(Here are some observations from my interview with President Bush. The transcript of our conversation follows.)
President Bush remained optimistic about economic recovery. He wants to avoid regulatory overkill on housing and the credit problem. He opposes Rep. Barney Frank's new FHA mortgage buyout plan. He is not changing his dollar policy, and is not worried about inflation.
In general, the president believes that economic growth will eventually spur the dollar to recovery. He struck back at Senator Obama and congressional Dems who want to repeal his tax cuts and spend heavily.
He had strong words of support for Senator John McCain, and believes Big Mac will keep taxes down. Finally, the president chose not to comment on Eliot Spitzer’s recent fall from grace into prostitution.
Q President Bush, welcome back, sir; thank you very much.
THE PRESIDENT: Larry, good to see you.
Q Let me begin with this. Earlier this morning the stock market was down 300 points on the news that JP Morgan Chase and the Federal Reserve Bank of New York have bailed out Bear Stearns and Company. Your comment on that?
THE PRESIDENT: My comment is that the Treasury Department and the Fed are taking swift action, along with JP Morgan, to help bring some order to the financial markets.
Q You have said time and again that you oppose government bailouts, that you oppose the use of taxpayer money to bail out. I want to ask you if that opposition applies to these large banks.
THE PRESIDENT: Well, these are unusual times. These are times that -- where there's a confluence of housing market risks and financial risks that require unusual action. And it's very important for the American people to know that the Fed and the Treasury carefully weigh the --necessary to bring some order and stability versus moral hazard. And I think they've struck the right balance in this case, particularly when people look at the details of the transaction.
Q When did you first learn of the Bear Stearns problem and the actions to be taken?
THE PRESIDENT: I was aware yesterday that the Treasury was thinking about taking some actions. I spoke -- they finalized their deal evidently late last night, and so I talked to Secretary Paulson this morning.
Q Does the Treasury Department extend any credit lines to this? I mean, the Federal Reserve is putting liquidity in, as they do -- what's the role of the Treasury here?
THE PRESIDENT: I think the Treasury was just part of making sure that the transaction was done in such a way as to balance stability and moral hazard.
Q All of this, of course, takes the so-called credit crisis to a new level. So I want to ask you, yesterday House Financial Services Chairman Barney Frank unveiled a new plan to use the FHA with a huge expansion for purchasing mortgages, even mortgages from delinquent borrowers. Some people are saying it's $300 billion; it might cost the taxpayers about $20 billion when it's all done. Have you decided whether you would support Mr. Frank or whether you would veto his idea?
THE PRESIDENT: Well, the only -- as I understand, these are -- they hadn't marked this bill up yet. But they have marked up other bills, and I'll just give you an indication of where my head is.
First, they proposed $4 billion to buy empty, abandoned houses -- which I strongly oppose; that doesn't help anybody who's trying to stay in their house -- it helps lenders. Then they proposed changing the bankruptcy law, which would cause interest rates to go up eventually, which would make it harder for people to buy homes, so I oppose that. And I am concerned about any government intervention with new law that will end up making it harder for the housing market to recover expeditiously.
So our policy is to help people refinance their notes, is to help people who are credit-worthy stay in their homes. And our FHA Secure and our HOPE NOW Alliance is beginning to have pretty good progress. As a matter of fact, the rate of foreclosure versus the rate of restructuring has changed -- there's been more restructuring and the rate is better for restructuring than for foreclosure. And I would advise people who are worried about staying in their homes to get a hold of the federal government and to find out how they can get help to restructure.
Q So with respect to Mr. Frank's idea, which may be picked up by Senate Banking Chairman Dodd, they're going to offer delinquent borrowers some FHA relief. Is that a deal-breaker for you?
THE PRESIDENT: Well, there's a lot of deal-breakers from how you've described this law. I think a couple of things, Larry. One, that we ought to make sure that this stimulus package we passed has a chance to work before government overreacts. Listen, I'm open to new ideas, but I'm not open to ideas that will make it harder for the market to recover.
What we need is for the market to work its way through, to help people stay in homes who are credit-worthy, to get excess homes off the market by having the market function well. But we also got to give this stimulus package a chance to work. It's over $150 billion of money is going to be headed out the door either as incentive for businesses to buy equipment or direct rebates to American consumers. And those checks will be hitting the second week of May. So, obviously, the real substantial effects of this stimulus package have not had a chance to take hold.
Q This morning we had some other news. Now, the Consumer Price Index was released for February -- and it actually came in flat, below expectations -- but it has been rising at a 4 percent annual rate, faster than worker wages, some people say the worst in 15 years; on the inflation front, retail sales down two of the last three months. The question is, is this a 1970s repeat of inflationary recession, sometimes called "stagflation"?
THE PRESIDENT: I think we're in an unusual period. We went through 52 consecutive months of uninterrupted job growth, and like any free market there's also downturns, and we're in one. And the question is how best to react during the downturn. Fortunately, we anticipated the downturn and have proposed a temporary, robust stimulus package -- which hasn't yet to happen.
You know, people believe -- the experts believe, and they tell me -- and I'm certainly no economic expert, but they tell me that this package will have a very positive effect on the economy throughout the year.
Secondly, there's obviously having to deal with issues in the credit market. And yet today you notice that the Treasury Department and the Fed acted expeditiously, acted firmly, without creating what's called moral hazard. And the Fed is also obviously maintaining a watch on inflation and, at the same time, sending signals that they're interested in robust growth.
Q Are you worried about this inflation story? It's really just kind of snapped up in the last three or four months, kind of come out of left field -- nobody expected it.
THE PRESIDENT: What I'm worried about is the downturn that we're in. And these stories get exacerbated because we're in a slowdown. And of course we're watching -- in this case, the Fed is watching the relationship between inflation and growth. And I've got all the confidence in Ben Bernanke. I think he's doing a very fine job during difficult times.
Q But what about the dollar? A lot of people are pinning the inflation problem on the continuous decline in the dollar.
THE PRESIDENT: Look, we're for a strong dollar in the U.S. government. And the best way to -- and economies go up and down. But I'm confident in the long-term strength of the dollar, because I'm confident in the long-term strength of our economy. And what's very important during this period of time is to show the world that we're not going to leave behind a regulatory or law that will make it difficult for our market to recover -- in other words, not going to overreact during this period of time with unnecessary law; that we're open for trade and investment and so that the long-term picture for the United States economy is going to be as good.
Q But you said yesterday in another interview that you were for a stronger dollar, comma, absolutely.
THE PRESIDENT: Yes, I am.
Q It kind of sounded like you were changing your rhetoric or changing policy.
THE PRESIDENT: No, no. That's the problem with this rhetoric on dollar policy -- if I even put a comma as opposed to a period, people are suggesting change. Our policy has not changed: We're for a strong dollar.
Q Steve Forbes, conservative editor of Forbes Magazine, wrote a tough editorial. I want to get your response on that. He asked, "Can it be true, a Republican President repudiating the anti-inflation legacy of Ronald Reagan?" And he calls this thing, "Jimmy Carter Bush." Do you have a response to Mr. Forbes --
THE PRESIDENT: I like Forbes, he's a good man. But if I responded to every editorial written about me, you and I would be spending hours talking about them.
Q So you don’t think you've given up on the anti-inflation legacy?
THE PRESIDENT: I think we've just come off with a strong period of economic growth, after difficult times. We'd been through a recession, war, terrorist attack, Katrina -- and yet, we had 52 consecutive months of uninterrupted job growth, the longest sustained in the country's history. I've cut taxes; Congress needs to make those tax cuts permanent, by the way, in order to send a signal of -- that this economy of ours is going to be strong. The deficit as a percent of GDP is below norm. So we've had a good record. We're just in a tough period right now.
Q Just on this -- last one on the dollar, sir, if I may. Middle East oil producers are leaving the dollar as their standard -- Kuwait is doing it, the United Emirates are doing it, Qatar is doing it. Some people are saying that this big dollar drop is costing us prestige, that American prestige -- in war time, particularly -- is falling, that our enemies and our friends are ridiculing the greenback. Does that really affect you? Is that something you think about, loss of prestige --
THE PRESIDENT: No, I think about making hard decisions now so that we'll live in peace and security. The biggest threat we face is a terrorist attack, or making policies that strengthen these radicals and extremists who would like to do us harm. So what I think about is protecting the United States of America, and it requires some tough decisions. And I'm willing to make them and I will continue to make them so long as I'm the President.
Q Senator Obama on the campaign trail -- I want to read you a quote from one of his recent speeches: "It's a Washington where George Bush hands out billions in tax cuts year after year to the biggest corporations and the wealthiest few, who don’t need them and don’t ask for them; tax breaks that are mortgaging our children's future on a mountain of debt; tax breaks that could have gone into the pockets of the working families who need them most." And I might add, the Senate and the House are considering a budget which will repeal the tax cuts, which is the centerpiece of your economic strategy. What is your response to Senator Obama and the congressional Democrats?
THE PRESIDENT: I would leave it generic. For all those who say the tax cuts are bad, I just simply ask them to look at what happened after we inherited a recession and after the attacks of September the 11th. I think giving people their money back makes a lot of sense. The problem we face, Larry, is that these folks aren't arguing for -- they're arguing for raising taxes because they want to increase government. That's why they want more money in Washington, D.C. -- they got all kinds of spending plans.
And as I told you, Larry, you know, the deficit as a percent of GDP is below norm, and one reason why is because we have held the line on spending, except for defense.
Q But isn't it true that so far this year government spending is back to an 8 percent rate and the deficit estimates are over $400 billion?
THE PRESIDENT: Well, one reason why they're over $400 billion is because of the $150 billion tax cut that we're fixing to give the American people to help us through this rough patch. In terms of spending, I can't answer that question, but if it is, it's only for one reason, and that's because we're spending it on our troops -- and we'll continue spending it on our troops and homeland security so long as I'm the President. We owe these kids all the support they need so they can get the job done.
Q Now, you have warmly embraced Senator McCain as the Republican nominee -- warmly embraced him. But of course, many conservatives want to know, do you trust Mr. McCain to maintain your tax cutting legacy, since he voted against the tax cuts initially in 2001 and 2003? Do you have faith in him now that he will keep your legacy intact?
THE PRESIDENT: Absolutely.
Q No question?
THE PRESIDENT: No question in my mind.
Q Why do you think --
THE PRESIDENT: And not only do I think he'll be good on tax cuts, I know he'll be a good, sound fiscal watchdog. Plus he'll stay on the offense against the terrorists and extremists. He's the candidate that is more likely to protect the American people from additional harm.
Q How do you handicap this race right now?
THE PRESIDENT: I think he'll win.
Q You do?
THE PRESIDENT: But I don’t know who he's going to run against, so we'll just have to wait and see. But I've got confidence in John McCain. He's a battler, he's a competitor, he's got a good vision for America, and he's got a great heart. And I think he'll win.
Q One last one here. Up in New York, as I'm sure you know, the big headlines, "Governor Eliot Spitzer's Fall from Grace," "Engaged in Prostitution for at Least a Decade," it's still on the front pages this morning because federal prosecutors are now looking at the possibility he used campaign funds in his prostitution relationships, he may have even used government funds. Do you have a thought on this? I've not heard you comment on the Spitzer story.
THE PRESIDENT: I haven't commented on it and I don’t intend to. My concern is for his family, and I'll leave it at that.
Q All right. President George Bush, thank you very much, sir, for coming back on Kudlow and Company.
THE PRESIDENT: Always a pleasure.