WHEN: Today, Wednesday, December 6
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Former Federal Reserve Chairman Dr. Alan Greenspan today, Wednesday, December 6 on CNBC's "Squawk on the Street" (M-F 9:00AM – 11:00AM.) Following are links to video of the interview on CNBC.com: https://www.cnbc.com/video/2017/12/06/alan-greenspan-were-about-to-go-from-stagnation-to-stagflation.html and https://www.cnbc.com/video/2017/12/06/bitcoin-looks-like-the-history-of-fiat-money-going-back-to-the-civil-war-alan-greenspan.html.
All references must be sourced to CNBC.
CARL QUINTANILLA: OBVIOUSLY FOR MORE ON ALL OF THIS, FOR THE ECONOMY AND MORE, WE'RE JOINED BY FORMER FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN AND A CNBC EXCLUSIVE. DR. GREENSPAN, ALWAYS GOOD TO SEE YOU. GOOD MORNING.
- ALAN GREENSPAN: GOOD MORNING.
QUINTANILLA: WE WANT TO COVER SO MANY THINGS: BITCOIN, POWELL, BALANCE SHEET RUNOFF, ENTITLEMENTS, DEBT. BUT LET'S START WITH THIS TAX BILL SINCE IT'S IN THE NEWS AND WE'RE WATCHING IT GO THROUGH CONFERENCE. WHAT'S BEEN YOUR OVERALL CHARACTERIZATION OF WHAT IT APPEARS INTENDED TO DO?
GREENSPAN: END OF WHAT?
QUINTANILLA: AS THE TAX BILL. AS IT APPEARS RIGHT NOW, AND THERE'S A LOT OF QUESTIONS ABOUT WHAT'S GOING TO HAPPEN IN CONFERENCE, BUT HOW WILL IT IMPACT GROWTH, EQUITIES, THE ECONOMY?
GREENSPAN: NO, I WAS MISHEARING YOU, AND I COULDN'T BELIEVE IT, BUT I GOT IT. LOOK, THIS PARTICULAR PERIOD, AS ALAN SIMPSON AND HIS COLLEAGUE ERSKINE BOWLES WROTE IN "THE WASHINGTON POST" RECENTLY, THIS IS A TERRIBLE FISCAL SITUATION WE GOT OURSELVES INTO. THE ADMINISTRATION IS DOING A TAX CUT AND A SPENDING DECREASE BUT HE'S DOING THEM IN THE WRONG ORDER. WHAT WE NEED RIGHT NOW IS A FOCUS WHOLLY ON REDUCING THE DEBT, EVEN THE DEBT INCREASE. RIGHT NOW, WE'RE IN A STAGE, IF NOTHING IS CHANGED, WE'RE ABOUT TO GO FROM STAGNATION TO STAGFLATION, WITH A SIGNIFICANT RISE IN INFLATION, AND A WHOLLY SIGNIFICANT IMBALANCE IN THE ECONOMY, WHICH IS VERY DIFFICULT TO ANTICIPATE AT THIS STAGE. BUT THE OUTLOOK IS NOT EXACTLY TERRIFIC.
QUINTANILLA: YOU HAVE BEEN ON THIS PATH FOR A WHILE NOW. WE'VE BEEN WAITING FOR THE FLATION PART OF YOUR THEORY AND FORECAST. WHERE IS IT? I MEAN, UNIT LABOR COSTS TODAY, DOWN .2. WE'LL SEE WHAT THE WAGE NUMBER TELLS US ON FRIDAY, BUT ARE YOU SAYING WE'RE CLOSER TO THAT, THAT FORECAST YOU HAVE BEEN GIVING?
GREENSPAN: NO, I'M SAYING BASICALLY THAT IS THE NEXT STAGE. WE ARE SEEING SOME BUOYANCY IN THE ECONOMY IN SOME AREAS. BUT REMEMBER, THE FOURTH QUARTER GDP IS GOING TO BE SIGNIFICANTLY SLOWER THAN THE SECOND AND THE THIRD QUARTER. ON THE DATA WE ALREADY HAVE COMBINED ON A WEEKLY BASIS AND A LOT OF OTHER INFORMATION, THE SLOW DOWN TO CLOSE TO 2% ANNUAL RATE OF GROWTH SEEMS PRETTY MUCH ASSURED AT THIS STAGE. THAT BASICALLY MAKES IT VERY DIFFICULT TO FIND A SOLUTION TO THE FISCAL PROBLEM. BUT WE CANNOT BASICALLY DEAL WITH IT THE WAY WE ARE. HOW IT'S GOING TO COME OUT, I DON'T HAVE A CLUE. THAT INFLATION WILL ULTIMATELY EMERGE, I'M SURE. THE QUESTION IS, IT IS VERY DIFFICULT TO TELL WHEN, BUT ALL OF THE FORCES IN PLACE. CRITICAL ISSUE IS REAL. LONG-TERM INTEREST RATES, THEY ARE ABNORMALLY LOW AND THEY ARE RUNNING THE SHOP, SO TO SPEAK.
MICHELLE CARUSO-CABRERA: MR. GREENSPAN, WE GOT A NOTE THAT YOU WANT TO TALK ABOUT BITCOIN. WHAT DO YOU THINK OF IT?
GREENSPAN: WELL, I'M IN THE PROCESS OF JOINTLY WRITING A BOOK ABOUT AMERICAN HISTORY. AND ALL I CAN SAY TO YOU IS BITCOIN LOOKS LIKE THE HISTORY OF FIAT MONEY IN THE UNITED STATES AND ELSEWHERE GOING ALL THE WAY BACK TO 1789. IF YOU LOOK, FOR EXAMPLE, AT HOW THE CONTINENTAL, WHICH WAS, REMEMBER, ISSUED IN 1775, AND A COUPLE HUNDRED MILLION DOLLARS, AND BY 1782, IT WAS WORTHLESS. BUT BEFORE IT WAS WORTHLESS, GEORGE WASHINGTON WAS ABLE TO BUY A LOT OF ARMAMENT, BASICALLY ALL SORTS OF TROOP COSTS AND OWNED THE PERIOD, A SIGNIFICANT SHARE OF THAT WORTHLESS, ULTIMATELY WORTHLESS CURRENCY WAS CREATING REAL GOODS AND SERVICES. THAT'S WHAT I THINK IS HAPPENING WITH BITCOIN.
CARUSO-CABRERA: SO SHOULD WE CONCLUDE THAT BITCOIN IS GOING TO BE, IN YOUR OPINION, ULTIMATELY WORTHLESS?
GREENSPAN: NO. DEPENDS ON HOW THEY HANDLE THE ISSUE OF THE ACCUMULATIVE – AMOUNT OF THE QUANTITY THAT'S BEING PUT INTO THE MARKET. IN THE CONTINENTAL AND THE GREENBACK IN CIVIL WAR, IN ALL CASES, THE AMOUNT OF FIAT CURRENCY KEPT RISING. AND IT'S VERY DIFFICULT TO TELL TO WHAT EXTENT BITCOIN IS FUNDAMENTALLY DIFFERENT FROM THAT, BUT I AM SAYING THAT THERE ARE VERY CONSIDERABLE SIMILARITIES, THAT WHAT'S HOLDING THE PRICES UP IS THE SUPPLY IS DOWN, AND LOOK, HUMAN BEINGS BUY ALL SORTS OF THINGS THAT AREN'T WORTH ANYTHING, BUT THEY DO IT ANYWAY. PEOPLE GAMBLE IN CASINOS WHEN THE ODDS ARE AGAINST THEM. IT HAS NEVER STOPPED ANYBODY.
CARUSO-CABRERA: I WAS THINKING, I HAVE BEEN THINKING ABOUT CRYPTO CURRENCIES A LOT IN THE CONTEXT OF MONETARY POLICY BECAUSE THE PHILOSOPHICAL BEGINNINGS OF BITCOIN WERE ABOUT CREATING A STORE OF VALUE BECAUSE CENTRAL BANKS AROUND THE WORLD WERE PLAROFLIGATE, BUT IT TURNS OUT THERE CAN BE HUNDREDS OF CRYPTOCURRENCIES, AS YOU'VE POINTED OUT, WHICH SUGGESTS THAT THE SUPPLY COULD BE LIMITLESS, AND HENCE, BITCOIN AS A PARTICULAR STORE OF VALUE MAYBE IS QUESTIONABLE.
GREENSPAN: LOOK, THE QUESTION IS THE VALUE OF BITCOIN CAN NEVER BE NEGATIVE, AND SO THERE'S ONLY ONE THING IT CAN BE - IT'S EITHER ZERO OR PLUS. AND THE WAY HUMAN BEINGS ESTIMATE VALUE, YOU'RE GOING TO GET A NUMBER OF PEOPLE ALWAYS CONSIDER IT A PLUS. AND IF YOU HAPPEN TO BE BITCOIN AND GET IN EARLY ON, YOU CREATE A HUGE POTENTIAL MARKET. BUT IT'S NOT AN ACCIDENT THAT VIRTUALLY ALL OF THESE CRYPTOCURRENCIES THAT HAVE SOME SEMBLANCE OF CONTROL WITH THEM AND THE MATHEMATICS ARE CORRECT, ARE DOING REASONABLY WELL.
DAVID FABER: CHAIRMAN GREENSPAN, BACK TO THE TAX CUTS FOR A MOMENT. YOU KNOW, I'M CURIOUS, A LOT OF OTHER ECONOMISTS, OF COURSE, HAVE WEIGHED IN WITH THEIR EXPECTATIONS OF WHAT LEVEL OF ECONOMIC GROWTH IT WILL CONTRIBUTE TO OUR ECONOMY. WHERE ARE YOU ON THAT? DO YOU BELIEVE IT WILL CONTRIBUTE ECONOMIC GROWTH, AND IF SO, HOW MUCH?
GREENSPAN: VERY LITTLE. THE TAX CUT, REMEMBER, AT THE SAME TIME INCREASES THE DEFICIT. AND ALL OF THE ECONOMIC METRICS I HAVE SEEN OVER THE YEARS TELLS ME THAT WHEN YOU INCREASE THE DEFICIT AND YOU INCREASE THE DEMAND FOR FUNDS, YOU'RE CROWDING OUT CAPITAL INVESTMENT. AND CAPITAL INVESTMENT IS THE KEY STATISTIC DETERMINING WHAT OUTPUT PER HOUR IS THAT'S PRODUCTIVITY. SO ESSENTIALLY, I'M NOT AT ALL CONVINCED THAT THE WAY TO COME AT THIS IS THE WAY THAT THEY'RE DOING IT NOW. I AM A MAVERICK RIGHT AT THE MOMENT. I WOULD LIKE TO SEE US MOVE NOT TOWARDS A TAX CUT BUT CREATE A SURPLUS, BECAUSE IF WE CAN CUT ENTITLEMENTS AND ALLOW THE FUNDS THAT ARE SAVED TO GO BACK INTO THE MARKET, THE DATA SHOW THAT WILL CREATE A SIGNIFICANT INCREASE IN CAPITAL INVESTMENT AND ECONOMIC ACTIVITY, QUITE SIMILAR TO WHAT OCCURRED IN THE YEAR 2000-2001, FOR EXAMPLE.
FABER: RIGHT. AND WHEN IT COMES TO THE BEHAVIOR OF CORPORATIONS, WHICH OBVIOUSLY YOU HAVE ALSO STUDIED OVER TIME, WHAT ARE YOUR EXPECTATIONS IN TERMS OF WHAT THEY'RE GOING TO DO WITH THE ADDITIONAL CAPITAL THEY CONCEIVABLY HAVE, BOTH EITHER FROM TAKING IT FROM OVERSEAS FOR THOSE MULTINATIONALS THAT HAVE LARGE AMOUNTS OF CASH, OR EVEN SIMPLY THOSE WHO BENEFIT FROM A LOWER TAX RATE. DO YOU SEE THEM INCREASING THEIR INVESTMENTS, THEIR CAPITAL INVESTMENTS, OR SIMPLY PERHAPS BUYING BACK STOCK OR INCREASING THE DIVIDEND?
GREENSPAN: MORE OF THE LATTER. REMEMBER, I, OVER MY PRIVATE SECTOR YEARS, WAS ALWAYS STUCK INTO THE COMMITTEES WHICH ENGENDERED THE CAPITAL INVESTMENT PROCESS. AND WHILE COMPANY BY COMPANY DIFFERED, THEY HAD ALL ONE THING IN COMMON. THAT THE ISSUE OF RAISING THE FUNDS WAS QUITE SECONDARY TO THE ANALYSIS OF WHETHER THE INVESTMENT IN ITSELF WAS PROFITABLE. SO THE QUESTION OF GETTING SIGNIFICANT AVAILABILITY, FOR EXAMPLE, FOREIGN AFFILIATE FUNDS, WHICH ARE HELD ABROAD, MOVE TO THE UNITED STATES, THAT IS NOT GOING TO SIGNIFICANTLY INCREASE EFFECTIVE CAPITAL INVESTMENT. WHAT HAS GOT TO BE THERE IS THAT THE OUTLOOK IS POSITIVE, AND UNLESS THE OUTLOOK IS POSITIVE, I DON'T CARE HOW MUCH MONEY YOU THROW AT IT. IT'S NOT GOING TO SIGNIFICANTLY INCREASE OUTLOOKS.
CARUSO-CABRERA: ONE MORE QUESTION ABOUT BITCOIN, IF I MIGHT. THERE WAS A TWITTER SPAT BETWEEN NEAL CASH KERRY AND PETER BOOCKVAR, WHERE MR. BOOCKVAR BITCOIN IS THE DIRECT RESULT OF QE AROUND THE WORLD. THAT'S DRIVEN PEOPLE TO BITCOIN. DO YOU SEE ANY CONNECTION BETWEEN MONETARY POLICY OVER THE LAST FEW YEARS AND THE RISE OF BITCOIN?
GREENSPAN: I DOUBT IT VERY MUCH. I MEAN, I THINK BITCOIN – BITCPIN IS REALLY A FASCINATING EXAMPLE OF HOW HUMAN BEINGS CREATE VALUE, OR ESTIMATE OR JUDGE VALUE. AND IT'S NOT ALWAYS RATIONAL. YOU CANNOT TELL ME THAT YOU CAN CREATE OUT OF NOTHING SOMETHING WHICH HAS A MEDIUM OF EXCHANGE VALUE, WITHOUT BRINGING INTO THE ANALYSIS THE FACT THAT SOMETIMES PEOPLE ARE A LITTLE BEWILDERED. BUT IT IS NOT -- IT IS NOT A RATIONAL CURRENCY IN THAT SENSE. BUT THAT DOES NOT MEAN IT WILL NOT TRADE BECAUSE SO LONG AS PEOPLE BELIEVE THEY CAN SELL IT TO SOMEBODY ELSE OR UNLOAD IT ON SOMEBODY ELSE, THAT'S ALL YOU NEED TO CREATE A MARKET.
QUINTANILLA: FINALLY, DR. GREENSPAN, JUST A QUESTION. SHORT-TERM, MEDIUM-TERM VIEW ON EQUITIES. A LOT OF ANALYSTS ARE REVISING HIGHER THEIR S & P EARNINGS TARGETS FOR NEXT YEAR. WE HAD THE CO-FOUNDER OF CARLYLE LAST NIGHT WHO SAID THE ONLY THINGS TO WORRY ABOUT IN THE NEXT TWO YEARS IS A BLACK SWAN, LIKE A NORTH KOREA STRIKE OR AN ATTACK ON AMERICA. IT'S BEEN A LONG TIME SINCE JANET YELLEN SAID PORTIONS OF EQUITIES ARE OVERVALUED. WHAT DO YOU SEE NOW?
GREENSPAN: WELL FIRST OF ALL, WHAT WE DO IS INSTEAD OF LOOKING AT PRICE EARNINGS RATIOS, WE STRUCTURE OUR ANALYSIS IN TERMS OF EARNINGS PRICE RATIOS, AND THEN WE CAN GET VARIOUS FACTORS, WHICH ADDED UP, GIVE THE TOTAL. THE MAJOR CHANGE IN THE VALUATION PROCESS IN THE LAST TEN YEARS HAS BEEN A DRAMATIC DECLINE IN THE REAL LONG-TERM INTEREST RATES. ESSENTIALLY THE TEN-YEAR TREASURY NOTE ADJUSTED FOR EXPECTED INFLATION THAT LEVEL, AS YOU KNOW, IS VERY LOW AT THIS PARTICULAR STAGE. EQUITY PREMIUMS, THE BIG PART OF THE ANALYSIS, IS ABOUT NORMAL. BUT WITH REAL INTEREST RATES SO LOW, MARKETS ARE QUITE VULNERABLE TO A RISE IN INTEREST RATES. AND I WOULD SAY THAT REAL INTEREST RATES, LONG-TERM INTEREST RATES, I SHOULD POINT OUT, IS THE MOST IMPORTANT STATISTIC TO WATCH IF YOU'RE EVALUATING EQUITIES AT THIS STAGE. I DON'T THINK THAT THERE'S AN IMBALANCE OTHER THAN IN THAT AREA, BUT THAT'S ENOUGH TO CREATE VERY MAJOR CHANGES IN THE S&P 500.
QUINTANILLA: DR. GREENSPAN, WE ALWAYS LOVE HEARING FROM YOU. THANKS FOR JOINING US TODAY, KICKING OFF THE HOUR. ALAN GREENSPAN JOINING US THIS MORNING. THANKS SO MUCH.
GREENSPAN: YOU'RE WELCOME.
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