tonight on the kudud report, king dollar is the new reality. it is soaring. i love king dollar, but can we trust it? it's not coming from bernanke. it's coming from the euro. then again, obama care looks more like france and the euro. is it an investor game changer? and post obamacare, financial regulation is the hot money poptics ticket from washington to wall street. are we about to end too big to fail bailout nation. a new free market bankling paul

ace. hat tip to chris dodd who i believe is on the right track. and bullish or bearish for banks. they're calling for bank stocks to quadruple by 2012, and why is no one paying taxes? 36% of tax-filing americans are exempt from federal income taxes. can you imagine that? 36%. this is incredible. it'soon outrage. it creates a bias toward more federal spending and higher tax rates on investors which is right on mr. obama's redribtion alley. fasten your seat belt said, the kudlow report begins right now. good evening. everyone. i'm larry kudlow. welcome back to "the kudlow report" where we believe capitalism is the best market to

prosperity, including king dollar, and king dollar is a game changer. this is my thoughts on the news of the day. the re-emergence of the u.s. dollar. it could be, it could be a major game-changer. go ahead, roll that tape. let's see that thing from washington and wall street. think of this out of the blue, all the dollar bearess at the beginning of the year and the gold bulls have been completely and utterly wrong. why is this? bernanke's monetary restraint, nope. tim geithner's monetary sense? nope, it's greece and italy and the euro which has dropped 12% with no end in sight and gold is off 12%. the broad dollar index is up 10%. that reverses a huge 17% drop from last march to last november. you know me.

where love king dollar. you cannot have a growing healthy free market capitalist economy without a reliable currency. i learned that from ronald reagan. this king dollar story lately is a little weird because the fed is still pumping money out like there's no tomorrow. and tax rates are going up, not down. but the key point, the euro's going down, and i think it's going to go down more. i want to ask our experts tonight what all this meaness for investors because again, this could be a game changer. and by the way, ben bernanke is being bailed out by a cheap euro that can't seem to bail out its weakest sisters like greece, portugal, and italy. it's a strange story. mr. bernanke should go to the greek parthenon and jgenuflect that the weak euro is bailing out his super easy money policy. then again, a high dollar can

suppress inflation pressures. if you take a look at february, the price indexes came down. they had been rising for several months before. and a high dollar gives mr mr. bernanke a lot of zero interest rate running room as far as the eye can see. so the question is whether a high dollar is in fact good for stocks and economic growth because oftentimes a rising currency can be deflationary. you have a lot of people on wall street today shying away from the so-called risk trade, meaning stocks, in favor of the dollar trade. now, let's stay with the deflation theme. is the chinese rem nimdy going to be revalued in order to choke off inflationary measures in china? if you're confused about all this, join the crowd. the dollar is rising against the

euro and also the japanese yen. on the other side, the dollar might fall against which chinese currency. that's a possibility. now look, summing up as a good free market supply sider, i want king dollar, aka, a reliable currency, and i want low marginal tax rates to spur economic growth incentives. i might get the one, but as far as the tax cuts, dream on, larry. then again, then again, hope springs eternal. despite mr. obama's obamacare tax and spend big government policies which reminds me of the yurb euro zone, we could get a free market banking reform if senator chris dodd stays with me and ends too big to fail. maybe we're looking at the dodd dollar. think of that one. all right y have said enough. let us get started. let's look at the u.s./china currency trade war. we had congressionp hearings

today. let's go to hampton pearson. we are all confused. you have to straighten us out. >> we know that china's currency may be undervalued by as much as 40%. that's got lawmakers getting hot under the collar. >> this is an absurdity. how we also know that china exports five times as much the united states as we export to china. we have leverage over china to insure equity. >> panel trade experts told lawmakers the obama administration should declare china a currency manipulator when they issue the next report on april 15th. >> reevaluation of the chinese and otherati asian currencies a the most cost effective steps that could be taken. it would be the most important of the president's national

export initiative. >> but there is however a risk of a backlash. >> the chinese authorities are spoiling for a fight. and the united states congress must be very, very careful about giving it to them. we should be careful that the market reaction to a trade war or currency war between the united states and china does not exceed in its negative effects the benefit which i believe would be minimal of the reeviluation. >> chinese commerce official in the u.s. briefing the chamber among others say revaluing it is not a good recipe for solving the trade imbalance problems. let the debate begin. >> it's a great debate. we want the dollar to fall against china. meanwhile, the dollar is rising against the euro. and neal ferguson is teaching at harvard and had the idea right. it would be minimal, but the trade protectionism would be

maximal and disastrous. thank you very much. i need to talk about this. the whole king dollar scenario. i'm going to focus more on the dollar than china, but maybe we'll get into china, too. let's talk to arthur laugher and co-author of "return to prosperity." the sam man who coined the model that said a strong, stable currency and low marginal tax rates, the former holds down inflation. the latter stimulates economic growth. that's the heart of the issue. we also have david kelly, j.p. morgan funds market strategist and cnbc strategist. dawn loven, i want to start with you. it isn't bernanke's monetary restraint. it's not the exeritation of the need to have a dollar as good as gold or as good as anything on a stable basis. it's the crake-up of the euro.

but don, no matter how we get there, the dollar is rising big-time, and i reckon it's going to continue to rise. what's your thinking here? >> look, i think your introduction got it right. we completely agree word for word with each other. what we have here is not a strong dollar. we have a weak everything else. and i don't think that's anything to be proud of. i suppose we should be proud that we do not have within our own borders something comparable to greece or portugal, and we earned that. that's europe's original sin that is coming back to haunt us. but as you said, we are not doing anything intrinsic to give ourselves king dollar. we're keeping interest rates low, raising taxes, spending ourselves into oblivion with the health care deform. we're doing everything we can to destroy the dollar including going to china and begging them to destroy the dollar.

and yet we're just being bailed out in all these sins by the fact that the euro has blown up even worse, oh, boy. >> you're right. the u.s. government wants the rem nimty to go up, and that would be great damage to consumers and retailers because those prices will all go up and contribute to inflation. on the other hand, through no fault of our own or no credit of our own, the dollar is going up against the euro. it's spilling over into other currencies. i think we saw we were strong against the canadian dollar, the australian dollar, the japanese yen. so i guess my first question, dave, is can the stronger dollar last? if the euro goes to 120 or 125, the peak was 150. what is your thinking because there's a lot of stock market money riding on this? >> first, i think we can give the dollar a little credit

because of what is going on in the rest of the economy. if you look at the u.s. economy, it's picking up out of this recession. i think we do about 3% growth in the first quarter, but we could do 4% or 5% in the second quarter. we're seeing good vehicle sales and chain store sales. i look at the weakness in the year euro zone and in japan, we're not doing bad economically. >> that's an interesting point. we're outperforming them. let's take that. art, let me go to you. maybe i'm boog too hard on the fed. such a thing is possible. maybe bernanke's saber rattling of tighter money to come, maybe other federal reserve presidents who have been saber rattling of tighter money to come, in fact, bernanke even put in his speeches in january the need for a steady dollar so it wouldn't plummet. at the time it was going down big time.

maybe king dollar is the new reality. what is your take? >> i don't think ben deserves the credit for this, to be honest for you. but what really frightens me, larry, let me be serious. when i hear those people testifying that they want a strong rem nimty because it hurts trade, they have it completely backwards. what we should do is make sure we he we keep free trade with china. without china, there's no walmart. all this anti-chinese stuff is a huge mistake. we don't understand that imports don't cost american jobs. they provide foreigners with the income to buy our exports. it's this comparative advantage, and people are thinking about china as a job destroyer. and that's absolutely wrong. you know, it should be revalued, at least if i was chinese, i would like lower inflation.

if they do revalue it, it will raise inflation in the united states. it's the counter argument to what is happening with the euro. >> you know fred, i know fred. he's a good man, a smart guy. for 35 years, as long as i have known fred, fred has never seen a currency he didn't want to devalue. he's never seen a dollar that he didn't want to devalue. and i think the evidence shows that we devalue the dollar in the mid-2000s. didn't change the trade picture, didn't change the export, import picture, and neal ferguson of harvard, is right. he said the benefits would be so-called benefits would be so minimal, but the trade war consequences would be so maximal it would be a bloody disaster. >> i agree totally with him in that. this is the fear we have as a p protexzest america. and i see protectionist measures coming about in congress and the

administration all over. it's naot only currency protection, but it's putting in american provisions in stimulus packages. >> just on the investment strategy, and i'll get don on the same point, you might have a shift in the terms of trade. let's suppose the dollar keeps going up for another three months, six months. there's a lot of people who think the euro is going all the way down to 120. you think some who think it's going to trade back to 1 to 1 which the public offering was in 2000. does this mean get out of commodities? does this mean get out of gold? gold has suffered since the dollar has appreciated. does this mean going into heavier retail stocks? what are the investment implications of this? >> commodities are still a good bet. the rise in the dollar has

nothing to do with weakness in the real commodity consuming countries or the countries with the biggest growth in commodities. with regard to gold, i disagree with you a little bit. i'm not that worried about inflation. the fed is going to make some mistakes, but i would rather them make the mistake of being over easy than overtight. history is littered with cases of the federal reserve tightening too fast and putting us back in a recession. because we have spent so much amnishz trying to get out of this one, we're out of ammo. if we end up in another recession because of a rising dollar or because the fed rays rates too fast, it's going to be hard to get out of it. i don't mind a relatively low currency in this environment. i just want to see a secure expansion. >> the market sold off just a little bit today. the dow is off 50 points. >> it's not because of what is going on in the exchange rate.

we're just beginning to see a change in perception where people realize, actually, the economy is going to come back. despite everything we feel about government policy and a lot of strong feelings in wall trestre and croesus mark, the economy is coming back, and that's not reflected in stock prices so far. >> don, a couple stats today. the durable goods stat was good. several months of capital investment and new inventory. the housing market was awful. don, i want to ask you this as a heartfelt question, you and i, we need to get together and get in touch with our feelings, okay? gold is getting -- >> hold my hand. >> through the screen. i love you. gold is getting hammered. and classical supply side theory, if the currency appreciates too much, assuming

tax rates are steady, the fed should ease, don. i don't know how they could ease more than they have eased, but that's what classical theory has told us. is it time to ease, to pump more money into the economy. is such a thing possible? >> this is fantastic. we have done the vulcan mind melt because that's exactly what i was going to say. >> really? >> i was going to say if the dollar just keeps getting stronger and stronger and stronger, pretty soon you go from being antiinflationary to be deflationary. and deflationary is the thing that ben bernanke hates and fears more than anything else on god's earth so he's going to take this extended period and turn it 92 an infinite period or by another gazillion dollars of mortgages back, but he's going to turn whatever it is into inflation. >> we could have it for decades.

we could go to the middle of the 21st century with a zero interest rate, and bernanke is being blind sided by this. it's bailing him out. it's nullifying inflation. go ahead, david. >> what inflation? if you look, it's 1.4% here. it's at the lowest level in six years. almost at the lowest level in 40 years. i get what you say, but the truth is you have 15 million looking for jobs, 5 million empty apartments, you will not spark inflation in that kind of environment. a few years down the road, there's a problem because we may not be scared about inflation then. maybe we'll eventually overdo this, but right now, the economy is ntd very little threat of inflation, and i'm worried if something goes wrong and we end up in another recession, we have a real deflation problem. >> this is just wonderful. this is exactly the reason, david, for my respect for you.

i wanted you to fight back and punch back against the supply siders you're up against. you heard david kelly. he's got a great record. a smart guy. we have your chart that shows near term inflation expec tashzs rise wrg. think we can put it on the full screen. using the nominal treasury rates, by the way, the treasury really sold off today. and comparing that to the real treasury that so-called tips inflation tree, it shows that the expected inflation rate is going up. what is your take? >> you know, he and i have a fundamental disagreement on what causes inflation. when i look at output employment and production, i think of inflation as being too much money chases too few goods. if we have a recession, a slow-down, a depression, that causes a recession, not takes it away. if you have two goods being produced and lots of money, the

prices are going to be a lot higher. >> because we have a competitive economy. if people start demanding more goods, this economy is well able to supply them. >> not true. >> that's when you get inflation. >> no, no, that's not correct. that's when real returns go up. when you have inflation is like the 1970s. when you have very, very high inflation, high interest rates, when we took office at the prime interest rate was 21.5%, and grankly, that wad very competitive, plenty of supply. the problem is reduxzs in output cause inflation. they don't remove inflation. and that is really the problem. >> if you look at the relationship between the money supply and the inflation rate for 30 years, it just isn't there. >> that's not true. >> i know this is the only article of dog ma, but this isn't there for the last 30 years. the whole definition of money has changed.

and i just don't think -- >> i think you're wrong. >> the gold price is saying money is getting tighter as the exchange rate goes up. that is very recently. >> gold pricess are up four fold from the last two years. >> this dollar trend is very significant and it's not over yet. i want to ask don, this is what art getting at. don, can we produce the necessary goods that dave is talking about with obobbacare spending and raising tax rates. we're going to deal with the tax rate assault on upper income people later in the program, but is this a pro growth policy? >> no, of course not. it puts into place a million incentives not to work, not to invest, look, i mean, art should be answering this one because in 2013, we have a 3.8% hike to the capital gains rate for top earners coming up as part of the health care bill. and don't kid yourself that doesn't hit until 2013.

that hits right now. long term investments that could be made now are going to be subjected to that rate. if we don't make investments we don't make growth. >> i have to get out of here. maybe the dollar, i blame the dollar's rise on the euro. and i thing that's defensible. but maybe the dollar's rise looks like this. the fed is going to restrain money, and secondly, yes, obamacare went through. but it's going to cause a political revolution come november and that's going to keep tax rates from going up. and maybe even get them down later. noedz, maybe the recent events, the obamacare stuff that doesn't really kick in for the next three or four years, maybe the political revolution in response to that is actually bullish for the economy, bullish for the dollar, and bearish for inflation. think of that, art. i want to insert that at the end of this segment.

you have a quick thought? i'm getting in touch with my feelings now. this is a contrary view. >> i too, love cinderella, the tooth fairy, and father christmas. i hope you're right. i'm not betting my money on it. >> thank you ever so much. david, you're terrific, and don, as always, great to see you. coming up, financial regulation is the hot topic out of washington after obamacare. are we about to end too big to fail. are we about to end bail-out nation? hat tip to senator chris dodd who i believe is on the right track. we could have a free market policy. on no more bank bailouts. now the question is, do you buy or sell banks on that information? you're watching cnbc. we're first in business worldwide.

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post-obamacare financial regulation. from washington to wall street, are we about to end too big to

fail bailout nation? john has the full record. hello. >> well, as you know, the consequences of that health care victory for democrats, a victory they haven't had for a while may extend beyond that victory alone. they're feeling a sense of confidence on other issues. b barney frank and chris dodd met with president obama at the white house today, came out talking positively, turning republican health care against republicans on the issue of too big to fail. >> there are going to be death panels, but they're for large institutions that can't make it. we're going to put them to death and not do much for their errors. >> and you saw that from the administration as well. neal wohlen went to the u.s. chamber of commerce, got in the face of the chamber officials

fighting financial regulation reform and said you should be ashamed of yourself and support this. >> the chamber has called the authority a permanent bailout fund. that is precisely backward. the only way to insure that future administrations are never again forced to bail out failing financial firms in times of crisis is to give them the tools to shut those firms dwrourn there is no credible alternative. we will not compromise on our commitment to end too big to fail. >> there's still room for negotiations between republicans like bob corker, richard shelby, and chris dodd and other democrats on the floor, but the one thing that both sides seem to agree on now is that financial regulation reform is going to happen. the only question is does it happen with just a few republican votes or a whole lot of them, larry? >> thank you very much. by the way, i want to say the chamber of commerce is a slaver negative force on this. absolutely negative and wrong in

my humble opinion. let's talk to robert albertson, one of the best banking bankers and strategists i know. number one, you heard barney frank. this was a nice turn of the phrase. their bill, he says, is beth panels for too big to fail big banks. i like that. i have supported the dodd approach. i know the language may not be 100%, but the language looks pretty tight to me. the end of too big to fail bailout nation. what is your take? >> there's a lot in that bill, as you know. i think we have a problem with too big to fail. i think the perception will be we have ended it, and everyone will be happy until the next crisis. in reality, what i see in there and the powers they may or may not have to handle stock holders is not that clear cut. >> barney frank said we covered it live, they were standing in front of the west wing of the white house, the stock holders are going to be hurt, the creditors, his language is

tough, when you read the fact sheet, it's tough. they're talking about bankruptcy courts. this $50 billion assessment, the deputy secretary is right and the treasury is wrong. that might be a debtor in possession safety net to get them into bankruptcy court to sell them. that's what imimpresses me. >> if only one is in trouble at that point, perhaps it will happen. if you have a liquidity crisis, which is what we had a year and a half ago, there is too big to fail. you can't get rid of it. the point you're making is a good one which is there's enough in this that i think most people will assume that the moral risk here has been removed. for now, that's enough. there are other parts of the bill that are more complicated. >> i agree with you. we have issues on consumer protection, on the derivatives. to me, too big to fail is the heart of it. question, if too big to fail is buried, taken behind the barn

and shot with an uzi. what does that do to the future outlook for big bank stock prices? your colleague is talking about a quadrupling of banks by 2012. does this hurt the big banks? does their impresst federal guarantee go away? >> i think it puts them on warning to manage themselves even more carefully. i have never really believed they thought they had a safety net that would truly save them. what is big and different this time is what the government hasn't done. it has not addressed the secondary markets. you look at the banking and credit system of america, the banks are only 24%. >> like the asset-backed markets? >> yeah. >> banks are 24%. the other 76% is split between the government asset backs, shadow banks, yada yada. that area is dead. and it by definition then is going to rest on the bank's

shoulders. >> do they come in, make up the slack? >> for the first time in 50 years, the banks are actually going to be reintermediated. if you're well capitalized or better yet, overcapitalized, you're going to be in a state of shock because you're going have earning asset growth you never thought to have. you can replace the broken parts of the system. >> okay, they ahave to do credi analysis for change. do you like banks or not? i i like overcapitalized banks. >> j.p. morgan, what are we talking about? >> by definition, the big banks are capitalized. they went through the depression and came out the door with a tangible over 1.4%. >> we have a poll, not to interrupt. one of the reasons too big to fail may go through, look at this wall street revulgz. americans hate wall street.

unfavorable, 57%. favorable, 24%. these people are reacting to the populari popularism. i have for basically the last year said find the bank you hate and buy it. find a bank stock you hate and buy it. you have a zero interest rate and a huge upward sloping curve. they can buy money at zero and purchase the treasury securities and have it spread. that gives them cash flow and that covers their toxic assets. with the dollar strong, i don't see that changing. is that bullish or really bullish for banks? >> eve wn the dollar weak it doesn't change. because it rates going up, i don't think the fed leaves it up. i think the long end of the curve goes up. the fed follows it. you still have the yield curve you like. that's not the issue. the issue then will be if the higher rate environment does something to the economic or the environment. >> you're staying with the bank play. >> in any version of the

economy, you have risks out there. probably the biggest risk is fast being the market. >> a mark to market loans now. this could be an unmitigated disaster. >> they don't understand loans versus securities. and a lot of congress does not either. >> god help us. but the basic message is stay with the banks. banks are the only groups to rise today. very interesting. thank you very much. >> good to so you. coming up, why is no one paying taxes? it's an incredible outrage, and it leads, by the way, to more taxes on investors which is exactly what the economy does not need. you're not going to believe the statistics we have. no one is paying taxes. robert rice and dick army will discuss recontributionism and spread the wealth and tax dodging. i'm kudlow. we'll be right back.

36% of tax filing americans are exempt from federal income taxes. looks right up president obama's wealth distribution alley. and creates a huge bias toward more federal spending and higher tax rates on investors. let's talk about this. we have cnbc contributor robert rice with a brand new op ed in the financial times entitled recovery depends on main street.

we also have dick army who was co-chairman of freedom works. i want to go to dick. all these refundable tax credits, earned incomtax credits, nobody pays taxes now. over one third of tax filers don't pay taxes. if i want more goodies, more free benefits from uncle sam, i'm going to vote for it because i'm not paying for it. somebody is going to pay for it. what is your take on this? >> it's a terrible distorlgz of the system. the realerate of taxation is the level of spending. and the biggest problem facing the economy is the sheer size of the government. the government that big because too large a percentage of the population think they're getting something for nothing, so they vote for more government. the real answer, and the answer that has proven itself to be the best answer for economic growth and equity and fairness across the globe is the flat tax.

let everybody pay an equal fair share on a percentage basis, everybody will realize the cost of government, and everybody will be more judicious in how they assess the value of government relative to the cost they recognize. >> because they're paying for it. robert rice, there's 142 million tax returns in 2008. the nonpartisan tax foundation found that 51.6 million or 36.3% were filed by those whose deductions, exemptions, and tax credits wiped out any obligations. isn't dick army right? this is the quintessential get something for nothing? >> first, let me say, dick, it's a pleasure to be debating you again. we have a civil debate. we don't engage in uncivil debates. look, larry, in terms of tax paying, most americans don't even itemize.

most americans pay more in social security and pay roll taxes than they do in income taxes, and the data you have don't include social security and pay roll taxes overall. if you include those data, according to the congressional budget office, it is true. people at the top are paying an effective rate right now of about 20% to 22%. people at the bottom are paying an effective rate, about 4% or 5%, but you have a huge inequality. people at the top are earning more than they have ever earned relative to people at the bottom. more inequality in over the last 80 years. >> dick, what is your response to that? i want to get to pay roll taxes. what is your response to bob's response? >> i'm not sure we have gotten a clear and full statistical picture, and i'm not sure that bob has added to the clarity of that picture, but still, nevertheless, look, this is no thinking thing. there's only one legitimate reason to have a tax code.

that is to rasz the money to pay the bills of the government. anything you do beyond that is a corruption of the code. and to use the code in a manner that represses the most productive person -- people in the economy and destroys their incentive is dumb economics, it's counter productive economics, or to use the code as some notion to give some wimzically defined redistribution of income is dishonest. do it out in front of everybody, put it on the expenditure side, and let us get the full measure of it, but the fact of the matter is we know very well that many, many people's pay roll tax liability is wiped out by the income tax transfers built into the code, and the best thing is eliminate that all. make the code simple. reduce the compliance cost. let everybody be certain of the honesty of the code, and watch the productivity of prosterity

of the nation rise. >> let me ask dick a question. i hear this about a flat tax all the time. i assume if you flatten the tax, given we are right now having a progressive tax in which people who are wealthy pay a larger percentage of their pay, their income than people who are poor, that if you flatten the pax, people at the top pay a smaller percentage and people in the middle or the bottom pay a higher percentage than they're paying right now. i don't know if that's fair. doesn't sound fair to me, particularly when we have people at the top who are taking home 10s or hundreds of millions of dollars. does that sound fair to you? >> it's the complexity of the code that we build in in iorder to justify the superficial productivity about which you talk. that's what gives the nation it's not an honest and fair game. just eliminate all that complexity and you'll know and i will know that many, many people at the higher end when paying a

straightforward flat rate without all of the special clauss and phrases and exemptions and so forth are going to pay a higher tack. >> will you get rid of the tax exemption? >> yes. >> get rid of that. get rid of all the lobbyists. >> one at a time. larry, before you go ballistic, let's go onewit at a time. >> i understand he's going to get rid of the mortgage interest deduction. are you goat toget rid of employer provided free health care. >> absolutely. the largest single source of income that agccrued to the american people that is exempt from taxation. why should i if i get my insurance from my employer have it tax exempt if i pay for mire insurance myself, pay taxes on

it. you tell me where is the equity and fairness in that? >> we're getting something. we're getting someplace because you know as well as i do that those two tax breaks, that is the mortgage interest reduction and that iployer provided free health care, tax-free health care go overwhelmingly to wealthier individuals. people who are poor don't get those two taxes, so i'm with you. dick, i'm with you on those two. >> bob wright, the income distribution is incredible. upper income people are paying the freight for the expanded benefits of the rest of the country. i have to leave it there, gentlemen. a very interesting debate. i think there's a furor about the jp morgan tax credit they got, and if you slash the business tax rate and took away the lobbyist deduxzs and cretss, we would have cleaner code and upper income people who pay 40% of the income tax anyway would pay more.

i have to leave it there. robert rice, thank you very much. dick army, thank you very much. coming up, interesting, 14 states, 14 states have filed suit against obama's health care bill. mainly because they say the medicaid entitlements are too much for bankrupt states to pair. we have a bond expert to tell us how this might effect municipal bonds and an attorney who might talk about the constitutional aspects of it. stay with us. a medicaid lawsuit from the states.

14 states are suing in the courts against the federal government's expansion of medicaid as part of the obama care bill. it's a complicated matter. we have george strickland. we have tom curran, attorney. gentlemen, i need a yes or no. we'll come back on the other side. tom, can this multistate lawsuit win? >> maybe. >> maybe, that's not an answer. yes or no? >> probably not. >> okay, george, let me avyou this. is the medicaid burden going to completely undermine tax free

general obligation municipal bonds. how much damage, yes or no? >> no, it will not undermine them. >> you're going to stay with it, gentlemen. we have two noes, as i understand it. we have more to talk about. medicaid burden. the states are broke. how can we put more burdens on them.

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all right, is obamacare medicaid's burden on the state already going to bankrupt already bankrupt states? george strickland, tom curran, george, i want to ask you about this. i mean, medicaid burdens on top of the huge government from the government worker union pensions that are bleeding the taxpayers to death and are higher than the public sector counter parts. you don't believe they're not going to be adversely effected pie this? >> i think they will be. somewhat adversely effected, but i think it's a relatively minor issue compared to the size of the budget deficits that the states are already dealing with. and as you mentioned, the unfunded pension obligations. this is an additional weight,

but it's a relatively small weight in the grand scheme of things. >> you're talking $2 billion to $3 billion. california, fl r, florida, $2 b, $3 billion on top of what they don't have. >> it's a lot of money, it certainly is, but keep in mind, we're looking at collective budget deficits that have to be balanced of about $180 billion currently. so it's an issue, but i wouldn't blow it out of proportion. >> tom curran, former prosecutor that you are, what about states' rights. what about the rights of tea party tax paying people like me? >> one of the problems with this bill is it doesn't really do anything. it talks about doing things, but things aren't being done until about 2014. right now, all you have are provisions relating to children can stay on their parents' insurance until age 26. the medicaid stuff doesn't kick

in, and the federal courts don't like to issue advisory opinions, so there's a question of rightness. is there a case or a controversy. have the four people who have sued in michigan actually been directed and penalized for having not followed that direction. >> you have democratic states in that. pennsylvania, you have michigan, democrats are doing this. >> it's a great suit, larry. i just don't think right now the federal courts are not going to issue an advisory opinion until things start taking effect. then you will have lawsuits. >> george, would you buy or sell general obligation tax-free bonds? >> sell. >> i would buy a few of them, but i would focus more on things like hospital bonds that are clear beneficiaries of this bill. >> okay, very clever. thank you gentlemen. appreciate it. george and tom. i'll be right back.

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