>> rose: welcome to our program. tonight, congressman paul ryan, one of the leading republicans prepared to take control of the house of representatives with all its implications for the economy. >> we'nymore. this is not school uniforms or prescription drugs. this is debt crisis, the economy. is america going to be the leader in the 21st century or not? are we going to have what i would call an opportunity society with a social safety net or are we going to go over and become a social democracy? a cradle to grave welfare state like a european kind of society? and the difference in the next few years will determine what that outcome will be. >> rose: and ian bremmer, the man who founded eurasia talks about the u.s. and the world as he sees it today. >> when owe move from the g-7 to

the g-7 plus one you don't get a new world order. when you move from the g-7 to the g-20, you get a new world order. and that's because the countries that comprise the g-20 have fundamental values... different fundamental values about rule of law, about democracy, about the role of the state in the economy about let kalej masy. now, america has a great deal of moral authority globally and yet what we're finding is that for some of the countries that are now sitting around this table, they fundamentally disagree with us. >> rose: paul ryan and ian bremmer, next. maybe you want school kids to have more exposure to the arts. maybe you want to provide meals for the needy.

or maybe you want to help when the unexpected happens. whatever you want to do, members project from american express can help you take the first step. vote, volunteer, or donate for the causes you believe in at membersproject.com. take charge of making a difference. captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: paul ryan is here. he is a republican congressman from wisconsin. he was reelected to his seventh

term in the midterm elections that handed a majority to republicans in the house of representatives. he's expected to be named chairman of the house budget committee in the 112th congress. this puts him in a position to act on the conservative economic principles he has been advocating and writing about for years. he's also a member of president obama's bipartisan deficit reduction commission, the co-chairs of that commission, alan simpson ander skin bowls have laid out a series of proposals to cut the deficit in advance of its final report next month. i'm pleased to have paul ryan back at this table. first, congratulations. >> thank you very much, good to be back with you, charlie. >> rose: tell me why you think the results of this election were as day are? what was in the postmortem analysis that produced the results we see? >> it wasn't a value diction of republicans and we shouldment disguise that. what i see was a repudiation of the direction the president and his party took the country. i just look at wisconsin.

wisconsin went for barack obama by 13 points in 2008. wisconsin in the state legislature was deeply controlled by democrats, five of the eight congressional delegations were democrats and in wisconsin we took the state legislature, beat russ feingold, took the governor and took two congressional seats. >> rose: but was it a specific issue having to do with spending? was it a specific issue having to do with health care? >> it was everything. health was the straw t straw that broke the camel's back. it was the direction the country has been taken. i think it was all of the spending, all of the borrowing, all of the economics. it was not focused on jobs. the stimulus... everything stacked on top of each other gave people a sense that the government has become untethered toward our basically core founding principles and that we were running on an agenda that was unsustainable. borrowing, taxes, debt, deficits. and in our area where it's really a small business driven economy, the uncertainty was killing us and so it was all this uncertainty from government

which just gave us this tsunami of an election. and so really i see this was... i mean, statistically speaking it was the greatest repudiation in 72 years of a president in power. now, the question is, is, does the president and his party think they have a marketing problem or do they really realize that they have a substance and ideological problem? i don't know what the answer to that question is. >> rose: how will you find out the answer? >> time. i mean, the way i hope this goes is the president will say "all right, i agree with you republicans on a, b, and c so let's work together on those things but on y x, y, and z i don't agree with you and on those issues we owe it to the country to give them real choice real alternatives. how we could take the country." there's nothing short of debating what america's going to be for the next century. we're in a time in history where we're not talking small ball anymore. this is not school uniforms or prescription drugs. this is debt crisis, the economy. is america goingo be the leader in the 21st century or not? are we going to have what i would call an opportunity

society with a social safety net or are we going to go over and become a social democracy? a cradle-to-grave welfare state like a european kind of society. and the difference in the next few years will determine what that outcome will be. >> rose: will it be different, do you think, in terms of the if he is looking to and thinking about the 2012 election? >> it will. if he is thinking 2012, he's thinking more contrast. he's thinking... here's the problem that... most of us don't know the president very well so i always try to keep an open mind on these things as to what the approach of a person is going to be. but when he calls us enemies. when he uses demagogic political rhetoric in the campaigns, you have to remember the campaign rhetoric in 2008 was very different than the campaign rhetoric in 2010. in 2010 it gives us the impression that we're seen as enemies. he goes to our districts and says republicans want the economy to fail so he fails politically. i mean, that kind of talk, all these straw men and counterfactual arguments does not make it's easy to cooperate and come together on the big

issues of the day. >> rose: well, you'll grant me that's happened on both sides. >> absolutely. i will grant you. that we don't have halos over our head either on this stuff. i think the big question of the day, though, is what is the vision for the country? and i do believe that the president is a fairly ideological guy. and i think his ideology... >> rose: even though his friends and colleagues say he's essentially a pragmatic seine list? >> his rhetoric doesn't show that. his policies don't show that. and his policies are in place right now. so i don't see that. plus, they're reelecting the sgaipl same congressional leadership that they had in the last two years. so it's difficult to see a strong course correction. triangulation, my guess, will be the exception, not the rule. hopefully we can make a difference on a few things and we've got to get some things done. we can't do nothing for the next two years. >> rose: let's talk about things that might get done. you're a member of the bipartisan deficit commission. >> right. >> rose: what do you think of what we now know about it and what's going to happen between now and december 1 and then into the future. >> so first of all i think we

should commence erskine bowles and alan simpson for putting a plan on the disable. as the person who had the only plan out there for a number of years, i'm happy somebody else put something on the table. >> rose: in fact, the president complimented you for having a plan. >> he did. it's a serious and impressive plan what erskine and alan did, the two chairs put that out there, they themselves, the rest of the people weren't involved in it. there's some things i like; there's some things i don't like. but getting something passed through congress by december 1 into law isn't going to happen. just logistically speaking it's pretty much impossible the way the senate works and the way procedures work that you're not going to get some big bargain passed into law in this lame duck session. that's just not going to happen. and i don't mean that from a partisan standpoint. i mean that just from a logistical standpoint. so the question is, will this commissioned a vance some ideas that then can be picked up by the next congress to be advanced? that's my hope. >> rose: so the point of the commission is to start the debate? the information we now know?

>> i think that's what's going to become the point for the commission. the original idea of the commission was to actually have a plan and pass into lame duck. that's not really feasible from a logistical standpoint. i don't think you can write legislation or score it fast enough let alone get through hurdles in the senate to pass something even if you could get 14 of the 18 commissioners to vote for something. >> rose: and what about the up-and-down vote? >> that's what i don't think you're going to have. i don't think you're going to have that. >> rose: all right. so when you look at what the commission said so far with those two co-chairs, what do you like and don't like? >> what i like is the fact that you have the president's people that he put in charge of this, erskine bowles, who's a great, very conscientious democrat, saying that for america to be competitive in the 21st century we need lower tax rates. we need lower corporate rates and a territorial tax system which is very important for our competitiveness and lower tax rates on individuals. so they're basically talking about broadening the tax base, lowering the rates. that's good. they're going after spending. now there's some things i would do and some i wouldn't but they're going after spending. what they didn't do in this plan

which i think was a mistake is they didn't go after fixing health care. they pretty much skirting around the edge. >> rose: why not? >> because i think they wanted to accept the premise of obamacare. they wanted to accept the structure and the ark stek which you are of obamacare which obviously i have a huge problem with. >> rose: was there serious conversation about doing something about health care in the deficit commission? >> there is and there will be continue to be. alice rivlin and i plan on putting out our own plan on health care hopefully this week. >> rose: and what would that say? >> she and i are still talking about it so i don't want to get ahead of myself. >> rose: give us a hint. >> >> we need to deal with medicare. medicare has a multitrillion dollar unfunded liability. that wasn't address in this plan. very, very little. and soy think you need to address medicare and medicaid if you're going to deal with this. of the g.a.o.'s unfunded liability figure, which is a $76 trillion figure, almost all of that is health care. you cannot preempt a debt crisis get this fiscal house in order without dealing with health care and i do not believe this health care law does that. not only do i not believe that, the actuary at h.h.s. tells us

the deficit will go up with obamacare, health care costs and spend willing go up with obamacare. >> rose: what did the congressional budget office say, though. >> same thing. when you take away some of the smoke and mirrors that were in the scoring they had to score it's a big budget buster. >> rose: when does the budget busting take place? >> now and into the future. >> rose: so it starts... >> because you have a lot of discretionary spending you have to implement obamacare that was not factored into it. plus what they did with obamacare is they did 60 years of spending paid for by ten years of medicare benefit cuts and tax increases. once you get farther down that budget window the uglier the score gets. >> rose: the president says it's okay to talk about his health care reform prose poseal to talk about at the edges but at the core... >> that's where we have a huge difference. we're just not going to agree with the president on that and that's where we'll have very difficult chance to come together. we're in big philosophical disagreements on that. >> rose: that's where the debate is. >> that's going to be a big part of it. >> rose: rather than tax cuts.

>> hopefully tax cuts will get settled in the lame duck. that would be ugly for the economy, for investors, entrepreneurs and small business if if this tax fight spills over next year. that in my opinion needs to be done in lame duck and i think and hope it will be. we get mixed messages from the white house. >> rose: so if the white house is prepared to extend the tax cuts, both of them-- middle-class and upper income-- for two years, you have a deal? that's a deal? >> see, they control it all. the democrats control everything in lame duck. my guess... >> rose: their congress. >> for a temporary period of time and the time line will be their choice. >> rose: so would you like to see that happen in the lame duck session? two years and then come back and revisit tax cuts in two years? >> right. so permanent is important. >> rose: i realize that. >> but i realize we're not going to get permanent but i think these rates should not be decoupled. >> rose: under no circumstances should they be decoupled? >> it's a bad idea. >> rose: why? >> because it sends signals to businesses their tax rates are going to go up. we have a big tax increase coming in 2013 as well. this tax increase, they say it

only applies to 2% of the wealthiest of americans. that's of filers. it applies to 50% of small business income. if you drive around the state of wisconsin at the outskirt of every one of our towns is an industrial park where most of the jobs are with 50 to 250 employees. they are all sub-s corporations. i don't look at the tax code as a tool of social engineering, i see it as something to raise proper revenue for the government. we should do it as efficiently as possible so we can maximize economic growth. i'm not a big income redistributionists. i believe in a safety net. and i think we have to watch this. going into the debt crisis if we don't get this taken care of we will shred the safety net itself. so nibble a society where we help people who cannot help themselves, we help people when they're down on their luck and we have an incentive-based system where people want to make the most of their lives for themselves and their kids. we don't want to turn this safety net into a hammock that lulls people into dependency and complacency. that's the debate we're having now and tax policy is a big part

of this as well. >> rose: suppose i say to you i can imagine the president would agree with everything you just said. he doesn't want a redistribution system... >> i don't think that's right. >> rose: but suppose he says it. >> all right. >> rose: he's not... my goal here is not to be someone who wants to use government as... as someone once said i want government to be an engine of change but at the same time not necessarily a permanent engine of change. you use it when you need it and then you don't. you know what i'm saying. >> i still think at the beginning and the end of the day we have different philosophies of government. it's a different idea of what our country is meant to be and i don't mean this in a bad way. this is 2 debate we need to have in this country. because of the economics and the fiscal situation it is demanding that we tackle this soon and how we tackle it really flows from what is our philosophy of governing. do we want to reapply these founding principles or do we want to reinvent the country to something else? >> rose: and you think the president wants to reinvent the country to something else?

>> i think he's a liberal progressivist. i'm not saying that in a mean way. i just think he thinks the government ought to be more active... >> rose: is that you believe most of the democratic party is? >> well, that have last election i think a lot of the centrists lost and so a lot of the remaining democrats in congress are more of that mind-set. there are lots of democrats-- erskine bowles is a good example-- who are more centrist. alice rivlin, erskine bowles who are not of that ilk. but i think the majority of their party right now is. >> rose: okay. with respect to tax cuts, nothing's going to happen during the lame duck session, correct? >> no, i think during the lame duck... i hope there will be an extension of the '03... >> rose: just an extension for two years. >> well, whatever time. >> rose: what would you expect it to be? >> two to three. the thing is with two years there's a problem because 2013 you have big tax increases coming. that means we have another... >> rose: where are they coming from? >> the health care bill. the 3.8% tax on unearned income. so that means you're stacking a

big tax increase do tune horizon and that hurts the economy in the present term as well. nothing is worse than hitting the economy right now with big tax increases. the second worse is simply delaying these tax increases because what it does is it still adds more uncertain toy the economy. so it's better than hitting the economy for a tax increase right now. but we want to work to reduce the urn certainty out there for investors, entrepreneurs, planners and the economy. >> rose: will there be 14 votes around? >> i don't see 14 votes in anything i've seen come up yet. >> rose: what does that mean? >> that means this is a commission that moves the debate forward. i'm hoping that we'll bring some more ideas to the table in the commission and see if we can get 14 votes for some things but this current plan was not designed to get 14 votes and pass it into law. it was designed to get the conversation going and flowing. alice and i-- democrat and republican-- are going to try to bring a contribution to that debate. hopefully others will be bringing some ideas to the table and we start moving this debate forward. >> rose: when you look at that social security for a moment, do

you think it's necessary to reform social security with private accounts? >> no, it's not necessary. i personally prefer it because look at me, for example. i'm 40 years old. i'll about a 1% return on my payroll taxes if social security could pay me my benefit, which, of course, it can't. my children who are five, seven, eight years old will get a negative 1% rate of return from their money. i would argue social security is probably the most successful program ever created and it's popular because multiple generations value it. if my kids are going to get negative 1% rate of return on 13% of their payroll taxes basically, do you think they're going to continue to support the program? let them have the choice of having it in a personal account like i have as a federal employee, as a member of it'sess. managed by the government and safe index funds. it harness it is power of compound interest so they grow their money at 5% or 6% per year instead of negative 1%. they get better benefits, it's a nest egg they control. my dad died when i was a kid.

my mom had to get his benefits. she had to forgo all those taxes she paid when she worked as a lab technician in milwaukee and she lost that because it went back to the government. so there are inequities in the system right now i think that can be fixed with personal accounts and if you don't like them, if you don't want them, don't have it. i just think it ought to be a voluntary option but it's not necessary to actuarally solve this problem. i personally it's preferential for younger people to have the option so they get a better deal. so they get a better ben sfit we don't consign them a miserable rate of return on what most people pay more in payroll taxes than income taxes. >> rose: what will be accomplished in the lame duck congress? >> well, they have to pay the bills. so let's... that's appropriations. is it going to be a big omnibus appropriations bill which i would not prefer or a continuing resolution? that's something the democrats are trying to work out with themselves. then you have other tax extender provisions, not the '03 tax cuts but the research and development tax credit and things like that. those are expiring provisions. and that's really about it. they will probably try to see if

they can get votes to pass other things. i've heard lots of talk. they have to get through 60 votes in the senate, though. so anything really controversial you need 60 votes in the senate so i don't see controversial stuff, you know card check or cap and trade or immigration. i think it's pay the bills, do the tax code and probably that's it. >> rose: they've probably signaled cap and trade is gone. >> i think that's right. >> rose: the new congress. when republicans in the majority after january, what is the amount of discretionary spending that you think you can cut? >> well, i would go back to '06 levels personally. >> rose: what does that mean, '06 levels? >> so 2006 levels is if we want to save a trillion dollars we would go back to '06 and carry a freeze forward. but that's paul ryan speaking. what the pledge for america did and what we're on record as being in favor of is going back to 2008 levels. so that means cutting spending back to pre-crisis levels, before the spending binge began.

i would argue the base level went up from 2008 domestic discretionary spending went up 24%. you throw the stimulus on top of that it went up 84%. so we have had an absolute gusher of domestic discretionary spending over the past two years. i would take all that money back. it didn't work. it didn't bring unemployment below 8%. we're still at 9.6%. >> rose: but would you accept the idea that the president would argue that it was never even if it may not have worked in certain instances it was necessary at the time to try to stop an economic catastrophe? >> absolutely not. i would disagree with that. i would not accept that. >> rose: so the stimulus... no stimulus was necessary? >> not that kind of stimulus. >> rose: okay, but that's a question of whether it worked or not. but are you arguing that no stimulus was necessary to try to fix the economy that came out of the crisis of september '08? >> well, first of all, the federal reserve is really who pumped the stimulus in there so the fed needed to fill the gap

with the liquidity crisis. the fed had to put money in the system. i'm very much opposed to q.e.-2. we can get into that if you want to. but, no, i do not believe borrowing and spending works. it hasn't in the past. i'm not a keynesian. >> rose: what was necessary to get unemployment from 9.6... >> 4 things i would do. low and predictable tax rates. sound an honest money. so we have predictable value of our money. regulations that are fair, transparent, reasonable and predictable and spending cuts, controls and reforms show the world that the americans are not going to have a debt crisis, that we're going to preempt it, that we're getting our spending under control, that we're getting our debt under control. calm down the credit markets. the four basic cornerstones and foundations. low tax rates, sound money, reasonable predictable regulations, spending reform and controls. there's no substitute for those things. no sugar high economics like a stimulus is going to substitute the fact that we're not getting the core foundation for economic growth right. our fiscal policy is miserable

right now and now going into q.e.-2 our monetary policy is trying to bail out the fact that we have bad fiscal policy and they're compromising the value of our money in the process of doing so. >> rose: so you think that the stimulus is necessary for the economy will come from cutting taxes and cutting spending? >> yes. >> rose: that's what will deliver the economic growth that you think will take care of the 9.6% unemployment? >> we have to get to the fundamentals. >> rose: what's the level of spending cuts that you think are necessary? is it as the chair... as the future speaker of the house has suggested a hundred billion dollars or... >> no, i would go with... believe me, there's plenty of room to cut. you know how much waste is out there in washington under both republicans and democrats? we've shoveled so much money into these bureaucracies. >> rose: speaking of spending cuts. when the commission talks about defense spending cut which is the secretary of defense has also talked about, is that a place to go to cut fat? >> there's a lot of demand for defense and we're at war. so i would plow a lot of those spending savings back into financing our troops and the things they need to be secure. but there's a lot of waste in

the pentagon, no two ways about it and the commission did a good job of identifying that, so does gob bates. he's done a good job of going after the waste. you cannot have waste when you throw that much money at one government agency. so clearly i would have restructured the firewall a little differently than this commission plan does. i think domestic discretionary improves so fast so recently that we should take more of the cuts out of that because that's giving us a base that's going to be very difficult. what i would say is bring discretionary spending like you just mentioned $00 billion is a good place to go and entitlements take a wile for those savings to accrue. >> rose: but reducing taxes and... and... cutting spending is the only way to recreate growth and bring the private sector into creating businesses and creating jobs and spending the money they have in their bank accounts? >> that's right. does the money... do we print and borrow and tax money so washington can try and spend it on the economy on people or do we create the foundations that the... the atmosphere for

economic growth so entrepreneurs and businesses can add the skills and the dofs go forward and create jobs and value. that's what's always worked in this economy. that's the american idea, that's what we're working for in the future so to me a necessary pre-condition is stable money and i'm worried about that. i'm worried about the prices in the future. i'm worried about inflation down the road. but also we have so much uncertainty, regulatory uncertainty, price uncertainty, interest rate uncertainty, tax uncertainty. we need to address that if we're going to be able to have people plan for the future and grow. >> rose: what do you make of the reaction of the president out of the g-20? some lecturing by... >> i think he had an electoral repudiation a couple weeks ago and this was an international repudiation. the germans are getting their economics more right than we are and the germans did not take our advice in 2009 with a keynesian demand-side stimulus. >> rose: they instituted a very tough austerity program. >> and they're growing. so i would simply argue... in the past i think germans got economics wrong but in the present the germans are getting it right. so i'm trying to answer your question and say basically do

what the germans have done and look what they're doing. they're getting their finances under control, the credit markets are calming down for germans and they're growing. that's something... >> rose: you know the argument being made by paul krugman and others which is that, yes, indeed, the deficit is a big issue but at the same time growth is a big issue and how you can produce growth quickly may very well mean a stimulus that you're not going to get that quickly from tax cuts and from... >> if borrowing and spending... taxing and spending and printing and spending works we'd already have it. we've been doing this for trillions of dollars. we put trillions of dollars through fiscal policy and monetary policy and it's not working and it's... >> rose: when david balkman a republican, calls for tax increases in the future you think david batch man's economics are wrong? >> i don't agree with that. here's another issue. what kind of country do we want to be in the 21st century? do we want to be a country that grows our government much more dramatically?

that takes our spending line which is like this, maybe make it there and bring the revenue line up to it? the point i mention this is do we want to be a entrepreneurial fast-growing economy, an opportunity society or do we want to be sort of a managed decline of society? >> rose: if you ask it that everybody should say you want to be an ownership... everybody! the poorest among us want to do that. they want the same opportunity. >> so we have to take the policies that get that. so right now we're practicing what i would call more japanese economics than german economics. we need to focus on having a low tax sound money limited government in order to have growth and prosperity. so the policies we are putting in place right now i believe are damaging our chances to getting this economy growing again. we should... after a recession... >> rose: the policies we're putting into effect or the policies that were put into effect. >> the policies that were put into effect. >> rose: were. >> were. >> rose: there's nothing on the drawing board that would do that. >> after the big recession of

the '70s, big recession of the '80s, we were going at 7% or 8%. we're limping along. usually the greater the recession the deeper the bounce. we're limping and i would argue that it's because of our government policies. >> rose: give me this. let's assume you and a new congress can enact the kind of economic future that you would like to see for the growth cuts and spending, other incentives to business and to the small business especially. what is possible? >> i don't know. the reason i'd say i don't know is i just don't know where the president's going to come down on these things. >> rose: there's been some conversation. have you spoken to the president since the election? >> yeah, he called me right after his press conference. >> rose: and what did he say? >> just wanted to start talking, get a dialogue going. >> rose: what does that say to you? >> great. i thought it was wonderful. look, he's my president, too. i think i said this to you the last time i was on your show. i hope we can get a dent on spending. i hope he can decide... i don't want to use some of these issues as political weapons, i want to

get some stuff done and i hope there's some areas in compromise. i don't think that's going to be there on health care but perhaps in other program there is's going to be an area for compromise. i really hope we get that because that's in the interest of the country. i just don't know where he's going to decide, he's willing to come together with house republicans on these things. we need to try and we need to put that... we need to outreach this hand but on the big issues of the day, my guess is he's not a bill clinton triangulation type that... you know, he has a difference of opinion on these big issues philosophically. there's nothing wrong with that. hopefully on trade and agricultural reform, on some issues we'll see common ground and move forward. >> rose: as you know based on what the fed did there is some opposition developing around the world because they think it will harm their exports and benefit our exports. at issue is trade. >> right. >> rose: so where do you stand in terms of currency, using pressure to get the rest of the world to change some of that

currency practice, especially china, in order to create a freer trade market. >> so we're the guardians of the world's currency, the dollar-based system. >> rose: as of today. >> exactly. good point. as of today. we've got to watch going down this sort of beggar thy neighbor evaluation world. if that were to come then we would smoot-hawley this current recession and tip us into the depression. i think people on both sides of the aisle understand the consequences of that but this jaw-boning down the dollar i think is very dangerous and i think the past treasury... i mean the bush administration and the current administration treasury has been more of a weak dollar policy... >> rose: they don't say that but nobody wants to be talking down the dollar. >> that's right. >> rose: but that you believe the policies have that impact? >> i do. and that's not just obama, that was bush as well. >> rose: you think that's the consequence they want? they want to see the lower dollar because it will help our exports? >> i've never seen a country devalue its way to prosperity but it's a quick fix at the expense of the long term and the medium term.

now, there's nothing more insidious than a government can do to its people than debase its yourty. my fear is with the q.e.-2 move the upside is so small but the down side is potentially so large by doing. this it's very dangerous, in my opinion, and i think the federal reserve ought to be focused on price stability not on this dual mandate which is employment. i've had legislation for years that says just like the e.c.b., the european central bank, your job is price stability, maintaining the value of our currency and keeping prices stable. that's a necessary pre-condition for economic growth. not trying to micromanage employment because that comes often times at the expense of price stability. i think what's happening mow is bernanke and the doves that are on the federal reserve are trying to goose the money supply through quantitative easing to overcompensate for the fact that our fiscal policy going in such a bad direction and that to me is a very dangerous notion. and it will flirt with inflation. here's the other problem. they use the core indicator of... core inflation to look at measuring inflation. that's exactly where what the

greenspan fed did in the 2003 to 2006 period which gave us loose money which helped create the asset bubble which gave us the problems we have today. if you look at the leading indicators, the dollar, the yield curve, commodity prices, they're all sounding alarm bells so i would eyre on the side of caution, on the side of price stability and not do this quantitative easing. >> rose: you do this by raising interest rates? >> we already have... we have zero rates right now. even if we went to a 1% federal funds rate we still have loose money. >> rose: i'm just asking where you are on that particular ideal in trying to use monetary policy to affect the economy. what would you like to see the fed do with respect to interest rates? >> first of all they should focus on price stability. >> rose: how do you create price stability? >> by having a single mandate... i would go with an explicit price rule on how the fed should operate to take away some of its discretion and go with the price rule focused on... i'd use maybe a basket of currencies and commoditys to do that, not necessarily these backward-looking output gap models they use. so if you do what i say you

would see a specter of inflation on the horizon and you'd be watching that. second of all, don't get involved in this micromanaging... >> rose: and if you see inflation on the horizon from this price stability... >> it means you don't have excessively loose money for too long. it means you mop up the money supply... dollar's a stabilization issue. it means you don't have loose money for too long and you don't create asset bubbles. what i fear right now is we're creating an asset bubble and it's not going to help the economy now, it's going to hurt us later on and we should have the fed toe cus on keeping sound money and that means i would have been a dissenter had i been on the f.o.m.c. like that kansas city guy and he's suggesting we got go to not a huge interest rate right but something we-to-show we're worried about inflation down the road that we want to maintain the value of the dollar and not trying to depreciate our currency. >> rose: you'll say at least to business this is where our mind-set is. >> yeah. >> rose: the debt ceiling. >> that comes up somewhere in the march to may time frame.

>> rose: what are republicans going to do about the debt kreiling? >> i don't know the answer to that yet. >> rose: some say that may very well be a test for some of the tea party members of congress. >> yeah. we understand the consequences so don't think we don't understand what happens and what is actually occurring here. >> rose: you also understand history. >> i do. hopefully by this time we will have done some good things on fiscal policy. hopefully we will have gotten some spending cuts enacted. hopefully we will have taken a step in the right direction down the path of fiscal responsibility by the time that moment arrives. >> rose: what's going to happen to housing in this country? and what's going to happen to fannie mae and freddie mac? >> well, housing... >> rose: which has been pushed into the future... >> it's the rug they're sweeping everything underneath. >> rose: exactly. >> it's a real disaster. i think the second part first. i think you should privatize fanny and freddie ultimately. that will take a long time to do

and we should decide as a government if this is a public goal, make it a government agency. have ginmy me a do it. multifamily low income housing. but we need to have a secondary mortgage market but let's not have crony capitalism where we privatize the profits and socialize the losses. let's send these things off to the private sector. and the private sector is proven capable of doing this in the past and let's reserve for the government whatever role we think it ought to have explicitly. housing is going to have to hit bottom before it can come up. and, you know, it's going to be a bump. we have a bad vintage of loans coming through the system of foreclosures coming through the system. if you put a moratorium on these things you're simply delaying the inevitable. so it's better to clear the system out and have sound money, have stable interest rates so we can go forward in the future. >> rose: thank you for coming. >> thank you, charlie. >> rose: ian bremmer is here, he

is the president of the eurasia group. i am pleased to have him here to talk not only about president obama's recent trip to asia and the g-20 but also to talk about what's going on in asia and what is going on in singapore and indonesia and japan to take a look at the way the world is shaping up with the august factors at play. so i'm pleased to have him back that the table. welcome. >> thanks for having me. >> rose: the president was at the g-20. early judgment, not very successful for the united states. they didn't get a trade agreement with south korea. >> that's right. >> rose: the chinese were not happy about what the federal reserve has done and not necessarily going to expedite an appreciation in their currency. so did the president fail? >> the g-20's not a great grouping for united states. and to the extent that the u.s. has recently tried to get lots of other count trees come on board and create an effective g-19 to pressure the chinese on

things like currency, they haven't succeeded much. i think that obama's trip to asia has been somewhat more successful than just the g-20. >> rose: right. >> but this is going to be very tough sledding for this president. i think what obama does realize and geithner realizes it, is that the americans don't have a lot of leverage with china when it comes to currency. and that's one of the reasons they've been trying to push congress off from passing a bill that would force american tariffs. american strategy has effectively been on currency from congress that if you don't revalue your currency, we're going to hit ourselves in the face repeatedly really hard. and that may be a credible strategy, but it's not a very effective one. one of the places we seem to have more leverage-- i look at obama's trip, where did he go? he went to japan, india, south korea, indonesia. a lot of democracies, a lot of places that when i travel to them are incredibly concerned

about increasingly assertive chinese policy. and, frankly, america building stronger relations with those countries on the economic and security front is probably a much better way, if you want to have a little leverage on chinese policy, than telling the chinese you've got to revalue. >> rose: so we need to find common cause with india, japan, south korea, indonesia. >> indeed. >> rose: that's a pretty heavy block there, isn't it? >> it is a heavy block and it's a block of countries that over the last six months have all for different reasons looked at china and said, wow. >> rose: tell me what it is that say thee makes them say wow. >> they see different things. they see first of all a much more assertive military and security strategy by the chinese that is not necessarily in their interests. so south korea and japan when they saw the chinese react the way they did to the sinking of the south korea corvette, they

expected the chinese were going to get on board with investigations and the chinese said "actually, we want a more balanced program here." at which point the japanese and the south koreans said "maybe we could have some more military exercises with our friends the americans." the japanese didn't like the chinese response to this flap over the sailors, the captain in the east china sea and, of course, the rare earth metals that had been cut off. they all agree that they need strong, consistent, long-term economic growth for their own political survival. i'm not saying anything you don't know or haven't heard elsewhere. >> rose: well it's common sense, isn't it? >> it is. >> rose: you need strong, sustained economic growth to be powerful. and relevant. >> but what that means given the financial crisis has completely changed their view of the world

around. >> rose: how has it changed? >> well, because they no longer believe that the west will be able to continue to consume chinese stuff. they don't believe that we're going to work with our deficits in ways that will make the u.s. dollar a store of value for chinese investing overwhelmingly in u.s. treasuries. and their own companies are increasingly becoming very, very powerful. there used to be a deal with multinationals investing in china. they provide market access, we provide technology. that deal is fundamentally crumbled because the level of technology they want is increasingly a level that is very hard for multinationals to bring in. and local previous partners among chinese corporations are suddenly becoming competitors domestically for market share and they're competitors exporting around the world. >> rose: you don't think it's possible that we're going to find enough market over there in order to...

>> the fact that chinese growing doesn't mean that we're going to take advantage equally of that growth. >> rose: why not? >> because... because chinese corporations, the nature of their relationship between the state capitalist chinese system and a free market if badly regulated american system is really changing the playing field. we are having a real hard time. you've got companies... for example, look at high-speed rail. fastest train in the world now, 416 kilometers an hour, built by the chinese. you have french and german companies... you don't see french and german companies saying we may need to merge to compete with this chinese korpgsz. you now see that. >> rose: have they had an unfair advantage? >> you know, i think that the narrative between the united states and china is increasingly becoming as disparate as the narrative between the israelis and the palestinians. >> rose: in what way?

>> to answer your question of whether or not they've had an unfair advantage, you listen to hillary clinton and obama, you're going to hear them talking a lot not just about currency but they're going to say "we want a level playing field." right? look at this table. "we want a level playing field." what do we mean when we say we want a level playing field? we want the chinese to operate by the same rules we do. what we're really saying is that we want the way that corporations have been operating in china, we want that to continue to be the case. we want to continue to be able to operate business as normal. now when i heard wen jiabao here in new york... >> rose: the premier of china. >> the premier of china back in september. and i heard him talking about apple. apple operating in china. apple corporation. and he said they were manufacturing in china. but the vast majority of the profits were in south korea. and japan.

and couper tino because that's where the design is. >> rose: cupertino is where the headquarters of apple is, right? >> right. he said that's unacceptable, that needs to change. when the chinese talk about a level playing field, they look at profits that have been made by western corporations in china that are inordinate compared to the amount of money that stayed in china for manufacturing and the chinese are saying we're now going to use our legal system, we're going to use our state power to change that so that chinese firms become the dominant players in our market. now, there's not a lot of compromise between those two world views. i don't know if it's fair, but i know it's changed. >> rose: didn't japan do that for many years? >> well, sure. >> rose: their companies lad an unfair advantage. >> but if you look at the size of the chinese market and you look at the size of productive, inexpensive labor in china, and you look at how the american

economy and all of the g-7 economies are doing now compared to china in terms of growth, look at how americans are thinking about globalization compared to the way they were in the '70s and '80s and '90s... >> rose: how are they thinking about it today? >> well, they're increasingly thinking that trade, free trade, doesn't benefit them. they're increasingly thinking that their children are not going to have better opportunities. >> rose: so they're thinking we need an advantage. >> when you hear bob zoellick come out... >> rose: world bank... >> world bank president. come out and say we may be moving to the 1930s. what i hear is a real concern that lots of folks in the developed world are going to have a knee-jerk reaction to protectionism, which is not in our interests as a country long term but it's clear that when we have 9.6% unemployment right now in the u.s. and the chinese have 9.6% economic growth, i know those aren't the same things, but they make a great political

soundbite. >> rose: who is the strongest country in the world? >> the u.s. >> rose: has it lost its ability to persuade, to lead? and has it lost, in your judgment, its moral authority? >> i don't think it's lost its ability to lead. i think it's taken a hit. but it's not gone forever. in fact, you know, when i travel to places like indonesia, singapore and japan and i hear so much so many folks saying we want more of the american capacity to lead because we're concerned that the alternatives don't look happy right now. now, has it lost its moral judgment? there's an interesting question, its moral authority. that's an interesting question. because when you move from the g-7 to the g-7 plus one you don't get a new world order. when you move from the g-7 to the g-20 you get a new world order. and it's a new world ord because

the countries that comprise the g-20 have different fundamental values about rule of law, about democracy, about the role of the state in the economy, about political legitimacy. now, america has a great deal of moral authority globally. and yet what we're finding is that for some of the countries that are now sitting around this table, they fundamentally disagree with us. and so when i now look about the g-20 as opposed to the g-7, it's not the moral authority that's been diminished but the ability to project the moral authority has been constrained. because you've got a bunch of pieces around tt table that are saying "sorry." and the united states is not exactly prepared to say "we're jettisoning a number of values that are of critical importance to us so that we can lead more expeditiously." >> rose: do you believe that there is going to be a great debate about whether state capitalism is the way to go or traditional western capitalism.

>> i do, i think we're just at the beginning of that. >> rose: haven't you written a book about that? >> i have. it's called "the end of the free market." my point of view is that the biggest change the world economy has experienced in the last 40 years... we've been moving towards globalization but moving in an environment where private sector multinational corporations have increasingly become the dominant economic actors in increasingly global markets. global consumer markets, labor markets, and capital markets. and that was, in my view, very true. it was true when phuc yammy wrote about it with "the end of mystery." it was true when tom fried man wrote "the world is flat." it's no longer true. it's a free market system that's sometimes well-regulated, sometimes badly regulated but is not doing very well in terms of economic growth and legitimacy right now being challenged by state capitalism. a system where the state is the principal actor in the economy and uses markets for ultimately

political gain. >> rose: what are we talking about other than china? >> well, we're talking about russia, saudi arabia, a bunch of xhot tease in oil countries. >> rose: okay but russia and saudi arabia... saudi arabia's ban that way... >> you're right. >> rose: that's not a new fact. >> no, when i look at stay capitalism, i look at a country like argentina which, you know, back at the beginning of of the 20th century a lot of people thought argentina was going to be the rock star in the western hemisphere, not the united states. state capitalist system, had lots of cheap land, ran out of cheap land, suddenly they couldn't find a default they didn't like. i look at a country like venezuela. state capitalist country, runs out of cheap oil, suddenly they're in trouble. now china, state capitalist economy, lots of cheap productive labor. the problem is they're not running out of cheap productive labor. but they will eventually. >> rose: they hope so, too. >> well, they do and they don't. >> rose: they do. >> they sort of. do. >> rose: they do! we just... we've already

established that the thing they're most interested in is a strong consumer demand, a rising middle-class. >> that they can manage. that they can manage. >> rose: that's right. >> i agree with that. >> but the question is how do they get from "a" to "b." i looked at the recent five-year plan they just put out. i'm sure you did, too. >> rose: (laughs) don't be so sure. >> well, like the health care thing. you read the bullet points on the top. you know where they're going. some of it they can do, some of it they can't. i'm interested to see are the chinese going to be able to take all of this cash that they've been giving to to industry, state industry and suddenly saying "no, we're going to qut you off and give it to the banks so they can lend to consumers so we can create consumption growth i don't see the chinese government doing that very quickly and effectively. so state capitalism works until it doesn't work. >> rose: i understand. until it doesn't work. >> until it doesn't work. >> rose: this came from steven pearlstein of the "washington post" who said "the g-20 fed and

deficit commission stories are all one story, the story of how the united states was allowed to live beyond its means by trading partners that prospered by lending americans the money to be able to consume more than they produce. it was a wonderful arrangement while it lasted, lichting millions in asia out of poverty while letting americans enjoy what appeared to be a higher standard of living. higher incomes, bigger homes, greater wealth, more public services. this unsustainable arrangement turned the united states into the world's biggest creditor nation into the world's biggest debtor. it was only when the credit bubble burst and the financial system nearly collapsed that it became clear how thoroughly this dysfunctional co-dependency had been woven into the world's economy." you agree? >> more or less. >> rose: what's the "less?" >> the less is that's pretty bleak. i'm not quite that bleak. >> rose: this is not bleak. this is the reality of what happened! >> i agree mostly. you said what part do i not agree with. the part i don't agree with is that if you look at the

developed states out there, america is still the country you bet on. i call them the smart kids in the stupid class. but we've got the demographic growth. we've got the educational facilities for university level and beyond. >> rose: we have the political system that will allow a smart assessment of challenge and exsdmugs >> we have... yes, and we have the transparency that actually allows people to understand what's going on. >> rose: and we have a level of trust. >> yeah. so if you put that together plus the research and development spending there are lots of reasons why people will continue to believe in the dollar even given the deficit in a way they wouldn't in other similarly sized currencies if they were around. >> rose: the dollar is not... is still going to be the reserve currency. >> the reason why people still believe in the dollar is the reserve currency. so i'm not quite that bleak structurally. but do i think he has it basically right? of course. americans are going to have to do some belt-tightening and yet there aren't any politicians that are prepared to really say that. >> rose: do you think currency

values should be determined with some reference to gold? >> the bob zoellick thesis over the last couple... you know, i think it's an interesting feint in the sense that it will probably allow western countries to continue to do most of the coordination as opposed to what folks like zoellick, i assume, really don't want, which is brazilian and chinese doing a bunch of separate side bills. >> rose: like they have done. >> like they have done. i don't think that the g-20... i think it's a non-starter because i don't believe you eat get the chinese on board for that. i think it's another effort to find ways to get countries like germany on board with the u.s. and that's a smart thing to do. >> rose: turkey. >> yeah. >> rose: so what's going on in turkey? >> i think turkey's doing exceptionally well. first point is... >> rose: it's self-evident. just look at the numbers. >> yeah, but strategically they couldn't have picked a better time to cut themselves from loose from europe and move toward.... >> rose: what's the indication they've cut themselves loose. what's the indication?

>> i think first of all a bunch of statements you see by erdogan and the rest in terms of... >> rose: what would be exhibit one? >> willingness to focus on islam as legitimating factor in the turkish government. which i think is clearly anathema to a continental europe which is becoming only more concerned about islamic immigration and non-integration within their countries. i think that the turn of the turkish government directly away from israel and the willingness to break off diplomatic relations with the israelis, what the turks are doing is saying, look, we know where the economic growth is going to be, it's in the middle east, we want to play a leadership role. iraq is the most exciting investment story in this entire part of the world and the turks are betting positioned to take advantage of it than anybody else. >> rose: finally, you wrote a piece about lula, his legacy. >> i did. >> rose: which you basically

argue his legacy is that he showed how the left can come to terms with sort of a free market economy and everybody else... everybody comes out better. >> yeah. >> rose: now, are there other lulas out there? >> i was just in indonesia. >> rose: right. >> and i was invited by the president and he was talking to me about what the jakarta model might be because on the one hand they love american democracy. liberal democracy. i mean truly american liberal democracy. they don't want so many political parties, they want more transparency, all that stuff. they don't like american economic system. >> rose: what don't they like? >> they don't like the great divergence, they don't like that fact that they don't believe there's a social safety net. >> rose: so they want a social democracy like sflans is that what he wants? france? >> i don't think he wants, france. i think what he wants is brazil. he doesn't want france because the state is way too powerful in

indonesia, right? there's 60% of the economy is state owned. >> rose: i thought you were going to say the state is way too powerful in france. >> not compared to indonesia. we need baseline comparison here. for the u.s. france thewerful. so you asked me. so lula's gone. lula was probably the most effective statesman from the developing world out there globally since mandela, right? lee kwan you. we haven't had that many. now that lieu that l.a. has passed the season, the new president is no lula. >> rose: she was lula's chief of staff. >> yes, she was. >> rose: she was in prison for early leftist activities in her life. >> she's utterly uncharismatic. she has health problems and she's generally unknown internationally. so i don't think she's lula. >> rose: but lula was unknown internationally until he became president. >> not by george soros. (laughs) >> rose: he bet against him, didn't he? >> that's right. but husband that that's because they thought he was powerful and

charismatic and could be a problem. i think s.b.y. is the next lula. he's the guy who that has the potential. he's a g-20 state now and one of the biggest democracies in the world. muslim state. >> rose: huge muslim state. >> multicultural. obama spent a lot of his childhood there. this is the guy that if he wants to do it gets to be the next lula. >> rose: and he and obama could bond even more so than they have. >> let's hope. >> rose: thank you very much. the end of the free market, ian bremmer.