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CNBC Exclusive: CNBC Transcript: CNBC's John Harwood Sits Down with U.S. Treasury Secretary Jack Lew, Today, August 27th, on CNBC's "Squawk Box"

Tuesday, 27 Aug 2013 | 10:22 AM ET

When: Today, Tuesday, August 27th

Where: CNBC's "Squawk Box"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with United States Secretary of the Treasury Jack Lew on "Squawk Box" (M-F,6AM-9AM ET) today, Tuesday, August 27th. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000194301.

All references must be sourced to CNBC.


JOHN HARWOOD: SECRETARY THANK YOU FOR JOINING US.

SECRETARY JACK LEW: IT'S GOOD TO BE HERE WITH YOU.

HARWOOD: SINCE YOU SENT YOUR LETTER TO CONGRESS, HAVE YOU SPOKEN TO SPEAKER BOEHNER AND, IF SO, HOW WAS THE CONVERSATION?

LEW: I HAVE EXCHANGED CALLS. I HAVEN'T ACTUALLY SPOKEN WITH THE SPEAKER I DID SPEAK WITH OTHER LEADERS YESTERDAY. I THINK IN GENERAL THE NEWS WAS TAKEN AS IT WAS INTENDED, WHICH WAS SHARING THE INFORMATION THAT WE HAVE. IT MEANS THAT CONGRESS DOES NEED TO ACT. I THINK IT'S HELPED FRAMED HOW THEY ARE THINKING OF COMING BACK IN THE FALL.

HARWOOD: THE SPEAKER SAID HIS STAFF REITERATED YESTERDAY WE NEED DOLLAR FOR DOLLAR SPENDING CUTS IN RETURN FOR A RAISE IN THE DEBT LIMIT. SOME CONSERVATIVES HAVE TALKED ABOUT LINKING DEFUNDING OF THE ACA THE HEALTHCARE LAW TO A RISE IN THE DEBT LIMIT. WHAT WILL HAPPEN TO THOSE IDEAS?

LEW: JOHN, THE PRESIDENT HAS BEEN VERY CLEAR. WE ARE NOT GOING TO BE NEGOTIATING OVER THE DEBT LIMIT.

HARWOOD: BOTH OF THOSE ARE TOTAL NON-STARTERS?

LEW: CONGRESS HAS ALREADY AUTHORIZED FUNDING, COMMITTED US TO MAKE EXPENDITURES. WE ARE NOW IN THE PLACE WHERE THE ONLY QUESTION IS, WILL WE PAY THE BILLS THE UNITED STATES HAS INCURRED? IT IS JUST THE ONLY WAY TO DO THAT IS FOR CONGRESS TO ACT. FOR IT TO ACT QUICKLY. WHAT WE NEED IN OUR ECONOMY IS SOME CERTAINTY. WE DON'T NEED ANOTHER SELF INFLICTED WOUND. WE DON'T NEED ANOTHER CRISIS AT THE LAST MINUTE. CONGRESS SHOULD COME BACK AND THEY SHOULD ACT.

HARWOOD: IS A CLEAN DEBT LIMIT WITH NOTHING ATTACHED TO IT THE ONLY KIND THE PRESIDENT WILL ACCEPT?

LEW: I'M JUST GOING TO HAVE TO REITERATE, JOHN. THE PRESIDENT MADE CLEAR HE IS NOT NEGOTIATING OVER THE DEBT LIMIT. CONGRESS HAS TO ACT TO PASS THE DEBT LIMIT. SINCE 1789, EVERY CONGRESS HAS ACTED TO PAY THE BILLS OF THE UNITED STATES. THIS CONGRESS NEEDS TO DO THE SAME.

HARWOOD: BUT YOU WILL NEGOTIATE OVER THE BUDGET WHICH GOVERNMENT FUNDING RUNS OUT AT THE END OF THE MONTH.

LEW: YEAH. WE HAVE BEEN VERY CLEAR FOR QUITE SOME TIME ONFISCAL POLICY GENERALLY, THE PRESIDENT THINKS THE RIGHT ANSWER IS A BALANCED APPROACH.WE HAVE PRESSED VERY HARD FOR THE KINDS OF AGREEMENTS THAT WOULD DO BOTH, SPENDING REFORM, ENTITLEMENT REFORM AND TAX REFORM. WE'VE HIT A BIT OF AN OBSTACLE WITH THE CONGRESS, BECAUSE THERE HASN'T BEEN AN OPENNESS TO DOING THE BALANCE WITH THE TAX REFORM. THE PRESIDENT HAS TRIED TO REACH OUT IN EVERY WAY THAT IS POSSIBLE TO MAKE IT CLEAR, HE'S LOOKING FOR THE SENSIBLE COMMON MIDDLEGROUND. THAT'S VERY DIFFERENT FROM DO WE TAKE SOMETHING AS FUNDAMENTAL AS THE FULL FAITH AND CREDIT OF THE UNITED STATES AND PUT IT IN JEOPARDY OR RAISE A QUESTION. I THINK IF YOU LOOK BACK AT 2011, WE SEE WHAT THE PROBLEM IS WHEN YOU CAN CONFUSE THE TWO. 2011 WAS THE VERY FIRST TIME IN CERTAINLY MY YEARS IN WASHINGTON,THAT'S THREE DECADES, WHERE THERE WAS DEBATE ABOUT WHETHER OR NOT TO DEFAULT. IT USED TO BE THE DEBT LIMIT WAS TREATED AS A DEADLINE TO FORCE ACTION TO COME TOGETHER. IN 2011, WE ACTUALLY SAW THE SPECTER OF DEFAULT RAISED TO SOMETHING THAT WAS AN AFFIRMATIVE POSITION SOME WERE SAYING WAS BETTER THAN THE ALTERNATIVE.THAT WAS DANGEROUS. IT WAS BAD FOR THE ECONOMY AND WE CAN'T GO BACK THERE.

HARWOOD: GIVEN THE STANCE THE REPUBLICANS HAVE TAKEN, THE STANCE THAT THE ADMINISTRATION HAS TAKEN, ARE YOU 100% CONFIDENT THIS, IN FACT, WILL GET WORKED OUT WITHOUT ANY OF THE NEGATIVE REPERCUSSIONS WE SAW TWO YEARS AGO?

LEW: WELL, LOOK, I THINK AS I TALKED TO LEADERS ON BOTH SIDES, THERE IS AN UNDERSTANDING OF THE SERIOUSNESS OF THIS ISSUE. I DON'T THINK THAT THE LEADERS ARE IN A PLACE WHERE ANYONE WANTS A REPEAT OF 2011. I DON'T YET SEE THAT THEY HAVE A PLAN TO AVOID IT, WHICH IS ONE OF THE REASONS IT'S SO IMPORTANT FOR THEM TO COME BACK IN JUST A COUPLE OF WEEKS AND GET TO WORK ON GETTING THIS DONE AND TRYING TO MAKE THE DEBT ISSUE DIFFERENT FROM OTHER DEBATES THAT WE HAVE.

HARWOOD: BUT WHAT IF THE SPEAKER CALLS YOU AND SAYS, JACK, I WANT TO HELP YOU, I KNOW WE HAVE TO RAISE THE DEBT LIMIT. I'VE GOT TO GIVE SOMETHING TO MY MEMBERS OR I CAN'T GET THE VOTES. WHAT DO YOU SAY?

LEW: LOOK, I THINK WE SAW IN 2011 THE DANGER OF GOING DOWN THE PATH OF HAVING THE KIND OF NEGOTIATION OVER THE DEBT LIMIT THAT YOU HAVE OVER OTHER ISSUES. THE DEBT LIMIT IS JUST DIFFERENT. IT'S JUST DIFFERENT. THERE CANNOT BE ANY QUESTION, BUT THAT WE ARE A COUNTRY THAT PAYS OUR BILLS. IT'S NOT AS IF WE GET TO GO BACK AND UNDO THE COMMITMENTS WE MADE. THESE ARE OLD BILLS THAT HAVE TO BE PAID. IT IS PART OF THE ROCK SOLID STABILITY OF THE UNITED STATES THAT WE ALWAYS PAY OUR BILLS AND CONGRESS HAS THE JOB TO RAISE THE BORROWING AUTHORITY TO MAKE THAT POSSIBLE JUST AS CONGRESS HAS THE AUTHORITY TO AUTHORIZE THE EXPENDITURES IN THE FIRST PLACE.

HARWOOD: ON FUNDING THE GOVERNMENT, EXTENDING IT PAST THE END OF SEPTEMBER, IS THERE ANY CIRCUMSTANCE UNDER WHICH THE ADMINISTRATION WOULD ACCEPT EITHER A DELAY IN PARTS OF OBAMACARE OR A DEFUNDING OF PARTS OF OBAMACARE?

LEW: NO.

HARWOOD: AND WHAT ABOUT, COULD THE ADMINISTRATION ACCEPT A CONTINUATION OF THE SEQUESTER AS IS WITH NO CHANGES?

LEW: WE MADE IT CLEAR ON SEQUESTRATION, THAT WE THINK THE RIGHT THING FOR THE COUNTRY IS TO REPLACE SENSELESS ACROSS THE BOARD CUTS THAT I SHOULD REMIND YOU WERE DESIGNED TO BE SO OBJECTIONABLE THAT THEY WOULD SPUR ACTION IN CONGRESS TO COME UP WITH A MORE SENSIBLE PLAN. IT'S IMPORTANT TO REPLACE THEM WITH BALANCED POLICIES THAT TAKE MEDIUM AND LONG-TERM ACTION TO PUT MORE SENSIBLE DEFICIT REDUCTION IN PLACE OF ACROSS THE BOARD CUTS THAT HURT US ECONOMICALLY AND THEY HURT US IN TERMS OF OUR NATIONAL SECURITY. I MEAN, OUR GOAL GOING INTO THIS DEBATE IS REALLY QUITE SIMPLE. IT'S WHAT DO WE NEED TO DO TO KEEP THE AMERICAN ECONOMY GROWING? WE KNOW THERE ARE THINGS WE NEED TO DO. WE NEED TO CONTINUE TO INVEST IN INFRASTRUCTURE, WE NEED TO CONTINUE TO INVEST IN EDUCATION AND TECHNOLOGY. WE ALSO KNOW THERE ARE THINGS WE NEED TO FOR OUR NATIONAL SECURITY. ACROSS THE BOARD CUTS ARE NOT THE WAY TO GET THERE.

HARWOOD: IS THE ONLY WAY SEQUESTER IS REPLACED IN WHOLE OR IN PART IS IF REPUBLICANS AGREE TO ADDITIONAL TAX INCREASES OR COULD YOU SEE A TRADE OF ENTITLEMENT CUTS, SOME OF WHICH YOUR ADMINISTRATION HAS SAID ARE NECESSARY FOR THE DISCRETIONARY CUTS WE HAVE SEEN NOW?

LEW: JOHN, I THINK THERE SHOULD BE SENSIBLE BALANCED APPROACHES TO MEDIUM AND LONG-TERM DEFICIT REDUCTION. I DON'T WANT TO GET INTO THE DETAILS OF WHAT A PACKAGE WOULD BE, BECAUSE A SMALL OR LARGE PACKAGE MIGHT HAVE DIFFERENT CHARACTERISTICS. YOU KNOW, I THINK THAT THE PRESIDENT MADE CLEAR HE WAS PREPARED TO DO TOUGH THINGS ON ENTITLEMENT PROGRAMS, BUT THOSE TOUGH ACTIONS ON ENTITLEMENT PROGRAMS, REQUIRE BALANCE IN TERMS OF REVENUE BOTH FOR FAIRNESS AND BECAUSE FOR ECONOMIC RESULTS. THAT'S WHAT WE NEED.

HARWOOD: SO IF YOU TOUCH ENTITLEMENTS, THERE MUST BE TAXES WITH THAT?

LEW: AS I SAY, I TRIED TO SAY, THE BIG DEAL THAT PEOPLE TALK ABOUT REQUIRES A BALANCED APPROACH WITH REVENUES AND –

HARWOOD: A SMALLER DEAL MIGHT BE DIFFERENT.

LEW: I DON'T WANT TO SPEAK TO A SMALLER DEAL. NO ONE HAS LOOKED AT A SMALLER DEAL. WE HAVE SEEN OVER THE YEARS, LOTS OF DIFFERENT WAYS OF APPROACHING THINGS THAT ARE SMALLER, BUT THE KEY IS BALANCE. THERE HAS TO BE BALANCE.

HARWOOD: CHAIRMAN CAMP AND BAUCUS ARE PURSUING A TAX REFORM PROCESS, BOTH, THEY'RE EXPLORING CORPORATE TAX REFORM AS WELL AS INDIVIDUAL REFORM. THERE IS NO BILL YET. THERE IS NO ACTION YET. YOU HAVE WATCHED CONGRESS FOR A LONG TIME. IS THIS STILL POSSIBLE TO DO IN BOTH REALMS INDIVIDUAL AND CORPORATE IN THIS CONGRESS?

LEW: I THINK THAT THE PRESIDENT TRIED VERY HARD JUST A COUPLE WEEKS AGO TO MAKE CLEAR THERE IS A PATH TO DO BUSINESS TAX REFORM. THERE IS A WAY TO DO IT SO WE COULD SIMULTANEOUSLY DO SOME OTHER IMPORTANT THINGS FOR THE ECONOMY. INVEST IN INFRASTRUCTURE, INVEST IN MANUFACTURING CENTERS OR JOB TRAINING. I THINK THERE HAS BEEN A CONVERGENCE OF VIEWS ON THE BUSINESS TAX REFORM. WHEREAS I TALK TO DEMOCRATS AND REPUBLICANS, THERE ARE A LOT OF IDEAS WHERE I THINK PROGRESS COULD BE MADE. ON THE INDIVIDUAL SIDE, IT IS A BIT MORE COMPLICATED. BECAUSE IT IS INTRINSICALLY CONNECTED TO THE LARGER FISCAL POLICY CONVERSATION. SO WITHOUT ADDITIONAL REVENUES, I DON'T SEE A PATH TOWARDS COMPREHENSIVE TAX REFORM .ONE CAN SEE A PATH TOWARDS BUSINESS TAX REFORM, WHERE WE USE THE ONE-TIME SAVINGS TO DO A FEW OF THESE IMPORTANT THINGS AND WE COULD POTENTIALLY HAVE AN AGREEMENT THERE. CONGRESS, OBVIOUSLY, HAS BEEN GONE, SO THERE HASN'T BEEN MUCH OF A CHANCE TO SEE IF THAT IDEA HAS THE ABILITY TO MAKE PROGRESS, BUT YOU KNOW I THINK THAT FOR PEOPLE IN THE BUSINESS COMMUNITY WHO HAVE TALKED TO ME ABOUT THE NEED FOR IMMEDIATE ACTION TO REMOVE THE UNCERTAINTY ABOUT CORPORATE TAX REFORM, BUSINESS TAX REFORM. THERE IS AN OPPORTUNITY NOW. THAT'S WHAT THE PRESIDENT WAS SPEAKING TO A COUPLE WEEKS AGO.

HARWOOD: OUR TIME IS SHORT. A COUPLE THINGS BEFORE I LET YOU GO. HOW CONCERNED ARE YOU ABOUT THE REACTION OF FINANCIAL MARKETS TO TWO DIFFERENT EVENTS? ONE, THE POSSIBILITY OF MILITARY ACTION IN SYRIA AND, SECONDLY, THE TAPERING OF BOND BUYING THAT THE FED HAS SIGNALED IS LIKELY TO HAPPEN THIS FALL?

LEW: YOU KNOW, I FOCUS ON THE CORE ECONOMY HERE. I THINK WE HAVE TO TAKE EVERY STEP WE CAN AS WE MAKE POLICY TO TRY AND KEEP OUR EYE ON THE BALL OF WHAT DOES THE ECONOMY NEED TO KEEP GROWING IN THE FUTURE. WE HAVE FOREIGN POLICY DECISIONS THAT ARE GOING TO NEED TO BE MADE FOR REASONS OTHER THAN CORE ECONOMICS AND OBVIOUSLY WE'LL HAVE TO MANAGE ACCORDINGLY. IN TERMS OF FED TAPERING, YOU KNOW, AS TREASURY SECRETARY, I DON'T COMMENT ON MONETARY POLICY. BUT I WILL FOCUS ON CORE ECONOMICS. WE'VE SEEN –

HARWOOD: HOW STRONG IS THE CORE ECONOMY?

LEW: I THINK OUR CORE ECONOMY HAS BEEN GROWING IN THE 2% RANGE AND I THINK IT'S IMPORTANT TO NOTE THAT THAT'S WITH SUBSTANTIAL HEADWINDS FROM FEDERAL POLICY. SOME ON PURPOSE, SOME NOT ON PURPOSE. WE WITHDREW THE PAYROLL TAX CUT BECAUSE THAT WAS A SHORT-TERM POLICY THAT HAD TO BE WITHDRAWN AS WE STARTED TO SEE ECONOMIC GROWTH. THE ACROSS THE BOARD CUTS OF SEQUESTRATION ARE AN UNINTENDED SELF INFLICTED WOUND IN THE SHORT TERM. THEY WERE MEANT TO BE REPLACED BY MEDIUM AND LONG-TERM SAVINGS THAT WOULD BE A BETTER SENSIBLE PATH FOR THE FUTURE. IN SPITE OF THOSE DRAGS ON THE ECONOMY, WE ARE SEEING 2% GROWTH. AS WE GET TO THE END OF THE YEAR, WE THINK WITHOUT THE HEAD WINDS OF ADDITIONAL FEDERAL CUTS, THE ECONOMY SHOULD PICK UP A NOTCH AGAIN. YOU KNOW, I THINK THAT ONE OF THE REALLY IMPORTANT THINGS ABOUT THE DEBT LIMIT DEBATE, ABOUT ALL THESE DEBATES IS WE IN WASHINGTON HAVE TO BE CAREFUL TO BE A PART OF THE SOLUTION, NOT A PART OF THE PROBLEM. THESE KINDS OF MANUFACTURED CRISES, LAST MINUTE DECISIONS PUT THE COUNTRY ON PINS AND NEEDLES AND PEOPLE MAKE ECONOMIC DECISIONS IN A STATE OF UNCERTAINTY. WE HAVE SOME CONTROL OVER THAT. I HOPE CONGRESS WILL ACT QUICKLY TO SETTLE MARKETS DOWN SO THEY DON'T GET WORRIED ABOUT THESE ISSUES.

HARWOOD: COULD LARRY SUMMERS BE AN EFFECTIVE FED CHAIR IF HE IS THE PRESIDENT'S CHOICE?

LEW: JOHN, I WILL LEAVE MY COMMENTS ON FED TRANSITION WHERE THEY BELONG, IN THE OVAL OFFICE.

HARWOOD: HOW SOON WILL WE KNOW THE PRESIDENT'S CHOICE?

LEW: AS SOON AS HE IS READY TO MAKE AN ANNOUNCEMENT, HE WILL MAKE AN ANNOUNCEMENT.

HARWOOD: JACK LEW, TREASURY SECRETARY. THANKS SO MUCH FOR BEING WITH US.

LEW: PLEASURE TO BE WITH YOU JOHN.


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