Goldman Sachs CEO Lloyd Blankfein and Bloomberg L.P. founder Michael Bloomberg spoke with Bloomberg Television’s Stephanie Ruhle about the state of the U.S. economy, Fed policy and 2016.

Blankfein said U.S. markets are poised for prolonged growth: “We are in for a longish, positive market…Since the financial crisis, especially in this country, there were a lot of problems; we chewed through them. Consumers have deleveraged.  The banking system is deleveraged.  We got the blessing of low energy prices.  Housing prices started to stabilize and move higher.”

On the potential impact of the first rate hike by the Fed, Blankfein said: “It will be jarring when we see an interest rate hike because we have not had one for some time.  And then I think people will get out the smelling salts, take a sniff, and recover…If we end up with interest rates at half a percent or even if they went over time in the near future to 1 percent against the growth rate, it will only be because the growth rate is at trend growth or maybe even higher, and that will still be substantially easier financial conditions than we usually have.”

When discussing 2016 and choosing candidates, Bloomberg said: “The executive’s job is to bring along the legislature…You do not go and do a poll and ask the public what they want and then try to take them there.  That is leadership from the back.  You are elected to go and to say this is what I’m going to do and convince people to come along with you and have the horses to get us all there.”

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STEPHANIE RUHLE:  It’s a busier day here at Bloomberg world headquarters.  Goldman Sachs with Bloomberg talking small businesses, promoting Goldman’s 10,000 Small Business Program.

Gentlemen, thank you, welcome.

As we sit here and talk to these small business owners, they have got to be worried about the U.S. economy.  You are looking at them from CEO, from chairman seats, but what do you really think the U.S. economy looks like right now?

MICHAEL BLOOMBERG:  There is clearly a lot of job creation.  There is clearly a lot of angst among people that — we are not addressing the big issues like immigration and tax policy and guns in the streets.  There are worrisome things happening all around the world.

But the average person is not doing all that badly.  In all fairness to Obama, during his administration in the last few years, jobs have been created and the jobless rate is way down.  Still plenty of people who do not have the kind of jobs they want, don’t have full-time jobs and that sort of thing, but there’s always going to be problems.

So it is not perfect and I certainly am very worried about the future — Iran and all of these different things.  But the average small business man seems to be — or business person seems to be coming back, starting another business, and being able to create jobs.

LLOYD BLANKFEIN:  I agree.  I think the sentiment is very negative.  We are in the middle of an election cycle and there are a lot of things that are wrong with the economy and a lot of things that could go wrong.  My core job requires me to worry and to think about and deal with all the things that could go wrong.

But I think if you just kept it simple, you would say that the United States is growing almost at — kind of a trend growth, whether it is 2.5 percent or just under 3 percent growth, or maybe even a little above it, no, but around trend growth with interest rate policy and for very good reason at levels as if we were in a recession.

So financial conditions are very easy.  The energy situation, most of the economies in Europe have broken to the high side.  And I say if you just look at it very simply, things are going to go very well, with a number of things to worry about, but that’s an added complexity that people are putting in.  I would say keep it simple and things are moving forward.

RUHLE:  Do you think this tremendous bull run that we are seeing in the stock market is warranted?

BLANKFEIN:  I think we will know that with respect to the history.  But I will tell you when I got out of school in the late ’70s, we had inflation over — double-digit inflation, double-digit unemployment.  Also a time of very bad sentiment in the world.  This of the — you know, the Jimmy Carter passing the reins to Reagan in a split screen with Reagan getting inaugurated and the hostages marking home, very bad time.

And guess what?  It’s turned it was the start of a 20-year bull market because while all that bad stuff was going on, people were deleveraging and dealing with the problems. They did not feel like that, they didn’t feel good, and they would not have forecast it.

But guess what?  We chewed through those problems. And I’d say since the financial crisis, especially in this country, there were a lot of problems; we chewed through them.

Consumers have deleveraged.  The banking system is deleveraged.  We got the blessing of low energy prices.  Housing prices started to stabilize and move higher.  I think we are in for a longish positive market.

But again, if you look back, it’s like looking down at a big, ugly city from 30,000 feet.  It all looks so clean.  And when you get on the ground, you see the problems.  Even in  that 20-year cycle, there were a lot of bad moments.

But if you look at that 20 years afterwards, it was definitely a bull market cycle.

RUHLE:  Mike, do you agree?  It seems there are so many  problems around the world and even here, yet the market continues to tick higher.

BLOOMBERG:  Well, Ive always run my life assuming the worst is going to happen because that is what you have to prepare for.  Dealing with success is easy.  You have to learn how to deal with failure.  And one of the things I  worry about is we are not teaching our kids how to deal with failure.

And Lloyd and I just did an event with this 10,000 Small Business organization that Goldman Sachs has sponsored to help small companies.  And one of the things that Lloyd said was that no career goes up in a straight line.  You always will have reversals.

And I think we will have reversals.  And in my own investment policy, I have a lot of cash in terms of the company.  I worry about what can go wrong.  We have got plenty of people working to make sure that things go right.

But having said all of that, it is not doom and gloom.  We still have the same problems. We keep kicking the can down the road. 

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