Thursday, January 28, 2010

Thursday's Thoughts

Unpopular as he may be, Treasury man Tim Geithner did a fine job yesterday defending the government rescues of last fall -- including AIG. Geithner fought back, and I rather liked it.

Nobody likes government bailouts, least of all me. But they were a necessity at the time. The world was on the brink. But we are healing now. It’s time to move on and get over it. So I’m going to defend Geithner, as unpopular as that may be.

The question now becomes how to unwind the AIG bailout. The big banks have de-TARPed. The issue of AIG secrecy, however, still remains. But that’s not Geithner’s issue. He wasn’t part of the secrecy; he was part of the solution. (Incidentally, former Treasury man Henry Paulson will join me on The Kudlow Report on Monday night to discuss his new book and his role in the bailouts and AIG.)

Finally, the Ben Bernanke Fed announced that it is keeping its zero-interest-rate policy for an extended period. But here’s a wrinkle: Kansas City Fed president Tom Hoenig dissented. Bravo. Looks like someone at the central bank is showing some backbone.

At some point later this year, or early next year for certain, the Fed’s exit strategy and removal of the artificial stimulus, along with the scheduled tax hikes, are going to negatively impact the stock market. Investors need to be prepared.

That’s why tax rates should be lowered permanently. The Bush tax cuts should be extended. No tax hikes ought to be on the table as the Fed gets moving on what we all know it must do to protect King Dollar and hold down future inflation.

We’re facing a key moment for the stock market and the entire U.S. economy. Low tax rates will help offset the Fed’s removal of liquidity and stimulus.