Republican former Treasury Secretary Hank Paulson told CNBC on Monday that Democrat Hillary Clinton has the "temperament" to find middle ground on the big issues facing the nation.

Paulson said on "Squawk Box " he cannot support GOP presidential nominee Donald Trump . "I can't sign on to this sort of populism that's rooted in ignorance and fear and prejudice. I find it abhorrent."

"It comes down to character and temperament, the ability to work across the aisle," he said. "I watched Secretary Clinton, when she was a senator, do that. You learn a lot when you're secretary of state. To me, I'd take that experience any day."

Paulson did say he supports House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell. "I've been working hard to elect Republicans in the Senate and the House. I think it's very important we keep our leadership position [on Capitol Hill]."

Paulson, who headed the Treasury during the presidency of George W. Bush and in the thick of the 2008 financial crisis, broke ranks in June, and said he's going to vote for Clinton.

He said divided government is the best way to break the gridlock in Washington and enact the tax and entitlement reform needed to help restore the economy.

"We're not growing anything near our capacity ... whether it's 3 percent or 3.5 or 4 percent," he said. "But we're not going to get where we need to get unless you see big, difficult structural reforms in the U.S."

The White House and Congress need to join the Federal Reserve in the fight to fuel growth, Paulson said, calling for fiscal firepower in the form of tax and entitlement overhauls, in addition to the Fed's monetary measures.



"With interest rates where they are right now, they're not providing much juice," he said. He added that it doesn't matter when the Fed raises rates — this week, December, or early next year — the cost of borrowing money is going to be cheap "for a long time."

He said he's concerned about market distortions from persistently low rates.

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"The forest-through-the-trees issue is this: Markets are focusing on whether interest rates should remain almost zero or go up to slightly more than almost zero," he said.

Also, he added, "with growth slowing almost everywhere in the world, and with interest rates extraordinarily low, and with debt increasing, ... what tools are policymakers going to have to avoid and prevent a slide into a recession?" Paulson said. "We're in uncharted economic territory."

The Fed's two-day September meeting starts on Tuesday. While policymakers are expected to hold rates steady, more and more central bankers favor a hike.

That's putting extra attention on Wednesday afternoon's policy statement, economic projections, and Fed Chair Janet Yellen, who holds a post-meeting news conference.



On the issue of trade, Paulson criticized Trump and Clinton over their protectionist rhetoric and contended that China is the most important bilateral relationship for the United States.

"Trade and cross-border investment is a big factor in driving [economic] growth," he argued. "[But] they're being scapegoated and they're maligned and blamed for problems."

The fact is, according to Paulson, the average American household has had a $10,000 bump in income "as a result of this trade boom we've had since World War II."

Trade is not driving the biggest job losses nowadays, he continued. Instead, he blamed "automation [and] advances in technology ... which benefits society but are definitely disrupting the labor markets — destroying more jobs than they're creating and hollowing out the middle class."

Paulson said he was encouraged by the meeting President Barack Obama held at the White House on Friday to push for the passage of the Trans-Pacific Partnership free-trade agreement.

"If we can't deliver on this, how can we be an economic leader?" he asked rhetorically. He said Obama and corporate America are going to have to do a better job of selling the benefits of TPP to open up foreign markets.