Readers Respond to "What Is the Cost of Freedom?"

Here are a couple of interesting email responses to my blog post from earlier today:

One reader writes:

Mr. Kudlow,

You wrote on the Corner:

"First point: The U.S. has spent roughly $750 billion for the five-year war. Sure, that’s a lot of money. But run the numbers and the total cost works out to a miniscule 1 percent of the $63 trillion GDP over that time period. It’s miniscule."

Yes -- and as I've read elsewhere, how much of that consists of salary and other expenses that would be carried whether troops were in Baghdad, Iraq, Berlin, Germany, or Fayetteville, North Carolina?

[Name withheld]

A member of the armed services in Tacoma asks:

Larry,

Do you know what percentage, if any, of that $750B was spent on active duty salary, and what percentage of materiel cost was greater than baseline training?

Very good questions. We'll sort through all of this and more on tonight's Kudlow & Company with General Wesley Clark, The Wall Street Journal's Steve Moore, and Nobel Prize winning economist Joseph Stiglitz.

Tuesday Night Lineup

On CNBC's Kudlow & Company at 7pm ET tonight:

THE MARKETS...Our stock market guests will discuss and debate all the latest news and developments affecting investors.

On board:

*Greg Valliere, Washington strategist at Stanford Policy Research
*Vince Farrell, managing director of Scotsman Capital
*Jack Gage, Forbes magazine associate editor

THE GREENSPAN LEGACY...Our economic panel will weigh in with their thoughts on the former Fed chair and whether Greenspan bears any responsibility for today's economic turmoil.

On board:

*Wayne Angell, former Fed governor
*Jerry Bowyer, chief economist at Benchmark Financial Network
*Vincent Reinhart, former chief monetary-policy adviser to Fed chair Ben Bernanke and current resident scholar at the American Enterprise Institute

WHAT IS THE COST OF FREEDOM?...We'll take a look at the costs of the Iraq war and its effect, if any, on the overall U.S. economy.

***A one-on-one interview with General Wesley Clark, former NATO supreme allied commander in Europe and former presidential candidate.

***A debate between Nobel-prize winning former World Bank economist Joseph Stiglitz and Steve Moore, senior economics writer and member of The Wall Street Journal editorial board.

TEXAS'S RECESSION-PROOF ECONOMY...Republican Governor Rick Perry will join us live from Austin with a look at his state's economic strength.

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

What Is the Cost of Freedom?

Surprise, surprise. Having failed to penetrate General Petraeus’s story about the great improvements on the ground in Iraq, liberals are now trying to make the case that the cost of the Iraq war may have somehow undermined the economy, and even caused the current slowdown. What complete and utter nonsense.

First point: The U.S. has spent roughly $750 billion for the five-year war. Sure, that’s a lot of money. But run the numbers and the total cost works out to a miniscule 1 percent of the $63 trillion GDP over that time period. It’s miniscule.

More important, the real question we ought to be asking ourselves is what is the cost of freedom? While the Left refuses to acknowledge it, the undeniable fact is that the United States homeland has not been attacked since September 11. Meanwhile, over in Iraq, al Qaeda and other extremist terrorist groups have been utterly routed by U.S. forces. It’s another fact the Left hates to acknowledge.

Perhaps the anti-war forces should recall the portion of John F. Kennedy’s inaugural address, where he called on Americans to pay any price, and bear any burden, in order to preserve freedom, liberty, and democracy. Do these folks actually think 1 percent of GDP is too large a price, too heavy a burden? I sure hope not.

And by the way, despite the current slowdown, during the five years of the Iraq war the U.S. economy has performed remarkably well. Real GDP has increased by 16 percent, or 3 percent annually. The unemployment rate has hovered below a historically low 5 percent for quite some time. Nearly 10 million jobs have been created. Household net worth has increased by $20 trillion. Industrial production has expanded by 13.5 percent. Even home prices, despite the current correction, have increased by 20 percent.

Lest we soon forget, anti-freedom, anti-capitalism jihadists were attempting to drive a dagger through our economy. Not only did they fail miserably on that front, they also failed to stem the rising tide of free-market capitalism throughout the world. Global GDP has averaged nearly 5 percent annually. The capitalization of the world’s stock market increased 159 percent — or $35 trillion. Meanwhile, new emerging-market economies saw their stock market index collectively rise by 223 percent.

So with all respect, I say to Nobelist Joe Stiglitz and others of his ilk: You are wrong.

Monday Night Lineup

On CNBC's Kudlow & Company at 7pm ET tonight:

THE MARKETS & ECONOMY...Our panel of experts will discuss and debate all the latest issues, trends, and developments affecting the stock market and economy.

On board:

*Art Laffer, economist, president of Laffer Associates
*Joe Battipaglia, market strategist at Stifel Nicolaus
*Richard Band, editor of the Profitable Investing newsletter
*Mark Skousen, financial economist, author, professor and editor of Forecasts & Strategies

Also...Wilbur Ross, billionaire investor and founder of WL Ross & Co. will join us with his take on the markets and the economy.

COMMODITIES...Kevin Kerr, president of Kerrtrade.com and editor of MarketWatch's Global Resources, will be aboard with his current thoughts and ideas.

THE MARK PENN FLAP, DEMOCRATS & PROTECTIONISM...James Hoffa, president of the International Brotherhood of Teamsters, will join us with his perspective on the Hillary Clinton campaign's demotion of chief strategist Mark Penn.

Also...Economist Jerry Bowyer will debate Jared Bernstein, senior economist at the Economic Policy Institute.

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

Dems + Free Trade = Death Penalty

My pal Jerry Bowyer e-mailed me this morning with the following thought on Clinton bigwig Mark Penn: Free trade among Democrats is so completely dead in the water that any Democratic advisor favoring free trade is subject to the death penalty.

Just take a look at this morning’s New York Sun. Teamster president Jimmy Hoffa is still unhappy with Penn’s demotion, because the Clinton camp still has Penn on the payroll. In other words, Hoffa’s position — which is big labor’s position — is to take the free-trade Mark Penn back behind the barn and shoot him. Anything less will damage Hillary in the Pennsylvania primary.

Of course, it’s just like Obama economic advisor Austan Goolsbee telling the Canadian embassy in Chicago that Obama was really pro-free trade — despite the Illinois senator’s hard-left trade-protectionist stance out on the campaign trail. The Goolsbee flap hurt Obama in Ohio, and the Mark Penn flap is probably going to hurt Hillary in Pennsylvania.

But while Obama lived to see another day, Hillary may be doomed. Especially after her whopper about Bosnian sniper fire. And not to mention her recent falsehood about a pregnant Ohio woman dying, along with her baby, after being denied treatment from an Athens hospital. Hillary claimed the woman didn’t have health insurance, and was denied treatment because she couldn’t come up with the fee. In truth, the woman did have health insurance and was not refused treatment.

The union stranglehold over Democrats this election year is really the big news. (Check out Kim Strassel’s piece in today’s Wall Street Journal.) The message is to raise taxes, end free trade, and promote the union agenda at every turn. That’s the official Democratic mantra for 2008.

All I can say is John McCain should whack away at this union craziness over and over again. On issues like the card check (which would end the secret ballot for union organizing of company workers), or equal pay for men and women, or trade protectionism. McCain ought to be whacking away.

The Therapeutic Power of Recessions

Economic excesses occur in free-market economies, and from time to time they must be cleansed.

Recessions are part of capitalism. They happen every so often. We’ve had two in the last super-prosperous 25 years. And it looks like we’re entering a third one after Friday’s jobs-loss report.

The unemployment rate went up to 5.1 percent, which is still a low number in historical terms. But the March labor report showed a loss of 80,000 payroll jobs, while payrolls in the prior two months were downwardly revised by 67,000. Non-farm payrolls have fallen for three straight months after peaking last December. Private-sector jobs have dropped four consecutive months.

This is a big warning sign. Within the private-sector report, professional and business services payrolls — one of the biggest gainers over the past 15 years — dropped 35,000, the third straight monthly decline following a December peak. Meanwhile, the household survey that picks up entrepreneurial small-business totals is now down 678,000 jobs since a peak in November.

The recessionary handwriting looks to be on the wall. Other recession indicators used by the National Bureau of Economic Research, such as disposable income and overall business and retail sales, are now several months below their peaks of last fall.

Lest we get too gloomy, there were some positive spots in the employment report. For example, the median duration of unemployment actually fell to a fifteen-month low of 8.1 weeks in March, the lowest level since December 2006. This indicates that about half of the unemployed are finding jobs in about two months. (Hat tip to Prof. Mark Perry of the Carpe Diem blogsite.) Additionally, aggregate hours worked in March actually rose, as did the private and manufacturing work weeks.

So while there is an economic correction at work, it could prove relatively mild. Let’s remember, the U.S. has experienced ten recessions since 1947, averaging ten months in length. But in the more recent high-tech quarter century, in which tax rates and inflation have been historically low, the two recessions of 1990-91 and 2000-01 lasted only eight months.

If the current slump began in November, it could be over by late summer.

And let’s also remember that recessions are therapeutic. They’re even necessary to create the foundations for the next recovery. Economic excesses always occur in free-market capitalist economies, and from time to time they must be cleansed. Just think about the excessive risk-speculation, leverage, and housing prices of the current episode. If anything, recessions make for clean starts.

And think of this: Despite housing woes, credit problems, and the sub-prime virus, banks are still lending to businesses. In other words, we don’t have a genuine, across-the-board credit crunch. This is very good news, and more evidence that an economic contraction will not be drawn out.

That said, there are two related issues that worry me. First is the continued decline in the value of the dollar, which has permitted the global commodities boom (energy and food) to leak into higher U.S. inflation. Bulging commodity costs have depressed the profits of non-financial domestic businesses, where after-tax earnings are down 24 percent from a peak in late 2006.

Profits are the mother’s milk of stocks, businesses, and the economy. And because profits have fallen, some businesses are contracting and laying off workers in order to bring costs back in line with revenues.

If Washington really wants to help the business sector recover, nothing would be better than an across-the-board cut in corporate tax rates. This competitiveness-enhancing action would lower tax costs, boost jobs, and lift worker wages. The growth incentive would reignite the economy. A permanent corporate tax cut would be far better than a temporary consumer rebate.

The other worrisome issue is inflation. The March jobs report showed a continued easing of hourly wage growth. After a 4.3 percent peak in late 2006, average hourly earnings for non-management workers has slowed to 3.6 percent for the twelve months ending in March. Consequently, headline consumer inflation of 4 percent continues to erode average wages. While most all market observers are focused on the sub-prime credit crisis, it’s the pick-up of inflation in recent months that has dampened consumer-spending power and corporate profits.

As lawmakers in Congress contemplate a massive FHA housing bailout package, they would be better advised to look more carefully at the recession-ending benefits of lower business tax rates and a stronger greenback.

In fact, liberal economists should look at a new Rasmussen poll in which 48 percent of voters say the best thing government can do is get out of the way by reducing taxes and regulations. Only 36 percent disagree. What’s more, 59 percent of voters believe it’s more important to create economic growth than to reduce the income gap between rich and poor. Finally, 49 percent say the best government policy is to reduce spending.

Keynesian-style politicians please take notice.

Friday Night Lineup

On CNBC's Kudlow & Company at 7pm ET tonight:

THE MARKETS, ECONOMY & TODAY'S JOBS NUMBER...Our stock market panel will discuss and debate all the latest news, trends and developments affecting investors.

On board:

*Jim Awad, chairman of WP Stewart Asset Management
*Fritz Meyer, senior investment officer with A I M Advisors
*Andy Busch, global FX strategist at BMO Capital Markets
*Gary Shilling, president of A. Gary Shilling & Co.

WASHINGTON TO WALL STREET DEBATE...Our money politics panel will weigh in with its perspective on all the latest hot-button issues.

On board:

*Walter Williams, economics professor at George Mason University
*Jared Bernstein, senior economist at the Economic Policy Institute
*Steve Moore, senior economics writer and member of The Wall Street Journal editorial board

RECESSION ELECTION...Squaring off this evening will be conservative columnist Ann Coulter and economist Jared Bernstein.

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

Bear’s Discount-Window Woes

In a column written just after the Bear Stearns meltdown, I asked whether the venerable old firm was made a sacrificial lamb. Was Washington sending Main Street a signal that a big Wall Street firm could fail?

There’s still a lot here that I don’t know. I don’t know the value of Bear’s collateral, the counter-party story, and so forth. However, if the Fed had changed its discount-window policies earlier, to reflect the post-Glass-Steagall era, Bear Stearns could have accessed short-term Fed loans. This could have made all the difference in the world.

Better yet, had the Fed opened the discount window to the broker-dealers last August, when the credit storm first hit, the economic and financial landscape would look quite different today. Instead of a run on Bear Stearns, and all the other market-related ruptures, we would have had greater stability earlier in the game.

Here’s what a very anguished Bear Stearns CEO Alan Schwartz had to say in his testimony before the Senate Banking committee yesterday:

It’s my strong belief that by every measure that I can think of, that our balance sheet, our capital ratios, our risk profile, lined up well with all of our leading competitors. So I do believe that if as a policy measure the discount window had been open to investment banks for their high-quality collateral, I think it’s highly, highly unlikely in my personal opinion that we’d be in the situation that we find ourselves in today.

Some additional perspective from guests on last night’s Kudlow & Company:

Vince Farrell, managing director of Scotsman Capital: “The discount window should have been opened [to non-commercial banks] ten years ago. You and I agree on that one. Glass-Steagall was repealed. They should have treated investment banks and commercial banks the same … I agree with Al Schwartz that it should have been opened, and Bear Stearns would not have gone out. I personally believe that Bear Stearns was thrown under the wheels of the bus for several reasons. Principally among them, the regulators wanted to show — Treasury Department included — that we’re going to discipline our system … So I think from the regulators’ viewpoint, they’re probably thinking, “Okay, we did it alright; what we had to do was sacrifice Bear Stearns, so be it.”

Mike Ozanian, Forbes magazine senior editor: “I think they should have let Bear go to the discount window earlier. I think it would have saved Bear. That would have been the right thing to do … As a guest on your show a couple of months ago, it was my belief that instead of just bashing down the fed funds rate, the Fed should have been using the discount rate at the beginning. And I think it would have been able to spot and identify problems in the banking sector instead of reflating the entire economy. So not only do I think it would have been better for Bear Stearns — and I agree with your column — but I think it would have been better for the overall economy.

The bottom line in all this is that Bear Stearns should have been given the opportunity to access the discount window earlier in the game.

Home Price Reversion to Trend

People are wondering how far home prices have to fall before hitting bottom, or some sustainable level. One way is to look at what a price reversion to trend would entail.
From 1982 to 2001, median existing home prices grew at a 4 percent per year trend rate. We select 2001 as a cut-off, because the Fed dropped the funds rate to 1.75 percent and home sales took off in the subsequent years.

Home prices also surged; until they peaked in 2006, home prices grew at an 8 percent per year pace, double the 1982-2001 trend pace. Home prices have started to correct, with a 2 ½ percent drop in 2007 and 7 percent drop so far this year.

Comparing actual home prices with what the 1982-2001 trend projected, we see that prices in 2006 were almost 40 percent above trend. Current prices are still 16 percent above the trend projection.

If prices are to revert to the trend by next year, they still need to fall another 12 percent from current levels. Reversion to the trend by 2010 would require a 10 percent decline from current levels.

Obviously, prices still have a way to go. However, this also means that homes are becoming more affordable. The home affordability index is now at the highest level since early-2004. (Thanks to Mark Perry at the Carpe Diem blogsite for highlighting this).

Falling home prices aren’t pleasant, but they are part of the market’s self-correction process. It’s also worth noting that even if prices revert to the trend growth rate, a home purchased more than five years ago would still have appreciated in value.

Thursday Night Lineup

On CNBC's Kudlow & Company at 7pm ET tonight:

THE MARKETS, CONGRESS TAKES A LOOK AT THE BEAR STEARNS DEAL & MORE...Our stock market panel will discuss and debate today's hearings on Capitol Hill, what's going on in the stock market, and more.

On board:

*Andrew Ross Sorkin, New York Times reporter
*Mike Ozanian, Forbes Magazine Senior Editor
*Vince Farrell, managing director of Scotsman Capital
*Stefan Abrams, Bryden-Abrams Investment Management managing partner

THE SENATE TACKLES THE BEAR STEARNS DEAL...On to discuss today's hearings will be Sen. Richard Shelby (R-AL), the top Republican on the Senate Banking Committee, and Sen. Sherrod Brown (D-OH).

The market panel will rejoin us after the senators.

THE FED, THE ECONOMY & TOMORROW'S JOBS NUMBER...Our economic gurus will weigh in with their perspective.

On board:

*Wayne Angell, former Federal Reserve governor
*Joe LaVorgna, chief U.S. economist Deutsche Bank
*Robert Reich, former Clinton labor secretary, professor of public policy at UCal Berkeley, and "Supercapitalism" author

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

McCain's Veep?

What follows is the transcript of my interview on Kudlow and Company last night with former Republican presidential candidate, Massachusetts Governor Mitt Romney.

Kudlow: A lot of conservatives think that Senator John McCain and Mitt Romney would make a lovely couple. So here to tell us about this relationship is a great friend of this program, former presidential candidate, Governor Mitt Romney of Massachusetts. Welcome back to the show, sir.

Romney: Thanks Larry. Good to be with you.

Kudlow: Let me begin with this. “The Great Mentioner in the Sky” has you very high on the veep candidate list. Before I ask you about that part of it, I want to kind of turn the tables. If you were the presumptive nominee of the GOP, what are the one or two key qualities that you’d be looking for in your vice president?

Romney: Well, I’m not the presumptive nominee. So I haven’t given a lot of thought to that. But I think history says that the most important characteristic that you look for in a VP is someone who could become the president, in the case that were necessary. That’s what people look for. They’re not looking for anything other than that. Could this person lead the country in a critical time? And these are critical times. So I think you’ll find both parties, the candidates of both parties, selecting individuals who they think could be great presidents if necessary. And people who hopefully could add some political clout as well.

Kudlow: Right now, Mr. McCain is really getting all of it his way. Hillary and Obama are just killing each other. Senator McCain is surging in the polls. But as we move down the road, and we get to the conventions, and we get to the fall campaign, aren’t the two key issues going to be Iraq and the economy?

Romney: You know, I think you’re right. I think people will come home to their party. People talk before an election about how divided the parties are by virtue of the primary. But, after each party has selected their nominee, I think what happens is that people focus on the issues and the differences as to where the candidates would take the nation. And in the case of Senator McCain, he’s made it very clear. He’ll do whatever is necessary to protect the American people. And he’ll also strengthen our economy by reining in spending, and by keeping our tax burden low. By helping people get health insurance, but not by adding hundreds of billions of dollars of new costs in Washington. He will restrain government and grow the economy in the private sector. That’ll make the difference.

Kudlow: What would you recommend to deal with the mortgage mess which appears to be pulling down the economy? Fed head Bernanke today suggested the “r” word for the first time—maybe a small contraction in the first half. How would Governor Mitt Romney solve the mortgage mess?

Romney: Well, I think when you look at the economy, you have to consider that there are two long-term trends that you’re concerned about. One is the up and down cycles. And that’s what’s happening in the subprime mortgage crisis. And the other is the long-term trend for the economy. And, on the short-term, the ups and downs of the mortgage crisis, I think what you have to do is first of all, help homeowners who may lose their homes. Help them stay in their homes, if they can meet the, if you will, the most basic payments of their mortgage. And you want them to stay in homes, instead of having more homes fall into foreclosure. It hurts families. Of course it hurts the market as well. And Secretary Paulson has made a number of recommendations to do just that. You also want to make sure there’s enough credit in the market to keep the credit crunch in one area of the economy—mortgages—from affecting the overall economy. And the Fed has taken action in that regard as well. Longer term however, I think you have to say why is it that people are taking their investments out of dollars, out of America? Why are they concerned about our future? And I think it’s because of overspending in Washington. Over-government spending. And that’s something which is going to have to change.

Kudlow: Do you think a stronger dollar becomes a campaign issue at any point? A lot of people believe the weak dollar has created currency risk, along with the credit risk of the mortgage problem. And that’s kind of stopped foreigners from investing here.

Romney: You know, I think as an overall campaign theme, people are not going to get focused on strong dollar—I think most people don’t really give a lot of thought to currency relationships. But I do think that they’re concerned about, “Is America strong”? And, are we going to be a strong and vibrant economy going forward? And, who is the person most capable of keeping America strong economically? And of course, if you want to see strength in our economy, strength in our dollar, you want to see people of the world recognize that the obligations that our government has made, are obligations it can keep. And right now that means we’re going to have to reform entitlements. And we’re going to have to rein in this tendency of Washington to keep on spending, spending, and spending. And when it comes to spending, I don’t think anyone in Washington has a better record than John McCain at restraining unnecessary and pork-barrel spending.

Kudlow: You have a strong investment background. Would you buy the stock market right now? For the long run?

Romney: Well the answer is yes. You know, when things are soft, when people are fleeing, that’s a good time typically to be investing. I believe in the long-term strength of America. I think we’ll make the right choices this November. I think we will continue to lead the world by virtue of being the most innovative economy in the world. And so I think America’s future is bright. But we’re going to have to make some tough decisions in Washington. And instead of promising people things that we can’t possibly deliver, and putting burdens on our kids and on taxpayers, we’re going to have to finally spend what we take in, instead of spending more than we take in.

Kudlow: We’ve got a brief [video] clip. You endorsed Senator McCain back in mid-February. And he made some comments about you. Let’s take a look at this for a moment.

[Text of McCain’s comments: “I look forward to campaigning with Governor Romney. And I look forward to his continued, very important, role of leadership in our party that he has exercised in the past, and will exercise even more so in the future. Governor Romney, I thank you…I am honored, I am very honored, to have Governor Romney and the members of his team at my side.”]

Kudlow: Mr. Romney, you were with [McCain] in Salt Lake City, what a week or ten days ago? What did you guys talk about when you were out there?

Romney: Well, we had some fun. We were in Salt Lake, and in Denver. We were talking to donors and I expressed confidence in the future of the McCain campaign. I’ve asked my donors to be generous in supporting his campaign. I want to make sure we elect John McCain the next President of the United States. And so we spent some time talking about the economy. We talked about the fun of the campaign—some of the humorous experiences we’d had. I spent some time getting to know his campaign team. And it was fun being back on a campaign airplane, seeing members of the press again—some of whom used to follow my campaign.

Kudlow: When you were with him, did you get good vibes from him? How’s your relationship with him?

Romney: You know, we get along very well. Senator McCain was kind enough to campaign for me in ’94, when I ran against Ted Kennedy. He campaigned again for me when I ran in the governor’s race. We’ve been friends on a number of fronts. We worked together on the Olympics. And while we didn’t see everything eye-to-eye, throughout the campaign, we do believe the same things about strengthening our national defense, about strengthening our economy by keeping the scale of government down, and lowering taxes. We care very deeply about America becoming energy independent. We want to see more people have health insurance. So, on major issues of the day, Senator McCain and I are on the same page.

Kudlow: So if he asks you to serve as his veep, would you take it?

Romney: You know, I think, I frankly think any Republican leader in this country would be honored to serve with Senator McCain as his running mate. And he’s got a long list of people he can turn to. I’m not going to conjecture as to who it might be. But I think there’s some terrific people, and he’ll make a choice there. But I’m certainly not holding my breath.

Kudlow: Could you carry Massachusetts?

Romney: I’m not going to make any predictions in that regard.

Kudlow: Do you think Mr. McCain needs a strong governor with executive experience who knows the economy?

Romney: Oh, I’m always partial and in favor of governors. I think governors bring a lot to a national ticket. But there are also some great senators and other leaders in our party who I’m sure he’s considering.

Kudlow: Alright, Governor Mitt Romney. We appreciate it. It’s wonderful to see you again sir. All the best of luck.

Romney: Thanks Larry. Good to be with you.

Wednesday Night Lineup

On CNBC's Kudlow & Company at 7pm ET tonight:

WASHINGTON'S BAILOUT PACKAGE & WALL STREET'S RESPONSE...Our stock market and economic panel will discuss and debate all the latest developments and what it all means for investors. We'll also discuss Fed chief Ben Bernanke's economic testimony from earlier today.

On board:

Andy Busch, global FX strategist at BMO Capital Markets
Quentin Hardy, Forbes Silicon Valley Bureau Chief
Jerry Bowyer, chief economist at Benchmark Financial Network
Lee Hoskins, former president of the Federal Reserve Bank in Cleveland

WASHINGTON TO WALL STREET...Senator John Cornyn (R-TX) will offer his perspective on the housing/foreclosure legislation making its way through Congress.

INTERVIEW WITH MITT ROMNEY...The former Massachusetts Governor and GOP presidential candidate will weigh in with his perspective on a variety of subjects including the presidential race, economy, and Washington's bailout package.

YOUR MONEY, YOUR VOTE...Our money politics panel will discuss and debate all the latest news, trends, and developments in the stock market, politics, and economy.

On board:

Jimmy Pethokoukis, senior writer at U.S. News & World Report
Quentin Hardy, Forbes Silicon Valley Bureau Chief
Jerry Bowyer, chief economist at Benchmark Financial Network

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

Bailout Rally

The market is rallying big on news reports that Bush will support some kind of Frank–Dodd bill to bailout as much as $400 billion in sub-prime mortgages. CNBC is talking about the ISM, but I doubt that’s much of a factor. The economy is basically flat right now. Profits are soft. Exports and foreign earnings are bright spots.

The bigger theme is the Fed’s move to reduce risk through its earlier actions with investment-bank discount-window operations. And now comes the likely FHA move to guarantee refinanced mortgages on a grand, unprecedented scale. It was in the Washington Post over the weekend and it’s front-page IBD this morning. My contacts confirm the White House movement.

Stocks and the dollar are up; Treasury prices and gold are down. There’s a slight improvement in risk-taking. Swap spreads are narrowing. Treasury man Henry Paulson’s regulatory stuff is not a factor, except to highlight that the Fed is operating on its own judgment to backstop the financial system and take bad collateral.

Wall Street wants this government assistance. They want the bailout. I prefer markets to bailouts, but there's no stopping the Frank-Dodd locomotive. However, the GOP should demand a partial or full repeal of the Community Redevelopment Act (CRA) that was responsible for the substandard subprime loan creation in the first place, going back ten years ago. So far, however, no one wants to touch this hot potato.

Hillary Is Paying in Penn for Her Bosnia Blunder

The latest Rasmussen poll in Pennsylvania shows that Hillary’s Bosnia gaffe is hurting her much more among voters in the Keystone State than are Obama’s problems with Rev. Jeremiah Wright. According to Rasmussen, Hillary’s lead has shrunk from 10 points to only 5, and she now is ahead 47 percent to 42 percent. In early March her Pennsylvania tally was 52 percent. Meanwhile Obama has picked up 5 points, moving from 37 to 42.

RealClearPolitics polling averages for Pennsylvania still show Hillary with a 15 point lead, 52 to 37. But while Rasmussen’s sample is dated March 31, RealClear’s three-poll average -- including PPP, Franklin & Marshall, and Quinnipiac -- were sampled during the period ending March 16, two weeks ago. So the full effect of Hillary’s cognitive dissonance concerning Bosnia airport sniper fire that never existed, along with her implied insult to the military forces guarding the airport, has probably taken a major toll on her standing in a state that has many red counties.

Also, Obama’s endorsement by Pennsylvania Sen. Bob Casey may be having a strong positive effect. Jerry Bowyer, who has operated in Pennsylvania politics for years, believes the Casey name is golden -- much like the Kennedy name in Massachusetts.

If Hillary squeaks out a 5 point win in Pennsylvania, she is sunk. That kind of close race would doom her chances for continuing. And we can expect a large number of Democratic graybeards to come out of the woodwork to call for her dropping out.

Monday Night Lineup

On CNBC's Kudlow & Company at 7pm ET tonight:

WASHINGTON REGULATION (Secretary Paulson's plan, DC bailouts, etc.) will be debated with our panel.

On board:

* Peter Wallison, American Enterprise Institute
* Jared Bernstein, Economic Policy Institute
* Jerry Bowyer, Benchmark Financial
* Greg Valliere, Stanford Washington Research Group

THE MARKETS...Our market panel will discuss and debate all the latest news and developments affecting investors.

On board:

* Joe Battipaglia, market strategist at Stifel Nicolaus
* David Michonski, CEO of Coldwell Banker
* Jim LaCamp, senior vice president RBC Dain Rauscher
* Jerry Bowyer, chief economist Benchmark Financial

THE DOLLAR, THE EURO, AND THE ECONOMY...

On board:

* Joe LaVorgna, chief U.S. economist Deutsche Bank
* Joe Battipaglia, market strategist Stifel Nicolaus
* Jim LaCamp, senior vice president RBC Dain Rauscher
* Jerry Bowyer, chief economist Benchmark Financial

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

Is Bush Embracing the Dodd-Frank Sub-Prime Bailout Plan?

Treasury man Henry Paulson’s ideas to remodel the regulatory system governing financial markets are dominating the headlines today. But there may be a bigger story coming down the road, one that is of much greater immediate significance to economic policy.

Namely, there are lots of rumors out of Washington that the Bush administration is going to capitulate to the Chris Dodd–Barney Frank FHA bailout of sub-prime mortgage holders.

This could run up to $400 billion of FHA guarantees. And even though lenders would take up to a 15 percent haircut on discounted loan values, and borrowers would have to give back a percentage of their future capital gains if home prices ever rise again, this would be the most sweeping housing-assistance plan in history. It could include as many as 2 million homeowners, and a big chunk would go to rescuing delinquent homeowners now in foreclosure.

Though President Bush told me in an interview a couple of weeks ago that he didn’t like the Dodd–Frank plan, it seems that the Fed/Treasury effort to sell Bear Stearns to JPMorgan and pour a $30 billion backstop loan to cover sub-prime collateral has a lot to do with what is apparently a major shift in White House policy.

In other words, Main Street is up in arms over the appearance of a Wall Street bailout.

The deal is not done yet, but the rumor mills are heavy. It seems like nowadays in Washington nobody is allowed to fail at anything. Of course, as Friedrich Hayek taught us years ago, free-market capitalism is about success and failure. But that view is very unpopular in this election year.

As for Mr. Paulson’s regulatory-reform plan, the Federal Reserve would be the big winner. But nothing’s gonna happen for years as the regulatory bureaucracy fights among itself and its chief lobbyist backers.

One deregulatory measure that is lacking from anybody’s plan is a sharp cutback or outright elimination of the Community Reinvestment Act (CRA), which essentially puts a gun to the head of all lenders unless they issue mortgages to various minority groups, low-income folks, and both legal and illegal immigrants. Lenders out of compliance would be penalized as regulators would disallow any new business plan for mergers, acquisitions, or new products. Community groups like Acorn could rat out lenders by showing data to the regulators who then would step into action.

Along with the Fed’s easy-money housing bubble, CRA is one of the prime movers in the sub-prime housing mess in which we find ourselves today.

But no one wants to touch CRA.

Friday Night Lineup

On CNBC's Kudlow & Company at 7pm ET tonight:

THE ECONOMY, MARKETS & FED...Our market panel will discuss and debate all the latest news and developments affecting investors.

On board:

* John Browne, financial news columnist
* Don Luskin, chief investment officer of Trend Macro
* Vince Farrell, managing director of Scotsman Capital

EXCLUSIVE ONE-ON-ONE WITH SENATOR GRASSLEY...to discuss the Senate investigation of Bear Stearns.

The FEDERAL RESERVE's role in the Bear Stearns/JP Morgan deal and subprime mortgage problems will be debated with:

* Peter Morici, University of Maryland business professor and former chief economist of the U.S. International Trade Commission
* Less Hoskins, senior fellow at Pacific Research Institute and former Cleveland Federal Reserve president.

FORECLOSURES/HOUSING RAGE issues with John Carver, a foreclosures specialist with Prudential Americana Group.

Our MONEY POLITICS segment will focus on regulation, housing, mortgages, etc. On board to debate:

* Dan Clifton, director of policy research at Strategas Research
* Morris Reid, political strategist with Westin Rinehart

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

Thursday Night Lineup

On CNBC's Kudlow & Company at 7pm ET tonight:

THE ECONOMY, MARKETS & FED...Our market panel will discuss and debate all the latest news and developments affecting investors.

On board:

*Art Laffer, economist, president of Laffer Associates
*Jerry Bowyer, chief economist at Benchmark Financial Network
*Joe Battipaglia, market strategist at Stifel Nicolaus
*Michael Panzner, trader, author of "Financial Armageddon"

OBAMA'S REGULATION PLAN & MARKET IMPACT...Peter Wallison, senior fellow at the American Enterprise Institute, will lead us off with his take on Obama's plan and how it could affect the market and economy.

Also on board:

*Art Laffer, economist, president of Laffer Associates
*Jerry Bowyer, chief economist at Benchmark Financial Network
*Joe Battipaglia, market strategist at Stifel Nicolaus
*Jared Bernstein, senior economist at the Economic Policy Institute

WASHINGTON TO WALL STREET DEBATE...Squaring off will be supply-side economist Art Laffer and progressive economist Jared Bernstein.

PRIMARY POLITICS...On to discuss the latest Rasmussen Report showing Senator McCain's 10-point surge over Hillary and Obama is Amanda Carpenter, National Political Reporter for Townhall.com and Tanya Acker, Democratic strategist and Obama supporter.

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

Wednesday Night Lineup

On CNBC's Kudlow & Company at 7pm ET tonight:

THE MARKETS...Our stock market all-stars will discuss and debate all the latest market and economic news and developments.

On board:

*Jim Awad, chairman of WP Stewart Asset Management
*Barry Ritholtz, CEO & director of equity research for Fusion IQ
*Jeremy Siegel, Wharton finance professor & author of "Stocks for the Long Run"
*Stefan Abrams, Bryden-Abrams Investment Management managing partner

Also...Norfolk Southern CEO Wick Moorman will join us with his take on the transportation sector.

PRIMARY POLITICS & POLLS...Pollsters Frank Newport, editor-in-chief of the Gallup Poll and Scott Rasmussen of Rasmussen Reports will deliver fresh insight on Hillary, Obama, and McCain.

WASHINGTON TO WALL STREET...The Dynamic Duo will debate. Joining us are Robert Reich, former Clinton labor secretary, public policy professor and author of "Supercapitalism" and Steve Moore, senior economics writer and member of The Wall Street Journal editorial board.

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

More Good News for Mac

Pollster Frank Newport, a Kudlow & Company regular and editor-in-chief of the Gallup Poll, revealed some very interesting information this morning. These numbers below are a big deal. As I wrote yesterday, we're not far from the point where John McCain establishes a commanding lead in the run-up to November.

Here's the Gallup headline:

If McCain vs. Obama, 28% of Clinton Backers Go for McCain

PRINCETON, NJ -- A sizable proportion of Democrats would vote for John McCain next November if he is matched against the candidate they do not support for the Democratic nomination. This is particularly true for Hillary Clinton supporters, more than a quarter of whom currently say they would vote for McCain if Barack Obama is the Democratic nominee. . . .

Click here to continue reading.

Incidentally, Mac 's foreign policy speech later today indicates a McCain administration will spend diplomatic efforts shoring up our allies. Obama, on the other hand, wants to work with our enemies. Big contrast there. Think Hugo Chavez. Ahmadinejad. Baby Assad. Kim Jong-il. Two totally different foreign policies between Mac and Obama.