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'The Last Word with Lawrence O'Donnell' for Monday, January 7th, 2013

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THE LAST WORD WITH LAWRENCE O`DONNELL
January 7, 2013

Guests: Spencer Ackerman, Heather Hurlburt, Rosa Brooks, Barney Frank

EZRA KLEIN, GUEST HOST: Today, Washington`s neoconservatives found out
their days of deciding who is and who isn`t in the foreign policy
mainstream are really, truly, finally over.

(BEGIN VIDEOTAPE)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Chuck Hagel is the leader
that our troops deserve.

CHRIS MATTHEWS, MSNBC HOST: Hagel for defense chief.

ANDREA MITCHELL, MSNBC ANCHOR: The real job for defense secretary coming
up.

UNIDENTIFIED MALE: This budget battle.

MITCHELL: Is going to be budget cutting.

UNIDENTIFIED MALE: The Defense Department is going to go through a major
budget.

UNIDENTIFIED MALE: The military budget is overspent.

UNIDENTIFIED MALE: The defense budget is really bloated.

UNIDENTIFIED MALE: It`s out of control. It needs to be reined in.

UNIDENTIFIED MALE: It needs to be taken down.

UNIDENTIFIED MALE: Why not have a Republican make that argument?

CHRIS JANSING, MSNBC ANCHOR: It could be a tough confirmation battle.

UNIDENTIFIED MALE: He does have detractors.

TAMRON HALL, MSNBC ANCHOR: The fight for Chuck Hagel now is in full
throttle.

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: This is an in-your-face
nomination.

SEN. JOHN CORNYN (R), TEXAS: He is profoundly wrong.

GRAHAM: Chuck Hagel is out of the mainstream.

CORNYN: Out of the main stream.

JOE SCARBOROUGH, MSNBC ANCHOR: I suggest they turn the mirror around.

SEN. CHRIS MURPHY (D), CONNECTICUT: Republicans are spoiling for a fight.

UNIDENTIFIED MALE: We have everybody fanning out their turkey feathers,
strutting around the barnyard like they have something to say about it.

CHUCK TODD, NBC NEWS: Hagel became a thorn in the side of Senate
Republicans in 2007.

UNIDENTIFIED MALE: He also had the courage to take on his party on the
Iraq war.

TODD: When he turned against the Iraq war.

UNIDENTIFIED FEMALE: Republicans don`t consider him a Republican.

CORNYN: Chuck Hagel has left the Republican Party.

GRAHAM: He has long cut his ties with the Republican Party.

CORNYN: When he endorsed President Obama in 2008.

UNIDENTIFIED FEMALE: Democrats do not consider him an acceptable
alternative.

TODD: As many as 10 Democratic senators could end up voting against Hagel.

UNIDENTIFIED MALE: Hagel appears to be a man without a party.

JANSING: Is Chuck Hagel the right choice for secretary of defense?

UNIDENTIFIED MALE: He`s a pretty strong personality.

JANSING: It`s certainly not the easiest one.

(END VIDEOTAPE)

KLEIN: The new conservative dominance of Washington`s foreign policy
thinking officially ended on the day in 2008 when Barack Obama was elected
president. But today was the day that the Obama administration made its
single biggest play to define what comes next, what is the next foreign
policy consensus.

Today, President Barack Obama nominated former Republican Senator Chuck
Hagel to be his secretary of defense. In doing, he nominated the first
Vietnam veteran to ever serve in that position.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Chuck knows that war is not
an abstraction. He understands that sending young Americans to fight and
bleed in the dirt and mud. That`s something we only do when it`s
absolutely necessary.

My frame of reference, he has said, is geared to the guy at the bottom who
is doing the fighting and the dying.

With Chuck, our troops will always know just like Sergeant Hagel was there
for his own brother, Secretary Hagel will be there for you.

And finally, Chuck represents the bipartisan tradition that we need more of
in Washington. For his independence, and commitment to consensus, he has
earned the respect of national security and military leaders, Republicans
and Democrats, including me.

(END VIDEO CLIP)

KLEIN: Hagel will be the third Republican secretary of defense appointed
by the last two Democratic presidents. William Cohen, a Republican senator
from Maine was appointed by President Clinton in 1997. Bob Gates,
President George W. Bush`s defense secretary was re-appointed by President
Obama in 2009. And Chuck Hagel, of course, is a Republican senator from
Nebraska.

And yet, the leading lights of the GOP`s foreign policy committee are not
exactly jumping up and down celebrating. Today, Senator John McCain
released a statement, reading, "I have serious concerns about positions
Senator Hagel has taken on a range of critical national security issues in
recent years. Republican Senator Lindsey Graham got even more specific.

(BEGIN VIDEO CLIP)

GRAHAM: Chuck Hagel, if confirmed to be secretary of defense, would be the
most antagonistic secretary of defense towards the state of Israel in our
nation`s history. He said you should negotiate with Iran, sanctions won`t
work, that Israel must negotiate with Hamas. He has long severed cut his
ties with the Republican Party. This is an in-your-face nomination by the
president, to those all of us who are supportive of Israel.

(END VIDEO CLIP)

KLEIN: You see, when President Obama says that Chuck represents the
bipartisan tradition that we need more of in Washington, he means the
bipartisan tradition that have this to say about the neoconservative
movement in his book, "America: Our Next Chapter".

Chuck Hagel writes, "So why did we invade Iraq? I believe it is the
triumph of the so-called neoconservative ideology, as well as Bush
administration arrogance and incompetence that took America into this war
of choice."

Chuck Hagel, it should be said, did not begin his career as a foreign
policy apostate. He was frankly a pretty standard issue, maybe even a
little hawkish Republican. In 2002, he voted for the Iraq war. He wanted
to tear up the anti-ballistic missile treaty we have with Russia to build a
missile defense shield. He wanted to put boots on the ground in Kosovo, a
position at the time, which was at the extreme edge of hawkishness in that
conflict.

He protected the Bush administration from an investigation on warrantless
wiretapping. But like many in the country, though relatively few in the
Congress, Hagel was changed about the Iraq war. He began a reluctant
supporter. He became a cautious critic. And he ended -- he ended as an
angry opponent. He ended a changed man or at least a changed foreign
policy thinker.

It wasn`t just the Iraq war he began to question by the end. It was the
Republican Party`s entire turn towards a belligerent unilateral. It was
the very idea that American military had the power to topple multiple
dictators while trying to rebuild multiple nations.

This, writes Peter Beinart, at "The Daily" is what makes Hagel so
important, he is one of the few prominent Republican aligned politicians
and commentary who is intellectually changed by Iraq. Beinart goes on to
write, quote, "What the Republican foreign policy establishment fears is
that with Hagel as secretary of defense, it will become impossible for
Obama to minimize the dangers of war with Iraq, as George W. Bush minimized
the dangers of war with Iraq.

Hagel will be to the Obama administration what Dwight Eisenhower was in the
`50s with Colin Powell was in the `90s, the military man who bluntly
reminds his colleagues at s war, once unleashed can`t be easily controlled.
Once you start with war with Iran, Hagel told "The Atlantic" council in
2010, you better be prepared to find 100,000 troops because it may take
that.

You can`t say it will be limited war fare, I don`t think any nation could
go into it that way.

I don`t know if Chuck Hagel be a better or worse secretary of defense than
Michelle Flournoy or Ashton Carter would have been. But in choosing Hagel,
President Obama chose a Republican who the neoconservatives drove from the
party. In choosing Hagel, he chose the most prominent politician for whom
the words "never forget" don`t just apply to 9/11. But also to the
thinking that subsequently led us into Iraq.

In the way that wasn`t true with the choices of Bob Gates and Bush era hold
over, or Leon Panetta, who were just from the CIA in its killing of Osama
bin Laden, the choice of Hagel is a clear message that the neoconservatives
have lost, the foreign policy consensus of the Bush administration, an
adventurist unilaterals among Republicans that was able to cow a timid a
timid Democratic Party who was consistently afraid to be seen as weak on
defense, that that consensus is over, and the Obama administration plans to
entrench a new consensus in its place, one that that has a very, very
different view of the conditions under which America should go to war.

Joining me now, member of the State Department policy planning team during
the Clinton administration, executive director of the National Security
Network, Heather Hurlburt, and former Pentagon official and current
"Foreign Policy" magazine columnist, Rosa Brooks.

It is good to have you both here.

And. Rosa, I want to begin with you, because I know you were a Hagel
skeptic. You had other candidates you preferred, Michelle Flournoy who I
believe you worked with at the Pentagon.

So, tell me why I have it wrong. Tell me or at least why you worry that
Hagel wouldn`t be the right pick for this position.

ROSA BROOKS, FOREIGN POLICY MAGAZINE: I don`t know I would say Ezra that
Hagel is the wrong pick for the position. I just don`t think he is the
best pick. I think there are other people out there, Michelle Flournoy
very much among them, who would have had many of the upsides that Hagel
has, without the down sides that Hagel has.

If Mitt Romney had won and Mitt Romney had nominated Chuck Hagel, I would
have applauded it as a fantastic choice demonstrating real courage because
Chuck Hagel has got a lot going for him. You know, he is a brave guy, he`s
a principled guy. There is a lot to like about him.

He is also a Republican, and the Democratic Party has worked really, really
hard over past decades to erase that so-called national security deficit,
in which voters consistently said they trusted Republicans more than
Democrats on national security. Democrats have worked really hard to erase
that gap, but picking Chuck Hagel seems to me to be sending a message that
I can`t figure out why President Obama wants to send, and that message is
that even a Democratic president isn`t so sure that a Democrat is going to
do a good job leading our defense establishment.

I don`t get that particularly when there are so many terrific Democrats
with very similar kinds of deep foreign policy experience, principled
leadership that Chuck Hagel offers.

KLEIN: Heather, you have been a bit more positive on the picks. So what
are your thoughts?

HEATHER HURLBURT, CLINTON ADMIN. SPECIAL ASSISTANT: Well, like Rosa, I
think there was a strong bench. I would join her in being a charter member
of the Michelle Flournoy fan club. But here`s the advantages that Chuck
Hagel brings.

First, he`ll be the first enlisted man ever to lead the Pentagon, and that
is really be powerful symbol of what is going to be a really difficult time
of transition, of what is it we`re doing with the military, if we`re not
staging land invasions or Asian countries anymore.

Second, he has a really close, personal relationship with the president and
that`s clearly very, very important to this president.

And last, he`s also just been, you know, not in the pocket of the defense
industry as frankly some of our intellectuals in both parties have, and
willing to -- you know, in addition to all the good things you said in your
intro, Ezra, he has also spoken up a lot on the importance of diplomacy,
and that we have the world`s strongest military, we don`t need to lead it
all the time. And unfortunately, for better or worse, in our society, it`s
still a lot easier to do that if you`re a guy who`s got a Medal of Honor
pinned to your chest.

So, he`s going to be a strong advocate for that.

KLEIN: And, Rosa, you worked in the Pentagon. And one of the things that
was striking about this pick was that there were two somewhat inside
candidates in Flournoy and Ashton Cater. And Hagel was very much an
outsider, an enlisted man but has not been a high-up member of the
Pentagon.

What do you see as a sort of pros and cons of picking someone from inside
who knows the bureaucracy, versus somebody from outside who maybe is more
of a public profile, maybe a tighter relationship with the president, but
isn`t as aware or isn`t as know with the nooks and crannies of that
building?

BROOKS: Well, I think that, you know, the potentially good thing about
Chuck Hagel or anyone who comes from the outside is that they may be a
little more apt to shake things up, you know, that they`re not captured by
the bureaucracy. They`re not creatures of the bureaucracy.

The downside is, the flip side of that same coin, though, which is that the
Pentagon is a -- it is a vast and complex bureaucracy. It takes a long
time just to figure it out, just to figure out what works, what doesn`t,
who holds the invisible strings. And it`s often not the obvious people in
the fancy position. Often, it`s people lower down in the bureaucracy.

And I think it`s very, very hard for someone coming in from the outside to
know which levers to pull, which buttons to push, and how to get things
through the molasses of the bureaucracy.

Certainly, I was at the Pentagon for a little over two years, and by the
time, I left I felt like I was just beginning to understand that, myself.

So, I think that what someone like Michelle Flournoy or Ash Carter
potentially could have brought to this is much deeper experience,
understanding how that big bureaucracy works and doesn`t work, and how to
actually get things done, because one of the great tragedies of our system
of government is that it`s not enough to have fantastic ideas, it`s not
enough to have terrific principles.

If you can`t make that sluggish bureaucracy work for you, they will amount
to nothing. So I think what has been the trade here that President Obama
has made is betting on an outsider who might shake things up in some very
positive ways, but giving up the potential of having somebody who really
knows how to make things actually work inside.

And also, frankly, giving up on having somebody who knows and cares about
institutional health of the Defense Department, which I think is something
that`s very undervalued when we get to top level cabinet picks, that it can
make a real difference when you have someone there who cares about the
institution and its employees, as opposed to caring just about the
policies. That can make a difference on how the bureaucracy is going to
pull for that person.

KLEIN: Above the institution, Heather, what is -- is there a strategic
direction, a broader strategic direction in the administrative foreign
policy that can be gleaned from this pick?

HURLBURT: Yes, that the administration is not going to be bound in by some
of the sort of efforts that the Bush administration left behind it. That
if the first time as they like to say was about cleaning up the messes left
behind, the second term was really about, as I said, transformation away
from the post-9/11 military, away from the post-9/11 strategic orientation
on terrorism above all else, a post-9/11 orientation on the idea that the
most, the biggest challenges we faced in the world could all be met with
military force first.

And Hagel, being someone who is not a dove by any stretch of the
imagination, but a skeptic, is someone who`s appropriate for that world and
for a world where you know, the administration is going to maintain that
kind of muscular presence we saw, mix with more focus on diplomacy.

KLEIN: Heather Hurlburt and Rosa Brooks, thank you very much for being
here tonight.

HURLBURT: Thanks for having me.

BROOKS: Thanks, Ezra.

KLEIN: Coming up, the biggest job for the next defense secretary will be
reining in the out-of-control military budget. And Barney Frank, Barney
Frank here to explain why we need a leaner military and also he now
supports the Hagel nomination.

Also, John Brennan is the father of the drone policy in the U.S. Why his
nomination to run the CIA could actually be the most important announcement
of the day.

And later, I`ll explain why Republican threats to breach the debt ceiling
are very serious. It will be a scary look at life after default.

(COMMERCIAL BREAK)

KLEIN: Is the biggest national security threat facing the Pentagon
actually out-of-control spending? Up next, why cutting the defense budget
is job number one for the defense secretary. Barney Frank will be our
special guest.

And later, the political drama surrounding the so-called trillion dollar
coin.

(COMMERCIAL BREAK)

KLEIN: The controversy over Chuck Hagel has been all about high-level
strategy. Our relationship with Israel, our negotiations with Iran,
whether we should have gone into Iraq at all. And as defense secretary,
Hagel will certainly have a role in those kinds of questions. But in the
end, it`s really up to President Obama.

You want to know what Hagel will be dealing with if he is confirmed? He
will be dealing with this amazing fact about our national defense. Since
2001, the base defense budget has nearly doubled -- doubled from roughly
$290 billion to $530 billion. And that is not including the cost of the
wars in Iraq and Afghanistan, $530 billion without them. Add those in and
we`re spending more than $700 billion on our military and our wars.

Now, the defense budget is about to be put on a big diet. The outgoing
secretary, Leon Panetta, has already signed on cutting a trillion from the
defense budget request over the next decade. The defense sequester would
double that if it actually takes effect. And frankly, a lot of people
think we should go even lower.

My colleague at Wonkblog, Brad Plumer, has compiled some charts to show
just how insane American defense spending has gotten, and what the next
defense secretary might want to think very hard about when looking at the
budget.

Chart number one, and I love this one. The U.S. spends more than any other
nation on defense, by far. But in our budget, in 2011, we spent a total of
$718 billion on defense and international security. That includes $159
billion we spent that year on the wars in Iraq and Afghanistan.

Together, that is $718 billion, which is more than we spend on Medicare.
And, by the way, the defense budget that you see there, that doesn`t even
include veteran`s benefits, which U.S. spend another $127 billion in 2011.
Add those in, we`re spending more on defense than on Medicare, on Medicaid
and on children`s health insurance combined.

Speaking of combining things, how much does the U.S. spend on defense
relative to the rest of the world? This is -- I find this unbelievable.
We spend more than the next 13 biggest spending nations combined.

Here is chart number two, China, Russia, the United Kingdom, France, Japan,
Indiana, Saudi Arabia, Germany, Brazil, Italy, South Korea, Australia, and
Canada together spent less than $700 billion in 2011. And just for the
record, most of those countries are our staunch allies. A joint Canadian,
Australian, British, French and Saudi Arabian attack on the U.S. is not a
likely thing.

All told, the U.S. accounts for 5 percent of the world`s population, and 41
percent of its military spending.

Defense spending has spiked before. I mean, that 41 percent does get us at
a high period. But in general, the spike during the periods you would
expect. There was a big spike in the early `50s for the Korean War, and
again in the late `60s for Vietnam.

It spikes during the Reagan years for the Cold War, and after 9/11, it
climbed to unprecedented levels. And the wars in Iraq and Afghanistan were
added in red on top of that. So, we are really, really high up there.

So what is worth noting, all the previous defense spikes have been followed
by big, big down-sizing trends, a 43 reduction in the military budget after
Korea, a 33 percent reduction after Vietnam, 36 percent after the Cold War.

By comparison, the current reduction in defense spending is lower, 31
percent, and that assumes the defense actually takes effect, which almost
everyone in Congress says they will never allow it to happen. So the
likely cut is going to be much smaller than that.

During the presidential campaign, Mitt Romney tried to turn the Pentagon
defense cuts into a political liability for President Obama. But polls
suggest bloated defense budgets have worn thin with the American voters. A
survey by the Stimson Center done last spring offered voters three options
to reduce the deficit, a 27 percent supported raising revenue, 50 percent
supported reducing domestic spending, and 62 percent preferred reducing
defense spending.

That is quite a bit. Reducing the defense spending also was popular with
voters of all partisan affiliations, 78 percent of Democrats support it, so
do 52 percent of independents and 49 percent of Republicans.

(BEGIN VIDEOTAPE)

Joining me now is former Congressman Barney Frank of Massachusetts.

Congressman, thank you very much for being here tonight.

FMR. REP. BARNEY FRANK (D), MASSACHUSETTS: You`re welcome.

KLEIN: You have a really interesting article in the forthcoming issue of
"Democracy", the journal. And in it you say that one of the biggest
political changes in your lifetime is happening now. And it`s that
politicians on the side of cutting defense spending are actually winning
election elections. And the American people are actually beginning to
decide that it`s time to cut our defense expenditures.

Do you see the nomination of Hagel as part of this trend?

FRANK: It does. And that`s actually put me in an interesting position. I
was very critical when I read about the remarks he made about former
Ambassador Jim Hormel. But I`m hoping he gets nominated because he is
clearly being attacked from the right. From the let`s spend more money in
defense while we`re cutting taxes faction.

And I am very pleased the president is sticking with the guy. And again,
you know, I wish we had Leon Panetta`s social views and Hagel`s budget
views, I got to pick one time.

Yes, it is -- for being suspicious of -- skeptical, I shouldn`t say
suspicious, being skeptical of this notion that more and more military
spending is the answer. Look, I think the president got the commitment to
do that when for the first time a Democratic president debated a Republican
president on military spending, and the Democratic presidential candidate,
the Democratic candidate was for less spending, he even ridiculed Romney
with regard to bayonets and horses and he won the election.

Even in Virginia, which people thought oh, with ship building so important,
Romney is going to carry Virginia.

This is, you know, the last Democratic president that talk about cutting
military budget was George McGovern. So the fact that Obama won on this,
the fact that the Congress -- look, I have co-authored an amendment to
reduce the military budget that came from the House Appropriations
Committee. For first time, in all of my years in Congress, we won that in
the floor, because I was only the co-author. The main sponsor was Mick
Mulvaney from the Tea Party from California.

People should note in that debate that Clint Eastwood lost to the chair,
one of the few coherent things he said was, let`s pull out of Afghanistan
that got wild applause at the Republican convention. And the American
people are ready for this sensible reduction.

KLEIN: Well, and this goes to something interesting. Speaker Boehner said
something that surprised me in his interview at "The Wall Street Journal"
today. He said the Republican stronger card, Mr. Boehner believes, will be
the automatic spending sequester trigger that trims all discretionary
programs, defense, and domestic. Mr. Boehner says the significant support,
including GOP defense hawks, on his side playing the sequester to do its
work.

Up until now, Boehner and the Republicans are very, very anti or against
the spending sequester, that (INAUDILBE) at the military goes much, much
too deep.

Do you think there is something real there? Or do you think Boehner is
simply trying to carve out a negotiating position to the White House, oh
we`re not afraid of the sequester in order to try to get a stronger hand
going into the negotiations over it?

FRANK: Well, it`s definitely a switch. Originally, their position was
they would do away with the defense half after the sequester by cutting
more deeply into nondefense, into quality of life programs here at home.

Yes, they`re clearly getting the message that the American people are --
let me just say, I want to summarize it this way. You know, we did not
before 1940 as a country have a big military budget. For 50 years, first
with Hitler, then with communism, America was ready to deal with very
heavily armed bad people who really were a threat to our ability to exist
as a society. Although I think it decreased more than we realized towards
the end.

What then happened was both George H.W. Bush and Bill Clinton began to
reduce the military. And it was only after 9/11, George Bush and the
neoconservatives, Cheney and the others, were very successfully in getting
terrorism to be the substitute as the existential threat for Nazism and
communism.

They clearly is not. These are very bad people, these terrorists. But
they don`t have the power or threat to destroy us, they can damage some
individuals. They can do some hurt.

And I think it took the American people a little while to realize this.
But they now understand there is no threat of that sort. That doesn`t mean
we should be weak, but it means that we can get by with a lot less.

I`ve said that nuclear submarines don`t defeat terrorists. I wish they
did, because we have a lot. And that would be over.

I believe that both the Republicans and Democrats understand public opinion
shifting here.

KLEIN: A point you made in your article that while the president was ready
to say we should have less defense spending than we were scheduled to have
in previous budgets. He`s not been willing to cut enough.

And out-going Defense Secretary Leon Panetta put out a statement on January
2nd about the deal to avert the fiscal cliff, where he said that
"Unfortunately, the cloud of sequestration remains. This administration is
doing its part to help the country address the deficit problem by working
to implement $487 billion in spending reductions."

Is that enough, or under Secretary Hagel, should the Obama administration
be looking to go deeper?

FRANK: Much deeper. And Leon Panetta is one of the best people I served
with, I just think he`s wrong on this one. And, by the way, Leon Panetta,
when he took office said, you know, we can`t let them hollow out the
military budget. And he said ironically, you know, we have hollowed out
the military budget after World War I, World War II, Korea, Vietnam. And
then he said, we hallowed out the budget after the Cold War.

I pointed that he had been the budget director at that time. He was Bill
Clinton`s budget director in 1993 right after the Cold War ended. So we
stopped saying that.

But the fact is, we didn`t hollow it out. We`ve had a very strong
military. There is room to cut further.

We continue to have three ways to destroy the Soviet Union in an all-out
thermal nuclear war. And there is no more Soviet Union. There`s a much
weaker country called Russia. It`s not a great place in my opinion, but
the equivalent of what we face. We couldn`t reduce without any danger to
America, that nuclear capacity.

We continue to have tens of thousands of troops in Western Europe, so the
Western European can have half of what we spend as a percentage of GDP on
their budgets. We should be pulling out of Afghanistan more rapidly.

Look, one of the things we have to understand is this, we have a wonderful
military, excellent people, better equipped than anybody in the history.
And they do well what a military can do, which is to stop bad things from
happening.

But the military can`t make good things happen in a foreign society. And
if we recognize those limitations, make allies to get in, yes, look, I`m a
great admirer of the president, but when he said we`re an indispensible
nation, I part company. We cannot be indispensible meaning that we got to
everywhere and solve every problem. We can`t. We can`t afford it and it
doesn`t work if we try.

KLEIN: Barney Frank, thank you so much for joining us on this evening. We
really appreciate it.

(END VIDEOTAPE)

KLEIN: Coming up, as Republicans threaten to hold the debt ceiling hostage
for spending cuts, I will show you the reality of what will happen if the
country defaults on its financial obligations. Even the very best case
scenario is very ugly.

And later, the man President Obama has picked to be America`s next top spy
should be much more controversial than, say, Chuck Hagel, can you say drone
master?

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MATT SALMON (R), CONGRESSMAN-ELECT FROM ARIZONA: I believe that that
government shutdown actually gave us the impetus, as we went forward, to
push towards some real serious compromise. I think it drove Bill Clinton
in a different direction, a very bipartisan direction. In fact, we passed
welfare reform for the first time ever. And we cut the welfare ranks in
the last decade and a half by over 50 percent. These are good things.

We also balanced the budget for the first time in 40 years, in 1997, 1998
and 1999. And when I left, we had over a 230 billion dollar surplus. This
was with a Democratic president, a Republican --

BOB SCHIEFFER, CBS NEWS ANCHOR: So you think it is a good idea?

SALMON: Yes, I do. I do. I think it is about time.

(END VIDEO CLIP)

KLEIN: No, not a good idea, Republican Congressman Matt Salmon of Arizona,
not a good idea at all. Look, this is not `95. We`re not talking about a
government shutdown. We`re talking about the United States of America
going into default, the most powerful economy in the world saying our
political system, our system is too dysfunctional for us to reliably pay
our bills.

That would be anything but good for this country. If Congressman Salmon
had been with me this morning, he would understand it. This morning, I
attended a briefing by the Bipartisan Policy Center on the debt ceiling.
They did amazing work on this issue. They really got into the weeds on it,
more so than anyone I have seen before.

They were looking literally at how many checks the government sends out a
month, how our payment software works. And so I want to tell you, and
maybe Congressman Salmon, five of the things they found, because after you
hear this, you`re not going to want to bust through the debt ceiling.
You`re not going to want to do that at all.

The Bipartisan Policy Center, or BPC, they project right now that the debt
ceiling doomsday, really the final day for it, would happen sometime
between February 15th and March 1st. Either Congress figures out the debt
ceiling before then or things get very bad, very quick. First, it will
mean that the federal government will have to default on about 40 percent
of our obligations; 40 percent of what we do gone.

So let`s say the government decides to pay off our debtors. They make
payments for Social Security, Medicare, Medicaid, defense, education and
Food Stamps, kind of just the bare services there. Doing all that will
mean defaulting on everything, and really I mean everything else. The FBI
will shutdown. The people responsible for tracking down loose nuclear
weapons lose their jobs. The prisons don`t operate. The biomedical
researchers aren`t funded. The court system closes its doors.

Federal Aviation Administration offline. The parks close. Food safety
inspections, they cease. No one gets tax refunds. Nobody is fixing your
roads. It is bad.

Second, meanwhile, two, the financial markets will go into complete chaos.
The U.S. government debt is, after all, supposedly the safest investment in
the world. So it is used as the benchmark for all other kinds of debt.
What that means, in normal language, is when you buy a mortgage, your bank
looks at what the government pays to borrow. And it begins your interest
rate there. Then they add on top of that how risky they think you are.

So if we spike the Treasury rate because nobody trusts our government
anymore, that spikes credit card rates. That spikes mortgage rates, not to
mention all manner of trillions and trillions of dollars of weird financial
derivatives that are also benchmarked to Treasuries.

The damage to the economy on that would be unbelievable. And it would
occur at every level, from individuals looking for a loan to get a house to
hedge funders trying to play the markets. It would be like 2008 all over
again. And if we breach the ceiling for long, maybe even worse.

All of what I have mentioned so far, amazingly, is actually a best case
scenario. It is what happens if we breach the debt ceiling in an orderly
way. But what if it is not simple? What if it`s not orderly? That gets
to the third point.

The government`s computerized payment system could go haywire. The federal
government needs to make more than 100 million -- 100 million individual
payments between February 15th and March 15th, 100 million. That is not
done by a clerk in an office somewhere whose hand doesn`t get tired. Those
payments are computerized. Those computer systems are not built to stop
making half of them. There is a real question as to whether the federal
government could actually re-program its software to seamlessly begin
picking and choosing which bills to pay and which to ignore.

And if there is a glitch, then it could that after assuring our bond
holders that we would never miss a payment to them, the government
accidentally does fail to pay them, throwing financial markets into panic
because they can no longer trust our word.

Fourth, the consequences of breaching the debt ceiling, they don`t go away.
We will have done something we told the markets and the world that we would
never do, not under any circumstances. The U.S. would have proven itself a
riskier borrow, with a more broken political system than anyone ever
thought possible.

The Bipartisan Policy Center, they estimate the last debt ceiling fight, it
cost us 19 billion in higher borrowing costs over the next decade. In that
case, we didn`t actually go over the debt ceiling. We didn`t breach it.
If we actually do this time, the costs will, of course, be much higher, and
the damage much longer lasting.

The fifth -- the fifth and final point is, ironically, for those who want
to use the debt ceiling as leverage to reduce the deficit, busting through
the debt ceiling would almost certainly make our deficit so much worse.
The damage to the economy now would increase the deficit. Spending goes up
and tax revenues go down when the economy flags. We just saw this during
the recession.

And the higher borrowing costs later because nobody trusts America anymore,
that would also increase the deficit, as we would paying more to service
the debt we already have than we`re expected to do.

So no, Congressman Salmon, it is not about time that we have a debt ceiling
shut down. It is about time we do something to make sure that never
happens.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: In John Brennan, the men and women of the CIA will have the
leadership of one of our nation`s most skilled and respected intelligence
professionals, not to mention that unique combination of smarts and
strength that he claims comes from growing up in New Jersey.

(LAUGHTER)

(END VIDEO CLIP)

KLEIN: A lot was made today about the president`s nomination of Chuck
Hagel for defense secretary. And a lot was made of that nomination because
Chuck Hagel is controversial among Republicans. But you probably haven`t
heard a whole lot about the other guy standing nearby the president today,
John Brennan, his pick to head the CIA.

And you need to know about John Brennan, because Brennan should be a whole
lot more controversial than Hagel is. Since 2009, Brennan has served as
the assistant to the president for homeland security and counter terrorism,
a position often referred to as the White House`s counter terrorism czar.
And a huge part of Brennan`s counter terrorism strategy has been the use of
drones, lots and lots of drones, to the point that the rise of drones will
probably be the Obama administration`s single biggest legacy in how the
United States conducts war.

Multiple reports put the number of drone strikes under this White House
above 300. They have killed probably at least 2,500 people. And John
Brennan has not only defended America`s repeated use of drone attacks. He
has argued that it is actually the most ethical way to mount those attacks.

This from a speech he gave at the Woodrow Wilson Center last April.

(BEGIN VIDEO CLIP)

JOHN BRENNAN, NOMINEE FOR CIA CHIEF: -- an individual terrorist or small
number of terrorists with ordinance that can be adapted to avoid harming
others in the immediate vicinity. It is hard to imagine a tool that can
better minimize the risk to civilians than remotely piloted aircraft.

For the same reason, targeted strikes conform to the principle of humanity,
which requires us to use weapons that will not inflict unnecessary
suffering. For all of these reasons, I suggest that these targeted strikes
against al-Qaeda terrorists are indeed ethical and just.

(END VIDEO CLIP)

KLEIN: Brennan has also argued there hasn`t been, quote, a single
collateral death from the drone campaign, a claim experts find
preposterous. Nor are drones the only war fighting innovation Brennan has
been charged with overseeing. He also directs the very creepily named
Disposition Matrix, the secret list that includes terrorism suspects and
options for killing or capturing them. Quite often, of course, that means
calling in the drones.

Joining me now is Spencer Ackerman, senior writer for "Wired Magazine," who
also writes for "Wired`s" excellent blog The Danger Room. Spencer, you
once called Brennan the most deadliest man in the U.S. government and the
Obama administration`s angel of death. Why?

SPENCER ACKERMAN, "WIRED MAGAZINE": Well, first, to be snappy. But also
because when John Brennan decides it is time for you to die, you`re
probably going to die. The Disposition Matrix you mentioned is basically a
master list of who among terror suspects is going to get killed by a drone.
Brennan`s the guy who hands the names to Obama

KLEIN: That`s a -- it`s kind of an underlying scary thing. So explain to
me a bit what Brennan`s role in increasing the use of drone warfare is. It
is not his idea. It was around before him. Has he been the main force in
the Obama administration arguing for it?

ACKERMAN: That is right. You could basically call him one of the
architects of the drone campaign. It`s Brennan who has argued throughout
the Obama administration, talking to Obama pretty much everyday in the
White House about how to conduct a series of strikes against members of al
Qaeda, kind of as much out of the public eye as possible, something that
doesn`t attract a lot of political opposition, and something that doesn`t
sort of implicate Americans in feeling that they have really something at
stake here.

So it has been a kind of cost-free way of waging war.

KLEIN: So what is the fear of moving him to the CIA? What does it mean
about the CIA`s priorities and methods going forward?

ACKERMAN: If you thought Brennan was powerful before, now he has an entire
agency at his command. Chances are when you look at Brennan at the CIA and
Hagel at the Pentagon, you sort of see Obama`s national security priorities
take shape. Draw down the big, troop intensive wars and play up the shadow
campaigns that can, in theory, use a sort of limited amount of force
against a series of targets.

KLEIN: He was blocked in the first term from becoming CIA director?

ACKERMAN: That`s right. Yes. Before, there was sort of a preemptive
campaign against Brennan because of fears that he was pro-torture. That
skulled him the first time around and got him into a position at the White
House, his current job, where he never had any Congressional oversight over
him. That is about to change.

KLEIN: Spencer Ackerman, thank you very much.

Coming up next, how a coin could stop Congress from holding the debt
ceiling hostage.

(COMMERCIAL BREAK)

KLEIN: Earlier tonight, I tried to convince you the debt ceiling is deadly
serious stuff, that it is no joke, a threat to the entire economy we hold
dear. The irony of it is that it could, though, potentially be solved
through one of the silliest, weirdest mechanisms ever devised in American
politics.

The story of that begins in `95, with a group of, of all things, frustrated
coin collectors. Now `95 is the year that Representative Mike Castle, a
Republican from Delaware, takes over the House Financial Service
Subcommittee on Domestic and International Monetary Policy. Kind of a
mouthful, a big, important, boring sounding committee, right? I mean,
monetary policy, domestic and international, boom.

Yes, it`s an important committee. But one of the odd things it has control
over is coinage. So this turns out to be the subcommittee where the
nation`s coin collectors go to complain. And one of the things they
complained about is they wanted to be able to collect more platinum coins.
But the law, as it was written at the time, the Treasury was only putting
out platinum coins worth hundreds of dollars. That is pretty steep for a
lot of coin collectors. They don`t have hundred of dollars to complete
their platinum coin collection.

So Mike Castle, not himself a coin collector, not a person who particularly
cares about coin collecting, but a friend of big coin, decided to help them
out. When the next bill to fund the government came around, Castle
attached a provision saying, quote, "notwithstanding any other provision of
the law, the secretary of the Treasury may mint and issue platinum coins in
such quantity and such variety the secretary determines to be appropriate."

The logic, Castle told my "Washington Post" colleague Dylan Matthews, was,
quote, "people couldn`t afford the 600 dollar investment, so they wanted
the flexibility to put in smaller coinage so that people could collect
them." That is it. That is all the law was supposed to do, help the
Treasury make -- I don`t know -- a 30 dollar platinum coin for cheapskate
coin collectors.

But the way the law was drafted, it didn`t quite say that. It said you
could mint a coin worth any amount, any amount at all, even a trillion
dollars. That is a big loophole. That is a trillion dollar loophole.
That is a loophole so big that you could possibly drive a debt ceiling
through it. You just mint a trillion dollar coin, use it to pay off the
debt. And then let Congress decide when to raise the official debt ceiling
again, at which point you melt down your coin.

When Matthews told Castle, the author of the bill, about this plan, which
is actually gaining steam among some Congressional Democrats, Castle was
shocked. He said, quote, "that was never the intent of anything that I
drafted or that anyone who worked with me drafted. It seems to me that
whatever is being proposed here is a stretch beyond anything we were trying
to do."

And some folks don`t think we can should do it at all. I asked Barney
Frank about it earlier?

(END VIDEO CLIP)

FRANK: Things that seem really cute and clever almost never work. There
is a reality to things.

I think this is an important political fight to have. And I think we will
win it. I think we say to them, OK, let`s take it to the country. Do you
really want to say we won`t pay the debt that we incurred, that you
exacerbated with your wars and tax cuts at the same time.

(END VIDEO CLIP)

KLEIN: But the platinum coin has also attracted some powerful backers.
Nobel Prize winning economist Paul Krugman, for instance, wrote "should
President Obama be willing to print a trillion dollar platinum coin if
Republicans try to force Americans into default? Yes, absolutely. He
will, after all, be faced with a choice between two alternatives, one that
is silly but benign" -- that being the coin -- "the other that is equally
silly, but both vile and disastrous. The decision should be obvious."

Josh Barro, a write at "Bloomberg," proposed a trade. The president, he
said, should offer to sign a bill revoking his authority to issue platinum
coins so long as that bill also abolishes the debt ceiling. That seems
fair. You get rid of one dumb thing, you get rid of another.

So I should probably now give you my strong, stirring, totally definitive
conclusion on the great platinum coin controversy. That`s what you do at
the end of the show. But honestly, I`m kind of torn. If Obama proposes to
mint the coin, then the issue is going to immediately cease to be the
Republican`s dangerous and irresponsible and really historically
unprecedented threats to breach the debt ceiling. And it will instead
become Obama`s threat to mint a trillion dollar coin, which is going to
strike quite a few Americans as a ludicrous, banana republic-like way out
of our problems.

There is a big part of me that agrees with Barney Frank when he says that
the fight over the debt ceiling is a fight we need to have and then end,
one way or another, finish forever. The platinum coin just muddies that
up.

On the other hand, busting through the debt ceiling really would be a
disaster. And perhaps it is time -- and I don`t like saying this. Perhaps
it is time to admit that America has become a bit of a ludicrous banana
republic, and this is really the best of the available bad options for
managing our affairs. That is a grim conclusion.

And by the way, it`s going to mean bond prices and all that go up, but not
as much as in default. But it is a grim conclusion that, frankly, fits the
evidence. Of course, there is another option. Republicans could just do
what the Congress of the United States is supposed to do. They could pay
the bills it has racked up. And if it wants to pay fewer bills in the
future, if it wants to spend less money, it can cut spending or it can
raise taxes when it writes the next budget. You know, the time you`re
supposed to do that, you know, the way we have been doing it for the entire
rest of nation`s history before John Boehner and the Republicans took over
the House, during the entire rest of the nation`s history, when we never
came close to purposefully defaulting on our debts, when we weren`t a
ludicrous banana republic.

That is THE LAST WORD for tonight.

END

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