Grab that must be stopped. And recognize anyone . Yeah, thats lois lerner back in 20 so. What she said on that tape may explain the entire irs targeting can sk scandal. Well let you listen and decide for yourself. All those stories and much more coming up on the kudlow report beginning right now. Good evening, everyone. Im larry kudlow. This is the kudlow report. First up, lets look at positive signs in the Global Economy. Initial jobless data out today. Lowest level since before the recession. Mortgage delinquencies, five year low. Even traces of growth abroad. So my question is a simple one. Are we underestimating the Global Economy . Maybe were all too pessimistic. Or maybe not. Here from the cme is rick santelli, also with us joe la voin i cant and jared bernstein. Rick santelli, such a pleasure to have you back on the show. I go to you first. Rick, your jobless claims have come down, lowest since november 07. Food prices are actually falling in a new report today. Thats great for consumers. And what really caught my eye was that serious u. S. Mortgage delink gwe delinquencies a five year low. Maybe things are better. All i can think is maybe we overestimated some of the down side whether in u. S. , europe. But i think were overprizing stabilization. I think positive things are happening, but then again, time does heal all wounds. And if things were so absolutely green shooting oig, and were used that term before several years ago, we shouldnt have to use it twice. Either theyre green shoots or just vines and i cant tell which you. But i will tell you this, its a circular argument. If things were as good as where he want to paept thint them, th cant the fed vacate the premises. Why cant bank of japan vacate the premises and why cant europe vacate the premises from the standpoint of central banks. I think its coming. The guy from england sounds like the guy from the ecb, sounds like bernanke, sounds like the people from japan. Very interesting to me. But i think you have an important point. By the way, years ago i called them mustard seeds and they started to grow. But they did not grow enough. And were still trying to catch up with the economy. I know. And im not a roaring bull here. Im just putting this stuff on the table. Already, jared bernstein, whats your take on the story. I like your optimism and you can certainly point to some things, we havent mentioned housing, but clearly not only is the Housing Market help to go boost growth in a way that it was going exactly the opposite direction for years of course, but also there is a wealth effect. And if you think that about every dollar of housing wealth translates into another six cents of extra consumption, its one reason why theyunder stateme estimated growth first half of the year. But fiscal and monetary is where i differ from others. You saw what happened when the fed made a pretty oblique suggestion about tapering Interest Rates went up about a point. So if Interest Rates go up too quickly and fiscal policy continues to blow head wind, that will continue to push the other way. I dont know, joe, im on the other side of both of those. Number one, i think higher Interest Rates show better Economic Growth and normalization and number two, i love it that we have a spending cut going on this washington, d. C. I think we should have more spending cuts. But i want to get your take not only on the usa, but also we have better trade numbers out of china both imports and exports. Japan has been producing better numbers, im not saying any of this is perfect. Even europe is showing up, their purchasing managers look a little better, germanys production looks better. Is it possible that even europe is improving . The firm view at Deutsche Bank is that europe will get recession this year, so i agree the European Data look better. The case is the same with japan. Certainly the Global Economy looks better. And part of that is the u. S. The u. S. Economy is firming. Still awfully weak, but it is getting better. Having said that, the corporate sector is vexcellent. Interest rates have risen a percentage point, but theyre still awfully low. We had the same kind of move back in 2003. And 04 05 growth was excellent. Why is it gdp stinks . Why are there so many people working part time . Im actually a real list. Realist. Weve had the best job growth since 05. 190,000 a month is okay. Wevh since 05. 190,000 a month is okay. Most of the weaknesses in services, this is the only cycle in the last 70, where Service Spending actually shrunk. Doesnt mean the economy is doing great, but i think there is real measurement problems with the data. I have a absolutely different perspective on gdp. I think if you decompose the components, youll find capital e investment has been uniquely weak. But rick santelli, Capital Investment may be uniquely weak even though companies are profitable because of things like obamacare and other regulatory threats and other tax threats. There are down seides to this story. And i find it fascinating when you talk about overregulation, and it isnt about regulation and this is why politics is just such a horrible topic, good regulations and bad regulations are all regulations so they get lumped together. And when you go into this argument, youll see many say, well, how could they have record profits if there is all of this headwind with regard to regulation. Because a lot of the headwind is for the smaller midsized companies, a lot of the issues evaporate if youre a very big company, and i think we now live in a world where its very difficult to acknowledge, but if you look at the 50s and 60s, its smokestack america and how many people they needed to employ to create one percentage point of gdp. You can now have Companies Like a google, like an apple, where they can do it with so many less employees. To me the big structural dynamic around the globe that i havent seen change is the reality of creating good jobs and strong middle class and i think without those, that it is only a move towards normalcy and not that thats bad, and ill take it a step further, joe, do you really believe the 190,000 jobs number is painting the kind of picture even ben bernanke now that hes tied his programs to Interest Rates, theres a new dose of honesty there that the number advertised isnt really representative of the product behind the number. Its not great. I agree with you. However, it is twice the pace that the fed had seen at the time they announced qe3. And i think your point at the outset of the show is correct in the sense that there is never a good time for the fed ever to tighten or slow the pace of the easing some cities are hard to remove. They have themselves stuck in this bind. And the problem will be long term. The longer the fed keeps it in place, the risk of financial instability at some point down the line is signatuificant. But probably years away. So in the short term, policymakers dont worry about it and they should. Getting back to the broader economy, my view is that basically we have an economy that is growing at trend. We have job growth growing at trend. Gdp is a little below trend, but it will probably pick up. We still have output gaps whether gdp or jobs. So we havent really earned our trend. We had a very deep recession which we needed to have pounbou back to. We settled into the trend too soon. Id argue trend is probably closer to 1 to 1. 5 because of a lack of capital deepening. Which is why even in a 2 gdp environment, the Unemployment Rate can fall. So you think the Economy Speed limit has come down. I was happy to see chinas trade numbers improve, anything good coming out of europe at all. But i have to tell you, rick santelli, i want to come back to you to close this segment. The trouble with this whole story is there is too much Big Government spending. And the second let me finish. We have an arod economy. Im saying we have no idea how many home runs he could hit without the juice. So without the juice, all of these metrics are meaningless. Not only that not enough milton friedman, not enough arthur laffer, and not enough free Market Economics. If we had gone to free Market Economics away the globe like we did in the 1980s, the World Economy today would be booming. [ everybody talking at once ] go ahead, rick. Central banks dont like bad news. They dont want real recessions, they dont want anything to show any contraction. So all the things they do to artificially hold this up have a price. And the price starts with an m and at the ends with mediocrity. What it means is well have a lot of average down the road. Clear the zone. Grow up. Experience a little bit of pain until ultimately you you can fuel growth. You can spending, you see a sequester, the numbers go down. Of course. Youre paying for growth. That becomes a negative. Ill give you the last word. You may not want to talk about it, but the fact is that gdp is growing too slowly and unemployment is too high. Keynesian economics doesnt mean youre using fiscal policy to help the economy all the time. In fact well have to pull back just like the fed. But you will be hard pressed to find an economist outside perhaps of this panel who will not say the following. We actually need fiscal policy to be helping us right now, not pushing the wrong way. But it should have come in the form of investment, incentive creating lower mar begin marginal tax rate reform, along with spending reform, along with regulatory reform. Because the engine of recoverya marginal tax rate reform, along with spending reform, along with regulatory reform. Because the engine of recoveryr marginal tax rate reform, along with spending reform, along with regulatory reform. Because the engine of recovery marginal tax rate reform, along with spending reform, along with regulatory reform. Because the engine of recoverym with spending reform, along with regulatory reform. Because the engine of recovery in japan, europe, the u. S. And even china must come from the private sector. And these guys have tried to stifle the private sector now for four to five years. Its really a short term. As long as the private sector is not yet fully back on the screen, we still need the g in the equation. Thats all. Rick, thank you very much. Jared as always. That was nice and low key. Now, very important discovery in the irs targeting scandal. Ler n talking now, but she was three years ago and it might blow the doors open and the man who broke the story is about to join us. Please dont forget free market capitalism is the best path to prosperity. Thats innovation. Thats creativity. That is private sector growth. Im kudlow. Well be right back. [ male announcer ] come to the lexus golden opportunity sales event and choose from one of five lexus hybrids thats right for you, including the lexus es and ct hybrids. This is the pursuit of perfection. But you had to leave rightce to now, would you go . World, man oh i cant go tonight woman i cant. hero thats what expedia asked me. Host book the flight but you have to go right now. Hero laughs and i just go . This is for real right . This is for real . I always said one day id go to china, just never thought itd be today. Anncr were giving away a trip every day. Download the expedia app and your next trip could be on us. Expedia, find yours. Youre not made of money, so dont overpay for boat insurance. Geico, see how much you could save. To experience the precision handling of the lexus performance vehicles, including the gs and allnew is. This is the pursuit of perfection. Shes remained mum since taking the fifth during her congressional hearing last may. But the official at the center of the irs targeting firestorm, lois lerner, openly admitted to political bias way back in may 2010. In a newly surfaced video uncovered by breitbart news, learner oig told a group of students that there was pressure on the irs to, quote, fix the problem of money going to conservative medical action groups. Take a listen. Every is up in arms because they dont like it. Federal election cant do anything about it and they want the irs to fix the problem. So everybody is screaming at us fix it now before the election. Cant you see how much these people are spending. All right. Here now is the breitbart reporter who broke this story, josh sexton. Welcome to the show. So let me just get this right. Citizens United Supreme Court case comes down. Allows corporations to get involved in political campaigns. Obama trashes the supremes at the state of the union message. And that sets off a firestorm and obama continues to trash them. Now, is lois lerner at duke echoing essentially what president obama was saying, trashing the Citizens United idea of going through hes conservative groups for politics . Yes, she is echoing it. In fact she actually paraphrases what he said in his state of the union. He said that the Supreme Court had overturned a century of pre precedent and she essentially echos that. And pretty much wholesale adopteded his view of the situation. And i think thats whats important about this clip is that it shows that there was a political firestorm taking place outside of the irs and sec at the time. And what the videotape shows is that lois lerner and other people were aware of it. They felt the pressure that was coming in from outside. So let me get this straight because this is important. Youre saying that lois lerner actually used a 100 year quote that obama used regarding Citizens United . She actually used that same quote . Yeah, the words are not identical, but its essentially the same thing that he said when he stood in his state of the union in 2010 and with the members of the Supreme Court sitting in front of him said that they had opened the floodgates to special interest money and then called for congress to do something about that and which they eventually did. Chuck schumer and the white house put together this bill called the disclose act and the president pushed that for almost all of 2010 up until september when it finally died. So, yeah, he was pushing this hard. In fact he gave a weekly address in which he said that he was trying to prevent corporations from taking over our democracy. So is lois lerner in this tape, is she telling these kids at duke or duke law school, shes saying its a democratic firestorm, its an obama firestorm, the federal Election Commission complaint fix it the irs can fix it. Is that her line of thinking right then and there . Speak spent t she spent the next two years trying to block the conservative groups. There is a gap. What she says in the video isir about it, but shes talking about 501c 4 groups that are already in existence and she said she wont know whether they exceeded their limits until they turn in their 990s next year. However we now know that someone found that they could gum up the works for new applicants and that is indeed what happened at the irs. And thats essentially you think lois lerner quarterbacked that or was a key player in that and that the story, the antidepartment goes all the way back to 2010 . In basically what im saying is that it was president obama who led the chargement goes all the back to 2010 . In basically what im saying is that it was president obama who led the charge he was the person leading the push back on the Citizens United case. And so he said that our democracy was at stake. He said this more than once. So i think what you see is that somebody believed him. Somebody believed him and decided to do something about it. Now, we dont know if it was lois lerner because she wont testify before congress. So over the next two years, somebody was implementing a policy which essentially singled out these conservative groups and slowed that whole thing down. So youre saying there is pot going to be a memo, youre never going to get a president ial memo on this, its just a question of what president obama said and said it many times and how that gets picked up by senior bureaucrats like lois lerner who used to be at the federal Election Commission and then switched over to the irs. Yeah, i think this is a case of who will rid me of this troublesome tea party. I dont think there is going to be a smoking gun memo because i think theyre frankly too smart for that. But i think the president was leading the charge. He made this an issue. The press picked it up. And the irs pays attention to whats going on out there. And they kept this locked up for two years until may of 2012. All right. Well leave it there. Thanks very much. John sexton of breitbart. Appreciate it. Now, we had key after the bell earnings reports and a nasty battle between bill ackman and george soros just got nastier. Seema mody had those headlines and much more coming up next. 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