.>> i like to say there is a bull market somewhere. i like to find it for you. i'm jim cramer on mad money. i will see you next time. ♪ good evening, everyone, i'm larry kudlow. this is the kwud low report. we begin with an outrageous story from washington. the internal revenue service in full scale damage apologizing for targeting conservative political groups for extra tax scrute if i during the last presidential campaign. chief correspondent john horowitz joins us with automatic deteams. good evening. >> good evening. the white house was on two issues about credibility. one is about benghazi, the other is about this irs embarrass him

we talked about. let me run through what we know about so far. first of all, the tea party and other conservative groups have complained they got extra scrute if i from the irs. the irs denied it. today the irs came out today and said they were right, we were wrong. they blamed it on a bureaucratic mistake done by civil servants they said was not for political motivations but rather for the result of a categorization error of people facing a flood of applications. the tea party, nevertheless, rejected the apologies the irs offered. they wanted to see action not only from the irs, but the president and capitol hill and mitch mcconnell said they wanted the administration to conduct an entire review across the government to see if other of what mitch mcconal called thuggish practices had taken place. democrats and white house press secretary jay carney is briefing this afternoon, echoed the calls for investigation and said what happened is wrong. >> what we know about this is of

concern and we certainly find the action taken has reported to be inappropriate and we would fully expect the investigation to be thorough and for correctioning to be made in a case like this. >> and, larry, what makes this particularly unfortunate for the administration that has relied on the president's favorability is it comes right as that benghazi produced e-mails in which a state department official was quoted as saying that some information would be withdrawn from talking points because it might allow members of congress to abate the administration, so the inquiry is under way by the inspector general. we'll see where it leads, but not a good day for the administration, larry. >> john, one question baffles me, this whole story baffles me, lois learner, the official at

the american bar association. she puts out the apology, john. we're in may of 2013. this stuff has been going on in 2012 and 2011. why'd they do it now? why all of a sudden now? >> i think that's a very good question, larry. and it seems from what we could tell that it came out almost by accident at a conference that lo liss lerner was at today. remember this is something conservatives complaened about. republican -- complained about. republican irs officials asked about in official testimony t.irs officials said it wasn't true. that was on the public record. only today did the irs come out and say it's true. it's not what you think. it was wrong. we apologize for it. i think a part of the inspector general's investigation will involve who knew about this and when did they understand that something was going on that shouldn't have been going on. why did they wait until now to disclose it? >> john harwood. thank you. we appreciate it.

senate majority leader mitch mcconnell warned about this move last spring. take a listen. >> earlier this year, dozens of tea party affiliated grupts across the country learned what it was like to draw the attention of the speech police when they received a lengthy questionnaire from the irs demanding, listen to this, demanding attendants lists, meeting transcripts and donor information. >> yeah, by the way, it's illegal. it's illegal to ask for donor information. that's just a side point here. we have congress and tea party with me on set for most of the hour this evening cnbc contributor and co-host of the msnbc "the cycle" and former director of the republican governor's association. david schweiker, why now, how do you read this? what is going on here? >> you know, have you ever had one of those afternoons where you are trying to get your head

around? at least i have one reality. it's been a really bad week for the administration. and i actually now have to apologize no some of my conservative activist groups out there that a year ago i thought were being paranoid. it turns out, they were right. >> it turns out they were dead right. it turns out, by the way, they were going after marc levin. which is fascinating. the commissioner of the irs was a george w. bush appointtee. now gone. he was out last november. he was the head guy all during this. the reason i way, i know this is the spin coming out of the white house, but there is truth to this spin, obviously. it's hard for me to understand why a republican commissioner of the irs would preside willingly and knowingly over such a gaffe as this. why would he do this? >> i think he had no idea. i think that baseline. the way this came out is beyond bizarre. the reality for the

administration is this thing is going to become a huge headache. have you spupdity, conspiracy and taxation. that is like a molotov cocktail in politics. i think it's outrageous. the only people i have sympathy for are the guys in the white house communications information who this afternoon probably learned of this this came out on a friday, larry, right and this just kind of leaked out in response to a random question. are you kidding me? they put the administrator on a conference call. >> wait, the question didn't come out during the fuse briefing. it came out during her speech to the lawyers. that's when the question came up with someone es, i think she was speaking to the aba. >> she was speaking to the aba, an apology. >> him asupposed to truly believe it was a couple in cincinnati doing this, no one else in the agency knew? now 96 onnian is this? remember, nixon went after the irs. he had a couple people up there at the top. cincinnati, they're the only

ones that knew? i fine that hard to believe. >> this is bad, sometimes we hear these allegations and there is a tendency to want to believe good things about america and say i'm sure that paranoid or excessive, when, in fact, what we see here is enappropriate target -- ina proept targeting. the reason why it's nixonian is that it started at that time top with the president, nixon. just to finish, i don't think there is any evidence here it starts with the president. there is room for very important congressional oversight, get the documents, look at the e-mail traffic. see how high it went. the problem for the republicans is what we saw in benghazi, someone gets a paper cut and they blame obama. they've lost credibility in this process. >> david schweiker, two questions, number one, do have you suspicions that this top of the ladder, he knew? number two, what are you all going to do about it in congress? what can you do, what do you

expect to do? >> first thing i'm going to do in congress is avoid that paper cut. but the reality of it is we need to think, widen up our scope a little on this. we have the new healthcare law that is moving forward. they're going to use the irs as the enforcement, the regulatory, you know, the collection agent for, you know, what coloquially is called obama care. this actually might have a bit of a cascade of fear saying they were willing to do this to conservative groups. now we have thousands of new irs agents that will be in the healthcare enforcement world. it's the classic cascade of if this is the camel with the nose under the tent, what else is going on? >> but here's the thing, phil musser, this was going on pre-election. in other words, the announcement comes in may of 2013. they were by the accounts in the papers, at least, stalling and stopping a lot of these groups.

if you had put a or tea party in your name, they were flooding you with questions and they actually stopped many of these groups from being formed before the election. now, i want to foe, are there lawsuits here? can they come back at it? i know my pal marc levin is absolutely furious because they came out to his landmark operation. they actually stopped groups from doing this before if election. >> i worked with a lot of groups in my space at my day job. i tell you, larry, you put your finger on the top of the button t. reality the sunday shows will be about this issuement lawsuits will be filed. it will keep it in the news media, in the press. there will be an investigation top down, bottom down. look, there is one other thing, frankly, all these groups, maybe some people thought they were crying wolf, they're all e-mailing their lests list, they're raising a lot of money off this today. >> that's right. it's the "i told you so" that makes me think we're going to court. that's what i think.

are you a lawyer, what do you think? >> yes. there is definitely causetive action here, first amendment concerns. we do not want our government interfering with our speech rights based on what we want to say. that itself why this looks bad. it doesn't have to go to the top to be a causetive action. you have to have proof. >> nobody has been fired so far as we know. i just have a problem. the way the story has been outleaned, a bunch of poopfuls in cincinnati. no one knew the big shots in washington knew. i have a big problem with get we'll cover this story as it unfolds. i have a problem. cincinnati's bro reach was all over the country. that makes me think other irs agents and officers knew. whatever, we will figure it out. now, we got good news, finally, the government is making less red ink if such a thing is possible. revenues are up. spending is down the debt ceiling probably won't come into plea until okay. i call that an economic and

political game changer. it could be bullish for stocks, by the way. we'll explain why free market capitalism is the best bet to prosperity, speaking of which the oil and gas boom, another game changer. and the opposite of all that, government plan green energy. think of slwe cylindra. i'm kudlow. we'll be right back. but no way we're going to let them die. ♪ . effective deadline until at

least labor day. the statutory debt limit will be reached in just a few days when it expires on may 18th. but because of the extraordinary measures that are available and the cash flow that we now can predict, it will be not until at least after labor day. >> all right. call it the deficit game changer, thanks, in part, to odama's tax hikes, which i think are going to slow the economy. i don't like that one bit. fortunately the gop's sequester cut also has held this down.

the federal deficit is falling faster than anybody expected. meaning as secretary jack lew said, the debt limit won't be reached until september. by forecast, it will be later than get get this, uncle sam's budget gap is $231 less than a year ago. how will this amount ter debate in washington? we are back. the good news is the deficit is doming down coming down. my opinion is a lot is from tax hikes. one time. i do like the spending cuts. here's what i'm asking. will this take away the incentive and the intensity of making a deal on entitlements and tax reform because they're not going to have a debt limit to worry about for quite a while? >> i don't think so. i don't think this conversation has ever only been about the debt. i think the republicans politically needed to come in and play hardball. having watched flight delays and cuts to housing, things that

they don't see ultimately super concerned about. i don't know what phil thinks. i think they look better than cutting a deal. that was the reason why sequester was a bad penalty if the idea was it was going to force their hand. >> what's your take? i think republicans should be out there. this news first broke saying their spending cuts are really helping. and they're not t. reality is revenues are up 16%. a, there isn't a recovery. it's a modest one and, b, you've had a bunch of tax hikes. where is the gop? they haven't said much. >> my sense is they probably should, larry, the cuts are a key component to this. imagine what we could have done if we had progressive measures as retarded measures. the reality is on a political level, the republican senate caucus has been getting flogged over the head. they had guns, immigration. this is an issue where republicans can stand united. i think to your point, it's a

fight we want to have. while it's good news, on some level, delay of this process isn't necessarily a good thing. this is a cans a chance republicans to stand strong. >> as a reagan conservetive, i got to give this to you. the gop is passing this law that says, regarding the debt limit, okay, that if we go over the debt limit, if we miss the deadline, they can prioritize the revenues to cover debt expense and social security. this does not work. i have been through the numbers. you could prioritize the debt expense and social surt and there is 150 other things you can't pay for. in other words, you got to meet your obligations. the gop tried this two years ago. i screamed bloody murder at them. i think that's a huge mistake. >> i think you were right to call them out. i think this is the fantasy baseball school of governing.

it's not real. >> we set it up. we will pay for debt ceiling. interest on the debt and pay for social security. by the way, you can't. once you get through that, and you go through medicare and medicare and veterans benefits, you are pretty much finished? do you know that? and the whole rest of the budget is unfunded. it's unfunded. that's credit downgrade city. the gop is doing this again. it's the dumbest thing i ever seen. >> it's ultimately focusing on -- >> he ought to know better. >> he does know better. increase the focus on the ridiculousness on the spending we are doing in your country. larry, i don't think it's the way the government will ultimately get done. >> this gives obama an advantage. obama is going to take them to the cleaners on this. >> they're not going to do more taxes and revenue is not going to be on the table. so this is probably our only shot to see incremental --

>> what phil said is you will see an increase on the uth be. it's a message strategy. not a budget strategy. we are dope into the sec term. you have to make dolsi. that i have to cover everything that we're doing. >> you can't prioritize $3.7 trillion of spending with $2.5 trillion in revenues. it cannot be done. i have to pull out the same carts we did two years ago. we had eric cantor on the show. i had to tell him, mr. leader, you are wrong. this is irresponsible. let switch from washington to wall street and get opinion on this. just what does this including debt picture men for stocks and investors? let's go to our freight friend brian kelly, brian kelly capital and a ""fast money"" contributor. i ask you, you are not going to have a debt ceiling crisis now for another five or six or seven months. is that god for stocks or maybe people don't care? >> i think probably people don't care right now. i guess it's god on the margin in that you are not going to

have that crescendo, that debate that, unsurgeonty out there. but it's still looming in the background, from the money manager's perspective, i'd much rather have the certainty out there. tell me what the rules of the game are going to be. then i can say, this is how i want my portfolio to lock. it's the uncertainty that killed the market. >> when we went down, correct me if i'm wrong. it was the summer of 2011. okay. and the deadlines were missed and the republicans were threatening all sort of childist things but the democrats weren't better. they weren't proposing anything serious t. stockmarket got clocked, if i'm not mistaken, that was the single worst collection we had. it got clocked during that period? >> right. that's the uncertainty. even this year with the fiscal cliff, look at what happened. you had a massive sell-off right after yvette mass. a huge pop. as soon as something was resolved, we went over the fiscal cliff. everybody was concerned. me included, that this cliff

would plunge us deeper into a recession and it didn't, but the market was concerned about that at first. as soon as there was certainty, market popped, things were better. people just want that certainty, that's where it kills us. >> let me ask you, this entirely off message and away from the debt ceiling, japan. japan has a much larger budget deficit than the united states. japan has a debt to gdp ratio that i think is too much at 50% or some such thing. japan is the hottest stockmarket in the world, brian kelly. are you there? do you recommend people say there? you know they're pumping up the money supply. give us all some tips. >> yeah. so i'm there. i think you stay there. i believe that the nikkei is up something like 40% this 84. there is a couple ways for u.s. investors to deeply play it. an etf gits long japanese stocks and short the yen. if i had to look over the next two years and say what of those

position dos i want to be? i want to be short yen. you mentioned the debt to gdp. the japanese have a little problem here. if they lose control of that bond market, bond yields spike up. they don't have to spike up much. they can't afford to pay their bills. they can't afford to pay the interest on that debt. so they're playing a very tricky game. it's a place can you make a lot of money. you just have to be aware, the debt could be a problem. >> all that new money is helping the american stockmarket, the european stockmarket, asian stockmarket. they are pumping in so much money, brine, there's enough to go around through all these world stockmarket. that's the way i see it. >> you know, look, it's kind of interesting to see, if you watch the u.s. dollar, japanese yen rate versus the u.s. stockmarket, they're almost a trade in tandem and a correlation. what was interesting, actually, yesterday when the zwrap knees yen broke above 100, the u.s. stockmarket actually sold off. that was the first time that you

might start seeing that, hey, people are getting a little concerned that japan might be going a little too far, too fast. >> maybe 100 is where this thing should wind up. not 125. brian kelly, thank you very much. now, it was a very uncomfortable press briefing at the white house earlier this afternoon. the topic was mostly benghazi. we have the latest on what the white house is saying about it up next on "the kudlow report." tdd: 1-800-345-2550 searching for a bank designed for investors like you? tdd: 1-800-345-2550 schwab bank was built with tdd: 1-800-345-2550 all the value and convenience investors want. tdd: 1-800-345-2550 like no atm fees, worldwide. tdd: 1-800-345-2550 and no nuisance fees. tdd: 1-800-345-2550 plus deposit checks with mobile deposit, tdd: 1-800-345-2550 and manage your cash and investments tdd: 1-800-345-2550 with schwab's mobile app. tdd: 1-800-345-2550 no wonder schwab bank has grown to over 70 billion in assets. tdd: 1-800-345-2550 so if you're looking for a bank that's in your corner, tdd: 1-800-345-2550 not just on the corner, tdd: 1-800-345-2550 call, click or visit to start banking with schwab bank today.

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welcome back to "the kudlow report." with this noudz allergen, it was an awkward press conference with jay carney, carney was grilled by reporters about new e-mails on the benghazi attack slempbt last year that killed four americans. members reportedly edited 12 times and references to al qaeda were deleted. the white house said the initial reports calling it a protest were based on intelligent report. the new e-mails said they knew more than they let on. the state department reportedly told a nonprofit group to remove plans for a 3d gun from its website. we learned about the documentary on the ar-15. now they warned the defense distributed that putting blue prints for a principal gun on the internet could by a gainst the law. let's end on an uplifting note

t. spire was attached to the top of 1 world trade center today. the building now stand 1,776 feet tall. that means it is it is the tallest building in the western hemisphere and a strong symbol for americans. >> a good thing. gentleman, i will break convention. i want one quick sentence. bureaucratic knife fight on benghazi between state and cio or coverup? knife fight or coverup? >> coverup. >> harry. >> bureaucratic knife fight or coverup? >> a knife fight and a terribly pathetic xanl rated witchhunt that moved from barack obama who now has been re-eleblged to hillary clinton and today, this is important, i hope you tell them, today. >> red card, yellow card. >> the end zone. >> i got to tell you, larry, today the republican party is running new online fundraising

on benghaziment we have americans dead and they're politicizing it, raising money for it. it's wrong. it's politicizing. it comes from the republicans. they changed the story 15 times. >> and the irs together. that is leak you clike you can serious allegations. now, we've talked a lot on this program about how fracking has proud an oil boom here in the u.s. do you now how much of a surge this is for the economy as a whole? it's the backbone of the economy, a tremendous job creator. it's even financing state and energy independence. on its way, we will talk to an expert and get an idea of what it will do for stocks as well. that's next. please stay with us. "the kudlow report." .

playing ] welcome book to "the kudlow report." i'm larry kudlow. in this half hour, team obama and all their government planners told us green energy was the future. remember? will well, they were completely wrong. it was the free market discovery of horizonal drilling and fracking that has created an oil and gas boom that will make the u.s. energy independent in ten years. why do famous hedge fund investors hate bernanke and the

fed, maybe their performance is actually below the marks. that's the debate we will have in a couple of minutes. first up, a true free market victory. i love this story. u.s. out put is reported to be at its highest level in 21 years. shale, oil, gas, created thousands of jobs in energy driven economic stimulus. wait until you hear the huge effect it's having on the economy as a whole. here now is american enterprise institute scholar mark barry, the professor of economics at university flivenlt he has a blog card carpe diem. we are pumping out the most we have done in 21 years. i want to step back a second. i love this. obama administration wanted slin dra sylindrat. free market,

including harold ma'am and many others have gone into fracking and horizonal drilling creating an amazing poom in energy and oil. i would say free market so government central planners zero. >> larry, this is a free market success story, as you have been talking about. these are american petropeneurs around america. i think free market prosperity being free market capitalism being the best path to prosperity. this is a perfect sample. this was not a part of any energy policy of design. this was all free market entrepreneurs or petropreneurs to open shale gas and oil. >> if they let it go, if they'd allowed the drilling on federal land, for example, if they put keystone through, for example, we need a lot more pipeline than just keystone.

i'm just saying, the job creation. you tell me, financing local governments, like the state of pennsylvania and hot. , north dakota. didn't they double the estimates of reserves in north dakota? just let the market run. this could create a boom-like economy and we'll throw saudi arabia into the dust and history which is where they belong. >> yeah, the story keeps getting better and better. the energy revolution going on. it's the energy equivalent of the ber len wall falling as somebody said. in terms of job creation, income growth, government revenues, everything about this story is so good, it's creating middle clats prosperity. not inner noth.com, not in texas. most part in the country vice president a shortage of job, north dakota and texas have a shortage of workers. it's a great story. >> it doesn't make you $100 bucks an hour. by the way, the farm owners and

land owners will be rich on royalties. don't you feel this is the worst mistake obama made. i know he spends too much, he taxes too much. but on this one, he's got this grown energy bug up his rear end. right. we know. that he will not let go of this. he was completely, utterly, totally incomprehensibly wrong on all this solar stuff and this electronic car stuff and all this taxpayer stuff. missed the whole boat. >> i think the free market probably understood, here's like a 69 tick method. have you some things that excel, some succeed. the fact that some experiments as businesses or as energy, new energy projects did not succeed, it is not an indictment of the free market any more than it's an indictment of the fact that the president or the -- >> it's planning. he has these government central plaerns. they hate fossil fuel. they want to tax fossil fuel. get in here, they hate oil an gas. they want to have 150 billion

tax hike. he goes out of his way to attack fossil fuel in his speeches. he goes out of his ayla to make the department of energy into some kind of private equity fund where they subsidize with taxpayer money all tease goofy failed green energy experiments. that's not what they're here tore. >> i think there was a study from aei which said the average cost of the created job was something like $11.5 million for 3,000 people. i have been to north.com. i haveb to new mexico. i do a lot of work with people across the country. it's unbelievable. dickenson, mianot. the impact of this animal free spirit development of this natural resource is unbelievable. literally, i think we just mentioned this, there are not enough places to live. people are living in their cars making $95,000 a year. if you want fogo tomorrow driving a truck for 90 grand a year, you could. the point is, this is having a big implications.

in ohio and new motion co. >> also in pennsylvania, the same thing. if new york state, if andrew cuomo had any hutzpah had all, any cojones, if he had a backbone, he would have started up and ended depression in upstate new york that is now 50-years-old. mark perry, you call it saudi america. we will be energy independent, our imports of oil will end, the exports will continue. we will have no trade deficit, the king dollar is going to go higher. the whole world is going to invest here? >> we may not ever get to complete 100% energy self sufficiency. we are moving more in that direction everyier. last 84, we were more energy self sufficient than in any time in 21 years. worry producing more than 83 sponsors of our own energy now. at some point that will get up to 90%. i think if we think of north america by itself, that will be energy independent soon. >> mark perry, well done. by the way, go to his website

carpediem. it has optimism in it. meanwhile, natural gas futures are up 58% last year. today they traded at $3.91. so what is the whole oil and gas boom mean for the market? let's bring in our pal jim iorio. what are you doing about this fabulous bury the saudi's oil and gas boom. free markets, america first economy first, what are you doing about that? >> i thought i was very optimistic about it until i hear you guys talk about it. i think eighth big deal. i think it's significant in the recovery az along with recovery in housing. the boom has at least for facets. one the job creation and two the payments that aren't going overzee seas and saying here, three, lower costs at the pump. they keep talking about distribution and refinery problems. so people are, we are benefiting

from it. we are in the midst of some sort of recovery. it's too sluggish a recovery for my taste. >> wait a second. let me stop you. if they build some pipeline, i'm for keystone, okay. but i'm talking about building pipeline from the gulf up towards the northeastern areas, where we've had so much trouble and they have to by more expensive oil from europe ap so forth. gasoline prices would come down a whole lot. >> there is no doubt about it. that will be great. they're not going to do get they're not going to build them on federal land, you know 22% of the land is federal land. >> obama wants to sub dize goofy battery cars and goofy sylindra wind mills. >> you can talk about how this is an abject failure, his approval ratings, will move up. he sat back and said oil production is up. this has been on my watch.

yes, it has, despite of what he has done. >> you are also right. i lof when the president takes credit. the guy is god. i got to give him get he is one heck of a communicator. he is taking cred it from the very oil and gas boom which he opposes and hates and wants to tax to death. this is what i tell you. >> you talk about bp, you talk act exxon. there is extra costs here. there is a reason why americans want cheap gas and hate what these companies do. they had a lot of cost to the environment. >> and major cleanup. >> they clean up, our third branch of government. >> tim iurio, are you buying this? give us wisdom. >> in the whom picture of the economy, i like the economy. medium term, i'm a definite bull on the stocks. near time, i'm leery about. that i do think we will start to rotate into more further out the rick spectrum, things like consumer discretionaries. i was looking at coach today.

i am long on natural gas and most of the year. >> oh. >> i have been long on very good levels. i'm not worried about the way it's trading. it's a bullish economy. >> phil, go on. i will drop the penalty flag. >> listen, you ask anyone, bach and boom, the biggest thing that scares them, government regulation, the biggest for investors, an epa that goes wild. >> are they worried about the epa coming in, the cleanness of the water? >> what they're extraordinarily worried about is behind the scenes quiet rule making by the obama administration in the waening part of their term in a fundamental way that grows stocks. >> the epa back and he'll take credit no tr energy boom. it's a fabulous thing. i give him credit. he does messaging better than republicans. thank you, jim irio. and a lot of wis dpom here -- wisdom here.

up next, more information on that insider trading case. remember, the picture. look at the picture of a payoff. jane wells has a live report for us outside the courthouse. look at that, they're exchangeing money. i'm kudlow. we'll be right back. .

the jeweler who alleged made more than a million drars thanks to stock tips from his buddy at kpmg appeared in court today. jane wells is live in los angeles with all the details. good evening, jane. >> larry, a $50,000 bond after being arraigned on criminal security fraud charges in connection with insider trading based on tips he says he received from his friend scott london, a top dog at kpmg in los angeles an passed on information like herbal life and skechers. shah will appear before a judge probably next week to actually formally plead guilty. he has promised to turn over the money on trades, his attorney explained why that's not happening quite yet. >> in combination with both the

criminal sentencing and resolving the sec case, we will be disclosing the profits mr. shah received. >> have you reached any sort of agreement with the sec? >> no, we are still in the process of reaching that agreement. >> reporter: he has the $2.7 million available? it's accessible? >> we anticipate by the time he needs to pay that money over, he will have that money to pay over. >> reporter: so while he has reached a plea agreement with the department of justice the sec is taking a bit longer. meantime, skechers is delaying the quarterly fileing because it has to switch auditors. there is a a dispute how much he paid him in kickbacks. nobody is denying there was a payoff, scott london's attorney saying that it's not possibly $50,000. shah's attorney, larry, is saying it was a lot more, $60,000 to as much as $100,000 in cash, concert ticks and

gifts. >> jane, it's still a weird, funny story. it's not all that much money. does this guy shah get immunet? in other words, how do they get shah to sing completely in order to get london? >> reporter: well, because they're, what his attorney has said is that the department of justice is not asking for leniency but they are making it clear to the judge that he has come forward after they confronted him and has been cooperatetive. as long as he continues to be cooperative, it is presumed the court will be more will be lenient on him. he will probably be sentenced after scott london that way he can give his full effect, that way at the sentencing phase for scott london, presumeing he pleads guilty or goes to trial. maybe bryan shaw will testify and all that will weigh into how much he cooperated and what his eventual sentence will be. >> thank you, jane wells in los angeles. we appreciate the update.

now, folks, the hedge fund guys apparently hate ben bernanke, as you heard me in recent weeks, i am changing my mind the worst case scenario hasn't happened. stocks seem to be showing confidence. we're going to have a debate with a fed doomssaher coming right up. i'm larry kudlow. we'll be right back. was built with tdd: 1-800-345-2550 all the value and convenience investors want. tdd: 1-800-345-2550 like no atm fees, worldwide. tdd: 1-800-345-2550 and no nuisance fees. tdd: 1-800-345-2550 plus deposit checks with mobile deposit, tdd: 1-800-345-2550 and manage your cash and investments tdd: 1-800-345-2550 with schwab's mobile app. tdd: 1-800-345-2550 no wonder schwab bank has grown to over 70 billion in assets. tdd: 1-800-345-2550 so if you're looking for a bank that's in your corner, tdd: 1-800-345-2550 not just on the corner, tdd: 1-800-345-2550 call, click or visit to start banking with schwab bank today.

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"business insiders" report, they all hate ben bernanke. stanley directenmuseumer called it outrageous. my next guest says we are hostages to central banks. let me give you a little contrary intake. as a fed critic in recent years, i was completely wrong about infliegs. i've said this before. i'm saying it again, yes, the ballooning balance sheet makes me uncomfortable. nonetheless, it has not translated into real money and there is an insatiable risk for cash following the financial meltdown. bernanke may have done the right thing. i said this to you before, i've wren columns about it. 1% inflation, king dollar is strong. in fact, the greenback has gained grounds since the fed's september qe announcement. god has collapsed nearly $500 bucks. commoditys are flat to none. those are important market signals of no inflation.

nominal gep is rising 3%. none of it signals a big boom, therefore, i am, once again, on this show giving mr. bernanke not only the benefit of the doubt, i am going to give him credit as well. my next guest gives ben bernanke no credit at all and says we developed the stockholm syndrome and we're heading for another stockmarket crash, another great depression. all right, we bring in terry burnham, the associate professor at chapman university, author of "lean markets and lizard brains. "what is stockholm syndrome? what's that mean. >> thanks, larry, i recommend people read the whole article on the making sense web paige. the stockholm syndrome is a psychological phenomenon where people agree with the people who are abuseing them. i make the claim in the article that ben bernanke is abusing

savers. i take the example of the median retiee with $120,000 in financial assets and has to choose between a risk-free return of $60 a year or taking a risky plunge. so those that take a ricky plunge are obviously afraid and what they do psychologically is they begin to believe that the policies will work. >> a lot of people, look, on this potent. it's undeniable that savers have been hurt by these low fed rates. on the other hand, they could have gotten into stocks or longer bond. they're contentt many savers to get a 0% interest rate because they were so scared of what was going to happen. i want to ask you about the key point. i speak as a former bernanke critic. i don't like the balance sheet expansion. when i look at a 1% inflation aerate, terry, a roaring stockmarket. yes, it's a mealy mouth recovery. i'll grant you that, because of

taxes and rec lakes. when i look at the -- regulation. when i look at the monetary stuff, i can't falter him. it's hard for me to say he's wrong. >> first the savers are getting punished, you agree with that. >> do i. >> what's wrong with that is you are transferring money from the prunet to the profit. >> what about these other points? let's leave the savers decide. no inflation, gold falling, dollar rising. >> yes, the other cost here, it's not an inflationary cost. it's a missed allocation. there are two problems. the first problem is the way you get rich in a capitalist country is you make something for $90 and sell it to somebody else. the way you get rich is you make $100. you save 20 of it. the problem what the fed is doing, they're distorting the first decision. they're putting in jeopardy the savings of the second decision, the savers. >> on that, look, i'm partially agree with you. i don't like the fed's minneapolis of interest rates.

i don't like it one bit. i got to say this against that backdrop of the fed putting all this liquidity into the banking system after the crash, you mentioned profits, profits have been fabulous, the backphone of the stockmarket, which has also been fabulous. and i would say to you, if bernanke was as bad as you and others are saying, these markets would be going down t. fed can't force stocks up. it's profits and businesses that are prospering and a little job creation. this guy this last few, he's doing what he said he was going to do. >> i disagree. i think the costs will come in the future. we don't know get i think it's interesting that you have become bullish on them at this point, if we can put up the graphics that i created, you can see that that the last time the fed was super easy was after the nasdaq 5,000 crash. they cut rates. alan greenspan was the chairman. ben bernanke was a voting

member. >> bern bernanke wasn't on. he came out later. >> 2002 to 2005. >> let's talk about the current six. >> i want to talk about the last one because the costs were not visible for five years, larry. >> i don't think they did well on. why would you believe them? that's the psych logical issue is why would you believe them this time when last time they failed. >> the marks are telling me differently. >> the marks are telling you differently in 2006 and 2007. >> i beck your pardon, gold was skyrocketing the dollar was collapseing book then. that was such an important signal that something was very wrong. what's changed my mind in recent months about bernanke is not just the money supply, which is low. but gold has fallen big time and the dollar is rising. and those market price indicators would not be behaving sobell well so well if a catastrophe or end of the world scenario was in front of us. markets are endorsing bernanke. >> they cut rates in the last

scenario in 2001. everything did well until 2007. so the lag between what they did in cutting rates. let recall, they cut rates when the unemployment rate was 4%. the lag was five years. >> i got to leave it there. i can't do the whole history lessson. i'm sorry, i'm a market guy. the markets are telling me the story is not so bad. >> the story not over, larry. see you in a few years. >> that's what all the negative people say. i'm larry kudlow. we'll see you monday. out front. what do you do? well... [ splashing water, car engine ] ♪ and bingo was his name ♪ yeahhh! i, ah... [ male announcer ] chevy silverado. the most dependable, longest-lasting, full-size pickups on the road. right now, chevy truck owners can trade up to a silverado all-star edition and get a total value of $8,500. the dependable, reliable chevy silverado.

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anaheim goaltender jonas hiller has one win and two losses in his previous three opportunities. on the other side jimmy howard has faced elimination eight previous times in his career, winning five times. game six, awings/ducks, is next. what a