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CNBC EXCLUSIVE: CNBC TRANSCRIPT: TREASURY UNDER SECRETARY FOR INTERNATIONAL AFFAIRS LAEL BRAINARD SPEAKS WITH STEVE LIESMAN TODAY ON CNBC

When: Today, Tuesday, Oct. 2, 2012

Where: CNBC’s “Power Lunch

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Treasury Under Secretary for International Affairs Lael Brainard today on CNBC’s “Power Lunch” (M-F, 1-2PM ET). Following is a link to video of the interview: http://video.cnbc.com/gallery/?video=3000119551.

All references must be sourced to CNBC.

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TYLER MATHISEN: TO EUROPE NOW WHERE THERE IS FRESH CONCERN ABOUT SPAIN AND WHETHER AND WHEN IT MIGHT ASK FOR A BAILOUT AND IF SO, HOW BIG IT COULD BE. OUR NEXT GUEST IS PART OF AN EXCLUSIVE CLUB AND KNOWS PROBABLY MORE ABOUT THE EUROPEAN CRISIS AND HOW IT’S IMPACTING OUR ECONOMY THAN JUST ABOUT ANYBODY. SO HOW EXCLUSIVE IS HER ACCESS? TAKE A LOOK AT THIS PICTURE FROM THE G20 SUMMIT 2 YEARS AGO, LAEL BRAINARD IS THE KEY U.S. REPRESENTATIVE AND INCIDENTALLY THE WOMAN IN THE GROUP AND TODAY SHE’S STEVE LIESMAN’S SPECIAL GUEST. STEVE?

STEVE LIESMAN: TYLER, THANKS VERY MUCH. SHE’S BEEN CALLED AMERICA’S TOP FINANCIAL DIPLOMAT, AND IS A SPECIAL GUEST A THE FORTUNE MAGAZINE MOST POWERFUL WOMAN CONFERENCE IN CALIFORNIA, LAEL BRAINARD JOINS US NOW, WELCOME TO POWER LUNCH LAEL.

LAEL BRAINARD: IT’S A PLEASURE TO BE HERE

LIESMAN: LET’S TALK ABOUT WHAT TYLER WAS TALKING ABOUT- THIS ISSUE OF SPAIN AND THE QUESTION OF WHETHER OR NOT IT’S GOING TO ASK FOR AID AND TRIGGER THAT ECB PROGRAM; IS IT YOUR OPINION, IS IT THE OPINION OF THE U.S. THAT THE EUROPEANS ARE FOLLOWING THROUGH ON THEIR LATEST SET OF COMMITMENTS WHEN IT COMES TO SOLVING THEIR FINANCIAL CRISIS?

BRAINARD: WELL YOU’RE RIGHT THEY’VE MADE A SERIES OF VERY IMPORTANT COMMITMENTS OVER THE COURSE OF SUMMER AND INTO THE FALL, THEY ARE MUCH BETTER PREPARED. THEY HAVE A SET OF TOOLS THAT CAN HELP GOVERNMENTS LIKE SPAIN CONTINUE TO ACCESS THE MARKETS AT AFFORDABLE RATES WHILE THEY CONTINUE MAKING THESE VERY CHALLENGING REFORMS. WE’VE SEEN A NUMBER OF DEVELOPMENTS IN SPAIN IN RECENT DAYS; WE’VE SEEN A BUDGET COME OUT THAT CONTINUES TO BRING THE DEFICIT DOWN TO SUSTAINABLE LEVELS, WE’VE SEEN THE BOTTOM- UP ANALYSIS ON THE BANKING SYSTEM. EUROPE HAS PLEDGED TO WORK IN PARTNERSHIP WITH SPAIN TO MAKE SURE THAT IT’S BANKS GET RECAPITALIZED AND IT CAN CONTINUE TO AFFORD-- TO ACCESS THE MARKETS AND SO WE’LL SEE AS THEY WORK IN PARTNERSHIP IN THE DAYS AHEAD. BUT AGAIN, THEY HAVE THE TOOLS, AND WE SEE THE POLITICAL WILL ON THE PART OF THE SPANISH GOVERNMENT.

LIESMAN: WHILE YOU WATCH SPAIN, YOU JUST GOT BACK FROM CHINA AND I HAVE A BUNCH OF QUESTIONS ABOUT CHINA- STORIES THIS MORNING IN THE PAPER ABOUT LEADERSHIP QUESTIONS IN CHINA IS THE FIRST QUESTION, SECOND QUESTION- IS THE REPUBLICAN NOMINEE MITT ROMNEY HAS ACCUSED THE OBAMA ADMINISTRATION OF NOT BEING TOUGH ENOUGH ON CHINA AND THIRD QUESTION IS YOU HAVE A REPORT COMING OUT ON OCTOBER 15TH ON WHETHER CHINA IS A CURRENCY MANIPULATOR—WHAT ARE YOU GOING TO SAY?

BRAINARD: WELL, LET ME JUST START WITH YOUR FIRST QUESTION. OF COURSE, CHINA’S LEADERSHIP TEAM IS UNDERGOING A TRANSITION PROCESS, AND THEY CONFRONT IMPORTANT QUESTIONS ABOUT HOW THEY ARE GOING TO TAKE FORWARD THEIR ECONOMIC POLICY. STEVE, AS YOU KNOW, SINCE DAY ONE, PRESIDENT OBAMA HAS BEEN EXTREMELY FOCUSED ON ACHIEVING A MORE BALANCED RELATIONSHIP WITH CHINA. ONE THAT CREATES MORE OPPORTUNITIES FOR OUR WORKERS FOR OUR BUSINESSES TO EXPORT, TO SELL INTO CHINA’S GROWING MARKET AND WE HAVE INVESTED CONSIDERABLY IN A LOT OF ENGAGEMENT WITH CHINA’S ECONOMIC DECISION MAKERS TO MAKE SURE THAT AS THEY CONTINUE TO NAVIGATE THEIR RECOVERY THEY DO SO IN A WAY THAT CREATES EXPORT OPPORTUNITIES. AND WE HAVE SEEN RESULTS. WE HAVE SEEN THEIR OVERALL IMBALANCE COME DOWN FROM 9 PERCENTAGE POINTS OF GDP TO 3 PERCENTAGE POINTS OF GDP. WE HAVE SEEN U.S. EXPORTS TO THIS MARKET DOUBLING, GROWING FASTER THAN TO ANY OTHER MARKET AND IMPORTANTLY THE CHINESE CURRENCY HAS APPRECIATED BY 11-12% IN REAL TERMS AGAINST THE U.S. DOLLAR SO THE PRESIDENT’S STRATEGY OF ENGAGEMENT, OF USING TRADE TOOLS TO TAKE TOUGH CASES TO THE WTO, WE THINK IS ACHIEVING VERY IMPORTANT RESULTS FOR AMERICA’S WORKERS.

MATHISEN: MS. BRAINARD, TYLER MATHISEN HERE, I WONDER, AS YOU SPEAK TO LEADERS IN CHINA OR EUROPE OR INDEED ANYWHERE AROUND THE WORLD WHETHER TWO THINGS MAKE YOUR JOB EASIER OR HARDER, THE FIRST THING IS THE FISCAL DEADLOCK, AND THE FACT THAT WE DON’T SEEM ABLE BETWEEN THE ADMINISTRATION AND CONGRESS TO GET OUR FISCAL HOUSE IN ORDER, AND THE OTHER THING IS, SORT OF THE LACK OF COMPETITIVE STANDING AND POWER ECONOMICALLY THAT WE HAVE. DO THOSE TWO THINGS AND SPECIFICALLY THE ECONOMIC STANCE DO THEY MAKE YOUR JOB TOUGHER?

BRAINARD: LET ME JUST SAY THAT THE U.S. CONTINUES TO PLAY A DISPROPORTIONATE ROLE IN THE INTERNATIONAL FINANCIAL SYSTEM AND WE, I THINK, HAVE EARNED THAT. WE CAME BACK VERY QUICKLY FROM THE FINANCIAL CRISIS. WE MOVED QUICKER THAN ANY OTHER COUNTRY TO CLEAN UP OUR FINANCIAL SYSTEM, TO ENSURE THAT OUR BANKS WOULD BE BETTER CAPITALIZED AND, AS YOU KNOW, WE MOVED MUCH QUICKER HERE TO COMPEL OUR BANKS TO RAISE CAPITAL IN THE PRIVATE MARKETS. WE HAVE A MUCH STRONGER FINANCIAL SYSTEM TODAY. WE HAVE SEEN VERY STEADY GROWTH IN THE PRIVATE SECTOR, SO THE U.S. CONTINUES TO, I THINK, HAVE STRENGTHS THAT I ARE THE ENVY OF THE WORLD, PARTICULARLY IN THE PRIVATE SECTOR, PARTICULARLY WHEN IT COMES TO INNOVATION. LEADERS ARE LOOKING AT THE U.S. AND HOW WE’RE GOING TO MANAGE OUR FISCAL CHALLENGES GOING FORWARD, AND I THINK THERE IS A LOT OF SUPPORT FOR THE PRESIDENT’S APPROACH WHICH IS TO WORK FOR A BALANCED PLAN. ONE THAT BRINGS OUR DEFICITS DOWN PUTS OUR DEBT ON A DECLINING PATH OVER THE MEDIUM TERM, WHILE WE CONTINUE TO ENSURE THAT THE RECOVERY IS SUPPORTED. AND HE’S PUT FORWARD A PLAN THAT HAS 2 ½ DOLLARS OF EXPENDITURE CUTS FOR EVERY DOLLAR IN REVENUES AND WE THINK THERE IS A LOT OF ABILITY FOR AMERICAN LEGISLATURES, THE PRESIDENT TO COME TOGETHER AND TO NAVIGATE A PATH FORWARD THAT ACHIEVES THOSE TWO THINGS- BALANCE DEFICIT REDUCTION AND SUPPORTING THE RECOVERY IN THE SHORT RUN.

LIESMAN: UNDERSECRETARY BRAINARD, YOU CAN’T HELP BUT BE STRUCK BY THE PICTURE WE SHOWED FROM THE G20 SUMMIT IN KOREA A COUPLE OF YEARS AGO. WE ARE GOING TO PUT IT UP AGAIN, AND THE FACT THAT YOU ARE THE ONLY WOMAN IN THAT GROUP OF MEN RIGHT THERE, AND WE HAVE TO ASK YOU APROPOS OF THE CONFERENCE YOU ARE AT— IS BEING A WOMAN, DOES IT HELP, DOES IT HURT, DOES IT MAKE NO DIFFERENCE WHEN IT COMES TO THE KIND OF NEGOTIATING YOU DO ON INTERNATIONAL ECONOMIC LEVEL?

BRAINARD: WELL IT’S A GOOD QUESTION. WHEN THAT PICTURE WAS TAKEN I HAD BEEN IN THOSE MEETINGS FOR WELL OVER A YEAR AT THAT JUNCTURE AND YOU KNOW THEY TOOK A PICTURE OF THE GROUP, THEY DISTRIBUTED IT AT ALL OF OUR PLACES AND IT WAS GREAT. ONE OF MY MALE COLLEAGUES PICKED UP THE PICTURE, LOOKED AT ME LOOKED AT THE PICTURE AND SAID HEY DO YOU KNOW YOU ARE THE ONLY WOMAN IN THE ROOM? AND I THINK IT SPEAKS TO MANY OF MY COLLEAGUES THAT IT DIDN’T MATTER TO THEM. OF COURSE, I HAD NOTICED AND OF COURSE, WE DO NEED TO KEEP MAKING PROGRESS. IF YOU LOOK AROUND THE G20 WE SEE MORE WOMEN LEADERS WE SEE MORE WOMEN FOREIGN MINISTERS BUT IT IS STILL VERY THIN ON CENTRAL BANKERS AND, FINANCE MINISTERS AND IT’S ONE OF THE REASONS I’M OUT HERE TODAY. THERE ARE A LOT OF WOMEN MAKING A DIFFERENCE IN THE ECONOMY, HERE IN THE UNITED STATES AND WE NEED TO CONTINUE BRINGING ALONG YOUNG WOMEN AS THEY MAKE CAREER PATHS IN THIS AREA.

MATHISEN: MADAM UNDER SECRETARY, STEVE LIESMAN, THANK YOU VERY MUCH. WE APPRECIATE YOU BEING WITH US FROM CALIFORNIA TODAY.

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