it's cloudy because of citrix. we've got to do more work on that. there is always a i will see you tomorrow. is there a new ray of hope in washington? well, it does indeed look like the chances are improving for a short-term debt and budget deal that would then buy time for a real negotiation for the longer term. it's also hopeful that republicans and democrats in both houses are meeting with president obama who is finally getting involved. but the markets continue to be skittish about all the shutdown and default talk. interest rates actually starting to creep up on very short-term bonds. and president obama finally officially nominated janet yellen the queen of the dubs to be the next fed chair.

is she the right person for this crucial spot at this momentous moment? all that and more coming up on "the kudlow report" beginning right now. good evening, everyone. i'm larry kudlow. this is "the kudlow report." we are live here at 7:00 p.m. eastern and 4:00 p.m. pacific. and our top story tonight. it's day nine of the government shutdown. while democrats continue the economic scare tactics, i believe there are signs for optimism. president obama is meeting with democrats and republicans from both houses in the next few days. therefore, he's getting involved for the very first time. and a clean short-term solution may buy time for a pro-growth,

pr pro-roem pr pro-reform, longer-term deal. take a listen. >> those may be short-term measures. if that happens, does your offer to negotiate with him on issues like health care and spending and deficit reduction still stand in the intervening weeks, perhaps six weeks or two months long? >> absolutely. what i've said is that i will talk about anything. what will happen is we won't agree on everything. the truth is that the parties are pretty divided on a whole bunch of big issues right now. >> so that was the key moment in the whole press conference, if you ask me. let's talk about this. joining us now, house members rob andrews, democrat from new jersey, who was at today's white house meeting. and ann wagner, republican from missouri who will be part of the gop delegation tomorrow. welcome to both of you. >> thank you, larry. >> rob, let me begin with you. i know the democrats are more

skeptical about this stuff. i read it this way. the president basically said, give me a clean budget bill, give me a clean debt bill, let's get that out of the way. maybe four to six weeks, taking us to the end of the year. while we're doing that, let's negotiate. let's get republicans, let's get democrats, both house, let's try to negotiate a longer-term, one-year debt increase that will have some reforms in it. does that make sense? is that what the president was saying? >> i think that's a pretty good interpretation, larry. i do think it's a ray of hope. the president's been steadfast in the idea that we should not have these negotiations in an artificial emergency where we have a government shutdown. and god knows where we have the threat of default on the country's obligations. when those issues are off the table, for whatever period of time, then i think everyone's egg eager to have a negotiation about the country's future. i think there's a ray of hope.

i would prefer a longer-term period. but if we can avoid a default and open up the government again, i think that's a very reasonable thing to do. >> go to ms. ann wagner, welcome to the show, congresswoman. we appreciate it very much. i'm sure you read paul ryan's op ed in today's "wall street journal." i think it's particularly important now, what he's saying is, let's get together, take some time and develop a package of entitlement reforms and tax reforms that would be pro-growth. we could do ourselves some real good and snatch victory from the jaws of defeat. do you buy that? >> absolutely. and i'm excited and thrilled to have an opportunity to negotiate with the president tomorrow. we're going with our leadership team to sit down and get things done and find solutions. this is about solving big problems. when you look at the debt ceiling and debt limit over the past 30 years, presidents from

clinton to reagan and everyone in between have gotten big things done, whether it has to do with balancing a budget, deficit reduction, welfare reform. we want to do some big things. and we want the president and harry reid in the senate to come work with us to get things done. >> rob andrews, one point, ryan included some entitlement reforms in his article today that the president has from time to time used. >> yeah. >> including maybe most prominently, the cost of living adjustment for social security. but also higher medicare premiums, the president's talked about that. maybe a higher co-pay for federal employees. these are things that have been on the table and are they negotiable, in your opinion? >> yes, they are, but not in this crisis environment. they're negotiable when the government is open and when the country has honored its full faith and credit. certainly the president included

in his budget proposal this year the so-called change cpi proposal. a lot of democrats don't support that. but i think many on our side would be willing to support it if it were part of an agreement that promoted economic growth through better infrastructure, promoted education and certainly if it also rolled back the across-the-board spending cuts called the sequester. it's interesting what mr. ryan did not have in his op ed today. he did not call for a repeal of the health care law. this whole shutdown was really over that. and the fact that it looks like the republican party has agreed to walk away from that is a very favorable development. >> i don't know about that. ann, has the republican party walked away from any obama care reforms? >> no, we have not. a number of republicans and democrats are coming through to fund the government. we are actually funding vital and essential services, helping

those that are most vulnerable. what we really need is for harry reid and the president to get on the same page and stop this back of the hand mentality and let some of these funding measures go through. we want to fund our government. we want to make sure vital services are funded, that the government is open. and we don't want to deal with this nonnegotiating mentality that's auto there. nor should we be scaring the american people with threats of recession and ransom and retreat. these things are wrong. it's time for us to come together for solutions. this is our opportunity to get big things done. >> how about tax reform, rob andrews? i want to go there. >> i would echo -- >> you have a chance for bipartisan tax reform. right? >> right. >> both sides, finance committee, have been working on that. the president himself has talked about corporate tax reform.

you can put together a package that might work. what about that, rob? >> i think that's some place these negotiations might and should go. the president has talked about lowering the top corporate rate on the c-corps to 25%, doing it in a way that's revenue-neutral by closing loopholes. that's a very reasonable proposal. let me give you a preview of the negotiation. i would be willing to vote for a solution that has corporate tax reform, like i just talked about, that has reasonable reductions in entitlements and reduces the sequester. i think the republicans have to answer the question, how many of them are willing to vote for a plan that leaves the health care bill in place, that abandons this insistence on repealing? >> ann wagner, we're not going to settle the health care thing right now. but i want to ask you this -- in ryan's piece today, he said he'd be willing -- republicans may be

willing to swap entitlement reform for some kind of loosening of the sequestration budget caps. do you buy that? >> of course what we want to do is rein in spending. $17 trillion in debt and while a lot of the mainstream media is running these shutdown clocks, i wish they'd run the debt clocks, too. we have a spending problem and an addiction to spending. we are willing -- we never felt that sequester was the right way. we thought it was way too draconian, especially in the areas of defense. so we are willing to come to the table, put everything on the table to find solutions and to get things done. that's what i'm hoping for. that's what the american people want. we have to jump-start this economy. at the end of the day, it's about growth and jobs and a stagnant economy that's floundering. we have to do our jobs and find solutions for the american people. >> by the way, ms. wagner, you can't see it, but we have a debt clock on our wall. this is "the kudlow report." >> hallelujah.

>> this is where free market capitalism comes into play. and it's $16.9 trillion. i'd love to talk to both of you much longer but we've got to go. i wish you all the luck in the world on the goings-on down there. many thanks. house members rob andrews and ann wagner. so is there a growth-oriented solution to the debt? let's talk, here now is former obama campaign aide, democratic strategist mark hanna and two veterans of the bush-cheney white house. robert tranum and sarah fagan. what do you think about this? short term, get that out of the way, buy six, eight weeks and then try to hammer out a reform package? >> i think that's clearly what's going to happen here. i don't know if you'll get both the debt ceiling and the government open. you may just get the debt

ceiling raised. but in the final analysis, the person with the last laugh may be john boehner. he may ultimately get the grand bargain that nobody thought at the beginning of this year was possible, by playing this the way he's played it. he's gotten a lot of criticism for it. >> sort of a mini grand bargain. >> mini. if we start doing entitlement reforms, may not be a grand bargain. but you get entitlement reform and some of these bad elements of obama care repealed like the device tax, it's a pretty big win for the speaker. >> mark hanna, i think it's also a pretty good win for the economy. the economy needs boosting. that's really the key point. and all this talk of a shutdown and a debt default and so forth is not going to boost the economy. it's just the reverse. that's why i think obama left the door open today. i am usually a critic but i looked at that press conference and said, wait a minute, let's parse through this. what is your take on obama's opening and paul ryan's response

and sarah fagen's response? >> the economy has nowhere to go but strength. we've seen the volatility in the stock market just by talking about this possibility of default in eight days. so i think there is an opening here. i think a negotiation has to happen. but it can't happen in the next eight days. what has congress ever accomplished in eight days under the pressure of a default where all our international allies and enemies and creditors are watching this process unfold? we need to commit to the solvency of the american economy and then figure out the big questions. >> robert, take a clean debt bill, a clean budget bill, for now -- like now, six weeks, seven weeks, that kind of thing -- to the end of the year, that gives you time to congre congregate with the different

complexities of the thing. i think that's what obama is saying. i may be wrong but i think republicans -- i know that paul ryan heard it. i've heard that from a bunch of senior staff people today. give me your take on it. >> i totally agree with you. i think it's a band-aid for now. but let me go back to what sarah said. i agree with her. i think speaker boehner may be crazy like a fox here. at the end of the day, it was all about defunding obama care. everyone in washington knows there's no way you can defund obama care. what i think the speaker was doing is saying, this is going to be a smoke and mirrors thing. it's all about obama care, but at the end of the day, he knew the president was going to negotiate even though the president said he wasn't going to negotiate. the president has now said he is going to negotiate. to sarah's point, i think this is where the mini grand bargain comes into play. one could make the argument that speaker boehner knew exactly where the chess pieces were going to go and knew the

president was going to cave a little bit on some type of compromise. >> we talk about we need more time. when is there enough time to get this done? these members of congress and this president especially have had enough time to come up with a grand bargain. so six more weeks while we're all optimistic sitting here, they're not going to get many more opportunities to do this. >> maybe they'll sit down constantly for six weeks -- >> hopefully. >> i'm not sure how it will work. but you're buying time. you're buying time. let's take tax reform, mark hannah. max baucus and dave camp, baucus, senate finance chairman, dave camp, house ways and means. they have been meeting for months and months and months and months and they have basically developed a bipartisan tax reform plan which frankly is ready for the light of day. now, you give them six more weeks, they're going to have to lock horns, get everybody in the

same room. why can't that grow? if money's coming back from overseas, if corporate tax rates are coming down, if tax rates on small operator-owned businesses are coming down, that gives the economy a boost. that's why this becomes a growth package. >> you're absolutely right that there are bipartisan conversations going on behind the scenes. all sorts of democrats and republicans are talking to each other while speaker boehner and president obama just stare at each other and have this game of chicken. there are discussions that are happening that should be coming to the foreground, that should get out from behind the scenes. that's a much more productive use of their time than shutting down the government. >> have a cocktail, play some golf, do their best imitation of reagan and tip o'neal. >> how many golf rounds do they have -- >> i don't know. >> they don't like each other. there's no level of respect there. they distrust each other. to your earlier point and everyone else, there is a level of trust and respect at the

congressional level between max baucus and dave camp on the republican side. there's a real relationship there. >> here's why we should be optimistic. this is the time in a second term where the president starts thinking about his legacy. and is this really the legacy president obama wants to leave behind? a broken government? he has an opportunity to do something big. hopefully he seizes that. >> we're going to come back. stay with us. got a lot more to do with you later this hour. turns out the computer crashes on the obama care website could have been avoided. the white house was warned but they went ahead anyway. turned out to be a disaster. and later in the show, it's official now, the queen of the doves, janet yellen, is nominated for the fed chair. will she be as good for the markets as some think? don't forget, free market capitalism is the best path to prosperity. we can still victory from the jaws of defeat with a good

package on the budget and the debt. i'm kudlow.

by now we are all well aware the many glitches plaguing the obama care exchanges.

but a new report from "the washington post" today says major insurers, state health care officials even democratic allies warned the president that the exchanges had significant problems. why didn't the president listen to these warnings and delay obama care launch or even the individual mandate? here now to discuss is betsy mccaughey. why didn't they listen? >> it must have been political desperation because the government accountability office issued two warnings over the summer saying the hardware and software were not ready for primetime. the treasury department inspector general warned that the federal data hub, which is like a traffic circle serving all 50 exchanges, was not ready, it hadn't been tested. that unbelievable was not tested until september 30th, the night

before the exchanges were going to open. and many industry experts said these aren't glitches, larry, that these are fundamental mistakes in the design of the software and hardware. let me give you one example. any woman watching your program will find this amazing. go on any website, say you're shopping for a new dress. you don't have to enter all your personal information before you see what they have at the gap or jcpenney or wherever. but in these 36 federal exchanges, you have to enter all that information about yourself before you can see what plans are offered. >> why? what's the point of that? and by the way, they bungled the computers for the personal security. id stealing could be rampant in this. >> yes. in fact, that's a major concern expressed by members of congress and the inspector general. here's why they did it. they didn't want so much sticker shock. so they're giving people the after-subsidy price. to know what the subsidy would be, they have to know about you. how much income you have, how many people are in your family.

that's why they did it. some of the state exchanges avoided that problem and there are a few state exchanges that are working well. but the fact is, it'sime to press control, alt, delete and delay this because it's not working. >> they already delayed the verification part. people can sign up and get their subsidies now. but the weird thing is. you look at some of these states -- i know there's no overall reporting yet. the numbers coming in, not to people shopping around but the people actually signing up for obama care, the numbers are small. >> very small. >> why is that? >> on the doctor and hospital side, doctors and hospitals are also required to use this electronic technology. it tells them what they have to ask their patients, how they have to treat their patients. standardizes medical practice. and doctors and hospitals are really desperate because they're going to get penalized financially if they don't follow this software and frankly the software doesn't work. a lot of it isn't even available yet. >> i'm told by some software

people that this could have and should have been a fairly routine operation. a lot of experts have said that and can't figure out why it was bungled. >> they had three years. i think back to normandy beach, d-day. what if they hadn't been ready, larry? >> right, right. >> government is supposed to be proficient. >> the argument should be made and maybe at some point obama will buy this, that the individual mandate should have been delayed. you've already delayed the verification issue. >> you've delayed the employee mandate, income verification, caps on out-of-pocket expenses. over half the deadlines in this law as well. what you're dealing with is not the affordable care act. what the president is trying to impose is a mangled, distorted, illegally -- >> whatever your view is of obama care, delay it and figure out how to do it right? >> that makes sense. >> betsy mccaughey, i got that. it's definitely the number one outrage of the government

shutdown. the families of our kill killed-in-action soldiers not getting their death benefits from the government. but guess what the obama administration is paying for at the tune of about half a billion dollars? this story will leave you outraged and turn your stomach. this is "the kudlow report."

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welcome back to "the kudlow report." i'm dominic chu. so a fix is in the works for the most outrageous unintended consequence of the shutdown. the house voting today to pay death gratuities to family members of military people killed in action. the defense department said it couldn't process the payments during the shutdown. this bill goes next to the senate. but in the meantime, a charity, the fisher house foundation, will make the payments to these families and the department of defense will reimburse fisher house once the shutdown ends. >> thanks very much. what did anger some people is that on october 1st, the first day of the shutdown, the corporation for public broadcasting, "sesame street" and whatnot, they got a $45

million grant while the military people who last their lives got nothing. that angered a lot of people and i think rightly so. >> again, this is brought out -- this whole situation has brought out some of the biggest tempers about what's going on. what's prioritized in the marketplace, what's prioritized in our government. it shouldn't ever have to be a situation where you have to make a choice about funding public television or paying death benefits to killed veterans' families and that's a tough situation. >> i totally agree. domin dominic, thank you. we're talking to some house members. now it's time to ask a senator who's heavily involved in the budget negotiations. senator ron johnson will tell us some of the inside scoop. we'll be right back. (announcer) scottrade knows our clients trade

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welcome back to "the kudlow report." i'm dominic chu with this news alert. the united states today announced it will halt aid to egypt. that means a delay in a $260 million cash transfer and a $300 million loan guarantee. it also includes military aid, including tanks and f-16 fighter jets. the state department says it will maintain its relationship with egypt but, quote, recalibrate its assistance. >> many thanks, dominic chu. house republicans are out

with a pair of high-profile op eds today calling on the president to sit down and negotiate and find some common-ground solutions to break the budget impasse. today, paul ryan pitched a two-step plan to house conservatives in the hopes of ending the stalemate. ryan's plan, a temporary debt hike and reopening of the government, long enough to pass a long-term entitlement and tax reform program. i don't know all the details but i like the piece. joining us now to discuss that from a senate perspective, we welcome back wisconsin republican senator and budget committee member senator ron johnson. mr. johnson, thank you very much. >> hello, larry. >> can you all get through the first stage of this thing? just have a clean budget resolution and a clean debt bill for whatever, two months, which buys you time to put something that's more pro-growth and reformist and longer term together? can that be done, senator? >> it can be done.

will it be done is kind of the tough question here, larry. i can't predict it right now because president obama, harry reid are obviously reading some polls. they must feel they have some kind of political advantage here. they're just simply not willing to negotiate. it's hard to come to some agreement if you've got to other side refusing to negotiate, thinking they have some kind of political advantage. i think it's highly irresponsible, cynical. but that's the position we're in right now. >> here's the thing. he said yesterday at the news conference, he said, give me a clean bill in the short run -- i don't know what he's talking. he's probably talking to december 31st. give me a short-term clean bill and then i will negotiate. now he's meeting with the house and senate members from both parties, which i think shows he is getting involved. now, harry reid, the majority leader in the democratic party, he wants a one-year clean bill. he ain't going to get that and shouldn't get that.

but a six or eight-week clean bill, you could do entitlement reform. >> we've done that in the past. the key is we have to maintain some leverage. i don't want to play bringm brinksmanship with the american economy. but we're not ignoring the long-term debt and deficit problems we have in this nation. the president is. he's burying his head in the sand. so is senator harry reid. the reason we're at this impasse is because senator reid hasn't passed an appropriations bill in two years. that's the primary function of congress is to authorize the activity of the federal government and then fund it, pass appropriation bills. we haven't been doing that in the senate. we've been utterly awol, derelict in our duties. that's the reason we're in this position. but we have to maintain the leverage if we're ever going to get president obama to start stepping up to the plate and addressing our long-term debt and deficit issues. >> historically during this

recent period, democrats in the senate -- i don't know about the house. the house is a little more split. but democrats in the senate have been totally opposed to entitlement reform of any kind, even the stuff like cost-of-living adjustments that obama is in favor of. do you think that logjam can ever be broken? >> only with information and political pressure. i was involved in some of those white house discussions. what i was bringing to the table was, first of all, get them to admit they have a problem. let's face it, when you hear people say that social security is solvent to the year 2023, that's like fingernails on a chalkboard. medicare will run about a $36 trillion deficit over the next 30 years. you have to first understand the depth of the problem. you've got to force that on democrats so they acknowledge we have a problem. right now, they demagogue the

issue. paul ryan puts forward, i think, realistic solutions to medicare. they just demagogue it. they have ads where they have a paul ryan look-alike pushing granny off the cliff. >> even the president has endorsed the cost-of-living adjustments. let me ask you this -- there's a swap in the ryan plan. i want to get your take on this, see if it's realistic from your enof the woods. ryan is basically saying, give us entitlement reform and tax reform and we will loosen up the sequester or maybe get rid of the sequester altogether. does that swap work for you, senator johnson? >> as long as we know we have the actual structure reforms passed and in place. let's face it, our long-term debt and deficit issue is driven by the entitlement programs. those programs are not sustainable for future generations. they're not. we have to figure out how to save those for future generations. i would be willing to look at swaps in entitlement reform for sequester. but, again, not giving one up

before the other. sequester is one of those points of leverage. the debt ceiling is probably the other really good point of leverage. we can't give that up until we actually have these reforms passed into law. >> what i'm hearing from you -- you're always very candid -- is trust but verify. that's what i'm hearing from you. >> i would say verify and verify. >> okay. thank you. senator ron johnson, wisconsin, we appreciate it, sir. let's bring back our political panel, democratic strategist mark hannah, robert trenhohm and sarah fagen. what did you hear? >> i heard verify and verify. leads me to think there's some optimism but there is some skepticism. one of the challenges the president faces in this upcoming negotiation is there's a sense among republicans that he just wants to break them.

and it's politically offensive when you think about that strategy against the backdrop of a debt ceiling. it's one thing to do it on the lilly ledbetter act. >> mark hannah, the president has been so negative on the economy. he's been fear-mongering about if we don't meet all of our governmental obligations, meaning the whole bloody budget. i want to read you something. this is a story out of "the washington post." moody's, the rating agency says the following, that the u.s. treasury department is likely to continue paying interest on the government debt even if congress fails to lift the limit on borrowing next week, thereby preserving the nation's sterling aaa credit. what they're saying is something i say every night. we get $240 billion a month of income. we only have to pay out $35 billion of interest expense. there is no chance, there is simply no chance that we will default on our u.s. treasury

obligations. and why the president continues to go down that road, i do not get it. he should be optimistic instead of trying to scare the bejesus out of everybody. >> the president is optimistic about the country's economy. we talks about the private sector creating jobs and the deficit shrinking under his leadership. but this is just bad policy. i heard senator johnson -- what i heard him say is that the debt ceiling is a piece of leverage that republicans have. that just grosses me out, frankly. the fact that they are going to take the solvency -- our credit rating, you cited moody's. you didn't cite what fitch said. >> the numbers are the numbers. now, i used to work in the budget bureau. and i know these numbers. and bob, by the way, you can prioritize it. but the numbers are the numbers. i want to say this again.

there's a lot of investors out there selling their 30-day bonds because they're worried the treasury can't make good. the income coming in on a monthly basis is vastly -- like 10, 12 times more than the payout on the treasury interest. robert, i want to ask you about this. what did you hear senator johnson -- he wasn't as optimistic, i thought, as our two house members were hat the beginning of the show. >> i heard him basically say, we don't trust the person we're negotiating with. the reason why we don't trust the person we're negotiating with is because he's constantly shifting the goal post, if you will. trust but verify but we have to double-check everything. because we do have the upper hand when it comes to sequestration and also the debt ceiling, let's hold his feet to the fire here because we just simply do not know what type of barack obama may show up to the negotiating table. >> that's a great point. which obama shows up. that's a great point. the good obama, the negotiating, the good-faith obama has to show

up for a lot of reasons. but one of them is to replace harry reid. >> he cannot be at the negotiating table. >> he is a bad influence on the entire process. anyway, we have to get out. >> so is ted cruz. >> mark hannah, thank you so much. bob, sarah, thank you. we finally got to news we'd been expecting for many months. janet yellen nominated for fed chair. will she be good or bad for the markets and the economy? yellen's supporter jimmy pethokoukis and yellen doubter kevin brady are going to debate that very proposition next up on "the kudlow report." if you have the audacity to believe in straight talk, not double-talk. if you have the nerve to believe that in a puzzling financial world, clarity is king.

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is janet yellen the right person for this job, sir? >> she's certainly qualified. her years at the fed, her qualifications, i think her integrity professionally are all very solid qualifications. the question is about the policies that she'll pursue as chairman. clearly i think we'll see chairman bernanke's policies perhaps expanded even further, certainly lengthened. i don't think that's the right solution to what ails this economy. i actually think right now the fed ought to be very clearly laying out both the tapering, the exit strategy because wall street's juiced up. it's doing great. main street, still struggling. four years after the recession ended, i don't think the fed has the right cure. >> let me read something from john taylor of "the taylor rule" about janet yellen. he said -- this is a quote about yellen -- i'm sorry, this is a quote that yellen made. "in normal times when the economy is buffeted by typical

shocks, simple rules come pretty close to approximating optimum policies." but she said, times are by no means normal now and the simple rules that perform well under ordinary circumstances just won't perform well now. does that concern you at all? >> i think actually the fed has moved of late more towards a rule-based strategy with their economic thresholds. but i think a clear, simple rule -- my preference is targeting the level of nominal gross domestic product, would be the ideal rule. i think we need get back to a rules-based strategy. i don't think it's the deflationary strategy that the congressman might prefer. i don't want janet yellen as my u.s. treasury secretary. i'm not sure she would be the right person for the job in 1979. but with inflation at 1% and the real rate closer to 10%, i want someone who's going to put the thumb on the scale for the

important part of the dual mandate. >> inflation is about 1.5%. m2 growth, 10%. unemployment, 7.25%. congressman brady, what about things like the dollar or commodity indexes or the price of gold? you have written about this from the joint economic committee, that you like having market-based price rules. do you think ms. yellen would pay any attention to that? >> well, i would hope so. but i don't think immediately she will. i think she really is focused on continuing the q.e. she really wants to focus on the employment mandate. but there's only so much the fed can do. two things, i think it is actually creating more uncertainty in the marketplace. certainly we live in this opposite world where job numbers create a rally on wall street. that's not a healthy signal. and the truth is the fed can only do so much in employment. i think a sound dollar, price

stability over time and that clear signal actually creates the strongest foundation for economic growth. and by the way, the fed still should be turning to congressman and the president saying, we have done too much. it's time for you to address the fiscal issues. >> go ahead, jimmy. >> we have an example of the kind of central bank the congressman would like. that's the european union central bank, and that's staying on the sidelines. as the european economy has collapsed. why does europe have a huge debt crisis when in many countries the debt levels aren't that high? because their economic growth has collapsed. that sort of inflation -- overfocus on inflation. the fed has a dual mandate. it needs to be followed. it hasn't been enough up to this point. >> i have to disagree. especially on the characterization. the fact of the matter is, i don't want this fed to be the european central bank. but i do want it focusing on

what it can actually achieve, which is a sound dollar, protecting the value of that dollar over time. the truth of the matter is, what businesses are waiting for and seeking before they invest in the economy again is not more stimulus from the fed, it is pulling back the affordable care act. it's all the regulation coming out of washington. and i think clearly it's the tax code that's broken and a big drag on the economy. >> jimmy p., let me ask you to close down. do you think janet yellen will prolong q.e. 3? in other words, take a longer time to end the bond purchases and do you think she will take an even longer time to raise the short-term fed funds target? >> actually, i don't. i wish she would. i don't think she will. i think there will be some pressure to show that she is tough on inflation. but i think it's going to be data-dependent. if the data is weak and it may get weaker if we have a debt ceiling crisis, then it's going to be a much longer time before we begin to taper. >> all right. thank you, gentlemen.

kevin brady and jim pethokoukis. let's talk stocks. is there a way to shut down proof of your portfolio? and is something bothering the market other than washington? we have answers next up. ♪ ♪ [ male announcer ] eeny, meeny, miny, go. ♪ ♪ more adventures await

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welcome back to "the kudlow report." i'm dominic chu with this market flash. it was a mixed session today for stocks as investors seemed to like janet yellen and the dovish more accommodative stance that

she brings to the table. but concerns about the debt ceiling and the shutdown are still weighing on stocks. the dow, the s&p 500 both finished slightly higher. but the nasdaq composite lost 17 points. and late in the day, we got this piece of news. fidelity's money market funds are getting rid of all their treasury securities due to mature later this month and in early november. fidelity says it expects the issues to be resolved but wants to protect its investors. >> that's a very important point. many thanks, dominic chu. now the question is whether wall street is dominated by the government shutdown shenanigans or are there other things going on in life. here now is jim iuorio and ed buttowski. ed, let me go to you on this fidelity issue. do you believe the government is going to default on the short-term paper? they're trying to move out of treasuries -- short term, very short-term treasuries that mature in late october and early november, which would be the time of some kind of breakdown.

do you think fidelity is right? >> i think fidelity is out of their mind to even bring it up. they're probably getting a lot of pushback so they feel like they needed to address it. the government is not going to default on this. i don't know why they're bringing it up. >> i think ed is exactly right. we'll never default. regarding treasuries, i already said it, we get about $240 billion of income every month and we pay out on interest expense about $35 billion. that means we will never default on treasuries. let me repeat that. we will never default on treasuries, not even remote. do you think fidelity is making a mistake? >> yes, i do think fidelity is making a mistake. i underline what you said. but the market yesterday -- there was about a three or four-hour period where very short-term interest rates spiked higher and a lot of other people shared fidelity's fear. that was the same time the stock market cascaded lower a few handles. but i also think that they're

not going to solve this today. they're going to kick the can down the road. they have somewhere between eight days and 20 days, depending on who you listen to, but i also think to open this up, you said, does anything else matter? the answer to that is no. i hear that earnings season started. but it's just about washington right now. >> ed, is there anything else in life besides the shutdown? >> yeah, jim, i love you, but i think this is all driven by earnings. the shutdown, everyone can taubtd it. but earnings revisions are coming in, tweaked a little bit lower. that's why stock prices are selling off. if people really thought the shutdown was going to matter or we really had a chance on the debt ceiling not being raised and us defaulting on our debt, this thing would be down 3,000 points. >> here's the issue i have. the only time we really seem to lose control of the stock market was the same time we saw

collateral worries in repo markets reflected in short-term rates. to me, it was a default thing. if they can give us rhetoric today, saying, we're going to come up with something short -- we're going to look at earnings but not for the next two weeks. >> again, i hear this talk all the time about what washington's doing. why don't we look at what wall street is doing, look at what the earnings are. see if we see a tweak-up in interest rates. a little bit is okay. a lot will hurt. overall, buy stocks, leave it alone. just go out there and help grow the economy. do not worry about all this government talk when it comes to your portfolio. >> 20 seconds, jim iuorio. janet yellen is supposed to be a big dove. but gold prices fell almost 20 bucks today. why? >> i've been thinking about this all day. what if we nominated the most dovish character we can to put in this spot and gold sells off? it must have been that janet

yellen was baked in a little bit. you can't get more wet than soaking wet. we're already saturated in liquidity. and gold has lost its glow. >> i hope janet yellen watches gold. jim iuorio, thank you. ed, thank you very much. tomorrow, tune in for a special edition of "power lunch" at 1:00 p.m. eastern. one special on how to protect your money during the shutdown and debt ceiling. your ford dealer. who has 11 major brands to choose from? your ford dealer. who's offering a rebate? your ford dealer. who has the low price tire guarantee, affording peace of mind to anyone who might be in the market for a new set of tires? your ford dealer. i'm beginning to sense a pattern. get up to $140 in mail-in rebates when you buy four select tires with the ford service credit card. where'd you get that sweater vest? your ford dealer.

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