CNBC "Kudlow & Company" - Transcript
MR. KUDLOW: All right, your money, your vote. Texas Republican Ron Paul, an obstetrician by trade and economic free-marketer by philosophy, is running for president in the Republican primaries, and he's got a huge Internet following, even as, so far, traditional polls have not confirmed that support. Joining me now, Texas Representative and Republican presidential hopeful Ron Paul.
Mr. Paul, it's good to see you again, sir. Thank you for coming on.
REP. PAUL: Thank you, thank you.
MR. KUDLOW: Let's just start with the hot news of the day -- the subprime mortgage problem, the stock market turmoil over it. What thoughts do you have? If there was a President Paul, how would you be handling this, sir?
REP. PAUL: Well, first we should try to understand why it happened. Of course, many predicted this would happen with the low interest rates of the early part of this decade. Many people predicted that mortgage rates were artificially low. The overnight rates were overnight low. The Fed was inflating like crazy, so there's a lot malinvestment. First, it was in the NASDAQ bubble and then it came in the housing bubble. So it was very predictable, so nobody should be surprised. And the bailout that's occurring now with the Federal Reserve buying mortgage securities --
MR. KUDLOW: You believe the Fed is bailing out? That's your -- we had Mary Lindsay and on and others before. You believe this is a bailout today.
REP. PAUL: Oh, I don't see how it could be anything else. Where did the Fed get this 120 (billion dollars), $130 billion to buy bills and buy securities? It didn't come out of thin air. And this bails the banks out. The president is saying the right things, and he doesn't want a bailout, but the Fed's doing the bailout.
MR. KUDLOW: What would happen if the Fed stayed out today, okay? Your point here is fair enough. Others have said it, and I appreciate the point of view. And the market -- let's say the stock market fell a couple of thousand points. There were moments this week when we were looking at 500 points a day. What would your take be? Would a President Ron Paul want the Fed to be the backstop, the liquidity backer of last resort, or just completely hands off?
REP. PAUL: Well, if you want to get back to normalcy, you have to let the market liquidate the bad debt and the bad investments, but it's tough politically. And that's why we can expect the Fed always to inflate. Politicians will never allow the correction to come, and that's the fallacy. By bailing out and propping up, you just delay the inevitable. Sure, they may pull this out, and the markets may do well Monday, but it won't stop it. It will come back again, and the correction will come until you liquidate all the bad debt. But propping it up, it doesn't help the situation long term. Short term it's a good political answer.
MR. KUDLOW: Senator Clinton and other leading Democrats, both on the campaign trail and in the Congress in Washington, are talking about putting some more money, lots more money, several billion dollars, into a so-called mortgage bailout. Your thoughts?
REP. PAUL: Well, it's just, you know, an additional bailout. They shouldn't have created this market in the first place. And I'm afraid it will pass, because people, you know, feel like oh, the poor people are losing their homes. But they never ask the question, why did the people who didn't qualify get into the mortgage in the first place? Who made the quick profits on that? You know, somebody on Wall Street and somebody in the security business -- somebody else is holding the paper now, and they're going to lose it. But to come in and pretend you can prop that up by more money -- where are they going to get the money? We don't have any money in Washington. They're going to have to --
MR. KUDLOW: All right. How much -- we've got to move on -- how much would you cut government spending, federal spending? How much would you cut it, sir?
REP. PAUL: You mean the first year or several years?
MR. KUDLOW: Give me the ultimate way.
REP. PAUL: Okay, ultimately, if you had a constitutional government, you're talking about cutting government 50 or 60 or 70 percent and getting rid of the income tax. But if you're talking about a reasonable approach, you have to change an attitude about government. We'd have to change our foreign policy, and we'd have to change our attitude about bailing out everybody and change our attitude about the welfare state.
MR. KUDLOW: Which departments would you knock down?
REP. PAUL: Well, the Department of Education. You know how Ronald Reagan used to tell it. Education, Department of Energy, actually, Department of Homeland Security doesn't serve our purposes -- there's a lot that we could out. We literally could save tens if not hundreds of billions of dollars.
MR. KUDLOW: With your tough-on-spending philosophy which would be a big favorite, I think, in many quarters on Wall Street, why are you taking $400 million worth of earmarks in this session of Congress?
REP. PAUL: Because, of course, I never vote for the earmarks. I always vote for the final passage of those bills. But I believe Congress has a responsibility to earmark their spending. Why should we just give it to the bureaucrats to make up their decision? So I don't vote against striking an earmark, and I ask for the earmarks for my district. But I think the process is flawed, and the total spending is flawed, so I tinker with the bills if I have to adjust, you know, for the amendment. But ultimately, I vote against the bill. The system is flawed.
MR. KUDLOW: One of the -- let me -- I myself and many others believe, you know, earmarks for a lobby of cash is the heart of the corruption in Washington. I'm not accusing you of corruption, sir, I'm just reporting -- $8 million for the marketing of American shrimp and a couple 2.3 million (dollars) to pay for research into shrimp fishing. I mean, shouldn't we just abolish earmarks all together?
REP. PAUL: But the whole thing is is no, because then you turn -- we get rid of the system not the earmarks, because we've got to get rid of the appropriations, and that's what I'd do. We shouldn't be in the business of divvying up the loot, sending it to Washington. Sure, it's imperfect, but to turn it over to the bureaucrats to pick and choose then it's all done under the table. At least there's transparency now. A few months ago there was no transparency. You didn't know where the earmarks were. Now with the transparency it's out there. I think this is much better. But ultimately, the only solution is getting rid of the system and not having these programs to begin with.
MR. KUDLOW: All right. Last point -- I read in the interesting New York Times Magazine article about you -- a pretty flattering, I think, in general -- you mentioned you were reading a book about Armageddon. Is that "Financial Armageddon?" We had the man on tonight, Mr. Michael Panzner. Is that his book?
REP. PAUL: You know, I can't recall, because there are two books with that same name, and I do not recall the author. But both of them have the same theory.
MR. KUDLOW: Let me just ask you, talking about Armageddon, are you an economic pessimist about the future of America?
REP. PAUL: No, I'm an optimist if we do the right things, if we restrain the Fed from creating money out of thin air and causing all the malinvestment and encouraging big-government spending. See, we can't the spending if we don't have the Fed to bail the politicians out by monetizing the debt.
MR. KUDLOW: All right. Mr. Ron Paul, we appreciate it very much, sir. All the best on the campaign trail.