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CNBC Exclusive Interview: Larry Kudlow Speaks with President Bush, Friday, March 14th on "Kudlow & Company" at 7pm ET (Transcript Included)

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WHEN: Friday, March 14th at 7PM ET
WHERE: CNBC's "Kudlow & Company"

Following is the unofficial transcript of a CNBC exclusive interview with President Bush on CNBC's "Kudlow & Company." During the interview with CNBC's Larry Kudlow, President Bush discusses the economy, high oil prices, the housing crisis, the credit crunch, the Presidential race, the Spitzer scandal, Iraq and the war on terror and the controversial Pentagon tanker deal, among other topics.

All references must be sourced to CNBC.

GEORGE W BUSH: IN PROGRESS) --swift action, along with JP Morgan, to help bring some order to the financial markets.

LARRY KUDLOW: You have said, time and again, that you oppose government bailouts. That you oppose the use of taxpayer money to bailouts. I want to ask you if that opposition applies to these large banks?

GEORGE W BUSH: Well, these are unusual times. I-- these are times that-- where-- there's a confluence of housing market risks, and financial risks, that require unusual action. And-- it's very important for the-- American people to know that the fed and the treasury carefully weigh-- the necessary to bring some order and stability versus moral hazard. And I think that they've struck the right balance in this case. Particularly when people look at the details of the transaction.

LARRY KUDLOW:When did you first learn of the Bear Sterns' (PH)-- problem, and the actions to be taken?

GEORGE W BUSH: Oh, I was aware-- yesterday that the Treasury was thinking about-- taking some actions. I spoke-- they finalized their deal, evidently, late last night. So I talked to Secretary Paulson (PH) this morning.

LARRY KUDLOW: Does the Treasury Department extend any credit lines to this? I mean, the Federal Reserve is putting liquidity in, as they do. What's the role of the Treasury here?

GEORGE W BUSH: I think the Treasury was just part of making sure that the transaction was done in such a way as to balance stability and-- and moral hazard.

LARRY KUDLOW: All of this, of course, takes the so called credit crisis to a new low. So I want to ask you, yesterday-- House Financial Services chairman, Barney Frank (PH), unveiled a new plan. To use the FHA with a huge expansion for-- purchasing mortgages. Even mortgages from delinquent borrowers. Some people are saying it's $300 billion. It might cost the taxpayers about 20 billion when it's all done. Have you decided whether you would support Mr. Frank, or whether you would veto his--

GEORGE W BUSH: Well, the only-- the only-- I mean, I-- as I understand this, or-- you know, they haven't marked this bill up yet. But they have marked up other bills. And I'll just give you an indication of where my head is. First they've proposed $4 billion to buy-- you know, empty abandoned houses.

Which I strongly oppose. That doesn't help anybody who's trying to stay in their house. That helps lenders. Then they propose changing the bankruptcy law, which would cause interest rates to go up eventually. Which will make it harder for people to buy homes.

So I oppose that. And-- I am concerned about any government intervention with new law that will end up making it harder for the housing market to recover expeditiously. And so our policy is to help people refinance their notes. Is to help people, who are credit worthy, stay in their homes.

And-- are FHA secure and our Hope Now Alliance is beginning to have pretty good progress. As a matter of fact, the rate of foreclosure versus the rate of restructuring has changed. Been more restructurings and the-- the rate is better for restructuring than for foreclosure. And my-- I would advise people, who are worried about staying in their homes, to get a hold of the federal government. And to find out how they can get help to restructure.

LARRY KUDLOW: So with respect to Mr. Frank's idea, which may be picked by-- house-- senate banking chairman-- Dodd, they're gonna offer delinquent borrowers some FHA relief.

GEORGE W BUSH: Yeah.

LARRY KUDLOW: Is that a deal breaker for you?

GEORGE W BUSH: Well, there's a lot of deal breakers-- from what-- how you've described this-- this law. I-- I-- I-- I think a couple of things-- Larry. One, that we ought to make sure that this-- stimulus package we pass has a chance to work before government overreacts.

Listen, I'm open to new ideas, but I'm not open to ideas that'll make it harder for the market to recover. What we need is-- for the market to work its way through. To help people stay in homes who are credit worthy. To get excess homes off the market by having the market function well

But we also gotta give this stimulus package a chance to work. It's-- over $150 billion of-- money is gonna be headed out the door. Be-- either as incentive for businesses to buy equipment, or-- direct rebates to American consumers. And-- and those checks will be hitting the second week of May. So, obviously, we-- the-- the-- the-- the real substantial effects of this stimulus package have not had a chance to take hold.

LARRY KUDLOW: This morning we had some other news. Now the consumer price index was released for February. And it actually came in flat, below expectations. But it has been rising at a four percent annual rate. Faster than worker wages. Some people say the worst in 15 years, on the inflation front. Retail sales down two of the last three months. The question is is this a 1970s repeat of inflationary recession? Sometimes called stagflation?

GEORGE W BUSH: I think that we're in an unusual period. We went to 52 consecutive months of uninterrupted job growth. And-- like any free-- free market, there's-- there's-- there's also downturns. And we're in one. And the question is how best to react during the downturn.

Unfortunately, we anticipated the downturn. And have proposed a temporary robust stimulus package. Which hasn't yet to happen. And so-- and-- you know, people-- people believe-- the experts believe, and they tell me, and I'm certainly no economic expert.

But they tell me that this package will have a very positive effect on the economy throughout the year. Secondly, there's-- you know, obviously, having to deal with issues-- in the-- credit market. And, yet, today you noticed that the Treasury Department and the Fed acted expeditiously. Acted firmly without creating what's called moral hazard. And the Fed is also, obviously, maintaining a watch on inflation. And-- and, at the same time, sending signals that they're interested in robust growth.

LARRY KUDLOW: Are you worried about this inflation story? It's really just kind of snapped up in the last three or four months.

GEORGE W BUSH: I-- you know, to--

LARRY KUDLOW: Kind of come out of left field.

GEORGE W BUSH: Well I--

LARRY KUDLOW: Nobody expected it.

GEORGE W BUSH: What I'm worried about is the downturn that we're in. And-- these stories get exacerbated because we're in a slow down. And, of course, we're watching-- or, in this case, the Fed is watching-- the relationship between inflation and growth. And-- I've got all the confidence in Ben Bernacky (PH). I think he's doing a very fine job during difficult times.

LARRY KUDLOW: But what about the dollar? A lot of people are pinning the inflation problem on the continuous decline in the dollar.

GEORGE W BUSH: Look, the-- the-- the-- the-- the-- we're for a strong dollar in the-- in-- in-- with the US government. And the best way to-- and-- and-- and economies go up and down. And-- but the-- I'm confident in the long term strength of the dollar.

Because I'm confident in the long term strength of our economy. And what's very important during this period of time is to show the world that we're not gonna leave behind a regulatory-- or law that'll make it difficult for our market to recover. In other words, not gonna overreact during this period of time with unnecessary law. That we're open for trade and investment. And so that the long term part-- picture for the United States economy is gonna be as good.

LARRY KUDLOW: But you said, yesterday, in another interview, that you were for a stronger dollar, comma, absolutely.

GEORGE W BUSH: Well, you know--

LARRY KUDLOW: It kind of sounded like you were changing your rhetoric or changing your policy.

GEORGE W BUSH: No, no, no. That's the problem with this rhetoric on monit-- on-- on-- on dollar policy. If I even put a comma as opposed to a period people are suggesting change. We-- we-- our policy has not changed. We're for a strong dollar.

LARRY KUDLOW: Steve Forbes-- conservative editor of Forbes Magazine wrote a tough editorial. I want to get your response on that. He asked, "Can it be true? A Republican president repudiating the anti-inflation legacy of Ronald Reagan?" And he calls this thing, "Jimmy Carter Bush." (LAUGHTER) Do you have a response to Mr. Forbes' criticism?

GEORGE W BUSH: I-- I like Forbes. He's a good man. And-- but if I responded to every editorial written about me you and I would be spending hours talking about them.

LARRY KUDLOW: So you don't think you've given up on the-- anti-inflation legacy?

GEORGE W BUSH: I think we just come off with the-- a strong period of economic growth after difficult times. We've been through recession, war, terrorist attack-- Katrina. And, yet, we have 52 consectutiv (PH) months of uninterrupted job growth.

The longest sustained in the country's history. I've tut-- cut taxes. Congress needs to make those tax cuts permanent, by the way, in order to send the signal of-- that this economy of ours is gonna be strong. The deficit as a percentage EDP is below norm. So we've had a good record. We're just in a tough period right now. And--

LARRY KUDLOW: Well, it's just, on this last one, on the dollar sir, if I may, Middle East oil producers are leaving the dollar as their standard. Kuwait is doing it. The United Emirates are doing it. Kutar (PH) is doing it. Some people are saying that this big dollar drop is costing us prestige. That American prestige, in war time particularly, is falling. That our enemies and our friends are ridiculing the greenback. Does that really affect you? Does-- is that something you think about? Loss of prestige from the dollar?

GEORGE W BUSH: I-- I think about making hard decisions now so we'll live in peace and security. The biggest threat we face is-- is a terrorist attack. Or making policies that strengthen these radical and extremists who would like to do us harm. And so what I think about is protecting this-- United States of America. And it requires some tough decisions. And-- I'm willing to make them, and I will continue to make them, so long as I'm the president.

LARRY KUDLOW: Senator Obama, on the campaign trail, I want to read you a quote from one of his recent speeches. "It's a Washington where George Bush hands out billions in tax cuts year after year to the biggest corporations and the wealthiest few who don't need them and don't ask for them.

"Tax breaks that our mortgaging our children's future on a mountain of debt. Tax breaks that could have gone into the pockets of the working families who need the most." And, I might add, the senate and the house are considering a budget which will repeal-- the tax cuts, which is the centerpiece of your-- economic strategy. What is your response to Senator Obama and the congressional Democrats?

GEORGE W BUSH: Well, yeah, I-- I-- I would-- I-- I would leave it generic. For all those who-- say the tax cuts are bad, I just simply ask them to look at what happened after-- we inherited a recession. And after the attacks of September 11th. I think giving people their money back-- makes a lot of sense.

The problem you face-- Larry, is that-- these folks aren't arguing for-- they're arguing for raising taxes 'cause they want to increase government. That's why they want more money in Washington DC. They got all kinds of spending plans. And-- as I told you, our-- you know, the deficits of percentage EDP is below norm. And one reason why is because we have held the line on spending, except for defense.

LARRY KUDLOW: But isn't it true that, so far this year, government spending is back to an eight percent rate? And the deficit estimates--

GEORGE W BUSH: Yeah, I--

LARRY KUDLOW:--are over $400 billion?

GEORGE W BUSH: Well, one reason why they're over $400 is because of the $150 billion tax cut that we're fixing to give the American people to help us through this rough patch. In terms of spending, I can't answer that question. But, if it is, it's only for one reason. And that's because we're spending on our troops. And we'll continue spending on our troops and homeland security so long as I'm the president. We owe these kids all the support they need so they can get the job done.

LARRY KUDLOW: Now, you have-- warmly embraced Senator McCain as the-- (LAUGHTER) Republican nominee. Warmly embraced him. But, of course, many conservatives want to know, do you trust Mr. McCain to maintain your tax cutting legacy since he voted against the tax cuts, initially, in 2001 and 2003? Do you have faith in him now that he will keep your legacy in tact?

GEORGE W BUSH:Absolutely. I'm--

LARRY KUDLOW: No question?

GEORGE W BUSH: No question in my mind.

LARRY KUDLOW: Why do you--

GEORGE W BUSH: And I think-- and not only do I think he will be good tax cuts, I know he'll be a good sound, you know, fiscal watchdog. And, plus, he'll stay on the offense against the terrorists and extremists. He's the candidate that is more likely to protect the American people from-- from additional harm.

LARRY KUDLOW: How do you handicap this race right now?

GEORGE W BUSH: I think he'll win.

LARRY KUDLOW: You do?

GEORGE W BUSH: But I don't know who he's gonna run against. So we'll just have to wait and see. But I've got confidence in John McCain. He's a battler. He's a competitor. And he's got a good vision for America. And he's got a great heart. And-- I think he'll win.

LARRY KUDLOW: One last one here, up in New York, as I'm sure you know, the big headlines-- Government Eliot Spitzer's fall from grace. Engaged in prostitution for at least a decade. It's still on the front pages this morning because federal prosecutors are now looking at the possibility he used campaign funds in his-- prostitution-- relationships. He may have even used government funds. Do you have a thought on this? I have you not heard you comment on the Spitzer story.

GEORGE W BUSH: I haven't commented on it, and I don't intend to. I guess-- I-- I-- well, I-- my concern is for his family. And-- I'll-- I'll leave it at that.

LARRY KUDLOW: Alright. President George Bush, thank you very much sir for coming back on Kudlow and Company.

GEORGE W BUSH: Always a pleasure.




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