morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. in washington, house gop leaders will be meeting with the president at the white house today. there have been some hints of a brief truce. both sides are said to be open to the possibility of a short-term extension of a $16.7 borrowing limit. we'll have more from john harwood in just a few minutes. treasury secretary jack lew will be testifying on the debt limit before the senate finance committee this morning. we will have complete coverage. u.s. equities are indicated sharply higher. this has to be because every newspaper in the country is run, these headlines that say there is the suggestion of a potential truce. right now, the dow futures up by triple digits, up by about 107 point. s&p futures up by about 12.5.

on the sidelines of an asian summit, treasury secretary assured partners. china is the biggest holder of u.s. debt. it holds about $1.2 trillion. > >> fidelity says it no longer holds any u.s. government debt that comes due in late october or early november, around the time the nation could hit its borrowing limit. the nation's largest money manager has been selling government debt holdings over the last couple of weeks. fidelity says it expects the debt ceiling issue to be resolved. that's the good news. but passette manager says it's taking steps to protect investors. bill gross says differently. >> we're doing just the opposite, probably buying what

fidelity is selling. i appreciate the problem they have with their money market funds. if, for instance, there's a technical default of a day or even a certain number of hours, then a money market fund possibly has to mark down that debt to zero and it breaks the buck. you know, so money market funds, fidelity money market fund might want to avoid that situation. pimco doesn't have that particular problem. >> and on a different note, gross is saying now that the nomination of janet yellen to succeed ben bernanke says the central bank probably won't end its quantitative easing for a year. you know, bill gross says certain thing and the markets have turned against him, but actually with that particular fund, they've had a nice little run. >> interesting listen to go bill

gross. i see what he's saying now, that those are different worries. but i'm glad we ran that whole sound bite. the journal says economists see the nominee as slightly nor dovish has bernanke. and i was thinking about, okay, so slightly more dovish. and then i thought about how dovish bernanke is. and being anywhere even more -- that's like for you, andrew, that's like saying, slightly crazier than ted cruz. for -- like for someone on the -- which when you see -- i mean, that's what a democrat would -- you know how crazy they think ted cruz is. >> i did see some stuff about janet yellen. they pointed out that she's not a constant dove. >> i know. liesman has said that, too. but then the journal is a free market. there's a guy named tobin that she studied under would is a super keynesian.

he's a '50s to '70s, everything is through keynesian measures and she's an accolade of his. so the journal has that to chew on. we'll see. i'm glad that everybody knows who she is, she's been there. and they're really -- you're not seeing anything in the market that is uncertain or surprising about janet yellen. it's stable, it's continuity. >> the policy continues as it is. i did see one interesting thing. it talked about how back in the '80s, she and her husband, who were both economists, talked about how they were going to find a baby-sitter. they decided they wanted to pay their baby-sitter higher than the prevailing rate for their son because they figured a happy baby-sitter -- was that auto morning money this morning? >> i believe it was in the "new york times." >> they figured -- >> that family, that two economists and the son is an economy. the president was pretty funny yesterday. he said you can imagine dinner at the yellens. whew, wow.

they're crazy. they're crazy. so now they're going to the white house. and i'm -- i don't even want to say anything like -- >> no, no. >> because the white house, they think it's funny to say this is not a negotiation. just because they've said this will not negotiate. so this is not a negotiation. i don't care what you call it, let's have that conversation. then the other thing, did you see the medical device thing? if you make up the $30 billion or whatever, then we can do this. so, oh, is it a thaw? is it a thaw? we've got a week to go. >> at least they're talking and at least there's a plan. remember, just three or four days ago, we didn't see a plan for how they would be able to come to the table on both sides, feel like they've accomplished something. >> there is corporate news today. your hair looks wonderful. it does. >> thank you. >> he's been teasing me about

this, andrew. he thinks i shouldn't accept compliments. i shouldn't say thank you when someone said that because all i did was pick the color. >> she has new color and got rid of the highlights. she said wow, thank you. >> my response to him is next, tie, joe. >> someone picked it. i think andrew is crazy today. he's like gallagher or something. that's wild for you. you are stepping out with that one today. it's usually solid. >> i've worn this tie on the show many, many times. >> and i like it. >> thank you. in corporate news, chevron is warning that third quarter earn earnings will be significantly lower than last quarter. due to earnings in the refining division. the downstream stuff. fuel margins were squeezed and that has been sort of the state of affairs for all companies for the last few quarters.

you think with oil way up where it is, these guys -- you would think gasoline prices would be higher and you think they would be making more money but they're not because of refining margins. and set rick systems guiding quarterly results below analyst specations. i thought this was an orange jooul juice manufacturer. but it's not. it's a cloud computing softwaremaker. and ruby tuesday's quarterly results missing the mark. warns that same-store sales will be down in the high single digits this quarter, followed by improvement hopefully in the coming quarters. and zumiez clothing retailer -- you might just spell it out. zumiez. do you know what it is? >> yeah, i know that. >> really? >> to tell you the truth, i don't know much about it.

the girls don't shop there, but i've heard of it. >> reporting slightly better than expected. andrew, do you know what i did this morning? downloaded ways. >> you downloaded ways? >> yeah, i did. and i found a place where you can hit mall and it will show you where the malls are, with the gas price res cheapest. i saw that. i had a hard time trying to get me to be part of the thing, of the -- you know, do i get points. >> if you're driving, you should not be playing with it at the same time. >> no, okay. you don't have that -- >> i don't have that problem. >> but it's kind of cool because it's a -- everybody is involved. if dallas traffic jam, you tell someone. >> and it knows on its own, as well, because it knows that your car has slowed down. >> does it do it on gps, too? >> yeah. >> what if you pull over on the side of the road? >> then it wouldn't know what's going on.

but what it's looking for is two or three cars all at the same place, so it knows everyone is slowing down. >> but it has three different routes with hugely different times. >> did you follow it? >> yes. >> was it right? >> it was. and unlike google maps, i don't believe the -- have you ever noticed it will say how long to your destination? and it will be 20 minutes and 15 minutes later, it says 20 minutes and it's like, that's not fair. >> though i will tell you, going the because ways. occasionally if you're on google maps, it will show you a thing, if you say on it, it will say ways is reporting that there's a delay. so it's all going to come together. they the to get to the global markets report. it is time to get on to the global markets report. carolin roth is standing by in london this morning. is ways a big deal in london? i don't even know. she may not mow what we're talking about.

>> i don't think so. i don't think so, to be honest. but hey, let's move on to the european markets. we're seeing optimist here on our side of the ponds on hopes of a debt deal between republicans and democrats. that's why we've moved off those one-month deals from the stoxx europe 600. just off session highs. by and large, seeing gains for these european core markets. we're seeing the ftse up by 1%. keep in mind we have a boe decision coming up in less than an hour's time. the dax is gaining 1.3%, bouncing back from three days of losses. the cac adding 1.5% and the mib in italy, it's been outperforming the rest of the pack over the last couple of days. and that continued today. uk yields were at a six-week low on the back of disappointing

data. all eyes on the boe has it comes out with its rate decision. many people say it's going to be a smooth transition. we're not speccing any change in terms of asset purchase. the italian yields falling to 4.3%. this auction t-bill, that was successful. back to you. >> carolin, thank you very much. right now, we go to washington and to john harwood. john, the markets seem to be buying into this entire idea that there is some potential buying, there is something in sight. are they right to hang their hat on this? >> i think they're right. i think we've gotten to the point of the football game where we're no longer throwing incomplete passes, where they're moving the ball towards the goal line. we haven't scored yet. haven't resolved the situation, but it appears that we're moving in that direction. republicans are essentially conceding that the end defund

delay obama care effort is not going anywhere. and they are moving towards an alternative strategy to get to some sort of deficit negotiations. which is a good thing. which is administration can engage in. and i think so long as the outcome of the negotiation is not deck tated in advan dictate then the administration can talk about the negotiations they're talking about setting up alongside the short-term raising of the debt limit and reopening the government. >> you're bringing tears to my eyes. maybe that's not so bad. people say how ugly everything is. and then i was looking up that churchill quote, which i don't like about the americans finally do -- you know, they finally do the right thing. you know, shut up. you've got a lot of stupid things in the uk, as well. but, you know, i hate to say

it's kind of true. >> did he just tell becky to shut up? >> no, no. but i mean, i don't like -- >> don't you ever say that to becky quick on our air. >> he wasn't. i knew what he was saying. you know, your dye job is nice. your job looks nice. >> john doesn't color his hair. >> do you think i put that gray in there? >> i think it gives you a lot of credibility. it otherwise might be gravitas. now, being 35, now it looks like you know wa you're talking about. >> i refer to it as premature gravitas. >> you know what we talked about? i don't want to get -- no, i'm not going to get into it with you. i love the redskins. i don't know what to do with it. i think if it offends one person, you probably need to do something about it. i don't know what to do with that, john. i know you're a huge fan. you know, it's a tough one. so don't even answer. but --

>> i'm -- i'm going with the name that i grew up with. >> it doesn't need to offend you. if it offends anyone, then it probably is something -- you know, goodell is in a tough spot. >> that's his problem. i'm a fan. it's not my deal. >> they were going to change the name of the washington redskins because they didn't want to be associated with an offensive term so they were going to change it to the baltimore redskins. >> how about the blackhawks, the chicago blackhawks, f the famous native american seminoles. >> but i saw a washington post article this week that said it's not a question of if, but when. >> you're not native american.

>> actually, i am -- >> that's wa goodell said. >> i am like an eighth native american, cherokee. i'm not even kidding. >> really? >> yeah. >> you are, becky? >> yeah. maybe my mom is an eighth and i'm a 16th. so i can say it, there. >> wow. so are you offended? >> no, but i don't think it's fair because i don't really -- you know. >> which eighth? >> my moth is an ath and i'm a 16th. >> all right. john, don't screw this up, okay? >> you know, we'll see. you've got about 20 republicans. i think 18 to be exact going to the white house today. to try to discuss what the potential solution might be. you know, democrats continue to hang firm with a little bit of initial internal squirming amongst themselves about their strategy. resisting the piecemeal funding of the government. you had some tension between the

district of columbia officials and democrats over rejecting a republican bill to restore funding for the district of columbia. but it does seem that they've been holding together by the fundamental elements of the democratic strategy. and i think you've got the members of the republican leadership who are now really searching for a solution and i think they're going to find it. >> john, do you think this goes down to the 11 hour? are we waiting until wednesday of next week? >> well, it takes some time for all this stuff to process, but the republicans are talking by the end of the week of moving a bill that raises the debt limit for a short time and sets up this negotiation. i guess one question is going to be a potential hangup is do you both raise the debt limit and reopen the government with a similarly short-term continued resolution at the same time? is that one vote? is that two votes?

and then do you have the faction that's been pressuring boehner insisting on unacceptable conditions from a democratic or senate or white house point of view on one of those bills? you know, there are plenty of land mines. i don't want to be overly rosy about it. but i do think that we're in the if a phase where they're looking for a way out and a -- >> it's good. you look at david just quickly because we have to go, but pointing out, we all know this, that 250 billion a month, 80% of the spending is already spent. it's on auto pilot and the president knows that and democrats know that. so i mean, in the end, everybody has the same end goal, just different ways of getting there. it's unsustainable and it robs from -- it gives to the current generation and robs from future generations. >> is there anything positive about this episode, and i hesitate to say that there is.

it is the fact that it is the ultimate recognition that cutting the budgetary part of the government is out of gags. now it is time to look at the entitlement side of the budget and the administration's positive is look at it open to both ends of the solution. there's a bit about you're spending too much and there's a bit about the revenue coming in is too little. republicans are going to resist the latter part. the administration is going to insist on it. and i think the zone that we're in is that if you have a small deal, a very, you know, short-term deal to alleviate the sequester, move to entitlement cuts, my guess is the administration will take something without revenue of any significant size. they have some user fees and call that revenue, whatever.

but the more ambitious attempts that you make to reign in social security and medicare, chain cpi means testing all those things. the bigger you go, the more the democrats are going to say we have to close some tax loopholes and get some revenue. if the republicans are committed to not doing that, smaller deal. but this is where the conversation needed to get to and we seem to be finally getting there. >> john, thank you for that. we are going to go all the way from washington to china. as is often mentioned, china is the biggest holder of u.s. debt and eunice yoon joins us with perspective from there this morning. good morning, u.s. eunice. >> good morning, guys. the chinese are definitely hoping that the people in washington work this out. even the chinese premier has been weighing in on the sidelines of a summit here in asia, the chinese premier was speak, secretary of state john

kerry and said beijing was paying great attention to the goings on in washington. xhien he's officials have been boasting their concerns about what's happening in d.c. there's one official earlier this week who said that the clock is ticking and that the u.s. really needed to safeguard china's investments. as you guys have said, china is a major holder of u.s. treasuries. it has $1.3 trillion in u.s. t-bills and what's interesting is the way it's been playing itself out in the state press. because a lot of times in washington has a misstep, that gets played up in the chinese press. but this time the reaction is much more muted. it appears that the government is sensitive to the public opinions here. because over the past couple of days, they're saying quite a bit of anger online about what's going on in washington. but a lot of that danger is not directed as washington but it's directed at beijing. there are many people who have been questioning the government here and asking why beijing have

you put so many of our eggs into one basket? guys. >> great question. >> great question. i guess the question would be or the point that the government there might make is where should they put it instead? do you find a more stable market somewhere else? the u.s. has been the safe haven and it just so happens that china has a lot more money to plow into a market than anybody else does. >> well, that's definitely true. and so if you talk to -- but a lot of people on the ground don't really understand that. in terms of whether or not we're seeing any sell-off or anything like that with u.s. treasuries in china, i was telling a lot of people because i was curious about this myself. so far, we haven't seen any signs. but a lot of the triggers that i've been talking to said that they are sensing triggers. and they've been point to go some of the data that came out of japan recently, some of the data out of japan showed japanese investors have been

selling foreign bonds at record levels last week. and just a couple hours ago, the hong kong exchange issued a statement -- oh, yep. >> is this headlines news? is this front page news in china right now? >> yeah. >> this is it, this is the biggie? >> no, no, it's front page news. yeah, it is a biggie. but the way it's playing itself out is very, very straight. and the sense is that the the government doesn't want to draw criticism itself for having so much of its own money in u.s. treasuries. but one pointed i wanted to bring up with what happened in the hong kong exchange, they issued a statement saying they're valuing u.s. treasuries lower. they are now going to apply, tledz, a haircut to the valuation of u.s. treasuries used as collateral. so the bond traders i was talking to said that is already a sign. you're starting to see an impact, people getting more nervous out here about what's happening over there. >> eunice yoon, thank you for that report.

it's become ago geopolitical issue, not just a domestic one. we appreciate it. >> the taliban, have they weighed in on this? >> they own t-bills? >> no. they're making fun of us. they said we're sucking the blood from our people or something. i don't know. i'll give you the quote. when we come back, if we have a chance. but i read that and i thought, oh, god. they think we're pathetic, too. so that's bad. and then people got stuck on this roller coaster that i was on that goes like this. >> where? >> down in orlando. let's not talk about it. anyway, coming up, a mobile carrier getting rid of some luke rafb fees. but first, the cards. i think the cards might be better and it will be a better series against the dodgers blue. they will be advancing. this is setting up to be maybe a classic world series. we'll see what happens. but i'll tafb either the cards

or the dodgers. i got to see a little bit of this last night. 6-1 was the end of the first part. we go to the championship series next. begins friday in st. louis. now a check of the national weather forecast with julie martin. >> guys, we have a couple of big storm systems to deal with. that low pressure we have auflt coast, that is a big one. that is the one that's going to cause dreary weather all the way from new york city into the outer banks of north carolina. so we're looking at rain for the next few days here and possibly even some minor flooding. coastal erosion, that kind of thing. here is a better look at that system and where it is right now. just sitting off the coast here, it's going to be slowing making its way up towards new york city. the rain moving in later today. and some pretty strong winds associated with this. so travel in the northeast could be a real nightmare over the

next couple of days. today, we're expecting minor delays in and out of new york airports, also in and out of washington reagan. so be prepared. could be a little bit bumpy in terms of air travel today. more "squawk box" when we come back.

time now for the executive edge pt-mobile is getting rid of international data. t-mobile doesn't have as many business customers as its rivals and it's looking for way toes differentiate itself from the bigger competitors. does smib have t-mobile? >> none of us do, i think. >> in reading the whole thing, i needed your expertise on it. it sound like they don't really have any customers. it's like, hey, we aren't going to change the customers we don't have. >> none of their customers travel. they have nothing to lose. they have customers in the u.s. who don't travel abroad. >> but they're trying to steal attractive to customers who pay

for other carriers. but once they got them, they wouldn't be able to charge. but at least you would have them. >> it's a nice carry. the question is will businesses move their entire networks? >> but the big question with t-mobile is what are the odds of survival, long-term, in your view? >> i think they realized that. >> and i thought they should have let that go through. >> i would argue it's offers like that that are going to force at&t and verizon to keep the rates down. >> anti-trust. >> now you have an upstart would is doing inventive things -- >> paying off for consumers. >> ultimately, the next time verizon thinks about hiking the rates or whatever, they'll say, oh, our competitor over here is doing something different. we have to consider that. >> so your anti-trust upbringing, your dad is the

anti-trust lawyer, paying off for consumers. >> i did. >> oh, sorry. are you guys back sfp. >> other. you know what you are? you're kind of the -- you throw the puck down. >> no, i'm more like the vana white. i'm however here in the box waiting for -- >> you throw the ball up and tip it up. >> oh, i get it. jump ball? >> jump ball, throw the puck down. >> wells notice. we've all heard about these things. when the s.e.c. announces a wells notice, we do sit up and take notice. but listen to this, 20% of the wells notices that are issued are never actually -- they're dropped beyond that. they're ner actually investigateded beyond that. this tool is used to alert people that the agency might take enforcement action. in most cases, the s.e.c. must decide whether to go ahead with enforcement action within 180 days of issuing a wells notice. we take paengz when we hear something like this. i wouldn't have guessed 20% of them are dropped.

>> i couldn't make heads or tails of this piece. >> once you know you're getting you know, you can go talk to them. you can go talk to them. >> but that's called prosecutorial discussion. >> can't you talk them out of it? >> hopefully if the facts are different than the s.e.c. thought, the s.e.c. says -- >> but if i'm an investor, though, i would -- i may not have realized that 20% of the time they don't do any further investigation. that's pretty good odds if you're willing to buy on a drop of a stock, right? >> i don't think it's good odds. i think 80% means that they have that. >> yeah, but when you hear about a wells notice, it's usually an insane takenus sell-off. >> but if you can convince them they don't need to do it, then you can convince them. he gets out of a lot of things.

>> but not because he didn't do it. >> no, i'm not saying that. but you can plead your case. >> and you should be allowed to plead your case. i think this is a great process. and i'm actually, in an odd way, happy to hear that 20% of the cases actually decide, maybe they don't have to -- >> my concern on it, though, is that you assume they're guilty when you hear something like this. there's a quick assumption that the agency has hard evidence. this dedon't have hard evidence, maybe they shouldn't announce it yet. >> when you get sent a wells notice, unless it gets leaked to the press -- >> i thought you had to report it. >> i don't believe that the wells notice initially gets sent out publicly. >> i thought you had to report it. >> i think it's reported. i think it is reported, but i don't think it's reported immediately. >> i guess it may depend on when your next earnings filing comes up. it could be that you have to disclose it if you have any announcements coming out.

if your earnings are probably coming touts next day, you probably have to announce that. no? >> i think that's right. but i don't think about individuals. >> when i hear something like that. i assume the s.e.c. had some sort of information they were moving on the to hear 20% of the time they drop, ta makes me think they didn't have that information to begin with and it may unfairly tarnish some of these companies. anyway, when we come back, u.s. equity futures have been trading sharply higher. we were looking at triple digit gains earlier and those dow futures are still about 112 points above fair value all on the hopes that a deal could get done in washington. there have been some hints at compromise. gop leaders are headed to the white house today. we're going to talk about the art of getting something done.

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welcome back, everybody. it's time for today's planner. treasury secretary jack lew will testify before the senate finance committee and we will have complete coverage. at 8:30 eastern time, we will get weekly jobless claims. we will be getting these nebs. it's one of the few economic reports being released during the government shutdown.

and we have plenty of fed speak coming up today. jim bullard will be speaking at approximately k89 9:45 eastern . john williams will be speaking, as well. that's your squawk planner. andrew, over to you. >> thank you, becky. bill daley is here, former chief of staff to president obama and former commerce secretary under bill clinton. we usually only see you in a box from chicago. >> that's correct. >> help us here. they think there's a thaw. we're saying there's a thaw. is there really a thaw? >> i don't know if if it's a thought or just relation that there is a deadline and washington does nothing without a deadline. whether it's the 17th or 18th or whatever it is, it's upon us and they have to do something. and i think the longer we saw with the shutdown earn president clinton, the longer the shutdown goes on, the first week, ten days, people deal with it. but it begins to build and

people begin to get ticked off. so there's that piece of it and then there's the default. and you're starting to see markets and internationally, i saw your piece earlier, people are laughing at us. after they stop laughing, then they get nervous and then they think we have gone off. >> there is a conversation happening today. not a negotiation, but a conversation happening. >> i don't know the difference between a conversation and a negotiation. >> please, give us -- >> no, no. all of this is negotiation. when the president did his press conference two days ago and said, i'm open to discussing all of these things, that's part of a negotiation. as i look at it, all of this is moving and part of a negotiation. it's a beginning of a dance and, you know, at some point, they've got to actually -- >> do you believe the 17th day is a real deadline? >> well, you know, when we went through this in '11, there was an auction shortly after whatever date it was. is it the day we're totally out

of cash? no, it's not. but there is a point where you have to draw a line and i think the 17th is when all of the extraordinary steps have to be taken and then you begin to get into an area that is dicey. >> so people made the point that sometimes parties that are in power sometimes overplay their hand. and i'm just wondering, for a while, it looks pretty good for the white house in that they had these guys kind of in a trap. and the guys that were in a trap didn't know what they wanted and as time went on, i think the realize realizes it's going to be the u.s. and i'm the president of the u.s. and this is the first time in history something like this would happen. and it's really -- everybody gets tarnished, doesn't it? again, go back to '11 when we had the downgrade. everybody got hurt. so the president understands and i think that's what the comment i refer to earlier or two days

ago in this press conference was they have to get out of this box. politically, yes, the republicans put themselves in a box. they put themselves in it and now they're trying to get out and the democrats and the president specifically has to help them move forward. the president, obviously, would get hurt. >> should the president accept a deal, meaning a short-term, four weeks, six weeks and we're going to set up a super committee or some kind of something? does that make sense to you? >> it's an out. that's kind of what they tried to do the last time. they had a super committee and that worked well. but it got us off the deadline and got off the ledge. >> you'll be back on the ledge six weeks later, depending on how things go. >> but my sense is that they will remember. i think the minority is in the house or the majority in the house, pardon me, republicans put themselves in the box with the obama care thing which is going nowhere. now they're off of that and now they're moving on to some things that there may be an ability to

give by the president, by democrats and the congress and move on. because everyone obviously is going to get hurt terribly. >> you said nobody in washington can do anything with regard to the deadline. does that mean you probably don't get a solution until wednesday next week or something. >> i think the weekend is the most important period. i think if you get closer to the 17th, what you're seeing in the markets will begin to -- unless there's a real sense that progress is made. and i'll bet you -- my sense is that all the speculation today on this show and in the press is that there is a thawing, as you called it. and that's all people need to -- nobody really thinks we're that stupid. >> even the super committee that you just mentioned, when the president is on now, do you see how often he says i cut the deficit in half since i was elected? i don't know how it happened. i know the sequester had something to do with it. but will we look back on this and say, yeah, there was act money and there was arguing, but

this does work. if we haven'tly do something with entitlements and address these things, five years ago we may look back and say, oh, this isn't so bad now. >> if you look at what has happened, the deficit has come down. sequester was ugly, nobody likesed it, but it is working. we did a fairly substantial cut of spending in '11. and all these things, even though the boles & simpson commission had a larger number, the truth is, a lot has been done. >> all these people laughing at us. putin, worth $100 billion, he's laughing at us. the taliban is saying we're sucking the blood from -- all these people are taking shots. >> it is embarrassing, though. >> it is. susage making and democracy. >> well, we always say we're so

polarized we can't get things done. >> i think we get things done in the most complicated way. we have to get to the crisis, we have to get to the madness as opposed to letting them work through, what they used to do, the bulk of funding or financing. it's ridiculous. >> and talk about jpmorgan. >> give us your two cents real quick. what do you make of the government going after jpmorgan? >> because they make a lot of money and they've done real well, i think jamie is as good of a ceo as there is in any industry. mistakes were made. obviously, the two big things they're after are mistakes that bear stearns and washington mutual made. jpmorgan came in and rescued both of those companies in a way. they were good deals for jpmorgan. i think it's unfortunately, but, you know, we're still trying to get --

>> so fair, unfair for the government to pursue these cases? >> well, the government has to look at them and pursue them. i think there's a bit of an aggressiveness here because of jamie notoriety. and the fact is jamie has been successful financially. if they were on their knees, they probably wouldn't be so anxious to try and palm that. >> do you want to come back and be the chairman of the company? >> i'm happy, thank you. >> fair enough. still to come on "squawk box," named investor game chanos on a lot of stuff. really, more of his -- he has five interesting issues about a lot of stuff, about the commodities super cycle, china, even about computers. and how they're now all distributed, which stels bad news for companies like hp. we'll be right back. americans t. they always have. they always will. that's why you take charge of your future.

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bentley reporting a 9% sales increase worldwide over the first three quarters of 2013 with sales up better than 15% in the same period in the americas. joining us now in front. well, we're going to look -- but it's a little dark outside. we came inside. bentley motors president and chief operating officer. >> good morning. >> good morning. thanks for coming in. my first question was, i remember because i'm old, i remember when i couldn't tell a difference between a bentley and a rolls. and that changed in 1998, right? >> yes, we have had a long history together between 1931 and 1998. but in 1998 -- >> it's been good to stand an your own, too. and you distinguish yourself with the two door, that's what people, a lot of us here in the

u.s. say, wow, what is that? >> it transformed our company. >> yeah. >> just to give you a figure. in 2003, we sold 1,000 cars worldwide. the success of the gt and four years later we sold 10,000 cars worldwide. so our business increased by a factor of ten with this new investment. >> when i talk to you i almost feel like i understand french because it's kind of french. i would love to. >> been able to change the way -- >> it's the greatest accent. >> as long as you can understand me, it's fine, you know. >> it's beautiful. >> it is. i would stay single, if i had that accent. >> and the car. >> you can do some damage. >> do you have one of those at home? >> yes.

>> let's look at these. now you are selling so many more cars. we need to clear it up. china, they are hurtling into the luxury market in so many ways. down 20% in china for a very good reason. >> yes, in the last year we are in china. of course, this year we didn't have -- >> there was no flying spur. and they're waiting for the four door. >> the car was just introduced to the market last month. and it was long awaited and, of course, this number. >> it wasn't like there was a slowdown in luxury watch sales over there. because the economy. and we use that, chanos is coming on, they use that as an indicator. nothing to do with them being weak. it was if they liked the flying spur. >> the overall market is declining. but we are dominant in this market to a market share of 35%,

40%. and our numbers will look a little bit different. >> so in -- >> our main markets remain the u.s. >> would you like to triple in five years? would you like to more than triple? >> we don't have this kind of forecast. it's very important production is linked to demand and supply should make sure that desire remain intact and sales remain strong. >> well, beautiful cars, some day, maybe, right, andrew? get jeeves. >> one day. >> i wait for you. >> you will be great -- >> your english is so much better than my french. that's the one thing i can tell you. >> one of the most beautiful -- >> try to get one of those beautiful cars. >> yes. some day. >> some day. >> we'll keep working hard. >> we'll have to work very hard. when we come back, we've been talking about the futures. i love having a free checked bag

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house leaders huddle as the deadline draws near. >> and bring your brooms because it's a mess. >> we get the long and short of what it may mean for your investments from "squawk" market master jim chanos. >> meet the man once considered to replace jamie dimon. he joins us for a special interview. and rising above the washington debt ceiling debate. >> hate to break it to you, friend, your balloon's getting ready to pop and that balloon's filled with your own butt toots. >> working to solve the nation's fiscal crisis. johnny isaacson and gene shaheen join us to discuss their plan as the second hour of "squawk box" begins right now. ♪

good morning and welcome to "squawk box" here on cnbc. i'm andrew ross sorkin. take a look at the futures. see how things are setting up today. we have do have green arrows across the board. perhaps the result of a perception we have a thaw going on. you can never really know. dow looked like it would open up about 130 points higher. and the nasdaq up about 27 1/2 points. let's get you through some of the morning headlines. the president's going to be meeting with 18 house republicans today in the latest effort to break the impasse over the government shutdown and debt ceiling. the debt ceiling will also be the focus of congress this morning when treasury secretary jack lew testifies before the senate finance committee. that testimony begins at 8:00 eastern time and we'll have full coverage of secretary lew's appearance as soon as it begins. also, advertisers taking the

mobile market more seriously than ever. mobile ad spending totaled $3 billion in the first half of this year. that compares to $1.2 billion in the same period a year earlier. also, the numbers of u.s. homes entering the foreclosure process, they fell to a seven-year low during the third quarter. realty track saying the foreclosure actions were started on just over 174,000 homes, the lowest since the second quarter 2006 and that number was also down 39% from 2012's third quarter. not bad. >> you're really acting like you're interested in all these things, that's good, i guess. you're arguing -- >> no, the way -- giving it a lot of feeling like a true -- like an anchor professional. like -- >> taking notes? >> yeah. exactly. help me. you would say is that the 700 points we lost and the move in the one-month bill and credit

default is due to the, when it seems to be dissipating and moves up, you need to be -- i don't think you need to be so -- >> no perhaps, you say straight up. >> no perhaps. it's not up on chinese manufacturing. >> no -- >> mr. shorty, he's not going to help. the things you are short are due to other things being really bullish, which is good. like fraccing is great but might hurt the big oil companies. it's like pcs are bad but distributed computing is going to be the winner. it's like i'm seeing creative destruction and you're seeing these things happening. >> good morning. >> good morning. am i right or right? >> i think it's part of it. >> it's nice you're not going to be totally -- >> our guest host is jim chanos.

>> he needs to introduction. >> i was getting a car when i came in. >> look under your suit for a small -- >> yeah, exactly. first of all, the markets are indicating they think washington will reach a deal. >> all of wall street thinks they'll reach a deal. if not, we'd be a lot lower. there was a small probability it wasn't happening, but it wasn't zero. now closer to zero. we'll see. they're meeting, trying to give boehner a way out of this. that seems to be the obvious negotiating strategy here on all sides.

if the moderate sort of win and boehner wins and the white house wins, how does the tea party faction of the party look at that? >> or do you have enough of the party? the republican party who goes along with this who can say these are things we can live with? >> willing to split the vote. that's unclear. >> even in the -- in the articles you're reading today, they polled even some of the guys -- maybe not necessarily the tea party, but some of the far right guys that said, yeah, let's do this. >> the question once they sign the debt ceiling then, you know, then what? super committees again? >> that's the first -- as conservative republicans, which you, i know in your view that's redundant. as conservative republicans warm to the idea of a short-term -- >> but i bet you're not going to hear that from joe barton. >> no, there's a few. >> congressmen that don't go along with this idea.

>> they are. they come from districts where they might even be left of their average constituent in some of those. >> yeah. >> that's why i try to tell you at times. there are places in texas, places where when the other day you ask, do these people have any backing anywhere? there are some places with serious backing. >> serious backing. >> where if you don't toe the line, you're a moderate republican, you're out in the next primary. you know, when they do it. someone's going to challenge you. there are places like that. >> jim, this isn't something that you would short, though, right? when you're looking at shorts? >> no, we're not trading our positions based on sequester, government shutdown or god forbid, you know, no debt ceiling. i think everybody wants that resolved. doesn't really affect. and remember, we're hedged all the time. it's not a market call. >> you do have some broad themes, some of which you've talked with us about before. including hp. you're short on hp and still short on hp because of the decline in computers and pcs?

>> we had data out after the hp meeting yesterday indicating the decline is accelerating in pcs. meg whitman seems to be more optimistic than we are. but i will say that at the meeting yesterday, they're now talking about revenue declines in 2014. that's not what they were saying before. so in effect the guidance keeps coming down at that company. they're talking about lots of restructuring, talking about margins improving and i'm hard pressed to see how margins will improve at any of their businesses given the secular head winds going on. >> would you write this down to almost zero? do you think there's no future for a company like this? >> well, look, they have a lot of different businesses. all of these businesses are declining right now. so i think that's the problem. that they're all under assault. and the question is, can you turn around a tech company? ibm is a very difficult undertaking.

we'll see. >> i guess my point is, you are not somebody who jumps in and out of positions. >> i think i should sometimes maybe. but we stay with these things. if the company's still getting worse. then we think it's probably a secular short. >> mobility is king. it's going to be distributed now so that, you know, the cloud is going to be -- can't they somehow -- isn't that going to be a big enough business for a lot of people to play in? >> it could be. >> hp is not going to be -- >> typically these businesses, it's almost winner take all. >> is it -- one thing we always grapple with is whether as we go from analog to digital whether, is it a much smaller total number? i would think it's we worry, will we get enough digital nickels to replace it. isn't it going to be huge for everybody? >> well, you bring forth new businesses. the digitalization trend has

brought forth great wealth and new businesses. it's hurt the old business. it's also been generally deflati deflationary. >> less money then, it is less? >> yeah, i think so. >> where do you come out on apple, by the way? >> long apple. >> long apple? >> yeah, long apple and samsung. but, again, i caution people when they look at our sec filings understand that our longs are generally offset fundamentally against things we're short. >> so that's part of your dell -- dell's no longer -- >> no. >> that's so you consider you're long on apple, part of your short thesis on hp? >> yeah, with think the architecture right now is beating out the intel architecture. >> what does that say about microsoft? >> no opinion. they're kind of in between. >> although they seem to be totally dependent on what you think is going away. >> well, not really. they've moved to the cloud and they've got services and they've got -- they're trying to move --

even though you think pc software when you think microsoft. >> yeah. you do, don't you? they have their own issues and trying to make acquisitions around it. >> you play google? because it's moving too fast? >> again, we don't see google as a stand alone either way. we have no opinion on it. but the pc area is under pressure. there's just no doubt about that. and if you look at the numbers out last night, down 8%, it's always seemingly now worse than people think of flat to down a couple percent. i think it continues to accelerate on the downside. >> part of hp's story is they do think they're a major player in the cloud. if you don't think they are, who are the top three or four that are -- >> we're long workday versus one of the cloud shorts. the cloud area is also a little problematic. amazon's a huge player in the cloud. and a fun fact about amazon.

do you know who makes amazon servers? amazon. >> is that true? they make their own hardware. >> yeah. tells you about the hardware size of this business. >> what was your offset on the short side? >> wonderful thing about the short side i always have to disclose what i'm short. and we have a fun one that we're short that's an accounting nightmare but we'll leave it at that. >> what? >> what? >> we're going to be with you for another almost two hours. >> if you give me the keys to the bentley, i'll be happy to disclose it. >> it's no skin off our nose if you take the bentley, we don't own it. >> so everything that samsung and apple -- that's your digital plays? >> well, again, i think those are good hedges. >> but it's not just hedging, you like -- there'll be a digital -- >> it's an interesting company. >> in spite of just being -- >> yeah. i think it's outright very, very cheap, great returns on capital, invests and expenses unlike a

lot of guys like hewlett and guys that acquire r & d. samsung actually does it home grown. >> how long have you been long apple? >> probably now for about a year. since it started heading down. >> all right. how much time? our other hangs are not as long with him. i don't know if we need to do it all right now? >> we do have -- >> we want to do china. we've got to get your update there and i'd like to know what you think about europe because, i don't know, people are buying greek banks. are you? >> no, we're not buying greek banks. >> you're greek. >> i am. i was there this summer. >> do you have an account? >> i don't have an account, but we know a little bit about greece. >> you've been to the harbor there. >> i have. it's great. we were in athens a month and a half ago. look, greece has its issues. >> have you bought an island yet?

>> there's a couple for sale. there's a couple for sale. i've got to work on the bentley first then the island. but the -- they're getting their act together slowly and surely. before interest, it's a big before. this year, so greece is probably hitting bottom. the problem with distressed buying in europe is not the same as doing it in the u.s. where we have an established court system. europe is not that easy on that front. you know, you always have to worry about the excess profits, speculators tax of 2016, whatever the case might be. >> all that kind of stuff. >> yeah, absolutely, absolutely. i'm just saying, it's not as cut and dried for the flood of american distress money that made its money from '09 to 2012. >> do you still need bribe money? to be able to do as the romans do in a lot of mixing metaphors here. but in parts of europe, you

probably need to play a certain way over there if you want to win, don't you? >> you see, quick to put on short selling bans, it's not a friendly environment for private capitalists over there. i think people have to be careful on that. >> spain and portugal? >> same idea. the banking system there is slowly getting better because of the ecb. >> right. >> i don't think it's going to be a v-type recovery as in the united states. >> quickly on china, discussing the issue of the shutdown here and the debt ceiling and the political issue, which is that china is taking heat itself for all of the money it's loaned us. >> yeah. >> how does your thesis work into any of this? >> it doesn't really affect it. chinese have to put their foreign currency reserves in the trading partners' currencies. remember how they get their reserves, big misconception about that. if i make bicycles in china and sell to walmart, i get dollars

from walmart. i go to the people's bank, trade my dollars in for yuan and we're in currency right now. you've got basically that's how it happens. there are liabilities against those foreign currency reserves. it's not like it's sitting all by itself in a piggy bank. it's foreign currency trade from the trade flows. and they're going to be upset if we don't pay our interest. >> okay. jim, thank you, you're going to be sticking around. >> yeah, couple hours, right? >> yeah. >> we'll try and figure out that cloud story you won't tell us. >> although we could give him the keys -- >> i don't care, take the care. >> leave the kill switch on so you can't start it. i'm going to try this. up next, corporate headlines and

stocks to watch at the bottom of the hour, where is the bipartisanship in d.c.? we found two congressmen working together to fix the nation's debt problem. senators jeanne shaheen and johnny isakson at 7:30 eastern. "squawk box" will be back after a quick break. it's been a big week for "squawk box" as we help investors rise above the debt threat. alan krueger. >> negotiations under the threat of default. >> former white house chief of staff john podesta. >> i think we need to move forward with some ability to move past that october 17th deadline. >> equity group investment chairman sam zell. >> if we do not reach consensus and bipartisan scenarios, we're going to have problems. >> energy titan boone pickens. >> this looks like it's a mess. >> we wrap up the week with one

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welcome back, everybody. take a look at the futures this morning. and yes, they are up triple digits. dow futures up about 121 points above fair value.

s&p above 14 points on the hope there'll be some sort of -- >> thank you, definitely. we're up 130. we'll take it, right. let's take a look at stocks to watch this morning. chevron and we're going to talk about the oil companies. chevron warning that third quarter earnings will be lower in the second quarter due to in its words significantly lower earnings from downstream operations like refining. few margins there were squeezed. and i will give you a hint that you may love fraccing but you may not like the big oil companies, right? >> that is correct. >> we'll talk more about that. citrix, this is a cloud computing software maker. hmm. >> that's not the one. >> some contracts were delayed. and quest diagnostics expects to report $1.02 a share. the company saw deteriorating revenue late in the quarter and experienced an increase in

denial rates. >> does that mean insurance companies are denying the payments? >> well, you can imagine if you just said i want, you know, dozens -- >> you want the works. >> of expensive tests that maybe may or may not yield, you know, anything that you can use then you say no, you're not going to do those things. >> i go to a quest diagnostics place once a year. >> there's a blood place that draws -- >> because, unfortunately, with this job, you can't -- if you have your check-up and go to get your check-up and they tell you you can't eat anything but you're here all morning. like on a saturday. >> yeah. >> there should be a blood pressure machine right onset here. >> like gordon gekko had one on his treadmill. you go to thailand, you know, i hope you take a blood test when you come back. we've talked about that before. >> i've never been to thailand and we have some viewers. >> i'm just making that up? >> yes. >> where were you?

>> cambodia. >> you had to go to the doctor? >> an ear infection. >> an ear infection. >> from the pool. yeah, people always get that in the pool. it happens. it does. >> i have swimmer's ear. >> it was swimmers ear. >> that's what it was. >> i've got my own -- >> fantasy. >> anyway. men's warehouse has adopted a poison pill after rejecting a takeover from joseph a. bank. >> not banks. >> i'm inclined to say banks. but they make it very clear on the commercial they don't. they say the offer undervalues the company. it will grant shareholders the right to buy more common stock at a discounted price. up next, crab fishermen are in a pinch. >> apparently. >> the deadliest catch may become the dreariest catch if the shutdown continues. a closer look at the ripple effects next. "squawk box" will be right back.

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now the answer to today's aflac trivia question. which sports team does quicken loans ceo and frequent "squawk" guest dan gilbert own? the answer, nba's cleveland cavaliers. all right. fishermen in the barring sea are feeling the government shutdown. the shutdown means no crabbing permits are being granted. and without those licenses, dozens of vessels will remain docked indefinitely. their captains legally barred from setting baited traps. the closeout would in turn financially swamp hundreds of

fishermen who earn half their annual pay during the four-week king crabbing spree. only a four-week season. it cost the boats an estimated $1,000 a day to idle at port. another thing it's affecting is the auto industry. last week, when an all-electric tesla motors model s caught fire, the administration was unable to send investigators as it normally would've done. and tsa was forced to furlough the entire vehicle defect team. was not able to conduct new safety investigations or continue with existing ones. the agency has not been able to process new recalls from automakers, meaning there's no public notice on the government's recall website and it's halted work on setting regulations for the industry. also saw they were sending food into the grand canyon because there are a few thousand workers still there. a lot of them are workers who do things like change the sheets on the hotels living paycheck to

paycheck and don't have food to eat at this point. >> wow. >> how much globally, how much is $2.3 trillion as far as a loss would go in bond portfolios? the imf, i'm thinking about too big to fail too. the imf says when the fed starts exiting and long-term rates go up a point, they calculated global bond portfolio market losses will total $2.3 trillion -- is it a lot? >> our subprime market totally was between $1.5 trillion and $2 trillion at the top in '06 and '07. >> yeah, exactly. it was the transmission. >> they're saying -- >> that's how big that market was. >> describing the process of normalizing u.s. monetary policy as unprecedented and complex. they're saying at this point it's unclear whether the global financial system can withstand

$2.3 trillion -- >> of course it can. >> of course it can? >> yeah, because we're not going to use mark to market accounting. we're holding it until majority. the losses will never be recognized. >> you're asking like that's a bad thing. >> sounds like you wish they were. >> now we're glad we didn't do it at the bottom of the financial crisis. when you can't sell anything doesn't mean they're worth zero. >> we changed in 2009. i'm clear. which do you think -- >> we changed the accounting rules basically saying you could hold -- basically they made it easier to hold securities due to temporary market conditions meaning you could predict what the market was going to be, but that's a whole separate issue. so now in effect that these kinds of long-term bonds will -- if the market goes down, they'll say well, these are temporary market conditions, of course, and we don't have to recognize -- >> and what is the federal reserve's portfolio? how big is it?

how much of the 2.3 trillion will they be eating? >> pretty big. >> a lot? half? >> i don't know. >> found something worth reading. >> did you see the big news on the ft? i know we've got to go. they're going to one version globally. you know how they have millions of regional versions and announced a big plan to overhaul the paper. >> the u.s. version? >> just one. >> the digital version. i don't know, it's going to be the digital version. the whole goal is to move everything online and they're going to put it in the paper. it's a total mind shift in terms of how people do their day job. let's tell you about a few other headlines this morning. jack lew is set to testify before the senate finance committee. he's going to be doing that shortly just about half an hour from now. he'll be warning about not raising the debt limit. we'll have complete coverage coming up at the top of the hour. fidelity investments has sold all the short-term

government debt in a sign of possible u.s. default. fidelity expects the issue to be resolved but it wants to protect investors and as we heard from bill gross earlier, he's going to be a buyer. has been a buyer of a lot of those bonds. it's a different situation for fidelity where you have the money markets. if they were forced to mark to market. they could be forced to mark those things and that could break the buck again. although the government shutdown has posted several reports that were due out today, we will get the weekly initial jobless claims report that is coming out at 8:30 eastern time. economists are looking for claims of 311,000 up from 308,000 the week before. and we have a big news story on wall street this morning. meredith whitney launching a long/short equity hedge fund. no word on how much capital she's raised so far. kenbell capital also showing that whitney requested to deregister her meredith whitney brokerage business and this is

being positioned two ways. one is she's going off to launch a hedge fund. one is she decided to get out of the business and move this way. what do you think of this? >> you know, i wish her luck. >> is the research business such a lousy business? does this determine -- if she can't make it work, does that mean nobody can? >> well, meredith is known, i think, for her skeptical views on things. and being a skeptic hasn't been very profitable. i think -- i'm not sure a long/short hedge fund is going to be profitable. maybe a long hedge fund. >> she could stick to things she knows, though. i remember when she started making market calls. >> she had a big city call and she was -- >> making market calls for a while when she came on here. yeah, i think the market's overvalued, the s&p, i know the consumer and i kind of kidded around with her about. she could do banks, right. >> i think she could do --

>> she's very smart. i spent time with her two weeks ago. >> i think her work is terrific. >> all right. okay. >> well, we wish her well. >> tough business, though. coming up next, finding friendship across the aisle in washington can be tough these days, we found two senators who are working together on a couple of short-term debt fixes that could end the government shutdown. they're going to join us after the break. and then he ran jpmorgan's investment bank and was once thought of as a possible replacement for jamie dimon. jes staley. "squawk box" coming back after this. . sometimes they just drop in. cme group can help you navigate risks and capture opportunities. we enable you to reach global markets and drive forward with broader possibilities. cme group: how the world advances.

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welcome back. president obama is expected to meet with the house republican conference later this morning. our next two guests are here to show bipartisanship exists in washington. they're calling on congressional members to rise above jeanne shaheen. and senator johnny isakson, good morning to both of you. >> good morning. >> how do we get from here to october 17th and make it all work out? do you have a plan since you're both standing right next to each

other? >> well, the fact that people are talking, i think, is very good news. our plan is really senator isakson's legislation that was introduced several years ago that i joined him on. and that is to look at the budget process and see if we can't bring more sanity to the budget process. and that's what the biannual budgeting bill would do. >> we're in this problem we're in today because we haven't done our job. we need to restructure the way the senate appropriates and the way we set our budgets so we don't run out of money at the end of the fiscal year and have a crisis every 12 months. >> explain exactly what you're proposing. >> basically, it's a biannual budget where you appropriate for two years in the odd-numbered year. you do oversight and accountability in the even numbered year. if we were looking for savings rather than appropriating money and trying to bring home the bacon? >> and, you know, 20 states have biannual budgets. i had one when i was governor of new hampshire that worked very well. we brought in the budget on time

and i think if we had this kind of system at the federal level we would avoid some of the grand standing that goes on around the budget, it would really give people a chance to look at what programs are effective, where we can find savings, where we need to invest and that's what the bill is all about. >> realistically, practically, what is the chances you can get your colleagues on both sides of the aisle to actually agree to this? it seems the current structure -- and nobody thinks the structure is a good one, but it does allow for all the grand standing you talked about and so many people in washington and congress depend on that. >> well, this year in the budget debate, we offered the biannual budget as an amendment to the budget. we got 2/3 of the senate, 67 votes in favor of it. i think that's a good sign the senate's ready to make a change. >> what is your sense on the possibility that we actually do have a thaw here? is it okay -- is it acceptable if we get a process, meaning we extend the debt ceiling for four weeks, six weeks, eight weeks

and there's some kind of special supercommittee, is that the right way to go? >> well, obviously, i think we should open the government, raise the debt ceiling to make sure that businesses and have some certainty that the economy doesn't crash. if we can get an agreement in the short-term that allows us to get to that point long-term, i'm willing to take a look at that and see if it's something we can support. >> i agree, we don't need a super committee, we need to work this out ourselves. it's our responsibility the american people are counting on us. >> senators, we appreciate it. you guys are models for hopefully everybody else in washington. we'll see whether you can get everybody in line. thanks. >> thank you very much. >> super models. i dare say.

uber models. uber. what is that? >> super models -- >> uber is like -- >> is it higher than super? >> i believe. kate kelly with an uber special interview. a man once thought to be a potential successor to jamie dimon. futures up now up about 120. don't miss "power lunch" today. they're taking your questions about how to protect your money in the current climate. there it is. how does that work? it's got the number thing, ask cnbc. hashtag, that's what that is. that's at 1:00 eastern. it's been a big week for "squawk box" as we help investors rise above the debt threat. former council of economic advisers chairman alan krueger. >> they shouldn't be having negotiations under the threat of default. that's what banana republics do. >> john podesta. >> i think we need to move

forward with some ability to move past that deadline. >> equity group investment chairman sam zell. >> if we do not reach consensus, do not reach bipartisan scenarios, we're going to have problems. >> energy titan boone pickens. >> looks like a mess. >> we wrap up the week with one more management guru, jack welch speaks to "squawk" straight from the gut. "squawk box" where business leaders rise above the washington rhetoric.

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welcome back to "squawk box." he was a power player at jpmorgan, now managing more than $17 billion in credit and derivative products. kate kelly with a very special guest. kate? >> well, good morning. thank you so much for joining us. managing partner from blue mountain capital. tell me a little bit more about your thoughts on the debt ceiling and whether we're getting close, what it would mean if we got there. >> well, first, it's great to be with you guys here. i think as i said the other day, i think it would be incredibly destructive to the global economy if we actually crossed the debt ceiling or the debt default issue. >> calamitous was a word you used earlier this week. >> i mean, the entire -- the

commerce globally is fed by the oxygen of finance. and what really is a foundation of that oxygen is the u.s. government bond market in the sense that it is a risk-free asset. you take that away and make it a risk asset. you essentially will shut down the oxygen that funds the economy. and while we have oxygen flowing, sort of feels free and easy, you turn off the oxygen of commerce and we'll feel it immediately. and it would be calamitous to the system. >> we're already seeing signs with fidelity. if we hit the debt. if we have a default, what do you think would be the first market to crack? >> well, we have sort of three dates we have to keep our eye on. october 17th, october 24th, when there's a refinancing of treasuries, and october 31st, when there's a coupon payment. one of the things we're going to start to see early and we've started to see it now is how will treasuries begin to trade

before the 17th, immediately after the 17th, but going into the 24th? and the other one is, will the market begin to say i don't want to own a corporate bond that has a coupon payment on the 31st. the market may be given some credibility we could be reckless to go over the line. as we get closer, the real market that will start to make the reaction if there's any possibility of crossing that line will be the equity markets. >> and what about the repo markets which were so key. you remember this in 2008. >> you know, you'll see it in the repo market. and that begins to break down, then we're in serious trouble. you'll see it in the money market funds. remember, in the last crisis, people started to give cash to banks which they did not want treasuries, they did not want money market funds. we get to that sort of level of panic and that's when the markets will really crack. >> okay. tell us a little bit about what's working for you guys this year at blue mountain capital. you've had a couple of

interesting theses that have played out, no? >> well, it's an interesting market where what we know for sure is that we are in quantitative easing. markets are liquid, interest rates being held down very low and they'll stay low for a good period of time. that is creating appreciation and asset values from the stock markets, credit markets. one of the challenges, however, is because the economy is still weak, there's not really an underpinning of economic growth to drive those valuations. it's because of quantitative easing as opposed to economic growth. and one of the things we do know, at some point the fed will have to take its foot off the quantitative easing. for us at blue mountain capital, we have been responding to the liquidity but also been cautious because of the lack of directionality we see in economic growth. and what we've done in financial terms, we've added convexity to our portfolio. >> meaning you're trying to kind of hedge yourselves from the wild swings. you might buy options as opposed

to the underlying equity. >> so we're spending money to give insurance -- because volatility has been low. interest rates are low. so that allows convexity to be a reasonably cheap way to manage the fact that we are concerned of the lack of directionality. and you saw it when the fed went through this exercise around tapering or not tapering. the big issue is, monetary policy has a weak transmission to generate economic growth. >> i can see andrew's wheels turning. >> i want to go one other direction. only got another minute or two with you. which is this. wind the tape back for a second, talking markets here. >> right. >> one of the conversations coming up a couple of times. we had bill daly in the 6:00 hour. i want your jpmorgan view. you know, there's a view that a lot of people in the top ranks have left jpmorgan in the past year, year and a half, right? you left. what do you make of the bench?

>> i think jpmorgan is an extraordinary institution. >> you still got a lot of friends there. >> you're not anxious or unhappy? >> the economy and the global markets need large, strong universal banks that are well run and that are functioning well. i think the bank is investing a lot to get there. and i'm a big buyer of jpmorgan. >> you were there when all this other stuff has gone on. are they being unfairly targeted now? is it fair, unfair? >> you know, when we have the economic crisis that the world went through in the united states in particular in 2008 driven by a lot of mistakes made in the financial industry, there's a lot that has to be corrected and the banks including jpmorgan should shoulder a certain responsibility for that. but there is a point that we need strong banks. we need to get the past -- in the past and begin to move forward. >> did you buy the critique,

though, that jamie dimon has pushed out some of the best players around the hoop at the top? >> you know, i think that jamie's got a lot of talented people around the bank is 260,000 employees around the world. we'll be fine. >> we've got to wrap it. quick question, at blue mountain, you hold city group and aig, which have done well so far this year. jpmorgan you invested in personally? >> because i worked there for so long and i believe in it. one of them, we've been constructive on the large u.s. -- we do think a lot of progress has been made in terms of recapitalizing the banks, making the insurance industry more transparent, making the banking industry more transparent. and we've seen that in appreciation in the large cap financials in the u.s. >> thanks so much for being with us. back to you guys. >> thank you very much. >> appreciate it. when we come back, jim chanos with sound investment advice. and we have jack lew hitting the hill. we'll bring you his comments and

the market reaction. "squawk" will be right back. your representatives in congress have failed to compromise, failed to do the job you elected them to do. so we called someone who is used to dealing with deadweight. >> sorry, brother. >> tomorrow on "squawk box," darrell from the "walking dead" will join us onset. >> you don't owe us anything. >> don't miss it. so i c an reach ally bank 24/7, but there are no branches? 24/7. i'm sorry, i'm just really reluctant to try new things.

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we are back with our guest host jim chanos, president and founder. he's going to tell us about some big shorts it says here in a few long bets. tell us about big shorts and long -- >> what have you been talking about? what we haven't talked about -- >> i want to talk about the fraccing a little bit. >> yeah. >> you're not the first or only person to say it's transformation in so many ways for the industry and the country. >> it's certainly a plus. and you talk to people at dow chemical and they'll tell you this is a game changer. but since i'm a glass half temptemp empty kind of guy, there's a downside. the coal industry, for instance. forgetting the epa which has its own issues with the coal industry, i think it's bad news generally for global coal.

it's more and more countries switch over to natural gas, not just going to be the u.s., ultimately it'll be china, ultimately it'll be europe even more so. so coal will be under pressure, i think globally. and i think that is just a secular problem for that industry. cheap gas burns better, easier to transport and ultimately will be easier to transport globally. >> does that translate into names? >> most of the leverage coal guys you can assume were short. almost all problematic. >> what about -- why are you short -- there's problems for european lng? what is your thesis? >> well, no, i think that one of the -- one of the things we're watching it hasn't happened yet, but there's $200 billion worth of lng plants on the drawing board in australia. and all of it is based on the fact that prices versus 350 for

an mcf in the united states. >> that's because it's not -- i mean, normally, arbitrage would immediately get it the same but you can't move it. >> but you will be able to and it costs roughly $3 in mcf to liquefy, roughly $3 to transport. that means basically $10. >> yeah. >> all of these plants are basically break even between 10 and 12. they're starting to build and i would be really concerned right now if i was australia building these plants. the world's a funny place. mr. putin may decide to sell gas to china and japan if the europeans decide to frac. you know. there was just a big fine, what the greeks are talking about. i mean, to the extent and the uk has begun. is to the extent that gas is -- and some of the biggest fields in the world, by the way, are in germany. so the -- if europe decides to

get its act together and be less reliant on russia, that could go to china and japan. >> all right. we'll talk oil companies at some point in the next hour. much more from jim chanos plus "squawk box" coming back with a lot more. dow looks like it would open up about 115 points higher.

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welcome back to "squawk box" here on cnbc. i'm becky quick along with joe kernan and andrew ross sorkin. right now, though, we're going to get to steve liesman with breaking news on treasury secretary jack lew's congressional testimony. >> calling it irresponsible and reckless saying the u.s. should not be that in a position of making choices of which bills to pay. no way of knowing the damage that could be caused by such prioritization. he said prioritization does not solve the problem. he's warning on payments of medicare, social security, veterans benefits. saying how are they supposed to choose. he says congress, no congress has allowed the country to default. and congress should fund the

government and end the standoff in no uncertain terms. he's saying that. the biggest threat to the economy he's saying is a self-inflicted wound caused by this crisis. it's hurting the economy right now beginning to stress financial markets. he cites the vix, a recent auction where interest rates tripled. he also says q-4 growth could decline by as much as a quarter point. and there's talk about it being if it goes on longer a point and a half. higher rates he says have real impacts on real american households and citing large government payments not be made between october and november 1st. saying the stock market could tumble. the shutdown, as i said, could impact growth by as much as a point and a half. i don't think it's any surprise he wants this done. i think the story here is going to be i believe pat toomey is on the committee questioning him today. he has a bill in congress that would force a prioritization.

review the story that says the treasury says we have no law no basis for saying pay interests. well, here's the prioritization we want you to do. and that's been blocked by the democrats because i think they don't want this to be painless. >> i think you look at the idea of a default technically and technically a default is not paying the interest on the treasuries. but it seems like a difficult argument that we don't owe social security and veterans -- >> pretty big political default not paying social security and political. i think both houses of congress -- >> the idea, i don't want to be in this position of saying i'm going to pay -- and this is demagoguing the issue here to be fair. china, japan, and the bankers, their interest. but not social security and

we've been through, by the way, you know, that -- if you pay this, you can't pay that. it is real that if you do get into a situation where the debt ceiling is not raised, you've got to get rid of 1 of every $3. and you can close the faa. something has to go away. not like this partial shutdown we're having right now which seems to be peanuts. >> probably by the first. >> probably by the first. >> if we went over by the 17th, that's where we think we'll get so much, you know -- >> action in the market. >> that's why i think worrying all the way -- going all the way to november 1st is probably hopefully just worrying about the worst-case scenario. it's fun to talk about, i guess, if you like to scare yourself. but it probably isn't something that actually is very likely. >> you know, i've thought a lot about that, joe. and you're right, it looks like -- >> let's not jinx it. they're meeting today. >> we should just stop talking? >> no, but let's not talk about, you know, breaking the buck and -- >> well, that's what fidelity's doing. >> i know.

if you got to the 18th or 19th, there would be an uprise -- >> why is that cool? why is that, like, oh, it's not the 17th, it's the 18th. it's not the 17th, it's the first. >> i think you would see the uproar from the markets after the 17th. >> or ahead of it. >> i think they were already setting -- washington's always going to do -- as far as -- they're setting up for the 31st, i think. but having said all that, we talked a little bit before, i think offcamera. you have government entities having to prioritize already in the municipal area. detroit, talking about stockton, california. do we pay retirees? do we pay bondholders? so this is increasingly as time goes on because of our debt problem, you know, an issue -- >> one thing we haven't talked about. >> the cost of interest for detroit, for example, right now. >> it's for all of michigan. it actually had an impact on all of michigan. >> the union market's been surprisingly well behaved across

the country, specific places. >> puerto rico. >> michigan across the board because in the past they had not seen these types of reactions. and i remember, i haven't seen it in a few weeks. but at the time, it did create problems across michigan. >> i think it's important to note that all of this is occurring when the entire world is right here in washington for the g-20, imf world bank meetings. the u.s. has gone from being the exemplary child to being the problem child. the last time these guys met, we had better growth, greater deficit reduction, fewer problems in the rest of the world. and that's what was in the statement. you can expect, i think, from the g-20 statement to note that, guys, we need you to get -- and you're beginning to hear comments from international officials about this. china's talked about it, japan's talked about it. everybody's saying this is not the right way to go. >> i'd still take our deck of cards. >> should we take this whole -- you told us everything. >> no, i don't -- i think the q & a is what's going to be

interesting. well worth watching. >> i'm tired, though. >> what if they make a deal? what if they make. you can take -- >> we're going to take them. it's my decision. >> what if they make a deal -- when is the meeting today? this afternoon? >> i think it is this afternoon. >> we don't need to do this. >> might be a better solution. >> does anybody else hope they have a way that we don't have to do this? i mean, the idea that we have to -- >> a fishing trip? >> yes. never mind. >> that's tragic. >> it's tragic. >> talking about social security. come on. >> here's the question, is it okay to do a 60-day thing here? >> yeah. >> is that good? that's good enough? >> turned out good last time. he talks about -- >> if they're actually negotiating the full 60 days. i asked the same question a couple of days ago. if they're negotiating during that time. >> did you see -- >> no.

>> in the -- okay, it's just that 80% is already spent of everything we do, $250 billion a month is done with the entitlement stuff. and we're only playing around with 20%. we need -- it's -- >> entitlement reform. >> right. it's not a republican and democratic. >> if we do anything -- that's what we talked about this earlier too. we should have been watching that. years from now. years from now we may look back. we may be locked in some -- and say, look, look how we did it back then. it was ugly, we got it done. just like the sequester now. it was a super committee didn't work but the deficit's cut now. >> i think it's going to be hard to look back on this time. >> and say that -- >> i'm not saying it's a golden age, but we get it done. we wait to come out of the financial crisis. >> what did you get? like nine hours sleep last night you woke up so optimistic? did you have a good dinner and a good evening?

>> we don't need to set up a coalition government with 12 different entities? >> no. >> it finally worked. >> it's the orange tie is what it is. every time you wear an orange tie, you're more optimistic. >> that might be it. >> that might be it. i was spooked by this fidelity thing last night. >> bill gross is doing the opposite. >> that's fine, but there's a lot of money out there that has to be concerned about breaking the buck. bill gross can't buy all of that paper. and i found out eight-day paper, eight-day maturity on it, it's like 50 basis points. they are -- there's a little bit of a fear factor in a very narrow slice -- >> the plumbing issues are real issues. >> i get spooked because that reminds me -- >> what happens, jim? >> can you do repo? and does it, you know, do we declare a default on?

producing leverage in the system quickly. >> what happened last time when the buck was broken and the fed stepped in? >> it was a big point in the crisis. one of the big sign posts of the crisis i don't think the public realizes. >> guaranteed everything. >> they'll never do that again. >> no, they cannot. >> oh, under dodd/frank. >> they can't. but i want -- >> that's an interesting point. is that a huge point if they can't do it under dodd/frank? >> i think that's a big point. >> here's the thing, there are plans being made for what jim is talking about. but what i hear from people is that nobody really knows if these plans will work. and that's one of the reasons guys are getting out of the way. they don't feel comfortable if they segregate the securities upon which there's no interest being paid they're not going to have a problem it's not being done in time. >> i've had discussions with clients and we're a little bit different because we hold short positions. people are going to ask the same questions they started asking.

how are you accounts segregated? where are you doing your prime brokerage business. those kind of conversations are coming back because of this. >> i had a twitter follower. >> this is like -- >> that's an add-on problem. but the issue is that this is all self-inflicted. this does not have to be happening. >> that's why it's controllable. and i remember, steve -- >> yeah. >> just last time we had the rise above stuff, you really didn't want to participate with the buttons or any of that. >> i was a little uncomfortable. >> exactly. >> in the general news business, you know, the guys wrapping themselves around the pole because of the -- they love all this trouble. and this is similar in the financial news business. looking at the terminal ending of the worst case scenario and talking about it when all likelihood it's like maybe less than 5% chance. >> that they go through the debt ceiling. >> that we go to november 1st without doing anything. >> so i shouldn't talk about?

>> no. you should wear your button. and you should say rise above, mr. president. >> no? >> reached the debt ceiling in may, using extraordinary -- >> even though you're always anxious, you like being anxious. hoping for too big to fail. >> there's a possibility that even if we -- even if we do get a deal before november 1st that actually the markets themselves -- and we break the buck and all sorts of other -- >> look at what's happening today, 122 points based on guys going there. >> that being they could never do it again, but i didn't realize we might be in a situation like that. >> they could do something but they'll need the treasury secretary's signature so it'll be essentially a political action. >> you need one with a magnet? >> i need to point out i think you're correct in that in the following way. anything you say about this pessimistic or optimistic is effectively a political

statement. in that there's a faction of the republican party that wants you to believe that reaching the debt ceiling is not a big deal and the democratic party wants you to believe it's a catastrophe. and they want the pressure on the republicans to understand. >> that's why we want guys -- >> there's a different dynamic. in '08 it was because of concerns of credit. this is a deal that can be done. a deal that can be done. >> people can do it. >> and therefore, i think the dynamics are a little bit different. >> okay, guys. we're going to take a quick break. because jack lew will begin his testimony. we'll bring you some of his comments live. and then like an oasis in a desert, temporary reprieve, we'll bring you those numbers and market reaction. don't go anywhere, we're coming right back. your representatives in congress have failed to compromise, failed to do the job you elected them to do.

so we called someone who is used to dealing with deadweight. tomorrow on "squawk box," darrell from "the walking dead" will join us onset. don't miss it. opportunities aren't always obvious. sometimes they just drop in. cme group can help you navigate risks and capture opportunities. we enable you to reach global markets

and drive forward with broader possibilities. cme group: how the world advances.

welcome back to "squawk box," everyone. the futures this morning have been indicated sharply higher. triple digit gains for the dow futures about 121 points above fair value. s&p futures up by 14 points. there could be signs of thawing in d.c. there's hope for that. our guest host is jim chanos and we'll be listening to treasury secretary jack lew in a moment to hear more about what he has to say. it's hard to figure out how to time this. . >> this is not our game, we're not traders, not playing macro fiscal stuff in the u.s. just trying to figure out companies and industries. >> sounded like you were doing a little bit of planning. >> well, again, as fiduciaries for people's assets, we have to make sure they're safeguarded as

best as anything as we did in '08. that's not to say it's the same situation. i don't. i think it's self-inflicted. you have to ask the right questions, make sure things aren't being rehypothecated which was an '08 problem. go back and brush off your back office 101 if you're a money manager. >> what are the right questions? i get the feeling we're not askinging the right questions. >> well, what happens to treasury securities if there's a default. how are they treated as collateral? that's the crucial question that anybody that's in this business needs to ask themselves. >> if the treasury was to prioritize and make payments on treasuries, making first payments on treasuries a top priority, would that make all of these concerns go away? or would you still be thinking about, at least for the market's perspective? >> well, again, i'm not an expert there, but i think it would depend on the definition of default and who would define it.

again how banks would look at their arrangements and agreements and act accordingly. and everyone's going to ask in their own self-interest. >> when do you think that begins? meaning it's possible this would start early next week. >> yeah, right now, people are reviewing all the stuff this week. they're starting to talk to their brokers and lenders. people are putting their ducks in a row with the assumption something will be settled and this will all not be necessary. >> right. but if you think thursday's the day, do you start moving? when do you press the button? >> we're not leveraged so i don't know, but any leveraged player has to be asking themselves that question. >> we're looking, again, at orrin hatch, the ranking member of the judiciary committee. >> that's not a rise above button, but it resembles a rise above button. which he was -- you just said pressing a button and now you're talking about a button. that is not one. i might go up and get mine, though. wouldn't it be cool if lew was

wearing -- >> i left mine down here and i think someone snaked it. >> i'm going to wear mine to show that liesman will not wear his. >> we'll take the comments when he begins speaking. but i do want to ask you, again, about the fracking thesis you laid out. you don't think it's necessarily good news for them. >> we're short two different groups of the major oil companies. the big majors and others have had a great business that's becoming a mediocre business right now. their problem is finding costs and ultimately what we're really phenomenal type businesses, 20%, 30% return on capital businesses now are on the margin, you know, not very profitable in terms of new investment. >> because fracking. >> no, separately from fracking, oil costs are -- the finding costs are so high in markets

like, you know, deepwater drilling, dealing with mr. putin. also, the arctic. these are all much, much more expensive places to be doing business. >> $120 doesn't cover it? >> not very much. i mean, it's amazing how much costs have gone up. conseque consequently, companies like exxon who used to do share buybacks and pay hefty dividends in effect now financing those. they're not covering it anymore. that's number one. but they're in a lot better shape than the national oil guys. petrobra and companies like this who are pass through vehicles for their citizens. that is, they cannot charge full gasoline and diesel prices, for example, in brazil and meanwhile, they have to do business with brazilian suppliers. and so they're getting it on both ends in a way so western shareholders and bondholders are subsidizing the citizens of brazil. it's political vehicles not really a business.

batista's problems. >> unbelievable. >> well, it raised issues about the estimates of his oil finds. >> did you call that right? >> you can never borrow the stocks. >> did you know -- >> anybody that looked at that empire a couple of years ago, it didn't make any sense. but the stock power was incredibly hard. it was a big number. what does it tell us about petrobra. the transparency of that whole empire and what happened in brazil. >> i think i read in the notes that in fracking the output drops dramatically after the first year and the second year. >> keep drilling, yeah. >> even fracking which we see as a great boon for the american economy and for the potential return of manufacturing in the

united states, it may not pay off as much for the guys who are actually doing the drilling. >> for some of the guys who paid too much for acreage, clearly it's been a struggle. other people have done a better job like eog resources, some of the players are struggling to cover their debt service and their obligations to drill more holes under their leases at $3.50 gas. it's an area that you have to do fundamental work on. you can't just say, oh, this is bullish or i'm going to buy natural gas producers. they all have different capital structures and lease obligations. >> we had boone pickens on yesterday and we continued talking with him yesterday. one thing he pointed out after the show is he has a hard time thinking you're going to get back to $10 natural gas again in his lifetime. every time you get around $5 or $6, there will be all kinds of wells. >> natural gas is produced like

other stuff is produced oils and liquids -- i don't know about lifetime and -- but -- and he certainly knows a lot more about than i'll ever know. but on the other hand, it does seem that natural gas has been for a while. and production, basically is still increasing. even down here. people thought at $3.50, production would flat line. >> you've always been -- you're an enigma for me, i wish i could talk you into certain viewpoints, but central planning is always something you really raise an eyebrow to. >> even in the u.s., yeah. >> but my point is -- have we learned anything about investment? we have to let the government invest? >> the government does a bad job of investing, even here. >> exactly. you're still able to lean way left even though you know a lot of the renewable stuff, the wind

stuff, the solar stuff, that was like -- you know, that was like throwing water into -- look what's happened. they didn't think about fracking when they were funding solar whatever it was, look how the free market once again dictated that money flowed downhill where the most efficient way to derive energy was from. and all the best laid plans are these really smart people and really smart president and really smart czars of all these things, they had no idea what to do. >> i agree with that, joe, but you also do need some government framework. >> okay. >> free market to excel. >> do you want to invest -- do you want to borrow another $500 billion from china to invest in stuff? >> they're not going to -- >> we're not listening to this, but is he testifying? what's going on? >> no, what often happens. >> he's giving a speech. >> that's why senators and

congressmen hold these hearings so they can grand stop at the top and tell you what they think. >> you'd almost be -- >> you'd be tricked into thinking he's testifying. >> for you because it's orrin hatch and he's a republican. if mark warren or -- oh, yeah, this guy has some good stuff to say, we should be taking -- >> taking his sweet time up here. >> that's what they do. they bring these guys so they can -- >> and he's now finished his testimony. >> now for the witnesses. the hearings for the senators and members. >> the secretary has couple three minutes after 9:30. >> you're in a two-shot, jim. i don't know why. >> so we all have a chance a chance to answer his questions. our questions, mr. secretary. >> thank you, mr. chairman. chairman baucus, ranking member hatch and members of the committee. i appreciate the opportunity to appear here today and i appreciate the invitation to

discuss the potential impacts of a failure by congress to increase the debt limit. congress has an important choice to make for the american people. and congress alone has the power to act to make sure that the full faith and credit of the united states is never called into question. no congress in 224 years of american history has allowed our country to default and it's my sincere hope this congress will not be the first. among the risks that we control, the biggest threat to sustained growth in our economy is recurrence of manufactured crises in washington and self-inflicted wounds. unfortunately, today we face a manufactured political crisis that is beginning to deliver an unnecessary blow to our economy right at a time when the united states economy, the american people have pain stakingly fought back from the worst recession since the great depression. in addition to the economic cost, the uncertainty around raising the debt limit is beginning to stress financial markets.

at our auction, four-week treasury bills on tuesday, the interest rate tripled relative to the prior week's auction and reached the highest level since october 2008. in measures of expected volatility in the stock market have risen to the highest levels of the year. the only way to avoid inflicting further damage to our economy is for congress to act. i know from my conversations with a wide range of business leaders representing industries from retail to manufacturing and banking that this is a paramount concern for them. that's why it's important for congress to reopen the government, raise the debt ceiling and then to work with the president to address our fiscal challenges in a balanced fashion. republican and democratic presidents and treasury secretaries alike have understood the importance of protecting one of our most precious assets, the full faith and credit of the united states. president reagan wrote to congress in 1983 and i quote, this country now possesses the

strongest credit in the world. the full consequences of a default or even the serious prospect of default by the united states are impossible to predict and awesome to contemplate. denigration of the full faith and credit of the united states would have substantial effects on the domestic financial markets and on the value of the dollar and exchange markets, closed quote. if congress fails to meet its responsibility, it could deeply damage financial markets, the ongoing economic recovery and the jobs and savings of millions of americans. i have a responsibility to be transparent with congress and the american people about these risks. and i think it would be a grave mistake to discount or dismiss them. for these reasons, i have repeatedly urged congress to take action immediately so we can honor all of our country's past commitments. the treasury department is regularly updated congress over the course of the last five months as new information has

become available about when would we exhaust our extraordinary measures. in addition, treasury has provided information about what our cash balances will be when we exhaust our extraordinary measures. as our forecasts have changed, i've consistently provided updates in order to give congress the best information about the urgency with which they should act. and last month, i met with the full membership of this committee to discuss these issues. treasury continues to project that the extraordinary measures will be exhausted no later than october 17th, 2013. at which point the federal government will have run out of borrowing authority. at that point, we will be left to meet our country's committees with only the cash on hand and any incoming revenues placing our economy in a dangerous position. if we have insufficient cash on hand, it would be impossible for the united states of america to beat all of its obligations, including social security and medicare benefits, payments to

our military and veterans in contracts with private suppliers. for the first time in our history. at the same time, we're relying on investors from all over the world to continue to hold u.s. bonds. >> we are just a few seconds away from weekly jobless claims. we'll continue to listen in to jack lew, but in the meantime rick santelli is standing by with those numbers. go ahead and give us those numbers, please. >> all right. initial claims are 374,000. and keep in mind our last look was 308,000. so, you know, i think that a jump of this magnitude does call in the question so many issues. we all know trying to explain this number without looking at what's going on regard to government shutdown, nonessential versus essential employees is going to be difficult. i'll leave that to others. but suffice it to say it hasn't moved the market much but the market template is set.

as you've all been discussing this morning, we have a positive equity market. and what it may reflect about traders assessment of what's going on in d.c. and, boy, maybe better than i am with regard to the way they can divine that. and that's having an effect on interest rates which really especially in the long end have been very contained, 270 on a ten-year, and everybody, of course, are looking at t bills. but to put in perspective, if there was a problem of the government truly not paying interest payments, still trading at four basis points. >> rick, can i interject? apparently the government shutdown and computer problems in california. >> yes. and that's what i'm looking. there's going to be a lot of stories explaining this rather large jump. but at least it is a number and there's a lot of debate on the floor, becky, to be quite frank with you that, you know, there

was a time for many, many, many quarters where a lot of my trading sources on the floor would tell me, you know, the equity market doesn't really pay attention to the fundamentals like the fixed income market but, of course, we all need numbers, accurate numbers. >> the labor department saying about half the claim's increase was because of california's technical issues. it was an increase of about 66,000 from the 308,000 to 374,000 this week. they say about half of that is because california's technical issues. we have had some pretty interesting numbers that have come out over the last three or four weeks, rick. >> absolutely, absolutely. and once again, i don't know where all this is going to end up, but there are many signs in the marketplace that traders are cognizant of this because they haven't been hiding under a rock. and we could debate what the impact on the market has been, what it is today and what it may be going forward.

but in the end, just like the -- what the fed's going to do with the purchasing program, it's our best guesses and opinions. >> rick. thank you very much. we will, again, point out for anyone just tuning in the labor number, the weekly jobless claims in at 374,000 up from 308,000 last week and better than the estimate of 312,000. about half because of the government shutdown and about half because of technical problems in california. >> i know, you know, you're torn. you don't like being anxious, right. but you are thinking tbtf 2. >> a sequel. >> but did you hear the three-month bill? the one thing rick said. four basis points. his point was, four basis points. >> yeah. >> we are coming up -- >> it's doubled. >> yeah, it's doubled.

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welcome back to "squawk box." steve liesman has been listening to the q & a period with treasury secretary jack lew. steve, what do you make of it? >> he was asked the question, could he prioritize? and he was saying, we don't know how you would do it. the administration process will

not permit the system to work and make those kind of statements. you can't make them pay some bills and not others. the system is designed, he says to pay bills not to not pay bills and there's a risk, i said -- as i said of a mistake here. let's go back and listen to jack lew being grilled about this issue of can the treasury prioritize if the debt ceiling is not raised. >> all the services that relate to government activity were happening. didn't take into account any layoffs that might occur, didn't account any reduction in payroll or payroll taxes. i have to assume that the estimates from before a shutdown are likely not to be an accurate predictor of exactly where we are. >> and a computer -- how do you reprogram computers? >> well, mr. chairman, i have to tell you, i don't believe there is a way to pick and choose on a broad basis. the system was not designed to be turned off selectively. so anyone who thinks that it can be done just doesn't know the architecture of our multiple

payment systems that are very complex. they were designed properly to pay our bills not designed to not pay our bills. >> it doesn't work. >> you know, i think prioritization is just default by another name. saying we will default on some subset of our obligations. but by definition if we don't have enough money to pay all of our bills, we will be in default on our obligations. >> i want to be clear about the administration's position on the debt limit. as i understand it, the position is that the president will only accept the so-called clean debt limit hike with no other accompanying policy or fiscal considerations attached to it. >> we've been listening to treasury secretary jack lew being questioned by the senate finance committee. right now orrin hatch is asking questions. we'll be back with more after a quick break. a free checked bag with my united mileageplus explorer card. i've saved $75 in checked bag fees.

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welcome back to "squawk box" during the break. steve liesman's been listening to the q & a. and we heard the beginning of orrin hatch's question. i think that is what's still going on. a follow-up to secretary lew. what's it about, steve? >> hatch asking secretary lew

how long do you want to raise the debt ceiling for? lew saying more certainty is better for the economy, uncertainty is bad and saying that we want you to raise it for as long as you possibly can time wise and saying, oh, great, when do you deal with the debt? let's listen to the questioning now. >> the son-in-law spending we've enacted thus far is turned off. when it's come to so much as solutions to our entitlement spending program or problem, all i hear is that negotiations only proceed if first we pass a clean, continuing resolution and a clean debt limit increase. what does it take beyond a guarantee to the president and congressional democrats that they first get yet another tax hike or that the sequester be undone to talk about entitlement reform such as the ones i've proposed in which to date have been met with total scienilencem the administration.

is it reasonable to say that there can be no negotiations unless there's another tax hike when we know this very day that disabled american workers face a benefit cut of 20% or more under current law when the disability trust fund is exhausted in 2016 or earlier. >> senator, i think the record is clear that the president has negotiated, has wanted to negotiate and remains anxious to negotiate on a bipartisan basis to have a fair and balanced approach to dealing with our fiscal problems. >> it's not clear to me. >> he's been on the verge of disagreements twice until it was not acceptable to republicans in congress. he was prepared to do hard things. he was ready to have an agreement twice he put in his budget tough policies, that many in this committee find very challenging because he wanted to make clear to settle our fiscal matters in a way to the medium

and long-term. i think the president's record on being willing to negotiate is clear. very briefly the trajectory of our deficit. i would know when the president took office in january 2009, we were in the middle of the worst recession since the great depression, we were in the middle of two wars and we had a deficit 9% of our economy. we cut that in half, we're making progress. we have more to do, but i don't think it's fair to say that we are in the same place we were. we've made tremendous progress. >> senator biden. >> thank you, mr. chairman. mr. lew, it seems to me in the event of a default or near default, the dominos are going to fall fast and hard. and those hit early on will be older people who depend on their own retirement savings to get by. these are the older people who saw much of their life savings evaporate during the recession and they're struggling just to get those private savings in effect back to the water line,

back to where they are. be as specific as you can with respect to what default or near default would mean for those seniors who depend on their private savings. >> senator, i can only begin to imagine what it would mean to a retired american who relies on social security as their major or sole source of income if we had to tell them their check was going to be late. i remember my late mother lived on her social security check. many of us have relatives who lived on their social security check. if the check didn't come, if they didn't have the ability to call someone to help them out, they were in trouble. anyone who thinks that's anything short of default has never experienced what it means to live on social security. turn to medicare. >> private savings especially -- >> okay. >> i share your view about those others. i think the public has heard. and you've given some comments with respect to mortgages.

but i'm concerned about those retirees and their private savings, as well. >> retirees saw their private -- well, let's talk not just about retirees because workers have their savings at stake. the effect is the same, it's just more immediate for retirees. retirees have no time to catch up. we saw during the financial crisis people's retirement assets fell quite dramatically in value. it reduced what retirees have to live on. it caused anxiety amongst most working people how are they going to catch up for the ground they lost. we're now in a place where because of the resilience of the american people, the recovery and the american economy. the good policy decisions made by congress and the federal reserve board. we are in a better place. we have a lot of work to do, but i think you can see from the economy people are beginning to feel that the economy's moving in the right direction. now, if you create a crisis that causes assets to shrink in value for retirees, they don't have a

lot of time to catch up. so even if it all writes itself over a period of time for those retirees, you know, they're in a pretty bad spot. so i think it's very unfair to have manufactured crises that have a real life impact on working americans and retirees who ought to be able to worry about market risks, not government policy risks. >> let me ask you about the effect of default on the deficit. we know that budget sequestration is not exactly -- >> we're going to slip in a quick break and when we come back. we'll have more of the q & a period with jack lew when we return. as we head to a break, though, take a look at u.s. equity futures as the secretary has been speaking. we're talking about the dow opening up about 101 points higher. revolutionizing an industry can be a tough act to follow,

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the debt limit in the past has been used to enact deficit reduction policies, i quote congressional research service since 1978, congress has voted to raise the debt ceiling 53 times, 27 of those or 51%, the debt limit increase of tied to other reforms. i assume you're aware that more

often than not the debt ceiling is raised with other policy or reforms. if you're so aware of that history, why do you and president obama continue to use the talking point that negotiating on a debt limit bill is unprecedented when the facts demonstrate otherwise? >> well, senator, i don't think that is an accurate version of history, certainly not what i recall, having lived through many of the budget debates overs last 39 years. overly three of them have involved the debt limit. it's not the case that most budget agreements involve the debt limit. if you look at those that did involve the debt limit, several of them the dealt limit was just added on to a bill. it was not driving the debate. what i think changed in 2011 is the affirmative case was made in 2011 that a certain faction --

i'm not saying it's people in this room but if a certain faction did not get their way -- that's not how our democratic system works. a minority can't do that. >> secretary lew, before i got on to my next question, at least you -- >> we are going to take another quick break and return with more questions and answers from secretary lew. ♪

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welcome back to "squawk box." let's return to washington where treasury secretary jack lew is testifying before the senate finance committee. >> do we pay for education, do we pay for our troops? american people don't want that. they would certainly want us to pass a clean debt ceiling bill and avoid those awful choices. but i'd like to talk about the other. by the way, one of these debt ceiling deniers i read in the "new york times," a congressman named brown, he also said much of what he learned in medical school were lies, they came from, in his words, the pits from hell.

if we're letting people like this lead us, god save america. >> now, i'd like to deal with the second issue, which is the timing. in my view we are like a blindfolded man walking towards a cliff. and if we keep walking in that direction, very soon we will fall off. we may fall off on october 16th, we may fall off on october 17th, we may fall off on october 25th or 21st but we will fall off. the most important thing is we don't know which day we'll fall off. the markets are somewhat mist i call. they could a day or two before october 17th come to the view the u.s. is going to default, anticipate that, treasuries go down in value, much of our financial system freezes and we're back where we were in 2008 when aig failed.

i just want to ask you this question -- to be clear, isn't there a risk almost every single day starting around october 17th, even perhaps a day or two earlier and getting worse, we can't tell exactly which day after that we won't have enough money to pay our bills and default could occur, even if you laid out the most meticulous plan in the world? >> we'll have a lot more of jack lew's testimony. we'll thank our guest host jim chanos for being here. that is it for us today. "squawk on the street" begins right after this very short break.

i'm carl quintanilla. david faber is in larue, texas this morning. whether it's yellen, whether it's the news that the president is going to meet with gop leaders, negotiators they're calling them this afternoon at 4:45, futures look pretty good here, jim. futures have had a nice couple of days, the nikkei up 2%. what do you make of what's coming later on?

>> they w