updated 12/4/2008 1:06:03 PM ET 2008-12-04T18:06:03

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

Guests: Richard Engel, Larry Burns, John Harwood, Harold Ford Jr., Jay Carney, John Heilemann, Laura Bush, Peter Baker, John Harwood, Jay Carney, Nicholas Kristof

DAVID GREGORY, MSNBC ANCHOR, "1600 PENNSYLVANIA AVENUE: Tonight greasing the wheels; the automotive industry backed by union leadership now issues another desperate plea for government assistance. Big bucks they now say they need before Barack Obama makes his move into "1600 PENNSYLVANIA AVENUE."

It's 48 days now until the inauguration of President-elect Obama.

Welcome to the program tonight. I'm David Gregory.

The headline: Gearing up; the fate of America's automotive industry hangs in the balance as Detroit's big three gear up for an encore appearance on Capitol Hill. Today congressional leadership poured over renewed pleas for an even bigger bailout than was originally requested; now upwards of $34 billion in federal loans as they desperately try correct their course and steer away from a path to bankruptcy.

An effort to grease the wheels came from the industry's biggest labor group today, the United Automobile Workers Union which called an emergency meeting with leaders from across the country. The result: A willingness to take extra steps to help Detroit avoid a total collapse, including an agreement to delay costly contributions to medical funds and suspension of a controversial program that pays laid-off worker. These concessions will save money and are designed to back up the automakers' argument that labor will help them remain viable by shrinking operations.

The union's president frankly stated that he no longer cringes when he hears the word concessions declaring, "We have to get this loan. Nobody's kidding anybody." Detroit's recent failure to convince Congress they'll spend bailout funds wisely has left many skeptical that tomorrow Act 2 will do the trick. If they fail again, this bailout will wind up on the president-elect's plate in January.

Today, the president-elect said that Congress did the right thing in sending the big three back to the drawing board. Adding that although he believes that they have finally put forward a "more serious set of plans, auto aid needs to be based on a realistic view of the market."

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT-ELECT OF THE UNITED STATES: My expectations that we should maintain a viable auto industry but we should also make sure that any government assistance as provided is designed for, is based on realistic assessments of what the auto market is going to be. And a realistic plan for how we're going to make these companies viable over the long term.

(END VIDEO CLIP)

GREGORY: One key question that now remains, could the automakers even stay alive until inauguration day? Some grimly argue there will be enormous consequences if Detroit does not find itself on the receiving end of at least some short term government intervention. General motors is indicating it could fall in a matter of weeks, not months, if emergency funds don't come their way, arguing the company needs $4 billion this month to merely survive going into 2009.

GM's president and CEO Fritz Henderson now says, "there is no Plan B," adding that the shortage of liquidity does focus the mind.

Here with me now, a key player at GM, Larry Burns, vice president of General Motors research and development and strategic planning.

Welcome to the program.

LARRY BURNS, VICE PRESIDENT, GENERAL MOTORS: Thank you David.

GREGORY: Why the misfire? Why did Act One on Capitol Hill go so badly for the big three?

BURNS: That certainly wasn't our best moment. And we didn't come in and convince the American people exactly how we were going to use the money, why we needed the loan, why it was so important to the nation. We really appreciate Congress asking us back and giving us a chance to really explain in detail exactly why we have the substantive plan to be viable long term.

GREGORY: Viability is the key. How is that it GM is viable as a company?

BURNS: We have a plan where we're restructuring and we're going to bring our break even point down to the range of 12.5 million- to 13 million- unit a year industry. Over the last nine years, the industry-

GREGORY: Explain what that means.

BURNS: What that means is that so many cars are sold in the United States. In the last nine years, we've averaged 17 million cars sold in the United States. So by bringing that break even point down so low, we will be healthy and profitable. We believe we'll start paying back the U.S. taxpayers in 2011 and we'll have a strong, fully competitive manufacturing operation with the foreign manufacturers in 2012.

GREGORY: Your view is profitability for GM by 2011?

BURNS: Absolutely, yes.

GREGORY: You do that how? You have to fire a lot of workers?

BURNS: The way we do that is first of all we're focusing on our core brands: Chevrolet, Cadillac, Buick and GMC. We're also focusing on our manufacturing operations to make sure they're truly competitive. We're focused on executive compensation, shared sacrifices by everybody.

We truly need to continue to deliver the great cars that we're developing. 22 of the next 24 vehicles we launch will be cars and crossovers, highly fuel efficient. And finally products like the Chevrolet Volt; truly a revolutionary technology.

All that comes together here in this time frame.

GREGORY: Politicians in Washington have to be able to say to their constituents that you can trust these guys; that they know what they're doing. Why should the American people have faith that GM knows what they're doing at this stage?

BURNS: Well, first of all, we've requested that a federal oversight board be put in place to make sure that the taxpayers see us delivering on the commitments that we're making to hold us accountable. We are responsible for that. We also feel that board will help us work proactively to restructure the industry as we go forward.

GREGORY: What does innovation in this industry mean to GM's bottom line? Truly to the big three. What kind of innovation are you looking at that has to be done?

BURNS: We really need to transition to new forms of advance propulsion. Our nation is highly dependent on imported oil. The innovation necessary to transition from mechanically-driven vehicles to electrically-driven vehicles like the Chevrolet Volt is critically important. We need to do that innovation here in the United States.

We don't want to go from being dependent on foreign oil to being dependent on foreign technology. We have to develop a supply base for advanced batteries, for hydrogen and fuel cells, for power electronic and electric motors. And all those jobs will green jobs here in the United States. In fact, our plan estimates that we'd create about 10,000 new green jobs as we implement this technology.

GREGORY: If you don't get this loan, this infusion of cash this year, what happens? Bankruptcy?

BURNS: Well, we're certainly at a point where we're going to collapse, quite frankly. We wouldn't be asking for $4 billion by the end of the year if we didn't need it. We're at a point where our cash reserves have fallen critically low because of the quick decline of the U.S. economy so we need that money to keep paying our bill and meet our obligations to sustain our operations.

GREGORY: People are just not buying cars.

BURNS: They're not buying cars and quite honestly about three million jobs in the nation are at stake here. If the auto industry collapses about, one in ten jobs in the United States depends directly or indirectly on the auto industry. Three million jobs at risk in an economy that's as anemic as the U.S. economy is right now is a frightening prospect.

GREGORY: So you have another opportunity to speak to the American people effectively. You say it wasn't your finest moment.

How could both the public relations and the substance be misjudged so poorly, do you think?

BURNS: We're looking back at that. Things are happening pretty fast here. We've been working really hard to restructure the company and we came in and looking at what was going on in the economy. We needed money urgently and I think we just missed the bid on bringing that story forward properly. I'll tell we're prepared for tomorrow and Friday.

GREGORY: Management at GM should remain in the post?

BURNS: Absolutely. It's a great team of people; worked very hard. We've been restructuring our company for well over a decade. And it is a set of issues that we're addressing that have been in the making in the 60s and the 70s and 80s. Really touch issues.

The auto industry is highly co-dependent with the energy industry, with the unions, with our supply base, our dealers, our retirees. It's a very important fabric of the American economy. We've created jobs for 100 years, we've paid our taxes for 100 years, we've contributed to the local communities for 100 years. We've hit a really tough spot right now and we're asking for some help from the American people. And hopefully, they'll see their way clear to do that for us.

GREGORY: Labor is with GM.

Thank you very much for your time tonight.

BURNS: Thank you David.

GREGORY: Appreciate it.

We want to bring our panel in now: John Harwood, CNBC's chief Washington correspondent and political writer for the "New York Times;" Harold Ford, Jr. chairman of the Democratic Leadership Council and NBC news analyst; and Jay Carney, Washington bureau chief of "Time" magazine. Welcome all.

John, let me start with you. There is this combination of politics, public relations and the economy coming together on this question of whether the big three ought to be bailed out.

Do they have a more compelling argument now?

JOHN HARWOOD, CNBC CHIEF WASHINGTON CORRESPONDENT: I think they've done a much better job this time. It feels as if events are converging in their favor. Certainly they're going to be much more in their favor in January when you got a new Democratic Congress and a new president.

But I think the odds are looking good for some sort of near-term assistance. Perhaps as little as that $4 billion that Larry Burns was just talking about before the end of the year to prevent GM from going down and maybe the larger package coming in January. We'll see what happens.

You're beginning to see some signs of flexibility out of the administration. And certainly members of Congress like this current presentation a lot better than the last one.

GREGORY: Jay, amplify on that. You do have some flexibility out of the administration, out of the White House now. Some willingness when there was more reluctance before to get involved in this particular bailout business. What has changed?

JAY CARNEY, "TIME" MAGAZINE: Well, I think the auto industry; the big three are showing signs of taking this very seriously. The anger over their appearance last time has clearly hit home as you just heard with your guest.

And I think it's the reality of the jobs that might be affected if GM, Chrysler, even Ford would collapse is sort of settling in on members of Congress. Even though public opinion polls say that a majority of Americans don't believe they should be bailed out. I think if those jobs were lost, those polls might turn around pretty quickly.

GREGORY: Let's listen to the UAW president. There was some talk about the union now having conversations about helping the companies survive. This is what he had to say.

(BEGIN VIDEO CLIP)

RON GETTELFINGER, PRESIDENT, UNITED AUTO WORKERS: Let's go to AIG or Bear Stearns or Citigroup. Nobody asked them for anything. No oversight, no anything. Look. Here's the plan. You want the man? Here it is. Oversight, bring it on.

U.S. government gets equity in the companies, you got it. No dividends? There it is.

So I think this is a big difference than company A out here raising their hand and saying I need help.

(END VIDEO CLIP)

GREGORY: Harold, the argument being here that there is such a reaction to the prospect of bailing out the big three when the big banks needed help, there was an immediate reaction that was, no, we can't let them fail.

HAROLD FORD JR., CHAIRMAN, DEMOCRATIC LEADERSHIP COUNCIL: I think there's been a frustration over the years as it relates to how the big three been treated on Capitol Hill. Some of the defenders they have had who have been timid if not outright opposed to higher fuel efficiency standards. They're unwillingness, at least in the minds of many voters and those in politics, to adopt some of the approaches of the Japanese counterparts and peers or foreign counterparts and peers.

I think two things have happened though in the last 48 hours. And John and Jay both touched on it. And your previous guest, vice president Burns there at GM said it well.

The question for Americans and for policy makers is we now rely heavily on foreign oil. Do we want to now rely on foreign technology? If we allow the auto industry to disappear as we know it today, what medium and long term impact does that have on America's ability to innovate?

And two, with the unions now willing to negotiate, understanding that their survival, the survival of thousands if not millions of jobs are at stake, I think changes the conversation.

And finally, the Obama transition team and the Obama-elect presidential team has to feel good about themselves. The new president challenged the automakers and their executives to go back to Detroit then come back to Washington with a better plan. And they did that today.

GREGORY: All right. We're going to leave it there. We're going to take a break.

Coming next, is Bill Clinton, the former president, looking for a new gig in the Obama administration? Some comment he made overseas are raising eyebrows today. We're going to talk about that when we come back in the program right after this.

(COMMERCIAL BREAK)

GREGORY: Back now in "1600."

Just 48 hours after Hillary Clinton was announced as the nominee for secretary of state, her husband, the former president, is making headlines for apparently hinting that he may or may not want to have his own role in the Obama administration.

The former president did an interview with CNN International while in Hong Kong for his global initiative. He was asked how he would help his wife serve as the nation's top diplomat.

(BEGIN VIDEO CLIP)

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: I'll just try to be a helpful sounding board to her. I don't think I will do any more than that unless he asks me to do something specific, which I'm neither looking for nor opposed to.

(END VIDEO CLIP)

GREGORY: Joining me now, John Heilemann, national political columnist in "New York Magazine" and still with us Harold Ford Jr.

John, we were just talking about this. Especially by Clinton standards, this is not an overtly political statement. He doesn't seem to be angling for anything. I think the question is, a political force, a former president with this kind of stature. You have to believe he is going to remain on the stage in a significant way.

JOHN HEILEMANN, POLITICAL COLUMNIST, "NEW YORK MAGAZINE": All ex-presidents do, right? And usually they tend to be kind of a pain for the current presidents in their own party. I think he also has a lot less to do now. He is trying to curtail some of his stuff on the global stage. He is obviously a pro-team figure and a guy who likes to have his fingers in a lot of pies.

GREGORY: And Harold, the key here is that the Clinton brand overseas, very popular, it could be very significant, it could be very helpful in a secretary of state Clinton's portfolio with all of the problems on the world stage. But the downside of that is again, just an outsized figure constantly around in one way or the other.

FORD: I think President Obama, the new president, realizes the scope and enormity of challenges that we have on our foreign policy plate. And I think he's going to utilize every talent that he has and deploy all of them on the field.

Bill Clinton, whether Mrs. Clinton or Senator Clinton, was a part of the cabinet or not, I would imagine that this president would want to use the prodigious talents of the former president in the smartest and best ways.

And for President Clinton to say that there is a willingness on his part, I would have to imagine that president-elect and his team, Obama, would have to be trying to figure out creative ways and useful ways in which to utilize the former president.

GREGORY: Let's talk, John, about the piece you did for New York magazine. You're talking about the relationship between Obama and Clinton and the role of the new Obama cabinet. This is what you write. I thought it was very interesting.

"One of the cardinal rules of the Beltway is that you never appoint a subordinate who, for all practical purposes, can't be fired. Colin Powell was very nearly such an appointment and George W. Bush came to regret it. Hillary Clinton would be another.

Obama is wagering that Clinton will do his bidding and not pursue her own agenda because she will see that her future-in electoral politics, in how she's treated in the history books-will be bound up with his success."

Here's what's so interesting about that to me.

A secretary of state faces a choice, especially somebody with her level of experience and with her independent power base in the country and popularity. Does she approach a problem and say this is what I would do? This is the right way. Or no, this is what my president wants me to do?

HEILEMANN: I think that's a balancing act for anybody. I think in her case, she's been very clear about the fact that she is there to serve Obama. At the same time, there is no question that part of the reason why this job is attractive to her is that it is both more glamorous and has greater gravitas than where she was before.

I don't think her political ambitions down the line had dissipated.

And so she is going to be doing that balancing act as she goes forward.

And it's interesting if you think about the prospect. Bill Clinton is under normal circumstances, if she was not the secretary of state, he would have been a natural Mid-East peace envoy or something.

GREGORY: Sure.

HEILEMANN: Can you subcontract out all the foreign policy to the two Clintons? That is a question that Obama's going to have to face.

GREGORY: That question is also important, I think, Harold, because the issue is, if the economy dominates the early part of the Obama administration. We don't know how long that will be. But we know that the focus is going to be keen. And you have so many difficult problems in the world, not the least of which, ending the war in Iraq, Iran, Israeli-Palestinian peace which the president put is a priority item.

He may not be able to invest the kind of political capital that he might like. He's going to have a very strong secretary of state doing that in a way where there's going to be a lot scrutiny about just this question: how close is she to him?

FORD: Remember, the president remains in charge. He is the commander-in-chief. He is a symbol. One of the most impressive and attractive foreign policy teams from Jim Jones to Joe Biden, the retention of Secretary Gates, Susan Rice at the U.N. He has a formidable team. I have to think that Senator Clinton was probably attracted to the secretary of state job for a variety of reasons.

I would agree with John, partly because it is a more attractive portfolio of work. The reality is we've face some hard challenges going forward. Some hard choices are going to have to be made.

I think and expect her to do, not only a terrific job but to do the job that the president of the United States wants her to do. And I for one hope that president Obama see fit to find some place or to find some space for the former president Clinton to play a role.

When you look at all the challenges, who would have thought we would awaken on Thanksgiving with the challenges in India, in Mumbai, that morning? The reality is we may face more. I'm not suggesting there will be or inviting them. But the reality is we will continue to face hardship around the world. And having that kind of experience and the Clinton brand certainly does not hurt.

GREGORY: All right. We're going to leave it there. Thanks to John Heilemann of "New York" magazine and Harold Ford, Jr. Thank you both.

Coming next, it is beginning to look a lot like Christmas at "1600 PENNSYLVANIA AVENUE." I got a tour from the First Lady, Laura Bush, today. I'm going to show you that when we come back. Looks great.

(COMMERCIAL BREAK)

GREGORY: We're back with a look at what's going on inside "The Briefing Room" tonight.

We may not be down for the twelve days of Christmas but it's the season in the White House and already where the trees-and yes, there are several-are already trimmed and the hall is already decorated. I had the honor of getting a sneak peek of the decked out room with First Lady Laura Bush this morning.

This year's theme red, white and blue. This year's official White House tree, 18.5 feet tall, hails from North Carolina. It holds 369 ornaments from artists around the country. The smaller trees throughout the house are decorated with red and blue ornaments many of which are from years past.

The first lady and I talked about how Christmas this year, given our suffering economy, will be a little bit different for all of us. Here's part of our conversation.

(BEGIN VIDEO CLIP)

GREGORY: As your days wind down in the White House, this has to be kind of a bitter sweet holiday season. Not just you personally but because of the economy. So many families are in such pronounced need around the country.

LAURA BUSH, FIRST LADY OF THE UNITED STATES: That's right.

Absolutely.

I'm very aware of that, people worrying with the economy, worrying about their own jobs and their families and their children and wanting their children to have a happy holiday. But do I want to encourage people to realize what really matters in the holidays. And that is being with your family and your friends.

(END VIDEO CLIP)

GREGORY: How will the first family be spending its Christmas money? The first lady said they'll be putting it toward real estate. They're looking to buy a house in Dallas to move in after they leave the White House in January.

Talking about the holidays; the first couple, take on average, maybe upwards of 1,000 photographs with staff over the holidays, members of the press. Lots of parties. Can you imagine that? 1,000 pictures.

Coming up next, looking at the role Bill Richardson will play in Obama's cabinet and might there be another Bush in Washington?

When "1600" returns after this.

(COMMERCIAL BREAK)

GREGORY: Tonight Bill Richardson joins the Obama Cabinet, where he will serve alongside Hillary Clinton. So how will this team of rivals get along once they're in charge at 1600 Pennsylvania Avenue?

Welcome back to the program. The back half of 1600 PENNSYLVANIA

AVENUE.

Today President-elect Obama announced New Mexico Governor Bill Richardson as his choice for Commerce secretary. Richardson will be a key player on Obama's economic team, but he may find himself working closely with the secretary of State, Hillary Clinton, if confirmed. Today, Richardson, who was once called a Judas after he endorsed Obama over Clinton during the primary, talked about working with old rivals.

(BEGIN VIDEO CLIP)

GOV. BILL RICHARDSON (D) NEW MEXICO: There are some who speak of a team of rivals, but I've never seen it that way. Past competitors, yes. But rivals implies something harder edged and less forgiving. And in the worlds of diplomacy and commerce, you open markets and minds, not with rivalry, but instead with partnership and innovation, and hard work.

(END VIDEO CLIP)

GREGORY: Joining me now, Peter Baker, "New York Times" White House correspondent, still with us, John Harwood, CNBC's chief Washington correspondent, and political writer for "The New York Times", and still with us, Jay Carney, "Time" magazine's Washington bureau chief.

I have to may this bit of joking here, about the Richardson goatee, as well. This is what happened during that announcement.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: If I also may ask the governor, what happened to the beard, sir?

(LAUGHTER)

SEN. BARACK OBAMA (D), PRESIDENT-ELECT: I'm going to answer this question about the beard. I think it was a mistake for him to get rid of it. I thought that whole Western rugged look was really working for him. For some reason, maybe because it was scratchy when he kissed his wife, he was forced to get rid of it. But we're deeply disappointed with the loss of the beard.

(END VIDEO CLIP)

GREGORY: Peter Baker, a serious question now about Bill Richardson. He was a key ally here once he made the endorsement down the stretch of the campaign. What role does a Commerce secretary, in this kind of economic climate, have in an Obama administration?

PETER BAKER, WHITE HOUSE CORRESPONDENT, "THE NEW YORK TIMES": Well, it's a really good question. Traditionally, Commerce secretary has not been a top-tier Cabinet position. It has been a reward often for a political fund-raisers and so forth. But what President-Elect Obama was saying today, is he plans to make it a very vital part of his economic team at a time when the economy is in a tailspin. That he will be an economic diplomat to the world, in effect, using his past experience at the U.N. and in Congress to be a much more important player.

Now what else would he say? With Governor Richardson standing right next to him, so the proof is in the pudding.

GREGORY: But Jon Harwood, is there a role to the extent we talk about foreign policy, the economy being a dominant player in an Obama foreign policy. And certainly, a Commerce secretary with a lot of international experience is going to be a key voice in that.

JOHN HARWOOD, CNBC WASHINGTON BUREAU CHIEF: No question about it. And Peter is partly right, some of that is flattery. You're trying to make somebody who aspired to be secretary of State, himself, feel better about the job that he ended up getting.

But look, I think the consistent pattern we're seeing from Barack Obama is he is picking people who by the traditional standards with which we measure these things are bigger than the jobs they're getting, and - rather than smaller. So you have Larry Summers lose out for Treasury secretary and instead of packing up and leaving in frustration and waiting for something else, he goes into the White House. Bill Richardson aspired to be secretary of State, he goes in, takes the job as Commerce secretary. I think he is serious about getting the best possible players in each position. And, of course, sometimes the all-star teams don't play all that well together. We'll see how this one works.

GREGORY: All right. Let's switch gears a little bit. Jay Carney, let's talk about politics down South. The Georgia Senate results are in. Saxby Chambliss is sticking around in the U.S. Senate, a rare bit of good news for the Republican Party. Ron Brownstein and I were talking on the program last night about the lock that the party has on the Deep South, as well. Maybe to their detriment, maybe to a point where it becomes too much of a regional party. The reality here is that one, Sarah Palin, was a big factor in this race.

JAY CARNEY, WASHINGTON BUREAU CHIEF, "TIME": Well, she certainly seemed to have benefited Saxby Chambliss. It is hard to measure what her impact was. She is a high profile national Republican now. And clearly, the negatives that she accrued during the general election campaign were not principally felt in a state like Georgia. She is clearly popular among Georgia Republicans.

The problem you hit on, though, is that when you have a Sarah Palin going down there with a Saxby Chambliss, you are looking at old versus potentially new. Saxby Chambliss is a Southern white male, cut out of the sort of Bush-Cheney mode of the Republican Party, which is certainly out of favor. And Sarah Palin, potentially, if she can undo some of the damage she did to herself during the vice presidential campaign, could be a face for the future of the party.

GREGORY: Let's talk about a face for the future of the party as well. And that is, Peter, Jeb Bush. The Bush family, there is so much made about the fact a lot of people in the family thought Jeb Bush would be the one to run successfully for president instead of his brother. Now there is talk that he could actually run for the Senate. What are the prospects of this?

BAKER: Well, you know what, the Clintons aren't done, and neither are the Bushes. Jeb Bush is looking at running for the seat of Mel Martinez, who is retiring in two years.

GREGORY: Right.

BAKER: And he's got a pretty good chance at winning at this. It is a Republican state. He comes out of his governorship pretty popular. He decided he couldn't run for president this time around with the Bush name, obviously, having suffered so much trouble because of his brother's issues in the White House. But he remains a popular in Florida. And what would be interesting to see is if he were to run, and were to win, what kind of role he could play in Washington. Is there a future for Jeb Bush even beyond this Senate seat?

GREGORY: That's my question. Jon, is if Jeb Bush wants to get to the White House? If he is a future leader, a conservative with very strong executive credentials down in Florida. Does time in the Senate help him? Does he need more time after the Bush presidency before he takes a shot?

HARWOOD: I don't think so. I think one of the questions about whether he gets in the race or not, is whether someone with his temperament, which strikes me as very much an executive temperament, would want to go to the Senate, or would need to go to the Senate.

Look, his time for running for president might be the 2012, against Barack Obama. But I think what he's weighing right now, is that the role of, at a time when the Republican Party is so down right now. Could he, even if he doesn't aspire to be one of 100 senators, would he warm to the idea of coming back, being part of the rebuilding process, part of the recovery process for Republicans?

GREGORY: Jay, some of the tension in the Republican Party. I've talked to Republicans recently, who made the observation about the McCain campaign, that he was never defending. He wasn't defending Bush. He wasn't defending some of the core conservative principles and that is one of the reasons why Sarah Palin was so welcome. That she showed up and was a true conservative. And that's where the rebuilding must start. It can't begin, as others speculate, about trying to build out the center.

CARNEY: Well, we'll see, David. I think that there is some risk in that. Because, as you mentioned in the beginning of the segment, there is a risk that the party will boil down to its base and not grow. You're right that they need to return to basic principles, to first principles. As a party, they got away from fiscal responsibility. They got away from, you know, honesty in government, because of all the corruption scandals, especially in Congress. There are a lot of issues they need address by returning to first principles.

But I think to expand the base of the party they need to look at the demographic shifts in the country; the fact that some of the hard, social right positions the party stands for, alienated a lot of potential centrist voters.

GREGORY: Right.

CARNEY: If they go hard right, and they go hard right without sort of an amiable face, they could be in more trouble than they're in now.

GREGORY: All right. We'll leave it there.

HARWOOD: Well, which means part of their struggle is to figure out what their first principles are, David.

GREGORY: Right. All right, John, panel, thank you very much.

Coming next, President-Elect Obama launched his campaign on the idea of ending the war in Iraq. Well, what is his plan for Iraq, once he gets into office? Will there be a change from the rhetoric of the campaign, especially with President Bush's Defense secretary at the helm, staying on? We are going to look at all of that when 1600 returns right after this.

(COMMERCIAL BREAK)

GREGORY: Back now on 1600 PENNSYLVANIA AVENUE.

After pledging to tend war on the campaign trail, President-Elect Barack Obama now faces the daunting task of making it happen. How will Obama and his newly named foreign policy team meet challenges in the Middle East and South Asia? Joining us now, to map out Obama's challenges, is Richard Engel, NBC News chief foreign correspondent. He's up in New York tonight.

Hi, Richard.

RICHARD ENGEL, NBC NEWS CHIEF FOREIGN CORRESPONDENT: How are you doing, David?

GREGORY: I want to get to, I know you have some illustrations to get to, because I think of you primarily not just a gifted correspondent but as an illustrator, frankly.

ENGEL: I'm sorry about that. I have discovered this new toy. I love this animated map.

(LAUGHTER)

GREGORY: You can't stop it.

ENGEL: I used it yesterday for the first time. And been playing it

all day

GREGORY: We're going to get to that, because obviously, a very serious issue. You talk about South Asia. I want to start on about Iraq. Let's talk play the new secretary of Defense and the old one, Robert Gates, talking about the timetable for withdrawal of troops from Iraq. Let's watch.

(BEGIN VIDEO CLIP)

ROBERT GATES, U.S. SECRETARY OF DEFENSE: We will confront, or have a different kind of situation in Iraq at the end of June, 2009, than we would have thought perhaps in June of 2008. And I think that the commanders are already looking at what the implications of that are, in term of the potential for accelerating the draw-down. And in terms of how we meet our obligations to the Iraqis.

(END VIDEO CLIP)

GREGORY: I guess there are a couple of ways to interpret that. In other words, is he saying there is a ripeness now to accelerate the withdrawal timetable? Or does it suggest, particularly in the naming of Gates, that Barack Obama will have a big gap between the campaign rhetoric and, once he gets into the presidency to say, we'll do this in a much more deliberative and perhaps slower way, the actual withdrawal?

ENGEL: I think he is saying that after June, they will be a very different mission in Iraq. And if you look at what happens in June, the point of having troops in Iraq greatly, greatly diminishes. After June, according to the Status of Forces Agreement that has been passed by the Iraqi parliament, all U.S. troops will have to be out of major Iraqi town and cities, population centers.

So they won't be conducting independent patrols. They will not be seen by most Iraqis on the streets. Which then raises the question, what is the point of having them in Iraq at all? They are mostly there to prevent total regime collapse, to continue a training mission, and not to be conducting offensive operations except with the permission and authorization of the Iraqi government. So, if that holds, if once U.S. troops pull out of cities and pull back to bases, if the country still holds, then certainly fewer troops would be required because they're on a different mission.

GREGORY: Richard, the agreement between the United States and Iraq really does put to bed the argument, it seems, this notion the U.S. wants a permanent base in Iraq. The Iraqis really limited the U.S. potential for such a base.

ENGEL: Not really.

GREGORY: No?

ENGEL: There is quite a bit of flexibility. I've spoken with U.S. officials about this. There is deliberate flexibility allowed in this agreement. So that's not all U.S. troops would be out of Iraq when the agreement expires at the end of 2011 and the start of 2012. You could have, if not a permanent base, very long-term strategic outposts, strategic training bases that are in Iraq. We are not going to have 140,000, 150,000 people --

GREGORY: Well, right now -

ENGEL: Maybe we're talking 20, 30.

GREGORY: I also meant that there were some real limits placed on the ability to stage offensive operations out of Iraq, or even controlling air space in Iraq.

ENGEL: Well, this is, I was recently talking to some cadets at West Point and I - these are people who are going to be heading off to Iraq. And I said, you have to be very careful. This new mission that you'll be heading into is a complicated one. It is not a war-fighting mission anymore. It is a collaborative mission. If they want to leave the base and raid an Iraqi home, or raid a suspect they have to have a warrant. They have to approve operations ahead of time through a joint committee. And that is not the kind of operation that generally commanders have been comfortable with when you're trying to run a war through council and troop committee. It is a very complicated situation. So, it is one that I think commanders are going to be very cautious about.

GREGORY: I know you have an assignment coming up, Richard. So, I do want to turn to the very difficult issue of South Asia now, in the wake of the Mumbai terror attacks. The relationship, which has always been volatile, between India and Pakistan. If you do look on your illustrator there, at the geography of this conflict, what are the implications as you see them?

ENGEL: Well, right now the U.S. has dispatched Admiral Mullen and Secretary Rice to the region to prevent a nightmare scenario. If you look at the geography, there are about 120,000 Pakistani troops along the border with Afghanistan. U.S. troops are stationed on the other side of the board. And in between two is where this great fight against the Taliban is going on.

As tensions increase between India and Pakistan, and India is getting increasingly aggressive, at least in its rhetoric toward Pakistan ;

Pakistan is threatening to move these troops to the other border, which would certainly make it much easier for the Taliban to operate. Give them greater breathing space but could it also potentially cripple the U.S. mission in Afghanistan. Because the supply route to Afghanistan goes right through Pakistan. About 75 percent of the equipment, the food, the supplies, the vehicles that are supporting U.S. troops in Afghanistan run straight through Pakistan , across the Khyber Pass. And they are - and having troops along that border is, Pakistani troops, is essential to keep that supply route open.

GREGORY: This is why, especially as Afghanistan becomes in such sharp focus for the new administration, that they also have the deal with this, the India/Pakistan piece of this. Which is going to be a brand new portfolio that is going to become very troublesome.

ENGEL: Don't forget these two states are armed with nuclear weapons and if tensions increase, it could potentially open this second front on Pakistan. Right now, most of Pakistan's attention is focused along the border with Afghanistan supporting that mission. And the United States and Pakistan don't need, at this time, especially at this time, renewed India-Pakistan tension, which would just draw forces and draw the focus of Pakistan away from Afghanistan and toward the border with India.

GREGORY: All right, Richard Engel, our chief foreign correspondent.

Richard, I really appreciate you taking the time while you're in New York.

ENGEL: Thanks, it's my pleasure.

GREGORY: Very interesting, thanks a lot.

ENGEL: Appreciate using the map.

GREGORY: OK.

Coming up next, what will be president Obama's first international test? Well, we've been talking about it. I'm going to talk to "New York Times" columnist Nicholas Kristof, about it, Pakistan, as a potential powder keg, when 1600 returns, after this.

(COMMERCIAL BREAK)

GREGORY: Back now on 1600.

Secretary of State Condoleezza Rice held meetings in India today. And Chairman of the Joint Chiefs Mike Mullen traveled to Pakistan in an effort to diffuse tensions between the two nations after last week's Mumbai terror attacks.

(BEGIN VIDEO CLIP)

CONDOLEEZZA RICE, U.S. SECRETARY OF STATE: I have said that Pakistan needs to act with resolve and urgency and I cooperate fully and transparently. That message has been delivered and will be delivered to Pakistan.

(END VIDEO CLIP)

GREGORY: Will the growing tensions represent President-Elect Obama's first international test? Joining me now, Nicholas Kristof, "New York Times" columnist and two-time Pulitzer Prize winner.

Nice to have you on the program. Thank you.

NICHOLAS KRISTOF, COLUMNIST, "NEW YORK TIMES" My pleasure.

GREGORY: I want to refer to something that you have written in advance of the Mumbai attacks. You talked about Pakistan being an important test for the president-elect. Here's what you wrote, in part: "Barack Obama's most difficult international test in the next year will very likely be here in Pakistan. A country with 170 million people and up to 60 nuclear weapons may be collapsing. The United States has squandered more than $10 billion on Pakistan since 9/11, and Pakistani intelligence agencies seem to have rerouted some of that to the Taliban extremists.".

It's a pretty dark picture.

KRISTOFF: Yes, and I actually didn't write it there, but one risk is also that some of that aid money was actually rerouted to train some of these terrorists who ended up being infiltrated into India, and being involved in these Mumbai attacks. We obviously don't know at this point.

But for somebody who has been going to Pakistan year after year, it is so depressing to see the spread of the Taliban, to see the spread of militancy. The real fear that the upshot of the Mumbai attack is going to strengthen precisely those militants.

GREGORY: And strengthened, why? Because of its perceived success?

KRISTOF: No. Really, if here is a confrontation between India and Pakistan, and no, not necessarily a war, but if there are more troop deployments, for example, on the Indian side, to the border.

GREGORY: Right.

KRISTOF: And if there is a lot of criticism as there inevitably will be in India. And Indians certainly have a right to criticize the complacency and the complicity of Pakistan and what happened. But all that is going to tend to strengthen the nationalism in Pakistan to create a backlash, and to reduce this space and the breathing room for moderates in Pakistan. I'm just afraid that this will be bad for India, bad for Pakistan and bad for Afghanistan as well.

GREGORY: I was with some foreign policy experts, counter terrorism experts, the other day who made the point, that it was Al Qaeda's number two, Zawahiri, who off says in these messages that are broadcasts, that the Islamic world faces kind of a triple threat, from the U.S., Zionist, Hindu alliance. Very much capturing the idea that India is not a friend, is part of problem. It brings in the Mumbai attacks sort of bring in this idea of a new front that president-elect Obama would be responsible for.

KRISTOF: That's right. You travel around rural Pakistan and that you know the country's rural enemy is illiteracy. On this trip, I went out to one school, and there was only one teacher for the entire elementary school. He was teaching the kids outside under a tree. They had no desks. And that is the enemy. The militants have always said, no, the enemy is India. So you have all these resources in Pakistan going to buy weaponry and artillery, and to deploy troops on the Indian side. And I'm afraid this is going to simply exacerbate that tendency for Pakistan to define itself by confronting itself with India.

GREGORY: Here's a criticism from your colleague, Thomas Friedman, in his column today. That I think is so resonant because it is a point he has made before. He wrote this:

While the Pakistani government's sober response is important, and the sincere expressions of outrage by individual Pakistanis are critical. I am still hoping for more. I am still hoping-just once - for that mass demonstration of ordinary people against the Mumbai bombers, not for my sake, not for India's sake, but for Pakistan's sake."

In other words, where is the outrage among ordinary Pakistanis when's they see this kind of horrific violence. We've seen this outrage expressed with the Danish cartoons, that they felt was blasphemous against the Prophet Mohamed, but not a demonstration of outrage against this kind terrorism.

KRISTOF: Oh, I think that is absolutely right. There has been a lot of hope that we would see more real leadership from the President Zardari, from the new army chief of staff, General Kiyani. And, in fact, I think that is misplaced. You don't see that kind of real leadership coming from either one.

In fact, president Zardari has been, you know, mumbling about how these, the terrorists, in fact very likely weren't from Pakistan. He and just recently he appointed to his new cabinet, member who defended burying girls alive. If they want to choose their own husbands, as an honored tradition. In that kind of environment, when you have the president appointing people like that to his cabinet, and denying any kind of responsibility. Then it becomes that much harder for the country to try to deal with these problems.

GREGORY: That's is the internal dynamic. What does the new president of the United States and the potential for how he'll be received around the world-what does he have to do?

KRISTOF: It is interesting, because actually in Pakistan, there is a real resonance about the rise of Barack Obama. And I think it is partly because Pakistan has been ruled by this feudal elite for so long. And so many people do identify with the idea of somebody rising on the basis of their ability and their intelligence. And there is a somewhat analogous group in Pakistan, and that is the lawyers movement.

GREGORY: Yes, right.

KRISTOF: The supreme court chief justice really has tried to push for a new more modern Pakistan. The U.S. under the Bush administration did not support him. We basically cut him loose. And I hope that under an Obama administration, we will tend to support groups like the lawyers and other elements of civil society. Because in the long run the only way I think to pull Pakistan back from the brink is going to be to support those kinds of people.

GREGORY: All right, Nick Kristof with the "New York Times." Thanks very much. Enjoyed the conversation.

KRISTOF: My pleasure.

GREGORY: That's our program for tonight, the view from "1600 PENNSYLVANIA AVENUE." I'm David Gregory. Thank you for watching. Be back here tomorrow night, 6:00 p.m. Eastern on MSNBC. "HARDBALL" with Chris Matthews coming your way next.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

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