This is a rush transcript from "On the Record," June 5, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Former Speaker of the House Newt Gingrich joins us. Good evening, Mr. Speaker. And is it true you are comparing our current president, President Obama, to President Jimmy Carter?

FORMER SPEAKER OF THE HOUSE NEWT GINGRICH, R – GA.: Well, what I compared was the sense of confusion about our enemies and the unwillingness to be bold and positive about America when overseas, which are very similar to the attitudes that Jimmy Carter had. I do think if you look at the confusion Carter had, for example, about Iran or about the Soviet Union, it's a little bit like the confusion we see in the current administration about Iran or about, say, North Korea.

VAN SUSTEREN: You use the term "confusion." I suspect if President Obama was here, he'd say, That's not the word I'd use, but rather that I'm -- sort of a new beginning, and instead, I at least want to, you know, reach across the aisle to talk, not necessarily be weak but to talk to them. Is that confusion or am I -- do you disagree with that?

GINGRICH: Well, look at the record of the last few weeks. President Obama indicates he would like to deal with North Korea. They set off a nuclear weapon. He indicates he would like to deal with North Korea, they fire a missile. He indicates he'd like to deal with North Korea, they suspend the 1953 armistice and say there's no longer an armistice in the Korean war. We indicate we'd like to talk to North Korea, and a North Korean navy patrol boat penetrates South Korean waters, causing an incident.

Now, at some point in that list, you might think the North Koreans are sending us signals but they're not signals of respect and cooperation. Similarly, several hours before the president spoke in Cairo, the ayatollah actually said -- the key leader of the dictatorship in Iran -- gave a speech in which he said, Beautiful speeches will not change the fact that we hate America. We hate America because of American policies. We're going to hate America.

And as Andy McCarthy (ph) pointed out, it's a little strange that the Iranians do everything they can to tell us that they are determined to get nuclear weapons, they're determined to finance terrorism, they're determined to undermine the United States and destroy Israel, and we don't seem to get any of those messages.

VAN SUSTEREN: If the Iranian president -- the Iranians are belittling the president for beautiful speeches, is there a harm to at least making an effort by going to Cairo and speaking, or is it simply that it is of no value?

GINGRICH: No, I think this speech in Cairo in some ways was a very positive and a very creative speech. I think in some ways, the president clearly represents the American view very effectively overseas. It's very helpful for the world to see that your father can come from Kenya, and in one generation, you can be elected president of the most powerful nation in the world. It's very helpful for the world to see that we have a leader who is actually willing to explain and defend why freedom in Afghanistan is worth fighting for. So there were parts of the speech I thought that were very, very good.

But there were parts of the speech, both his unwillingness to accurately portray the role of America -- remember, the United States has defended Muslims in Bosnia, in Kosovo, in Kuwait, in Iraq, in Afghanistan. I mean, we do deserve some credit as a country. We deserve to have a president go overseas and say, I am proud of what American men and women in uniform are doing in order to expand freedom, and we're not there as conquerors, we're there as helpers.

Now, he partially said it a little bit about Afghanistan. But if you read the speeches, they've very, very, I think, confused about the nature of the world, and I think in some ways dangerously confused.

VAN SUSTEREN: Do you agree that we could probably make enormous progress in trying to solve many different parts of the world that are trouble spots if the Israeli-Palestinian conflict could be resolved? I'm not saying that it could, but do all roads sort of lead back to that conflict in some ways?

GINGRICH: You know, Greta, I believe if we could somehow next Thursday create Iowa cornfields across all of Saudi Arabia and develop wonderful opportunities for growing bananas all across Greenland, that the world would be a much more interesting place.

Now, I think that's about where we are with the Israeli-Hamas peace process. You have Hezbollah in the north, funded by the Iranians, seeking to destroy Israel. You have Hamas in the south, funded by the Iranians, seeking to destroy Israel. The president yesterday talked about Hamas being a legitimate part of this process, yet we have seen zero evidence, literally zero evidence that Hamas is prepared to any way give up on its desire to destroy Israel.

Now, how do you have an effective peace process when one of the two sides says, I want to destroy you as soon as I can, but I'd be glad to chat with you between now and the time I destroy you?

VAN SUSTEREN: I guess that I wasn't -- you know, what I was suggesting is structurally, in terms of trying to go about -- trying to at least temper things a little bit, is that you don't have so many problems with Iran, Hezbollah and Hamas if you sort of take away their stated motivation, which is the Israeli- Palestinian conflict.

GINGRICH: Well...

VAN SUSTEREN: Or I mean, does it somehow...

GINGRICH: Yes, but...

VAN SUSTEREN: I mean, does it at least begin -- I'm not saying we could even solve these problems. I'm just sort of curious, like, you know, what do we -- what do we try to bite off first?

GINGRICH: Greta -- Greta, the Iranian position on Israel is that it should be destroyed. Now, they don't care about some kind of temporary two-state solution. Their position is the destruction of Israel. That's why this is hard.

VAN SUSTEREN: So in other words, it -- so it doesn't matter. So trying to -- so in terms of Iran, it doesn't matter if somehow we could try to fix -- and I don't know that we can -- the Palestinian-Israeli conflict, but Iran will remain a problem to us.

GINGRICH: Well, first of all, the Iranians are financing the anti- Israeli terrorists both in the north with Hezbollah and in the south with Hamas. So the idea that if we could cut a deal with Hamas, which is controlled by Iran, we'd have a better deal with the Iranians starts from the false assumption that Hamas is not going to, in fact, in the end, do what the Iranians want. If -- I mean, it'd be better...

VAN SUSTEREN: I wasn't suggesting...

GINGRICH: ... to reverse it. If we...

VAN SUSTEREN: ... we cut a deal with Hamas. I wasn't suggesting we - - we do a deal with Hamas. I was just trying to figure out sort of, like, when you step back and look at the world, I mean, that everyone's using as an excuse this conflict between the Israelis and the Palestinians.

GINGRICH: But let's -- let's reverse it. If Iran tomorrow morning became a decent, law-abiding democracy and gave up the desire to destroy Israel and gave up funding terrorism, the Israeli peace process would happen overnight. So in a way, the question is, is Iran the central problem or is the challenge of Israel and Hamas and Hezbollah the central problem? I would argue Iran is a much more greater threat to peace in the region than anything happening around Israel.

VAN SUSTEREN: So the next question has to be, what do we do about Iran? How do we approach Iran? What's the smart thing to do, if they're sort of the breeding point for this?

GINGRICH: Well, I think this is where the administration at some point this year is going to collide head on with reality. In the case, as I said earlier, of Jimmy Carter, he just ignored it. I mean, he had 444 days of the hostage crisis. He had the Soviet invasion of Afghanistan. He had the Nicaraguan communists invading El Salvador and taking over Grenada. He just ignored all that stuff and it just all got worse.

The president, I'm afraid, is going to find some time in the next four or five months that nothing he says has any impact on the Iranian dictatorship, nothing he says has any impact on the North Korean dictatorship. Now, the president is a very smart man. He has a very good national security team headed by General Jones. It'll be very interesting to see at that point if the president reaches the conclusion that dialogue will not work. Then what is he, in fact, going to recommend to the United States and to our allies?

VAN SUSTEREN: And that's where we -- that's right back to where I -- you know, where we started, sort of, almost, is that if -- if...

GINGRICH: Yes, I think that's right.

VAN SUSTEREN: ... words don't do it -- if words don't do it, dialogue doesn't do it, what's -- what should we do? I mean, give me some options.

GINGRICH: Well, I think the key -- you know, as you know, in our film on Ronald Reagan, the key was that Reagan liberated Poland, Ukraine, Estonia, Latvia, Lithuania, Romania, Czechoslovakia, Hungary, East Germany. He did it by a combination of political, military, economic and intellectual pressures. He did it without firing a shot. There was no war in Eastern Europe. The Soviet Empire collapsed.

I think you could design a strategy both in North Korea and Iran that would peacefully over time lead to a much more acceptable government. But I think it's very hard to see how with the two current dictatorships you're ever going to have anything except an armed truce where you have to worry every morning about what they do, and where every week, they either get more nuclear weapons in North Korea or they get closer to having their first nuclear weapon in Iran.

VAN SUSTEREN: All right, so I guess the model is the Ronald Reagan model, in your mind. So I guess the question has to be what would Ronald Reagan do?

GINGRICH: I think that's right. And I think -- I mean, you just quoted the Heritage Foundation slogan. I mean, I think -- I do think -- but I think it's not just Reagan. Historically, when you're faced with an opponent who is unwilling to change, you either have to decide you're going to live with it or you have to decide you're going to find a way to replace the opponent. Ideally, you'd like to replace them without military action and you'd like to replace them by a combination of economic and political and information warfare techniques that are non-violent.

VAN SUSTEREN: Mr. Speaker, if you will stand by, we're going to have much more with you in just two minutes. Do not go away, sir.

Plus, Liz Cheney is here. There is news tonight that may turn former Vice President Dick Cheney's critics upside down. They aren't going to like this one. Wait until you hear this. Plus, Liz Cheney -- she's coming right up.

And then Dick Morris says President Obama's goal is not to stimulate the economy. Well, if that's not the president's goal, why are we spending the money? That's odd. Dick Morris will tell you coming up.

And a honeymoon heartbreak and maybe a murder 30 feet below water. You go inside a fatal scuba diving trip that killed newlywed Tina Watson in Australia. A man who was on that fateful scuba dive with the honeymoon couple goes "On the Record."

(COMMERCIAL BREAK)

VAN SUSTEREN: Former Speaker of the House Newt Gingrich is back. Mr. Speaker, the president has announced that he's going to create the job of a "pay czar" to monitor the payment to some executives of companies that are getting the bail-outs. Senator Byrd has said that he doesn't like this czar business because it seems to avoid congressional oversight. What's your thought?

GINGRICH: I think this mess is just going to get worse. Now we're going to have a pay czar. Now we find out that Senator Byrd doesn't like the pay czar because Senator Byrd would like the Congress to be, I guess, the pay Congress. Presently, Barney Frank will want to hold hearings with the pay czar to decide whether or not the pay czar is doing the right things about paying and whether he's doing too much or too little.

I mean, this -- once you get the federal government in the middle of a free enterprise system -- legitimately, the taxpayers have to say through their representatives, What are they doing? The minute you get into, What are they doing, it's a total mess. You're presently going to have all of these companies spending half their time testifying in front of Congress. Nobody's going to be running the countries.

We're going to be competing with German and Chinese and Japanese companies that actually have (ph) to pay full-time just to competing (ph). And they're going to watch American executives who spend half their time getting ready to testify to the Congress or getting ready to meet with a pay czar who's going to have to keep careful records because he's going to have to go testify to Congress. You can't imagine a year from now what a mess this is going to be.

VAN SUSTEREN: And I should probably have been a little clearer. It was Senator Byrd who wrote a letter in February that he didn't like the concept of czars. He hasn't spoken out, as far as I know, about this particular czar. But the whole point of sort of transparency, it seems to me -- and maybe you have this thought -- but why not, if we want to monitor what these companies are paying their executives who are getting taxpayer money, just put it on the Internet instead of hiring a pay czar? That might be simpler.

GINGRICH: Sure. Look, you could do that. I was in a series of meetings with business leaders in Connecticut yesterday, all of whom said to me they are busy hiring every first-class executive they can away from the companies that are taking government money because everybody who's a good executive wants to get out because they see what a mess this is going to be.

So what you're going to have is a constant drain of energy, talent, entrepreneurs, a brain drain away from these companies. And now you could publish all their income. That's fine with me. Once you go down the road of these being public institutions, they're public institutions. That's why what we ought to do is get them back into the private sector, get the government out of them, quit bailing out and socializing and creating national systems because I don't see how this is going to work.

VAN SUSTEREN: What about the new unemployment numbers, 9.4 percent unemployment in the month of May, and in February, it was 8.1? So the numbers are going up. And that doesn't take account of the people who've given up and aren't even looking for jobs. Is it too soon to be looking for markers about whether the stimulus package that was voted in February works? I mean, when should -- if it's going to work, should those numbers start turning around?

GINGRICH: Well, I think -- I mean, in all fairness, I think unemployment numbers are a lagging indicator. The economy starts to turn while you still have unemployment going up.

I think the greater danger for the country is that the stimulus package might, for one or two quarters, improve things temporarily. But there's nothing in the stimulus package which is going to create long-term growth. There's no evidence anywhere that a trickle-down bureaucracy either achieves real wealth or achieves real prosperity because once the money's gone, it hasn't created anything new. It hasn't created any momentum.

And I think the greater danger for America is that over the next two or three years, we're going to find ourselves caught in a kind of stagflation like the late 1970s, where every time we start to improve, interest rates go up, the price of gasoline goes up, the economy tanks again. We start to improve, interest rates go up, gasoline goes up, we tank again. I think that's what we have to worry about.

VAN SUSTEREN: All right, now, President Obama has made some big changes in the government. And it's -- and right now, you know, we haven't felt, you know, a tremendous amount of the effect. We just know that there's something going to happen, whether it's good or bad. And if unemployment numbers are sort of a lag indicator, how far down the road -- when can we -- when are we going to find out whether his policies are really good or really bad? I mean, we're all talking about them now, but when are we going to really feel them?

GINGRICH: I think sometime in the spring of 2010 is a fair test. You're apparently going to have both Chrysler and General Motors close for two months this summer. That will increase unemployment both for the workers in the plants and for the parts companies that provide them parts to manufacture cars.

You're going to have -- I think the number I saw recently, and I can't quite believe the number is this high, that you may have as much as 2,800 auto dealers closing down. If you assume the average auto dealer has 50 employees, you know, that's another very large tranche of 140,000 unemployed.

So there are a number of things to be digested into the system yet that we haven't even seen begun to work. And I think that it -- you know, in fairness to President Obama, I think you can't really judge -- I don't think this program will work, just intellectually, but you can't judge whether or not it's working before sometime in 2010.

VAN SUSTEREN: What do you think about his trip to Germany, and on to Normandy?

GINGRICH: Well, I haven't seen what he said or did in Normandy. I can tell you, though, having -- Callista and I were at Auschwitz filming a movie about Pope John Paul II last week, and I know that he went to Buchenwald. It is horrifying to be in the death camps. And there what a report that came out yesterday, that the newest inventory indicates there may have been as many as 15,000 death camps in the Nazi system.

And any of our viewers who've never been there, you can't imagine how horrifying these places are and the level of evil that was captured in the Third Reich that I think really is just staggering. And I'm sure that the president found today to be a very emotional day and a day of very deep regret at the evil that some humans can do.

VAN SUSTEREN: We've got to go. Thank you, Mr. Speaker.



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