Federal debt has passed $40 trillion and sits at 121% of GDP, above where it stood in the Second World War and short only of the 125% reached in 2020.
The market had just taken 400 points off the Dow and pushed oil above $90 on news of new US strikes on Iran. The former Congressional Budget Office director's response was that none of that should change anyone's view of the economy, and that the thing worth worrying about was already on the books before the strike.
"So I think what you knew about the economy yesterday, you should believe today."
Holtz-Eakin ran the CBO, the office that scores the cost of federal legislation, and Michael Faulkender was deputy Treasury secretary in this administration, so the tax and energy policies they are grading are ones one of them helped write.
I listened to the full segment so you can skip it.
Here are the 6 takeaways that matter.
👤 Guests: Doug Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office, and Michael Faulkender, a former deputy US Treasury secretary
🎙️ Host: David Asman, guest-hosting Kudlow for Larry Kudlow
📰 Published: 1 September 2026 on Fox Business, and on the Kudlow podcast feed
🟣 Apple Podcasts | ⏱️ 46 min
Key Takeaways
A new round of strikes on Iran and $90 oil should not move anyone's economic forecast Holtz-Eakin expects the oil move to be short-lived and sees no change in the outlook
Debt is above the Second World War peak as a share of the economy, and only 2020 was higher The government borrows about $2 trillion a year and half of that is interest on what it borrowed before
The debt, not the war, is the risk the federal government can actually control
Faulkender's explanation for the resilience is domestic energy, not monetary policy More fossil fuel production is what he says absorbed a Middle East supply shock
Winning the AI race is framed as a national security requirement rather than an economic one
Neither of them expects a Democratic midterm win to reverse the policy Regulation stays with the president, the tax cuts stay because he will not sign a rise, and the oil keeps being pumped
1. Oil at $90, economy steady
Asman opened on the day's news before playing a clip of Bessent saying growth was reaccelerating.
The setup: "We had another strike against Iran because of their strike against our bases in Jordan. Oil pumped up as soon as word got out, and it ended the day over $90."
Holtz-Eakin declined to revise anything. "Well, certainly proof is in the pudding. And the economy has been quite resilient throughout the entire conflict." He called this another day of conflict, said markets had reacted, and said the market reaction is what will be worth watching
His forecast for the oil move is that it does not last. "It's likely to be a short-term rise in oil prices. So I think what you knew about the economy yesterday, you should believe today."
He located the strength in one place. "There's not been any dramatic change in the outlook, and this economy's been strong in the investment sector. That's the growth story. The household sector was real strong in the second quarter as well."
2. Private-sector growth
What he took from the Bessent interview was a condition on the growth, not the growth itself. "And I thought the major message that came through was the importance of growth, yes, but growth that's built on private sector efforts."
He turned that into advice for the other finance ministers in the room. "That's the message that the other countries at G20 need to listen to and try to mimic back at home."
Asman framed the same point as a reversal of what he called an over-governmentized economy, which he attributed to both the previous administration and the pandemic, and put the quarter's rise in S&P 500 profits at 53%
3. Energy is why it held up
Faulkender agreed on the ranking, not just the direction. "Well, not only are we not in a dire situation, but we are the best growing economy in the world, aren't we?"
His causal claim is that energy runs through everything else. "As I have been saying for years, energy and fossil fuels permeate the economy. So probably the biggest pivot the president has made is to prioritize domestic production of energy here in the United States."
That is his explanation for why a Middle East conflict has not shown up in the numbers. "Part of the reason the economy has been so resilient despite the shock in the Middle East is because of the extent to which we have increased production of fossil fuels and reoriented our economy back towards more reliable, lower cost sources of energy in order to power our economy." He paired it with the tax side: an approach he called much more assertive on taxes to incentivize private-sector activity, and government getting out of the way of innovation
4. Compute is national security
Asman said the statistic that struck him most in the Bessent interview was the projected increase in US computing power.
Faulkender's answer moved it out of economics. "A.I. is not just the future of our economy, it is the future of national security. We absolutely have to win the A.I. race."
He treated the capital spending as compulsory rather than discretionary, saying investment in compute power is absolutely necessary to realizing it
5. Debt at 121% of GDP
Asman raised the debt, and Holtz-Eakin finished the sentence for him.
The level, and the two comparisons that give it meaning. More than $40 trillion and counting. "As a percent of GDP, we are back up to where it was in World War II" "During the pandemic it got up to 125% in 2020. But we're higher now than we were in World War II" The number he gave for today is 121% of GDP
His description of the annual arithmetic is that the borrowing is now self-feeding. The federal government borrows about $2 trillion a year, of which about a trillion is interest on previous borrowing
The prescription is to stop first and argue later. "What do we do about it? Oh, it's time to stop digging this hole."
He tied it back to the guest he had just been reacting to. "If you want to derisk the economy completely as the secretary argued, that's the biggest risk that the federal government can control. We have to get on that right away, there's no question about it."
Asman's own view was that spending is the side of the equation that has to be touched aggressively
6. The agenda survives November
Asman put the political scenario as a question about durability, arguing that the president keeps regulatory power whichever way the midterms go and that the tax cuts survive because he will not sign an increase. "If the Democrats do win in the midterms either one or both of the houses, President Trump still has the power of regulation."
Faulkender's answer took the energy policy as settled. "The pumping of gas is not going to change. We're going to be pumping oil. We've got more coming from Venezuela, etc."
He argued the legislative work is already done, naming the One Big Beautiful Bill and a second reconciliation bill that funded immigration enforcement, so the agenda no longer depends on Congress "And so irrespective of what happens in this election, I think that the president and his team are going to make sure that we finish the investments that are going to make our economy the strongest and provide that golden age that the president's talked about"
His closing argument was that the midterms will be fought against a live experiment. He said two years of what he called failed socialist policies will have run in New York and Seattle by then, and that New York is already coming apart: "Only an $8 billion bailout by the governor helped out this mayor."
Bonus Insights
Asman opened the broadcast on the day's market and news tape: stocks down over 400 points after the US launched new strikes on Iran, and oil back above $90 a barrel. He read US Central Command's own account, which said the strikes followed recent attempted attacks by the IRGC against commercial shipping in the Strait of Hormuz and against American service members deployed to the region
The segment is built around two clips replayed from Larry Kudlow's interview with Treasury Secretary Scott Bessent earlier that day, one on bond yields and growth and one on regulatory, tax and energy certainty. Both are summarized separately
Faulkender's phrase for the destination is the administration's own — the golden age the president has talked about — and he used it as the reason to finish the investment program rather than as a slogan
Holtz-Eakin's bottom line is that the war is not the risk worth pricing and the debt is, because it is the one the federal government can do something about; Faulkender's is that domestic energy production is why a Middle East shock did not reach the American economy.
Products, Companies & Tools Mentioned
American Action Forum (The policy institute Holtz-Eakin runs, and the platform for the fiscal argument he makes here)
Congressional Budget Office (The office he formerly directed, which scores the cost of federal legislation)
US Central Command (Its statement, read by Asman, is the source for the account of what the new strikes on Iran were in response to)
S&P 500 (The index whose quarterly profits Asman put at 53% higher, as evidence for the pro-growth policy case)
Venezuela (Named by Faulkender as a source of additional oil supply, in support of his claim that production policy will not change)
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