I interviewed Senate Minority Leader Mitch McConnell on Wednesday night’s Kudlow Report. When I asked him about that day’s shutdown meeting at the White House, McConnell described it as “unproductive.” Here’s a report on the interview by CNBC desk producer Elizabeth Schulze, and the video, too:
Washington is still far from resolving its differences over the fight to reopen the U.S. government.
That’s according to Senate Minority Leader Mitch McConnell in an interview on CNBC’s “The Kudlow Report” following a meeting at the White House Wednesday night.
“It was cordial but unproductive,” McConnell said. “The President continues to maintain privately the position that he has had publicly, which is he doesn’t want to negotiate about the continuing resolution to operate the government or over raising the debt ceiling.”
After a two-hour meeting with President Obama, House Speaker John Boehner, House Minority Leader Nancy Pelosi, and Senate Majority Leader Harry Reid, Sen. McConnell offered no timeline for Congress to pass legislation to end the government shutdown.
“Obama can’t get his way exactly the way he likes it,” McConnell said. “The American people expect us to come together and figure out how to solve this problem and sooner or later, we’re going to do that.”
“The shutdown will end,” he added. “Nobody is in favor of a government shutdown, but these are important principles that we are fighting for, for the American people. We obviously want to continue the operation of the government, but we want to keep it within constraints with the Budget Control Act.”
McConnell insisted on maintaining spending levels under the Budget Control Act, the 2011 law which created sequestration. Tax increases to reopen the government, he said, are off the table.
“We don’t want to walk away from the spending reductions we have already promised the American people for the next two years,” he said. “Ninety-nine percent of the Bush tax cuts are now permanent law. We don’t want to walk away from the permanent tax relief that we achieved New Year’s Eve. “
McConnell shifted the debate to the debt ceiling, saying “America is not going to default on its debts.”
Treasury Secretary Jack Lew has said that the government’s flexibility to continue to fund itself without additional debt will end around Oct. 17.
“Our view is it’s time to talk to eliminate the government shutdown, to find out what conditions need to be attached to raise the debt ceiling so the full faith and credit of the United States continues to be honored,” McConnell said. “But we also need to do something about this enormous debt that has been accumulated during the Obama years.”
In response to President Obama’s insistence on a “clean” budget proposal in an interview on CNBC earlier Wednesday, McConnell said the President’s position is “unacceptable.”
“The President’s position so far is that he wants it clean no matter what,” McConnell said. “I think that’s an unacceptable position for Senate and House Republicans. It should be an unacceptable position for the American people.”
McConnell said the President fails to recognize that the American people elected a divided government under the assumption that both parties would negotiate.
“There will have to be a compromise no matter what the President says today because his party doesn’t control the entire government,” he said. “The American people have frequently elected a divided government. When they do that, they don’t expect us to do nothing, to not talk to each other.”
Senate Democrats, McConnell said, are reinforcing the stalemate in their refusal to negotiate with House Republicans.
“The House has sent over a number of different proposals, including the last one to go to conference and have a discussion about this,” he said. “Senate Democrats voted that down, too. Who’s being unreasonable here?”
The defeat of Senator Ted Cruz’s defunding strategy may not be the end of the fight to overturn Obamacare. In some sense, for free-market conservatives who want consumer choice and private-sector competition, this whole debate is about good versus evil. It’s a point that the brave and courageous Cruz grasps all too well. If Obamacare becomes permanent, it will crowd out the private health-care sector, including insurers and providers, and over time will create a single-payer, government-statist health-care sector.
Stopping this will be hard. But Senator Joe Manchin, Democrat from West Virginia, has given conservatives a ray of hope. Manchin is prepared to vote for a one-year delay of the individual mandate, the very heart of Obamacare. That means the GOP would need only four more votes to get that delay. Maybe red-state Democratic senators like Mary Landrieu (Louisiana), Mark Begich (Alaska), Kay Hagan (North Carolina), and Mark Pryor (Arkansas) will join 46 Republicans and vote for delay.
One of the biggest mistakes President Obama is making in the current debate over the threat of a government shutdown and the failure to raise the debt ceiling is his repeated and stubborn refusal to negotiate. In speech after speech, Obama crusades against negotiation. Has anyone ever seen anything like this? He’s the president. Supposedly, he’s the chief executive. But Obama doesn’t want to dirty his hands by talking to Republican congressional leaders.
Now, this is an odd paradigm given the fact that the president and his lieutenants are willing to negotiate with Russia’s Vladimir Putin, Syria’s Bashar Assad, and most recently Iranian president Rouhani Hassan. A motley crew at best, and a bunch of dictatorial mass-killing thugs in truth.
What does this say about the president’s strategy for the economic health and wealth of his own country, the United States of America?
Fed chairmen have to be independent, ready to make tough decisions. So what would have President Obama said to Larry Summers about higher interest rates and slower money growth in the next couple of years? Would Summers have had the independence to pull it off?
We’ll never know. But we do know that stocks markets rallied big time on the Summers withdrawal. Markets think Janet Yellen will be an easy-money dove and that Summers would have been the tight-money hawk. But stocks have no way of knowing this, because neither Yellen nor Summers have suggested a rules-based monetary policy that will prevent serious financial crises while stabilizing inflation and maximizing growth.
President Obama, speaking at the G-20 meeting in St. Petersburg on Friday, reminded me of an investment banker trying to sell a deal he doesn’t believe in. And the customer knows it.
Halting. Hesitant. Uncertain. Uncomfortable. That’s what Obama’s statement and body language had to say.
On the verge of a potentially huge defeat on the Syrian question in Congress, President Obama is in a box. He’s looking for a way out, but he can’t find one. He’s losing supporters in the legislature at home, and he didn’t gain any at the G-20 summit abroad.
When it comes to Fed policy, one of the hottest topics on Wall Street is the next Fed chair. Who will replace Ben Bernanke? And believe it or not, Timothy Geithner’s name may be resurfacing. Is it possible that the former Treasury secretary will come to the rescue of a leaderless and hopelessly divided central bank that has no real clue where it’s going or how fast it should get there?
Wait a second . . . Geithner? Did someone say Geithner? We thought he retired from government to go home to New York.
Speaking in Galesburg, Ill., this summer, Obama served up a convenient historical fairy tale: “In the period after world War II,” he said, “a growing middle class was the engine of our prosperity.” Presumably he was thinking of a time when high taxes on the rich and industrial-union rule had the middle class soaring. The trouble is, Obama’s history is wrong.
The Federal Reserve made news this past week in two separate events. The first came with the Fed’s policy meeting on Wednesday, when the central bank gave no hint that it would taper or slow its QE bond purchases any time soon. Wall Street believes the Fed will taper in September. My thought is that tapering is likely to come in December, or perhaps not until the new year. (More on that logic in a moment.)
The other big Fed event occurred when President Obama gave a strong defense of his former top economic advisor, Larry Summers. In front of a full caucus of House Democrats, Obama offered a full-throated rebuttal to the attacks of left-wing and feminist groups who have been coalescing around current Fed vice chair Janet Yellen. Obama told the Democrats “not to believe everything you read in the Huffington Post.”
Of course, with Ben Bernanke’s term ending in January, this all about the debate over a successor to the Fed chair. It’s a timely topic. But here’s the problem for Mr. Summers: Even though Obama has yet to make a choice on the matter, the president’s strong defense of Summers reduces the likelihood that Summers will be appointed. Why? Because Summers now looks like Obama’s man, even if the president hasn’t yet said so.
On June 9, 2013, Larry Kudlow was awarded an Honorary Doctor of Laws Degree from the University of Rochester and delivered the 2013 commencement speech for the University of Rochester Simon School of Business. Below is the full text of that speech.
Thank you . . . Thank you everyone.
It is an honor to be with you all, to be here with your distinguished leaders, with the Class of 2013 and, for me, returning to my alma mater is an emotional moment.
It has been quite a while, too long, frankly, since I have been back. But I’m honored to be here, with all of you, our graduates, and to have this opportunity to give back to a university that has meant a lot to me. Today, I would like to speak to you about two men, two leaders, who had an important impact on my life and on the life of this nation: Bill Simon, our country’s 43rd Treasury Secretary, and Ronald Reagan, our 40th President of the United States. And I am going to speak to you, briefly, about them within the context of two ideas, which are freedom and liberty. It is often said that commencement speakers are all liberals. Not true. I am offering you a conservative prospective and I hope you will listen and reflect on my remarks.
Let me begin with this point. This is the William E. Simon School of Business. I knew Bill Simon. I knew him very well. I enjoyed a lifelong connection with him before he passed away in 2000, and it leads me to say how proud you should be to have your degree with his name at the bottom. Bill Simon was a great Treasury Secretary within an administration full of, forgive me, too many dopes and economic illiterates. If they had listened to Bill, we would not have had to endure all the bloody, damn hell of stagflation within the early and middle 1970s, when I first started out in the workforce. That is how good Bill Simon was.
After he stepped down as Secretary of the Treasury, Bill wrote two best sellers: A Time for Truth and A Time for Action, and those ideas of freedom and liberty that he championed became synonymous with his legacy. Now, my first memory of Bill began with a phone call at 6:00 a.m. in 1977, when I was staying in a hotel in Denver.
It was Bill and I heard a voice bark into the phone, “Is this Larry Kudlow?” I said, “Yeah.” I mean I’m sorry but it was 6 a.m. in the morning. Well, he was calling from New York, and he said to me, “I just read something you wrote. A friend of mine passed it on. You’re a voice in the wilderness, and I want you to get back here so we can have lunch. I have work for you to do.” Now, mind you, I already had a job at the time. But, again, it was Bill Simon. So, we had lunch, and I got to know him. We played a lot of tennis and paddle tennis together, but here is the key: I got to spend hours with Bill as one of his principal speechwriters when he was out of office.
With Detroit filing for Chapter 9 bankruptcy, everybody knows major root-canal cutbacks are coming. Cutbacks of out-of-control government spending, pensions, and health benefits. Major cutbacks. We know that.
We also know that the downfall of Detroit is again proof positive that the public-union collective-bargaining model has utterly failed. Unions just loot the benefit lock box at taxpayer expense. That was the message of Governor Scott Walker’s victorious crusade in Wisconsin. If any good comes out of the Detroit debacle, it will be the spread of that message across the country.
But there’s another important point here. If Detroit is to truly recover, a growth program of tax-free investment incentives must be part of the process. Specifically, Detroit should be made a tax-free enterprise zone, along lines proposed years ago by the late Jack Kemp.
No matter how many monetary officials try to sugarcoat it with damage control, the fact remains that the Ben Bernanke Fed wants to end its quantitative-easing bond-buying operations over the next year. That was Bernanke’s statement at his last press conference, and I’ve seen nothing to contradict it.
As everyone knows, stocks and bonds collapsed right after Bernanke let the cat out of the hat. Fortunately, markets have stabilized since then. But my hunch is that unless the economy really falls back into a quasi-recession, the Fed is going to go ahead and end its bond purchases.
The central bank will more than likely begin to taper in September. And it will do so based on roughly 175,000 new jobs each month, which is consistent with a 2 to 2.5 percent economy.
But as the Fed implements this policy, there’s going to be a lot more volatility in the financial markets, with significant downside risks for stock prices and upside potential for longer-term interest rates.
In the aftermath of Ben Bernanke’s announced timetable for ending Fed bond purchases, long-term interest rates have jumped up while stock prices have cratered down. As I wrote yesterday, I think the Bernanke plan is premature — especially in a 2 percent economy with falling inflation and inflation expectations.
But just to get a little wonky on the interest-rate story, it’s noteworthy that 10-year Treasury notes have moved up about 70 basis points year to date. Currently they’re around 2.50 percent.
Most of that rate rise — more than 50 basis points — is coming from a jump in Treasury inflation-protected securities, known as TIPS. Now that could be a good thing, as rising real interest rates signify a stronger economy. The trouble is, on balance, it’s real hard to find strong evidence of a stronger economy. Instead, as economist David Goldman has noted, investors are bailing out of TIPS because they’re not worried about inflation — which, by the way, is running about 1 percent.
So selling TIPS bonds has raised market interest rates. And that, in turn, has done considerable damage to the stock market and perhaps will pinch the economy.
But the story doesn’t end there. So called inflation break-even spreads have been narrowing significantly. This includes 10-year TIPS implied inflation, as well as 5-yr 5-yr forward inflation expectations. They’ve all dropped about 60 basis points, which is roughly equal to the rise in real interest rates.
So one could argue — as a warning to Mr. Bernanke — that rising rates is a deflationary event, not a growth event. And if the Fed is too hasty in tapering its bond purchases — and after all, tapering is really tightening — interest rates may continue to rise for the wrong reasons, namely deflation rather than faster economic growth.
There is no doubt that the Fed has got to end its bond purchases and eventually figure a way out of its oversized bond portfolio. In recent months I have commended Mr. Bernanke for producing low inflation, after many of us wrongly predicted higher inflation. But as St. Louis Fed head James Bullard said this morning, the low-inflation trend may be too much of a good thing. And bond-purchase tapering — excuse me, I mean tightening — could generate deflationary impulses that could damage the economy.
As an old gold-watching guy, I am obliged to note that the crash in the gold price is moving side by side with the decline in inflation expectations.
All this is why I believe the Fed should move extremely slowly in shifting policy in our still fragile economy.
Without intending to — and perhaps without even realizing it — the normally cautious Fed head Ben Bernanke may have launched a major tightening policy during his news conference on Wednesday. The de facto policy shift immediately sparked a rout on Wall Street, with stock, bond, and gold prices all plunging. And it’s going to shake up confidence even more, perhaps even slowing the already anemic recovery.
Mr. Bernanke has stumbled into a major policy mistake.
When President Richard Nixon collided with the Watergate scandal he was a very unpopular man. The nation at the time was suffering one of the worst recessions in history, and one of the highest inflation rates, too. So Watergate sunk Dick Nixon, but for good measure, the economy sunk him even more.
Roughly 25 years later, Bill Clinton was impeached because he lied about his affair with Monica Lewinsky. But despite his personal transgressions, he never really lost his popularity. Why? The economy was roaring.
So you might say scandals are less scandalous during prosperity, and more scandalous during recession.
As for the current president, he finds himself with a precariously thin margin. As yet, there is no clear and direct link between President Obama and a trove of political scandals. Not yet. And while he doesn’t have a recession on his hands, not even the president’s strongest supporter believes we’re in some kind of Reagan-Clinton economic boom.
Apart from criminal prosecution, the best way to strip the power of politics and corruption from the IRS is to initiate broad-based, pro-growth tax reform and simplification. It’s the complexity of the tax code that nurtures the corruptness of the IRS.
There’s a buzz in Washington about this possibility, where both Democrats and Republicans are interested in reform. We need a simpler and flatter tax code. We need to get rid of the crony-capitalist insider deductions and exemptions, which have given the IRS so much power. These deductions and exemptions are precisely what nurtured the political corruption that led to a major scandal.
An independent special counsel with subpoena power is the only possible solution to the IRS mess. This counsel must find out exactly what happened and who was involved, and then come up with a fix so it never happens again.
At the end of the day, the battle over immigration reform is not about dollars and cents. It’s about the soul of a nation. President Reagan reminded us that America must remain a “beacon” and a “shining city on a hill” for immigrants who renew our great country with their energy while adding to economic growth and prosperity.
And here’s a quote from Jack Kemp: “Americans and immigrants share the same value of work, family, and opportunity. There is no reason to fear the newcomers arriving on our shores today. If anything, they will energize what is best about our country.”
It strikes me that the Republican party has lost its growth-and-opportunity message in recent years, and has replaced it with a very austere vision. Debt, deficits, and budget-cutting all have their place in the economic-policy debate. But the GOP has forgotten that strong economic growth leads to a balanced budget, not the other way around.
The GOP must reclaim the growth-and-optimism message of Reagan and Kemp. Immigration reform is part of that message.
The really good news from April’s employment report is that all the pessimistic, end-of-the-world, spring-swoon forecasters were wrong. It wasn’t a fabulous report. But it handily beat Wall Street expectations. Stock markets soared on the news.
The bad news, however, is that the U.S. continues to fall further behind its own long-term trends for jobs and economic growth. And lately, hours worked — a key labor measure — have begun to fall.
In the last two days gold has plunged so deep that it’s being called the worst drop — at least in percentage terms — in 30 years. That brings us back to the early Reagan period, when falling gold was regarded as a good thing.
Back then, lower gold showed inflation coming down after the horrible 1970s. It also showed confidence in the economy recovering and greater respect for the dollar. Over the next two decades, in the ’80s and ’90s, gold basically dropped in round numbers from $800 an ounce all the way to $250. Stocks soared. So did jobs and the economy. It was one hell of a good period.
But markets have reacted a bit differently this time. On Monday, stocks fell over 200 points in tandem with gold’s $150 drop. Maybe it was tax-selling in the stock market. Or the constant rumor of Cyprus gold-selling to raise bailout cash. But investors aren’t happy. It doesn’t look like the ’80s and ’90s. And I’m hearing the usual cacophony of impending catastrophe.
No matter how you slice the Obama budget pie, the inescapable fact is that the president wants to get rid of the roughly $1 trillion budget-cutting sequester and substitute in a $1 trillion-plus tax hike. In other words, more spending, more taxing. Growth-busting. The GOP should just say no.
And let me provide some counsel to my Republican friends in Washington, in particular in the House. Balanced budgets don’t create growth. This mantra is wrong. It’s growth that creates balanced budgets.