Whether or not one agrees or disagrees with Standard & Poor’s decision to downgrade the federal government’s credit rating, the message is clear: Washington is spending too much borrowed money.
On Laura Ingraham’s Monday radio show, Larry Kudlow, host of CNBC’s “The Kudlow Report,” said despite the downgrade, he remains optimistic on the economy and the markets.
“Even though growth is very sluggish, the market may be pricing in a recession and that includes of course the downgrade and all that goes with it, I don’t see a recession,” Kudlow said. “And I think from an actual market standpoint, the actual S&P downgrade is not very important.”
However, he explained what the real message from Standard & Poor’s was — get debt and spending under control.
“[I] do think however, and I want to emphasize this — shooting the messenger is the wrong strategy here from the White House or whomever,” Kudlow said. “All the S&P is doing, however sloppily they handled it — now I’m not going to defend them. I got no skin in their game. But I will say this, we spend and borrow too much. The debt-to-GDP ratio, the spending-to-GDP ratio — I don’t care what CBO baseline you use, it all goes up too much. So that’s the key point.”
Later in the segment, he said one of the key reasons for the downgrade’s timing was that it happened on the heels of a debt ceiling agreement that didn’t address these structural deficiencies.
“[T]he message is we spend and borrow too much,” Kudlow said. “And we haven’t taken the big bang approach to stomp that out. And I think there’s a little bit too much ‘shoot the messenger’ today. Their message by the way is not that we’re going to default on our debt. They never said that and that’s never going to happen in my view at least. We will never default on our debt. But their bigger message is we’re not taking the kind of let’s say, Paul Ryan steps, which I think would have passed S&P’s muster, to really transform the entitlements and really curtail with strict limits the discretionary spending in the budget. Our debt-to-GDP ratio — that’s their metric, continues to rise.”
And compared to other developed nations, the United States lags way behind in debt as a share of gross domestic product.
“And frankly it’s rising faster than our peers in Canada, and Canada by the way has a 33-percent debt-to-GDP ratio,” Kudlow continued. “We’re 80 percent and heading higher. So when you look at our peers in England and France and Germany and Canada, we’re not doing as well as they are doing. You know I think that’s a very serious message. I think that’s a tea party message. I think that’s a Republican message. I think the problem was they didn’t get the job done on the debt ceiling package. That’s still the serious issue.”