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Kudlow’s Money Politics

Larry Kudlow’s daily web log of matters political and financial.

GOP Strategic Retreat?



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Republicans are divided. President Obama won’t budge. And more and more, it looks like the fiscal-cliff deadline of December 31 will be missed.

It’s now clear that Team Obama wants higher tax rates and revenue-raising tax-deduction caps to meet their $1.6 trillion revenue target. Spending cuts and entitlement reforms are vague to non-existent. In fact, it could be that Obama not only rejects the across-the-board budget sequester, but that he actively seeks to raise spending, not cut it.

I guess it stands to reason that if you puff up his $800 billion revenue increase from last year, and double it to $1.6 trillion this year, the money will be spent. The government will grow larger.

All this should be unacceptable to the GOP.

Read my full column here

Herbert Hoover Obama?



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Once again, President Obama dodged the key fiscal-cliff issues at a campaign rally/press conference Wednesday morning. Campaign-style, he argued that the middle-class tax cuts (below $250,000) must be renewed in order to prevent a $2,200 average tax hike from hitting middle-class folks. He added that a middle-class tax hike would cost consumers $200 billion in spending power.

Okay, fine. But no one wants to raise middle-class taxes. That’s not the issue. And even if those numbers are right, they dodge one of the key points in the dialogue between President Obama and House Speaker John Boehner. Namely, what to do about top income-tax rates, which include capital gains, dividends, and inheritance taxes?

The president once again avoided the term “tax rate” in his latest round of fiscal-cliff comments. He basically said, Let’s get this done before Christmas in a fair and balanced way. But what is balance?

Read my full column here

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Obama Wants Higher Revenues and Rates



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Right after the election, it was all peaches and cream and conciliatory common-ground language when President Obama met with congressional leaders to discuss the fiscal cliff. Of course, the president campaigned on tax hikes for the rich, by which he meant raising top income-tax rates and extending the Bush tax cuts for incomes below $200,000. And the president’s first meeting post-election was with his union and liberal-interest-group supporters, all of whom want to raise the top rates and then some. But instead, the newly reelected president spoke about “new ideas,” as long as they provided a balance of spending cuts and tax increases on the most successful upper-end earners.

Now, however, stalemate may be just as likely as solution. Why? Well, it was former Bush advisor Keith Hennessey who discovered a big obstacle in all this. Team Obama wants a gargantuan $1.6 trillion tax hike over the next ten years to finance larger government. And Hennessey surmised — and I agree — that the reason the president couched his language in terms of higher tax “revenues” rather than tax “rates” is that he essentially wants both. Raise the top rates and cap or eliminate a number of tax deductions for more revenues. This is going to be a big problem. It could well be a deal-breaker.

Read my full column here.

Richard Fisher: Fed Won’t Catch Markets if U.S. Falls Off ‘Cliff’



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In the event the U.S. goes off the fiscal cliff, don’t expect the Fed to shield markets from the worst. In an interview on The Kudlow Report last night, hawkish Dallas Fed president Richard Fisher told me he’d resist that kind of intervention.

“I do not see us as that kind of safety net,” he said. “There’s got to be a limit. In committee we’d have to decide what kind of limit, but there’s got to be a limit.”

That means if Congress plays partisan politics and a big tax hike kicks in, the first quarter turns negative, and lawmakers continue to scurry around Washington unable to reach a deal, don’t expect a massive bond-buying program.

It’s not coming.

Fisher went on to say that lawmakers have to step up, and if need be he thinks the Fed should force their hand.

“Fiscal authorities must get their act together,” he said. “We can’t just rely on monetary policy — we can’t have a monetary policy of infinity and beyond.”

Fisher added, “The Fed has been carrying the ball. But we can’t carry the ball all by ourselves.”

In short, Fisher is tired of the indecision in Washington. “The more we do at the Fed,” he said, “the more excuses politicians have to do nothing.”

It’s worth noting that Fisher emphasized that these are strictly his opinions and not those of Ben Bernanke.

Watch the full interview here:

Don’t Go Wobbly, GOP



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In the fierce headline debate over the so-called fiscal cliff, our newly reelected president argues that “a majority of Americans agree with [his] approach.” That approach, according to the president, is “to combine spending cuts with revenue — and that means asking the wealthiest Americans to pay a little more in taxes.”

Well, that’s not exactly what the exit polls said.

Read my full column here

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Romney’s Optimism Will Win



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Putting aside all the voter models, there’s one overlooked point worth making with Election Day at hand. Most times in American politics, optimists win, and pessimists lose. I know that’s not always the case. And sometimes it’s hard to distinguish between the two. But in this election, I believe Mitt Romney is the optimist, and Barack Obama is the pessimist. It’s Romney’s election to win.

Read my full column here

Once Bullish, Leon Cooperman Grows Wary of Stock Valuation



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For years, famed investor Leon Cooperman has talked up stocks. But on last night’s Kudlow Report, he sounded the alarm. Cooperman, who is a widely followed investor and chairman of the hedge fund Omega, has made headlines for quite some time calling stocks “the best house in the financial-asset neighborhood.” Back in 2011, Cooperman outlined his pro-stock market thesis at length on CNBC.

But last night, Cooperman made a surprising statement that presumably reflected a shift in his outlook. He told me, “I think the stock market presently is fairly valued. I believe the profit cycle is peaking.” Cooperman went on to say that the market multiple may be too high. After noting that the market multiple is around 15, he said the growth rate over the past 50 years or so has been much more robust. So if we’re moving into a period of slower growth, Cooperman reasons that the premium investors are willing to pay for stocks will probably decline.  That’s not to say Cooperman is a seller — he’s not. “I’m not aggressively bullish or bearish,” he explained, “I’m simply saying I think the market is now fairly valued.”

And he reiterated something he’s said many times before: “If you must put money to work, I still don’t think there’s a better alternative than common stocks. The Fed has made all the alternatives very unappealing.”

Nonetheless, his commentary suggests his outlook is shifting. Cooperman also told me that he thought all the concerns about the fiscal cliff or the confluence of tax hikes and spending cuts that could go into effect as soon as January 1 are overblown. “They’ll kick the can down the road,” he said. “There’s no way a politician will allow the cliff to hit.”

Watch the video here:

Does the Fed Have Grave Concerns about the Economy?



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On Tuesday, the Federal Reserve reaffirmed its commitment to using unconventional efforts to stimulate the economy. In the latest Fed statement, the central bank said it would keep buying $40 billion in mortgage-backed debt per month to push interest rates lower. The Fed also repeated its vow to keep interest rates near zero until mid-2015. That may seem like the Fed is sending a signal to markets that it is intent on driving the economy no matter what the cost. But that may not be the case. According to former Fed governor Kevin Warsh, the move isn’t a show of strength — it’s something far more ominous.

“I think the Fed revealed in their actions just how grave they think the economy is,” he said on The Kudlow Report. The statement shows “just how concerned they are about the economy’s prospects; just how concerned they are about the ‘fiscal cliff’ and Europe.” Warsh served as a member of the Board of Governors of the Federal Reserve System from 2006 to 2011. From 2002 to 2006, he was special assistant to the president for economic policy, and executive secretary of the National Economic Council. His take on the Fed — as someone who was once on the inside — is that the central bank feels it’s the only institution standing between the nation and a terrible downturn.

He said, “The central bankers feel they’re doing it all by themselves; that they’re not getting help from Congress or the administration.” It seems Wall Street may share the skepticism expressed by Warsh. Again both the Dow and S&P closed lower.

Obama’s Little Plan



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Under pressure from Mitt Romney, President Obama has finally released his own policy vision for a second term. And yes, it’s the same old, same old. Some are calling it a second first term.

There isn’t a single true economic-growth incentive in this scant plan. There’s no serious spending, deficit, and debt reduction, and no attempt to solve the Social Security and health-entitlement problems, which are moving us toward bankruptcy.

Nothing. Nada.

But before getting into the details of this little plan, my basic conclusion is this: Mr. Obama wants to slash defense spending, raise all other spending, and hike taxes to finance the largest government size he can possibly get.

Read my full column here.

Is Obama Buying the Election with His Welfare Explosion?



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With the unprecedented budget explosion of means-tested, welfare-related entitlements, does Team Obama think it can buy the election?

It’s a cynical question. But I wouldn’t put it past that cynical bunch.

Read my full column here

Ryan’s Benghazi Surprise



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The irony of ironies: The Biden-Ryan debate was more about foreign policy than the economy and jobs. And yet another irony: Paul Ryan, an expert on all things fiscal, revealed a much better knowledge base of foreign policy than anyone thought existed. Shows how smart and well-rounded he really is.

In fact, Ryan’s Benghazi slam, right out of the chute, won him the debate. This terrorist attack is going to be a huge presidential-race issue. Americans are furious at the Obama-Biden-Clinton stupidity and mismanagement surrounding the tragic Benghazi deaths. They are enraged at the Benghazi cover-up. Ryan accused Biden of malfeasance in every aspect of this tragedy. It was a tremendous body slam right from the start.

Read my full column here

Sell-Off Presents Market Opportunities



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The S&P fell for the fourth day in a row on Wednesday as investors fearing a rough market ahead ran for the exits. But if you’re among those sellers running for the sidelines, you may be making a big mistake.

For the first time, I feel comfortable enough tell you that Mitt Romney is going to win big. And I firmly believe Mitt Romney is about to usher in a new era — a Reagan-like, economic-growth revolution.

His tax-reform plan alone will drive the economy into tremendous prosperity. For example, a married couple earning $143,000 whose tax rate under Romney drops from 25 to 20 percent will keep roughly $7,100 more in take-home pay.

I see opportunities galore in the market. Right here and right now.

Why wouldn’t you be out there buying energy? Romney is pro energy. He supports coal and fracking. I’d also buy industrials. Romney is going to lower tax rates. I’d also buy health care. Romney will end government-run health care.

If you expect the nation to be led by a President Romney next year, all these sectors are very attractive right now. There’s just tremendous potential. I think the stock market is missing this.

Go on Offense, Mitt



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Free advice is, well, free advice. But I would say this to Governor Romney: In your gentlemanly fashion, get on the offense quickly tonight, and put President Obama on the defense.

Play the leadership card: “No leadership on the anemic economy. No leadership on the grand-bargain talks with Speaker Boehner, where a great opportunity was blown with your last-minute $400 billion tax hike. No leadership on Simpson-Bowles. No leadership on the credit downgrade.

“And no leadership on the Benghazi catastrophe, where our ambassador was killed and dragged through the streets. Security broke down. If you had read your intel briefing, you would have seen the threat ahead of time. And then you went off to a Las Vegas fundraiser. And then came the cover-up, led by Susan Rice’s five-Sunday-talk-show lying fiasco.”

And push your tax-cut plan, Governor Romney. Across-the-board rate reductions. Don’t be afraid to sell it. Talk to the middle class, who will get a huge increase in take-home pay as a result of your tax plan, during a period when incomes are falling (as Joe Biden correctly stated) . And say that there will be no tax hikes for the middle class.

And talk growth. Growth, growth, growth.

Red line the middle-class tax deductions and explain that the tax-rate cuts for the upper end, which will spur economic and investment incentives for growth, will be balanced with a significant loss of this group’s unnecessary tax deductions.

And back all that up with a strong sell on spending cuts that along with faster 4 percent economic growth and 12 million new jobs will bring the deficit and debt GDP ratios way down.

Growth, growth, growth.

And by the way, don’t forget the corporate tax cut to 25 percent from 35 percent. And put in some sound money, too, to stop the Fed’s assault against the dollar.

Be a free-market, free-enterprise visionary. Emphasize opportunity over class warfare. Emphasize employment rather than government dependency.

Emphasize American exceptionalism, at home and abroad.

Mitt’s Tax-Cut Mulligan?



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For some unknown reason, Mitt Romney dialed back his tax-cut plan yesterday, the same day new reports showed incomes are dropping.

Last month, median household income fell by about $500, and since Obama became president, income is down over $4,500. But under Mitt Romney’s 20 percent tax-cut plan, if he truly believes it and follows through with it, a married couple making $70,000 a year would save over $2,000. And take-home pay for a middle-class married couple earning about $140,000 — with their tax rate dropping to 20 percent from 25 percent — would increase by over $7,100. Obama has no such middle-class tax cuts.

So why would Governor Romney tell an Ohio crowd on Wednesday that they shouldn’t “be expecting a huge cut in taxes, ’cause I’m also going to lower deductions and exemptions.”

What is that all about? What kind of message is he sending? Is it pro-growth take-home pay? Or is he pulling back and hedging his bet?

I wrote in my last column about the potential benefits of the Romney plan. And I suggested that Romney should give specific examples of higher take-home pay from his tax cuts. And then I suggested that he draw a red line for middle-income taxpayers, and say “you will not lose you’re your deductions.” In other words, send a true growth message. And make it clear, not muddied.

This afternoon, one of the most senior people in the Romney-Ryan camp called me to say that Mitt misspoke, and that I should give him a mulligan. This person told me there’s no pull-back on the pro-growth tax-cut message, no new overemphasis on debt, and no departure from the Reagan-Kemp tradition.

Okay, even though I’m a tennis player, I’m willing to give Mr. Romney a mulligan. But I’ll say this: The growth message has to be crystal clear for the debate next Wednesday night. Mitt is slipping in the polls. People are confused about his message. He must clarify it.

Lower marginal tax rates. Higher middle-class take-home pay to offset lost income under Obama. More family financial resources. More growth and more jobs.

This doesn’t have to be so hard. 

Mitt’s Take-Home-Pay Message



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One of the reasons Mitt Romney and the GOP failed to get a convention bounce was their inability to talk tax cuts, economic growth, and jobs. In his 45-minute convention speech, Romney spent 200 words on the economy, with no mention of tax cuts. It was the same for his running mate Paul Ryan: no mention of tax cuts at the convention.

In fact, Romney and Ryan didn’t talk tax cuts leading up to the convention, and they didn’t in the weeks that followed. This has hurt them in the polls. They haven’t connected the dots between Obama’s anemic economy and the Romney-Ryan solution to improve it.

But, all of a sudden, there may have been an “aha” moment. In a 60 Minutes interview this past Sunday, Romney did mention tax cuts, and take-home pay, too. Whoa.

Read my full column here

Obamanomics Has Failed Dismally



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About thirty years ago, Paul Volcker launched a monumental monetary effort to bring down inflation. As Fed chairman, he sold bonds, removed cash from the economy, and cared not one wit about rising interest rates. And it worked. Gold plunged, King Dollar soared, and the drop-off in bank reserves and money extinguished high inflation — and actually launched a multi-decade period of very low inflation.

This week, current Fed chairman Ben Bernanke embarked on an absolute reversal of Volcker’s policy. He is launching a monumental effort to buy bonds and inject new money into the economy in order to reignite economic growth and job creation. It’s like history is repeating itself, but in reverse. Gold is soaring, the dollar is falling. Something’s wrong with this picture. 

Read my full column here

Obama’s Same Old, Same Old



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Perhaps the reason for President Obama’s flat and energy-less speech Thursday night — TV cameras panning the convention floor actually showed delegates falling asleep — was that he already knew Friday’s jobs numbers were going to be a disaster. The August unemployment report completely punctured his argument that if you just give him four more years, his policies will solve the economy.

Of course, reading through the speech, I didn’t see the word “jobs” mentioned once. In fact, though I could be wrong, I didn’t see the word “growth” mentioned once.

What I did see were constant references to government. Obama has taken to calling it “citizenship.” But it’s the same old, same old. Whether it’s more money for the teachers’ unions, or more Solyndra-like green energy, or more for infrastructure, it translates to more government spending and dependency in a second Obama term, all to somehow be financed with tax hikes on the rich. 

Read my full column here

Romney Didn’t Make the Sale



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Did Mitt Romney make the economic sale at the Republican National Convention? Did he convince people who are living at the margin or are unemployed and discouraged that he has the answers to the economy? Frankly, I don’t think so.

I do not understand why he did not talk about his 20 percent across-the-board personal-tax-cut plan that would help the middle class enormously. He never mentioned it, and he went into no detail on the business tax-cut plan. This plan is terrific for competition and global investment.

Instead, he talked about a jobs tour. I frankly have no idea what a “jobs tour” is. I do know that 23 million Americans need jobs. I don’t know that they need a president on a jobs tour to inspect them.

It concerns me that in the economic zone, he didn’t make the sale to independents, the so-called Reagan Democrats, or the Clinton Democrats. I didn’t hear anything new. I didn’t hear anything specific, and it troubles me.

I do think Romney helped himself enormously with his biographical narrative. He came off as a humble, grateful man. But on the economic front I don’t think he made the sale; I don’t think he convinced the independent voters and I don’t think he’s going in the right direction on tax policy.

On big business, I think he needs to be more specific. It’s not about big business — it’s really about small business. And guess what? Small businesses, the LLCs and the S-corps, pay the personal tax rate. That’s another reason why I don’t understand why he doesn’t talk about the 20 percent tax cut. It helps small businesses and it’s the opposite of what Obama is offering. The current president wants to raise taxes on those people. Except for a passage on success, I didn’t hear any contrast Thursday night. The best line of Romney’s speech from an economic standpoint was this: “In America, we celebrate success, we don’t apologize for success.” That is a great line, but I wish he presented more contrast to President Obama.

A final thought: Sen. Marco Rubio’s introduction of Romney was one of the most brilliant speeches I have heard in a long time. Freedom was his key point. America is about freedom — economic freedom, political freedom, religious freedom, and faith. It was just utterly brilliant, and the guy is an absolute Republican superstar.

Too Much Debt, Not Enough Growth



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Republican vice-presidential candidate Paul Ryan gave a powerful speech Wednesday that repeatedly brought conventioneers at the Republican National Convention in Tampa to their feet. I am going to give him high marks for his delivery.

Ryan, in typical fashion, seriously and analytically ripped apart the Obama economy and what has been called Obamanomics. He ripped it to pieces, and it needed to be done. Most especially, he ripped apart Obamacare. Ryan also did his level best to defend Republicans against the usual attacks on Medicare reform, or what has been called “Mediscare.”   However, I was disappointed that his economic-growth solutions were somewhat muddled and unclear. At one point in the speech, rather than speak about Mitt Romney’s own tax-rate proposals, Ryan used the term “tax fairness,” a term frequently used by President Obama and other liberal Democrats. This was surprising to me.

Ryan cited Jack Kemp and the Reagan tax reform (and I am, of course, part of that gang). But the reality is, Ryan never mentioned tax cuts during his speech. Not the 20 percent across-the-board supply-side reduction in marginal tax rates, nor the 25 percent corporate tax rate, down from 35 percent. These pro-growth measures have been proposed by Mitt Romney, but it is a mystery to me why Ryan did not mention them.     He dwelled on debt to an extreme point. I don’t think discussing debt connects with people who are unemployed or marginally employed. I think they want a good-paying job, and debt is almost an academic abstraction. When Republicans run on debt and deficits, they almost always lose. When Republicans run on growth, limited government, lower spending, lower tax rates, and deregulation — they win. Ryan’s speech was confusing on the growth issue, and that was disappointing. I don’t want to be confused, and the American people shouldn’t be confused.

It will be left to Mitt Romney on Thursday night to clarify his growth policies. I want growth, growth, growth. Wednesday night, I didn’t get growth, growth, growth; I heard debt, debt, debt.

The Star of Last Night Was Ann Romney



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In front of a spirited crowd that packed the Tampa Times Forum Tuesday night, Chris Christie gave a solid speech. He echoed Mitt Romney’s programs, which consist of substantial budget cuts, tax cuts, and entitlement reform.

Christie pressed on the notion of what he called “principled compromise,” which is exactly how I think Mitt Romney will govern if he wins the election. In a very sharp dig at President Obama, Christie emphasized true leadership, not just governing in accordance with the polls. His line of a “second American century” — which is a Marco Rubio line — is fabulous. Basically, he means we are not going into decline.

This particular passage from Christie’s speech caught my attention:

They said it was impossible — this is what they told me — to cut taxes in a state where taxes were raised 115 times in the eight years before I became governor; that it was impossible to balance a budget at the same time with an $11 billion deficit. But three years later, we have three balanced budgets in a row with lower taxes. We did it.

He is saying you can reduce taxes, you can reduce spending, you can grow the economy, and you can have a balanced budget. And that it has been done before, in New Jersey. It’s a prediction of what Mitt Romney is going to do.

But I don’t think Christie did as good a job of setting the table as Ann Romney. She was the star of the night. She gave a brilliant speech about her life with Mitt Romney, about their love, and about how they grew up without silver spoons in their mouths. She described her work with, and empathy for, those less fortunate. Her description of Mitt as the man who “will not fail” was a terrific line.

I must confess, Ann Romney stole the show.

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