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STEPHANOPOULOS: All right. Thanks to Rebecca for that.
Now let's turn to the Treasury secretary, Jack Lew. Mr. Lew, thank you so much for joining us.
We heard Mark Zandi, in her piece, say that Washington can hurt the recovery if it mishandles these fall showdowns. The first one is going to be over the funding of the government. The president has said that he's going to veto bills that fail to roll back the sequester. House Republicans are going to insist on those spending cuts.
So are we headed to a government shutdown?
LEW: You know, George, I think, though, it is imperative that Washington be part of the solution, not part of the problem. Uh, we can't afford self-inflicted wounds and we can't have these kinds of self-created crises month after month, year after year.
STEPHANOPOULOS: But isn't that where we're headed?
LEW: We saw how bad that was for the economy in 2011. And I hope that Congress learned that this is not a good way to do business.
What the president said is when we do our business this year, we have to remember what we're here to do. We're here to build an economy with opportunity for the American middle class.
He is trying to remind everyone in Washington what the people of America know, which is this is about their future. And we really need to roll up our sleeves and get the work done.
STEPHANOPOULOS: I know that's what he's trying to do. But how does he break this gridlock? And is he going to insist that any government funding bills roll back the sequester?
LEW: Look, George, he's made clear that, um, he is not going to sign appropriations bills that fix defense at the expense of domestic priorities. He's made it clear that when Congress does its work in the fall, he is going to be looking to see is it building a better future for the American middle class?
I think that those are values that are shared by the American people. And I think those are values that are shared by a majority in Congress. And I think we're going to be able to work through these issues. And I certainly hope that Congress isn't looking to create confrontations and false crises because we did see, in 2011, how bad that is for the American economy.
STEPHANOPOULOS: You cited the crisis back in 2011 and the economic harm it did. It -- there certainly seems to be another stand-off. The president says he's not going to negotiate. Speaker Boehner says he's going to insist on more spending cuts.
So how do you come together on that?
LEW: You know, George, I think it's important to remember how much we've done since 2011. You know, when we had these debates in 2011, uh, we hadn't enacted any of the savings or revenue measures that we've now put in place.
We have, on multiple occasions, come together in a bipartisan way. Through the Budget Control Act we reduced spending. At the beginning of this year, we acted to remove the tax breaks for the very wealthy.
What we need to do now is get the composition right. We need to remember that this isn't just about cutting budgets. Obviously, we need to have our fiscal house in order. It's -- what it's about is building the foundation for a strong economy.
I think that there's a basis to work together on that. If the debate is just about abstract numbers, frankly, it misses the point.
STEPHANOPOULOS: I understand...
LEW: This is about building...
STEPHANOPOULOS: -- I understand...
LEW: -- a better future.
STEPHANOPOULOS: -- that those are the president's ideas and that you believe strongly in them. But I don't see the kind of basis for building on that that you are talking about. It sure seems like the sides are dug in right now.
LEW: You know, George, I have talked to a lot of people in Congress, both sides of the aisle, Democrats and Republicans. I talk to leaders. I talk to, you know, members and senators.
There's a majority in Congress that wants to replace the across the board cuts with more sensible policies.
Our challenge is breaking through the logjam in Congress to get that done.
STEPHANOPOULOS: That's my question.
LEW: I actually think we're...
STEPHANOPOULOS: How are you going to do it?
LEW: Well, I think, what the president has done is provided a clear frame where the stakes are clearly in front of both Congress and the American people. I think that, you know, if -- if this is about what we want to accomplish, let's have a debate about what it takes to build an American middle class that's growing and thriving.
STEPHANOPOULOS: But is your (INAUDIBLE)...
LEW: It's not just social policy, it's actually good economic policy.
STEPHANOPOULOS: But is your...
STEPHANOPOULOS: -- still the same.
LEW: -- actually, it produces a better economy.
STEPHANOPOULOS: But is the bottom line, excuse me, still the same, the President is not going to negotiate over the debt limit? And if that's the case, aren't we headed for the showdown you fear?
LEW: You know, George, I think that, uh, a lot of people watched, uh, 2011 and learned from it, that it was a big mistake. I think that the leaders learned from that that that's not a good way to do business. Congress has to act on this. They're going to have to figure out a path to do it.
STEPHANOPOULOS: And if that includes spending reductions, the president will sign it?
LEW: You know, George, I think the president has made crystal clear, he's not going to negotiate over the debt limit. And I've got to like underscore how important that it.
The mere fact of negotiating over the debt limit, after 2011, would introduce this notion that somehow there's a question about whether or not we're going to pay our bills, whether or not we're going to protect the full faith and credit of the United States.
Well, it's not OK to default. Congress can't let us default. Congress has to do its work.
STEPHANOPOULOS: So will you ask Senator Reid to pass the clean debt limit first?
LEW: Congress is going to have to pass a debt limit that can reach bipartisan consensus in the Congress and that the president can sign into law.
STEPHANOPOULOS: Perhaps the most consequential economic decision the president is going to make the next few weeks of months is the decision to replace Fed Chair Ben Bernanke. Um, and some lobbying has begun, it seems, uh, for two of the main candidates, Fed, uh, Governor Janet Yellen, Larry Summers, the president's former national economic adviser.
Speaker Pelosi and about a third of the Senate Democrats have weighed in on behalf of the idea of a woman candidate and Janet Yellen. Your predecessor, Tim Geithner, is backing Larry Summers. Which side are you on? I know you're part of the discussions. And what is the president looking for in a Fed chair?
LEW: You know, George, I have to start by saying that, uh, Chairman Bernanke has been an extraordinary and remains an extraordinary Fed chairman.
Um, I'm going to keep private any conversations that we're having, uh, with the president on the question of -- of when and what kind of succession, uh, there should be. I think that those conversations are best left in the privacy of the Oval Office.
STEPHANOPOULOS: But the Senate letter suggests that Ms. Yellen will be easier to confirm than Larry Summers. Is that a factor?
LEW: You know, George, I'm really not going to get into commenting on -- on different, uh, candidates and potential paths. The conversations really should stay where they are.
STEPHANOPOULOS: Let me ask you about the situation facing Detroit right now, filing for federal bankruptcy last week. The governing board of the AFL-CIO has weighed in very strongly, saying that the federal government must step up and provide assistance to Detroit.
Is that going to be coming?
LEW: You know, George, uh, Detroit's economic problems have been a long time in developing. We stand with Detroit trying to work through, uh, how it approaches these issues.
To that extent that there are kind of normal relations between the federal government and state and local government, we -- we've been using those methods. Even in the Treasury Department, we have a program where we work to -- to help with housing programs. I think when it comes to the questions between Detroit and its creditors, that's really something that Detroit is going to have to work out with its creditors.
STEPHANOPOULOS: So a federal bailout off the table?
LEW: I -- I think Detroit is going to have to work with its creditors on this.
STEPHANOPOULOS: And that will be the last word today.
Secretary Lew, thanks very much.
LEW: Thanks, George.
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