Following is the unofficial transcript of a CNBC interview with President Barack Obama today, Thursday, August 6th, during CNBC's "An Interview with the President."

All references must be sourced to CNBC.


JOHN HARWOOD, host: Mr. President, thanks so much for making the time.

President BARACK OBAMA: Thank you.

HARWOOD: A year ago at this time, right when the financial crisis hit, we sat down during the campaign and I asked you what in your agenda were you prepared to scale back because of the huge commitment that was going to be required. And you said, in effect, nothing. Was that a mistake?

Pres. OBAMA: Well, no, it wasn't a mistake. What I said was that we were going to have to do financial regulatory reform to make sure that this doesn't happen again. We were going to have to build an economy that was based not on boom and bust, but on a firmer foundation of sustained economic growth. And I said that we needed to do health care to do--accomplish that, we needed a much more efficient energy economy, we needed to improve our school system. I continue to believe that we have to do that. There's no doubt that, given the interventions that have taken place, both before I took office and since I've taken office, that this has put a severe strain on our--on our deficit, which is why, from my perspective, we can't do health reform that's not deficit-neutral, both now and in the future. Any additional programs that we initiate can't be a budget buster. One thing I'm pleased about, though, is that when you talked to me earlier in this year, I was concerned that we might have to put more in to stabilize the financial system. We had a 20--$250 billion reserve just in case things turned south on us.

HARWOOD: And now you know you don't have to do that.

Pres. OBAMA: Now we know that we don't have to do it. We've seen a couple of dozen banks who have repaid so far $70 billion in money that they received from TARP. We--taxpayers have gotten a 17 percent interest rate on that investment. And so we're not out of the woods, the financial system hasn't stabilized, but what we're seeing at least is some sense of normalcy returning. And as I said today on Wall Street, the key is making sure that normalcy doesn't translate into complacency.

HARWOOD: Now, you indicated in that speech today that you thought Wall Street hadn't learned very much in the year since the crisis. What has Washington learned, and what have you learned? And I'm wondering whether one of the lessons is, `Don't get too close to Wall Street,' because I noticed you didn't walk across the street and go onto the floor of the New York Stock Exchange today.

Pres. OBAMA: Well, what I've learned is that if Washington does not provide the kind of regulatory oversight that's needed to make sure that we've got transparency, accountability, clear rules of the road, then, ironically, what you may end up with is the government being even more meddlesome in the markets than it otherwise would have been. So, to everybody who's listening, I want to be absolutely clear: I believe in the market. I think that's the way we generate jobs. I have absolutely no interest in having the government maintaining the levels of intervention that we have right now in the financial markets.

HARWOOD: But, now, you didn't want to give those traders any love on the floor today. Didn't walk over there.

Pres. OBAMA: No, no, no. There was no--nothing symbolic there. That was just the fact that these days I create disruptions wherever I go.

HARWOOD: Now, one of the things that you said in your speech was a warning to Wall Street that taxpayers will not step in and break your fall if the same thing happens again. But since the purpose of those interventions was to save the whole country, rather than the institutions themselves, wouldn't you end up doing the same thing all over again because it would be in the interests of the country?

Pres. OBAMA: Oh, I would do the same thing that we've done so far if I were back in the same situation back in January. The point is that we want to create some circuit breakers here. We want to make sure that, A, when you have large institutions that are deeply interconnected so that their failure could bring about a meltdown in financial system, they're going to have to have higher capital requirements, the oversight is going to be much more rigorous. There are certain sectors of the financial system, like derivatives, that currently have no regulatory oversight whatsoever, and we need to set those up. So what we want to do is position our rules in such a way that you don't end up in a situation where your only choice is either financial meltdown, on the one hand, or taxpayers having to engage in these huge bailouts. I think that is a untenable position to sustain, and I think the American people, who are going through a real tough time right now, are very frustrated with it.

HARWOOD: Health care. You've made the argument that your health care plan will not add a dime to the deficit.

Pres. OBAMA: Yeah.

HARWOOD: And I know that in the principles you outlined last week, you've got things like the tax on insurance companies, the MedPAC proposal, other ideas, some of which haven't been tried before, but you believe in...

Pres. OBAMA: Yeah.

HARWOOD: think will bend the cost curve.

Pres. OBAMA: Not only do I believe in it, but Democratic and Republican experts also think these have the best chance of success.

HARWOOD: But I think a lot of Americans out there would say, `You're telling me you're going to cover 30 million people who don't have insurance now and not add to the deficit? Give me a break.'

Pres. OBAMA: Well, here's how it goes. Two-thirds of the costs for covering new people will be paid for by taking waste out of the system that nobody argues doesn't exist. I mean, everybody knows that it's there. The Congressional Budget Office, which is highly respected, has said it's there. And that's going to be the bulk of what it takes to pay for those 30 million Americans. In addition, what we're going to be able to say to hospitals, for example, is, you know what? Since now everybody's covered, you don't have to get all this extra uncompensated care that's costing every family about $900 a year in higher premiums than they otherwise would've had to pay. But what we are absolutely clear about is that it's not just paying for the 30 million that's important, it's reducing the increases in health care inflation every year that's so important for families, businesses, and reducing the deficit. And that is something that we can't accomplish without health care reform. If we don't have that, we're not going to be able to reduce our deficit. We--because if you look at all the other aspects of our budget, nothing comes close to the rising cost of health care in terms of what's gotten us into this deep financial hole.

HARWOOD: Given the turnaround that you believe is beginning to happen in the economy and your concern about the deficit, are you committed to holding the line against a second stimulus package even though unemployment is likely to go up to 10 percent, maybe beyond?

Pres. OBAMA: Well, I think we're monitoring the situation carefully. I think that most folks believe that we've now turned the corner where we might actually start seeing some positive economic growth in months to come. As you know, jobs tend to be a lagging indicator; they come last. So we are focused on how do we create jobs in this environment without adding to the deficit. One of the things that we did with the recovery package in the first place was anticipating that jobs would be lagging. We said this is a two-year program, not a one-year program. And that's why when critics of the stimulus say, `Look, only this much money has gone out so far,' it was designed to be two years because we knew that state budgets are still going to be pinched, businesses are still going to be wary of making big investments, and consumers haven't gotten confidence back.

HARWOOD: So it sounds like, because of the way you designed the program, you have a strong inclination not to do a second stimulus.

Pres. OBAMA: I have a strong inclination not to do it, but obviously we're monitoring the situation very carefully. My bottom line is how do we make sure that the economy is growing robustly again because, actually, that would probably have the biggest impact on our deficits. If we can start getting more tax revenues because companies are making profits again, people are employed again, that would probably have more to do with reducing our short-term deficit problems than just about anything else.

HARWOOD: Let me ask you about trade. You've got the G-20 coming up. You've sent some mixed signals on trade. You sort of set aside your pledge to renegotiate NAFTA early on, which a lot of people interpreted was sort of stamping you as a free trader after all, despite the campaign rhetoric. But you've begun something with China over the weekend on the eve of the G-20 that I wonder whether you worry that it might be hard to control, a tit for tat.

Pres. OBAMA: Well, look, I believe in trade agreements that can make America more prosperous and our trading partners more prosperous. I've always said that, and I continue to believe it. Now, I've also believed that if we don't enforce the rules that are contained in our trading agreements, then it's very hard to have credibility. And it's hard to get the American people to support future trade agreements. So here's a situation where China entered into the WTO. It had rules contained in that accession that said that, in fact, if there is a big surge like this, there is a surge breaker. We have exercised it. I don't--I'm not surprised that China's upset about it, but keep in mind we have a huge economic relationship with China. We have cultivated a strong strategic relationship with China. But I just want to make sure that if we actually have rules written down, they mean something. Because the next time I go to the American people or to Congress saying, `This trade agreement is good for America' and saying, `There're provisions and protections in here on labor issues or environmental issues or other'--making sure that, you know, intellectual property of businesses are protected in China or what have you, people have to have confidence that these words are going to mean something.

HARWOOD: But you're confident you can avoid a trade war?

Pres. OBAMA: Absolutely. I think it's in China's interests and our interests and the world's interests to avoid protectionism, particularly just as world trade is starting to bounce back from the huge declines that we've seen in the last year.

HARWOOD: Two things before I let you go. You had lunch with Bill Clinton today, and I understand that you talked about health care and the economy, both of which he might have some lessons for you. What did he tell you? What can you learn from him?

Pres. OBAMA: Well, you know, obviously conversations with former presidents are ones that are very valuable to me. They're the only people who've actually stood in these shoes before. We had lunch right after I was elected with--hosted by President George W. Bush with all the living presidents, and it was extraordinary conversation. I think Bill Clinton understands very well that--the struggles that middle-class families are going through. Providing relief to those struggles is the ultimate measure of our economic success. Are we expanding growth in order to expand the prosperity of individual families? And I think whether we're talking about health care or energy policy or education policy, something that he and I agree on is that, ultimately, it's got to translate into benefits for ordinary families. Something that happened during his watch, something that for the last eight years or so hasn't happened. I mean, even when our economy was growing. You had wages and incomes flatline for the average American, and that's something that is part of this new change that we need to see in how our economy works.

HARWOOD: Did he encourage you that he believes you're going to succeed where he failed on health care?

Pres. OBAMA: Well, I think that he and I both agree that situation's changed since '93. Back in '93, I think a lot of businesses were still feeling that they could manage their rising costs. I think now, whether you're a small business, a large business, I think you get a 25 percent increase in your premiums and you say, `This is something we need to tackle, this time we need to deal with it.' So what you've seen is doctors, nurses, hospitals, even drug companies acknowledging that something has to be done. And that, I think, doesn't solve all the political problems up on Capitol Hill, but it does create an environment in which it's easier for us to get it done.

HARWOOD: Last question is on Afghanistan. When you were in the campaign, you were making the argument that President Bush was focusing on the wrong war in Iraq, and the right war, where we should focus on, was Afghanistan, and that was neglected. Now that's your war. Do you have any concern, as some fellow Democrats do, that that, in fact, is going to end up being the wrong war, or at least the wrong war compared to the alternatives like using drones and unmanned equipment to do things that might keep American troops from getting bogged down in a quagmire?

Pres. OBAMA: Well, look, first of all, I said at the beginning of this administration, I said during the campaign, and I continue to believe that our primary focus has to be dismantling al-Qaeda and other extremist organizations that can project violence against the United States, its allies, or its bases around the world. That is our number one priority, and everything that we're doing in Afghanistan or Pakistan has to keep that central goal in mind. Now, I wish that that were as easy as just sending a few drones over. I assure you that if that were the case, you wouldn't see 68,000 of our young men and women deployed in Afghanistan. They'd be back with their families and their loved ones. It is a tough terrain. It is a difficult situation. It's not just the situation in Pakistan that has to concern me, it's also the situation--or it's not just the situation in Afghanistan, but also the situation in Pakistan that we have to deal with. And we now have seen an election in Afghanistan, Pakistan is starting to be more aggressive.

HARWOOD: Lot of fraud in that election, apparently.

Pres. OBAMA: There--I--and I'm quite concerned about that, so we're monitoring that. We're going to see over the next several months the troops that I ordered going in finally being in place. We've got a new commander on the ground. We are doing a post-election assessment to see whether the Afghan government is going to be able to be formed in a credible and legitimate way to the Afghan people. And we are evaluating from top to bottom, how does this advance our goal of dismantling al-Qaeda. And I would--I would say that, over the next several months, what people need to do is to not expect a sudden announcement of some huge change in strategy, but rather that this is a continuation of the approach that we've taken from the start, which is we're going to make our decisions based on the facts on the ground, and the primary goal of keeping the American people safe. And it's going to be amply debated, not just in Congress, but across the country before we make any further decisions.

HARWOOD: Do you reflect on what happened to Lyndon Johnson and worry the same might happen to you?

Pres. OBAMA: Well, I think that you have to learn lessons from history. On the other hand, each historical moment is different. You never step into the same river twice. And so Afghanistan is not Vietnam, but the dangers of overreach and not having clear goals and not having strong support from the American people, those are all issues that I think about all the time.

HARWOOD: Mr. President, thanks so much.

Pres. OBAMA: Thank you.

HARWOOD: Appreciate your time.

Pres. OBAMA: Appreciate it.

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