i'm making a personal appeal to the bankers on twitter. don't make it like facebook. make it so everybody wins. be r. i'm jim cramer. i will see you monday. weak retail sales, lower consumer confidence and a disappointing august jobs report. all signs pointing to a tepid economy. no prospect of a second-half economic rebound. even looking at the 2014 things look to be slowing, not rising. steve forbes is going to join us to share his economic outlook with us. plus, did the top bank bailout and fed ben bernanke save america? hank paulson said yes, and we're going to debate that proposition. is washington poised for a government shutdown.

the white house and congressional members are locked in a game of chicken. with 17 days possible, is a deal possible before the time runs out? all that and more coming up on "the kudlow report." good evening. i'm larry kudlow. this is the "the kudlow report." first up, economists have been telling us for months that a second half economic rebound is coming. and for months, i have completely disagreed. so i think today's tepid retail sales report and a big drop in consumer confidence suggests i may have gotten this slowdown forecast right. one time in a row. let's talk. here now is steve forbes. media chairman and editor-in-chief. the chief u.s. economist for deutsche bank and providing perspective on the numbers and anything else she wants to talk

about is mary efner. 0.2%. the worst in four months. core retail sales looked lousy. what's going on here? >> two things. at the high level in luxury that continues to be robust. those are not impacted by it. in fact, they can raise retails on the product and the customer is tistill buying. at the other end, we see discounters being very strong. the discounter has to trade down and they're profiting from this. in the middle is where it's challenged. if it's not newness, the customer is not buying and they proved that in august. >> that's because people are risk averse? is that because people are worried about their jobs and their incomes? >> it's a little bit of that, but we do see that they are sper spending, but it's a pair of jeans, a plain t-shirt, they're not buying it. and many people who had full-time jobs are going to part-time jobs. so in doing so they're going to

discounters. they're not going to some of the bigger ones where you can buy a pack of 18 for $5. they're just buying what they need. what they need is corresponding to the cut in pay that they have gotten from lower hours. >> mary's right. isn't she? part-time jobs, you know, it's funny. look at the charts. i know the white house has done the best they can to rebut this but starting in march or april it shows up on the graph. part time jobs rising, full-time jobs not. you're not making as much if you have part-time -- >> or two part-time jobs. >> and therefore the economy is not surging in the second half. >> i say it's early before we throw our hands up and say the third quarter is done. q2 might get revised up to 3%. an economist thought it could be close to 0%. >> the quarter is not over. >> it could be revised up to 1 --

>> it can be. i think it can be close to 3%, but we have strong vehicle sales. gdp is a measure of output, inventory is cap ex. it could be -- >> i think manufacturing looks very sloppy. >> no. ism is one of the highest ones we have had in the cycle. >> i know, but i'm suspicious of that. but the real number is actually -- it fell last month and edit's sloppy. >> look at what ford is doing. >> i know, the car business is booming. >> i'm not giving um yet. >> do you think we'll get 3% of growth? >> not in the third quarter, maybe in the fourth quarter. we have to put this in perspective. our expectations have been lowered we'll break the champagne for 3% or a light

beer. we'll get 3%, but that's like a baseball player hitting .250 when he should be hitting .350. >> what's holding back this economy? >> i would say the federal reserve has hurt the access of credit to small businesses over the job creators. uncertain uncertain tikrited by obama over everything. look at jpmorgan spending all the time on compliance. >> government's at war with jpmorgan. there are troops surrounding the jpmorgan -- >> they're punishing them. >> rifles and drones flying over. >> they're punishing dimon for going beyond the script they had for him. what's labor going to cost you? you don't know. >> mary, what about something -- part-time jobs, a lot of talk about obama care, businesses cutting back. but let me ask you, are individuals suffering from the big increase in insurance premiums that we have had this year? massive increase which is really

like a tax hike. >> yes, absolutely. they're particularly if one is going from a full-time job to part-time job they have to quickly figure out how they're going to cover the cobra payments if they get them. or to take other actions and wait the lag time in order to get covered from another policy. so we're seeing that a lot particularly at the lower levels where we see discounters performing well. >> how much is the interest rate impacted in? >> it's been -- it has been very impactful. particularly, you know, with home sales and home businesses. there is a direct relationship there and that plays a big part in it. >> is there going to be a down turn in housing? >> no. >> home builder stocks did very well this week. >> mortgage rates, applications for mortgages have all gone done. >> a problem there? >> larry, here's the thing. we have had the best run in builder sentiment since '91. rates have hurt applications and refis, no question. that's the initial reaction. the thing with housing though s

is, household formations and scrap together suggest starts should be at $1.5 million per annum. we are at 750 to 800. so affordability while it's come down dramatically is still higher any point prior to '08. >> even though prices have to level back off? >> they probably will at some point. the other issue is banks are easing a little bit on real estate loans. >> are banks lending in general? i know the biggest corporations which take advantage of quantitative easing, q.e. but what about ordinary main street loans, are banks giving credit? >> loans to businesses are starting to pick up. and non-bank lending to businesses is starting to pick up. one of the amazing things about this economy if one area is clogged because of politics or something else, new sources start to rise up. so the business sector, special small businesses, little better than it was six months, 12

months ago. regulators being pro cyclical are easing up where they were hammering them a few months back. >> we talk about obama care, the insurance premiums have skyrocketed. i don't know when that's going to stop. people are trying to beat the price controls. is obama care in general an issue or is too much made of that? >> no. i think as people find out more about it, especially young people they'll try to shoe horn them in this whole thing on being self-insurance that's under attack now as people try to take advantage of it to get out from the constraints of obama care. that massive uncertainty is holding us back. >> you know, it's funny. in washington, i don't think they understand that it's businesses that create jobs. i don't think they understand that. so therefore -- >> businesses didn't create it. >> that's right. they haven't made the investments or creating the jobs. when you talk about the 30-hour workweek and the 51st worker and then you have to go into obama

care, i think a lot of the jobs are being held back by the job creators. i think that's an issue. i do not think that the president and his cronies understand that. >> perhaps that's true. the other thing in retail that's kind of interesting is retailers feel that they don't have a great loss by moving somebody from full-time hours to part-time hours because it's a clerk on the floor. the only one who really understands -- the only brands that really understand great service does make a difference and you need those full-timers and you need to support them, you know, are places like nordstrom and ones that are known for their service. >> but you think -- okay, so this whole obama care business and the part-time business, this affects the customer traffic. this affects the ambience of the store. >> absolutely. yes. absolutely. >> i hadn't thought of that. that's a great take. >> you talk about luxury brands. that's all service. >> does that mean they go online or they don't shop? >> they probably won't shop or, you know, because it's too much of hassle to go into a store if

they don't have the help that they need. so they'll go elsewhere and it's just as easy to order something online, try it on at home. if they don't like it, they'll send it back. >> it's funny you say that. i shop at specialty stores but only shop at the ones i know. that includes the salespeople i know. they just help me. if they don't -- if it's not there, and the salespeople aren't there, i don't go back. i look for other places. so joe, i don't want to be overly pessimistic. it's a 2% economy, really all year, really for the last four years plus. a lot of people including the federal reserve expected it to become a 3% economy. >> 3.5% even. >> the fed going to slow down the bond push clarchases. it will slow down the bond purchases by a small amount. at the same time, that the economy is showing

disappointment and their own forecasts that the fed are coming down. if their forecasts are coming down, and if the economy is disappointing, why do you think they should slow down their stimulus? >> a couple things. why is the economy -- we forget the big tax hikes. we had $200 billion in tax hikes so 2% against that -- >> a double whammy on high-end economy. >> right. the system being clogged he's exactly right. you think of how adaptive the economy has been, 2% isn't that bad, considering the hit on the fiscal side. the reason that the fed is going to taper, in the context of when they did q.e. 3 with europe on the verge of falling apart, worries about the fiscal cliff, they have backed away from that. things have settled down. they're telling us they won't sell the mortgage securities. i think it's really, larry, more about financial stability and that's become very unpopular with a lot of other people on the committee, such as stein.

he's very left of center, one of obama's appointees. >> that's good explanation. i'll cap this off by saying i don't think the level of confidence in this country has returned. i don't just mean today's consumer sentiment number. i think it was a lousy number. i think the whole shock effect going back to 2008-2009 and the subsequent disappointing economic recovery and the newspaper reading is not positive or optimistic. i think the attitudes are bad. i don't think that's changed. i don't know what's going to change it, but so far it's affecting attitudes. spending attitudes. i think the stuff you're talking about in washington, d.c., taxes and obama care and regulation, i'm not saying that's driving the economy. but i think it's hurting. i think it's hurting. people want to be left alone, prosper. >> but the federal reserve seemingly takes away the punch

bowl, it starts to help the economy. the less they do, the better. >> get them out of the business. thank you very much. now, steve going to be back with us on monday to exclusively reveal the all-new forbes 400 list. it's an in depth look at the richest people in america who are prospering no matter how sloppy the economy may be. the dow closed off the best week since january, but with the fed expected to slow down the bond purchases at next month's meeting, is the market bloom about to fall off the rose? we'll discuss that. and free market capital ittal is the best path to prosperity. i love the self-insurance idea. we have to bring that back. i'm kudlow. we'll be right back. she's always had a playful side.

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well, markets in rally mode today and what a week it has been. we have had three triple digit days on the dow, up 3% for the week as a whole. the dollars are up four points. 454 points. that's wild. however, gold is the biggest loser. almost down 5% this week. so what can investors expect next week? the fed goes into the meeting. there will be a news conference with whether bernanke and all the rest of it. here's chad morganlander and

cnbc market analysts. why did the market rally? >> i think there was a relief over the political issue over the syria issue. but the macro data has been weakening and i think the sense is that the fed will have a big nothing next week. and meaning they won't taper. they'll keep it status quo and it's going to be a conversation that happens october, november. >> or maybe it will be so small that it won't be important. >> yeah, if they do it so small, i think the market backs off a little bit. i'm not sure they'll do it so small. >> do you agree with that? >> i do agree. september and october they'll pivot to a more of a taper. that will have an effect of the overall financial system. you will see a 4, 5, 7% sell-off. >> you know what's interesting to me. if you go back long term interest rates, say the 10-year treasury, up 100 basis points

and the s&p is up. so actually the de facto tightening that the fed has already produced, i know it's slowed down the stock market rise over the last what four months but it hasn't stopped it. can that continue? when we do get the slower bond purchases, when long term rates go up a little more, how will stocks react to that? >> well, stocks will react if you have the economy that's improving. okay? you also need revenue growth and earnings. what you are seeing at this point, you're starting to see the economy improve. the ism numbers were very good over the last couple of weeks. >> retail sales numbers are stagnant. we did a whole segment on it. >> that's where we are, but what you need to see here for the market to move higher is you may have to have revenue growth from corporations. earnings growth. business investment starting to

increase. you'll have -- >> we haven't seen business -- >> you haven't seen that. you need to start to see income growth kick in. this is all the basic theme of a deleveraging, larry. >> but stocks -- with all that, it is interesting to me. i mean, you could have said t t that, what you just said well, you articulated it, could have said for the last 4 1/2 years. one of the great rallies of all time. and i think it's being -- just make this editorial point. i think it's been profits. i think the backbone of this rally is profits. and i know they have slowed but they're still growing about 5%. i think profits off set the interest rates. >> but wait a minute, hold on a second. but part of the rally is because the fed has been so stimulative. where else are people going to go? >> i think it's profits. >> where are the profits coming from? they're coming not from revenue growth, but from the expense side, right? >> coming from clever business productivity and they have done a hell of a job with little

resources. >> okay, hold on a second. if you believe fact set numbers earns are up 3% year over year. >> okay. >> revenue growth up only 2, 2.5%. you have operating margins that are at an all-time high. the profit growth hasn't been there in the last 12 months. what you have had is margin -- what you have had is multiple expansion on the broader markets. >> profits. in the fifth year of a recovery, 5% profit's not bad. we're in fifth year of a reco r recovery. i want to get to gold, it got whacked again this week. it is getting whacked. what is your thought? >> what did it close at today? 13 -- >> just over 1300. >> yeah. 1300 is probably -- >> 1323.79. >> even if the fed tightens? >> because what's going to

happen, the fed will only tighten a tiny bit, but then the conversation is going to be immediately, okay, when are they going to tighten again and then we'll look out another two or three months because they'll be talking about the next tightening. >> global economy, although it's not growing at a vibrant way, it's growing. >> okay. >> europe has stabilized. taking the tail risk out of the financial system. so we would actually eliminate gold from your portfolio. >> just take it out. >> take it out 100%? >> take it out. >> well, you hear it a lot. thank you very much. up next on kudlow, diplomatic peace talks in switzerland may be giving syria's assad time to scatter and hide the chemical weapon stockpile. we'll have more after the break. you know throughout history,

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so how are those syria talks between secretary of state john kerry and the russian foreign minister going? it doesn't looked great. but we have more on that and all the news. good evening. >> good evening, larry. that's right. so far, there's little solid evidence of any progress on an agreement to confiscate and destroy syria's chemical weapons. secretary of state john kerry says the talks have been productive and will continue tomorrow. but there are reports tonight that the delays have helped syria's president assad move and hide his chemical weapon arsenal. making it much harder for any

inspectors to find them. good news for some lucky air travelers. united airlines says it will honor the cheap or free tickets accidentally sold yesterday. the airline blames human error. someone entered wrong fare information into the ticketing system which spit out zero for the price on a number of routes. more rain hitting the parts of colorado today with the flooding becoming worse in many areas. at least four people have died from the floods. the national guard evacuated the entire town of lyons, colorado, earlier today. a new study in the journal, nature climate change found 114 out of 117 climate predictions made by top signists cientists were wrong and forecasted two times more global warming than has occurred. this is in the 1990s. i'm sure technology has helped us find more accuracy in weather forecasting.

>> i wouldn't bet on that. >> no? >> as you were reading that, i kind of thought about economists forecasting. they had problems too. >> is there a parallel? >> i think there's a parallel. i think you're on to something. many thanks. up next, did ben bernanke and the tarp bailouts save the world from financial armageddon? that's what former treasury secretary hank paulson argued on cnbc this morning, but we'll debate that when "the kudlow report" comes right back. >> president bush, i think one of the best decisions he made was one of the most important decisions was choosing ben bernanke.

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i think that the capital program we designed and to get out and put capital into hundreds of banks, very, very quickly, and recapitalize the u.s. financial system is -- is a huge success. and that money has come back. you know? all that -- plus $32 billion. so i have focused on that. >> all right. now, that was former treasury secretary hank paulson on cnbc earlier today praising the tarp

bailout program created during the financial crisis five years ago. paulson gave high praise also to ben bernanke and q.e. 2. take a listen. >> i am a -- a believer in, you know, the ben bernanke stimulus programs in the sense that i think it's remarkable even though it -- we have low growth, that this economy has been growing at 2% since the end of 2009, while we have undergone the massive and necessary deleveraging. >> so did bernanke and t.a.r.p. save the u.s. economy? let's bring in the former senior economist at bear stearns, douglas holtz-ecan and forbes opinions editor john tammany.

let's start with t.a.r.p. take it piece by piece. hank paulson said t.a.r.p. was a great success and not only was it paid back it made $32 billion. what's your take on t.a.r.p.? >> well, larry, as you know at the time i thought something like t.a.r.p. was very important. john mccain stopped mccacampaig and i came back to get a successful vote on the t.a.r.p. program. i think, however, with benefit of hindsight it turned out less important than hank paulson thinks. >> what do you mean? >> well, i think in the end it was a liquidity problem. >> all right, you have t.a.r.p. on the table and doug put on bernanke's liquidity. so the liquidity problem solved the financial problem, do you see it that way? >> no, i don't think so. when you look at t.a.r.p. it

robbed us of the recovery. look at japan and germany after world war ii they were reduced to rubble, but over a few years they were very rich countries once again. the idea that we needed to save citibank to save the u.s. economy is laughable and i think bernanke and paulson sold us on a dangerous lie that's is set back the recovery. >> okay, i don't know which position you'll take, but a lot of people believe that the injection of capital was very important and the injection of fed liquidity, at least the first round back in what, 19 -- let's see. when was the first round? 2008. yeah. 2008, 2009. the first round of bernanke. do you think -- is there a case that that liquidity and that t.a.r.p. was necessary? >> hi, larry. wait, i want to separate out the various things you were mentioning. there was a liquidity injection or -- in october of 2008.

when the fed bought mbs, mortgage-backed securities that has been issued by fannie mae and freddie mac and that was critical because the market was frozen. when they went on in 2009, that was quite harmful. the fed is directing the capital to the government and to big corporations. >> all right. the -- but how about the t.a.r.p. capital injection? a lot of people in america are really angry at the bailouts. main street businesses went under because they couldn't get credit or whatever. many people lost their homes and so forth. they didn't get bailed out. why should -- really the question, john, we bailed out citibank so many times you can lose count of it. >> i think the bailouts were harmful. but what doug said there was right, that when congress did that first vote, remember paulson had put them to a vote on buying toxic assets.

that would have been a bad idea. but then congress allocated a huge amount of money. so that was this loud signal that even though you don't want to buy toxic assets that would have been a mistake. it was money sitting there and available. so i think that did help with confidence in the end. what we know is that bernanke and paulson presented it to congress as an absolute necessity. so i think by that time they had to go forward with that vote. >> all right. walk back a little bit. there was a lot of uncertainty at this point, and it's very interesting to me, you know, the analysis may not be credible. look, bear sterns was bought out by jpmorgan and lehman brothers was allowed to go down. that was a shock. i want to know what you think about the lehman brothers shock because the aig insurance

company was bailed out or bought out by the government. that can confuse any investor. >> yeah. i think there are two major points. the first one is simply it was after that set of decisions was made that the fed did the right thing which was to set up the facilities, open the doors to anyone who needed liquidity and flooded the market. they ran the oldest central bank playbook you can find. leading up to it, mistakes were made. we can fight forever about bear sterns and lehman but i know it's not right to save one and let the other go down. some people say you had to save both. i'd prefer to see both go down. letting lehman go was a big turning point. >> it was a shock to the market -- >> no question. >> but you know what, john, it's interesting too. there's so much confusion, who is going to be bailed out and who is going to be saved? aig was bailed out, fannie and

freddie were bailed out, lehman brothers went down. banks stopped loaning to each other, do you remember that? at that point, in september, october of '08, banks in the overnight lending market which is the most important sensitive market, called the repurchase market or the fed funds market, they stopped loaning to each other. because they didn't know who was going to survive and who wasn't going to survive. i guess my question to you, maybe the government itself was more responsible for this crisis than they let on. >> without question. this was not a financial crisis. this was a government crisis. let's think about this. government errors led to and the economy suffocating rush into the consumption of housing to the expense of the productive supply-side of the economy. the markets tried to correct this including putting out of business financial institutions that were too exposed to this rush in the consumption. rather than let capitalism do the healthy thing, the fed stepped in and bailed out bear

sterns and turned what should have been a healthy capitalist event into a crisis. there's no lehman without the bear sterns original sin. >> okay. david, you're an alumnus of bear sterns. i'm less interested in bear sterns than lehman brothers. because people -- a lot of people said letting lehman brothers go down, which was a political as well as a financial decision, was the proximate cause of the whole crisis. do you buy that? >> i think there were a series of mistakes and the lehman -- remember what we're talking about here. lehman actually filed bankruptcy and that's a powerful, legal tool within the u.s. banks almost never do it. banks don't do it. lehman was allowed and forced into that position. so i think that was a giant shock to the financial markets. and they froze in the following week. remember what happened the next day. so lehman filed on a monday. then by tuesday, money market

funds were breaking the buck because they had been invested in lehman debt. >> are you inferring, dave, that they should have saved lehman at the time? >> i think they had to. it was too big to fail. and it worsened the crisis. now, that's a completely separate thing from whether banks needed to be regulated much better and they did. and the investment banks as well. but what we're talking about is the specific instance of allowing a too big to fail institution file bankruptcy. that shouldn't have been done. >> do you thinkm lehman should have been saved? >> no, it would have extended -- that you had to bail out more and more banks. the only reason that lehman brothers was a crisis there was an expectation based on the bailout of bear that everyone was going to be saved. david brings up the breaking of the buck. there's no breaking of the buck if bear is allowed to go under because the financial markets would have prepared for either lehman finding a buyer or lehman

going under and the reserve fund would not have been exposed to lee nhman at all. >> larry, if lehman had filed bankruptcy, you would have had the consequence earlier, a very deep financial crisis that started earlier because of the bankruptcy filing. >> look -- >> here's the thing. here's the important thing. you cannot lay this at the government's feet. the left likes to claim it's due to deregulation and the right likes to think it's because of the regulations. we had real estate bubbles in all sorts of countries that don't look like the u.s., we have big financial failures in other countries to other approaches than the u.s. this was a deep financial crisis with a lot of roots. >> i just -- all right. we have to get out. i'm going to lose you, john. i want you to get the last whack. john, why are banks never

allowed to go bankrupt? we have too big to fail today. we have a process for the fdic which really takes care of a failing bank and lets them go under and sells off pieces and it works smoothly. why don't we let banks go bankrupt? >> i'll never understood it. you look at sill coicon valley, we have robbed the financial system of being much more vibrant. far more successful, precisely because we keep delaying the process whereby mike shula is replaced by nick saban to use a football term. >> all right. many thanks. we have more work for you in a little bit. up next, there were reports coming out of japan today claiming that president obama has made a decision to nominate larry somers as charge of the federal reserve, but the white house this evening saying not so fast. we'll check in with chief washington correspondent john harwood about what's really in the works. that'll be right after the

break. please stay with us. geoff: i'm the kind of guy who doesn't like being sold to. the last thing i want is to feel like someone is giving me a sales pitch, especially when it comes to my investments. you want a broker you can trust. a lot of guys at the other firms seemed more focused on selling than their clients. that's why i stopped working at my old brokerage and became a financial consultant with charles schwab. avo: what kind of financial consultant are you looking for? talk to us today.

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denying a report that larry summers is president obama's fed pick. cnbc's chief washington correspondent john harwood joins us with details. good evening, john. >> well, larry, a deal on government spending and a hike in debt limit are not the only things we are waiting for here in washington. we are waiting for president obama to make up his mind and name publicly a new fed chairman to succeed ben bernanke. but we'll have to wait a little longer because i'm told by a source familiar with the white house timing that that appointment will not come next week. there had been some speculation that it would because the pause for diplomatic efforts in syria as opposed to a military strike had opened up some space in the president's schedule. but i'm now told that's not going to happen next week. larry summers remains the frontrunner for the job outby all outside the white house. the white house isn't saying who it will be. people will be surprised if it's not larry summers. i'm told that the white house believes he can in fact be confirmed passed out of the

senate banking committee and approved on the senate floor. we have to wait a while to hear in the president. >> many thanks to john harwood. we have late-breaking news out of the senate. it turns out john tester of montana has declared he will vote against summers in committee. now, that makes three democrats who will vote no to summers in committee. and that means three republicans are going to have to vote yes and that's going to be a tall order because summers was one of the designers of obama's $800 billion stimulus plan which is detested by republicans. i want to also add that i believe timothy geithner, former treasury secretary, is still in the running. now, regarding larry summers and janet yao, they're distinguished academics but i don't like either one for the fed. why? because they believe too much in government and fed fine-tuning and meddling and tinkering with money. i'm a rules guy. i think the fed should have consistent targets rather than

tinkering. yeah, the dollar should be as hard as gold and yes, the fed should tell us what kind of nominal gdp growth it wants. remember, it's your money and they have to tell you what they're going to do with it and whether it will keep its value. i fear with summers and yellen there will be no rules. up next, will the gop rift over defunding obama care lead to a government shut down or can speaker boehner get them in line before time runs out? "the kudlow report" will be right back.

congress had yesterday to approve a budget bill that will fund the government past the end of the month. as it stands now the government is going to shut down on october 1st. that by the way is the very same day that obama care marketplaces are supposed to open. so how can connected is the budget to obama care and are we heading for a government shutdown? well, first let's get the latest from ace political reporter and cnbc reporter robert costa. i was on the phone a lot trying to figure this out, talking to sources. what i gather is they don't have the votes yet to get a continuing resolution. >> that's right. speaker boehner is really a weary general right now in washington, d.c. he's trying to corral his troops away from using the -- a government shutdown to try to defund obama care and push them

towards the debt limit. he believes that's a better way to wring concessions out of the white house. >> let's stay with the first thing, the c.r., the continuing resolution. boehner wants to have a c.r. at the sequester levels. the same sequester levels. but democrats in the senate want to get rid of the sequester and would probably rather raise taxes instead. so what are they going to do here? they don't have much time. >> boehner is not going to probably be able to buckle on the sequester levels. he knows the conservatives if his conference, they like those spending cuts. some on the armed services committee, some of the republicans may want to replace those defense cuts, but broadly speaking within the republican conference boehner does not have a lot of wiggle room to negotiate. >> i think they're short about 45 votes or so. i think that's the number right now. can they get them? again, i'm talking about the continuing resolution -- the debt ceiling is even harder nut to crack. keep the government open, can they get the 45 votes? >> my prediction larry, is that speaker boehner will be able to

avoid a shutdown. he's almost a conservative whis pers -- whisperer right now. i understand why you're trying to defund obama care but it won't play well for us publicly. boehner was there in '94, '95 when newt tried to shut down the government. boehner was at newt's side back then and he doesn't what that battle this time around. >> the republicans have to understand, shutting down the government will not defund obama care. it will not. that's a complicated issue. >> that's right, larry. we're a divided government right now. it's very hard with a democratic senate and a democratic president to defund the law. >> that's right. thank you. let's get back to the free market friday panel. you know, doug, a former cbo budget director, i mean, the issue here -- whether it's a continuing resolution or not, the fact is you can't defund obama care. 80% of it is entitlement

spending. and that's not what c.r.s cover. >> that's right, larry. you know, even if they don't pass a c.r. and do shut down the government, something which would be political suicide for republicans because it would essentially say they'd prefer their political agenda over paying the troops that's a real loser. even if they do that, we fund obama care. you have to change the law and that they need to do is with votes. that would be votes in the u.s. senate which they don't have. they had a plan to put the democrats up for re-election in play as a result, it's a longer game and it probably is a more successful strategy. but the rank and file rejected it and it's a shame. they're running down a path that won't defend obama care. >> did you serve on staff on that budget committee once upon a time? >> senate budget committee and did a lot of the resolutions. >> all right. i bet that was great fun.

anyway, my second point is on the debt ceiling. what i'm told by various sources is that they're even further away from a solution to the debt ceiling. for the same reason. the issue is obama care. and defunding obama care and i think if they miss the debt ceiling deadline that that is politically and financially really a bad thing. i don't know if it's a cat -- catastrophe but it's very bad. >> and government spending has grown to a huge level, and there are hundreds of programs throughout the government that should be reduced in their funding and probably eliminated. they're left over from the great society, even from the great depression. and there's no process right now in washington to clean house. so that -- i understand the urgency and the frustration that the fiscal conservatives are putting forward.

and the burden really needs to be on omb and on the president to come up with a reduction. the whole issue here is how to restrain this massive government beast that keeps soaking up all the taxpayer dollars and then some. the debt keeps growing and growing. >> as you know recently, spending rates have come down. revenue rates have come up. a much lower deficit. >> they're spending $3.6 trillion every year. and the money has to come from the private sector. so it's coming from people's jobs into washington. so that's what's got to be addressed and the burden i think is on the president to do something about it. >> well, okay. but i don't think we'll get there. let me get -- >> fair enough. >> let me go back to doug. >> i think there's an opportunity here, larry, honestly i do. you can't have a minority blackmail of the senate and the white house, in the defunding of obama care. >> it's not blackmail. >> that's what they're trying to

do. what they should do -- no, fund it at the current levels. and wait. and at that point, the spending levels are too low for the president to pursue the program he wants. and he will have to do what you're saying, david, which is come to the congress with recommendations for cuts to the large mandatory spending programs so he can pursue his other objectives. that's a real negotiation. if they instead go down this obama care rabbit hole, we never get that negotiation. we never solve the real problem. >> but i was going to say -- i'm going to say in terms of the spending reductions you're both right. but i'm going to say the republican caucus in the house, particularly the tea party and conservative republicans want votes one way or the other. they want votes on either defunding obama care or delaying obama care for one year. they're talking about verification. no substitute for verification for all the subsidies. that's the latest one that's

come up. the other one that's really a thorn is exempting congress from obama care. that one is really a thorn and they want votes. and they want their votes to then go to the senate. that's why i think the debt bill is going to be a tougher nut to crack. >> well, they're both going to be tough nuts to crack. but the good news is it's okay to shut government down for a day, but it will be bad politically for the republicans. what they need to do is put a lot of things on the table that they want changed and then invite the president into the process. >> so he has to understand -- he has to understand that the debt ceiling will not be a clean debt bill. that there's going to be bargaining over spending. >> that's right. i think they need to put ten things on the table there are reasonable. there are ten things that are reasonable and they can't lead with defunding obama care. that's his favorite thing. >> all right. it will be tricky.

before we go, i wanted to take a quick moment to thank one of my talented producer, elizabeth shellsy. she is moving on to another endeavor here at cnbc. she has been a pivotal member of our team and we wish her the very best on her promotion. i can't solve the debt ceiling myself. i'm going to need some help. thanks for watching, folks. have a great weekend. see you on monday. [ woman ] if you have the audacity to believe your financial advisor should focus on your long-term goals, not their short-term agenda. [ woman ] if you have the nerve to believe that cookie cutters should be for cookies, not your investment strategy. if you believe in the sheer brilliance of a simple explanation. [ male announcer ] join the nearly 7 million investors who think like you do: face time and think time make a difference. join us. [ male announcer ] at edward jones, it's how we make sense of investing.

>> the following is a cnbc prime original. >> sometimes a revolution can begin suddenly, without notice. this one begins on a january afternoon in 2009, when a man named janis krums boards the ferry for his commute home from manhattan. >> that day was like any other day. very cold day. >> they set out for the short ride across the hudson river, same as always. then comes the announcement. what's the first indication to you that this trip is gonna be unusual? >> the captain going on the speaker, saying there's a plane in the hudson. >> just moments earlr,