Kudlow's Corner Money & Politics with Larry Kudlow


  Wednesday, 27 Feb 2008 | 8:30 AM ET

Is the Fed in Denial About Inflation?

Posted By: Larry Kudlow

Is the Fed in Denial About Inflation? Home prices are falling, but consumer and producer prices are rising. That’s a conundrum for the Fed. Do investors really want the central bank to keep easing interest rates in the teeth of a 4.3 percent 12-month change in the consumer price index?

Or in the teeth of a 7.7 percent rise in the producer price index?

While I’ve been a bit dovish on inflation, data over the last 3 or 4 months are changing my mind. Inflation first peaked in July 2005, and then gradually declined through the end of 2006. But since the summer of 2007—and especially in recent months—there has been an alarming rise of inflation.

Economist Brian Wesbury says the Fed is in denial about rising prices. I think he’s right.

Here’s another problem. The Fed is going to be easing interest rates in the teeth of $950 gold and $101 oil! This can’t make any sense to the average Main Street Joe out there.

At the end of the day, the job of the Fed is to stabilize the level of prices, or at least to keep the increase in the price level to less than 2 percent. But the yearly changes are way, way above 2 percent.

And using the so-called core inflation rate (which excludes food and energy) simply makes no sense over longer periods of time. In other words, core prices from month to month, and quarter to quarter, may be useful guides for the Fed, but they are no longer useful over periods of 12 months or longer. The rise of inflation, measured as a 12-month change, is truly significant over the past 4 months. It’s a problem.

The Fed should stop easing right now, and it should maintain that posture until commodity prices start falling.

Incidentally, one of the reasons why voters are so negative on the economy is the increase in the price of energy, gasoline, oil, home heating fuels, and food. Surely the Fed—which is in charge of inflation (since it is a monetary problem)—should resist adding fuel to this flame.

But here’s another problem. Since Hill-Bama didn’t appoint Ben Bernanke, and Bush did, they can criticize the inflation problem. Meanwhile, Republicans may wind up getting blamed for it. Sen. McCain needs to develop a plan to address it.

In short, this inflation story is becoming a real big problem, in political and economic terms.

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  Tuesday, 26 Feb 2008 | 3:37 PM ET

Big Government Obama, Bush Tax Cuts & More

Posted By: Larry Kudlow

An old friend emailed last night, asking for some info on the Bush tax cuts. He also wanted some insight on the tax and spend proposals being bandied about by big government Obama, Hillary, and others out there.

Here’s a portion of my response:

Bush cut taxes by 21 percent for marrieds with 50k; 18 percent for marrieds with 75k; 17 percent for marrieds with 125K. Do people know this?

Do people really believe that raising taxes at the top end will reduce taxes in the middle? Or grow the economy? Democrats proposing huge spending plans. Who will pay? Top earners? Or middle earners?

Who will pay to fix social security and medicare entitlements? Or expanded health entitlements?

Do people want a $65 billion government infrastructure bank? A $150 billion government bureaucracy for "green tech" projects?

Think of it.

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  Monday, 25 Feb 2008 | 4:08 PM ET

Hillary’s Mental Roller Coaster

Posted By: Larry Kudlow

Is it just me, or has anyone else noticed Hillary’s erratic, roller-coaster, mood swings these past few weeks? She’s all over the map. Irritable and angry. Manic. Pessimistic and sad. One minute she’s shedding tears, the next minute she’s shouting and attacking, then she’s sarcastically ripping on Obama, and on and on it goes.

So, is Hillary depressed?

Now I’m no psychiatrist, far from it, but I think a simple answer is that Senator Clinton could be depressed. She seems deflated. Down in the dumps.

Look, depression is a serious problem. It’s also a multibillion-dollar business. Three of the more popular drugs in the market today to treat it are Pfizer’s Zoloft, Eli Lilly’s Prozac, and GlaxoSmithKline’s Paxil. Maybe Hillary’s taking meds, but they’re just not working for her? Could that be why she’s always attacking Big Pharma?

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  Monday, 25 Feb 2008 | 1:42 PM ET

Laffer Curve Tutorial - Part II

Posted By: Larry Kudlow

Stop the presses…the new Laffer Curve video is up on YouTube.

It's the second installment in a 3-part series courtesy of the Center for Freedom and Prosperity. It's hosted by Cato tax expert Dan Mitchell and focuses on real-world evidence of the Laffer Curve.

A month ago, I linked to the first video which carefully explained how tax rates, taxable income, and tax revenue are all intertwined. Part III will explore how to improve the revenue-estimating process.

Again, well done. Hats off.

**On a related note, Cato tax experts Chris Edwards and the aforementioned Dan Mitchell are putting the finishing touches on a book about tax competition. Ought to be out later this year. Should be an enlightening read.

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  Thursday, 21 Feb 2008 | 1:27 PM ET

It's Over

Posted By: Larry Kudlow

Allow me a dose of hardened market realism concerning Barack Obama’s landslide victory in Wisconsin. The race is over. Hillary Clinton is over. Her electability is over. Bill Clinton’s political invincibility is over. The Clinton Restoration is over.

It’s over.

Obama got to the far left faster than Hillary did. He out-organized her, out-fundraised her, out-speechified her, out-hustled her, out-dressed her, and out-presidentialed her. He outbid Hillary for votes, one promised government check at a time. His 17-point margin of victory in Wisconsin was incredible. It says he can’t be stopped.

Outside of the whacko ultra-left Madison college population, which is even worse than the Ohio State population, Wisconsin is a lot like Ohio. And Ohio campuses will go for Obama. Think faculty voters, grimly determined for a left-wing takeover of America “from the bottom up,” to use the Saul Alinsky community-organizer phrase. As goes Wisconsin, so goes Ohio.

Not even Hillary’s last-minute bashing of business, free trade, and free-market capitalism — which was a complete repudiation of her husband’s presidency — could save her. Obama got there first, with a style and elegance that Hillary simply couldn’t match.

And it came out of nowhere. On the eve of the Wisconsin primary, Hillary did a hard-left imitation of John Edwards’s populist and demagogic soak-the-rich rhetoric. She trashed some of the greatest businesses in America — oil, credit-card, insurance, and pharmaceutical firms. Wall Street and lending firms. It all must have come as quite a shock to the alumni of the Bill Clinton White House who are working for her campaign.

Robert Rubin may have been too busy tending to Citigroup’s sub-prime collapse to keep Hillary on the reservation. But where were Wall Street’s Roger Altman and Washington’s Gene Sperling when Hillary discarded the pinstripes for the polyester lefty-union pantsuit?

Bashing business comes naturally to Obama. But for Hillary it was a complete failure. Exit polls from Wisconsin say the trade protectionists went with Obama. Union members? Obama. People who think the economy’s in trouble? Obama. Folks who don’t think it’s in trouble? Obama. People making less than $50,000 a year? Obama. More than $50,000 a year? Obama.

And it only gets worse.

Voters went with Obama on healthcare by 8 points, on the economy by 16 points, and on Iraq by 20 points. Churchgoers and non-churchgoers went with Obama. Most qualified to be commander-in-chief? Obama. College degree or no college degree? Obama. Democrats, Republicans, and independents went with Obama. So did blacks and whites.

White women did in fact lean toward Hillary, by a small 52 to 47 percent margin. But Hillary only got 31 percent of the male vote while tying the female vote. White males? They went with Obama by a full 29 points.

Obama won both married men and women, and he tied on unmarried women — a heretofore Hillary stronghold. Most likely to unite the country? Obama, by almost 30 points. Most interested in improving relations with the rest of the world? Obama, 56 to 40.

You think these trends are going to change in Texas, Ohio, and Pennsylvania? I don’t — no matter what last-gasp neutron-negativism tactics the Clinton team employs.

Bash Obama for plagiarizing Deval Patrick? That negativism backfired. Go after Michelle Obama’s incredible anti-American speech? Women are coming ’round to Obama, so try again. Go super-negative over the next two weeks? That’ll mean Obama beats Hillary by 35 points instead of 20. Lift the sanctions on the Michigan and Florida delegates? That’s an Obama trump card. Bribe or rent the super-delegates? Make my day, Obama is thinking.

If Hillary wants to preserve her career as a professional politician her best bet is to pull back in Texas and Ohio as a prelude to withdrawal. Bill will say no, ’cause his career is even deader than hers. But Hillary has more class than her husband. She also has some vague sense of reality — of the difference between right and wrong.

The Intrade pay-to-play prediction market showed Obama with a 10 point gain after Wisconsin, giving him an insurmountable 81 to 19 lead. It’s as if Hillary has suddenly become a steeply inverted yield curve, with a rapidly declining credit rating and a liquidity pool that’s quickly drying up. She won’t be able to raise two wooden nickels going forward. Not even Bill can raise enough money in Dubai to keep her out of bankruptcy.

The market has officially pulled the plug on Hillary, terminating her campaign. What’s left for her now is to muster some grace, humility, and character and begin the process of pulling out. To do otherwise will destroy the Democratic party, and what’s left of the Clintons’ badly tarred and tattered reputation.

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