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BREAKING NEWS FROM CNBC’S JOHN HARWOOD: SOURCE: S&P'S CALCULATIONS WERE OFF BY "TRILLIONS"

When: Tonight, Friday, August 5th at 7:30PM ET

Where: CNBC’s “The Kudlow Report

Following is the unofficial transcript of breaking news from CNBC’s John Harwood. All references must be sourced to CNBC.

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KUDLOW: WE HAVE SOME MORE BREAKING NEWS. LET'S GO RIGHT TO CNBC'S CHIEF WASHINGTON CORRESPONDENT JOHN HARWOOD. HELLO, JOHN.

HARWOOD: HEY, LARRY. I JUST GOT OFF THE PHONE WITH AN ADMINISTRATION SOURCE FAMILIAR WITH THE SITUATION WHO EXPLAINED THIS AS THE REASON WHY WE HAVEN'T SEEN ANYTHING FROM S&P EVEN THOUGH THE ADMINISTRATION'S BEEN EXPECTING IT. AT 1:30 THIS AFTERNOON S&P NOTIFIED THE ADMINISTRATION OF THEIR INTENT TO DOWNGRADE AND PROVIDED SOME ANALYSIS TO BACK UP WHAT THEY WERE GOING TO DO. WHEN THE -- WHEN CAREER OFFICIALS WITHIN THE GOVERNMENT LOOKED AT THE INFORMATION, THEY CONCLUDED THAT THE S&P ANALYSIS WAS OFF IN THE TRILLIONS BASED ON A MISREADING OF WHAT THE CORRECT CONGRESSIONAL BASELINE WAS. IT WAS COMPLICATED. BUT IT HAD TO DO WITH CONGRESSIONAL ACCOUNTING. AND IN THE END IT THREW OFF THEIR CALCULATIONS OF THE DEBT TO GDP RATIO OVER TIME. S&P HAS TAKEN THAT INFORMATION BACK, HAS ACKNOWLEDGED THAT THEY MADE A COMPUTATIONAL ERROR, AND THEY'RE NOW RECONSIDERING. THE ADMINISTRATION STILL IN THE END EXPECTS A DOWNGRADE MAY OCCUR. THIS MAY SIMPLY BE A REVISION OF THE RATIONALE FOR THE DOWNGRADE. BUT THEY DON'T KNOW FOR CERTAIN BECAUASE THEY HAVEN'T HEARD THE SECOND JUDGMENT FROM S&P.

KUDLOW: SO JOHN, IS THERE A SENSE THAT MONDAY IS A NEW DAY FOR S&P, THEY'RE GOING TO WORK THE NUMBERS THIS WEEKEND?

HARWOOD: I DON'T KNOW THE WAY THAT FIRM WORKS WELL ENOUGH TO SAY THAT, WHETHER IT COULD BE LATE TONIGHT, WHETHER THEY DON'T DO ANYTHING ON THE WEEKENDS, BUT CERTAINLY THEY'RE DIGESTING THAT INFORMATION. THEY'RE ALSO DIGESTING OF COURSE THE KNOWLEDGE THAT FITCH AND MOODY'S STAYED AT AAA. SO IT IS POSSIBLE THAT THEY WILLCHANGE THE ULTIMATE DECISION, BUT NOBODY'S COUNTING ON THAT HERE IN WASHINGTON.

KUDLOW: ALL RIGHT, JOHN HARWOOD, THANK YOU VERY MUCH.

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