The markets opened lower this morning, following yesterday's sharp selloff in the US, which carried over into weakness in Asian markets and in Europe this morning.
But the selling dried up in the first hour of trading, and as of this post the markets are climbing back into positive territory on the day. Of course, with the VIX this high, we know we can expect a lot of intraday volatility. So nothing really matters except how we close on the day.
The concerns in Europe continue to surround sovereign debt, whether Greece can meets its fiscal debt budget, and an overall global economic slowdown.
In corporate news, HPQ reported disappointing results and its stock is getting whacked. This is weighing on the Dow Jones average. Salesforce.com (CRM) reported strong results and its stock is rallying.
The dollar is lower today, which is helping commodities. Oil prices are higher near $82.70, and gold prices have surged to new record highs above $1850.
The 10-year yield continues to languish around 2.08%; and the VIX has been bouncing around, but is currently 2% lower near 41.80, an extremely high level following yesterday's surge higher.
Trading comment: No change to our near-term strategy. If the market is trying to put in a trading bottom, it will be a process and not a one-day event. So we are still using bounces to lighten up on our equity exposure, and staying defensive by adding to index hedges. Preservation of capital remains the best course during a market downtrend.
Have a nice weekend, be safe, and rest up.
19 Ağustos 2011 Cuma
An Interview with Richard Fisher
Richard Fisher, Dallas Fed president, explains his dissent on two more years of a zero interest rate target. He believes the Fed has created enough liquidity, but it's tax and regulatory barriers that have blocked growth and job creation. He also responds to GOP attacks on the Fed. You're looking at a future Treasury secretary here.
LARRY KUDLOW, host: Welcome back to this special edition of THE KUDLOW REPORT. We're continuing our discussion of today's stock market route, this time from the perspective of the Federal Reserve. We are honored to have a very special guest joining us this evening. Here now for an exclusive CNBC interview Richard Fisher. He's president and CEO of the Federal Reserve Bank of Dallas. Richard, welcome. You picked a hell of a day.
Mr. RICHARD FISHER: Well, wait, wait, wait. Not only am I president of the Federal Reserve Bank of Dallas, but I've been a friend of Larry Kudlow's for over 30 years, since we were embryos.
KUDLOW: Yes.
Mr. FISHER: So we started out as babies, of course.
KUDLOW: Thank you for that. I appreciate it. All right, Richard, let me just get your general impressions. Today was another plunge in stocks. We're in the throws of a 16 percent correction. What's your reaction to this kind of correction? What do you think is behind it?
Mr. FISHER: Larry, I'm a central banker. I thought your panel, by the way, earlier was very informative and very helpful. The message on that panel that don't panic. I'm a central banker. The Federal Reserve does not panic. I think we watch things carefully. You and I both know that markets are manic-depressive mechanisms. There are always some trip wires there, depending on what people are looking for. I'd just like to make two comments.
One is on Philly Fed Index. It's a wonderful index. You might wish to note to your viewers that its correlation with the PMI, that is the manufacturer's index, is .08. The two of the Fed indexes that have a good correlation are the Empire State, and then, even more than that, believe it or not, is the Dallas Fed's manufacturing survey. So I think there's a bit of an overreaction there.
And then secondly, one of the key points that was made is you have to think about the kind of dividends that are there. As I understand it, if the numbers I looked at correctly today, 60 percent of the S&P 500 is out yielding the Treasury 10-year. So I think your panel's advice don't panic is very good. Certainly we at the Central Bank have to look at things in a very calm, steady-handed way, and we'll continue to do so.
KUDLOW: Richard, I guess a two-edged question. Number one, your assessment of the outlook for recession. You had a bunch of banks today, Morgan Stanley earlier...
Mr. FISHER: Mm-hmm.
KUDLOW: ...and I'm told, as we're on the air day, Citi is downgrading its economy, its economic forecast, as is JPMorgan. Do you think--do you personally think we're going into recession?
Mr. FISHER: I've said from the very beginning this is will be a slow slog. I think it'll continue to be a slow slog. You pointed out some numbers earlier, Larry, in terms of the retail sales number, the production numbers. There have been setbacks to that in terms of various surveys. But I still think we have positive momentum. I'm not saying it is sufficient momentum to create the kind of jobs we want to create in America, but I do think we're going to have a positive third quarter. And my own personal feeling is, at least before the debt ceiling negotiations took place, I was looking for 3 percent or so in the third quarter. Still want to see that. I don't know much a retardant that comic opera was on people's willingness to commit capital to build into hire or to consume. But I'm still of the feeling that we're going to have positive momentum, Larry.
KUDLOW: Well that sort of leads to my next question. It's a puzzlement question. I've never seen so much cash and liquidity around.
Mr. FISHER: Boy, you're right.
KUDLOW: Banks have more money than they know what to do with. Corporations have more money than they know what to do with.
Mr. FISHER: Mm-hmm.
KUDLOW: And yet they all seem immobilized, not investing it, not taking risks, not hiring. Why is that?
Mr. FISHER: Mm-hmm. Well, my opinions are pretty well known there. It's not because of monetary policy. We have filled the gas tank. We got lots of fuel in there. Someone needs to step on the peddle and gauge the transmission mechanism, and I really do think the corporations have been discouraged from doing so. Obviously they're worried about weak demand. But remember, we're a consumption driven country. Unless you hire people, you can't have more consumption because you won't have more employment. And there's so much confusion on the regulatory side. There's such an uncertainty, Larry, in terms of what kind of tax regime, what kind of spending and what kind of subsidies are going to be added to, taken away, what the incentives will be that come out of this group of 12, or if they fail, will be laid down. That, to me, is not only depressing production, hiring, CAPEX and all the good things we need to see, it's also scaring the heck out of the consumer.
If you had watched that whole debacle of the debt ceiling negotiations, I would have turned to--as I did--to my wife, `Honey, we just can't afford to go on this vacation,' or, `We can't afford to buy that gizmo or that service.' I think it is a retardant. We have to get more certainty. Business operates under conditions of uncertainty, as you know. That's the way capitalism works. But extreme uncertainty freezes decision making, and I'm afraid that's the position we're in.
The Central Bank has reliquefied the system. That's what the Federal Reserve has done. The fiscal authorities, however, have to incent people, or at least help incent people, to have the confidence to go ahead and engage, expand the economy, in addition, of course, to seeing the whites of the eyes of a stronger recovery. But it can't occur unless businesses are incented to invest and hire more people.
KUDLOW: Well, in terms of Federal Reserve...
Mr. FISHER: I have very strong feelings about that.
KUDLOW: Yes, I can tell. And that, you know, I hear you on that. I get that. I hear you completely.
Mr. FISHER: Yeah. Good.
KUDLOW: But I want to--let me bring it back to the Federal Reserve. You did dissent from the last meeting.
Mr. FISHER: Yes, I did.
KUDLOW: The two year extension of the zero interest rate target. In Midland, Texas, yesterday--apparently, according to all the reports.
Mr. FISHER: Mm-hmm.
KUDLOW: You said that that zero interest rate target for two years reduces business incentives to grow and hire. Could you expand on that, because it sounds like you're suggesting the Federal Reserve's interest rate policy, the zero target is itself a disincentive, an obstacle, and may be adversely affecting the stock market?
Mr. FISHER: Well, this is my personal opinion, but there could be the unintended consequence that in addition to not knowing how you're going to be taxed or what kind of spending patterns are going to change, how it's going to affect not only your company, but your consumer base. Now you know that you can wait to borrow because the rates are going to be locked in at very low levels for a two year period. So my suggestion is and one of my arguments was that this might well further retard recovery and commitment. Again, you can't have recovery unless we have employment go up, unemployment go down. We will not have that unless people decide to expand. And right now there's almost no incentive to expand, and I was worried--this is my personal opinion--obviously I was in a minority and I respect the majority of my colleagues--that this would be a further retardant.
KUDLOW: Haven't all these zero interest--it's been several years now that we've had a zero interest rate. Hasn't it just benefited the speculators, the traders, the hedge funds? Not that they're bad people, but I just want to say, if you can borrow at zero and invest in anything with a higher yield, you win. At the same time, it's doing great damage to savers. I mean, isn't this a lopsided policy?
Mr. FISHER: Yep. Well, again, I've voiced concern about that. There's always a cost-benefit analysis takes place. Clearly one of the costs--and we're all aware of it--is the people that played by the rules, as they got older--like you and me, Larry--began to save more, shorten up on a yield curve, particularly those who don't have the benefit of sophisticated advice, have really been hammered here because it--they're getting low, in fact, negative real returns on their investment, and I think it's hurting the poor, and I think it's hurting those savers, and I think it's hurting the middle class that have played by the rules, socked away some money for retirement. And that's one of the prices we pay to try to reliquify the system.
I'm a little concerned as to how tolerant those people will be over the long term unless they see a pickup over time in the returns on their savings. But...
KUDLOW: Well, I think there's...
Mr. FISHER: It's very, very hard for retirees, and you and I agree on that front.
KUDLOW: I think there's a--I think there's a demoralization going on out there by savers and by businesses.
Mr. FISHER: Mm-hmm.
KUDLOW: But let me ask another question. I'm not going political on you, I just want a general sense. Out on the campaign trail, many if not most of the Republican candidates...
Mr. FISHER: I know what it is.
KUDLOW: I'm not going to name names, just because they're--because really many of them are attacking the Fed, sometimes in very harsh terms. I think what people want to know, not so much whether this guy is right or that lady is wrong or whatever. They want to know what kind of impact this has, these attacks on the Federal Reserve.
Mr. FISHER: Well, first of all, I come from Texas, Larry, so I come from the history of Wright Patman and Henry B. Gonzalez, and at least one of the individuals you refer to is a Texan--at least two of the individuals you refer to are Texans. I understand their sentiment--that's sort of the way we're geared down here--but I worry about it from the standpoint of if they're pointing fingers at us, I'm worried they're not focusing on really need--is needed here, which is to change the whole fiscal mix to reboot the way we tax, spend, incentivize and get our economy moving again. That's what they do as leaders if they're running for the White House, as president, working with the Congress of the United States.
As far as the impact on our decision making, whether it's Chairman Bernanke or whether it is the rest of us that sit around that table, we just don't pay attention to this. I think it's very, very important you have a central bank.
KUDLOW: No attention whatsoever?
Mr. FISHER: It is independent.
KUDLOW: Front page story, no attention whatsoever.
Mr. FISHER: That it is...
KUDLOW: I mean, they're trying to put monetary policy and Fed and...
Mr. FISHER: That this...
KUDLOW: ...the dollar square in the middle of the campaign, Richard. You're saying it has no impact at all on the Fed?
Mr. FISHER: I think it's very important that we resist the temptation to react to that criticism any way, shape or form. We know, historically, when legislatures have taken over central bank functions, you end up with Argentina...republic, nationalist China and so on. So if we don't allow it to permeate our thinking, we just do what we're suppose to do for a living, then I think we'll stand in the best stead.
KUDLOW: All right, Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas. We appreciate your views very, very much. It's great to have you visit with us again. All the best.
LARRY KUDLOW, host: Welcome back to this special edition of THE KUDLOW REPORT. We're continuing our discussion of today's stock market route, this time from the perspective of the Federal Reserve. We are honored to have a very special guest joining us this evening. Here now for an exclusive CNBC interview Richard Fisher. He's president and CEO of the Federal Reserve Bank of Dallas. Richard, welcome. You picked a hell of a day.
Mr. RICHARD FISHER: Well, wait, wait, wait. Not only am I president of the Federal Reserve Bank of Dallas, but I've been a friend of Larry Kudlow's for over 30 years, since we were embryos.
KUDLOW: Yes.
Mr. FISHER: So we started out as babies, of course.
KUDLOW: Thank you for that. I appreciate it. All right, Richard, let me just get your general impressions. Today was another plunge in stocks. We're in the throws of a 16 percent correction. What's your reaction to this kind of correction? What do you think is behind it?
Mr. FISHER: Larry, I'm a central banker. I thought your panel, by the way, earlier was very informative and very helpful. The message on that panel that don't panic. I'm a central banker. The Federal Reserve does not panic. I think we watch things carefully. You and I both know that markets are manic-depressive mechanisms. There are always some trip wires there, depending on what people are looking for. I'd just like to make two comments.
One is on Philly Fed Index. It's a wonderful index. You might wish to note to your viewers that its correlation with the PMI, that is the manufacturer's index, is .08. The two of the Fed indexes that have a good correlation are the Empire State, and then, even more than that, believe it or not, is the Dallas Fed's manufacturing survey. So I think there's a bit of an overreaction there.
And then secondly, one of the key points that was made is you have to think about the kind of dividends that are there. As I understand it, if the numbers I looked at correctly today, 60 percent of the S&P 500 is out yielding the Treasury 10-year. So I think your panel's advice don't panic is very good. Certainly we at the Central Bank have to look at things in a very calm, steady-handed way, and we'll continue to do so.
KUDLOW: Richard, I guess a two-edged question. Number one, your assessment of the outlook for recession. You had a bunch of banks today, Morgan Stanley earlier...
Mr. FISHER: Mm-hmm.
KUDLOW: ...and I'm told, as we're on the air day, Citi is downgrading its economy, its economic forecast, as is JPMorgan. Do you think--do you personally think we're going into recession?
Mr. FISHER: I've said from the very beginning this is will be a slow slog. I think it'll continue to be a slow slog. You pointed out some numbers earlier, Larry, in terms of the retail sales number, the production numbers. There have been setbacks to that in terms of various surveys. But I still think we have positive momentum. I'm not saying it is sufficient momentum to create the kind of jobs we want to create in America, but I do think we're going to have a positive third quarter. And my own personal feeling is, at least before the debt ceiling negotiations took place, I was looking for 3 percent or so in the third quarter. Still want to see that. I don't know much a retardant that comic opera was on people's willingness to commit capital to build into hire or to consume. But I'm still of the feeling that we're going to have positive momentum, Larry.
KUDLOW: Well that sort of leads to my next question. It's a puzzlement question. I've never seen so much cash and liquidity around.
Mr. FISHER: Boy, you're right.
KUDLOW: Banks have more money than they know what to do with. Corporations have more money than they know what to do with.
Mr. FISHER: Mm-hmm.
KUDLOW: And yet they all seem immobilized, not investing it, not taking risks, not hiring. Why is that?
Mr. FISHER: Mm-hmm. Well, my opinions are pretty well known there. It's not because of monetary policy. We have filled the gas tank. We got lots of fuel in there. Someone needs to step on the peddle and gauge the transmission mechanism, and I really do think the corporations have been discouraged from doing so. Obviously they're worried about weak demand. But remember, we're a consumption driven country. Unless you hire people, you can't have more consumption because you won't have more employment. And there's so much confusion on the regulatory side. There's such an uncertainty, Larry, in terms of what kind of tax regime, what kind of spending and what kind of subsidies are going to be added to, taken away, what the incentives will be that come out of this group of 12, or if they fail, will be laid down. That, to me, is not only depressing production, hiring, CAPEX and all the good things we need to see, it's also scaring the heck out of the consumer.
If you had watched that whole debacle of the debt ceiling negotiations, I would have turned to--as I did--to my wife, `Honey, we just can't afford to go on this vacation,' or, `We can't afford to buy that gizmo or that service.' I think it is a retardant. We have to get more certainty. Business operates under conditions of uncertainty, as you know. That's the way capitalism works. But extreme uncertainty freezes decision making, and I'm afraid that's the position we're in.
The Central Bank has reliquefied the system. That's what the Federal Reserve has done. The fiscal authorities, however, have to incent people, or at least help incent people, to have the confidence to go ahead and engage, expand the economy, in addition, of course, to seeing the whites of the eyes of a stronger recovery. But it can't occur unless businesses are incented to invest and hire more people.
KUDLOW: Well, in terms of Federal Reserve...
Mr. FISHER: I have very strong feelings about that.
KUDLOW: Yes, I can tell. And that, you know, I hear you on that. I get that. I hear you completely.
Mr. FISHER: Yeah. Good.
KUDLOW: But I want to--let me bring it back to the Federal Reserve. You did dissent from the last meeting.
Mr. FISHER: Yes, I did.
KUDLOW: The two year extension of the zero interest rate target. In Midland, Texas, yesterday--apparently, according to all the reports.
Mr. FISHER: Mm-hmm.
KUDLOW: You said that that zero interest rate target for two years reduces business incentives to grow and hire. Could you expand on that, because it sounds like you're suggesting the Federal Reserve's interest rate policy, the zero target is itself a disincentive, an obstacle, and may be adversely affecting the stock market?
Mr. FISHER: Well, this is my personal opinion, but there could be the unintended consequence that in addition to not knowing how you're going to be taxed or what kind of spending patterns are going to change, how it's going to affect not only your company, but your consumer base. Now you know that you can wait to borrow because the rates are going to be locked in at very low levels for a two year period. So my suggestion is and one of my arguments was that this might well further retard recovery and commitment. Again, you can't have recovery unless we have employment go up, unemployment go down. We will not have that unless people decide to expand. And right now there's almost no incentive to expand, and I was worried--this is my personal opinion--obviously I was in a minority and I respect the majority of my colleagues--that this would be a further retardant.
KUDLOW: Haven't all these zero interest--it's been several years now that we've had a zero interest rate. Hasn't it just benefited the speculators, the traders, the hedge funds? Not that they're bad people, but I just want to say, if you can borrow at zero and invest in anything with a higher yield, you win. At the same time, it's doing great damage to savers. I mean, isn't this a lopsided policy?
Mr. FISHER: Yep. Well, again, I've voiced concern about that. There's always a cost-benefit analysis takes place. Clearly one of the costs--and we're all aware of it--is the people that played by the rules, as they got older--like you and me, Larry--began to save more, shorten up on a yield curve, particularly those who don't have the benefit of sophisticated advice, have really been hammered here because it--they're getting low, in fact, negative real returns on their investment, and I think it's hurting the poor, and I think it's hurting those savers, and I think it's hurting the middle class that have played by the rules, socked away some money for retirement. And that's one of the prices we pay to try to reliquify the system.
I'm a little concerned as to how tolerant those people will be over the long term unless they see a pickup over time in the returns on their savings. But...
KUDLOW: Well, I think there's...
Mr. FISHER: It's very, very hard for retirees, and you and I agree on that front.
KUDLOW: I think there's a--I think there's a demoralization going on out there by savers and by businesses.
Mr. FISHER: Mm-hmm.
KUDLOW: But let me ask another question. I'm not going political on you, I just want a general sense. Out on the campaign trail, many if not most of the Republican candidates...
Mr. FISHER: I know what it is.
KUDLOW: I'm not going to name names, just because they're--because really many of them are attacking the Fed, sometimes in very harsh terms. I think what people want to know, not so much whether this guy is right or that lady is wrong or whatever. They want to know what kind of impact this has, these attacks on the Federal Reserve.
Mr. FISHER: Well, first of all, I come from Texas, Larry, so I come from the history of Wright Patman and Henry B. Gonzalez, and at least one of the individuals you refer to is a Texan--at least two of the individuals you refer to are Texans. I understand their sentiment--that's sort of the way we're geared down here--but I worry about it from the standpoint of if they're pointing fingers at us, I'm worried they're not focusing on really need--is needed here, which is to change the whole fiscal mix to reboot the way we tax, spend, incentivize and get our economy moving again. That's what they do as leaders if they're running for the White House, as president, working with the Congress of the United States.
As far as the impact on our decision making, whether it's Chairman Bernanke or whether it is the rest of us that sit around that table, we just don't pay attention to this. I think it's very, very important you have a central bank.
KUDLOW: No attention whatsoever?
Mr. FISHER: It is independent.
KUDLOW: Front page story, no attention whatsoever.
Mr. FISHER: That it is...
KUDLOW: I mean, they're trying to put monetary policy and Fed and...
Mr. FISHER: That this...
KUDLOW: ...the dollar square in the middle of the campaign, Richard. You're saying it has no impact at all on the Fed?
Mr. FISHER: I think it's very important that we resist the temptation to react to that criticism any way, shape or form. We know, historically, when legislatures have taken over central bank functions, you end up with Argentina...republic, nationalist China and so on. So if we don't allow it to permeate our thinking, we just do what we're suppose to do for a living, then I think we'll stand in the best stead.
KUDLOW: All right, Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas. We appreciate your views very, very much. It's great to have you visit with us again. All the best.
18 Ağustos 2011 Perşembe
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.MARKET SELL-OFF: WHAT'S GOING ON HERE?
- Mike Holland, Holland & Company Chairman; The China Fund Board of Directors (CHN)
- Jim Iuorio, Director, TJM Institutional Services
- Art Hogan, Lazard Capital Markets Managing Director
- Joseph Grano, Centurion Holdings CEO; Former UBS Wealth Management USA Chairman & CEO
ONE-ON-ONE WITH RICHARD FISHER … IS THE FED BETWEEN A ROCK AND A HARD PLACE
- Richard Fisher, Dallas Fed President & CEO
THE SAFETY & SOUNDNESS OF BANKS: ARE NY & EUROPEAN BANKS FUNDED?
- David Malpass, Encima Global President; Fmr. Bear Stearns Chief Economist; GrowPac Chairman; Fmr Reagan Deputy Asst Secy of Treasury
- Bill Rhodes, Fmr. Citi Senior VP
- Bill Isaac, The Secura Group Founder & Chmn; Fmr. Fifth Third Bank Chmn; Fmr. FDIC Chmn
MARKET DRILLDOWN
- CNBC’s Bob Pisani
- CNBC’s Rick Santelli
- Bob Lutz, Former GM Motors Vice Chairman; CNBC Contributor
- Warren Meyers, DME Securities Vice President of Floor Operations & CNBC Market Analyst
Euro Banking Fears Flare Up Again
Another busy morning. The markets are down sharply in early trading, following large selloffs in European markets. The culprit seems to be a report that a European bank went to the ECB lending window for the first time since February and needed a short-term loan at above market rates. This type of report sparks fears of credit tightening, and the markets never like that sort of thing.
On top of that, we had some negative economic reports here in the US. The Philly Fed index absolutely plunged in August to a level of -30.7 from +3.2 last month. That is quite a drop. Additionally, Morgan Stanley downgraded its outlook of the economy and said we are getting closer to recession. I still think the odds of a true recession are about 50/50 right now, and a more likely scenario is just stagnating growth.
The 10-year yield also plunged this morning, touching the 2.0% level. That's lower than it got in December 2008, just for a reference. Investors who think a 10-yr Treasury at 2.0% is a better long-term investment than a blue chip stock with a 3% dividend are going to be sadly disappointed.
We are also seeing spikes in bearish sentiment. The CBOE put/call ratio has been above the 1.0 level for 15 straight days, and the 10-day average hit its highest level since 2008. Today, the volatility index (VIX) is spiking 30% higher back above 40, although it is still below last week's highs at 48.
The dollar is higher, which is weighing on most commodities. Oil prices are down to $83.15. But the flight to safety is pushing gold prices to new highs again, today topping $1820.
Trading comment: This morning's action makes me feel better about the recent sales we have made and the hedges we added to portfolios. Getting defensive when the markets are in a downtrend preserves both financial and mental capital, and both are needed if you want to be in a position to capitalize on things when the dust eventually settles. I hope everyone is managing their risk appropriately.
On top of that, we had some negative economic reports here in the US. The Philly Fed index absolutely plunged in August to a level of -30.7 from +3.2 last month. That is quite a drop. Additionally, Morgan Stanley downgraded its outlook of the economy and said we are getting closer to recession. I still think the odds of a true recession are about 50/50 right now, and a more likely scenario is just stagnating growth.
The 10-year yield also plunged this morning, touching the 2.0% level. That's lower than it got in December 2008, just for a reference. Investors who think a 10-yr Treasury at 2.0% is a better long-term investment than a blue chip stock with a 3% dividend are going to be sadly disappointed.
We are also seeing spikes in bearish sentiment. The CBOE put/call ratio has been above the 1.0 level for 15 straight days, and the 10-day average hit its highest level since 2008. Today, the volatility index (VIX) is spiking 30% higher back above 40, although it is still below last week's highs at 48.
The dollar is higher, which is weighing on most commodities. Oil prices are down to $83.15. But the flight to safety is pushing gold prices to new highs again, today topping $1820.
Trading comment: This morning's action makes me feel better about the recent sales we have made and the hedges we added to portfolios. Getting defensive when the markets are in a downtrend preserves both financial and mental capital, and both are needed if you want to be in a position to capitalize on things when the dust eventually settles. I hope everyone is managing their risk appropriately.
17 Ağustos 2011 Çarşamba
An Interview with Austan Goolsbee
Departing Council of Economic Advisers chairman Austan Goolsbee defends Obamanomics. I push back. But he's for pro-growth tax reform. I'm for it. So where's the President?
LARRY KUDLOW, host:
So now I am personally honored to be joined for an exclusive interview by the
former chairman of the President's Council of Economic Advisers, that being
Austan Goolsbee. He is returning to the faculty of the University of
Chicago's Booth School of Business this week. An old friend of the show.
Good evening, Austan. Let me just say congratulations on your government
service.
Mr. AUSTAN GOOLSBEE: Hey, thank you, Larry, and it's great to be back and
see you again.
KUDLOW: All right, that's the good news. The bad news, Austan, as you well
know, America is not working. Many fear a double-dip recession. There has
already been a debt downgrade. What is your man, President Obama, going to
do? Can you tell us what he's going to say in this so-called new economic
growth plan?.
Mr. GOOLSBEE: Well, you know, I'm not going to give away any secrets. It's
his to make. You and I, Larry, for many, many years, have been the growth
guys. And while we may disagree on this or that or some other policies,
fundamentally we got to get the country growing if we're going to be
generating jobs, and we saw that last year when the economy was growing at a
faster clip. We added more than two million jobs, as well as the stock market
was doing well and you were starting to see more business investment. As we
slowed down this year, we took a hit on all of those fronts. So hopefully
it's going to be in the style of the education, innovation and investment,
which I kind of think is--has got to be the fundamentals of any growth
strategy.
KUDLOW: Yeah, but Austan, I don't--look, let's go back to basics. The $800
billion stimulus package hasn't worked. The $2 1/2 trillion Fed stimulus
package hasn't worked. Cash for clunkers hasn't worked. These green energy
ideas hasn't worked.
Mr. GOOLSBEE: Well...
KUDLOW: Your president is out there talking about raising taxes on
millionaires and billionaires.
Mr. GOOLSBEE: Well, let's--now hold on a second, Larry.
KUDLOW: What kind of message does that send to entrepreneurs and free
enterprise business people who, frankly, are immobilized and don't want to
create jobs, Austan? Isn't it time to turn over a new leaf and start
something new?
Mr. GOOLSBEE: Have you been saving this all up since I've been--last been
on, Larry?
KUDLOW: Only for you, my friend. Only for you, because you're such a good
guy.
Mr. GOOLSBEE: Well, look--look, what I will say is this, I don't agree--if
you start looking at the impact of various programs. We avoided a depression,
which was a scary moment, but all of that stuff was two-and-a-half years ago.
If you look at the president cutting the capital gains rate to zero for people
starting their own businesses, cutting taxes 17 different times for small
business, I'd a thought you'd be for that stuff, Larry.
KUDLOW: Those are not tax cuts. You see, the whole...
Mr. GOOLSBEE: How is that not a tax cut?
KUDLOW: One of my problems with your line of thinking is you believe that
little teensy-weensy, temporary, targeted tax cuts; and from what I gather
from our John Harwood, you're going to go there again. Another one year
payroll tax cut will not do it, Austan. Don't you understand, businesses
think longer term. Is there anybody in the White House that's ever worked in
a business that sees a five-year horizon, permanent reductions in tax rates
work? These teensy-weensy tax credits never work, Austan. That's why we're
at 1 percent growth in the economy.
Mr. GOOLSBEE: Look--oh, you and I are both for a low rate and a broad base.
KUDLOW: Yes!
Mr. GOOLSBEE: Now when the president has proposed...
KUDLOW: Where is that? Where is that, Austan?
Mr. GOOLSBEE: Well...
KUDLOW: Where is his broad base? Yes, let's start there.
Mr. GOOLSBEE: Go ask the members...
KUDLOW: We can agree on that.
Mr. GOOLSBEE: ...of Congress. When the president proposed a grand bargain
with a low rate and a broad base, they said, `What do you mean broaden base?
We don't want to broaden the base. That would be a tax increase.'
KUDLOW: Well, but if you lowered the rates and broaden the base, if you
rolled back regulations, if you stopped the National Labor Relations Board
from attacking businesses, Austan, you would see companies spending the
several trillion dollars of cash that they're not spending now, my friend.
Mr. GOOLSBEE: Well, now, hold on, Larry. You see that same accumulation of
cash in other countries that have totally different policies than we have in
the US. So I think it's very unlikely to attribute that to the policy
decisions that are taking place in the US, first of all. And second of all,
you have seen that the president has actively been trying to streamline
regulations. And just going back to the policies that led to the downturn
hardly strikes me as the wisest course of action.
KUDLOW: I don't see...
Mr. GOOLSBEE: We ought to do some third thing.
KUDLOW: Well...
Mr. GOOLSBEE: And I think you will likely see the president proposing that.
KUDLOW: I mean, I don't see--you've tried all this big government spending
and regulate. Why not have flat tax reform? Why not roll back regulations?
Why not put yourself in the position of a small business, Austan? They're
worried about Obamacare. They're worried about...
Mr. GOOLSBEE: Look, the president has done that.
KUDLOW: They're worried about Dodd and Frank. Why not understand that
community banks are afraid to make a loan because of overregulation?
Mr. GOOLSBEE: Well, Larry, again, I think you're being highly unfair. The
president has cut taxes for small business 17 times. It's not my job to come
down and get in a big battle over things that happened two
years--two-and-a-half years ago in the stimulus. If you look from this point
forward, what do we need to grow? As I look at what the administration is
doing, where they are in those areas where streamlining of regulation can be
effective, trying to streamline the regulations. They're trying to cut taxes
for small business. And they're trying to make the investments. It seems
like you were making fun of an infrastructure bank.
KUDLOW: Yes.
Mr. GOOLSBEE: That's one of the only things that the Chamber of Commerce and
the labor unions agree on...
KUDLOW: I don't care if the chamber is for it.
Mr. GOOLSBEE: ...that the infrastructure will be critically important.
KUDLOW: Austan, you spent a lot of money.
Mr. GOOLSBEE: With...
KUDLOW: And the president himself said those jobs were not shovel ready. I
don't think an infrastructure bank or any other form of additional spending is
going to help grow the economy and unleash entrepreneurship, with all do
respect.
Mr. GOOLSBEE: Well, you know...
KUDLOW: And I want to ask you about another one. Is the president going to
extend unemployment benefits for another 99 weeks, because many economists, as
you well know, believe that this kind of unemployment benefit extension is
actually keeping unemployment high?
Mr. GOOLSBEE: Well, the evidence that I've seen on that suggests that it's
not keeping unemployment high. You have to be looking for a job to get
unemployment benefits. If you stop looking for work, you are no longer
eligible to receive and benefits. And though it's come down substantially, we
still have more than four-and-a-half people looking for a job for every job
that's out in the economy. So I, you know, I think that's a little unfair to
be trying to pin our economic problems on the fact that we're trying to give
people some time to help them find a job.
KUDLOW: All right, my last one is--look it, you've been very patient. I
appreciate that. But this is such important stuff, Austan. You've a good
man. We've known each other long time. All this green energy stuff has been
an abject value. You're never going to do more than 1/2 percent or 1 percent
of American energy. Why doesn't that administration come out full throated
for American energy production? We've got the oil shale. We've got the
natural gas shale.
Mr. GOOLSBEE: We did.
KUDLOW: No, see...
Mr. GOOLSBEE: How can you say that?
KUDLOW: They don't...
Mr. GOOLSBEE: They did. Domestic production is the highest it's...
KUDLOW: They refused to call off the EPA dogs.
Mr. GOOLSBEE: ...been since the--for many years.
KUDLOW: I understand. But they refuse to call off the EPA dogs that are
investigating the infras--the fracking structure and the water levels. And
this is one of the great job...
Mr. GOOLSBEE: Wait, look, look.
KUDLOW: ...creators of all time.
Mr. GOOLSBEE: Look, we have to--we have to promote domestic energy
consumption. We have to do that in a way that's safe. We don't want to have
the biggest oil spill again that has ever been had. We don't want to poison
the ground water. But the president, as I've viewed it, the administration
believes that we can do that in a safe way, and domestic production is ramping
up quite dramatically. Now it seems like you're making fun of some of the
alternative energy stuff, but if you look at China, if you look at Europe and
if you look at a lot of the faster growing regions of the world, they're
heavily investing in it.
KUDLOW: It's been a dismal failure in Europe.
Mr. GOOLSBEE: (Unintelligible)...alternative energy.
KUDLOW: It's been a dismal failure in Spain. It's been a dismal failure in
Europe. I say, Austan, if the market...
Mr. GOOLSBEE: It seems like in China and Brazil it's been quite a success.
KUDLOW: If the market wants to produce clean energy, it'll produce clean
energy. Natural gas from shale is clean energy.
Mr. GOOLSBEE: Look, I agree with that.
KUDLOW: I just don't see why we don't...
Mr. GOOLSBEE: I agree with that.
KUDLOW: ...call the EPA dogs off. That's one of these regulatory issues.
Call the National Labor Relation dogs off of Boeing, Austan. In other words,
some of this stuff, there's very little presidents can do. I get that.
Mr. GOOLSBEE: OK.
KUDLOW: But the signals, the messages, is it pro-confidence or
anti-confidence? We have got to get America working again and right now it's
not happening. I'm going to give you the last word, my friend.
Mr. GOOLSBEE: OK. All I'll say is if you look at countries where it
is--where they are rapidly growing, they're investing in their infrastructure.
They're investing in their educations. They are trying to streamline
regulations but they're not neglecting key investments. The president when
he's out looking at fiscal consolidation for the long-term, but making the key
investments that are pro-business, I really think that's the--what we should
be doing, and I feel that that could be certainly a bipartisan thing.
KUDLOW: Well, all right. I say make it pay more after tax for all business
ventures. But, Austan, we've ran out of time. You're very kind to come on
the show. It is a pleasure to see you.
Mr. GOOLSBEE: Great to see you, Larry.
KUDLOW: I hope you'll come back now that you're going back to college.
Mr. GOOLSBEE: You bet.
KUDLOW: And I appreciate it very much. You know I have the highest regard
for you. Austan Goolsbee.
Mr. GOOLSBEE: It's great to see you.
LARRY KUDLOW, host:
So now I am personally honored to be joined for an exclusive interview by the
former chairman of the President's Council of Economic Advisers, that being
Austan Goolsbee. He is returning to the faculty of the University of
Chicago's Booth School of Business this week. An old friend of the show.
Good evening, Austan. Let me just say congratulations on your government
service.
Mr. AUSTAN GOOLSBEE: Hey, thank you, Larry, and it's great to be back and
see you again.
KUDLOW: All right, that's the good news. The bad news, Austan, as you well
know, America is not working. Many fear a double-dip recession. There has
already been a debt downgrade. What is your man, President Obama, going to
do? Can you tell us what he's going to say in this so-called new economic
growth plan?.
Mr. GOOLSBEE: Well, you know, I'm not going to give away any secrets. It's
his to make. You and I, Larry, for many, many years, have been the growth
guys. And while we may disagree on this or that or some other policies,
fundamentally we got to get the country growing if we're going to be
generating jobs, and we saw that last year when the economy was growing at a
faster clip. We added more than two million jobs, as well as the stock market
was doing well and you were starting to see more business investment. As we
slowed down this year, we took a hit on all of those fronts. So hopefully
it's going to be in the style of the education, innovation and investment,
which I kind of think is--has got to be the fundamentals of any growth
strategy.
KUDLOW: Yeah, but Austan, I don't--look, let's go back to basics. The $800
billion stimulus package hasn't worked. The $2 1/2 trillion Fed stimulus
package hasn't worked. Cash for clunkers hasn't worked. These green energy
ideas hasn't worked.
Mr. GOOLSBEE: Well...
KUDLOW: Your president is out there talking about raising taxes on
millionaires and billionaires.
Mr. GOOLSBEE: Well, let's--now hold on a second, Larry.
KUDLOW: What kind of message does that send to entrepreneurs and free
enterprise business people who, frankly, are immobilized and don't want to
create jobs, Austan? Isn't it time to turn over a new leaf and start
something new?
Mr. GOOLSBEE: Have you been saving this all up since I've been--last been
on, Larry?
KUDLOW: Only for you, my friend. Only for you, because you're such a good
guy.
Mr. GOOLSBEE: Well, look--look, what I will say is this, I don't agree--if
you start looking at the impact of various programs. We avoided a depression,
which was a scary moment, but all of that stuff was two-and-a-half years ago.
If you look at the president cutting the capital gains rate to zero for people
starting their own businesses, cutting taxes 17 different times for small
business, I'd a thought you'd be for that stuff, Larry.
KUDLOW: Those are not tax cuts. You see, the whole...
Mr. GOOLSBEE: How is that not a tax cut?
KUDLOW: One of my problems with your line of thinking is you believe that
little teensy-weensy, temporary, targeted tax cuts; and from what I gather
from our John Harwood, you're going to go there again. Another one year
payroll tax cut will not do it, Austan. Don't you understand, businesses
think longer term. Is there anybody in the White House that's ever worked in
a business that sees a five-year horizon, permanent reductions in tax rates
work? These teensy-weensy tax credits never work, Austan. That's why we're
at 1 percent growth in the economy.
Mr. GOOLSBEE: Look--oh, you and I are both for a low rate and a broad base.
KUDLOW: Yes!
Mr. GOOLSBEE: Now when the president has proposed...
KUDLOW: Where is that? Where is that, Austan?
Mr. GOOLSBEE: Well...
KUDLOW: Where is his broad base? Yes, let's start there.
Mr. GOOLSBEE: Go ask the members...
KUDLOW: We can agree on that.
Mr. GOOLSBEE: ...of Congress. When the president proposed a grand bargain
with a low rate and a broad base, they said, `What do you mean broaden base?
We don't want to broaden the base. That would be a tax increase.'
KUDLOW: Well, but if you lowered the rates and broaden the base, if you
rolled back regulations, if you stopped the National Labor Relations Board
from attacking businesses, Austan, you would see companies spending the
several trillion dollars of cash that they're not spending now, my friend.
Mr. GOOLSBEE: Well, now, hold on, Larry. You see that same accumulation of
cash in other countries that have totally different policies than we have in
the US. So I think it's very unlikely to attribute that to the policy
decisions that are taking place in the US, first of all. And second of all,
you have seen that the president has actively been trying to streamline
regulations. And just going back to the policies that led to the downturn
hardly strikes me as the wisest course of action.
KUDLOW: I don't see...
Mr. GOOLSBEE: We ought to do some third thing.
KUDLOW: Well...
Mr. GOOLSBEE: And I think you will likely see the president proposing that.
KUDLOW: I mean, I don't see--you've tried all this big government spending
and regulate. Why not have flat tax reform? Why not roll back regulations?
Why not put yourself in the position of a small business, Austan? They're
worried about Obamacare. They're worried about...
Mr. GOOLSBEE: Look, the president has done that.
KUDLOW: They're worried about Dodd and Frank. Why not understand that
community banks are afraid to make a loan because of overregulation?
Mr. GOOLSBEE: Well, Larry, again, I think you're being highly unfair. The
president has cut taxes for small business 17 times. It's not my job to come
down and get in a big battle over things that happened two
years--two-and-a-half years ago in the stimulus. If you look from this point
forward, what do we need to grow? As I look at what the administration is
doing, where they are in those areas where streamlining of regulation can be
effective, trying to streamline the regulations. They're trying to cut taxes
for small business. And they're trying to make the investments. It seems
like you were making fun of an infrastructure bank.
KUDLOW: Yes.
Mr. GOOLSBEE: That's one of the only things that the Chamber of Commerce and
the labor unions agree on...
KUDLOW: I don't care if the chamber is for it.
Mr. GOOLSBEE: ...that the infrastructure will be critically important.
KUDLOW: Austan, you spent a lot of money.
Mr. GOOLSBEE: With...
KUDLOW: And the president himself said those jobs were not shovel ready. I
don't think an infrastructure bank or any other form of additional spending is
going to help grow the economy and unleash entrepreneurship, with all do
respect.
Mr. GOOLSBEE: Well, you know...
KUDLOW: And I want to ask you about another one. Is the president going to
extend unemployment benefits for another 99 weeks, because many economists, as
you well know, believe that this kind of unemployment benefit extension is
actually keeping unemployment high?
Mr. GOOLSBEE: Well, the evidence that I've seen on that suggests that it's
not keeping unemployment high. You have to be looking for a job to get
unemployment benefits. If you stop looking for work, you are no longer
eligible to receive and benefits. And though it's come down substantially, we
still have more than four-and-a-half people looking for a job for every job
that's out in the economy. So I, you know, I think that's a little unfair to
be trying to pin our economic problems on the fact that we're trying to give
people some time to help them find a job.
KUDLOW: All right, my last one is--look it, you've been very patient. I
appreciate that. But this is such important stuff, Austan. You've a good
man. We've known each other long time. All this green energy stuff has been
an abject value. You're never going to do more than 1/2 percent or 1 percent
of American energy. Why doesn't that administration come out full throated
for American energy production? We've got the oil shale. We've got the
natural gas shale.
Mr. GOOLSBEE: We did.
KUDLOW: No, see...
Mr. GOOLSBEE: How can you say that?
KUDLOW: They don't...
Mr. GOOLSBEE: They did. Domestic production is the highest it's...
KUDLOW: They refused to call off the EPA dogs.
Mr. GOOLSBEE: ...been since the--for many years.
KUDLOW: I understand. But they refuse to call off the EPA dogs that are
investigating the infras--the fracking structure and the water levels. And
this is one of the great job...
Mr. GOOLSBEE: Wait, look, look.
KUDLOW: ...creators of all time.
Mr. GOOLSBEE: Look, we have to--we have to promote domestic energy
consumption. We have to do that in a way that's safe. We don't want to have
the biggest oil spill again that has ever been had. We don't want to poison
the ground water. But the president, as I've viewed it, the administration
believes that we can do that in a safe way, and domestic production is ramping
up quite dramatically. Now it seems like you're making fun of some of the
alternative energy stuff, but if you look at China, if you look at Europe and
if you look at a lot of the faster growing regions of the world, they're
heavily investing in it.
KUDLOW: It's been a dismal failure in Europe.
Mr. GOOLSBEE: (Unintelligible)...alternative energy.
KUDLOW: It's been a dismal failure in Spain. It's been a dismal failure in
Europe. I say, Austan, if the market...
Mr. GOOLSBEE: It seems like in China and Brazil it's been quite a success.
KUDLOW: If the market wants to produce clean energy, it'll produce clean
energy. Natural gas from shale is clean energy.
Mr. GOOLSBEE: Look, I agree with that.
KUDLOW: I just don't see why we don't...
Mr. GOOLSBEE: I agree with that.
KUDLOW: ...call the EPA dogs off. That's one of these regulatory issues.
Call the National Labor Relation dogs off of Boeing, Austan. In other words,
some of this stuff, there's very little presidents can do. I get that.
Mr. GOOLSBEE: OK.
KUDLOW: But the signals, the messages, is it pro-confidence or
anti-confidence? We have got to get America working again and right now it's
not happening. I'm going to give you the last word, my friend.
Mr. GOOLSBEE: OK. All I'll say is if you look at countries where it
is--where they are rapidly growing, they're investing in their infrastructure.
They're investing in their educations. They are trying to streamline
regulations but they're not neglecting key investments. The president when
he's out looking at fiscal consolidation for the long-term, but making the key
investments that are pro-business, I really think that's the--what we should
be doing, and I feel that that could be certainly a bipartisan thing.
KUDLOW: Well, all right. I say make it pay more after tax for all business
ventures. But, Austan, we've ran out of time. You're very kind to come on
the show. It is a pleasure to see you.
Mr. GOOLSBEE: Great to see you, Larry.
KUDLOW: I hope you'll come back now that you're going back to college.
Mr. GOOLSBEE: You bet.
KUDLOW: And I appreciate it very much. You know I have the highest regard
for you. Austan Goolsbee.
Mr. GOOLSBEE: It's great to see you.
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