King Dollar & Lower Taxes

How ironic. Ben Bernanke launches QE2 and everyone worries about a dollar collapse. But instead, it’s the euro that has collapsed, dropping 9.5 percent relative to the greenback. Overall, the dollar index has appreciated 7 percent.

Some, like Robert Mundell, believe sharp currency swings change monetary policy. In this case, as Euro-debt worries escalate, the rising dollar amounts to a tightening of Fed policy. Smaller than what happened last winter and spring during the Greece problem, but still significant.

This is partly why U.S. stocks have corrected lower by just under 4 percent. Tighter money slows the economy. It’s too bad, because the October numbers show an economic awakening, maybe influenced by GOP election confidence.

In any case, if the greenback keeps appreciating, economic concerns and stock jitters could deepen. All this despite booming corporate profits and strong holiday retail sales.

So, this would be a great time to make a deal on extending the Bush tax rates. Today’s White House meeting seemed to lean ever so slightly towards a deal. But nothing’s definite. Maybe lunch at Camp David.

But my macro point is this: A suddenly stronger King Dollar will be just fine as long as tax rates stay low. The Laffer-Mundell supply-side model argues for tight money and lower tax rates in order to maximize economic growth. That’s what we need now.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

GREAT ECON DATA: CHICAGO PMI & CONSUMER CONFIDENCE...WHAT'S DRAGGING ON THE MARKETS?....TAX SELLING WORRIES; LINGERING HOUSING CONCERNS; EURO DEBT CRISIS... SHOULD INVESTORS GET READY FOR A 4TH QUARTER COMEBACK?


- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Brian Wesbury, First Trust Advisors Chief Economist
- Jack Bouroudjian, CEO of Index Futures Group and a CNBC contributor

OBAMA'S BIPARTISAN LEADERSHIP SUMMIT
- CNBC chief Washington correspondent John Harwood reports from the White House.

TAX DEBATE: SHOULD THE CAP BE RAISED TO $1 MILLION?

- Mark Levine, Democratic Policy Analyst; Lobbyist
- Curtis Dubay, Heritage Foundation Senior Policy Analyst

WIKILEAKS TARGETS MAJOR U.S. BANK
- CNBC’s John Carney
- Dick Bove, Financial Strategist; Rochdale Securities

HOW TO AVOID GETTING BURNED BY EUROPE

- Michael Cuggino, Permanent Portfolio Family of Funds President & Portfolio Manager; Permanent Portfolio Fund
- Lee Munson, Portfolio Asset ManagementChief Investment Officer

DEFICIT COMMISSION REPORT
- Rep. Xavier Becerra (D-CA)

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

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

BRIGHT SPOT: RETAIL ROARS ON BLACK FRIDAY/ CYBER MONDAY...Is retail picture as rosy as it looks? Is it a reflection of optimistic consumer or saving-weary consumer? Are retailers discounting too much to turn a profit?



- Brian Sozzi, Equity Research Analyst
- Marshal Cohen, Chief Retail Analyst The NPD Group
- Loren Bendele, Founder & CEO of Savings.com

EUROPEAN DEBT CRISIS -- IS THIS A BUYING OPPORTUNITY?

- Robert Froehlich, The Hartford, Sr. Managing Director
- Peter Morici, University of Maryland Robert H. Smith School of Business Prof; U.S. International Trade Commission Fmr. Chief Economist

CONGRESS BACK IN SESSION

- Rep. Mike Pence (R-IN)

WILL THERE BE A TAX CUT EXTENSION? WHAT IS THE RIGHT COMPROMISE?

- Robert Reich, Fmr. Labor Secretary; "Aftershock" author; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

WIKILEAKS & CHINA

- CNBC's Hampton Pearson.

HOW SHOULD INVESTORS NAVIGATE THESE TRICKY WATERS?

- Jon Najarian, Co-Founder, OptionMonster.com; Fast Money Contributor
- Alan Valdes, DME Securities Vice President

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

No Time to Panic

Stocks are getting ripped by North Korea and Ireland, with all the fears that go along with those two stories. People should not panic. A lot of good news out there is suggesting a strong economy, regardless of what the Fed says.

Third-quarter real GDP was revised up from 2 to 2.5 percent, including better consumer spending. And inside the report, business equipment and software investment is growing 19 percent year-on-year. But the really important news in the revision is a continuation of strong business profits. After-tax profits are up 28 percent from year-ago levels. Domestic financial profits are up 28 percent. And domestic profits for non-financial corporations are up 40 percent.

Profits are the mother’s milk of stocks, business, and the economy.

We had a string of positive economic reports in October, including stronger retails sales and factory output. And via Mark Perry of the Carpe Diem blog, Thompson Reuters reports that mall traffic for November is showing a steep rise.

Employment trends are getting slightly better. Housing is not, and that’s the biggest glitch in my narrative. But it doesn’t seem to be getting any worse. And believe it or not, for whatever reasons, the dollar has been relatively steady of late. America is still a safe haven in times of stress.

What’s left to be done is a temporary extension of the Bush tax cuts. When that occurs, stocks could be poised for another large rally. Strong profits, a positive yield curve, the Fed greasing the wheels (for better or worse), improved business activity, and slowly recovering consumers all add up to positive market fundamentals.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

HEADLINE RISKS:
REALITY OF MILITARY THREAT FROM N. KOREA...DOES IT TRANSLATE TO MARKET THREAT AT HOME?
WHAT YOU NEED TO KNOW TO PROTECT YOUR PORTFOLIO



- Zach Karabell, River Twice Research President; Economist; CNBC Fast Money Contributor
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Frank Gaffney, Center for Security Policy President; Former Asst Secy of Defense for International Security Policy Under Reagan

HOW DEEP & HOW WIDE IS THE EUROPEAN DEBT THREAT?

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


IS IT TIME TO BUY THE MARKET?

- Art Hogan, Jefferies Managing Director, Global Equity Product
- Jim Iuorio, Options Action Contributor; Director, TJM Institutional Services


PART II OF THE GEORGE W. BUSH INTERVIEW
BUSH ON THE DOLLAR, SPENDING, TAXES & U.S. GLOBAL COMPETITIVENESS

HOW IMPORTANT IS A STRONG DOLLAR POLICY?

- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author; Founder & Fmr. President of the Club for Growth
- Tony Fratto, CNBC Contributor; Fmr. White House Deputy Press Secretary

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

An Animated Conversation with Former President George W. Bush

I recently sat down with George W. Bush to discuss his new book, Decision Points.

With the greatest respect to the former president, he and I disagreed on a number of issues, and let each other know about it.

In particular, the stock market's scorecard of his two terms, the collapsing dollar, and Too-Big-to-Fail Bailout Nation.

Click here to read the full transcript.

A Lively Talk with George W. Bush

Former President George W. Bush told me in a CNBC interview today in Salt Lake City that the stock market was not a fair scorecard of his presidency. When he took office, the Dow was 10,600. At the height of the Bush boom, in October 2007, it reached 14,165. And on the day he left office, as the financial crisis continued, the index had fallen to 8,300.

Like the Bush presidency, the Bush stock market was a rollercoaster.

But the former president stuck with his view that TARP Bailout Nation was necessary to avert a depression. And although there were other voices with different solutions inside his administration, he said there was no time for theoretical discussion.

I asked about crony capitalism in the Bailout Nation era, and whether ordinary Main Street folks felt the game had become rigged against them. Five Wall Street banks that received $135 billion in bailout money gained $125 million in fees for underwriting the IPO for GM, the car company that itself was bailed out for $50 billion.

Isn’t capitalism without failure like religion without sin? Mr. Bush says he believes in the free market, but to this day he still thinks he had to abandon market principles in order to save the free-market system. He told me today that he hopes future recessions will not be dominated by more bailouts.

I asked if our culture has changed. Are we now more like Western Europe? He said he hopes not.

He refused to discuss the Sarah Palin/GOP revolt against Ben Bernanke’s $600 billion pump-priming campaign. He also did not want to discuss the 35 percent collapse of the dollar under his watch.

He believes his tax cuts worked and hopes they are extended. He defended his spending record. And he does not believe the U.S. is falling behind China and other emerging countries around the world.

I asked if we are losing the new economic cold war. Mr. Bush said no. I asked if the best of the American way of life and prosperity is behind us. He said no. But he would not comment on current events, which has been his custom during his book tour.

It was a very lively interview.

It will be shown Monday and Tuesday (November 22 and 23) on CNBC’s Kudlow Report.

Pence-Corker Inflation Target Aimed at QE2

The political attack on Ben Bernanke’s QE2 continues. House leader Mike Pence and Sen. Bob Corker submitted legislation to end the Fed’s dual mandate of balancing employment and inflation. Instead, they want to rewrite the late-’70s Humphrey-Hawkins act to mandate an inflation target for the Fed, dropping the employment part.

This new inflation target is aimed at QE2, and the Fed’s attempt to lower the unemployment rate by inflating the money supply and the price level. It’s a good idea, though I would prefer going straight to a King Dollar stabilization approach referenced to gold in order to capture inflationary expectations, and thereby guide the Fed’s interest-rate and money-supply operations.

But an inflation target does clarify the central bank’s role as a guardian of price stability, and moves it away from the all-powerful central-planning disease.

Meanwhile, in the short term, the threat of dollar decline has been temporarily mitigated by the Irish and European debt-contagion flare-up, which has caused a run into dollars and out of euros. Dollar-gold has fallen accordingly.

However, in the QE2 cease-and-desist category, there is no deflation for the manufacturing sector. Factory output increased 0.5 percent in October and is running 6.1 percent ahead of last year. Along with a strong retail sales number, it looks like the economy’s growth rate is getting a bit better, and certainly not worse.

The producer price report for business wholesale prices shows no deflation. In October it increased 0.4 percent, and is running 4.3 percent above year-ago. Intermediate and crude prices also are strong.

Today’s CPI report showed a two-tenths of 1 percent increase in October, and a 2.4 percent annual gain over the past three months. The Fed will undoubtedly point to the scant 1.2 percent year-on-year gain, but that’s not deflation. The CRB futures index is still 7 percent above year-ago. Gold is 17 percent ahead of last year.

And Treasury bonds in the 10-to-30-year zone are actually higher in yield than they were late last summer when Bernanke first mentioned QE2. Not surprisingly, if the goal of the central bank is to inflate, long-term bond rates also will inflate.

A political uproar over Fed pump-priming has moved Bernanke to meet with Senate Banking Committee folks in order to re-sell the policies that were so sorely unsold in the first place. So far we don’t know what transpired in that closed-door meeting. But it looks to me like the Democrats are the easy-money party and the Republicans are the harder-money partisans.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

GM’s MONSTER IPO






- Jeremy Anwyl, Edmunds.com CEO
- Paul Ingrassia, CNBC Contributor; Pulitzer Prize Winner; "Crash Course" Author
- CNBC’s Phil LeBeau

DO GOV'T BAILOUTS WORK & WILL BAILOUT NATION CONTINUE?

- Jimmy Pethokoukis, Reuters Money & Politics Columnist; CNBC Contributor

MARKETS, CHINA, IRELAND, COMMODITIES

- Gary Shilling, A. Gary Shilling & Co. President
- David Gilmore, Foreign Exchange Analytics Partner
- Jim Iuorio; Options Action Contributor; Director, TJM Institutional Services


NBC/WSJ POLL ON SPENDING & TAX CUTS - NO POLITICAL WILL TO CUT?

- CNBC chief Washington correspondent John Harwood reports.

BERNANKE DEFENDS BOND-BUYING PLAN TO CONGRESS

- Sen. Judd Gregg, (R) New Hampshire; Budget Cmte Ranking Member

CONGRESS NET WORTH GOES UP WHILE REST OF COUNTRY'S FALL

- CNBC’s Eamon Javers reports.

LEGISLATIVE LOGJAM FOR TAX EXTENSIONS? … TRAINWRECK COMING IF THE BUSH TAX CUTS AREN'T EXTENDED?

- Steve Moore, WSJ Editorial Board; Founder & Fmr. President of the Club for Growth

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

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

WALL STREET GROWS WORLD-WARY
Global markets fall as investors fret over China & Europe





- David Goldman, Senior Editor First Things Magazine; Fmr. Wall St. Economist
- Mike Khouw, Cantor Fitzgerald Director, U.S. Equity Derivatives Trading; Options
- Boris Schlossberg, GFT Forex Director Of Currency Research

PENCE & CORKER CALL FOR END TO FED'S DUAL MANDATE

- Rep. Mike Pence, (R) Indiana; House Republican Conference Chair

BOND MARKET DEFIES THE FED

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

U.S. STOCKS: EXPECTED CORRECTION OR SOMETHING WORSE?

- Bob Froehlich, The Hartford, Sr. Managing Director
- Lee Munson, Portfolio Asset Management Chief Investment Officer

GM IPO SHENANIGANS?

- Ronald Kruszewski, Stifel, Nicolaus Chairman & CEO

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

Strong Retail Sales Warn the Fed: Cease and Desist

The headline story in this morning’s Wall Street Journal is a beauty. Republican economists, hedge fund managers, and even some presidential candidates are blasting the Fed for its $600 billion QE2 pump-priming operation. Quite sensibly, the group that signed an open letter to Ben Bernanke argues against dollar devaluation and inflation. At least a couple of the signees are Democrats. And following Sarah Palin’s Bernanke broadside, potential presidential candidate Mike Pence is on the hustings attacking the central bank.

All this is good. King Dollar politics.

During the 19th century, many presidential campaigns were fought on the issue of the dollar and its gold or silver backing. So history may repeat itself. Will we have Keynesian fine-tuning, or stable money backed by commodities including gold?

But here’s another reason why the Fed should cease and desist: There’s more evidence that the economy looks to be picking up. Today’s retail sales report showed a 1.2 percent rise for October, printing to an 11.8 percent annual increase over the last three months. Core retail sales that feed into GDP increased 6.3 percent annually over the past three months.

This won’t calculate into the 6 or 8 percent recovery growth that the country really needs. But it does look like business and consumer confidence improved in the run-up to the GOP election sweep.

And it’s worth noting that incomes are rising a bit faster, with hours worked combining with wage increases to produce some spending power. And of course, cash-rich companies remain highly profitable.

Meanwhile, on the inflation front, the CRB futures index is up 11.5 percent over the past twelve months. So does the Fed really want to ease into an improving economy, backed by an ominous commodity increase?

Final point: With better economic stats, the U.S. dollar is rising, not falling. And long-term bond rates are rising, not falling. Along with a better economy, the consensus has it wrong, at least for the moment. Go figure.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

ECONOMY GETTING STRONGER ... IS EVERYONE OBSESSING ABOUT THE FED TOO MUCH?





- Charles Reinhard, Morgan Stanley Smith Barney Global Investment Strategist
- Joe Battipaglia, Stifel Nicolaus Market Strategist
- Jack Bouroudjian, CEO of Index Futures Group

FRESH ATTACK ON FED MOVE: POLITICS OF THE FED & KING DOLLAR ... IS A BOND CRISIS COMING?

- CNBC's Hampton Pearson reports.

ECONOMIC COLD WAR BREWING...IS AMERICA GOING TO LOSE IT?
Is the Fed bankrupting government, destroying the dollar & making U.S. a second-rate rate economic power?

- Andy Busch, BMO Capital Markets; CNBC Contributor
- Bob McTeer, CNBC Contributor; Fmr. Dallas Federal Reserve Bank Pres. & CEO

LAME DUCK SESSION: GOP EARMARKS VOTE TOMORROW- McCONNELL JOINS GOP BRETHREN TO SUPPORT EARMARK BAN; TAXES & BUDGET

- CNBC chief Washington correspondent John Harwood reports.

WILL THE LAME DUCKS STOP THE TAXING AND SPENDING IN ORDER TO PROMOTE AMERICAN PROSPERITY?

- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor; Univ. of CA., Berkeley
- Dan Mitchell, CATO Senior Fellow

LAME DUCK INVESTING

- Jim LaCamp, Macroportfolio Advisors Portfolio Manager & Advisor
- Ned Riley, Riley Asset Management CEO

SENIOR BOOM BEGINS AMID ECONOMIC BUST: IS SOCIAL SECURITY GOING BANKRUPT LIKE THE REST OF THE GOVT & WHAT'S THAT MEAN FOR THE BOOMERS?

- Frederick Lynch, Professor at Claremont McKenna College

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

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

MARKETS…LEGENDARY INVESTOR JEREMY GRANTHAM SAYS IF YOU'RE CONSERVATIVE NOW, HOLD SOME CASH....BUT SHOULD WE BE GOING INTO CASH? HOW SHOULD AN INVESTOR PLAY THIS MARKET?



- Warren Meyers- DME Securities CNBC Market Analyst
- Michael Cuggino- Permanent Portfolio Funds President & Portfolio Manager

ARE SLASH AND BURN BUDGET CUTS THE KEY TO ECONOMIC RECOVERY?

- Rep. Paul Ryan- (R) Wisconsin /House Ways & Means Cmte. & Ranking

BUSH TAX CUT EXTENSION/DEFICIT COMMISSION: WHAT'S THE STOCK MARKET IMPACT?

-Andy Busch - CNBC Contributor; BMO Capital Markets Global Currency & Public Policy Strategist
- Jeff Matthews - founder of the hedge fund Ram Partners LP /author of "Pilgrimage to Warren Buffett's Omaha"

TOMORROW'S UNVEILING OF QE2...IS THE LAUNCH OF QE2 REALLY SO BULLISH FOR THE STOCK AND THE ECONOMY?

-Joe LaVorgna - Deutsche Bank Chief U.S. Economist & CNBC Contributor
-Vince Reinhart - Former Federal Reserve Board's Division of Monetary Affairs Director
-Jim Iuorio - Options Action Contributor /Director, TJM Institutional Services

IS TEAM OBAMA CAVING ON BUSH TAX CUTS?

*Boyce Watkins- Syracuse University Finance Professor
*Jimmy Pethokoukis - Reuters BreakingViews Money & Politics Columnist

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

Deficit Commission on Right Track . . .

My first cut at the Bowles-Simpson deficit-commission recommendation is that it basically moves the ball in the right direction. It goes after entitlements, domestic and defense discretionary. It puts some kind of freeze on federal hiring and salaries. It lowers the corporate tax, flattens the personal tax, and gets rid of a bunch of tax-expenditure loopholes.

However, it should be much, much tougher on spending. By 2015 the baseline should be lowered by at least $500 billion, if not more — not just $200 billion.

And there should be a much more aggressive, true, flat-tax reform, with no more than two brackets of 15 and 28 percent, and preferably one bracket somewhere south of 20 percent. Plus, capital gains and dividends, which would go up under the commission, should be abolished altogether, along with the estate tax. And corporate tax reform should have a lower top rate and should include full cash expensing for new investment in plants and equipment.

And finally, to ensure economic growth over the long run, we need a King Dollar currency reform linked to a gold reference point to stabilize and protect the value of our money.

However, if Dick Durbin and Nancy Pelosi oppose the Bowles-Simpson commission, then I know I’m right that the new proposals are at least on the right track.

What I gather is that 14 votes from the 18-member commission guarantees an up or down vote in Congress. That makes it interesting.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

DEBT COMMISSION'S PROPOSAL: DRAMATIC TAX REFORM; SPENDING CUTS; SOCIAL SECURITY....WHAT'S AT STAKE FOR STOCKS?




-CNBC’s Eamon Javers reports.

Panel:

- Lee Munson, Portfolio Asset Management Chief Investment Officer
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer
- Barry Ritholtz, Fusion IQ CEO, Director of Equity Research

MORE FEDERAL WORKERS PAY TOPS $150,000
- CNBC’s Hampton Pearson reports.

HOW TO SAVE AMERICA'S ECONOMY
- Thomas Sowell, Hoover Institute Senior Fellow

WHAT DOES EURO/IRISH DEBT THREAT MEAN FOR STOCKS & DOLLAR?

- Russ Koesterich, Head of Investment Strategy; Barclays Global Investors
- Chris Whalen, Institutional Risk Analytics

FROM THE CORNER OFFICE: FUTURE OIL PRICES & WHAT THE NEW CONGRESS MEANS FOR THE ENERGY SECTOR

- John Richels, Devon Energy Pres. & CEO

OUTRAGE: "HOW TO BE A PEDOPHILE" ON AMAZON
- CNBC’s Bertha Coombs reports.

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

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

QE2 HAS BECOME A FRONT-PAGE POLITICAL FOOTBALL ... WILL SARAH PALIN & GOP ATTACK ON FED POLICY FORCE BERNANKE TO LIMIT QUANTITATIVE EASING?



- Rep. Jeb Hensarling, (R) Texas; Financial Services Cmte
- Matt Miller, Washington Post Online Columnist; Public Radio's "Left, Right and Center" Host
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager

ETF TICKING TIMEBOMB? IS THERE SYSTEMIC RISK IN ETFs?

-CNBC’s Herb Greenberg reports.

- Harold Bradley, co-authored Kauffman Foundation's study
- Bruce Lavine, WisdomTree Investments Pres. & COO

IS OBAMA TAX PROPOSAL DEAD IN THE WATER? WILL GOP REPEAL OBAMACARE?

- Rep. Dave Camp, (R) Michigan, Likely House Ways & Means Chairman

HOT COMMODITIES

- Harry Rady, Rady Asset Management CIO
- David Goldman, Senior Editor First Things Magazine; Fmr. Wall St. Economist: Bear Stearns & Credit Suisse

GLOBAL REFLATION? STOCKS...BUY, SELL OR HOLD?

- Art Hogan, Managing Director Director, Global Equity Product
- Alan Valdes, Vice President DME Securities

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

The World Against Bernanke

The great Bernanke QE2 debate continues to heat up. In the run-up to the G-20 meetings, China, Russia, Germany, and others are all coming out against the Federal Reserve’s quantitative-easing agenda. They don’t want hot-money excess dollars to flow into their higher-yielding currencies.

The assault against Bernanke’s easy money has reached such a fever pitch that President Obama felt it necessary to defend the $600 billion in new-money printing in a news conference in India.

Meanwhile, World Bank president Robert Zoellick has actually called for putting gold back into global money, in order to use it as an international reference point to measure market expectations over inflation or deflation. The former Treasury and State Department official wants a successor to Bretton Woods. To my way of thinking, Zoellick is dead-on right.

And then there’s Kevin Warsh’s opus op-ed in Monday’s Wall Street Journal. I have written about Warsh in the past, and his sound-thinking views. Taking a bit of a shot at Bernanke’s QE2, the Fed board member basically says: Look, you want better growth, reform the tax code and stop regulating. “The Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies,” he writes.

But in the key part of his op-ed, Warsh calls for a strictly limited QE2, not an open-ended commitment. He describes it as “necessarily limited, circumscribed, and subject to regular review.” And he goes on to say that if the dollar decline and run-up of commodity prices continues, these inflation signals should stop QE2, regardless of the unemployment rate.

It’s noteworthy that both Zoellick and Warsh are using gold, commodities, and the dollar as alarm signals — market-based alarm signals — that would warn the Fed if it’s too loose.

Since Bernanke first hinted at quantitative easing in late August, commodity indexes have jumped nearly 20 percent, gold has hit a new record high over $1,400 an ounce, and the dollar has fallen nearly 10 percent against the euro. And riding the crest of easy-money expectations, stocks have increased just less than 20 percent. But is it real? Is it sustainable?

The fact is that Ben Bernanke, who seems wedded to an old-style monetarism, is looking at backward inflation signals such as the consumer price index. And here’s the irony in Bernanke’s monetarism. In the six months prior to April, the M2 money supply was flat. But since April, M2 has turned up rapidly at a 7 percent annual growth rate. So it looks like people are putting money to work as the whole economy may actually be heating up.

And notice that while M2 growth has surged, so have commodities and gold — all while the dollar has been declining.

I’m not going to make a case for old-fashioned monetarism, because we have learned that the velocity (or turnover) of money is unstable. Anyway, it’s the King Dollar value of money that really counts. But I will note that as Bernanke’s new monetarist experiment takes off, higher commodities and a rising money supply at the same time suggest the economic situation is taking a new turn. This new turn is likely to include a faster growth rate, especially if Washington keeps the Bush tax rates down.

And it’s quite possible that business confidence is improving with the election trends having become clear. Early October economic reports from the Institute for Supply Management for both manufacturing and services came in above expectations. The same was true for the October jobs report, with a more than 150,000 gain in payrolls. And car sales, especially light-truck sales, have picked up substantially. According to Auto Nation CEO Mike Jackson, rising pickup sales show that small businesses and entrepreneurs are going to work. (Hat tip to Mark Perry of the Carpe Diem blog.)

And then there are profits. The dominant economic fact behind the rise in stocks and a possible upturn in the rate of economic growth is a continuation of strong business profits across-the-board. This is the best and most durable form of stimulus coming from the private sector.

So I would say to Mr. Bernanke, be careful what you wish for. And I would say to Messrs. Zoellick and Warsh, thank you for your sound-money contributions.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

TWO TOP ECONOMISTS SAY ECONOMY IS ON THE ROAD TO RECOVERY
WHAT'S IT MEAN FOR THE MARKETS?




- Art Laffer, Chief Investment Officer, Laffer Investments; Fmr. Reagan Economic Advisor
- Zach Karabell, River Twice Research President Economist; CNBC Fast Money Contributor
- Mike Ozanian, Forbes National Editor

OBAMA & THE BUSH TAX RATES DEBATE

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

BERNANKE VS. THE WORLD…GOLD TOPS $1400...BACK TO A GOLD-BASED CURRENCY?

CNBC’s Eamon Javers reports.

- Vince Reinhart, American Enterprise Institute Resident Scholar; Fmr. Dir. of monetary affairs at the FOMC
- Peter Navarro, "The Coming China Wars" author; University Of California - Irvine Business Professor

RISING PRICES AT THE GROCERY STORE
- CNBC’s Brian Shactman reports.

"BALANCED BUDGET NOW"
- Mike Lee , (R) Utah Senator Elect

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

Debunking White House Pro-Tax Increase Propaganda

Take a minute to watch this new mini-documentary from my old friend and frequent Kudlow Report guest Dan Mitchell. He debunks White House pro-tax propaganda with a point-by-point rebuttal of a video narrated by another old friend of the Kudlow Report, Austan Goolsbee of Obama's Council of Economic Advisers.

Why Is the Fed Priming the Pump?

Go figure. The mighty, all-knowing, all-powerful Ben Bernanke Fed is set to pour 900 billion new dollars into the economy over the next eight months. But it may be launching this pump-priming operation at exactly the time the economy is picking up. Huh?

Today’s jobs report was the best since last May. Nonfarm payrolls increased 151,000, with upward revisions of 110,000 for the two prior months. Similarly, private payrolls increased 159,000 in October, with sizable upward revisions for September and August. It’s not a fabulous report, but it’s certainly the best in a while.

Other October economic stats — like the two ISMs and car sales — are also pointing to a stronger economy. Maybe 3 percent growth instead of 2 percent.

Unfortunately, the unemployment rate is stuck at 9.6 percent, with household employment dropping unexpectedly by 330,000. And of course, both the nonfarm and household surveys need to rise by about 250,000 per month in order to chop down unemployment. So let’s hold the champagne celebration.

But the question is this: If jobs and the economy are improving, why is the Fed launching QE2? Maybe it should keep it in the dock. Let’s not risk a dollar collapse for a change. Gold prices are marching toward $1,400 an ounce.

Foreign central bankers are furious at the Fed for pouring more dollars into the world economy. And all this hot money is going to go to countries in Asia that don’t want the new dollars.

German finance minister Wolfgang Schaeuble said, “With all due respect, U.S. policy is clueless.” And former Fed chair Paul Volcker said the Fed’s new easing “is not the kind of action that’s likely to change the general picture that I have described of slow, labored recovery.” Volcker also said the Fed’s monetary easing could eventually lead to inflation. He called on the central bank to be cautious about taking further quantitative-easing steps.

Maybe the Fed ought to hold off for awhile. A tax-rate freeze and deep budget spending cuts look to be coming from the new Republican Washington. That will help restore confidence and might get businesses to step up their investment with all the profits and loose cash they have to spend.

Leave QE2 dockside, I say. The U.S. economy just might be turning over a better leaf. Change is in the air. That’s just what the strong stock market is telling us.

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POSITIVE JOBS REPORT: ECONOMY ADDED JOBS FOR 1ST TIME SINCE MAY - WHY DIDN'T STOCKS RALLY?




- Jon Najarian, OptionMonster.com Co-Founder; "Fast Money" Contributor
- Jim Iuorio, Options Action Contributor; Director, TJM Institutional Services
- David Tice, Portofilio Manager, The Prudent Bear Fund

FORMER GE CHIEF JACK WELCH SAYS PAYROLL TAXES SHOULD BE CUT TO CREATE JOBS. IS HE RIGHT?

- Michael Linden, Center for American Progress Associate Director for Tax and Budget Policy
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

IS BEN BERNANKE POURING THE MONEY IN AT THE WRONG TIME?

- Jeff Matthews, hedge fund manager; Ram Partners founder; "Pilgrimage to Warren Buffett's Omaha" author
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer

REIT REPORT
CNBC’s Diana Olick reports.

BUY OR SELL REITS?
- Rob Manning, Keefe, Bruyette & Woods; Senior REIT Trader

IS GOVERNMENT SPENDING AUSTERITY GOOD OR BAD FOR ECONOMIC GROWTH & PROSPERITY?

- Chris Edwards, CATO Director of Tax Policy
- Joseph Minarik, CED Sr. VP & Director of Research

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

The Buzz That's Driving This Rally

Besides the Fed’s quantitative easing, a new buzz from Obama about extending all the Bush tax cuts is driving stocks up nearly 200 points today.

The president opened the door to full extension at his post-election news conference yesterday.

Today, Obama spokesman Robert Gibbs acknowledged this possibility at a news gaggle.

Gibbs said the administration is “open” to negotiations on extending tax cuts for upper-income individuals in order to win extensions for middle-income families. Gibbs did add, however, that the president still “does not believe it’s a good idea.”

But here’s the key: Two Democrats elected to the Senate on Tuesday, Chris Coons of Delaware and Joe Manchin of West Virginia, campaigned on extending all the Bush tax cuts. Since they will fill the seats of Joe Biden and Robert Byrd, they will be seated during the lame-duck Congress coming in a few weeks.

And there are roughly a half-dozen additional Senate Democrats — at least — who would vote for a two-year extension of all the Bush tax cuts. Plus, there will now be 46 or 47 Republican senators voting for them, too. And over in the House, about 40 Democrats signed letters and campaigned for extending all the Bush tax cuts. So the outlook for the full Bush is getting good, and the hope that we will avoid an economic train wreck is rising.

One key point about today’s rally is the lack of year-end tax selling, based on the idea that the capital-gains tax would jump from 15 percent to 20 percent and the dividend tax from 15 percent to 39.6 percent. Tax selling has been hanging over the market. But with Obama moving to the center, and newly elected Senate Democrats in favor of the full Bush, things are looking a lot better for stocks and the economy.

Full Bush extension, by the way, might just add some business confidence to the picture, which could lift job creation next year. Profits are very strong, and the early October ISMs came in above expectations. So did car sales at almost 12.5 million. So keep your fingers crossed.

But surely the election results are sending a strong message to Washington. The next step will be big budget cuts through congressional rescissions and policy changes. That, too, will generate confidence and reduce uncertainty.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

GLOBAL EQUITY RALLY

-Joe Battipaglia - Stifel Nicolaus
- Art Hogan - Jefferies Director of Global Equity Product
- Ned Riley - Riley Asset Management CEO


FED FALLOUT: QE2 MONEY PRINTING LEADING TO INFLATION?

*Gary Shilling - A Gary Shilling & Co. President
*Brian Wesbury- First Trust Advisors Chief Economist

FUTURE OF THE BUSH TAX CUTS

*Jimmy Pethokoukis- Reuters BreakingViews Money & Politics Columnist
*Boyce Watkins - Finance Professor Syracuse University

COLD DOLLAR … HOT COMMODITIES

-Boris Schlossberg - GFT Forex Director Of Currency Research
-Andre Julian - OpVest Senior Market Strategist

30TH ANNIVERSARY OF RONALD REAGAN'S ELECTION
- Steven Hayward - The Age of Reagan: The Conservative Counterrevolution: 1980-1989

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

Less Bad Stuff Is Good

Momentous events this week — the Republican House sweep and the Fed’s QE2 — moved the stock market needle only a little over Tuesday and Wednesday, although the net impact was a gain of about 90 points.

Obamanomics was repudiated at the polls and the Republicans inflicted a crushing defeat on the Democrats in the House. However, tea partiers disappointed in several Senate elections, leaving Harry Reid & Co. in charge of the upper chamber.

The real meaning of the new Senate-House-Obama triangle is not yet clear. The bad stuff will be stopped. That’s good. But how much good stuff can be legislated remains to be seen. This might be what’s slowing down the stock market. (Though again, I note, a 90 point rise is not nothing.)

Two key Senate races produced supporters of extending all the Bush tax rates. This could be the key. Democrat Jim Manchin in West Virginia and Republican Mark Kirk in Illinois will be seated immediately to fill the Robert Byrd and Barack Obama vacancies. This raises the probability that a full extension of the Bush tax cuts will go through the Senate. I’m going to assume that the people have spoken, even to the lame ducks in the House. And a conciliatory and compromising Obama at his news conference today suggests that the president will sign a temporary full extension of the Bush tax rates. That’s a pro-growth development.

On the Fed side, the central bank is going to pump $600 billion of new money into the over $14 trillion economy in the next eight months. The Fed held back on a shock-an-awe program that could have been over $1 trillion. But it’s going ahead with the money stimulus.

This middle-ground action was already discounted by the market. The dollar did fall today, but so did gold. Of course, I would have preferred no QE2 at all. Similarly, to protect the dollar, I would replace the Fed altogether with an ounce of gold. But that’s my problem.

Here’s a question, though. Is the Fed stimulating into an improving economy? Today’s ISM for services came in above expectations. The same is true for Monday’s ISM manufacturing report. September factory orders rose 2.1 percent. And monthly car sales near 12.4 million at an annual rate are the best since September 2008.

It wouldn’t be the first time the central bank is a lagging indicator. Commodity indexes have been booming. Bond market inflation expectations have been rising. And now the economy seems to be improving in the early part of the fourth quarter.

To me, the Fed is at least doing minimal harm, although I continue to fret about the outlook for the dollar. But the possibility of a pro-growth fiscal policy coming out of the lame-duck Congress — a large budget continuing resolution that extends the Bush tax rates and is stingy on spending — is a good thing.

Regarding the future triangulation between Obama, Reid, and Boehner, we will all have to puzzle though this. But surely stopping the bad stuff is a plus.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

FED, ELECTIONS & YOUR PORTFOLIO
HOW TO CAPITALIZE ON THE GAME CHANGING EVENTS





- Dan Clifton, Strategas Research Partners Director, Head of Policy Research
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Ronald Kruszewski, Stifel, Nicolaus Chairman & CEO

DID THE FED GET IT RIGHT?
FED'S IMPACT ON MARKET, KING DOLLAR, COMMODITIES, ECONOMY; CURRENCY WARS

- John Taylor, Stanford University Economics Professor; Hoover Institute Sr. Fellow; "Getting Off Track" Author
- Dan Greenhaus, Chief Economic Strategist, Miller Tabak + Co.
- CNBC’s Rick Santelli

GOP PLEDGE TO AMERICA
- Ed Gillespie, Republican Strategist, Ed Gillespie Strategies Founder -

NOW WHAT'S THE AGENDA?

- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor; Univ. of CA., Berkeley, Prof.
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author; Founder & Fmr. President of the Club for Growth

HOW DOES THE NEWS CHANGE YOUR INVESTMENT STRATEGY?

- Michael Cuggino, Permanent Portfolio Family of Funds President & Portfolio Manager; Permanent Portfolio Fund (PRPFX)
- Andy Busch, BMO Capital Markets; CNBC Contributor

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

King Dollar Is Essential

A Republican tsunami will be bullish for the dollar. The bigger the GOP landslide, the better it will be for the greenback.

However, QE2 new-dollar creation will be bearish for the dollar. And the Fed’s money-creating will outweigh — at least in the shorter term — any Republican fiscal-policy improvements toward lower spending and taxing.

The GOP needs a King Dollar policy, preferably one backed by gold. A depreciating dollar will drain cash from the U.S. and send it overseas; foreign investment into the U.S. will be stunted by a chronically weak dollar. And the inflationary consequences of the devaluing dollar will ultimately outweigh any low-tax-rate incentives.

As the dollar kept falling during the Bush years, it blunted the pro-growth effects of the 2003 tax cuts. There is a crucial lesson to be learned here: A strong and stable dollar is an essential complement to low tax rates.

Regarding Team Obama, it now appears that Tim Geithner’s protest that no country can devalue its way into prosperity was a lot of smoke-blowing. His credibility is going to suffer.

But in a new Republican House (and maybe Senate), committee chairs will have a great opportunity to work on a King Dollar policy.

As I said, a stable and reliable dollar is an essential complement to low tax rates on the path to restoring growth.