LARRY KUDLOW: Cut spending, taxes and regulations in order to generate a big recovery

Kudlow weighs in on the state of the US economy

In case you missed it, here's President Biden yesterday on the South Lawn of the White House as he's about to hop into his helicopter and he's responding to a question. 

REPORTER: Mr. President, what is your message to Leader McCarthy? Speaker McCarthy, sorry sir.

PRESIDENT BIDEN: Show me your budget, I'll show you mine.

That's not a serious answer to the reporter's serious question. Mr. Biden continues to stonewall Kevin McCarthy by repeatedly stating he will not negotiate on the debt limit. Meanwhile, Kevin McCarthy is publicly saying he wants a good common-sense sit-down with the president in order to reach a compromise on spending and borrowing.  

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As you know, the two will meet tomorrow in the White House and there is tremendous urgency to this meeting for the simple reason that the economy is steadily losing altitude and is heading for a recession.  

A sensible budget deal would help restore confidence in at least the potential for a future non-inflationary economic rebound. So many indicators are raising the red recession flag.  

The Treasury yield curve is completely upside-down, with short-term rates driven high by the Fed, way above long-term rates determined by the market. The index of leading indicators keeps plunging, so does the M2 money supply. With most of the COVID stimulus out of the way, the personal savings rate has fallen significantly. Consumer spending declined in November and December. Consumer confidence continues to slide.  

People are living paycheck-to-paycheck, with their expenses rising faster than their incomes, across the board. According to the Morning Consult poll, 28% of Americans making less than $50,000 a year are spending more than they earn. 28%! That's a big number.  

Go up the income scale, between $50,000 and $100,000, 14% spending more than they earn. Above $100,000, almost 10%. It's not a good sign.  

Banks are increasing loan loss reserves, although their capital position is in good shape, but with rising interest rates on credit card debt and mortgages, it's the prudent thing to do. Unemployment remains low at 3.5%, which is great, but hours worked fell in November and December and that is not a good sign.  

MCDONALD'S SEES INFLATION STICKING AROUND 

In the recent GDP report, business equipment investing fell significantly, which is most unfortunate because that's a productivity driver, but output per hour is falling even while people are working less. All that is not good.   

Housing is in deep recession already, almost no end in sight and the inflation story has improved with the Fed's favorite measure, the personal consumer deflator, slowing to 5% year-to-year and 4.4% excluding food and energy. 

That's good progress, but it's still over twice the Fed's 2% target. Meanwhile, for typical American families, key prices continue to rise rapidly. Food at home up nearly 12%, away from home over 8%.   

Most energy and certainly gasoline prices have come well off their peaks, but even $3.50 at the pump on average nationwide is well over a dollar higher than in 2021. Basically, inflation from over-spending two years ago has wrecked the economy.  

Bidenesque big-government policies that were completely unnecessary stuffing dollar bills into family bank accounts, point 1 and, point 2, the Federal Reserve caught unaware with its pants down, and they monetized the federal deficits and borrowing. Everybody was in denial.   

Then came two negative quarters in last year's first half, a big warning. Now, despite some temporary growth, all these indicators I just mentioned are pointing south.   

Inflation is still too high, interest rates have shot up, the Fed has pulled lots of cash out of the economy, but overregulation has fought a war with oil and gas and frankly all business.  

Housing is down, consumers are down, business investment is down and declining corporate profits could be the next shoe to fall. We've had a good early-year stock market and I always love to see rising stocks, but I never try to outguess the market.   

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I'm a longtime believer in stocks for the long run. Buy the S&P index, use the cheapest way available and don't try to outguess short-term wiggles. The Federal Reserve is unfortunately going to stay tight for quite some time. The chance of recession unfortunately is well over 60% — that's for this year. 

These are all reasons in my view to limit government. Cut spending, lower taxes, minimize regulations in order to generate a big recovery. I want free-enterprise prosperity, not big-government stagnation. So, save America, stop the spending. 

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