WHEN: Friday, October 26 at 7:00PM ET
WHERE: "Kudlow & Company"
The following is the unofficial transcript of a CNBC interview with Vice President Dick Cheney on CNBC's "Kudlow & Company" today. All references must be sourced to CNBC.
In the interview with CNBC's Larry Kudlow, Vice President Cheney will discuss the state of the economy, the war on terror, oil prices, the feds response to the California fires, and the GOP prospects in the 2008 election, among other topics.
LARRY KUDLOW, host: Mr. Vice President, welcome back to KUDLOW & COMPANY, sir.
Vice President DICK CHENEY: It's good to be back, Larry.
KUDLOW: Let me begin with the latest, the administration really turned the heat up on Iran, freezing all the banking assets for the Revolutionary Guard and the Kudz@. At the same time, as you know, oil prices have jumped to $92 a barrel. Let me just ask you this, what is the issue here regarding oil? Would you use the strategic petroleum reserve, knowing that there may be additional actions in the Middle East?
Mr. CHENEY: Well, the strategic petroleum reserve there is primarily, obviously, to deal with an interruption of supply. Lots of times there have been discussion. In fact, back in the Clinton administration, it was used to try to manage prices. That's not what it's for and we recommended expanding the petroleum reserve, strategic petroleum reserve. I think it's important to do that, but it's a classic case that we're faced with right now, to the extent that you do get unrest and potential problems in the Middle East. Our reliance on foreign sources of energy creates a certain vulnerability. The best short-term response we have to do is the strategic petroleum reserve.
KUDLOW: Would these financial sanctions wind up, in some sense, preventing Iran from exporting oil? I think they're still selling like three million barrels a day there.
Mr. CHENEY: Yeah.
KUDLOW: Would they apply there at some point?
Mr. CHENEY: I don't want to forecast that now. What we did yesterday, obviously, was focused on the IRGC, the Iranian Revolutionary Guard Corps and the Kudz force, which is part of that. And the emphasis is upon their activities with respect to proliferation and ballistic missile technology, as well as the support for terror that the Kudz force provides in many places in the Middle East, Hezbollah, Hamas, their activities in Iraq and Afghanistan as well, too. Now, clearly the Iranians want to sell oil. They do sell oil into the international market. It's an important consideration, but from our perspective, it's very important that if you're going to do business with Iran, you're going to have problems doing business in the United States. Iran is a threat on many fronts in that part of the world. In Lebanon and they've been actively working through the Syrians to try to topple the...(unintelligible)...of Lebanon. They are making significant problems for us in Iraq and in Afghanistan by providing explosively formed penetrators, training and so forth, to help the Taliban in Afghanistan and some of the Shiia insurgents inside Iraq. Plus, obviously, the big issue is the fact that they are working aggressively to develop a capacity to enrich uranium. At the end of the process will be the development of nuclear weapons.
KUDLOW: Let me just take this oil issue a little further out. Years ago, in late 2000, early 2001, when you were first elected, you said the US economy was on the front end of a recession. You were way ahead of the whole economics fraternity who called that recession. I gave you the forecast of the year award, as I recall, back in 2001.
Mr. CHENEY: I remember that.
KUDLOW: Yes. It was quite a distinction. And I want to ask you, is there a sense in your mind or the president's mind, at what point the rise in oil price really pushes us over the edge into a recession? Economists have failed to predict this. They said, you know, 50, 60, 70.
Mr. CHENEY: Right.
KUDLOW: Now we're approaching 100. Is there a break even point?
Mr. CHENEY: I couldn't forecast the break even point on that, Larry. I think a couple of points I'd make. Number one is I think our economy has been amazingly resilient to what's happened to oil prices over the last couple of years. Certainly there's been a major increase in oil prices and the economy has adapted to it and adjusted very well. I think part of that is the fact that we're twice as efficient now as we were 10 or 12 years ago with respect to how we use energy. That is, we give much more by way of economic output per unit of energy input than we ever have before. We just get better and better and more efficient all the time. So it hasn't had the impact that it might have had, say 20 or 30 years ago, as it did back in the '70s, for example, when we all remember what happened at that time. So I'm not here today to forecast that we're going to have an oil-driven recession. I wouldn't say that. I don't see that, but I'm not an economist. I go to the same people you go to looking for forecasts.
KUDLOW: But you have a better track record than most of the economists, that's why I asked.
Mr. CHENEY: I'm one for one and I'll stay with a perfect record as long as I don't do it again.
KUDLOW: You know, one time...(unintelligible)...forecasting record. But let me ask you more on the economic outlook. The housing recession is clearly deepens, really not a piece of evidence suggesting otherwise. The subprime credit virus is inconsistent, has deepened. I would dare say both the Fed and the Treasury, Mr. Bernanke and Mr. Paulson, underestimated the verilence of this housing problem. How do you see it and inside the White House counsel, how much of a recessionary worry from that is there?
Mr. CHENEY: Well, we look at the same forecast everybody else does, basically. And I had lunch with Hank Wednesday of this week and we've got a group that meets every Wednesday inside the White House that focuses on the economy and economic policy. I think what we are seeing is a bit of a slowdown here, but the forecast I see for next year indicate continued growth. And I think clearly there have been, you know, there has been a significant adjustment for us in terms of what's happened in the housing market. But I think we're far short of the point where we've said that a recession is just around the corner. I don't think it is, but again, I rely upon the professional advice that we get from our economists as well as what we see in the Blue Chip.
KUDLOW: Are you satisfied with the Federal Reserve's response? So far they've cut rates once by 50 basis points. They meet again come Wednesday. Are you satisfied with the Fed?
Mr. CHENEY: The Fed makes Fed policy and we generally refrain from editorial comments on what they're doing. I'm somebody who has great respect for Ben Bernanke. I think he's a good chairman. We all worked with him closely before he became chairman of the Federal Reserve and I think the Fed's doing a good job.
KUDLOW: Are you worried that the dollar has fallen too low? I mean, you can hardly get through a day in the financial news without reading about the dollar setting a new low. Does that bother you? I mean, when I worked for President Reagan many years ago, he used to say a great country needed a strong and reliable currency. This dollar story bother you?
Mr. CHENEY: We think the key--we do believe in a strong dollar, but we think that key is that it be allowed to adjust based on market forces out there and that's exactly what's happening.
KUDLOW: President Bush is speaking today, this morning, about his unhappiness with the congressional appropriations projects and spending overrun. He's already vetoed the SCHIP Bill. He's kind of become the budget warrior this year. What can you say about that?
Mr. CHENEY: Well, he--he's doing it and he's enjoying it. He did veto the SCHIP bill. The House yesterday passed another one that is veto-bait as well. Congress hasn't done...
KUDLOW: You don't think he'll approve it.
Mr. CHENEY: It's veto-bait. The fact is that Congress spends time repassing legislation that he's already vetoed once. He's sustained that veto, has the votes to sustain an over-ride--to avoid an over-ride, sustain the veto. And their response is to come right back and do it all over again, wasting more time. They've got something like 19 legislative days left if they're going to meet their target adjournment date in mid-November. And they have yet to pass us--to get his signature to get to his desk, a single appropriations bill. This is--you've got to go back 20 years to find a time when the Congress was as inefficient as it is today. They're not doing their business. They're postponing action on the supplementals for Iraq. Their general approach, I think, has been remarkable in terms of not producing any benefits, not moving on the things that we need to be moving on.
KUDLOW: In your judgment, let's go back to that supplementals, about $50 billion supplemental. The Democrats have, from time to time, threatened to stop appropriations for the war as part of their anti-war efforts. Where do you stand on the supplements and negotiations in the backdrop? Or it's going to be larded with pork, might it be a veto-bait? Where is this going to come out?
Mr. CHENEY: Well, the reason for the supplemental is to pay what's necessary in order to be able to sustain the troops in the field, to be able to continue our operations on the global war on terror and in Afghanistan and Iraq and it's absolutely essential that it get passed. When Congress says, `Well, gee, we don't have time to deal with it now, we're going to lay it over and take it up next spring,' strikes me that's a classic example of them not stepping up and taking responsibility for a very important piece of business that they are responsible for. They've got to appropriate that money. I think it could partly be tied up with their attitude towards the war, but the fact of the matter is we are succeeding in Iraq. We are making significant progress. We do need that money. It goes to support the troops in their endeavors and it's hypocritical on the part of the Democrats to say they support the troops, but say, `Oh, by the way, we're not going to pass the money or appropriate funds that are needed in order to be able to sustain their activities.' This is money for equipment, to pay for all of those things that go into maintaining a first class fighting force and the Democrats are trying to duck it.
KUDLOW: Some of the political pundits are saying, well, OK. President Bush has become budget warrior with his veto pen. He's also become very, very aggressive on preserving the low tax rates. He calls himself a supply sider. I've heard him use that term before. Glad to hear it. But I was interested, all of a sudden...(unintelligible)...this year. Is Mr. Bush and are you trying to sharpen the Republican message for 2008? Trying to say, here's our contrast, veto excessive spending, keep tax rates low. Is this in large measure a political strategy?
Mr. CHENEY: No, I think it's--I think it is strategy driven my policy and our policy concerns. I think that's good politics. But I think if you look at it, in effect, what happened, of course, was for the first six years we were here, we had the Republican Congress. We negotiated on the top line on budgets every year. The Congress met our top lines, sometimes in the face of a veto threat, and so there was no opportunity or necessity to have vetoes as an important part of your strategy.
KUDLOW: Do you think that was a mistake, looking back on it?
Mr. CHENEY: No, I don't. You had to negotiate with the Congress, Denny Hastert, who is not going to sign us a bill the president would veto. So we sat down and we negotiate on the top line and they, in effect, came into agreement virtually in every case. Now we're in a situation where they're trying to pass a budget, for example, this year that's $22 billion over our top line. We've made it clear we will veto it. They sent us the SCHIP bill, we vetoed it. They send us another SCHIP bill, we'll veto it. It's not politics. We think it's good policy. The other thing we've got, of course, you know, in tax policy, is there is a fundamental difference between the parties in terms of how we look at the world, in respect to tax policy. We had--you had Charlie Rangel@ on your show last night. Charlie's a good guy, I like him. Served with him for 10 years in the House. Respect him as chairman of the Ways & Means Committee.
KUDLOW: You and he have had some words in the past, as I recall.
Mr. CHENEY: Well, we have, but it was--it was good natured.
KUDLOW: What do you think of his mother of all tax reforms plan?
Mr. CHENEY: Well, I don't like it. I think it's bad in several respects. It raises the rate on capitol gains. It raises the rate on dividends. It raises the top rate on the income rate. Those are terrible ideas. Those are all rates we reduced when we came in in 2001 and 2003. They've been absolutely crucial to driving this economy and to creating the incentives out there for businesses to invest and to create more jobs and more wealth. They're the prime reason we've seen an increase in tax revenues. And also, the fact that we've got a deficit next year that's 1.2 percent of GDP, which is half what the deficit has been over the last 40 years. That's good tax policy and Charlie wants to change it.
KUDLOW: What about his proposal to lower the corporate tax rates? That gives some credit, I think. I mean, he comes with this, I think, in a good sense he's trying to help our companies.
Mr. CHENEY: Well, I think he may be. We'll see. Maybe that's trying to suck a few people in, but when I see him raising the top rate on individuals and recognize that about three-quarters of the people who pay the top rate are small businesses. And small businesses more than corporations, drive job creation in this economy. It's a fundamentally bad idea to to back and reverse course on that top rate on dividends and on cap gains and I'll give Charlie credit. He wants to reduce the corporate rate OK, but he's doing an awful lot of damage in the name of what he described as tax reform. I think it's a bad proposal.
KUDLOW: You were talking before about the success of the tax cuts and so forth. On the campaign trail, many Democrats, Senator Clinton in particular, have said two things. Number one, middle class has not participated in this economic boom. She calls it a middle class trap door and says that wage inequality is the worst it's been since 1929. Do you have a response to those charges?
Mr. CHENEY: Yeah, I don't agree with it. I think that analysis is wrong. I think we've added well over 8 million jobs since the recovery took off some four years ago. We have seen a significant economic expansion underway now for 40 some months. It's been, I think, a very successful economic policy. And the suggestion that somehow there are hard times out there, I just--I just think is a misstatement. Now clearly, there are some pockets where people run in to difficulties. Where we have economic slow-down for one reason or another. Michigan still having troubles because of the auto industry and so forth. But I think overall, in terms of macroeconomic policy and what's worked for the economy for the last several years now, it's what the president put in place, not what the Senator Clinton suggested.
KUDLOW: But there is a middle class anxiety and it is going to be an issue in the upcoming presidential election. Do you think the White House and the Republican Party in general has had a sufficient response to that anxiety? Some of it's about trade, some of it's about globalization, some of it's about transforming our economy. What the eminent economist Schrumper@ had called gales of creative destruction. I mean, people are worried out there? Do you agree with that?
Mr. CHENEY: Yeah.
KUDLOW: Do you think there's been a sufficient response to it?
Mr. CHENEY: I think we need to do an aggressive job as a party, administration and our friends in congress at emphasizing what we have done, that has worked so well with respect to tax policy and economic growth and so forth and what will happen if the Democrats take over. It's not a mystery. You can look at what Senator Clinton believes in and how she voted. You can look at Charlie Rangel's proposals with respect to tax policy and the democrats basically want to spend more money, they want to raise taxes. It's basically an anti-growth policy. It's exactly the opposite of what the Republicans have been providing for the last several years. That's the fundamental difference. They're entitled to their beliefs. What we have to do, as you say, I think we need to work very hard to make our case so that the American people understand both the benefits of what's occurred, what we've done out there as well as the problems and the price that we pay if the Democrats take over.
KUDLOW: Speaking of another Democratic front-runner, you and Senator Obama are apparently related. This information comes from your wife, Lynn, she appeared on our program not too long ago. Marine and Susan Duvall@, immigrants from France. You spoke to Mr. Obama about this shared experience?
Mr. CHENEY: Cousin Barack? No. No we haven't. We haven't had the opportunity to talk about it.
KUDLOW: You haven't once?
Mr. CHENEY: No.
KUDLOW: You call him up and say, `Well, heck, there's a family tree.'
Mr. CHENEY: I didn't know whether that would help him or hurt him. So I thought I'd probably stay away from it, so. Apparently we do have a common ancestor about eight or nine generations back.
KUDLOW: Mr. Vice President, thanks once again for coming on the program.
Mr. CHENEY: Well, thanks, Larry. I enjoyed the show.
Mr. CHENEY: That was amazing.
KUDLOW: You knew it was coming?
Mr. CHENEY: I could guess.
KUDLOW: Oh, gosh.
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