occur if wall street was allowed to run amok with mortgage financial engineering. and he made billions of dollars for i'm jim cramer. i'm see you tomorrow. >> hey, larry, big night. final debate. what do you have lined up? >> thank you, jimmy. tonight's debate, the strongest national security and the best foreign policy we can have is to base it on strong economic growth at home. good evening, everybody. i'm larry kudlow. this i is "the kudlow report." you're looking at live pictures from lynn university in boca raton, florida, where in two hours president obama and mitt romney will square off in their third and final debate. two weeks until election day, and polls showing continued romney momentum. could this be obama's last stand? the terrorist attack on our embassy in benghazi will be one

of the phonus points of the debate. joining us now from the debate site, ace reporter cnbc contributor robert costa, "national review." robert, what is team romney telling you about tonight? >> reporter: team romney is very optimistic about tonight, but they know it will be a break-even debate. this is president obama's best subject, foreign policy, romney is a governor and businessman, not his wheelhouse, but he's been well prepared for this debate and expect him to come out firing at the president's record, especially on libya. >> okay. let's pursue that. is he going to go right after benghazigate, go right after it picking up where he left off in the last debate? >> well, as you remember, larry, the romney campaign feels during the town hall romney didn't have a great answer on libya so they spent the last week on libya going hour by hour in how the administration failed to react to that tragedy in benghazi. >> hour by hour, is that what you're saying, heavy stuff hour

by hour? >> romney wants to critique what happened in libya and of the administration's entire record and wants to use libya as something indicative of obama's foreign policy failures. >> last one, but very important. as reagan taught all of us many years ago, a strong foreign policy must be based on a strong economy. will romney make economic points as the basis for a strong foreign policy? >> reporter: larry, i asked someone in the romney high command that exact question, and they said he'll do that as much as he can. this may be a foreign policy debate, but romney wants to bring up the economy. that's where he's strong, and he wants to continue to do that in this final debate. >> all right. robert costa, i like what i'm hearing. excellent report. let's dive right in with our panel. democratic strategist steve mcmahon, conservative columnist an coulter, author of the new book "mugged" and former rnc chairman michael steele. ann, to you first. benghazi-gate is too easy. i want to ask you a much more

interesting question. will mitt romney pull out barack obama's world view? in other words, barack obama, the united states has made all these mistakes, kind of like a colonial power down through the years. >> right. >> obama spends a lot of time apologizing for america. do you think that will come out in the debate tonight? >> i hope so. romney has shown an ability to be very tough debater while still being very kind. it's a nice combo platter he has, but you have with obama the guy who denied american exceptionalism. we're the only non-imperialist superpower in the history of the world. is he unaware of that? oh, yes, i'm sure english, they think they are exceptional, too. that was his response to american exceptionalism. you had him bowing for all of the world leaders. you had him leading from behind during the arab spring which these guys were so enthusiastic about, and we see the result of it, with the death of our ambassador and three other americans. no, obama's view is not that america is an exceptional

country, and i hope that does come out. >> steve mcmahon, we could have actually landed troops in benghazi. that is now coming out. the president actually met with leon panetta, and nothing happened out of that meeting. is that because he was afraid to offend some muslims? was he afraid to offend radicals? does he have a world view that wants america to be number one, steve mcmahon? that's what i'm asking you, because this is his last stand in this whole election. this is his last stand tonight. >> larry, everybody wants america to be number one, and you can't be the president of the united states without believing and wanting that with all of your being, but, you know, ultimately you have to make these decisions based on intelligence. unfortunately, it's intelligence that neither you nor i nor ann have access to. decisions were made, and it's possible that mistakes were made. the president said he'll look into all of it and they will reveal it all, but i don't think that there's any question that this president wants america to be number one in every respect. >> michael steele, do you have any question about that? later on in the show i talk to donald rumsfeld who knows a

thing or two about foreign policy and i'll ask him. i'll ask you same question. it's a redundant theme tonight. there's the group of 20 and there's the united states. does obama want us to be one of the group of 20, the g-20, or does he want us to be number one world leader, economy, military, foreign policy, democracy? what do you think, michael steele? >> i think he largely wants us to be a part of the community of the world, and i think everything that he said going back to 2008 to the last presidential debate is a reflection of that. his world view is that, a world view. it is not a view in which the united states, in my estimation, is the leader that's bringing these nations together. it's not about nation-building in a place like iraq. it's about nation-building among the community of countries that want to be a part of a global effort that touches on the economy, that touches on national security, that touches on all these things that we have led in and that we have the tools, the resources and the aptitude to help lead and to help them be a part of, so i

think that that's a big part of this pie tonight for the president to really kind of explain his world view in the context of benghazi and in other ventures that have happened over the last four years. >> ann coulter, rumors that the united states will meet one-on-one with iran. sounds pretty stupid to me. we've been there before. they are denying in the white house. a big "new york times" story about that. is that president obama sort of somehow trying to make peace, trying to persuade these crazy iranian mullahs not to build nukes? is that the most futile thing you've ever heard? >> yes, it was very strange how it was printed in the "new york times" and then hours later denied by the white house. i mean, i think everyone is expecting some sort of october surprise from the obama administration, maybe some poor -- some poor muslim living in libya is going to have to be the victim of a drone attack so obama can announce he got the leaders of the attack on our consul, but i think there will be something to make him look strong on foreign policy.

obviously any commander in chief, any sitting president will have the advantage of having been the commander in chief, but i don't think i'd be citing the cia's intelligence to defend myself from this total cover-up. >> how about this, citing osama bin laden? >> the cia knows less about what's going on in the world than the post office. you may as well say i checked with amtrak food service and they didn't notice that it was 9/11 and didn't notice that there were shoulder-held rockets. >> how about this, ann? where's osama bin laden? where is he, and where was he after eight years of the bush administration? >> what difference does it make? our ambassador is dead. >> this president has had more foreign policy success. he got us out of iraq. promised to do exactly what he did running for president. osama bin laden isn't threatening america anymore. yeah, he is. >> al qaeda is. this is -- what happened in the last month proves what an idiotic talking point osama is dead is. liberals made fun of george bush for saying i don't think that

much about osama bin laden because there are a lot of terrorist and jihadists outfits. our ambassador is dead, too. >> go ahead, michael steele. >> just two quick points, two quick points. can you only kill osama bin laden so many times, number one. number two, fine. if i take everything that steve just said and wrap it up in a nice bow, it still doesn't give me a picture of what the middle east broadly speaking and specifically afghanistan and iraq look like four years from now. two years from now. >> here's a picture, michael. >> the department -- the president has not spelled that out. >> we won't go into another war in the middle east. do you think it's time since we just got out of iraq to get into another one? is that what the republicans and the neo-cons are suggesting? >> this isn't going to war. >> i don't think that's what americans want. what is the alternative? >> well, the alternative -- the alternative is have a policy that forces us to engage militarily because of an

inability to assess realtime what's going on on the ground, number one, and, two, to have the strategic partners in place who are going to support us. we're getting buffeted by the chinese, the -- the french and others in the u.n. and the russians who are not necessarily on board with the policy that is about as amorphous as a piece of swiss chese. >> hang on, michael. i want to go back to ann. steve mcmahon is making tough points. we'll hear this from the president tonight. the president is going to say to romney you are a neo-conthermonuclear bomber, okay. that's basically what he's going to say. how does romney react to that? >> i think we just got the headline. steve is making the point that i would have made that i thought he'd jump all over me. if obama is re-elected we won't bomb iran. iran will get a nuclear weapon. let that be the headline for what the obama second term will mean. israel will be gone and iran will be in control of the entire middle east, including saudi

arabia. >> guess what? >> saudi arabia is dying for us to bomb iran and take out their nuclear capacity and if obama is re-elected don't count on that happening. iran will have nukes. >> the challenge america has around the world is not that we haven't used our military might enough. the challenge that we have around the world is we haven't engaged around the world. we haven't listened around the world and we've used our military might -- >> those are just the talking points. >> we've got to get out of here and you guys are going to watch the debate. i thought the whole point was to make iran believe that the united states would use military power, and once we take that off the table we have even less leverage than we have now. not to say we're just going to talk one-on-one alone without telling israel but to use our military leverage, that is, if we don't decimate our military before we get to the talking table. anyway, steve mcmahon thank you, michael steele, as always, ann coulter, appreciate it very much.

we're going to switch gears because a strong economy is absolutely essential to america's foreign policy, and it looks like president obama has blundered on both sides. who's got the stronger economic muscle, obama, romney? up next two business heavyweights will face out. staples founder tom stemberg versus former ubs founder robert wolf and later on the show former defense secretary ronald rumsfeld talks about the breakdown of security in benghazi and don't forget, folks, free market capitalism is the bet path to prosperity. we will debate free capitalism as part of tonight's foreign policy debate. i'm kudlow. we'll be right back.

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welcome back to "the kudlow report. the kudlow twitter beat. the question tonight, how will the breakdown of security in benghazi impact the election? matt in connecticut, he says it may be the tipping point for independents who were on the fence to vote for romney. larry? >> yeah. it's funny. a late-starting issue that's become such a hot issue. i don't think it's as hot as the economy, but i think our viewers

are definitely on target. tonight could prove to be the tipping point in that whole debate. now, my advice for the debate, it's free. governor romney, take a page from president ronald reagan and stress that both military strength and national security depend on strong economic growth right here at home. please take a listen to president reagan, my former boss. >> our strategy for peace with freedom must also be based on strength, economic strength and military strength. a strong american economy is essential to the well-being and security of our friends and allies. the restoration of a strong healthy american economy has been and remains one of the central pillars of foreign policy. >> all right. let's talk about reagan said. we have robert wolfe. he's a former ubs america's chairman and ceo of 32 advisers and also a member of the president's council on jobs and competitiveness, and tom stemberg, romney's surrogate and founder of staples.

robert, we'll begin with you. you heard when the gipper said. in a comparable period of economic recovery, he was growing at 6%, 7%, and that gave him the resources to increase military spending and create a lot of jobs. i want to ask you now, aren't you disappointed in the economic situation now, and does not that hurt our military national security? >> well, i certainly would like to see the economy on a better trajectory with respect to gdp growth, but i think the policies are now really working. if you look at manufacturing, retail, our export initiative, housing starting to make a comeback, private sector jobs are making a comeback. would i say we're starting to see good strength in the u.s., and certainly i always believe we need to have strength in the military, so would i actually say reagan's speech actually in some ways mirrors what the president has been saying. >> do you agree with that, tom stemberg, and are you satisfied with the rate of economic growth? >> larry, i don't see how you can depict an economy that's growing at 2% or less as thriving. with 23 million americans

unemployed or underemployed, trillion dollar deficits that we have to turn to china each and every day to borrow money to finance that. how do you think china looks at us, like beggars on the street. >> it's almost like, robert -- >> it's amazing that everybody is using this u6 number that's never talked about. the unemployment rate 17.8%. it's come down dramatically from 10%. >> non-farm payrolls are growing very, very slowly and that's the generic measure. i don't want to get into the weeds on that. here's what worries me. if this country grows at 2% per ann annum, as we have for three years, if this is our so-called normal recovery, we don't have the resource to spend on gdp. our gdp share for the military will be 4, 3, 2. we will begin to look like the european union, and we will be passed by china and other countries. that's my problem. how do you get -- i want you to get me to 5% or 6% growth. you're on the president's jobs

and competitiveness council. i don't think he's done a bloody thing you've wanted him to do. can you persuade him? can you persuade me? >> one, we know every post-recession half of growth comes from housing. we're starting to see a housing rebound. i think we'll outperform dramatically 2% gdp. if you talk to people and say what's the best sector to invest in over the next three to five years, most people will say the housing sector. we had 8 million in inventory, now it's under 2. housing starts was at 2 million. it's moved to 500,000 and keeps growing. foreclosures at a four-year low. >> do you know what? do you know what? >> let me finish my statement. >> i completely agree with your statement. i think housing will be a big help to the economy. >> that's one. the second part is infrastructure. >> okay. >> we all know it's the best multiplier for gdp is infrastructure. we should pass an infrastructure bank. the president's been supportive. it is bipartisan. it's something we need to do. >> you lose me on that one. the infrastructure bank is not free market economics, but i just want to say for the record and to you personally, because you're never on the air with me,

are you right about the housing increase. that could add 1% to 2% to gdp. tom, here's what bothers me. business investment stinks. we've had a capital goods capital freeze, almost a capital strike. nobody wants to make long-term investment, plant, equipment, commercial office buildings. that's holding the economy back. why is that? >> we've got economic policies that just don't work. we've added regulation at three times the rate we did in the first three years of the bush administration. that's choking business. business is looking at obama care, and i invest in small emerging companies these days. they are worried to death about the implications of obama care and what it means for them and the taxes. i was with a guy, a black guy who develops real estate in the inner city of boston. he said i won't be taxed in the new obama tax rate in the mid-3s. that hurts me because i pay the individual rate as a corporation, and then on top of that, and then i didn't even know that, there's going to be a

3.8% tax on refer real estate transaction. >> and every investment. >> who the hell is is going to pay for this? >> you're a banker and an investment guy. if you sell your house, you're going to have to pay the 3.8% surtax on top of the payroll tax. that's really not a good thing. it should be wiped out. >> and, again, these are things that kill growth. >> could i get you to come over on this side? >> we absolutely need tax reform overhaul. we could pick each one, whether it's loopholes. >> again, governor romney has laid out a plan. he's going to make our tax system like the system in the rest of the world which will allow billions of dollars that are being held overseas to be repatriated in america to create jobs. president obama is flimflamming on this issue for four years. >> no disrespect. we tried the repatriation under the bush era, okay. it did not create jobs? >> short-term amnesty, not a long-term solution, and the president i think would be for

corporate repatriation to lower tax rates for jobs if we could close loopholes. you can't bring over the trillion and then say we're going to be deficit neutral. that does not work >> i think it can be taxed overseas and not double taxed. why is it that president obama briefly talked about the kind of corporate tax reform that tom is talking about and mitt romney talked about. i talk to tim geithner, the treasury secretary, and they never followed through and when you don't follow through for several years running, makes me think they don't mean it, that they are really being forked tongue rather than straight with me. >> what bothers me when you're running for office for the first time you can talk about your plans. when you've been president for four years you talk about your performance and you can look away at 239 americans who are unemployed, underemployed but they have to look in the mirror and try to feed their families. >> i'm not looking away at anyone. >> playing it games with the number and arguing the rate is lower because more people have

given up looking for work doesn't cut it. >> we've heard romney's view of the 47%, we should be clear so when we're talking about the people being attacked. >> look, he apologized for that. >> he should apologize. >> i'm just saying. you can't have the 23 million and then hit 47% of the people. >> in fairness, mr. biden and mr. obama have said a few things they would like to take back, but i agree with robert wolf about the housing situation. i want to emphasize that because i think it's getting better and all things the same, the economy picks up a percentage point, but oh, lord, do we need tax return. robert wolf, tom stemberg, thanks so much. coming up on "kudlow," the dow down triple digits today and then it battled back and stabilized the big selloff on friday. more on the markets, plus late-breaking news coming into the cnbc newsroom. that's next up. please stay with us.

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demographics of americans concerned about their retirement. cnbc's jackie d'angelis joins us with more on that and all the breaking headlines coming into the cnbc newsroom. good evening, jacky. >> good evening, larry. a new study from pew research center finds that americans in their late 30s are most worried about financing retirement. three years ago at the end of the recession boomers nearing retirement were the age group most concerned about affording retirement. now it's the boomers' older children. not sure they will have enough savings. investors watched the market see-saw. all three indices down and then up. at one point the dow was down

more than 100 point but closed basically flat. plus, we have this tonight, larry, as the number of meningitis cases nears 300, the shutdown of an affiliate of the new england compounding center responsible for the tainted drug that caused the outbreak may impact patient. the centers for disease control working with the company to make sure their products are safe and stirl. larry, back over to you. >> thanks very much. now, we're going to switch gears to america's security breakdown in benghazi, ending in the deaths of our ambassador chris stevens and three others. former defense secretary done rumsfeld outright just called it a cover-up. he'll be up next. .

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welcome to the world leader in derivatives. welcome to superderivatives. so, as commander in chief, president obama may think he has the advantage in tonight's debate, but could al qaeda's rising terrorism, the benghazi-gate cover-up and iran's push for a nuclear weapon at least diminish the president's foreign policy image? that's going to be the challenge. whom better to discuss it all than former defense secretary donald rumsfeld. he's author of the book "known and unknown. "secretary rumsfeld, as always, welcome back to "the kudlow report." i want to ask you about a story

that's recently surfaced. want to get to the bottom of the cover-up shenanigans of benghazi. there's a story out there today by bing west, a former assistant secretary of defense. he said we could have sent in commandos within three hours based in italy, sigonella, italy. we could have sent a fighter jet in one hour, commandos in three hours. we might have actually saved those lives. why didn't we do that, sir? >> well, i really don't know. certainly binge we west is a ve capable person and we have cape abilities at the sigonella island base. it's hard to know why they did what they did, but the more important question it seems to me is why in fact, as it appears now, they didn't provide the appropriate kinds of security forces to protect the embassy, the consulate, and the people we have on the ground there. >> you think it's a cover-up?

mean, do you think it didn't conform to the president's world view that al qaeda was dead after asama, do you believe it was a cover-up? >> i do. i think that the investigations that are under way will provide the kinds of information that will let the world and the american people know precisely what happened, but i think that the -- the -- the world view of the president and the people in the white house and their desire to have it be a result of this youtube video that no one had seen led them to say a series of things, even to the point of sending out the u.n. ambassador to go on all the sunday talk shows and say things that the administration clearly knew at that point were not the case. >> do you think that -- would you advise governor romney to actually say to president obama tonight you've engaged in a cover-up. come clean with the american people. do you think romney would say that? >> gee, i don't know.

i don't know how he's going to handle it. the -- the debate is an important one, and i think that governor romney in each of the previous debates has handled himself in a way that in my view was presidential, and i expect that he will not be on the attack terribly aggressively. i think what we'll do is manage to conduct himself in a presidential way and yet he will forcefully make the points that need to be made about the lack of protection at the outset and the mishandling, serial mishandling by a long number of people in the administration after the fact. >> talk about just for a moment president obama's world view which may or may not come out tonight, i don't know. do you believe that obama wants america to be the world leader, the world leader, as we were

let's just say from reagan on down, maybe before that, but clearly number one, or do you think obama is satisfied that the united states just be one of many in the g-20 for example? which do you think it is? >> oh, i think it's the latter. i think that the president's behavior, his decisions, his announcements, his speeches and his actions of the administration have indicated that the united states is going to step back. it's going to be in decline. he's managing the economy in a way that's sending a signal out across the globe that we're modeling our economy after europe which is a failed model, and he's -- with respect to the possibility of the close to $1 trillion reduction in the ten-year defense budgets, that is sending a signal out to the world that the united states will not have the kinds of capabilities to be able to contribute to peace and stability, so if you want to

lead from behind and tell the world that you're in effect not exceptional but you're behaving like europe, i think the world's going to make a judgment about what we're going to look like in the future, and they are going to conclude that we're creating a vacuum. nature abhors a vacuum. >> mr. rumsfeld, i'm an economics guy. you've been twice defence secretary so i -- i obviously bow to your expertise, but to me as you describe what you just describe, america's just going to be one of the g-20, one of the group of 20. to me, sir, that sounds like declinism, and it sounds like a president who is willing to allow america to go into declinism. your last thought, please >> i think that's exactly right. i think that the risk is that the vacuum that the united states has created under the obama administration that vacuum will be filled by forces and powers around the world that do not have our values and do not

have our interests, and the world will be less safe and a less stable place. >> all right. we'll leave it there, sir. many, many things, as always, former defense secretary donald rumsfeld, thanks for coming back, sir. >> thank you. >> all right. some tough stuff from former secretary of defense donald rumsfeld. the question is what can we expect from the candidates this evening? let's talk to former assistant secretary of state p.j. crowley and senior romney adviser dan signor. pretty tough stuff. he said the benghazi episode and the various rationales amount to a cover-up. what's your response to that? >> i think it's nonsense and i think it's irresponsible. just to compare his tenure as secretary of defense. it took nine months after the invasion of iraq for the administration to, you know, clarify that there were no weapons of mass destruction in iraq because it's a complicated set of issues, and likewise the administration over eight days,

just eight days, i'm not talking about the president saying act of terror in his rose garden speech, in eight days the national counterterrorism center matt olsen in testimony before congress said it was a terrorism act, and that was after a considered judgment working through all the intelligence working at the time. that from a government standpoint is an incredible achievement by the intelligence community. >> do you think governor romney will accuse the president and the administration of a cover-up from start to finish? do you think they will? >> no, look, a couple of issues related to benghazi, what happened before september 11, how there was a breakdown where senior official officers were asking for more security for libya and it was being denied and the post-september 11 which the days and days went by where there seemed to be an inpenetrable fog where there were misleading statements coming out. the misleading statements may not have been intentional and were still misleading and the president needs to get into the

bottom of it. where benghazi and libya fit in for the evening it's the unraveling of president obama's foreign policy, 30,000 people dead in syria, iran that much closer to a nuclear bomb. people storming our embassies in various capitals, the israelis and palestinians no closer to any kind of progress on the peace talks, so there's a general troublesome trend and unraveling, and i think libya is part of the broader problem. >> p.j., you were a high official in the state department under president obama. you just heard dan senor. do you believe the president's policies in libya, in egypt, in iran, for example, and in israel, do you believe that those policies have gone astray, away or have not just worked out? >> it's very interesting because governor romney has said he wants policies that are linked to our values. i think president obama in terms of u.s. policy and encouraging mubarak to step aside, encouraging ben ali to step

aside, likewise the fine line between dictatorship and democracy will take decades. there will be steps forward and backwards along the path. i think what i heard dan say, and i hope he wasn't meaning that, to say that the policy sun raveling, we want to move back towards dictatorship in the middle east, and that's certainly not what president bush had as a policy. the united states has firmly established supporting democracy. >> p.j., let me address that directly. >> let me address that directly. 30,000 people dead in syria. tens of thousands of people in refugee camps along the borders of syria, all right? there are cross-border military confrontations right now between syria and one of our nato allies, turkey. iran is that much closer to a nuclear bomb. when obama -- president obama came into bomb they had enough enriched material, further enriched to build one bomb. today it's something like four or five bombs, all right, so -- and the green revolution, you well know, you were serving at

the time, the president was silent during the green revolution in iran when there was a real opportunity to put non-military, domestic political pressure on the iranian regime so you cite some of the successes. you would agree that the record is at best uneven, and where it is uneven, it is really disastrous. what we're watching in syria is a real, real horrifying and horrific mess, and the situation in iran is very worrisome. >> and, dan, i just would respond, you're exactly right in characterizing the situation in syria, and yet, you know, governor romney has agreed with president obama that for the moment that it's not clear that military intervention by the united states is necessarily the answer. it could come to that at a point in conjunction with our -- our coordination with turkey and the other countries in the region. what the administration is doing right now firmly convinced that assad is -- will eventually fall

is preparing for the day after and to try to help lead syria towards democracy just as we have tunisia, egypt and yemen. >> dan, let me just ask you before we lose both of you gentlemen. the rumor was that president obama's team would meet with iran one-on-one that. has subsequently been denied. "new york times" story has been denied, but let me ask you, dan senor, for the record. if governor romney were president, would he take a one-on-one meeting with iran? >> look, here is governor romney's approach to iran. obviously he wants a diplomatic solution to the iranian situation. as we said they are getting closer to closer to nuclear bombs, and we have to deploy a whole range of tools and tactics, economic pressure, diplomatic isolation. got to make sure that the military threat, that option is credible in the eyes of the iranians, not that we would use it but that they think it's credible and diplomatically in terms of engagement.

there are a whole range of tools and the governor has said he wouldn't rule any of those tools out. he doesn't want to reward bad behavior by the iranians. wants to know what the iranians are sincere to make any decision. >> i'm not sure what the difference is. i'm not sure what the difference is. you're two both distinguished gentlemen. i'm not sure where the difference is, at least on iran. >> dan expressed the president's position perfectly. >> the problem is mixed messages. he's sent mixed messages and lost credibility in negotiating with iran. governor romney will not send mixed messages. he'll be much tougher. >> i think a 40% drop in the iranian economy is a firm message about what has to be done. >> thanks very much. we appreciate it. time to check in with my colleagues, maria bartiromo and carl quintanilla about what's coming up in the next hour. >> hi there, larry. thank you so much. we are looking at foreign policy issues, the middle east, china,

of course, trade as well as economic. what we want to do is connect the dots. what do these foreign policy decisions have to do with the economics of this country? talking to t. boon pickens and others. >> it's not just the middle east. it's about defense budgets and even the china. >> coming up tonight, "the kudlow report." obama's last stand. he's got trouble in the polls. we'll check in live with john harwood next up.

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slight edge in battle grounds, but i think the president does feel the need to sustain the momentum that he established in the last debate which fired up democrats with his more aggressive posture, and it's interesting to hear the two campaigns talk about what they intend to do. to hear romney's campaign talk, they are going to be nice and steady. it's all about romney. they just want to pass the commander in chief test. they are not looking for fights with obama. their policy positions in many cases are fairly close. the obama team indicates that they are going to be a little scrappier and try to take it to mitt romney the way he did last time. >> what do you hear about benghazi-gate? what's the riff on that? do you think romney's going to make up for lost time from the last debate and just come right at him on that, john? >> reporter: i don't. what i heard from a romney adviser was we don't intend to try to prosecute an aggressive case on benghazi. to some degree that's because of the disclosures over the weekend that some of the cia information that they passed to people like susan rice at the administration

did in fact support what susan rice was saying, so i think some of the juice has gone out of that attack. but also because, you know, he's played that card. it has had some effect, and we've seen in our nbc/"wall street journal" poll that mitt romney has pulled close to the president on commander in chief and having strong leadership qualities. those are big assets for him, and i think they believe that in the closing days of the campaign the place that they win this thing is on the economy, and the other thing that we saw in our poll, larry, was mitt romney reasserting an advantage that he previously had and lost over who would be better at dealing with the economy. >> all right. many thanks, john harwood. we will see you later this evening. coming up on "kudlow," our defense department faces a devastating affect by our own president. $553 billion in cuts, eliminating hundreds of thousands of jobs and weapons systems will kick in automatically if congress doesn't act.

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unless congress acts, the defense budget is going to suffer over 500 billion in lower spending. that, by the way, comes on top of a prior cut of the same amount. we're talking about $1 trillion here. so what does it tell the rest of the world about america's strength? here now is new york democratic congressman charlie rangel. he's going to be joining us shortly, and we welcome back new hampshire republican senator kelly ayotte. senator ayotte, $1 trillion out of the american defense budget. what does that tell the rest of the world? what does that tell russia? what does that china? what does that tell iran? >> it gives them the wrong message, larry. in fact, what our defense secretary said is that we'd be shooting ourselves in the head. we'd be undermining our national security for generations. we'd have the smallest ground forces since 1940, the smallest air force in the history of the country and the smallest navy since 1915. larry, this is not the team with what we see happening over the

world to destroy our military, and that's what this would do. >> charlie rangel, welcome back to the program. i want to ask you the very same question. we've taken 500 billion out of the defense budget. another 500 billion under the so-called sequester, the fiscal cliff. charlie, what does that tell our enemies around the world? it sounds like america is disarming. >> it does sound that way, and by the time secretary panetta gets finished explaining this to the country it ain't going to happen. this is a monster we created to scare the hell out of americans that they have to do something to gut spending and increase revenue. i think it's getting everybody's attention. >> if you don't have tax increases, will you still dismantle the budget spending cuts in defense? >> i don't know why we talk about us having tax increases. i think what you're saying is if we allow the bush cuts to expire? >> i'm just asking senator ayotte because i read that there

are little groups that are talking about this, but i also read that the president will not sign any bill unless the top tax rates are increased. so senator ayotte, i ask you, does that hold the military budget hostage? where do we go from here? >> larry, i think that's what's troubling, that our commander in chief has said that he will allow us to go off the fiscal cliff, and using the military as a bargaining chip when it comes to tax rates is totally inappropriate. we should resolve this. we can come up alternative spending reductions. the house did it. i signed on to a bill in the senate that would do it in a different way, and we shouldn't be also looking at where our economy is right now. increasing taxes on many small businesses, and then using our military as a bargaining chip in all that. we should just want to do the right thing for our military. i've been working on a bipartisan basis to try to resolve this in a way that doesn't increase tax rates. >> charlie rangel, let me just ask you. there's so many issues with this

whole fiscal cliff issue. there's the military budget cuts and the military tax issue. you saw this morning a bunch of stories about the payroll tax cut. the payroll tax cut is not going to be renewed. that means about $125 billion. some 163 million people may be affected. i mean, charlie this, darn thing is affecting everything negatively. what you going to do about it? >> well, you know, the lady mentioned bipartisanship which is something that i haven't heard mentioned in the last couple of years, and it's going to depend what happens in the house races. you know, a handful of people have decided that they were going to close down the house, and a handful of people decided that it didn't make any difference what the president proposed. they were prepared to take down our country's fiscal credibility in order not to give him credit for anything so i hope that outside forces and voices, sound voices like you, could actually put the type of pressure on republicans and democrats that the country comes first, and we

have to do that rather than what appears to be the house target, and that is sink the president of the united states, even if that means bringing down the ship of our nation. >> senator ayotte, i think my old friend charlie makes a very good point. a lot of people i talk to, senator, and you probably do, too, really would like to see congress find some common ground and settle -- get us at least through this fiscal cliff without a recession, without decimating our military budget and without a big tax hike. i know that's not easy, but common ground, senator ayotte. could that be a theme in the next congress? >> larry, we can have common ground. what we need is new presidential leadership. you know, i heard the congressman talk about putting the president at issue at here. what we need is a president to lead this effort. he has been awol on it, and i really believe the way forward, the thing you and i have talked about in the past, is tax reform and that means lowering and simplifying, and that's the type

of deal we should be doing. >> thank you. appreciate it. many thanks. congressman charlie rangel and senator kelly ayotte. looking at live pictures from lynn university, or you will, from boca raton. in just over an hour president obama and governor romney will square off in their third and final debate. i hope we get some common ground. that's my basic point of view. i'd like to see pro-growth tax reform. i frankly would like to see some tough spending reforms also. to me lower spending, lower tax rates, less regulation. you've heard this before from me. that is the essence of free market capitalism. it's the best way to grow the economy. the final debate is coming back. we will be right back to cover it here on cnbc. in america today we're running out of a vital resource we need

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welcome back to "the kudlow report." one final thought on this issue of common ground that we talked to senator ayotte and congressman charlie rangel about. common ground, people are going to have to give a little bit, but they can do so without compromising their principles. we saw this in the state of new jersey with governor chris christie. we've seen it in other states as well. there's a tax piece. there's a military spending piece. there's an entitlement piece. we need reforms, and we need reforms