Are Republicans Listening to the Scott Brown Message?

Sen. Scott Brown’s epic victory in Massachusetts on Tuesday night dealt a crushing blow to Obamacare, cap-and-trade, card check (and other union favors), and most importantly, all the tax hikes that are lingering on the table. But does Washington really understand the Scott Brown message?

President Obama thinks his “remoteness and detachment” are the problems. This is nonsense. Obama’s tax hikes and spending explosion are what caused the populist tea-party revolt that was punctuated by Scott Brown’s extraordinary victory.

And that leads to the next question. Are the Republicans listening? Do they really understand why Scott Brown was victorious? If they do, why aren’t members of the Republican leadership loudly campaigning for an end to tax hikes, just like Scott Brown?

The cornucopia of tax hikes currently on the table includes higher levies on capital-gains, top earners, dividends, investment (via the payroll tax), carbon, millionaires, banks, stock transactions, and estates (via the death tax). It’s a long Democratic wish list of anti-growth policies, and Scott Brown’s triumph should signal the end of it. But it won’t happen unless GOP congressional leaders make a big deal about it.

For example, some Blue Dog Democrats want to extend the Bush tax cuts, rather than letting them expire next year. Republican leaders should be making a big deal about this. They need to get it front and center, making expiration a condition to any new legislation.

Remember that Brown ran on a JFK/Ronald Reagan platform of across-the-board tax cuts to promote economic growth. Take a look at what the senator-elect had to say during his victory speech Tuesday night:

This [health care] bill is not being debated openly and fairly. It will raise taxes, it will hurt Medicare, it will destroy jobs and run our nation deeper into debt . . . I will work in the Senate to put the government back on the side of people who create jobs and the millions of people who need jobs. And remember, as President John F. Kennedy stated, that starts with across-the-board tax cuts for businesses and families to create jobs, put more money in people’s pockets, and stimulate the economy. It’s that simple.

There you have it. Scott Brown could not have been any clearer. That’s the great thing about his message -- its breathtaking clarity. Across-the-board tax cuts and a revival of free-market capitalism on the supply-side.

And recall that when President Obama mocked Scott Brown for driving a pickup truck, Brown quickly responded that unfortunately, in this economy, not everyone can buy a pickup. “My goal is to change that,” he said on the eve of the election, “by cutting spending, lowering taxes, and letting people keep more of their own money.” Right on message.

And during that campaign, Brown argued that health-care reform is a tax hike and that cap-and-trade is a tax hike. This should become the Republican message, too. It’s about taxes, as well as spending.

A recent Washington Post poll showed that by 58 to 38 percent, voters want smaller government and fewer government services. This, too, should be the Republican congressional message.

It is, in fact, an economic-growth message, the likes of which we haven’t heard since Jack Kemp promoted it in the late 1970s. And the brilliance of Scott Brown was to use the JFK tax cuts -- an across-the-board reduction in marginal tax rates -- to attract Democrats and independents to his message.

An across-the-board tax cut is the fairest pro-growth message of them all. Lower tax rates for everybody. Get out of the box of rich people and class warfare. For the Ted Kennedy Democrats, that box has been a loser for decades. But for timid Republicans always on the defensive, now is the time to break out and adopt the Scott Brown theme.

This is what Reagan did. This is why the Gipper touted JFK’s across-the-board tax cuts. Republicans must now be bold and fight for across-the-board tax relief, for families, individuals, and businesses, along with smaller government, fewer services, and across-the-board spending cuts.

While Team Obama is fighting for more government employment, with trillions of dollars of spending, it is time for Republicans to fight for private free-enterprise employment by letting folks keep more of what they earn and by providing new incentives for the extra hour worked and the extra investment dollar put at risk.

This is where the GOP must go. Republicans should not let another day pass without unleashing a fusillade of new tax-cutting proposals to get America moving again.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

OBAMA ROCKS WALL ST.

CNBC chief Washington correspondent John Harwood reports from the White House on the Obama administration’s new rules and restrictions for Wall Street’s big banks.

Also…Sen. Richard Shelby (R-AL; Banking Cmte Ranking Member) will join us live from Washington.

WHAT WAS GLASS-STEAGALL?
CNBC senior economics reporter Steve Liesman will be aboard.

IS THIS AN ATTACK ON THE BANKS?

*David Stockman, Fmr. OMB Dir. Under Pres. Reagan
*Steve Liesman, CNBC senior economics reporter
*Vincent Reinhart, American Enterprise Institute Resident Scholar; Fmr Dir. of the Federal Reserve Board's Division of Monetary Affairs

CNBC’s Brian Shactman reports from the NYSE on the selloff in bank stocks.

WHAT HAS OBAMA LEARNED FROM TUESDAY?
A look at the Scott Brown revolution & tea party tax revolt

*Rep. Jeb Hensarling (R-TX) (Budget & Financial Services Cmtes)
*Robert Reich,Fmr. Labor Secretary; Author, "Supercapitalism"; Univ. of CA., Berkeley

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

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:


ASSESSING THE MASSACHUSETTS AFTERMATH


-What Democrats & Republicans will do/should do now.
-What does this mean for ObamaCare? Financial regulation? Cap & trade?

Panel:

*Mort Zuckerman, N.Y. Daily News Publisher; U.S. News & World Report Editor-in-Chief
*Art Laffer, Chief Investment Officer, Laffer Investments; Fmr. Reagan Economic Advisor
*Brian Darling, Director of Senate Relations at Heritage
*Rep. Bart Stupak (D-MI)

CHINA, STOCKS & THE DOLLAR
CNBC’s Bob Pisani reports from the NYSE.

*Andy Busch, BMO Capital Markets; CNBC Contributor
*Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor

FHA INSURANCE
CNBC’s Diana Olick reports from Washington.

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

Special Election Edition of Kudlow Report Tonight

This evening at 7pm ET:

SHOWDOWN IN MASSACHUSETTS
NBC’s Kelly O'Donnell will join us live from Boston.


WHAT’S THE MESSAGE MASSACHUSETTS IS SENDING?

Panel:

*Peter Beinart, Prof of Journalism & Political Science, City University of New York; New America Foundation Sr. Fellow ; Sr Political Writer, Daily Beast
*Steve Moore , Senior Economics Writer for the Wall Street Journal Editorial Boar ; "The End of Prosperity" Co-Author
*Robert Tracinski, editor of The Intellectual Activist and TIADaily.com

CAN SCOTT BROWN STOP THE BIG GOV'T TAX TIDE?

Sen. Judd Gregg (R-NH) will join us from Washington.

MASS RACE IMPACT ON STOCKS

Panel:

*Brian Gardner, Sr VP, Washington Research for Keefe, Bruyette & Woods
*Don Luskin, CNBC Contributor/Trend Macro Chief Investment Officer
*John Carney, Clusterstock

MASS SHOWDOWN LATEST
Suffolk pollster David Paleologos, will join us live from Boston with a look at all the latest election developments.

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

Scott Brown’s Great Tax-Cut Message

I know there have been a million blog posts about the Scott Brown race for the Senate. But I want to add a couple of points to the discussion.

When I interviewed Scott two weeks ago on CNBC, before any polls were out, what struck me about him was his breathtakingly clear message: low marginal tax rates, as per President John F. Kennedy, who was the first post-WWII supply-side president. There also was the pledge to vote against Obamacare, but it was so interesting to me that Scott touted the JFK tax cuts — a) because it was a Democratic tax-cut message and b) because the Ted Kennedy Democrats in Massachusetts and nationwide not only abandoned the JFK supply-side-growth message, they actively opposed it.

So here is Scott Brown appealing to tea-party Democrats, independents, and Republicans, principally by touting the last across-the-board Democratic tax-cut plan.

There are many other successful Scott Brown messages in play, including the terrorist message and the Obamacare message. But this tax-cut message — i.e., reducing marginal tax rates across-the-board for all taxpayers — really interests me as a great message.

Democrats aren’t the only ones who have lost this message. To a large extent, so has the GOP. And today, just as during the Reagan years, and reaching all the way back to JFK, the bipartisan allure of this supply-side message has virtually been lost in the discussion of the Massachusetts election.

Pundits are missing it, and so are the Republican congressional leaders. If Republicans want Democrats and independents to come back to their side, they should think about the fairest pro-growth message of them all: lower tax rates for everybody. Get out of the box of rich people and class warfare. For Democrats, that box has been a loser. But for timid Republicans always on the defensive, that box is a loser, too.

Reagan knew this, and that is why he touted JFK’s across-the-board tax cuts.

Obama Rewards Losers, Punishes Winners

It’s not free-market capitalism.

President Obama’s misbegotten bank tax is precisely the wrong policy at precisely the wrong time. It will wind up backfiring across the board. Why? Because bank consumers and borrowers are the ones who will wind up paying this tax, creating an obstacle to economic recovery.

Obama is actually rewarding losers and punishing winners — exactly the reverse of free-market capitalism.

Who’s being rewarded? Obama’s bank-tax penalty is being used to finance the failed government takeovers of GM, GMAC, and Fannie and Freddie. And let’s not forget the $75 billion failure of the so-called foreclosure loan-modification program. To this day, no one knows where that money went. But the big banks are going to be forced to finance this through a tax that will damage lending, stockholders, and consumers.

This is sheer political favoritism. Crony capitalism at its worst, with a sub-theme of bailing out Obama’s Big Labor political allies. It’s just like his bailout of the unions by exempting them from the so-called Cadillac insurance tax until 2018, all while the rest of us may have to suffer under that tax.

Speaking of political unfairness and favoritism, mortgage giants Fannie and Freddie will not pay a nickel of this tax. These government-sponsored enterprises were at the very center of the financial maelstrom, financing the government’s quotas and targets for unaffordable mortgages.

Think about this for a second. President Obama is out there bashing away at excessive bonuses. And yet Fannie and Freddie’s CEOs stand to make $6 million in the next year or two. Huh? These are big-government-owned bureaucrats. They ought to be paid like GS-18s.

Of course, the Federal Reserve, which is having its most profitable year ever, was probably the main culprit in all this, with its negative-real-interest-rate easy-money policy, which amounted to throwing red meat to a pack of sharks in the deepest waters. But this tax punishes and penalizes the biggest banks, institutions that have already met their obligations by paying down TARP, with interest, and by providing taxpayers with a tidy profit on the stock warrants they held.

Now, this is not to condone the major mistakes made by the big banks. They were overleveraged, borrowed way too much, and sold highly flawed mortgage bonds and other complex derivatives. And the banks should not be paying big bonuses for 2009 — not for the period during which they were TARPed. That’s their biggest mistake.

However, with the banks having paid down TARP, the U.S. government should not be waging war against them. Somebody ought to tell the White House that al-Qaeda is the real enemy, not the banks.

At the same time, taxing the living hell out of the banks will not promote economic recovery and long-term prosperity.

President Obama says he wants to stop risky bets. Well look, the way to accomplish that is through higher capital requirements, stricter limits on leveraged borrowing, and an end to the policy of “too big to fail.” Across-the-board FDIC insurance assessments are a much better way of maintaining a bank safety net.

Instead, Team Obama wants to place a 15-basis-point tax on the banks, essentially layering it on non-insured bank funding. It amounts to a tax on future lending, shareholder equity value, and the consumers of bank services who will pay the tax costs passed on by the banks. It’s just like the corporate tax: Businesses don’t pay taxes, people do.

And consider this: One dollar of bank capital generally works out to around ten dollars of potential bank loans. That means this $90 billion tax proposal could very well cut off a staggering $1 trillion of future bank lending when credit demand picks up.

That’s how this works. This tax will slow down profits and capital. And the diminished capital will mean fewer loans when loan demand picks up. It’s exactly the reverse of what we need to grow our economy.

And the unfairness continues. Insurer MetLife, a bank holding company, and the regional Hudson City Bank Corp., both of which never took a dime of TARP money, will be penalized by this tax. That just ain’t fair.

President Obama’s crony politics rewards losers and penalizes winners. He is engaging in sheer, raw, left-wing, class-warfare politics. It’s yet one more reason why the Democrats are going to get clobbered at the polls come November.

Voters know a smoked turkey when they see one. Remember, you can fool some of the people some of the time, but you can’t fool all the people all the time.

Mark my words, all of this left-wing demagoguery, political favoritism, and crony capitalism will not end well for the Obama Democrats.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

MARKET WEEK DISCUSSION

Panel:

*Mike Holland, Holland & Company Chairman; The China Fund Board of Directors
*Barbara Marcin, Portfolio Manager; Gabelli Blue Chip Value Fund
*Michael Pento, Delta Global Advisors, chief economist
*Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager

DEAD HEAT IN MASSACHUSETTS: CAN SCOTT BROWN WIN THE KENNEDY SEAT?

Suffolk pollster David Paleologos will join us with poll results showing GOP challenger Scott Brown moving ahead of Democrat Martha Coakley in Tuesday’s significant special Massachusetts Senate election.

HEALTH, ENERGY, & FINANCIAL REGS DEPEND ON THIS ELECTION OUTCOME

On to discuss:

*Charlie Cook, Cook Political Report; Editor & Publisher
*Larry Sabato, Director, University of Virginia Center for Politics; "A More Perfect Constitution" author

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

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

OBAMA'S $90 BILLION BANK TAX
CNBC chief Washington correspondent John Harwood reports.

Plus…a recap of the exclusive interview with Treasury Secretary Geithner.

BANK TAX DEBATE

Panel:

*Brian Gardner, Senior Vice President, Washington Research for Keefe, Bruyette & Woods
*Mark Calabria, Director of Financial Regulation Studies at the Cato Institute
*David Goodfriend, Fmr. Clinton W.H. Official; "Left Jab" Co-Host/Air America Co-Founder

JOBS & THE ECONOMY
David Goldman, Senior Editor First Things Magazine

BUSH TAX CUTS EXTENSION & “CADILLAC TAX”

*Peter Cohn, National Journal's Congress Daily Tax Reporter
*Jimmy Pethokoukis, Reuters Money & Politics Columnist

CHINA/GOOGLE CYBERWARS

*Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor
*Quentin Hardy, Forbes National Editor

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

Can We Stop the Attack on Bankers?

The financial crisis being investigated down in Washington right now, with bankers on the hot seat amidst huge media coverage, has been over for six months now — at least. That’s one reason why the KBW bank index has recovered 140 percent over the last 10 months.

It’s important to take a hard look at the numerous causes of the crisis. There’s no question that bankers made big mistakes in overleveraging and borrowing to buy and sell various mortgage-related securities and other complex derivatives. They know it. That’s why they fessed up, almost semi-groveling, at the hearing yesterday. But the big boys have paid down their TARP, and they’ve turned a tidy taxpayer profit in the process.

So, is it possible that we can put an end to this obsessive national attack on bankers? Ultimately, the bankers will play a key part in the economic-recovery solution. Al Qaeda is our enemy. Not the bankers.

Now take a look at the following chart. It looks more complicated than it really is. What it shows is job losses during all the post-WWII recessions, two years after the jobs peak.

You’ll see that all the post-war cycles had employment rising by now. But, as this chart clearly shows, it’s still falling. That’s the issue for America right now.

Will someone please explain to me how raising taxes on banks — or anybody else for that matter: rich people, capital gains, whatever — will make the jobs line go up instead of down? Someone please explain to me how we’re going to tax our way out of this jobs decline?

Bank taxes? What a terrible idea. Raising personal income taxes, health-care related taxes, capital-gains taxes? All terrible ideas. It’s totally nuts. These tax hikes are not going to create jobs here in America, they will take jobs away.

And as far as the financial crisis is concerned, I’m still waiting for the commission to investigate the critical role the Greenspan & Bernanke Fed played in creating the bubble that led to the meltdown. As Stanford economist John Taylor has said numerous times on the show, the Fed held rates down too low for too long. Moreover, we must also explore the role government policy played in mandating unaffordable mortgages and then financing them through Fannie Mae and Freddie Mac.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

BANK CEOs GET GRILLED AT TODAY’S HEARING
NBC’s Brian Mooar reports.


Plus…CNBC’s David Faber gets the reaction from various bank CEOs.

WALL ST. MISSTEPS?

*Robert Reich, Fmr. Labor Secretary Author, "Supercapitalism"; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
*Bill Isaac, Fmr. FDIC Chairman; Chairman of The Secura Group of LECG

FED RATE DEBATE
Interest rates too low for too long?

*Richard Clarida, Pimco Global Strategist
*Lee Hoskins, Fmr. Cleveland Federal Reserve President

THE WHITE HOUSE’S (DUMB) BANK TAX PROPOSAL
CNBC chief Washington correspondent John Harwood reports.

*Rep. Peter Welch (D-VT)
*Reuters columnist Jimmy Pethokoukis

Plus…Did the $787 billion stimulus package really save 2 million jobs as the White House claims?

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

Google Leaving China?

Google's chief legal officer David Drummond joined me last night to discuss dramatic reports that the internet giant is considering exiting China following “highly sophisticated” cyber-attacks aimed at human rights activists.

Did I Say Dumb Tax Policy?

The S&P 500 dropped for the first time in 2010 yesterday, falling nearly 1 percent and ending a six-day New Year’s rally. You want to know why? It wasn’t China’s mild credit-tightening move to raise reserve requirements on their banks. That’s actually a good idea. It may help calm the threat of Chinese overheating. What knocked stocks down (including a 2 percent drop in the bank index and big losses all around for the major banks) is the new White House proposal for a $120 billion tax hike on banks.

Just look at the slaughter across the board: BofA, Citi, Morgan Stanley, Goldman, JPMorgan — all of them down 2.5 to 3.5 percent. This had nothing to do with China. What it’s all about is a ridiculous bank-tax proposal that is anti-growth, anti-capital, anti-profits, anti-shareholders, and anti-bank-lending.

The worst part about the proposal is that at the end of the day it’s going to be bank consumers who wind up paying the tax. Banks will pass the tax along.

But there are many more problems with this absurd bank-tax-hike proposal. Think of this: The U.S. government bailed the banks out with TARP. Then the banks repaid TARP last year, including the stock warrants that provided a handsome taxpayer profit from the banks. And now the government wants to tax them? In other words, help the banks get healthy, and then punish them? I don’t understand it.

And here’s yet another ridiculous part of this story: The largest banks that de-TARPed, and are regaining their health, are now, with this tax, supposed to cover the government-owned failures like GM, GMAC, AIG, and Fannie and Freddie, which are running up huge deficits because they may be on the taxpayer dole in perpetuity. In other words, the healthy banks that made good decisions and paid down TARP are now getting taxed so that the government can finance the bad actors. This makes no sense at all.

Look, the big guys have de-TARPed. Now it’s time to get off their backs. As I wrote yesterday, bankers should not get bonuses for the period in which they were TARPed. But for the new year, since the bankers met their TARP obligations, Team Obama should leave them alone. Let the bankers help the economy grow, create wealth, and create jobs.

It gets worse. On top of all this bank-tax stupidity, House and Senate Democrats now want to apply a Medicare payroll tax hike to fund Obama’s health-care plan. This would include taxing investments like capital gains and dividends rather than just wages. The wage hike is bad enough. And Obama’s health plan is bad enough. But applying this tax to investments simply raises the cost of capital, lowers the return on risk-taking, and damages prospects for economic-recovery growth.

What is Team Obama thinking?

I’ve never seen anything so dumb. No wonder stocks sold off yesterday, especially bank stocks.

If these tax hikes actually get through Congress and the White House in the weeks ahead, the stock market is going to sink no matter how good the fourth-quarter profits picture.

We cannot, and will not, tax our way into prosperity. It won’t happen.

Did I say dumb policy?

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

NEW YEAR'S TAX ATTACK

CNBC chief Washington correspondent John Harwood reports.

On to debate:

*Steve Moore, WSJ senior economics writer
*Michael Linden, Center for American Progress

JOHN TAYLOR VS. BEN BERNANKE

Stanford economics professor John Taylor will join us.

CONGRESSIONAL BANK COMMISSION
CNBC’s Hampton Pearson will preview tomorrow’s hearing.

INSTITUTIONAL INVESTORS SUE TO BLOCK GOLDMAN BONUSES

*Jay Eisenhofer, co-managing partner of Grant & Eisenhofer
*Tom Curran, Ganfer & Shore Attorney

Also…Florida GOP Senatorial Candidate Marco Rubio will be aboard.

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

My Solution to the Banker Bonus Brouhaha

I have a few thoughts concerning the burgeoning public backlash against big banker bonus announcements expected in the weeks ahead. This backlash of course stems from taxpayer fury over banks which were rescued by taxpayer-financed TARP money.

A recent Rasmussen poll revealed that 61 percent believe the government should regulate the level of pay and bonuses for company executives who were on the public dole. However, if the bailed out banks do pay their money back, then another 64 percent say the government should actually stay on the sidelines and not regulate compensation.

Here's my thought: the banks need to step up the plate, fess up, and thank the American taxpayers for their largesse. It’s a public relations move. They’ve never really done that. Taxpayers deserve a thank you. That's point number one.

Point number two: in June of last year, JPMorgan and Goldman Sachs, joined by eight other banks, all paid down TARP. So, my humble opinion is that these banks ought to receive their bonuses, whatever that number may be, for the second half of the year, but not the TARP-ed up first half of the year.

As for the other big banks like Citi, Bank of America, and Wells Fargo, they didn't de-TARP until the end of 2009. So why should they get any bonuses at all? And if they do get any bonuses, these bonuses should be minuscule.

In other words, let the banks that paid back their TARP money in June take a half-year bonus. The ones that didn’t should forego 2009, and look forward to 2010.

Bernanke’s Days May Be Numbered

Will Fed Vice Chairman Donald Kohn replace Ben Bernanke? It's certainly possible, because Bernanke currently has four Senate holds on his nomination. In other words, there may not be a vote by January 31st when his term as chairman expires.

Take a look at what Senators Judd Gregg and Chris Dodd had to say on CNBC's Squawk Box Monday morning:

Gregg: I think a point which listeners might be interested in is what happens to Bernanke’s position if he’s not confirmed by the end of January?

Dodd: By the end of January, if we don’t confirm him, then he could not serve as chairman. He could serve as a member of the board, but you’d then have to have the vice chairman become the chairman.

Bottom line is Bernanke's got trouble because of the four senators who have placed a hold on his nomination. That means a floor debate about Bernanke that will require a 60 vote cloture roll call even before they get to vote up or down on the actual nomination. In other words, they’ve got to vote on closing down the debate. So it could delay a full vote well past January 31st when Mr. Bernanke’s term expires.

A key point in all this is that many believe Donald Kohn—a brilliant economist—is nonetheless, even more dovish than “Helicopter Ben.”

Adding fuel to the flames, in yesterday's Wall Street Journal, distinguished Stanford economist John Taylor who joined me on the Kudlow Report last week, pushed back against Bernanke's Taylor Rule criticism from two Sunday's ago, when Bernanke attempted to absolve the central bank from any easy money bubble culpability earlier in the decade.

The Taylor Rule clearly shows that the Fed's target interest rate was way too low in 2002-2005. Too low, too long. In fact, real interest rates during that period were negative. As far as Wall Street trading risk and borrowing leverage is concerned—that was of course all part of the meltdown—negative real interest rates are like throwing gobs of bloody red meat to a pack of hungry sharks.

This Bernanke reconfirmation story gets trickier and trickier with each passing day. More to be revealed.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

BANKS BRACE FOR BONUS FURY

Panel:

*Clusterstock’s John Carney
*The New York Times’ Andrew Ross Sorkin
*Carlos Gutierrez, former United States Secretary of Commerce
*Bill Isaac former FDIC chairman and current chairman of LECG's global financial services

ARE BANKS A BUY?
-Bloomberg story - Bank Profits Means Stocks at 15% Discount to S&P 500

*Mike Holland, chairman of Holland & Company

FED’S ROLE IN THE CRISIS
*Peter Navarro, UC-Irvine business professor
*Mark Calabria, director of financial regulation studies at the Cato Institute

PROFITS, EARNINGS AND THE MINI-BOOM

*Jim Paulsen, chief investment strategist of Wells Capital Management

HOW HIGH WILL OIL PRICES GO?
*John Kilduff, partner at Round Earth Capital

KUDLOW'S HOTLINE

Give us a call! 800-800-CNBC. Phone lines open up at 7pm ET.

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

Enough Is Enough—Time to De-stimulate

We’ve got to get America working again. That's the message in my latest column, De-stimulate. That's right. De-stimulate. As in get rid of higher taxes, regulations, healthcare mandates, EPA mandates, spending and borrowing worries, etc, etc. This big government morass is creating so much uncertainty and confusion that even our profitable businesses are afraid to hire new workers. Why? Because government is muddying the water and making it too darn expensive.

That’s the problem.

President Obama's green jobs plan announced this past Friday? It’s an outrage. $2.3 billion dollars for 17,000 jobs? Do the math. That comes to a whopping $135,000 per job! Un-be-lieve-able. We’re going to wind up paying for this flood of ineffective stimulus spending in higher taxes down the road. Let us keep our own money thank you very much.

Here’s another outrage: Stop the EPA from its new $90 billion dollar smog regulatory plan that frankly, will be infinitesimal in whatever benefits it generates. And why haven’t we reversed the ban on oil and gas drilling, with crude at $83 and retail gas edging closer to $3 bucks a gallon? We should be embarking on an all-out drill, drill, drill campaign. Guess what? That would create jobs.

My friend Steve Moore at the WSJ has been talking about tax chaos. He’s exactly right. Why don't we just lower tax rates for individuals, businesses, and capital gains? That would be real stimulus. That's the missing link, that’s the invisible hand that has worked so well, and so often in the past. But it has been flatly rejected by Team Obama.

Look, we have enough monetary stimulus from the Fed. Plenty. We have very profitable corporations. Stocks are rising. There is an economic recovery taking place right now, but it's only half a recovery loaf if more people aren't going back to work.

That is precisely why I want to get rid of the whole loaf of these anti-jobs polices pouring out of Washington. It’s time to de-stimulate.

De-Stimulate

After the arrival of a disappointing December jobs report, my thought on putting America back to work is simple: de-stimulate. That’s right. Get rid of the Obama stimulus monster, including the government takeover of health care, cap-and-trade, and all this nonsensical talk of creating green jobs. Get rid of the increase in marginal personal tax rates and capital-gains tax rates. Get rid of the payroll tax hike from the health-care talks. Get rid of the spending that is a counterweight to growth. Get rid of it, every part of it. It’s creating so much uncertainty that even profitable businesses are afraid to hire new workers and expand.

It’s like business is on hold as it waits for the next Washington shoe to fall.

Check this out. On Friday, the day of the sub-par jobs release, President Obama comes out with a new green-jobs program that will cost taxpayers $2.3 billion. He predicts targeted tax credits for all of his faddish “energy savers” -- presumably determined by hoards of EPA bureaucrats -- will create 17,000 new jobs. This is out of a total workforce of 153 million.

And wait, it gets better. The average cost of these alleged new green jobs will be $135,000 per job. It’s sorta like the $780 billion stimulus plan, half of which has supposedly saved 1 million jobs at roughly $200,000 per job.

And on the subject of energy-related jobs, the EPA is now going to penalize manufacturing America -- or what’s left of it -- with tougher standards to reduce smog. Of course, smog has already fallen 25 percent in the last three decades. And the EPA’s projected smog savings are so miniscule compared to the new costs for business that the National Association of Manufacturers, the petrochemical makers, and others are screaming bloody murder.

This little EPA beauty could cost up to $90 billion annually. All of this with a 10 percent unemployment rate, mind you. It’s another triumph for left-wing social policy over economic-growth policy.

And get this. Interior Secretary Ken Salazar recently announced that he is closing down federal lands for oil and gas drilling. This with the price of oil hovering around $83 a barrel and retail gas at the pump moving in the direction of $3 per gallon. Huh? Does anybody in Washington have any common sense at all?

Steve Moore of the Wall Street Journal just wrote a good column about tax chaos in the new year, with small-business write-offs for capital purchases expiring, the alternative minimum tax (AMT) un-indexed for inflation, and no fix in place for the estate tax, which is set to rocket from zero back to 55 percent.

And let’s not forget, as Harvard economist Greg Mankiw reminds us on his excellent blog, that the $780 billion stimulus plan was supposed to generate a peak of only 8 percent unemployment. Not happening -- at least not yet.

So my point is this: Get rid of all this government spending, taxing, regulating, and meddling. De-stimulate. Let us keep our own money as workers, small-business owners, and corporate employees. Stop any future tax hikes. Stop them. And bring down business tax rates for large and small companies, from 40 percent (federal, state, and local) to something around 25 percent. And take a cue from FedEx CEO Fred Smith, who wants to revive the manufacturing and transportation industries with immediate cash-expensing tax write-offs for investment in new equipment.

President Obama has talked about a zero cap-gains tax for small investors. But why not provide more capital access for everybody, small- and large-business investors?

In light of all the tax-and-regulatory threats, it’s too expensive to hire right now. So get rid of all the so-called stimulus plans and social policies to transform the government’s relation to the private economy. Remove these obstacles.

Now, even with an 85,000 drop in corporate payrolls in December, labor-market conditions are gradually improving, however slowly. Leading indicators like temporary-help workers, manufacturing overtime hours, and jobless claims are pointing to better job creation in 2010. But it’s painfully slow. And that’s why the tax-and-regulatory obstacles from Washington must be removed to speed up the employment-recovery process.

The economy has more than enough monetary stimulus, and corporations are profitable. The stock market rose nearly 3 percent in the first week of the new year, and is up 70 percent from the March 2009 low. The recession is over. But America must go back to work to truly get the country moving again. Unfortunately, Washington is standing in the way.

There’s a populist wave coming, but it’s from the right, not the left. Free-market populism emanating from the tea-party movement wants government out of our businesses and out of our pockets. These folks are right.

Right now, Washington is completely wrong.

This evening at 7pm ET:

Obama's Clean Tech Jobs
with CNBC's John Harward

JOBS! JOBS! JOBS!
with CNBC's Steve Liesman

How to Get America back to Work
*Peter Navarro, Univ. of California/Irvine business professor
*Robert Reich, Former Labor Secretary
*Victor Davis Hanson, Sr. Fellow Hoover Institution
*Steve Moore, WSJ Sr. Economics Writer

Weather Report -- Florida in Deep Freeze

Why the Jobs Report is Bad for Dems, but Good for the Country in the Long Run
*Mark Walsh, Founding CEO at Air America
*James Pethokoukis, Reuters Money & Politics Columnist

KUDLOW'S HOTLINE

Give us a call! 800-800-CNBC. Phone lines open up at 7pm ET.

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

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

TEA PARTY POPULISM & THE MID-TERM ELECTIONS

*Kellyanne Conway, The Polling Company President & CEO
*Craig Shirley, "Rendezvous with Destiny" author; Shirley & Banister Public Affairs President

THE TEA PARTY POPULISM MOVEMENT: DOES GOP DESERVE TO WIN BIG IN 2010?
Will Republicans seize the opportunity or will they blow it?

*CNBC’s Rick Santelli
*Matthew Continetti, Weekly Standard Staff Writer
*Kellen Giuda, National Coordinator for Tea Party Patriots; St. Anselm College; New Hampshire Institute of Politics

GEITHNER'S NY FED TOLD AIG TO WITHHOLD INFORMATION?
CNBC’s Mary Thompson reports.

GEITHER & TIES TO BAILOUT NATION

*CNBC’s Rick Santelli
*Ron Insana, author, "How to Make a Fortune from the Biggest Bailout in U.S. History"

ARE WE IN THE MIDST OF A MINI-BOOM?
Messrs. Santelli and Insana will weigh in.

KUDLOW'S HOTLINE

Give us a call! 800-800-CNBC. Phone lines open up at 7pm ET.

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

John Taylor vs. Ben Bernanke

Was the lack of regulation chiefly to blame for unleashing the housing bubble? Or was it the Fed's easy money, low interest rate policy? Joining me to discuss on last night's Kudlow Report was distinguished Stanford economics professor John Taylor, creator of the Taylor Rule.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

FINANCIAL REFORM LEGISLATION MINUS DODD
CNBC chief Washington correspondent John Harwood will report.

GOP CONTENDERS VIE FOR DODD'S SEAT

GOP candidates on board:

*Linda McMahon, former chief executive of World Wrestling Entertainment
*Fmr. Rep. Robert Simmons
*Peter Schiff, President, Euro Pacific Capital

BLUMENTHAL EYES DODD’S SEAT
Democratic CT Attorney General Richard Blumenthal will join us.

CONGRESSIONAL ROUNDUP: WHO'S IN, WHO OUT?
NBC’s Steve Handelsman reports.

TAYLOR VS. BERNANKE
Is the Fed messing with the Taylor Rule?

Joining us to discuss will be John Taylor, creator of the so-called Taylor Rule for guiding monetary policy. Mr. Taylor is a Stanford University economic professor.

KUDLOW'S HOTLINE

Give us a call! 800-800-CNBC. Phone lines open up at 7pm ET.

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

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

A RISING TIDE OF FREE MARKET POPULISM?

*Matthew Continetti, Weekly Standard
*Robert Reich, former Labor Secretary; "Supercapitalism" Author

HEALTHCARE: HOW BILL'S TWO POSSIBLE DIRECTIONS WILL IMPACT THE WEALTHY
CNBC chief Washington correspondent John Harwood reports.

2010 AGENDA: CARD CHECK, CAP & TRADE & JOBS BILL

*Dan Gross, Newsweek Columnist
*Steve Moore , Senior Economics Writer for the Wall Street Journal Editorial Board; "The End of Prosperity" Co-Author

HOME MODIFICATIONS: WHERE DID THE $75 BILLION GO?
Plus, pending home sales plunge while factory orders rise—what's it mean for the economic road to recovery?

*Dan Mitchell, senior fellow at the Cato Institute
*Christian Weller, senior fellow ar Center For American Progress

KUDLOW'S HOTLINE

Give us a call! 800-800-CNBC. Phone lines open up at 7pm ET.

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

Can Scott Brown Win Teddy Kennedy's Senate Seat?

Upset of the new decade in the works? Could the JFK-Ronald Reagan tax-cutting message lead the GOP to a huge political victory in Massachusetts? Republican Senate candidate Scott Brown joined me last night to discuss.

On CNBC's Kudlow Report

This evening at 7pm ET:

THE STOCK MARKET MINI BOOM
-Will stocks push the Fed to raise rates sooner rather than later?
-What did we learn from Bernanke's speech yesterday?

On board:

*Peter Navarro, UC-Irvine business professor and author
*Vince Reinhart, AEI resident scholar; former director of the Federal Reserve Board's Division of Monetary Affairs

DOES THE U.S. ECONOMY HAVE THAT 1937 FEELING AGAIN?

*Steve Forbes, editor-in-chief of Forbes; president/CEO of Forbes Inc
*Amity Shlaes, author of "The Forgotten Man"; senior fellow in economic history at the Council on Foreign Relations

BULL VS. BEAR DEBATE

*Bob Froehlich, senior managing director at The Hartford
*Ron Kruszewski, chairman and chief executive of Stifel Financial Corp

CAN SCOTT BROWN WIN TEDDY KENNEDY'S SENATE SEAT?

Massachusetts Republican Scott Brown will join us.

KUDLOW'S HOTLINE

Give us a call! 800-800-CNBC. Phone lines open up at 7pm ET.

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

10 Best Dressed Men of 2009

Another year, another amusing award bestowed upon yours truly by hard-hitting political consultant and fashion aficionado Roger Stone. Last year, I finished in second place, just behind President Obama. This year I slipped a spot courtesy of actor Jude Law, but still managed to stay ahead of George Clooney.

Faith in Free-Market Capitalism Is Being Rewarded

Market-based variables point to a mini boom in the new year.

Despite the historic expansion of the federal government’s involvement in, intervention in, and control of the economy -- including Bailout Nation; takeovers of banks, car companies, insurance firms, Fannie, Freddie, AIG, GM, Chrysler, and GMAC; large-scale tax threats; overregulation; an attempted takeover of the health-care sector; ultra-easy money; a declining dollar; and unprecedented spending and debt creation -- despite all the things that would be expected to destroy the economy -- all this socialism lite and the degrading of incentives and rewards for success -- despite all this, the U.S. economy has not been destroyed.

In fact, it is coming back. In 2009, the stock market had one of its greatest rebounds in history. And in 2010, we’re likely to witness a mini boom in economic growth.

If you believe in miracles, as I do, this looks like a miracle. If you have faith in free-market capitalism, as I do, then somehow this faith is being rewarded by a more durable and resilient free-enterprise capitalism than many of us thought possible only one year ago.

If you believe in the supply-side model of growth, including low marginal tax rates, a reliable King Dollar, and limited government, yes, you have very little to cheer about. Yet market-based forecasting variables are all pointing to a stronger-than-expected economic rebound in the new year.

Stocks are signaling better economic growth. So is the steeply upward-sloping Treasury yield curve. So is the worldwide rebound in commodity markets. So is the collapse of credit-risk spreads in the bond market. Each of these market-based forecasting tools points to a significant recovery in 2010.

I’m calling it a “mini boom” because we’re likely headed toward 4 to 5 percent real economic growth. That’s not as good as the 7 to 8 percent boom that followed the similarly deep recession of the early 1980s. Then again, Reagan slashed tax rates and Volcker stabilized the dollar. That’s not happening now. Gold has jumped from around $700 to $1,100, signaling higher inflation in 2010 and even more price increases in 2011.

But we know from recent data on retail sales, personal income, corporate profits, industrial production, business investment, and jobless claims that the economic patient is healing.

The most recent release from the Chicago Purchasing Managers is boom-like, with the best gains in nearly four years being registered for business activity, production, new orders, and even employment. Meanwhile, the housing sector is stabilizing and consumer confidence is gradually improving.

The biggest source of economic stimulus is not the $800 billion Obama spending package. It’s the $4.6 trillion of capital gains thrown off by the stock market over the past three quarters. This is investment money, and it also enhances consumer spending. As a result, jobs are likely to start rising early in 2010.

The second-biggest stimulus is the Fed’s zero-interest-rate policy and ballooning balance sheet that has poured about $1.5 trillion into the economy. How the Fed exits from this remains to be seen. The longer it waits, the more inflation-prone the coming boom will be. So there’s a false prosperity here, or at least one that raises skepticism about the longer term.

And with marginal tax rates going up in 2011, the top 5 percent of successful earners and investors are going to bring their income forward next year in order to beat the tax man. That’s even more false prosperity.

But the fact remains that businesses large and small, along with family households, have performed the necessary belt-tightening and deleveraging corrections made necessary by the Great Recession and its bubbled-up speculations. These free-enterprise actions have led to great productivity in our mostly free economy. Again, the results will show in next year’s mini boom.

A political belt-tightening also has been taking place. The Tea Party movement came on the scene in 2009 to revolt against big-government spending, taxing, and controlling. This movement is so reminiscent of California’s Prop 13 tax revolt of 30 years ago, which led to the Reagan revolution. It may well be the backbone of an anti-Washington revolution in 2010, ushering in a much more conservative Congress and a chastened Obama White House.

It remains to be seen whether this political revolt can stop the big-government assault on free enterprise. But I have as much faith in the political markets turning the ship of state around as I have in rising year-end Treasury bond-market rates forcing the Bernanke Fed to shape up and ship out of its wild money-printing ways.

In other words, free people and free markets have always been the best guarantors of American economic growth. Because I believe this, I am an optimist going into the new year.

Scanners In Every Airport?

Should these security scanner machines be in every airport? A look at body scanners currently on the market, with Ajay Mehra, Osi Systems executive v.p. and Cherif Rizkalla, Smiths Detection, security and inspection president.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

TERROR LATEST
Are more al Qaeda attacks in the works?

CNBC’s Hampton Pearson reports from Washington.

THE NEXT GENERATION OF AIRPORT SCANNERS

On to discuss:

*Cherif Rizkalla, Security & Inspection President Smiths Detection
*Ajay Mehra, Executive V.P., OSI Systems and President, Rapiscan Systems

ALL SIGNS POINTING TO A MINI-BOOM?
-U.S. Consumer confidence
-Hope in the housing market?
-A firmer dollar and drop in gold.

CASE-SHILLER SHOWING SIGNS OF LIFE
Joining us to discuss will be Robert Shiller, Economics Prof, Yale School of Mgt's Int'l Ctr for Finance; Chief Economist Macromarkets.

IS THE FED MOVING CLOSER TO AN EXIT STRATEGY?

*Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor
*Daniel Indiviglio, The Atlantic Staff Editor & Blogger

KUDLOW'S HOTLINE

Give us a call! 800-800-CNBC. Phone lines open up at 7pm ET.

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

Altucher's 2010 Top Ten List

Last night James Altucher joined me with a look ahead at what might be in store for the 2010 stock market and economy.

On CNBC's Kudlow Report Tonight

Get your questions ready folks...we're taking live calls on this evening's Kudlow Report. The number is 800-800-CNBC.

Phone lines will open at 6pm ET.




On tonight's program:

* Terrorism expert Steve Emerson will offer his take on the thwarted Christmas Day bombing attempt on Flight 253.

* Investment whiz James Altucher from Formula Capital will offer his 2010 stock market picks and predictions.

* Clusterstock's John Carney will opine on the latest Fannie/Freddie controversy.

Please join us! 7pm ET. CNBC.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

Obama's First Year
*Brian Mooar, NBC reporter

Did Obama Rescue the Financial System?
*Steve Moore, WSJ senior economics writer
*Bob Shrum, Democratic Strategist

Stimulus Waste
*CNBC's Brian Shactman

Fed Watch
*Peter Morici, Univ. of Maryland professor
*Vincent Reinhard, AEI Resident Scholar
*Andy Busch, BMO Capital Markets

Who is Ayn Rand?
*CNBC's Hampton Pearson

Why is Ayn Rand So Popular?
*Don Luskin, Trendmacrolytics CIO
*Jerry Bowyer, CNBC Contributor

Larry's Last Word

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

The Yield Curve Is Signaling Bigger Growth

What’s a yield curve and why is it so important?

Well, the curve itself measures Treasury interest rates, by maturity, from 91-day T-bills all the way out to 30-year bonds. It’s the difference between the long rates and the short rates that tells a key story about the future of the economy.

When the curve is wide and upward sloping, as it is today, it tells us that the economic future is good. When the curve is upside down, or inverted, with short rates above long rates, it tells us that something is amiss -- such as a credit crunch and a recession.

The inverted curve is abnormal, the positive curve is normal. We have returned to normalcy, and then some. Right now, the difference between long and short Treasury rates is as wide as any time in history. With the Fed pumping in all that money and anchoring the short rate at zero, investors are now charging the Treasury a higher interest rate for buying its bonds. That’s as it should be. The time preference of money simply means that the investor will hold Treasury bonds for a longer period of time, but he or she is going to charge a higher rate. That is a normal risk profile.

The yield curve may be the best single forecasting predictor there is. When it was inverted or flat for most of 2006, 2007, and the early part of 2008, it correctly predicted big trouble ahead. Right now it is forecasting a much stronger economy in 2010 than most people think possible.

So there could be a mini boom next year, with real GDP growing at 4 to 5 percent, perhaps with a 6 percent quarter in there someplace. And the unemployment rate is likely to come down, perhaps moving into the 8 percent zone from today’s 10 percent.

The normalization of the Treasury curve is corroborated by the rising stock market and a normalization of credit spreads in the bond market. I note that as the curve has widened in recent weeks, gold prices have corrected lower and the dollar has increased somewhat. So the edge may be coming off the inflation threat. If market investors expect the economy to grow, inflation at the margin will be that much lower as better growth absorbs at least some of the money-supply excess created by the Fed. My hunch is that inflation will range 2 to 3 percent next year.

It also could be that the health-care bill about to pass in the Senate is less onerous from a growth standpoint -- and certainly less onerous than the House bill. For example, the Senate bill does not contain a 5.4 percent personal-tax-rate surcharge, which also would apply to capital gains. So if the Senate bill becomes the final bill, it will be less punitive on growth. That could explain the fall in gold and the rise in the dollar. We’ll still be stuck with a tax hike from the expiration of the Bush tax cuts, but at least we won’t have a tax hike on top of that. That’s the optimistic view, at any rate.

But really, pessimists have missed the big rise in corporate profits, the resiliency of our mostly free-market capitalist economy, and the monetarist experiment from the easy-money Fed. The optimal policy mix on the supply-side is low tax rates and King Dollar. We don’t have that. So as good as 2010 may be, with investors moving to beat the tax man, it could be a false prosperity at the expense of 2011.

But let’s cross that bridge when we get there. Right now, rising stocks and a wide and positive yield curve are spelling strong economic growth in the new year.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

Is There A Mini Boom In the Cards?
*Brian Wesbury, First Trust Advisors chief economist
*Michael Farr, president Farr, Miller & Washington

Economic & Stock Market Update:
*Ken Heebner, Capital Growth Management portfolio manager

Dividend Stocks for 2010
*Jeff Krumpelman, Hilliard Lyons Capital portfolio manager

Housing Discussion with Suze Orman

Breast Cancer Warning on Cell Phones?
*Brian Mooar, NBC reporter
*Maine Rep. Andrea Boland
*Stewart Fleishman, MD

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

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

The Next Decade for Investors

*Steve Forbes, Forbes Chairman & CEO

Stocks For The Long Run?

*Alison Deans, CNBC contributor
*Joe Battipaglia, Stifel Nicolaus market strategist

The Latest on Healthcare Bill with NBC News Brian Mooar

Healthcare Debate

*Robert Reich, former Labor Secretary and UCal, Berkeley Professor
*Steve Moore, WSJ senior economics writer

Tax Attack from Botox to Tan-Tax

*Dan Humiston, President of Indoor Tanning Association

Economic Outlook -- interest rates, jobs, inflation debate:

*David Goldman, First Things Magazine senior editor
*Vincent Reinhart, AEI resident scholar

Bonds vs. Bond Funds with Suze Orman

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

Without Bipartisan Support, Bernanke Should Withdraw

Helicopter Ben Bernanke passed his reconfirmation vote in the Senate Banking Committee this week. But he passed by 16 to 7. Most of the Republicans voted against Bernanke, as did one Democrat, Sen. Jeff Merkley of Oregon. The reconfirmation now goes to the floor of the Senate, where it’s going to be held up for a while. (Sen. Jim DeMint and others are insisting that a vote on the Government Accounting Office’s audit of the Fed occur first.) But when the final vote happens, I think Bernanke could be in trouble.

Mirroring the Banking Committee vote, most of the 40 Senate Republicans may vote against Bernanke, and they will be joined by a number of Democrats. If Bernanke were to be opposed by as many as 35 or 40 votes, it would substantially undermine his credibility.

Whether it’s his past inflationary-bubble monetary performance, or the bank bailouts, or the AIG bailout, or the end to secrecy at the Fed, senators on both sides of the aisle are blaming Bernanke, fingering him as the wrong guy at the wrong time. And somewhere in that mix of opposition -- led by senators Richard Shelby, Jim DeMint, Jim Bunning, and others -- Republicans are gradually moving back to a Ronald Reagan–type, King Dollar, hard-money position that is in strong contrast to Bernanke’s dollar declinism.

Aside from the fact that Bernanke doesn’t look at gold or the dollar as price signals to guide his policy, we have witnessed a complete reversal of the Fed’s intellectual framework. By that I mean, for 20 years or so, first under Paul Volcker and then during Alan Greenspan’s first three terms, the Fed argued that the tax-cut effects of low inflation would spur economic growth and low unemployment. This period lasted roughly from the early 1980s until the end of the century. But since Bernanke came on the scene, the sound-money, stable-dollar argument has disappeared.

For most of this decade, the Fed has been fighting unemployment by pumping in easy money. And it keeps telling us this will not cause inflation. With the CPI hitting nearly 5 percent in 2006 and almost 6 percent in 2008, Bernanke was dead wrong. And the fact remains that more money creation from the Fed produces inflation -- not jobs or long-term economic growth. The housing and oil bubble, which led to the Great Recession, corroborates this.

Bernanke sees deflation and depression threats everywhere. That’s one of his biggest problems. He cut his academic teeth on studying the Depression, which seems to have blinded him from the modern use of sophisticated financial-market signals in our new, globalized, high-tech, rapid-information world.

The mostly free-market economy has made its adjustments for better business profitability and consumer-balance-sheet corrections. Because of that -- and along with close to $4 trillion in new capital gains from the massive stock market rally as well as the Fed’s ultra-easy free-money policy -- economic recovery is picking up steam. GDP growth will surprise on the upside in the quarters ahead.

But Bernanke’s zero-interest-rate policy and continued money creation through the expansion of the Fed’s balance sheet continues to fight an emergency that ended this past spring. Given the end of the emergency and the onset of recovery, a still easy 1 or 2 percent federal funds rate would be more appropriate than zero.

According to Rasmussen, the public doesn’t trust Bernanke anymore. Only 21 percent of Americans favor his reappointment as Fed chair, while over 40 percent want a new face at the helm of the central bank. If that sentiment is echoed in the Senate, and if Bernanke receives 35 or more votes against him in the floor vote, it will not have been a truly bipartisan reconfirmation. And without that, I don’t see how he can effectively govern as Fed chairman.

Paul Volcker suffered 16 nay votes in his reconfirmation in 1983. But Bernanke could get hit by more than twice that number. This has never happened before in history.

I don’t think the Fed chairman understands just how vulnerable his political position is. So his task right now is to re-canvas senators across-the-board -- Republicans and Democrats. He’s going to have to wear down some shoe leather and make his bipartisan peace with the Senate if he expects to survive.

It’s more than Bernanke’s neck that’s at stake. Without bipartisan confidence, he will be totally ineffective as a Fed leader. And that very ineffectiveness will wear down the dollar and come at the expense of the country.

Bernanke and his advisors need to make a sober assessment of all this. If Bernanke cannot garner truly bipartisan support, he should spare the country a lot of agony and withdraw his name from consideration.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

IRANIANS SEIZE IRAQI OIL WELL

Joining us will be CNBC contributor John Kilduff, energy analyst and partner at Round Earth Capital.

AN EYE ON KING DOLLAR
-Why's the dollar going up?
-A look at the relationship between the dollar and the stock market.

*Marc Chandler, Brown Brothers Harriman Global Head of Currency Strategy
*Zach Karabell, CNBC Contributor/River Twice Research President

NEW BOFA CEO BRIAN MOYNIHAN
CNBC’s Maria Bartiromo will bring us all the latest from her interview with Ken Lewis’ replacement.

TIME WARNER VS. FOX - CLASH OF THE MEDIA TITANS
NBC News correspondent Brian Mooar reports.

THE CARBON CHALLENGE
CNBC chief Washington correspondent John Harwood will report.

OBAMA-NOMICS
Is big business in bed with big government?

"Obamanomics" author Tim Carney will be aboard.

THE FUTURE OF AMERICA
CNBC’s Suze Orman will join us.

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

Should Helicopter Ben Withdraw His Name?

Helicopter Ben Bernanke passed the Senate Banking Committee vote on his reconfirmation. But he passed by 16 to 7. Most of the Republicans voted against Bernanke, as did one Democrat, Sen. Jeff Merkley of Oregon. The reconfirmation now goes to the floor of the Senate, where it’s going to be held up for a while as Sen. Jim DeMint and others insist that the GAO Fed audit be voted on before Bernanke’s final vote.

That audit, by the way, would reveal the Fed’s FOMC policy discussions after six months, rather than the current-law five years. This is a good thing. More prompt disclosure. The public has a right to know, especially since Bernanke (as Alan Greenspan’s right-hand man) was instrumental in creating the easy-money housing and energy bubble that sank the economy, and since Bernanke (as Fed chairman) has provided unbelievable, ultra-easy, free-money, zero interest rates for too long.

Even with the recent modest corrections, rising gold and the declining dollar tell the story that Bernanke knows how to ease but not how to tighten. The emergency is long past, but he is still operating an emergency policy of ultra-easy, excess-dollar creation.

Aside from the fact that Bernanke doesn’t look at gold or the dollar as price signals to guide his policy, we have witnessed a complete reversal of the Fed’s intellectual framework. By that I mean, for 20 years or so, first under Paul Volcker and then during Alan Greenspan’s first three terms, the Fed argued that the tax-cut effects of low inflation would spur economic growth and low unemployment. This period lasted roughly from the early 1980s until the end of the century. But since Bernanke came on the scene, the sound-money, stable-dollar argument has disappeared.

For most of this decade, the Fed has been fighting unemployment by pumping in easy money. And it keeps telling us this will not cause inflation. With the CPI hitting nearly 5 percent in 2006 and almost 6 percent in 2008, Bernanke was dead wrong. And the fact remains that more money creation from the Fed produces inflation — not jobs or long-term economic growth.

Bernanke sees deflation and depression threats everywhere. That’s one of his biggest problems. He cut his academic teeth on studying the Depression, which seems to have blinded him from the modern use of sophisticated financial-market signals in our new, globalized, high-tech, rapid-information world.

So I think Bernanke’s reconfirmation could be in trouble on the Senate floor. I’m going to bet that most of the 40 Republicans will vote against him, and that they will be joined by a number of Democrats. If Bernanke were to be opposed by as many as 35 or 40 votes, it would substantially undermine his credibility.

Bernanke’s term extends to the end of January. I wonder if he realizes just how much opposition he may have. Unless he thinks he can garner a truly bipartisan vote in the weeks ahead, I wonder if he should consider withdrawing his name.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

BERNANKE SQUEAKS THROUGH SENATE BANKING COMMITTEE
CNBC’s Hampton Pearson reports from Washington.

Also…Sen. Jim Bunning (R-KY) member of the Senate Banking Committee will join us.

CAN YOU BANK ON BERNANKE?
Gold; dollar; jobs debate

*Steve Liesman, CNBC senior economics reporter
*Arthur Laffer, Chief Investment Officer, Laffer Investments; Fmr. Reagan Economic Advisor

CITI RAISES BILLIONS TO REPAY TARP
Should Glass-Steagall be reinstated?

*Peter Wallison, Sr fellow at the American Enterprise Institute; Former Reagan Official; Fmr. Treasury Dept. General Counsel

LARRY'S ECONOMIC UPDATE
FedEx’s Fred Smith optimistic on U.S. economy; leading indicators up again; Philly Fed, etc

WHY ARE HEALTH CARE STOCKS BOOMING?

*Dave Shove, BMO Capital Markets Sr. Healthcare analyst
*Vince Farrell, CNBC Contributor/Soleil Securities Chief Investment Officer

CAN GOLF SURVIVE WITHOUT TIGER?
CNBC’s Darren Rovell reports.

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

Time for a New Glass-Steagall?

Sen. John McCain (R., Ariz.) thinks so. We spoke last night on The Kudlow Report.

On CNBC's Kudlow & Company Tonight

This evening at 7pm ET:

SPOTLIGHT ON THE FED, BERNANKE & THE ECONOMY


Panel:

*Tony Crescenzi, senior market strategist at Pimco
*Andy Busch, BMO Capital Markets; CNBC Contributor
*Wayne Angell, Fmr. Federal Reserve Governor

SHOULD GLASS-STEAGALL BE REINSTATED?
Sen. John McCain (R-AZ) will join us this evening for an exclusive interview.

CITI'S $38 BILLION TAX BREAK

*Jimmy Pethokoukis, Reuters Money & Politics Columnist
*Peter Morici, Univ of Maryland Robert H. Smith School of Business Professor; U.S. International Trade Commission Fmr. Chief Economist

FTC VS. INTEL
CNBC’s Jim Goldman reports.

*Jim Miller, Fmr. Reagan OMB Director, Husch Blackwell Sanders
*David Balto, fmr. policy director of the Bureau of Competition of the Federal Trade Commission; Senior Fellow at Center for American Progress

THE MARKET
How do you play the Fed indecision; FTC lawsuit, etc.?

*Jason Trennart, Strategas Research Partners; Chief Investment Strategist & Managing Partner
*Dan Fitzpatrick, StockMarketMentor.com President & CEO/Senior Contributor, RealMoney.com

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

Cash for Caulkers, Obamanomics At Its Worst

President Obama thinks insulation is sexy stuff. It saves money. But it also costs at least $23 billion dollars. And that's already on top of “Cash for Clunkers” which cost at least $3 billion dollars, though no one knows for sure.

This is Obamanomics at its worst. Spend money in order to save it? Really?

If weatherization and insulation is a good thing, then American families will make their own choices and do it alone. We the people. You see, it's our money. People seem to forget this. Let us spend it as we see fit.

Free market forces have increased energy efficiency by over 50% in the last couple of decades. This came about without the heavy hand of big government central planners, greenie-regulators and industrial policy targeters.

Here's a thought from Harvard economist Greg Mankiw in Sunday's New York Times: Tax cuts might accomplish what spending hasn't. Mankiw cites numerous studies covering 21 nations in the OECD, over 91 episodes since 1970 involving fiscal stimulus.

And I quote: "The results are striking. Successful stimulus relies almost entirely on cuts in business and income taxes. Failed stimulus relies mostly on increases in government spending."

In other words, we the people, on the supply-side.

Never forget: It's our money.

On CNBC's Kudlow Report Tonight

This evening at 7pm ET:

IS THE FED FIGHTING THE WRONG BATTLE?
Why are they fighting deflation?

Panel:

*Vincent Reinhart, American Enterprise Institute Resident Scholar
*Lee Hoskins, Pacific Research Institute Senior Fellow; Fmr. Cleveland Federal Reserve Bank President; Fmr. Chairman of Huntington National Bank
*Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor

OBAMA'S "CASH FOR CAULKERS"

NBC’s Steve Handelsman has the story.

On to debate:

*Christian Weller, Center For American Progress
*Dan Mitchell, CATO Institute Senior Fellow

BOEING 787 TAKES FLIGHT
CNBC’s Phil LeBeau reports.

RENTECH/AIRLINES SYNTHETIC FUEL
Joining us to discuss will be Rentech CEO Hunt Ramsbottom.

THE NEW NORMAL FOR STOCKS?
Vince Farrell, Soleil Securities Chief Investment Officer; CNBC Contributor will be aboard.

SUZE ON THE FUTURE OF AMERICA
Optimism & stocks for the long run?

Suze Orman, Financial Guru; host of "The Suze Orman Show"

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

More Data Confirm that Bernanke Is Wrong

The Fed is fighting the wrong battle. Helicopter Ben Bernanke still believes that deflation is an economic threat. As a result, tomorrow’s FOMC meeting is not likely to produce any shift in the key phrase “extended period,” which has been used by the central bank to signal a continuation of its free-money, zero-interest-rate policy.

The economic data show that Bernanke is wrong. Today’s producer price report for business wholesale inflation unexpectedly jumped 1.8 percent. That leaves a 6.3 percent annual rate over the past three months and a 2.4 percent rate over the past year.

Taking out food and energy — which really shouldn’t be taken out — today’s PPI jumped 0.5 percent. Wholesale prices for consumer goods climbed 2.3 percent in the November report, and 0.6 percent excluding food and energy. Tomorrow’s CPI report also might disappoint on the high side.

Of course, until very recently, gold has been soaring and the dollar declining. Commodity baskets also have been rising. These market-price indicators are not signaling deflation. They’re suggesting a higher inflation rate at the end of 2009 and spilling over into next year.

Meanwhile, industrial production for November surged 0.8 percent, leading to an annual rate of 5.6 percent over the past three months. This is a key economic-recovery indicator. The industrial report registered strong gains for durables, non-durables, consumer goods, business equipment, and construction supplies. There’s also the strong retail-sales report for November that came out last Friday. Business sales are rising, as are inventories.

Former Fed governor Wayne Angell, a dedicated commodity-price-rule advocate, believes that real economic growth in the next few quarters could run 5 to 7 percent, with 2 to 3 percent inflation. And he notes that with the clear warning from commodity indicators, there is simply no reason for the Fed to let inflation drift higher. He believes Bernanke should start an exit strategy immediately. That includes tomorrow’s policy meeting, where the Fed should remove the extended-period language and mark the beginning of the end of ultra-easy money.

Personally, I think the Fed’s target rate should be 0.5 percent right now, not zero. And I think the Fed should be moving toward 2 percent next year. The Fed should quit printing money by putting an end to the mortgage purchase program.

In the midst of Ben Bernanke’s reconfirmation vote — which is still up in the air in terms of its timing, with powerful voices like Senator DeMint and Senator Bunning raising serious questions about monetary policy — it is extraordinary to think that the Fed is tilting at the exact wrong windmill. Growth and inflation are going to beat the Bernanke Fed’s forecasts. And if it doesn’t change its easy-money stripes, it’s going to repeat the same easy-money mistake that has plagued the Fed for ten years. Why is it that these central bankers always err on the side of ease? And why do they seem completely disinterested in making dollars scarce?

As Wayne Angell has taught me down through the years, scarce money increases the greenback’s value. That keeps inflation near zero, and that’s a tax cut for economic growth.

Tomorrow’s FOMC announcement will be at 2:15 p.m. I’m not excited about the outcome.

Deficits Are Bad, But the Real Problem Is Government Spending

My old friend Dan Mitchell, senior fellow at the Cato Institute, emailed me his latest video earlier this morning. It's timely, informative, and definitely worth a look.

Why Don't Women Have Sex Scandals Like Tiger?

Last night Kellyanne Conway, president & CEO of the polling company, offered her take on why women don't have sex scandals like Tiger Woods.