the
alternative energy stuff, but if you look at China, if you look at Europe and
if you look at a lot of the faster growing regions of the world, they're
heavily investing in it.

KUDLOW: It's been a dismal failure in Europe.

Mr. GOOLSBEE: (Unintelligible)...alternative energy.

KUDLOW: It's been a dismal failure in Spain. It's been a dismal failure in
Europe. I say, Austan, if the market...

Mr. GOOLSBEE: It seems like in China and Brazil it's been quite a success.

KUDLOW: If the market wants to produce clean energy, it'll produce clean
energy. Natural gas from shale is clean energy.

Mr. GOOLSBEE: Look, I agree with that.

KUDLOW: I just don't see why we don't...

Mr. GOOLSBEE: I agree with that.

KUDLOW: ...call the EPA dogs off. That's one of these regulatory issues.
Call the National Labor Relation dogs off of Boeing, Austan. In other words,
some of this stuff, there's very little presidents can do. I get that.

Mr. GOOLSBEE: OK.

KUDLOW: But the signals, the messages, is it pro-confidence or
anti-confidence? We have got to get America working again and right now it's
not happening. I'm going to give you the last word, my friend.

Mr. GOOLSBEE: OK. All I'll say is if you look at countries where it
is--where they are rapidly growing, they're investing in their infrastructure.
They're investing in their educations. They are trying to streamline
regulations but they're not neglecting key investments. The president when
he's out looking at fiscal consolidation for the long-term, but making the key
investments that are pro-business, I really think that's the--what we should
be doing, and I feel that that could be certainly a bipartisan thing.

KUDLOW: Well, all right. I say make it pay more after tax for all business
ventures. But, Austan, we've ran out of time. You're very kind to come on
the show. It is a pleasure to see you.

Mr. GOOLSBEE: Great to see you, Larry.

KUDLOW: I hope you'll come back now that you're going back to college.

Mr. GOOLSBEE: You bet.

KUDLOW: And I appreciate it very much. You know I have the highest regard
for you. Austan Goolsbee.

Mr. GOOLSBEE: It's great to see you.

On CNBC's Kudlow Report Tonight

2011-08-17T18:51:00.000-04:00

Please join us at 7pm ET tonight on CNBC.

OBAMA SEPTEMBER JOBS STIMULUS - WHAT WILL GET AMERICA WORKING?
- Austan Goolsbee, Fmr. Council of Economic Advisers Chmn.; University of Chicago Economics Professor

MARKETS
- Anthony Scaramucci, Founder and Managing Partner of Skybridge Capital
- Brian Kelly, Brian Kelly Capital President
- Mort Zuckerman, N.Y. Daily News Publisher; U.S. News & World Report Chairman & Editor-in-Chief

HIGHS & LOWS OF OBAMA BUS TOUR
- CNBC’s Eamon Javers reports.

OBAMA'S "MAGICAL MISERY TOUR" - WHAT DID IT ACCOMPLISH?
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author
- Howard Dean, (D) Vermont, Former Vermont Governor; Fmr. Chmn., Democratic Nat'l Cmte.,Fmr. Democratic National Committee Chairman

INFLATION NATION?
- Brian Wesbury, First Trust Advisors Chief Economist
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer

THE GOP RACE: ROMNEY, PERRY, BACHMANN - WHO'S GOT THE RIGHT STUFF? IS OBAMA TOAST?
- Rich Galen, Republican Strategist
- David Freddoso, "The Case Against Barack Obama" Author
- Matt Miller, Washington Post Online Columnist; Public Radio's "Left, Right and Center" Host

Perry’s Red-Hot Bernanke Slam

2011-08-16T21:42:00.001-04:00

Gov. Rick Perry scorched the political pot on Tuesday with a red-hot rhetorical attack on Fed-head Ben Bernanke. When asked about the Fed reopening the monetary spigots, Perry said, “If this guy prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we — we would treat him pretty ugly down in Texas.”

And that wasn’t all. In a more controversial slam, Perry said, “Printing more money to play politics at this particular time in American history is almost treacherous — or treasonous — in my opinion.” (Italics mine.)

Pretty rough stuff. Very aggressive language. And undoubtedly way too strong. It was poorly received in the financial world.

No, Ben Bernanke is not a traitor. This is a policy dispute; it’s not a matter of patriotism. However, and this is an important however, the rest of Perry’s statement suggests that his analysis of Fed policy is right on target. In other words, wrong words, right analysis.

The Texas governor, who by some polls is the new Republican presidential frontrunner, went on to say, “We’ve already tried this. All it’s going to be doing is devaluing the dollar in your pocket. And we cannot afford that.”

Well, to me that is exactly right.

Let’s take a quick look at Bernanke’s QE2 record of pump-priming: The dollar fell 12 percent on foreign-exchange markets. The consumer price index jumped over 5 percent at an annual rate. And the $600 billion cheapening of the greenback led to skyrocketing commodity prices, including oil, gasoline, and food. That oil-price shock is one of the principal factors behind the 0.8 percent first-half economic stutter. As a result of the jump in inflation linked to QE2, real consumer incomes slumped badly and consumer spending fell substantially.

Before QE2 the economy was growing about 2.5 percent, even though it was already blunted by numerous tax and regulatory obstacles. But the cheap-dollar oil shock came perilously close to pushing us into recession.

So it turns out that Governor Perry — even with his overly strong language — is a pretty sharp economic and monetary analyst.

In fact, Perry’s analysis actually channels recent Fed dissents by reserve-bank president’s Dick Fisher of Dallas, Charles Plosser of Philadelphia, and Narayana Kocherlakota of Minneapolis. They object to a two-year extension of the Fed’s zero-interest-rate policy, and in so doing have set down an opposition marker to a potential new shock-and-awe quantitative easing that many fear will be announced on August 26 when Bernanke speaks to the Jackson Hole Fed conference.

What makes Governor Perry’s position even more interesting is his disagreement with former governor Mitt Romney. When I interviewed Mr. Romney this past April, he essentially defended Ben Bernanke and dollar depreciation. “Well, you know, I think Ben Bernanke is a student of monetary policy,” Romney said. “He’s doing as good a job as he thinks he can do in the Federal Reserve.”

Meanwhile, in Tea Party circles on the campaign trail, Mr. Bernanke is a much disliked figure. Rightly or wrongly he is blamed for bailing out Wall Street. Also, many view Bernanke’s massive money-creation, along with President Obama’s massive federal-stimulus spending, as another failed big-government attempt to revive the economy.

Tea partiers and many others fervently believe in lower spending, reduced tax burdens, and a regulatory rollback to strengthen small businesses and the private economy. They’re against Uncle Sam just throwing money at problems.

So in this sense Governor Perry’s red-hot riposte at Bernanke may be shrewd politics, as well as a much needed defense of stable money.

The former Air Force captain piloted C-130 missions in Central and South America, North Africa, and all over Europe. He’s a fierce devotee of American exceptionalism and greatness. My hunch is, just like Ronald Reagan, Governor Perry views a collapsing-dollar threat as more evidence of American decline. And he is very much opposed to any of that.

On CNBC's Kudlow Report Tonight

2011-08-15T17:28:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

MARKETS: DOW CLOSES UP 214 POINTS. IS THE BOTTOM IN?
- Dick Bove, Financial Strategist; Rochdale Securities
- Milton Ezrati, Lord Abbett Senior Economist & Market Strategist
- Michael Farr, Farr, Miller & Washington/CNBC Contributor

BUFFETT CLASS-WARFARE: 'STOP CODDLING THE SUPER-RICH'?
- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor; Univ. of CA., Berkeley
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

NEW POLITICAL LANDSCAPE: GOP IOWA OUTCOME & OBAMA'S BUS TOUR
- CNBC’s John Harwood reports from Cannon Falls, Minnesota.

WASHINGTON TO WALL STREET
GOP RACE RE-ENERGIZED … IT’S A 3-HORSE RACE
- Jimmy Pethokoukis, Reuters BreakingViews Money & Politics Columnist; CNBC Contributor
- Tony Fratto, CNBC Contributor; Fmr. White House Deputy Press Secretary
- Barry Nolan, Fmr. Comm. Dir. for House/Senate Joint Economic Committee ('09 - '11)

TIME TO GO BACK ON THE GOLD STANDARD?
- Jared Bernstein, Fmr Chief Economic Advisor to the Vice President Biden
- John Tamny, Editor, Forbes Opinions and RealClearMarkets

MARKETS: LOOK AHEAD TO TOMORROW'S TRADE
- Steven Cortes, Founder Veracruz LLC

On CNBC's Kudlow Report Tonight

2011-08-12T16:53:00.002-04:00

Please join us at 7pm ET tonight on CNBC.

MARKETS: STOCKS LOOK CHEAP, BUT ARE INVESTORS BUYING?
- Stephanie Link, Director of Research & Vice President of Strategy for The Street.com
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer
- Lincoln Ellis, Linn Group (CME) Managing Director
- Harry Rady, Rady Asset Management CEO and portfolio manager

MORE FED SHOCK & AWE?
- Robert Heller, Former Federal Reserve Governor
- Wayne Angell, Former Fed Reserve Governor

OBAMACARE DECISION
- CNBC’s Eamon Javers reports from Washington.
- Greg Abbott, Texas Attorney General

MARKETS
- Ron Kruszewski, Stifel, Nicolaus & Co.President & CEO
- Wilbur Ross, WL Ross & Co.
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager

GOP DEBATE - WHO WON?
- Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor
- Mark Simone, WABC Radio Talk Show Host
- Keith Boykin, Former Clinton White House Aide; Democratic Strategist; CNBC contributor

MARKETS: READY YOUR MONEY FOR NEXT WEEK
- Jim Iuorio, Director, TJM Institutional Services

On CNBC's Kudlow Report Tonight

2011-08-11T18:32:00.002-04:00

Please join us at 7pm ET tonight on CNBC.

MARKETS
- Jim Iuorio, Director, TJM Institutional Services
- Dan Genter, head of RNC Genter Capital Management
- Steven Weiss, Author, "The Billion Dollar Mistake" & Fast Money Contributor
- Vishall Bhuyan, Nariman Point LLC portfolio manager

2008 ALL OVER AGAIN? LEHMAN LIKE EVENT?
- Andrew Ross Sorkin, "Squawk Box" Host
- David Goldman, Fmr. Head of Fixed Income Research at Bank of America
- Charles Dallara, Former Treasury Assistant Secretary

CENTRAL BANKERS RACE TO PROTECT GROWTH...CAN THEY WIN THE RACE?
- Randy Kroszner, Fmr. Fed Governor; Univ. of Chicago Prof. of Economics

CEO PERSPECTIVE: CAN AMERICA MAKE A COMEBACK?
- TJ Rodgers, Cypress Semiconductor CEO

DIMON VS. OBAMA: WHERE'S THE LEADERSHIP?
- Jared Bernstein, Fmr. Chief Economist to V.P. Joe Biden; CNBC Contributor
- Jimmy Pethoukoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor

MARKETS: LOOK AHEAD TO TOMORROW
-Jack Bouroudjian, CNBC contributor

An Interview with Super Committee Member Senator Pat Toomey

2011-08-11T09:57:00.002-04:00

Here’s the first super-committee interview with newly appointed member Sen. Pat Toomey (R-PA). He's a supply-sider and tea-party backer with rather minimal expectations for the super-committee, although he does believe they can pick up another trillion of budget cuts without raising taxes.

LARRY KUDLOW, host:

The House and Senate Republicans named their picks for the 12-member super
committee charged with tackling the country's debt crisis. This has all
happened in the last 24-48 hours. Joining us now, first on CNBC interview, we
have Pennsylvanian Republican Senator Pat Toomey. He will serve on the
committee.

Senator Toomey, old friend, welcome back. Let me just ask you, before we get
down to nuts and bolts on your assignment, so many people say to me, `You all
elected representatives, House and Senate, ought to come back to Washington
and start working on spending, on debt, on economic growth. Why are you all
taking this vacation? We need help. The market needs help. The national
psychology needs help.'

Senator PAT TOOMEY: Well, be careful what you wish for, Larry. You know,
when Congress is in session, it's not always the optimal thing for the
markets. But let me say this, the folks on this committee, I think, will
begin discussions before September and hopefully be able to really hit the
ground running soon.

KUDLOW: Will you begin those discussion in Washington, Senator?

Sen. TOOMEY: Well, I suspect we'll be doing it by conference call and by
phone call before we get to Washington, but of course we'll continue in-person
meetings.

KUDLOW: What do you want to come out of this? Let's talk spending cuts to
start.

Sen. TOOMEY: Well, Larry, you know, the mandate from the legislation is at
least $1.2 trillion. Frankly, I hope we can do more than that. I hope we can
accomplish more because the deficit magnitude that we have is much bigger than
that. But the other thing that's equally important to me is that whatever we
do is pro-growth. You know, we've got to have solidly pro-growth policies.
You know, I tend to look at things from the supply side, looking for ways to
make it less expensive to do more production. I think that's what creates a
demand and keeps an economy moving. So if we can do--if we can do some
meaningful deficit reduction on at least the scale that's called for in the
legislation and do it in a way that encourages economic growth, that would be
terrific.

KUDLOW: Is it possible, Senator, to put side by side spending reduction,
entitlement reform and tax reform? Is that possible or are the expectations
for this super committee too high?

Sen. TOOMEY: Well, it's possible but it's very tough. That's a big
combination. Our legislation does authorize that level of activity. And
frankly, there's some low-hanging fruit. This tax code is so incredibly
inefficient, it's so costly, it's such a dead weight burden on the economy, we
could simply it, get rid of so much of the junk, lower marginal rates, and I'm
convinced that would have a very powerfully pro-growth impact. That would be
good for the deficit, the revenue would increase in that fashion. So I hope
we can tackle all of those things, but, you know, time will tell.

KUDLOW: Just two quick points. The stock market, which is crashing right
now, as you well know. You use to be in the financial world.

Sen. TOOMEY: Right.

KUDLOW: So many people are worried that we're going to have root canal
spending cuts but they're not going to be accompanied by lower tax rates, and
therefore we're going into recession, that Washington may be causing this
recession, Senator. Do you have a quick thought on that?

Sen. TOOMEY: Well, I think a lot of policies out of Washington have been
contributing to the problems we have, especially on the regulatory side. The
uncertainty of the size of these deficits and whether that's going to lead to
higher interest rates, inflation, higher taxes, that's not constructive. So
making some progress here, I think, you know, could go a long way to
encouraging the kind of certainty and confidence that people need.

KUDLOW: Is it possible that this super committee can surprise us, deliver
more deficit reduction, the right way, as you say, shrinking government,
promoting growth, and we get our AAA rating back from S&P? Do the members of
this committee have any sense of how to get that AAA rating back?

Sen. TOOMEY: We haven't--we haven't met yet as a committee. You know, we
were just--membership was just announcement today, as you know. So it's a
little early to project just how ambitious we can be. But I can tell you it's
my hope that we will strive to do more than the minimum required by this
legislation. We need to do more than that to get back that AAA, although I'm
skeptical about why S&P reached the decision it did. I just want us to bring
spending under control and do it in a pro-growth policy.

KUDLOW: All right. Senator Pat Toomey, a newly appointed members to the
deficit reduction super committee. We wish you all the best of luck, Senator.
Thanks very much.

Sen. TOOMEY: Thanks, Larry.

More Jackson Hole Shock-and-Awe?

2011-08-10T21:46:00.000-04:00

Ben Bernanke’s shocking FOMC announcement on Tuesday -- that its zero-interest-rate target would be extended for two more years through the middle of 2013 -- drove Dow stocks up over 400 points. But this new policy had no stock market carry-over on Wednesday, when the Dow plunged over 500 points.

But we have not heard the last from Ben Bernanke -- not by a long shot.

Buried in the last paragraph of this week’s surprise FOMC announcement was this huge statement: “The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability.”

This is a brand-new statement. And in all likelihood it was purposefully open-ended. A Fed source suggests that this sort of stuff is usually left out of sight and buried in Fed committee minutes, released well after the FOMC meeting, and not put boldly in the actual policy statement. So clearly, it’s very important.

What might it mean?

When Bernanke speaks at the Fed’s Jackson Hole, Wyoming, meeting on August 26, he could conceivably launch a real shock-and-awe stimulus program. If you go back a year, when Bernanke first announced QE2 at Jackson Hole, sources tell me that the original debate over the quantity of bond purchases had a $2 trillion balance-sheet expansion on the table. Inflation hawks beat that number back to $600 billion. But now the rest of that $2 trillion -- or $1.4 trillion -- could conceivably be on the table for a new QE3 announcement by the Fed.

A new round of Fed bond purchases would likely be aimed at pinning long-term interest rates down as much as possible. In other words, the Fed will be buying 10-year paper and maybe even 30-year paper to get those yields down even more (10-years are currently around 2 percent). The idea would be to reduce the attractiveness of government bonds and get investors into riskier assets like stocks, or perhaps even new-business and venture-capital start-ups where potential yields look even more attractive. There may even be some job-creation in all this.

Plus, the Fed’s potential Jackson Hole shock-and-awe program could include the removal of the 25-basis-point Fed payment on the $1.6 trillion excess bank reserve now on deposit at the central bank. If the banks no longer earn a safe 25 basis points, they might conceivably lend more.

And if long-term rates come down as per Bernanke’s target bond purchases, mortgage rates might come down even more to the benefit of future and current homeowners.

Politically, inside the Fed, three regional bank presidents dissented from the unprecedented Fed decision to keep its target rate down for two more years. But the inner circle of Fed power -- Ben Bernanke, Janet Yellen, and William Dudley -- has enough votes from other Fed board governors and reserve-bank presidents to jam through almost any shock-an-awe it wants. All this could be announced formally at the next Fed meeting on September 20, but Bernanke himself is likely to let the cat out of the bag in Jackson Hole toward the end of this month.

The trouble with all this is that it didn’t work the last time with QE2, and it will have no permanent effect on the slumping economy. Targeting bond yields and printing more money simply distorts asset prices throughout the financial markets. We’ve seen this movie before. And it didn’t play well. The Fed’s shock-and-awe risks another round of dollar depreciation. It’s part of the message of skyrocketing gold prices right now.

Unleashing dormant animal spirits in this economy can only come from the fiscal side, with low-tax and regulatory reforms to provide new economic-growth incentives and lower the cost of doing business. A pro-growth package from Washington is what we really need. It should be part of the next round of budget cuts, included in the work of the super committee during phase two of the debt deal.

Without those new incentives for growth, the Fed can print all the new money in the world and the federal government can spend itself into oblivion, and none of it will resurrect the economy.

On CNBC's Kudlow Report Tonight

2011-08-10T19:53:00.000-04:00

Please join us at 7pm ET tonight on CNBC.

MARKET BLOODBATH
- Boris Schlossberg, director of currency research at GFT
- Russ Koesterich, Global Chief Investment Strategist for BlackRock's iShares
- CNBC’s Bob Pisani
- CNBC’s Rick Santelli

THE EURO STORY: EUROPEAN BANKS LEADING THE DECLINE
- Rodgin Cohen, Sullivan & Cromwell Law Firm Chmn.
- Ted Truman, Peterson Institute for International Economics; Senior Fellow; Fmr. Assistant U.S. Treasury Secretary
- David Malpass, Encima Global President, Fmr. Bear Stearns Chief Economist, GrowPac Chairman

FED SHOCK & AWE?
- Alfred Broaddus, Fmr. Richmond Federal Reserve President

MARKETS
- Kelly Evans, Walll Street Journal Columnist
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Doug Lebda, LendingTree Founder & CEO
- Robert Johnson, RLJ Companies Founder & CEO; CNBC Contributor

WASHINGTON TO WALL STREET
- Sen. Pat Toomey, (R) PA

ASIA MARKET FUTURES
- CNBC’s Emily Chan reports from Hong Kong

MARKETS: LOOK AHEAD TO TOMORROW'S OPENING BELL
- Jon Najarian, Co-Founder, OptionMonster.com; Fast Money Contributor

Bernanke to the Rescue

2011-08-09T20:52:00.000-04:00

Damn the torpedoes! Up periscope! Full speed ahead! Ben Bernanke and the Fed to the rescue!

In a startling move Tuesday, the FOMC announced that its zero-interest-rate target would be extended for two more years through the middle of 2013, marking the first time the target rate has ever been pegged to a date certain.

After one of the most vicious market plunges in memory over the past two weeks, stocks soared 429 points on the news. And bond rates plunged, with the 10-year Treasury closing at 2.27 percent.

Forget about S&P downgrades. Forget about the recession threat. The stock market loves Ben Bernanke!

In effect, this is a giant step towards QE3 bond purchases and new-money creation. In fact, traders are already nicknaming this latest Fed action QE3 Lite.

But not everyone is thrilled. For the first time since November 1992, three FOMC members dissented from the committee’s decision. Inflation hawks Dick Fisher of Dallas and Charles Plosser of Philadelphia were joined by the usually moderate Narayana Kocherlakota of Minneapolis in coming out against the action.

Mr. Plosser’s dissent did show a preference for an exceptionally low fed-funds level for an extended period of time. But not for the Fed’s stamping a date certain on that policy for the middle of 2013.

So markets and the economy can expect ultra-easy money for at least two more years. But remember, after inflation, the fed funds rate is already negative. And if and when the Fed starts buying bonds again to expand its $2.6 trillion balance sheet -- by injecting a like-amount of cash into the banking system -- monetary policy will be ultra-ultra easy.

The Fed’s logic? “Economic growth so far this year has been considerably slower than the Committee had expected,” according to the Fed statement. And more recently, “inflation has moderated as prices of energy and some commodities have declined from their earlier peaks.”

So Bernanke acknowledges that the economy is sputtering and he hopes and prays that an easy-money zero-interest-rate policy for two more years doesn’t depreciate the dollar and drive up energy and commodity prices all over again. Recall that QE2 sunk the greenback and generated about 5 percent inflation, which ate away at the first-half economy, which came in at less than 1 percent in real terms.

When Bernanke unofficially ended QE2 and ruled out QE3 at his April 29 press conference, it led to an 18 percent stock market correction that lasted until Tuesday’s big rally. And who am I to argue with a 429 point stock rally?

Well, if I had my druthers, I would promote growth through flat-tax reform, a regulatory rollback, lower spending, and a steady King Dollar linked to gold. In other words, more incentives for private-sector entrepreneurs and small businesses. But like many I suspect the Fed would have no problem presiding over a cheaper dollar, which over time is an inflationist policy -- a tax hike on the economy.

But then again, the Fed didn’t ask me.

On CNBC's Kudlow Report Tonight

2011-08-09T17:37:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

MARKET WHIPSAW DRILLDOWN
- CNBC’s Sharon Epperson reports.

MARKETS
- CNBC’s Bob Pisani
- Anthony Scaramucci, Founder and Managing Partner of Skybridge Capital
- James Bianco, President, Bianco Research
- Brett Arends, Wall Street Journal Columnist

WHY BERNANKE SANK THE MARKETS; MOVING CLOSER TO QE3?
- Lee Hoskins, Former Cleveland Federal Reserve President
- Wayne Angell, Fmr. Federal Reserve Governor
- William Ford, Fmr. Atlanta Fed President; Middle Tennessee State University
- CNBC's Steve Liesman

WHY THIS CRISIS DIFFERS FROM 2008 VERSION
- Francesco Guerrera, WSJ Money & Investing Editor

MARKETS
- Zane Brown, Lord Abbott Fixed Income Strategist
- Kelly Evans, WSJ Economics Reporter
- CNBC’s Bob Pisani

WILL STOCK MARKET MELTDOWN & S&P DOWNGRADE LEAD CONGRESS TO MAKE A BIGGER DEAL? DOES CONGRESS NEED TO COMEBACK FOR AN EMERGENCY SESSION?
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author
- Jamal Simmons, The Raben Group; Democratic strategist; Fmr. Press Secy to Wes Clark, Sen. Bob Graham & Sen. Max Cleland Comm. Dir.

MARKETS: LOOK AHEAD TO TOMORROW'S OPEN
- Scott Nations, Nations Shares Chief Investment Officer; Options Action Contributor

No Time to Panic

2011-08-08T22:32:00.001-04:00

During a period like this, with stocks plunging almost on a daily basis, it’s clear that fear and shock are ruling the roost. But fear can be overdone. As someone who has been around awhile and has seen many sell-offs, let me offer some advice: Do not panic. Market corrections come and go. They are not the end of the world. Most times they are actually healthy.

The S&P downgrade is a fiscal warning, not an economic event. And the growing fear of U.S. recession may not pan out. There are still plusses out there, believe it or not.

Our financial system is in vastly better shape than it was in September 2008. Vastly better shape.

The Federal Reserve is highly accommodative, as illustrated by the upward-sloping yield curve. Using the yield-curve measure alone, the chances of recession based on historical analysis are very low.

And energy prices are coming down, with oil moving toward $80 a barrel. Oil analyst Peter Beutel points out that gasoline prices in the last two weeks have fallen by 35 to 40 cents. Adding in other oil-related savings, the energy-price drop amounts to a $100 billion tax rebate for consumers.

Plus, corporate profits will continue to rise while business balance sheets are pristine and chock full of cash. Consider the combination of solid productivity, moderate wage rates, and falling commodity prices. These are all plusses for the economy and stocks.

So in light of all these factors, it seems to me that the economy can hold up. It’s not the kind of rapid growth I’d like to see. But it’s not the deep and dark recession that seems to be embodied in the stock market plunge.

Whether or not one agrees or disagrees with Standard & Poor’s decision to downgrade the federal government’s credit rating, the agency’s message was never about U.S. debt default. Instead, S&P was warning that U.S. fiscal trends are deteriorating and our future debt trajectory is going up, not down.

Serious entitlement reform is not yet on the table. Nor is pro-growth tax and regulatory reform. And since none of this is brand-new news, I don’t think people should be shooting the messenger.

Getting our debt and spending under control is very important. But the fact remains that warnings from S&P, and even lesser warnings from Moody’s, could spur Washington into taking more aggressive action. So could the market sell-off itself.

Now, if the Paul Ryan budget had passed the Senate and had been signed into law by the president, that combination of tough spending control, transformative Medicare reform, and pro-growth tax reform would have gotten us out of this fix. Alas, it was not to be. But tax rates are not going up, no matter what President Obama keeps telling us. Tax hikes would never get past the House Republicans.

Also, I think there’s a big overreaction going on to the problems in Europe. The most likely scenario is that the leaders of the European Union and the European Central Bank will take whatever stabilization steps are necessary while at the same time pushing for serious fiscal reforms.

In addition, Europe’s economy suffered the same oil shock last winter and spring that suppressed the U.S. economy. And as that energy shock recedes, both economic zones will do better.

Actually, the stock market correction here in the states can be traced back to April 29, the day Ben Bernanke announced that QE2 would end on time and there would be no QE3. Since then, the S&P 500 has lost 17 percent as the Fed introduced a less-accommodative policy. Now, the central bank is still loose, but it is no longer adding to its balance sheet. So in some sense what should have happened has happened: Cyclical stock sectors have corrected significantly lower, along with commodities, and the whole stock market has had to adjust.

Most importantly, the dollar has stabilized. While in the short run a stronger dollar and lower commodities (except gold) may have hurt the market, in the longer term they create a foundation for non-inflationary growth.

I am not a market timer, and I do not have a monopoly on stock market and economic wisdom. So readers should take this for what it’s worth. I am not wildly optimistic, but I am not near as pessimistic as the market is right now.

The American free-enterprise system can weather these shocks, and I believe favorable political and policy changes are on the way. It will take time. But time heals. Longer-term investors would do well to think about the many stock market opportunities that are opening up as a tough correction runs its course.

More Obama Spending Won't Do It

2011-08-06T08:48:00.001-04:00

There he goes again. Out on the campaign trail, President Obama is proposing more federal spending as his answer to sluggish growth and jobs. That won’t do it, Mr. President.

He wants more infrastructure spending, undoubtedly in the form of an infrastructure bank. That’s a terrible idea. It’s borrowed from Latin America, where bloated and corrupt bureaucratic construction agencies have helped bankrupt any number of countries in the past.

He wants to lengthen 99-week unemployment insurance, although numerous studies have shown that continuous unemployment benefits are associated with higher unemployment.

And he wants to extend the temporary payroll tax credit, which is not a permanent reduction in marginal tax rates, has no incentive effect, has not worked so far, and is really a form of federal spending -- not real tax relief.

Earlier this week, when he signed the debt-ceiling bill, the president ranted on about the need to raise tax rates on successful earners, investors, and small businesses. He’s trying to bring back tax hikes as part of the phase-two special committee seeking additional deficit reduction, even though his own party rebuffed him on this in the late stages of the debt talks. All this is a prescription to grow government, not the economy.

What the economy needs, Mr. President, is a strong dose of new incentives, with pro-growth tax reform that flattens marginal rates and broadens the base for individuals and businesses. This includes moving to territorial taxation that ends the double tax on foreign earnings of U.S. companies. Plus, we desperately need a complete moratorium on federal regulations. As Sen. Barrasso recently noted, the government put out 379 new rules on business in July alone, amounting to $9.5 billion in additional costs.

None of these pro-growth reforms are in sight. So the stock market is going through a nasty 10 percent correction over fears of another recession (and European debt default).

But at least we got some good news on jobs. The July jobs report came in stronger than expected. It’s not great. But at least nonfarm payrolls increased 117,000 -- as the prior two months were revised upward by 56,000 -- while private payrolls gained 154,000.

That’s definitely not a recession reading. But neither is it a strong performance. If the economy were really rebounding, we would be creating 300,000 new jobs a month.

In the report, the unemployment rate slipped to 9.1 percent from 9.2 percent. But that’s mostly because nearly 200,000 workers left the civilian labor force. Another negative is the household employment survey, which fell 38,000 in July after dropping nearly half a million in June. That survey measures job creation among small owner-operated businesses or the lack thereof.

Yet when looking at the new jobs report, along with reasonable gains in chain-store sales and car sales, plus the ISM Purchasing Managers reports (which stayed above the 50 percent line), I repeat my thought that we are not headed for a double-dip recession.

Over two years of so-called economic recovery, growth has averaged about 2.5 percent. It fell to less than 1 percent in the first half of this year, largely from a commodity-price shock that included oil-, gasoline-, and food-price spikes. That price shock resulted mainly from the Fed’s QE2 depreciation of the dollar -- a big mistake. It eroded real consumer incomes and spending.

Lately, the dollar has stabilized and energy prices have come down quite a bit. That will reduce inflation and support better consumer spending. Businesses are already highly profitable and cash-rich. They are investing some of that, but not nearly enough to create sufficient new jobs. Who would, with all these Washington policies?

Finally, the Fed remains ultra-easy with excess liquidity and a zero interest rate.

So it looks to me like we will return to the sub-par 2.5 percent growth trend rather than dip back into recession. However, at this pace, unemployment may hover around 9 percent right up to election time next year.

More spending won’t do it Mr. President. Tax and regulatory incentives will.

No Recession

2011-08-04T09:07:00.001-04:00

Stocks and bond yields are sinking as Wall Street disses the debt deal and instead focuses on a likely double-dip recession.

Everyone is gloomy. But is this pessimism getting a little overbaked?

Granted, the economy is sputtering, with less than 1 percent growth in the first half of the year. But if there is a recession in the cards, it will be the first time one occurs when the yield curve is steeply positive (an ultra-easy Fed) and corporate profits are strong.

And since we do have ultra-easy money and strong profits, I don’t believe we’re heading into a recession. Nor do I believe stocks will continue to swoon.

The principal reason for the sub-par first-half economy is the rise of inflation, which severely damaged real incomes and consumer spending. We experienced a mini oil shock, which has dampened the whole economy. Actually, it’s worth remembering that oil shocks and inverted yield curves, along with falling profits, are the most important leading indicators of recessions. We don’t have this right now.

Fortunately, oil and gasoline prices have come down well below their highs. That’s going to take pressure off the economy.

Of course, QE2 backfired as the dollar sank and the inflation rate temporarily jumped 5 or 6 percent. However, as energy prices have eased back down, the inflation rate as measured by the consumer deflator has fallen, and is up only 1.3 percent annually for the past three months. If the dollar can hold its current level and energy prices remain quiescent, the economy will be okay.

Not great. The second-half economy could grow by 2.5 to 3 percent. There are so many tax-and-regulatory threats out there that it’s hard to expect much more growth. But at least it’s not recession.

Recent reports from the ISM purchasing managers for manufacturing and services are not signaling recession. Car sales have actually bumped up. And at least employment is rising, although slowly.

It’s all sub-optimal, but it’s not recession.

Meanwhile, profits are at record highs as a share of GDP. Second-quarter earnings are coming in much stronger than expected. For some reason investors have chosen to ignore profits. But they’re still the mother’s milk of stocks and the economy. Stocks may well be undervalued right now.

At roughly $95 a share profits for 2011, stocks are running near a 13-times price-earnings multiple, which calculates to a near 8 percent forward-earnings yield. Compare that to a 2.6 percent 10-year Treasury bond or a 5.5 percent Baa investment-grade corporate bond, and you can see that stocks have good value. The equity-risk premium is very high.

At the same time, corporate credit-risk spreads are relatively narrow while financial conditions in general are vastly less stressful than they were a couple of years ago. This is not the stuff of recessions.

Regarding the debt-ceiling deal, no one is thrilled about it. But it is a step in the right direction: no tax hikes and at least some spending cuts. The level of discretionary spending will come down $72 billion over the next two years. Even if the budget caps don’t hold beyond that, it’s still a budget cut without a tax increase.

Some of the Paul Krugman left-wing Keynesian types think small budget cuts will throw us into recession. Not a chance. The GDP is roughly $14 trillion, and total budget spending is moving toward $4 trillion. So these are relatively modest cuts. Plus, if government spending more works to grow the economy, why hasn’t massive government spending already worked to grow the economy? Here’s the dirty secret: Smaller government is good for growth.

We will see what phase two of the debt deal brings. It will be an uphill climb. But at least the strong possibility exists that another $1.5 trillion will be taken out of the spending baseline. That’s not nothing.

And of course, Treasury-debt default was avoided.

Slowly but surely the Tea Party Republican coalition is turning the tide on spending. Too bad President Obama was out once again this week attacking millionaires, billionaires, businesses, and oil and gas with his usual soak-the-rich class-warfare redistributionism. This kind of politics has helped generate a capital strike by profitable and cash-rich businesses. It’s pure folly, and it’s holding back the animal spirits. Stocks dropped 100 points after Obama’s press conference on Tuesday, when he once again blasted free-enterprise incentives.

Which brings me to a final point: What’s missing from the whole budget debate is a true pro-growth tax reform that would flatten rates and broaden the base for individuals and companies. A fresh round of incentives would do wonders for our ailing economy.

Unfortunately, we’re going to have to wait until the 2012 election before we see any of that. In the meantime, despite an anti-growth administration, the free-market economy will continue to muddle through.

On CNBC's Kudlow Report Tonight

2011-07-29T18:13:00.003-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT DEAL LATEST
- CNBC’s John Harwood reports from Washington.

WASHINGTON DEBT DEAL … VIEW FROM THE SENATE
-Sen. Mark Udall (D) Colorado
-Sen Bob Corker (R) Tennessee

VIEW FROM THE HOUSE
-Rep. Ron Paul (R) Texas

THE MARKET AND ECONOMY
U.S. DOWNGRADE? GDP DOWNGRADE?
-Don Luskin, Trend Macro
-Brian Wesbury, First Trust Advisors
-Carly Fiorina, Former HP CEO

DEBT SHOWDOWN IN WASHINGTON
-Rep. Carolyn Maloney (D-New York)
-Rep. Kevin Brady (R-Texas)

REACTION FROM SENATE
-Sen. Jon Kyl (R) Arizona

MAD RUN TO CASH?
-Jim Lacamp, Macro Portfolio Advisors

FREE MARKET FRIDAY
-Jimmy Pethokoukis, Reuters BreakingViews
-Mark Simone, WABC Radio
-Keith Boykin, Daily Voice/Democratic Strategist

On CNBC's Kudlow Report Tonight

2011-07-28T18:02:00.000-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT CEILING LATEST: THE HOUSE
- CNBC’s Eamon Javers reports from Washington.

DEBT DEAL DRAMA FROM THE HOUSE SIDE
- Rep. Chris Van Hollen, (D) Maryland, Fmr. DCCC Chair
- Rep. Jeb Hensarling, (R) TX; House Republican Conference Chmn

CAN HOUSE & SENATE BRIDGE THEIR DIFFERENCES? IMPACT ON BUSINESS

- Jared Bernstein, Center on Budget and Policy Priorities Sr. Fellow; CNBC Contributor; Fmr. Sr. Economist for VP Biden
- George Pataki, Fmr. NY Governor
- Steve Forbes,Forbes Media Chairman & Editor-in-Chief
- Julian Epstein, LMG CEO; Fmr. Democratic Chief Counsel

DEBT CEILING LATEST: THE SENATE
- CNBC’s John Harwood reports from Washington.

COMMON GROUND RECONCILIATION? WHAT'S SENATE GOING TO DO?
WILL SENATE TAKE UP HOUSE/BOEHNER BILL?
- Sen. Mike Crapo, (R) Idaho

THE MARKETS
- Michael Cuggino, Permanent Portfolio Funds; President & Portfolio Manager

THE WHITE HOUSE VS. BOEING
- Andy Stern, Service Employees International Union
- Peter Schaumber, Fmr. NLRB Chairman

A Downgrade Is Serious Business

2011-07-27T21:38:00.003-04:00

Standard & Poor’s government-credit-ratings guru David Beers played his cards close to the vest on the topic of a U.S. downgrade in our CNBC interview this week. However, this head of S&P’s global sovereign-ratings business -- with a staff of 80 covering 126 countries -- issued three strong warnings to the debt-ceiling negotiators in Washington.

Beers avoided direct comments on any of the key debt-limit plans. But when I asked him about joint congressional committees that would report back with additional budget savings at the end of the year, he said, “Well, naturally, it’s going to raise questions . . . we would have to look at the balance of incentives and disincentives that might increase or decrease the probability of that type of approach being effective.”

In other words, both the Harry Reid plan and the John Boehner plan could contribute to a downgrade this summer since it’s uncertain whether joint committees will get the necessary votes for large-scale budget cuts and deficit reduction by year-end. There are no guarantees.

I then asked Beers about a two-step debt increase. This is part of Speaker Boehner’s plan -- a roughly $1 trillion debt-ceiling hike now and a roughly $1.8 trillion increase next year. Beers has a problem with that.

“Well, we’ll look at it,” he said. “But we’ve also said on the 14th of July that we would be concerned if we thought that the debt-ceiling debate would come back and be open, and we’d have to go through all this again and again and again.”

I asked, “And that would be a negative in your view?”

He responded, “That would be a negative in our view.”

We then talked about prioritizing debt payments, where the government would parcel out incoming revenues in August in order to cover federal obligations, including interest on Treasury securities.

From the Jay Powell analysis (bipartisanpolicy.org), Uncle Sam could pay off interest on the debt, benefits for Social Security, Medicare, and Medicaid, defense payments, and unemployment benefits with incoming cash, but would still be $134 billion -- or 44 percent -- short of budget-obligation requirements.

Beers said that would not constitute a formal default. But he added, “It would mean a very sudden fiscal shock . . . you’d essentially be running a cash surplus to pay off the debt as it matures. So potentially that would be deeply disruptive to the economy. . . . We would suspect that that’s not a tenable situation for very long.”

On July 21, S&P issued a warning that there’s a 50 percent chance of a U.S. downgrade. A week earlier, S&P placed the U.S. on “credit-watch negative” based on the rising risk of a policy stalemate. Of course, that clock continues to tick.

Mr. Beers is looking carefully at all the debt plans on the table, and he wants to know three things: Are they actionable? Can they be implemented? And are they credible?

In particular, he’s looking for “some buy-in across the political divide, across both parties, because politics can and will change . . . And if there’s ownership by both sides of the program, then that would give us more confidence.” In other words, bipartisanship compromise.

More generally, Beers wants to see the U.S. federal-debt-to-GDP ratio move on a downward trend. Unlike other AAA countries -- such as Britain, France, or Canada -- the U.S. has not yet undertaken large-scale policy changes that would reverse its rising trajectory of government debt. That trajectory must fall over the medium-to-longer term. And that has Beers worried.

And like a lot of analysts, he’s concerned that a U.S. debt downgrade could raise Treasury rates by 25 to 50 basis points if the rating drops from AAA to AA. “That, of course, would filter through to other interest-rate-sensitive kinds of debt,” said Beers, like mortgages, Fannie and Freddie, insurance companies, overnight bank lending, and on and on.

Stock prices already seem to be falling around 100 points a day on investor fears of the negative economic consequences of a U.S. debt downgrade. People may be moving out of stocks and bonds into cash and government-guaranteed savings accounts to protect themselves in the event of a worst-case scenario.

CEOs are hoarding cash for their companies. The economy is barely growing. And folks are leaving the dollar for gold and foreign currencies.

And with less than a week until the August 2 debt-limit deadline, Congress still dithers.

A debt downgrade is very serious business. Does Washington get that? S&P’s David Beers most certainly does.

On CNBC's Kudlow Report Tonight

2011-07-27T17:32:00.004-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT DEAL DEBACLE: COMPROMISE? REID & BOEHNER RE-WRITES; GOP FACING CONSERVATIVE MUTINY? 6 DAYS FROM DEFAULT?

- Sen. Michael Bennet, (D) Colorado
- Sen. Mike Lee, (R) Utah
- Rep. Peter Welch, (D) Vermont

WASHINGTON TO WALL STREET ... DEBT DEAL DEBACLE: TEA PARTY VS. GOP MODERATES & DEMS ... PLUS, ECONOMY, DEBT & JOBS - WHY AREN'T BUSINESSES HIRING?

- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author ; CNBC Contributor; Univ. of CA., Berkeley
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

THE HOUSE SIDE OF DEBT DEBATE
- Rep. Brad Sherman, (D) CA; Budget & Financial Services Cmtes
- Rep. Paul Ryan, (R) Wisconsin; Budget Cmte Ranking Member; President Obama's Fiscal Commission

MARKETS TAKE A BIG TUMBLE
- Gordon Charlop, Rosenblatt Securities Managing Director; CNBC Markets Analyst
- Art Laffer, Laffer Associates Chairman
-Stephen Weiss, Short Hills Capital managing partner

An Interview with S&P's Global Head of Sovereign Ratings

2011-07-27T09:25:00.002-04:00

Last night, I spoke with David Beers, head of S&P's sovereign debt rating committee on CNBC’s Kudlow Report. He made it very clear: the U.S. must take steps to lower its debt/GDP trend over the long run. He is looking at all the plans, and he is waiting for a final product. But right now a U.S. downgrade is 50-50. S&P's next step could come very soon.

The video and transcript follow below.

LARRY KUDLOW, host:

On July 14th, Standard & Poor's placed the US on credit watch negative on the
rising risk of a policy stalemate. That clock continues to tick, August 2nd,
less than a week from tonight. How real is the US debt downgrade threat?
What will come of us? Here now for an exclusive interview is David Beers.
He's the global head of sovereign ratings at S&P, Standard & Poor's.

David, welcome to the show. I appreciate it very much. If I'm not mistaken,
on July 21 you issued a warning there's a 50 percent chance of downgrade.
Where are you tonight? Where are you today?

Mr. DAVID BEERS: Well, we're still at 50 percent, at least a 50 percent
possibility of a downgrade.

KUDLOW: All right. I want to ask you, what will it take to avoid a
downgrade? What are your guidelines telling you? What are you looking for?

Mr. BEERS: Well, given the continuing political gridlock, I guess what we're
looking for is some program which we think will make a difference over the
medium term in slowing the, if not reversing, the rising trajectory of
government debt as, for example, as a percent of GDP.

KUDLOW: And United States is around 70 percent. I believe the Congressional
Budget Office has us running up to 90 or 100 percent. You like to use total
government debt. So you want to see that instead of going up, you want to see
it ramping down. Is that fair?

Mr. BEERS: Yeah. Or at least stabilizing, with the prospect of it falling
over the medium to longer term.

KUDLOW: All right. I want to ask a couple of questions. I appreciate that
you don't want to speak specifically about the political plans. Really, when
you take the three plans that are on the table, more or less, they're running
about $3 trillion in lower deficits. I mean, they've got pluses and minuses.

Mr. BEERS: Mm-hmm.

KUDLOW: And I don't want to get into that. Is a $3 trillion reduction over
10 years, would that meet your criteria to avoid a downgrade?

Mr. BEERS: Well, to be honest, we can't answer that question tonight. I
think what we've said is we'll look at the deal, whatever the deal is, when
it's agreed by Congress and the administration, and we will measure it on a
number of parameters. One is, is it actionable? Is it actually likely to be
implemented and, therefore, is it credible? And credibility, among other
things, means to us that there has to be some buy-in across the political
divide, across both parties, because politics can and will change...

KUDLOW: Yes, sir.

Mr. BEERS: ...going forward. And if there's ownership by both sides of the
program, then that would give us more confidence.

KUDLOW: But you don't want to commit to a ballpark number?

Mr. BEERS: No. Because it's not just about the number. It's about the
all-in intent.

KUDLOW: But if it was low--if it as low as $1 1/2 trillion, would that be,
you know, downgrade city?

Mr. BEERS: It depends on what's folded into the deal. It depends on what
comes along with that number. As you know, there are lots of ideas out there
about doing this incrementally. But, ultimately, we've got to look at the
overall plan to make a judgment as to whether it's likely to make a difference
in terms of the rising tide of US debt.

KUDLOW: All right, the rising tide of US debt. Two of the three plans have a
special joint congressional committee which is supposed to find additional
spending and debt reduction cuts down the road. Now, does the down the road
part trouble you? Is that a plus or a minus in the debt--in the downgrade
discussion?

Mr. BEERS: Well, naturally it's going to raise questions. And, again, we
would have to look at the balance of incentives and disincentives that might
increase or decrease the probability of that type of approach being effective.

KUDLOW: Does it matter to you if the debt ceiling is raised in one or two
tranches? In other words, if they raise, let's say for argument sake, half
this year and the rest next year. How does that affect your thinking?

Mr. BEERS: Well, we'll look at it. But we've also said on the 14th of July
that we would be concerned if we thought that the debt ceiling debate would
come back and be open and we'd have to go through all this again and again and
again.

KUDLOW: And that would be a negative in your view.

Mr. BEERS: That would be a negative in our view.

KUDLOW: Right. That's what I thought.

All right, let me ask you this, the last scenario. The business about revenue
allocation. If we go through August 2nd, we've got some big Treasury
redemptions and interest expenses coming, 50, 60, $70 billion in August alone.
What happens in your view if that's where the US government goes? Is that a
downgrade situation? Or worse, is that a default situation? If we're
parceling revenues, let's say to pay the interest on the debt, and a little
bit to Social Security, a little bit to health care, and then half the budget
is not funded. How does that affect your thinking?

Mr. BEERS: Well, first of all, we're rating debt. Right? So it's
theoretically possible that for some period of time the government could take
that strategy while the negotiations continue. But it's worth remembering
what that would mean. It would mean a very sudden fiscal shock that the
longer it lasted would filter powerfully through the system because the US has
got--running a budget deficit right now of roughly 10 percent of GDP.
Suddenly, for a period of time, you'd essentially be running a cash surplus to
pay off the debt as it matures. So potentially that would be deeply
disruptive to the economy.

KUDLOW: Would it be default?

Mr. BEERS: No, it would not be default so long as the government is
continuing...

KUDLOW: Is covering...

Mr. BEERS: ...to pay its debt as it matures and its interest payments. But
we would suspect that that's not a tenable situation for very long.

KUDLOW: So it sounds like that would signal a downgrade.

Mr. BEERS: Well, we'll deal with that as and when the time comes.

KUDLOW: When do you reckon you'll make your next decision? Is it imminent,
this week, next week, a month from now, six months from now?

Mr. BEERS: Well, it kind of depends on what happens over the coming days.
But, you know, we had said that we'll be very--looking very closely as we
approach the 2nd of August to see if there's a deal or not.

KUDLOW: You heard the two senators. All right? They're both prominent
senators. There's nothing happening in Washington tonight. Nothing I can
report that's any good. In fact, one plan's gone back to the drawing board.
It's hard to know what the second plan is. The third plan's buried in the
White House. They admit they don't even have a plan. We're getting pretty
close it, aren't we? Downgrade is imminent?

Mr. BEERS: I'm not going to say that a downgrade is imminent. We knew that
this was going to come close to the wire, and it is, as you say. There's
still every possibility that they're going to get--come up with a plan. And
we'll--when they do...

KUDLOW: Yeah.

Mr. BEERS: ...we'll look at it and we'll make a judgment then.

KUDLOW: You published a paper where you had several scenarios, and I want to
ask you about the middle scenario. What would the downgrade scenario do to
the economy and interest rates, based on your work?

Mr. BEERS: OK. Well, there's obviously some uncertainty around this because
it hasn't happened before. We sketched out a scenario, which I think is sort
of common ground in the marketplace right now, where it's possible if the
rating went into the AA category for example, the yield on government
securities could rise anywhere between, you know, 25 and 50 basis points.

KUDLOW: From AAA to AA.

Mr. BEERS: Yeah. That, of course, would filter through to other interest
rate sensitive kinds of debt, like mortgages, for example. So it would mean,
you know, that holders of mortgages, over time, as this filtered through,
would have to pay a higher mortgage rates.

KUDLOW: Fannie, Freddie?

Mr. BEERS: Yeah.

KUDLOW: Insurance companies?

Mr. BEERS: Yep.

KUDLOW: Overnight bank lending? What--can our economy take--let's say in the
short end.

Mr. BEERS: Mm-hmm.

KUDLOW: We have the best rating A-1 plus right now.

Mr. BEERS: Mm-hmm.

KUDLOW: If you notch that down to A-1 and rates jumped up 50 basis points,
how damaging you reckon that would be to our economy?

Mr. BEERS: Well, it would--it would have an impact. It would--it would have
an impact. And it would be negative. It would be a depressing effect on
economic output, on economic growth.

KUDLOW: Let me ask you one final one in the remaining seconds we have. I
know you're very active in the European ratings and so forth. Greece, have we
seen the last of the Greece crisis? You've rated them CCC. There is stuff
below that. Do you think that will be challenged?

Mr. BEERS: Well, the rating has a negative outlook, so we're pretty certain
it's going to go lower because, of course, an actual debt restructuring is now
on the table. But we've also expressed the opinion before that we think that
any near term restructuring is probably not the end of the story. There may
be another bigger restructuring down the road after that.

KUDLOW: How far down the road do you reckon that would be?

Mr. BEERS: Well, that's partly in the hands of Greek politics, but it
certainly wouldn't surprise us if a second restructuring had to be looked at
over the next couple of years.

KUDLOW: Couple of years. All right, David Beers from S&P, we really
appreciate your coming on here and talking about this...

Mr. BEERS: Thanks for having me, Larry.

KUDLOW: ...as calmly and honestly as possible.

On CNBC's Kudlow Report Tonight

2011-07-26T16:57:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT TALKS LATEST
-NBC’s Luke Russert reports from Washington.

DEBT TALK PLANS COMING TOGETHER?
- Sen. Jeanne Shaheen, (D) New Hampshire
- Sen. Kay Bailey Hutchison, (R) Texas

Kudlow Exclusive
WHAT DEFICIT & DEFAULT RISK MEANS FOR U.S. CREDIT RATING
- David Beers, Standard & Poor's Global Head of Sovereign Ratings

MARKETS; WHAT HAPPENS TO MONEY MARKET FUNDS IF TREASURYS GET DOWNGRADED?

- John Carney, CNBC.com Senior Editor
- David Goldman, Former Head of Fixed Income Research at Bank of America
- Michael Farr, Farr, Miller & Washington/CNBC Contributor

Free Market Matters
IS OBAMA LOSING HIS BASE?
- Tony Blankely, Syndicated Columnist; Executive vice president at Edelman
- Jim Nussle, Fmr. OMB Director; CNBC Contributor
- David Goodfriend, Fmr. Clinton W.H. Official; Sirius/XM "Left Jab" Co-host

Kudlow Exclusive
SNAIL MAIL VS. EMAIL
- Patrick Donahoe, Postmaster General
- Chris Edwards, CATO Institute Director of Tax Policy; DownsizingGovernment.org Editor

On CNBC's Kudlow Report Tonight

2011-07-26T16:53:00.001-04:00

What’s So Bad about the Reid Plan?

2011-07-25T18:39:00.001-04:00

The big sticking points between the House GOP leadership and Sen. Harry Reid’s latest plan are 1) the House wants two debt increases, one this year and one next year (Reid has just one increase) and 2) the House Republicans want a guaranteed balanced-budget-amendment vote.

Regarding the Reid plan itself, it really looks like a Republican plan: A $2.7 trillion spending cut to raise the debt ceiling by something like $2.5 trillion, and no tax revenues. So, really, what’s so bad about the Reid plan? Increasingly, Wall Street gurus want one debt-ceiling increase, not two.

The Reid package includes $1.2 trillion in discretionary-spending cuts and a small $100 billion savings in mandatory accounts, apparently from the Biden meetings, although it will not impact either health care or Social Security.

There are other nicks and knacks from waste, fraud, and abuse, fees on Fannie Mae and Freddie Mac, revenues from spectrum sales, and some sort of farm-subsidy reform. And there is, of course, a huge $1 trillion piece from winding down the wars in Iraq and Afghanistan. But that’s also in the budgets from Paul Ryan and the CBO. Interest savings come to $400 billion.

Reid’s plan also includes a Mitch McConnell-like joint-congressional committee to find future savings. The committee’s recommendations will be guaranteed an up-or-down Senate vote without amendments by the end of 2011.

The GOP House plan undoubtedly has more real spending reduction. Plus, the balanced-budget amendment, which makes it consistent with cut, cap, and balance.

But the Reid no-tax piece is really important in terms of economic growth. At least things may not get worse on the tax front.

Finally, all these plans hinge on tough enforcement for the spending caps. In particular, first-year 2012 savings, and then sequestration penalties. It just looks like the House and Senate are coming together.

On CNBC's Kudlow Report Tonight

2011-07-22T16:59:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT DEAL DEBATE LATEST
- CNBC chief Washington correspondent John Harwood reports from Washington.

INSIDE THE DEBT TALKS: GRAND BARGAIN OR SMALL BALL?
- Rep. Peter Welch, (D) VT
- Rep. Scott Garrett (R) New Jersey; House Budget Cmte. Vice Chair

Free Market Friday
WHY CAN'T WE GET A $6T DEAL? OR A CUT, CAP & BALANCE DEAL DONE? WHY IS WASHINGTON ADDICTED TO DEBT?
- James Freeman, Wall Street Journal Editorial Page Assistant Editor
- Tim Carney, Washington Examiner Senior Political columnist
- Joe Conason, The New York Observer Columnist; "It Can Happen Here: Authoritarian Peril in the Age of Bush" Author

KUDLOW MAYOR'S CONFERENCE: DEBT CRISIS TRICKLE DOWN EFFECT; IMPACT ON STATES/CITIES IF U.S. DEFAULTS
- Vince Gray, (D) Mayor District of Columbia
- Mitch Landrieu, (D) Mayor of New Orleans
- Scott Smith, (R) Mayor of Mesa, AZ

HEATWAVE STRESSING NATION'S POWER GRID
- Ann Thompson, NBC News

MARKETS: WHAT ARE ECONOMIC INDICATORS CAT & GE TELLING US?
- Lincoln Ellis, Linn Group (CME) Managing Director
- Tommy Belesis, John Thomas Financial Founder and CEO
- Denny Strigl, Fmr. CEO Verizon Wireless in New York

A Pro-Growth Plan from the Gang of Six

2011-07-20T22:44:00.001-04:00

There are a lot of known unknowns about the new “Gang of Six” budget proposal. But conservatives should hold back from trashing it. Why? There’s a large, pro-growth tax-reform piece in the plan that would lower tax rates across-the-board. This is a stunning reversal of the Obama Democrats’ soak-the-rich, class-warfare campaign.

The best part of the Gang of Six plan is a reduction in the top personal tax rate from 35 percent to a range of 23 to 29 percent. For businesses, the rate would drop in the same manner. And the corporate tax would be territorial rather than global, thereby avoiding the double tax on foreign earnings of U.S. companies. Finally, the plan would abolish the $1.7 trillion alternative minimum tax. That’s huge. It’s another pro-growth tax reform.

In a more perfect world, the Congressional Budget Office would score the pro-growth incentives of lower marginal tax rates in terms of a tax-revenue increase. That’s the history stretching back to JFK, Reagan, and George W. Bush circa 2003.

And right now, the Gang of Six package is the first real pro-growth tax reform of all the debt-ceiling plans. It acknowledges the need for a growth element in order to solve our budget bankruptcy and limit spending, deficits, and debt. It would boost the economy and broaden the base (by reforming or limiting numerous deductions). As a result, more income would be taxed at lower rates in a rising economy, throwing off a hell of a lot more revenues than we’re getting today. Rising revenues from lower tax rates are a good thing.

Now, there are glitches in this plan that cannot be overlooked. The biggest is the harsher treatment of capital gains. In a CNBC interview on Tuesday, Sen. Tom Coburn (R., Okla.) told me that the investment tax rate would rise to 20 percent from 15 percent. This is a black mark. It’s anti-growth. Coburn, however, also told me that the tax treatment of IRAs and 401(k)s would not change in this plan. That’s good.

Additional problems, however, are raised by Rep. Paul Ryan (R., Wis.). He notes first of all that the Gang of Six plan claims to increase revenues by $1.2 trillion relative to a “plausible baseline.” He also notes that the plan claims to provide $1.5 trillion in tax relief relative to the CBO March baseline. That’s important. But Ryan then reminds us that the CBO baseline assumes the expiration of the Bush tax cuts, which would increase revenues by a static $3.5 trillion.

So Ryan concludes that there’s a $2 trillion revenue increase. And he notes that this number could jump by another $800 billion from Obamacare taxes, which would increase revenues by $2.8 trillion.

Okay, this is tricky business. It’s a baseline-matching game. But let’s not get hung up on that right now. Let’s flesh out the details. Let’s see how the crony-capitalism deductions and loopholes will be treated.

So I’m not prepared to trash the Gang of Six plan. I am impressed by the lower marginal tax rates and tax simplification it contains. These are decidedly pro-growth measures. And we need growth.

If the economy were functioning decently, revenues as a share of GDP would move back towards 18 percent or more. And that would be a good place to balance the budget with spending restraints.

I get the uncertainty of the Senate Finance Committee regarding Social Security, health-care, and tax reform. I get that. But Rep. Dave Camp (R., Mich.) runs the House Ways and Means Committee, and he’s not going to let Sen. Max Baucus (D., Mont.) destroy the economy.

In the Gang of Six plan, there are a lot of planned spending cuts across-the-board for all the cabinet departments. There is spending-cap enforcement. And, importantly, the plan would repeal the CLASS Act, an Obamacare entitlement for long-term health-care insurance that would exponentially elevate future federal spending. This would mark the first step toward undoing Obamacare.

But -- and I acknowledge this weakness -- the health-care savings look inadequate and murky. And the Social Security reform is completely unknown. The cut-and-cap Paul Ryan budget, which would reduce spending by $110 billion in 2012, or $6 trillion over ten years, looks a lot more powerful than the Gang of Six proposal. Ditto for the Ryan domestic discretionary budget cut of $76 billion in 2012, which stretches out to $1.8 trillion in ten years. And of course, I acknowledge that two-to-one or three-to-one formulas for spending cuts and tax increases have always broken down in the past. You get the taxes but not the lower spending.

Nonetheless, with all the known unknowns and maybe some additional unknown unknowns, I still think it’s time to give the Gang of Six plan a chance.

On CNBC's Kudlow Report Tonight

2011-07-20T18:30:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT CEILING TALKS … THE LATEST
- CNBC chief Washington correspondent John Harwood reports from Washington.

KUDLOW DEBT SUMMIT: CEILING THE DEAL?
- Sen. Kay Baily Hutchison, (R) Texas
- Steve Forbes, Forbes Media Chairman & Editor-in-Chief
- Rep. Dennis Kucinich, (D) Ohio; House Domestic Policy Subcmte Chmn
- Byron Dorgan, (D) Fmr. North Dakota Senator

ONE-ON-ONE WITH RUDY GIULIANI
BUDGET; ECONOMY; RUN FOR THE WHITE HOUSE; NEWS CORP/MURDOCH & 9/11 VICTIMS
- Former NYC mayor Rudy Giuliani joins us.

THE GANG OF SIX PLAN & TAXES
- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy & America's Future" author; CNBC Contributor; Univ. of CA., Berkeley, Prof.
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

MARKETS
- Jeffrey Kleintop, LPL Financial Chief Market Strategist

IS THERE A U.S. DEBT DOWNGRADE CATASTROPHE LOOMING?
- Dan Mitchell, CATO Senior Fellow
- David Goldman, Former Head of Fixed Income Research at Bank of America

RAJ CO-DEFENDER: DANIELLE CHIESI SENTENCED TODAY
- CNBC’s Scott Cohn reports.

Debt Ceiling Drama Coming Down to the Wire: An Interview with Key Washington Policymakers

2011-07-20T13:52:00.002-04:00

There seems to be a spirit of compromise in the new “Gang of Six” proposal. But the plan also raises a lot of important questions. Can it get done in time for the critical August 2nd debt-ceiling deadline? Are the spending cuts real? There are lower tax rates and tax reform for personal and business, except the capital gains tax will go up. It appears IRAs and 401Ks will be tax exempt.

On last night's Kudlow Report, I spoke with three key congressional members on all of the latest developments. Joining me were Sen. Tom Coburn (R-OK), a member—perhaps the ringleader—of the aforementioned “Gang of Six” as well as Sen. Jeanne Shaeen (D-NH).

Shortly thereafter I spoke with GOP maverick Sen. Rand Paul. He’s got the right spirit and the right vision to shrink government and grow the economy. He also believes the tea party is winning.

Here are the videos of both interviews.

On CNBC's Kudlow Report Tonight

2011-07-19T18:56:00.002-04:00

Please join us at 7pm ET tonight on CNBC.

IS THERE A DEBT DEAL?
- Sen. Tom Coburn; (R) Oklahoma
- Sen. Jeanne Shaheen, (D) New Hampshire

CUT, CAP & BALANCE?
- Sen. Rand Paul, (R) Kentucky

APPLE’S BLOWOUT EARNINGS
- CNBC’s Jon Fortt reports.

MARKET SURGE
- Steve Grasso, CNBC Market Analyst; Stuart Frankel, Managing Director of Institutional Sales
- Jeremy Siegel, Professor of Finance Wharton School at Univ. of Pennsylvania

ECONOMISTS OPPOSE CONSITUTIONAL BALANCED BUDGET AMENDMENT
- David Webb, Tea Party, Host of The Grinder on AM 970; Founder, Co-founder TeaParty365
- Matt Miller, Host, Public Radio's "Left, Right & Center"; WashingtonPost.com columnist
- Sen. Mike Lee, (R) Utah; "The Only Solution Left to Save our Future" Author

NEWS CORP IN CRISIS: THE HACKING HEARING
-CNBC’s Kayla Tausche reports from London.

MURDOCHS AT THE HACKING HEARING: 'TOP EXECS KNEW NOTHING'
- Sarah Ellison, Fmr. WSJ Reporter; "The War At The Wall Street Journal" Author
- Ken Chandler, Newsmax Magazine Editor-in-Chief
- Lou Colasuonno, Fmr. NYPost/Daily News Editor-in-Chief

A Good Debt-Ceiling Deal

2011-07-18T20:52:00.000-04:00

As uncertain and unruly and disheveled as the debt-ceiling debate may be, there are still good grounds to reach a deal. It could help the economy. It could keep the policy ball moving in the direction of smaller government. It could add a key business tax incentive for economic growth. And it could even stabilize the dollar.

There really are two problems here: First is raising the debt ceiling to avoid default. (That’s a real good idea.) Second is stuffing enough spending and deficit reduction into the deal to accommodate the newly militant demands of S&P and Moody’s, who want roughly $4 trillion in cuts over ten years in order to keep our AAA rating.

But here’s the tricky part for me: What kind of numbers are we talking about in the event of a last-minute deal? So many of these numbers are phony, and they often reflect baseline fiddling and out-year budget cuts that never materialize.

But the credit raters are on the war path. The small deal offered by Senator McConnell would raise the debt ceiling in three parts. But with only $1 trillion in so-called cuts, this “Plan B” won’t pass the S&P/Moody’s test. The number is too small.

Then there’s the grand design for President Obama’s big-picture deal. It is over $4 trillion, but it includes taxes that look to be off the table from the Republican standpoint.

But this has me thinking. Assuming there are real spending cuts in the Obama package, I wonder if it’s possible to insert a business tax cut in the deal that would repatriate foreign earnings of U.S. companies. Let’s say with a 5 percent tax holiday. And let’s say it’s a two-to-three-year plan, or lasts until full-fledged business tax reform can come about. That would be a big plus for growth and jobs. We’re talking a base here of nearly $2 trillion in corporate cash that one way or another can come into our economy.

Next up is cut, cap, and balance. Did Obama budget director Jack Lew open the door to this Republican House plan during the Sunday shows? This is my preferred option right now. The burden of government on the economy would be reduced from roughly 24 percent to 20 percent. That narrows the wedge between work and reward. It strengthens private market resources by curbing government redistribution. This is probably the biggest philosophical sticking point in the whole political debate. Of course, I’m for free-market capitalism.

But here too I’m not sure about the numbers. Various news accounts talk about a $2.4 trillion debt-ceiling increase with an equal spending cut. I presume that’s a ten-year number on the spending side. But that wouldn’t pass the S&P/Moody’s test of $4 trillion.

Other accounts of cut, cap, and balance use the Paul Ryan fiscal-year 2012 spending cut of $110 billion. That would be a home run. It would come to $5.8 trillion over ten years and would certainly satisfy the credit-rating agencies. In other words, the GOP House plan is far better from a rating-agency standpoint than any other plan out there -- that is, if the Ryan numbers are actually part of the plan. But we don’t know the numerical details yet. That’s a problem.

We’ve learned from the cash-flow analysis of Treasury revenues and government spending that there just has to be a debt increase. As many have already written, the Jay Powell bipartisan policy analysis shows that you can cover the interest on Treasury debt along with Social Security and health entitlements. You could pay the Defense Department vendor bills. You could keep unemployment insurance benefits. But you’d still be $134 billion short for the rest of the August budget.

The U.S government has $172 billion of revenues coming in that month. But prior budgets have obligated $306 billion of spending. So you’re looking at a 44 percent budget cut. Maybe a good idea, but not realistic in one month. It’s just too big a shock to the system. And according to the Powell analysis, you couldn’t pay active duty military, veterans, or the FBI, to name just a few.

So the revenue-allocation view of not raising the debt ceiling really doesn’t hold any practical water. Why some of my conservative friends keeps pushing this is beyond me.

So is a deal possible? I still think it is. The high end of the budget cuts from the White House and the House GOP possibly could be coupled with a tax deal on repatriation and even future tax reform. After all, economic-growth measures should be crucial in this sputtering economy.

Reducing the corporate-tax wedge and reducing the budget-spending wedge, to quote my friend Arthur Laffer, would provide a tonic for the economy. In other words, a debt deal can still work and promote growth.

On CNBC's Kudlow Report Tonight

2011-07-18T17:51:00.000-04:00

Please join us at 7pm ET tonight on CNBC.

THE DEBT DIVIDE DRAMA - HOUSE
- Rep. Xavier Becerra, (D) California
- Rep. Jeb Hensarling, (R) TX

THE DEBT DIVIDE DRAMA - SENATE
- Sen. Mark Warner, (D) Virginia
- Sen. David Vitter, (R) Louisiana

$1600 GOLD
- Keith McCullough,Founder & CEO of Hedgeye Risk Management

THE PAWLENTY CAMPAIGN
-CNBC’s John Harwood reports from Urbandale, Iowa

MARKETS: IS GOLDMAN'S GDP PESSIMISM SHAKING UP STOCKS?
- Anthony Scaramucci, SkyBridge Capital Managing Partner
- Lee Munson, Portfolio Asset Management Chief Investment Officer
- Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist

NEWS CORP HACKING SCANDAL GROWS
- CNBC’s Kayla Tausche reports.

MURDOCH FACING MUTINY? WILL SCANDAL COME TO U.S.?
- Martin Dunn, Fmr. Editor in Chief, NY Daily News; Fmr. News Corp Executive
- Brian Stelter, The New York Times Media Reporter

SECOND DEATH AT PHARMA CEO'S HOME
- CNBC’s Jane Wells reports.

LEGAL LOOK AT CASE, AND POSSIBLE IMPACT ON MEDICIS
- Jay Fahy, Former Federal Prosecutor Fahy & Choi Partner

On CNBC's Kudlow Report Tonight

2011-07-15T16:58:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT DEAL DRAMA RAGES ON
- Gov. Ed Rendell, (D) Fmr. Pennsylvania Governor; NBC News Political Analyst; Fmr. DNC Chairman
- Fmr. Rep. Artur Davis (D)
- Rep. Nan Hayworth, (R) New York
- Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist

DO 80% WANT HIGHER TAXES?
- Scott Rasmussen of Rasmussen Reports join us.

DEBT TROUBLE IN EUROPE
- CNBC’s Michelle Caruso-Cabrera reports from Rome.

THE MARKETS
- Steven Weiss, Author, "The Billion Dollar Mistake;" Fast Money Contributor

Free Market Friday
THE OBAMA DOWNGRADE
- Andrew Ross Sorkin, New York Times Business Reporter; Author, "Too Big To Fail: CNBC contributor
- Mark Simone, deputy managing editor of National Review
- Armstrong Williams, Radio Talk Show Host/Syndicated Columnist

CAN OBAMA PULL A 'CLINTON' ON THE GOP?
- Robert Reich, Fmr. Labor Secretary; "Aftershock" author; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
- Steve Moore, Senior Economics Writer for WSJ Editorial Board;"Return to Prosperity" co-author; Founder & Fmr. President of the Club for Growth

McConnell’s Uber-Clever Debt-Deal Stratagem

2011-07-14T22:52:00.000-04:00

Sen. Mitch McConnell’s grand design may prove to be more powerful than people think.

As has been reported, McConnell is negotiating now with Sen. Harry Reid for a large-scale package that will allow the debt ceiling to rise unless overturned by a two-thirds vote. If a White House debt-ceiling deal comes through with $1.5 trillion of spending cuts, that will be part of the package. Right now, it’s not completed because enforceable spending caps have not been determined.

The key part of the new McConnell package is a joint committee to review entitlements in a massive deficit-reduction package. Unlike the Bowles-Simpson commission, this committee will be mandated to have a legislative outcome -- an actual vote -- that will occur early next year. No White House members. Evenly divided between Republicans and Democrats. No outsiders. This will be the first time such a study would have an expedited procedure mandated with no amendments permitted. Also, tax reform could be air-dropped into this committee’s report.

Senator McConnell is determined to produce something from this grand-design package. He’s a smart guy. He may be saving the GOP from itself. McConnell believes that debt default must be completely taken off the table. That’s the thinking behind his debt-ceiling proposal, unless overturned by two-thirds of a congressional vote.

He strongly believes that Republicans must disassociate themselves from any debt default or downgrade by the ratings agencies. And he recognizes that the monthly revenue and spending numbers are so unbalanced that the idea of revenue allocations in the event of no debt-ceiling hike is simply not feasible or desirable.

Other Republican sources are telling me they do not want to risk the destruction of the dollar as the world’s reserve currency by allowing a debt default or a downgrade. Eighty million checks have to go out. Otherwise the GOP could be blamed.

So one way or the other the tide is turning toward a deal. Credit McConnell’s uber-clever stratagem.

On CNBC's Kudlow Report Tonight

2011-07-14T18:19:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT CEILING BATTLE
-CNBC’s Eamon Javers reports from Washington.

- Mort Zuckerman, U.S. News & World Report Chairman
- Sen. Kay Bailey Hutchison, (R) Texas
- Rep. Peter Welch, (D) Vermont
- Rep. Peter Roskam, (R) Illinois

BERNANKE & THE ECONOMY
- David Malpass, Encima Global President; Fmr. Bear Stearns Chief Economist; Fmr. Reagan Deputy Assistant Secretary of Treasury - NYC/30 Rock
- Dean Baker, Co-director of the Center for Economic and Policy Research - DC/NBC

MURDOCH PHONE HACKING SCANDAL LATEST
- CNBC’s Kayla Tausche reports from London.

FBI OPENS NEWS CORP INVESTIGATION
- NBC’s Pete Williams joins us.

DEBT CEILING BY THE NUMBERS: DOES IT MAKE SENSE TO APPORTION REVENUES?
- Douglas Holtz-Eakin, Fmr. OMB Director; Fmr. White House Chief Economist; President, American Action Forum

ON DEBT CEILING INCREASE; PAWLENTY ON MCCONNELL
- Tim Pawlenty, (R) Fmr. Governor Minnesota

MANSION MURDER
- CNBC’s Jane Wells reports.

ITALY CONTAGION…
- CNBC’s Michelle Caruso-Cabrera reports from Rome.

MARKETS
- Ron Kruszewski, Stifel, Nicolaus Chairman & CEO
- Phil Orlando, Federated Investors Chief Equity Market Strategist

The Tea Party Is Ceiling the Deal

2011-07-12T23:06:00.000-04:00

There are a lot of pieces to the debt-ceiling deal. There are the taxes upon taxes, as the Wall Street Journal editors describe it. That’s the roughly $1 trillion in new Obama taxes on top of what he’s already signed into law. It’s an economy and jobs killer.

Then there’s the entitlement piece, which may be more interesting since Obama is apparently open to extending the Social Security and Medicare retirement age and using the so-called chained-CPI, which would lower cost-of-living adjustments (and increase income-tax thresholds). Whether the president is serious about these entitlement measures, no one knows. It’s noteworthy that he’s at least talking about them, although he’s linking them to higher taxes.

But there’s another piece to the debt-ceiling deal that hasn’t yet seen the light of day. It’s the non-entitlement spending piece. That is, domestic and defense discretionary spending plus so-called small entitlements like food stamps, unemployment benefits, and so forth.

Here’s my thought: The public wants deep spending cuts. That’s their first priority and that’s why polls overwhelmingly show opposition to a debt-ceiling increase. So regarding those spending cuts, the only thing that matters is the first-year spending decline. That would be 2012. If the spending baseline is brought down significantly in year one, then the out-years will follow suit. The government’s cost curve will ease down.

For example, go back to the Paul Ryan budget. Rep. Ryan includes a $110 billion reduction from the CBO baseline for fiscal year 2012, which reflects a $179 billion cut from the president’s budget baseline. Over ten years, that’s roughly $6 trillion in savings. That would be real money. It would be significant. In fact, Ryan’s total budget in 2012 would actually come in about $100 billion below 2011. That’s incredible. It’s almost always that so-called spending cuts are mere reductions in growth. Hats off to Ryan.

But even so, his ten-year budget would still rise by about $40 trillion.

So, again, 2012 is the only year that really counts for spending cuts in the debt deal. My guess is that any entitlement reduction will take decades. So if Speaker Boehner sticks to his argument that there must be more than $1 worth of spending cuts to offset a $1 increase in the debt ceiling, then 2012 must be his target year.

As the congressional negotiators negotiate with President Obama, we the taxpaying public have no idea what they’re cooking up on 2012 spending. It could be a worthwhile reduction or not. Out-year-discretionary decreases and small entitlement cuts for 2019 to 2021 are simply not reliable or credible. Congresses change. Deals are broken. Outcomes are, well, kind of like a scam.

And the public is onto this. The highly accurate IBD/TIPP pollsters have just released an incredible result. Get this: The public rejects a debt-ceiling increase by a huge 58 to 36 percent. That includes 59 percent of independents and even 38 percent of Democrats. That is the Tea Party revolt.

I believe the public agrees with people like Michele Bachmann. She told me in an interview this week that Congress can direct the Treasury to “first pay off the interest on the debt, make sure our military men and women get paid, and then deal with our priorities. Yes, we have very sacrificial consequences, but when are we going to get serious about deficit reduction?”

On this logic, Bachmann and other Tea Party Republicans -- including most on the presidential campaign trail -- oppose a debt-ceiling increase. This populist spending revolt runs directly counter to the Tim Geithner, Wall Street, big-business view that we must at all costs have a debt-ceiling increase to make good on our federal debt.

Tea Party populists are saying no, no: We can still make good on our debt, but this debt bill is the only leverage we have to force Washington to cut spending.

Main Street is in revolt against Wall Street, although it should be noted that Wall Street bond investors are not panicked by any means. The 10-year Treasury continues to trade below 3 percent. Maybe that will change by August 2, or the next Geithner debt-limit drop-dead date. But right now the bond market seems to be aligned with the Tea Party.

President Obama says it’s time to “eat our peas,” meaning the debt deal should have huge tax increases. That argument is being rejected. Instead, the grassroots sees a big bowl of porridge and wants to shrink that bowl substantially -- no matter what the “sacrificial consequences.”

I’m with the porridge.

On CNBC's Kudlow Report Tonight

2011-07-12T17:49:00.002-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT DEAL BATTLE ON THE HILL
- NBC’s Luke Russert reports the latest from Washington.

- Tom Donohue, Chamber of Commerce
- Sen. Orrin Hatch, (R) Utah
- Gov. Jack Markell, (D) Delaware
- Mike McGinn, Mayor of Seattle

THE FUTURE OF NEWS CORP & MURDOCH; IS NEWS CORP MISLEADING SHAREHOLDERS? WHERE WAS THEIR BOARD?
- CNBC’s Simon Hobbs
- Martin Dunn, Fmr. Editor in Chief, NY Daily News; Fmr. News Corp Executive
- Harvey Pitt, Kalorama Partners, CEO & Founder; Former SEC Chairman

ECONOMIC DEBATE: HOW TO GROW THE ECONOMY
- Robert Reich, University of California at Berkeley Prof.; Former Secretary of Labor
- Casey Mulligan, University of Chicago Professor of Economics

THE MARKETS
- David Bianco, BofA Merrill Lynch Global Research Chief U.S. Equity Strategist
- Scott Nations, Nations Shares Chief Investment Officer; Options Action Contributor

FREE MARKET TUESDAY:
THE TEA PARTY LEADS THE COUNTRY AGAINST RAISING THE DEBT CEILING
- David Webb, Tea Party, Host of The Grinder on AM 970; Founder, Co-founder TeaParty365
- Jimmy Pethokoukis, Reuters BreakingViews Money & Politics Columnist; CNBC Contributor
- Sam Seder, Political Commentator; Host, "The Majority Report"

On CNBC's Kudlow Report Tonight

2011-07-11T16:36:00.002-04:00

Please join us at 7pm ET tonight on CNBC.

LET'S MAKE A DEAL -- INSIDE THE DEBT DEAL TALKS … OBAMA: "I WILL REFUSE TO SIGN ANY SHORT-TERM DEBT DEAL"
- Rep. Peter Welch (D) VT
- Rep. Kevin Brady (R) Texas
- Sen. John Barrasso, (R) Wyoming

ITALY CONTAGION?
- CNBC’s Michelle Caruso-Cabrera reports.

MARKETS: Italy debt crisis; jobs hangover; debt deal; earnings...
- Dan Greenhaus, BTIG chief global strategist
- Don Luskin, Trend Macro chief investment officer

NEWS CORP SHARES PLUNGE AS SCANDAL GROWS
- NBC’s Stephanie Gosk reports.

2012 CAMPAIGN; DEBT TALKS; TAXES; ETC
- GOP presidential candidate and congresswoman Michele Bachmann (R-MN)

JOBS CREATION STUDY SAYS SMALL BIZ STANDSTILL: WHY IS SMALL BIZ CREATION STALLED?; HOW TO GROW?
- Jared Bernstein, Chief Economic Advisor to the Vice President
- Carl Schramm, Kaffman Foundation

FRAUD & CORRUPTION IN LAWSUIT INDUSTRY
- Brian Kelly, Producer/director of InJustice

On CNBC's Kudlow Report Tonight

2011-07-08T16:22:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

OBAMA ON JOBS TODAY, LOOK AHEAD TO SUNDAY DEBT TALKS
-CNBC’s Eamon Javers reports from Washington.

DOES TODAY'S DISMAL JOBS NUMBER CHANGE THE COMPLEXION OF THE DEBT CEILING DEBATE?
- Rep. Carolyn Maloney, (D) New York; Joint Economic Committee Chair
- Rep. Dan Burton, (R) Indiana

WHAT'S THE BEST WAY TO STIMULATE JOB GROWTH & THE ECONOMY?
- Ed Lazear, Fmr Chmn of the President Bush's Council of Economic Advisors; Stanford University Economics Professor Sr Fellow
- Laura Tyson, Berkeley, Univ of California Prof; Member of President Obama's Council of Jobs and Competitiveness

MARKETS
- Lee Munson, Portfolio Chief Investment Officer
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager

LAST SPACE SHUTTLE
-CNBC’s Brian Shactman reports from Kennedy Space Center, FL

WHAT'S THIS MEAN FOR U.S. SECURITY & INNOVATION?
- Gen. Barry McCaffrey, Four-star General; U.S. Army (Ret.); McCaffrey Associates Pres.
- Jim Maser, Pratt & Whitney Rocketdyne Pres; Fmr. Boeing Pres & gen. mgr.; Fmr. Research Fellow, NASA Glenn Research Ctr
- John Glenn, Fmr. Astrouaut; Fmr. Senator; Founder of John Glenn Institute for Public Service & Public Policy at Ohio State Univ.

DEBT TALK A FIG LEAF FOR OBAMA TO GET RE-ELECTED?
- Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor
- Mark Simone, WABC Radio Talk Show Host
- Keith Boykin, Former Clinton White House Aide; Editor of The Daily Voice online news site; CNBC contributor

Why the Budgetary Game Is a Big Taxpayer Scam

2011-07-07T15:46:00.001-04:00

Here’s some friendly fiscal advice: Any time some Washington big shot like Ben Bernanke or Tim Geithner claims that immediate spending cuts in the debt deal will harm the economy — ignore them. Completely. You know why? Because in this great country of ours, spending never goes down. Never.

Take a look at the following chart:

The blue line you see is President Obama’s budget. The green line is Rep. Paul Ryan’s budget.

Now, Ryan’s is of course a couple of trillion dollars lower than Obama’s over the next ten years. But what do they both have in common? They both go up. As in spending more, not less. As in, roughly $40 trillion to $45 trillion more. That’s a whole lot of taxpayer money, folks.

Now why is this? It’s because of something called the “current services baseline,” which includes population and inflation increases built into the budget. Entitlements have their own formulas.

So when you hear a politician tell you they’re cutting spending, they’re actually referring only to reducing the growth of spending. Rarely, if ever, do they actually reduce the level of spending.

Think of it this way: You’re out car shopping and thinking about buying a $100,000 Mercedes. That’s your target. But then you decide to forego the Mercedes and opt for a $20,000 Chevy instead. Well, guess what? Congress would score that as an $80,000 budget cut. Huh? We all know that it’s actually a $20,000 budget increase.

Let’s be honest here. This budgetary game remains one big taxpayer scam. Look, I used to work in the federal budget office. I know the game.

Here’s yet another scam: Big budget deals say they “cut” (there’s that word again) a couple of trillion dollars over ten years. But most of it is targeted for the last couple of years, as in years eight, nine, and ten. So basically it’ll never happen. It’s four or five Congresses from now. Laws change. Deals are broken.

At the end of the day, the only thing that really matters is next year’s budget. Will it be cut? Ever in my lifetime? Because if it were cut, it would bring that line in that chart above down. Now that would be a called a decline. All of that other stuff? Increases.

When businesses cut expenses, the spending line declines. But when government cuts spending, the spending line always rises. Think of it.

Mark Skousen's "Maxims of Wall Street"

2011-07-07T10:48:00.004-04:00

It was a pleasure welcoming my old pal Mark Skousen back to the set of Kudlow Report last night. Mark always comes armed with valuable market and economic insights.

Incidentally, Mark's got a brand new book out, "The Maxims of Wall Street", which is a wonderful collection of Wall Street sayings.

He tells me that the first edition is limited edition and available only through his publisher Eagle Publishing -- buyers can't buy it through Amazon, Kindle, or bookstores yet.

Click here to order yourself a copy.

On CNBC's Kudlow Report Tonight

2011-07-06T17:21:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT CEILING DEBATE LATEST/OBAMA'S TWITTER TOWNHALL
-Luke Russert, NBC News Capitol Hill Correspondent

WHY CAN'T THE ECONOMY CREATE JOBS? WHERE'S THE GROWTH?
- Peter Cohan, President of Peter Cohan & Associates; Professor of Business Strategy at Babson School of Business; Author of "Capital Rising"
- Peter Ferrara, Institute for Policy Innovation Dir. of Entitlement and Budget Policy; White House Policy Development Official under Reagan

SENATE DEBT CEILING SUMMIT
- Sen. Michael Bennett, (D) CO
- Sen. John Barrasso, (R) WY, Senate GOP Conference Vice Chairman

MARKETS & ECONOMY: IS THE GOLD RUSH STILL ON?
- Mark Skousen, Editor of Forecasts & Strategies; "The Big Three in Economics" Author
- David Goldman, Former Head of Fixed Income Research at Bank of America
- Richard Whittall, CEO of Newstrike Capital

RUPERT MURDOCH TABLOID HACKING STORY
- NBC’s Michelle Kosinski reports from London.

AN "INSIDER'S VIEW" OF THE STORY...WHAT THE SCANDAL MIGHT MEAN FOR NEWS CORP & MURDOCH?
- Martin Dunn, Fmr. News Corp Executive; Fmr. New York Daily News Editor-in-Chief

INSIDE THE MINNESOTA BUDGET BATTLE
- Thomas Bakk (D) Minnesota State Senator; Minority Leader of State Senate
- Dave Thompson, (R) Minnesota State Senator

On CNBC's Kudlow Report Tonight

2011-07-05T17:25:00.001-04:00

Please join us at 7pm ET tonight on CNBC.

DEBT CEILING DEBATE: WHAT SHOULD HAPPEN, WHAT'S GOING TO HAPPEN?
-CNBC chief Washington correspondent John Harwood reports.

- Sen. Rob Portman, (R) Ohio; Fmr. OMB Director
- Matt Miller, Washington Post Online Columnist; Public Radio's "Left, Right and Center" Host
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author
- Tony Blankley, Syndicated columnist

WHAT'S AHEAD FOR GREECE?
- CNBC’s Michelle Caruso-Cabrera reports.

THE MARKETS & ECONOMY
- John Rutledge, Fmr. Reagan Economic Advisor, CNBC contributor
- David Dietze, Point View Financial Services President and Chief Investment Strategist
- Michael Farr, Farr, Miller & Washington/CNBC Contributor - DC/NBC
- Keith McCullough, Founder & CEO of Hedgeye Risk Management; CNBC Contributor

CORPORATE TAX: BILL CLINTON VS. GROVER NORQUIST
- Fmr. Rep. Artur Davis, (D) Alabama ; SNR Denton's White Collar & Gov't Investigations practice; Fmr. Federal Prosecutor
- Grover Norquist, Americans For Tax Reform Pres

Stocks Surge . . . Is the Economy Next?

2011-07-01T21:06:00.001-04:00

Huge bull week for stocks. The Dow was up nearly 6 percent, roughly 650 points. And it could be signaling a market forecast of a second-half economic rebound from the less-than 2 percent sputter in the first half.

Triggering this week’s rally, Greece default is off the table for now, Japanese auto production is picking up (so the supply-chain-shortage problem for the U.S. may ease), and the U.S. ISM manufacturing index slightly beat estimates (though the internal components were not fabulous).

On the downside, U.S. car sales for June were up only 11.5 million annually, private construction is still falling, and oil bounced back to $95 a barrel, despite the IEA and SPR release of stocks.

But gold looks weak, and maybe people are shifting cash out of commodities and into stocks. Bond prices got hammered this week, as yields rose to nearly 3.2 percent from 2.85 percent. That could be a signal of better economic-growth expectations.

Also noteworthy, after the Fed closes down QE2 — finally, thank heavens — the M2 money supply is picking up. That could be a growth signal for the second half. After hovering for nearly two years at around 4 percent growth, year-on-year M2 is moving above 5 percent while three-month growth is close to 7 percent annually. Maybe some of that $600 billion of new Fed money will actually be spent and loaned.

There are so many threats from Washington — with Obama’s relapse into tax-and-regulate class-warfare — that a roaring rebound in the economy still looks far-fetched. Maybe we can move to 2.5 or 3 percent growth. Maybe.

Final thought: The future economy may hinge on the dollar. With a somewhat less-accommodative Fed, maybe the greenback will stabilize and move higher, thereby cutting down the commodity inflation that has eaten away at the economy and consumers in the past six months.

One can only hope.