Sec. Henry Paulson: The Complete Interview

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Following is an unedited transcript of George Stephanopoulos' interview with U.S. Treasury Secretary Henry Paulson on "This Week."

STEPHANOPOULOS: Mr. Secretary, thank you very much for doing this.

PAULSON: George, it's my pleasure.

STEPHANOPOULOS: So it's Tuesday afternoon and there's this 10-minute period where it looks like the bottom is dropping out of the market. How worried were you?

PAULSON: George, I spent a career in markets, looking at markets. So I always look at markets carefully.

But what I really focus on are the underlying economic fundamentals. And we've been in a period now for two or three years where I've seen the strongest global economy I've witnessed in my lifetime: solid growth around the world, relatively low inflation rates, high levels of liquidity, a very healthy economy in the U.S. making the transition from really unsustainable growth to more sustainable growth.

So I, you know, that's what I was really looking toward.

STEPHANOPOULOS: Was there any sense that this had to come since we'd gone so long without any kind of a problem?

PAULSON: But I've just got to say, markets, anybody that's watched markets know that they don't always -- over time they reflect economic fundamentals -- and markets never move in any one direction forever in a straight line. And so I look at it and put it in perspective and say, over the last year, the Dow's up almost 11 percent; the S&P's up 9 percent; and I'll take it.

STEPHANOPOULOS: Now, one of the things that did trigger this adjustment on Tuesday, a lot of people say, were the comments of Alan Greenspan, when he said that a recession was possible this year.

What are the chances of a recession this year?

PAULSON: Well, let me say, the -- I believe -- let me step back and say I've got a very high regard for Alan Greenspan. And I wasn't there, didn't hear the comments.

Clearly, no one's got a crystal ball. So there's always a possibility that there will be a downturn, always a possibility. But I don't see it. I think we have a healthy economy in the U.S.

You know, a year ago, when the growth rates were much higher, I was concerned. I said, is this going to be sustainable?

Now I'm looking at it and I'm seeing a situation where it looks like we're successfully making the transition. The consumer's strong. Exports have been greater than imports for quarters running, and they're adding to our growth.

We've got a very healthy labor market, 7.4 million jobs created since August of '73. Inflation seems to be contained.

And what really makes a difference to me is the average worker is now beginning to feel the benefits. Real income is up 2.1 percent for the average American worker over the last year.

So I'm feeling good about the U.S. economy.

STEPHANOPOULOS: Is there more danger of inflation or deflation, right now?

PAULSON: Well, let me say this. I'll leave that to Ben Bernanke to decide. But I'm feeling good about this transition and how we're making it. And I'm feeling good about inflation right now.

STEPHANOPOULOS: The Democrats are pushing for a rate cut right now. You're not going to join them?

PAULSON: Listen. I'm going to let the chairman do his job. I think he's doing a fine job.

STEPHANOPOULOS: One of the other factors that people have cited, in this market blip on Tuesday -- Senator Clinton said it was an alarm bell about the amount of foreign debt held by China and other nations.

How big a concern is that to you?

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