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tv   The Kudlow Report  CNBC  May 16, 2012 7:00pm-8:00pm EDT

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would you like $5 million? here's how you get it. first, watch tonight's "american greed" about one of the greatest art heists in history, when thieves posing as cops walked out of a museum in boston with $3 million worth of artwork, and then solved the crime, there's a reward. it's that easy. some people will do anything for money. my colleague david faber, big one on "jeopardy" last night. more importantly, he gave 50,000 to new vision for public schools. cut a check for that. maybe you should, too. i'm jim cramer. see you tomorrow! hey, larry, what do you have for us? all right, jimmy, i'm worried about deflation nar tax cliffs. this is "the kudlow report." our top story tonight, war has broken out between president obama and house republicans led by speaker john boehner.
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>> i'm trying to encourage people on both sides of the aisle, on both sides of the capital and at both ends of pennsylvania avenue to be honest with the american people and to be honest with ourselves, to begin to tackle this problem in an adult fashion. >> all right, folks, let me tell you this. if president obama can't show the country he can make this deal before election day, then mr. obama cannot win the election. mitt romney and the republicans are trying to smoke out obama and prove that romney, a former businessman, is the real deal maker in chief. to wit, the president's budget was defeated 99-0. today. 99-0. not even senate democrats were buying the obama budget. not even left liberals like bernie sanders. paul ryan's budget from the house also failed, but ryan at least got 41 votes. standing by with us tonight,
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senator tom coburn, republican of oklahoma. he'll give us an update. that question remains to avoid a stock market plunge and a freeze on business hiring, wouldn't it be something if congress actually made a fiscal cliff deal in advance of the usual last-minute deadline? so the dow is down 33 points. gold continued its remarkable plunge. the good news is that the dollar is up. the bad news, could be a sign that some bad news is headed this way. you'll hear my take. it may surprise you. we begin this evening with the battle royal over the budget. john harwood joins us now with all the details. good evening, john. >> i hate to tell you they are not going to make that deal before the election. if anybody doubted it, it was on display. the distance between the parties today. first, president obama held a private meeting with congressional leaders to talk about his priorities on the budget and other issues, but only after calling them out publicly in a visit to a small business in washington about his
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to-do list to help the american economy. >> we want to sustain momentum, and one of the ways that we can sustain momentum is for congress to take some actions right now, even though it's election season, even though there's gridlock, even though there's partisanship, take some action right now that would really make a difference. >> of course, congress was doing nothing of the kind. in fact, as you alluded to, the senate had a series of votes defeating budget proposals, including president obama's budget, which got zero votes. house speaker boehner continued to press the white house on the need to do something on the debt limit. said the president simply hasn't offered a plan. >> where is the president's plan to tackle our looming debt crisis? where is the president's plan to stop the largest tax increase in american history from occurring on january 1? it's time for us to deal with the big issues that are affecting our country and our
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society. we've spent enough time playing small ball. >> so, larry, tom coburn and others who have stepped up to the plate and played big ball in this arena may cut a deal, but it's not going to be until the lame-duck session of congress at least, and maybe not until early 2013. >> you're probably right, but i'm looking for some big ball and some leadership. i'm looking for something. anyway, many thanks. john harwood, washington, d.c. so, folks, bottom line is this. does president obama have what it takes to get a deal, to get that deal done before the biggest deadline of them all, which is election day? or is he going to play right into mitt romney's hands with romney as the clear deal maker in chief? so let's talk. you've got dave goodfriend, former clinton white house official and co-host of "left jab" on sirius xm radio. jennifer ruben, author of "the washington post" right turn blog. matt lewis.
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who won today between john boehner and barack obama? who won that, matt? >> i think romney probably wins today. obama has been winning politically. he's been framing the debate. but i think today romney does. at the end of the day, you can spin this all you want, but barack obama, his budget got zero votes and democrats in the senate haven't passed a budget for years, so it's hard to overcome those facts, larry. >> those are good facts, and you nailed it. you get the nobel prize for politics right off the top of the show. now, folks, hang on, everybody. goodfriend is going to go crazy. jennifer, try to calm him down. i want you to hear from mitt romney some little parcels of his speech in des moines, iowa. just listen to this for a minute. >> a prairie fire of debt is sweeping across iowa and across the nation. the time has come for a president, a leader who will lead. i will lead us out of this debt and spending inferno.
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>> all right. that's it. i'm going to go to david goodfriend. because you worked -- you actually worked for a responsible president regarding the budget, quite unlike this one. so this whole thing, a prairie fire debt sweeping across iowa and the nation. i will lead us out of this debt and spending inferno. that is a shot across obama. he's saying guess what i used to do this for a living. i'm a businessman. i know how to fix this. this is the key issue, this part of the campaign. i want to hear your defense, david goodfriend, because i don't think there's any defense. >> listen, larry, you're right. i was actually working at the white house the year that the budget went in the black and we published the federal budge wet a black cover that year. it was very exciting. what i think mr. romney faces here is the rhetoric of a businessman.
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$3 in cuts for every $1 of tax revenue. >> no, larry. come on. >> a temper tantrum thrown by eric cantor. americans are not stupid, larry. they remember these things. >> jennifer ruben -- >> let's start first with the grand bargain. "the new york times" hardly a republican rag, "the washington post," not on the editorial side, but on the news side, clearly documented that the president was the one who backed up on the grand bargain and led us to nowhere. i think this was a very well-orchestrated, very well-coordinated effort by both speaker boehner and mitt romney to show exactly what you said, larry. this president cannot lead. he's bereft of ideas. but in a funny way, i think he's really made his own bed. is the economy going to pick up with no deal in sight, with those tax increases looming at
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the end of the year? i think he's making his situation on our economy worse. thing the long run, this is going to hurt him in the election. >> matt lewis, i have no doubt that john harwood's forecast is right, that there won't be a deal before election. but what i'm saying is with romney, the experienced businessman who know s how to make deals without compromising his values. he's kind of a chris christie figure. this is an embarrassment to obama, who just lost a budget vote 99-0. obama is a guy who has no leadership, no hands-on management. he looks completely inept. i'm saying that romney is winning this battle big-time. what's your take? >> i think you're right. it was said that battles are won before they're fought and he who picks the terrain determines the winner. the same-sex marriage issue, that was an interesting one, hard to say which way it cut. i think if we're talking about budgets and deficit, i think
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that will inherently benefit mitt romney. i think that it's barack obama's economy. i think mitt romney is strong in terms of his business experience. and i'll have to say this. a lot of times presidents are elected, and you look at george w. bush. he had no idea that 9/11 was going to be his sort of defining moment and that his mission in life would be to keep us safe for another seven years. it could be that mitt romney of all people is the person who is going to be the leader who brings america together and fixes this deficit and reforms -- >> i think that's exactly -- hang on, david. >> i just want to agree with something. >> i think that what matt is saying is a crucial, if underrated part of this election. that's subliminally, david, and i'm being very serious here. >> okay. >> voters understand that mitt romney has the experience to do what no one else has been able to do, really since bill clinton and newt gingrich back in
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1996-1997. they can create a bipartisan compromise, which will not be perfect, will not solve everybody's concerns, but will get the job done and will help the economy, david. that's what i'm saying to you. >> let me react to that, because in a way, i really think you're right, that mitt romney had the opportunity and still has the opportunity to be that person, and the big problem he's got, the albatross around his neck, is once again, the right wing of his own party. >> oh, my, larry! >> let me finish here. >> when the ryan budget was put out, it increased the deficit by all definitions. so if he's going to play ball with his republican counterparts in congress, their popularity rating speaks for itself. they're going to drag him down. >> we all know that the paul ryan -- oh, come on, we all know that the paul ryan budget over time does bring down the deaf sismt. >> -- deficit. >> no, it's not. it's a lie.
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>> no, it's not. >> cbo scored it. >> let her finish. >> over time, it goes down. if you use reasonable economic expectati expectations, it goes down more. look what paul ryan has done. he has put congress and mitt romney on the same page. they do have a plan. they do have entitlement reform. they do have tax plan. where is the president's plan? this is exactly the choice that paul ryan and mitt romney want. on one hand, they have a feasible, reasonable plan. on the other hand, they have nothing. what are the american people going to do, choose nothing? >> matt lewis, let me bring you back in. matt, a couple of other parts of romney's speech. i would have preferred that he had a little more supply side tax cuts in that speech, but this was mostly a speech about de deficits. i'm quoting from jennifer. obama is an old school liberal who sees free enterprise as the solution. i'm sorry, free enterprise as the villain, and government as
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the solution. here's the key point, matt. that romney is tying the debt disaster to the tepid economy. now, that is a tough something for obama to get out of because the debt is not going down any time soon. how effective is that going to be? >> if he sticks with it, incredibly effective. i was not a huge mitt romney fan as a conservative, but i really like the messaging here, and i really think it's right. not just from a political standpoint. he's trying to win a campaign. but i think in terms of giving him credibility and leadership going in, and speaking of leadership, i have to say i hate to keep beating this dead horse, but i think barack obama really missed the opportunity when he failed to get behind the bowls-simpson plan. there were problems with it. it wasn't perfect. but if he had gotten behind that plan, it would have put republicans in a very tough position and it would have been good for the country. >> and david, if he had gotten
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behind that plan and if obama had gone to cut the corporate tax rate, i would have been soft on obama. i mean that. >> you have to be honest. >> i would have given him a lot of credit. i would have, david. >> the longest economic expansion in american history occurred with the clinton tax brackets, and that's something that the republicans won't give on. they simply will not give on tax revenue at the top level going back to the way it was. that's been the deal breaker. >> don't forget that clinton and gingrich work together on welfare reform, health care spending cuts and a lower capital gains tax, and i think the problem right now with your man obama is nobody believes he could pull that off. anyway, you're all great. david goodfriend, thank you. jennifer ruben, great right wing -- what sit? right turn. >> i am right wing, but it's right turn. >> and matt lewis, as always. up next, zero, failed, laughing stock. words being used to describe our
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president and his zero vote budget. at this hour, we talk to oklahoma republican senator tom coburn, the author of "the debt bomb." america needs a deal. up ahead, there's one thing democrats can agree on, tax the rich class warfare. that's their mantra. robert rice and tj rogers are going to square off. later in the show, stock sinking, gold plunging, treasury bond rates collapsing. king dollar is rallying, but i'm sensing a whiff of deflation in the air. don't forget, folks, free market capitalism, still the best path to prosperity. if obama had cut the corporate tax rate, i would have supported it in a nano second. i'm larry kudlow. wooem be right back.
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after failing in the senate 99-0, president obama's budget proposal hasn't received a single vote of support in all of congress, neither the house, nor the senate, neither republican nor democrat. the total is 513-0, both houses. it's been 1,113 days since the democratic-controlled senate last passed a budget on anything. but with the country's debt
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continuing to soar and a massive tax hike approaching, i ask where is the leadership in washington to put economic growth above party or politics and someone steps up and says let's make a deal. let us have some kind of pro-growth compromise on taxes, spending and the debt limit. there is nobody more qualified to talk about this, oklahoma republican senator tom coburn, author of the new book "the debt bomb", a bold plan to stop washington from bankrupting america. senator coburn, as all, thank you for coming on. i just don't understand how all the democrats in the senate can walk away from their own president's budget. i just don't get that. >> they walked away from their own budget. they didn't offer one, which tells you they don't want to have any votes on details of budgets because they don't want to have to defend not addressing the real problems that are facing our country. so it's easy for them. they know that budget was a
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sham. that budget doesn't solve any of our problems. actually makes our problems worse and they refuse to put a budget on the floor that will address it and have the votes. >> i hear, senator -- look, we have a lot of guests on this show and on cnbc. investors, business men and women, ceos and whatnot. they're worried about gigantic tax increases, not least of which dividends and capital gains, but a whole gigantic tax hike. they're worried about the debt ceiling. they're worried about a repeat of what happened last summer. here's the bottom line. they're worried about a business hiring freeze. no new jobs. and a possible stock market plunge. my question to you, sis it even remotely possible that some actions could be taken before we go down to the wire once again? >> well, i think we'll go down to the wire, but i think there will actually be a compromise. congress is demonstrating it only works when there's a crisis, which is a shame. people ought to ask what we're doing here. it comes back to something you
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mentioned with your other guests. leadership is really important. this country has significant urgent problems in front of us. the house has done a lot to address that. it has been totally ignored by the senate. and that's not partisan, because republicans have ignored some of these issues as well in the past during the bush administration. so the fact is that shouldn't we be addressing the very real problems, saving medicare, saving social security, getting rid of the duplication waste and fraud, which is over $300 billion a year. reforming the tax code to have a real stimulus, which is private money having confidence and certainty to invest in our country, and then taking advantage of our natural resources. if we had leadership, we would be doing all those things. >> senator coburn, in a hypothetical compromise, is there a specific area where both sides would give up something to make a deal? you know, i lived through the reagan deals in the early 1980s
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with tip o'neal. i watched clinton and gingrich. is there something that both sides could give up and call it a compromise and maybe get this thing done? some place where they both give? >> sure. and we did that in the bowls-simpson. probably not as well as i would have liked, but we did it to try to get the process moving. your guest earlier said it was a mistake that the president didn't embrace it. i agree. it showed a lack of leadership. but what you have to do is you have to reform the tax code. and with that, i remember in the reagan -- which you were a part of, the reagan tax changes, my taxes the first couple of years went up, but they ultimately went down as incomes rose. so if you reform the tax code, not by raising tax rates but by lowering tax rates and broadening the base, and if you save medicare by reforming it and you save social security by reforming it, and if, in fact, you markedly decrease the
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wasteful discretionary spending that we have and the duplication, we can strike a balance. >> you got $300 billion. we just talked about it on the radio, i think it was last weekend. wouldn't that be fodder for compromise? >> well, there's $300 billion, one. but you also could get another $300 billion put into our economy actually two different ways. one is to develop our own oil and natural gas. that will save us $300 billion. that's 300 billion that would be invested here and not sent overseas to venezuela and the middle east. if you truly reformed the tax code and made it simple, you could say 300 billion that produces no wealth by what we spend to pay our taxes. >> i've got to leave it there. senator tom coburn, you're l to give us your time. >> glad to do it. >> my hope springs eternal, sir. thanks very much. thank very much. coming up, a very tragic story. robert f. kennedy's ex-wife found dead. going to the cnbc newsroom next
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or creates another laptop bag or hires another employee, it's not just good for business, it's good for the entire community. at bank of america, we know the impact that local businesses have on communities. that's why we extended $6.4 billion in new credit to small businesses across the country last year. because the more we help them, the more we help make opportunity possible. welcome back to "the kudlow report." here are some headlines for you this evening. mary richardson kennedy, the ex-wife of robert f. kennedy jr., found dead in her home this afternoon. they were married in 1994 and they have four children together. her family put out a statement confirming the death. she was 52 years old. some other news to get to this
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evening, new data on promising cancer treatment, preliminary results from all over the world released a short time ago. fizer released its data on a lung cancer drug that appears to be highly effective in rare types of childhood lymphomas. melanoma, a drug that extends life more than a drug, according to data, from a late stage trial. how about this, tonight a hack-a-thon. tomorrow, all eyes on facebook's ipo. some wall street banks have stopped accepting orders for the stocks. we'll have a special program to mark the event, "facebook: the social offering" at 1:00 p.m. eastern time. in the meantime, tj rodgers, robert rice square off on the tax the rich policies on "the kudlow report" after this break. this is the first car that i've been totally in love with
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all right, welcome back to "the kudlow report." i'm larry kudlow. in this half-hour, gold and treasury rates are plunging. you know what? it could spell deflation.
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starting to worry me. and stocks aren't doing too good themselves. my all-star panel is going to join me later on the show. team obama rewriting american history. this burns me up. you won't believe where they're inserted, obama himself, when going back in time. he's even messing with my man calvin coolidge. first up tonight, however, regrettably, there's only one issue that unites democrats this election, and it's class warfare. team obama, fellow democrats, they've decided they're going to run against rich people. you know, the successful american who actually produces jobs in this country, helps grow the economy. isn't it time for washington to stop this tax assault, end class warfare. let's bring in our guests to talk about this. we have cnbc contributor robert rice, former labor secretary, author of the book "beyond outrage", and we bring back the outspoken and famed tj rodgers,
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ceo of cypress semiconductors. tj, i watched your fabulous video on youtube -- i went back and i watched it. and you're not real happy with warren buffett because he's become the cutting edge of class warfare taxation. can you tell me about it? >> well, you know, warren buffett, after he made his $44 billion at low tax rate, now wants to raise taxes. but if you look at his proposal, the so called buffett rule, let's say it's a 30% alternative minimum tax, the buffett rule basically says we're going to raise taxes on the rich individuals, the top 1%. i'm probably a member of the top 1%. after i use a fraction of my money, literally 1% or less, to live, the other 99% of my money is invested. where? silicone valley, intel, google, venture firms, cliner perkins, the wealth creating firms that have created the companies in silicon valley, including my own. and my third investment,
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companies, venture firms and my donor advised fund, which is charity. all that's going to happen is if you raise the taxes of the top 1% like me is i'm going to sell google and put money into shovel-ready projects and i'm going to stop investing in cliner perkins and put money into cash for clunkers. >> that's where i want to bring in robert rice. why should an entrepreneur and an entrepreneurial investor like tj rodgers have to put their money in all these goofy government projects just so a bunch of democrats can say they're taxing rich people in the name of fairness? that can't create jobs. cash for clunkers didn't create jobs. isn't tj right? >> tj is right to some extent. obviously we don't want a tax that takes away everybody's money. all we want to do is go back to the tax rates that we had during the clinton administration. that tax rate of 39%. i thought that was pretty
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reasonable. also a buffett rule that is 33% and kind of prevent a lot of loopholes and the use of capital gains for income that is really ordinary income by a private equity manager and others. i mean, it's got to be fair. we have a huge budget deficit. somebody's got to pay, even if we cut out a lot of the government spending, still going to be a big budget deficit. the bowles-simpson did recommend tax increase. everybody is in this boat together. why shouldn't people who are richer than they've ever been before contribute something? >> let me agree, mr. reich, for one thing. let me agree that the clinton administration was the good old days. i think they did a great job economically. today the top 1% earns 20% of the national income and pays 40% of taxes. those are facts from 2009 irs. in the clinton administration,
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the numbers were less than that. the taxes paid by the top 1% as a percentage of income were lower. there were lower taxes on the rich during the clinton administration than they are now. we now pay the top 1% pays 40%. how much more do you want? how much more than 1% paying 40% of the taxes do we have to get up to before you start using the word confiscatory for real? >> well, let me respond to that because tj rodgers, i have great respect for him, but he's talking about only income taxes. he's not talking about social security taxes or other forms of payroll tax. he's not talking about sales taxes. he's not talking about a lot of other things. actually, tax rates on most people in this country, if you look at all of the taxes, state, local, federal, and social security, have been going up. the rich have been paying a smaller and smaller portion of the total tax bill, even though the rich are taking home a larger and larger portion of total income. again, nobody is talking confiscato confiscatory. this just a question fundamentally about what is
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fair. >> but all respect to robert reich, tj, isn't buffett really talking about the capital gains tax? isn't the capital gains tax the ultimate task on risk and entrepreneurship? and why does a guy like buffett want to see that capital gains tax, which he doesn't pay because most of his gains are unrealized. he sends all his money to charity. why wouldn't he want other people to be forced to pay that? >> i can't explain how he thinks. i do know he's tight with the administration. i know he'll sing the party line for them. but i'd like to go back to the tax rate for a minute. you know, first of all, the buffett rule is never going to happen. i'll just tell you that's pipe dream. it's something they can talk about. but the fact is we had a 33% rule that would effectively raise the capital gains tax from 15% to 33%. it would more than double the capital gains rate. that would cause know sell stocks and go into something else. you would trash the stock market beyond belief. this is just foolish talk to raise the capital gains rate by
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a factor of two. >> see, robert reich, that's the key point in. the clinton administration, it actually got done right, because you're right. the income tax was raised in 1993. by the way, it cost clinton the whole congress in 1994. but in 1996 or 1997, the capital gains tax was lowered, bob reich. and we had a tremendous flowering of entrepreneurship. so there. the cap gains tax is what this is all about, and it is a huge mistake to go after that. >> capital gains in the clinton administration were lowered to 20%, not 15%. >> right. >> we're now at 15%. and you know as well as i do that this is a full employment for tax lawyers who are trying to make every piece of income look like capital gains. >> but the revenues went up. >> mitt romney paid 13.9% taxes because of his capital gains. the 400 richest people in america paid 17% taxes.
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i mean, that's because of capital gains, a lower rate than most middle class people pay. let's get real here. capital gains are being used as a game. the great victory in the late 1980s that bill bradley and the republicans put together and was signed into law was to bring the capital gains rate and the ordinary income rate to the same point so there wouldn't be this kind of gamesmanship. >> i'm going to give tj the last word. what's your take on this? >> i'll go back to my point. the fact is the top 1% in america, including capital gains and income tax, paid 40% of taxes last year. and when 1% of the people pay 40% of the taxes, that's enough. if you raise taxes on capital gains, you will cause people to take money away from charities. that's wrong and immoral. and you will cause people like me to take their investments away from things where the tax doubles. that's bad. i think the clinton administration did a good job, and i would like to return to the good old days. we're going in the wrong
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direction. >> last one, tj. why do you think president obama is constantly harping about tax the rich? why do you think? does he not understand the kind of entrepreneurship you're describing? >> it kind of blows me away. it's even a higher point than that. president obama is a member of a minority, and as such, i'm sure during his lifetime, he has been prejudiced against and people have used arguments against the man, and said something bad about him because of the group he was in. and now he's doing the exact same thing, talking about the top 1%, as if there's something wrong with us. >> that's absolutely not true at all. i think that that is a mischaracterization and really a kind of a tasteless mischaracterization. we're not talking about a minority group. we're not talking about a tax on the rich. we're just simply talking about responsibility and we're nadal the same boat here.
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>> i talk about 1% warfare. i call 1% a minority. 1% is a minority and i've been called out by the president. he said i'm a sherker. he said i don't pay my taxes. i've been called out. i feel that way. >> robert, you want to respond to that? >> well, for the first time on this show, i'm speechless. >> speechless! >> so to compare millionaires and billionaires to minorities who have been discriminated against that is ridiculous. >> but why -- >> larry kudlow -- we're having hopefully a sophisticated discussion about tax policy and the question is what kind of allocation should there be in this country at a time when we have a huge budget deficit. the rich taking home a higher proportionate income and a lower effective marginal income tax than we've had in a hundred years. what are you talking about? this is not discrimination.
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>> wealth and investment creates growth and jobs and incomes. massive tax revenues. let me finish. when the clinton administration lowered the capital gains tax rate, the revenues soared. that's how the budget was balanced. when george w. bush lowered the tax rate, the revenues soared. >> reduced taxes on the rich, nothing happened. >> i beg your pardon. go to the statistics in the irs. tj rodgers, thank you for trying to teach professor reich something about economics. professor robert reich, thank you for coming back on the show. i want to be equal handed. up next, the obama white house is rewriting history every which way possible. they're inserting president obama in the history of president coolidge and reagan, two of my heroes. we're going to show you how. still ahead, gold officially in bad territory down 20%. my quick take. europeans are climbing for dollars, but the supply of
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forget just influencing our country's future. the obama white house now wants to rewrite our past. get this. it's no joke. the white house has now revised the official biographies of every president since calvin coolidge. that on its website to brag about president obama's own accomplishments. this is just dreadful. let's go to robert costa of "the national review." i want to start with coolidge. i'm not ashamed to say i liked a free market coolidge. coolidge was a technology guy. he used radio, the first public address on radio, and your pal obama is now rewriting history saying he was social media. just like coolidge. what's up with that? >> it's so absurd, larry, i wouldn't believe it unless i saw it with my own eyes. the president is inserting himself into the footnotes of the official biographies of presidents on whitehouse.gov. in 1924, coolidge gave the first presidential address on radio. obama has a footnote at the bottom saying i used facebook
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and twitter, so i count just as much as calvin coolidge. it is crazy. >> so fdr. fdr started social security, and you know what? i'm going to give him a lot of credit for starting social security. now, obama is meddling in this, if i get this right. he is putting his own name in there because he says he's protecting social security. what the hell does that have to do with fdr starting social security? >> it has nothing to do with fdr starting social security. what's so strange about this was that the president of the united states in his official business, his duty as president is inserting politics and holding back to fdr's bio, saying guess what, i like social security a lot, too. it's strange. he's putting the ryan budget wars on the white house's official website? you've got to raise your eyebrows at that. >> he's trying to say that he, like reagan, wanted to tax millionaires. reagan was a tax cutter. "the washington post" gave him about three or four pinocchio noses for doing that.
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you use the word "duty" a few moments ago. obama trying to identify with ronald reagan is duty. that's what it is. >> he loves citing reagan and putting himself in grandiose terms throughout history. but bringing himself to the fair idea and saying that reagan would have supported obama's tax hikes, it makes no sense. no one is buying it. a lot of kids across this country go to this website to research their school projects, and instead of being confronted with a good biography with a president, they're confronted with trivial prop began dasm. >> i've got another word, orwellian. up next, stocks dropped 33%. gold in a free fall. europeans are buying up dollars left and right. u.s. treasury bond rates are collapsing. i've got my take on this. i'll ask our panel if these are signals of deflation. and what we should be doing about it. stay with us.
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stocks are slipping. gold plunging. treasury bond rates virtually collapsed. all while king dollar rides in high rally mode. i want to ask a serious question. is this a whiff of deflation? a quick breakdown of the numbers. gold hit a record peak last september.
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today, bear market territory. $1,526. ten-year bonds, extraordinary. it plunges from 3.22% last july to 1.77 today. 3.20 to 1.77. king dollar trading at 74 at the tail end of last july. today it sits at 81. that's about a 10% rise. look, quickly, there's a huge global demand for dollars right now. and a lot of it is coming out of europe. greece, portugal, spain, they're all selling eurorows and buying the greenback. the fed has not increased its own dollar supply to meet this demand. so, are we setting up something of a dangerous deflation? remember, this is a period where governments and ordinary folks have a lot of debt. debt deflation can be tricky business. so let's get some ace comments from our ace panel. we have rebecca patterson, chief market strategist, jp morgan asset management.
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zane brown, and benn steil, council of foreign relations. rebecca, goi to you because i am noticing this swing, the collapse of gold and the rise of the dollar, and i want to ask a serious question. is deflation becoming a threat? >> i don't think it is yet, but i think what you're talking about, there is a common thread. everyone is getting nervous about everything they own. why is gold falling? if greece is going to exit the euro, wouldn't you want to own gold? right now, what every investor on the street is thinking, i want liquidity, i want cash. if i'm selling euros, buying gold. selling gold, buying dollars. it's ironic, because with all the political problems we have in the u.s. and the fiscal challenges -- >> you would think gold would be going to 2,500 and not 1,500. let me get benn steil in. i am told that a lot of these european central banks are selling gold.
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okay, they need to raise cash. i have no idea if -- who the central bank of greece is. they've got their own problem. but if the central bank sells gold, they're taking cash out of the economy. that itself is deflationary. what is happening? >> deleveraging is going on all over the world now at all levels. private sector, public sector. greece is right back at the center of market attention right now. the greek situation is a complete muddle. as you know, they're going back to the polls on june 17. and if greece winds up voting for the austerity parties again, it means that the euro zone may cut off funding for them entirely. it means greece may have to exit the euro. they have over 500 trillion dollars in outstanding debt. this could be a major disruption. >> if a democratic election occurs in greece and they want
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out of the euro zone, what's wrong with that? >> here's the problem, larry. the greek public is saying two contradictory things. on the one hand, 75% of the greek public saying they want to stay in the euro zone. at the same time, in the most recent elections, you had 70% of the vote going to anti-austerity parties. if greece wants to stay in the euro zone, they have to find way to start paying their bills with their own money. it's like a turkey saying i'm all in favor of thanksgiving, i just don't like the dinner party. >> this is a country that peaked in 450 bc, i'm staying with it. i can't lose sleep over greece, maybe i'm wrong. i want to go to bond land. this drop in treasuries from about 3.5% to 1.8 is extraordinary. said that bond prices are too high and bond rates are too low have been wrong. bond yields are still falling. will they continue to fall and is this part of the deflation
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threat -- i'm going to get to gold in a minute. but is this part of the deflation thread? does this tell me the american economy is in lousy shape? >> it doesn't really mean that the economy is in bad shape. if you had deflation for a prolonged period of time, it would affect consumer behavior. people wouldn't spend. but over a short period of time, with a little bit of deflation, if you expect prices of goods and services to go down, we are born and bred to hunt for a bargain. that could actually stimulate consumption. 70% of our gdp is consumption. so a stronger dollar actually could help you out a little bit in terms of consumption. >> a little bit. it can get out of hand. >> it's going to take a while for it to get out of hand. >> look, i am a staunch supporter of king dollar. in fact, i want the dollar to be relinked to gold. i want sound money today and sound money tomorrow. but i'm starting to think if gold keeps falling and the dollar keeps rising, are we
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going to need to increase the supply of dollars, which is sometimes called quantitative easing? >> well, if europe continues to bring con today john to the u.s., you may not care about greece. but i think a lot of people do, because the unknown about them possibly going back. we don't know what the consequences are. what are the logistics? what are the transactions costs? in portugal, possibly spain, we would feel that in the u.s. >> is that a deflationary event? >> it would be at the margin, because it's going to sl slow consumer confidence. >> can those european banks that own greek paper -- they own a lot less valued greek paper, right? can they survive if greece pulls out, pulls out of the fiscal deal, pulls out of the euro zone and pulls out of the euro currency and goes back to some
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silly thing called the drokma? >> it's going to be a big hit. it's why the ecb wants to avoid this. they will probably try to kick the can down the road for at least several months more by continuing to lend to greek banks, essentially insolvent greek banks, taking greek government bonds, that's bonds from an insolvent government as collateral. they want to avoid any possible c contagion. >> does that mean the ecb is going to go big quantitative easing? and b, so will the federal reserve, and c, your treasury bond rates is going to one patrick dempsey it's 1.77 now. 1%. maybe they're going to 50 basis points or 75 base points. we have never seen anything like this. could that happen in this new deflationary environment? >> if you end up with greece exiting, whether they opt to
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exit or they're pushed out all of a sudden they go to a drokma. oh, a drakma is worth a euro. i don't think so. you pointed out other banks have losses on their holdings. it could happen to spain. then the dollar goes down. >> thank you. i'm not saying all this is going to happen. i'm just raising these issues because i don't hear other people raising them. and that's why i'm larry kudlow. we'll be back tomorrow evening. we're america's natural gas
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