WASHINGTON TO WALL STREET ... GEITHNER SET TO LEAVE TREASURY AFTER BUDGET DEAL? THE DEBT CEILING DEBACLE: DOLLAR'S FUTURE; TAX REFORM; DODD FRANK - Jared Bernstein, Center on Budget and Policy Priorities Sr. Fellow; CNBC Contributor; Vice-Pres. Biden Fmr. Chief Economist & Economic Policy Adviser - Rep. Ed Royce, (R) California; Financial Services Cmte. - David Goodfriend, Fmr. Clinton W.H. Official; "Left Jab" Co-Host/Air America Co-Founder - Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor
MARKET CORRECTION OVER? - Kelly Evans, Wall Street Journal Economics Reporter - Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer
QE2 SUNSETS...WILL QE3 SAIL? - Dean Baker, Co-director of the Center for Economic and Policy Research - John Taylor, Stanford University Economics Professor; Hoover Institute Sr. Fellow; "Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis" Author
OBAMA'S CORPORATE JET BROUHAHA - Pete Bunce, General Aviation Manufacturers Assoc. Pres.& CEO - Mark Levine, Democratic Policy Analyst; Syndicated Radio Host
As I wrote yesterday, Democrats are obsessed with repealing the Bush tax cuts, especially the upper-end. They could use a 12-step program and a Higher Power.
President Obama, after signing an extension of the Bush tax cuts last December, relapsed once again at his news conference today. It was the usual bashing of millionaires and billionaires, oil companies, corporate jets (made by Cessna and Hawker-Beechcraft), and investment funds.
Plus, the president says there’s only about $1 trillion of spending cuts over ten years. Pardon me for being cynical for thinking much of that is phony baloney.
So the whole debt-ceiling business is going nowhere. Republicans correctly reject tax hikes and the president isn’t yet digging in on spending. There’s no majority in the House for a $600 billion tax hike, and I hope there never is.
What we have now is certainly not a growth package to perk up the sputtering, less-than 2 percent economy, with its 9.1 percent unemployment rate. No mention at all of a real business-tax-reform overhaul.
On the plus side, the president did seem to side with Boeing in the NLRB dispute about adding jobs in South Carolina and the state of Washington. Obama said companies should be able to relocate anywhere in the United States.
But basically his message today was class-warfare, soak-the-rich. Somehow, Democrats are for your kids but Republicans are for your fat cats. It’s so tiresome. It will never sell.
Here's a question: Why is repealing the Bush tax cuts such a constant obsession for the Democratic Party? Especially the top rates for the most successful earners and small business entrepreneurs?
It seems this is the Democratic answer for every single issue, every problem, every debate.
This, of course, saddens me enormously.
And so, always ready to help, I am recommending a 12-Step program to help them overcome their anger, resentment, and obsession over the Bush tax cuts. Democrats really need a Higher Power on this.
First, when tax rates were lowered across-the-board in mid-2003, the incentive effect kicked in to jump-start the economy immediately. Over the next four and a half years, before the financial meltdown slammed the economy-- and that was a credit event, not a fiscal one—8.2 million jobs were created.
Jobs essentially rose for about fifty consecutive months.
Non-farm payrolls rose from just under 130 million to just over 138 million. Don’t believe me? You can look it up. This sort of job creation is exactly what President Obama would love to see happen now.
And, while jobs rose, the government took in more revenues. As a share of GDP, revenues rose from 16.2 percent to 18.5 percent. Simply put, supply-side tax cuts were the single best economic policy President Bush implemented.
Elsewhere, President Bush overspent and overregulated. And yes, the dollar collapsed on his watch. And from Fannie Mae to the Federal Reserve, the housing bubble was born.
But the tax cuts? They worked. And that's my point.
TURMOIL IN ATHENS: WHAT NEXT? -Steve Cortes, founder of Veracruz -Jared Bernstein, former economic advisor to VP Joe Biden -David Malpass, president of Encima Global -Rep. Marsha Blackburn, (R-TN)
WASHINGTON TO WALL STREET -Sen. Jim DeMint (R-SC) -Former Sen. Byron Dorgan (D-ND)
FREE MARKET MATTERS ... WHY ARE DEMOCRATS OBSESSED WITH REPEALING THE BUSH TAX CUTS? -Steve Malzberg, conservative talk radio host -Mark Walsh, American entrepreneur, political activist -Tim Carney, The Washington Examiner
Rising Senate star Marco Rubio of Florida put out a strong growth message in our interview last night. Shrink size of government, broad-based flat tax reform, roll back regulations. Balanced budget amendment, with tough spending caps. Best solution for an ailing middle class: Create jobs. He believes the 21st century can be an American century if we follow this path. There are few people more articulate than the gifted Sen. Rubio.
LARRY KUDLOW, host:
We welcome back Senator Marco Rubio of Florida to THE KUDLOW REPORT. It's been a while, Senator, thank you.
Senator MARCO RUBIO: Yeah, thank you. Thanks for having me.
KUDLOW: All right. Well, it's great to have you as a senator. I appreciate it very much.
All right, the debt talks are very hot. President Obama's involving himself now. He's meeting with the senators. I want to ask you, over the weekend, the president said we can't simply cut our way to prosperity. What does he mean by that and what's he signaling in terms of these debt talks?
Sen. RUBIO: Well, I'm not sure what he means by that. I can tell you that we can't cut our--only our way out of prosperity. We need to grow our way into prosperity, and that means economic growth. And government can be a facilitator of that in creating an environment where job creators are incentivized to create jobs. Job creators are not governments, they're not presidents, they're not US senators. Job creators are everyday people from all walks of life that start a business or expand an existing business, and what we need are government policies that make it easier for them to do that and that encourage them to do that. So if that's what the president means, I think that's very good.
If on the other hand what he means is we're going to borrow a bunch more money and spend a lot more money to try to do what he tried to do with the stimulus, I think that's very bad news for our future.
KUDLOW: I mean, he has his high-speed trains. He's got his infrastructure. He's got his clean energy technology and so forth. And I want to also put in, Vice President Biden over the weekend at a Democratic event said we can't have the middle class place--have all the burden of this deficit reduction and debt. And then he singled out hedge funds who have a 15 percent capital gains tax rate for their income. I guess my question is, what is Mr. Biden saying along with the president? Are we looking at a significant tax increase as part of this debt ceiling?
Sen. RUBIO: Well, I think clearly many in the Democratic base have said that they want that on the table. Unfortunately for them, and I think fortunately for the country, I don't think there's going to be support for that in Washington, including among many Democrats, I hope, who realize that we can't...
KUDLOW: No tax increases. The Democrats won't take a tax...
Sen. RUBIO: Well, there can't be a tax--well, I think some Democrats want there to be a tax increase, but I think ultimately the votes are not there, certainly in the Senate, I hope, because--I could be wrong, but I know among Republicans the votes aren't there. Because, number one, there's no way you can tax your way to prosperity. Number two, our tax code is already a source of great uncertainty and worry and concern about the future. And number three, even if he wanted to, which I do not, there's no tax they could raise that would accomplish the deficit reduction they're talking about. I mean, if you raise to 100 percent the taxes on every rich American under their definition of rich, which is people making over $250,000 or more a year, it still wouldn't make a dent on the debt.
So, look, we've got to--we need a combination of two things. We need fiscal restraint. We need a government that begins to stop spending money it doesn't have. And we need pro-growth strategies. We have to grow this economy. There's not enough focus on the growth element of this.
KUDLOW: What about the issue of deductions, tax deductions? Now there's a lot of talk, even by some Republicans in the Senate, that they could take some downward adjustment or elimination of certain deductions as part of a compromise package. Does that work for you?
Sen. RUBIO: Well, I think we're in need of tax reform to make the tax code simpler and easier to comply with and more certain. I don't think it's a source of revenue, and that's why I believe in the revenue neutrality in any of those measures that are taken. Again, I think if you want more revenue for government, the way you do that is by growing your economy, not by raising tax rates on certain people or getting rid of deductions. So if they want to make the tax code flatter and fairer, that's fine. But if they--and I think that's a good idea. But if they want to use it as a way to raise revenue--in essence, if it's not going to be revenue neutral, I think that hurts economic growth, which has to be our number one priority.
KUDLOW: How do you react to what Mr. Biden is saying regarding the middle class? I mean, I guess the point is, the middle class rely on Social Security to a large part. They certainly rely on Medicare. At least Medicare is on the chopping block in these debt talks. Cutting Medicare back, what do you give the middle class in return? They've sort of taken it on the chin. You know this. Oil prices, gasoline prices.
Sen. RUBIO: Sure.
KUDLOW: Wages are not keeping up with inflation. What is your message? What is the Republican message to the middle class?
Sen. RUBIO: Well, a couple of things. Number one, on oil prices, we have no one to blame but the government for a lot of that. And quite frankly, this administration has made it harder, not easier for Americans to produce their own energy. And it's contributed greatly to the price of oil and to the price of--at the gas pump.
As far as Medicare and Social Security are concerned, let's focus on Medicare for a moment because I think that's an important one. It's going to bankrupt and it has to be saved. I want to save Medicare. The status quo doesn't save Medicare. The status quo bankrupts it. So there are a lot of people out there criticizing Paul Ryan's plan. I would say to them, `Well, what's your plan?' Where is the president's plan to save Medicare? Where's the congressional Democrats' plan to save Medicare. Where's the Senate Democrats' plan to save Medicare? They don't have a plan to save Medicare. Their plan is to use it as a electoral weapon in the next election. So what I--my message would be very simple. If we keep doing the things that we're doing now with Medicare, it will go bankrupt very soon. It won't exist when I retire or when my child retire and it'll lead to bankrupting this country. So I think--I am for reforms that save Medicare and keep it solvent.
KUDLOW: And do you think that there's a middle class problem there inside that message for the Republican Party? Because I think it is true, in part, in part, that the kinds of reductions envisioned by Paul Ryan, let's say, will clip down some of the middle class benefits. Now maybe all people's benefits, but the middle class will share in that.
Sen. RUBIO: But the most important thing for middle class and working class folks in this country is jobs. They want to be able to go out and earn a livable wage so they can raise their family with and leave their children better off than themselves. And my argument is that what's done that in America has not been our government. Certainly government can create an environment where that's possible, but what's done that in America is the job creators. And what we need is an environment of certainty when it comes to regulations, of certainty when it comes to our tax code. We don't need leaders that are out there using rhetoric that discourages job creators from investing in America so the jobs return to the United States and are here again, so that middle class families can feed their families, raise their children and provide them opportunities they themselves didn't have.
KUDLOW: What will it take to get you to vote for a debt ceiling compromise?
Sen. RUBIO: Well, I--you know what? I outlined it in the Wall Street op-ed I wrote over two and a half months ago. I don't--this debt limit debate shouldn't be just about the debt limit. It should be a comprehensive opportunity to deal with the issues that confront our nations economically. So I want some sort of regulatory reform. I want some sort of tax reform. I'd like to see us tackle or at least begin to tackle how to save Medicare and Social Security, or at least Medicare in the starting. I'd like us to see a balanced budget amendment. I'd like to see a spending cap. So these are the kinds of things I'd like to see in a package. I have said from the beginning that this debt limit debate is a golden opportunity to begin to confront the serious issues that stand between us and the next American century, which is what we have an opportunity to build here.
KUDLOW: Speaking of which, the next American century--really my last question, In in your excellent maiden speech on the floor of the Senate, I guess about 10 days ago, you say people aren't the problem in America. It's the government that's broken. Could you just briefly tell us what you had in mind there.
Sen. RUBIO: There's nothing wrong--yeah, there's nothing wrong with the American people. Americans haven't forgotten how to create jobs. Americans haven't run out of good ideas. But we do have a broken government that through tax policies and regulatory policy and all the uncertainty they're creating, are standing in the way. If only our government could do a few of these things right, the American people will give us here--the new American--the 21st century will also be the American century.
KUDLOW: You worry about decline a lot, but are you in your heart an optimist that we can solve these problems?
Sen. RUBIO: I am. I am. Because we have the greatest thing--we have the greatest people on Earth. All we need is a government that does its job. And if we have that, the 21st century will be greater than the 20th for us. And that's--I know that's hard to imagine, but that's the opportunity before us
KUDLOW: Senator Marco Rubio from the great state of Florida, thank you very much for joining us on THE KUDLOW REPORT.
Here's the latest mini-documentary from my old friend Dan Mitchell over at the Cato Institute.
According to Dan:
The Medicaid program imposes high costs while generating poor results. This Center for Freedom and Prosperity Foundation video explains how block grants, such as the one proposed by Congressman Paul Ryan, will save money and improve healthcare by giving states the freedom to innovate and compete.
THE MARKETS & ECONOMY - Michael Farr, Farr, Miller & Washington/CNBC Contributor - Rick Ilczyszyn, Lind-Waldock Sr. Market Strategist - Jim Iuorio, TJM Institutional Services Director
ONE-ON-ONE WITH MARCO RUBIO … INSIDE THE DEBT CELING DEBATES; HOW TO GET A COMPROMISE? -Sen. Marco Rubio, (R) Florida
ONE-ON-ONE WITH PETER THIEL … A HIGHER EDUCATION BUBBLE? PAYING STUDENTS TO DROP OUT? ALSO … HAS TECH PROGRESS STALLED? WHAT HAPPENED TO INNOVATION? - Peter Thiel, Technology Entrepreneur & Venture Capitalist; Paypal Founder
A NATURAL GAS HATCHET JOB BY THE NEW YORK TIMES? - Art Berman, Geologist - John Hanger, Fmr. Pennsylvania EPA Secretary; Citizens for Pennsylvania's Future President & CEO
DEBT CEILING SMACKDOWN - Dean Baker, Co-director of the Center for Economic and Policy Research (CEPR) - Gov. Ed Rendell, (D) Fmr. Pennsylvania Governor; NBC News Political Analyst; Former DNC Chairman - Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor - Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author
MARKETS - Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer - Larry Glazer, Managing Partner; Mayflower Advisors, LLC
DELTA RELIGIOUS DISCRIMINATION CONTROVERSY - Jeffrey Lovitky, Law Office of Jeffrey A. Lovitky Attorney at Law - Gordon Bethune, Fmr. Continental Airlines Chairman & CEO; CNBC Contributor
GEITHNER EXCLUSIVE: REPATRIATING EARNINGS AND BUSINESS TAX REFORM - CNBC’s Steve Liesman reports.
Kudlow American Growth Council UNEMPLOYMENT COMPENSATION & OVER-SPENDING A BARRIER TO GROWTH? - Mark Simone, WABC Radio Talk Show Host - Keith Boykin, Former Clinton White House Aide; Editor of The Daily Voice online news site; CNBC contributor - Joanne Lipman, Founding Editor-in-Chief of Portfolio magazine; Fmr. Deputy Managing Editor of The Wall Street Journal
Did the International Energy Agency (IEA) just deliver the oil equivalent of QE3?
The decision to release two million barrels per day of emergency oil reserves -- with the U.S. covering half from its strategic petroleum reserve -- is surely aimed at the sputtering economies of the U.S. and Europe following an onslaught of bad economic statistics and forecasts. This includes a gloomy Fed forecast that Ben Bernanke unveiled less than 24 hours before the energy news hit the tape.
I wonder if all this was coordinated.
The Bernanke Fed significantly downgraded its economic projections, blaming this forecast on rising energy (and food) prices as well as Japanese-disaster-related supply shocks. Of course, the Fed head takes no blame for his cheap-dollar QE2 pump-priming, which was an important source of the prior jump in energy and commodity prices. That commodity-price shock inflicted a tax on the whole economy, and it looks to be responsible for the 2 percent first-half growth rate and the near 4.5 percent inflation rate.
Bernanke acknowledged the inflation problem, but he didn’t take ownership of that either. Reading between the lines, however, the Fed’s inflation worries undoubtedly kept it from applying more faux stimulus to the sagging economy with a third round of quantitative easing.
Somehow the new Fed forecast suggests that the second-half economy will grow at 3.5 percent while it miraculously presses inflation down to 1.4 percent. But the plausibility of this forecast is low. It’s almost Alice in Wonderland-like.
So, low and behold, the IEA and the U.S. Department of Energy come to the rescue.
Acting on the surprising news of a 60 million barrel-per-day crude-oil release from strategic reserves scheduled for July, traders slammed down prices by $5 to $6 for both West Texas crude and European Brent crude. That’s about a 20 percent drop from the April highs, which followed the breakout of civil war in Libya in March. In fact, both the IEA and the U.S. DOE cited Libyan oil disruption as a reason for injecting reserves.
Of course, most folks thought Saudi Arabia would be adding a million barrels a day to cover the Libyan shortfall. The evidence strongly suggests they have. So the curious timing of the oil-reserve release -- coming in late June rather than last March or April -- strongly suggests that governments are manipulating the oil price with a temporary supply add to boost the economy.
In theory, these reserves are supposed to be held for true national emergencies. But the real U.S. national emergency seems to be a political one -- that is, President Obama’s increasingly perilous reelection bid amidst high unemployment and the second-worst post-recession economic recovery since 1950.
Tall joblessness, big gasoline prices, low growth, a poor housing sector, growing mortgage foreclosures, and sinking polls are probably the real reason for the strategic-petroleum-reserve shock. European Central Bank head Jean Claude Trichet warns of a “Code Red” emergency due to Greek and other peripheral default risk. China has registered its lowest manufacturing read in 11 months. U.S. jobless claims increased again. And the U.S. debt-ceiling talks have broken down. It’s almost a perfect storm for economic and stock market jitters.
So, will the government-sponsored oil-price-drop work? Will it fix the economy, by lowering inflation and speeding up growth? Well, it might, provided that the Bernanke Fed doesn’t bungle the dollar.
If Bernanke keeps his balance sheet stable, applying what former Fed governor Wayne Angell calls quantitative neutrality, it’s quite possible that the greenback will rise and oil and commodity prices will slip. In fact, ever since Bernanke’s first press conference in late April, when he basically said “no QE3,” the dollar had been stabilizing with oil prices slipping lower.
Bernanke is right to hold off on QE3; we could all be surprised with a stronger dollar. Then we could lower tax, spending, regulatory, trade, and immigration barriers to growth. If we did that, we wouldn’t need another short-run, so-called government fix, this time from the strategic petroleum reserve.
Lord save us from short-run government fixes. Haven’t we had enough of them?
WHO LEAKED? DID GOVT OFFICIALS LEAK? WAS LEAK TRADED ON? - CNBC’s Eamon Javers reports from Washington.
IS IEA RELEASE QUASI QE3? IS THIS BERNANKE'S DREAM - LOWER OIL TO BOOST ECONOMY? - John Kilduff, CNBC Contributor; Again Capital LLC Partner - Anthony Grisanti, GRZ Energy President - Rep. Steve Scalise, (R) Louisiana - Rep. Bill Owens (D) NY - David Goldman, Former Head of Fixed Income Research at Bank of America
VOLATILE MARKETS - Louis Navellier, Navellier & Associates CIO - Lincoln Ellis, Linn Group (CME)
OBAMA’S BIG APPLE FUND RAISER - CNBC’s Mandy Drury reports.
GOP NEGOTIATORS PULL OUT OF BIDEN-LED BUDGET TALKS - CNBC’s John Harwood reports.
DEBT TALKS FALL APART OVER TAXES: ARE WE GOING TO DEFAULT SOONER THAN GREECE? - Rep. Brad Sherman, (D) California - Rep. Cathy McMorris Rodgers (R) Washington
A UNITED POST OFFICE SERVICE BAILOUT? - Patrick Donahoe, Postmaster General
THE FED AND ECONOMY - CNBC’s Steve Liesman - CNBC’s Rick Santelli - Wayne Angell, Former Fed Reserve Governor - Rep. Ron Paul, (R) Texas - Mort Zuckerman, N.Y. Daily News Publisher; U.S. News & World Report Chairman & Editor-in-Chief
MARKETS - Russ Koesterich, BlackRock iShares Group Global Chief Investment Strategist - Lee Munson, Portfolio Chief Investment Officer
WHAT HAPPENS NEXT IN GREECE? - Vassilis Kaskarelis, Greece Amb. to US
NLRB VS. BOEING DISPUTE - Sen. Lindsay Graham (R-SC)
Kudlow American Growth Council THE BARRIERS TO GROWTH: REGULATIONS…PLAN TO EASE WAY FOR UNIONS = BACK DOOR CARD CHECK - Jonathan Tasini, Economic Future Group President; Fmr. Labor Research Association Executive Director - Peter Schaumber, Fmr. NLRB Chairman
RON PAUL & BARNEY FRANK TO INTRODUCE LEGISLATOIN TO END MARIJUANA PROHIBITION - Rep. Ron Paul, (R) Texas discusses.
ATLANTA'S DEM MAYOR PUSHES TO REPLACE PUBLIC PENSIONS WITH 401(k)S
BREAKING NEWS: THE GREEK CONFIDENCE VOTE - CNBC’s Michelle Caruso-Cabrera joins us live from Athens.
WHAT CAN WE EXPECT TO HAPPEN NEXT IN GREECE? - Amb. Charles Ries, Senior Fellow Rand Corporation; Fmr. U.S. Ambassador to Greece (2004-2007) - Amb. Daniel Speckhard, former U.S. Ambassador to Greece (2007-2010) - CNBC’s Simon Hobbs - CNBC’s Michelle Caruso-Cabrera
MARKETS - Jason Trennert, Strategas Research Partners; Chief Investment Strategist & Managing Partner - Kenny Polcari, ICAP Managing Director - Boris Schlossberg, director of currency research at GFT
HUNTSMAN ENTERS GOP RACE -CNBC chief Washington correspondent John Harwood joins us from Washington.
DOES THE U.S. NEED 5% INFLATION?! - Rep. Barney Frank, (D-MA) - Brett Arends, Wall Street Journal Columnist
WHAT ARE WE LEARNING FROM THE GREEK SPECTACLE WITH OUR DEBT TALKS? - Sen. Lindsay Graham (R-SC)
TOKYO MARKETS - CNBC’s Kaori Enjoji joins us from Tokyo.
THE KUDLOW AMERICAN GROWTH COUNCIL - A WEEK-LONG SERIES... DID THE STIMULUS WORK? - Rep. Jason Chaffetz, (R) Utah - Jared Bernstein, Center on Budget & Policy Priorities Sr. Fellow; CNBC Contributor; Fmr. Chief Economist, VP Biden
The Wal-Mart victory handed down by the Supremes today is a great win for all business, and a huge defeat for frivolous class-action lawsuits.
In fact, this business victory by Wal-Mart is so bullish, I believe it drove up stocks today, with the Dow finishing 76 points higher. There was no new news from Greece. Today’s stock market rally was the Wal-Mart effect.
By the way, the slam-down on class-action lawsuits is also a victory for individuals. If people have a beef, go ahead and sue. But the Supremes just said no to sociological or cultural or general statistical models, which provide no evidence in these cases. No proof.
Literally, the class-action slam-down by the Supreme Court will save business billions and billions of dollars over time. And of course, the liberal left has waged war against Wal-Mart for years. So that gang took it on the chin today.
And then there’s my friend Nancy Pelosi. She said today’s Wal-Mart decision “sets back the cause of equality for women.” She went on to re-endorse various equal-pay bills, such as the Lilly Ledbetter Fair Pay Act and the Paycheck Fairness Act. You gotta love it.
After the dreadful NLRB lawsuit against Boeing’s freedom to choose -- which is part of the war against business coming out of Washington -- today’s Wal-Mart decision is welcome relief.
MARKETS - Brian Kelly, Brian Kelly Capital President & Fast Money Contributor - Rex Macey, Wilmington Trust CIO - Steve Forbes, Forbes Media Chairman & Editor-in-Chief
REPATRIATION & CORPORTATE TAXES: COULD CUTTING CORP. TAXES ON OVERSEAS PROFITS BE THE ULTIMATE STIMULUS PLAN FOR U.S. ECONOMY? - Dean Baker, Co-director of the Center for Economic and Policy Research (CEPR) - Steve Forbes, Forbes Media Chairman & Editor-in-Chief
WAL-MART'S REACTION TO SCOTUS DECISION - Ted Boutrous, Wal-mart Lead Counsel; Gibson, Dunn & Crutcher
WHAT WALMART DECISION MEANS FOR BUSINESS - Julien Epstein, CEO, LMG Inc; Fmr. chief minority counsel to the House Judiciary Cmte; fmr. majority staff dir., House Govt Operations Cmte - Ann Coulter, Syndicated Columnist; "Demonic" Author
THE KUDLOW AMERICAN GROWTH COUNCIL - PART ONE BARRIERS TO GROWTH: IMMIGRATION -- MORE SILENT RAIDS OVER IMMIGRATION - Tamar Jacoby, Immigration Works USA President - Tom Tancredo, Fmr. Republican Representative from Colorado; Fmr. GOP Presidential Candidate
Coming up this Wednesday, the Fed's Policy Committee will meet and Fed head Ben Bernanke will host his second public press conference.
It is my great hope that Mr. Bernanke will make it clear:
1. That QE2 is ending in two weeks, on schedule, and 2. There will be no QE3.
In other words, send a clear signal to financial markets that the central bank is moving away from quantitative easing to quantitative neutral.
Why am I so keen on this? Because I think it will bolster the dollar. And that, in turn, will hold down energy and other commodity prices. And that, in turn, could give us a lower inflation rate in the second half of the year.
Now that would be bullish for economic growth.
What has caused the current economic growth sputter? Principally, exploding oil, gasoline, food, and other commodity prices from a falling dollar caused by too much money created by the Fed.
Inflation remains the cruelest tax of all. And it has depressed real consumer incomes and slowed down business. If King Dollar recovers, the sputter could turn into real growth. And bullish stocks will pick this up quickly.
In other words, the second half outlook hinges on the dollar. Hopefully the Bernanke Fed will stand behind the greenback. No more money printing.
MARKETS: IS THE CORRECTION COMING TO AN END? - Dock David Treece, Treece InvestmentS; Market Strategist - Matt Shapiro, President MWS Capital LLC - Stephen Weiss, Author, "The Billion Dollar Mistake"
SHOWDOWN: NLRB VS. BOEING - Cleve Bryan, WCBD Reporter reports from Charleston, SC
NLRB VS. BOEING - Jonathan Tasini, Economic Future Group President; Fmr. Labor Research Association Executive Director - Rep. Trey Gowdy; (R) South Carolina
SOCIAL SECURITY FIX: AARP SOFTENS ON CUTTING SOCIAL SECURITY BENEFITS - CNBC's John Harwood reports.
- Sen. Kay Bailey Hutchisen, (R) Texas
Free Market Friday WE NEED TO REMOVE THE BARRIERS TO GROWTH
- Barry Nolan, Fmr. Comm. Dir for House/Senate Joint Economic Cmte ('09 - '11) - Michael Steele, fmr. RNC Chairman; MSNBC Contributor - Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor
MANIC MARKETS... IS GREECE EXPORTING LEHMAN TO US?; WHAT IF CHINA COMES TO THE RESCUE? -CNBC's Michelle Caruso-Cabrera join us live from Athens. -Brian Dolan, Chief Currency Strategist at FOREX.com/GAIN Capital
INSIDE THE MANIC MARKET -Mike Holland, Chairman of Holland & Company -Dave Kansas, Wall Street Journal chief markets commentator -Mark Lamkin, Lamkin Welath Management CEO
ECONOMIC JITTERS? A 70% TAX? SERIOUSLY? -Robert Reich, former Clinton Labor Secretary
FINDING A FIX FOR GREECE; GREECE CONTAGION? - CNBC’s Simon Hobbs reports. - Boris Schlossberg, GFT Forex Currency Research Director
OIL FUTURES DROP 4% - CNBC’S Sharon Epperson reports.
ECONOMIC SHOWDOWN - Mark Zandi, Moody's Analytics Chief Economist; "Paying the Price" Author - David Malpass, Encima Global Pres, Fmr. Bear Stearns Chief Economist, GrowPac Chairman, fmr Reagan Deputy Asst Secy of Treasury - Mark Vitner, Wells Fargo Sr. Economist - CNBC’s Rick Santelli
REPATRIATION: THE NEXT STIMULUS? BRINGING CORPORATE TAX DOLLARS HOME TO WORK IN AMERICA - Bob Lutz, Fmr. General Motors Vice Chairman & CNBC Contributor - Andy Stern, Former SEIU President
New economic stats today on retail sales from both China and the U.S. show there’s no double-dip recession out there -- no matter what the bears-gone-viral may be telling you. No Armageddon. And no stock market crash either. Actually, today’s 123-point Dow gain to get back over 12,000 is a key sign that the stock correction may be over.
Forward earnings at $96 a share on the S&P 500 (1,288) show a price-earnings multiple of about 13.4-times. Trailing earnings of $94 a share show a similar multiple. So stocks have decent value. Stocks also have an attractive 7.25 percent earnings yield, compared to 3.1 percent on 10-year Treasuries and 5.7 percent on investment-grade corporate bonds.
I’m not a roaring bull. But I am more positive than I was two months ago when I first started talking correction.
The Fed is still accommodative. The yield curve is positively sloped. And the oil-price shock looks to have peaked at around $100. All those are positives. Perhaps as QE2 pump-priming ends in a couple of weeks we will see a somewhat stronger dollar and a weaker oil price.
But the good news today is that retail sales in the U.S. came in better than expected. They actually increased slightly, by three-tenths of a percent, excluding the auto sector which has been hard hit by Japanese supply shortages. Core retail sales excluding autos, gas, and building materials increased two-tenths of a percent and are up 6.1 percent over the past year.
We’re in a muddle-through economy. It’s not the Reagan ’80s. But it’s also not the Carter ’70s.
In China, where the data is just about as important to the U.S. as the U.S. data, May retail sales rose 16.9 percent year on year, or slightly less than the 17.1 percent registered in April.
Meanwhile, industrial production in China rose 13.3 percent for the year ending in May, just a tad less than the 13.4 percent registered in April. These are solid numbers. They’re off their peaks. But it’s not a collapse. China’s going to keep on growing. There is no meltdown.
And the Bank of China raised bank reserve requirements again, a response to the 5.3 percent CPI for May -- which is an inflation warning to both China and the United States.
Ben Bernanke should quit yapping about a clean debt bill for more Treasury borrowing authority without serious spending reductions. No fiscal confidence will return unless measures are taken now to curb out-of-control spending and borrowing.
People in the bond market are not stupid. For several months they have known that the debt-ceiling talks would be hardball negotiations and will go down to the wire. But 10-year Treasury yields have plunged from just under 4 percent to around 3 percent. The market knows there will be no default. A deal will be made. But it has to be a spending-control deal if anyone is to ever believe that the U.S. is serious about its financial plight.
And for my money, any deal should include a pro-growth component, like a 15 percent business tax rate that also abolishes all deductions.
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OBAMA MEETS THE CEOs -Bill George, Harvard Business School Professor; former Medtronic CEO -Gordon Bethune, Former Continental Airlines Chairman & CEO -Ed Lazear, Stanford University Economics Professor
NLRB HEARING ON BOEING -Greg Abbott, Texas Attorney General
MARKET ROUNDUP -Ed Ponsi, managing director at Barchetta Capital will join us.
WASHINGTON TO WALL STREET ... "RECKLESS ENDANGERMENT" Authors of the new book -- Josh Rosner and Gretchen Morgenson -- will join us.
Former Minnesota governor Tim Pawlenty turned out a blockbuster economic-growth plan this past week, including deep cuts in taxes, spending, and regulations. It’s really the first Reaganesque supply-side growth plan from any of the GOP presidential contenders. And he caps it all off with a defense of optimism as he charges ahead with a national economic growth goal of 5 percent.
That’s right: 5 percent.
Pawlenty calls this target aspirational. Okay, fine. But deeper down, he’s basically saying no to the declinists and pessimists who seem to populate the economic landscape these days. Big government doesn’t work. Let’s try something different.
Ronald Reagan always believed that America is exceptional. By removing obstacles to growth, the Gipper held that economic policies could unleash a massive outpouring of risk-taking, creativity, and entrepreneurship. He was right, and his policies launched a two-decade-long boom.
Actually, the first couple years of the Reagan recovery came in at over 7 percent. And as Pawlenty noted in his speech at the University of Chicago this week, between 1983 and 1987, the Reagan recovery grew at 4.9 percent annually. I note that Pres. John F. Kennedy also had a 5 percent growth target, a response to Ike’s three recessions.
So while those on the left criticize Pawlenty, and while even some conservatives scoff at his growth target, history says we’ve been there before.
The Wall Street Journal editorial page calls it a “growth marker.” Famed CEO Jack Welch calls it a vision for America. I think it’s an act of great leadership.
The details of Pawlenty’s economic program are very similar in scope and structure to Reagan’s. Slash tax rates. In particular, the single-best Pawlenty proposal is to take the business tax rate all the way down to 15 percent from 35 percent, get rid of all the deductions, and quit taxing foreign earnings of American companies. Critically, he would make small-business S-Corps or LLC partnerships eligible for the new low corporate rate.
Small businesses and brand-new start-ups have faltered during the Obama years. They should be the engine of job growth, but it’s not happening. Under Pawlenty’s plan, however, their rewards for new pass-the-hat investments among friends and families would be lifted by more than 40 percent on a take-home-pay basis.
The former college hockey player also would reform the personal tax system by moving to two rates of only 10 and 25 percent. And, get this: He would abolish taxes on capital gains, interest, dividends, and estates. He’d also sunset all economic regulations. And he’d apply a “Google test,” whereby if you can find a federal government good or service on the Internet, the federal government doesn’t need to run it. That means the Post Office, the Government Printing Office, and Amtrak could be sold off, privatized, or leased out.
The governor also comes out for a strong King Dollar, with a blistering attack on the Bernanke Fed’s loose-money policies. He also offers up an outline for entitlement reform, along with a 5 percent budget-impoundment approach until such time as the budget is balanced.
Quintessentially, Tim Pawlenty has delivered a private-sector, free-enterprise vision of economic growth and jobs, saying: “Markets work. Barack Obama’s central planning doesn’t.” It’s in this spirit that he would repeal Obamacare, which is one of the greatest job-blockers of all right now, with its maze of tax-and-regulatory interventions into the private economy.
But let me return to the key point — Pawlenty’s 5 percent growth vision for America. He’s not going to accept some kind of “new normal,” 2 percent growth rate.
Smaller government, lower tax rates, fewer economic regulations, and sound money were tried down through the 20th century by Calvin Coolidge, John F. Kennedy, and Ronald Reagan. These policies worked. Over the past decade, however, the historic postwar U.S.-growth baseline of 3.4 percent per year has been dismantled. Through 2010, actual growth is nearly 20 percent — or close to $3 trillion — below the historical norm. Pawlenty is saying we have to do our best to close that humungous output and jobs gap.
He also notes that by reigniting growth and a stronger jobs market that demand for government-spending assistance will come down while tax revenues will go up. In other words, we’ll never solve the spending-and-borrowing problem without a major increase in growth.
Is he serious? Of course he is. And he’s pretty darned specific. Remember, this is a guy who said no to ethanol subsidies in Iowa, yes to extending the Social Security retirement age in Florida, and no to crony capitalism for Wall Street banks in New York.
In other words, Tim Pawlenty is a tough hombre.
If he stays on message unrelentingly, his growth plan could carry him right to the White House.
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Last night I spoke with former Minnesota governor Tim Pawlenty about his blockbuster, Reaganesque, pro-growth economic plan. He wants to slash taxes, spending, and regulations. He blasted the cheap-dollar policies of the Bernanke Fed and said he would never reappoint him. He also told me that if you can Google a government service or asset, it should be sold. Think Amtrak and the U.S. Post Office. The Pawlenty plan is by far the most detailed economic prescription from any Republican candidate thus far. The former college hockey player caps it all off with a 5 percent aspirational growth target designed to lift the spirit of America:
KUDLOW: All right, topic A tonight, it’s the economy, stupid, and that’s going to decide the fate of the 2012 presidential race. Today in a speech at the University of Chicago, former Minnesota Governor Tim Pawlenty unveiled a blockbuster growth plan that cuts taxes, spending and regulations. Joining us now for a first on CNBC interview is former Minnesota Republican Governor Tim Pawlenty.
Governor, welcome back. Before we start, please take a listen to what President Obama had to say today about worries of a double-dip recession.
OBAMA: I’m not concerned about a double-dip recession. I am concerned about the fact that the recovery that we’re on is not producing jobs as quickly as I want it to happen. Prior to this month, we have seen three months of very robust job growth in the private sector and so we were very encouraged by that. This month you still saw job growth in the private sector but it had slowed down. We don’t yet know whether this is a one month episode or a longer trend. Obviously we’re experiencing some head winds.
KUDLOW: All right, there’s a real mouthful. Governor Pawlenty, do you see a double-dip recession? Do you agree with what President Obama just sort of basically said?
PAWLENTY: Well, the economy’s sputtering. And, you know, he declared last year in his administration the recovery summer, Larry, you remember that? How was your recovery summer?
KUDLOW: It was excellent.
PAWLENTY: Yeah? Did you use sunscreen? Did you use the appropriate SPF during the recovery?
KUDLOW: All right, Governor, well put.
PAWLENTY: All right. Well…
KUDLOW: But you–I take it you don’t see a double-dip recession. Is that your basic view?
PAWLENTY: Well, I’m concerned about the near term and intermediate term outlook for the economy. I think they’ve done a number of things that set us up, if not for a double dip at least a lot more bumps in the road. This is not over yet in terms of the challenges the country faces. We have to throw off the shackles of Obama’s declinist attitude and policies and get back on a pro-growth, positive, optimistic agenda. That’s what we did today at the University of Chicago. And, Larry, the marquee part of it is to say, look, we’re going to set a goal of 5 percent for growth in this country. We’re not going to accept the CBO, you know, 2 percent, anemic outlook for the country. We’re going to double that and more, and we’re going to talk about the specific policies to unleash the American entrepreneurial spirit.
KUDLOW: Well, I think the 5 percent growth goal is terrific stuff, but I want to ask you about another major figure who doesn’t see 5 percent growth. That being Ben Bernanke, who also gave a big speech today, Governor. Bernanke says the economic sputter is temporary, but he’s not worried about the dollar and he is going to keep Fed policy at a zero interest rate for as far as the eye can see. Let me ask you, sir, A, do you agree with Bernanke’s assessment that the sputter is temporary? And, B, would a President Pawlenty reappoint Ben Bernanke?
PAWLENTY: Well, as to the last point, Larry, I opposed his appointment last time, so it wouldn’t be hard for me to oppose his reappointment next time. And I would–don’t think that he should continue in that position. A strong dollar reflects a strong country and a strong economy, and we need to make sure that we get the–stop the practice of devaluing the dollar. Americans get paid in dollars. They buy groceries in dollars. Their 401(k)s are in dollars. And when you devalue the dollar, you’re devaluing the net value of this country and it’s a hidden tax on all Americans, and it’s going to get worse. They have flooded the money–excuse me, flooded the market with these dollars that they’re printing in the basement, as you know, and it’s devaluing the dollar. They don’t have a strong dollar policy. And it makes me wonder, Larry, if they’re even doing it intentionally. I wonder if part of their plan isn’t to purposely try to inflate their way out of this deficit. I hope that’s not true, but we have to return to a strong dollar policy.
KUDLOW: All right, a strong dollar. Let’s turn to your better deal speech today. First of all, 5 percent economic growth, a laudable, notable target. Is it credible, sir? Can the United States get a 5 percent growth rate?
PAWLENTY: Of course, and it has. And we got two examples in recent history from this country. One in the ’80s under President Reagan. One under President Clinton and the Democratic controlled Congress in the ’90s. We had nearly 5 percent growth rate in each of those decades. We can do it again for sure.
KUDLOW: All right. You’ve got what I would call a blockbuster tax cutting growth plan. I want you to walk through it briefly, if you will. First on the business side you’ve got a thorough going reform.
PAWLENTY: Yeah. It’s–a 35 percent rate at the corporate level now would be taken down to 15 percent, and then we’d clean out most of the crony capitalism in the form of the deductions, credits and exemptions and underlie that with just one or two exceptions, Larry. And then on the individual side, only two rates. Take the six current rates but collapse them down to two, 10 percent and 25 percent. The 25 percent rate would kick in at $100,000 of income. We’d keep the exemptions, deductions and credits under that. And small business owners in the pass-through entities, the LLCs, the Subchapter S and the like, they could choose which system they want to be in. They’d have a choice to toggle back and forth.
And then we also talked about what it’s going to take to get down the spending. So we’ve got a goal of 5 percent. A huge pro-growth tax plan, and then we also have a serious set of proposals to reduce spending and get the budget
KUDLOW: By the way, just to clarify. You do want to eliminate tax rates on capital gains, interest income, dividends and estates, is that correct?
PAWLENTY: Yeah, that’s correct. And that’s another huge part of the tax cuts, as well.
KUDLOW: All right. Let me go to the spending. You got a 5 percent spending impoundment for year, but it looks a little thin. There’s not a lot of detail in the spending side. By the way, Ben Bernanke told you today–I don’t know if he was addressing you personally–but he said this is not the right time to cut spending because it might upset the economy. There he goes again, you vs. Ben Bernanke. Now, first, is this the right time to cut spending? And second, what about your spending plan? Do we need more details there?
PAWLENTY: Well, the best time to cut spending would have been in the past and now we–is we have to do it, Larry. Should have done it before now. And, of course, we have to cut spending. We’re–the thing is out of control. They’re spending 40 cents of every dollar they spend is a deficit or debt dollar or so. So let’s do this, let’s be specific, let’s put no sacred cows to the side. Let’s put them put them up on the table. We got to reform the entitlement program, so we’ve got a specific set of proposals on Social Security, including gradually raising the retirement age for new people into the work force. Means testing part of Social Security. So if you’re wealthy, you won’t get your COLA in the future. We’ve got similar proposals for Medicaid and Medicare. I went to Iowa, told the truth to people there and said we can’t afford the ethanol subsidies and we also should get rid of all the other subsidies. I went to Wall Street and told them to get their snout out of the trough. We’re not going to do any more bailouts or carveouts or handouts there. We had a similar message for the public employees and the public employee unions and then down the list. But this is going to be the Jack Nicholson election from the movie “A Few Good Men.” He said famously when he was on the witness stand, “You can’t handle the truth.” Well, this is a going to be a referendum on whether the American people can handle the truth.
KUDLOW: Well…
PAWLENTY: And we’re going to tell it to them and they can handle it.
KUDLOW: All right. But your critics are already out there today saying your broad-based tax cuts are going to blow up the budget deficit, and you don’t have the spending cuts to go along with that. What’s your reaction to that? You know how they’re going to hammer you. In fact, some Republicans are already expressing skepticism about your plan, much less the Democratic National Committee. What’s your response to that?
PAWLENTY: Well, my response to it is our plan, over a 10 year period, not only balances the budget but can leave you in the black. And if you had–reduced the federal spending by even 1 percent a year from today’s level over the next six years, you balance the budget in six years. But you add to that our tax cuts and the growth model and the spending cuts and the net of it, dynamically scored over the next 10 years, is the budget’s balanced and it leaves a surplus.
KUDLOW: So you’re saying growth is essentially to spending and deficit and borrowing restraint? Is that your message?
PAWLENTY: Well, growth is essential, first of all, to a successful country and opportunity for our citizens, but you can’t get to where we need to be without dramatically increasing growth. And President Obama’s policies don’t get it done. He doesn’t even have a plan. He won’t even address this= issues. I have a plan, we put it on the table and we got more to come in the coming months.
KUDLOW: What do you–where are you on the Paul Ryan Medicare plan?
PAWLENTY: Well, we’re going to have our own plan, Larry, and it’s going go be coming out shortly. It’s going to have some of the similar features, but it’s going to have its own features. We’re going to start paying for performance. So providers, hospitals, doctors and clinics won’t get paid just for volume. They’ll get paid for better results and better outcomes, and then we’ll leave Medicare as a choice, but it’ll be a choice that’ll be competing against a number of other choices, as well.
KUDLOW: Where are you on Mitt Romney’s stubborn adherence to government mandates for individuals and businesses in the state of Massachusetts, presumably any other states? What’s your take on Romneycare?
PAWLENTY: I’m one of the parties in the Florida lawsuit to have the individual mandate declared unconstitutional. It’s an issue that was presented to me formally several times when I was governor. I rejected it every time. And we took a different approach in Minnesota. We want market-based, consumer-based reforms in health care. We want to give people incentives to make wise choices in a marketplace, not centralized choices and have government mandates and takeovers.
KUDLOW: What’s your Google test? You’ve got this very interesting part about the Google test and you want to sell off a bunch of assets. Can you quickly tell us about the Google test in the Pawlenty plan?
PAWLENTY: Sure. The premise it, look, if you can go on Google and find a service or a product that’s available in the private sector, then government probably shouldn’t be producing or providing the product. Now obviously you have to apply a common sense and responsible lawyer of review on this. But, you know, do we–when you’ve got FedEx, how much longer do you need the post office, at least as a government entity? Do we really need all of Amtrak to be public? No, you don’t. I think the private entities could operate that. I don’t think you need the government printing offices and on down the list. But there are series of services that the government provides that I think you can have them compete or outsource it to the private sector.
KUDLOW: Do you really–you really want to sell off the “snail mail” post office? That’s in your speech. Do you really want to privatize the post office?
PAWLENTY: Yeah. I think that would be a great idea. And I also think privatizing Fannie and Freddie would be a great idea. They’re the culprits–one of the main culprits to the housing collapse and our economic crisis, and they got off scot-free in the abysmal Dodd-Frank reform.
KUDLOW: So if you sell off, all right, Fannie, Freddie, the government printing offices, you sell off Amtrak, you sell off the post office–I don’t think anybody else is talking about this–how much money would you raise? How much money would that go towards debt reduction, let’s say?
PAWLENTY: Well, there’d be some. Look, the truth of the matter is, Larry, if you want to look where the big money is for debt reduction in the future, it’s in entitlements, as you know, and it’s in defense spending. So you can add up all the Department of Agriculture, Amtrak, the post office, Department of Commerce, and will it help at the margins? Yes. But is it going to fundamentally solve the problem? No. The only way to do that is to reform entitlement spending.
KUDLOW: But you talk about a 5 percent budget impoundment as your spending plan. And as I said it, I understand about ethanol and so forth, but it isn’t all that specific. Are you talking about across the board, 5 percent spending cuts, including entitlements and defense? Is that your spending plan?
PAWLENTY: The proposal on that is as a last resort. We have a number of things that would precede that. First of all, pass a balanced budget amendment. Two, put specific spending caps into law as a percentage of GDP around the historic average of around 18 percent. And then, three, we can’t count on Congress doing what you and I have been talking about, so we have to have a fail-safe, last-resort measure. And what we’ve proposed is to give the president the emergency and temporary authority to impound up to 5 percent of any and all spending to his or her choosing until such time that the budget is balanced. Now I had a power like that when I was governor of Minnesota. It was called unallotment, and I used it. I unallotted more spending in my state in my eight years than all the previous governors combined in their 142 years combined.
KUDLOW: All right. So with this big speech, you’re basically taking a Reagan supply side economic growth approach to fiscal policy and the economy. Governor Romney is also laserlike on the economy in his announcement last week. He says because he was a successful businessman, he’s the most qualified Republican candidate to resurrect jobs and economic growth. You have a resume as a successful politician but not as a businessman. What’s your reaction to Governor Romney who says only a business guy can solve our problems and get us back to prosperity?
PAWLENTY: Well, two things. I travel the country every day and I talk to business leaders and they basically say the same thing, Larry, `Get the government off my back’ as it relates it taxes, permitting regulation, insurance and the like, litigation. And so I don’t want to say it’s easy but it’s not rocket science as to the things that we need to do to get this economy going. We know the answers. The question really is do you have the fortitude to actually do it? And I’ll put my record up as governor, A rating from the Cato Institute on these matters. I think it’s one of the best in the country. And, you know, when you–everybody talks about their records, whether it be private or public…
KUDLOW: Right.
PAWLENTY: …there’s some good things and then there’s also some bad things. So we all got to account for our records.
KUDLOW: All right. Governor Tim Pawlenty, great speech today. Great stuff. Powerful stuff. The incentive model of growth. Thank you for coming back on the show. All the best on the campaign trail, sir.
ONE-ON-ONE WITH TIM PAWLENTY - Tim Pawlenty, (R) Fmr. Governor Minnesota; Presidential Candidate
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According to Dan:
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Political advantage can be fleeting. A couple of months ago, during the winter quarter, job gains looked to be picking up, unemployment was easing lower, and President Obama’s reelection hopes looked more secure. But things sure have changed.
In recent weeks, a whole bunch of new economic stats have been pointing to a sputtering economy — maybe even an inflation-prone, less-than-2-percent-growth recession. Stocks have dropped five straight weeks, as they look toward slower growth, jobs, and profits out to year end. And Friday’s jobs report didn’t buck these trends.
“Anemic” is the adjective being tossed around the media. According to the Labor Department, nonfarm payrolls increased a meager 54,000 in May, while private payrolls gained only 83,000. A week or two ago, Wall Street expected 200,000-plus new jobs. Didn’t happen.
Perhaps the most telling weakness in the jobs report comes from the household survey, which is made up of self-employed workers. Think of mom-and-pop owned stores and small businesses. Think of the Main Street entrepreneurial families who make up the backbone of the economy, and for the matter the country. And they vote, too.
Well, household jobs increased a paltry 105,000 in May, after falling 190,000 in April. The jobless rate is determined by the household survey, and you really need a couple hundred thousand new household jobs a month — at least — to lower unemployment. And you really need about 300,000 household jobs a month to put a little torque behind the Main Street economy. But with the lackluster May report, the unemployment rate edged up to 9.1 percent from last month’s 9 percent and March’s 8.8 percent.
Suddenly President Obama has gone from reelect to big trouble. The economic rug has been pulled out from underneath him.
So what changed in the last couple of months or so? Answer: A nasty oil-, gasoline-, and commodity-price shock. It’s eating away at economic growth and jobs. It’s stalling the economy. And it has cut into consumer real incomes and business profits.
Much of this problem can be traced to the failure of the Federal Reserve’s QE2 pump-priming campaign. QE2 has not produced growth, but it has produced inflation. In fact, the consumer price index over the past four or five months has been running close to 6 percent annually.
And most of that new Fed money has served merely to depreciate the dollar. And most of those cheaper dollars are on deposit at the Federal Reserve, where banks are earning 25 basis points for safety and risk aversion. In other words, the majority of that new money is not circulating throughout the economy. It’s a boneheaded Fed stimulus, and it has done more harm than good.
That said, in a larger sense, the failure to ignite small-business job creation has to be laid at the doorstep of the Obama administration, and the economic policies that threaten higher taxes and regulations virtually across the board. On Thursday this week, the president again promised House Democrats to raise taxes on successful top small-business owners. What a great new idea.
So mom and pop don’t feel like taking a risk in this environment. Higher tax-and-regulatory costs have put these entrepreneurs in survival mode. They’re playing their economic cards so close to the vest, business activity has buttoned up tight.
What you want is for people to take their suit jackets off, roll up their shirt sleeves, and go out there and build. But people are hunkering down, not building.
Bear with me for few more jobs stats.
Since the household-survey employment peak back in November 2007, 6.8 million jobs have been lost. Since the so-called end of the recession in June 2009, 199,000 jobs, on balance, have disappeared. And so far this year, household employment has increased by a total of 573,000, which is about 115,000 a month. That’s only one-third of what’s needed to bring down unemployment significantly.
The bottom line is that there hasn’t really been a jobs recovery. President Obama is going to have to own that. But the question is, both in Congress and on the campaign trail, does the GOP have a pro-growth jobs program that will get Main Street mom and pops to roll up their sleeves once again?
With a flamboyant downgrade of the outlook for economic growth, jobs, and profits, Wednesday’s 280 point Dow plunge to launch the so-called June stock swoon is a warning shot across the bow.
The Dow tanked alongside a batch of dismal economic data. The ISM manufacturing index, ADP employment, Case-Shiller home prices, and consumer confidence are all pointing to 2 percent growth or less, rather than the kind of 5 percent growth we ought to be getting coming out of a deep recession.
The economy now looks like a Government Motors engine that’s stalling out. Or perhaps, with energy and food inflation, and housing deflation at the same time, the economy is acting like a pinball machine on permanent tilt.
There’s a key message here: Big-government stimulus never works.
First there was the massive Obama stimulus spending. Then QE1. And now QE2 is winding down. And what did we get for all this? Slower growth overall, paltry job creation, more energy and commodities inflation, continued housing deflation, and virtually no new business start-up entrepreneurship.
We know the Obama spending package failed to create a 7 to 8 percent unemployment rate, as advertised. And now we’re learning that the Fed’s QE2 has actually done more harm than good.
All that money-printing stimulus worked to depreciate the dollar and jack-up commodity prices, especially oil and gasoline, but also food. So both companies and consumers have been punished.
Some demand-side boneheads on Wall Street want the Fed to move to QE3, allegedly to fight a stalling economy. But if the central bank prints another $600 billion or so, all that will do is sink the greenback another 10 percent and drive oil and gasoline prices higher and higher. And that, in turn, will slow business and consumers even more.
The Japanese disaster is undoubtedly playing a role in the manufacturing slump -- probably a bigger role than most economists predicted. Production supplies are scarce or non-existent, especially for autos and electronics, but also for many other sectors of the economy.
Then, of course, there’s all the bad weather: Hurricanes, tornadoes, and floods have depressed all kinds of economic activity here at home.
There also are jitters about the ongoing saga in Greece. The potential for a Greek bond default and various credit-agency downgrades are taking a toll on stock markets around the world.
But this whole boom-and-bust monetary policy, with its blatant disregard for King Dollar, is a snare and a delusion. Stabilize the greenback by linking it to gold. Then move to the supply-side: Slash individual and business tax burdens, roll back enormous regulatory costs, and stop the merciless threat of higher future taxes.
If there was a serious pro-growth movement in Washington to accelerate tax-reform overhaul and pin-back regulatory barriers like the NLRB war with Boeing, the EPA war against energy, and the Obamacare threats that are too numerous to count, that just might revive the animal spirits. But what we know for sure is that small businesses are barely hiring today, and that brand new startups are few and far between.
What’s lacking here is confidence.
No, we’re not going into a double-dip recession. The most important indicator is the Treasury yield curve, which is still very steeply sloped. And businesses are profitable. Those profits have been the backbone of what little growth we’ve had in the last two years. And they’re the mother’s milk of the stock market.
But the point is, without real growth policies, there’s not much to cheer about in the market or the economy. We’re muddling along. It could even be called a growth recession.
Wednesday’s 280-point Dow drop is cry for help. Is anybody listening?
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