First on CNBC Interview: CNBC's Senior Economics Reporter Steve Liesman Sits Down with Treasury Secretary Henry Paulson on "Power Lunch" (Transcript Included)

AP

When: Monday, June 9th at 12:30PM ET
Where: CNBC's "Power Lunch"

Following is the unofficial transcript of a FIRST ON CNBC interview with Treasury Secretary Henry Paulson today on CNBC's "Power Lunch."

All references must be sourced to CNBC.

HERERA: NOW DOWN TO WASHINGTON. STEVE LIESMAN JOINS US FROM THE TREASURY DEPARTMENT IN WASHINGTON, D.C., WITH TREASURY SECRETARY HENRY PAULSON. IT'S A FIRST ON CNBC INTERVIEW. OVER TO YOU, STEVE.

LIESMAN: OIL, HOUSING, THE CREDIT MARKETS, THERE'S NO BETTER TIME TO BE TALKING TO TREASURY SECRETARY HENRY PAULSON.THANK YOU.

PAULSON: GOOD TO BE WITH YOU.

LIESMAN: OIL UP ALMOST $11 ON FRIDAY ALONE. ARE YOU CONCERNED THAT IF THE ECONOMY IS NOT ALREADY IN RECESSION THAT OIL MAY TIP THE BALANCE AND REALLY GUARANTEE A RECESSION FOR THE UNITED STATES ECONOMY?

PAULSON: WELL, STEVE, THERE'S NO DOUBT OIL PRICES WHERE THEY ARE IS A PROBLEM. THERE'S NOTHING WELCOME ABOUT IT AND IT'S A REAL HEADWIND, BUT WE'RE FOCUSED ON IT AND I DO BELIEVE THAT THE STIMULUS CHECKS THAT WENT OUT LAST MONTH AND ARE GOING OUT THIS MONTH ARE GOING TO MAKE A DIFFERENCE AND WE'LL HAVE JOBS THAT WE WOULDN'T HAVE HAD IF WE HADN'T HAD THE STIMULUS CHECKS. SO THEY'RE GOING MAKE A DIFFERENCE.

LIESMAN: ISN'T THERE A CONCERN NOW THAT THE STIMULUS CHECK THAT MIGHT HAVE GONE TO ADDED SPENDING SIMPLY GOES ON PAY THE ADDED BILL FOR OIL?

PAULSON: I'M A GLASS HALF FULL PERSON, AND IT WILL GO TO PAY FOR THE FILLING UP PEOPLE'S CARS WITH GAS IN CERTAIN INSTANCES. SO IT WILL MAKE A DIFFERENCE, BUT IF WE HADN'T HAD THAT STIMULUS CHECK COMING IT WOULD BE MUCH TOUGHER FOR THE AMERICAN CONSUMER.

LIESMAN: WERE YOU SURPRISED BY THE HUGE RISE IN OIL? WHAT DO YOU ATTRIBUTE IT TO?

PAULSON: WELL, I WOULD SAY I ATTRIBUTE IT TO THE SUPPLY AND DEMAND FACTORS THAT ARE BECOMING TIGHTER AND TIGHTER.THERE'S NOT A LOT OF EXCESS INVENTORY.PRODUCING NATIONS HAVE NOT INCREASED THE PRODUCTION CAPACITY TO ANY SIGNIFICANT DEGREE OVER THE LAST TEN YEARS.SO WE HAVE RISING DEMAND AROUND THE WORLD.TIGHT SUPPLIES THAT ARE CONCERNED ABOUT TIGHTER SUPPLIES AND THEN YOU'LL GET VOLATILITY WHEN YOU'RE GOING THROUGH PERIODS OF TIGHT SUPPLY LIKE THIS.

LIESMAN: THE SAUDI, WE'VE JUST HEARD CALL FOR A SUMMIT OF PRODUCING AND CONSUMING NATIONS. WHAT'S YOUR REACTION TO THAT CALL?

PAULSON: I JUST HEARD ABOUT IT. IT'S GOT TO BE CONSTRUCTIVE, SO I WELCOME IT, BUT AGAIN, I THINK THAT THE SOLUTIONS TO THE BIG PROBLEM, YOU KNOW, ARE LONGER TERM SOLUTIONS IN TERMS OF INVESTING IN SUPPLY AND ALTERNATIVE SOURCES OF ENERGY, BUT AGAIN -- IT ONLY CAN BE GOOD NEWS TO TALK ABOUT THE ISSUE.

LIESMAN: YOU WERE JUST IN THE MIDDLE EAST AND ONE OF THE OBJECTIVES WAS TO OPEN UP THE OIL FIELDS THERE TO U.S. PRODUCERS IN PART BECAUSE OF WHAT YOU HAD SAID WHICH IS THAT THEY'RE NOT INCREASING THE PRODUCTION. DID YOU HAVE ANY SUCCESS IN THE MIDDLE EAST?

PAULSON: AGAIN, MY MESSAGE WASN'T JUST AIMED AT THE MIDDLE EAST. THIS IS JUST GLOBALLY. GLOBALLY, IF YOU LOOK AT MEXICO OR IF YOU LOOK AT VENEZUELA OR RUSSIA, THERE'S -- WE HAVE NOT HAD THE KIND OF INVESTMENT WE NEED IN NEW PRODUCTION CAPACITY OR IN ALTERNATIVE SOURCES OF ENERGY.

LIESMAN: LET'S TURN TO A TOPIC I KNOW YOU TALKED ABOUT AND MARKET PARTICIPANTS FEEL AS IF THE RHETORIC FROM THE UNITED STATES GOVERNMENT ON THE DOLLAR HAS CHANGED. THEY ALSO ARE COMMENTING THAT THERE'S BEEN COORDINATION BETWEEN THE FEDERAL RESERVE AND THE TREASURY ON THE DOLLAR. IS THAT ACCURATE?

LIESMAN: WELL, STEVE, I WORK WITH BEN BERNANKE.WE WORK CLOSELY ON A WIDE VARIETY OF TOPICS THAT HAVE TO WORK WITH THE COMPETITIVENESS OF OUR ECONOMY AND THE CAPITAL MARKETS AND SO WE COMMUNICATE ALL OF THE TIME ON A NUMBER OF TOPICS.

LIESMAN: WHAT IS THE POINT OF TALKING ABOUT THE DOLLAR RELATIVE TO BEING A RESERVE CURRENT CURRENCYIN THE WORLD AND WHAT IS THE SIGNIFICANCE OF NOW THE FED CHAIRMAN TALKING ABOUT IT?DID HE SPEAK OUT OF TURN? IT USED TO BE JUST THE JOB OF THE TREASURY TO TALK ABOUT THE DOLLAR.

PAULSON: LISTEN, THE LOOKING BACK HISTORICALLY, THE FED CHAIRMAN SPEAKS ABOUT A LOT OF THINGS INCLUDING CURRENCY, BUT IN TERMS OF THE TREASURY, I'VE BEEN MAKE THE POINT ALL OF THE WAY ALONG THAT OUR ECONOMY MAY HAVE ITS UPS AND DOWNS, BUT THAT LOOKED AT OVER ANY REASONABLE PERIOD OF TIME THAT OUR LONG-TERM FUNDAMENTALS COMPARE QUITE FAVORABLY WITH OTHER MAJOR INDUSTRIAL NATIONS AROUND THE WORLD AND THAT'S GOING TO BE REFLECTED IN THE PRICE OF OUR --THE VALUE OF OUR CURRENCY.

LIESMAN: SHORTLY AFTER YOU MADE COMMENTS AND THE FED CHAIRMAN MADE COMMENTS ON THE DOLLAR IT STRENGTHENS AND IT WAS THEN UNDERCUT LATER IN THE WEEK WHEN THE EUROPEAN CENTRAL BANK PRESIDENT JEAN CLAUDE TRICHET MADE COMMENTS THEY WERE GOING TO HIKE INTEREST RATES THERE. DO YOU FEEL THAT THE EUROPEAN BANK PRESIDENT UNDERCUT WHAT YOU HAD ACHIEVED WITH THE FED CHAIRMAN?

PAULSON: I OBVIOUSLY NOTICED HIS COMMENTS.I CAN'T COMMENT ON WHAT CENTRAL BANK OFFICIALS MIGHT DO AROUND THE WORLD.AGAIN, I JUST BRING YOU BACK TO -- AT THE END OF DAY, I THINK, FUNDAMENTALISTS ARE GOINGTO BE WHAT ARE GOING SHINE THROUGH IN AND THE LONG-TERM FUNDAMENTALS WILL SHINE THROUGH.

LIESMAN: JUST FROM THE STANDPOINT OF UNDERSTANDING YOUR PHILOSOPHY, THE BUSH ADMINISTRATION, WILL, IF IT CONTINUES ON THE CURRENT COURSE LEAVE OFFICE AND IT WILL BE ONE OF THE FIRST ADMINISTRATIONS TO NOT INTERVENE IN THE DOLLAR MARKET, DO YOU FEEL FROM A PHILOSOPHICAL POINT OF VIEW THAT INTERVENTION IS A POLICY TOOL THAT IS ON THE TABLEOR OFF THE TABLE?

PAULSON: I WOULD NEVER TAKE INTERVENTION OFF THE TABLE OR ANY POLICY TOOL OFF THE TABLE.I JUST CAN'T SPECULATE ABOUT WHAT WE WILL OR WON'T DO.

LIESMAN: YOU'RE GOING SHORTLY TO JAPAN FOR A SUMMIT OF THE G-7.

PAULSON: RIGHT.

LIESMAN: AT THE UPCOMING MEETING WILL BE BE TALKING ABOUT GLOBAL FOOD PRICES AND HIGHER INFLATION AROUND THE WORLD?

PALUSON: WE'LL TALK ABOUT ECONOMIC ISSUES AND YOU CAN'T TALK ABOUT ECONOMIC ISSUES WITHOUT TALKING ABOUT ALL THREE OF THOSE AS WELL AS A NUMBER OF OTHERS.

LIESMAN: WHAT DO YOU EXPECT TO COME OUT OF THE MEETING THAT MIGHT BE OF USE TO INVESTORS AND ORDINARYAMERICANS?

PAULSON: WELL, I WOULD SAY IT'S ALWAYS OF GREAT VALUE TO TALK WITH OTHER POLICYMAKERS FROM AROUND WORLD AND TO GIVE THEM AN UPDATE ON WHAT'S HAPPENING IN OUR ECONOMY AND MARKETS AND HEAR WHAT'S HAPPENING IN THEIRS BECAUSE THAT BUILDS UP A LEVEL OF TRUST AND CONFIDENCE SO WE'RE ABLE TO GET ON THE PHONE AND COMMUNICATE WHEN THE SITUATION CALLS FOR IT.

LIESMAN: NEW YORK FED PRESIDENT TIM GEITHNER JUST MOMENTS AGO BEFOREWE HAD A CHANCE TO TALK WAS TALKING ABOUT GREATER REGULATION OF LARGE INSTITUTIONS. RIGHT NOW INVESTMENT BANKS HAVE ACCESS TO THE DISCOUNT WINDOW AND NO CAPITAL LIQUIDITY RATIO INCREASES AS A RESULT OF GETTINGTHAT ACCESS.DOES THAT HAVE TO CHANGE?

PAULSON: WELL, LET ME BEGIN TO SAY I VERY MUCH AGREE WITH WHAT TIM SAID.IT'S VERY CONSISTENT WITH THE REGULATORY BLUEPRINT THAT WE PUTOUT OF TREASURY IN MARCH AND THE WORLD'S CHANGED A LOT SINCE WE PUT OUR REGULATORY SYSTEM IN PLACE AND NON-BANK FINANCIAL INSTITUTIONS, INVESTMENT BANKS AND HEDGE FUNDS ARE PLAYING A BIGGER AND MORE IMPORTANT ROLE ON THE ECONOMY AND REGULATION NEEDS TO BE UPDATED, TO CATCH UP WITH THAT AND SO I AGREE WITH THAT AND, OF COURSE, WE ULTIMATELY BELIEVE THAT THE FEDERAL RESERVE IS GOING TO NEEDGREATER VISIBILITY AND TO ALL COMPLEX, FINANCIAL INSTITUTIONS NEED SOME POWER TO INTERVENE.

LIESMAN: WHEN YOU SAY YOU AGREE WITH THAT, ARE YOU AGREEING WITH THE IDEA OF GREATER CAPITAL AND LIQUIDITY LEVELS?AND RETURN FOR ACCESS?

PAULSON: TO DEAL WITH A VERY SPECIFIC SITUATION.CLEARLY, THE FED NEEDS GREATER VISIBILITY AND AUTHORITY INTO THESE INVESTMENT BANKS AS LONG AS THEY'VE OPENED UP THE DISCOUNT WINDOW.THERE'S NO DOUBT ABOUT THAT AND I'M SPENDING A FAIR AMOUNT OF TIME RIGHT NOW WITH BEN BERNANKE, TIM GEITHNER AND CHRIS COX IN WORKING THROUGH SOME OF THE BALANCING OBJECTIVES THAT NEED TO BE TRADED OFF HERE.

LIESMAN: WHEN CAN WE EXPECT THEM FOR THE DECISION?

PAULSON: WELL, LET'S LEAVE THAT TO THEM TO POST, BUT LET ME SAY THAT THE TWO THINGS YOU NEED TO TRADE OFF ARE, FIRST OF ALL, IS UPDATING THE REGULATORY POLICIES SO THAT THEY ARE REFLECTIVE OF THE WORLD WE LIVE IN AND THE SECOND THING YOU NEEDTO TRADE OFF IS MARKET DISCIPLINE.THEY A ROLE FOR MARKET DISCIPLINE AND MORAL HAZARD.

LIESMAN: SPEAKING OF MARKET DISCIPLINE, LEHMAN BROTHERS HAS BEEN APPARENTLY IN SOME TROUBLE,BUT IT'S ALSO BEEN OUT THERE RAISING CAPITAL.WHAT'S YOUR COMMENT ON WHAT'S HAPPENING RIGHT NOW?

PAULSON: WELL, I CAN'T COMMENT SPECIFICALLY ON ANY SPECIFIC INSTITUTION, BUT LET ME JUST SA THESE ARE TOUGH MARKETS.THIS IS A STRESSFUL PERIOD AND SO WHEN ASSETS ARE BEING REVALUED AND IT'S A TOUGH EARNINGS ENVIRONMENT YOU'RE GOING GO THROUGH PERIODS LIKE THAT, BUT WHAT I FOCUS IS WHAT I'VE BEEN SAYING FOR SOME TIME. INSTITUTIONS THAT THINK THEY NEED CAPITAL SHOULD GO OUT AND RAISE IT, AND I THINK IT IS A GREAT TESTAMENT TO THE CONFIDENCE THAT INVESTORS HAVE IN OUR FINANCIAL SYSTEM AND IN FINANCIAL INSTITUTIONS THAT CAPITAL CAN BE RAISED AND A LOT OF CAPITAL CAN BE RAISED DURING CHALLENGING PERIODS LIKE THE ONES WE'RE SEEING TODAY.

LIESMAN: I APOLOGIZE FOR NOT HAVING TIME FOR A VERY IMPORTANT TOPIC WHICH IS CLOSE TO YOUR HEART, BUT LET ME ASK YOU QUICKLY.THERE IS AN UPCOMING MEETING FROM LEADERS IN CHINA.WHAT DO YOU HOPE TO COME OUT OF THAT MEETING?

PAULSON: YOU'RE RIGHT.IT IS A VERY IMPORTANT MEETING AND WE'LL BE MEETING NEXT WEEK AND THERE WILL ABE NUMBER OF THINGS AND ONE OF THE BIG FOCUS IS YOU BROUGHT UP ENERGY AND ONE OF THE BIG FOCUS IS THE TEN-YEAR ENERGY FRAMEWORK AND WE'RE WORKING ON A PLAN, THE U.S. AND CHINA FOCUSED ON ENERGY SECURITYAND ENERGY EFFICIENCY AND ENVIRONMENTAL ISSUES.

LISESMAN: MR. SECRETARY, THANK YOU VERYMUCH FOR YOUR TIME TODAY.WE CAN CONTINUE THIS FOR ANOTHER HALF AN HOUR.GUYS, I'M SURE IT WILL BE INTERESTING AND WE'LL TALK TO THE SECRETARY AGAIN. BACK TO BILL AND SUE IN HQ.

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