Paulson Interview

Here's an interesting excerpt from my interview last night with Treasury Secretary Henry Paulson:

KUDLOW: Secretary Paulson, welcome to Kudlow & Company. Sir, before we get to the competitive issues, can you give us a brief thought on today's stock market correction, on the subprime issue and the general health of the American economy?

TREASURY SECRETARY PAULSON: Larry, first of all, it's good to be here. Secondly, I believe--well, first of all, I focus on the economy and fundamentals. I think that's what drives the market over any reasonable period of time. And I continue to believe the US economy is healthy.

Now let me comment on the subprime mortgage market. We have had a significant housing correction in the US. Housing was growing at a level that was unsustainable. The correction has been significant. You can't have a correction like that without causing some dislocations. It's too early to tell whether it's bottomed. I believe it has. We'll know more in the next month or two. You know the housing starts, some of that data has shown some continued slowdown, but in terms of the demand, it's held in there pretty well. When we get farther into the spring, we'll get a better sense of that.

Now, so if, as I think is the case - again, I don't have a crystal ball - that the housing correction has bottomed, again, it shouldn't be a surprise to anyone that there's some fallout in the subprime mortgage market. And, again, as I've said before, I believe there’s going to be dislocations. It's painful to some mortgage holders. It's going to be painful to some lenders, but it's largely contained.

KUDLOW: It's not a credit crunch economy wide?

Mr. PAULSON: No, no. The consumer in this country continues to be very healthy. This is a diverse economy. We've got exports growing faster than imports right now. That's adding to growth. We've got a very, very healthy consumer. Inflation would appear to be contained. So, again, I continue to believe that we are making a successful transition from an economy that was growing at an unsustainable rate, to one that's growing at a more sustainable rate.