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#CNBC Transcript: Former Federal Reserve Chairman Dr. Alan #Greenspan Speaks with CNBC's Sara Eisen Today

CNBC's "Squawk on the Street"


June 13, 2018 ( Newswire) Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Former Federal Reserve Chairman Dr. Alan Greenspan and CNBC's Sara Eisen on CNBC's "Squawk on the Street" (M-F 9:00AM - 11:00AM) today, Wednesday, June 13th. Following is a link to video from the interview on

Sara Eisen: Welcome Back To "squawk On The Street." Live From Washington, Where The Federal Reserve News Conference Is Happening Later Today: Rates, The Recent Heightening Of Trade Tensions, The Overall Strength Of The Economy - All Front And Center. Special Exclusive Guest For You, Here In Washington, The 13th Chairman Of The Federal Reserve Serving From 1987 To 2006, Dr. Alan Greenspan. Nice To See You.

Alan Greenspan: Well, I'd Forgotten I Was The 13th.

Eisen: You Did? How Could You Forget?

Greenspan: Lucky 13.

Eisen: I Know You Don't - You're Sort Of Shy To Talk Specifically About Fed Policy.

Greenspan: Well, Paul Volcker Took The Position That He Was Never Going To Comment On Trade Policy While I Was Chairman. I Was The Successor.

Eisen: So You're Trying To Be Polite?

Greenspan: I Think That Was A Terrific Policy. I Haven't Commented At All On My People Who Succeeded Me. I Think It's Not Fair.

Eisen: So What I Think We Can Talk About, Though, Is The Economic Backdrop That This Fed Is Dealing With And Specifically Trade. Because You Have Some Strong Views About What's Happening, The President's Policies And What We've Seen From Some Of Our Closest Trading Partners.

Greenspan: Correct.

Eisen: Are We In A Trade War?

Greenspan: We're On Our Edge. I Think It Would Be Very Sad If We Do Because The Presumption Is That Foreigners Are Ripping Us Off. It's Nonsense. The Best Example I Can Give You, How We Hit Our Trade Deficits, Is My Own Personal Experience. When I First Started Out In Business, I Bought A Chevrolet And Then A Buick. As My Little Business Prospered, I Moved Up The Scale And I Eventually Bought A Lexus, Which Is A Japanese Car. When I Went To The Dealership And Put My Order In, They Bought The Car. That Was An Import Into The United States. I Volunteered It. I -- It Was My Decision. They Did It For Me. I Wasn't -

Eisen: Yes, We Import A Lot More Than We Export.

Greenspan: And The Question Of - The Whole Issue Of The Trade Deficit Is Being Put Upside Down. It Is True That Merchandise Trade Net Is Close To Minus $800 Billion, But Half Of That, Or More Than Half, Is Offset By Services.

Eisen: Of Course. But It Doesn't -

Greenspan: It Doesn't Matter.

Eisen: -- No Matter How Many Smart Economists Like You Say This, The President Has Pursued His Policies And He's Going Deeper And Deeper Into It. And Now We're -- We Could Even Expect A $50 Billion Worth Of Tariffs On Chinese Goods. The Question Is, What Does That Do To The U.s. Economy And The Global Economy?

Greenspan: First Thing, What It Does, When You Put A Tax - Any Sort Of Tax On A Good, The Question Is, Who Pays For It? The United States Pays For It. When The Tariff Is There. But Basically What He Is Talking About Is Something Quite Different. We Are -- Remember That When We Import Something, We Buy It With A Claim. We Give The Claim To A Foreigner And It's A 50 -- That's An Even Deal. But Our Trade Deficit, Which Is For Merchandise Account Is Close To $800 Billion, As The President Says. It's Offset To A Large Extent With Services -

Eisen: By Services. 500 Billion, Total -

Greenspan: Exactly.

Eisen: -- Deficit. So I Mean, I Guess What I'm Wondering Is, We've Had This Great Economic Recovery And This Burst Of Growth. The President May Even Get His 3% Number On Gdp, Thanks To Lower Tax Rates And Improved Confidence And A Number Of Other Factors. How Much Does That Get Hurt, Or Do You Think It Does Get Hurt By The Trade Policies?

Greenspan: Frankly, Not Terribly Much So. Remember That The Issue Here Is Basically What's Going On In The World Economy, How Are We Affecting It In What We Are Doing? And International Trade, Like Everything Else, Is Double Entry Bookkeeping. We Are Exchanging Our Paper, Whether It's Dollar Bills Or It's Treasury Notes For Goods And Services. It's A Zero-sum Trade. And So The View That It's Unfair Somehow Is A Mistaken And Somehow Most Importantly It Is Essentially Initiated Largely By American Citizens. This Is Not A Rip-off By Foreigners. There's Nothing -- The President Has Got The Sign Reversed. In Any Event --

Eisen: I Know You Wanted To Make That Point Clear -

Greenspan: Yeah.

Eisen: -- And Come Out And Say It. Overall Though, How Does The U.s. Economy Look To You? 3.8%. I Think That's Lower Than It Got In The 90s During Our Tenure As Chairman Of The Fed.

Greenspan: Look, The Fact Is I Happen To Approve Of Some Of The Policies Which This Current Administration Is Doing. I Think The Extraordinary Cut In The Marginal Corporate Tax Rate Was A Very Important Thing. I Mean, I Never Thought I Would See It In My Lifetime. But They Pulled It Off. And It's Working. It's Having An Effect. The Major Problem That We're Going To Be Running Into Is That The Economy Is Picking Up But It Is Beginning To Pressure Long-term Interest Rates. And As Long-term Interest Rates Begin To Move Up, That Causes, Obviously, Sales Of Equity Because Critical Factor In The Determination Of Basically Equity Values Is The Long-term Rate And I Look At It In The Reverse In A Sense. I Look At The Earnings Price Ratio And You Can Get A Set Of Items Which Are Additive Which Is The Real Interest Rate, Equity Premium, Inflation Expectations And A Few Other Minor Things. But The Major Things Driving This Price Level Is Essentially --

Eisen: Low Rates?

Greenspan: The Long-term Rate Which -

Eisen: So You Dont Buy This Idea? Paul Tudor Jones, The Legendary Macro Investor, Was On "squawk Box" Yesterday And He Was Talking About Third And Fourth Quarter Sharply Higher Interest Rates. But Also Rising Stock Prices


Greenspan: Well, That Is Conceivable To Me. But What I Don't Think Its Going To Be Happening Over Time Is A Gdp That Stays Close To 3%. And The Reason Essentially Is Something Which I've Been Discussing For Years, Namely That Entitlements Are Crowding Out Gross Domestic Savings. Gross Domestic Savings Coupled With Monies Borrowed From Abroad, Which Is Essentially What We've Just Been Talking About. Finances, Gross Domestic Investment. Gross Domestic Investment Adjusted For A Few Things Like Degree Of Education In The Workforce - That Gives You Productivity. Productivity Is The Key To Economic Outlook. Instead Of Talking About, Is It A 3% Or A 3.5% Or A 2.5%? Once You Have The Productivity Number Projected. And, Remember, All Productivity Growth Rate Which Used To Be 2% A Year And More, Is Under 1%.

Eisen: Low. Very Low. When Do You Expect Growth Slowing In The U.s.?

Greenspan: Growth Slowing, You're Saying?

Eisen: Yes.

Greenspan: Its Slowing Now. I Think It Was Slowing Coming Off-- Most Forecasts That I've Seen Which I Find Credible Show While We Are At Currently Close To A 3% Annual Rate, It's Not Going To Stay There.

Eisen: Atlanta Fed Has This Quarter Going Above 4.5% Growth.

Greenspan: I Don't Believe It.

Eisen: What About Inflation? Is That Becoming A Problem Or Is What We're Seeing Healthy?

Greenspan: Well, The Real Issue Is That We're Moving From A Long Prolonged Period Of Stagnation Into A Period Of What Back In The 1980s We Called Stagflation Which Is A Combination Of Inflation Picking Up And The --

Eisen: Growth Not Been Super Hot?

Greenspan: The Euphoria From That Gives The Aura Of Something That's Fairly Impressive. But When You Get Beyond That, I Mean, Look At All Of The Various Underlying Demographic Data, It Is Very Difficult To Go Much Above 2.5% And Much Of The Forecasts By Global Forecasters Have The United States Down At 2%, 2.25%. And Even That Presupposes That Our Demographics Are Going To Stop Deteriorating.

Eisen: Yeah, I Mean, You're Not Painting A Pretty Long-term Picture. I Guess We're All Just Wondering, Within Current Business Cycle, How Much Do We Have Left Of A Recovery?

Greenspan: Well, We - Stagflation Was Something Which Was Theoretically Not Capable Of Happening Until It Was Recognized In The 1980s. And John Maynard Keynes, Who Essentially Set The Framework For How People Forecast The Economy, Said So-called Philips Curve, Which Said It Was A Tradeoff In Unemployment And-unemployment.

Eisen: -- Inflation, Wages.

Greenspan: -- Inflation. And If That Is True, You Couldn't Have Stagflation. One Offsets The Other. - So - Acquiesced. And What We're Doing Now Is We're Moving Into Stagflation. And The Long-term Inflation, The Real Long-term Inflation Rate, Is The Lowest In American History. And I Mean Going Back To 1789, This Is A Very Unusual Phenomenon. Can't Stand At That Level. I Think Human Nature By Itself And What Economists Call Time Preference Is A Fundamental Aspect Of How We Evaluate Things. We're Going To Be Going Down - We're Going To Be Consistently Looking At An Issue Which Is Downward Pressure On Real Economic Growth. And I Don't See How We Get Out Of It Unless We Do Other Things, I Mean, Which The -

Eisen: Entitlement Reform -

Greenspan: The Trump Administration Has Actually Done The Most Important Thing Is The Deregulation. And The Combination Of Those Two, The Deregulation And The Marginal Corporate Tax Rate, Are Very Positive Forces. If It Weren't For Those Factors, I Think We'd Really Be In The Sewer. But The Presumption Is That We're Going Up From Here, I Think Is Wishful Thinking.

Eisen: Wishful Thinking. And Finally, You Don't Want To Talk About Fed Policy But Would It Be Useful Though To Have A Press Conference At Every Fed Meeting From Chairman Powell?

Greenspan: That's Commenting On Things That -

Eisen: All Right. I Tried. Chairman Greenspan, Always Nice To Speak With You.

Greenspan: Thank You.

Eisen: Alan Greenspan, Former Federal Reserve Chairman. Back To You, Carl, In The Studio.

For more information contact:

Jennifer Dauble
t: 201.735.4721
m: 201.615.2787

Emma Martin
t: 201.735.4713
m: 551.275.6221

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