I worry about Fed-induced asset bubbles: Paulson

Former Treasury Secretary Hank Paulson said Wednesday that stocks and other assets need to start to trade again on "real economics," arguing the Federal Reserve should hike interest rates sooner rather than later.

"This has been monetary policy that has worked the way it was supposed to work," he told CNBC's "Squawk Box" in an interview. "When you solve a big ugly problem, you are never going to have a perfect elegant solution."

He acknowledged the "disortational effects" of the Fed's easy money policies, which have benefited investors by pumping up assets, while hurting savers and Americans on fixed incomes.

"I have more of a concern about asset bubbles," he said. "It's very hard to know when you have these misallocations, which assets are mispriced." It seems investors are addicted to these near-zero-percent rates, he said.

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Paulson said the U.S. economy is going to be stuck at around a 2 percent growth rate for a while. That, coupled with little sign of inflation, would keep the Fed rates low for longer, he predicted, despite his personal desire for more prompt action.

Low rates around the world and the prospect of Fed rate hikes at some point have put more upward pressure on the dollar. "When I look at the economic numbers and look at the dollar, I bet ... that the Fed takes a longer time," he said.

Paulson is sticking with the line that the strong dollar is good for the U.S. in the long run. "But when you get these kind of moves this quickly, I'm sure glad I'm not trying to run a global company now," he said.

Paulson, a former chairman and CEO of Goldman Sachs, headed Treasury in the George W. Bush administration from 2006 to 2009, in the lead up and during the financial crisis. He helped engineer the Troubled Asset Relief Program (TARP)—the bailout credited with preventing the collapse of the financial system.

Taking stock of the economic recovery since the crisis, he said it's a good news/bad news story. "We're a bright spot in the global economy. We're growing. We're creating jobs. Real estate prices are rising. But we're clearly not growing fast enough, and this income disparity is a really serious problem."

"We're not going to grow at the level we need ... unless we get some important things done," he warned. "We need to restore the competitiveness of the U.S. economy" including reforms on corporate taxes, immigration, and entitlements.

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