(MONEY Magazine) – I interviewed Treasury Secretary Paul O'Neill at the MONEY Summit held in New York City in mid-June. Later I had another conversation with him in the CNN studios. He and I talked about the dollar, the economy, the markets and interest rates.

What has struck me about his demeanor over the past year is not so much his cautious optimism about stocks and the recovery as his overall candor and confidence.

You may recall that Secretary O'Neill was in political trouble within months of taking office. The former chief executive officer of Alcoa made an early misstep on dollar policy, still thinking like the top executive of a corporation rather than the head of Treasury. And he committed the sin of candor when he said he thought an economic stimulus plan was "show business."

The Secretary's straight talk had people guessing how long he'd last in the job. But he refused to relent. He joined the administration's war against radical Islamists in the wake of Sept. 11 and began successfully choking off some of the money transfers to terrorists. O'Neill declared that if last year's economic slowdown was a recession, it was the mildest since World War II. In addition, he and Securities and Exchange Commission chairman Harvey Pitt have been the most forceful members of the administration on the issue of making CEOs accountable for their leadership of corporations, insisting that CEOs take responsibility for their actions and those of management teams. In fact, O'Neill wants the government to have the power to recover every dime of compensation received by a CEO who fails to live up to his responsibility of disclosure and integrity. The conservatives in Washington who were calling for his removal last year may not have forgiven him, but he's sure silenced them.

Dobbs: What kind of economic growth do you see ahead, and what will drive that growth?

O'Neill: I think at the end of the year, we'll be operating at an annual rate of 3% to 3.5% of real [after inflation] growth. And I think next year could be as strong as that or maybe even a little stronger. If you look at typical patterns coming out of a slow period, usually you get a spurt, and I think we haven't seen a real spurt yet. What we saw in the first quarter of this year was final demand of 2.5% or something like that, and a big bounce from inventory correction. So I think we're still coming up on the final-demand side. When I look at the real GDP [gross domestic product] numbers, I'm looking for final demand operating at 3% to 3.5%.

The thing that's driving it is a combination of things. One is that the consumer is strong and apparently undeterred. If you look at autos and housing--they're two of the important sectors, and they're doing very well. Part of that is interest rates. I think last fall the auto companies made a really good decision for them and for the country, which was basically to keep their factories running and keep their people employed even though they weren't making a lot of money. I see those things hanging in there. And I see, as we absorb some of the unused capacity, that investment decisions will start to be made again where there are opportunities to do projects with 30% or 35% rates of return. We'll see that begin to happen on the technology side. I think maybe we've seen the bottom but...I don't see information technology and communications bouncing back in a big way anytime soon. We're just not going to get the power from the technology sector for another year or so.

Dobbs: What's your view of the current weakness of the U.S. currency?

O'Neill: I'm struck by the fact that people seem to have no historical perspective at all. When the euro was trotted out, it was at 117 [euros to the dollar] and there were a whole lot of people who were very sure that it would never trade at par. [Then it fell to] 85 or 84 or something like that. People were wringing their hands. The whole thing was ridiculous. We've kind of gradually moved up to 95. I don't find any of that alarming or particularly significant. It's kind of a natural market adjustment--a grinding of millions of data points and a making of a collective judgment that I think is very hard to second-guess.

Dobbs: What do you say to those who suggest that rising anxiety about this market--particularly overseas, resulting in a slowdown of investment from abroad--is creating some of the weakness in the dollar?

O'Neill: How do you fit into that equation an observation about what's happening to interest rates? Today the 10-year [Treasury bonds] are at 4.85%. Last week they were at 5.1% or 5.12%. So if this is all correct about money running away from the dollar, then interest rates should be going up instead of down. It's almost as though people have a compulsion to talk and thinking is discretionary.

Dobbs: I'm going to use that line. You've been very critical of CEOs who have abused their trust. You have also talked about the importance of disclosure. The President came forward with a 10-point plan to address those issues in March. Much of that is reflected in plans put forward by both the New York Stock Exchange and SEC chairman Harvey Pitt.

O'Neill: One of the things that the President proposed, namely the regulatory apparatus for auditing firms, would require some additional enforcement power for the SEC. And, yes, we do think that that should be acted on. I've asked myself the question: What other legislation would create more value than mischief? And so far, I haven't identified something that I'm prepared to tell the President we need legislative action on. The SEC powers are really quite broad. I think the proof of that is that they're able to do almost everything we believe needs to be done on an immediate basis with regulatory powers.

Dobbs: The federal budget deficit will be in excess of $100 billion this year. What should or can be done about it?

O'Neill: We need to count every dollar we're proposing to spend and make sure that the public purposes that we're pursuing stand the test of needing to be, at this particular time, in a unified budget deficit. I think the emergency spending for strengthening homeland security and replenishing the Defense Department--fuel supplies and maintenance and the rest of what goes with prosecuting the hotter war, if you will--are necessary.

As a people, we need to check our appetite for adding to a trend line rate of real spending by the federal government. Because I do believe, as a general proposition, we should strive to have our fiscal position so that when we have between zero and 1% real [GDP] growth, we're still in balance.

Dobbs: Let me turn to the debt ceiling. In Congress there's resistance from both parties to moving ahead with the request for $750 billion in additional debt. How dire is the situation?

O'Neill: I notified Congress on the fifth of December that they needed to raise the debt ceiling by $750 billion, and so I think it was adequate notice. We're getting to the point where we're going to be up against the limit of using all the precedents that were established by [former Treasury Secretary Robert] Rubin in 1995 and 1996.

Again, I ask myself the question: Do we really have a Congress that would fail to do its duty and raise the debt ceiling? I can't believe that we can't see a bipartisan or a nonpartisan movement to get this issue behind us. It's important we do it before we run out of room because the full faith and credit of the United States is the cherished value that we have in worldwide commerce.

Lou Dobbs is the anchor and managing editor of CNN's Lou Dobbs Moneyline.