DAVID GREGORY: But first we're joined by White House economic adviser Dr. Christina Romer.

Welcome back to MEET THE PRESS.

DR. CHRISTINA ROMER: Great to be here.

MR. GREGORY: The president taking stock of his first year in office and an economy still very much in turmoil. He spoke in his weekly radio address yesterday and talked about who ultimately is to blame. He had some tough words for Wall Street. Let me show them.

(Videotape, December 12, 2009)

PRES. OBAMA: Even as we dig our way out of this deep hole, it's important that we address the irresponsibility and recklessness that got us into this mess in the first place. Much of it was due to the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.

(End videotape)

MR. GREGORY: Is Wall Street to blame, as the president suggests?

DR. ROMER: You know, I think there's a lot of blame to go around. But absolutely, we know that some of the practices that happened on Wall Street did set us up for what was a very severe financial crisis, and we are all still paying the price for what went on on Wall Street.

MR. GREGORY: And is the reality, the price, jobless recovery?

DR. ROMER: You know, what the reality so far has been is a very severe recession, and that is what we have been fighting against. The drying up of credit absolutely has had a tremendous impact on Main Street, and we know it's had a particularly big impact on jobs, that we've lost more jobs even than you would have normally predicted given what's happened to GDP. At this point, though, I ought to emphasize how much things have changed, right? If you go back to this time last year, we were losing half a million jobs a month. In January it was 700,000 jobs a month. What we learned in the last employment report, we're basically holding flat on employment. That's not good enough. We want to be having robust job growth. But it certainly is a--is a big change.

MR. GREGORY: Let me stick with Wall Street for just a second. The House just passed financial reform, sweeping financial reform. Had these rules been in place, would it have prevented the financial crisis?

DR. ROMER: You know, that is certainly the goal as we're setting up financial regulatory reform, is exactly to do what Franklin Roosevelt did back in the 1930s, give us a rules of the road that will protect us. That one protected us for about 80 years.

MR. GREGORY: I know, but it's not just a goal. Would it have worked?

DR. ROMER: Yeah.

MR. GREGORY: Would it have prevented the crisis?

DR. ROMER: Oh, we are certainly--I think it is--you know, you could never say anything for sure. I think it's a much better set of rules of the road. Obviously, as we're going to be going forward and working with the Senate and finally getting a bill, there are things that we can improve and strengthen. But it's absolutely a much better set of rules of the road.

MR. GREGORY: The president said in an interview on another network that Wall Street still doesn't get it. Goldman Sachs decided instead of paying out big cash bonuses, that they were going to do all of that in stock. Is that an improvement, or do they still not get it?

DR. ROMER: It's certainly an improvement. You know, there is just a fundamental disconnect, right? We now--you know, the American people had to take extraordinary actions to back up Wall Street. It was the right thing to do, because we are all linked to that. But, you know, now Wall Street's doing a whole lot better and Main Street is still suffering. And so, you know, that's why the president is going to have the bankers in tomorrow. We're going to be talking about a lot of things, like what are the responsible actions they can take to get lending going again to small businesses, to deal with compensation practices that encourage risk taking, to make sure that responsible homeowners can stay in their home? And those are all things we're going to be talking about.

MR. GREGORY: But when the CEOs do come to the White House tomorrow, the president--sounds like he's going to be blunt and say, "You're part of the problem here."

DR. ROMER: I think he's also going to say, "You're going to be part of the solution."

MR. GREGORY: Right.

DR. ROMER: Right? That "we're going to do everything responsible that we can, you've got to do everything responsible that you can."

MR. GREGORY: But here's, here's--you talk about the disconnect between Main Street and Wall Street--even though it's a bit of a misnomer, because the two are really connected in terms of the credit flows of this country. The question is whether just because Wall Street is doing well, and you see there's executive comp rules that went into place this week where you have top employees capped at $500,000 in, in the companies that got the bailout money, is the goal here to simply punish Wall Street?

DR. ROMER: Yeah. The goal has certainly got to be that, as we go forward, we have a system that's more efficient, that works better for the American people, that doesn't get us into this mess again. The, the other thing we have to talk about is making sure that the American taxpayer is made whole, right? That we have had to take extraordinary actions, the TARP legislation that, that was so crucial in, in shoring up our financial system. I think the president feels very strongly that the American people have to be held harmless.

MR. GREGORY: But doesn't the president want these companies, even if they're getting bailout monies, to be profitable, to return to profitability without any impingement on their competitiveness?

DR. ROMER: Of course we want them to return to profitability. We want them to return to lending.

MR. GREGORY: Right.

DR. ROMER: We want them to return to doing--as you described, they are linked. They're the circulatory system of our economy. We know that's incredibly important.

MR. GREGORY: Let's--I want to talk about jobs more specifically. A lot of focus on getting people back to, to work. How long before unemployment falls below 10 percent?

DR. ROMER: Well, you know, we, we were very encouraged last--the last jobs report, when we saw the unemployment rate tick down. Again, I got to emphasize, you know, how the change that we've seen, say, in GDP growth, where we were just plummeting at the first quarter of this year, we're now growing again. I'll tell you what most private forecasters are telling us, is that GDP is going to continue to grow, if anything is going to accelerate. Most of them are talking about positive job growth sometime in the first quarter. So what usually happens is GDP starts to grow, then employment starts to grow, then finally the unemployment rate starts to come down.

MR. GREGORY: Does--well, does it go--does it get worse before it gets better?

DR. ROMER: You know, these things certainly do bounce around. I would anticipate some bumps in the road as we go ahead.

MR. GREGORY: It might go up again before you think it comes down?

DR. ROMER: It could well. I mean, especially if you talk to a lot of the, the analysts, what they say is actually once we start to recover, the chance that some of those seven to 10 million people that have become discouraged workers, dropped out of the labor force, they may well come back in, and that would cause it to go up a bit. But then, you know, once we're firmly growing again, once employment growth is again--coming again, we will see the unemployment rate start to come down.

MR. GREGORY: When is the recession over, do you think?

DR. ROMER: You know, there's the official definition, and that talks about just when do you turn the corner, when do you go from plummeting to, to finally starting to go back up? And I think we have, at least in terms of GDP, reached that point. But I think the president's always said, and what I firmly believe, you're not recovered until all those people that want to work are back to work.

MR. GREGORY: So in your mind, this recession is not over.

DR. ROMER: Of course not. We have--you know, for, for the people on Main Street and throughout this country, they are still suffering. The unemployment rate is still 10 percent. That's what--that's why the president was talking this week.

MR. GREGORY: Right.

DR. ROMER: He wants to get it down.

MR. GREGORY: The unemployment picture has been grim for a long time, and the predictions were dire a year ago. Jared Bernstein--who as you know, of course, is the economic adviser to the vice president--said this in December of 2008: "We'll be lucky if the unemployment rate is below double digits by the end of next year." Again, this is '08. "Even if the economy improves, the growth won't be enough to rehire laid-off workers, much less absorb those coming into the labor force." Kiplinger, in February of this year, had this report: "We know what a jobless recovery feel like, but this will be more painful. ... `It will take a recovery in automobiles and housing for the manufacturing sector to once again prosper,'" that according to Norbert Ore, chairman of the Institute of Supply Management Manufacturing," in a survey that was done. "And prospects for rebounds in those sectors are dim until 2010 or beyond, despite the federal government's gargantuan efforts to stimulate the economy." The warnings were there. Why didn't this administration, this White House attack unemployment sooner?

DR. ROMER: Well, first of all, I will tell you that within the first month of taking office we passed the biggest, boldest fiscal stimulus package in history. We had a comprehensive financial rescue package, we had a housing package. We hit this thing with as much as we could get through Congress and as well as we could do.

MR. GREGORY: And you thought that stimulus would keep unemployment to 8 percent, and it didn't. It didn't work.

DR. ROMER: I will be the first to say I didn't have a crystal ball. And certainly I think, you know, what we learned--we learned...

MR. GREGORY: Well, you asserted that you did in, in the report, suggesting it would keep it to 8 percent if it was passed. There was an attempt to forecast.

DR. ROMER: Yeah. We--well, of course people have to forecast. What I'm saying, not having a crystal ball, is I don't know the future. I--we're making an educated estimate. The fundamental thing is that the first quarter of this year, no question, was worse than basically anyone anticipated, and that this economy did really come to the edge of the cliff and, and start to go over. And precisely because of the actions we've taken, we have walked it back. The important thing, though, is over the summer, over this fall we've continued to take actions. We had the cash for clunkers program, we've extended the first-time homebuyers credit. And that's really what the president was talking about in his speech this week; what are the other steps that we can do? What are the appropriate actions at this point?

MR. GREGORY: Would it have had more of an effect on the economy if the stimulus money had been released sooner? Only about 20 percent of the money's been released.

DR. ROMER: Well, you've got to be so careful, because think about all of the--you know, about a third of the fiscal stimulus was a tax cut. That went into effect almost immediately. A big chunk of it was aid to people that had been directly hurt by the recession: the unemployment insurance, COBRA, aid to the states. That went out almost immediately. We always knew that the part that would take longer is the direct government investments in infrastructure...

MR. GREGORY: Mm-hmm.

DR. ROMER: ...and smart energy. Those have also been going out quickly. But they were also always part of the plan for 2010, because we knew this was a very severe recession, would take some time to, to fix it.

MR. GREGORY: And in those initial discussions about stimulus, you advocated a larger stimulus, at least 1.2 trillion. That figure was never even taken to the president. Was that a mistake?

DR. ROMER: You know, the president certainly knew that this was a very severe recession. I remember going back and looking at my notes. We had a meeting with the president on December 16th last year, and I remember what I said was conditions are grim and deteriorating fast. He knew that this was serious, he knew that we were all deeply concerned.

MR. GREGORY: Right. Yeah, but my question is about the size of the stimulus. Do you think it should have been larger? You thought that at the time. Was it a mistake not to take that larger figure to him?

DR. ROMER: No. What we were talking about is what's the range of options. And all public policy is a mixture of what are the, the, you know, possible effects, and what can you actually get through Congress? And I feel confident we got the best package that we could through the Congress.

MR. GREGORY: Well, now you're talking about another package getting through Congress, the idea of something that would specifically stimulate job growth. And there's been some discussion of even using that bailout fund, the TARP, to pay for this. The LA Times pushed back hard against this idea in an editorial, and it kind of synthesizes some of the criticism. I'll put it on the screen. "The administration should explain why the massive amount of money already approved to simulate the economy isn't sufficient. After all, most of it hasn't been spent; according to the administration's Recovery.gov Web site, only 20 percent of the nearly $800 billion has been handed out as of Oct. 30. And if more funds really are necessary, the administration should find a way to raise them without exacerbating the federal deficit, which hit $1.4 trillion in the fiscal year that ended on Oct. 31. The idea of converting bank bailout funds into jobs programs might have populist appeal, but the returned TARP dollars aren't new revenue. They're borrowed money, and we should be thankful we can pay it back--so much of it back."

DR. ROMER: You know, what the president has said, we inherited two problems: a huge jobs deficit and one that was growing, and a huge budget deficit and one that was growing. What he has said is we absolutely have to attack both of those. On the jobs side, everybody knows you're never going to get your budget deficit under control if you don't get the economy growing again. And that's why what he's been talking about is not just government trying to get people working again, it's the government helping to jump-start the private sector. We know that that what's got to happen.

On the fiscal side, we know that the actions that we take are likely to be more effective if people have confidence that we will get that long-run budget deficit under control. And that is what the president is committed to doing. I got to tell you, he has shown that commitment in the debate that's going on on the floor of the Senate on health care.

MR. GREGORY: Right.

DR. ROMER: Because he has been the most passionate, effective advocate for genuine cost containment, and that is a crucial step we can take right now to get the budget deficit under control over the long run.

MR. GREGORY: But is it still his view that, essentially, the government must spend its way out of the recession rather than attack the deficit?

DR. ROMER: He has never said--what, what he has said in his speech is that now, at this stage in the recovery process, some targeted actions like investing more in infrastructure, in tax incentives for small businesses to hire and to invest, for incentives, say, to get homeowners to retrofit their homes, those are targeted actions that we can take right now that can help to jump-start the private sector job creation.

MR. GREGORY: Government spending is necessary before attacking the deficit?

DR. ROMER: You're going to--it, it's a parallel process.

MR. GREGORY: Right.

DR. ROMER: At the same time we are taking important actions to put people back to work right now, which is good for the deficit...

MR. GREGORY: Right. But you're not addressing...

DR. ROMER: ...we also are going to be...

MR. GREGORY: ...how it's going to be paid for. Are taxes going to have to go up in order to pay for another government stimulus?

DR. ROMER: You know, what we're certainly going to be doing--you know, the, the, the news that we got on the TARP, all right, no one's talking about taking the TARP and literally using it for infrastructure. But the fact that we discovered that we, through good stewardship, are going to have substantially lower losses, some $200 billion more going back to the federal Treasury, tells us that there is the space to do what we have to do for the American people. One in 10 are out of work at this point in time.

MR. GREGORY: Right. But, Dr. Romer, my question is, will taxes have to go up for the government to pay for additional stimulus?

DR. ROMER: What is absolutely true is, as we look--I mean, first of all, no one's talking about raising taxes in the middle of a serious recession. That would just be...

MR. GREGORY: So how do--how you going to pay for it?

DR. ROMER: ...bad policy. I--what...

MR. GREGORY: You're going, you're going to use TARP money? What are you--how you going to pay for it?

DR. ROMER: What you're going to be doing is looking at the--you know, everyone knows that in the middle of a crisis you don't do a major fiscal consolidation. That would just be suicide. That's not what you do for an economy that is struggling to come back from the first--from the worst recession in post-war history. What the president is committed to is putting forward a plan for getting that deficit under control in the medium and the long term. Healthcare reform's going to be a part of it. We're going to have to be working with Congress. It's going to have to be a bipartisan effort. We inherited--let's be clear, we inherited a huge problem. It's not--it was years in the making. We are going to have to, you know, be the responsible people and step up and deal with it. The president is absolutely committed to doing so.

MR. GREGORY: By this time next year, where will unemployment be, in your view?

DR. ROMER: Well, I'm--I feel confident it'll be on the way down. As I said, we've talked about how there will, you know, very likely be further rises before it, it comes down. You know, what I feel confident is, is that we're on the right trajectory. And I think what the president has committed to is doing all that we possibly can so that number comes down much more dramatically, because that is ultimately what we have to do.

MR. GREGORY: When do you expect you will be able to say the recession is over?

DR. ROMER: Well, I'm not going to say the recession is over until the unemployment rate is down to normal levels, until...

MR. GREGORY: Which would be?

DR. ROMER: You know, again--are you asking me, you know, timing?

MR. GREGORY: No, what's a normal level?

DR. ROMER: Well, the normal, you know, where we were before the recession is sort of in the--certainly in the 5 percent range. That is, you know, what Americans are, are used to.

MR. GREGORY: Can that be accomplished in a year's time?

DR. ROMER: Well, it--we'd have--I think we're going to--it's going to take--you know, this recession took a long time coming, it's going to take a long time coming out. We can make incredible progress. We can get that unemployment rate coming down. The--you know, the whole key is not just, you know, growing again. We've got to grow robustly. That's how you get a lot of job creation, that's how you get a lot of progress on the unemployment rate.

MR. GREGORY: Dr. Christina Romer, thank you very much. Continued good luck with your hard work.

DR. ROMER: Great. And congratulations on your first year anniversary.

MR. GREGORY: Very kind. Thank you very much.

Up next, when and how will all those Americans searching for jobs get back to work? Our special discussion continues here on jobless recovery. Alan Greenspan, Governor Jennifer Granholm, former Governor Mitt Romney and Jim Cramer. Plus, our MEET THE PRESS MINUTE: War and peace on the world stage for President Obama, and the connection to this MEET THE PRESS guest in 1965, one year after his Nobel Prize win. Only on MEET THE PRESS.

(Announcements)

MR. GREGORY: Is the road ahead a jobless recovery? A special discussion with Alan Greenspan, Jim Cramer, Governor Jennifer Granholm and former Governor Mitt Romney after this brief commercial break.

(Announcements)

MR. GREGORY: We're joined now by CNBC's Jim Cramer and former chairman of the Federal Reserve Alan Greenspan, as well as Michigan Governor Jennifer Granholm and former Massachusetts Governor Mitt Romney.

Great to have all of you here today. And it's an important discussion, this focus on jobless recovery.

Dr. Greenspan, I must say, there are some mixed messages coming from the White House economic team this morning. Larry Summers says everyone agrees the recession is over; and yet, you have Dr. Romer saying, "Not so fast. This recession will not be over until we're out of this jobless recovery." What do you say?

DR. ALAN GREENSPAN: Well, those are two separate concepts. And economists will say the recession is over, because what is measured is what's happening to economic activity. And it's very obvious, certainly in retrospect, that the bottom was in July, maybe even June. There's a different issue, however, is when the economy is restored to normal, and that's what the president's talking about. In other words, merely having gotten by the bottom is not all that terrific, because, by definition, at the bottom is when things are worst.

MR. GREGORY: Hm.

DR. GREENSPAN: Worse off. And the result is that you still have a long way to go before you get more normal characteristics in the economy. That's what the president was talking about.

MR. GREGORY: Jennifer Granholm, Governor Granholm in Michigan, I don't have to tell you how hard the situation is, with over 15 percent unemployment in your state. Is this a jobless recovery?

GOV. JENNIFER GRANHOLM (D-MI): You know, David, this week I was at a--the announcement of the Volt vehicle, the, the new General Motors vehicle that's going to be an all-electric plug-in, in the, the boundaries of the city of Detroit. That would not have happened were it not for the Obama administration and the commitment that they've made to the auto industry, to new technologies to make the electric vehicle. So those jobs--you better believe, for those people who work on that line, whose jobs are now safe and will be there for awhile, it's not jobless. But for the 15.1 percent of Michiganians who don't have a job, they are still looking. I can tell you though, David, as governor of the state with the highest unemployment rate in the nation, who has been disproportionately affected by the restructuring of the auto industry, it would have been so much worse if we didn't have an administration that cares about manufacturing, that cares about having an auto industry. These companies would have been liquidated.

MR. GREGORY: Governor Romney, why is it that companies are not investing, that they're not hiring?

FMR. GOV. MITT ROMNEY (R-MA): Well, companies are going to hire if there's additional purchases that require them to, to staff up and to beef up and to start their production lines. People have to be buying things. And unfortunately, what the president created with this $780-plus billion stimulus plan was something which grew government but did not grow the private economy. In fact, in some respects, the, the work that's been done by The Washington Post recently points that out. It shows that there's, there's 10 times as much spending per person in the Washington, D.C., area as there is in the nation at large. This is not going to be a jobless recovery. The economy will come back, the private sector will grow again. But it has been a jobless stimulus. And, and that's unfortunate, because the president had an opportunity to focus on the economy, to create jobs; but instead, Nancy Pelosi and Harry Reid created something that, that stimulated government.

MR. GREGORY: You know, it's interesting. I mean, some people would, would hear that and say that's a partisan view, Jim Cramer. But the reality is that there are people who say, "Well, what if you got this stimulus to take effect sooner, you got more than 20 percent of the money actually paid out?" The president this week said that Republicans seem to be rooting for failure; and yet, it was Republicans who, at the outset of the stimulus debate, said, "What about a payroll tax holiday? Let's do something to prime the economy faster."

MR. JIM CRAMER: I don't think that--when I talk to CEOs, and I talk to dozens of them for my show, no one has seen it. I keep asking, "Where's the money? Have you seen any money coming from Washington?" Even companies that are involved with road building, the most elementary aspect of any sort of stimulus, are saying, "No, this is the first quarter that we may have seen a trickle." So I agree with you, David, this--the stimulus is not helping create jobs. And that's not Republican or Democrat. I just don't see anything beyond municipal and state worker compensation.

MR. GREGORY: Dr. Greenspan, let's stay on this issue of jobs, and, and a bit of a historical perspective here. There's a very interesting chart--which we'll show in just a minute, but let me set it up first--which compares the depth of job loss in this recession to that of the recession in 1981 to 1983. And let's put that graphic on the screen and you can see it. The red line, '81 to '83, and the black line is 2000 to the president--present. The, the end point there on the graph on the right shows that, at this point in the recession in the early '80s, you had seen a return almost to not 100 percent employment, but back to where it had started. That's almost a V. Whereas you look at the depth and the duration of this recession and the job loss, it's a much darker picture. What does that say to you about what recovery's going to look like and how long it's going to take for unemployment to come down below 10 percent?

DR. GREENSPAN: Well, first of all, the reason that we're looking at such a difference is that in the current period, it's very apparent to me that business got very frightened when the crisis occurred and presumed that the economy was going to go down far more sharply than it actually did. Indeed, I think Dr. Romer was making much the same point. What this means is that we have a level of--a level of employment at this stage which is barely adequate to staff the level of output, and that it seems to me virtually inevitable, if nothing else were to happen, that employment would start to come back fairly quickly. That's not the same thing as saying that the unemployment rate is coming down, for two reasons. One, it takes 100,000 a month of employment increase just to stay even. But in addition, as Dr. Romer pointed out, as the economy improves, you're going to get a number of people who are not seeking jobs, meaning they're not in the labor force, who will now start to come back, and that will make the hurdle as to bringing the unemployment rate down quite difficult.

MR. GREGORY: Is that to say you think unemployment goes up before it ultimately comes down?

DR. GREENSPAN: I don't know. But what really concerns me, David, is that 38 percent of the total unemployment are those unemployed more than 27 weeks; and indeed, a significant part of that is a year or more. These people are losing their skills, and it is very critical that those people have the skills when the economy comes back or we will not be as productive as we'd like to be.

MR. GREGORY: And, Governor Granholm, that gets to a point that I, I've talked to people, you know, on, on, on my staff and outside about what jobs are coming back? How much are these jobs going to pay? Are they going to be the same kinds of jobs or, as Dr. Greenspan suggests, because of the, the skill disparity, they're not going to be very good ones?

GOV. GRANHOLM: Well, I think it's very clear these are not going to be the same kinds of jobs. There is no doubt that the--I mean, I just give you my Michigan perspective on this, but the traditional manufacturing jobs, which have repetitive motion, we know that a lot of those have gone to India, to China, to Asia. But we, we know we also need the investment in a level of skill, as Dr. Greenspan said. And let me--I have a prop. So this is today's Detroit Free Press, which I was reading. This is a fellow who runs a, a, a--used to run an auto supply company, and now they're making wind turbines. And the workers, who were auto workers, are now making wind turbines and they're all employed. It's a slightly different skill set...

MR. GREGORY: Mm-hmm.

GOV. GRANHOLM: ...but machining is required. So part of the stimulus, though, David, allowed for us to reconfigure our whole training system, and it makes something called No Worker Left Behind where people are being trained for specific emerging sectors in the economy. So you have a skills gap that has to be filled. The stimulus has helped us to do that. And we have an economy that's in the middle of a massive transformation. So both need to happen; you need to stimulate those new technologies and you need to train the workers for that.

MR. GREGORY: So, so, Governor Romney, then, what about this new jobs package from the president, who says, in effect, we need more stimulus, additional stimulus to specifically help the private sector start hiring again?

GOV. ROMNEY: Well, I think, first of all, he's admitting that what he put in place at the beginning of the year, almost a trillion dollars of stimulus spending, hasn't done what it was intended to do. He predicted that if they put in place that bill, that they would be able to hold unemployment at 8 percent or below. It's gone to 10 percent, and that's what they said would happen without their bill. So it was a failure. So now they're trying to change it. It's been a year, and obviously that's an extraordinary failure.

But secondly, the, the right course here is not to create a new stimulus, but to fix the one they've already passed. So let's take that money that's been allocated to all sorts of government programs that aren't necessary and they're not growing the economy, and let's instead focus that on efforts that'll actually create jobs: an investment tax credit, allowing businesses to expense capital expenditures in the first year, reducing the payroll tax. These kind of things will get jobs growing immediately. And the TARP money, the TARP money that's being paid back, don't put that under more government. Give that money back to the, the investors, if you will. Give it back to pay back the debt, get the government debt off the books. We have to show the world that we're not going to keep growing government and borrowing more and more money. Pay back what's been borrowed, the federal deficit.

MR. GREGORY: But you--but, Jim Cramer, you know, the--you heard Dr. Romer say, "Look, we've got to grow the economy before we start attacking the deficit." And you also hear from inside the White House, wow, all these, you know, calls by Republicans to deal with the debt. You know, where were they when George W. Bush was president? What do you say about that, what the priority ought to be?

MR. CRAMER: Well, I think the priority ought to be get rid of the agenda. I hear the agenda over and over again from business people. In other words, Congress is stalled on health care. I favor universal health care, everyone does in this country. But Washington is killing job growth, not--and then trying to stimulate it small scale? How much does it cost to bring a new employee in? We don't know. We don't know what the health care will be. We don't know what the tax scheme will be. Washington is at the root of many of the problems of why you should hire here. The CEOs I talk to, they're hiring. They're hiring in Brazil, they're hiring in Russia, China. Why are they hiring in those countries? Because it's steady, we know what to get from the government. It's a rather, it's rather quizzical that we know what the communists'll give us but we don't know what the capitalists'll give us.

MR. GREGORY: This is an interesting question about our role in the world, how the rest of the world sees us, our commitment to capitalism and, in corporate America, Dr. Greenspan, the notion of where is the certainty? Washington is a big question mark now when it comes to climate policy, healthcare policy. A lot of businesses saying, "Look, we don't know what's coming down the pike." There's no impetus to grow, to expand, to invest.

DR. GREENSPAN: That's the key problem; that is, investment occurs when you have a stable economy and when you can foresee what's going on in the future. Because, remember, you make a risky investment which may have 10 years or 15 years life to it, and unless you have some semblance of a notion as to what is out there...

MR. GREGORY: Hm.

DR. GREENSPAN: ...you're going to be reluctant to invest. And that is key. I mean, I agree with Jim in this respect. I think it's very critical that we get the uncertainties out of the system.

MR. GREGORY: Do you think additional stimulus for jobs makes sense at this stage?

DR. GREENSPAN: No. I think what is missing in this whole discussion is that the--what I presume to be the major source of the recovery, and that is the remarkable increase in the amount of stock market wealth that has occurred in the last six to nine months. People think stock prices are just paper profits. They are not. They create real purchasing power and, most importantly, they create a fluidity into the financial system which is the reason why even though banks are not lending freely at this particular stage, they are solvent and the problems that we had six to nine months ago have disappeared, because essentially $5 trillion worth of increased equity is pouring into the economy. And you can see it in the retail sales figures. 401(k)s, for example, have increased by half a trillion dollars.

MR. GREGORY: And yet the president says Wall Street's to blame. He just said it in his radio address. Is that the wrong message?

DR. GREENSPAN: Well, the problem is that there is an issue here, namely that this is a bivariate type of economy.

MR. GREGORY: What does that mean?

DR. GREENSPAN: It means that, it means that...

MR. GREGORY: Don't try to slip that in here where we can't understand something.

DR. GREENSPAN: Well, it's my old Fed...

MR. GREGORY: Exactly.

DR. GREENSPAN: It's my old Fed speak coming back.

MR. GREGORY: Exact--old habits, yeah.

DR. GREENSPAN: I can't break the habit. Look, there were two economies here, which is very unfortunate. The economy is being driven in a positive sense by big business and wealthy individuals. Small business, small banks and a very significant part of the unemployed are not prospering. I'm particularly concerned about where the job machine is relevant to small business...

MR. GREGORY: Mm-hmm.

DR. GREENSPAN: ...which are doing miserably. They're getting--have great difficulty financing and great difficulty in creating jobs.

MR. GREGORY: Governor Granholm, how do you see this divide which, you know, been sort of boiled down to Wall Street vs. Main Street? Because the president does have a problem: Wall Street's gotten healthy again, Main Street has not. And you're, you're seeing it, Main Street all over your state.

GOV. GRANHOLM: Yeah. And this--I mean, so much of that has to do with the fact that there is so little access to credit both for homeowners who want to refinance and for small businesses. This issue of the tightening down of credit requirements on the part of banks have made them extremely paranoid. And therefore, especially...

MR. GREGORY: But I thought we wanted tougher rules.

GOV. GRANHOLM: ...in our state, where we've got...

MR. GREGORY: I thought we wanted more oversight.

GOV. GRANHOLM: Well, we...

MR. GREGORY: I mean, I thought this was a good thing.

GOV. GRANHOLM: And I think that's--yeah. But to then block--you get--give the banks all this money and then block it so much that money can't go out, and the whole purpose is to get the money out the door.

MR. GREGORY: Mm-hmm.

GOV. GRANHOLM: And that's what the president is talking about. We have so many auto suppliers who want to diversify into defense, into green and clean technology products, but they--even though they've had great credit and have always made payroll and they have always made their bank loans, they cannot get a loan. That is wrong. So that's the next step that the president intends to address.

MR. GREGORY: Right.

But, Governor Romney, I've spoken to bankers this week who say, "Look, we do have programs in place." This was a, a banker at a very healthy U.S. bank. "We do have big programs in place to lend. There isn't the demand out there, because small businesses don't want to take a risk right now on the venture, on the ultimate enterprise that they would--want to get money for."

GOV. ROMNEY: Well, you still have, in this country, a lot of concern, a lot of fear. We, we vacillate, during economic cycles, between the euphoria and the optimism of the up cycle and then the fear of the down cycle. There's still a lot of fear going on. And, and one of the reasons for that is that the, that the government is, is attempting to play such a, an extraordinary control role over various sectors of the economy that people are very, very concerned. That's certainly true in health care; people see the government potentially changing the rules there, taking over almost one-fifth of the economy, that scares them. The financial services sector has to be terrified after what they saw over the weekend come from Congress. And so as a result of this kind of overreaching by government, people are pulling back. What, what you're going to have to do is free the private sector to do what it always does, which is to recover from this recession, to start hiring people again and providing the opportunities that particularly those in small business desperately need.

MR. GREGORY: Let me turn to another question about the role of government, and that is the role of the Federal Reserve. Dr. Greenspan, Paul Krugman, liberal economic economist for The New York Times columnist, wrote this this week about what the Fed ought to do: "There's also," he wrote, "I believe, a question of priorities. The Fed sprang into action when faced with the prospect of wrecked banks; it doesn't seem equally concerned about the prospect of wrecked lives. And that is what we're talking about here. The kind of sustained high unemployment envisaged in the Fed's own forecast is a recipe for immense human suffering--millions of families losing their savings and their homes, millions of young Americans never getting their working lives properly started because there are no jobs available when they graduate. If we don't get unemployment down soon, we'll be paying a price for a generation." Does the Fed have more to do?

DR. GREENSPAN: I think the Fed has done an extraordinary job, and it's done a huge amount. There's just so much monetary policy and the central bank can do, and I think they've gone to their limits at this particular stage. And you cannot ask them to create more than is physically possible. They, they stopped what essentially was a major financial collapse by interposing sovereign credit for private credit for commercial paper, for essentially blocking a number of problems which emerged especially, incidentally, in conjunction with the Treasury, the so-called TARP program, where they put capital into banks.

MR. GREGORY: Mm-hmm.

DR. GREENSPAN: I thought at that point was essential. The difficulty is there is a limit. And if the Federal Reserve does not, in fact, pull in all of the stimulus it's put into the economy, then down the road is inflation. It's a long way down the road and it's not immediate. But the question is, you cannot ask a, a central bank to do more than it is capable of doing without very dire consequences.

MR. GREGORY: Are you worried about the Fed's independence?

DR. GREENSPAN: Very much so.

MR. GREGORY: What do you think the consequences of some of the legislation on Capitol Hill are now?

DR. GREENSPAN: If, in fact, specifically, they take away the amendment that was passed in 1978 which prohibited the GAO, the General Accounting Office, from auditing monetary policy, if that is removed, I think that will very significantly compromise Federal Reserve independence. And what you will be getting is a monetary policy more dedicated to political short-term considerations, not to the longer-term considerations which the Federal Reserve Act was specifically constructed to do.

MR. GREGORY: Jim Cramer, let me ask you about something on a slightly different level, which is the U.S. role in the world. There's a lot of other countries who are pretty down on the U.S. right now, as, as we've talked about. And the president talked about the role that the U.S. plays in, in the world. He gave a speech expect--accepting his Nobel Peace Prize, during which he said this, and I'll put it on the screen: "I face the world as it is, and cannot stand idle in the face of threats to the American people. For make no mistake: Evil does exist in the world." And yet, recently, just last week when he rolled out his plan for Afghanistan, he said there are limits to what the U.S. can do to factor in national security. This is what he said then.

(Videotape, December 1, 2009)

PRES. OBAMA: We fail to appreciate the connection between our national security and our economy. In the wake of an economic crisis, too many of our neighbors and friends are out of work and struggle to pay the bills. So we can't simply afford to ignore the price of these wars.

(End videotape)

MR. GREGORY: The question is, can we do both? Can we stand up to evil and also be mindful of the balance between an economy in trouble and wars that are being fought?

MR. CRAMER: We tried it in the '60s, didn't work so well. That's the guns and butter Lyndon Johnson period. I feel very strongly that the, the notion that we have enough money to do all these things is also at the root of some of the paralysis that's in business. People talk about the deficit as if it's, "well, there's nothing we can do." Obviously, if we're going to finance wars around the globe, we have to cut back or raise taxes. Your questions to Dr. Romer were right. Taxes have to go up if we're going to continue to finance and the rest of these countries around the world are not going to help.

MR. GREGORY: Governor Romney, our role in the world here. The auto companies going through bankruptcy; and yet, we find out this week that, in fact, the Chinese are buying more cars for the first time more than Americans.

GOV. ROMNEY: We can compete around the world, there's no question about that, David. We have the capacity to do that. The American workers are the best in the world, our technology is at the leading edge. America, long term, can be the, the powerful economic engine it's always been. But the real threat right here is something that Alan Greenspan just said, and that is that if we don't take action to rein in the scale of government and the growth of government spending and the compensation levels of government workers--you saw government workers, average government workers, are now making $30,000 a year more than the average private sector worker. These kinds of excesses and the massive deficits that, that, that government is putting in place, over a trillion dollars a year for these coming several years, this threatens our long-term viability, because it, it, it suggests that we could have runaway inflation. And, and the Fed and the federal government are going to have to rein in, pull back from what have been the excesses of these past years, Republican and Democrat. It's not a partisan issue, it's a growth of government issue. And it's got to stop, or America's future could be very much in jeopardy.

MR. GREGORY: Dr. Greenspan, where are we next year? Where is unemployment in December of next year?

DR. GREENSPAN: It's going to be lower. You know, we're going to get a special bonus that nobody really expects in the fact that the bureau of the census announced that it's going to employ 792,000 workers by April. That's a big--it's not a huge number, but it'll take several 10ths of a percent off the unemployment rate. The unemployment rate will be significantly lower a year from now. But between now and then, largely because of people coming back into the labor force, almost irrespective of how much employment expands, the unemployment rate will probably stay high. I don't think it will stay at 10 percent, but it's not going down very quickly or very dramatically.

MR. GREGORY: You talked about the role of the Fed. What about interest rates? Do they have to stay where they are?

DR. GREENSPAN: They can't, in the sense that over the very longer term it's pretty obvious that as the economy begins to pick up and as loan demand begins to pick up--remember, loan demand has been very dull, because businesses are very heavily liquidating inventories.

MR. GREGORY: Mm-hmm.

DR. GREENSPAN: That's coming to a halt. And when that happens, loan demand will come back and the pressures on short-term interest rates will begin to grow.

MR. GREGORY: Governor Granholm, I want to give you the last word here, and that is a question that brings all this home. What is the psychological impact on our country of this kind of jobless rate and the effects of this kind of recession? You're seeing it every day up front.

GOV. GRANHOLM: There is no doubt that people are angry and frustrated, and certainly there is a pullback on spending as a result. But, David, you know, I think that we've got to, as, as leaders, be projecting confidence in the steps that we are seeing. And truly, there have been--there has been progress.

MR. GREGORY: Right.

GOV. GRANHOLM: Dr. Romer said in January we're losing 700,000 jobs a month.

MR. GREGORY: Right.

GOV. GRANHOLM: Last month it was 11,000. So there is progress, there are signs of hope. We can't be all about doom and gloom.

MR. GREGORY: All right.

GOV. GRANHOLM: So I'm, I'm confident and I'm optimistic.

MR. GREGORY: All right, we're going to leave it there. Thank you all very much.