Rand Paul
Rand Paul

WHEN: Today, Friday, Oct. 29th at 7PM ET

WHERE: CNBC's “The Kudlow Report”

Following is the unofficial transcript of a CNBC interview with Kentucky Senate Republican Candidate Dr. Rand Paul tonight, Friday, October 29th on CNBC’s “The Kudlow Report” at 7pm ET.

All references must be sourced to CNBC.

LARRY KUDLOW, host: Good evening, everyone. I'm Larry Kudlow. Welcome back to THE KUDLOW REPORT, where we still believe free market capitalism is the best path to prosperity.

All right, topic A this evening. With just four days until election and the Republican tea party tsunami poised to sweep into Washington, we're joined tonight by the tea party leader, the Republican Senate nominee from Kentucky, Dr. Rand Paul.

Now let's go right to tea party leader, Kentucky Senate Republican nominee Rand Paul. He enjoys a--excuse me--a nine-point lead over his Democratic opponent Jack Conway. We invited Mr. Conway to come on the show, but we never heard back.

Rand Paul, welcome to THE KUDLOW REPORT, sir.

Dr. RAND PAUL: Good to be with you, Larry.

KUDLOW: All right, let me go right to this issue. There's an op-ed in The Wall Street Journal today by my liberal friend Robert Reich, that somehow the tea party is going to be bad for business. Heaven forbid you would take away some corporate subsidies or welfare. Let me just ask you, generally speaking, is the tea party going to be bad for big business?

Dr. PAUL: Well, only if you're looking for a handout or a bailout, you might think it's bad. But I think that one of the things that I've stolen from this guy, Larry Kudlow, is I keep talking about the uncertainty premium we're always paying, and that's regulations and the uncertainty over the debt. That's what's holding business back. As I go around Kentucky and I talk to small businesses and big businesses, they're all uncertain about this regulatory morass that's coming down from Washington. They're all concerned about how enormous the debt is. We fix those problems, we make the tax cuts permanent, and we get rid of the excess of overzealous spending and regulation, I think you'll see a boom in this country like you've never seen.

KUDLOW: I mean, why would the removal of corporate subsidies--I mean, any subsidies. We are overspending, as you have pointed out a million times during the campaign. And the tea party represents a strong movement to roll back spending. What would be wrong with rolling back corporate subsidies, be they spending or tax subsidies, in return for some kind of flat tax rate for corporate profits?

Dr. PAUL: Well, you know, most of us are real capitalists. I believe in the creative destruction of the marketplace. I point out all the time that nine out of 10 businesses fail. That's why we need to get the heck out of the way of the one business that does succeed. But also, one of the things I've been talking more and more about is that I think we should have automatic sunsetting of regulations unless they're approved by Congress. So many of these rules are piled on by unelected bureaucrats. I'd like them all to expire within a certain period of time if they're not voted on by Congress. That way we get back to having congressional oversight on regulations, and that's really where the problem is. The EPA, for example, we haven't had a big change in laws from Congress, but the EPA under President Obama is just explicitly anti business and anti-coal. Even without Congress changing the rules, the EPA has changed the rules on their own.

KUDLOW: Rand, in your Kentucky race, do you have business support?

Dr. PAUL: Absolutely. The National Federation of Independent Businesses has endorsed me, the Chamber of Commerce has, and I've yet to meet a businessman in Kentucky that does not think President Obama's agenda is wrong for Kentucky and wrong for business. I run into business people on a daily basis, and they come up to me and they say this administration has declared war on business. That's the way we feel in Kentucky, I think it's that way across America. And I think that you'll see most of this tea party tidal wave coming is also a pro-business that we believe in the individual entrepreneur. We don't believe government's the answer, we think the people and the business and the individual entrepreneurs are the answer.

KUDLOW: We had--just switching gears slightly, we had third quarter GDP out today, subpar, 2 percent economic growth. Most economists believe that is too low to make a dent in the unemployment rate. In your campaign, what are your proposals to grow the economy and get jobs?

Dr. PAUL: Well, my biggest concern right now, and I think it's not being talked about enough, are the--was the banking regulatory bill. Everyone I talked to says it's more difficult to get loans for businesses in Kentucky and throughout the land. I say over and over again, no banks failed in Kentucky. It wasn't a problem with our local banks, it was a problem with government banks. Fannie Mae and Freddie Mac were 80 percent of the problem or more. Bad Federal Reserve policy was the rest of the problem. But what we did is we heaped on all these new regulations, and it reminds me a little bit of what they did in the '30s when they increased reserve requirements in the '30s and money just completely dried up and we went and we dipped farther and farther until we finally hit the very bottom in '37. My fear is that a bad recession could turn into a worse recession because of overzealous regulations on banks, because of Obamacare adding increased costs to businesses. And I think you may see more unemployment because of these regulatory bills that have come out of Washington.

KUDLOW: You know, for Wall Street and the stock market, besides the election on Tuesday, another huge event is the so-called QE2, the Fed's new pump-priming monetary stimulus plan due out Wednesday. You have been a critic of the Fed. In your judgment, Rand, is it time for Congress to have greater oversight of Fed's monetary policy?

Dr. PAUL: Absolutely. I think we need to audit the Fed. Three hundred and thirty members of the House signed on to audit the Fed, and yet we got--we didn't really get a good audit. You know, the Federal Reserve, what I tell people is that once upon a time your dollar was backed by gold. Then once upon a time your dollar was backed by debt. Now your dollar's backed by used car loans, toxic assets, bad home loans. Things that no one would buy now back your dollar, and the American taxpayer deserves to know how much of the dollar is backed by toxic assets. And I don't think it's a good idea to be buying toxic assets as a backing for your dollar.

KUDLOW: Again, my liberal friend Robert Reich accuses you in the paper of wanting to abolish the Fed. Your reaction?

Dr. PAUL: No, I'm not really calling for that. I'm calling for a first step, and that's to audit the Fed. But I do say in a lot of my speeches that interest rates are probably the most important barometer and indicator in the marketplace, and that interest rates are a little bit like insulin in the body. You eat a big meal, your blood glucose rises but then insulin rises and you get what's called homeostasis. The same thing happens in an economy. As an economy heats up, the competition for the money drives the price of money up and that slows the economy down. But if the Federal Reserve keeps--and I know I'm preaching to someone who knows more about economics than I do. But the thing is, is that if you keep the interest rates at zero, the economy never gets the signal that it should slow down, so the economy overheats in a--in a fantastic way. And I think we saw that in the housing market. I say that's bad Federal Reserve policy. I would say interest rates need to be left more to the marketplace; 300 million people voting daily in democratic capitalism is what I would like to see, not one person sitting at the head of the Federal Reserve deciding tomorrow that interest rates should be zero or .5.

KUDLOW: All right, we'll leave it there. Dr. Rand Paul, running for Senate from Kentucky, thank you very much for coming on THE KUDLOW REPORT. We appreciate it.

Dr. PAUL: Thanks, Larry.

KUDLOW: All right. Again, folks, we are still waiting for a yes or a no from Dr. Paul's opponent, that being Democratic candidate Jack Conway.

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