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CNBC INTERVIEW: CNBC'S "SQUAWK BOX" SPEAKS WITH SENATOR JOHN McCAIN TODAY

WHEN: TODAY, THURSDAY, MARCH 25TH

WHERE: CNBC'S "SQUAWK BOX"

Following are excerpts from the unofficial transcript of a CNBC interview with Senator John McCain today on CNBC's "Squawk Box" 6AM-9AM ET.

All references must be sourced to CNBC.

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JOE KERNEN: PRESIDENT OBAMA'S 2008 ELECTION OPPONENT HAS PLENTY OF CRITICISM FOR THE ADMINISTRATION ESPECIALLY IN THE WAKE OF SUNDAY NIGHT AND THE HEALTH CARE VOTE. JOINING US NOW, ARIZONA SENATOR JOHN McCAIN GREAT TO SEE YOU THIS MORNING, SENATOR. WELCOME.

JOHN McCAIN: THANKS FOR HAVING ME ON. WE HAVE FRED MALEK WITH US AS WELL.

FRED MALEK: GOOD MORNING, JOHN.

McCAIN: GOOD MORNING, FRED.

KERNEN: GUESS I HAVE TO START FIRST OFF, SENATOR, I'M LOOKING AT -- WE DON'T GET TALKING POINTS FROM "THE WALL STREET JOURNAL" OR OPINION PAGES BUT IT'S ALL ABOUT THIS AND THE NOTION THAT THE KNEE-JERK REACTION TO RUN ON A REPEAL OF THIS INITIALLY IT SEEMED SMART AND NOW A LOT OF PEOPLE ARE SECOND-GUESSING THAT SINCE IT COULDN'T BE DONE UNTIL 2012 ANY WAY. ARE YOU GOING TO RUN ON REPEAL OF THIS?

McCAIN: REPEAL AND REPLACE. REPLACE IS THE IMPORTANT PART OF IT. MOST AMERICANS KNOW THAT THE HEALTH CARE COSTS ARE OUT OF CONTROL. BY THE WAY, 85% OF AMERICANS ARE HAPPY WITH THE HEALTH INSURANCE THAT THEY HAVE. SO WE HAVE TO HAVE ALSO WHAT IT IS GOING TO BE REPLACED WITH SUCH AS MEDICAL MALPRACTICE REFORM GOING ACROSS STATE LINES TO GET HEALTH INSURANCE, REWARDS OF WELLNESS AND FITNESS, WE HAVE A LONG LIST INCLUDING ESTABLISHMENT OF RISK POOLS SO THAT INSURANCE COMPANIES WOULD BID ON CARE FOR THOSE WITH PRE-EXISTING CONDITIONS AND MANY OTHERS BUT I THINK IT'S VERY INTERESTING TO NOTE THE INSIDE THE BELTWAY EXCITEMENT AS OPPOSED TO THE OUTSIDE THE BELTWAY FRUSTRATION AND ANGER THAT STILL EXISTS AND IT ISN'T JUST OVER HEALTH CARE. IT'S OVER SPENDING, OUT OF CONTROL SPENDING AND DEFICIT.

KERNEN: IS IT GOING TO SIMMER STRAIGHT THROUGH TO NOVEMBER OR WE HAD ANOTHER JOBLESS CLAIMS NUMBER THAT WAS BETTER AND THINGS LOOKING UP. WE HAD JACK WELCH ON EARLIER SAYING THAT BUSINESSES HE'S WATCHING ARE RESPONDING BETTER TO THE ENVIRONMENT NOW. ISN'T IT POSSIBLE BY NOVEMBER WE'RE THINKING WOW THINGS ARE GOING WELL IN THE JOBS MARKET?

McCAIN: WELL, I THINK THAT IS THE KEY ISSUE FOR THE UPCOMING ELECTION AND THAT OBVIOUSLY THAT IS JOBS AND JOBS AND JOBS AND HEALTH CARE IS OBVIOUSLY PART OF THAT. IT'S THE ECONOMY. ALL WE'VE DONE IS INCREASE THE DEFICIT TO A DEGREE TO WHICH NONE OF US EVER IMAGINED. THIS YEAR IT IS GOING TO BE 1.4 TRILLION. ESTIMATES NEXT YEAR 1.5 TRILLION. THESE NUMBERS ARE STAGGERING. THE DEBT AND THE DEFICIT I THINK CAN EASILY CHILL AN ECONOMIC RECOVERY. I HOPE AND PRAY IT DOESN'T. BUT FRANKLY I SEE NO SIGN OF SPENDING RESTRAINT HERE IN THE CAPITAL.

MALEK: DO YOU THINK WE CAN GROW OURSELVES OUT OF THIS EVENTUALLY? YOU LOOK AT CBO NUMBERS AND YOU HAVE BUDGET DEFICITS OVER A TRILLION DOLLARS FOR THE NEXT TEN YEARS AND NATIONAL DEBT RISING TO 17 - 18 TRILLION BY 2019. ANY CHANCE YOU THINK WE CAN GROW OURSELVES OUT OF THIS OR IS IT, DO WE HAVE TO CUT SPENDING AND WHAT DO YOU THINK WE OUGHT TO DO ABOUT IT?

McCAIN: OBVIOUSLY WE HAVE TO STOP SPENDING, FRED, BUT WE ALSO HAVE TO REGAIN SOME CREDIBILITY WITH THE AMERICAN PEOPLE. PORK BARREL AND EARMARK SPENDING IS REALLY OUTRAGEOUS. I KNOW THE IMMEDIATE RESPONSE TO THAT WELL, IT'S ONLY A SMALL PART OF THE BUDGET BUT IT'S AN IMPORTANT PART OF THE BUDGET. DOMESTIC SPENDING WENT UP 20% LAST YEAR WHILE EVERY STATE, CITY, TOWN IN AMERICA HAD TO TIGHTEN THEIR BELTS. THEY HAD TO SLASH SPENDING AND SLASH JOBS UNFORTUNATELY AND TRAGICALLY WHILE WE WENT ON ANOTHER SPENDING SPREE. I THINK WE'LL HAVE TO OBVIOUSLY ADDRESS THESE ISSUES. I NOTED A VERY INTERESTING THING THIS MORNING IN THAT SOCIAL SECURITY IS NOW GIVING OUT MORE MONEY THAN IT IS TAKING IN. WE HAD ESTIMATED THAT WOULDN'T HAPPEN FOR SIX YEARS SO A LOT OF THIS STUFF IS A LOT MORE, THERE'S A LOT MORE PROXIMITY OF THESE CRISES THAN WE ESTIMATED.

KERNEN: SENATOR SOME OF THE MOST ZEALOUS ELEMENTS FOR REPEAL ARE PROBABLY THE SAME PEOPLE THAT WOULD BE BACKING YOUR OPPONENT IN ARIZONA. YOU ARE GOING TO HAVE TO WALK A FINE LINE ON HOW YOU HANDLE THIS. DO YOU NEED TO TACK RIGHT, EVEN FURTHER RIGHT?

McCAIN: NO. I DON'T TACK ANY WAY. I DO WHAT I THINK IS RIGHT. I'VE ALWAYS DONE WHAT I THINK IS RIGHT WHETHER IT BE THE SURGE IN AFGHANISTAN OR OPPOSING EARMARKING WHEN IT WASN'T THE POPULAR THING TO DO. I DON'T HAVE TO TACK ANY WAY. THANKS THOUGH FOR ASKING.

KERNEN: YOU UNDERSTAND WHAT I'M SAYING?

CARL QUINTANILLA: JUST LOOKING OUT FOR YOU.

McCAIN: I DON'T UNDERSTAND WHAT YOU'RE SAYING.

KERNEN: OK, LET'S SAY THAT, ACTUALLY SANTELLI IS BACK WE JUST SAW HIM TO ANYONE WHO SAID HE WASN'T, BUT LET'S BRING UP THE TEA PARTY MOVEMENT. THAT MIGHT BENEFIT YOUR OPPONENT AND THAT WOULD BE A MOVEMENT ALIGNED WITH A REALLY STRONG EFFORT TO REPEAL THIS. ALL THAT -- THAT'S ALL THEY'RE GOING TO BE TALKING ABOUT. THEY WON'T BE TALKING ABOUT JOBS IN NOVEMBER.

McCAIN: FIRST OF ALL, IT'S REPEAL AND REPLACE. IT JUST ISN'T REPEAL OBVIOUSLY. SECOND OF ALL, THE TEA PARTY LEADERS IN ARIZONA HAVE SAID THEY'RE GOING STAY OUT OF THIS RACE. THIRD OF ALL, DID A TOWN HALL MEETING LAST SATURDAY WITH THE TEA PARTY PEOPLE UP IN PRESCOTT, ARIZONA. SO IT'S GOING TO BE REPEAL AND REPLACE BUT THEY ALSO ARE VERY ANGRY ABOUT THE SLEAZE. THIS WAS A SLEAZY DEAL. I HAD AN AMENDMENT LAST NIGHT TO REMOVE THESE SWEETHEART DEALS. LOOK AT THE SLEAZY DEAL THEY MADE WITH PHARMA. THE AMERICA PEOPLE FEEL SHUT OUT OF THIS PROCESS AND THEY OBJECT TO THE PROCESS AS MUCH AS THEY DO TO THE PRODUCT.

KERNEN: INITIALLY THERE'S A FEELING OF A CHEERING CROWD AND SIGNING MOMENTOUS LEGISLATION BUT I'M JUST WONDERING WHETHER SOME OF THE UNTAWDRY ASPECTS OF GETTING IT DONE DO COME BACK BETWEEN NOW AND NOVEMBER OR WHETHER EVERYONE IS JUST SAY WOW, WASHINGTON FINALLY DID SOMETHING.

McCAIN: ONE THING YOU CAN BE SURE OF IN THAT TWO THOUSAND SEVEN HUNDRED AND SOME ODD PAGE DOCUMENT THERE ARE A NUMBER OF THINGS WE HAVE NOT DISCOVERED YET. STAND BY.

MALEK: JOHN, I WAS TRYING TO RAISE MONEY FOR THIS GUY WHEN HE SUPPORTED THE SURGE AND I GOT TO TELL YOU, HE STANDS EXACTLY WHERE HE BELIEVES. HE DOESN'T TACK, BUT DON'T YOU THINK THIS ELECTION IN THE NOVEMBER ELECTION IS GOING TO BE MORE ON THE OTHER THING YOU MENTIONED, COSTS AND THE DEFICITS AND THE IMPACT OF THAT ON INFLATION AND LONG-TERM INTEREST RATES?

McCAIN: YEAH AND AGAIN JOBS AND JOBS AND JOBS. 48% OF THE HOMES IN ARIZONA ARE UNDER WATER. WE HAVE 17% REAL UNEMPLOYMENT. THAT REALLY IS THE INCREDIBLY DIFFICULT TIMES THAT WE'RE FACE FACING ACROSS THE COUNTRY BUT ESPECIALLY IN STATES LIKE ARIZONA WHERE WE'RE AT THE TOP OF THE HOUSING MARKET. THIS IS VERY TRYING TIMES FOR OUR STATE AND ITS FINANCES AND IN ARIZONA WE ARE HAVING TO CLOSE OUR STATE PARKS. THERE'S NOT A REST AREA OPEN ON THE INTERSTATE. WE HAVE REALLY HAD TO MAKE TOUGH DECISIONS. MEANWHILE, HERE IN WASHINGTON, THE TOTAL DISCONNECT WE ARE ADDING PORK BARREL AND EARMARK PROJECTS LIKE THE DRUNKEN SAILOR AND THE BAR IS STILL OPEN.

BECKY QUICK: SENATOR THERE IS IT SEEMS A REAL CHANGE IN WASHINGTON THOUGH. YOU ARE SOMEBODY WHO HAS BEEN CONSIDERED A MODERATE. SOMEONE THAT WOULD REACH ACROSS THE AISLE AND TRY TO COME TO COMMON GROUND. WE HAD SENATOR EVAN BAYH ON THE PROGRAM EARLIER THIS WEEK. HE'S LEAVING THE SENATE BECAUSE HE THINKS NOTHING CAN GET DONE IN THE CENTRAL ANYMORE. IS THAT YOUR SENSE OF THINGS THAT IT'S MUCH TOUGHER TO BE ABLE TO COME TO SOME SORT OF CONSENSUS WITH PEOPLE FROM THE OPPOSITE PARTY?

McCAIN: SURE. BECAUSE THIS PRESIDENT AND THIS PARTY CAME TO POWER WITH 60 VOTES IN THE SENATE, OVERWHELMING MAJORITY IN THE HOUSE SO THEY DECIDED TO RAM THINGS THROUGH HOPING TO PICK UP A VOTE OR TWO FROM REPUBLICANS ALONG THE WAY. THAT WAS THE CASE WITH THE STIMULUS. HEALTH CARE REFORM. THERE WAS NEVER ANY REAL NEGOTIATIONS. I'VE BEEN IN REAL NEGOTIATIONS. THERE WAS NEVER ANY THAT TOOK PLACE. OF COURSE THEY MISCALCULATED A BIT BECAUSE OF THE MASSACHUSETTS ELECTION BUT THEN THEY DECIDED TO USE RECONCILIATION, BY THE WAY A PROCESS THAT THE THEN SENATOR OBAMA SPOKE OUT AGAINST AND SO THERE REALLY ISN'T THERE HASN'T BEEN BECAUSE THEY HAVE THOUGHT THEY COULD RAM LEGISLATION THROUGH. I UNDERSTAND POWER. THAT'S WHAT THEY'VE BEEN EXERCISING.

QUINTANILLA: WHY PLAY THAT GAME? IF THAT'S STUBBORN, NASTY POLITICS, WHY GO ON "GOOD MORNING AMERICA" AND SAY THAT YOUR NOT GOING TO COOPERATE EITHER BECAUSE THEY POISONED THE WELL. WHEN DAVID AXELROD SAYS THAT'S OK ON THE SANDLOT, BUT IT'S NO WAY TO GOVERN A COUNTRY, YOU FALLING RIGHT INTO THAT TRAP, RIGHT?

McCAIN: WHAT WE'RE SAYING IS OF COURSE WE'LL WORK WHERE THE NATIONAL INTEREST IS INVOLVED. I'M RANKING REPUBLICAN MEMBER. SENATOR LEVIN AND I ARE WORKING FOR THE DEFENSE AUTHORIZATION BILL. WHAT I WAS REFERRING TO IS THAT THEY SAY WE MAY NEED YOUR HELP ON SOMETHING THAT'S ON THEIR AGENDA AND WE WON'T DO THAT. OF COURSE WE WILL CONTINUE TO WORK IN AREAS THAT ARE OUR RESPONSIBILITIES BUT I DON'T RESPOND TO -- I WAS UP UNTIL 3:00 A.M. I CAN'T BE CONCERNED ABOUT THE STATEMENTS OF THE WHITE HOUSE FLAK.

MALEK: YOU CAN HAVE A REUNION WITH YOUR RUNNING MATE.

McCAIN: SARAH IS COMING TO ARIZONA. IT WILL BE GREAT TO BE WITH HER AND TODD AGAIN. WE'RE GOING TO HAVE A COUPLE BIG RALLIES. A LOT OF FUN.

KERNEN: SENATOR, WHAT IS GOING HAPPEN WITH FINANCIAL REGULATION? IS THAT SOMETHING THAT DID THEY EVER GET AN I VOTE FROM YOU ON WHAT YOU KNOW OF WHAT'S THERE NOW?

McCAIN: I DON'T KNOW. IT'S NOT CLEAR TO ME YET WHERE THE FUNDAMENTAL PRINCIPLE IS OPERATIVE AND THAT'S THAT NO INSTITUTION SHOULD EVER AGAIN BE TOO BIG TO FAIL. AS YOU KNOW, SENATOR CANTWELL AND I PROPOSED BASICALLY REINSTATEMENT OF GLASSED EAGLE. I WANT TO MAKE SURE THAT THE PROVISIONS THERE ARE GOING TO ENSURE THAT PRINCIPLE IS ADHERED TO AND BY THE WAY SOME DAY WE'RE GOING TO DO SOMETHING ABOUT FANNIE AND FREDDIE. RIGHT.

QUICK: SENATOR, YOU MENTIONED EARLIER THAT YOU NOTICED THE SOCIAL SECURITY STORY THIS MORNING THAT SOCIAL SECURITY IS GOING TO BE PAYING OUT MORE IN BENEFITS THAN IT TAKES IN IN TAXES THIS YEAR AND THAT'S HAPPENING SIX YEARS EARLIER THAN EXPECTED AND WE'VE BEEN KEEPING AN EYE ON WHAT'S BEEN HAPPENING IN THE BOND MARKETS. YESTERDAY THE FIVE-YEAR AUCTION FOR TREASURIES DID NOT GO VERY WELL. WE'RE TALKING ABOUT HOW THERE ARE A LOT OF PEOPLE WHO ARE IN THOSE BOND MARKET PITS HAVE BEEN RAISING CONCERN ABOUT HOW MUCH WE'RE SPENDING. DO YOU LOOK TO WHAT'S HAPPENING IN TREASURIES AND GET CONCERNED ABOUT OUR BORROWING POTENTIAL DOWN THE ROAD?

McCAIN: I HONESTLY DON'T EVEN HAVE TO LOOK AT TREASURIES. I HAVE TO LOOK AT 20% INCREASE IN DOMESTIC SPENDING WHILE THE REST OF THE NATION IS TIGHTENING ITS BELT IN UNPRECEDENTED FASHIONS AND OF COURSE THIS ACCUMULATING DEBT WE OWE CHINESE WHILE THEY ARE ACTING IN A SOMEWHAT -- THE WORD MAY NOT BE COMBATIVE BUT CERTAINLY UNCOOPERATIVE FASHION. BY THE WAY, I MET WITH THE COMMANDER IN CHIEF IN PACIFIC YESTERDAY AND REAFFIRMED THAT CHINESE ARE REFURBISHING AN AIRCRAFT CARRIER THEY BOUGHT FROM THE RUSSIANS. THAT'S VERY INTERESTING.

KERNEN: SENATOR, AFTER THE ELECTION, A LOT OF PEOPLE THOUGHT THAT MAYBE THE ADMINISTRATION MISIDENTIFIED THEIR WIN WITH THE COUNTRY MOVING TO THE LEFT OR AT LEAST THE CENTER LEFT. THEN DURING THIS HEALTH CARE DEBATE AFTER MASSACHUSETTS, IT LOOKED LIKE THEY REALIZED MAYBE THEY HAD NOT PERCEIVED IT CORRECTLY AND THE COUNTRY WAS STILL CENTER RIGHT NOW I FEEL LIKE WE'RE WHIP SAWED BACK TO WHERE THIS ADMINISTRATION BELIEVES THEY HAVE A MANDATE TO MOVE FAR LEFT. WHAT'S GOING TO HAPPEN? WILL THEY PURSUE IT? THEY STARTED A NEW VOLLEY YESTERDAY WITH -- STEVE LIESMAN REPORTED ON IT FOR US. THE LANGUAGE GOT MUCH TOUGHER IMMEDIATELY. THEY MIGHT DO THIS WITH CAP AND TRADE AND EVERYTHING ELSE NOW THAT THEY HAVE ONE WIN UNDER THEIR BELT.

McCAIN: THEY CERTAINLY HAVE -- THE DEMOCRATS HAVE A SENSE OF EUPHORIA. SOME IS JUSTIFIED. CLEARLY THEY WERE ON THE BRINK OF DEFEAT. I DON'T THINK AND I MAY BE WRONG, BUT I DON'T THINK THEY HAVE UNDERSTOOD THAT AMERICA IS STILL A RIGHT OF CENTER NATION. I HAD TOWN HALL MEETINGS IN ARIZONA ON SATURDAY WHERE THERE'S FRUSTRATION AND ANGER ABOUT A BROAD VARIETY OF THINGS. NOT JUST HEALTH CARE. I CAME BACK HERE ON SUNDAY AND THEY WERE HAVING CHAMPAGNE TOASTS AS A RESULT OF THEIR VICTORY IN THE HOUSE. THERE'S A REAL DISCONNECT BETWEEN MAIN STREET AMERICA AND WASHINGTON, D.C. THAT I DON'T THINK THEY APPRECIATE.

QUINTANILLA: SENATOR, WE'VE HAD YOU ON MANY TIMES. WE KNOW YOU WELL. IS IT JUST ME OR ARE YOU -- ARE YOU FEELING A LITTLE DEMORALALIZED. YOUR ENERGY SEEMS LOW OR IS THAT JUST THREE HOURS SLEEP TALKING?

McCAIN: I THINK IT IS THREE HOURS SLEEP. LISTEN, I LOVE TO FIGHT. I LOVE THE FIGHT. TED KENNEDY AND I USED TO SAY A FIGHT NOT JOINED IS A FIGHT NOT ENJOYED. AND SO I'VE BEEN HAVING MORE FUN FRANKLY THAN I HAVE IN A LONG TIME. THESE ARE GREAT BATTLES. I'VE ENJOYED IT. FRANKLY THEY ARE VERY SERIOUS BATTLES, TOO.

KERNEN: WE'LL NEED YOU TO GET MORE SLEEP THAN THAT. WE NEED YOU IN THIS FIGHT. THANKS, SENATOR.

MALEK: THANK YOU, JOHN.

McCAIN: THANK YOU FOR HAVING ME ON.

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