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Farrell: Kohn Absurd, Bernanke Right

If you watched Kudlow last night you got a very interesting and real life lesson in economics and how inflation destroys value.

Headline CPI has increased from 2 percent or so to roughly 4 percent the last two years. The "effective" capital gains tax has increased to 36 percent the same time. How can that be ? Since capital gains are not indexed for inflation, if you strip out the illusory gain caused by inflation marking up assets the after tax reinvestment proceeds leaves you with buying power of only 64 percent of the original dollar.

That is why Fed member Kohn's recent statement that maybe we need to live with a little inflation is absurd. Bernanke is so right to wage the war on inflation.

You also would come to the conclusion if you watched the show that Carlos Gutierrez, Secretary of Commerce, should be running for Vice President with John McCain. I always liked him when he ran Kellogg and his brief appearance last night was impressive. He talked about the need to drill for oil here in the United States. China is drilling offshore from Cuba and we have put areas close to that off limits. The Secretary made the very good point if we planned an effort to drill in the deepwater or other areas, while it would take time of course, the very fact we started to plan would start to reduce the geopolitical risk premium in the price of oil. Go Carlos !

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Vincent Farrell, Jr. is a Principal of Scotsman Capital Management and a regular contributor CNBC.