This is a rush transcript from "Special Report," October 26, 2011. This copy may not be in its final form and may be updated.

BRET BAIER, ANCHOR: Joining us tonight in our "Center Seat" feature, Republican presidential candidate and Texas co ngressman Ron Paul. Congressman, thanks for being here.

RON PAUL, R - PRESIDENTIAL CANDIDATE: Thank you for having me.

BAIER: We have started this, looking at the position of our "Center Seat" guest. We have a new Fox News poll out today. And you take a look at this. You are at nine percen t in this new national poll. And you see Cain, Romney, Gingrich, and Perry there. A new CNN/Time poll in New Hampshire has you in third, at 12 percent. And the same organizations in Iowa have you at third in 12 percent. What do you see as your path to the Republican nomination? What do you have to d o in these early states?

PAUL: Well, you know, a lot of individuals come and go in these polls, up and down. And my support has been pretty steady and continues to grow. So I have to continue to do what I'm doing, moreso. And we're very pleased with it. We raised the money that we need. I need to be out there campaigning. We do our television.

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    But we have to do well. We have directed most of our attention to New Hampshire and Iowa and Nevada, you know, the early states. But I would say that come January it will be make or break for us. There's no doubt.

    BAIER: You have just raised $2.5 million on this money bomb and you have done this a few times. But this one specifically points to what organizations that are tied to your campaign black this out say is unfair media coverage. And the quote is "You are trying to control the outcome of this election" -- "directed towards the media -- and will never cover in a fair, reasonable, and journalistic manner, the only candidate to beat Obama. So we have resolved to counter your efforts." And you raised a lot of money. Do you believe you are getting unfair treatment in the media?

    PAUL: I don't know, I think at times it's distorted. But I don't know if I want to use the word "unfair," because I know how the media works. I mean there's one thing when I essentially tied, you know, in Iowa for the Ames straw vote. I mean it was barely mentioned. Sometimes it would be mentioned, oh they know who is in, first, and third and fourth. So the supporters don't have anything to go by on that.

    BAIER: Tell me about it.


    PAUL: I try to think about my policies and keeping up with the news.

    BAIER: Just for the record, you have appeared on Fox, since your announcement that you were running a total of 43 times and 70 times since January of 2011.

    PAUL: Oh I'm so tired --


    BAIER: So we are giving you a lot of time on this channel. Steve?

    STEVE HAYES, WEEKLY STANDARD: Congressman, I have spent some time over the past couple of days with your plan to restore to America. And there is, I think, a lot in there that Republican primary voters will like, eliminating government departments like education, HUD, and others. One thing that I think might raise eyebrows is the cuts in defense spending, some $200 billion below President Obama's fiscal year 2012 levels. Former Defensive Secretary Bob Gates said that such cuts would be catastrophic in terms of our capabilities. And I wonder why people should trust your judgment over that of Bob Gates?

    PAUL: Well, I think what is catastrophic is what is happening to our debt and the world financial system, and part of it is our military spending. See I don't cut defense. I cut military spending which doesn't from my viewpoint, ya know, help our defense. Which we are all around the world spending a lot of money.

    But you know, even if we go down to the $500 or so billion that I talk about, we would be five times more than what China would have. And if you look at all our spending plus all of our allies, it's literally 70 percent of all the world military spending. We have so many weapons. Nobody -- who's going to attack us? Nobody's on the verge of invading us or attacking us. So I think the crisis in finances has driven me for forty years because I got involved in this because I saw what was coming once, you know, we accepted this new monetary system. And everything is a part of it, all the spending. But you know this, this sovereign debt crisis, is about to explode in our face, today I thought it was pretty interesting to know that the oldest bank in the history of the world since the 13th century is on the verge of going broke. So that tells you how significant this is. So I don't feel like I'm taking anything away from [INAUDIBLE]. I think we're stronger --

    HAYES: When somebody like Bob Gates and other uniform military leaders say that you're --

    BAIER: [INAUDIBLE] -- Panetta.

    HAYES: Panetta and others, the joint chiefs chairman nominee, say that this is weakening America's capabilities, I mean, there is no question that it would leave America a weaker nation. You don't think so?

    PAUL: No. I just disagree with them. But he also said that anybody who thinks about another war, another invasion needs their head examined, too. So I'm trying to head that off.

    No, I wouldn't do it if I thought it was weaker. I believe strongly in the constitution and there is only one group that can have a strong national defense and that is the federal government. But I think the participation in bankrupting this country, we will be defeated more by what is happening with our finances. Another downgrade coming. I mean how long can we continue to do this?

    Ya know in theory, we are borrowing this money from overseas in order to keep this military operation going. But I don't think for one minute we're going to be less safe. A matter of fact, a lot of people can make the argument that we could be more safe if we concentrated on defending this country, worrying about our borders instead of worrying about figuring out where the borders are between Afghanistan and Pakistan.

    BAIER: Speaking of banks, Juan?

    JUAN WILLIAMS, THEHILL.COM: Congressman Paul, I wrote earlier this year this is the age of Ron Paul because, ya know, you look back at the '08 campaign and a lot of the things that you stood for, the debt you are talking about, smaller government, that became the heart and soul of the Tea Party and the Tea Party movement. Now as you watch the Occupy Wall Street movement, do you see them as reflecting some of your anger and frustration with the Fed and with the federal government, Wall Street?

    PAUL: I do. I don't think that -- you know, I could say, well, everything that's happening on Occupy Wall Street is something, ya know, I fully endorse, but I think it's this frustration. I think it's the frustration with the American people not just tired with Obama but tired of the Republicans. They are looking for something else.

    So this is why the election occurred last year with the Tea Party movement, but that hasn't satisfied everybody. This is why I didn't like the idea when I think Cain said that these people ought to just go out and get a job. Why blame the victims?

    But there are some there that would advocate positions that I bet we might agree we shouldn't be advocating. I advocate the market. But I complain that this one percent are very wealthy because they get benefits through the inflationary system, through the contract system, through the military expenditure system, through the bailout system. So I identify with them. And a lot of them are anti-Federal Reserve people that are there.

    But some of them just say the solution is just raise taxes on the rich. And they put everybody in the same category that everyone who's made money is a bad person. And I don't believe that.

    BAIER: Congressman, on the issue of immigration, this is what you said in one of the debates. Take a listen here.


    PAUL: I think this fence business is designed and may well be used against us to keep us in. In economic turmoil the people want to lead with their capital and there is capital controls and there's people control. So every time you think of a fence keeping all those bad people out, think about those fences maybe being used against us, keeping us in.


    BAIER: Charles?

    KRAUTHAMMER: Keeping us in? Any piece of territory large or small that is fenced in and for the purpose of keeping people in is by textbook definition a prison. Is the United States a prison?

    PAUL: Well, I think, you know, there was an Iron Curtain once. I think what we are developing here is a financial Iron Curtain in a way where you can't travel back and forth. I believe it's on both borders. I did medical training, some in Michigan, and some -- and I lived in Texas. And it was always nice that I could go back and forth and no passport.

    So it's very difficult. So not only do we use the excuse of watching for the bad guys coming into our country to control us. Currency and capital controls are very common when you get into difficulties. I'm thinking about the financial controls where you don't have freedom to leave. And they already do exist. People who expatriate --

    BAIER: So that wasn't literal? Your fence reference?


    PAUL: Well, I was thinking of it probably more in finances. But ya know, if it deteriorates, if our system deteriorates, which is quite capable, when this thing breaks down there will be more people control. These I.D. cards, ya know, the I.D. cards, the real I.D. cards they had, well one reason the states didn't like it, well it costs money. But that means you and I have to carry it or we're discriminating. So we say we want to protect the borders, so we end up with the I.D. card. Just this last week, they are checking people in Tennessee, ya know, just like the TSA on our automobiles.

    CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Congressman, in this century capital travels through computers, not in a suitcase across the border. Are you worried that Americans are gonna be stopped at the border with a fence and not allowed to leave?

    PAUL: Financially, I think they will. Even with computers they can put a lot of controls on you.

    KRAUTHAMMER: But a fence --

    PAUL: No, I'm not even for a fence.

    KRAUTHAMMER: That's not going to stop a wire transfer.

    PAUL: Well, they can push financial controls -- they have had wire transfers for years. But they have tax -- ya know, the IRS knows what is going on. You have to report everything. So what I want to do is bring all that money back, not inhibit it from going out. People have the freedom to leave. They should have the freedom to take their assets. It's a well-known fact.

    Now, if you say the conditions are such, hopefully you're right. It would be nice if we can circumvent their desire. But it's inevitable when you have a financial crisis they put on the currency controls and capital controls. I mean --

    KRAUTHAMMER: My point is that a fence never stopped a money wire transfer.

    PAUL: It never stops illegal immigrants either.

    BAIER: We have many more questions with Congressman Paul. The panel continues after a quick break, and then we will go online right after the show. Foxnews.com/SRonline. Your chance to ask Congressman Paul questions. Stay with us.


    BAIER: We're back with our "Center Seat" segment and Congressman Ron Paul. Now turning to foreign policy. Charles, start with you.

    KRAUTHAMMER: You've said that it would be natural for Iran to want to acquire a nuclear weapon, and it will be of no concern to the United States. Well, what if Iran then proceeded to use the weapon to annihilate Israel and kill six million Jews. Would that be of concern to the United States?

    PAUL: I think you misstated my position. It's a big concern. I don't like nuclear weapons -- the less, the better. I have said that right now we don't have the concrete evidence that -- by our CIA or United Nations, that they're on the verge of it. And I don't think that we have enough reason to go to war against Iran.

    I went -- I was in the military in the '60s. The Soviets had 30,000, 40,000 of these. So I know a little bit about confronting an enemy.

    But Israel, you know, has a few of those weapons themselves, like about 300. I think Israel sacrifices way too much sovereignty to us to ask us to deal with their borders and what they can do both defending their borders or dealing with their friends. And right now, Israel is more vulnerable than ever because of the breakdown of all our puppets over there.

    But Ahmadinejad, the Iranians, they are not going to attack somebody with a weapon they don't have. They're not even capable of producing enough gasoline for themselves.

    KRAUTHAMMER: Would you keep sanctions on them?

    PAUL: No. Why put sanctions on them? We took sanctions off the Soviets and they murdered hundreds of millions of people, ya know.

    BAIER: Congressman, in the debate --

    PAUL: In China, the same way. We dealt with -- the Chinese are pretty vicious. So far the Iranians have not invaded any other countries. I know they're -- I know they're very difficult. But they haven't invaded their neighbors and they haven't been threatening to invade us.

    BAIER: In the debate you said "Why wouldn't it have been natural for Iranians to want a weapon? They'd be given more respect. Why should we write these people off? We should stay out of their internal business." So essentially you are OK with Iran getting a nuclear weapon.

    PAUL: Because I can't -- because I can't -- I don't think it's our business to decide. But a good example of this is Libya. Ya know Libya was sort of our friend and then they became our enemy, and then we forgave the killer of Lockerbie. And then we said would you give up your weapons? And he gave up his weapons, then he got clobbered, so -- with NATO, with us. So it's a good lesson. Hang on to your nuclear weapons. Maybe they'll respect it.

    BAIER: Is there any situation, Congressman, where you would deploy U.S. troops abroad?

    PAUL: If our national security was threatened.

    BAIER: But if Iran has a nuclear weapon and it's potential threatening us --

    PAUL: Did we attack Russia or China? They had a lot of nuclear weapons and we didn't attack them. That was 1,000 times more dangerous --

    BAIER: So deterrence with Iran would be your policy?

    KRAUTHAMMER: We had lots of sanctions on Russia and China.

    PAUL: Yeah, but we eventually gave up and Reagan talked to them. We talked to them and we took off the sanctions. We traded with China.

    KRAUTHAMMER: After 50 years.

    PAUL: Well, I think it's -- I think it's -- the policy is wrong. It does more harm to us. I think it makes Israel much less safe, we have undermined that -- just look, Turkey is not exactly their best friend now. Egypt now, they are going to radical Islam now. Tunisia, it's going to be Islamic as well. So they are less friendly with Israel now.

    So I think this is all going to backfire. Besides we're going to go broke. We are not going to maintain this forever. And that's why I think we should have a different foreign policy and treat them at least equal to the way we treated those horrible Chinese [INAUDIBLE]. See, I was in high school when we went to war against Korea. And here we are all these years later -- I liked it better when Nixon went and opened up the doors with China.

    KRAUTHAMMER: We're not talking about war. You want to lift sanctions. That's not war.

    PAUL: Well, it is, war -- well, the first thing you do when you do to war is you put boycotts on them, you blockade a country. It is in many ways an act of war.

    BAIER: Steve?

    HAYES: After the killing of Usama bin Laden you said of the raid there could have been a better way to do this. Would President Paul have authorized that raid into Pakistan?

    PAUL: No, since I suggested a better way, I would go back.

    HAYES: So you would not have authorized that? So Usama bin Laden would be alive today?

    PAUL: No. No. Let me answer. I said there was a better way. And the better way is what I said after 9/11. I voted for the authority, I voted for the funds. Go after them, couple hundred of our special forces, had him trapped, and walked away at Tora Bora. And wasted 10 years --

    HAYES: That didn't happen. I'm talking about in 2011.

    PAUL: Well, I'm saying he's a bad guy, we should have done it. A better way was doing it 10 years ago instead of going in and wasting all these American lives.

    HAYES: So you would not -- because that didn't happen, in 2011 you would not have authorized that raid into Pakistan?

    PAUL: Well, I think since KSM was delivered to us by Pakistanis that we should at least talk to them. Sure. I mean what is so terrible about that?


    PAUL: I said this was a risky way because now we are lobbying missiles over there. Our drones are bombing. At the same time we're giving money to the government. There's a civil war going on. And we created this because we support a government that is very unpopular and that's what it leads to. Now we have Karzai saying, you know what, when the war breaks out we're supporting Pakistan against America.

    BAIER: Sorry to interrupt you. We have a hard break to hit. We have much more to talk about. We'll continue this discussion. Juan has a great question. "Special Report" online continues right after the show. Next up, one show with a suggestion for Congressman Paul.

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