Steven Mnuchin: No Question I Would Place More Sanctions On Russia

March 3, 2022

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By Jacob Wolinsky. Originally published at ValueWalk.

Following is the unofficial transcript of a CNBC exclusive interview with Liberty Strategic Capital Founder & Managing Partner and former United States Treasury Secretary Steven Mnuchin on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Thursday, March 3^rd. Following are links to video on CNBC.com:

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ANDREW ROSS SORKIN: Welcome back to Squawk Box this morning for more on what Russia’s invasion Ukraine means for the global economy, inflation and so much more. Joining us right now for an exclusive interview is former Treasury Secretary, and Liberty Strategic Capital Founder and Managing Partner, Steven Mnuchin. It’s great to see you. Great to see you as well. So you’ve been thinking about this and these issues for a very, very long time. I’m curious now that we’re in it. And there’s real questions about the sanctions that are put in place when it comes to Ukraine, if you were the Treasury Secretary, what do you think you would do at this point?

STEVEN MNUCHIN: Well, let me just say you know, we’ve, we’ve thought about these situations for a long time. This is not a scenario I ever contemplated we’d be in. I think the sanctions in general are very effective. In general, they’re more effective ahead of time so I would have been putting more sanctions on earlier on. I don’t think sanctions alone are in any way an off ramp, but there’s no question at this point I would be putting on more sanctions. As an example, I think the administration’s sanctions of SWIFT and others are a good start. There’s a carve out for oil and gas from Russia, I would immediately cease any payments in the energy markets. The fact that money is still going to Russia through that is something I would stop immediately and I would sanction more people that are around Putin.

SORKIN: The costs of doing that and the Biden administration has put that on the table and there are others obviously that are pushing for that, to the United States and to Europe do you think would be what?

MNUCHIN: Well Andrew, look, you know, I’ve always said sanctions are very powerful tools and like other powerful tools, the US has a responsibility to use them carefully. And there’s no question that these are very effective because the US is the reserve currency of the world and will be for the foreseeable future. I think we’re not at a point where this is a cost benefit analysis. This is a huge human tragedy, civilians are being killed. And we can’t worry about what the economic costs are on oil prices. We need to have maximum pressure to stop this horrific situation.

SORKIN: You mentioned SWIFT, there are some included Jamie Dimon and others who have commented that just shutting down SWIFT onto itself is not enough that you effectively if you want to provide, if you want to have sanctions you should have sanctions but also raising questions about what taking down the SWIFT system for them does because of the reserve currency issue, what you think it may do with China and everything else?

MNUCHIN: Well, the way that sanctions work is there’s primary sanctions and secondary sanctions. The primary sanctions are designed for individuals and for companies. So for example, in 2008, we sanctioned Deripaska and Rusal. You also put on then secondary sanctions. What secondary sanctions say is that no banks can do business with primary sanctions or they get cut off from the dollar system, and that would include SWIFT. So the answer is I think there needs to be many more primary sanctions but the SWIFT sanctions are important as well.

SORKIN: Talking about primary sanctions, there’s now an unclassified list that I think you were part of putting together in terms of oligarchs that could effectively be sanctioned. And now a taskforce that’s in play to try to either reconstitute that list or sanction some of those people. How should we, if we were to look at that list, what do we, what do you think should happen?

MNUCHIN: So let me first say I completely support the administration’s move to create a task force but that’s not good enough. In 2017, Congress passed the CAATSA law which required the Department of Treasury to create both a classified list and unclassified list of both oligarchs and people that were close to Putin. The unclassified list merely was a list that said these are all the people that have net worth above X, or were close to Putin. It wasn’t intended to separate the good people from the bad people. That’s what was in the classified report. It was part of that when we designated Rusal and others, that report still exists. I’d encourage the Treasury Department to take out that report, update the classified material, send it to the President, and issue sanctions immediately for those people that are around Putin, and then let the task force worry about going and confiscating assets.

SORKIN: Do you think that sanctions on those individuals puts meaningful pressure on Putin? Would you think they have true influence over him?

MNUCHIN: Andrew, I think one of the things that’s so hard to predict here is many of us did not expect this outcome. So since our original premise is wrong, it’s hard to speculate exactly what will work and as I said, we can all go back and second guess what could have been done. That’s not the point. Now the point is, we all need to be working together about what can be done now and do I think these sanctions will have an impact on the margin? Absolutely. I think the most important thing, quite frankly, and the most influential thing would be for China to come out more aggressively and be part of the rest of the world in condemning this. So, I was pleased to see that the Foreign Secretary did, Foreign Minister did come out and make some preliminary comments, but the world needs to come together and abstaining at the UN is not good enough.

SORKIN: Do you think China’s going to do that? What do you think China’s motivation is at this point in all of us? What do you think they really want?

MNUCHIN: I mean, I’m hopeful look as you know, I was one of the moderates in Washington on this issue. I think the China issue is a complicated issue. There’s both risks and opportunities. I believe we have to figure out how to coexist with China. I probably went back and forth 20 times. They’re things we agree with the leadership on, there are things we don’t agree with the leadership on, now is the time to reach out to China and to encourage China and this is the whole world, not just the US, to come to the table and stop this atrocity.

SORKIN: When you think, you’ve met with Putin before so when you think about what motivates him, and you also may think about an off ramp at this point, Mohamed El-Erian was talking about what does the off ramp look like and he said, it’s very hard to see what that off ramp looks like. To the extent that you can imagine an off ramp to this situation that we’re in now, not what we could have done but what we can do, what does it look like?

MNUCHIN: Well, I had the opportunity to meet Putin several times at the G20s with President Trump. Again, I would just say from my interaction, I never expected this was an outcome that we’d end up with. I think many of us could envision what the off ramp was beforehand. The off ramp is obviously starts with a ceasefire. So the first thing we need is we need these talks and we need pressure to lead to a ceasefire. Once there’s a ceasefire, you know, we can all speculate where we go from there, but that’s something that we need to have happen immediately. We’re all watching these pictures. Obviously, there’s overwhelming military firepower. We’ve got to stop the civilian casualties.

SORKIN: I’m going to go to Joe. I think he’s got a question downstairs.

JOE KERNEN: We talked a little about it already. Me and you Andrew and Becky but the previous conversations Secretary about bitcoin that we had and I don’t know whether it got, you probably don’t, your life doesn’t depend on Twitter. But when you talk about Bitcoin being really purely used for nefarious purposes, a lot of people said, look, there hasn’t been a Bitcoin for thousands of years and there’s been a lot of nefarity going on with cash. I’m just wondering, now we’ve seen Bitcoin run up on what’s happening in Russia as they’re having possibly some trouble using the normal routes and maybe bitcoin is being used. You still view it that way that is almost something that’s morally wrong because of the bad uses or have you come around to where you see it might have inherent value because it’s got a fixed amount and can’t be inflated.

MNUCHIN: Well, let, let me separate the issues and I don’t think this is a moral issue and you’re right. Early on, I thought there were a lot of illicit activities for bitcoin. I think right now, there are a lot of legitimate uses of bitcoin. I mean, there are institutions that are buying bitcoin because they perceive it as a hedge against inflation or other things. I personally don’t agree with that. But if that’s something that they want to do. My issue always has been on bitcoin is bitcoin needs to be compliant with our BSA and our anti money laundering rules, and it’s not. So before I left, I put out proposed regulations that said bitcoin should be treated like cash if you’re sending money to an un-hosted wallet, which means you don’t know the identity and it’s over $10,000, you should have to file a currency transaction report, which is no different than what a bank does with cash. Those regulations are sitting with the Biden administration. Particularly now I would encourage the Department of Treasury to activate those. I think it’s very important. There’s no question that bitcoin can be used for illicit purposes and there are both good actors and bad actors who are who are using it today. If the good actors want to use it, it should be regulatory compliant.

BECKY QUICK: Mr. Secretary, thanks for being here today. It’s really good to see you.

MNUCHIN: Good to see you as well.

QUICK: We never got the chance to ask you in the administration – or at least you wouldn’t answer when you were in the administration – what you thought about Fed policy. The Fed’s obviously in a pretty tricky spot right here. And the big debate in the markets is how quickly should they be raising rates? Are they behind the curve? Are we going to be able to get our arms around inflation? Will they do too much damage to the economy by raising too quickly? I just wonder which side of the debate you come down on? What would you like to see happen?

MNUCHIN: Well, now it is more fun. This is one of the few things I can freely talk about now. I couldn’t talk about the Fed. I mean as you know, Jay Powell and I are very close –

SORKIN: You put him in the job.

MNUCHIN: I did encourage the President to put him in the job. Look, I personally think the Fed needs to be aggressive now in combating inflation. For a very long period of time the Fed could not get inflation to 2%. Powell changed it to where they said they would do it to 2% over time. I think at the time, pre-Covid, that was the right thing to do. You know, I would have stopped the Covid spending. We spent $4 trillion. That was a lot. I think we’ve got to cut back on this ongoing government funding. But there’s no question in my mind if the Fed raises interest rates and if the Fed begins to run off the portfolio that’s going to have a big impact on inflation. Whether he raises 25 or 50 basis points, I saw the comment yesterday that he said 25, I think what he does at any single meeting is less important. I think the question is where are we a year from now? You know, 18 months from now, I think we’ll be at 2, 2.5% Fed funds and 3, 3.5%, 10 years.

SORKIN: Where do you think the economy is going to be though a year from now? I mean, given the inflationary pressures that we’ve already seen, and given what may turn out to be even higher oil prices.

MNUCHIN: Well, let me just say, I think, you know, the economy continues to be very strong, but we’re going to see a divergence in how businesses do. so there’s no question businesses that have high wages as a component and low margins are going to have issues and businesses that have high margins, particularly tech companies – we’re very focused on cybersecurity – are going to continue to see very robust, very robust growth. So I think we’re going to see two things. Oil, look for a long time we’ve had the benefit of cheap oil. I mean $50, $60 oil has been incredibly cheap oil. You know, in the context of long periods of time, $100-$110 oil is not super expensive. It’s something we need to adjust to. And I think the oil markets will normalize and go back down.

SORKIN: So what does that look like? And I ask because, yes, on a relative basis, prices may not seem astronomical, but on a relative basis, which is how people live, it feels astronomical.

MNUCHIN: It does and I’m not minimizing there are short term adjustments, and that is going to impact people and businesses and something we’re going to need to deal with. I think the administration needs to be working with our allies around the world on energy policy. I think one of the most important issues for national security is that the US is energy independent. I personally, not to minimize the environmental issues, but now is the time to reconsider things like pipelines, things like LNG, which are a much cleaner form of energy to focus on carbon recapture. But now is the time when I would be unleashing more oil out of the strategic reserve to stabilize the market.

SORKIN: You talked about national security. We were talking about China earlier. You spent time with President Xi. A lot of folks look at what’s happening now in Ukraine and also start to think about China and Taiwan and what they may or may not do in the future. Whether this is a dress rehearsal for that, whether what’s happening with Ukraine and that the reaction of the rest of the world has any impact on the thinking of China and Taiwan. What do you think?

MNUCHIN: Well, Taiwan is a complicated issue. It’s been an issue that’s gone back, obviously many, many administrations. I do not see this in any way as a dress rehearsal. I don’t think in the near term this is an issue that China wants to confront. In the long term – and the long term could be 10, 25, 50, 100 years – there’s no question that China has this one China policy, but I don’t think in any way this is a dress rehearsal at all.

SORKIN: But do you think – you said 25 years or even longer. You don’t think this is a 2025, 2026?

MNUCHIN: I absolutely do not.

SORKIN: So you think the U.S. has time effectively – and I don’t know if you would do it – would you meaningfully subsidize the semiconductor industry in the United States to try –

MNUCHIN: I absolutely would. There’s a bipartisan bill in Congress on this issue. In general, I don’t believe in government subsidies. But this is an issue. There’s no question that semiconductors are key to our national security and whether it’s Taiwan or China or anywhere else in the world, we shouldn’t be dependent on any foreign country. There’s great technology in the U.S. Many of the US companies that have done this have lagged. And the reason why they’ve lagged because what happens is we’ve separated the chip design, the chip design the U.S. is a leader in from the chip manufacturing, the chip manufacturing is what we need to invest in.

SORKIN: When you think about cybersecurity, and I know you’ve been investing in a number of cybersecurity companies currently, but when you think about what may happen, even over the next several weeks, should we – the U.S. and the West – anticipate that there are going to be major cyber security warfare coming from Russia?

MNUCHIN: Well, let me just say, you know, cyber is an issue I’ve been focused on for a very long period of time. Back when I was at Goldman Sachs, Hank Paulson saw the importance of technology and asked me to come work with him as part of the executive office and I was the CIO. So I’ve been doing this for a long time. In the government I was responsible for cyber for all financial services, and overseeing the IRS. So I spent a lot of time on these issues. And I do think cyber is the number one risk for governments and business around the world. It’s such a big issue that strategically I focused on it, General Joe Dunford is one of my partners in the business, the former Chair of the Joint Chiefs, and almost exclusively what we’re focused on right now is national security and cybersecurity. And the good news is there are an awful lot of very good commercial products available to protect business.

SORKIN: When you think about businesses and vulnerability, do you think about the banks? Are the banks vulnerable? Is it the energy pipeline business? Where should we be focused and paying more attention?

MNUCHIN: Well, financial services has been investing in this for a long period of time. So I think the banks are actually very well prepared. When I was in the government, obviously public private partnerships with the banks was something we were very focused on. And again, this is an evolving issue. This isn’t a one-year issue, again, it’s a 30-year issue. Many industries outside of banking, particularly infrastructure, underinvested in this and are beginning to beef up their investments. But this is something that every single CEO needs to have this as top of mind and be focusing on with their board.

SORKIN: Talk politics for just a moment. In terms of where we are now, we have the midterms coming up. May have big implications for what happens to the economy. What happens to tax policy in the United States. Where do you think we really are and do you think that your former boss is going to run again in 2024?

MNUCHIN: Well, I think if the election were in six months my guess is he would run. What ultimately happens we’ll see. As it relates to the economy, now is definitely not the time to change tax policy. What we don’t need and we could debate whether our tax policies worked or not. I still think they absolutely worked. They created economic growth. If it weren’t for Covid, we would have seen the results of that. But now is definitely not the time to be changing economic policies on either the middle class or businesses.

SORKIN: Becky?

QUICK: Yeah, Steven, what about you? Would you go back and serve in an administration or are you done? Is it private sector for you?

MNUCHIN: You know, it was an experience of a lifetime. It was a great honor to serve the country. I would say I’m basically done and I don’t intend to go back. You know what happens down the road if someone strong armed me to come? Maybe I’d consider. But my intention is really to stay in the private sector.