Carly Fiorina, Woman for the Future

Revolution in California and political regime change come November has been a theme of mine for weeks. Tuesday night's big victories for Meg Whitman and Carly Fiorina moved that agenda nicely down the field.

And let me add to it. Following the Tuesday primaries, the mainstream media began calling this the year of the woman, pointing not only to Fiorina and Whitman in California, but to Sharron Angle in Nevada, Nikki Haley in South Carolina, and Democrat Blanche Lincoln in Arkansas.

But we need a qualifier here. This is really going to be the year of the women from the past versus the women for the future.

In Arkansas, for example, Blanche Lincoln stands a good chance of losing her Senate seat to Republican House member John Boozman. Sen. Lincoln is a reliable Obama vote -- make that a reliable Obama/Harry Reid vote -- for issues like the stimulus package, Obamacare, cap-and-trade, and bank reform (even with the ruckus she made over forcing banks to spin off their derivative operations).

In California, the Carly Fiorina/Barbara Boxer matchup -- likely to be the marquee Senate race nationwide -- is a battle between a woman of the liberal-left Washington past and a woman who is a fiscally conservative outsider of the future. Recovering from cancer, and running in a tough primary, Fiorina demonstrated a steely inner strength that reminded one of Margaret Thatcher as she trounced her rivals by a wide margin.

The subject of this year's election will be the fiscal catastrophe coming out of Washington, D.C.: overspending, over-borrowing, over-deficit-making, overtaxing, over-regulating, and over-government-controlling. Obama's Washington is about welfare-state redistribution, the European model that has failed so miserably across the pond.

In contrast, Carly Fiorina's model is about entrepreneurship, growth, and opportunity, the basic American values of economic freedom that have been shunted aside in our nation's capital.

Fiorina wants spending controls and limited government. She opposed the $860 billion stimulus as well as Obamacare. She is a smart, fiscally conservative woman who has campaigned on lower income-tax rates, a reduced capital-gains tax, and the elimination of the estate tax. And she can be expected to push for a lower business-tax rate for large and small companies.

The former HP CEO understands that only healthy businesses create new jobs, and that healthy businesses require investment. She believes in the old-fashioned, but tried-and-true, axiom that economic growth can only come from the private sector, and not from government spending.

Benefitting enormously from a campaign endorsement by Sarah Palin, Ms. Fiorina is also pro-life, pro-traditional-marriage, pro-free-trade, and very tough on border security in the immigration debate. But as pollster Kellyanne Conway told me Tuesday night on CNBC, Fiorina is a new kind of Republican woman. She is not running on so-called gender issues, but rather on fiscal-and-economic-growth issues, at a time when the economy is barely recovering from a long and painful downturn.

The California unemployment rate is 12.5 percent. Nationwide, the jobless rate is still hovering around 10 percent. Big government will not fix that. A return to opportunity-oriented incentives and rewards for workers, producers, and investors will.

Rather than a back-to-the-future, European model, the high-tech oriented Fiorina believes in the American model of economic freedom and creativity. Unleash the entrepreneur, but limit the government. This is why she can defeat the ultra-liberal Barbara Boxer, a radical cap-and-trade energy regulator and another sure vote for Obama who has been around for decades and has compiled one of the worst tax-and-spend records in Senate history.

Boxer is already attacking Fiorina for -- heaven forbid -- running a company efficiently, and yes, sometimes laying off workers when necessary. But this is a trap for Boxer, for it is exactly Fiorina's business experience that makes her so attractive to voters fed up with Washington's fiscal calamity. The issue now is laying off government workers; cutting back on oversized government union salaries and pensions; curbing the corrupt and corrosive power of the SEIU and AFL-CIO that is fast bankrupting America and literally pulling money out of taxpayer wallets in the process.

Career politicians are going to get slammed in this election. But it's more than that. The mood out there is not just anti-incumbent. It's anti-Obama's Washington. The new breed of Republican women knows that what matters is fixing the future, not replicating the past few years.

That's why Carly Fiorina can win.

***CLICK HERE TO READ MY WEDNESDAY EVENING INTERVIEW WITH CARLY

On Tonight's Kudlow Report

Tonight at 7pm ET:

REPORT: BERNANKE ON THE HILL & FED’S BEIGE BOOK
CNBC’s Hampton Pearson reports from Washington.

AN INTERVIEW WITH SEN. JOHN MCCAIN
OUT OF CONTROL GOV'T SPENDING, BERNANKE, PRIMARIES & MORE

- Sen. John McCain, (R-Arizona)

AN INTERVIEW WITH CARLY FIORINA

- Carly Fiorina, (R) California Senate Candidate; Fmr. Hewlett Packard Chairman & CEO

BERNANKE ON INFLATION & THE MESSAGE OF GOLD

- Vince Reinhart
- Rep. Jim Jordan (R-OH)

THE BULLISH CASE FOR U.S. EQUITIES

- Bob Doll, Vice Chairman & Global CIO of Equities at BlackRock

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

Do You Think Gold Might Be Telling Us Something?

In case you missed it, President Obama was out and about yesterday pitching $250 rebate checks for Medicare prescription-drug coverage. At the same time, gold prices were roaring ahead, hitting a record-high $1,245 an ounce. So let me ask: Is there a link between the government doling out even more budget-busting benefits to the elderly and the skyrocketing gold price?

Or look at a new Treasury report to Congress indicating that the U.S. debt is expected to soar to nearly $20 trillion by 2015. How about that? Do you think this latest mind-blowing multi-trillion-dollar debt projection might have something to do with the soaring gold price?

And don’t forget that the Congressional Budget Office just increased its Obamacare cost estimate by $115 billion. That brings the total cost to more than $1 trillion in the first ten years. Think there might be a gold connection?

Big-government spending, big-government borrowing, and an ultra-easy-money Fed for as far as the eye can see. And gold prices shooting to the moon.

Do you think there might be a connection? Maybe? It’s called cause and effect folks.

Here’s another question: What follows trillions in spending and borrowing?

Answer: Quadrillions.

The Message of Falling Stocks & Rising Gold

“Wall Street in a Slow Crash” was the headline splashed on Dow Jones’ MarketWatch, one of the top financial websites, yesterday afternoon. To be sure, the Dow suffered yet another down day on Monday, shedding 115 points. And the broad-based S&P 500 is off 14 percent from its late-April high. The last five to six weeks have been a tough stretch for stocks.

And let me add to the MarketWatch headline: Gold prices are continuing to rally this spring, even as stocks fall. The precious metal jumped $25 yesterday to close right on top of its $1,240 high. Gold bugs may be cheering the metal’s recent run, but the surge is a bad economic omen.

Here’s a simple way to look at the unholy combination of falling stocks and rising gold: Falling stocks are signaling a slower economy. Rising gold prices are signaling higher inflation down the road, along with paper-currency debauchment and broad-based financial stresses across the globe.

Falling stocks, rising gold. I don’t like the sound of it.

Incidentally, my good friend Art Laffer wrote a terrific op-ed in yesterday’s Wall Street Journal warning about the economic threats emanating from Washington. Art sees major storm clouds in 2011. At the top of his list are enormous, across-the-board tax hikes set to kick in on January 1. We’re talking tax increases on capital gains, dividends, and estates (the death tax). It’s all anti-growth. It’s an attack on the investor class.

Art has always been a positive, “glass is full” sort of guy, but he sees serious negative economic calamity ahead, including a double-dip recession. He makes a compelling case. And I’m wondering whether falling stocks on a near daily basis are already painting a picture of what’s on the horizon.

I don’t yet see a double-dip recession. A steep yield curve and strong profits are placing a cushion underneath the economy. Is a slowdown in the cards? Probably. But no double-dip recession — not yet.

That said, the threat of these higher marginal tax rates on investors and the ownership class is just plain bad for future growth. Tax rates affect economic behavior. That’s Art’s principal point. And while Obama’s Washington has rejected this thought, Art’s warning is very important.

You know me. I’m a positive guy, too. An optimist. But I’ll tell you what: None of this is good.

Are Government Workers Taking Taxpayers to the Cleaners?

Here's a great new mini-documentary from my old friend, Dan Mitchell. According to Dan, the U.S. has way too many bureaucrats, making way too much money. He uses government data to show how federal, state, and local governments are all in fiscal trouble in part because of excessive pay for a bloated civil service.

Stocks and the BP Catastrophe

It is noteworthy that the BP oil explosion occurred on April 20. Three days later, on April 23, the market peaked. Is this is a coincidence? Or is Mr. Market telling us something that we do not yet fathom?

Surely the environmental impact of the spill will be gigantic, and it will continue for a very long time. But are we underrating the economy-dampening effects of the spill? The unemployment impact? The psychological impact? What’s the Gulf Coast damage really going to mean for stocks and the economy?

Amidst all the news of the horrible BP-Obama oil-spill catastrophe, we had a near-catastrophic May in the stock market. The major indexes fell 8 percent, across-the-board, in response to the Greek-European debt mess and fears of a second-half economic slowdown at home. To put this into some perspective, the Dow Jones Industrial Average suffered its worst May in 70 years.

The outlook for stocks is rather murky right now. On one hand, after-tax profits — the mother’s milk of stocks and the economy — look great, with a 43 percent year-on-year increase. And the Federal Reserve’s zero-interest-rate policy is still in place, along with a steep Treasury yield curve. That said, U.S. jobless claims and a handful of other indicators are looking soft.

Perhaps the best news is King Dollar. The greenback rose another 1.5 percent last week, and is now up over 20 percent. That’s helping to keep oil and gas pump prices well below their peaks (although both rebounded a bit recently). All in all, it’s a mild tax cut for the U.S. economy.

But to be honest with you, the outlook for the euro currency is for further declines. The debt crisis in southern Europe is very far from being resolved. Without interbank loan guarantees, another short-term funding crisis could reemerge as the euro sinks.

Gold did rebound 3 percent to close the week at $1,214. All investors should own some gold in their portfolios. But regarding the stock market, for what it’s worth, my view is that this correction may not be over yet. To make matters worse, we’re facing a host of Washington tax hikes next year, on top of our continuing deficit-spending problems.

On Tonight's Kudlow Report

Tonight at 7pm ET:

IS BP’s “TOP KILL” WORKING?
NBC’s Jay Gray reports.




BP: OBAMA'S PRESS CONFERENCE; & ANGER FROM THE HILL
CNBC chief Washington correspondent John Harwood reports.

BP DISASTER … PLUS, IS BP TRADING WITH THE ENEMY?

- Jed Babbin, former deputy undersecretary of defense for Bush 41
- Chris Holton, Center for Security Policy Vice President
- Rory Cooper, Director of Strategic Communications at The Heritage Foundation , Senior Policy Adviser in the Bush Energy Department
- Rep. Trent Franks, (R) Arizona (4th Term)

IS THE GULF OIL SPILL OBAMA'S KATRINA?
- David Goodfriend, Fmr. Clinton W.H. Official , "Left Jab" Co-Host/Air America Co-Founder
- Dan Mitchell, CATO senior fellow

RALLY! MARKET'S SOAR… IS THIS THE BOTTOM?

--MARKETS CHEER CHINA BACKING BAD DEBT IN EUROPE - ARE THEY AS DUMB AS THE REST OF US?
--GEITHNER GIVING EUROPE ADVICE ON PUTTING THEIR FISCAL HOUSE IN ORDER....HUH?
--IS THIS AUGUST 2007 IN TERMS OF CREDIT SPREADS?
CARRIED INTEREST TAX ON INVESTMENT - WILL IT KILL ENTREPRENEURIAL INVESTMENT GROWTH & CAPITAL?

- Dan Fitzpatrick, StockMarketMentor.com, President & CEO; Senior Contributor, RealMoney.com
- Michael Cuggino, Permanent Portfolio Family of Funds President & Portfolio Manager, Permanent Portfolio Fund (PRPFX)
- Steve Moore, Senior Economics Writer for the Wall Street Journal Editorial Board; "Return to Prosperity" co-author
- CNBC’s Rick Santelli

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

Greek Disease in the House

One day Team Obama announces a plan for enhanced rescission authority to impound wasteful spending, and the next day the House surfaces a plan for $200 billion in “stimulus” spending on transfer payments for welfare, even more unemployment compensation, still more Medicaid, and a bunch of special-interest subsidies.

So are we to believe that Obama will rescind the excess appropriations? Hardly. And since pay-go is dead, most of this new spending will not be offset. It will add to deficits and debt.

It’s the Greek disease. The welfare state run amok. Right here at home.

And in true class-warfare style, a small portion of the $200 billion is supposed to be offset by jacking up capital-gains taxes for investment partnerships. If passed, this would reduce investment, jobs, and economic growth, and enlarge the deficit. Higher spending and investment taxing is a true austerity trap.

This business of raising the tax rate on investment partnerships would be a particularly onerous burden on American entrepreneurs. And it would put this country at a decided disadvantage to our competitors in China and elsewhere in Asia (outside of Japan).

Increasing the tax rate on the investment portion of these partnerships (i.e., the capital gains) would boost the penalty rate from 15 percent to 38 percent -- and that includes the Obamacare payroll tax on investment scheduled for 2013.

So, instead of keeping 85 cents on the extra dollar earned from high-risk investment, the House proposal would drop the return to only 62 cents -- a whopping 27 percent incentive rollback. And by the same amount, it would raise the cost of new capital, draining investment liquidity from the private sector in order to finance government transfer payments.

Nothing could be worse. This is spread-the-wealth in its most crass form.

And if all that weren’t bad enough, the House proposal would tax the so-called enterprise value of these firms by applying the same penalty-rate structure on the sale of all or part of an investment partnership. In other words, it would make real-estate, venture-capital, and private-equity firms the only businesses in the country that are ineligible for long-term capital-gains treatment when they are sold in full or part.

One private-equity partner tells me that this would “tear apart the incentives for innovation that have been at the foundation of American enterprise since 1921, when the capital-gains differential vis-à-vis ordinary personal tax rates was first created.”

Compounding matters, we read in USA Today this week that private-sector personal incomes are at an all-time low, while government benefits as a share of income stand at an all-time high. I believe this is called redistribution.

And then comes a study from the Harvard Business School that states: “Stimulus Surprise: Companies Retrench When Government Spends.” What a shocker. (Hat tip to economist Don Luskin.)

House Democrats apparently don’t read newspapers from Greece or the United States. And they sure don’t read Harvard B-School studies.

"The Larry Kudlow Radio Show" Is Now Nationally Syndicated

Citadel Media announced the addition of The Larry Kudlow Show to its News Talk portfolio. Hosted by respected economist and CNBC anchor Larry Kudlow, the show launched on 77 WABC in 2006. It will be available in national syndication on weekends beginning 6/5.

“Larry Kudlow’s insightful opinions on money, politics and the economy are rooted in his understanding of the way Wall Street, Main Street and Washington operate,” said Carl Anderson, Senior Vice President of Programming and Distribution for Citadel Media. “His expertise will be an instant hit with our affiliates and offer their listeners a compelling perspective on the week’s financial news and events. This is a tremendous addition for our growing News Talk lineup.”

Kudlow served in President Ronald Reagan’s administration as Associate Director for Economics and Planning in the Office of Management and Budget. He is a nationally syndicated columnist, noted author and serves as an editor for National Review. He hosts The Kudlow Report each weeknight at 7 p.m. ET on CNBC and also co-hosts The Call for the television network, which airs weekday mornings at 11 a.m. ET.

“I’m looking forward to bringing our weekly program to a national radio audience and sharing my thoughts on the political factors shaping the current state of our economy with new listeners,” said Kudlow. “Each week we produce the show with a goal of offering individuals the best possible information to map their own investment strategy. I’m pleased to have the opportunity to deliver that message as part of the Citadel Media team.”

Are We Looking at a Second Half Slowdown?

Stocks are getting battered across-the-board yet again today, with all of the major U.S. stock indices down 2 percent as of this writing. The Dow is down over 1300 points, or 12 percent, from its recent April 23rd high.

Investor fear is running rampant across Wall Street and around the globe. And, as if the contagious European debt crisis weren’t enough, the markets now have military tensions between North and South Korea to add to their laundry list of worries.

So, the question must be asked: Are we looking at a second half slowdown? Is growth going to come in only around 1-2 percent, instead of say, 3 or 4 percent? Is that the real message of our sinking stock market right now?

We’ve got Spanish banks going down now, bank-to-bank funding stress rising in Europe, gold still soaring, the euro still falling and Nero fiddling. Libor is now up 11 days in a row. Did someone say contagion? Systemic risk? Interconnectedness?

Meanwhile, credit risk spreads between high-yield junk bonds and Treasurys right here in the U.S. have jumped roughly 200 basis points in just the last month. These are not good signs.

Over in Europe, they’re still guaranteeing all of their welfare state countries. That’s wrong. What they really ought to be doing is temporarily guaranteeing their bank debt to avoid a credit meltdown. Let these countries sweat bullets to curb their welfare states.

One silver lining in all of this remains the steep Treasury yield curve. It’s still predicting no double-dip recession. We’ve also got a strong King Dollar which is pushing down energy prices. Gas prices are actually falling heading into Memorial day weekend. This of course becomes a tax cut for American consumers and businesses. That’s a good thing.

One final concern worth noting: if China were to jack up its renminbi right now, that could very well turn into one big global deflationary mistake.

More to be revealed…

On Tonight's Kudlow Report

Tonight at 7pm ET:

MARKETS IN TURMOIL: WITH KING DOLLAR RISING, IS THE WORST OVER?




- Jim Iuorio, Options Action Contributor; Director, TJM Institutional Services
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer
- CNBC's Rick Santelli

GEITHNER’S EUROPEAN BANK STRESS TEST
CNBC senior economics reporter Steve Liesman reports.

DO WE REALLY WANT TO KNOW THE SHAPE EUROPEAN BANKS ARE IN?
The aforementioned panel will weigh in.

CALIFORNIA: HOW DO YOU FIX THE 8TH LARGEST ECONOMY IN THE WORLD?
Meg Whitman, former eBay CEO; (R) California Gubenatorial Candidate

$190 SUPPLEMENTAL STIMULUS BILL; TAX HIKES
CNBC chief Washington correspondent John Harwood reports.

AMERICAN JOBBERY ACT?

- Julian Epstein, LMG CEO; Fmr. Democratic Chief Counsel
- Jerry Bowyer, CNBC Contributor/Syndicated Columnist

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

Washington Certainly Isn't Helping Matters

It’s been a rough ride for stocks since the recent April high. Last week’s trading wasn’t pretty, and today’s 126-point drop late in the afternoon certainly didn’t help any. That said, at around $90 a share for the next year, stocks are starting to look pretty cheap after this correction. Maybe it's time to jump in, even with all this blood in the street.

Maybe.

Leave it to Washington to make matters worse. We’ve got a big, fat tax hike on private investment partnerships and foreign earnings of U.S. companies staring at us right now. Thanks Washington. That will of course ensure that we have less private investment. What a neat idea.

Let’s be clear about the consequences of tax hikes: They are nothing but a negative for future growth. Never forget: Growth is the key.

The best social policy we can develop is a capital formation spur that will supply jobs to those that need them. For dignity, to raise the human spirit, and to help folks produce and spend. All of these left-wing, anti-growth, “spread the wealth” attacks on opportunity and economic freedom are Europeanization—something we must devoutly avoid.

One plus I am highlighting right now is the greenback. King Dollar’s rise means a lower energy tax cut. This is a very good thing for American consumers and retailers. It’s also good for industrials, manufacturing and transports. And don’t forget about lower mortgage rates.

Across the pond, this whole Greece and European debt crisis mess remains largely unresolved. Fear is still out there. And while Germany's parliament voted “yes” to the trillion-dollar rescue package, France won’t vote until May 31st. Heck, Italy and Spain haven't even set parliamentary authorization voting dates yet. Huh? Hello? Anybody home? Don’t they know there's a crisis?

As far as the credit markets are concerned, the short-term funding markets for bank-to-bank lending are still stressed with Libor and the TED spread still widening. Not good. Banks are afraid. No one wants to lend. Incidentally, Libor, for three-month loans in dollars recently rose above 0.5 percent for the first time since July 24th. I wouldn’t call that a healthy signal.

Look, I’m still convinced the Europeans need a big-blanket, bank debt guarantee. That would buy them time to get through this chaos, and on the way to much needed, alleged, welfare-state cost cutting. That said, I’m not convinced Greece could even paint the Parthenon on time, let alone afford the paint.

On Tonight's Kudlow Report

Tonight at 7pm ET:

WHILE EVERYONE'S WORRYING ABOUT THE EURO, GREECE AND SPAIN, WILL IT BE CHINA THAT BRINGS OUR STOCK MARKET DOWN?



- John Rutledge, Fmr. Reagan Economic Advisor; Claremont Graduate Univ. Sr. Research Prof; Safanad Chief Investment Strategist
- Peter Navarro,"The Coming China Wars" Author; University Of California - Irvine Business Professor
- Peter Morici; University of Maryland Robert H. Smith School of Business Professor; U.S. International Trade Commission Fmr. Chief Economist

CONGRESS'S CARRIED INTEREST TAX FOLLY?
- John Rutledge, Fmr. Reagan Economic Advisor; Claremont Graduate Univ. Sr. Research Prof; Safanad Chief Investment Strategist
- Robert Reich, Fmr. Labor Secretary; Author, "Supercapitalism"; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy

OBAMA IMPOUNDING THE BUDGET - SHOULD STOCKS CHEER?
- Jim Nussle, CNBC Contributor; The Nussle Group; Fmr OMB Director; Former Rep.(R) Iowa; Fmr. House Budget Cmte. Chmn.
- Alison Fraser, Heritage Foundation Federal Spending Analyst

BP & THE CRISIS ON THE COAST: 'TOP KILL' OPERATION
NBC’s Jay Gray reports.

BP OUT OF CONTROL... IS BP HURTING US IN TWO GULFS? ARE THEY HELPING IRAN FUND NUKES?

CNBC’s Hampton Pearson reports.

- Frank Gaffney , Center for Security Policy President; Former Asst Secy of Defense for International Security Policy Under Reagan

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

An Important Silver Lining

Amidst all of the fear, panic, and growing stock market doom and gloom, I’d like to offer an important silver lining. It’s a little piece of economic optimism. Look no further than the sharply rising U.S. dollar. It has completely stopped inflation dead in its tracks. In fact, as the headline CPI for April reported yesterday showed, inflation has actually slipped one-tenth of 1 percent. Some are calling it the lowest inflation reading since 1960. For the moment, we are witnessing price stability. Not inflation, not deflation, but price stability. Would that it would last.

For ordinary American consumers out there, this is called a tax cut. Gasoline prices have dropped 2.4 percent, despite the fact that we’re heading into the busy summer driving season. When was the last time gas prices fell heading into Memorial Day? So that’s a tax cut. Clothing prices dropped seven-tenths of 1 percent. Another tax cut.

Now back to the sharply rising dollar. King Dollar is always good. In gold terms, the dollar has been very weak, although I notice that gold in dollar prices is back under $1,200. However, the greenback’s surge relative to other paper currencies is depressing energy and other commodity prices. Guess what? That has additional tax-cut implications. In other words, amidst the V-shaped recovery, which includes huge profit gains, a mild commodity correction after a huge run-up is actually a good thing. It has a tax-cut impact for ordinary working Americans.

Sure, fears over the European debt crisis are still out there. I get that. But I’m reaching the point right now where all of this manic Chicken Little stuff is beginning to look overdone. Is it possible that there are too many fears about all those fears? I think so.

Look, I’m not a big fan of fear. I don’t like it one bit. And I do believe the Europeans will defend the euro as a currency — even though its value may slide more, it will not collapse.

But while I’m no better than anyone else at picking precise turning points, I’m actually beginning to wonder whether this recent stock market correction isn’t about to come to an end. King Dollar, price stability, strong profits, and a steep yield curve all suggest that there is good value in stocks after this correction runs its course.

A New Tea-Party Senate Nucleus

After last night’s primary elections, a pipedream came to me: A new tea-party center is forming in the Republican Senate caucus. It will be the first Reagan nucleus in many years, one that will give the GOP a strong limited-government, cut-spending, low-tax-rate, stop-government-controls, and end-Bailout Nation message that will have clarity and gusto and will reverberate throughout the country.

Here’s how it’s going to work: Rand Paul will grab the Senate seat in Kentucky. Marco Rubio will take Florida. Mike Lee will win in Utah. Pat Toomey will finally prevail in Pennsylvania. And Carly Fiorina will knock off Barbara Boxer in California.

Yup. That’s how I see it. And this new tea-party Senate nucleus will join free-market stalwarts like Jim DeMint, Tom Coburn, Jon Kyl, Richard Shelby, Jeff Sessions, and John Thune. I’m probably leaving somebody out in the Senate, and I apologize in advance. But that’s what I’m thinking. It’s a pity Judd Gregg is retiring; he could be part of that group also.

This will be a reformist nucleus, tackling spending, taxes, and even monetary and currency policy. It will unabashedly propose free-market reforms to replace the Obama welfare state and to finally curb the avalanche of debt creation.

It looks to me like the GOP can in fact capture the Senate, by the way. But even if they don’t, this new group will revolutionize politics.

On Tonight's Kudlow Report

Tonight at 7pm ET:

SUPER TUESDAY: YOUR MONEY YOUR VOTE

-HAS THE GOP GOTTEN THE TEA PARTY MESSAGE?
-WILL PUBLIC ANGER LEAD TO REGIME CHANGE IN THE FALL?


- Kellyanne Conway, The Polling Company President & CEO
- Steve Moore, Senior Economics Writer for the Wall Street Journal Editorial Board; "Return to Prosperity" co-author
- Mark Walsh, "Left Jab" Host (Sirius/XM); Fmr. Sr. Vice President at America Online; Fmr. Vertical Net CEO; Fmr. DNC Advisor
- David Goodfriend, Fmr. Clinton W.H. Official; "Left Jab" Co-Host/Air America Co-Founder

SEX, LIES & PRIMARIES...WILL CT AG DICK BLUMENTHAL'S FALSE VIETNAM CLAIMS SINK HIS POLITICAL SHIP?

- Rep. Rob Simmons, (R-CT)
- Kevin Rennie, Hartford Courant
- Kellyanne Conway, The Polling Company President & CEO
- Mark Walsh, "Left Jab" Host (Sirius show); Fmr. Sr. Vice President at America Online; Fmr. Vertical Net CEO; Fmr. DNC Advisor

MARKETS: SHORT-SELLING BAN ON TOP GERMAN BANKS; 4-YR LOW FOR EURO; OIL/GOLD DROP; GREECE RAISING TAXES

CNBC’S Bob Pisani reports.

OIL HEARINGS: CAPPING THE LIABILITY?

CNBC’s Scott Cohn reports.

CONGRESS SEEKS CURBS ON FOREIGN BAILOUTS

- Rep. Jeb Hensarling (R/TX) (co-sponsor of bill to ban EU bailouts)
- Vincent Reinhart, American Enterprise Institute resident scholar; fmr dir of monetary affairs at the FOMC

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

Gangbuster Greenback

A strong and steady King Dollar is always essential to overall free-market prosperity and economic growth. But a wildly fluctuating greenback is not.

Since last November, the trade-weighted dollar index has risen roughly 16 percent. Moreover, the dollar has jumped approximately 25 percent against the euro alone. Of course, the euro’s collapse is a function of the debt crisis in Greece and the European debt-default contagion threat. But roughly 15 percent of U.S. trade is done with the European area. So here’s my point: This huge dollar jump against the euro negatively impacts the terms of trade for U.S. exporters and the S&P corporate profits of global companies.

It’s a deflationary influence when the dollar shoots up way too fast. Incidentally, during the dollar-appreciation move that began late last year, the stock market has basically stopped advancing. In fact, since mid-April, when the dollar made another big move versus the euro, cyclical sectors like commodity materials, energy, industrials, and retailers have gotten clobbered by nearly 10 percent. There is clearly a dollar influence going on here.

Look, currency stability -- a steady King Dollar -- is what we want for growth. We need steady money. But with all these currencies fluctuating so wildly right now, it’s difficult to see how a dollar that keeps shooting higher and higher is going to be a good thing.

Then, of course, there is the related currency issue of a surging gold price. Gold, in dollars, euros, and everything else, is roaring higher. It is saying a pox on all your houses. That’s the message. Too much deficit spending. Too much debt. Too much central-bank liquidity, especially since the European Central Bank threw in the towel.

Nothing good ever came out of a gigantic gold move like this. Nothing. It reminds me of the 1970s, when gold shot from $35 an ounce to $800 across a ten-year span. Look, in just the last ten years, gold has gone from $250 to $1,230. Historically, that’s a stagflation signal. It’s not good.

We need steady money and much smaller government. And guess what? We’re not getting it.

I don’t want to see the dollar shooting up by leaps and bounds every week. I want a steady dollar. And I sure don’t want to see gold shooting up by leaps and bounds every week either. These are terrible signals. And the currency complication is screwing up the other Washington problems of too much taxing and spending and debt creation.

It’s all another big V-shaped economic worry.

Breakdown City

Washington, D.C., is breakdown city. There are the fiscal breakdowns of unaffordable Obamacare with two new entitlements, and an unaffordable $862 billion stimulus plan that has had little or no economic impact. There's the economic breakdown of a spread-the-wealth tax attack on investors and successful earners. There's the loan breakdown of a full-scale government assault on the banks, including a $90 billion bank tax. And there's an inflation breakdown as more doves are being appointed to an already too-ultra-easy Federal Reserve.

These are all anti-growth policies. Yes, the economy is in the throes of a V-shaped recovery. I've been saying that for months now. But is this recovery a temporary false dawn, or can we be confident it has legs? Will Washington's deficit-spending and debt-monetization policies be reversed, or is the soaring gold price a true negative signal for the future?

And is the prosperity path really in our future? Or are we going down the welfare-state road of Old Europe?

Will we grow, or will we stagnate?

The markets got whacked this week as more government agencies whacked the banks. The G-men have launched a full-scale bank assault. And for what? Do they really want us to go back to using Indian wampum, or do they want a healthy and recovering banking system to provide credit to the economy? Bail out the banks, then criminalize them, then throw them in jail? Huh?

It's breakdown city. Nothing good can come of it.

The Path to Prosperity: Tonight On The Kudlow Report

Tonight at 7pm ET:

Please join us this evening as we welcome two wise men from Wall Street ... Home Depot co-founder Ken Langone and former New York Stock Exchange chairman Dick Grasso.



Topics will include the government's assault on banks, the fiscal breakdown, gold rally, taxes, mid-term elections (is political regime change coming?) and what really went wrong during last week's stock market drop.

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

Riding the Inflation Wave: On Tonight's Kudlow Report

Tonight at 7pm ET:

A SPECIAL EDITION OF THE KUDLOW REPORT:

-RIDING THE INFLATION WAVE
-GOLD HITS RECORD HIGHS
-THE GLOBAL SPENDING TSUNAMI DRIVES MARKETS WORLDWIDE

THE GOLD RUSH
CNBC’s Sharon Epperson reports.

Special guest … Peter Munk, Barrick Gold founder & chairman will be aboard.

GOLD, INFLATION POLITICS - APOCOLYPSE NOW?

- Sen. Judd Gregg, (R) New Hampshire; Budget Cmte Ranking Member
- Robert Reich, Fmr. Labor Secretary; Author, "Supercapitalism"; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy

WASHINGTON & THE BP OIL SPILL … BP'S LIABILITY RAISED RETROACTIVELY?
CNBC’s John Harwood reports.

- Sen. Judd Gregg, (R) New Hampshire; Budget Cmte Ranking Member
- Robert Reich, Fmr. Labor Secretary; Author, "Supercapitalism"; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy

IS THE NEXT FISCAL PAIN IN SPAIN?
CNBC’s Simon Hobbs reports.

U.S. EXPOSURE TO EURO BAILOUT
CNBC’s Jeff Cox will be aboard.

THE GOLD RUSH: BULL VS BEAR

- Andy Brenner, Guggenheim Securities Head of Emerging Markets
- James DiGeorgia, gold bull, Super Stock Investor; "The Trader’s Great Gold Rush" Author
- John Rutledge, Rutledge Capital Chairman; Fmr. Reagan Economic Advisor

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

Uncertainty on the Street: A Special Edition of The Kudlow Report

Tonight at 7pm ET:

MARKET REPORT...

CNBC's Rick Santelli, Bob Pisani and Sharon Epperson will report all the latest developments.


-GOLD HITS RECORD HIGH
-HAVE WE AVOIDED THE CATASTROPHE SCENARIO?
-WHERE ARE WE WITH THE FLOW OF GOLD, COMMODITIES, EURO?
-CAN WE GET BACK TO BUSINESS OF V-SHAPED RECOVERY?

- Andy Busch, BMO Capital Markets; CNBC Contributor
- Jim Iuorio, Options Action Contributor, Director, TJM Institutional Services
- Art Hogan, Jefferies Chief Market Analyst

WASHINGTON INVESTIGATES THE MARKET PLUNGE
CNBC’s Hampton Pearson reports on new developments.

STOCK MARKET ROUND UP

- Jeff Kleintop, LPL Financial Chief Market Strategist
- David Goldman, Senior Editor First Things Magazine
- Michael Cuggino, Permanent Portfolio Family of Funds President & Portfolio Manager; Permanent Portfolio Fund (PRPFX)

STOCK MARKET PANEL: GO FOR THE GOLD? BUY, SELL OR HOLD?

- Lauren Lacapra, TheStreet Staff Reporter
- William Baldwin, Forbes Editor
- James Paulsen, Wells Capital Management Chief Investment Strategist

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

A Big-Bang, Trillion-Dollar Euro Burial?

“Friends, Romans, countrymen, I come to bury Caesar, not to praise him.”

Oops. What the European leaders really meant to do with their big-bang, trillion-dollar sovereign-debt rescue was to save the euro currency, not to bury it. But with the cave in by European Central Bank head Jean-Claude Trichet (formerly a hard-money man and closet gold watcher) to use the “nuclear option” to buy up dubious sovereign debt, the euro is likely to keep depreciating.

When central banks buy bonds they pay for it with new cash. That’s almost always negative for currency values. Ben Bernanke bought a ton of new mortgage and Treasury bonds last year, and until the Greek crisis came along, the dollar sunk like a stone. Get ready for more euro declines.

And then you wonder if the European leaders came to save welfare socialism rather than bury it. The mere fact that this rescue package will provide loan guarantees to the very countries that boast the largest welfare states and can’t afford to pay for them probably suggests that the loan guarantees will guarantee more welfarism.

There’s a lot of talk about belt-tightening and spending cuts. But where’s the enforcement mechanism? No one knows. This is the Achilles’ heel of the whole European Union experiment. The monetary discipline has now been broken while the sought-after fiscal discipline is still broken.

If the trillion-dollar European package succeeds in calming lending markets and stopping an outright credit freeze-up, that’s good, at least in the short run. Perhaps it will allow a cyclical-growth recovery, with JPMorgan indexes of Euroland purchasing managers or manufacturing and services showing the possibility of a 3 percent continental growth rate. Yet while a cheap euro will stimulate exports in the short run, in the longer term it will stimulate inflation.

And in addition to Western Europe’s failure to enforce real welfare-state reductions, there really is no flat-tax reform — such as adopted in Eastern Europe — to promote growth. Ironically, the countries of Western Europe, including the southern tier of Greece, Spain, Portugal, and Italy, have a lower corporate tax rate than the United States. That is good. But they could build on that with real flat-tax reform, rather than jacking up value-added taxes.

So there are no enforced spending cuts, there is no flat tax, and there is plenty of political upheaval. (Angela Merkel just lost an important regional election.) So right now, on the day after a big relief rally in stock and bond markets, a sober assessment of the so-called rescue package doesn’t look so great. Actually, the real winner looks to be gold, which is up $20 this morning and is almost at its all-time high of $1,226. That’s a sign of no confidence in the European story.

The euro currency has been compromised and the European welfare state continues. Not good.

Market Comeback: A Special Edition of The Kudlow Report

Tonight at 7pm ET:

MARKET REPORT...

STOCKS: Bob Pisani - NYSE
TECH: Bertha Coombs - NASDAQ
COMMODITIES - OIL/GOLD: Sharon Epperson - NYMEX
BOND REPORT: Rick Santelli - CME/Chicago


WHAT'S AN INVESTOR TO DO?

- Alan Valdes, Hilliard Lyons Vice President/Trader
- Warren Meyers, CNBC Market Analyst; Walter J. Dowd CEO
- CNBC’s Bob Pisani - NYSE booth
- CNBC’s Rick Santelli - CME/Chicago

EUROPE GOES ALL IN … THE EU BAILOUT DEAL

CNBC’s Simon Hobbs reports.

WHAT EXACTLY IS THE DEAL? HOW DO YOU STOP THE SOCIALISM/SPENDING GROWTH IN EUROPE?

- Andy Busch, Global FX Strategist; BMO Capital Markets; CNBC Contributor
- Peter Morici, University of Maryland Robert H. Smith School of Business Professor; U.S. International Trade Commission Fmr. Chief Economist

HOW TO PLAY THIS MARKET
- James Altucher, Formula Capital Managing Director
- Robert Doll, Vice Chairman & Global CIO of Equities at BlackRock

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

Lipsky on the "Obama Dollar"

My old pal Seth Lipsky, editor of the New York Sun, recently penned a terrific column entitled, The Obama Dollar.

It's definitely worth a read.

Debt-Deflation-Contagion Panic: It’s a Bloody Mess

Panic has gripped stock markets worldwide over the Greek debt crisis and the threat of a debt-deflation contagion through banks in Europe (primarily) and the U.S. that own the bonds of Greece, Portugal, Spain, and so forth. If these bond asset prices collapse totally, lending facilities would be badly crimped for both the short and long term. And that, in turn, would damage prospects for economic recovery.

The Dow closed today off nearly 350 points. Earlier in the day the Dow was down 850 points, though there is talk of computer glitches and technical problems that may have temporarily undermined trading. Either way, the market is getting creamed as a result of the Greek story.

The real winner today? Gold. It’s up about $25, to $1,200. People want real money. They do not trust the debt-laden currencies of Europe and the United States. Or for that matter Japan. Gold is fast becoming, once again, a reserve currency of choice.

Meanwhile, the EU/IMF bailout package for Greece, which does include draconian budget cuts, contains a 2 percentage point increase in the VAT tax that is anti-growth. Steve Forbes correctly said last night on CNBC that the Greeks should be slashing spending and should move to a flat tax, just like the countries in Eastern Europe. I gave him a Nobel Prize for that.

Market chatter, at least in Europe, is suggesting that the $150 billion bailout is not enough. But it may be that the left-wing union mobs in Athens have caused a major backlash throughout Europe and elsewhere. Despite the mob, the Greek parliament was able to pass legislative approval of the bailout package. This caused a small stock rally for a brief time this morning.

The German parliament will vote tomorrow on this package. Should it be voted down, all hell will break loose again in world stock and credit markets.

And then there’s Britain. The Tories may win a close election tonight and dethrone Labour. But if so, David Cameron & Co. will be a minority government.

I still believe that one of today’s key themes is a global revulsion toward the massive spending and debt programs put in place by the U.S., Euroland, the G20, and the IMF back in late 2008 and 2009. Unwinding these Keynesian mistakes is not an easy thing to do. But financial markets are now exerting discipline on this out-of-control spending and borrowing.

Financial markets don’t like these big-government policies at all. Neither do voters. The markets don’t trust the ability of these nations to service the interest payments on all this new debt. And voters are much opposed to the tax-hike implications of the debt.

In particular, the U.S. and the Western countries in Europe have lurched left in recent years. It’s bad for growth, it’s bad for credit quality, it’s bad for banks, and it smacks of credit-deflation bankruptcy. In short, it’s a bloody mess.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET:

THE GLOBAL DEBT REVOLT

- Steve Forbes, Forbes Chairman and CEO; Forbes Editor-in-Chief;Fmr. Presidential Candidate; "How Capitalism Will Save Us" Co-Author
- Andy Busch, BMO Capital Markets; CNBC Contributor
- Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor

FIN-REG VOTE : TOO BIG TO FAIL AMENDMENT PASSES SENATE
CNBC chief Washington correspondent John Harwood reports from Washington.

U.S. MARKETS

- Steve Forbes, Forbes Chairman and CEO; Forbes Editor-in-Chief;Fmr. Presidential Candidate; "How Capitalism Will Save Us" Co-Author
- Andy Busch, BMO Capital Markets; CNBC Contributor
- Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor

THE FUTURE OF PRINT MEDIA

CNBC’s Julia Boorstin and Steve Forbes will discuss.

SHOULD THE FED BE SUBJECT TO AUDITS?
Washington's newest odd couple unites.

- Sen. Bernie Sanders (I-VT)
- Sen. Jim DeMint (R-SC)

BP & THE CRISIS ON THE COAST
NBC’s Jay Gray Venice, LA.

CONGRESS MEMBERS EXPOSED IN SHORTING FINANCIAL CRISIS
Politico’s Eamon Javers will join us.

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

Debt Default & Deflation Is Heavy in the Air

The ink was barely dry on the $150 billion EU/IMF bailout of Greece when world stock markets tanked on two major fears. First, financial analysts are concerned that the bailout money won't be enough to cover Greece's borrowing needs from its out-of-control budget deficit. Second, there are fears that the EU/IMF deal will not be approved by the German parliament in a vote scheduled for Friday.

Additionally, there are new worries that the Greek debt contagion will spread to Spain and elsewhere in Europe. The looming specter of debt default and deflation is heavy in the air for investors worldwide.

Making market matters even riskier, German chancellor Angela Merkel faces key regional elections this Sunday in populous North Rhine-Westphalia, including the conservative areas of Cologne, Bonn, and Stuttgart. These cities hate government debt and overspending as much as the rest of Germany, if not more so.

The great postwar German leader Konrad Adenauer came from Cologne. He was a conservative Catholic who despised Nazism and Soviet communism. He also was an inflation fighter. To stop hyperinflation in the postwar period, Adenauer sponsored the new German mark and linked it to the dollar, which in those days was as good as gold.

Today, all of Germany still hates inflation. And the Germans are afraid that the currency printing presses used to buy bad bailout bonds will return the country to a haunted past. So it's tricky business for Merkel to sell the Greek bailout on the eve of local elections that could disrupt her already thin governing coalition.

Merkel is playing a double game here. She's telling the Financial Times and the Wall Street Journal that the bailout must pass in order to save the euro currency. At the same time, she's telling folks at home that Greece's extravagant social-welfare entitlement system of bankrupt promises is a disgrace that Germans would never tolerate.

Apparently, credit markets won't stand for it either. Both around the world and here in the U.S., credit markets are boycotting massive government debt creation. The result is that gold is fast becoming a currency substitute, with strong markets for the yellow metal saying a pox on all your houses.

Merkel and other European leaders would like the IMF to be the fiscal-discipline policeman for Greece and the rest of southern Europe. But as Nobelist Robert Mundell has argued, while the unified and fixed exchange rate of the euro currency system, along with liberalized trade, has been good for economic growth, things have broken down with the failure of the so-called fiscal-stability pact that was never enforced.

With tens of thousands of Greek government union workers marching in the streets of Athens calling for more general strikes in protest of IMF austerity measures to cut back on bloated pensions, voters in Germany and perhaps other EU countries do not believe the bailout conditionality will ever work. Voters see solvent nations being saddled with more debt that the European Central Bank may well monetize into higher inflation.

Perhaps the Greeks should consider a privatization asset sale of the Parthenon, or some of the beautiful Greek islands, as a means of raising desperately needed cash. Think of it: Greek Thatcherization. Of course, in addition to privatization, Margaret Thatcher used her budget ax. That's something neither Greece nor Spain appears capable of implementing in a sustained way. Mrs. Thatcher also reminded us that the problem with socialist governments is that they finally run out of other people's cash.

What's more, while Greece and Spain have moderate 30 percent business tax rates, lower than rates in the U.S., their combined personal and VAT tax rates come to about 60 percent. Team Obama take note: These are anti-growth tax policies.

Indeed, the debt follies of Europe and the bankruptcy of the European entitlement state should be a lesson for Obama's Washington, where overspending and borrowing have reached absurdly grand heights. As a share of GDP, U.S. debt is projected to move toward 100 percent in the wake of the new Obamacare entitlements. That's near the 125 percent debt ratio of Greece.

And just like Greece, U.S. government union-worker benefits, which run 50 percent above private-sector equivalents, are bankrupting federal, state, and local budgets. They're also spawning a massive voter revolt against big-government debt that will bear fruit this November in the tea-party midterm elections.

In a vague sort of way, British Tory leader David Cameron is opposing the spend-and-borrow mess of Gordon Brown's Labour party that so resembles Obama's policies. Consequently, Cameron looks set to win the U.K. election on Thursday. That's good news for England. But it could embolden German legislators to vote against the EU-IMF bailout for Greece on Friday. And that could create an even bigger stock market mess, at least in the short run.

Call it a spend-and-borrow debt mess. A pox on all your houses, at least until financial-market and voter discipline force the dim-witted politicians to radically change course.

SELL-OFF ... SPECIAL KUDLOW REPORT TONIGHT

Tonight at 7pm ET:

INSIDE THE MARKET SELLOFF…

- CNBC’s Bob Pisani
- CNBC’s Scott Wapner
- CNBC’s Rick Santelli
- CNBC’s Bertha Coombs

CONTAGION FEAR…GREECE SENDS SHUDDERS TO INVESTORS AROUND THE WORLD…WILL GERMAN VOTERS SINK THE GREEK BAILOUT? … ARE SPAIN & PORTUGAL NEXT?

- Lou Dobbs, Business & Political Commentator
- John Rutledge, Rutledge Capital Chairman; Fmr. Reagan Economic Advisor
- Lee Eugene Munson, Portfolio Asset Management Chief Investment Officer
- Steve Grasso, CNBC Market Analyst; Stuart Frankel, Managing Director of Institutional Sales

FEAR FACTOR & THE MARKETS… HOW TO PLAY THIS SELL-OFF

- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- James Altucher, Managing Director Formula Capital
- Lauren Tara LaCapra, The Street
- Lou Dobbs, Business & Political Commentator

BP OIL SPILL LATEST
- Jay Gray, NBC News - Venice, LA

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

Keynesian Spending Has Zilch Effect on Recovery

Stubbornness is a bad trait in politics and policy, one that will be punished at the polls this November.

The Obama administration continues to argue that its massive federal-spending campaign is essential to economic recovery. Yet the latest GDP report from the U.S. Department of Commerce shows that the 3.2 percent first-quarter economic growth rate got no help from government spending.

In fact, combined federal, state, and local spending actually fell 1.8 percent. What’s more, over the last three quarters of a mild V-shaped recovery, with an average quarterly rebound of 3.7 percent, government spending actually exerted a small net drag (-0.03%) on growth.

I guess it’s time to ask our Keynesian friends in and out of government what exactly happened to those vaunted multiplier effects they so loudly proclaimed. So far, there is zilch effect.

Turns out that all those entitlement transfers of income borrowed and taxed from Peter to pay Paul have made no direct contribution to the nation’s production of goods and services. This, however, comes after $318 billion of spending through April 23, according to the website recovery.org.

Pretty expensive fiscal habit, wouldn’t you say? But for what?

And who can blame taxpayers for saying, “Show me the money that was supposed to generate growth.” In the winter quarter, consumer spending increased 3.6 percent and business equipment investment rose 13.4 percent, all while inventories were rebuilt by $31 billion. But the G in the GDP equation C+I+G+(X-M) actually dropped. (That is, consumption + investment + government spending + the net exports/imports trade.) That’s right, dropped.

That failed G for federal, state, and local spending may cost untold trillions of dollars of future tax and debt burdens. Rather than stimulate growth, this will depress it in the years to come — unless we do something about it.

How about stopping the madness right now? How about “de-stimulating” the remaining $500 billion of unspent Keynesianism?

And how about some truth-telling about the big pick-up in business profits that is really behind the recovery — profits that have fueled a stock market boom which has created trillions of dollars of new wealth through capital gains that are being spent and invested in the private sector?

The only temporarily effective government-stimulus effect is coming from the Fed’s free-money, zero-interest-rate policy. And here, too, is stubbornness. For the economic emergency has long passed; the recession ended in last year’s second quarter. Yet the Fed — now controlled by Obama doves — stubbornly persists in maintaining an emergency pump-priming policy that surely will drive up inflation in the years ahead.

Six Reasons Why the Capital Gains Tax Should Be Abolished

Here's my friend Dan Mitchell's latest video. As usual, it's definitely worth watching.

According to Dan: The correct capital gains tax rate is zero because there should be no double taxation of income that is saved and invested. This is why all pro-growth tax reform plans, such as the flat tax and national sales tax, eliminate the capital gains tax. Unfortunately, the President wants to boost the official capital gains tax rate to 20 percent, and that is in addition to the higher tax rate on capital gains included in the government-run healthcare legislation.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET:


ECONOMIC RECOVERY? WHERE WAS OBAMA'S OPTIMISM? IS HE PRIMING COUNTRY FOR MORE SPENDING? WHERE'S THE GOV'T GROWTH STIMULUS?


- Robert Reich, Fmr. Labor Secretary; Author, "Supercapitalism"; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
- Steve Moore, Sr Economics Writer for the Wall Street Journal Editorial Board; "Return to Prosperity" co-author

GOLDMAN SACHS FEELS THE HEAT

- Tom Curran, Peckar & Abramson Partner

STOCK MARKET…THE BULL’S RUNNING WITH STRONG PROFITS & FREE MONEY FROM THE FED…IS NOW THE TIME TO START LOOKING AT THE PROBLEMS COMING?

- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Dan Fitzpatrick, StockMarketMentor.com, President & CEO; Senior Contributor, RealMoney.com

GOLD HITS 4-MONTH HIGH…ARE WE HEADING HIGHER FROM HERE?
- Don Luskin, CNBC Contributor/Trend Macro Chief Investment Officer

THE GULF OIL SPILL
CNBC’s Brian Shactman reports.

OIL SPILL SHOULDN'T KILL DRILL, DRILL, DRILL
- Chris Horner, Senior Fellow, Competitive Enterprise Institute

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

More Mother’s Milk...

Profits, profits, profits.

How many times have you heard me say that profits are the mother’s milk of stocks, business success, and job creation? Well, they remain the story of the day.

S&P earnings look to rise about 45 percent in the first quarter, with earnings estimates pegged at a 9 percent gain in April to lead off the second quarter. Meanwhile, Chevron reported better-than-expected profits this morning, on top of yesterday’s positive results from Conoco, Motorola, and Starwood Hotels. (Stocks are taking a breather this morning, after posting their best rally in two months yesterday.)

Look, profits are the purest and most efficient form of stimulus to the economy. They are vastly greater than oversized government spending and borrowing. Profits improve our future outlook, while borrowing and spending undermine it.

Investors need to remain vigilant of looming tax hikes on investors and successful earners. But right now we’re witnessing some big numbers in retail sales, business investments, ISMs, and the aforementioned profits. All of this is driving stocks higher on the shoulders of a V-shaped recovery in the U.S. and — let me add — Asia.

I prefer Asia to Europe. European countries like entitlements that are bankrupting them. Asia likes entrepreneurs, capital formation, and free-market capitalism. There are even some new free-trade agreements springing up right now, which will spur even more growth.

As for Europe, why in the world should U.S. taxpayers — via IMF bailouts — finance the bankrupt entitlement state of socialist Greece or any other EU country? After all, the IMF is largely funded by American taxpayers. I’m quite sure investors will revolt against the idea of bailing out Greece or the EU’s massive social-welfare failures. This is a key political point with financial and economic overtones.

The Kudlow Creed

Enjoy...

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET:

IMF OUTRAGE: WHY SHOULD U.S. TAXPAYERS BAILOUT GREECE?

- Rep. Cathy McMorris Rodgers, (R) Washington; House Republican Conference Vice Chair


DENDREON GETS FDA GREENLIGHT
NEW PROSTATE CANCER BREAKTHROUGH

CNBC’s Bertha Coombs reports.

MARKET ALL-STARS

- Ed Yardeni, Yardeni Research President
- Kenneth Heebner, Capital Growth Management Portfolio Manager

FED BATTLE ROYALE

- Mike O'Rourke, BTIG Chief Market Strategist

LET THE TEA PARTYERS SING...

- Bob Tyrell, American Spectator Editor; "After the Hangover: The Conservatives' Road to Recovery" Author

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

The Fed’s Ultra-Wussy FOMC Statement

Right now investors face a V-shaped-recovery theme at home and the serious debt troubles plaguing Greece, Spain, Portugal, and perhaps other countries in Europe. According to reports, the IMF/EU financial-rescue package is now approaching $800 billion. Will there be contagion? That’s the billion-dollar question.

And will Germany sign off? No one knows for sure. I think it probably will. But what I’m really interested in here is whether there’s going to be strict conditionality attached to this bailout. The socialist Greek government cannot be trusted. It may very well turn around and spend the money.

But let me echo another thought. Distinguished investor Ken Heebner told CNBC on Wednesday that the increasingly strong U.S. recovery is independent of Europe. I totally agree. So stock market investors should keep their eyes on the V-shaped recovery. So far, this includes a 76 percent increase in first-quarter operating earnings for the S&P 500. That is huge.

On top of that, we’ve been witnessing big ramp-ups of retail sales, industrial production, and business investment spending.

Now, I do acknowledge a recent jump in gold prices. While the precious metal shed a few bucks today, it did rise to a year-to-date high of $1,167 yesterday. I believe gold could be a warning signal and currency substitute in a world of excess spending and debt. It also could be saying that global central banks — including our own Federal Reserve — are too weak-kneed in taking back their massive money-printing.

Is gold saying, “A pox on all your houses”? “You’re all Greece now”? Perhaps, especially in light of the Fed’s ultra-wussy FOMC statement this week. It totally ignored booming commodity prices and the V-shaped recovery. The Fed still refuses to offer any sign whatsoever of an exit strategy from its ultra-easy, free-money policy.

What do I want? I want a dose of cowboy monetarism. I want to see the Fed, for once in its lifetime, surprise Wall Street traders by pulling the trigger just a little bit faster. It ought to take a cue from Kansas City Fed head Tom Hoenig. Of course, Mr. Hoening dissented once again. It’s time to cowboy up.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET:


GREEK JUNK CONTAGION?
EURO .. DOLLAR .. IS GOLD THE NEW CURRENCY REPLACEMENT?


- Andy Brenner, Guggenheim Securities, Head of Emerging Markets
- Michael Farr, CNBC Contributor; Farr, Miller & Washington President
- Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor

FINANCIAL REFORM: WHAT'S THE RIGHT MARKET SOLUTION?

- Sen. Mark Warner (D-VA)

WASHINGTON TAX ATTACK/DEBT COMMISSION

- Rep. Paul Ryan, (R) Wisconsin; Budget Cmte Ranking Member President Obama's Fiscal Commission
- Robert Reich, Fmr. Labor Secretary; Author, "Supercapitalism"; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy

FED MATTERS: ISN'T THE EMERGENCY IS OVER?

- Brian Wesbury, First Trust Advisors Chief Economist
- Vince Reinhart, American Enterprise Institute resident scholar; former director of monetary affairs at the FOMC

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

Highlighting The V-Shaped Recovery

With all eyes trained on the financial-regulation bill and the Goldman Sachs hearings, I’d like to keep hope alive by focusing attention on the V-shaped recovery. You may have seen yesterday’s New York Times front-page story: “From the Malls to the Docks, an Economic Recovery Boom Set to Roar.” Of course, I agree. As you know, this has been a key theme of mine in recent months.

Now, it may not last forever. There is a big-government-tax-hike wall standing in front of us next year and beyond. But tea-party politics may tear down that wall in the November midterms. So keep hope alive.

But as far as this year goes, I’m still highlighting the blowout profits and trillions of dollars of capital gains coming from the stock market rally. Profits and capital gains are the purest and most effective economic stimulus of all. Profits are what matter.

Moreover, the stock market may still be undervalued. A new report suggests that S&P companies may earn almost $86 a share in the next year. With today’s S&P index trading just north of 1,200, $86 bucks a share is only 14 times future earnings. And that, at least theoretically, makes stocks the cheapest they’ve been since 1990 (except for the months directly following the Lehman meltdown).

Another key point on the stock market rebound: Did you know that bull markets tend to last about four years on average? They can last as long as five to six years, and they can be as short as a year. But they’re usually about four years. Are we in the early innings of a bull-market run?

And while bank stocks have been clocked recently, I don’t think the proposed financial legislation is going to damage profits to the extent that the banks can’t recover.

To be perfectly honest here, as much as I love to dig into all the money-politics issues -- including the financial-reform bill -- I’m much more interested in these big profits and capital gains. This V-shaped recovery is the most important item on my radar screen. It’s the single-biggest investor issue out there right now. I don’t think the bull market in stocks is over yet.

Again, regarding taxes and regulations, I’ll warn about next year. But frankly, I think the prosperity theme is issue number one.

On Tonight's Kudlow Report

CNBC this evening at 7pm ET:

FINANCIAL REFORM SHOWDOWN

- CNBC’S Hampton Pearson reports the latest news and developments..

- Sen. Kay Bailey Hutchison (R-TX; Senate Banking Committee member)

GET DERIVATIVES OUT OF THE BANK? ; BUFFETT; TOO BIG TO FAIL

- Christopher Mayer, Senior Vice Dean; Prof. of Economics and Finance at Columbia Business School Columbia University
- Bill Isaac , Fmr. FDIC Chairman; Chairman of The Secura Group of LECG
- Brian Gardner, Keefe Bruyette & Woods

MARKETS & THE V-SHAPED RECOVERY
STOCKS CHEAPEST SINCE 1990?
CATERPILLAR SOARS…

- Brian Wesbury, First Trust Advisors Chief Economist
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer
- Stefan Abrams, Bryden-Abrams Investment Management Managing Partner

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

The Washington Tax Attack Marches On

The worst thing I’ve seen recently, by far, is the Senate Budget Committee’s new mark-up to jack the dividend tax from 15 percent all the way up to 40 percent. What in the world are these people thinking?

This is a direct tax attack on capital, jobs, the stock market, and entrepreneurs. It would take effect next year, in 2011, which is not so far from where we are right now in late April 2010.

This tax attack would come on top of a scheduled capital-gains tax hike. And then you’ve got a potential hike of the alternative minimum tax as well as a hike of the inheritance/death tax. And there’s more: In his Cooper Union speech yesterday, President Obama renewed the call for a new bank tax. Remember that one? You thought it was dead? Nope. It’s still alive.

Finally, you’ve got all the chatter about a European-style value-added tax, or VAT.

This is all terrible for economic growth. Whatever happened to the tea-party Contract from America, which calls for constitutional limits on taxing, spending, and ultra-big government?

Washington is not listening.

Incidentally, a new Pew poll reveals that a staggering 80 percent of Americans do not trust Washington. What a shocker. (Read Dan Henninger’s great column in yesterday’s Wall Street Journal on this very important point.) Is anyone really surprised at this poll’s results?

Again, what happened to the tea-party call for limited government, limited spending, and limited taxation? That’s what I want to know.

On Tonight's Kudlow Report

This evening at 7pm ET:

-ARE WE IN A V-SHAPED RECOVERY?
-STOCK MARKET BULL OR BEAR?
-DO WE NEED SOME COWBOY MONETARISM?
-DIVIDEND TAX ATTACK & OTHER WASHINGTON TAX ATTACKS

- David Kelly, JP Morgan Funds Chief Market Strategist
- Jack Ablin, Harris Private Bank Executive VP & Chief Investment Officer
- John Rutledge, Rutledge Capital Chairman; Fmr. Reagan Economic Advisor
- Chip Hanlon, Delta Global Advisors president
- Steve Moore, Senior Economics Writer for the Wall Street Journal Editorial Board; "Return to Prosperity" co-author

IINTELLECTUAL PROPERTY; GREECE, EURO, YUAN, KING DOLLAR
- Bob Hormats, Under Secy of State for Economic, Business, & Agricultural Affairs; fmr. Vice-Chmn Goldman Sachs Internat'l

WILL TEA PARTY CHANGE GOV'T & AMERICA?
- Bill Hennessy, St. Louis Tea Party Founder; "The Conservative Manifesto" Author; Town Hall Forum Contributor

INFLATION THREAT…TAX ATTACK & THE MARKET

- Jimmy Pethokoukis, Reuters Money & Politics Columnist
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager

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

Is John Paulson Watching The Kudlow Report?

Billionaire hedge-fund manager John Paulson has received quite a bit of press lately, all arising from his involvement in Goldman Sach’s 2007 Abacus deal which netted him a king’s ransom of $1 billion. Say what you will about the man, Mr. Paulson is a terribly smart investor — one of a small handful who accurately predicted the housing market’s turn with highly successful bets against mortgage securities.

Now, what is less well known about Paulson is that he has turned rather bullish on the U.S. housing market and the overall economy. In a conference call with investors yesterday, Paulson said he was concerned earlier this year about a potential double-dip recession. But he went on to say that he is “not concerned about that at all today. It’s more likely there could be a V-shaped recovery.” Whoa. Mr. Paulson, are you tuning in to The Kudlow Report each night? Of course, I have been discussing — at length — the various and key pieces of evidence that support a clear case for a V-shaped recovery.

Incidentally, Mr. Paulson also remarked that corporate earnings are coming in ahead of expectations, that there’s a vibrant credit market, and that the stock market is stronger. Yes indeed, sir.

Heck, I’ve never seen or owned a synthetic CDO. That’s above my pay grade. But I certainly agree with Paulson’s take on the economy. (Hat tip to my pal and economics professor Mark Perry of the Carpe Diem blog site. He’s been signaling Paulson’s call.)

And now for some worrisome news: While stocks did eke out small gains Wednesday, outside of Morgan Stanley’s 4 percent rise from a big earnings number, all the big banks got clobbered by an average of around 2 percent. The list includes Goldman, Citi, US Bancorp, JPMorgan, BofA, Wells Fargo, and State Street.

Why did the big boys get hit? Financial regulation is going to pass. That ain’t good for banks. First, it may put an end to proprietary trading for these boys. Second, it may squash their lucrative derivatives business. Third, it may take away their too-big-to-fail status.

So be on the lookout for some rocky moments ahead for the big boys on the road to financial reform. While this may be good news for U.S. taxpayers, it’s not necessarily so good for the nation’s biggest banks.

Another point on this bank bill worth noting: Sen. Blanche Lincoln’s derivatives legislation means trading will wind up moving to Chicago, which has much better infrastructure than New York. So, in a sense, you could actually call this a Chicago jobs bill. In the longer term, New York City will be very hurt by this.

Elsewhere, some good news: With 20 percent of the S&P having already reported, roughly 85 percent of the S&P companies have beat expectations. Guess what? If this continues, it will be the best performance since 1993.

On an interesting but somewhat unrelated note, the Treasury and the Fed have unveiled a new $100 bill with a lot of high-tech security embedded in it. Ben Franklin is still on the front, and it’s going into circulation next year. An interesting factoid about the C-note: It’s the highest denomination of all U.S. currency and has huge circulation around the world. Over the past 25 years, global demand has pushed these Benjamins up to $890 billion from $180 billion, with two-thirds circulating outside the United States. As for me, I’m still waiting for the new Ronald Reagan note.

But let me close with this key point regarding the V-shaped recovery: Rising corporate profits equals rising jobs in the future. If businesses are profitable, they will hire. Bank on it. After all, we witnessed such a steep falloff in employment because businesses were so unprofitable.

Again, I’ve never owned a synthetic CDO in my life. But I do entirely agree with John Paulson’s bullish call for a V-shaped economic recovery. I’m delighted to hear he shares my view.

On Tonight's Kudlow Report

This evening at 7pm ET:

PRESIDENT OBAMA ADDRESSES WALL STREET

CNBC chief Washington correspondent John Harwood reports.

NO G.O.P. COMPROMISE?
- Rep. Mike Pence will join us from Washington.

WALL ST. CULPABILITY
How Much Blame Does Wall St. Deserve?

- Nicole Gelinas, Manhattan Institute Senior Fellow
- Roger Lowenstein, author of "The End of Wall Street"

TAX ATTACK: BANK TAX BACK FROM THE DEAD; VAT TAX; BUSH TAX CUTS EXTENSION?; TAXES IN UPCOMING BUDGET

- Matt Miller, The Daily Beast Columnist; Public Radio's "Left, Right and Center" Host
- Jerry Bowyer, CNBC Contributor/Syndicated Columnist

MARKETS & ECONOMY
A V-shaped recovery? Moody's Turns on Greece

- Howard Lutnick, Cantor Fitzgerald Chairman. & CEO
- Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor

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

The Case Against Goldman Sachs

I’d like to weigh in on this whole SEC securities-fraud action against Goldman Sachs. The feds have, of course, alleged that Goldman made materially misleading statements and omissions in connection with a synthetic collateralized debt obligation (CDO) that was structured by Goldman and marketed to investors.

This is all very complicated. And I know some very smart people lining up on one side saying the SEC’s fraud action is weak. And I know some equally smart people on the other side saying this is an extremely serious matter that will be followed by numerous other SEC fraud charges against other Wall Street underwriters.

Look, I’m not a lawyer. I don’t know how this lawsuit will eventually play out. But let me make a couple of simple, straightforward, points that may help inform regarding the question of hedge fund manager John Paulson’s involvement in the securities selection for the Abacus CDO, and whether this is a material fact that Goldman should have disclosed to investors.

Here’s a very important timeline of the securities-selection process that was made by ACA management, the portfolio selector. This is from the actual SEC complaint:

ACA/PAULSON PORTFOLIO

January 9, 2007
Goldman sends email to ACA, titled "Paulson Portfolio," containing list of 123 RMBS selected by Paulson for the Abacus 2007-AC1 reference portfolio

January 22, 2007
ACA sends email to Fabrice Tourre & others at Goldman containing list of 86 RMBS, including 55 of the 123 selected by Paulson; 68 were rejected. This is very important. Goldman maintains that ACA was in fact the portfolio selector. ACA rejected 68 of Paulson’s recommendations. They accepted 55.

February 2, 2007
After meetings with Paulson & Tourre, ACA emails Paulson, Tourre & others at Goldman a list of 82 RMBS on which Paulson & ACA concurred, plus 21 others. So at this point, they are in agreement on 82, but they insert 21 others.

February 5, 2007
Paulson sends email to ACA & Tourre deleting 8 of the RMBS recommended by ACA and leaves the rest alone.

February 26, 2007
After further discussion, Paulson & ACA agree on a reference portfolio of 90 RMBS for Abacus 2007-AC1.

Now, what I gather from all of this is that ACA management was most definitely the portfolio selector. There’s no question about it. This is Goldman’s single biggest defense in not mentioning hedge fund manager John Paulson’s name.

However, I’m looking at this and I’m thinking, with all these negotiations, all of this back-and-forth, that it’s quite clear that John Paulson played a pivotal role in the portfolio-selection process. That seems undeniable. So that raises the key question of whether Goldman Sachs’ decision not to disclose Paulson’s involvement was a correct judgment, or whether it was a material omission. It just seems to me that Goldman Sachs should have named Paulson in the offering circular for the CDO. They didn’t. Is it because they didn’t want investors to understand that this was a bear-market, short-the-bond CDO?

Second point: Some highly placed, senior Wall Street sources who have been deeply engaged in structured mortgage-based CDOs tell me that this CDO in question was weak and appeared designed to unravel quickly. They go on to say, in general terms, that this CDO constructed by Goldman Sachs lacked sufficient cash; its covenants were weak; and it afforded less investor protection than usual in order to provide higher yields. This troubles me enormously.

Creating something that’s designed to fail? Well, you know what? If it’s not illegal, it certainly appears unethical. So I must blame Goldman for this. Why sell it to customers if it’s going to fail? Why go there in the first place? What kind of brokerage service is this?

Now, there’s nothing wrong with creating a neutral security that will attract buyers and sellers. That’s called free-market capitalism. And the buyers and sellers do not have to know who the buyers and sellers are. But if, in fact, these Goldman CDOs were designed to fail, then there’s something seriously wrong with this system and it must be changed.

Whether Goldman lied about Paulson’s $200 million equity stake is another difficult issue. If they lied, then it’s a material misrepresentation and the SEC is dead right. But there are different opinions about this.

One final thought: Wouldn’t it be wonderful if Washington could somehow solve these issues without totally demonizing, demoralizing, and even destroying America’s great global banks? We need these banks for full-fledged economic recovery. We also need them for America’s full-fledged leadership in the global financial system and world economy. In other words, can we please figure out a way not to throw out the baby with the bathwater?

This is way too important a time for our recovering economy and financial system. Our future is at stake.

On Tonight's Kudlow Report

This evening at 7pm ET:

FINANCIAL REFORM: WHAT'S NEW ON THE FIN-REG/DERIVATIVES/CONSUMER PROTECTION FRONT?

CNBC chief Washington correspondent John Harwood reports.

FIN REG & THE MIDTERMS
- Sen. Jim DeMint (R-SC)

GOLDMAN'S EARNINGS
CNBC’s Michelle Caruso-Cabrera reports.

SHOULD ALL DERIVATIVES BE BANNED?
DID GOLDMAN WRECK IT FOR ALL OF WALL STREET?

- David Goldman, Senior Editor First Things Magazine
- Peter Morici, University of Maryland Robert H. Smith School of Business Professor; U.S. International Trade Commission Fmr. Chief Economist

OBAMA SHIFTING DISCUSSION TO FIN REG...USING GOLDMAN AS A CLUB?

- Camden Fine, President & CEO Independent Community Bankers of America
- Mark Callabria, Director of Financial Regulation Studies at the Cato Institute

BULL/BEAR MARKETS

- James Altucher, Managing Director Formula Capital
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager

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

America's Constitutionalist Revolt

So much is being written in the mainstream media about who the tea partiers are, but very little is being recorded about what these folks are actually saying.

We know that this is a decentralized grassroots movement, with many different voices hailing from many different towns across the country. But the tea-party message comes together in the “Contract from America,” the product of an online vote orchestrated by Ryan Hecker, a Houston tea-party activist and national coordinator for the Tea Party Patriots.

With nearly 500,000 votes recorded in less than two months, this Contract forms a blueprint of tea-party policy goals and beliefs.

Of the top-ten planks in the Contract, the number-one issue is protect the Constitution. That’s followed by reject cap-and-trade, demand a balanced budget, and enact fundamental tax reform. And then comes number five: Restore fiscal responsibility and constitutionally limited government in Washington.

Note that two of the top-five priorities of the tea partiers mention the Constitution.

Filling out the Contract, the bottom-five planks are end runaway government spending; defund, repeal, and replace government-run health care; pass an all-of-the-above energy policy; stop the pork; and stop the tax hikes.

What’s so significant to me about this tea-party Contract from America is the strong emphasis on constitutional limits and restraints on legislation, spending, taxing, and government control of the economy. Undoubtedly, the emphasis is there because no one trusts Washington.

As I read this Contract, tea partiers are reminding all of us of the need for the Constitution to protect our freedoms. They’re calling for a renewal of constitutional values, including -- first and foremost -- a return to constitutional limits on government. The tea partiers who responded to this poll are demanding a rebirth of the consent of the governed. The government works for us, we don’t work for it.

All this makes me think of President Reagan, who never quite succeeded in gaining a constitutional amendment for a balanced budget, or for limits on spending, or for a two-thirds congressional majority for any new tax hikes. But throughout his presidency, and for many years before, the Gipper argued for constitutional limits on government, especially government spending.

And now this message is being echoed perfectly in the tea-party Contract from America. In effect, it picks up where Reagan left off.

The tea partiers, whom I call free-market populists, desire a return to Reaganism. In particular, their demands for a balanced budget (third plank), for restoring fiscal responsibility (5th plank), for ending massive government spending (6th plank), and for stopping the pork (9th plank) all underscore the populist revolt against runaway government spending, and therefore runaway government power.



There are mentions in the Contract of tax reform and stopping tax hikes. But it is pretty clear to everyone nowadays that the massive run-up in spending of recent years will inevitably result in an equally massive tax-hike movement -- that is, unless the spending is strictly curbed and reduced.



Yet the tea partiers don’t trust Congress to do this, so they want to bring in constitutional restraint.



A recent survey by the Brookings Institution spells out this spend-and-tax problem with great clarity. Under current spending trends, tax-the-rich efforts to bring the deficit to just 3 percent of GDP -- not balance, mind you, but 3 percent deficit -- would require a nearly 80 percent marginal tax rate on the most successful earners. And if taxes are raised across-the-board, the marginal rate would rise to nearly 50 percent for the top earners, with state and local tax burdens bringing it up to 60 percent. Otherwise, a European-style value-added tax (VAT) would become necessary.



The tea partiers know this and they don’t like it one bit. And so, at bottom, they have formed a constitutionalist movement to revolt against big government and big taxes -- and oh, by the way, to stand against big-government control of large chunks of the economy, such as energy and health care.



Harking back to the Founders’ principles of constitutional limits to government is a very powerful message. It’s a message of freedom, especially economic freedom. The tea partiers have delivered an extremely accurate diagnostic of what ails America right now: Government is growing too fast, too much, too expensively, and in too many places -- and in the process it is crowding out our cherished economic freedom.



It’s as though the tea partiers are saying this great country will never fulfill its long-run potential to prosper, create jobs, and lead the world unless constitutional limits to government are restored.



Now, as the tea partiers rally across the country, the big question is only this: Will the political class get it?

TAXING AMERICA: After "The Kudlow Report," make sure to stay with CNBC for Larry's Tax Day special at 10:30pm/ET!