will the german iron lady keep her fiscal foot on his neck? "kudlow & company" just moments away. i never thought it would be true, but the parts of berkshire hathaway are worth more than the whole. i never thought it would be true. but facebook, the ipo is going to work. i'm going to stay with this facebook deal right to its conclusion. i am not an aftermarket buyer. why? because i know it will be too expensive. berkshire is undervalued. i don't care. facebook will be overvalued in the ipo. hey, take some anyway. i'm jim cramer. see you tomorrow! hey, larry, what are you looking at tomorrow? mitt romney has got much more work to do with investors. that according to a new poll. we'll reveal it all right here. good evening, everyone. i'm larry kudlow. this is the kudlow report. we begin this evening with breaking news. the cia thwarted an al qaeda plot to blow up a jet liner

what. do you have for us on this story? >> u.s. officials saying late this afternoon they had foiled that plot, which apparently developed in yemen. the plot seems to be similar to the underwear bombing we saw in 2009. that attempt. now u.s. officials and government agencies across town here in washington are coming in with more details and more statements. we'll bring all of the late toast you a little bit later on the show. >> all right. thanks very much. also this evening, team obama unveils its first ad since the official start of the campaign. the ad is called "go." so of course, we ask go where? so called economic recover vi stalled at 2%. job growth anemic. five trillion in debt and counting. this whole election is going to be a referendum on president obama's economy. our weekly debate, shawn spicer of the rnc will go at it in a couple minutes. new investor poll numbers. we're unveiling them tonight.

they show advantage romney among registered voters. but the advantage is much smaller than he's going to need in order to win in november. my thought, mitt romney, please give specific. a few key points will do it. also this evening, france's newly elected socialist president says his real economy is the world of finance. he's calling for increased government spending and paying for it by taxing millionaires. does that sound familiar? meanwhile, markets slugged off fears from france and greece and finish virtually flat. richard fisher is my special guest this evening. we'll get his opinion on the fed battle of the beards between ben bernanke and paul krugman. team obama launching an aggressive new ad campaign. it's a battle for the battleground states. $25 million spent already this month for ads in seven swing states. there are still 183 days left until election.

cnbc's chief washington correspondent john harwood joins us now with all the details. good evening, john. >> good evening, larry. there's good reason for the obama campaign to start advertising because the numbers we saw last week on jobs, which underscored the softness in the economy, are plainly going to have their consequences in the election. look at these two new polls out today showing barack obama and mitt romney neck and neck in two different dimensions. nationally, the polls showed mitt romney up 48-47, a tie with barack obama. and in a smaller poll of just the dozen battleground states, barack obama had a narrow two-point lead. that suggests it's going to be close right to the end. it's why mitt romney's out with an ad talking about the suffering people are undergoing in this economy, and barack obama's new ad go talks about how far we've come. >> instead of losing jobs, we're creating them. over 4.2 million so far. we're not there yet. it's still too hard for too many.

but we're coming back because america's greatness comes from a strong middle class. because you don't quit. and neither does he. >> the unemployment rate did drop to 8.1%, but only because fewer people are in the work force. >> i ask if you're better off than you were before. >> i'm just not seeing a ton of sunshine in here. >> transportation and ware housing is where we lost some jobs. >> that is a terrible number. >> job creation numbers fall for the third straight month. >> it's not just about how we're doing today but how we'll be doing tomorrow. >> and, larry, you saw a lot of cnbc in that ad, but not much mitt romney. in fact, not any mitt romney at all. that's because mitt romney wants to make the campaign about barack obama's economy. the obama campaign tried to turn things around today by attacking romney for not rebutting someone in his town hall meeting, who asked whether president obama should be tried for treason. mitt romney said nothing about it during the town hall. but afterwards, he said of course i don't support that. and that's an example of the tit

for tat we're going to see in advertising and on the campaign trail all yearlong, larry. >> all right, john harwood, thank you very much. we appreciate it. joining us for a kudlow face-off, two of our favorite political insiders. we have brad woodhouse, communication director, democratic national committee, and shawn spicer, republican national committee with the same job. okay, gentlemen. brad, i go to you first, as i always do in the spirit of fairness and equal handedness, if there is such a word. here's the thing. your ad says go. i say now. this is going to be judged on the now economy. stagnant wages. stagnant jobs. a sputtering economic recovery. i think you're in a pickle, buddy. what are you going to do about it? >> i think the ad speaks for itself. and quite frank lyric i think the results speak for itself. no one thinks that we're going as far and as fast as we want to, but you know what? we're a heck of a lot better than we were losing 800 thousand jobs a month.

and i heard you talk about the gdp growth in the last quarter. look, the last quarter of the bush administration declined at an 8.6% rate. 8.6% decline. so i think we would love to have a break, creating jobs rather than losing jobs. so we're headed in the right direction. we want to get there faster, and we would if republicans in congress -- >> i was waiting to see how long the blame took. i knew blame was going to get in there real quick. >> larry, can i finish? >> please finish, then i've got to get shawn in. >> if republicans in congress, who have pledged to rubber stamp mitt romney's agenda, would instead work with the president and create jobs, we would be accelerating this recovery. they've stood in the way, the republicans in congress. >> shawn, he got his bullet out. i want to ask you this. one of the key democratic talking points is running against george bush. not just the fourth quarter of 2008, but really running against something called george bush's third term, shawn spicer. is that going to work?

how do republicans respond to george w. bush's third term? >> well, i think we respond by saying george bush is not on the ballot. barack obama is. he's been president for three and a half years. he had a super majority in the congress that he could get anything he wanted done. he did in terms of stimulus, health care, and numerous other things. and now that things haven't turned out the way they wanted -- and again, i think the one thing that the democrats don't like that we do is we say we're just going to hold them accountable to barack obama's own standard. when he was e lektded in 2008, he said if i don't have this fixed in one term, it's a one-term proposition. he said the question for america is are you better off four years from now than you were four years ago? now they're saying well, we're getting better. it's not there yet. they can't even -- they're having trouble meeting their own standard. it's not the rnc standard. it's not republican standard. it's not mitt romney standard. they constantly want to say it's mitt romney, it's george bush,

it's the republicans in the house. they've got to acknowledge the reality of history. they controlled congress for two years with everything. not a simple majority. the whole deal. >> larry, what is sean suggesting? is he suggesting -- sean, let me ask you. are you suggesting that losing 800,000 jobs a month is better? are you suggesting that a decline of gdp of 8.6% in the fourth quarter -- >> no, no, no. >> let me finish. of 2008 is better? of course we're better off than we were four years ago. by the way to, your question, larry -- >> wait, not four years. i'll give you -- >> romney has surrounded himself with -- guess what -- the bush economic advisors that presided over the worst economic performance since the great depression. it is george bush's third term that romney is running for. >> brad, let me get my point in here. we have the worst labor participation rate since 1981.

more americans are choosing not to work. they've given up because this president's policies have failed them. when you start asking people are your kids going to be better off -- >> you're really suggesting -- >> do you think their prospects for a job are better? they all say no. >> you're suggesting that things are better in the fourth quarter of 2008 than they are today? >> i actually have a different point of view. i'm suggesting it's right here in 2012 that's going to be the referendum on president obama's economy. and right now, as i said at the outset, brad, you're in a pickle. but i want to ask you this. in the ads released for so called swing states, you don't mention obama care and you don't mention the spending stimulus. those are president obama's signature achievements. why? did you forget? >> no, not at all. >> it's george bush's fault! >> was this amnesia, brad, or what? >> no. we spent -- i'll give you an example. the campaign, the dnc spent millions on mail -- you've seen

it -- around health care, around the anniversary of that being signed. we talked about -- we were really in some ways advertising on health care before we were advertising on these things. so we're not going to shy away from those things at all. this was one ad. it was one another. there are going to be many more. a lot more than shawn is going to wish to see, where we'll be talking about all types of things. so there was no reason other than -- >> i've got one for sean. sean, i noticed in the battleground talk, mitt romney had only a tiny lead on the economy. most people would have thought in view of the stagnant economy, mitt romney would have a big lead. that's his big argument, that he is better qualified. why are they virtually even on the economy? does that mean you've got a lot more work to do, sean spicer? >> well, i think right now, mitt romney has been the presumptive

nominee for ten days. >> he's been running for six years. >> oh, brad, you've been governing for three years and you haven't done it. >> he's been running for six years. >> he's campaigned. he's focused on winning a republican primary. he is going out to battleground states talking about his plan to fix the economy, his record of achievement and i think you're going to see that league-wiesmd. >> what's his plan to fix the economy, sean? what's his plan to fix the economy that's different than what george bush did? >> real quick. i'll give sean the last word. >> what is it? what's different? >> he's got real experience in the economy putting businesses back together. >> what's different than bush? >> let him answer. >> everything that mitt romney has done from being governor to the salt lake olympics has been focused on identifying problems, turning around and getting things moving in the right direction. that's what he wants to do. >> i have to leave it there. you got the first question, sean spicer got the last. i tried to ask good questions of

both of you. i love having you guys. it's a great debate. it was illuminating and informative. brad woodhouse and sean spicer. up next, france's new president wants to spend more and tax millionaires. wants to. does it sound familiar? why are the marketings shrugging it off? we'll unveil new poll numbers showing investors are not gathering behind mitt romney near as much as expected. at least not yet. and then later, a fed fistfight. the battle of the beards. bank ba ben bernanke and paul krugman. don't forget, free market capitalism is the best pet for prosperi prosperity. we'll be right back. almost every day i walk into the office

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welcome to the world leader in derivatives.

welcome to superderivatives. stocks shrugged off europe and fought hard through a race of early losses today. the dow ended down. the nasdaq and the s&p were able to eke out small gains. joining me now is michael farr, president of farr miller and

washington. michael holland, chairman of holland and company. i want to play a tape from gold slumping over 8% since late february. warren buffett had something to say about it. take a listen. >> they want everybody to get so scared they run to a gave with gold. caves might be a better investment than gold. at least they're not producing more caves all the time. >> all right, there you have it. michael holland, sell your gold, buy stocks. that seemed to be what mr. buffett said today. do you agree with that? >> yep. in a word, yeah. >> why? seriously, why? >> gold has been -- we talked about gold -- let's put gold aside and let's just look at stocks here. the stock market, as we talked about since december, has been valued at levels that are extraordinarily cheaped around the world, the highest quality are among the cheapest, and therefore the risk has been taken out to a great extent. the risk to the upside i think is significant if you don't own them or if you're short them.

>> even with a slumpier economy -- now, i want to ask, jobs much slumpier than thought. even some of the indicators coming up. this is an investment, for example. is that stuff going to produce enough profits to generate the kind of rally he's talking about and the kind of valuations that other people are talking about? is it in there? >> there's enough profitability there -- i mean, the question is -- i don't know if there's going to be enough profitability or anything that's fabulous growth driven by any real demand around the world that's going to stun anybody, but you've kind of got to get a hold of some way to get in front of the growth that's there. so stocks are the way to do it. the goal play has been a great play with the notion that you hit them where they ain't. gold has done exceptionally well. >> gold has done better than stocks for ten, 12 years. >> yeah. >> i'm surprised to hear your negativism. your negativism regarding gold. >> thank you. that was very good.

you were there. the whole point of buying low and selling high with gold, you kind of missed that with the -- i think in the terms of stocks, as michael was just saying, you have enough going on. but it didn't matter the last few years as people became so scared, as the headlines got worse and worse and companies did better and better, you ended up with stocks not going up as much. >> stocks are a pretty good hedge against inflation. i don't mean 20% inflation, but 4% or 5% inflation. stock is a good hedge. >> gold has been a silly relationship to inflation over the recent past. so that's very interesting. >> michael, serious question. banks had a great run today. the banks index is up 1%. even though there could be some unraveling in europe, especially greece, are you surprised that banks have done so well and would you be buying banks? >> i own a couple banks and i've bought a couple banks in the past couple months because i thought they were overly cheap and that they've been too

severely and profoundly discounted. i was surprised that given greece today and the election in france and yeah, i mean, i think there's a little whistling past the grave yampld i think the market doesn't really want to recognize the problems and the headwinds that are out there. but that said -- >> you got left wing socialists and left wing nealists taking power in two countries, that's just two weird for me. >> and austerity isn't going to work. we want somebody who's going to promise us a rose garden and we're going to have him. >> so you really don't like the banks. >> i own some of the banks. >> you do? >> give me one. >> pnc. just bought pnc. >> favorite stock, michael holland? >> jp morgan. >> you guys are okay with the banks. >> warren buffett today is -- >> a left wing socialist and a left wing neoist in greece. >> jamie dimon was asked about it months ago and he said we're hardly there.

>> and he knows. you both know. i'd love to spend 20 more minutes, gnattering nay bobs and negativism get routed. next up, france elects its first socialist president in a generation, and greece's political system completely falls apart. angry voters rebelled against the bitter pill of austerity and recession. does this set up a european doomsday? we're going to talk with an expert in just a moment. please stay with us.

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♪ all the eyes on the europe crisis. in france, they threw out nicolas sarkozy in favor of socialist francois hollande. but is he bigger than his bite? is german iron lady angela merkel going to keep her fiscal foot on hollande's neck? here now is benn steil on the council of foreign relations. benn steil, markets shrugged all this off today, as i'm sure you know. but i remember roughly 20 years ago when francois mittrond took over as a socialist. the markets had to discipline him like crazy is. the same thing going to happen with francois hollande? >> as you say, larry, french bond prices were up today. italian bond prices.

the markets have largely shrugged off the campaign rhetoric. they believe hollande is going to be fundamentally a pragmatist, that he doesn't want to rankle the markets. but you're right. mitrond proved them wrong 30 years ago. he did eventually reverse course, but not before a lot of damage was done. >> you had a bloody french stock market and a bloody french bond market throughout europe also, disciplining mittrond. today you have merkel, maybe she'll do the disciplining. is that also possible? >> that's right. chancellor merkel has shown no interest in underwriting government market schemes in the south of europe. however, i think the markets are a little encouraged from some noises coming from the finance minister. he's indicated to the german employers federations that he's willing and even a bit happy to see some wage inflation in

germany that would reduce the german trade surplus with south of the euro zone and perhaps make the deflation fears in the south of europe less dangerous. >> benn steil of the council on foreign relations. let's me switch gears to greece. the center left party dount have the majority in the election. some wacko left -- i don't know what this party is they're being asked to form a government. i want to know can greece run out of cash while the whole political system implodes? >> well, greece has moved from a country that couldn't implement laws to a country that can't even pass them at this point. they're not going to have a functional government for months, maybe even longer. larry, they've got one trump card they can play at this point, and that is the fact that 75% of their outstanding debt is now owned by other governments, mainly by euro zone taxpayers.

i'll tell you, lar rirk thory, going to want to kick this can down the road as far as they can. >> all right. maybe it will have a near term happy ending. benn steil, accounts on foreign relati relations. up next, team romney better be watching. a new poll of investor class voters is out, and if the numbers hold up to election day, mr. mitt romney has got a lot of work ahead of him in a key con stitch whensy. later in the show, it's a battle of the beards. the gloves are off. krugman versus bernanke. our referee, the outspoken richard fisher. we'll be right back. ttd#: 1-800-345-2550

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welcome back to "the kudlow report." in this half-hour, we break some news.

investors are the key voting block. 60% of likely voters are investors. a new poll shows romney barely has a lead. we're going to have the numbers in a moment. also this evening, breaking news, the cia threats a bomb plot by al qaeda to destroy a u.s.-bound airliner around the one-year anniversary of the killing of bin laden. we'll have the latest on that. later on, the battle of the bearded economists. nobel prize winner paul krugman versus ben bernanke. insults like reckless, assimilated by the board, timid, this as the economy sputters. well, dallas fed president richard fisher is going to referee this debate in our exclusive interview. right now, if mitt romney is going to compete in the general election, he's got a lot of work to do and we have a first look at some numbers that will tell you why. a brand-new poll from investors business daily, it shows investors do prefer romney over obama, but only by 47 to 44.

now, governor romney's intensity rather weak. only 37% described their support for romney as strong. and while over 2/3 of investors say investment income like capital gains should be taxed at a lower wage income, turns out a whopping 63% say they support buffett's rule, taxing millionaires. go figure. so we're going to try to sort this out. we have david goodfriend, michael steele, and we welcome back jennifer ruben, author of "the washington post" right turn blog. michael steele, in terms of sheer raw politics, republicans should carry the investor class vote by ten or 12 points. and that was the key to both of george w. bush's victories, especially 2004. they are the most likely to vote. they'll probably be 60% of the electorate. now, romney has a lead among

registered voters and investors, but it's a small lead. what do you make of that and what's he missing? >> well, i think the first blush of it is that the investor class had with obama in 2008 is over. they're looking at him a little bit more seriously. they're taking what he says, certainly about the economy and his policies, much more seriously. so i think that's why you see the shift away from him. but romney still has to make the case. it's not enough just to say that the typical cut taxes and those types of things. but then to begin to get into some level of detail because these folks are looking at what the economy is going to be like or can be like come january. first quarter next year and so forth. so they want to get a better bead on where he's coming. i think romney can make that case obviously given his background, but i think the numbers are beginning to move in romney's direction, simply because the love affair with obama is over. >> let me go to david goodfriend. i'm going to throw you a nice

letter-high softball here. >> wow, larry. >> i want to make amends for pass grievances. [ laughter ] but i want to say this. one reason investors may have this a close race, despite the fact that mitt romney is the clear free market capitalist and that your man, barack obama, is against business. however, let the record show the stock market has doubled under obama's administration so far. it's up over 100%. so i'm going to suggest that the obama stock market is making this a close race between romney and obama on investors. is that soft enough for you, david goodfriend? is that letter-high enough for you? >> i don't know. i have to wife off my face from that wet kiss. it was really nice of you. [ laughter ] but let me just say this. i think you're right about this. there's something else, too. you're not mentioning some of the other findings if that poll,

which is that the investor class puts employment very, very high at the list of priorities. what does that tell us? what it tell me is that investors are not fools. they understand that in an economy that's 70% driven by consumption, if employment continues to lag, you're not going to have a robust recovery, and president obama has now pivoted to the point where he is speaking about jobs in the middle class and what's going to spur employment, not so much austerity, as we heard back when the debt ceiling was being discussed. now we're talking about full employment as a goal. and i think the republican mantra of cutting taxes solves everything has been proven wrong over and over and over again. when people bet with their money, investors want to see growth and this is what will lead to growth. >> jennifer ruben, hang on a second. i tried my best to throw goodfriend a softball. >> that was way too wet. >> i have never seen anyone bungle a better setup for his guy. now, jennifer, let me ask you this. do you believe if this election is about jobs and the economy

and employment, as these data show -- by the way, underneath the data, those are the key points, including health care, including obama care, then romney is going to win that by ten or 12 points. jennifer ruben, i'm just asking you, what's he have to do? three points is not enough. romney's got to win bay dozen points. >> the first thing it tells me is these people don't watch enough larry kudlow, because otherwise they would know the buffett tax is nonsense. but seriously, i think this is going to be a close race all along. i do think that romney has the edge. you could tell that because obama wants to talk about everything other than jobs, other than the economy. he wants to throw a bunch of negative stuff up against the wasm he wants to talk about george bush. he wants to talk about osama bin laden. if romney can make the case not only that we are on the road to ruin with this guy, following in the steps of europe, following in the steps of the french and the greeks and this is the key part, make the case that he has an alternative plan that is

better, i think if the election is fought on those terms, he does very well. >> hang on a second, david. the reason i think that romney will finally get a ten or 12-point lead, because your man, president obama, wants to raise the capital gains tax. >> oh, no. >> he wants to raise the dividends tax. he wants to raise the estate tax. i think the problem is that mitt romney is not talking enough about that. >> i just want to say this. i would vote -- you ready for this? i'm wearing an obama button. and i would vote for mitt romney if he stood up and said i'm part of this investor class. i was part of the problem, but i'm going to fix it by finally getting things right. >> oh, please! >> he's more of the same tired, tired failure policy of the past. it's not working. it's not going to work. it's a failure. and the investors know it! >> david, i know you just came from a party, but clearly you had a little bit too much. no one in their right mind believes that romney got up and said that, that you would fall to his side. the reality is -- let's just get

back to your point about the stock market doubling. the reason the stock market is doubling because what obama started out doing, he didn't get done. there is no cap and trade. there is no taking -- making unions automatic. so the reality of it is, the economy, the market has grown, because a lot of the things obama wanted to do, he didn't do. >> oh, michael. >> had nothing to do with it. >> one at a time. hold on a second. >> the wonderful, wet kiss that you got from larry. >> look, the reason the stock market is doubled is profits have doubled. the reason profits have doubled is the resiliency of the great american free enterprise business community. in spite of what happens in washington, d.c. but jennifer, shouldn't romney be out there talking about cap gains and dividends and the estate tax? things that are very near and dear to investor hearts.

i don't see him saying that much about it, jennifer. i think his lead would widen if he did. >> i think so. i think that's what he has to do morning, noon, and night. he has to explain why it is that obama care is a drag on the economy. he has to explain why it is that lower taxes is going to increase the appetite for investors and for employers. >> because it work sed so well the bush administration, right? the evidence is not on his side. what mitt romney is trying to do -- >> actually, the evidence is on their side. from the 1980-1981 recession. we took off like a firecracker. we are not taking off right now. >> absolutely. >> michael steele, bill clinton cut the capital gains tax. it helped clinton win in 1996. the law of investors went for clinton. i'm just saying to your point, michael, i think mitt romney has to be more specific on some of these direct investor questions. i get the economy. but he may have to talk turkey

to them, because the dividends tax will triple under obama. the capital gains tax may double under obama. romney's got to make those points, doesn't he, michael? that's just pure politics. >> you're absolutely right there. he has to be very clear and precise. i think the point about explaining the impact, the effect is going to be very, very important over the next few months. i mean, bill clinton did what he was able to do because first off, he had a congress that worked with him, despite what people think about republicans and democrats now. then they actually worked to cut the spending, to make those tax cuts work, to make the bush -- i mean, the reagan legacy extend itself into the 1990s. >> i've got to leave it there. david goodfriend, i will never throw you a softball like the one i threw you tonight. >> don't do it, larry. >> michael steele, thank you. jennifer ruben, as always, great stuff. next up, government overreach and political correctness gone amuck.

one state proposing banning bake sales in schools. oh, my gosh. we'll tell you where when we check news headlines right after the break. still ahead, we've got a battle of the fed, fistfight between paul krugman of "the new york times" and fed head ben bernanke. i'll talk with distinguished outspoken president and ceo of the federal reserve bank of dallas richard fisher. stay with us. he's going to referee this battle. [ male announcer ] this is corporate caterers, miami, florida. in here, great food demands a great presentation. so at&t showed corporate caterers how to better collaborate by using a mobile solution, in a whole new way. using real-time photo sharing abilities, they can create and maintain high standards, from kitchen to table. this technology allows us to collaborate with our drivers to make a better experience for our customers. [ male announcer ] it's a network of possibilities --

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we continue to follow this break news story. the cia thwarts a new al qaeda plot to blow up a jet liner. we're monitoring this. >> the would-be suicide bomber involved in this case had apparently not yet picked a target or purchased a plane ticket, but officials nonetheless describing the cia as having foiled this plot, although they're a little bit cagey about exactly how the cia accomplished that or what happened to the bomber in this case. the bomb said to be a little bit more of a sophisticated version of the underwear bomb that we saw back in 2009. we're also getting reaction from

washington. the fbi putting out a statement saying the fbi currently has possession of the ied, the improvised explosive device and is conducting technical and forensic analysis on it. the department of homeland security saying we have no specific credible information regarding an abilityi iactive t plot against the u.s. assuring folks that they are in no danger. the associated press said when they broke this story that they were asked to hold it for a week last week by the white house and they did so, breaking the news just today, larry. >> thank you. late word from the treasury department on aig stock sale. bertha joins us with more. >> the treasury department announcing an oversubscription to their $5 billion offering, bringing in another three quarters of a billion dollars. the treasury says it amounts to

about $30 billion worth. aig was down for the day on very heavy volume, but it is now up in afterhours trade. in midtown, new york, today, a billionaire in the hoodie. kayla reporting on the debut. >> reporter: investors waited an hour today to hear the pitch on the million-dollar deal. they all made short remarks before showing a road show video and opening up the floor for q&a. those topics range from china to instagram to revenue growth. investors felt like they were shafted because the session was cut short. but facebook will have more opportunities to answer those questions and we'll be live tomorrow from facebook's road show day two in boston. back to you. >> thanks, kayla. nice to see he wore his formal hoodie. also in the news, abbott labs settling with 49 states in the justice department on sales and

marketing practices for its neurological medication. abbott will pay $1.6 billion. duke university is out with an obesity study today that by 2030, 11% of americans will be nearly 100 pounds overweight. that obesity epidemic hasn't stopped a controversy in massachusetts, where groups are complaining about a proposed ban on school bake sales to keep the empty calories down. no brownies after school? are girl scout cookies next? it's a tough world out there with the sweets. >> more dopey doeps. not you, bertha combs. next up on kudlow, the economy is stalling and sputtering. richard fisher referees a battle of the beards. this is between paul krugman and ben bernanke. we'll resolve the whole thing. please stay with us. this is $100,000.

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welcome back to "the kudlow report." paul krugman wants to raise the inflation rate to 4%, allegedly in order to spark the economy and get the unemployment rate way down. that's his view. this would break the fed's

current 2% inflation target. now, chairman ben bernanke says that would be reckless. so who's right and who's wrong? well, let me bring in for an exclusive interview richard fisher, distinguished and outspoken president and ceo of the federal reserve bank of dallas. richard fisher, as always, good evening. thank you, sir. who is right and who is wrong? krugman says a 4% inflation rate would solve our problems. ben bernanke says that would be reckless. what say you? >> i would say that ben bernanke is guilty of understatement. it would be more than reckless. it's a silly thing to recommend. i understand the argument from krugman's standpoint, from his perspective. he's just trying to broaden the window to try to make things normal, if we were to go above the 2% rate. that's our long-term target. i believe we're going to stick with it. i personally feel that this is something that's ultra critical for our credibility. small businesses, large businesses, people that are looking to put people to work are waiting for outcomes. the last thing they need is more uncertainty coming from the fed on top of all the fiscal

uncertainty. so it makes no sense to me at all. >> i'm an inflation hawk. that's an easy one. krugman knows that. but i just want to ask you, richard fisher, where specifically is krugman going wrong in his analysis? he said five years of 4% inflation would give consumers and businesses to buy ahead of price increases, get the economy moving in ways that it is not now. where specifically is he wrong? >> well that's intellectual argument. you scare people out of holding money in their pocket. they think it will be worth less later. that's the intellectual argument. the pragmatic side of this, you think about the people that actually hire, create jobs, create consumption, create greater wealth in this country. small businesses, and what happens on main street, and main street already is still not quite trusting the fed, in my opinion, that we're going to focus on keeping inflation down. so if they're worried that we, like the fiscal authorities, are not going to keep our word,

they're going to pull an even tighter, hire less people, hoard more and not spend the way i think mr. krugman, a wonderful academic on trade policy, by the way, but on this issue, i think he's just got it wrong. >> krugman is a theoretical egghead type guy, never had any job in the real world. isn't the answer here if you seek a 4% inflation rate, you probably overshoot to 6%, 8%? didn't we learn that in the '70s? once you let that jeannie out of the bottoming, interest rates will explode. maybe egghead krugman slept through? >> look, lar riry, you and i we around during that period. paul voeker makes the same argument that you just made. if you go to four, what about five? what about six? where do you stop? i think people know that. they don't want to see the fed go down that road.

the chairman has been outspoken about it. i feel very firmly about it. as far as i'm concerned, i'm never going to support that policy. >> as some people might say, their risks were going to go to 4% or more inflation right now. the fed has tripled its balance sheet. $3 trillion. $1.6 trillion in excess bank reserves, that if it all got put to rush would generate maybe the inflation that krugman actually wants. >> well, i'd like to see that begin so we could tighten up, but right now, we've got tons of liquidity on the sidelines. even small businesses, by the way, that are owner operated, if you survey them, over 90% say credit is not the issue. incidentally, over half of those don't even want to borrow because they're uncertain about where we're going on fiscal policy and final demand and all these kind of things. we're awash with liquidity. adding more doesn't seem to do much good. not a good thing.

>> richard, last one. switch gears. you're dallas fed manufacturer, texas manufacturing index really slowed down. but i read the sheet last night, by your own acknowledgement, the other indexes are stagnant. you called this a wimpy recovery to begin with. are we at stall speed? the national jobs numbers the last two months have been stall speed. how slumping is the economy, richard fisher? >> we borrowed a little bit during that mild winter that we had. the numbers are not negative in texas, they're just slower. still moving in a positive direction. we are a leading indicator for the rest of the country. this is where jobs are created. we've been a leading job creating state and region of the united states. it's not as robust as any of us want. the reason i think that, larry, is because people are waiting. they're watding to see what's going to happen on the tax front. they're waiting to see what's going to happen. they're uncertain about the outcome. if you're a small business owner or a big business, what do you

do? you have to wait it out, even though you may have liquidity on your side. it's happening here like it happens everywhere else. i think we're just slowing down, but we're still moving in a positive direction. >> and you're not worried about a real stall speed and you wouldn't change your view on, say, restoring operation twist, which comes due at the end of june? i know you've basically been unfavorable to it. are you rethinking that now in the light of some of these rather poor economic numbers? >> i'm not rethinking it because i don't think it's done any good. i just don't think it's had effect. there's so much liquidity out there, lar rirk we have 1.7 excess bank reserves in terms of trillions. two trillion dollars on the balance sheets of s&p 500 companies. as i said earlier, small businesses say credit needs is not the issue. most of them don't even want to borrow right now. we've got a lot of money sitting out right there. there's no need to add more. and i also think by going out the yield curve by operation twist, what we call maturity extension programs, meps, all

we're doing is subsidizing the government. therefore, we're not sending a signal to congress as to what the cost is of their misfeasance and bad policy. i think it's time for the fed to get out of the business of twisting the field curve. we tried it. it doesn't seem to have worked. i'm very skeptical about it. personally, i would not support further action on this frochblt but that's my view. it is a committee and it takes all 17. >> richard fisher, ceo of the federal reserve bank of dallas. thank you, mr. fisher. we appreciate it very, very much, as always. >> thank you, larry. more on money. on tomorrow's show, we have an exclusive interview with congressman ron paul. he's holding a hearing on whether or not the fed should be abolished. congressman paul is going to join me exclusively, that's tomorrow evening. final thought tonight. paul krugman doesn't understand the fed has already pumped money into the system like crazy. the problem with this stagnant and slow recovery is fiscal on

stack -- obstacles. we need to reform the tax code, particularly lower corporate tax rates. we need to have a lighter touch on regulations and we should create some uncertainty about reforming future entitlements. it's a fiscal obstacle. it's not a monetary program. krugman is wrong. richard fisher is right. that's my last word. we'll see you tomorrow evening. all energy development comes with some risk,

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