not to trade. i see too much trading. like i always say, there is always a bull market somewhere. i promise to try to find it just for you. i'm jimhey, larry, what do you e for us? >> one way or another, an extra $500 billion from the fed has got to help stocks at least in the short run, but will it help president obama? good evening, everyone, i'm larry kudlow. this is "the kudlow report." news breaking just minutes ago an activist wisconsin judge has struck down governor scott walker's courageous law to limit collective bargaining rights for public workers. the judge says it violates not only state law but the u.s. constitution also. and we have more breaking news tonight. the u.s. downgraded by the egan-jones credit rating agency citing that ben bernanke's quantitative easing will hurt the american economy, reduce the value of the dollar and lower our credit quality. we're going to come right back with that. but folks, $500 billion and

nearly so of new fed money, it's already spurred a 4% stock rally over the past two weeks just on the rumor. 287 points up this week alone. markets closed up today. now, even though i disagree with bernanke, i'm going to show you how $500 billion will help the market, at least in the short run. plus, if ben bernanke thinks the economy is so bad that he had to act so quickly and dramatically, then the question becomes can mitt romney walk through the bad economy door that mr. bernanke has now opened? we'll get to that later in the show. now, let's turn back to our other breaking news story of the night. the u.s. downgraded by rating agency egan-jones. they say qe-3 is the reason for the downgrade. now, since bernanke pulled the trigger on qe-3, markets have gained almost 300 points. the achilles' heel in all this? king dollar. that's what egan-jones talked about. we'll get back to that story. i want to break down the numbers because this is an interesting

story. stay with me on this. this is the exchange value of the u.s. dollar, the trade weighted u.s. dollar. and down here we start with the first qe -- i'm sorry, the second qe which was november 2010. notice how the dollar fell sharply with qe-2, not qe-1, but qe-2. that hurt consumer incomes and wound up hurting the me. my point is there's such big numbers here, let's go back and look at this. we have ending of qe-2, the ending of qe-2, all right, into mostly the late 2010 and 2011. look what happened. the dollar goes back up. do you see that? when the fed stops pumping money into the economy, the dollar goes back up and then it levels off nicely. now, with mr. bernanke's announcement and rumors beginning in june, we find that

once again the dollar starts going down again. it's actually not a small amount of money. it's about 75 all the way down to 69 on this trade-weighted index. what's the moral of this story? it's very, very important. qe-2, money printing, lowers the value of the dollar. when the fed stops, the dollar gets better. but when they start pumping new dollars in, all right, the currencyfalls. so my point is the most money pumping we've seen. this is not your father's qe. this is a brand new ball game. if the dollar continues to fall and continues to fall, that is the achilles' heel of the whole fed operation. it will bring on inflation, it will bring on a run into other currencies and other countries and other markets and will damage our economy. so my point is the dollar is the

achilles' heel of qe-3. and i want you to pay close attention to it. all right. let's just zip through some other stuff. we've got lousy numbers today on industrial production. the whole manufacturing rally has absolutely petered out in recent months. let's hit this one. core retail sales. take out your gasoline bump up and take out some car bump up, and you're seeing really very modest gains. you know what? we'll be lucky to have 2% economic growth in q-3. we'll be lucky to have 2% economic growth in q-3. so the numbers aren't that good. the cbi jumped a bit on gasoline inflation. and the consumer sentiment also rose. so that's a mouthful, but i want to go back -- let me see if i do this right. i want to go back to this chart on the trade-weighted dollar and jim mccann at ubs and ron

kasherski from steven nicholas. i want to look at this downgrade again because it's so interesting, the discussion of the downgrade was all about qe-3 and the potential collapse of the dollar. i just want to go back to this red line. we have already started just on rumor, and if this continues to fall, these guys at egan-jones say it will damage our credit quality. i think it's going to damage the economy and the credit quality and it's the achilles' heel of this whole story. ron, let me start with you, dollar, qe-3 and stocks. >> well, larry, you're pointing out the obvious with the dollar going koun. you pump money into the economy and the dollar's going to go down. i don't think that qe-3 what the market is discount is going to have the impact that you think it lot have. it will help in the short run but the hangover of punching the punch bowl can be pretty significant -- ie, the dollar,

the dollar. >> you say it's obvious about the dollar, it's not obvious to the federal reserve. mr. bernanke never refrss to the dollar, doesn't believe in king dollar or stable money or any of that good stuff, ron. that's my problem with this. >> yeah -- >> they let this thing go twice in the last couple years, this being the dollar exchange rate. so these qes came to no good. >> you know what, larry, i like your term on q-finity, which is appropriate, but let's defend the fed for a moment. the fed has a dual mandate, they have inflation and unemployment. and no one else in washington is doing a darn thing. and so, look, i'm not going to defend the pumping, mass pumping of money. i don't agree with it. but guess what? i'm glad someone's doing something. >> jim let me ask you the same question. someone's doing something good. now, i go the other way on this. if you're going to put in $480 billion every year, $480 billion a month, this is the largest

federal reserve expansion in history. it's like the absolute reversal of what paul volcker did over 30 years ago to fight inflation. if you are going to do that you know as well as i do, the old axiom, don't fight the fed. so before the dollar collapses, you got to stay in the stock market, right? >> well, you dpoop and if you look at what's happening with all the markets, they're confirming that we've got a real rally here. you not only have breakout in the market on volume but you still have the confirmation from the transports, they rally, the russell 20000 showed the risk was on. commodities are moving, precious metals, all these markets are confirming the move. this rally may be ephemeral because pretty soon we'll be focusing on the election. if it appears that president obama is going to win, we've got a very serious problem with the fiscal cliff. and i think stocks will soon focus on that. but for now, this is a tradeable rally and a real rally. >> ron, pleat go back to you. bank stocks were actually the leaders for the week. very interesting, liquidity

works. and i think there's some ecb liquidity that will help, too. do you think people should go into the financials? they've had a hell of a run, will they run more? >> i said back in june that the s&p could be between 1500 and 1600, and i hope i'm right. i said the only way it gets there is if the financials lead the way. i stick by that call. the financials are going to benefit because what bernanke is doing is he's going to support risk assets. this is going to help the housing market, that's going to help banks, the short term. by the way, larry, volcker had a different problem. he was trying to break the back of inflation. >> right. the exact mirror image of what volcker did. volcker took money out, this guy is putting money in. >> the difference is that volcker cared about the dollar. >> go ahead. >> larry -- >> the reason that he talked about the dollar is they destroyed the value of it ever since the fed was implemented. we've lost 96% of the value of the dollar since the federal reserve started tinkering with

the economy. that's why he doesn't talk about the dollar. >> that's right. but volcker was fighting runaway inflation, bernanke is fighting the specter of deflation. that's what's going on. that's the difference. >> i've got to jump. volcker fought inflation with a strong dollar and ronald reagan fought recession with low tax rates. low tax rates, strong dollar. >> and bernanke is pouring fuel on the fire. >> what you got going here is higher tax rates and a cheap dollar, and that cannot be good because it's anti-supply side. jim lacamp, thank you, rob, thank you. breaking news, wisconsin governor scott walker's fiscal restraint program was struck down by an activist judge who says it's unconstitutional. i'm going to let you guess where that judge got his votes and what his political ideology is. don't forget, folks, free market capitalism is the best path to prosperity. can i find any? i'm looking so hard right here in this country. that includes a sound dollar.

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just minutes ago an activist judge struck down wisconsin's collective bargaining law saying it's unconstitutional on the state and federal level. this was governor scott walker's prime achievement for which he

was re-elected on a recall vote. so here to break it down for us, cnbc contributor robert costa of "the national review." is this some dumb ass left-wing judge who is try to stop the recall election where walker had an even bigger plurality than he did the first time? >> this has happened repeatedly in wisconsin. governor walker's law was passed in early 2011. what we're seeing here is juan colas, a district circuit judge in madison, the most liberal county in wisconsin, trying to meddle with this law. walker's statement tonight was really indicative of what republicans think about what's happening in madison and in the courts, no thank you, wisconsin has already moved on. walker beat the recall in june. he's not worried about one single judge causing trouble. what's going to happen now? the appeals process. conservatives feel pretty good about that because the state supreme court of wisconsin, a 4-3 conservative majority. if you remember chief justice

prosser beat a recall attempt last year. >> hang on a second. let me get your reaction. governor walker released a statement a short time ago saying, quote, the people of wisconsin clearly spoke on june 5th. now they are ready to move on. sadly, a liberal activist -- see, i was right there -- a liberal activist judge in dane county wants to go backwards and take away the lawmaking responsibilities of the legislature and the governor. governor walker goes on to say we are confident that the state will ultimately prevail in the appeals process. so you agree with that, robert costa, and that this is just one of these -- i don't know what this is. this judge is probably owned by the unions and that's why he's doing this. >> it's liberal activism 101. they've already beat back three different attempts. the prosser election last year, the state supreme court election last year and the recall election this past june. walker feels pretty comfortable. >> last question, in the midwest, in the midwest, some polls are showing a romney deficit in some of these major

turning point states. what's your reading, what was it, ohio, wisconsin, michigan? it's not going well for mitt in some of these important states. what's your quick take? >> no republican has ever won the white house without winning ohio. that's the key state for the romney campaign. he needs to hit 50% in the polls. he hasn't done it. with the gm bailout helping the president, romney's in a tough spot. >> we'll leave it there. robert costa, thank you very much. coming up on the program, the failure of obama-nomics forces the fed into qe forever. bernanke can't bail out the economy, but will the fed-fueled stock rally re-elect president obama? think of it. our free market panel is ready to go. governor eddie rendell, jimmy and jennifer rubin.

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welcome back. mitt romney says fathead ben bernanke had no choice but to set sail on qe-3 because obama-nomics has been such a dismal failure. take a listen to romney. >> what bernanke is doing is saying what the president is saying is wrong. the president says the economy is making progress. bernanke is saying no it's not, i've got to print more money. >> i happen to think mitt romney's right, but with stocks soaring at a five-year high, and looked like they're headed higher, is this fed-driven stock

market rally going to re-elect president obama despite the terrible economy? let's go to former pennsylvania governor ed rendell, former dnc chairman also, let's go to cnbc contributors jennifer rubin author of "the washington post's" right term blog and jim of the american enterprise institute. obama's argument is i need four more yeerks just have patience. bernanke's argument is no, right now the economy stinks and i had to do something immediate. can mitt romney follow through the door that ben bernanke opened? >> listen, he brought this up in that interview that you just played. but it can't be one answer to one question. he needs to repeat it. that democratic convention their big message was, listen, things are slow, but we're on the right path, stay the course, we're doing the right thing. remember the greenspan put, this

the bernanke short. he's saying we're not on the right path, we can't stay the court, i have to do some kind of radical experimental monetary policy to do something, anything, to boost this economy. that's what romney should say. this recovery is built on debt and cheap credit. >> governor rendell, i want to ask you -- let's put it different. i know you're a former dnc chairman. i know you're a very successful democratic governor. if you were advising romney, ed rendell, if you were advising romney, would you tell him to follow in bernanke's footsteps antsz bernanke had pessimistic statements about the economy. wouldn't it behoove romney to do that? i know he's not doing it. but if he wants to win, shouldn't he do that? >> the first thing i'd advise him to never mention foreign affairs never again. that would be number one. number two is, yeah, i would try to take and milk this for all that it's worth, but i think, larry, a very fair

interpretation and i know you won't let me be fair, but a fair interpretation of this is the economy needs to be stimulated. it isn't recovering as fast as possible. congress has thwarted every attempt including the jobs bill in october of last year which had every component of it was things republicans had supported in the past, but for political reasons they thwarted that bill. the cbo says it would have produced 1 to 2 billion new jobs right now. that's the message. you're right, romney should milk this for every shred he can, i don't know whether he will. >> that's the question. jennifer rubin, let me go back to you on this. ed rendell is a blaming the republican house of representatives but they're only one-third of the government. but let me stay with this. has bernanke given romney a big opening? probably inadvertently. i want to come back to bernanke/obama politics in a second. when is romney going to deliver the big economic speech,

jennifer, before the debates to really connect with the american voter on why his program of lower taxes and spending will rejuvenate the terrible economy that ben bernanke described? >> i don't know when he's going to do it. jimmy p. and i keep writing these columns hoping he'll pick some of our wisdom up and go for it. but he does. he has a problem connecting the dots and putting it out to the american people. i don't think it's going to work. in fact i think it will make his situation worse for the following reason -- this helicopter bill and obama are now operating a 1% economy. it's great for the stock market. if you push bond yields down low enough, sure, people will make money off the stock market. does nothing for jobs, does nothing for energy workers who are sitting idle. this is doing nothing for the great mass of american people. he's supposed to be the defender of the middle class. he's supposed to be the one who is concerned about income inequality. this is making it worse. >> ed rendell, i want to go to you on this because on the other side, stock market. about half of american

households own stocks, okay? pensions, 401(k)s, i mean, the average holding's only about 25,000, but 25,000 is 25,000. i know wealthier people own a bigger share, but nonetheless, half of this country's in the stock market. so governor rendell, i'm waiting for president obama to point to the big stock market rally and say, look, you're getting wealthier, things are improving. why doesn't obama talk about the stock market? it operates in his favor. >> well, we did that at the convention. i don't know if the president did, but president clinton did and others who said the stock market had doubled from where it was the day when barack obama took the oval office. you're right, middle americans do own stocks and do care. the 401(k)s that most americans have are obviously affected by the stock market. >> but this is the -- >> the focus on the stock market, you seem to be ignoring the other things that americans are well aware of -- >> no, the question he asked -- guys, guys, guys, calm down.

>> that we're not creating nearly enough job. focus on the stock market, are you forgetting about that? >> i'm perfectly calm, just pointing out the facts. >> pleat get to governor rendell because i love this stock market politics. i just love this stuff. >> the question that larry asked was did the increase in the stock market before this and now with this incredible boost, does that help obama. and of course it does because it helps the argument are you better off than you were four years ago when barack obama took office. >> i don't think so, governor. >> sure it does. >> this is a jobless recovery. >> it's artificial. >> don't let your partisanship blind you. you're terrible. your partisanship is blinding you. even larry admits this. good lord, even larry admits it. >> larry just asked the stock market politics question. i didn't take on a side. i do, however, believe at the margin -- i'm going to be honest here, the roaring stock market is helping obama.

>> roaring? >> i will say that. jimmy p. is also right. just like bernanke and maybe jimmy be fed head chairman some time, it does no job creation, income are falling. and you know what? the gdp and jobs numbers that have yet to come out may yet doom obama. but jennifer, please continue. what point were you trying to make? i just wanted to sort of reset the table. >> thank you, larry. this is the jobless recovery that democrats have run on for years. the average person's status is not getting any better. we've seen median income go down to a low since 1995 we haven't had it so low. we have record poverty, record unemployment. and i don't thing it's very seemly for the president to be saying, yeah, but look at the stock market. that's not what most americans have their eye on the ball. because they have a little bit in the 401(k), they don't have a job or they're nervous about spending or they can't get a loan because the bank yields are too low to extend loans, they're

not very happy. i don't think you can run in an economy, i don't think you can run a presidential campaign just on the stock market. >> jimmy pethokoukis there were many cynics saying that bernanke has created this massive pump priming because he knows darn well the stock market's going to go up and he knows that obama will win and reappoint ben bernanke. a cynical point of view. i just wrote a column saying i choose not to believe that. but in washington are people saying that bernanke is going political? >> certainly some are. bernanke is worried about the fed being politicized. if he didn't think this was the right move, he's an institutionalist, he would not harm the fed if he didn't think this was the right move to make right now. >> you do not think he's caught up in some political jet stream. >> i don't think he wants to be fed chairman another term

anyway. >> governor rendell, do you want to be fed chairman? >> absolutely not. >> there you go. >> we'll have to get out. thank you all. governor ed rendell, jim pethokoukis, jennifer rubin. up next "trading the globe." thanks for watching. at usaa, we believe honor is not

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