Interview with John Harwood of CNBC

HARWOOD: Mr. President, thanks for doing this.

THE PRESIDENT: Thank you, John.

HARWOOD: You've got Speaker Boehner and the bipartisan leadership coming down to the White House this afternoon. I wanted to see if you can clear up a little confusion about your position on something, and that is you said you're not going to negotiate the destruction of your health care plan. You're not going to negotiate on the debt limit. Exactly what are you prepared to negotiate on and when?

THE PRESIDENT: Well, I'm prepared to negotiate on anything. I think it's important for us to talk about how we create a budget that is creating jobs, encouraging growth, dealing with our long-term debt issues. The deficits are coming down at the fastest pace since World War II. They've been cut in half since I came into office. But we still have some challenges in terms of our long-term health care spending, on Medicare in particular. So whatever the leadership wants to talk about -- we've got a budget and we think we've got some good answers. But we don't expect a hundred percent.

But what I've also said is that it is not acceptable for one faction of one party in one chamber to say either we get what we want or we'll shut down the government or, even worse, we will not allow the U.S. Treasury to pay its bills and put the United States in default for the first time in history. So the message I have for the leaders is very simple. As soon as we get a clean piece of legislation that reopens the government -- and there is a majority for that right now in the House of Representatives -- [inaudible] --

HARWOOD: No negotiation until after that?

THE PRESIDENT: Until we get that done, until we make sure that Congress allows Treasury to pay for things that Congress itself already authorized, we are not going to engage in a series of negotiations.

And the reason, John, is very -- is -- is very simple. If we get in the habit where a few folks, an extremist wing of one party, whether it's Democrat or Republican, are allowed to extort concessions based on a threat of undermining the full faith and credit of the United States, then any president who comes after me, not just me, will find themselves unable to govern effectively, and that is not something that I'm going to allow to happen.

HARWOOD: An aide to the speaker yesterday, when I asked him where can this get resolved, ultimately said, in a budget negotiation, maybe involved replacement of sequester cuts with entitlement cuts. If you get to that discussion, is it conceivable, are there any circumstances under which you could make a budget deal with Republicans that does not involve new taxes?

THE PRESIDENT: You know, I think it is possible for us to make sure that we are not increasing the income tax rate. That is something that was debated during the campaign. That's now behind us.

I think it is very important for us to continue to cut out programs that are unnecessary, not working. Some of them need to be reformed. It is important for us to deal with our long-term entitlement spending. But I also think it's important for us to make sure that we're investing in the things that are going to help the economy grow.

And I'll just give you one specific example, and that's our infrastructure. Every business that's watching this program relies on good roads, airports that function, ports that are working. And we are vastly underinvesting in what is critical for our long-term growth. We've got to find a way to pay for that. So --

HARWOOD: Is there any deal you could accept, even a small deal, that does not involve revenue, which is the problem on the Republican side?

THE PRESIDENT: Well, I -- I think we have to distinguish between income tax hikes, which they've always been adverse to --

HARWOOD: You mean loopholes too -- no revenue?

THE PRESIDENT: No, but -- well, I think that we're going to have to close some loopholes in order to pay for those things that are going to help us grow. But the important point here, John, is that in the normal give-and-take between parties, that's something we should be able to solve.

Keep in mind in terms of reopening the government, what Democrats have already said they're willing to do is to vote for reopening the government at funding levels that the Republicans have established and that the Democrats don't like. So if -- if John Boehner puts the Senate bill on the floor right now, that maintains the status quo. It doesn't increase government spending beyond where it already is. It's far short of what Democrats think are necessary for us to invest in things like education and research and development and -- and all the things that are important.

But what we're saying is we'll put everything on hold. We can enter into robust negotiations around all these issues. Democrats won't get a hundred percent of what they want. Republicans won't either. But that's the kind of democratic process the American people expect.

HARWOOD: The -- before the election last year, you said you thought there was a possibility your re-election would break the fever within the Republican Party; it didn't happen.

THE PRESIDENT: Yeah.

HARWOOD: Do you see this moment as a chance, through this political confrontation, to break the fever now?

THE PRESIDENT: You know, the interesting thing, John, is that the majority of Republicans around the country -- you know, people who voted Republican -- you know, they may disagree with me on a whole range of issues, but they also recognize that a democracy only works if everybody's following the rules, that there's going to be some give and take. And I think that's actually true for a whole lot of Republicans on Capitol Hill.

There are a lot of Republican senators and congressmen -- some of them who have publicly said, we disagree with the president on a whole host of issues, but what we shouldn't be doing is shutting down the government, hurting our economy, having 800,000 federal workers who have no idea whether they're going to be able to pay the bills at the end of the month -- and certainly, what we shouldn't be doing is creating a potential financial catastrophe if the United States defaults.

The last time there was even a threat of default back in 2011, we know that the economy did not grow, it went backwards during that quarter. We know that as a consequence, we got downgraded, and that's not something that any of us should want to repeat. We've got to take that off the table.

HARWOOD: As you try to appeal to those other Republicans you think you can work with, I wonder about your tone lately. I have heard from you an increasing amount of exasperation and edge -- even mockery sometimes. You said one time recently, I keep hoping a light bulb goes off. And it gives the impression that you think that your Republican opponents are either craven or stupid or nuts. Is that what you think, and if you think so, does it help your cause to let people see that out loud?

THE PRESIDENT: John, I think it's fair to say that during the course of my presidency I have bent over backwards to work with the Republican Party and have purposely kept my rhetoric down. I think I'm pretty well known for being a calm guy. Sometimes people think I'm too calm. And am I exasperated? Absolutely I'm exasperated, because this is entirely unnecessary.

We have a situation right now where if John Boehner, the speaker of the House, puts a bill on the floor to re-open the government at current funding levels so that we can then negotiate on a real budget that allows us to stop governing from crisis to crisis, it would pass. The only thing that's stopping it is that John Boehner right now has not been willing to say no to a faction of the Republican Party that are willing to burn the house down because of an obsession over my health care initiative.

They've now voted 40 times to repeal this -- 40 times -- a law that passed the House, passed the Senate, was signed by me, was ruled constitutional by the Supreme Court, that as we speak is being implemented, that is already benefitting millions of people, that will allow their kids to stay on their parents' plan until they're 26, that are providing rebates to families because their insurance companies have to treat them fairly, that are making sure seniors are getting cheaper prescription drugs.

And I am exasperated with the idea that unless I say that 20 million people, you can't have health insurance, these folks will not re-open the government. That is irresponsible.

And so my expectation is that if and when John Boehner makes the decision to put a bill on the floor -- that's the only thing that's holding it up; it could happen in the next 10 minutes -- and that vote takes place and the government re-opens, and if and when they vote to make sure Congress pays our bills on time so America does not default on costs it's already accrued, then I am prepared to have a reasonable, civil negotiation around a whole slew of issues.

And that's reflected not just by my words but by my deeds over the last four years.

HARWOOD: You mentioned calm. Wall Street's been pretty calm about this. The reaction, I would say, generally speaking, has been, Washington fighting, Washington posturing, yada yada yada. Is that the right way for them to look at it.

THE PRESIDENT: No, I think this time's different. I think they should be concerned. And I had a chance to speak to some in the financial industry who came down for their typical trip, and I told them that it is not unusual for Democrats and Republicans to disagree. That's the way the founders designed our government. Democracy is messy. But when you have a situation in which a faction is willing, potentially, to default on U.S. government obligations, then we are in trouble. And if they're willing to do it now, they'll be doing -- willing to do it later.

One thing that I often hear is, well, Mr. President, even if they're being unreasonable, why can't you just go ahead and do something that makes them happy now? And I have to remind people --

HARWOOD: Or the constitutional option.

THE PRESIDENT: Right. What -- what -- what -- what I have to remind people is what we're debating right now is keeping the government open for two months. [chuckles] We would then be going through this exact same thing in the middle of Christmas shopping season, which I don't think many businesses would be interested in.

We saw what happened in -- in -- in 2011. And then we'd have to go through it again six months from now and six months after that. And one thing that I know the American people are tired of, and I have to assume the vast majority of businesses are tired of, is this constant governing from crisis to crisis.

So in that sense, do we need to break that fever? Absolutely. We have to stop doing that. Let's get a budget that allows people to plan over the long term, that allows us to deal with our fiscal problems in a sensible, reasonable way. Even on an issue like health care, you know, if they want to give me specific suggestions around how we can improve delivery of health insurance to people who need it, peopled with pre-existing conditions, I'm happy to talk to them about it. But I'm not going to do it subject to the threat that somehow, America defaults on its obligations.

HARWOOD: Four years ago, at the beginning of your presidency, the U.S. government bailed out Wall Street firms whose issues had caused big problems for the country. Is this now an opportunity for you to ask Wall Street bankers to help save Washington from its misbehavior and put pressure on Congress?

THE PRESIDENT: Well, again, John, I -- I -- I have to say this. This is not a problem of Congress per se. This is a problem with a particular faction in the Republican Party. Democrats are acting responsibly at this point. It doesn't mean that there haven't been times in the past where Democrats didn't have unreasonable demands or there weren't -- wasn't the usual back and forth --

HARWOOD: Can these Wall Street guys influence those people?

THE PRESIDENT: Well, the -- you know, I think Wall Street can have an influence. CEOs around the country can have an influence. I think it is important for them to recognize that this is going to have a profound impact on our economy and their bottom lines, their employees and their shareholders unless we start seeing a different attitude on the part of that faction in Congress.

HARWOOD: Any awkwardness around having Jamie Dimon in and asking him to help with that effort at the same time he's been in discussions with your attorney general about his bank's legal issues?

THE PRESIDENT: Yeah. Well, keep in mind this is -- this was the financial services group. I talked to the Business Roundtable a while back. I'm going to talk to any CEO and any company in America about why this is important.

And you know, oftentimes when you're outside of Washington, the default position, both for ordinary voters, for businesses, for the press, is to say, ah, you know, this is the usual squabbling; both sides are acting like spoiled children.

This is not one of those situations. This -- this is a situation in which, once we get back to a normal process of bargaining, it won't be pretty; people may not like every outcome. That's why we end up having elections. But at least we know that Head Start kids aren't getting thrown off the program because the government shut down. At least we can feel confident that small businesses are still getting their loans processed through the SBA.

But the Small Business Administration provides a billion dollars' worth of loans every single month. Right now that process is frozen, and that means there are small businesses all across this country right now who are being impacted unnecessarily simply because we've got a group of folks who think that they can hold America hostage for ransom that they can't win through an election.

HARWOOD: You told me as you were about to take office in 2009 that you were going to try to stay focused on the big picture, not watch the stock ticker at the bottom of our screen. You going to watch that ticker over the next couple of weeks to see what the market impacts are as we get closer and closer to October 17th?

THE PRESIDENT: I tend not to make judgments on the basis of the stock market. Obviously, since I came into office, the stock market has done very well. The biggest concern that I have day to day, though, is how is this impacting middle-class families. Are we creating a system in which ordinary people who are working hard and acting responsibly have an opportunity to get ahead, have an opportunity to find a job that pays good wages, have a chance to, you know, buy a house that -- and -- and have some retirement security, have health care that they can count on so they don't go bankrupt when they get sick, send their kids to college and allow them to succeed?

And so every day I'm tracking how is what's happening here in -- in Washington having an impact on that. And what we can say unequivocally at the moment is that Washington is having a negative impact on the lives of ordinary people. And that may manifest itself in terms of the stock market going down, but I'm more concerned over the long term with whether or not this is a country where not only are we constantly thinking about how to grow this economy for ordinary Americans, but also do we have a government that, despite the differences that exist throughout a very big nation, can come together and just do the basic common-sense stuff that's required?

Congress has two jobs that the Constitution is very clear about: pass a budget, pay its bills.

HARWOOD: Couple things.

THE PRESIDENT: And we're not asking too much for -- to ask them to do that job.

HARWOOD: Republicans, very quickly -- before I let you go, I was looking at poll data on the health care law the other day. Very, very popular among African-Americans, marginally popular among Hispanics, very unpopular among whites.

What are the implications for the country on this issue and many others, in our elections and legislatively, of politics that are polarized not just by party, but by race?

THE PRESIDENT: Well, you know what I'd say, John, is that when you break out what's actually in the Affordable Care Act, it's popular among all groups. If you ask the ordinary person, do you think it's a good thing that insurance companies have to let young people stay on their parent's plan until they're 26? Absolutely. Do you think it's a good idea that insurance companies have to spend 80 percent of premiums on people's health care and not on administrative costs? Absolutely. Do you think it's a good idea that people with pre- existing conditions should be able to get health insurance? They say yes.

So the challenge we have with the health care law is similar to the challenge we've had in our politics more broadly. And that is that there have been caricatures of what we've been trying to do. There's always been some levels of polarization in our politics. Those have gotten worse in part because of gerrymandering, so members of Congress have no incentive to reach out to all groups. Partly it's gotten worse because you've got these super PACs who are coming in and financing advertising that stirs up polarization. And the media has gotten more polarized.

But I don't think when you look at the health care law specifically that it's an issue that's going to break down in terms of race. The majority of folks who are uninsured in this country even though they're working and will be helped by the Affordable Care Act, the majority of them are going to be white, not African-American or Hispanic.

HARWOOD: Very quickly, does the shutdown at all effect the vetting of your potential fed nominee, slow that down? A lot of people have said, why is he taking so long on that appointment?

THE PRESIDENT: Well, keep in mind that Ben Bernanke is still there, and he's doing a -- a fine job. And this is one of the most important appointments that I make other than the Supreme Court. So no, the shutdown is not slowing down the vetting. The person I'm going to be appointing will end up being somebody who reflects the Fed's dual mandate. They're going to making -- they're going to be making sure that they keep an eye on inflation, that they're not encouraging some of the bubbles that we've seen in our economy that have resulted in -- in bust. But they're also going to stay focused on the fact that our unemployment rate is still too high, and ordinary workers out there still need an economy that's strengthened, aggregate demand that's strengthened so that we can end up putting more people back to work with better wages.

HARWOOD: Last question. Pope Francis said the other day that the Catholic Church, without changing the church's positions, he said it had become too obsessed on issues like gay rights and abortion. What do you think of the pope's remarks? And do you see any broader applicability beyond the Catholic Church?

THE PRESIDENT: I tell you, I -- I have been hugely impressed with -- with the pope's pronouncements, not because of -- of any particular issue, but -- you know, first of all, he seems somebody who lives out the teachings of Christ. Incredible humility, incredible sense of -- of empathy to the least of these, to the poor. And he's also somebody who's I think first and foremost thinking about how to embrace people as opposed to push them away, how to find what's good in them as opposed to condemn them. And that spirit, that sense of love and unity, seems to manifest itself in not just what he says but also what he does.

And, you know, for any religious leader, that's something that -- that's a quality I admire, and I would argue, for any leader period, that's a quality that I admire.

And so, you know, to bring it back to the issues here in Washington -- you know, I think that -- you know, no party has a monopoly on wisdom. I think that a lot of folks in the Republican Party who disagree with me are good people who love their country -- who love their kids -- you know, want what's best for their communities. But, you know, one of the -- part of the genius of the founders was that they were able to set up a system where even when there are profound disagreements, we can work those disagreements out in a sensible, civil way. And not every issue gets resolved 100 percent, but the system overall works, and ultimately, the experiment in self-government continues.

The fight that we're having right now is not about the health care law. It's not about a particular budget. What it has to do with is, do we continue with that process where we have elections, the majorities are determined, there are some protections for minorities in the system but ultimately, you know, we are able to strike compromises and then move forward. And if we can't do that, this country is too diverse, it's too big. You know, what you'll end up seeing is more and more the polarization that you talked about -- that's not healthy for our politics. It's also not good for our economy. The biggest strength we have as a nation, I think, is precisely that diversity and our capacity to get everybody, you know, energized and moving, and that creates a dynamism in the economy, and the whole thing kind of holds together.

If we start getting more and more Balkanized, then we end up having some of the problems that other countries have had in the past. That weakens us, and that has an impact on our standing in the world. And that's something that we need to avoid, and we need to get that settled right now.

HARWOOD: Thank you, Mr. President.

THE PRESIDENT: John, I appreciate it. Thank you so much.