report."" here's tonight ee money politics message. the proximate cause of today's market sell-off was the growing fear of european government defaults and the future of the euro currency itself, and these are legitimate fears. but i wouldn't make too much of this. greece, portugal, and spain, they're lovely places, but how important are they really? okay. the european union must stand behind those governments, and just as important, the eu and the european central bank must stand behind the euro currency, which has now plunged from $1.50 to $1.37 and is still freefalling. i believe they'll act responsibly but the eu and the eif raise taxes to balance their budget it could spell euro disaster. but then, again, is it so far-fetched to say that they're not following the same big spend and borrow policies as europe?

you know, moody's says the u.s. government debt could be downgraded in future years and a whole slate of tax site proposals beginning with bank tax and multicorporate tax hikes and a failure to end tacks. all of this stuff, they will not extend the bush tax cuts. all these things are penalizing exactly the people who are most likely to invest in economic growth and recovery, and that, too, is an ongoing cause of the 700-point stock market. cisco's john chambers is very optimistic. we'll play his later. business investment is rapidly recovering. chain store sales picked up more than 3% from a year ago. those are all very positive signs. of course, jobs are still a big problem.

jobless claims have been edging higher in recent weeks, and tomorrow's jobs report will not likely show much improvement in unemployment if at all. businesses large and small seem afraid to hire with various tax cost increased threats coming out of washington almost on a daily basis. so question. is there a train wreck coming in 2011 as my friend art laffer believes? he's right about higher taxes and tighter money in 2011. this year, 2010, could be strong. it's next year, he believes, could be weak. and the forward-looking stock market may already be looking toward next year's problems unless washington calls off the war against capital on business, which i think are the real storm clouds on the horizon. i'm not going to make any bets tonight. i'm going to stay with my view that 2010 is going to be a strong year. and i'm going to stay optimistic that the political revolution led by scott brown and many others could change the power of

balance in washington so that all these tax hike threats never come to pass next year. that is my optimistic play. but i'll tell you what. even though the u.s. economy is recovering this year it's a very political stock market based on threats of policies from washington. unfortunately we're going to have to work through this. there's a level of uncertainty which is unusually high. until it passes stock mace be in for a continued correction. all right. let's drill on today's market sell-off itself. as i said, the dow lost almost 270 points barely clicking to the 2000 level. brian shactman joins us. >> investors ran to the exits today. the dow briefly dipping below 10,000 for the first time since november. let's start with volatility. people thought the market got a little complaisant. well, complacency got a slap in the face.

there's the dollar against $1.38 and the dollar index did touch 80. flight to safety and an unwind but it was the dollar that trumped risk aversion with gold dioping it to $50. the largest one-day drop in ov a year, which brings us to the equity markets starting with tech, hewlett-packard. the nasdaq, for your information, down more than 6% year to date. now the sell-off broad base. financials weak. bank of america down 5%. jpmorgan, goldman sachs as well. only cisco is the only dow component positive territory. john chambers, bullish. the only sector that had anything more than a random green arrow was retail. macies and gap are two examples. tomorrow we do focus on euro again. our question to you, did we price into the worst case

scenarios today? perhaps, just perhaps this is a rare case because lately it's been the on sichlt we might be selling the rumor, perhaps buying the noose. >> wouldn't that be nice. wouldn't that be nice? there is a benchmark revision coming but we all know about that. 8,505 jobs will be replaced. thank you, brian shactman. appreciate it very much. let's bring in our investors. we have zachary karabell, we have jim of macro portfolio, two of the best in the business to help us this evening. before we start our discussion, i want to play a clip from john chambers of cisco, one of america's best businessman who really is an optimist about the economy. let's take a listen, if we have it. >> what we saw in our numbers was an undeniable across-the-board dramatic improvement larger than i've

ever seen. it says we're entering the second phase of the economic recoverry from the capital spending. >> that's great stuff. i want to post this on the screen. we had business called cap "x." that shows things may not be nearly as bad as you think they are. the three-month change has been roaring ahead at a double-digit pace, if we can put that up on the full screen. it's on its way. all right. it will flash as we talk. jim lecamp. big swing. business investment is so crucial. that ee that's why i don't want to. you have two options. it was the euro government debt default problem or maybe it's the u.s. economy or maybe it's u.s. policy. where do you come out on this? >> well, they're not mutually exclusive. what this is about is a manifestation of lingering fears

in all of these area as. you had the credit default swap prices go through the roochl then we get the jobs numbers, the unemployment today and the jobs number today. the four-week moving average has moved up. that's caused a lot of people to start wondering with lending down is this economy going to be able to pass the torch from stimulus on to consumption, and it looks like to a lot of investors right now that we've got a hue hefner economy, an economy that's really unable to function without any artificial stimulus and that we're not seeing any manifestation of growth that's self-sustaining in this economy. i want to mention one other thing, larry. that is california's economy is larger than greece's, and we have lingering problems now that are going to hit us this year in both california and new york so, we have issues that are going to rise here this year. >> all right. we're going to show carly fiorina's evil sheep commercial later in the program. it's a real eye opener.

jim lacamp, one more thing. you did not mention a strong tisht report nor did you mention that profits are doing extremely we . profits are on a role plr, mr. lacamp. >> we've tickled businesses. they've started to move again, but we haven't really sheen -- shown any acceleration, particularly when it's in that new customer coming through the door. the revenues are only up about 7%, and if you strip out the banks, revenues aren't up very much at all, and so it's a very tepid weak recovery, and if that's the case, then the stock market's probably overvalued here because it doesn't leave any room for multiple expansion. >> all right. zach karabell, look. they are lovely places. i don't want to be accused of downdwr downgrading it.

spain, portugal, and greece. they're lovely places. how important are they to the world story, how important are they to the economic coverry, in short, how important are they? who'd have thunk it? spain, portugal, and greece, knocking us down. >> by the way, i love jim's hue hefner remark. california's economy is probably bigger than spain, greece, and portugal combined. the problems in california haven't led to a market sell-off. so i think in some sense we are in a correction that was due. we had an amazing run-up from march through october. we had a flat line for the past three months, so we're in a phase where there's been selling pressure building up, and, yes, there's a lot of lingering global worry. it's not like people who freaked out in 2008 into 2009 suddenly became on opty mists or forward looking. there's a pool of worry to tap into with sufficient news to generate it. but that doesn't mean in my view that what we're facing is a

world where we're going to have the next leg down. i think the real problem is too many people are conflating the u.s. economy with u.s. equities, and to me these should continue to be september discussions. 50% are global and they're not global in greece, portugal, and spain. >> but i want to ask you on that point. it's a good point, an important point. let me clarify. you would buy this dip in the market. >> yeah. and i would buy this dip even while skeptical of the u.s. economy. even though we're harping on the u.s. economy being weak, it should have very little bearing. >> why the heck does washington want to tax multinational corporation? they want to tax the foreign earnings. it amounts to at least a double tax on them. >> right. >> as you yourself said, it's global story and these are the global companies and this is the s&p 500. think the bank tax and this foreign corporate earnings tax have been absolute back breakers for the stock market. >> fair enough. i mean, look, the reasons for

why they want to do this. they want to because there's a revenue shortfall relative to what they've been spending and you want to close the gap somehow. it's an ineffective source of revenue because it continues that trend of capital going outside the united states to places where it mears happily housed and to businesses that want to be in markets that are growing more dynamically. >> jim lacamp -- >> there's a bigger problem than that. it's not just the taxes. when bill clinton was president, every time we heard about monica lewinsky, we were firing missiles off to the middle east. nobody was impacted. it didn't impact whether we were going to have property and equipment additions. barack obama, every time he feels like he's at a political loss, he's gone on and attacked wall street and the biggest concern is business owners are too concerned. don't want to commitment to anything, as you said in the first segment.

it's not just the taxes. it's the random nature of the attacks on wall street and capital. >> did you know -- i don't know if you saw this -- jerry corrigan who's a former folker top assistant. he's been at goldman sachs this many years he apparently was out there saying if the volcker plan would limit trading for bangs and bank holds companies and so forth if that program were implemented it would take net revenues down by 10%. now, i'm not surprised on that, that the banks got hammered again today just as the banks got hammered on the announcement of the bank tax. you've got the bank tax hike and the volcker tax hike. are these examples of the washington war on capital and business? >> has anybody told the administration that prop trading is not what got us into trouble here? has anybody said it represents liquidity on the market today?

all the share use see trading on wall street are not joe and mom and pop main street. they're institutions that are trading very frequently so that we have the liquidity. this is not an issue that we need to be attacking right now. we might need to attack leverage levels, cap levels, things like that. >> where would you go, just real quick, and then i've got to get zack back in. yo u're a bear now. you're going to go real defensive. what does that mean to you? >> we still have the volatility index. i mentioned that to you a week and a half or so ago. the tips are a play. you can get a little bit of a yield. but i don't think investors should be the heroes. be caution, have cash, and wait. there's a lot of uncertainty. there's no point in being a hae. >> what would you do. >> first of all i've gotten to descend from the washington and the market. >> it's got be a factor. >> i think this is triggered by european selling and -- there

are a lot of people who want the market to go down right now because they've been short. >> but, in fact, you had a huge new year's rally the first two weeks, then comes the bank tax announcement and then the budget which is tax and spend. look. i know there's no absolute cause alt, there's a lot of things going on but politics are going to matter. >> it's not going to matter to cisco -- >> how come nobody listened to him? he's the total optimist. >> i agree. i think the fact that no one listened to him, you should take the opportunities to build going forward because he's going to be more right about the nature of business success. nothing to do with weather the u.s. economy thrives, whether washington is bonkers or not, than the sentiment today or what happens in greece and spain. >> what would you buy, sackry? >> i own cisco and i would continue to own things hike that. i would like at the 20% pullback to the commodities. no matter what you think about china, they're commitmented to

an 8% to 9% growth pact. it doesn't matter what you think. they're going to keep generating that growth as long as they're capable with $2.5 trillion in reserves. >> asia, by the way, was almost flat. it's very interesting. what about the euro? what about the euro? >> look. think europe is a stable place, irrespective of this particular mini crisis. the euro zone is simply a nice place to be one of 350 million people who have the month of august off and have a high standard of living. i doan think you can go into the euro. it's not a locomotive going forward. >> jim lacamp, last one, gold got killed here today, down about 50 dollar. as you know, gold's gone from $1,225 to $1,064. gold getting slammed and the dollar going up, jim. what does that mean and will those trends continue? >> i think they'll continue in the short term. we're going to look to buy gold,

and we're going to look to buy some of the -- as sackry mentioned earlier -- as they get cheaper. right now the risk is too high. right now they're just as worried about deflation as they are reflation, so they don't know what to do with gold. the dollar's rallying because of a safe haven play. it's the only girl in an alaskan bar. the euro is going to cause issues here because it's going to be a problem for capital when they issue their debt and we issue our debt and pretty soon -- >> what happens here, real fast, lightning fast, what happens if the euro keeps falling? what does that mean? does that mean american stocks fall because the dollar is going up? what does that mean? the chances of a euro decline are at significant risks. >> it is. it is definitely a negative because they will have to raise interest rates to defend currencies over there. they'll have to raise interest rates and that means a competition for capital, and i think that's going to be a big

negative given the amount of debt we have to issue this year and next. and don't forget the banking sector still has a lot of problems. so if you start to see interest rates go up, it's not going to help. >> i've got to leave it there. jeffrey, zachary, jim lacamp. thank you very much. the european defaults and are they a threat to economic recovery and will europe save euro. all of a sudden we're going to go me crow in just a minute. you're watching cnbc. in"the kudlow report."" we're first in business worldwide. would you like a pony ?

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are european government defaults

and a threat of deflation worldwide is all of this going to hamper economy recovery and finally will europe save the euro which may be the most important question this evening? here now is david. peter. david goldman, first things magazine, senior editor. welcome, gentlemen, peter na vary rowe, let me go to you. will europe rescue these southern european countries and will they keep the european union alive and will they keep the euro currency alive, peter? a lot of people are asking those questions today. >> they're great questions and i'm a little more pessimistic about the global economy than you are. let's do a little kudlow 101. first of all, this is what happens, larry, when they rely on tax cuts to stimulate and it's what happens when you have a fixed rate system like the euro without it being backed by gold or some other hard currency

and we get what we get. from a trader's point of view, let's look at what happens today. the spread on the greek and spanish bonds widened because the risk of default but meanwhile the euro is falling because there's risk that europe is going to bail them out. >> what are they going to do here? ? here's the big question. what's going to happen to the euro and euro zone? i don't think it's going to collapse but it's shrunk. i think we're going to lose some countries from the euro. it means more volatility. but the big thing that's happening besides the collapse of the euro this could threaten global economy is as the euro goes down, it's going to hit america here because one of the -- the only really big thing here in america has been doing well is the export demands. so this is -- this is a global thing. it's not about two little countries like greece or spain. it's about the integrity of the

euro and the volatility that we're likely to see. >> david, pick it up from there. what are your thoughts from this whole business? you've got your three countries down there. they've caused the ruckus countrywide. with the european central bank actually raise interest rates to defend the currency and if the euro keeps falling, dave, what's the impact on america? >> i don't think the european central bank will raise interest rates to defend the euro. the euro was very strong before the dollar, very weak, and so this is come back, and i think this part of it works okay. the questions that are on my mind are can the europeans make it clear that certain things are too big to fail? we don't like that term and yet it's inevitable as you talk about a really big european bank and then a second issue is whether that's con tay gent.

i don't agree with peter that the euro zone will be shrunk -- will shrink. if they let countries go out of the euro, i thank would be bad, and that would come back and hit u.s. jobs. >> but, david, it did already shrink, for example, when hungary opted out. look. you have a country like greece. they could throw him out. >> but hungary didn't use the euro. >> no. but hungary was all set up to get into the euro zone and they decided when they had too much inflation to opt out. it happened over a year ago. but that's the kind of thing. if the euro zone starts to shrink or you get more volatility, you're going to have competitive devaluations and that's going to lead to the same kind of problems in world war ii.

>> the european economy is a zombie. it's a negotiation. you've got greek farmers demonstrating in the streets, germans saying we will never bail you out and eventually either they'll toss them overboard and it won't matter to anybody or they will bail them out. the problem is, larry, this is emblematic of something happening globally. >> you're missing the point though. when the euro goes down, my friend, that allows germany and france and other countries in europe to compete against the u.s. >> hang on one second. >> in terms of american trade flows, it's not -- the shift -- the momentum is toward asia, and that's what really counts. the gdp impact, this is going to be small, but the point about the debt crisis is we have a $200 billion state government crisis. we'll have the same negotiations in california around new york. you can't run a u.s. financial system or a government with 20% employment permanently. larry, you know, i've been o on

this program a t last half dozen times saying we'll have no employment recovery and the great risk you're indicating, the political response, 20% unemployment and all of the core democratic constituencies in the public union services is going to be to raise taxes to bail out the big government spending at state level and that would crush us. >> that's very important. dave has one of the little sub themes. one could argue that these european countries are embarked in the same spend and boborougb. here in the states, we are looking at a lot of tax hieks for 2011. that's our laffer's train wreck scenario. it might be okay this year, but next year is going to be awful. weigh in on that because there's so much uncertainty here i'm note sure i can get my arms around it. >> i think it's very important

how this is resolved on a case-by-case basis, so some states in the u.s., as property values go down, they're going to try to maintain their spending and simply raise property taxes. and so that becomes a self-reinforcing spiral, meaning that when you raise taxes, it lowers the value of assets, and so we have to see in europe and also in u.s. states what mechanism the governments may use to make a decision to break that spiral. it's kind of a death spiral that causes people to move out of the sta state, so the auto me it isty or the circular tax hikes becomes important in europe. if they cold lower spending or find more ways to create growth in jobs, think you could get out of these high debt levels. >> i want to take dave's point. raising tax rates either at the state or federal level is the worse thing for asset values and at the end of the day, a lot of

this debt, whether it's california debt or portuguese debt or u.s. debt is linked to the underlying asset values of our economy. peter, this is what bothers me. we're going down the wrong road. we're actually on the verge of making depression-like mistakes. they were jacking up tax rates in the mid-190s and snuffing out economic recovery, peter. are we about to make the same stupid mistakes here? >> well, larry, you made a point earlier in your opening remarks, which i think is dead on. we crossed the canzion rubican last week. my dream dream would have been to replace him put john at the fed and just have a new team that would take us towards recovery. now, you're right about this. we cannot get to economic prosperity by increasing government spending and raising taxes. the only driver in this economy

right now is going to be businesses creating jobs. and in order to do that, you've got to cut taxes, not raise them. so we're doing the exact opposite of what we should do, and we cross that rub i con. i'm really concerned, larry and i think the stock market is reflecting that. >> dave, let me address this. the dollar is soaring, david, and the euro is plunging and gold is plunging. can you make some sense of that? i had dinner saturday night with nobel prize winner robert mundel. he does not want the dollar to soar and the euro to plunge. he thinks that's destabilizing but that looks like what is happening. your earlier guest covered it fairly well. i think gold is barking right now but that's because i'm pessimistic about currencies in general. larry, let me put it very simply. the end to the world economy for

the previous ten years before the crash was the u.s. household balance sheet. with 20% employment as far as the eye can see, that can't be sustained. we need a massive increase in business investment, not the very small one we've had, and unless we're eliminate taxes on business invest millionaire and replace them with something that drastic, we don't get a recovery. >> all right. i'm going to have to leave it there, gentlemen. we never cover all the points but we covered a lot of points. this is a very confusing and difficult day. there may be a rub i con. you may be absolutely right about that. i have to tell you. i'm worried. thank you, everyone. coming up the toyota story continues to get worse for toyota, but is team obama embarked on a war on toyota, or is this really just a safety issue? keep it right here with ""the kudlow report."" we're going to have to take this whole economic and recovery story one day at a time.

continues to get worse after accelerator problems the beleaguered car company is now having brake problems on its popular prius. cnbc's phil lebeau is going to give us an update. >> reporter: its dealers and customers asking the question what's the problem. this time the problem involves brakes with 2010 prius models. toyota announced that it's looking into the brakes of the

prius mod. there was a report earlier in the day they may be recalling priuses. a report later says that's not the case. nhtsa is opening a investigation into what's wrong with the brakes. customers are complaining that the brakes do not immediately respond on bumpy roads. there's no doubt this could certainly have an impact on prius's popularity. it's the fourth best selling model for toyota in the u.s. it dominates the category in the industry here and there's been some talk for some time this could be a fourth brand for toyota. they denied that the latest problems are a result of the company pozably cutting corners. >> translator: we would not think of sacrificing quality for the sake of cutting costs. it would not make economic sense. >> reporter: another rough day for toyota investors as the stock was under pressure again. it's down more than 15% in the last two weeks as this company deals with two major recalls and

now questions about the prius brakes. larry, that's the latest on toyota. back to you. >> all right, phil, thank you ever so much. toyota stock recovered ever so much. it want to talk on both safety and politics. joining us is peter brown, director and publisher of "automotive news,". thank you. peter, begin with you. how damaging is this going to be to the toyota brand? this is a key point. i don't want to lose sight of this point. >> no. it appears to be hugely damaged. now, i've talked to some toyota people today and maybe they're witling past the graveyard. they say we have many lowell customers and they're not too freaked out, but all the surveys would say all the consumers are wary of toyota in a way they weren't. their brand value is quality. it's now under attack, and it's very damaged. >> and the prius business is going to -- it sort of adds to it, does it not?

and e-mail wondering here. you know, you have a string of these setbacks. it's in full public view, froinlt page. it could take years for toyota to recover. >> yeah. it could be damaging for a long, long time. now, behind the scenes they're madly making fixes on the brake pedals for some of the other cars and doing some other things rather rapidly in toyota fashion. the prius deal on the brakes, if all this other stuff hadn't been happened with unintended acceleration, that would be kindly looked at as a fairly routine recall, but in the context, one more horrible piece of cascading bad news. >> right. when it rains, it pours. dan, there's always a political angle to this and i want to raise it with you. there's a lot of people saying, yep, they even got a problem, but toyota's a great company. ray lahood and team obama seems to be piling on. is it because the u.s. government owns government motors, gm, which is a toyota

competitor? is that behind this? well, i've no evidence that it's behind it but certainly there is a conflict here, at least the appearance of a conflict. the government has a horse in this race. taxpayers were coerced by the government to have a 60% share in gm, so the administration is really vested in its success. so the ability to help shine a light on this negative period for toyota could be nomotivatin them, but there's no evidence of that. >> shining the line, there's no question you've got to do that. it's a safety issue. but once the speck, the rhetoric coming out of ray lahood, the transportation secretary, jie, whiz, dan, if i didn't know better, i'd say they were conducting a war on toyota and i would say it's an industrial poll toy is slam an international car maker who has 170,000 jobs in the united states, slam them because they're against general motors. that's if i didn't know

anything. it doesn't sound like we, the u.s. government, is trying to be helpful to this situation. it sounds like we're inflammatory. wouldn't call you too cynical for reaching those conclusions. that's what's going to happen here. there's an incentive for them to do that. i think the conflict will exist until the government divests of gm. but i think right now they're sort of heeding the advice of rahm emanuel who said never let a crisis go to waste. they're trying to score points for gm. >> peter brown, what's your take on this? >> they have no incentive to dump on toyota. i think what's happening is ray lahood has proved himself to be a crazy loose cannon. that is not appropriate behavior for the guy who's ahead of the transportation department. this is a very serious regulatory issue and he's been saying goofy things and wrong things and he quickly acknowledges a wrong.

he's just doing a terrible job. but there's no government conspiracy to help general motors in this case. >> there are lots of other things. >> i love a good conspiracy theory, so i plead guilty to that. peter let me ask you finally one. as a long-time expert of the car industry, people who own toy as the, okay, people who own them today, what advice do you give them? i mean mr. lahood says get out of the car and run for your life. what advice do you give them? how serious is this safety problem with the excacceleratord the brake? >> well, it's fairly rare, but when it happens it's horrifying. if you heard on the radio the phone call from the state trooper who was going 120 miles an hour and couldn't stop it. and ended up very dead. it's truly terrifying. what toyota is saying, you can drive the car if you feel any sluggishness at all on your pedal, stop, or at minimum take it to the dealer right now and they actually are, as we speak, repairing cars.

they've got the little shim this the med the pedal that's a fix. >> they have to be very, very careful. peter brown, thank you. dan icannson, good to see you again. coming up in "the kudler report." scott brown, remember him? smaller government, across the board tax cuts like john f. kennedy. plus the first tea party convention is kicking off in nashville tonight, and the free market populous war against government is on its way. supply sider, carly fiorina joined the revolt against government tax and a spend. her campaign unleashed an unbelievable ad, an evil sheep ad against her opponents. you even got to see this. you do not want to miss the evil sheep ad against high taxing and high spending. i love it. what was it churchill hill ca

called? a wolf in sheep's clothing. we call ourselves "the kudlow report." 

we've been talking tonight about the impact of politics on

the stock market and the economy. chalk up a few points for the tax-cutting tea party revolution today. that's right. scott brown, the man who made history from his come-from-behind victory became the 41st republican member of the senate today after being sworn in earlier by vp joe biden. take a listen. >> people back home, i can tell you they were very upset at the amount of spending not only in massachusetts, but you couple that with the tax dollars that are being spent and sometimes wasted, people are fed up. >> all right. people are fed up. now, second point, the tea party itself rebelled today as their first convention got under way in nashville, tennessee. and in good tea party form, supply sider carly fiorina, former hewlett-packard ceo and now california senate candidate joined a revolt against the big tax and spend unleashed this

unbelievable ad against her opponent, long-time politician tom campbell. watch this. be very afraid. be very afraid. >> tom campbell, is he what he tells us, or is he what he's become over the years? an fcino, fiscal conservative in name only, a wolf in sheep's clothing, a man who literally helped put the state of california on the path to bankruptcy and higher taxes. fiscal conservative? or just another same old tale of tax and spend authored by a career politician who helped guide us into this fiscal mess in the first place? >> all right. there you have it. the evil sheep. coming up, we're going to walk you through president obama's plan. here is dan mitchell of the caddo institute. where is dan? is he up there? put him on the screen. i love this carly fiorino ad and i love the fact that we swore in

the new senator from massachusetts, scott brown. is it possible that the tide is now turning away from the tax and spend-policies h which i believe has damaged the market this year? >> i think there's no question there's a backlash among the american peep. don't like making everybody into a dependent or ward of the state. now, the question is can we trust the politicians that are mouthing the fiscal rhetoric? clearly in california we're seeing that. >> i love it. did you see the evil sheep? >> yes, did. >> what did you think of it? >> i got it like three or four times. so clearly it's generating internet buzz if nothing else. >> we're going to come back and talk with dan mitchell. i think that's one of the things pull back the stock market. "the kudlow report" will be right back. let's get rid of the evil tax t and spend sheep.

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on a nightly basis i have been decrying the proliferation of tax on investors, and lately on multicapital organizations.

i regret to say that the decline in the stock market may be bearing me out. so let me talk to dan mitchell of the cato institute who is an old friend. dan, today, for example, as if it weren't bad enough, treasury man tim geithner launches that attack on hedge funds. they want to raise the tack on hedge funds and ail private partnerships. the bank tax hike may have triggered the stock market decline, the most recent one on the taxes for foreign earnings of american corporations. dan, what is going on down there because, you know what? even in can zee onterms, you're not supposed to worry about that. this is insanity. remember our friend steve moore wrote that problem atlas shrug from fiction to fact, 50 year, whatever it was? i almost think there's that mentality where they don't think it doesn't matter ho u much you raise taxes on entrepreneurship, how much you raise taxes on savings and investment, they

think that people are going to go on working and toiling even if it fierce the government rather than for themselves and their families and share holders and investors. and i do worry a we gravitate down this path, we're going have this. >> i don't have a lot of time. what about a republican coalition with moderate democrats to extend the bush tax cuts on capital gains, dividends, and successful ear r earners? is such a coalition possible, dan? >> well, i think it's unlikely that you'll get enough democratsing although with the political tide turning against them and a lot them scared about keeping their seating in 2010 i suppose anything is possible but that would have to require obama's signature. there's no way there's a two-thirds vote to push through pro bono tax policy. >> last question, 30 seconds.le. can the republicans and whoever,

stop the proliferation of tax hikes? can they just knock them down now? they've got scott brown in there? can they call for closure votes and stop the tax madness? >> i think there's no doubt we can stop the additional taxes that are going through obama's proposing but the tax cuts that are expiring at the end of this year, that i'm worried about. so i do think investors and entrepreneurs are going to get hit by more taxes from washington. >> all right. well, i think stocks are starting to pick up this threat. dan mitchell from cato. thank you so much. coming up, my last thought on all this stuff.

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you know, looking at stocks today my thought is stop the tax madness, please. taxing corporation, taxing investment funds and capital gains. these were the mistakes made in the great depression, first in 1932 and again in the mid 1930s, which caused a second recession inside the great depression. that's from amity slas's book. we are repeating the worst mistakes of the past. this is no time for tax hike madness. we'll join you tomorrow night after the jobs report. kudlow will be back.

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