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CNBC EXCLUSIVE: CNBC TRANSCRIPT: RANDALL KROSZNER, FORMER FEDERAL RESERVE BOARD CHAIRMAN & UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS PROFESSOR, ON CNBC'S "SQUAWK BOX" TODAY

QUINTANILLA: JOINING US FROM CHICAGO, RANDY KROSZNER, FORMER FEDERAL RESERVE GOVERNOR PROFESSOR OF THE UNIVERSITY OF CHICAGO'S BOOTH SCHOOL OF BUSINESS AND JOINED BY OUR SENIOR ECONOMICS CORRESPONDENT, STEVE LIESMAN, OUR SENIOR ECONOMIST ANCHOR THIS MORNING OVER AT THE NYSE. RANDY, GOOD TO SEE YOU AGAIN.

KROSZNER: GOOD TO SEE YOU

QUINTANILLA: YOU'RE CATCHING US ON A MORNING WHERE THE EARNINGS CONTINUE TO COME IN. THE DYNAMIC IS IN GENERAL THE SAME. THAT IS PRODUCTION IS GETTING RAMPED UP IN SOME AREAS AT LEAST OF MANUFACTURERS BUT THEY CAN DO IT WITHOUT HIRING IF NOT ALL THEIR MANUFACTURING EMPLOYEES AT LEAST WITHOUT BRINGING BACK THEIR SALARIED PEOPLE. WILL THE CONSUMER BE ABLE TO HOLD ON LONG ENOUGH FOR US TO AVOID THIS DOUBLE DIP THAT EVERY BODY LIKES TO TALK ABOUT

KROSZNER: WELL THAT'S REALLY THE KEY QUESTION BECAUSE THE THING THAT WE SAW OVER THE LAST NINE MONTHS WAS REALLY JUST A WRENCHING CHANGE FROM THE CONSUMER TO BEING PRETTY OPTIMISTIC AND BRINGING THEIR SAVINGS RATE DOWN TO TECHINICALLY ZERO AND SAYING OH BOY WE DON'T KNOW WHAT OUR HOUSING VALUES ARE GOING TO BE, WHAT WE DON'T KNOW WHAT OUR STOCK VALUES ARE, OUR UNEMPLOYMENT PROSPECTS ARE WE HAVE GOT TO SAVE SO WE MOVE FROM ZERO SAVINGS RATE UP TO A 6% SAVINGS RATE GOING FORWARD THAT IS REALLY GOING TO BE THE KEY IS THE CONSUMER GOING TO BE SATISFIED WITH ROUGHLY WHERE THE SAVINGS RATE IS NOW OR ARE THEY SO UNCERTAIN THEY NEED TO PUSH IT UP A LITTLE BIT FURTHER?

QUINTANILLA: WHAT DO YOU THINK THE ANSWER IS TO THAT QUESTION?

KROSZNER: SO I THINK THAT IT'S ALWAYS VERY DIFFICULT TO TELL BECAUSE THERE'S SO MANY THINGS THAT COULD GO WRONG BUT I THINK THAT WITH SOME SIGNS OF STABILIZATION IN THE HOUSING MARKET THAT THE CONSUMER'S LIKELY TO FEEL COMFORTABLE ROUGHLY IN THE RANGE THAT WE'RE IN. THAT COULD PROVIDE THE BASIS FORRECOVERY SOMETIME IN 2010.

QUINTANILLA: STEVE?

LIESMAN: MY QUESTION FOR RANDY IS THIS, WHEN YOU LOOKS FORWARD AT THE PIVOT THE FED HAS TO MAKE TOWARDS, MORE RESTRICTIVE, RAISING INTEREST RATES, DOES HE SEE IT AS KIND OF A VIOLENT TYPE PIVOT OR CAN THE THE FED EASE INTO IT DOES THE MARKET GET ENOUGH WARNING THIS IS GOING TO HAPPEN

KROSZNER: AGAIN, THIS IS VERY DIFFICULT TO KNOW BECAUSE IT IS GOING TO DEPEND ON THE PARTICULAR CIRCUMSTANCES OF HOW THE ECONOMY EVOLVES OVER THE NEXT YEAR BUT I THINK THERE IS A REASONABLE CHANCE THAT IT CAN BE FAIRLY GRADUAL LOOK AT THE EVOLUTION THE FED'S BALANCE SHEET THE WAY WE HAD STRUCTURED A LOT OF THE PROGRAMS WHEN I WAS BACK AT THE FED WAS THAT WHEN THE RISK SPREADS STARTED TO COME DOWN PEOPLE WOULD TURN TO THE MARKET RATHER THAN TURN TO THE FED TO TRY TO GET SOME OF THE LIQUIDITY SO WE ACTUALLY HAD SEEN SOME FAIRLY SIGNIFICANT DECREASES IN THE SIZE OF THE FED BALANCE SHEET IN A VERY GRADUAL, VERY ORDERLY WAY. AND I THINK WE'LL SEE A LOT OF THAT GOING FORWARD.

LIESMAN: RANDY, THE OTHER THING I WANT TO ASK YOU IS ABOUT THE TOWN HALL THE CHAIRMAN JUST HELD. WHAT IS YOUR TAKE ON THAT? IS THERE A DANGER HERE THAT THIS IS SEEN AS BEING POLITICAL?

KROSZNER: WELL, I THINK IF YOU LOOK BACK AT THE WRITINGS THE CHAIRMAN HAD DONE LONG, LONG BEFORE GETTING TO THE FEDERAL RESERVE AND THAT MANY OTHER ECONOMISTS HAD DONE, WHAT MANY PEOPLE THINK IS VERY IMPORTANT THE FED TRY TO BE AS TRANSPARENT AS POSSIBLE AND TRY TO SPEAK BROADLY TO VARIOUS AUDIENCE MEMBERS, WHETHER IT'S BUSINESS PEOPLE, WHETHER IT'S CONSUMERS, WHETHER IT'S MEMBERS WITH CONGRESS.I THINK THE CHAIRMAN IS TAKING THIS SERIOUSLY AND IN THESE EXTRAORDINARY TIMES WHERE PEOPLE -- REGULAR PEOPLE ARE MUCH MORE FOCUSED ON THE FED THAN THEY OTHERWISE WOULD BE, HE'S REALLY TRYING TO GET OUT THERE AND ENGAGE WITH THEM TO ANSWER THEIR QUESTIONS, WHICH I THINK IS SOMETHING THAT'S IMPORTANT AND VALUABLE.

KAMINSKY: RANDY, LET ME ASK YOU A FOLLOW-UP TO THE TOWN HALL. THERE WAS A FORECAST OR A PROJECTION, IF YOU WANT TO CALL IT, A 1% GDP GROWTH FOURTH QUARTER THIS YEAR BY THE CHAIRMAN. DO YOU THINK HE MAKES THAT FORECAST FEELING VERY CERTAIN THAT THAT WILL BE ACHIEVABLE? BECAUSE THAT, TO ME, WAS SOMEWHAT OF A RISK TO PUT THAT ON THE TABLE

KROSZNER: I MEAN, IT'S ALWAYS RISKY TO SAY THERE ARE GOING TO BE PARTICULAR NUMBERS COMING OUT IN THE FUTURE GOSH, WE HAVE CERTAINLY SEEN A FEW YEARS THAT IT IS SO DIFFICULT TO DO THAT BUT I THINK THERE IS A LOT OF EVIDENCE BUILDING THAT WE ARE GOING TO GET SOME STABILIZATION TOWARDS THE END OF THIS YEAR AND THEN PROBABLY SOME REESTABLISHMENT OF GROWTH IN THE FOLLOWING YEAR I MEAN, YOU LOOK TO THE MOST RECENT MONETARY POLICY TESTIMONY THAT GAVE THE AVERAGES AND THE RANGES WHERE THE F&C MEMBERS ARE. THAT WAS RIGHT IN THE MIDDLE OF WHERE THOSE FORECASTS ARE.

LIESMAN: GARY THERE'S A PARTICULAR REASON FOR PUTTING THOSE NUMBERS ON THE TABLE AND RANDY WILL CORRECT ME WHERE I AM WRONG HERE. BUT WHEN YOU KNOW WHAT THE FED IS LOOKING FOR AS TO GDP OUTCOMES, INFLATION OUTCOMES, UNEMPLOYMENTOUTKOMS, IT EXPLAINS WHERE POLICY IS TODAY AND WHERE IT'S GOING. IF THE NUMBERS SHOULD CHANGE, THEN YOU WOULD NECESSARILY EXPECT A CHANGE IN POLICY. AND I THINK GET BACK TO WHAT RANDY SAID ABOUT TRANSPARENCY, THAT'S THE REASON WHY BERNANKE PUT OUT THE FORECAST FOUR TIMES A YEAR. THE THINKING IS YOU GET MARKET EXPECTATIONS ALONG WITH FED EXPECTATIONS THAT ARE ALIGNED IS THAT ABOUT RIGHT, RANDY?

KROSZNER: THAT'S EXACTLY RIGHT SO EXACTLY AS STEVER HAD SAID ONE OF THE INNOVATIONS OVER THE LAST FEW YEARS IS TO TRY TO PROVIDE MORE INFORMATION TO THE MARKET TO SEE MORE FREQUENTLY WHAT OUR FORECASTS ARE NOW, THOSE FORECASTS CAN BE WRONG.BUT EXACTLY AS STEVE SAID, POLICY IS, MADE, TRYING TO LOOK THROUGH THE FRONT WINDSHIELD OF THE CAR RATHER THAN THROUGH THE REARVIEW MIRROR OF THE DATA THAT HAS COME OUT IN THE PAST SO THE FORECAST OF WHERE GDP, WHERE INFLATION, WHERE OTHER ASPECTS OF THE ECONOMY ARE GOING ARE CRUCIAL FOR MONETARY POLICYMAKING AND THEY SHOULD BE LOOKING THROUGH THE FRONT WINDSHIELD RATHER THAN THROUGH THE REARVIEW MIRROR.

QUINTANILLA: WE HAVE JUST GOTTEN THROUGH THE FIRST COUPLE WEEKS OF MOSTLYFINANCIAL EARNINGS AND THEY ARE SAYING THINKGS LIKE RESERVES GETTING CLOSE TO A TOP, $30 BILLION IN RESERVES AT JPMORGAN AND SO FORTH. DO YOU THINK FINANCIAL BALANCE SHEETS ARE ON ANY KIND OF THIN ICE OR HAVE THEY BUILT ENOUGH OF A FORTRESS THEY CAN WITHSTAND A ROUGH SECOND HALF 2010

KROSZNER: WELL CERTAINLY BOTH CAPITAL AND RESERVES HAVE BEEN BUILT UP QUITE A BIT BOTH THROUGH PRIVATE SECTOR CAPITAL RAISINGS AND GOVERNMENT CAPITAL INJECTIONS THEY WERE CRUCIAL IN GETTING US THROUGH PERHAPS THE SCARIEST PHASE THE FINANCIAL MARKETS HAVE HAD SINCE THE 1930S SO WE'RE MUCH BETTER POSITIONED THAN WE WERE. BUT THERE'S STILL A LOT OF FRAGILITIES THAT ARE OUT THERE WHETHER IT COULD BE PROBLEMS IN EASTERN EUROPE THAT COULD HAVE KNOCK-ON EFFECTS FOR WESTERN EUROPE AND OTHER MARKETS AROUND THE WORLD. THERE COULD BE SOME ISSUES IN THE COMMERCIAL REAL ESTATE MARKET.SO I WOULDN'T SAY WE'RE OUT OF THE WOODS YET BUT I THINK WE'RE IN A MUCH BETTER POSITION WE WERE NINE MONTHS AGO.

KAMINSKY: RANDY, ARE YOU SURPRISED IT WAS NOT EVEN ONE YEAR AGO? THE CHAIRMAN SPOKE LAST NIGHT THAT HE DIDN'T WANT TO BE THE CAPTAIN ON THE SHIP OF THE SECOND GREAT DEPRESSION.I MEAN, IT'S ONE YEAR. SECURITIZATION MARKET PRETTY MUCH STILL DEAD.CAPITAL STILL SLOWING BUT NOT FLOWING THE RIGHT WAY. IT'S ONLY A YEAR.ARE YOU SURPRISED THAT WE'VE BEEN ABLE TO SNAP BACK AS FAST OR AS MANY PEOPLE THINK AS FAST AAS WE HAVE

KROSZNER: I MEAN, I'M VERY MUCH COMFORTED BY THAT AND OBVIOUSLY, WHEN I WAS THERE, THAT WAS A REAL FOCUS TO TRY AND AVOID THE EXTREME DOWNSIDES AND TO TRY TO PROVIDE SOME OF THESE NEW LIQUIDITY FACILITIES WOULD DEAL WITH EXACTLY THESE ISSUES OF WELL IF SECURITIZATION ISN'T GOING TO COME BACK, IS THERE A WAY TO PROVIDE LIQUIDITY TO MAKE SURE COMMERCIAL REAL ESTATE PROJECTS COULD REFINANCE THEMSELVES, PEOPLE COULD REFINANCE THEIR HOMES OR NEW HOMES AND SO THAT WAS PART OF THE EXTRAORDINARY SET OF ACTIVITIES WE UNDERTOOK TO TRY TO DEAL WITH THAT. THAT'S EXACTLY WHAT OUR HOPE WAS A YEAR AGO AND I THINK WE HAVE LARGELY AVOIDED THE LIKELIHOOD OF THAT EXTREME DOWNSIDE. ONE NEVER WANTS TO SAY NEVER, BUT I THINK WE MADE A LOT OF PROGRESS.

LIESMAN: RANDY IF I COULD PRESS YOU ON THAT A LITTLE BIT. THE OTHER SIDE OF THAT ARGUMENT IS THAT IF WE ARE GOING TO HAVE UNEMPLOYMENT THAT TOPS 10%, THEN MAYBE WE DIDN'T REALLY AVOID THE WORST OUTCOMES, TWO BACK-TO-BACK QUARTERS OF MINUS 6% GDP. AND I KNOW YOUR RESPONSE IS GOING TO BE IT WOULD HAVE BEEN A LOT WORSE IT'S HARD TO LOOK AT THIS 10% UNEMPLOYMENT RATE AND SAY THAT WE SUCCEEDED

KROSZNERl I'M NOT SAYING THIS IS AN EASY STEP FORWARD AND THERE WERE NO CHALLENGES IN THE ECONOMY. OBVIOUSLY, IT'S ALWAYS THE FACTS OF WHAT WOULD HAVE HAPPENED BUT FOR THE ACTIONS THAT WE UNDERTOOK. SO OBVIOUSLY I THINK THAT'S IMPORTANT. BUT THIS IS AN INCREDIBLY CHALLENGING TIME IN BOTH THE REAL ECONOMY AND FINANCIAL MARKETS. I THINK WE REALLY HAVEN'T SEEN THAT KIND OF INTERACTION BETWEEN THE TWO BEFORE. REALLY UNCHARITIED TERRITORY. AND I THINK IT WAS VERY IMPORTANT TO TRY TO MAINTAIN SOME OF THOSE MARKET MOVEMENTS GIONG FORWARD BECAUSE I DO THINK WE'RE SEEING MORE STABILIZATION MUCH MORE QUICKLY THAN, LET'S SAY, IN JAPAN, WHERE JAPAN DID MOVE DOWN THE SHORT RATE TO CLOSE TO ZERO BUT JUST KIND OF STOPPED AT THAT DIDN'T DO THESE ADDITIONAL MEASURES. AND THEY DIDN'T FIGHT THE DEFLATION, AND THEY REALLY HAVE NOT HAD VERY GOOD ECONOMIC PERFORMANCE OVER A VERY LONG PERIOD OF TIME.

QUINTANILLA: RANDY, IT WOULD BE DIFFICULT, I THINK, TO GET A SITTING FED GOVERNOR TO WEIGH IN ON THE HEALTH CARE DEBATE, BUT SINCE YOU'RE NOW -- YOU STEPPED DOWN, WE KNOW WHAT CBO HAS SAID ABOUT THE PLAN. WE KNOW WHAT THE PRESIDENT HAS SAID. AS FAR AS YOU CAN TELL, THE PROPOSAL THAT THE WHITE HOUSE HAS PUT FORWARD WOULD THAT BE A GAIN FOR THE ECONOMY LONG-TERM OR NOT?

KROSZNER: WELL, I'M STILL IN THE PROCESS OF ANALYZING IT SO IT IS HARD FOR ME TO GIVE THE FINAL WORD ON IT I THINK THE CBO ANALYSIS I FOUND QUITE COMPELLING. AND I THOUGHT THERE'S A LOT OF CAUTIONARY TALES IN THERE ABOUT THE COSTS AND WHAT BENEFITS YOU GET FROM THOSE VERY LARGE COSTS SO I JUST GIVE A TENTATIVE ANSWER RIGHT NOW BUT I THINK I WOULD BE MUCH CLOSER TO THE CBO ANALYSIS, WHICH I THINK WOULD BE A BIT SKEPTICAL ON THE BENEFITS OF THE PROGRAM RIGHT NOW.

QUINTANILLA: SOME SAY A BIT SKEPTICAL AND SOME SAY IT'S THE DEATH NAIL OF THE PLAN. ARE YOU CONVINCED THERE'S SOME ELSE A MILDER VERSION THAT CAN BE DONE TO BEND THE CURVE?

KROSZNER: I'M SURE THERE WILL BE A LOT OF COMPROMISES THAT WILL BE PROPOSED. I THINK THAT CBO ANALYSIS WAS CRUCIAL IN GETTING PEOPLE TO THINK ABOUT DIFFERENT COMPROMISES THAT CAN MAYBE GET US TO A MUCH BETTER POSITION.

QUINTANILLA: RANDY, ALWAYS GOOD TO HAVE YOU. PLEASE COME BACK OFTEN.




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