i'm jim cramer. see you monday! hey, larry, what do you have to wrap up the week? jimmy, is ron paul in cahoots with mitt romney? i'll ask ron paul directly in just a minute. good evening, everyone. i'm larry kudlow. this is "the kudlow report." that's right, folks. my lead story tonight is an exclusive interview with congressman ron paul. he's still very much a factor in the republican race. and the sizzle story today is the shocking charge that ron paul has an alliance with mitt romney that could lead to his son, senator rand paul, being installed as the romney vice president. take a listen to all this. >> joining us exclusively now is texas republican congressman and presidential candidate ron paul. dr. paul, welcome back to the show, as always, sir. and let me begin with this. >> thank you. >> rick santorum was whining this morning on the laura

ingraham radio show. he's whining that you are attacking him too much and you never attack mitt romney, and he's accusing you of having an alliance with mitt romney. what's your reaction? i thought this would be a great spot for to you respond to this santorum business. >> well, if everybody -- if anybody would check the record very carefully, you know, i have had in the ads as well, or earlier on and called him a flip-flopper and all these things. but i think -- you know, i think it's partially strategy. you know, if i have to compete against mitt romney, i have to take away the votes from the other people who are competing with me. so it's a bit of strategy. but it's also -- he's top of the polls right now. i'm very honest about his voting record. it wasn't like i'm making it up. and i try very hard to stick to the voting record when i criticize. but he really wasn't a very good conservative when he was in the senate. >> no, that's the thing. you called him a fake during the

debate. and i wondered if you'd expand on that thought. >> well, it was whether or not i would defend him. because that's in our ad. because he pretends he's the most conservative and he's the conservative alternative to romney. but philosophically i don't see a whole lot of difference. but rick has gotten himself into more trouble because he was the whip. and you know, when he said he's a team player, that's one of the things that has annoyed me the most because when they're whipping you and they think they can get your vote, they finally come down, the ultimate test is for the speaker to come to somebody in the house and say you've got to do it, you've got to be part of the team. and so this is what santorum was going, this team thing. and i think that is what's wrong, i said in the debates that's what's wrong with washington. it's good economic policy, good foreign policy, follow the oath of office, follow your promises, but it's not to go to get along and participate. i don't know if you've recognized over the years, when

we have a republican president the republican congress sort of wimps out. the republican congress -- right now the republicans in the congress -- i vote much more with them now. but when we had a republican president, that wasn't the case. and i think when santorum was there he had to defend, you know, the moderate policy of a moderate president, and that's how he gets himself into trouble. but to claim he's a real sound fiscal conservative, i think that's where he's faking it. >> let me take this up. okay. he's faking it. my friend joe scarborough, tv pundit and so forth, former house member, you probably know him, joe scarborough has been speculating and ruminating that you do have an alliance with mr. romney. but scarborough's take is, and i want to get your reaction to this, that it's about your son, senator rand paul, because there could be a deal that rand paul also on the romney ticket as vice president or would serve in a position in the cabinet in a romney administration. so now we've gone from a potential for whining from santorum to an alliance between

you and romney in order to get senator rand paul a job as vp or cabinet secretary. your reaction to that train of thinking. >> i don't think my son needs my help to get him a job. besides, i think that's a distraction from rick's performance because he knows now that he was knocked down a few points and therefore he has to distract from that and say it's some sinister or some type of alliance. and the media likes that kind of stuff. but the truth is rand and i have never had a talk along those lines. you know, what the political strategy is. because there really isn't any. there are times when different candidates align themselves in different ways depending on what states. but i have to admit, it's been easier to talk bsh my staff has an easier time talking to mitt romney. and of course i've known him for a long time. we respect each other.

which is somewhat different than what happens with the other candidates. >> but you can say there's no clear alliance between you and mr. romney? >> absolutely not. because it would be foolish on his part. and i liked -- i think i did hear something this morning, interviewing governor pawlenty. and neighbors saying yeah, there's some conspiracy and there's a back room deal. i thought pawlenty cleared it up pretty well. he said if you think ron paul's going to do a back room deal you've got another thought coming, something along those lines. >> we'll leave it all there. i just want you to be clear and go on the record on that. let me ask you, i want to talk taxes. you and i often talk about the fed and money and so forth. but i thought we'd talk taxes this evening. romney has come out with this 20% across the board tax cut. i'm wondering what you thought about it. and i wondered especially, sir, specifically what does your tax reform plan look like? >> well, my ultimate goal would of course be get rid of the income tax and get rid of the corporate tax. but you know, that's a ways off

because you have to change the role of government. you have to change the attitude that we police the world and we have an entitlement system. but you know, when i look at a bill or proposal like that, if i have to accept it or reject it up or down, anything that lowers taxes i'm for. in any way whatsoever i'm going to lower taxes. but i'm always willing to cut the spending as well. >> but have you any -- set any targets on the way to getting rid of the income tax? a goal devoutly to be desired. but in the meantime, i mean, romney now has a top rate of 28%. santorum has a top rate at 28%. gingrich has a flat tax option with 15%. have you ever pinpointed any of those specifics? >> anything that's lower -- i aim for zero. if they want 28, i want 25. if they want 25, i'm going to aim for 20. but that is secondary to the

spending in the whole program. i think what was in my proposal was a corporate tax of 15. but it doesn't give us the answer. it's this whole attitude we had to collect the revenues. if you don't collect the revenues you have the debt. that's why we have to address the spending and the deficit. >> but let me just dwell for a moment on the dollar. oil prices, as you well know, oil prices are surging again. gasoline prices are surging. a lot of people are blaming it on potential crisis with iran. some people are blaming because we don't drill enough. i just want to ask you from your perspective, your austrian free market view and your sound money view, is it possible that the chronic rise in the price of oil is because of the chronic devaluation or weakness or lack of confidence in the dollar? is the dollar the key to the oil price, or is there other external factors? >> i think the dollar is the key, but there are other factors, too. the iranian crisis, the

potential that the war is going to start there. so i always look to the oil price as maybe some serious talk behind the scenes that they're actually getting ready to do something, which scares the living daylights out of me. >> let me just ask you quickly. you mentioned that you're scared to death about what iran might do and there could be a war in the middle east. you are known for your non-interventionist foreign policy. if iran did declare war in the middle east, if iran closed the strait of hormuz, which would probably drive oil prices at least temporarily to $200 a barrel, would you as president paul take any action against iran in those events? >> well, first off, there's zero chance of that happening. they're not suicidal. they're under the gun. they're surrounded by 45 united states air bases and military bases around their country with the navy over there. so they're not going to commit suicide. but the only time -- and they're not threatening to close down the straits of hormuz unless they're attacked. they're trying to say look, you'd better be careful, we

might retaliate. but i don't think they will then, too. because they're going to lose as much as we would lose. because they have to export their oil as well. but the foolishness of this is driving the iranians into the arms of the chinese. first we have a new government in iraq and it's not all that friendly. it's breaking down. and we've driven iraq into the arms of the iranians and the iranians into the arms of the chinese. the chinese are making a lot of money from us. and what are they doing? they're investing around the world. they're investing in oil and energy in iran and africa and the different places. so i think our policy is just foolhar foolhardy. >> i'm going to leave it there. congressman ron paul, as always, sir, we enjoy interviewing you. all the best on the campaign trail. >> thank you, larry. >> all right. very interesting stuff. now, let's go to stocks. oil was up big this week. but you know what? stocks also gained during the week. we're going to do some serious stock market work next. we have the famed investor mario gabelli joins me right here on

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closing crude oil near $110. european brent 128. stocks still managed another gain for the week. even today two of the three indexes were up. the s&p is at another three-year high. so let's talk stocks and dig in on the investment strategy. here now is famed investor mario gabelli. he's chairman and ceo of gamco investors. also institutional investor's money manager of the year. we also have jim le kant. and we welcome back addison armstrong of tradition energy, a cnbc contributor. mario, great to see you. so stocks went up even though oil went up so much this week. and i want to ask you from your standpoint can this continue? can oil keep going up and stocks going up together? >> well, the entire market is one thing. but from our point of view, larry, we go out and try to pick what's going to work in a deleveraging environment, what happens if inflation picks up, what happens if deflation occurs.

we're not sure, but we have to assign higher probabilities to both. so you take a company like genuine parts. they sell consumables. that is, parts for cars. 250 million in the united states. a billion in the world. they are consuming energy. what happens when the price of energy at the pum subpoena $5? >> and? the answer is? >> i think you're going to still drive and you may have to eliminate some discretionary spending. you'll cut back on your car parts. but general parts is selling at $60 a share, $4 in earnings and they have a growth rate of 10%. they pay a 3% dividend. that is a very good way to maintain wealth and preserve it over a long period of time. >> that's an interesting point. people will still drive. jobs are being created. the economy is getting better, not worse. incomes are going up. and there are some people who argue the oil pry rise, let's exclude a war in iran. that would mean all bets are off. $200 iranian oil. but let's exclude a middle eastern war. what p if the price rises because of growth in china, brazil, india -- >> supply and demand. and also on a long-term basis oil's going to be at $200 a

barrel at some point. we need alternative energy. renewable energy. and we have to use american technology to go in and do unconventional drilling. >> how do you make money along that path? >> toes are own the acreage, those that are producing it, those that have supplied the equipment. shale. fracking, not only in the united states but argentina. >> any names? >> companies that we like are companies -- for example, spinoffs and split-ups are occurring everywhere. one of them that's in process or may occur is a company called national fuel and gas. the stock's 50. there's 85 million shares. they own acreage. they have a mid-stream business. and at some point they'll monetize that. that's an example. they've got a nice dividend. it's a conservative play. you have other companies that make equipment, that handle the water, which is the achilles heel of fracking. and how do they treat the water? not only the 3 1/2 to 5 million per well but also those that take the water that comes out

and contains it. >> this energy sector even though oil hangs over the market? >> outside in what way? >> non-energy investments. >> that's what we're doing. we like health and wellness, aging of the infrastructure, people, cars, railroads. bridges, airplanes. we're looking at all these areas, larry, that we have to put money back into. and then you look at this issue of american competitiveness. how do we do that? regulation? taxes? litigation? reform? a whole series of -- >> so you're not panicked over the oil story. that's what i'm hearing. >> it is an element in our process and you have to assume there's a 5% chance, a 10% chance of an unexpected dynamic. you won't go all in at once. >> addison armstrong, you heard mario gainlli parse through this. i want to get your take on this and i want to return to the main theme, what interested me a lot. despite the rapid run-up in oil price stocks didn't really get hurt this week. okay? there's some sector rotation in energy. i get that. but basically, addison, are you worried? is it going to be worse than

addison has described? or maybe not so bad? >> larry, in the short run i'm extremely worried. we've seen gasoline demand here in the u.s. before prices even got as high as they are now up toward $4. i'm out here in california and i haven't been able to buy gas this week for less than $4 a gallon. that's very scary for this reason. you know, we've seen gasoline demand as measured by both the government and by mastercard drop about 17% from its post-recession high. at the end of january according to the government we were using less than 9 million barrels a day of gasoline. and that's a very small number. now, the critical part here is whenever we've seen a big drop-off in gasoline demand like that in a very short amount of time, within two or three quarters the u.s. economy either slows down, the gdp growth slows down dramatically, or we can even go into recession. and that's looking back over the past 50 years. so in the short run i've got

some very big concerns about what this high fries of gasoline is going to do to the u.s. economy and to the stock market. >> but jim le cant, let me go to you on this. it's actually the growth cyclical stocks that are leadtion the charge. even this week. i know energy's at the top of the list but that's a growth cyclical stocks. material commodity stocks are doing well. industrial stocks are doing well. jobs are doing well. jobless claims continue falling. we had the number out today the michigan consumer sentiment survey, actually beat expectations, up six straight months. so my question is might this oil shock be 234 large part demand and economic growth driven and demand is not a bad thing for the stock market, it might turn out to be okay? >> well, look, if you look at the atlanta, the philly, the choe chicago, the dallas fed numbers rkz they all show manufacturing is increasing. even though china's slowing down, they are still growing.

the problem is as addisson pointed out correctly, the u.s. gasoline demand is not up. one wonders if it's because of the massive stimulus going on around the world far beyond what the actual economic fundamentals represent. so i'm concerned about margin pressure for corporations. we've already seen corporations downplay second quarter -- or first quarter earnings quite a bit. if you strip out apple computer and aig, this quarter wasn't that good. so you have consumers that incomes are growing at a glacial pace, jobs are growing at a glacial pace. >> jobs are growing a lot faster than glacial. they used to be growing at a glacial pace. but the last couple months -- >> but both are right. if they're lifting money out of my pocket after tax dollars are -- >> but your home heating bill is falling. natural gas prices have

collapsed. there's a very mild temperate winter, too. >> you look at what cracker barrel is saying and walmart is saying, they're saying consumers are not coming in the store. they're filling up their tank and they're no longer coming in the store because they don't have any money left when they fill up their tank. that's being reflected in consumer spending. >> hang on a second. >> we agree with that. yeah, we're buying things that -- companies that make salty snacks and pretzels and potato chips. you know, lance, for example, put the company together. and they have wonderful products, larry, and at some point either a dr. pepper or kraft or somebody will say we want that business, the stock's 22, three years from now the stock's going to be $45 if they can execute on their plan. so yes, we have short-term hiccups -- >> give me another great one. you're one of the great all-time stock pickers. give me another one. >> a company like gaylord. it operates hotels in nashville and other places. the stock's 28.30. they're going through some financial engineering. companies are splitting up like tyco into three parts and the

parts are all yummies. and then something like bourbon. fortune brands split into two parts. and those pieces are attractive. >> addison armstrong, give you the last word. what's your investment strategy in the light of your worries? >> larry, can you repeat that? sorry. >> what's your investment strategy? you are more worried about the oil shock than the other panelists, addison. where to invest? >> you know, larry, i think that you've got to be prepared to look at natural gas from the long standpoint. i think we're probably going to see some turbulence as we move into the spring. but i think that natural gas is really going to look good when we move into the summertime. i think it's not going to be a dramatic rise but it's going to be coming off the bottom. >> thank you. we'll leave it there. mario gabelli, jim lacamp, addisson, we appreciate it. next up on kudlow, sprint has walked away from a major deal that would have changed the wireless industry. that and the other news headlines when we come back.

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and had them read it. no, sorry, i can't help you with that. i'm not authorized to access that transaction. that's not in our policy. i will transfer you now. my supervisor is currently not available. would you like to hold ? that department is currently closed. have i helped you with everything you needed ? if your bank doesn't give you knowledgeable customer service 24/7, you need an ally. ally bank. no nonsense. just people sense. sprint and metro pcs off just hours ago. off before it was set to be announced. kntv's scott budman joins with us that story and the other stories. breaking news right now. good evening, scott. >> well-g evening, larry. yes, cnbc's david faber broke the story. sprint has walked away from a major daal with metro pcs that was supposed to be announced next week. the deal would have valued metro

pcs at a 30% premium. news of the walk away had metro pcs shares soaring. it looks like japan has its own madoff-style ponzi scheme. japanese regulators say aij investment advisers lost most of the $2 billion in pension assets that it managed. shares of kenneth cole soared 18.5% after kenneth cole himself offered a 15% premium to buy back the 53% of the company he no longer owned. activist investor starbird value says it does not like the way aol is being run, so it filed to nominate five people to the board. shares of tivo slid 3% after the dvr pioneer issued a downbeat forecast. it locked in a profit last quarter, but some of that came from a legal settlement. that every day low price strategy from jcpenney, well, it costs a pretty penny. shares of the company down after it said it lost $87 million last quarter because of that strategy. bank of america stopped

selling some mortgages to fannie mae because of a dispute about some old bad loans. and finally tonight, klm airlines is testing a program it called meet and seat. you upload profiles from facebook or linkedin and pick the person you'd like to sit next to on the plane. you cannot, however, tell the airline who you don't want to sit next to. larry, a little social networking in the sky. >> aw, shucks. many thanks. kntv's scott budman. we appreciate it. next up on "kudlow," mitt romney in detroit. he taps his new 20% across the board tax cut. now the question is can he sell it effectively and will it push him over the winner's line in michigan? is this the mitt music republicans have been wanting to hear? our political panel coming up next.

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welcome back to "the kudlow report." i'm larry kudlow. so mitt romney gets a post-debate bump up in two main michigan pollsish rising above rick santorum just four days from the state's primary. the latest mitchell research poll hands romney a three-point lead over santorum, and according to rasmussen mitt now

leads by six. that's a plus ten turnaround. today romney also laid out details for what i'm calling his 20% solution. take a listen to this key sound cut. >> i'm going to make an across-the-board 20% reduction in marginal individual income tax rates. 20% down across the board. by reducing the tax on the next dollar earned by all taxpayers, we encourage hard work, we encourage risk-taking, we encourage productivity by allowing americans to keep more of what they earn. >> we're going to talk to our political panel, david corn, steve moore, and michael steele, in just a moment. but first up here's cnbc contributor robert costa of the "national review." robert costa, is it going to take him over the winner's line in michigan? how did this thing play today? >> i think it played pretty well. a lot of the media story say romney sounded flat, forge field wasn't filled with people. but i think he addressed his economic record, he had an agenda i think that resonates, he said he was a local guy, he's

a car guy, he talked up his local roots. i think it was a very strong speech. even though the buzz is that it was pretty flat. >> well, i'll let the media because, the liberal media, whatever they want to buzz. who could care less about that? let m just ask you, can he sell it? will he stay with it? in other words, you've got a couple days here till the tuesday primary. he's got a lead because he won the debate. is he going to keep hammering away, bob costa? that's the big question. >> he's hammering away. and it's a real on traft to what senator santorum is doing. santorum went up on the airwaves today with a new ad touting his ties to workers, manufacturing, his exemption for manufacturing on the corporate tax is the way to go. but romney has a detailed plan. he's talking to supply siders. he's saying i want to have a 20% across-the-board cut on personal rates. i think that resonates in the closing week. it's important to have details if you're the conservative candidate. romney has them. >> and santorum is still whining about all the attacks by ron paul. and i interviewed ron paul earlier in the program. and ron paul says tough love, i'm going to keep attacking him.

santorum whining. that can't be good. >> it can't be good. santorum has to get back to his manufacturing message. he might have an ad talking about it. but when he's doing these interviews all he's talking about is ron paul's supposed alliance with mitt romney and social conservative issues that aren't really playing in michigan. where was romney today? focused like a laser on the economy. that helps in the final closing hours. >> bob costa, thank you ever so much for the update. now let's bring in david corn. he's mother jones' washington bureau chief. steve moore, the "wall street journal" editorial board, and author of "return to prosperity." and michael steele, former rnc chairman. steve moore, one of the things i read romney's speech, i don't care how many people were there and all this other garbage. he's using the language of supply-side conservatives. that's what interested me. unlike george bush, he's talking about putting more money in people's pockets, which is keynesian, demand side, romney talked about the extra dollar earned. it's an incentive model. is he going to convince conservatives now that he really understands the incentive model,

the ronald reagan model? >> larry, if mitt romney becomes president, this will be the week that really made him. i think he's had a great week. he did a great job in the debate. and i think this tax policy change, because remember, mitt romney 1.0 wasn't something you or myself or the "wall street journal" editorial pages were very excited about. this is pretty exciting. it's reaganesque. i think he's got to run with this, there's no backing off of it, but i really believe he has enhanced his chances not just winning michigan but winning the republican primary, and then using this as a foil against obama. remember obama's talking about raising rates to 40%, 42%. at the same time that mitt romney is talking about a reaganite 20% reduction in rates. i love it. >> the contrast between romney's lower tax rates and obama's massive tax rate increase is unbelievable, steve moore. romney should sell that and talk about that -- >> it means that he's reading

the "wall street journal" editorial page and watching his kudlow report. because we've been saying this for six months. >> larry, you'd better take a breath. if t. seems like you're hyperventilating over this. >> africa i of course i am. >> this is your orgasmic dreamt come true. >> not that good. >> that's too much information for me. it worked so well in the bush years when you cut rates and -- no, it didn't, actually. and it worked so well under clinton when you raised rates on the rich and the economy -- no, it didn't. but i mean you can have your fantasy. i would hate to take that away from you. >> wait a second. >> mitt romney -- >> david corn, can i reintroduce you to john f. kennedy, who was the first post-war tax rate cutter -- >> you have to go back 50 years to prove your point? >> then you want to introduce to you ronald reagan -- >> 50 years you have to go back to -- >> you underestimated the boom from the lower tax rates and you're doing that again. bill clinton lowered the capital gains tax rate. >> and he raised the rates on the rich. you complained about it at the

time. >> george w. bush had one good tax cut on investment income but he was not a supply sider. that was the problem. michael steele, i want to get your take. i know you're a jaded political analyst, former rnc chairman, but i want to ask you, is mitt romney now getting his message out to the grassroots conservatives who unlike david corn embrace supply-side tax cuts and love steve moore and love larry kudlow? did romney score now? is he going to get their confidence at the grassroots? >> it's a call, larry. i don't know. look, i have been hoping for this juggernaut that we were sure was out there to i really catch hold with the base, and i've been saying for six, seven months now that they just haven't found the language. and walking away -- i agree with steve. i'm a big sflupply sider. and by the way, david, when you cut taxes and continue to spend, it's called debt and deficit.

but that's a whole other conversation. the reality of it is today was great but that's not what people are getting told tonight. that's not what people are seeing and hearing coming from this tonight. it's the two cadillacs. it's the stadium with 1,200 people in it. they've got to figure out a way to line that message up with the visual so that people get the full impact of what this is all about. >> the only thing wrong with two cadillacs is that ann romney should have owned two ford lincoln navigators because ford didn't take bailout money. the rest of it, who caves? that's the american way. cadillacs from the 1950s. they have fins and they hug the road. >> i'll tell you why it's important. it's important because you've got people trying to keep the one cadillac they have. you've got people who are trying to get back to work -- with gas prices going what they're doing

and with the economy still where it is for some 7 million unemployed americans who have given up looking, that language -- again, the way you frame the argument to make the case is the problem. >> this is msnbc ankle biting. >> it's not. i'm just telling you. >> steve moore, people in detroit aspire to two cadillacs. they love the idea of two cadillacs or two big cars or two big trucks. that's in the veltenschung. that's in the dna of people in detroit. i don't think michael steele understands that. >> i totally understand it. but they can't afford it, larry. >> here's the thing. at least he didn't show two bmws because cadillac plays better in michigan. but there's another element to the story i think you're all missing, even you, larry. what i find fascinating is that mitt romney is also using the talk about dynamic scoring, saying look, we're going to grow this economy with this tax cut, we're going to create revenue -- >> the fantasy. >> i know david corn is

hyperventilating as i say this. >> david corn, i've got to tell you, my friend -- >> listen, larry, i'm like jackie chan here. four against one. voom, voom, voom. >> david corn, i love you. but i want you to know, i was there when calvin coolidge cut tax rates at the margin. >> it worked. >> and we had a tremendous boom. i was there during the coolidge tax cuts. i was there during the kennedy tax cuts. i was there during the reagan tax cuts in the old executive office building. david corn, you guys over there on your side of the aisle underestimate, obama jacking up tax rates versus romney lowering them, that's an easy pun. >> you say you care about the deficit. you care about debt. there's nothing in romney's plan that makes up that gap except your magic asterisk that if you do this somehow there will be money flowing in from the heavens. it hasn't 457d in the last 20 years. it's not going to happen again.

but listen, i think it's great. you are representing the 1%. and that's fine. take that to -- that's great for the republican party. >> the whole story, david, of what happened -- you know, when bush cut the tax rates in 2003 and the next four years we had 8 million jobs. that's not a bad record. 8 million jobs in four years. >> you had a growth rate of 12% through the -- >> michael steele, for now i'm going to call you two cadillac steele. i want you to have the last word tonight. >> i appreciate everything david is saying. but the reality is you can jump up and down all day long about mitt's plan. the reality of it is we've suffered under three years of three trillion-plus dollars of new debt. we don't see in in president's budget any end in sight. so the reality is you're talking about cutting marginal tax rates, that's going to really matter to every day hard-working americans. >> i've got to leave if there, gentlemen. i want to say good evening to

calvin coolidge, john f. kennedy, ronald reagan, and michael "two cadillac" steele, steve moore, and david corn. good to see you as always. oil prices spike after the iaea says erin is stepping up its nuclear works. iran threatening to cut off the strait of hormuz. can anything be done before oil is held hostage? former director of central intelligence jim woolsey will give us the benefit of his wisdom, next up. nal here? aren't you getting a little industrial? okay, there's enough energy right here in america. yeah, over 100 years worth. okay, so you mean you just ignore the environment. actually, it's cleaner. and, it provides jobs. and it helps our economy. okay, i'm listening. [announcer] at conoco phillips we're helping power america's economy with cleaner affordable natural gas...

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now starting unit nine. some of the world's cleanest gas turbines are now powering some of america's biggest cities. siemens. answers. oil traders are now pointing to an international atomic energy agency report revealing iran had expanded its nuclear uranium enrichment program, increased its nuclear work at its underground facilities. none of that can be good. the "wall street journal" is reporting that the u.s. pentagon is beefing up its persian gulf operations. all this as iran threatens to cut off the strait of hormuz. at least that's the threat. 17 million barrels pass there every single day. and on top of all that there's syria. the president now using strong words. and there are reports of weapons of mass destruction in syria. so here now we have r. james woolsey, former director of

central intelligence. he's now chairman of the foundation for defense of democracies. jim woolsey, welcome back. you honor us. i appreciate it very much. >> good to be with you, larry. >> let me just ask you, the wall street geopolitical question, sir, is closing down or choking off the straits of hormuz, that would drive oil up to $200 a barrel. is there any way that you with your diplomatic wisdom and experience and intelligence can handicap that kind of choking off of the straights of hormuz? >> i don't know. harry the horse, the damon runyon figure, said nothing what depends on humans is worth odds of more than 8/5. so i wouldn't give more than 8/5. but if it does happen, what will occur then is people will look to us to deal with it. and if the president's not ready, it could be a real debacle. i think that it would be relatively easy tore us to take out those even a large number of small iranian boats, gun boats, missile boats that might be used to close the straits.

but we shouldn't just do that. if they take some action like that -- by the way, we went to war in 1812 over freedom of the seas. this is an act of war, to close the strait. i think that we ought to be ready to strike not just against their nuclear installations but against the revolutionary guard. not against the infrastructure of iran itself but against the revolutionary guard and its various manifestations, its ballistic missile programs, its space program, et cetera, because it's the instrument of repression of the iranian people. all the young people loathe it. it's corrupt. it's sort of a combination of hitler's brown shirts and black shirts. and we ought to be ready to move against it. not against iran itself and not just against the nuclear installations. >> and they're above ground. that thought just occurred to me. they're above ground. so that thing is hittable, if

that's the right word. do you think, jim, do you think that's why we're getting this announcement reported from the "wall street journal" on their website tonight that we're moving more forces into the persian gulf? do you think it's coming down to that? >> well, it may. i mean, i -- bud mcfarland and i wrote an op-ed a few weeks ago that said put at least five carrier battle groups in the indian ocean, move the b-1s and b-2s to diego garcia, get ready to go, but don't say a word. go teddy roosevelt one better. don't speak softly. don't speak at all. just let them know. they will know that we are moving in in force and that we would be able to take action if the president decides to. this is a very big deal. this could be a move toward countries not responding enough and therefore letting iran have in a few months to a year or so a nuclear weapon, and that means you're going to have a nuclear weapons programs in saudi

arabia, in turkey, in egypt and so forth. this could be the tipping point for a nuclear middle east, which would be a very, very dangerous thing for the entire world. >> would a regime change in iran, which is kind of what we're describing, if we hit the revolutionary guards and somehow manage to foster or spawn a regime change -- a couple years ago there on the streets. we haven't heard much from that. we haven't done much in the u.s. to really help that. if we do and we make it clear, would that end the nuclear threat in iran? do you think if you had a pro-democracy group they would do business and come to their senses and come to the table unlike the present crowd? >> i think we're unlikely to get a change like that just by a change in personnel, say, rafsanjani coming back or something like that. but if there were enough of a change in iran that the rule of the juris prudential as they

call it, the mullahs, was effectively canceled out, the supreme leader, khamenei, because the rest of the iranian constitution is a perfectly reasonable constitution. it's having that rule of the clerics tacked on top of it that creates the very difficult situation and potential chaos. so i think that we could see a more fundamental change, but there's no way to bet on it. and i think the first step ought to be to essentially help the syrian people throw off assad and not just lead from behind, as someone in the white house put it, but to lead. and the other would be to really crack down on -- finally on sanctions. the swift transfers, funds transfers, to cult off tt off t iranian central bank from that system, to basically really

crack down on economic sanctions and put a lot of pressure on iran as well. >> all right, sir, we'll leave it there. thank you very much for your wisdom. >> good to be with you. >> former central intelligence director james woolsey. we appreciate it. all right, folks, all of a sudden you've got democrats from treasury man tim geithner all the way down. guess what. they're talking about tapping into the strategic petroleum reserve to deal with high oil prices. but why tamper with the oil market? it's especially wrong for political election year reasons. free market energy capitalism is the right path for energy, not political chicanery. we'll cover that in just a moment. ♪ [ male announcer ] offering four distinct driving modes and lexus' dynamic handling, the next generation of lexus will not be contained. the all-new 2013 lexus gs. there's no going back.

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again, there's a case for the use of the reserve in some circumstances, and we'll continue to look at those and evaluate that carefully. >> all right. so i ask, why are all these democrats -- and you saw, treasury man tim geithner, all the way down the line. suddenly they're clamoring for the strategic petroleum reserve. i think all they want is to manipulate election-year oil prices. spend the taxpayers' money. unless there's a war, we should let energy market forces work. that's my take. but let's talk. we have dan weiss, senior fellow at the center for american progress, who says yes. jim lucier, managing director with capital alpha partners, says no. jim lucier, first of all, there's no war yet. the spro is supposed to be a

strategic operation. and i don't see why we need that just because oil prices have bounced up except for election year reasons. what are you hearing? what's the argument against spro? >> larry, this is the dumbest idea ever. first it doesn't work. the last time we did this i'm prices dropped from 96 to 90 and then went straight back up to $100. total waste of taxpayer money there. number two, as jim woolsey pointed out, we've got iran about to start a shooting war any day now. it's completely crazy. utter irresponsible to pop the spro right now. number three, the world economy is slowing down. so most people who do oil for a living actually think the price is going to come down anyway. so why waste the spro now? and finally, bad decisions by this president have cut current production by about 300,000 barrels a day this year. we should reverse -- >> you know, jim, that is just wrong. the reality is this president -- under this president we're producing more oil, we're saving more oil. but the problem is speculators keep driving up the price.

>> that's baloney. >> you have twice as many speculators in the market -- there's twice as many speculators in the market for profit than there are who want to use oil as an end product. >> but you tried that. you tried that last year. we did the same thing with libya. and it lasted for -- >> and it worked. prices came down about a quarter a gallon. and you know, larry -- >> but that's not -- >> you said you only -- >> hang on a second. >> but the fact under the gingrich congress in -- >> hang on a second, dan weiss! let me moderate the show, thank you very much. i'm going to ask you -- >> i can do that too if you like. >> i'm going to ask you a question. >> go ahead. >> the question is isn't the original purpose of the strategic petroleum reserve national security, not the short-term manipulation of oil prices but national security? i do not see the national security case barring a war. if a war happens, that's different. what's your argument in the absence of a war other than

election-year price fixing? >> first of all, if you look at the law, it says both national security and economic security. secondly, the speaker gingrich congress in 1996 sold off oil from the reserves to lower the deficit at a time when the reserves were less than 80% full. third, george w. bush sold oil from the reserves after hurricanes rita and katrina, knocked out some production in the gulf of mexico. so we've used it many times for other reasons besides the war. >> what has happened now? i don't see -- >> and by the way, our reserves now are nearly 100% full. >> i understand that. all you're saying to me -- jim lucier, here's all i'm hearing, is you're trying to manipulate the price of oil. maybe done a few bucks. maybe not. >> we're trying to help american families -- >> you're not -- >> in addition we want to -- >> strategic petroleum reserve is not -- >> than high oil prices -- >> strategic petroleum reserve is not an economic fine tuning

tool, jim lucier. dan wants it to fine-tune prices. i'm saying that was never the intent of the reserve in the first place. it should be there to protect america if there is a war. that's the point. you take it from there because i don't understand the logic except more economic fine-tuning and more short-term stimulus. >> look, it's like using a pop gun to fight war. the spro really can't serve long-term problems. what we need to do, first of all, is get oil production from federal land back up to where it was. it's dropped 6% under this president. gulf permitting is also way behind where it needs to be. >> actually, jim, you're totally wrong. we've got more rigs now than the rest of the world combined. >> we have -- we are behind -- >> more than since the 1990s -- >> we're behind on production and we have pushed policies in the offshore -- >> -- domestically than we have in years. >> we can have 300,000 -- >> don't talk over him. let him talk. >> we can have 500,000 barrels a day more if we had approved keystone excel two years earlier instead of kicking the can -- if

we'd approved anwar ten years ago we'd have a million barrels a day and we'd have a million and a half each -- >> the president himself -- >> 3 million barrels a day we could have had and we don't. >> president obama wants more production and exploration. i happen to agree with him on that point. that's the ultimate solution. dan weiss, jim lucier, thanks very much. that's it for tonight's show. let markets operate, not the strategic petroleum reserve. we'll see you monday.

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