Politics is the Big Question

09/26/2007 12:00 am EST

Focus: MARKETS

Lawrence Kudlow

CEO, Kudlow & Company, LLC

Larry Kudlow, of CNBC's Kudlow & Company, told Money Show investors that while he doesn't see a recession in his short-term sights, the US economic landing may be softer than at first pictured…

Heralded as a usually optimistic voice on the economy and markets, Mr. Kudlow tempered his remarks with some old-fashioned 'face reality' advice.

He noted that the US has seen 25 years of major changes in our economy, prosperous times where stocks have risen 11- or 12-fold; marginal tax rates and inflation have dropped, government regulation has decreased and unemployment remains low. Accordingly, entrepreneurs and risk-takers have been justly rewarded for their efforts.
 
Mr. Kudlow sees no radical changes to the status quo - just a temporary pause, as the worries in the subprime and commercial paper markets shake themselves out. He told attendees that some of these products can be fixed, but others will just naturally adjust, over time. Once those corrections are made, we will return to a long-term, prosperous outlook.

Although the economy and markets are suffering in the near-term, the long view is excellent. Our budget revenues are up, deficits are down, and the reduction in taxes on dividends in 2003 has fueled record tax collections, from the surge in millionaires in this country - a sector that has grown from 182,000 to more than 300,000 just since 2003.
 
Remarking that imitation is the sincerest form of flattery, Mr. Kudlow observed that the US has exported our prosperity around the world, along with many of the aforementioned policies.

He sees no reason why we can't come through this period of difficulty, albeit with a few monetary adjustments, such as reducing the Fed Funds rate to 4 ½%, working out our economic problems within the next 12-18 months. His long-term worry remains politics, fearing that the Democrats will undermine the capitalistic reforms of the last quarter century. He's hopeful that we will take our cue from Europe and lower corporate tax rates and retain low capital gains rates, instead of enacting measures to stymie our growth in the coming years.

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