WHEN: TODAY, WEDNESDAY, MAY 19TH
WHERE: CNBC's “Squawk on the Street”
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Treasury Secretary Timothy Geithner today, Wednesday, May 19th on CNBC’s “Squawk on the Street.” Excerpts of the interview will run throughout CNBC's Business Day programming.
All references must be sourced to CNBC.
SECRETARY TIM GEITHNER: Nice to see you.
ERIN BURNETT: So-- obviously, the-- the big news everyone is talking about is-- is what happened in Germany. With the planning of-- certain kinds of short selling. Betting that bonds and stocks would go down. What do you think about it? Did you have any idea that that was going to happen?
SECRETARY TIM GEITHNER: No. But-- I think the most important thing for Europe to do now, Germany and all the countries in Europe, is to go ahead and put in place the program they announced. Whether it's the program of providing reforms, so this economy can grow going forward, with some financial support for countries in need. And I think, again, the most important thing for them to do is go ahead to move to put that program in place.
ERIN BURNETT: Do you think they're going to do that? I mean, I know there are a couple key votes that need to happen. So-- but, first of all, do you think they will put it in place?
SECRETARY TIM GEITHNER: I do.
ERIN BURNETT: And secondly, you have been obviously an advocate of do something big. Is a trillion dollars big enough?
SECRETARY TIM GEITHNER: Well, again, I think they will-- put this in place, because it's very important to them, and I think they committed, and I think they have to follow through now. Of course, you know, people want to see them act. That happens everywhere, so it's a natural thing. But I think they will-- they've got the capability to do it. And-- again, what matters ultimately is not what-- not so much what you say but what your prepared to deliver. And what matters is the-- the policies that provide economic reform help Europe go faster in the future.
ERIN BURNETT: Do you think-- do you think it's big enough?
SECRETARY TIM GEITHNER: The-- do I think it's big-- absolutely. The-- they made a very clear, unequivocal statement. The leaders of Europe. They stood together and they say, we will make sure that we help these countries through this mess. Absolutely, they have the ability to do that. They just need to go ahead and put the reforms in place.
ERIN BURNETT: Did you get nervous when you heard about this-- this move today? I mean, back when-- that happened in the U.S., during the financial crisis when-- then SEC Chairman Christopher Cox did it, it worked for a few hours a day, and then it created more panic, because people said, well, gosh, if you have the means to stop everybody from operating in the market in a normal way, then things must be a whole lot worse than we know.
SECRETARY TIM GEITHNER: Again, I don't-- I don't want to comment on these specific things. But you're right, the-- the history of these things is not good. And that's why I emphasize, as I'm sure the leaders of Europe will emphasize, and I think they recognize this, that's what really important is they're putting in place the kind of reforms to make sure they can deal with their chal-- challenges and make sure that they're providing a basis for growth in Europe.
ERIN BURNETT: And do you have a plan if it-- if it falls apart? I mean, Paul Volvarken (PH) today was saying he thinks there's some real risk to the-- the European Union as a-- concept, and-- and others, perhaps even to the Euro itself. I know you're a believer that-- that Europe will stay together. But are you working on a contingency plan in case there is a of the Euro?
SECRETARY TIM GEITHNER: I mean, I-- I'll say what I said before. And absolutely, Europe has the capacity to manage through this. They made a decision to do it, and I believe they have the capacity to do that. You know, obviously, they're going through their challenges, but they can manage those challenges.
And again, I think the important thing is that they-- that they may take an opportunity of these pressures and challenges now and make sure that they can use that opportunity to build stronger support in Europe, with the kind of reforms Europe needs.
ERIN BURNETT: Have you had any calls to the EPV? Any concerns about what's been happening, and to the dramatic drop of the Euro over the past few weeks?
SECRETARY TIM GEITHNER: No. Again, Erin, I don't comment on market development. Again, the-- the best thing for Europe, and I think the best thing for global recovery is Europe move quickly to put in place the kind of reforms needed to make sure they can grow. That's what the world's looking to them to do. I'm sure they have the capacity to do that. We just want to see them follow through on that basis.
ERIN BURNETT: It's interesting how people talk about Europe, and say, oh, well Greece is-- two and a half percent of the European economy. It's about the economy the size of the State of Connecticut. And then, they say, well, what's the-- size of the State of California. Spain. And-- and-- and it makes you wonder if-- if it's happening there, it could happen here. And we have very indebted states, right. California.
SECRETARY TIM GEITHNER: It's not going to happen in the United States. I think the important thing is the United States, you know, a much stronger recovery than most people would've expected even just three months ago. The world economy is getting stronger too. We've seen very strong growth in Asia, in many emerging markets.
Europe's slower. And it could be a challenge for them. But I think the global economy, U.S. economy, the recovery is strong enough to be self-sustaining now-- now. And we're going to keep working very hard to make sure that's the case.
ERIN BURNETT: I wanted to ask you a couple questions on financial reform. Obviously, judging from the housing data that we've had over the past couple of days. You've talked about the-- the bill under consideration as-- as the greatest reform, most significant reform since the Great Depression. Again and again, we hear Fannie Mae and Freddie Mac aren't in it. And obviously-- they are bigger now than they were before. They're losing money. They're—
SECRETARY TIM GEITHNER: Actually, they're not-- they're not-- they're playing a very important role in the U.S. economy now in the housing crisis. Very necessary and important role. But they're going to have to be reformed. We're going to have to bring comp-- comprehensive change to the broader housing and finance market, including Fannie and Freddie.
And when this is bill is passed the Congress, and Congress enacts these very important laws and protections, we're going to move very quickly to make sure we're beginning to build consensus in the Congress for the kind of reforms we need for Fannie and Freddie. And-- and I think there's broad recognition across the aisle that needs to happen. I welcome the ideas we're hearing from Republicans and Democrats on this stuff. We've been working for months-- looking at alternatives, and we're going to very quickly to put those reforms in place.
ERIN BURNETT: And you would need obviously legislative—
SECRETARY TIM GEITHNER: We would need legislation.
ERIN BURNETT: Right. So—
SECRETARY TIM GEITHNER: But I want to say one thing. It's really important that-- that people understand, you know, we're going to get this right. We're going to do what's necessary, and it's going to require fundamental reform. But these institutions now are playing a very important role in the housing market, and they have already changed how they run their businesses so that we are much more confident now, the business they're doing today, managed carefully, is going to be where the it's going to be protected. Of course, the legacy of their mistakes the last decade or so is they-- they face enormous risk of loss going forward. And that's why reform's going to be important. But today, on an ongoing basis, the reforms they've already undertaken-- leave us much more confident that they're running these businesses in a more stable, more conservative foundation..
ERIN BURNETT: Can you do it with a Republican Congress?
SECRETARY TIM GEITHNER: Can do what.
ERIN BURNETT: Reform Fannie and Freddie. If-- if it has to go through—
SECRETARY TIM GEITHNER: I-- I am very confident it will find support on all sides of the aisle, both sides of the aisle. Those are the kind of reforms we need. Just 'cause-- again, nobody can look at those institutions today and-- and think that-- you know, justify a position that they can leave them in place.
ERIN BURNETT: One thing's that's been raised that's interesting on housing-- in-- in Canada. Home ownership, 67 percent, I think. In the U.S., 68 percent. And Canada's done that without giving a tax deductibility to mortgage interest. So many Americans benefit from that. Should we take that away, and help the deficit? It hasn't seemed to help our home ownership rate to have that deduction.
SECRETARY TIM GEITHNER: I think-- here's one way to think about it. For decades, we had a housing market that worked very well. But we made two very damaging mistakes in the last decade or so. One is we allowed underwriting centers in housing and subprime gives out loans-- to-- take on a dramatic scale. That was a terrible mistake.
But we also let Fannie and Freddie build up these huge portfolios of mortgage with a lot of risk in them without the capital to back them. Those are avoidable mistakes. Those are things we can correct. The rest of the broad housing served the country very well for many decades. Many countries around the world copied that system 'cause it worked very well. Again, our objective is to make sure we're putting in place a more stable, affordable supply of mortgage financing, so that the American people who can afford to have a home have that chance.
ERIN BURNETT: Final question on housing. There has been-- there's been some separation and that's what it is at this point. But I'm curious on whether you know more about it. That-- that some of the strengths that we've seen on the consumer side of things is perhaps been fueled by people saying I'm tired of not spending. I want to consume. I'm going to pay those credit card bills. I'm going to do that instead of the mortgage, because it has become more socially acceptable over the past months-- past eight months that-- if companies restructure their debt, and-- and don't pay it, why can't American homeowners too. Do you think there's any evidence of that happening?
SECRETARY TIM GEITHNER: I don't-- I don't think there's evidence of that happening. Again, I would say generally-- again, if you look what's happening across the American economy, you are really seeing more signs of confidence among consumers. Incomes are rising more rapidly. You're seeing jobs created again. And that's helping put the broader financial security of Americans on a more stable foundation.
ERIN BURNETT: All right, so we'll do the U.S. economy. So, how do you feel about the U.S. economy right now?
SECRETARY TIM GEITHNER: I'm feeling better about it. You know, just look at the example here. You're-- you heard them say today that-- unemployment rate's coming down in Seattle, in Washington, because they're exporting more. You know, trains are coming back across the country with containers full-- 'cause their exports are growing. And I think-- you know, you're seeing more confidence across the country. Businesses really across the country. Not just high tech, and manufacturing, all feel more confident. Have more confidence. And you see we're creating more jobs-- job growth is picking up-- in encouraging ways.
ERIN BURNETT: Can it last? I mean, you know, it's-- it's interesting. You get good numbers out of a company like Walmart, and then something happens over in Germany and-- and the markets fall apart. And people are worried that you could see Europe go into a double-dip recession, and that could-- then that could happen here. Is a double-dip still on the table?
SECRETARY TIM GEITHNER: Well, again, I think the global economy is in much stronger shape than it was. You know, I think our recovery is in stronger shape than it was. And as I said earlier, Europe has-- has the capacity to manage through this. It's going to be tough for them, but I think they're going to manage through this.
ERIN BURNETT: You don't think they're going to bring us down?
SECRETARY TIM GEITHNER: No. And-- and-- but again, it's just because you see everywhere. The-- people-- businesses are seeing orders increased. Part of it's because of what's happening in China, and emerging markets. But it's just-- it's just-- just stronger now.
ERIN BURNETT: It's interesting. When you look here, I mean, you've got-- I know we got a-- ship full of cars coming in in a little bit here-- at the Port of Tacoma. Your goal has to been double exports over-- over the next few years. It's interesting, though, that this financial crisis has-- in Europe, has brought to light the fact that, hey, America only has-- less than ten percent of-- Maybe that's a good thing. Maybe-- maybe we shouldn't be trying to export so much, and that's good that we're self-reliant.
SECRETARY TIM GEITHNER: We're-- look. We're very good at what the world needs now. And you're seeing that the best companies in America-- producing things the world-- need to buy. And that's a good thing for the American economy. It will translate into more jobs. And-- this objective that the President set, the double export, it's a completely achievable export. And I'm very confident we can achieve that. But we're going to see more growth around the world, and we're going to make sure U.S. companies are competing on a level playing field. Not just in China, but emerging markets. If those things happen, more likely, it happens more quickly.
ERIN BURNETT: Aren't you a little bit like aware that we've got..Between Germany, you know…
SECRETARY TIM GEITHNER: No, again, I-- I-- think the great strength of the American economy is we're so closely tied to the rest of the world. And the things the world's are gonna need for a long period of time are things Americans are-- really could be better producing.
And we-- again, we got the most productive workforce in the world. Our companies are the leading edge of technology that matters for the future. We're a very productive economy, very resilient. You're seeing that now. It's still going to be hard for us-- but I think it's-- it's a kind of strength-- source of strength for us.
ERIN BURNETT: Number one-- trading partner here in-- the Port of Tacoma is China. Obviously, you're going to be going to China. And-- and if you think about it as there's the United States, there's Europe, and then there's China. And right now, we've been going to China and going, please, please, please, let's hope it's true, let's hope the numbers are real, let's hope it's not in a bubble. Do you really think you have enough information to tell whether China's in a bubble?
SECRETARY TIM GEITHNER: China does seem-- much stronger. It really does. And their leaders have shown a remarkable capacity over the last 30 years to manage through this remarkable transition. And they delivered very strong growth rates for a long period of time. And as you're seeing, U.S. is benefitting a lot from that. You know, U.S. exports to China grew in the first quarter of this year by 50 percent compared to the first quarter of last year. That's more than double the rate of growth in U.S. exports and the rest of the world as a whole. So, we have a big stake in-- in China's strength, and we're benefitting-- from it.
ERIN BURNETT: Are you worried about a real estate bubble there? I mean, I guess-- I guess the question could be this way. One, do you think there is one? But two, even if there is and it burst—
SECRETARY TIM GEITHNER: Well, you—
ERIN BURNETT: --does it matter as much?
SECRETARY TIM GEITHNER: Because the Chinese leaders are much more confident now in the strength of the recovery, they're starting to take some important steps to try to dial back the scenarios they put in place including to the banking system. Those seem like sensible steps. And again, I think they're-- they're very capable people. They know how to manage these pressures, and they're going to try to make sure that their recovery is continuous, too, just as we are here.
ERIN BURNETT: So, the Chinese currency is a big issue, and maybe some of that problem has been alleviated-- with what's been happening with the Euro-- over the past few weeks. When do you expect to be a move on China? A-- a real move?
SECRETARY TIM GEITHNER: I don't know when they're going to move. But I think it's very much in their interest for them to move. And I think that's what they believe. And, of course, that's what matters most. Countries normally do what's in their interest. I think China believes it's in their interest to move, and I'm confident that they-- at the right time will begin to let their exchange rate gradually appreciate again.
ERIN BURNETT: You think you can keep Congress off your back and have them be reasonable, or are they gonna-- does the yelling about currency manipulator they keep sending and they're going to put a report out, does that make your job harder?
SECRETARY TIM GEITHNER: Well, you know, again, this is an issue for the world. It's not just with the United States. You know, all-- all countries around the world are competing with Chinese companies. And so the-- the world as a whole has a big stake in China resuming this process of reform. You know, they did this before. And they just need to start that process again.
ERIN BURNETT: I know we're not alone. I mean, I guess..Is there-- they want changes, and India has those certain alliances with the United States. But when people from the U.S.-- how-- I'm curious how you get around that and imbalance. But, even in the shorter term, if there really was a revaluation, that's going to hit American consumers right in the pocket. Right, that's the big buy at Walmart. Of these low prices could go up. You really want a significant revaluation.
SECRETARY TIM GEITHNER: You know, again, I think-- this is China's decision. Their currency, they're a sovereign country, they'll have to make the choice. But when they began this process before, what they did is they began a process of gradual appreciation of currency over time. That's a sensible way to manage it. And I think it's in our interest, and China's interest, and the world's interest that they do that.
ERIN BURNETT: All right, thank you very much, Secretary Geithner. We appreciate it.
SECRETARY TIM GEITHNER: Good to see you.
ERIN BURNETT: All right. Thank you.
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