Conservatives do not trust the president in his role as commander in chief. They want more than a shot across the bow, but they’re not hearing clear strategies and intentions.» Read More
In his first national interview since he filed the largest municipal bankruptcy in U.S. history, Detroit Emergency Manager Kevyn Orr said he could not wait any longer to solve the city's long-term debt problems.
"This is a problem that has been more than 60 years in the making," Orr told CNBC's "The Kudlow Report" on Thursday. "There's $18 billion of debt total. Even if we took $200 million a year out of a $100 billion budget, which we can't do, it would take 68 years to pay off that debt."
Orr confirmed reports that the city had agreed to a settlement that would tap into $11 million a month in casino revenue. Under the deal, Detroit would pay a $344-million swap with a $255-million debtor-in-possession loan.
"We have an agreement in principle to get to our casino revenue and to relieve some of our secured debt," he said.
The Emergency Manager said negotiations will continue with the city's creditors to free-up cash flow and relieve some of the city's multibillion-dollar debt.
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 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.
Investors beware. The second half of this year could be a bumpy ride.
Now, nobody asked my opinion on this. But I wish the Fed would leave its current accommodative policy in place, rather than taper down its quantitative easing. Why?
Let me begin with the crashing gold price. Although gold has been dropping from $1,900 for a couple of years now, it has fallen several hundred dollars recently, to around $1,200. Gold is an important market-price signal of money policy and inflation, the latter of which has dropped to 1 percent year on the year. So today's gold price is a deflationary signal.
The strong dollar reinforces the gold indicator, as do weaker commodity and metal prices. They're all telling the central bank to go very, very slowly in unwinding QE.
Also, this is only a 2 percent to 2.5 percent economy. Market monetarists are focusing on a soft nominal GDP rate, which is less than 4 percent. That's another signal that the Fed should not tighten its cash-injecting money-supply policies. As the monetarists well know, a slowdown in Fed bond-buying will translate to a slower rate of growth for the monetary base and likely for M2. The falling turnover of money, or velocity, is already a cumbersome process. But Fed tightening will make this story even more difficult.
And if the Fed does what it says it's going to do, there certainly is going to be an intermediate bear market in bonds. As a rough approximation, 10-year Treasurys, which already have gone up nearly 100 basis points, to 2.5 percent, will probably rise another 100 basis points, to 3.5 percent. That in turn is going to weigh down stock market valuations. And it could well have a negative impact on the economy.
I don't want to get too bearish with this scenario. In particular, I think American business is very healthy, with rising profits, substantial cash flow, and pristine balance sheets. But again, if the Fed goes through with tapering and tightening, it is likely to damage stocks for a while—despite rising profits.
Again, I'm not trying to paint a catastrophic picture. But I am suggesting that as the Fed tries to extricate itself from a balance-sheet-ballooning QE approach that I never favored, it won't find the process all that easy. And there will be market and economic consequences.
Wouldn't it be nice if the central bank weren't in this fix to begin with? Wouldn't it be great if the Fed were governed by a set of rules rather than constant Keynesian short-run tinkering?
Bernanke was certainly right in 2008 and 2009, when he went all out with emergency Fed operations. But the absence of clear monetary rulemaking has undermined his credibility since then. Yes, the inflation rate is low at only 1 percent. That's good. But why doesn't the Fed pay attention to falling gold and commodity prices, which are throwing off deflationary signals? And why can't the Fed use a commodity market-price rule to guide it toward an appropriate nominal GDP target of 5 percent or 6 percent?
Well, the Fed hasn't done it. Instead it has thrown a lot of chips on the table. And removing those chips is not going to be easy.
There's a great old joke about the lone Jewish survivor of a shipwreck who finds himself alone on a desert island.
Ten years later he is finally rescued by the U.S. Navy and the sailors are all astounded by what they see: all by himself, the castaway has built an entire small village dominated by schools, hospitals and houses of worship.
The shocked rescuers ask the man what on Earth possessed him to build so many facilities when he was the only human being on the island.
The old Jew responds: "Well I had some spare time, so I figured I'd do a little volunteer charity work."
What makes that old joke funny is that Jewish communities all over the world have a hyperactive "charity and relief organization" gene, if there is such a thing. After codifying the idea of mandatory charity in the Hebrew Bible, Jews have spent much of the last 4,000 years outdoing themselves, (and often trying to outdo each other), by establishing community schools, hospitals, food pantries, etc.
(Read More: Man Who Taught the Biggest Central Bankers Retires)
And it's that 4,000-year-old tradition that makes what's going on right now in Israel so remarkable.
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 Thursday, I think the Bernanke plan is premature—especially in a 2 percent economy with falling inflation and inflation expectations.
Mitt Romney is back in politics and pledging his full support for the Republican Party in the next cycle.
"I'm optimistic about the prospects of a Republican being elected in 2016," he said on CNBC's "The Kudlow Report" on Thursday night. "I think the American people know that what they've seen can't go on forever."
When you get right down to it, the political targeting and stalling of tax-exempt applications by the IRS was an effort to defund the Tea Party. Rick Santelli, one of the Tea Party founders and my CNBC colleague, was the first to make this point. I've taken it a step further: The IRS was taking the Tea Party out of play for the 2012 election, as it looked to avoid a repeat of 2010 and another Tea Party landslide.
There are a lot of numbers out there. Some say Tea Party applications for tax-exempt status averaged 27 months for approval, while applications from liberal groups averaged nine. In one extreme case, according to the Washington Post, the IRS granted the Barack H. Obama Foundation tax-exempt status in a speedy one-month timeframe. Yet some conservative groups waited up to three years, and some still haven't received approval.
But there can be only one reason for the stalled-out approval process for conservative groups. The IRS was trying to put them out of business. Thus far, there's not one wit of contradictory evidence.
Think of this: If the IRS wasn't politically targeting conservative groups, why did its leading spokespeople lie? This was not even cognitive dissonance. It was outright lying before Congress. Lois Lerner, a key player in the IRS's tax-exempt division, is being accused by the House Oversight and Government Reform Committee of no fewer than four lies. The inspector general's report shows that she knew about the targeting problem in June 2011, but wouldn't admit to it in correspondence with Congress over the next two years.
Then there's former IRS commissioner Douglas Shulman, a Bush appointee. He apparently knew about the targeting in May 2012, but told Congress in August 2012 that he didn't.
Or there's former IRS acting director Steve Miller, who was just pushed out. He also knew about the targeting in May 2012, but later refused to admit it to Congress during testimony.
(Read More: Lawmakers Accuse IRS Officials of Lying in Scandal)
In fact, the whole bloody agency may have known about it on August 4, 2011. According to the Treasury Department IG report, various IRS big wigs met that day to talk about the conservative-targeting problem. That meeting may have included the IRS's chief counsel; while the IG report says he was at the meeting, the IRS has denied that he was. But if one of his minions was at the meeting, the chief counsel would have known about the problem.
And it turns out the Treasury's inspector general, J. Russell George, told senior Treasury officials in June 2012 that he was auditing the IRS's political-organization screening. That means White House appointees in the Treasury, including deputy secretary Neal Wolin, were aware of the IRS scandal before the presidential election. According to the New York Times, IG George "did not tell the officials of his conclusions that the targeting had been improper."
No one knows the exact facts, which presumably will come out in the hearings. But this is important stuff. It is conspiracy stuff. Criminal stuff.
We already know that IRS employees gave heavily to Obama in 2008 and 2012, and very little to candidates McCain and Romney. But who was the quarterback in all this? Who was managing the targeting operation in the bowels of the IRS?
It could have been Sarah Hall Ingram. She served as commissioner of the IRS's tax-exempt division between 2009 and 2012. And she got a $100,000 bonus for her efforts. And now — incredibly — she's running the IRS's Affordable Care Act (Obamacare) office, leaving her successor Joseph Grant to take the fall. But he just turned tail and resigned.
And now get this: President Obama has named OMB controller Daniel Werfel acting director of the IRS. And he's only going to serve between May 22 and the end of the fiscal year, which is September 30. Are you kidding?
In four months, we're to believe Mr. Werfel is going to piece together the lies, finger the quarterback, and replace everybody who was involved, not just in the now-infamous Cincinnati office, but in offices in Washington, D.C., two towns in California, and even Austin, Texas. (That's the latest count.) And this guy Werfel is also supposed to manage the agency which is adding Obamacare to its income-tax-collection responsibilities. In four months.
Is Washington's gridlock over the government shutdown good for Obamacare? Former Vermont Gov. Howard Dean says yes.
"From a political point of view, the debt fight and the government shutdown actually help Obama because people are focusing on that," Dean said on CNBC Monday. "I think Obamacare is going to take two or three weeks to get it straightened out entirely, but it's on par for the course."
An energetic supporter of the Affordable Care Act, Dean pointed to the glitches in thehealth-care exchange websites as a testament to its success. President Barack Obama has been pushing the same message since the exchanges opened Oct. 1.
"A lot of people have gone online and found out that their premiums are going to drop dramatically, that they will be able to have health insurance for the first time because they have pre-existing conditions that they can't be denied for anymore," Dean said. "There's a lot of anecdotal evidence out there. This is going to work; it's just going to take some time."
(Read more: Consider two potential winners of Obamacare)
Such glitches are normal for massive Web rollouts, Dean said.
"I think this is the standard for tech rollouts, no matter whether it's the tax department or even private sector stuff," he said. "There are a lot of reasons this happens and happens almost in every tech rollout that I've seen over a long period of time."
The former chairman of the Democratic National Committee said that, ultimately, the Affordable Care Act was created for the private sector.
"I think the private sector is going to figure out how to do this."
Senate Minority Leader Mitch McConnell said on CNBC's "The Kudlow Report" the IRS' "huge scandal" is just one of many instances where the Obama administration has attacked conservatives and the First Amendment.
"What you've got is administration that, based on the Attorney General's report, engaged in discriminating against conservative groups who had criticized the administration," he said. "This is a huge, huge story."
His remarks came in response to Attorney General Eric Holder's order to the FBI Tuesday to open a criminal probe in the Internal Revenue Service's targeting of conservative political groups.
Lawmakers are pressuring President Barack Obama to act on his administration's suspicion that the Syrian government has used chemical weapons, a move the president has said would cross his "red line."
"I urge President Obama to explain to Congress and the American people how he will ensure Syria's chemical and biological weapons stockpiles are secured, how we'll work with our allies to prevent further use of these deadly weapons, and what additional measures he is ready to take to follow through on his previous statement," Sen. Marco Rubio, R-FL., said in a statement Thursday.
(Read More: U.S. Says It Suspects Assad Used Chemical Weapons)
The President first established his "red line" on Syria this summer, saying the use of chemical weapons would change his calculations significantly, but some military experts question whether he drew the line too soon.
Former Deputy Assistant Secretary of Defense and Heritage Foundation Senior Fellow Peter Brookes called the red line an "embarrassment to Obama."
"I think the Obama team has laid down a marker that's regrettable," NBC News Military Analyst Gen. Barry McCaffrey said. "It's always a mistake to put out in public your red line and imply what you'll do. It should be done in private."
McCaffrey, a retired U.S. Army General, said it would be difficult to find a sensible way to intervene in Syria.
"It would be utter nonsense to go after chemical weapons," he said. "The only option is on-the-ground power, but there is zero likelihood this will happen. It would cause uproar in the country."
Sen. John McCain, R-AZ., said the U.S. must take action in Syria but agreed that military intervention is not the next step.
"It requires the United States' help and assistance," McCain told reporters. "It does not mean boots on the ground."
House Intelligence Committee Chairman Rep. Mike Rodgers, R-MI., urged President Obama to outline a specific plan for the transition to a post-Assad Syria, saying "the world is waiting for American leadership."
But White House officials have yet to confirm any plan for U.S. intervention in Syria, saying intelligence assessments are not alone sufficient.
--By CNBC Associate Producer Elizabeth Schulze. Follow her on Twitter: @ESchulze9
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.