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KUDLOW: Spending Cuts Must Precede Debt Increases

Welcome to a new day and, unfortunately, our continued dependence on big government in determining economic policy.

The big issues are what was really said between President Biden and Speaker McCarthy, and trying to understand what the Fed chairman really meant when he said “the risk of not raising rates enough is more dangerous than raising rates too high and causing recession.”

No one’s talking about cutting taxes, which would greatly empower free people operating in a free economy, and would greatly reduce the power of government — an idea I favor devoutly.

Before I go any further, I want us all to take solace from my former boss Ronald Reagan, who said: “Government is not the solution to our problem, government is the problem.”

Of course, don’t forget this as well: “The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’”

Mr. McCarthy apparently had a very rough beginning with Mr. Biden in their White House tête-à-tête, but it lasted longer than expected. Tensions reportedly eased as the meeting progressed.

Whether they’ll have a second date remains to be seen, but here’s what Mr.  McCarthy did say after the initial meeting: “I was clear…. We’re not going to pass a clean debt ceiling. I’m going to wait for the president to call back another day or so and hopefully we’ll sit down together…. Look, what we talked about today was about moving forward in how we move through on a debt ceiling and how we get an agreement. I believe if we’re able to get to an agreement, we could have a funding agreement for the next two years.”

The absolute best thing we heard last night comes from a brilliant senator, Mike Crapo, about an agenda to restore prosperity. He said: “Revenues are not the problem. The TCJA from 2017 needs to be made permanent and we need to focus on less spending, less taxing, less regulating, and less inflating. And we need to get a plan to do that.”

In case you missed it, the absolute toughest thing we heard yesterday came from Senator Kennedy of Louisiana. Speaking about the Fed chief, he said: “Chairman Powell is serious as an aneurysm. He is going to raise rates as high as he has to raise them. People like Larry Summers, Jason Furman, the other Democratic economists, have said it could be as high as 6, 7, 8, 9, even 10 percent, a federal funds rate. He is going to do whatever it takes to get control of inflation, but he will not have to raise rates as high as he normally would and put so many people out of work. If Congress would just stop spending money like it was ditch water.”

So, it’s all a big story, one that has a bunch of known unknowns in terms of how this government policy debate is going to end up affecting the economy.

Stock markets were up, and in fact have had a good year-to-date run. So, at a minimum, investors are saying things may not be so bad.

I’m always excited when stocks go up, believe me, though I think the best investment strategy is to buy the index funds for the long run. The market is saying there’s no catastrophe — at least yet — in terms of policy or an economy that’s losing altitude.

Personally, I think Mr. Crapo has the best voice I’ve heard. His is the free-market, supply-side prosperity agenda that will end the long-term economic stagnation, end the inflation, and make America great again.

I also believe that the wind is at Speaker McCarthy’s back.

The country says cut spending before you raise the debt, because government is too big, too powerful, too much central planning, too much socialism. Reagan was definitely right many years ago when he said government is the problem — not the solution.

So, I will just end by saying: Save America. Stop the spending.

From Mr. Kudlow’s broadcast on Fox Business News.

Larry Kudlow was the Director of the National Economic Council under President Trump from 2018-2021. His Fox Business show "Kudlow" airs at 4 p.m &. and his radio show airs on 770 ABC from 10:00 a.m. to 1:00 p.m.