>> rose: welcome to the program. we begin this evening with senator marco rubio of florida. he is seeking the republican nomination for president, and we sat down for a conversation with me and later questions from members of the foreign relations council. >> in the absence of american leadership, our nato and european allies cannot come up with a strategy to confront the aggression from russia, nor can our allies in creating the alliances necessary to confront these challenges. >> rose: we conclude this evening with a perspective on the global economy can mohamed el-erian. the former c.e.o. of pemco. >> something is going to break. either we're going to tip into a much better world or we're going

to find we get even lower growth, and we get what janet yellen and others are worried about, financial instability. >> rose: funding for "charlie rose" has been provided by: >> rose: additional funding provided by: >> and by bloomberg, a provider of multimedia news and information services worldwide. captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: marco rubio the republican senator from florida announced his plans to run for president last month. he sits on the senate foreign relations committee and the intelligence committee. he outlined his foreign policy

doctrine earlier today at the council on foreign relations. i spoke with him following his remarks. here's that conversation including some questions from members of the foreign relations council. in previous conversations with me, you have said that one problem said is that we're trying to fix 21st century problems with 20 cernry crds. yet all of the men you cited were of the 20th century. >> there are timeless truths. the sun still rises in east and american power still matters in the world. the challenges are different. today we face multiple challenges. it's not just a confrontation with other powerful nation states-- the soviet union-- which we faced after the end of the second world war and through the end of the cold war. we face traditional nations -- china, with its own ambitions, specifically in the-- and in russia where-- but we also face rogue states.

north korea a territory governed by criminal syndicates. and nonstate actors with increasing capacity. both isis al qaeda, et cetera. the challenges-- the need for american leadership is still true. the challenges are different and require a different approach. >> rose: should we be the world's policemen? >> i don't think that's necessarily the role i would advocate. the title is not the world's policemen. these problems require global response but a global response requires someone to convene the world to take action, and only america is capable of doing that. in the absence of american leadership, our nato and european allies cannot come up with a trat gee to confront the aggression from russia. nor can our allies in the middle east, or. american leadership is critical in creating the alliances necessary to confront these challenges. >> rose: confront leadership in two different ways. this weekend is the meeting with the president and the arab

leaders. there's a report from the bbc today and other news organizations that a drone missile strike at a mosque just killed the number two leader of isis because the number one leader has already been disabled by a drone strike. the two examples seem to suggest american leadership. >> a couple of point. first, i certainly think it's good we've got leaders of the g.c.c. meeting at camp david with the president. i think it's an action that should have happened a while ago and i regret the king of saudi arabia is not among them. i think that's an important part of the coalition. >> rose: there may be a series of yaens he's not here. >> i would expand beyond just those countries. i would expand that to include egypt and jordan sunni governments who have an interest because they're concerned about two primary challenges. one is the rise of extremism primarily sunni extremism, and these sunni countries want to confront sunni extremism. and the other is the rise of iran's ambitions ambitions to to dominate

the region. that's a perfect example of a group of nation to come together to confront both of these challenges because it require america to bring them together. that meeting and effort hopefully should have happened a while back, and i suspect while not privy to the notes of that meeting, much of the meetings will be dedicate to the cfns about bringing these countries to some point of ease with regards to this negotiation the president is undertaking with iran. >> rose: about the effort to reduce the impact of isis do you give president bad marks? because i mentioned the drone strikes. i mentioned the air strikes that took place at tikrit that were part of a successful effort there with the iraqis and militia groups to run isis out of tikrit? >> i believe we could have prevented much of what happened with isis had we become engageed in the syrian conflict earlier at the initial stages of that conflict, the vast majority opposing assad were syrians. and i advocated at the time that we should identify people we

could work with on the ground in syria and empower them. i argued in the absence of doing so, we would leave a vacuum and that vacuum would be filled by foreign fighters primarily radicals and that's exactly how it played out. that's the conditions that allowed both isis and al-nusra a griewnd grooup on the rebound within syria to come back. once isis began to-- i repeatedly warned they were more of a potent threat than the president was giving them credit for and arguing an earlier engagement targeting the hub they say use for logistical operations but the transit points they needed in order to project power moving forward. i think it's good we are conducting airstrikes. the truth is we probably need more but i think it's critical that a sunni force confront them on the ground and part of that could be iraqi sunnis. i think it's important to go to the allies the jarreddians, egyptians, the gcc countries to

also put forces on the ground to help stabilize that country -- >> there is no doubt in your mind they are willing to put forces on ground. >> they expressed that -- >> but at the same time, the saudis asked the egyptians and others to help in yemen and the egyptians refused to send their own ground troops to help. >> because there are to areas of concern there. number one, i think they're willing to be more helpful than they have been particularly with confronting them on ground. they need american logistical support, air support and this embeds . >> rose: should we be offering air support in yemen the u.s. did give them some advice. >> well, we've given some increasing advice. it still has not been to the level it should have been, and again ultimately that's a much more complex situation because it ask does involve iran put it involves al qaeda and others in the country. the answer is in terms of confronting the the the threat of the spread of regionals influence pie iran yemen has

become the latest flashpoint. again, a place with where a joint, pan-arab sunni force could confront these challenges with u.s. logistical and air support. >> rose: and advisory support on the ground. >> yeah, i think ultimately you could embed special operations forces to help them improve their capabilitys. these countries have expressed a willingness-- they understand it is their fight. they are not just fighting for territory. they are fighting for the identity of what it means to be a sunni muslim and they're confronted with a serious challenge, and i thought it assisi pointed it out when he said it is important to understand the threat they pose to our faith the muslim faith and they need to be confronted because extremism doesn't just threaten the world. it threatens islam. >> rose: when you look at the strategy of the president today towards terrorism your significant difference with him

is what. >> i think early on in his tenure especially. >> rose: in syria. >> no, before that he viewed american engagement abroad as a source of friction. we had problems around the world because of a grievance against the united states because of something we had done. much of these conflicts are ideological paced. they're not grievance based. iran's problem with america is not a grievance certainly not just a grievance. it goes deeper. it's ideological. it's their belief they want to be the dominant power in the region and export their revolution to other territories. the president in twiew 9 refused to take a side early on, saying he wouldn't interfere with the sovereignty of that country. >> rose: what should he have done? >> i think he should have expressed -- and that's why i talk about the third point that it's important that our foreign policy be deeply applied to our value. the president should have stood on the side of those iranians that desire true maems this their country and real political change. he did not do that in the early stages of that conflict. beyond that, i think there are

serious problems of reset with russia. a fundamental misunderstanding with putin. >> rose: we'll come to russia in a moment. you said the u.s. is holding back against isis because it doesn't want to upset iran. >> absolutely. >> rose: holding back? >> yes absolutely. >> rose: against isis. >> i'll tell you why. >> rose: because it doesn't want to upset iran? >> iran is on the ground in iraq heavily. >> rose: advisers on-- >> not just advisers. there are fighters, iranian fighters on the ground embedded side by side with the shi'a militias. the shi'a militias are largely agents of the iranian government. iran does not want aus presence in iraq of any kind. they tolerated air strikes to the export they can't stop them. they have tolerated it to a certain point. they are not happy with u.s. engagement and have trafficked trafficked in outrageous rumors which i honestly believe some of them believe that the u.s. is actual

he helping isis. they don't want us there. and most certainly don't want any american presence there. i believe the shia militias in of on the ground pose an extraordinary threat to americans in the diplomat facilities in iraq right now. they're embedded side pie side with regular iraqi forces. they have access to all the iraqi government buildings, et cetera. and i believe if the united states had taken a more aggressive position -- >> against isis or-- >> against isis and a stronger presence in iraq it would have destabilized the talks with iran and may have triggered them to respond in kind with attacks from their agents, the shi'a militias. >> rose: what is your argument against a possible iranian deal that seems to be on the table now? >> my primary objection to it is that it allows iran to retain the exaebility to ren rich uranium or reprocess plutonium. there are multiple countries in the world that have nuclear

energy. assuming iran wants it, there is a way to do it. many other countries around the world do it by importing the material. the fact that they can retain a country that has had-- that sponsors terrorism all over world, a company developing long-range rockets air, country that we know has been working on aacquiring a nuclear weapon capability, and has always had a secret component to their plan is now going to retain the infrastructure needed to enrich uranium reprocess plutonium. >> rose: there is a reduction in the number of centrifuges and a reduction in terms of what the centrifuges can do in terms of research and development and people like the secretary of energy who have there has laid this out. >> they retain all the infrastructure they will need to if in the the future break all those caps. second enforcing such a deal requires open, full inspections. iran is saying they will not allow access to military facilitys. that's problematic. >> rose: the united states has

not acknowledged that that would be the reality. they say that these would be the most introducive inspections yet, and in in fact the iranians stop them, then they have a year to stop any iranian development. >> we should never have retreated, in my opinion from the position that iran does not have a right to enrich uranium or reprocess plutonium. we should have insisted they stop work on long-range muscle technology. we should have insisted they be open about all their secret programs in the past and what iran is gambling on is pretty simple. they know once the international sanctions are lifted they know they will never be reimposed. once the world's attention is diverted to another topic in some ways they have learned from the north korean experience how to follow this. i'm vips at this point maybe not next year, they will assume a nuclear weapon capability and exploit any ambiguous language. they will-- any ambiguities or

loopholes in this deal, to advance their nuclear ambition. >> rose: let me talk. iraq and an issue that came up yesterday with jeb bush talking about the enervation, looking back. he was asked the question by megan kelly and he said he misunderstood the question. i'll ask you the question that i think she intended to ask which was if you look at the iraq war, after finding out there were no weapons of mass destruction, would you, if you knew that, have been in favor of the iraqi invasion? not only would i not have been in favor of it. president bush would not have been in favor of it, and he said so. >> rose: vice president cheney and others have said, in the same administration, we would want the go-made not withstanding. >> i think congress would have voted in favor of authorization if they didn't know that. let's also be fair about the context. yes, there was intelligence tty but there was also a history with iraq of invasion, a country that had mobile units that use for c.w., chemical

weapons. a country that not so long in the past at the moment that decision was made had invaded a neighboring country in kuwait. it was a country that have an opening dispute with international bodies about the inspections and allowing internet inspectors to come in and view things. ultimately, though, i do not believe that if the intelligence had said iraq is not having a weapon of mass destruction capability. >> don't believe president push would have authorized to move forward. >> rose: with respect to israel, you obviously are seeking the support of adelson and other people across the country who are republicans is your view on iran any different than the aview of prime minister netanyahu? >> i view them as the same threat he does upon. the difference is he lives a lot closer to them than i do, and he's the prime minister and leader of a country who every fridays afternoon iran says they want to destroy in their prayers, and a country that

iran-- whose iran's leader has posted on a twitter page a 12-point plan to eliminate from the face of the earth. obviously, the threat he faces is more immediate and real. that being said, my interest in israel is not about people that would support me politically. it's a long-standing belief based on two principles. the first say moral one. israel was created as the homeland for the jewish people in the aftermath of the holocaust so never again would there not be somewhere on earth where the jewish people could seek refuge and live in peace especially facing persecution. it is the only free-enterprise democratic, pro-american country in the meeft maeft. if we had more free enterprise pro-american democracy in the middle east, my speech would be shorter. >> rose: do you support a two-state solution? >> i don't think the conditions exist for that today. the conditions for a two-state solution at this moment do not exist. >> rose: so we should forget about the possibility of a

two-state solution? >> as i said that's the ideal outcome. >> rose: the flaelt your judgment is there cannot be a two-state solution. >> not now now. there's no unity in the palestinian government. they teach their children it's a dplorruous thing to kill jews. they've mismanaged the current system of government they have in place today and they rejected two israeli offers of peace. the. >> rose: what's alternative? >> in the short term it's to continue to hope the palestinian authority and law enforcement agencies will allow a lel of stability in the territory so they will be allowed to grow their economy and their prosperity and ultimately the conditions will arise with new leadership that will allow something like this to happen. >> rose: i brought this paper with me because the pope, as you know, said he thinks we should support a palestinian state, as you know. he also seems to be part of the renewed relationship with cube aand he went-- raul castro went

to see the pope and raul castro said "i'll consider returning to the church." you're a good catholic. >> i try to be. law laugh that's going to be a pretty long confessional when raul castro-- ( laughter ) ( applause ) >> rose: what's wrong with the pope here? >> look, the pope is-- the pope is the shepard of a faict. and his desire is peace and prosperity. he wants everyone to be better off. highs he's not a political figure. although he's the head of state of a nation and the sovereign state of a vatican city. his desire is to shepard the faith and the flock and that's what he's trying to do. there are many roman catholics on the island of cuba, and my interest as an elected official is the national security of the united states, and embedded in that is the belief that is not good for our country nor the people of cuba to have anant-american dictatorship 90 miles from our shores, a nation that harbors terrorists and

fugitives from american justice. a nation that harbors advanced intelligence gaght org facilities for china and russia. >> if elected president, the firlings thing you would do-- among the first things you would do would be to undo everything the president has done. >> i would reimpose sanctions that would-- if they want more telecommunications opening, then the cuban government will have to allow freedom of the press. if they want more engagement with american business and travel, they will have to allow more democratic opening for alternative groups in society. the conditions are actually in law right now. the embargo which is separate from what president has done -- >> the president said all the sanctions have been in place for 50 years and have achieved none of the objectives you want to achieve. 50 years the sanctions have been in effect. why not try something true? >> what he's saying is not accurate. number one, the sanctions he's talking about, if he's talking about the embargo, the purpose was not to topple fidel castro. that was the purpose of the bay

of pigs. the embargo was to prevent the trafficking of stolen goods. if you travel to cuba, you stay at a hotel, you are staying in a stolen property. when you go to cuba and buy any product produced in cube ayou are usually going to buy a product produced from a stolen property. over $7 billion of property was stole onto island of cuba, from cubans, americans and others and never compensated. imagine for a moment if a government here in the united states went into your business seized your property forced you into exile in canada, and a year later canadians are buying your products -- >> understandable, but is that the rule or the exception in revolutions. >> in terms of? >> rose: taking over the country, taking over the property, and not necessarily about restoring it to those who might have owned it beforehand. i think cuba is different-- in terms of property rights. >> ultimately, it's not about restoring. they never compensated for that property. what the embargo said is we're not gog allow to you traffic in stolen goods with our economy. let me take another point to

you. there is no japanese embargo on cuba. there is no south korean exwaerlg exwaerg on cuba. why isn't cuba full of samsung phones? why does everybody drive a car from 1956? >> rose: why? >> because their leadership is incompetent. they view themselves as a leader of a plantation of 13 million people they control. this is no cuban economy. the entire economy is owned by a holding company runed by raul castro's son-in-law-- the hotel rental cars-- everything is underneath the exwrael of that holding company. we don't have an opening to cuba. >> rose: let me end this. this is in today's "new york times" and it's a philosophical question and says the following and may be what you were talking about in your speech earlier in this session. ite mood of over-reaching uncertainty and profound anxiety-- talking about america today-- and it's so engrained at this point that we tend to

overlook it. and he continues. if one of the aps rants can give credible voice to american insecurity and trace a believable path out of it he or she will almost be victorious in 2016. >> he's right. for about a decade americans are getting bad news. we had the american century. economically -- >> the question--. >> rose: go ahead. >> my parent came here. they had no skills. they were immigrants and they were able to achieve a middle-class lifestyle. they owned a home. they raised their family. they were able to retire with dignity. they were able to leaf their children better off than themselves, and they took pride in all they achieved. in the early years of this new century there is a feeling none of that is true anymore. globally we no longer apoor to be able to shape events like we once did and domestically millions of people are work hard make at the same job they had 25 years ago but are now no

longer in the middle class. the question is why is this happening? why are the old ways of doing things no longer work, and why can't anybody tell us the new way of doing things? the answer is the world is undergoing an extraordinary economic and geopolitical transformation and we need transformative leadership to make that transition happen. >> rose: i may assume everything you may have said before is the answer to this question-- what is your believable path? >> i think the 21st century has the potential to be better than the 20th search century but it will require us to have economic policies that make us globally competitive. that's why tax reform and regulatory reform and dealing with the debt are so important. the second point, technology has rapidly changed the nature of work. all of the better paying jobs of the 21st century require higher education but we have an outdated higher education system. in a global ides economy foreign affairs has never mattered more from an economic perspective. >> rose: let me take

questions. mary? >> mary boyes a lawyer. china has been aggressively building airstrips and ports in disputed territories in the south china sea, such as on mischief reef. they have not denied that they can in fact be used for military purposes and that appears to be their purpose. how would you show american strength and leadership in the asia pacific area with respect to this kind of activity by china? what is your red line? and what would do you? >> that's a great question. they're not just building airstrips. they're building entire islands. second there's an illegitimate claim. it's part of their whole nine-dash line idea that they actually own that part of the world. third, i encouraged that the u.s. navy is thinking about challenging that. we should never accept it as a truth that they control that. i would, in fact, take all sorts of naval actions not military action, per se but military naval vessels transiting through

that zone to clearly show that this is international waters open for transit for anyone anyone who wants to go through this. beyond, that i think it is critical for us to create a stronger alliance to truly fully pivot to the asia pacific region. i think the trade agreement is a big part of that but i think creating an increased military alliance that expands beyond just japan and south korea but includes increasing the capacity of the philippines. working even with australia and other nations to change the calculus that japan would have to face if in fact they move forward in trying to act on their territorial claims that are illegitimate and improve the capacity of these nations to defend themselves. one more point i would make-- military spending is critical in this realm. china is investing billions of dollars in anti-access technology disiebd to make it too expensive for american power, particularly aircraft carriers, to get close to the region. we have to invest to defeat those capabilities.

>> senator, the-- mark rosen, bank of america, merrill lynch. president putin has -- >> stand up, please, sir. >> has invaded georgia some years ago, more recently crimea, and all the problems on the border of ukraine, the invasion there as well. what would you do-- i think governor romney when he ran for president said that he thought that russia was a major foreign policy problem for the united states, and he was-- he turned out to be much more accurate than it seems then. how would you deal with the threat of russia and its apparently expansionary policies? >> let me first clarify the threat. the threat is not necessarily russia or the russian people. it's vladimir putin who wants to be the leaderave great country, wants to put behind him what he feels is the humiliation of the 1990s and reestablish russia as a power on par with the united states and potentially even china in his mind.

and the result is because he cannot achieve that economically, he has decide to do that militarily by making it very clear that any nation in his periphery must never turned westward and must always turn in his direction. i think the sanctions put in place-- although i would like to see them increased particularly on the part of the united states-- they have proven to be long term and will be devastating. beyond, that i think it is critical, whether it's the baltic states, those who are members of nato now or even ukraine, who is not a member of nato, to have the necessary equipment to provide for defense of their own territory. for many years one of the things we asked for nations nations to join nato is we want you to increase your capacity to help us in afghanistan, help us in other far-flung places of the world to handle a crise there. but these nations did not invest enough in the ability to protect their own territory because everybody felt the cold war is over. there is no threat from the east anymore. we now see that that is not true. the point is putin believes that

he can take aggressive action in ukraine and potentially in other countries that have russian-speaking populations under the guise of moving in to protect them, because he feels there's no consequence for doing so. he doesn't believe that these nations are going to be able to inflict enough pain on him militarily that he will pay a price domestically. it's one of the reasons why they have been so paranoid about covering up the deaths of russians which an opposition group yesterday revealed was 200 russians who died in operations operations in ukraine over the the last year and a half. >> rose: you would welcome a ukraine initiative be part of nato and you would support it? >> i'm open to ukraine joining nato but their capacity-- if we won't even provide offensive military capabilities, to say they're going to join nato is even a longer reach in terms of this administration. we need to help them to be able to defend themselves. >> senator zoe bared. you recognize the relationship between the u.s. economy and the

transformations in the globe and the extraordinary growth in the markets around the world with the growing middle class and you also have acknowledged that most of the job growth in the u.s. comes from small businesses. so could you talk for a minute about how you would get americans in small businesses to understand that the world is their market, and how we can transform the culture of this country to be parent of the world. >> well, the first thing i always explain to people is we americans are 4% to 5% of the world's population. so there's only so much prosperity we can do if all we do is sell things to each other. we need there to be millions of people around the globe who can afford to buy the things we make, the products we innovate the services we provide. in order for that to happen you need global stability which is why american leadership is important because without it there cannot be global statistic. beyond that, we need access to these markets. that's why i support the free trade agreements. obviously they need to be finalized and we need to see the details of them.

but if we don't have trade agreements with the pacific rim that includes asia and latin america, we are basically walking away from access to over a billion and a half people and more and these are marktz growing rapidly consumer markets. if we're not engageed in the fastest economic growing area in the world, all of our businesses are not going to prosper. i have an advantage. i come from miami. in south florida many of our businesses are directly impacted by global affairs. forecast the colombian free trade agreement has been a bonanza, everybody from the guy who drives trucks and brings in the fresh flowers every at a to the actual people that import them. i think it's important for us to explain to more americans how critical it is that we have access to millions and millions of people around the world who can now afford to become their customers because today you can buy things online. you dont even have to come here in order to transact business with someone. >> rose: yes sir and then back over to the lady. >> neil ferguson. senator, evidence delighted to hear you refer to radical islam as one of the threats that we

face. the the great ideological threat of the presidents you referenced faced -- that is trumarng kennedy and reagan oofs communism. is radical islam the equivalent ideological threat we face? and if so, what is your strategy for deeffect it? >> first i don't-- that's an interesting question. obviously all these different threats have different characteristics. communism was most certainly an economic and political view of the world but it also tried to basically create nation states that would implement the policies. radical islam while there is the desire to create a caliphate on behalf of isis is more diffuse. it involves interconnected groups that may conspire together to take action but don't necessarily have an understood future governance idea behind them. there's no economic model behind them. the history of these radical jihadist groups once they take over your town they do a terrible job of picking up the garbage and providing services

for the people they're governing but brutal in the way they govern. these can only prosper if they have a safe haif pen upon that is why libya has become a premiere operational place, and it has become a safe haven not just in libya but a launch point for attacks on sinai. iraq became a safe haven and syria became a safe haven before that. 9/11 was possible because al qaeda had a safe haif nen afghanistan. so the first part of our strategy is we cannot allow safe havens to emerge anywhere in the world. these ungoverned place where's groups can set up camps and establish themselves. do not underestimate, where isis is involved they actively trying to absorb al qaeda elements and-- they're present almost throughout all of north africa. they've extended their reach into all countries in the middle east in some capacity. and they do, as admitted by our own law enforcement agencies have individuals that have not traveled abroad, sympathetic to their cause and actively plot

to attack us here at home and in europe and elsewhere in the west. denying them a safe haven is a key part of it and taking decisive action acting in that regard. that's yi thought being involved in syria early and not providing that safe haven was critical to preventing the growth of isis later on. >> rose: at the back. richard, go ahead. >> as far as we know, hillary clinton supported early intervention in syria. and you were critical of her just before. you can tell us specifically where she went wrong as secretary of state? >> well, i mean, first of all, what is the successes of her tenure as secretary of state? the reset with russia was a diaster because it misunderstood putin's ambitions and putin's motivations. i don't know that she was openly supportive of a libya engagement. perhaps that was reported in a book somewhere. i'm sorry syria. i thought the libyan engagement, i just mentioned a moment another was not handled appropriately. the united states intervened for a very short period of time militarily

i believe it was 72 hours, and the arrest rest of the operation was left to the brits and french loyal allies who worked hard but did not have our capability. the conflict killed people, destroyed infrastructure, and left open the conditions for the rise of militia. i traveled to libya and came back and warned-- if we allowed the conflict to go too long and endid not engage on the front end to prevent that from happening, it would become a haven for extremism to take root as has happened now. i thought they were negligent on affairs in latin america. how to improve our standing particularly in countries propsering and moving well or moving in the direction we think the world should move-- mexico chile, peru colombia. and we also ignored the situation in countries moving in the opposite direction, whether argentine abolivia, ecuador, or

venezuela. i just don't believe there are successes they can point to during their tenure and was the chief architect and spokesperson of a foreign policy that will go down as disaster. >> all in together campaign. you spoke beautifully early on about the importance of holding other nations to high standards in terms of human rights and our moral authority around the world. i think many would argue that's been eroded through continuing-- the continuing opening of guantanamo bay even some of our own criminal justice issues in the united states. you can talk a little bit about your view of how to resolve guantanamo if we're going to-- high-level human rights attention from the rest of the world? >> sure, i believe that innocent people, peace-log people deserve to have their rights respected. and i think terrorists who plot to kill americans and actively are engaged in plots to attack america deserve to be in prison

and taken off the battlefield. that's the role that guantanamo plays. it was also the only place we were able to gather intelligence. today, we're not nearly gathering enough intelligence from potential adversaries and attackers and many of the people who have been released from guantanamo have returned to the battlefield against america in multiple distant part of the world. i don't necessarily view the same-- when you are an active combatant against the united states in anasty to defeatinous a global war that seeks to destroy and kill as many americans as possible, you need to be taken off the battle field and treated for what you are-- an enemy combatant. and that's the role guantanamo plays and should continue to play. >> rose: senator rubio i promised i wouldn't go beyond the suggested 4:40. >> is that the i-watch. i assume you have other things you need to do as well. with great pleasure, thank you for coming. >> thanks for having me. thank you very much. >> rose: mohamed el-erian is

here. he is the chief economic adviser at allianz and a contributing editor for "the financial times." he was c.e.o. of pemco with $1.5 trillion under management. i am pleased to have him here back at this taiblg welcome. >> thank you. >> rose: there is much to talk about. this is the "wall street journal" as we tape this on thursday may 7. janet yellen weighed in on a growing debate among investors and market economists suggesting the yearlong stock rally may have drif know driven prices too high, and that investors are taking excessive risk. she said that in a conversation with the head of the i.m.f. >> she did and it had quite an impact on the markets, and i think she's right. there's been too much risk taking. ironically it's been encouraged by the fed, not because they enjoy risk taking but it's only

way they can promote economic growth. so what you hear-- what you see here is a dilemma that the fed has. on the one hand, it wants to promote economic growth. on the other hand it's using an instrument that is promoting too much risk taking and somehow they've got to strike the balance. >> rose: and what's the balance? >> i think the balance is only struck if other policy-making entities step up to their responsibility. the fed is the only game in town right now. and it doesn't have the instruments to deal with what ails western economies, and i say western because the e.c.b. in europe is in exactly the same position. they need help. they need help from other policy makers but other policy makers are sidelined right now. >> rose: let's talk about some of the issues. what about greece in the euro zone? >> i put it 45-45-10 a few weeks ago, and now i'll call it 50-45-5. so the 5% is the solution. the holistic solution where greece and its european partners sit together in the context of

trust, and both are willing to commit to what needs to be done. and both sides have to give. i give that, charlie a 5% probability germany gives on debt reduction. germany gives on more financial support. greece agrees to meaningful structural reforms, and together they agree to some reduction in austerity. the solution is technically there. >> rose: it hasn't changed since this crisis developed,s has it? >> it hasn't. but they can't agree on the part and the present let alone agree on the future. the 45 probable will muddle along, but the 50% possibility is we get an accident, and greece end up out of the your own zone not because-- nobody wants to go down in the history books of having made that decision. the accident happens on the ground and greece has no choice but to exit the euro zone. i think that is a 50% probability right now.

>> rose: and when would that happen? >> so it's happening day in and day out. there are little things. people are withdrawing money from the banks and putting them in their mattress or taking them out of the country which means you're suck ox jeop out of the system. secondly the government -- >> they're taking it out of the country. >> they're taking it out of the country. secondly, the government is running out of. so it's just a matter of time before they issue an i.o.u.. and the minute they take that step they start a certain dynamic we saw in argentina in 2001. thirdly they're very close to capital control in greece. you could see this accident start evolving, and ultimately the politicians would lose control of the swailings. >> rose: take me back to the u.s. i thought we were on our way to the a recovery and now people are beginning to say i'm not sure. >> i don't buy that. >> rose: you think nothing has

changed in the fundamentals? >> we will do slightly better than last year. by that i mean we'll grow at wo.5%, maybe higher. the first quarter we were impacted by the weather and the closure of the ports out west and the first quarter is typically weak. i don't buy into we are look at a year that's worse than last year. it's going to be slightly better. >> rose: slightly better is 3? >> no, 2.5 to 3. >> rose: when do we get to 3? that would be a ceend of-- >> it will take us a while because washington is not helping. >> rose: because of gridlock? >> yeah, there's no active decision making in washington on the-- on economics, other than the federal reserve. and the federal reserve doesn't have the instruments to get us there. >> rose: what would be a fiscal fix? >> so a fiscal fix is to match the first and foremost match the wallet with the will to spend. the second fiscal fix is to

provide -- >> wall set generating revenue by tax estimates? >> right now what's happening because inequality has gotten so high in this country the people capturing incremental income are rich. the rich spend less of their spectacular. the poor who have a massive desire to spend don't have the wallet to spend. fiscal policy normally fixes this. the second issue -- >> if we put more money in the hand of the poor, we would create growth? >> you would create growth, and you could do it either through minimum age-- the second element is give clarity on corporate tax reform. some people know there is some type of corporate tax reform coming. companies dont see the clarity and cannot reposition as quickly as financial investors can. the second way that fisk fiscal can

help is giving clarity on fiscal reforms which is key right now. >> rose: fiscal reforms having to do with-- >> mainly the tax system. we have a tax system that's littered with exemptions, that's antigrowth, and that most people agree-- the vast majority of both republicans and democrats agree that it needs to be reformed but no one wants to come together and collaborate with the other side ahead of the elections in 2016. >> rose: i want you to balance politics with economics here. here's a candidate who wants to run, let's say he's running for the republican nomination, which presents certain kinds of political things. what's the ideal policy that you would like to see a political candidate run on? what would you like to see him or her recommend to the country as the best way to find sustainability and growth.

>> that person would need to have one objective in mind. and that is the hand-off from artificial growth to genuine growth. so the question is, how do we pivot from a legacy where we mistakenly fell in love with fps as the engine of growth. we collectively fell in love with finance. we believed that somehow finance can deliver economic growth. we believed that we were entitled to debt that we couldn't afford. we were entitled to buy homes that we couldn't afford. wall street became entitled on a standed alone base to exchange bits of paper rather than be what it should be, the financial service industry, serving the economy. >> rose: providing the capital for businesses to grow. >> correct. so we need to pivot to a new growth mode and that will only happen-- what i call the sputnik moment-- if people realize like what happened in the late 50s when the soviet union the evil

empire sent up sputnik and suddenly everybody thought it's a national priority to catch up. >> rose: a man on the moon project. >> a man on the moon project where economic growth is put right in the middle and then you pursue all the elements. >> rose: what are the elements of that? first of all purpose and will and plan. >> secondly investing in engines of growth. frurpt investment. we have horrible infrastructure. interest rates are really low. it makes sense to step up infrastructure investment. >> rose: why wasn't that part of the stimulus plan in the first place? >> it was but the big mistake we made in 2009 is they thought itthis was a cyclical downturn. i'll give you an example. when my pimco colleague and i came up with the concept of the new normal at the time, we were signaling that this recovery was going to be really hard, that structurally there was something wrong. like you drop your phone you turn it back oit's not going to back on. we were called first idiotic,

and then fatalistic. today the term has acquired elegance because it's called secular stagnation. the problem is that -- >> that's what mr. summers talks about. >> i don't believe you can rup the american economy for another five years at this slow speed. something is going to break. either we are going to tip into a much better world or we are gog find we get lower growth and get what janet yellen and others are worried about-- financial instability. >> rose: and the the likelihood of that. >> it's the t.-junction. the current road understands. there is there are two paths out. both are equally probable, and the good news is we actually have the ability to shift the probabilities in favor of a good outcome. but it requires not the ?rnlging engineering solution. it requires the political will to do that. >> rose: we can't fix our economy until we fix our politics. >> correct. that's a very good way of putting it, and that's why people get a little bit worried.

>> rose: that's almost like the president has given up on congress. >> i think whatever he introduces no matter-- we haven't had an active budget for five years. that's most basic element of economic governance -- >> haven't had a realistic budget. >> active as opposed to just doing more of what we've been doing in the the past. >> rose: china and india today, china slowed down to 7.4. india now is growing faster than china. >> correct. >> rose: which is just amazing to me. how did that happen? >> first, you cannot grow at 10% forever. it's really hard. it's just really hard. so china soft landing to 6% to 7%, is almost natural. >> rose: is it six? >> it's six, i think just over seven. but six or seven is equilibrium. india has been chronically underperforming -- >> because of government? >> yes because of geography because of government.

they've got a new government serious about reform. if you look at the global economy, i think the-- the example i use charlie, is the following. you're a teacher at the beginning of the year. your headmaster comes along and says "i have good news for you charlie." you go, "what?" "your class is going to be on average a little bit better." and you say "this is great. a better class is more engaged and easier to teach." and your head master says, "hold on, i have a bit of bad news." "it's going to be a much more disperse class the u.s. and china are going to do a little better. you will have some student that are going to be average, they're they're not going to interrupt you. a few-- europe-- are going to have a hard time. and then you have the the trouble makers, who can singlehandedly disrupt your whole class. russia over ukraine greece, venezuela, brazil. suddenly, you feel less good.

suddenly you cannot predict how good your class is going to be, because even though the average is slightly better, the dispersion is much higher, and that's what's happening in the world. the disbergz is getting bigger, including for businesses who are being disrupted by things they never had to think about before. it's going to be a really interesting couple of years to see how the system reacts. >> rose: you're writing a book about the central beeng? >> i am. >> what is the theme? >> the proposed title is, "the only game in town." i just sent in the draft. it looks at the world from the eyes of the central banks. it looks at the world from institutions that went from being heroes under alan greenspan, in great moderation to then having nieel enabled all sorts of malfeasance, to then saving world from a great depression and ask the question -- >> in 2008? >> in 2008-2009 and then become

responsible for all the heavy lifting on economic policy that we just discussed. it looks at the world from that perspective and it comes up with a very simple conclusion which is that central bangz cannot continue being the only game in town. >> rose: so monetary policy will not do it. >> monetary policy will not do it. in fact, we are coming very close to the point where to use chairman bernanke's phrase, benefitsbenefits are starting to be exceeded by the costs and risks of what we've been doing. we've been experimenting for seven years and we continue to experiment. fisat here a year ago and told you in europe three trillion euros of debt would be trading at negative yields. which means that you the lender, are paying-- you're paying the borrower for the benefit of taking their risk. it's absurd, and yet it's fact. if i were to tell you a central bank like witser land that has established this whole

reputation on stability on predictability, is the brand, would end up shocking markets in january and caution a 40% move in the currenty. this is a developed economy. it would have been unlikely but all that has happened. >> rose: corporations since 2008 have been sitting on a lot of cash and not investing it. they would argue it was because of the lack of stability, predictability, in trms of how they invest. it's one thing to do something but it's another to make a significant capital expenditure for a plant or serious increase of new employees to fill it. why are they sitting on cash? >> why not invest it and generate increased market share or all the other indicias. >> that's the biggest contrast economic risk take buying companies investing in plant and

equipment is low. countries can't change their minds quickly. i call it the illusion of liquidity, you think you can change your mind. companies need clarity on demand which they haven't got. they need clarity on how they're going to be taxd and operate. then these days, there's something really interesting going on, it's very exciting unless you are the one being disrupted. you get disrupted. air b& b has create more hotel rooms without building a hotel than starwood and the hilton combined. uber, they take competencies alien to the industry, and come in and drupt disrupt you. companies feel they need to be able to respond to that.

put together not enough demand, not even clarity on the operating budget. the problem is that the the shareholder say, wait a minute, if you're going to keep that cash give it back to me." and we're seeing activists get involved and they go in and they're leasing it buy-back moarm shares so companies are finding it very hard. on the one hand they tonight want to spend their cash. are stockholders a bad thing or a good thing? >> i think on average they are. >> mary: what carla icahn is doing is good? >> it's good but i think you need someone to remind the the c.e.o. and the board. they can be cooperated-- there's a notion of active inertia. you think you've acted bit basically you're doing more and more of the same and you don't

see because you tank you're. >> rose: when i left pemco what, did you want to do? >> i wanted to do what i'm doing now. in fact, when i made the decision to leave back in june of 2015, and i said it's going to be within the next 12 months, what i was looking for is the ability to spend more time with my daughter by gaining control of myschedule. and do that by doing a number of interesting things. spoa youso you mentioned i'm part time for pimco. i write for the financial times. i have the chij of sharing president obama's dplobl development council. i've got involved in a start-up which has been an eye opener for me. i'm a dinosaur, so being with

people who have the passion of start-ups is amazing. and most important i'm spending more time with my daughter, going on hom holliday with her. it's been a privilege -- >> parenting can be a good thing. >> it's been wonderful incredibly fulfilling and i feel very privileged took able to do it and i know many people cannot. >> rose: thank you for coming. mohamed el-erian, thank you for joining us. captioning sponsored by rose communications

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