>> the 10,000 that came out last year have not, i'm still in the process of making the decision with respect to the 23 that will come out. i will be balancing in those decisions the amount of the combat power versus the headquarters and the general

manning and some of the task force's, et cetera. and i have to tell you that those will be difficult decisions. but i believe we can make it. >> and a 10,000 which again is already a fait accompli, was that concentrated more on the headquarters and of the allocations? >> that is correct and they are gone. they were gone by the end of 2011. >> would talk about the leadership that you said is so critical for the afghan military, i think, one way that you've stimulate leadership is both sort of carrots and sticks, and certainly as we saw in iraq having a timeline can be a very healthy thing in terms of also when you're trying to accomplish the transition, that you are again telling people that they can't be defended or account on the u.s. to always be there to provide their own security goals. and i guess i wonder if you just

work talk about the a little bit, about whether or not having a timeline is also provided incentive for the afghans to sort step up their game? >> it has indeed, sir. the value of the lisbon transition process is that it is a process. it is something that is measurable, and as you know, the lisbon transition process occurs over five tranches of terrain that comes off the map and ultimately goes into afghan sovereignty. each one of those tranches is accompanied by detailed conversations in conferences between isaf and our partners to ensure that the security forces in those areas are postured and ready to take over the lead for security, not to be finished in terms of security, but the lead for security in those areas. it has i believe it very seriously focused conversations,

both in terms of the department of the a in sf and the resourcing. and in that sense has been positive. >> thank you. i'd like to turn to another topic when i visit with you last fall, we talked about, our group did which was the issue of safe havens in pakistan. and the challenge that that poses with all of the good intent and great success in terms of training afghans, if the taliban can serve operate with impunity in and out of pakistan. that really provides a real weakness in terms of a competition the goal of denying the taliban the ability to overthrow the afghan government. i wonder if you could sort updaters in terms of what you are seeing right now in terms of trying to plug that hole. >> it continues to be a threat to the campaign.

as you know, the nature of the taliban in the safe havens differs, varies according to where they are geographically. i believe that in the south, the southern taliban elements out of the publisher have been successfully their momentum have been successfully thwarted, both by isaf forces and the forces of the ansf. it is in the east where i spent a great deal of my time focusing on the haqqani network, and on the taliban in pakistan and other of the taliban elements, the commander, the haqqani network in north waziristan. so i spent a lot of my time dealing with that. as i said before with respect to the numbers associated of the

ansf, india and i think it is less a function or a factor of what the numbers will be of the ansf then it will be there posture over the long term. if we don't see some political outcome from reconciliation, which can have the effect ultimate of reducing the effectiveness and the effect of the safe havens, if we don't see pakistani action to address the safe havens, then ultimately we're going to have to thicken the defenses of the afghan people to provide as much friction as possible to protect its strategic center of gravity, which is kabul, and the security zone around kabul. we anticipate that's probably going to have to become an outcome. we'll be watching the campaign unfold this year a determine ultimately in consultation with our afghan partners how they will dispose their forces in the end, but the chances are very

good that if the issues in the pakistani safe haven does not result in our favor one way or the other we will probably have to have a larger presence of the ansf and we had anticipated which may require us to thin the ansf in other places in afghanistan. >> tran one. >> committee will recess for five minutes and when we return, mr. wilson will be on for questioning. thank you. [inaudible conversations]

[inaudible conversations] >> hearing will come to order. mr. wilson. >> thank you, mr. chairman. and general allen, dr. miller, recently appreciate you being here today. i'm very grateful that in my hostess of killing my former national guard unit, 218 brigade, serve for a year in afghanistan and general they felt like you, and commanded by our adjutant general bob livingston that they're working with afghan brothers, that they were truly making a difference, they were helping train security forces of afghanistan to protect themselves. additionally, this past weekend i was honored to be at a deployment of personnel from the

army national guard with general livingston. they will be going as an agricultural team to help the people of afghanistan develop their economy. and to see the military families there, the dedication, the servicemembers, the veterans who came, it truly is th the new greatest generation. i'm concerned "wall street journal" last night reported that the administrative is offering a compromise regarding night raids in afghanistan. and specifically that it would subject operations to advance reviews by afghan judges, one option under discussion and in talks with require warrants to be issued before operations got a greenlight. can you comment on the accuracy of the report? why is such a compromise in the interests of the united states? >> thank you very much for your

comments on your troops. they are magnificent, and bob livingston is one of the great soldiers i've had the honor to serve with overtime, so thank you for those, the service of the streets in afghanistan. sir, i'd like to decline answering the specifics of that question, because we are in very sensitive negotiations now on night operations. we do intend that night operations ultimately acknowledged the afghan constitution, and afghan law, but the process specifically of the execution of that operation has yet to be negotiated. it is not my intention that night operations lose their momentum, which is really what gives them their effectiveness. and so any specific conversations about the issuance of warrants or prior review of mission folders by judges, it's

very premature at this point. and, in fact, i have not been involved in any negotiations specifically about that at this point. >> it's always been my hope that it's mutually beneficial the night operations for the protection of the people of afghanistan, and so best wishes on trying to get that point across. but they are the primary beneficiaries of having improved security. >> and they do know that. they tell me that all the time. >> i hope they do. when i read about it it's appalling that they would actually give agreeing light to the other side. additionally, in your testimony you indicate that iran continues to support the insurgency, and fueling the flames of violence, particularly the iranian influence of advising trainees, supplying weapons, munitions. which groups are they working with? where in the country? what is iran's coal? >> they have operated primarily or worked primarily with the taliban elements in the west. that is the only area in which

we have seen the presence of support to the taliban. our sense is that iran could do more if they chose to. but they have not, and we watch the activity and relationships very closely. there's an ancient relationship between the persian people of iran and the afghan people. in fact, today is the beginning of no ruse which is the persian new year. there is real potential common ground between our objections and ironic objections with respect to counter-narcotics, arms smuggling human trafficking. there are large number of afghan refugees in iran. there is potential for common ground for us to cooperate the ultimate in the long-term benefit of iran. of afghanistan, excusing. by know that iran and

afghanistan have a long relationship. it's a national relationship the president karzai has, in fact, point to on a number of occasions that could benefit afghanistan over the long term. the troubling part right now is the fact that there is some assistance that is going to the taliban from iran. and we seek to check that. >> i appreciate both of your service. thank you very much. >> thank you. this august. >> thank you, mr. chairman. and goodman to both of you. as a pleasure to have you with us. i wanted to address the status of the women and the impact on their lives as we transition to the afghan national security forces, and in time out of afghanistan. in november i met with several female afghan parliamentarians you were hit in washington, all were members of the opposition. while the acknowledged that progress had been made towards female equality in the post-taliban era, particularly with regard to female education, they also addressed a number of concerned with roadblocks

towards further reforms. so the decision made earlier this month by afghan president, mr. garza, to endorse a code of conduct that forbids women to travel alone in public, permits husbands to beat their wives, it's an outrage, it's a front to the rights of afghan women. and i think greatly undermines the significant progress that this brave group has made in the last decade. his decision to align himself with the council of clerics and the code really does cause great concern about the same values. it's the same values we have sought and fought so hard to displace are being put forward as the future of afghanistan. during a recent bipartisan delegation to afghanistan, i visited over the number of my colleagues with afghan girls who hope one day to become doctors, teachers and entrepreneurs, and with afghan women who were trained to become helicopter

pilots in the afghan military. it really was an extraordinary trip, really and highlighted so while the advancements that have been made for women. they wanted nothing more than to help provide for their families and contribute to the future success of their country. been consigned these women to the status of second class citizens, mr. karzai has turned his back on those who are still emerging from decades of abuse by the taliban. and i think threatens the future stability of afghanistan to function as a stable democracy and an american ally. i am pleased that the administration has taken some steps to deter some of the most egregious abuses of the afghan government such as temporarily cutting off financing for the prison at the edge of kabul, which has subjected female visitors to invasive the body cavity searches as was recently reported in "the new york times." however, this is an issue not get results. so my question is, as we draw

down from afghanistan over the next several years, what can we do to make sure that we don't lose the hard-fought gains for the rights of afghan women, 50% of the population? and what, if any, leverage when we have as we go through this process and after our withdrawal is complete? and how do you see congress being able to help the administration preserve the gains which have been made? it seems to me if we are seen as simply walking away from those gains, we have done not just the afghan women but ourselves a great disservice. so i ask you both, dr. miller. >> thank you. let me answer it in three parts if i can. the first is to acknowledge that the government of afghanistan will not always do exactly what we prefer and what we wish. at the same time, we have and we continue to make clear our view

that this is an important issue, just as you said. we have that, that's been a consistent message from this administration. it is often in our view more effective to do that less than we sometimes, sometimes it has been more visible. second, as you noted, over the course of this campaign and, in fact, even over the course of this search as we've seen improved security their very substantial issues that occurred for women, including for education. when i was regional command south a couple weeks ago, just one relatively in a sense small but incredibly important fact, and that is now 40,000 women are receiving an education that they were not just a few years ago. in kandahar. and third, i would say that while our fundamental national

interest is to prevent the reemergence of safe havens from al qaeda and to prevent the taliban from coming back and displacing the afghan government, over the long-term and, indeed, in the intervening period, part of the basis of our relationship with the afghan government will include how it treats its citizens. so this warning a continuing conversation. >> do you express a bright line in your conversations around some of these issues so that it becomes very clear? >> junta latest time is expired. you will take that one for the record. mr. turner. >> thank you, mr. chairman. dr. miller, general allen, thank you for being here. general allen, over the past several years i focus my attention on the afghan narcotics trade as a major source of funding for the insurgents. in 2006 general james jones, then the supreme allied commander of europe, stated

quote the achilles' heel of afghanistan is the narcotics problem. he went on to say, i think the uncontrolled rise of the spread of narcotics, the business that it brings in, the money that it generates is being used to fund the insurgency. the criminal elements, anything to bring chaos and disorder. and in 2010 the united nations office of drugs and crimes published a study showing opium production rapidly increased from the period of 2006-2010, and i have a chart that summarizes that report. i'm fond of holding up this chart and holding it in half because if you folded in half half you can see that during the period of the surge, if you will, of production from it nearly doubled over what the historical levels were prior. in a recent correspondence you told me quote the narcotics trade and its linkage to the insurgency contribute to regional insecurity, corruption,

volatility in the rule of law, and stagnation of economic development. general petraeus has agreed it was a serious problem, noting that the trade finance roughly one-third of the taliban funding. general mattis confirmed this number just two weeks ago before this committee. an attempt to confront this issue, i discussed this issue with you, president karzai, general mattis and the dea just to name a few. in response to my question general mattis stated quote the u.s. government and other international partners, including the afghans, are reducing poppy cultivation and opium production in afghanistan are in the agency counter products strategies support a comprehensive set of actions to reduce opium production, strategy includes numerous initiatives, campaigns and joint collaborative efforts that took years to create and implement. i want to compliment you and your leadership on these efforts, and on the apparent success. the united nations office on drugs and crime winter pocket assessment for april 2011

demonstrated an actual decrease in 2011 opium production. further correspond with the general petraeus blaster he told me that his forces have seen a 48% decrease in opium production in the first quarter of 2011 we saw 341% increase in drug seizures nationwide compared to the same period a go. and a want to continue with the charts and the folding. this is the one that has been updated to show the fall. if you fold off the search you can see you're back down to levels that once again represent historical levels. and while i find these trends reassuring, i am concerned that the premature withdrawal of u.s. and isaf forces in afghanistan might reverse this trend and allowed insurgents to regain this lucrative source of funding. in fact, just two weeks to general mattis stated we will create an afghan national army, afghan national police that has this capacity if we continue on

the tracks that we are on right now, closed quote. your testimony before this committee today serving in your capacity as commander, you stated that the progress in afghanistan is real, sustainable and that we have severely degraded the insurgency. general allen, are we still pushing the programs to the degree that you stated in your earlier response received in september and receiving similar positive response in a decreased level of opium production is what you anticipate these will continue as we draw down our forces? and does the afghan army have the capacity to address these counter-narcotics efforts? if the administration ignores the advice of combat commanders and decide to accelerate withdrawal, what do you and has been happening for the counterparts efforts in afghanistan in the future? one last question, my understanding is this issue of narcotics in afghanistan will not be on the nato summit agenda, although the nato summit agenda is described as an afghanistan agenda.

it would seem to me with all of the references and understanding of how this contributes to the insurgency, the taliban instability, it would be high on the list. general? >> it is my intention to preserve to the maximum extent that we can the gains that we made in both the interagency approach to counter-narcotics, both on the u.s. side, but also the interagency capabilities that have been built into the afghan side as well. the counter-narcotics police of afghanistan, the vetted investigative units, the high-end special police units within the general director of the gps you of the, why. there are a variety units and again both in capabilities and and skills that have grown as a direct result of our advisor capacity and our partnership

capacity with them as well. operations such as -- i think you probably are aware of which was a comprehensive counter drug operation last year. we intend to undertake a similar operation began this year. so it's my intention to remain committed to use both the interagency resources that we have in country and close partnership with the u.s. embassy, and with other international partners better to continue to develop the capabilities of the afghans themselves, both to interdict the cultivation of narcotics, but also the production of drug products and the shipment and the movement of those. it's my intention to remain on track in that regard. there is no signal to me that this going to be an accelerated drawdown of forces necessary to continue to support those processes as well. and i will have to check into the nato summit agenda to see if there might be some points,

which could be the opportunity to discuss this issue. >> thank you very much. mr. johnson. >> thank you, mr. chairman. and thank you, gentlemen, for being here today. in the aftermath of the mistaken burning of muslim holy books by american military forces, followed by the massacre of 16 innocent civilians, nine of whom were children, apparently at the hands of an american soldier, americans as well as afghan citizens are outraged. this climate of hostility can lead to bad things happening. and so far as the american soldier accused of committing this massacre is concerned, they should be kept in mind that america has asked much from our

american soldiers in the field. is particular gentleman who stands accused, i understand, has been deployed four times to afghanistan, and also to iraq. i would imagine that his state of mind will be a question that will have to be answered by the factfinders when the child comes up. and so i would just simply ask that we not yield to the instinct, throw the soldier under the bus and wash our hands of the fact that he has been put in a situation that many people would snap under. so that would be my statement as force that is concerned. i think he deserves the presumption of innocence that

the constitution entitles he, as well as us, to. general, we are in the of gradually drawing down u.s. forces and transitioning to afghan forces. and you have stated progress is being made in terms of the development of the afghan security forces, the security gains that have been made, economic development occurring on the ground, largely due to usaid, governance is improving. and you also commented that the acts that i just talked about, the two recent acts, are really

not, they do not accurately characterize the overall impact, positive, of united states involvement. now, it's also been alleged that president obama made a key blunder, for lack of a better word, in setting forth the date that american troops, american combat troops would be withdrawn, the last of them. so we have about 18 months before that happens. do you think that that's been a good thing, the announcement? has that been a good thing or a bad thing, in terms of on the ground in afghanistan?

>> well, thank you for the question, and thank you for your comment on staff sargeant bales. i assure you the investigation will be thorough, and we do operate from a presumption of innocence. it is the nature of who we are and the nature of our constitution. i thank you for the comment, congressman. we are going have combat forces in afghanistan to the end of our deployment, to the end of 2014. we fully anticipate though that in 2013, as the ansf continues to move to the lead, and as the fifth tranche of transition occurs, which according to the lisbon conference, technically means that the ansf our insecurity lead across the country. our forces will move into a support role to continue to accelerate and to support the ansf as it completes the seeker

to transition after the end of 2014. so we will still have combat forces in afghanistan all the way to the end. there will be fewer in number and the nature of the forces will be in many respects advisory in nature. but we can anticipate that the u.s. will be engaged in combat operations, and support of the ansf in the lead right to the end of 2014. >> has it hurt us or help us? >> i think it has helped us to focus on the mission. i think it is help the afghans to focus on their need to become proficient and to move into the four. and on the end, on the hole in the end i think it has been beneficial. it's not just a unilateral u.s. decision. it's been an isaf decision to 49 other countries have joined us on this. >> thank you. >> nestor conway. >> i want to add, i don't think my good colleague from george intention left off the outrage all feel of the 13 men killed in

the green blue incidents as that, including one specialist, who was laid to rest saturday in texas. general allen, there are those in this committee and on both sides of this building matter openly called for a reassessment now adequately drawdown of troops out of afghanistan, quicker than was currently planned under all the other agreements. i would also like t quicker than was currently planned under all the other agreements. i would also like to parenthetically mention, i've never heard anybody tell us, save it as staying in iraq and afghanistan forever was even a remote option so my colleagues have constantly found that way the story, i'm not sure where they got that idea. but back to my point. i understand it after october 1 you will do an assessment of how to handle the 60,000 that are there, the nation all the way through to the end of 2014 but if the administration announces without your input that they would change the parameters with which you get, the number of

people you're working with, during this transition, what impact will that have on our ability to be successful with those reduce resources and/or a different model, remarkably different in which are currently planning to use? >> first, there's no indication that the administration has plans to get well, legislative branch those that are pushing that and sometimes that have some impact. not often. >> it would ultimately be a function of what the number would be. but the nature of the relationship that we have right now is that the conversation about what combat power is necessary, what the force structure ought to look like is a strategic conversation. i've been given no indications that there is a number that will ultimately be detailed to me to build a strategy around. and so while i could --

>> but if the number is different than the lisbon agreement. >> that's correct. select the end of the recovery of the phase to surge forces come as i mentioned and as you correctly stated a moment ago, i will give the president but this military advice with regard to the combat power that will need to college this nation, probably in 2013, i'm not sure that i'll be able to see out of 14 of the point that i probably would have a pretty good feel for it. but it isn't just a font of your forces because i'll be giving a similar recommendation of the nato chain to the supreme allied commander of europe, but also to the secretary-general of nato. it will be a combined recommendation. >> the proposed budget for 2013 drops the financial support for the training from some 11 billion to fight. is that a reflection of the fact they were coming to the end of that work and we need less resources, or is that budget driving the train a supposed what's on the ground, meaning you need less resources?

>> much has already been purchased by them so we are really feeling the equipment less, more so than buying the equipment at that point. >> dr. miller, can you give us some indication of what impact on the afghan economy has been from the carrot eating a isaf forces being in place and what's going to replace that in the economy when that number is dramatically less after 2014? >> sir, yes. let me first on general alan's comment on funding. in addition to his having reached a certain point with respect to the purchase of equipment, general allen, his team and supported by joint staff and office of the secretary of defense have done a hard scrum and looked at as we transitioned what is not just the number but size and type of equipment that is necessary as

the afghans begin to take increasingly take a leadership. so very in depth scrub and credit to general allen and his staff in that effort. with respect to the specific impact of u.s. presence on economy, if i could on like to take that for the record and give you our best estimate. i don't have a good number that would take account -- >> broader than just u.s. this is an international efforts which was the isaf forces in total that will be leaving at some point in time. obviously, visiting your plan to strengthen -- this 10 year plan to strengthen, will be really important because i don't think that at the current level of funding, for whatever reason, is going much beyond the near future. yield back.

>> mr. critz. >> thank you, mr. chairman. dr. miller, general allen, thank you for being here, for your service. i missed the point, mr. turner asked about poppy growth. can you give me a specific as to how much less poppy growth there is going on in afghanistan now as compared to when it was at its peak? >> let me take that question, and i will get you a definitive answer on that, which gives you some of history and where we are today, and incorporates both or mr. turner and you a sense of what we think we will be going both in terms of afghan security force a government that supports counter-narcotics. >> can you tell me what has replace poppy growth in the places that we know it's been eradicated? >> there have been a number of crops, weed, pomegranate. what we would consider to be normal agricultural cash crops? >> i understand pomegranates, there's a lot of infrastructure needed to do.

is the infrastructure in place? >> it will be a long-term development for them. >> meaning? >> years. >> five, 10? >> i can tell you. i will add that into the question i take. >> mr. critz, i also will contribute to adding more detail to the record, but it's absolutely a very long-term prospect. it is expected to be 10 years plus. if i could i want while i have a full on this issue, thank the committee for its support of the task force on businesses, one and $50 million this year of department of defense among that is going to help economic development in afghanistan. we have close partnership with usaid come but, in fact, looking at both long-term prospects, for example, for minerals that help turn the corner or help but least improve their posture long-term, but also looking at some of these agricultural enterprises and how to encourage

them to move forward and how to bring in capital that will help them be sustainable over time. >> okay. well, talking about sustainability brings me to my next question but as i noticed in the reporting that the ansf is going to be about 352000 people at some point. general, in your estimation or in your expert analysis, the growth and the department of noncommissioned officers within the nsf and the growth and expertise that is growing within the junior officer corps, are the numbers there to support the force this large, and then going forward, is the economy afghanistan strong enough to support forces? of for someone to know about what you see within the military itself, the expertise and capabilities, and then from an economic standpoint as well. >> is an important question, and

the answer is at this juncture we're still building the ncos and junior officers. that's going to be for some time. the good news is that the schools are in place now. the curricula are coming on line and we are building a noncommissioned officer and a junior officer that is steeped in the kinds of capabilities that we need for the ansf to have. and i believe that we all recognize that the afghan economy is going to, for some greater time, require assistance, international committee assistance in order to sustain the ansf. there is as we all know and the task force stability operation has done great work in this regard. there are substantial resources underground in afghanistan. it's going to take a number of years before the process ultimately of the extracted industry coming online can produce a kind of revenue to support and ansf of capabilities. and so at this point, no. by the international community

has indicated a desire to commute -- the desired state that goes to my next question which is 2014 as the next presidential election and we've been talking about corruption, patronage networks. is the central government of afghanistan at a point now as we begin this drawdown towards 2014, or as we set up the process, is the central government strong enough to sustain the infrastructure needed? we are doing a coin operations throughout afghanistan so this is not one big army the marches across the couch. this is a series of different little -- sort of model. so is that central government strong enough to easily to hold that altogether? i say i'm almost out of time, so don't answer that for the record, that would be fun. >> we will for the record.

>> i yield back. >> thank you very much. mr. wittman. >> turn one. dr. miller, general allen, thank you so much for joining us today. thank you for your service to our nation and for your leadership. general allen, i want to go to you and pick up some of the words of your tests were. used it throughout history insurgencies have seldom been defeated by foreign forces. instead they been ultimately defeated by indigenous forces, and then secured by the forces they are in the country. in the long run our goals can only be achieved and then secured by afghan forces, transition then is the linchpin of our strategy, not merely the way out. let me ask this. how do you make sure that the linchpin doesn't break? and as you stated this has been a long and difficult and costly campaign. how do we make sure in the transition that there is enough time and space for the ansf, the afghan local police, the

government in fact to make sure that they are stood up and that they can actually have a chance of being successful in pushing things forward? and then as a follow-on to that, as you're looking at conditions on the ground, what will you be considering as far as capabilities of afghan national security force, the capabilities of the enemy, as you plan for the drawdown of our troops? >> all in occurs across several different tranches. and in each one of those tranches before they are announced we go to significant levels of detail. of planning both on the ice outside, but also in partnership dash of isaf side, the afghan corner for coordination host and, frankly, magnificent work in the process of leading transitions. but also very significantly been a great, great deal of time with

the director of national security, with general warnock, the minister of defense and general mohammed he who is the minister of interior. and we look at very, very carefully at those areas that are transitioning. to ensure that the ansf elements within those areas have the capacity to handle the security environment that they will ultimately have to face in that particular area transitions. for example, intron schwan, it was the very first one. we chose areas that were relatively secure at the time where the ansf seem to be in pretty good shape, because this was the first one. this was all new. what we have discovered is that, in fact, all those areas are actually in very good shape right now. tranche number two is in the process of transition now, and we're in the process of formulating tranche three.

we are looking very carefully to ensure we don't overburden the ansf corps command with too many regional areas in one particular area. we're looking for closely to see that there is coherent partnership with the isaf forces to be a safety net if necessary to ensure there is no regression when the time comes for the transition. so we watch it very closely. and then we monitor those areas once we have begun transition to ensure that it's an irreversible process. we will do that throughout all five tranches. with regard to the conditions on the ground, obviously i am in constant contact with our intelligence organizations. we're watching very closely the state of the insurgency inside afghanistan, looking to close at the state of the insurgency inside pakistan. i think we've had some very important in the gators just this year on one gender of 2011,

there were only 600 of the taliban that every integrated. on one gender of 2012, well over 3000 had reintegrated and today there's over 3600 with another 400 in the pipeline openly seeking to reintegrate. that says something about the insurgency at the grassroots level. and because so much of the insurgency is not an idealistic insurgency or a religious insurgency, as much as it is an initiative that reflects dissatisfaction locally that tells us a number of things. it tells us the foot soldiers in new specs are just tired of the fight and want to go. they are going home and their assembly back in the community. it also tells us the nation produce they have to oppose which is an increasingly capable and pervasive afghan national security force, is the force they don't want to have to fight. so they're going home. and also not have opportunities with improving local governance and improve economic opportunity

of the local level. it's not as in all across the country and there have been setbacks in some places, but many of the grievances that ultimately sent many of these insurgents to join the taliban and the insurgency, it, i think we can take some positive indicators away that the conditions have changed in some respects that prompts both the advent of the afghan local police very quickly in many of these populations but also the large numbers of insurgents who have reintegrated. >> thank you. >> mr. coffman. >> thank you, mr. chairman. first of all, dr. miller, when you look at the in state in terms of, let's say our congressional ground common units are gone on the country, i suspect we would still have after 2014 maybe some advisory presence, some light footprint, maybe some special operations personnel to do counterterrorism operations.

what would you estimate the cost of that to be? >> mr. coffman, your sense of the likely mission appears right to me, including counterterrorism in this nation. at this point it's impossible to give a -- >> i'm, i'm in for into the cost to the u.s. attacks the or the cost of international support to the afghan government to sustain their security forces and what support they would expect after 2014. >> i see. we had discussion about what is the appropriate and necessary sustained level of contribution is for afghan national security forces over time. as we discussed earlier, you can think of it in a sense as what is the approximate cost to sustain that 352000, which is where we are, which is where 330,000 today and growing to

352000 for innocent. is a cost associated with that, and we're looking toward the international community to begin to pay a portion of that, at least starting -- >> is it $4 billion? i've seen that figure. >> to sustain 352000 we suspect would be more than that. to sustain at a lower number, it would be further down the road at a point in time when the insurgency had been further degraded and smaller, the number of $4 billion or a little over has been certainly part of the conversation here i don't believe that that is, certainly at this point either the final answer for the cost of a given force nor do i think it reflects a final answer on the implicit size of a force that is required at a given point in time. so i would say that the number

that we know today is that we're growing to 352,000 for the afghan national security forces. that at some point we suspect that will come down. we don't know the timing of that. and because we don't know the timing of that nor the levels that go to beyond 2014, can't give you, can't give you a good aspirin of the cost although people are certainly, people are certainly making there is estimates, and some of those estimates have accurately and in accurate appeared in the press. >> general halleck, would you define our sacred object is in afghanistan as keeping al qaeda out, keeping the taliban from taking over the country and having some type of basic operations whereby we can launch counterterrorism strikes such as the one we did recently in taking out osama bin laden?

>> i would be very careful about the third as an articulation. at this juncture, first of all, there has been no discussion about with the afghan government per se, a u.s. enduring presence post-2014. we anticipate concluding a strategic partnership accord in the not-too-distant future. and in conjunction with the conversation we will begin to have the discussion with the afghans about what an enduring u.s. force might look like. at this juncture the conversation is largely about roles and functions that might be undertaken. there will probably be a counterterrorism presence, but it will not be to operate in the region. it would be a counterterrorism presence to prevent al qaeda within afghanistan from finding itself operationally relevant safe haven, which it does not have no. >> thank you, sir.

let me just say i am torn on this mission. having served in iraq with united states marine corps i've been in meetings where we had to convince tribal leaders to cooperate with us knowing that if we let them doubt that they would be dead. that al qaeda would come back, the insurgents would come back and would kill them. and so i believe that we have a moral obligation here, even though i believe it was the wrong path for america, that we could have achieved our security objectives without the heavy conventional footprint on the ground, without giving them structure of governance that doesn't fit the political governance of the country. which without trying to change their entire culture and without trying to give them the economy that they never had that u.s. taxpayers expense. with that, mr. chairman, i yield back. >> gentlemen's time. mr. scott. >> thank you, mr. chairman. general, at the start a new meaning when the statements that

you made was our goal was to keep the taliban from overflowing into afghanistan government and deny al qaeda safe haven. those are two very distinctly different goals. i'd like to focus if you will on the overthrowing the afghanistan government. antis that the afghanistan government is making with china, in many reports out there suggest that china has supported a peace process between the taliban and the afghanistan government. and if you look at the amount of foreign aid the u.s. government has sent to afghanistan, somewhere around 48 billion, where china has done a approximate 58 million, there's approximate a trillion dollars worth of natural resources in afghanistan. the contract seems to be signed with china for china to actually

receive the financial benefits quite honestly, a lot of loss of life and blood and money from the u.s. taxpayer. and i guess my question is, if china is the one that have set themselves up to reap the windfall and the rewards from the natural resources of afghanistan, and the united states is not going to have trade ties, if you will, for anything other than essentially trinkets, why shouldn't china bear the cost of insuring that the taliban doesn't overflow, overturned the afghanistan government instead of the u.s. taxpayer?

>> well, it's an important question, and i would not disagree with you that china ought to be asked to provide some of that support in the long-term. but, of course, there are other countries that are involved ultimately in afghanistan's future, and afghanistan is choosing to have relationships with them as well. the indian government, for example, whom we have very strong relations appears to be poised ultimately not just to have a substantial economic interest, perhaps even eclipsing the chinese interest, but a strong economic interest in afghanistan, but also as long-term ties, very healthy and friendly ties with afghanistan. and the fact is offering to support the develop of the afghan national security forces. so i think it's not just a matter of china. i think there will be other international factors that are at play in afghanistan. >> general, if i may come you

said india has offered, i assume there's a financial number that india has offered to help with the afghanistan forces. has china offered a significant dollar figure, or is it -- >> i will have to do the research for you. i will take that question. >> mr. scott, if i could just add that we want, obviously we want the afghanistan he economy to improve over time. we wanted overtime to be self-sufficient we talked about that being a long road, but we expect the united states is that we're able to compete on a level playing field, and that our companies can go in for the extracted industries and for the all the industries, not just the localized smaller scaled ones. we have made that expectation clear, and our companies have had an opportunity to compete. but part of bringing helping afghanistan take this next

steps, get on its feet economically over long period of time is, in fact, going to be to help it create those opportunities internationally, and not just united states but for other countries as well. and i think that we will compete very effectively. >> it's not for my scandal, i'm not talking about exploiting afghanistan. i'm talking about the fact that china is essentially exploiting our men and women in the military, and the united states taxpayer by having us pay the burden in both blood and money for, quite honestly, an area where china is going to be the one that reaps the windfall benefits of stability in afghanistan. if they are not willing, i don't understand where the benefit to the u.s. citizen comes in spending $10 billion a month, if 21 months from now the end result will be the same, we will be out there, we would have lost more men, more women. we will have spent more money

and yet china is going to step in. china is capable of stepping in right now. thank you, mr. chairman. >> the gentleman's time has expired. mr. franks. >> thank you, mr. chairman. and thank all of you for being here. general, appreciate your team being here. i know you put on that uniform, you do a great deal for the cause of freedom. i have to point out a special greeting here to commander broke to walt, been a friend of mine or very, very long time. ever since he was a little boy. no, that's not quite right. but thank you for being here. i wanted to suggest first of all that is my opinion, there's context of the question here, the date certain in the drawdown, particularly the administration in my judgment has had a detrimental affect on the overall mission here, put some of the commanders on the ground in a difficult position. but i wanted to follow up with representative wilson's question

regarding malignant i ronnie -- there's potential for common ground between us and iran to cooperate for the long-term benefit of afghanistan. and you stated that you are seeking to check the negative persistence between iran and afghanistan. and i guess my first thought is, do you think this is possible, or this common ground between us and iran is possible given the leadership in the current iranian regime? and how does the long history between iran and afghanistan provide any sort of a basis for leveraging events in favor of our national security? are we, do you know for certain where it effectively checking negative assistance from iran to the insurgency? and the overall than question is, is it wise in your opinion

to proceed with the current drawdown, given the iranian government support to this insurgency in afghanistan? >> we are seeking to understand exactly what iran is doing in afghanistan. but we also understand that iran and afghanistan have their own bilateral relationship. and that's in many respects productive relationship for afghanistan. so i will not take issue with the fact that the afghan government has our relationship with iran. my issue is primarily in the area of security, and what we understand to be iranian assistance to certain elements of the taliban. it has not been dramatic. it has not been pervasive, but we seek to understand it. and we have an addicted that

assistance on a number of occasions. and so we will continue to it very closely. we will see if it is modulated, if it is increased or if it becomes more pervasive than will have to take actions as necessary with afghanistan to continue to check that process. >> dr. miller, did you want to weigh in on that? >> if i could every briefing. as you know, the iranian government has also provided not only rhetorical but made to support to the afghan government. so what we see is in many instances a positive influence to but just as general al has talked about, at the same time in another part of the country we have seen iranian support for the insurgency. so what we would like to do is to encourage continued support for the government in kabul, and through various means him including the interdiction that general allen talked about. reduce to a minimum attempt to eliminate any incentives for support to the insurgency.

>> i guess it just occurs to me given iran's history of making ieds to both our troops in iraq, shouldn't engine a great deal of trust on our part to the potential of using the long-standing relationship between afghanistan and iran to our benefit. i'm not sure that there's a real basis for that. but i mean, i defer this to the people on the ground. i'm just suggesting that there seems be a general pattern here, and i'm just wondering what the drawdown and the date certain has done to the over all, at least the psychological array of our enemies attitude towards continuing to resist the efforts of freedom there in afghanistan. and i will, general but you have any other thoughts? >> we have not seen the iranian signature weapons in afghanistan. we saw frequent in the southern iraq, and that would be a very

quick indicators to us that things have changed dramatically. >> thank you. thank you, thank you. where two committees going on at the same time so i to sprint to the other one so thank you very much. >> thank you. mr. palazzo? >> thank you, mr. chairman, and, of course, i would like to thank our distinguished guests for being here today, and for your service to your country. i was just wondering if the general had a level above his -- because he ran out of uniform for all this prestigious ribbons and medals. >> you are kind to ask. ..

>> just something this committee, i guess, is going to be hearing a lot of. i'm glad y'all are here today. i've been hearing some questions, and i guess it's related to a lot of the incidents that have been taking place in afghanistan by some of our american service members, one's the quran burning, the other is the alleged killing of civilians by a member of the military and other things. and our concern is, you know, immediately, of course, in this 24-7 news cycle and the internet and things of this nature people are thinking we're going to turn over american service members to the afghani government to be tried and to possibly be punished. um, of course, personally i hope

you'll validate what i'm thinking is that that's never going to happen. it's not going to happen in these cases. but could you just elaborate on that, either one? >> the current relationship that we have with afghanistan permits us at this juncture to prosecute these cases under u.s. law, and we intend to do so. >> okay. and that's based on the status of forces agreement? >> correct. >> and so, i mean, is it a possibility that this administration could say, well, that's great, but turn them over to the afghani government? >> i'm not the one to ask. >> okay, i didn't -- >> from my perspective, i intend to work very closely with the united states army ultimately to prosecute this case, and we will do it under u.s. law. and i was clear with that n that discussion with president karzai. >> okay. dr. miller? >> mr. palazzo, i just confirmed

that we have no such plans to do so. >> okay. that could be an option if so chosen? that you, i mean, there's nothing barring turning over a u.s. service member to the afghani government to be tried? our men and women in uniform have some sort of protection from the corrupt government. >> sir, as the general mentioned, there's a status of forces agreement in which it's understood that we have that right, and we've given every indication that that's the way that we will proceed. >> okay. i'm, you know, i'm not trying to go anywhere with that, i was just curious because i hear that, and there are some concerns, but we're not, as of now, we're not going to let that happen, that's good. we need to make sure that never happens, period. i don't know if we have to do something legislatively to codify that. next question, just what's the mood of our young ncos serving in afghanistan in light of, you

know, a decade at war? i know some of them may be on their second or third tour, some of them on their first, some of them trying to get into the action before it's over. i understand how young military minds think. just a overall, short opinion. >> i asked my sergeant major his view and his view is that the morale is high. these troops are focused on a mission. ten years into this conflict they are as professional as we've ever seen the noncommissioned officers of our armed forces, in particular the u.s. army and the united states marine corps who have on a day-to-day basis been in close contact with the enemy where the benefits or where the real advantage that ultimately accrues to us in a counterinsurgency is by small unit, noncommissioned officer and junior officer leadership. and they're magnificent, frankly.

and after this long in this conflict to see the morale as high as it is, the professionalism as high as it is and, as you say, the desire to continue to serve really speaks well for the young men and women of our university. united states. >> thank you, my time's expired. >> thank you, general allen. i have one final question. there are many detainees currently held in the defense facilities in afghanistan whom the u.s. forces have identified as enduring security threat toss the united states. some of these detainees are afghans, some are third country nationals. the recent memo of understanding regarding the transition of detention operations in afghanistan does not provide a separate plan for afghan detainees who pose an extraordinarily high threat. the mou requires the united states to transition all afghan detainees to the custody of afghanistan within six months.

the mou states that afghanistan will consider favorably u.s. input regarding whether to release a particular detainee, but given the current posture of the afghan government this is not very reassuring. i'm concerned about history repeating itself here. in iraq we waited until the last minute to deal with this issue, and that particular example is not one that we should be seeking to repeat. in height of the new m -- in light of the new mou, what is your plan regarding the handling of high-value detainees to insure that these individuals will not pose a threat to the united states in the future? >> and i'll defer to dr. miller here in a moment. but should there be a disagreement with the afghans, should there be an intention expressed to release one of the detainees, ultimately, that they control, we express our desire that they not, they will give it

favorable consideration. if, in fact, they continue to desire to release that detainee, that question will then go into a bilateral commission which has been established within that memorandum of understanding. the chair on the u.s. side and the chair on the afghan side of the bilateral commission is commander of isaf and the minister of defense where we will have the conversation, ultimately, about whether that individual should be released or not. so i believe we will, ultimately, be able to resolve this to our benefit within the bilateral commission if they don't take our initial desire to be their decision ultimately. with respect to the third country nationals, that remains to be determined. we have not yet addressed that, chairman, and we are do that in the -- we will do that in the future. >> mr. chairman, could i adjust everything that general allen said is exactly right. i just want to add to it. and that is that in addition to

the transition effort that is underway being led by, being led by general allen, there's an interagency task force that's focused on this question including on third country nationals and how to deal with high-value detainees. and we are working very closely with the team that is in theater and understand that these issues need to be addressed, and we need to come up and have a conversation, sir, with you and your colleagues as well. it's relatively at a front end, but we know that, you know, six months is not that much time. so we look forward to having that conversation as this work progresses. >> very good. the concern we have is that detainees that have been released have returned to fight, and we've found that they have at a fairly high percentage have gone back to killing americans, and that's -- we really want to make sure we monitor and avoid

that. thank you very much for being here today. i think we've cleared up a lot of questions. i hope this is beneficial. i think it will be to the american people to understand more clearly what's happening in afghanistan and the progress that we're making there. thank you very much, and this committee stands adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> in march 1979 c-span began televising the u.s. house of representatives to households nationwide. and today our content of politics and public affairs, nonfiction books and american history is available on tv, radio and online. >> on or about friday, november 21st, i asked admiral point directer directly -- poindexter,

does the president know? he told me he did not. and on november 25th, the day i was reassigned back to the united states marine corps for service, the president of the united states called me. in the course of that call, the president said to me words to the effect that i just didn't know. those are the facts as i know them, mr. neils. i was glad that when you introduced this, you said that you wanted to hear the truth. i came here to tell you the truth; the good, the bad and the ugly. i am here to tell it all, pleasant and unpleasant. and i am here to accept responsibility for that which i did. i will not responsibility for that which i did not do. >> c-span, created by america's cable companies as a public service. >> this morning on c-span2 house

budget committee chairman paul ryan and the committee's top democrat chris van hollen, they speak at a policy summit hosted by "national journal." it gets underway at 8:30 a.m. eastern live here on c-span2. >> the president of the export/import bank says the biggest obstacle facing u.s. exports is unfair trade practices by china and other countries. he spoke at a conference in washington earlier this month. >> going to in our cushion with fred -- discussion with fred and then open up to questions try to bring a bit more of the international dimension to this question of what's happening to the real economy in the united states. fred is, has the responsibility of running one of the institutions in which the government institution, but there's no real tax dollars at stake in it, and you play a role

in helping to broaden the export base of the united states. and i'd love to hear a little bit about that. but president obama has made a fundamental pillar of his economic strategy doubling the exports of the united states in five years. so i'd love to hear where that is, but i'd love you to give a quick snapshot of what the ex-im bank is supposed to be doing. >> thanks, steve, for having me. we have fake dollars engaged in the export-import bank. just a quick history, we actually started in 1934 by president roosevelt, and it was started to help create jobs through exports. and we do that to this day, 77 years later, with no tax dollars because by wto rules we have to be totally self-sustaining. we generate fees from our customers, and those customers pay for loan-loss reserves and our operations, and then actually on top of that we've

generated the last five years just as a snapshot $1.9 billion to the taxpayer that goes for further deficit reduction. but $5 billion over the last 20 years. what we do is we help level the playing field for u.s. companies that are exporting overseas and level it in one of two ways. sometimes -- frequently, there are about 80 other export credit agencies around the world, all the industrialized nations have them. and when those companies in the united states are competing for foreign sales, they are coming, their foreign competitors are backed by government-supported loans frequently. and so we provide a comparable backstop financing so that we lev level the playing field. so the customer can make a decision whether it's an airbus airplane or a u.s.-made power turbine or u.s.-made small business goods. so we level the playing field by providing buyer financing.

that's one thing we do. the second thing is we provide capital loans for businesses looking to export because it's hard when you go to a bank, and you say i'd like a working capital loan, and they say, well, where are your receivables they're all in brazil and nigeria and south africa, and the bank says we can't collateralize that. so we do working capital loans. and the last thing we do, we insure their receivables. so we have a company, i just talked to marlon steele up the road, about 25% exports, exports to 36 countries. we guarantee his receivables. he's now selling to china, singapore, costa rica. $10,000 orders. we make sure that he's not going to be able to collect on that, so if he can't collect, we pay the claim. and so that's how we sort of move things forward. insurance, working capital

clones -- loans, the bulk of it is buyer financing. >> so what happens if next week the bank just disappeared and didn't exist? you're out of a job. i know that might not be good for you, but how is the world and how is america affected if xm wasn't there? [laughter] would something else come up in its place? what would be the harm, what would be the opportunity? >> well, we've been called the lender of last resort for most of our history. i haven't liked that term because it makes it sound we're like the gas station for miles -- >> they should jack up your prices. [laughter] >> so usually people who come to us because they can't find financing elsewhere, or they can't find financing comparable elsewhere. and, you know, recently we helped finance aircraft, for example, to bangladesh. the good thing about bangladesh is it's going to be a boeing

fleet. the average age of the aircraft was 30 years old, so now we probably have the oldest air fleet in the world. but banks are lining up four, five or six deep to loan bangladesh money. so if we're not there, they would probably buy airbus. so i think the question is we're not there, but the others are still there. airbus staid we'll provide financing for boeing, we let the airline -- in that case which is owned by the government -- make a decision. do they prefer the airbus product or the boeing product? and they can do it on the product attributes, not because they get, like, 0% financing from one place and no financing from somebody else. >> the other day i was in northern california and driving along between san francisco and going down to santa clara, and all of a sudden there's this big, beautiful building, in fact, a bunch of them, and across the top it said solaria. it made me think of government

loans -- >> solyndra. >> solyndra, excuse me. sorry, solaria. that's actually another company out there, they're not going to be too happy i mentioned them. but solyndra. and it involved loan guarantees from government, it raised a big, big mess in the media. there was a lot of i would say public uncertainty ant this role. -- about this role. has xm had similar cases of failure that generated doubt about the function of xm? >> you know, our loan, our write offs, actual writeoffs run about 1.5%, 1.6% a year. we reserve, and the reserves, again, are paid for by our customers, we reserve about 2.5%, so we have much more reserves than we actually have writeoffs each year. we also can be patient, so we can collect, you know, we have loans that are made in veps wail la that, you know, we can be

more patient than the bank can be at this point. >> right. >> we have not had any really sort of large scale sort of goes to the core of our existence kind of loan issue. first of all, we're lending in about 150 countries, we're lending probably over several thousand product categories, so we're not really concentrated in the energy sector or the construction sector. obviously, we have a concentration in the aircraft because aircraft and aeronautics are the number one export of the united states. so, i mean, we obviously have some concentration there, but that's spread over 150 airlines in 50 different countries. >> when i think about trade and i listen to president obama when he made the statement about doubling imports or exports, excuse me, doubling imports -- >> we did that already. [laughter] >> you know, the way to think about that is, okay, doubling exports, um, do you do it by letting your currency slide, do

you do it by earnest work? in other words, you just get more u.s. companies focused on markets abroad, and you get involved in, you know, knocking down barriers which are fairly senate in a lot of other -- significant in a lot of other states? we've seen the discussion about the rise of state capitalism, the protection of markets abroad. or do you, you know, or do you move in some other way? you move -- and as i look at the global economy right now, we've had a lot of discussion about the sluggishness of the european economy, the slowing down of the chinese economy. you need buyers out there. so i'd love to get a quick take before we open to questions on the trade profile of the country and what's happening. but as you look ahead, not giving a raw, raw thing that exporters are up, but doesn't it look bleak out there? >> well, first of all, can i say exports are up, they're up about a third -- >> we're already ahead of schedule. >> we're slightly ahead of

schedule. exports have been growing by 15.5% on a compounded basis, it's about 14.8, so actually running slightly ahead of schedule. you know, see, for 20 or 30 years the united states and the world for that matter relied on the u.s. consumer and all the debt we accumulated to drive our economy and the global economy. what's going to drive the economy in the next decade is going to be infrastructure investments which will lead to global consumerism. the estimates are by the end of the decade there'll be 30 million people in the middle class from china to india and vietnam and so forth. that's a huge market, and it's a huge market for things we sell. so i'm actually very bullish. what the world needs is it needs power 24 hours a day, seven days a week, something we sort of take for granted. we may spend too much money on health care, but places like india are spending 1 or 2%, they

probably need to go to 7 or 8% of gdp on health care. and china, my recollection was they're looking to add like 25,000 beds in hospitals. all of these investments are things we sell from med medical to farm equipment, construction equipment, airplanes, aeronautics, services, we do a lot of service exports. so i'm very bullish partly because, you know, we're not good at makes and selling is clothing, t-shirts, consumer electronics, but we are good at selling these kind of large-scale infrastructure products that are going to be really driving this economy for the next coupful of decades. -- couple of decades. >> we've got a question right here. identify yourself, please. >> george with the nation magazine. i have a quick question. i'm sure you're aware that many house republicans and hard-right groups like the club for growth are signaling that they don't want to raise the loan limit for your organization. could you talk a little bit about that and talk about what

some of the implications of that would be? >> sure. just to back up, every -- most agencies are in sunset. our agency sunsets september 30th, it gets renewed for a four or five-year period by congress. congress renewed it to november, renewed it again to december, and now our authorization expires at the end of may. >> end of may this year? >> 78 days, not that i'm counting. >> i wasn't really -- i didn't know that. i didn't ask if they didn't exist and you didn't have a job, but i realize that might happen. >> you're prescient. hopefully, not prescient. currently, congress sets the terms of conditions, how we operate. one of the things they set is the current amount of indebtedness. current ceiling is $100 million. we're hovering at about $90 million. we will quickly run out of head room, frankly, if we don't get

that increase. it's more likely we'll actually run out of head room before we run out of time at this point. so if we don't do it, to your question, if we don't do it, it does open a door for our foreign competitors. i mean, i said in the other day. we're sitting in washington wringing our hands wondering should it be 100, 110, 140, even 160? the house financial services committee actually voted 60, more than we asked for, and our competitors are simply licking their chops and acing, this is great. -- saying, this is great. while we're worrying what the number should be, our competitors are very happy watching us in this turmoil. >> great. yes, sir. jean francois baton? >> yes, steve. what's up with the french treasury? i was running the program that --

[inaudible] your competitor in the france, so i made sure internationally-aligned companies could get the best product at the best price -- [inaudible] [laughter] that's the reason for my question. there are lots of complaints in europe by many companies across the continent about export credit competition coming from china. we, the u.s., germany, france, u.k., we are all part of the o o ecd export credit consensus, so we play by the same rules. it's not the case for china which is not a member of the oecd. what do you do about that, or what do you wish to do about that? >> interesting. china. >> i think this is one of the largest threats to our export agenda and to the united states because there's a lot of state-sponsored capitalism. it's opaque, it's not transparent. it doesn't play by the rules. china is certainly one, but they're not alone.

brazil and india, to a lesser extent, but i'll give you one stat. currently, brazil, india and china provide greater support for their exporters than all the g7 countries combined. those three countries. most of it, frankly, is brazil and china. what we're trying to do to rebut that is a couple of things. one, when vice president chi was here, there was an agreement made to bring china into some kind of international framework by 2014. we have already had teams of people in china to start working on this in a specific way in terms of an exchange of information, of more transparency so we could define what could be that international framework. but in the meantime, we've made a decision working with the administration, we have a transaction in pakistan where we got information on the chinese financing offer. we looked at the offer, we were able to offset it, and we're matching the offer.

still at no cost to the taxpayer, still without a subsidy. but we were able to reduce the fee we charged, points essentially like points on a mortgage, extend the term as the chinese had done so we were able to take financing off the table. and pakistan, they're still deliberating, but they're looking at chinese locomotives or ge or emd locomotives, but the financing terms are the same. we did that as a one off partly to say to china, we're not going to sit back and wait for this to happen. we will find every way to offset that if we can. >> let me just pose one last question before we close out and go for, i think, all of you for well deserved drinks. if those of you who are interested, i wrote a piece for "the atlantic," you can google my name and the bricks and find this interesting paper. there was an oecd paper that was produced, and i can't remember the gentleman's name who wrote it, but it was on the future of the global middle class and

looking at middle class-oriented development. but there was a fascinating, sobering chart that looked at various statements of middle class development and what those shares would be really by renal. india and china were broken out, u.s. was broken out, you europe, etc. , and what you saw was over time how very large globs of the european share of the global middle class and the american share of the middle class whittled down to very small, tiny bits. you know, by 2050. and the middle class represented by india and china, very substantial. that and latin america and africa remained minor and relatively insignificant. and what you just said about all of those coming represent really great opportunities, but it also says something else. the u.s. economy in that world probably isn't likely to be the one that makes the weather, that

creates the gravitational forces around economic, economic trends. and while it may be good for exporters in a certain way, i would like to talk to fred hochberg, the smart thinker, not fred hochberg of the xm bank. what kind of world is that in which the american middle class has become so small in comparison to the demand everywhere else? and how do you in that world envision the u.s. maintaining some leverage in the system? >> well, probably a world that has just less income disparity to some degree. there'll be more people in the middle, not just in the united states, but elsewhere. i mean, to me that's probably a world, you know, one thing about the middle class, they've become stakeholders in their society. so the more stakeholders we have, the less likely we're -- as we just talked about -- have 200,000 troops stationed in different places around the world because more people have a stake in their political

environments, in the economy, and that makes for greater stability. >> they get greater stability, but if you've got an achievement of such a large portion of middle class, and as you just said those countries weren't playing by the fundamental rules that the rest of the club has paid by, do you suppose that the rules, basically, change? that those who have been abiding by a kind of rules-based system are undermined and they're basically new rule setters? >> yes. i didn't -- yes, i think the rules have to change. i think this will continue forever where we've got the second largest economy in the world, the largest exporter in the world deciding to just go role and play by the rules. that's just not tenable. it's also not tenable, and i've been in china, it's not tenable that we're going to have a $250 billion trade deficit and next year 275 and the year after three and can a quarter. and i've said this to the chinese, you really don't believe it's just going to keep growing every year and no one's

going to say anything, and it'll never stop? so, no, i don't know exactly -- >> and we're going to break away from the last couple of minutes of this program. you can, of course, see it on our web site, c-span.org. take you live now to the newseum in downtown washington, d.c. where "the national journal" is hosting a discussion on the 2013 federal budget. you know the house of representatives is debating that issue today, and speakers here include house budget committee chairman paul ryan, the ranking member of the committee, chris van hollen, and the moderator getting underway right now. live coverage on c-span2. >> njpn budget. in addition to taking questions via twitter, we will also be coming around with hand held microphones for the q and argument portions of this morn -- q&a portions of this morning's event. this morning's policy summit would not be possible without the generous support of public notice. here this morning we have

executive director gretchen hamel. [applause] >> good morning. happy budget day, everybody. [laughter] aren't we all excited? thank you all for joining us this early morning. as we debate the budget on capitol hill, our nation's economy continues to fight its way back, but our fiscal troubles continue on. with our national debt exceeding the size of our economy and failed attempt after failed attempt to address it by the debt commission and by the bipartisan supercommittee, nation -- america's public is becoming very anxious and very, well, not patient, i guess you could say, about finding a solution to this problem. the basis for any fundamental reform starts with a budget and the budget that is being debated on capitol hill. a budget that addresses the growing line items and the problems that our nation faces. but a budget that also addresses the spending, the overspending

which ails us and which has caused this problem to begin with. we hope today we -- public notice and national journal -- hope today that this conversation will highlight some common ground that can provide a path forward to some fundamental change. and we hope you join us in this conversation with the hash tag njpn budget on twitter during the event. so without further ado, let's get this started. [applause] >> quickly, i want to give you a rundown of this morning's program. we will have three portions. first, remarks by and an interview with representative paul ryan followed by remarks by and a discussion with representative chris van hollen, and then finally, a panel of experts will have a discussion. all three portions of this morning's program-an audience q&a portion. moderating this morning's keynote interviews will be national journal's managing editor for budget and economy, kristin roberts. prior to joining national journal, kristin was deputy

bureau chief for reuters where she held positions in the new york, miami and washington bureaus. she covered wall street and led out erls' coverage of housing and banking policy regulation from washington n. 2006 she shifted to pentagon coverage reporting war policy and traveling with defense secretaries donald rumsfeld and robert dates. our first -- robert gates. our first keynote speaker is representative paul ryan. representative ryan is currently serving his seventh term as a member of congress from wisconsin. in addition to the house budget committee, he is a senior member of the house ways and means committee which has jurisdiction over tax policy, social security, health care and trade laws. he is also the author of "the past to prosperity" which is a specific plan that he put forward to tackle the financial crisis, and i'll turn the podium over to representative ryan. [applause] >> happy budget day, everybody. [laughter] good morning. i want to be very brief so we

can get to the questions and the interview. i'll simply start off by going through, basically, the lay of the land with respect to the process. we have a budget act. the budget law says the president must propose a budget and congress must dispose of its budget by april 15th. the president, true to law, has followed that by proposing a budget. we take issue with his budget. it doesn't address the drivers of our debt. it doesn't propose to ever, ever balance the budget, let alone get debt under control. there was a vote on his budget last night, and it got 414-0, and the vote was simply taking the cbo score of the president's budget, putting it into resolution text and having a vote on it. it was an attempt to try and show that there's not a lot of support for putting a budget that doesn't attempt to fix the problem. we had a few different budget substitutes yesterday. we had the black caucus, the progressive caucus. we had, also, the simpson-bowles budget. this morning we're going to have the study committee budget and the democratic substitute.

then the final passage of our budget. i want to simply say, um, chris van hollen should get credit for proposing a budget. t always tempt -- it's always tempt anything a minority not to propose a budget and just to criticize, so i think it's important to recognize leaders for stepping up and actually making proposals. we did this when we were in the minority on the budget committee, i think that's a good process. and that leads me to the final conclusion which is the senate has announced for over a thousand days they're not going to bother doing a budget. budgeting is one of the fundamental, rudimentary aspects of government. if you're going to govern, if you're going to lead, you must budge. we have one of the most predictable economic crises in this country coming. it's a debt-driven crisis, and so we have an obligation -- not just a legal obligation, but a moral obligation -- to do something about it, to preempt this debt crisis. our budget is our attempt to take these core principles and preempt a debt crisis.

we think the key components are to get spending under control, reform our entitlement programs so that the proms can be -- promises can be kept to current seniors, and reform it for future generations, and the other key is economic growth. we need policies that get people back to work. that helps with revenues, growth, and that helps reduce spending. so with that, e appreciate it, and why don't we just get on with it. >> thanks for joining us. >> good o morning. >> chairman doesn't have a lot of time with us, so we're going to get right into questions, and then i want to leave enough time for you folks to ask questions as well. let's start broad, how close is the united states to fiscal crisis? >> well, we bring a lot of people to the budget committee to ask that question, economists, international, fixed income experts. they tell us it's about two to three years. nobody knows the answer. if europe gets its act together, i think credit markets are going to focus on us very quickly.

you also have all the qe, what's going to end up with that. at the end of the day, because we're the world's reserve currency, it's buying us time which is precious and few which we think we ought to utilize to fix this problem. but i personally am banking on we've got about two years before this thing gets really ugly. ugly means the credit markets turn on us, our interest rates spike, and we could have a real problem. >> since the debt limit debate over the summer, the united states has not seen a decrease in demand -- >> right. >> it's not had a reaction to the loss of the a ark a rating -- aaa rating. why do you think the markets are simply holding off on this? what do you know that the markets don't? >> what i get from people who are probably the markets, the quote-unquote bond vigilantes, and what i get, the common story is this: you americans are, um, not a parliamentary system, so you have divided government, the way your system works.

so they realize we're at an impasse politically. not the european governments where they have one-party ruling so they can change things quickly, and we're the world's reserve currency. so right now we're the safe haven. they know we have extra tools that other countries don't have. so my guess is they're waiting through the election. and from my perspective, i want to show that at least one-half of our political system, the republican half, is getting serious about this, putting specific ideas on the table on how to get debt under control, not punting to some commission, not doing some negotiation which never gets to the structure of the program, but real ideas, taking votes, introducing legislation. and what we're hoping to do is buy us time. and what i get from all these experts who say we're going to wait for this election and then after the election if america doesn't start buckling down and really fix this problem in 2013, the going waves are getting rough. that's the theory that is often given to me.

and i'll just leave it at that. >> let's actually -- >> i think it's a better bet because i think we'll fix this problem. i think we're the safe haven. i think we have a better labor market, a better economy, better resources. we have everything wired to get back to prosperity, back to limited government and economic freedom. i think we're primed for that. i think most people are willing to bet on that. and i think because of our reserve currency status and because they think we will get our act together, you know, winston churchill just said the americans can be counted upon to do the right thing only after they've exhausted all other possibilities. and i think we're getting to that moment. i think we're going to fix this thing, but i believe we have to get through an election to do it. >> your plan relies on eliminating tax expenditures. you're leaving that to ways and means. break that mold here. 200 of them, give us one or two. >> so what we want to do is have open hearings about which ones are worth keeping, which ones

aren't. breaking the mold, what i would say is we should in addition to talking about what tax expenditures are there, we should also talk about who gets them. and that's where i think we should focus on, who gets them. if we want to talk about the top 1%, the top 1% of tax rate payers, of taxpayers, they get about $300,000 on average of tax shelters, of writeoffs. take away the tax shelters, subject more income to taxation, you can lower everybody's tax rates. so to me, the what is important, but the who is probably most important. and who should be getting these kinds of benefits or not. there is fiscal space left in the tax code with the kind of construct we're talking about to have things in the tax code that we want to keep that we have consensus on. that's what ways and means wants to do is get into that consensus. they have a series of hearings and listening sessions they're going to conduct throughout the summer, that's a process dave camp is about to engage in so it'd be premature to discuss

what's the outcome will be finish. >> i'm sure you have something in mind. >> to me, it's the who. a person in a higher taxation can shelter a lot of their money through room holes. -- loopholes. take away the tax shelter, and under our thing then they will be taxed at 25%. so you actually get more of their income subject to taxation, but you lower rates. why do we think lowering tax rates is important? where i come from in wisconsin nine out of ten businesses file their taxes as individuals. throughout the country, eight out of ten businesses file as individuals. llcs, subchapter ss. and the top effective tax rate's going to 44.8% in january. that's what the president's budget proposes. that's economic suicide. i mean, where i come from overseas, which we mean lake superior -- [laughter] the canadians in january just lowered their tax rate on businesses to 15%. so we're going to raise the top tax rate on our successful small businesses to 45?

and we're manufacturers. and manufacturing you compete globally. and so we have to keep a mind on when you have more loopholes, more complexity, more winners and losers -- both parties have done this. i've been on the ways and means committee for 12 years, i've watched it happen. it is economically inefficient, and it means higher tax rates. so to me, let's clear the stuff out, lower the tax rates. it's fairer, simpler and a whole lot more competitive. >> you don't want to talk about specific items within the code, but let's look at it this way. the 200 loopholes that there are generate about $1.2 trillion to the government lost, your budget requires a heck of a lot more money than that to pay for the reduction in -- >> i'm not sure what numbers you're getting into, but i'm just going to round the numbers, we raised around a trillion in income taxes, and we quote-unquote spent, we don't spend through the tax code because it's people's money in

the first place, but the tax expenditures are about a trillion z well. that's really inefficient. so what we released through the tax code through expenditures we raise about the same amount of money. that's extimely inefficient. and the thing we've got to remember is most other countries, industrial nations have a different type of tax system than we do. i'm not just talking about corporations, but businesses are typically taxed the same, and we have a system where businesses are more taxed under the individual side of the code than a business side of the code unlike most other foreign countries. we've got to get, we have to get our minds around that, we have to understand that this kind of a tax system is really uncompetitive. and so that's why i'm saying you've got to lower the rates and broaden the base, and there's a whole lot of room in order to lower rates. >> your budget actually increases money for defense, it eliminates the sequester or at least the discussion of delay going on. this is actually contrary to the guidance from the pentagon. why did you choose, why did the

committee choose to go against the advice of the generals? >> we don't think the generals are giving us their true advice. we don't think that the generals believe that their budget is really the right budget. i believe that the president's budget by virtue of the fact that when he released his budget number, about $500 billion, the number was announced at the same time they announced beginning of their strategy review of the pentagon's budget. so what we get from the pentagon is more of a budget-driven strategy, not a strategy-driven budget. we take $300 billion out of the defense base. so if we're using apples to apples, leon says he's cutting $470 billion out of defense, we're cutting $300 billion out of defense, so we do believe money can be taken out of the pentagon. we want to get savings there, too, but let's not forget we're at war, let's not forget we're

stretching our forward and reserves who have multiple call-ups. we have in-strength issues, equipment issues, and we have a dangerous planet, and we have a difference world. and so we don't want of to have a budget-driven strategy that hollows out defense which we think the president's budget does. so we keep defense spending level which is about $4 billion above where the president's budget is, and then we have .25% real growth after that. so the increase is .25%, so it's really sort of flat funded, and we belief that puts enough pressure on the pentagon to get rid of the waste and the inefficiencies while also giving the troops what they need and the equipment they need to be safe and successful. >> i want to go back to the first thing you said. you don't believe the generals? i mean, this is not an obama defense budget. we saw all of the -- we saw all of the combatant comoonders, all of the service chiefs stand up and say this is actually what we need, and this would not be add for a defense budget to decline

after conflicts. >> i agree. so what i believe is that this budget does hollow out defense. i believe this budget goes beyond where we ought to go to have a strong national defense to keep people safe. i think they're using budget gimmicks as well. they're pushing the joint strike fighter out to another five-year window keeping the number of planes they want to buy but stretching it out which means it costs more per copy. they're putting their drawdown funds into the supplemental bill. so i think there's a lot of budget smoke and mirrors in the pentagon's budget which is not a true, honest and accurate budget. so when you confront military experts, retired or active, they can see these -- concede these things to us. so i think we need an honest pentagon budget, put the screw toss the pentagon because there's waste, but this is not the first responsibility of -- this is the first responsibility of the federal government. and we have a more dangerous world. if we had this new pacific strategy, that means you have to

have a navy and an air force that can extend its reach into these areas, and this budget doesn't do that. so i think the strategy doesn't match the budget because i think what is going on here is this is a budget-driven strategy not a strategy-driven budget. >> why do you say the strategy momentum match the budget? the strategy came out before the budget did, the strategy was written by the defense department. what kind of knowledge do you have about the defense department's needs to -- >> so they think they need a 313-ship navy. they're not going to come anywhere close to that with this budget. the air wings they believe they need aren't anywhere near being funded in this. the equipment that is atrophying, um, that the replacement they're pushing out another five years. so what is, what was said before this budget was released and what is said after the budget release are two different things. >> uh-huh. let's talk about growth. gdp growth. your plan assumes some economic growth as a result of changes -- >> no, we just use the cbo

baseline. >> you're just using the cbo baseline. you need economic growth. >> the country needs economic growth. >> and your argument is that reducing the tax rate will yield economic growth. what kind of economic growth if your budget was actually pushed all the way through congress would you anticipate this yields? >> so we used the cbo baseline, our budget is based on the cbo baseline, and this is the current law baseline. the official cbo baseline assumes in that baseline a $4.4 trillion tax increase starts in january meaning all the tax cuts go away, and the massive tax increase happens in january. and cbo thinks that will slow down the economy down to about 1.1% growth. we have to use that measurement of growth in measuring our budget even though we repeal that tax increase. but we still live by that. our budget numbers are all official cbo baseline, but we think it's worth going through the exercise of since we're not putting the policies in this budget that cbo says will hurt the economy, what would the

budget look like if we actually reflected a better economy because we don't have those tax increases in our budget? so we consulted experts from columbia, from harvard, from all around as to what is a good rule of thumb as to what kind of growth would be achieved if we had fundamental tax reform, if we had deficit and debt reduction which takes pressure off of interest rates? so we ran three scenarios, an alternative growth scenario, of different versions of between .5 to 1% growth per year, what would the budget like like if that happened? it's more or less a thought exercise. and what that shows you is you would dramatically balance the budget a lot faster than what the conventional cbo baseline says. but our budget is used measuring the cbo baseline which, as i said, assumes slow growth because of tax increases, and then it assumes slower growth in the outyears because of an explosion of debt. nevertheless, we use the measurement that assumes those things. take those assumptions out and

what we're trying to show is you'll get faster economic growth, and people going from unemployment to actually collecting a paycheck and paying taxes, you get more revenues into the budget, and you can balance the budget a lot faster. so we need a combination of economic growth policies and spending cuts and entitlement reforms to get debt down to get this country back on track. we can get to balance, we can pay off the debt a lot faster if we grow the economy and get our spending and debt under control. >> what to you anticipate is that range of faster growth? >> it's not my anticipation, lots of economists think the rule of thumb is between .5 and 1% growth. glenn hubbard's done a lot of work on this stuff, so we cite a range of different studies that show you between .5 and 1% additional growth can be achieved if congress enacts the right policies. >> two romney advisers? >> which ones? >> hubbard and mankey.

let's go to the audience. we've got some standing up. fine. >> hi. justin schafer with republican main street. good morning, congress bank. >> morning. >> i was watching the house floor yesterday, and you heard the buzz words, end medicare as we know it, vice versa, and how do we educate the public that the real drivers of the debt are not foreign aid, waste, but the big three entitlements? >> right. so if you watch it, i have this chart that cbo puts out that shows how three programs, medicare, medicaid and social security, um, eventually just consume 100% of revenues. you throw interest on top which you have to pay interest, they consume 100% of revenues by 2025. and it's not an insidious plan by one party or the other, it was just demographics and health inflation. it's both parties made a lot of promises to people that the government can't keep.

gao says it's about $100 trillion worth of promises made to today's americans that the government's shy of covering. as soon as we acknowledge that, the better off we're going to be. the more we can convert these empty promises, that's what we're proposing. the two words you hear is balance and end medicare as you know it. the end medicare as you know it charge was a lie at the end of 2000. why is that? what we're saying is preserve the system for current seniors and people near retirement. and for people 54 and below convert to a system of premium support much like the bro-thomas commission recommended, like ron and i have been saying which is you get a list of guaranteed coverage options that are guaranteed that you can't be denied, and there's a competitive bidding system that makes sure that your benefit keeps up with the price of the

insurance. and then, and you also have the choice of traditional medicare fee for service alongside that. and then medicare subsidizes your premium based on who you are. if you're a low income person, total out of pocket coverage. a wealthy person gets a much lower subsidy because we think we should means test the program. doing it this way, using choice and competition, having premium support with competitive bidding guarantees affordability and solvency of the medicare program and allows us to cash flow the current commitment to current seniors. we think it's smart, we think it's important to do it this way, and it's gradual so that you don't end up with a debt crisis where you have severe disruptions in people's lives because medicare's the biggest driver of our debt. if you save and strengthen the program, you dramatically improve your chances of averting the a debt crisis. now on balance, people say you need a balanced approach. here's the problem. spending is the problem. our government spending as a percentage of our economy is at

about 24% right now. it's historically been at 20. it's going to 40%, and it goes to 80%. by the time my kids are my age, the size of our government goes from 20 to 40% of our economy. our revenues, if they even try to keep up with that, will crash this economy. so the spending is the problem, and if we simply try to chase this higher spending line with higher revenues, you'll end up shutting down the american dream, the american economy, and you will con sign the next generation to, clearly, an infear or your standard of -- inferior standard of living. if we just keep raising tax rates and keep narrowing the base, we're going to hurt job creators, small businesses, and we're going to hurt the economy which will actually suffer revenues. so let's focus on maximizing economic growth, getting more revenues in the federal government and economic competitiveness, and let's have a tax code that's simpler and fairer. we think that's a smarter way to

go because the best way to get out of this mess we are in is economic growth, spending cuts and entitlement reforms. that, to me, is balanced. because if we define balanced as just keep raising tax rates and don't deal with the drivers of our debt, these entitlements, we'll never balance the budget, we'll never get the debt under control, and we'll ruin the economy in the meantime. >> another one? somewhere up front here, yep.w3 >> good morning. my name is rochelle friedman, i'm with the coalition on human needs. chairman ryan, your budget adds an additional $265,000 annually in tax cuts for the very wealthiest while at the same time slashing domestic human needs programs and entitlements like tanf. how is this not a huge redistribution of wealth upwards? >> so i've heard these numbers

quite a bit. i heard 150,000, 900,000, 260, that's a new one. what i'm trying to say is clear out the tax shelters which are disproportionately used by higher income tax pairs so we can lower rates for economic growth and job creation. i don't see the tax code as a tool that ought to be used of social engineering and picking winners and losers in washington based on what special interest has the most clout. i see the tax code as being a system that should be progressive. we have a two-tier system, 10 and 25%, but maximizing economic growth, getting businesses primed to hire people. the best welfare program is a job at the end of the day. now, with respect to welfare, tanf grows continually under this budget, but tanf used to be called afdc which was reformed in 1996. and the kinds of criticisms you heard then are precisely the kinds we're hearing thousand, and we believe the welfare reform in 1996 was extremely

successful. it helped reduce poverty and get people back on the lives of self-sufficiency. our approach to these issues is to get back to a life of upward mobility and opportunity is to have a safety net that's there for people who truly cannot help themselves and is there for people who are down on their luck to help them get back on their feet. this is why we proposed job training programs, scholarships so people can easily acquire the skills they need to get better careers. and the problem is all the other welfare programs, um, that have been around were not reformed in that way in 1996. so we're proposing another round of welfare reform with the idea toward replicating those successful reforms that were done in '96. let states customize some of these benefit toss the unique needs of their populations. we did a great job in wisconsin, we think we should reform the other welfare programs along the same way because the approach i

would argue there are two ways of looking at this, at the safety net. number one, is our objective to treat the symptoms of poverty, to make it easier to tolerate and cope with and live with, or is it to look at the root causes of poverty to try and eradicate it? and what we're trying to do is going at the root causes of poverty. and what we've learned is just throwing more money at these programs without reforming them doesn't actually succeed the to getting people on to lives of upward mobility and independence. so we want to reform these programs so that people actually get on their feet, on the lives of self-sufficiency, and you can't do that if you don't have a growing economy there offering jobs and opportunities for them to enter into. >> we've got time for just one more. one right here. >> chairman ryan, good morning. david french with -- [inaudible] daairman ryan, good morning.