WHEN: TODAY, THURSDAY, JUNE 30TH AT 4PM ET
WHERE: CNBC'S "CLOSING BELL WITH MARIA BARTIROMO"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Former Federal Reserve Chairman Dr. Alan Greenspan today on CNBC's "Closing Bell with Maria Bartiromo," All references must be sourced to CNBC.
BARTIROMO: JOINING ME NOW IN A CNBC EXCLUSIVE, FORMER CNBC CHAIRMAN, DR. ALAN GREENSPAN. WE APPRECIATE YOUR TIME TODAY.THANKS FOR JOINING US.
GREENSPAN: DELIGHTED TO BE HERE.
BARTIROMO: LET ME ASK YOU ABOUT THE END OF QE-2, HERE WE ARE ON THE DAY THE FED'S PROGRAM IS ENDING, WAS IT A GOOD POLICY? DID IT DO ANYTHING FOR THE ECONOMY?
GREENSPAN: IT OBVIOUSLY HAD SOME EFFECT ON THE EXCHANGE RATE AND THE EXCHANGE RATE WAS A CRITICAL ISSUE IN EXPORT EXPANSION.ASIDE FROM THAT, I'M ILL AWARE OF ANY ENDEAVOR -- ANYTHING THAT REALLY WORKED. LET ME TELL YOU WHY. NOT ONLY QE-2 BUT QE-1 HAS NOT BEEN SPENT. A TRILLION AND A HALF DOLLARS, WHICH IS EXCESS RESERVES HAVE, TO MY ESTIMATION, NOT BEEN SPENT. THE WAY YOU CAN TELL THAT IS THAT THE MONEY MULTIPLIER, A RATIO OF THE EXPANSION OF CREDIT IN THE COMMERCIAL BANKS AND THE MONETARY BASE, WHICH REFLECTS THE EXPANSION OF THE FEDERAL RESERVE BALANCE SHEET, THAT HAS CHANGED NOT AT ALL. YOU CAN SEE IT IN THE FACT CNI LOANS ARE RARELY MOVING. MORTGAGES, IF ANYTHING, ARE WEAKENING IN NUMBERS AND CONSUMER CREDIT IS VERY DULL, SO THAT THERE IS NO EVIDENCE THAT HUGE INFLOW OF MONEY INTO THE SYSTEM BASICALLY WORKED. IF YOU TAKE A LOOK AT WHERE IT WENT, IT IS VERY INTERESTING, ALL GONE TO EFFECTIVELY THE COMMERCIAL BANKS, WHO HOLD THOSE MONIES AS RESERVES, AT THE FEDERAL RESERVE BANK, THE 12 FEDERAL RESERVE BANKS AT 25 BASIS POINTS. THE BANKS COULD VERY READILY RECEIVE 125 BASIS POINTS MORE IN THE TYPES OF ASSETS THE FEDERAL RESERVE CALLS MINIMUM RISK. THEY CHOOSE NOT TO DO THAT. THAT BASICALLY THE CAUSE OF THEIR CONCERNS ABOUT THEIR CAPITAL ACCOUNT AND VARIOUS OTHER ASPECTS OF LENDING. BUT THE POINT OF THE MATTER IS THEY HAVE NOT MOVED.IF IT WEREN'T FOR THE PSYCHOLOGICAL EFFECTS, WE COULD TAKE A HALF A BILLION OFF THE -- PROBABLY TAKE A TRILLION DOLLARS OFF THE BALANCE SHEET OF THE FEDERAL RESERVE, IT WOULD ESSENTIALLY BE REMOVING THE DOUBLE COUNTING THAT IS GOING ON. IT WOULD NOT HAVE A SIGNIFICANT TIGHTENING EFFECT EXCEPT PSYCHOLOGICALLY?
BARTIROMO: REALLY INTERESTING, BECAUSE PSYCHOLOGICALLY, WE DID SEE THAT FEELING RICHER ELEMENT IN THE STOCK MARKET AND WE CERTAINLY SAW THE COMPANIES DERIVING SALES FROM OVERSEAS, LIKE THE BRAZILS AND INDIAS AND CHINAS OF THE WORLD DOING WELL BECAUSE THE DOLLAR OBVIOUSLY WAS THE BIG IMPACT.
GREENSPAN: IT'S INTERESTING YOU RAISE THAT ISSUE BECAUSE THERE IS AN ALTERNATE EXPLANATION OF THE RISE IN THE STOCK MARKET BASICALLY, SINCE EARLY 2009.
BARTIROMO: WHAT IS IT?
GREENSPAN: THAT IS THE EXTRAORDINARY INCREASE IN PRODUCTIVITY AND NON-FINANCIAL CORPORATIONS, NOT ONLY LABOR PRODUCTIVITY BUT PRODUCTIVITY IN THE USE OF ENERGY AND THE USE OF MATERIALS AND THE NUMBER OF OTHER THINGS. IF YOU CONSTRUCT THAT INTO A PROFIT MARGIN INDICATOR, IT DIRECTLY CAUSES A MAJOR RISE IN PROFIT MARGINS, A MAJOR RISE IN EARNINGS, WHICH WE'VE SEEN, BUT BECAUSE OF SO-CALLED EQUITY PREMIUM, THAT IS THE PRICE THAT PEOPLE HAVE TO PAY FOR STOCKS, I SHOULD SAY THE ISSUE IS HAVE TO PAY FOR STOCKS IN ORDER TO GET MONEY RELATIVE TO BONDS, THAT IS AT THE HIGHEST LEVEL IN 50 YEARS. SO YOU HAVE EARNINGS PUSHING UP AGAINST THE STRUCTURE OF A VERY IMMOBILE EQUITY PREMIUM AND ALGEBRAICALLY, THE RELATIONSHIP WITH THOSE TWO IS THE STOCK PRICE.
BARTIROMO: LET ME GET YOUR TAKE ON WHAT KIND OF TOOLS THE FED HAS AT THIS POINT SO THERE'S THIS DEBATE GOING ON ABOUT QE-2 AND WHETHER OR NOT QE-3 IS NEEDED. YOU JUST PAINT A VERY, VERY INFORMED PICTURE OF BASICALLY, WE DIDN'T HAVE MUCH OF AN IMPACT OF QE-2 ABSENT THE PSYCHOLOGICAL IMPACT AND ABSENT THE DOLLAR IMPACT. DO YOU THINK THE ECONOMY NEEDS MORE STIMULUS? WHAT TOOLS DOES THE FED HAVE IN THIS -- AT THIS POINT FOR AN ECONOMY THAT SEEMS TO BE REALLY JUST CRAWLING? WHAT'S YOUR ASSESSMENT OF THE ECONOMY AS WELL?
GREENSPAN: AS I SAID TO YOU BEFORE, INTERESTING YOU RAISED THE EARLIER QUESTION.IT IS A FACT A SIGNIFICANT AMOUNT OF THE EARNINGS RISE IS NOT ONLY DOMESTIC EARNINGS BUT IN FACT EVEN MORE FOREIGN AFFILIATE EARNINGS. YOU ARE QUITE CORRECT THAT ONE OF THE REASONS OCCURRING IS THE WEAKNESS IN THE DOLLAR. SO A QE-3, I'M CERTAIN, WOULD CONTINUE WITH THE EROSION OF THE DOLLAR. THAT'S THE CHANNEL BY WHICH I WOULD SEE IT IMPACTING THE ECONOMY BECAUSE WHAT WE FIND IS OBVIOUSLY IN THE DATA, THAT THE WEALTH EFFECT IS A VERY SIGNIFICANT DETERMINATIVE EFFECT OF GDP AND EMPLOYMENT.
BARTIROMO: BUT THE DEBATE HERE IS THAT THE FED IS NOT GOING TO WALK AWAY, THAT GIVEN THE FACT THAT THE ECONOMY IS STILL SLOW, JOB CREATION REALLY SLOWING DOWN IN THE LAST MONTH OR TWO, THAT THE FED WILL CONTINUE SOME KIND OF STIMULUS. CAN THEY DO THAT?WHAT KIND OF SUPPORT OR TOOLS DO THEY HAVE TO DO THAT?
GREENSPAN: THEY JUST BUY ANOTHER $600 BILLION OF ASSETS?
BARTIROMO: ARE YOU EXPECTING THAT, THOUGH?
GREENSPAN: NO.
BARTIROMO: SO YOU THINK THE FED IS WALKING AWAY HERE?
GREENSPAN: I WOULD SAY THEY'VE COMPLETED QE-2. THAT DOESN'T SAY ANYTHING ABOUT QE-3. I MUST SAY, I WOULD BE SURPRISED IF THERE WERE A QE-3.
BARTIROMO: WHAT KIND OF SECOND HALF ARE YOU EXPECTING FOR THE U.S. ECONOMY?
GREENSPAN: IT'S GOING TO DEPEND A VERY LARGE EXTENT WHAT HAPPENS TO GREECE. IT'S VERY EVIDENT TO ANYBODY THAT LOOKS AT THE DATA THE MAJOR FORCE DRIVING OUR ECONOMY INDIRECTLY THROUGH THE FINANCIAL MARKETS IS GREECE. AS THE GREEK DEFAULT GOES UP IN PROBABILITY, WE RUN INTO ALL SORTS OF PROBLEMS. LARGELY, NOT BECAUSE THE UNITED STATES HAS A LOT OF GREEK DEBT. AS YOU KNOW, IT DOESN'T.IT'S ESSENTIALLY THAT WE HAVE VERY LARGE COMMITMENTS IN EUROPE AND EUROPE IS CRITICAL TO NOT ONLY HOLDING THE GREEK DEBT, BUT I MIGHT ADD, ALSO WHERE I THINK APPROXIMATELY HALF THE FOREIGN AFFILIATE EARNINGS ARE GENERATED. SO IF EUROPE RUNS INTO TROUBLE BECAUSE OF GREECE, IT'S GOING HIT US TWO WAYS. ONE, THE BASIC COMMITMENT THAT WE HAVE TO EUROPE AND THE USUAL FINANCIAL FLOWS, BUT IN ADDITION, IT'S GOING TO AFFECT THE WHOLE STRUCTURE OF PROFITABILITY IN THE UNITED STATES. BECAUSE WE CAN'T AFFORD A CIRCUIT DROP AND FOREIGN AFFILIATE EARNINGS IN EUROPE COMING DOWN SIGNIFICANTLY.
BARTIROMO: IT'S A GREAT ANALYSIS TO MAKE. CAN YOU EXPLAIN TO US WHAT IS BEHIND THIS OPTIMISM AROUND THIS GREEK BAILOUT? WE HAVE SEEN MONEY BEING GIVEN TO GREECE UNTIL IT CAN PAY ITS BILLS UNTIL JULY 30th. AREN'T WE CONTINUING TO DEAL WITH THIS ISSUE OVER THE COMING MONTH AND COMING MONTHS? ISN'T A DEFAULT BASICALLY A GIVEN?
GREENSPAN: THERE'S ONLY TWO POSSIBLE GIVENS, EITHER THERE'S A GREEK DEFAULT OR THERE IS A FISCAL CONSOLIDATION OF THE 17 COUNTRIES OF THE EURO ZONE. I FIND THAT UNLIKELY EXCEPT FOR THE FACT THAT GERMANY IS SO KEY TO THAT DECISION. GERMANY'S CAUGHT UP IN A VERY CRITICAL POLITICAL DILEMMA. IF THEY WERE TO STOP AND STOP SUPPORTING GREECE AND GREECE WENT UNDER, WHAT WOULD VERY LIKELY HAPPEN, WE'D GET SOME DISMANTLING OF THE EURO. WHAT THE GERMANS ARE RESTING ON IS A VERY STRONG EXPORT MARKET, THE RESULT OF THE FACT THAT THE EURO, RELATIVE TO THE DOLLAR, IS LOWER. IF, HOWEVER, GERMANY GOES BACK TO THE DEUTSCHE MARK, WHICH ALMOST SURELY WOULD BE WORTH 20% MORE THAN THE EURO, THEY WOULD HAVE A HUGE CAPITAL GAIN. REMEMBER, THEIR LIABILITIES WOULD BE MUCH LOWER, BUT THE VERY HIGH DEUTSCHE MARK WOULD MEAN THEIR EXPORTS WOULD BE UNDER SEVERE CONTRACTION.THEY HAVE THIS SHORT TERM PROBLEM HOW DO WE KEEP EXPORTS GOING, EMPLOYMENT GOOD, REMEMBER, THEY'RE DOING VERY WELL, A VERY LARGE PART OF THAT IS THEY ARE ESSENTIALLY SUPPORTING THE TRANSFER OF A VERY LARGE AMOUNTS OF MONEY.THAT KEEPS THE EURO IN PLACE.IT ALSO KEEPS EXPORTS, AS CRITICAL VARIABLE.
BARTIROMO: IT SOUNDS LIKE POSSIBLY NOT ON THE SHORT TERM BUT AT SOME POINT, A GREEK DEFAULT IS INEVITABLE.
GREENSPAN: NO NOT NECESSARILY. A GREEK DEFAULT IS INEVITABLE UNLESS THERE IS NO FISCAL CONSOLIDATION. I GRANT YOU IF FOR EXAMPLE IF FINLAND BALKS. THE FINNISH ELECTION A WHILE BACK SHOOK EVERYONE BECAUSE THEY THOUGHT FINLAND WOULD GO ALONG WITH EVERYTHING THE EUROPEANS ARE DOING.THEY COULD HAVE STOPPED IT BUT DIDN'T. YOU NEED UNANIMITY ESSENTIALLY. IT SEEMS INCREDIBLE TO ME THAT WE CAN CONCEIVABLY GET THAT. I DO COME TO THE CONCLUSION AS YOU POINT OUT THAT THE CHANCES FOR FISCAL CONSOLIDATION ARE VERY SMALL AND IF THERE IS NOT FISCAL CONSOLIDATION, I CANNOT SEE ANY CREDIBLE SCENARIO THE GREEK DRACHMA DOES NOT COME BACK.
BARTIROMO: SO THAT WHAT I SAID SO GREECE DEFAULTS?
GREENSPAN: YES.
BARTIROMO: SO LET ME MOVE ON AS I WANT TO GET YOUR TAKE ON THE DEBT CEILING WE'RE HAVING THIS UNPRECEDENTED CONVERSATION IN THIS COUNTRY ABOUT RAISING THE DEBT CEILING. AUGUST 2nd IS THE DEADLINE. HOW DO YOU SEE THIS PLAYING OUT FROM WHAT WE KNOW TODAY?
GREENSPAN: WE'RE GOING TO GET UP TO AUGUST THE 2nd AND I THINK ON THAT NIGHT, WE ARE NOT GOING HAVE THE ISSUE SOLVED. WHAT THAT WILL MEAN IS THAT, REMEMBER WHAT THE DEBT CEILING IS ITS NOT LIKE A CR CONTINUED RESOLUTION WHERE THE TREASURY SECRETARY CAN STRETCH IT OUT. THIS MEANS THAT AT MIDNIGHT, ALL OF A SUDDEN 40 CENTS OUT OF EVERY DOLLAR OF SPENDING CANNOT BE SPENT. THE QUESTION IS, WHO MAKES THE DECISION? THERE IS NO CONCEIVABLE POSSIBILITY THAT I CAN EVEN COME CLOSE TO THAT SUGGESTS TO ME THAT ANY SECRETARY OF THE TREASURY WILL NOT HAVE AS FIRST PRIORITY, AND HE WILL CONVINCE THE PRESIDENT AS WELL ON THE DEBT OF THE UNITED STATES IN INTEREST PAYMENTS, WHICH IS REALLY WHAT IT IS. WERE WE TO DEFAULT ON INTEREST RATES, IT WOULD BE RICOCHETING THROUGH THE INTERNATIONAL FINANCIAL SYSTEM AND OUR AAA CREDIT STANDING AND FAR MORE IMPORTANTLY, OUR VIEW AS THE SAVER OF LAST RESORT WOULD DISAPPEAR. WE CAN'T AFFORD TO DO THAT. WHAT'S GOING TO THEREFORE HAPPEN IS WE WILL DEFAULT ON EVERYTHING ELSE.FIRST, THERE WILL BE A HUGE AMOUNT OF ARREARS, WHICH YOU CAN TAKE FOR A NUMBER OF DAYS BEFORE A LEGAL DEFAULT TAKES INTO PLACE. BUT WE HAVE A VERY LARGE PART OF OUR DEFICIT WHICH WILL, BY ANY USE OF THE TERM, IS IN DEFAULT. AT THAT POINT, I THINK WE'LL ALL COME TO OUR SENSES AND RESOLVE THE ISSUE. I THINK THAT WE MAY FIND THAT, DEPENDING ON HOW THE SCENARIO WORKS OUT, THAT AS SCARY AS THE EXERCISE HAS BEEN, IT MAY, IN THE LONG RUN, HAVE ACTUALLY HELPED THE UNITED STATES. THAT'S A VERY TRICKY GAME TO PLAY.
BARTIROMO: I WILL ASK YOU HOW IT HELPS THE UNITED STATES.IN OTHER WORDS, IT PUSHED US TO MAKE THE HARD DECISIONS.
GREENSPAN: AS OF A YEAR AGO WHEN THE LONG TERM DATA WAS JUST AS AWFUL, THERE WAS ALMOST NO INDICATION ANYBODY REALLY CARED. LOOK AT THE FEBRUARY BUDGET OF THE UNITED STATES, WHICH IS STILL SHOWING A DAILY MONTHLY, RATHER IN THE MONTHLY TREASURY STATEMENT, IT IS DRAMATICALLY DIFFERENT.
BARTIROMO: DR. GREENSPAN, SHOULD THE PRESIDENT TAKE TAX INCREASES OFF THE TABLE TO GET A DEAL DONE? WHO IS GOING TO BLINK HERE?SHOULD THE PRESIDENT TAKE TAX INCREASES THE REPUBLICANS SAY THEY WILL NOT AGREE TO OFF THE TABLE SO THAT THEY COULD ACTUALLY COME TO AN AGREEMENT ON THIS DEBT?
GREENSPAN: I THINK THAT THE REPUBLICANS OUGHT TO IDENTIFY A VERY SIGNIFICANT AMOUNT OF SO-CALLED TAX EXPENDITURES WHICH IN FACT ARE MISCLASSIFIED. THEY ARE EXPENDITURES, THEY ARE OUTLAYS AND MANY ARE SUBSIDIES AND SUBSIDIES ARE NOT THE TYPE OF THING THAT YOU WANT FOR AN EFFICIENT MARKET SYSTEM. THERE ARE A LOT OF THEM. NOW ON THE SOCIAL SECURITY COMMISSION WAS ABLE TO GET PASSED, BECAUSE THE DEMOCRATS COULD LOOK AT THE INCREASE IN TAXES ON SOCIAL SECURITY BENEFITS AND BASICALLY, AS A TAX, THE REPUBLICANS COULD LOOK AT IT AS A CUT IN BENEFITS.SO THEY LOOKED AT THE SAME DATA AND CAME TO DIFFERENT CONCLUSIONS, THEY ALL VOTED THE SAME. THAT'S THE SAME ISSUE HERE.
BARTIROMO: AND YOU'VE SAID THE 1990s ERA TAXES COULD HELP SOLVE THE NATION'S DEBT PROBLEM.
GREENSPAN: I'M SORRY?
BARTIROMO: YOU SAID THE 1990s ERA TAX RATES WOULD ACTUALLY BE HELPFUL,IN TERMS OF HELPING THIS DEBT PROBLEM?
GREENSPAN: MY VIEW IS THIS. I WAS IN FAVOR OF THE BUSH TAX CUTS. ON THE GROUNDS THAT IT WAS THE DISSIPATION OF A SURPLUS. AS SOON AS IT BECAME OBVIOUS THAT THE SURPLUS DISAPPEARED, I KNOW LONGER SUPPORTED THAT. MY VIEW ABOUT TAXES IS I WOULD LIKE THEM AS LOW AS POSSIBLE BUT NOT WITH BORROWED MONEY.
BARTIROMO: GREAT POINT. DR. GREENSPAN, THANK YOU FOR JOINING US.
About CNBC:
With CNBC in the U.S., CNBC in Asia Pacific, CNBC in Europe, Middle East and Africa, CNBC World and CNBC HD+, CNBC is the recognized world leader in business news providing real-time data, analysis and information to more than 390 million homes worldwide. The network's 16 live hours a day of business programming in North America (weekdays from 4:00 a.m.- 8:00 p.m.) is produced at CNBC's global headquarters in Englewood Cliffs, N.J., and includes reports from CNBC News bureaus worldwide. CNBC.com and CNBC Mobile Web (mobile.cnbc.com) offer real-time stock quotes, charts, analysis and both on-demand and live streaming video.
Members of the media can receive more information about CNBC and its programming on the NBC Universal Media Village Web site at http://www.nbcumv.com/mediavillage/networks/cnbc/