Kudlow sees hope on inflation

I listen to Larry Kudlow. Listen? Well... I am as close to a non-TV viewer as you will find; I go weeks without turning it on. I read what he says and I listen!

He sees signs that inflation will not be a problem. US investment is strong... He thinks the US dollar is at the bottom of its run and it is a good time to buy it. Now the Fed has something to say about where the dollar goes. How many politicians have hurt us by trying to drop the dollar so our exports are cheaper to the buyers? But he says the data say the Fed is not dropping the dollar.

Larry, I am listening. Real Clear Politics:

From this, I take away the thought that the Treasury may not really be trying to manipulate the dollar lower. Using a thirty nation index for the dollar, there really is not much decline at all following a massive run-up during 1991-2002.

Given the U.S. investment boom, as illustrated by yesterday's strong industrial production numbers, I would be a dollar buyer, not a seller.

Now inflation... Our renewed lower taxes...

Here's a thought for you inflationists out there: The business and investment boom sparked by lower tax rates three years ago will, over time, burn off any excess monetary calories. Lower tax rates are always associated with lower inflation. Lower tax rates raise the demand for money.

What will Bernanke do at the Fed?

Ben Bernanke needs to do two things right now to calm inflation worries. It's real simple: First, get back on message by repeating his earlier mantra of the need for a numerical inflation target. This would reestablish the price rule.

Second, the Fed should keep raising their target rate in quarter point intervals, until the breakeven inflation TIPS spread drops down about 25 or 30 more basis points.

Fed policies have slowed the monetary base. Keep up this campaign.

I hope Bernanke will.