Last night, on the eve of Tax Day, I spoke with Sen. Judd Gregg (R., N.H.) and Sen. Ron Wyden (D. Ore.) about their bipartisan tax-reform proposal. It’s a huge business tax cut, with some flattening of tax rates and simplification. Take a listen.

Here are the clips from my interview last night with two powerhouse economic thinkers, both former advisors to Ronald Reagan. Joining me on set were Nobel Prize‒winning economist and Columbia economics professor Robert Mundell and the Laffer curve’s very own Arthur Laffer. What a great privilege and honor.

In the spirit of tax week, here’s a terrific video hosted by my old friend Dan Mitchell showing how a flat tax would benefit American families and businesses. It also explains how this simple and fair system would boost economic growth and eliminate the special-interest corruption of the IRS code.

On the heels of the Dow crossing 11,000 for the first time since September 2008, I’d like to update my V-shaped recovery scenario with three new charts on lumber, aluminum, and business inventories. Ladies and gentlemen, the signs are there for a stronger rebound than many folks think. But first I’d like to raise this sobering point: Longer term, if this country of ours fails to stop its massive federal-spending-and-borrowing ways, we face an incredibly soaring tax-hike problem.

Last night I had the pleasure of speaking with Orrin Hatch, the top Republican on the tax-writing Senate Finance Committee. (He may be chairman after November’s election.) Hatch says we could go all the way back to a 90 percent tax rate if we don’t stop all this spending. Meanwhile, the well-respected, non-partisan Tax Policy Center says the top rate could get to 77 percent and that would only get us to a 3 percent deficit share of GDP. That’s nowhere near a balanced budget.

As a supply-sider, I’ll say this: Reversing the 50 years of lower-tax-rate progress that started under Pres. John F. Kennedy would deliver a brutal body blow to our long-run economic prosperity and stock market. This is exactly why my V-shaped recovery-boom scenario can take us to year-end 2010, but not beyond that — unless and until we see some wholesale changes to Washington money-politics and policy.

Incidentally, on tonight’s program we’re going to welcome supply-side godfathers Art Laffer and Robert Mundell to talk about taxes, spending, borrowing, and growth. We will discuss the gathering high-tax storm clouds that will derail U.S. economic growth if Washington doesn’t quit spending so much. You won’t want to miss it.

But let’s enjoy the here and now, one day at a time.

Lately, I’ve been talking a lot about the V-shaped recovery in profits, ISMs, household employment, commodity indexes, and railroad freight-car loading. These are significant indicators of a stronger-than-expected economy in the quarters ahead. Now I’d like to add three more indicators.

First up is aluminum:

You can see the nice upward move. It’s really beginning to show a V-shaped trajectory. Now, Alcoa reported better-than-expected profits, but it didn’t make it on top-line revenues. Nonetheless, I’ve been talking about the commodity boom, and aluminum adds to the evidence.

Next up, lumber prices:

It’s the same story, really. You’re getting a V-shaped upward move. This is interesting. Part of this can be attributed to cutbacks in production — I’m the first to acknowledge that. But another part of the lumber-price-hike story is China and the global boom from the emerging economies that need lumber, paper, pulp, and processing.

And here’s a look at inventories:

Business inventories are beginning to re-accumulate after many, many quarters of decline. This is a key point for the stock market and economy going forward.

Finally, I’d like to remind you of retail chain-store sales:

Retail chain-store sales were very strong, up basically 10 percent. This one truly is a V. And tomorrow we get a new report on overall retail sales. Most folks are optimistic about the retail-sales outlook.

In summary, I am sticking with my V-shaped recovery-boom scenario. The data coming in show that the economy is probably stronger than most people think. Profits are strong. The Federal Reserve is still ultra-easy. Inventories are building. Commodities are strong. And as my friend Michael Darda reminds me, credit-market spreads against the Treasury curve — the so-called risk spreads — are very narrow. All of this suggests stronger economic growth.

Thomas Hoenig, head of the Kansas City Reserve Bank, is truly a new Fed superstar. I encourage all of you to read his recent speech in Santa Fe, New Mexico, where he calls for an immediate tightening of the federal funds target rate to 1 percent in order to prevent the build-up of financial imbalances that could create another credit-bubble boom that in turn will wind up as another credit-and-financial bust.

In other words, get ahead of the curve, instead of staying behind it. Slam down the threat of future inflation. To use Mr. Hoenig’s words, put the market on notice that it must again manage its risk, and be accountable for its actions. Stop relying on the Fed’s easy money. What great advice.

I’d like to go a couple steps further. First, the biggest problem with the Fed’s easy money in the 2002-05 period — which set the stage for the boom-and-bust cycle — was that rates were held too low for too long. In those days, Alan Greenspan called it a “considerable period.” Today it’s called an “extended period.”

Second, the Fed back then had something called a slow, measured pace. Remember that? That meant the Fed was telegraphing to Wall Street these small, teensy-weensy, incremental, quarter-percent increases in the fed funds rate. That, of course, meant it took the Fed several years to get back to normalcy. And it promoted excessive leverage and risk-taking.

I want a different regime. I’m calling it cowboy monetarism. What do I mean by that? I want Wall Street to be scared to death of the Federal Reserve. I don’t want them lying around in bed with the Fed — I want them running scared.

Let me give you an example: Back in the 1980s, Ronald Reagan was often referred to as a cowboy in his tough dealings with the Soviet Union. Well, guess what? As we learned later, the Soviets were in fact very scared of Reagan’s toughness in the Cold War fight against communism. So I want Wall Street to be just as afraid of the Fed as the Soviets were of Ronald Reagan.

And when the Fed does finally move — and it ought to move soon, as Mr. Hoenig says — it shouldn’t do so in a teensy-weensy, quarter-point manner. It shouldn’t tell Wall Street what it’s doing every minute of every hour. It should surprise the Street with large, unexpected rate hikes, like 75-basis points, or even 1 percent changes.

This would curb Wall Street’s propensity for large risky bets. It would keep traders honest. And it would put the kibosh on a new credit boom-and-bust cycle.

Look, I want the Fed to be thought of as a cowboy; you never know what it’s going to do.  Think John Wayne. I want both guns drawn, pulling the interest-rate triggers. If the Fed does that, then it’s possible we can stop another credit bubble.

Volcker did this in the 1980s. He was right. It worked.

Sometimes being tough and unpredictable is the best monetary medicine. Cowboy monetarism. That’s my take.

A blowout retail-chain-store-sales number of plus-10 percent for the year ending March trumped the growing disaster in Greece, with the Dow managing to finish trading yesterday ahead by 30 points. Retail stocks were up big across-the-board. So far this morning, the Dow has tacked on another 40 points.

Bottom line: This big retail number confirms my view that the economy is actually much stronger than most people think.

We’ve got a V-shaped commodity boom; a V-shaped retail-sales and retail-stock boom; a V-shaped profits boom; a V-shaped ISM boom; and the beginnings of a V-shaped jobs recovery. I don’t know how long all this will last, but the next 6 to 9 months look pretty darn good on the economic front.

On the negative side, the Greece story has disaster written all over it. The bond market vigilantes are issuing yet another wake-up call. A run on the Greek banks is developing, and the overnight repo funding market in Greece is dead.

The question now is whether Greece will ultimately default. And there’s also a contagion question at play. And what about all the French banks that own the Greek bonds?

On a more positive note, at least the prospects for a China trade war seem to be diminishing, with Treasury man Tim Geithner’s renminbi diplomacy in Beijing. No one really knows for sure if the Chinese will in fact revalue their currency, or, as investor Jim Chanos worries, whether China is facing a prosperity boom and real-estate property bubble that may sink its banks if it goes bust.

But one thing is for sure: Right now, the U.S. economy is outperforming everybody’s expectations.

As I’ve said many times over the past year or so, there are major storm clouds looming on the horizon for our fragile, yet recovering, U.S. economy. The latest ominous cloud comes by way of former Federal Reserve chairman Paul Volcker, who is pushing President Obama to adopt a value-added tax, or VAT.

Now, I have the utmost respect for Paul Volcker. He was my boss 35 years ago when I worked at the New York Fed. And it was Volcker, of course, who conquered the inflation that took root in the 1970s. He may very well be the greatest central banker of all time.

But with all due respect, Volcker’s call this week for a European-style VAT(as well as a carbon tax) is itself a historic mistake.

The last thing we need right now is more tax hikes. There are a dozen new tax hikes already squirreled away inside President Obama’s health-care law. Medicare payroll taxes are going to be imposed on capital gains and dividends. Investor taxes are going way up when the Bush tax cuts expire at the end of this year. And to top it all off, half the states in the country are raising taxes.

Look, if you think for a one moment that spendthrift politicians in Washington won’t treat higher tax revenues as their very own honey pot, think again. That’s exactly what this crowd will do. If you give these guys one more nickel of tax revenue, they won’t use it to cut the deficit, they’ll spend it. They can’t help themselves. It’s why, rather than tax hikes, we need emergency-style, sharp-edged, across-the-board spending cuts everywhere in the federal government. And I mean everywhere. We’re talking government programs, departments, agencies, worker pay. You name it, slash it all.

And if you think we can tax our way into prosperity or a balanced budget, you’re wrong again. It doesn’t work. Just look at the tax-happy Europeans, who haven’t created a new private job in over two decades.

Half the people in this country don’t pay the income tax, and of the ones that do, the top 10 percent pays a staggering 70 percent of it. Meanwhile, the top 1 percent of income earners shoulders 40 percent of the overall tax burden. And now, on top of all that, Mr. Volcker wants to tax consumers and producers throughout the production and consumption chain with a VAT?

This is nuts. Absolutely nuts.

So, the Fed is looking for a soft recovery. The central bank basically sees no inflation at all on the horizon. It’s showing no imminent sign of ending its ultra-easy money for an extended period any time soon. But my message to the Fed and investors is this: Are you sure about this low-growth recovery?

Commodity charts are showing a V-shaped rebound. So are the latest ISM reports. Retail chain sales may actually be up 10 percent in March, according to the latest reports. Ten percent. And don’t forget growing household employment, up 1.1 million jobs in the first quarter, according to the March report out last Friday. By the way, even non-farm corporate payrolls rose for March. They’re up about 220,000, including prior upward revisions.

We know that money remains very loose, with a negative real interest rate and a bloated Fed balance sheet. We also know there’s a global boom going on among the emerging countries. So the key issue is how long will this boom last? Here’s my concern:  We could get the big boom between now and the end of the year. On the other hand, higher tax rates next year and beyond may very well stifle this boom.

But between now and year-end, I think the Fed may be missing an emerging story that suggests much stronger growth, with a big dose of commodity inflation thrown in. That’s the risk right now.

You see, we are not operating a supply-side, free-market model. What I wish for is sound money and lower tax rates. Instead, we’re getting easier money and higher tax rates. So my fear is that we’re setting up a temporary boom. This may be good for stocks and jobs in the short-run, but all of this may backfire at some point, perhaps next year. We are on the verge of much higher tax rates and potentially higher interest rates. That would confound the whole scenario.

But for now, let’s take a look at this budding market-boom story. The first thing I want to focus on is the boom in commodities.

This chart of raw industrial materials shows all the stuff that’s been booming — iron ore, steel, you name it. It doesn’t even include the rise in oil or gold. As you can see, there clearly is a V-shape going on here. The Fed isn’t really talking about this V-shaped recovery. I wish it would, because this commodity strength is a powerful driver.

The ISM manufacturing prices paid is a proxy for commodity prices. All of the raw materials go into this chart. Look at that rebound. Once again, we have something resembling a V, from the prior decline. In the Alan Greenspan heyday of the commodity-price rule, which included gold and the exchange value of the dollar, Greenspan used to look at these kinds of commodity indicators. I don’t know if the Bernanke Fed is paying any attention to this. But the stock market is looking at it, and so is the commodities market.

The whole ISM manufacturing index has had a tremendous run-up. To some extent, this may be the strongest evidence yet. In fact, with higher commodity prices running virtually across-the-board, there is every incentive in the world for rapid inventory-rebuilding. Inventory prices are going up as commodity prices go up. This could drive the economy to 5-to-6 percent annual growth between now and the end of the year.

A lot of this is being driven by very easy money from the Federal Reserve. Unlike other central banks, most notably in Australia, the Fed remains ultra-easy.

This is the real fed funds rate adjusted for the year-to-year changes in inflation. You can see the peak of around 4 percent back in 2007. Now we’re below the zero line. Money has been easy. This is what we witnessed between 2002 and 2005. So, will history repeat itself?

My point here is that while the Fed is talking about a very moderate — indeed a slow-based — recovery, what we are seeing in the ISMs, the commodity market, and even the jobs market suggests a much different economic story. Even retail sales from the shopping centers point to a little bit of a boomlet. I’m just wondering whether this boomlet may eventually turn into a boom.

This is not forever. We are facing higher taxes and probably higher interest rates next year. But for now, we’ve got several quarters of booming economic growth.

Sometimes you have to take your political lenses out and look at the actual economic statistics in order to gauge whether we’re on the road to recovery or not. Without getting personal, I’m watching many of my friends on certain cable stations attempt to trash the March employment numbers released last Friday. Don’t do it, folks. The numbers were solid.

In fact, while everyone keeps saying that small businesses are getting killed from taxes and regulations out of Washington, the reality is that the Labor Department’s household survey has produced 1.1 million new jobs in the first quarter of 2010, or 371,000 per month. If that continues, the unemployment rate will be dropping significantly.

Additionally, the corporate payroll number increased by 224,000 — not 162,000 — with the prior two months being revised up by 62,000. And if you take out the 48,000 temporary census-worker jobs, it turns out that government employment actually declined in March.

What’s my point? Credibility. Conservative credibility.

No one has written more about the future tax-and-regulatory threats from the big-government assault of Obamanomics. But most of that is in the future. The current reality is that a strong rebound in corporate profits (the greatest and truest stimulus of all), ultra-easy money from the Fed, and some very small stimuli from government spending are all working to generate a cyclical recovery in a basically free-market economy that is a lot more resilient than capitalist critics would have us believe.

So conservatives should not lose their cool and blow their credibility over a cyclical rebound that is backed by the statistics.

Incidentally, the real-time ISM purchasing-managers reports for manufacturing and services show that the next few quarters, perhaps to year end, could be much, much stronger than the consensus expects. Higher future tax rates are going to be a problem. But then again, the tea-party revolution may overturn all those obstacles to growth. Think of it.

In some sense, I’m glad President Obama is opening the door to offshore oil drilling. But in the spirit of free-market deregulation, I do think that much, much more should be done in the Atlantic, the Gulf of Mexico, the Pacific, and Alaska.

With oil prices high, and new technologies coming on stream daily, drillers and producers have tremendous incentives to generate much more oil and gas. If only we let them.

It goes without saying that a growing economy needs more fuel. That’s why I want to deregulate the entire energy industry. I’ve called for this countless times over the years. We need to remove government obstacles for oil, gas, clean coal, nuclear, and the so-called renewable green-energy sources.

And yes, I oppose government subsidies of any kind. Let the marketplace decide what makes profitable economic sense.

As for offshore oil drilling, get this: By some estimates, the U.S. has 86 billion barrels of oil reserves offshore. For some perspective, that’s enough energy to fuel 65 million cars for 47 years. That’s why the stakes are so high.

Those reserves will give us plenty of time to transition into the development of nuclear power and natural gas for the home and highway. Of course, millions of American jobs would be created in the process. This power can fuel tremendous economic prosperity for years to come.

On a related note, this so-called tri-partisan Senate cap-and-trade bill is a far cry from free-market capitalism. In my view, if this legislation is put in place it could spell economic disaster. In fact, a new study by the Heritage Foundation estimates that the new cap-and-trade bill from Sens. Lindsey Graham, John Kerry, and Joe Lieberman could reduce GDP by as much as $10 trillion over the next two decades. It could force $4.6 trillion in new energy taxes on Americans, kill 2.5 million jobs, and raise the cost of goods and services by $3,000 a year.

Is that what we want?

More government controls like this are exactly the wrong energy medicine. Let the market work, I say. Use all of our resources, all of our technology, and all of our wealth.

Look, if you really believe in this man-made-global-warming carbon problem — which I do not –then here’s a response that’s much more efficient than government controls and subsidies: Put a tax on carbon. Then legislate that all those carbon-tax revenues be recycled in the form of lower marginal tax rates for all individuals, families, and businesses, and finance true, single-rate, flat-tax reform. That’s what you do if you buy into the man-made carbon problem.

But most of all, let’s liberate the great American energy sector from the shackles of government control. Energy freedom and economic freedom should go hand and hand. This is part of our history. True energy freedom will help resurrect our economy by providing the fuel to power American prosperity for as long and as far as the eye can see.