CNBC Exclusive Interview: Dylan Ratigan Interviews The Bush Economic Team (Transcript Included)

DATE: July 27th
NETWORK: CNBC
PROGRAM: "Squawk On The Street"
TIME: 9:00 AM

The following is the unofficial transcript of CNBC's exclusive "Keeping America Great: The CNBC White House Summit" on CNBC's "Squawk on the Street" today at 9:

ALL REFERENCES MUST BE SOURCED TO CNBC.

In an unprecedented event, Treasury Secretary Henry Paulson, Commerce Secretary Carlos Gutierrez, Office of Management and Budget Director Rob Portman and President Bush's Economic Advisor Edward Lazear gather for a roundtable discussion from the White House, exclusively on CNBC, First in Business Worldwide. In this exclusive interview, Ratigan will cover the GDP data, credit risk and the volatility in the market, housing, China and corporate taxes with the leaders of the most powerful economy in the world.

MARK HAINES: NOW IT'S TIME TO HEAD TO WASHINGTON OR AS THEY USED TO SAY, WARSHINGTON. THOUSAND TO THE MAN, DYLAN RATIGAN IN THE INDIAN TREATY ROOM IN THE EISENHOWER EXECUTIVE OFFICE BUILDING RIGHT NOW. HE HAS THE ENTIRE BUSH ECONOMIC TEAM WITH HIM AND AN JUST PRESIDENT DOLLARS EVENT --, AN UNPRECEDENTED EVENT, WHICH IS REDUNDANT. HE'S HERE TO TELL US WHAT THE ADMINISTRATION THINKS ABOUT THE ECONOMY, THE MARKETS, HOUSING, HEDGE FUNDS, CHINA. GOOD LORD, THIS IS A LONG INTRODUCTION. DYLAN, FINALLY, THE FLOOR IS YOURS.

DYLAN RATIGAN: ALL RIGHT. THANK YOU VERY MUCH, MARK, AND EYE MAKE MY INTRODUCTIONS BRIEF, BECAUSE THERE'S A LOT TO TALK ABOUT. ROB PORTMAN RUNS OMB, HANK PAULSON, OUR SECRETARY OF THE TREASURY, TO MY LEFT, CARLOS GUTIERREZ, OUR SECRETARY OF COMMERCE, THEN ED LAZEAR, CHAIRMAN OF THE COUNCIL FOR ECONOMIC INDIVIDUALSERS, WELL -- WELCOME TO ALL FOUR OF YOU, MAKING TIME FOR US THIS MORNING. LET'S START WITH THE DATA: GOVERNMENT -- EXPORTS VERY STRONG, GOVERNMENT SPENDING A SIGNIFICANT DYNAMIC. I WANT TO START WITH YOU MR. SECRETARY ON EXPORTS. HOW MUCH OF WHAT WE'RE SEEING IN THAT EXPORT IS DRIVEN BY THE VIBE BRANCEY OF THE GLOBAL ECONOMY AND HOW MUCH IS IT A FUNCTION OF OTHER VARIABLES LIKE CURRENCY RELATIONSHIPS NOW?

CARLOS GUTIERREZ: I THINK IT'S A COMBINATION OF FACTORS AND IT'S PROBABLY ONE OF THE BIG STORIES OF THE QUARTER THAT WE'VE HAD AN INCREASE IN NET EXPORTS AND NET EXPORTS HAS ACTUALLY BEEN A CONTRIBUTOR TO GD PFT GROWTH, SO WE'RE SEEING ECONOMIES AROUND THE WORLD GROWING, SO THEY'RE ALL TO BUY MORE OF OUR GOODS, WE'RE SEEING MANUFACTURERS TAKING ADVANTAGE OF FREE TRADE AGREEMENTS, OPENING UP MARKETS. WE'RE BECOMING A MAJOR EXPORTER IN SPITE OF OURSIZE, AND IN SPITE OF THE FACT THAT WE ARE THE LARGEST EXPORTER IN THE WORLD. WE'RE STILL GROWING OFF THAT BASE. SO I THINK IT'S ONE OF THE BIG PIECES OF NEWS FROM THIS QUARTER.

DYLAN RATIGAN: HOW MUCH OF THAT IS BECAUSE OF THE DOLLAR WEAKENING, YOU THINK?

HENRY PAULSON: FIRST OF ALL, YOU KNOW, I VERY MUCH AM FOR A STRONG DOLLAR AND THAT'S VERY IMPORTANT. NOW, I BELIEVE WHAT WE'RE SEEING IS A STRONG GLOBAL ECONOMY. THIS IS THE STRONGEST GLOBAL ECONOMY I'VE SEEN IN 32 YEARS. THE GROWTH RATE IN EUROPE IS DOUBLED, WE'VE GOT GROWTH THROUGHOUT ASIA. JAPAN IS NOW GROWING. SO I THINK THIS IS BEING DRIVEN BY STRONG GROWTH OUTSIDE OF THE U.S.

DYLAN RATIGAN: THE OTHER VARIABLE THAT WAS, AGAIN, MENTIONED IN THIS MORNING'S REPORT WASTHE GOVERNMENT SPEND, ROB. WHERE IS THAT SPENDING COMING FROM, AND WHAT MORE IMPORTANTLY DOES IT LOOK LIKE GOING INTO THE SECOND HALF OF THE YEAR?

ROB PORTMAN: SPENDING IS UP ACROSS THE BOARD BUT ACTUALLY AS A PERCENTAGE OF OUR ECONOMY, SPENDING IS NOT IN ABNORMAL RANGES AND WHAT WE'RE SEEING IS RESTRAINT IN SPENDING ALONG WITH INCREASED REVENUES THAT'S HELPING TO PUSH OUR BUDGET DECIFIT DOWN WHICH IS GOOD FOR THE UNDERLYING ECONOMY WHICH IS HELPING TO DRIVE THE GDP NUMBERS. SO WE SAW MORE SPENDING AS COMPARED TO LAST QUARTER BUTIT NO NOT A MAJOR CHANGE. THE MAJOR CHANGE IS THE UNDERLYING ECONOMY IS STRONG AND GROWING.

DYLAN RATIGAN: THE UNDERLYING ECONOMY HERE OR THE UNDERLYING ECONOMY THERE?

ROB PORTMAN: AS HANK JUST SAID, THE GLOBAL ECONOMY HAS HELPED WITH REGARD TO OUR EXPORTS.

DYLAN RATIGAN: WHAT ABOUT OUR ECONOMY?

ROB PORTMAN: WELL, OUR ECONOMY IS STRONG AND REVENUES CONTINUE TO GROW. WE'VE SEEN OVER THE LAST THREE YEARS, IN FACT, A 37 PERCENT INCREASE IN OUR REVENUES TO THE FEDERAL TREASURY, WHICH AS A BUDGET PERSON MEANS WE'RE GOING TO SEE LOWER DEFICITS IF WE CAN KEEP OUR SPENDING CONTROL AND THAT'S WHAT WE'VE DONE A BETTER JOB AT, RESTRAINING SPENDING, ALLOWING THE ECONOMY TO GROW. THE TAX CUTS HAVE HELPED IN THAT REGARD.

DYLAN RATIGAN: AS WE HEAR THAT, YOU MUST HEAR IT A LOT, THAT WE HAVE A SPLIT. WE KNOW THE PLANET IS GROWING RAPIDLY BUT THERE'S CONCERN THAT AMERICA IS NOT GROWING RAPIDLY, IN FACT IS IN A MODERATE SCENARIO IN PART BECAUSE OF THE HOUSING SCENARIO IN OUR COUNTRY AND ALSO THE MANUFACTURING, AUTOMOBILES AND THE REST.

ED LAZEAR: I WOULD SAY THE ECONOMY HAS BEEN STRONG AND IT HAS BEEN GROWING. WE'VE SEEN VERY STRONG JOB GROWTH, WE'VE SEEN WAGE GROWTH, WHICH IS EXTREMELY IMPORTANT, PARTICULARLY FOR THE AVERAGE AMERICAN. THAT'S THE THING THAT I TEND TO FOCUS ON THE THE MOST, WHAT'S HAPPENING TO WAGES, REAL WAGES HAVE BEEN UP, AND JOBS ARE AVAILABLE. SO TO MY MIND, THAT'S THE MOST IMPORTANT COMPONENT. BUT I WOULD SAY, ALSO, THAT IF YOU LOOK AT THE HOUSING MARKET, THERE HAS BEEN A BIT OF A CHANGE IN THE PAST FEW MONTHS. WE WERE LOSING ABOUT 1 PERCENT OF GROWTH IN GDP TO HOUSING OVER THE PAST FEW QUARTERS. THIS QUARTER IT'S DIFFERENT. THIS QUARTER, IT'S ONLY BEEN A HALF PERCENT, STILL DOWN, OF COURSE, THAT'S PLAYING OUT SOME OF THE PAST DECLINES, BUT HOUSING STARTS RIGHT NOW ARE ABOUT THE SAME AS WHERE THEY WERE LAST OCTOBER. SO THERE'S A SOMEWHAT DIFFERENT PATTERN THAT WE'VE BEEN SEEING OVER THE PAST FEW MONTHS.

DYLAN RATIGAN: HOW ARE YOU INTERPRET THANK PATTERN?

ED LAZEAR: AGAIN, I THINK WE STILL HAVE TO WAIT AND SEE. THERE HAVE BEEN SOME MIXED NUMBERS, OBVIOUSLY NEW HOME SALES WEREN'T GREAT, BUT THE STARTS NUMBERS WERE GOOD AND SO WE'LL JUST HAVE TO SEE HOW THIS PLAYS OUT IN THE NEXT FEW MONTHS. IT IS QUITE A DIFFERENT PATTERN, THOUGH, THAN THE ONE WE SAW OVER THE PRECEDING YEAR AND I THINK THAT'S PROBABLY THE GOOD NEWS.

DYLAN RATIGAN: LET'S TALK ABOUT PERCEPTIONS OF RISK RIGHT NOW. WHETHERIT THE SUBPRIME LENDING MARKET AND -- ON THE RETAIL LEVEL, THE MORTGAGE MARKET, OR YESTERDAY'S STOCK MARKET. IT WAS AN INTERESTING MARKET, ALTHOUGH A 1 PERCENT, 2 PERCENT MOVE IS NOT MUCH OF A MOVE CONSIDERING WHAT WE'VE BEEN THROUGH, BUT IT WAS MORE A REFLECTION OF ANXIETY ABOUT RISK IN BORROWING MONEY FROM COMPANIES, COMPANIES BORROWING MONEY FROM THE BOND MARKET. YOU HAVE BEEN FAIRLY COMFORTABLE IN YOUR LANGUAGE UP TO THIS POINT ABOUT THAT MARKET. WHAT DO YOU SEE THAT MAKES YOU SO COMFORTABLE?

HENRY PAULSON: I THINK I'VE BEEN PRETTY CLEAR, AND FROM THE TIME I CAME HERE, AND LET ME STEP BACK AND SAY WHAT WE'RE SEEING IS RISK BEING REPRICED, AND IN A DIFFERENT PERSPECTIVE ON RISK, WHICH I THINK IS HEALTHY. BUT WHAT I'VE SAID IS DURING TIMES OF THE NINE MARKETS DURING ECONOMIC CONDITIONS, WE CAN SEE EXCESSES AND EXCESSES INCUMBENT TO OUR SYSTEM, AND I THINK WE'VE HAD A BIT OF A WAKE-UP CALL. AND IF BORROWERS ARE A LITTLE BIT TOO RELAXED OR LENDERS ARE TOO RELAXED, IT'S NOT PARTICULARLY GOOD.

DYLAN RATIGAN: ARE THEY?

HENRY PAULSON: WELL I THINK WE'VE SEEN EXCESSES. LIKE FOR INSTANCE, THE LBO LOANS, SOME OF THEM HAVE NOT HAD TYPICAL COVENANTS, AND THAT'S -- I THINK WE COULD USE SOME MORE DISCIPLINE. AND I THINK THAT'S VERY SIMILAR TO THE PHENOMENON WE SAW ON THE SUBPRIME MORTGAGES, WHICH IS, AGAIN, LENDERS REACH FOG YIELD AND MAYBE NOT BEING AS DISCIPLINED AS THEY SHOULD BE. SO I THINK BORROWERS NEED TO BE AWARE -- AWARE, LENDERS NEED TO BE AWARE AND WE ARE SEEING A REASSESSMENT OF RISK AND THAT'S LEADING TO MARKET ADJUSTMENT.

DYLAN RATIGAN: BUT TO INTERPRET THAT, THE REASSESMENT MEANS THINGS ARE RISKIER THAN THEY WERE. THE REASSESSMENT OF RISK MEANS THAT WE'RE ASSIGNING MORE RISK.

HENRY PAULSON: WHEN YOU LOOK AT T. THERE'S PROBABLY LESS RISK TODAY THAN THERE WAS A NUMBER OF MONTHS AGO BUT IT'S NOW MORE APPARENT.

DYLAN RATIGAN: WHY ARE YOU SO COMFORTABLE TO THE EXTENT TO WHICH YOU ARE COMFORTABLE THAT THIS REPRICING OF RISK, WHETHERIT IN THE RETAIL MORTGAGE MARKET OR IN THE LENDING MARKET FOR CORPORATIONS, WILL NOT HAVE A MEANINGFUL IMPACT ON THE OVERALL ECONOMY?

HENTRY PAULSON: AGAIN, JUST TO BE CLEAR, I SAID -- WHENEVER I'VE TALKED ABOUT THIS, THE IMPACT ON INDIVIDUAL BORROWERS, HOMEOWNERS, IS HELPFUL. WHAT WE'VE SAID IS WE THINK IT'S GOING TO BE CONTAINED, LARGELY CONTAINED, BUT THIS IS SOMETHING THAT WILL TAKE A WHILE TO WORK ITS WAY THROUGH THE ECONOMY.

DYLAN RATIGAN: WHAT DO YOU GUYS SEE THAT MAKES YOU COMFORTABLE WITH THAT STATEMENT?

CARLOS GUTIERREZ: I THINK WHAT YOU HAVE TO LOOK AT, AND TO EDDY'S POINT, THE REASON WE HAVE SUCH A STRONG ECONOMY, WE'RE COMING OFF A QUARTER OF 3.4% GROWTH, UNEMPLOYMENT AT 4 1/2%, YOU LOOK AT THE RESIDENTIAL CONSTRUCTION, AND YES, THAT IS A DRAG ON GDP GROWTH, BUT THEN THE FLIPSIDE IS THAT NONRESIDENTIAL INVESTMENTS IN STRUCTURES ACTUALLY OUTPACED THAT AND CONTRIBUTED MORE THAN THAT TOOK AWAY AND THAT SAYS, AND WHAT THE PRESIDENT SAID THIS MORNING, WE HAVE A LARGE RESILIENT, FLEXIBLE, FREE ENTERPRISE ECONOMY THAT CAN MOVE VERY QUICKLY, CAN MOVE CAPITAL VERY QUICKLY, LABOR MOVES QUICKLY AND THAT'S WHY WE'RE GROWING IN SPITE OF SOME OF THE BUMPS WE'VE HAD. WE'VE HAD KATRINA, WE'VE HAD -- YOU NAME IT, WE'VE BEEN ABLE TO GET THROUGH IT.

ED LAZEAR: I WOULD ADD TO THAT THAT AS WE LOOK AT THE ECONOMY OVERALL AND WE LOOK AT SOME OF THE NUMBERS THAT WE'VE SEEN TODAY, THE GDP NUMBER I THINK, IT'S A GOOD OVERALL NUMBER, IT'S A GOOD HEADLINE NUMBER, THROUGH SOME IS -- BUT THERE IS SOME EVEN BETTER NEWS IN IT, AND THE BETTER NEWS IS THERE IS REBALANCING IN THE WAY WE'D LIKE TO SEE IT. AS CARLOS MENTIONED, EXPORTS ARE UP. WE HAD BEEN COUNTING ON GROWTH IN CONSUMER EXPENDITURES TO MAKE THE ECONOMY GROW AND THAT'S THE WAY WE'VE BEEN RUNNING FOR THE PAST FEW QUARTERS. THIS QUARTER, WE DIDN'T HAVE AS BIG A HIT IN TERMS OF CONSUMPTION, BUT EVERYTHING ELSE EXPANDED. THAT SUGGESTS THAT THE ECONOMY IS BECOMING MORE ROBUST RATHER THAN LESS ROBUST.

DYLAN RATIGAN: GO AHEAD.

HENRY PAULSON: AND AGAIN, TO SAY IT IN A LITTLE DIFFERENT WAY, THAT WHENEVER I LOOK -- I'VE BEEN LOOKING AT MARKETS FOR 32 YEARS, AND THE MARKETS ARE ALWAYS GOING TO HAVE VOLATILITY, AS YOU SAID, AND THERE'S ALWAYS GOING TO BE READJUSTMENTS, SO YOU NEED TO START WITH THE FUNDAMENTALS. YOU NEED TO SAY IS THE GLOBAL ECONOMY HEALTHY, IS IT STRONG, AND I DON'T THINK ANYBODY IS GOING TO DOUBT THAT THAT IS STRONG, AND THEN YOU LOOK AT THE U.S. ECONOMY AND WE WERE GROWING FOR A WHILE THERE, PARTICULARLY IN THE HOUSING AREA, AT A LEVEL THAT WASN'T SUSTAINABLE. I THINK WE ARE MAKING THAT TRANSITION TO A RATE OF GROWTH THAT IS SUSTAINABLE, AND WE HAVE A HEALTHY DIVERSE ECONOMY. SO IT'S -- THAT'S THE BACKGROP. -- BACKDROP. THAT'S THE LENS I USE WHEN I LOOK AT THE MARKET ADJUSTMENTS. NOW, WHEN YOU GO THROUGH GOOD TIMES, SOMETIMES DISCIPLINE GETS TO BE A LITTLE BIT LAX, AND SO WE'VE HAD -- AND SO --

DYLAN RATIGAN: AND AS YOU KNOW, THOUGH, IT'S IN THAT LACK OF DISCIPLINE THAT THE GOOD TIMES SOMETIMES COME TO A CONCLUSION.

HENRY PAULSON: THAT'S ABSOLUTELY RIGHT. SO I DON'T MEAN -- SO I THINK, YOU KNOW -- YOU KNOW,ETS MY JOB TO BE VIGILANT, TO LOOK AT THE MARKETS CAREFULLY, I WATCH THEM VERY CAREFULLY. I WOULD JUST, AGAIN, SIMPLY SAY I'M NOT MAKING LIGHT OF ANY OF THIS, BUT THIS IS A READJUSTMENT WHICH IS I THINK A WAKE-UP CALL.

DYLAN RATIGAN: BUT IS IT A WAKE-UP CALL THAT HAS -- WHAT ARE THE CONSEQUENCES OF THIS -- CONSEQUENCES OF THE READJUSTMENT AND WAKE-UP CALL?

HENRY PAULSON: WE START WITH, AGAIN, WE HAVE A STRONG ECONOMY, OKAY, A STRONG ECONOMY GLOBALLY. SO I TAKE REAL COMFORT IN THAT.

ED LAZEAR: AND THIS IS A DIFFERENT SITUATION FROM THE KINDS OF WORRIES THAT WE HAD, SAY, AROUND 2000 WHEN WE HAD THE DOT COM BOOM AND DOT COM BUST, THOSE WERE COMPANIES THAT DIDN'T HAVE PROFITS. IF WE LOOK AT THE MARKET RIGHT NOW AND WE SAY WHAT'S HAPPENING OUT THERE, WHILE THERE MAY BE EXCESSES, WHILE THERE MAY BE SOME ISSUES, THESE KINDS OF PRICES THAT WE ARE SEEING RIGHT NOW ARE BASE ON EARNINGS, THEY'RE BASED ON HIGH PROFIT RATES. THESE ARE COMPANIES THAT ARE SOLID.

CARLOS GUTIERREZ: THAT'S A KEY POINT, THAT WE'RE NOT RELYING ON ONE SECTOR, WE'RE NOT RELYING ON ONE SOURCE OF GROWTH, AS WE MAY HAVE BEEN SOME TIME AGO, FIVE, SIX, SEVEN YEARS AGO, THIS IS A DIVERSE ECONOMY WITH A LOT OF VERY STRONG SECTORS AND THEY'RE ABLE TO OFFSET EACH OTHER.

DYLAN RATIGAN: ONE CRITICISM THAT COULD BE OFFERED UP OF TODAY'S DATA WITH THE RELIANCE ON EXPORTS, AND NO ONE CAN DISPUTE THE STRENGTH OF THE GLOBAL ECONOMY, IT WOULD BE ABSURD TO DO THAT, HOWEVER, A CRITIC COULD ARGUE THAT OUR BENEFIT TO THAT GLOBAL ECONOMY IS NOT JUST BECAUSE OF THE DEMAND, BUT ALSO BECAUSE DESPITE THE LANGUAGE THAT'S USED, THE WEAKENING OF THE DOLLAR HAS ACTUALLY LED TO THE GROWTH IN THE EXPORT MARKET, AND THAT THE REALITY IS WHILE WE MAY SAY WE'RE IN SUPPORT OF A STRONG DOLLAR INSTITUTIONALLY, THAT ON A CORPORATE LEVEL, WE ARE BENEFITTING FROM ITS WEAKENING.

HENRY PAULSON: I FEEL VERY STRONGLY THAT A STRONG DOLLAR IS IN OUR NATION'S INTEREST. OF COURSE, WE ALWAYS HAVE TAKEN THE POSITION THAT CURRENCY VALUES NEED TO BE DETERMINED IN A COMPETITIVE -- IN A COMPETITIVE MARKETPLACE BASED ON UNDERLYING ECONOMIC FUNDAMENTALS AND WHAT YOU'RE SEEING IN TERMS OF UNDERLYING ECONOMIC FUNDAMENTALS IS WE'RE SEEING STRONG GROWTH. YOU KNOW, YOU'RE SEEING STRONG GROWTH AROUND THE WORLD. AND WE ARE EXPORTING INTO VERY STRONG MARKETS. GROWTH RATES HAVE DOUBLED IN EUROPE. AND WE HAVE A MARKET WHERE WE ARE, I THINK -- CONTINUE TO HAVE GREAT CONFIDENCE IN THE U.S. ECONOMY. AND WHEN I LOOK AT THE CAPITAL FLOWS, WHEN I LOOK AT THE TRADE FLOWS, SO AGAIN, I SEE THIS AS A POSITIVE PICTURE.

TROB PORTMAN: HE OTHER THING THAT'S HAPPENING, AS A FORMER U.S. TRADE REP AS YOU KNOW, IT'S NOT JUST ABOUT THE DOLLAR AND THE STRENGTH OF THE JAPANESE AN OTHER ECONOMY THAT IS ARE PICKING UP AND HELPING OUR EXPORTS, IT'S BECAUSE OF INCREASED EXPORTS BECAUSE OF NEW TRADE OPPORTUNITIES, SO THE TRADE AGREEMENTS BEING DISCUSSED IN CONGRESS ARE EXTREMELY IMPORTANT TO BUILD ON THE SUCCESSES WE HAVE IN OPENING NEW MARKET.

DYLAN RATIGAN: SO GIVE ME AN EXAMPLE. WHAT'S AN INDUSTRY IN OUR COUNTRY OR PLACE IN OUR COUNTRY WHERE WE'RE SELLING MORE STUFF, MORE SERVICES, WHATEVER, BECAUSE OF THE TRADE AGREEMENT OR BECAUSE OF A NEW OPEN DOOR?