THE PRESIDENT: Thank you so much. (Applause.) Everybody, please have a seat. Thank you.

Well, it is wonderful to be here,and I always look forward to an opportunity to speak to some of our topbusinesses across the country who are hiring people, investing in America,making the economy run. And many of youI’ve had a chance to interact with before. As you know, oftentimes when I do something like this, I want to spendmore time answering questions and having a conversation than giving any formalremarks. Let me just provide a littlebit of an introduction.

Obviously, over the last coupleof months, most of the oxygen in this town has been consumed with two things --one, the government shutdown and the possibility of default that was ultimatelyresolved; and the second has been the rollout of the Affordable Care Act andthe fact that my website is not working the way it’s supposed to. And it’s entirely legitimate that those havebeen issues of great concern.

The impact of the shutdown andthe threat of default I think not only did some significant damage to theeconomy at a time when we didn’t need self-inflicted wounds, but it also spoketo some of the larger problems we’ve seen here in Washington, and the sense ofdysfunction and the seeming incapacity of both parties in Congress to worktogether to advance an agenda that’s going to help us grow.

With respect to the AffordableCare Act, I think people are legitimately concerned because we have a majorproblem with health care in this country -- 41 million people without healthinsurance, a lot of people underinsured. And once again, how we fix a health care system that’s been broken fortoo many people for too long I think ends up speaking to how much confidence wehave in government and whether we still have the capacity, collectively, tobring about changes that are going to be good for our economy, good for ourbusinesses, good for the American people.

I do want to say, though, thatbeyond the headlines, we have made real progress in the economy, and sometimesthat hasn’t gotten enough attention. Some of the tough decisions that we made early on have paid off --decisions that helped us not only recover from a crisis, but begin to lay astronger foundation for future growth.

We refocused on manufacturingexports, and today, our businesses sell more goods and services made in Americathan ever before around the world. Aftera decade of shedding jobs, our manufacturing sector has now added about half amillion new jobs, and it’s led by an American auto industry that has comeroaring back after decades of decline.

We decided to reverse ourdependence on foreign oil, and today, we generate more renewable energy thanever before and more natural gas than anybody in the world. And for the first time in nearly 20 years,America now produces more of our own oil than we buy from other countries.

When I took office, we invested afraction of what other countries did in wireless infrastructure, and today, it’sup nearly 50 percent, helping companies unleash jobs, innovation and a boomingapp economy that’s created more than 500,000 jobs. When I took office, only 5 percent of theworld’s smartphones ran on American operating systems. Today, more than 80 percent do.

And it’s not just in thehigh-tech economy that we’re seeing progress. For example, American farmers are on pace to have one of their bestyears in decades, and they have consistently been able to export more, makemore profits and help restore rural economies than when we came into office.

And, yes, we decided to take on abroken health care system. And even though the rollout of the new health caremarketplace has been rough, to say the least, about half a million Americansare now poised to gain health care coverage beginning January 1st. That’s after only a month of sign-up. We also have seen health care costs growingat the slowest rate in 50 years. Employer-based health costs are growing at about one-third of the rateof a decade ago, and that has an impact on your bottom line.

And after years oftrillion-dollar deficits, we reined in spending, wound down two wars, and beganto change a tax code that I believe was too skewed towards the wealthiest amongus at the expense of the middle class. And since I took office, we have now cut our deficits by more than half.

Add it all up, and businesseslike yours have created 7.8 million new jobs over the past 44 months. We’ve gone farther and recovered faster thanmost other advanced nations. And so in alot of ways, America is poised for a breakout. We are in a good position to compete around the world in the 21stcentury.

The question is, are we going torealize that potential? And that meansthat we’ve still got some more work to do. Our stock markets and corporate profits are soaring, but we’ve got tomake sure that this remains a country where everyone who works hard can getahead. And that means we’ve still got toaddress long-term unemployment. We stillhave to address stagnant wages and stagnant incomes.

And frankly, we’ve got to stopgoverning by crisis here in this town. Because if it weren’t for Washington’s dysfunction, I think all of usagree we’d be a lot further along. Theshutdown and the threat of default harmed our jobs market, they cost oureconomy about $5 billion, and economists predict it will slow our GDP growththis quarter -- and it didn’t need to happen. It was self-inflicted. We shouldnot be injuring ourselves every few months. We should be investing in ourselves. And in a sensible world, that starts with a budget that cuts what we don’tneed, closes wasteful loopholes, and helps us afford to invest in the thingsthat we know will help businesses like yours and the economy as a whole --education, infrastructure, basic research and development.

We would have a grand bargain formiddle-class jobs that combines tax reform with a financing mechanism that letsus create jobs, rebuilding infrastructure that your businesses depend on, butwe haven’t gotten as much take-up from the other side as we’d like to see sofar. We have the opportunity forbipartisan authority to negotiate the best trade deals possible so businessesand workers can take advantage of new markets that are opening up around theworld. We haven’t seen the kind oftake-up from the other side that we’d like to see so far.

We’ve got the opportunity to fixa broken immigration system that strengthens our economy and our nationalsecurity. The good news here is theSenate has already passed a bipartisan bill that economists say would grow oureconomy by $1.4 trillion and shrink our deficits by nearly a trillion over thenext two decades. You wouldn’t turn downa deal that good, and Congress shouldn’t either. So I’m hoping that Speaker Boehner and theHouse of Representatives can still work with us to get that done.

And we need to be going all outto prepare our kids and our workers for the demands of a 21st-centuryeconomy. I’ve proposed giving everychild an early start at success by making high-quality preschool available toevery four-year-old in America. We knowthat you get more bang for the buck when it comes to early childhood educationthan just about anything else, and you’ve got great examples around thecountry, oftentimes in red states, that are doing just that. We need to make that same investment.

We’re working to bring down thecosts of a college degree so more young people can get a higher education. And one thing that I’m very excited about --and this has been a good example of a public-private partnership -- is the ideaof redesigning our high schools to make sure that more young people gethands-on training and develop the skills that they need, particularly in math,science and engineering, that businesses are looking for. And in fact, today we’re announcing acompetitive grant program that will encourage more high schools to partner withcolleges and local businesses to better prepare our kids for college or acareer. And in December, I’ll bebringing together college presidents and other leaders to figure out ways tohelp more low-income students attend and to succeed in college.

So just to sum up, my basicmessage is this: We know what thechallenges are. We know what thesolutions are. Some of them are tough,but what’s holding us back is not a lack of good policy ideas or even what usedto be considered good bipartisan policy ideas. We just have to break through the stubborn cycle of crisis politics andstart working together. Moreobstruction, more brinkmanship won’t help anybody. It doesn’t help folks politically. My understanding is nobody in this town isdoing particularly well at the moment when it comes to the opinions of theAmerican people, but it certainly doesn’t help anybody economically.

On many of the issues, I thinkyou and I would agree, and I want you to know that I’m rooting for yoursuccess, and I look forward to making sure that we are able in the remainingthree years that I’m President to work together to not only improve thebusiness climate, but also improve the prospects for Americans all across thecountry who have been treading water, feel like they’re losing ground, areanxious about the future and their children’s futures, but I think are stillhopeful and still possess that fundamental American optimism. If they see leadership working across theboard on their behalf, then I’m confident that we can make enormous progress.

So with that, why don’t we getJerry up here and I’ll start answering his questions. I hope he adds some input. (Laughter.) If he starts asking me about whathappened to the Kansas City Chiefs, I’m not sure I’ll have a good answer forthat one. (Applause.)

Well, thank you, Mr. President. Let me start by thanking you officially forjoining us today. I think you probablysee a lot of familiar faces out there, most friendly, most of them. And I would also note that you’re gettinghere a little late. Congressman PaulRyan is coming later. He is going to gethere a little early. So if you guysoverlap a little bit, maybe we can just get some problems solved righthere. What do you think?

THE PRESIDENT: Let’s do it. (Laughter.) Let’s do it.

It’s your chance. We have talked amongst ourselves or tried tosort of take the sense of the room. So I’mgoing to try to reflect some of the conversations that have been going on herein the questions I’m going to ask you. You’ll not be stunned that I’m going to ask you about health care first.

You indicated there and you’veindicated publicly quite clearly that the rollout has been difficult. What do you think you’ve learned from thisexperience about the government’s ability to do this sort of thing, about thelaw itself, or about your own administration?

THE PRESIDENT: Well, there are a couple of things. Number one is that this has been a bigproblem for a very long time and so it was always going to be challenging notjust to pass a law, but also to implement it. There’s a reason why, despite a century of talking about it, nobody hadbeen able to successfully try to deal with some of the underlying problems inthe health care system.

The good news is that many of theelements of the Affordable Care Act are already in place and are workingexactly the way they’re supposed to. Somaking sure that consumers who have employer-based health insurance are gettinga better deal and that are protected from some of the fine print that left themin the lurch when they actually got sick -- that’s in place. Making sure that young people under the ageof 26 can stay on their parents’ plan -- that’s helped 3 million childrenalready. That’s making adifference. Helping seniors to getbetter prescription drug prices -- that’s already helped millions of seniorsand billions of dollars in savings. Rebates for people who see insurance companies who are not spendingenough on actual care, more on administrative costs or profits, they’re gettingrebates. They may not know it’s theAffordable Care Act that’s giving them rebates, but it’s happening. So there were a number of things that werealready in place over the last three years that got implemented effectively.

The other thing that hasn’t beentalked about a lot is cost. There was a lot of skepticism when we passed theAffordable Care Act that we were going to be giving a lot of people care but weweren’t doing anything about the underlying costs. And, in fact, over the last three years, we’veseen health care costs grow at the slowest pace in 50 years. And that affects the bottom lines ofeverybody here.

And there are a lot of smartdelivery system reforms that slowly across the system are being implemented andthey’re making a big difference. Andthat’s saving us money. That’s why, bythe way, some of the projections that in terms of what the Affordable Care Actwould do to deficits have actually proved even better than we had originallyexpected.

What I have learned, though, withrespect to setting up these marketplaces -- which are essentially mechanismswhere people who are currently in the individual market or don’t have healthinsurance at all can join together, shop, and insurance companies will competefor their business -- setting those things up is very challenging justmechanically.

The good news is that choice andcompetition has actually worked and insurers came in with bids that were evenlower than people expected -- about 16 percent lower than had originally beenprojected.

The challenge has been justmaking sure that consumers are actually able to get on a website, see thosechoices, and shop. And I think that weprobably underestimated the complexities of building out a website that neededto work the way it should.

There is a larger problem that Iprobably -- speak personally, but also as the administration -- could haveidentified earlier, and that is the way the federal government does procurementand does IT is just generally not very efficient. In fact, there’s probably no bigger gapbetween the private sector and the public sector than IT.

And we’ve seen that in, forexample, the VA and the Department of Defense trying to deal with electronicmedical records for our servicemen as they move into civilian life. Most of that stuff is still done on paper. We’ve spent billions of dollars -- I’m notsaying “we” as in my administration, I mean we’ve now had about a decade ofexperimentation, spent billions of dollars and it’s still not working the wayit should.

So what we probably needed to doon the front end was to blow up how we procure for IT, especially on a systemthis complicated. We did not do thatsuccessfully. Now, we are getting itfixed, but it would have been better to do it on the front end rather than theback end.

And the last point I’ll make isthat in terms of expectation setting, there’s no doubt that in an environmentin which we had to fight tooth and nail to get this passed, it ended up beingpassed on a partisan basis -- not for lack of trying, because I met with anawful lot of Republicans to try to get them to go along -- but because therewas just ideological resistance to the idea of dealing with the uninsured andpeople with preexisting conditions. There was a price to that, and it was that what was already going to behard was operating within a very difficult political environment. And we should have anticipated that thatwould create a rockier rollout than if Democrats and Republicans were bothinvested in success.

One of the problems we’ve had isone side of Capitol Hill is invested in failure, and that makes, I think, thekind of iterative process of fixing glitches as they come up and fine-tuningthe law more challenging. But I’moptimistic that we can get it fixed.

Well, that’s the question I was going toask next. Is it possible you’ve lostenough time here and enough potential customers in the exchanges that you’renot going to reach the critical mass of signups that you need to make themarketplace work? Is that a danger thatyou have to worry about right now?

THE PRESIDENT: Well, it’s something that we have to payattention to. But keep in mind that thismodel of marketplaces was based on what was done in Massachusetts, and theexperience in Massachusetts was that in the first month, 153 or 163 people signedup out of an ultimate 36,000. It wasless than 1 percent signed up in that first month -- partly because buyinginsurance is a complicated process for a lot of people. When they have more choices, it means thatthey’re going to take more time.

There’s no doubt that we’ve lostsome time, but the website is getting better each week. By the end of this month, it will befunctioning for the majority of people who are using it. They’ll be able to shop, see what theirchoices are. The prices are good. The prices are not changing during the openenrollment period that goes out until March. And so I think that we’re going to have time to catch up.

What’s also been expressed as aconcern is the mix of people that sign up. So we might end up having millions of people sign up; they’re happy withtheir new coverage, but we’ve got more people who are older, more likely to getsick than younger and healthier. We’vegot to monitor that carefully. We alwaysanticipated, though, that younger folks would be the last folks in, justbecause -- it’s been a while since you and I were young -- but as I recall, youdon’t think that you’re going to get sick at that time.

So, look, I am confident that themodel that we’ve built, which works off of the existing private insurancesystem, is one that will succeed. We aregoing to have to, A, fix the website so everybody feels confident aboutthat. We’re going to have to obviouslyre-market and re-brand, and that will be challenging in this politicalenvironment.

But keep in mind, in the firstmonth we also had 12 million people visit the site. The demand is there. There are 41 million people who don’t havehealth insurance. The folks in theindividual market, many of them are going to get a much better deal in themarketplaces. And so we’ve just got tokeep on improving the customer experience and make sure that we’re fending offefforts not to fix the problem -- because if somebody wants to help us fix it,I’m all game, but fending off efforts to completely undermine it.

Let me turn to the economy, the broadereconomy, probably the predominant concern of people in this room. We seem to be stuck in an economic growthpattern of okay, but not great growth. Your friend, Larry Summers, was here earlier today and said essentiallythe problem or one of the problems is that the system can’t do two things atonce. It can’t cut deficits and spurgrowth. It needs to do one or the otherright now. It needs to spur growth,should not worry so much about deficits. Do you agree? And if you doagree, how do you make that happen?

THE PRESIDENT: Actually, Larry and I, and most of myeconomic team -- in fact, all of my economic team -- have consistentlymaintained that there is a way to reconcile the concerns about debt anddeficits with the concerns about growth.

What we know is, is that ourfiscal problems are not short-term deficits. Our discretionary budget, that portion of the federal budget that isn’tdefense or Social Security or Medicare or Medicaid, the entitlement programs,is at its smallest level in my lifetime, probably since Dwight Eisenhower. We are not lavishly spending on a whole bunchof social programs out there. And in many ways, a lot of these programs havebecome more efficient and pretty effective.

Defense, we spent a lot from 2001to 2011, but generally we are stabilizing. And the Pentagon, working with me, have come up with plans that allow usto meet our security needs while still bringing down some of the costs ofdefense, particularly after having ended the war in Iraq and on the brink ofending the war in Afghanistan.

So when we talk about our deficitand debt problems, it is almost entirely health care costs. You eliminate the delta, the differencebetween what we spend on health care and what every other country -- advancedindustrialized nation spends on health care, and that’s our long-termdebt. And if we’re able to bend the costcurve, we help solve the problem.

Now, one way to do that is justto make health care cheaper overall. That’s I think the best way to do it, and that’s what we’ve been doingthrough some of the measures in the Affordable Care Act. There are some other provisions that we couldtake that would maintain our commitment to seniors, Medicare, Social Security,the disabled, and Medicaid, while still reducing very modestly the costs ofthose programs.

If we do those things, thatsolves our real fiscal problem, and we could take some of that money, a verymodest portion on the front end, and invest in infrastructure that puts peopleback to work, improve our research and development.

So the idea would be do somethings in the short term that focus on growth; do some things in the long termthat deal with the long-term debt. That’swhat my budget reflects. That’s what amultiple series of negotiations with John Boehner talked about, the so-calledgrand bargain. We couldn’t quite getthere in the end, mainly because Republicans had a great deal of difficultywith the idea of putting in more revenue to balance out some of the changesthat were made on entitlements.

I would guess a lot of people in this roomwould say another way to make some of those things happen would be to fix thecorporate tax code that everybody agrees is a mess. You’ve got some companies that pay way toomuch compared to their international competitors; some companies don’t pay atall. It’s not a good system. it’s not anefficient system, everybody agrees, but it doesn’t ever seem to change. Can you make it change? And can you do something about repatriationof U.S. assets overseas?

THE PRESIDENT: Well, here is the good news, is that both myadministration and Republicans have talked about corporate tax reform. And Paul Ryan, who is going to be coming afterme, said he’s interested in corporate tax reform. And we’ve reached out to him and we’ve saidlet’s get to work. We put forward a veryspecific set of proposals that would lower the corporate tax rate, broaden thebase, close some loopholes. And in termsof international companies and competitiveness, what we’ve said is rather thana whole bunch of tangled laws that incentivize folks to keep money overseas,let’s have a modest but clear global minimum tax, get rid of some of the hugefluctuations that people experience. Itwill save companies money, make them more competitive and, in terms oftransitioning to that system, actually allow some people to bring back moneyand, in a one-time way, help us finance infrastructure and some other projectsthat need to get done.

I don’t expect Republicans toadopt exactly the proposal that we’ve put forward. But there’s not that much separation betweenwhat Democrats are talking about -- I know Chairman Max Baucus put outsomething today, the Chairman of the Finance Committee -- what Dave Camp overin the House has talked about. Thisshould be bridgeable.

The one thing I would caution is-- and I’ve said this to the Business Roundtable and other corporate leaderswho I’ve talked to -- people like the idea of corporate tax reform intheory. In practice, if you want to makethe corporate tax reform deficit-neutral, then you actually have to close someloopholes. And people like the idea of asimpler tax system until it’s their particular loophole that’s about to getclosed.

And what we can’t afford to do isto keep all the loopholes that are currently in place and lower the corporatetax rate. We would then blow anotherhole in the deficit that would have to be filled. And what I’m not willing to do is to havehigher rates on the middle class in order to pay for that.

Some of the CEOs here had a working groupearlier today, the mission of which was to address the question of how do youstay competitive. Interestingly, atleast to me, their first priority -- first priority -- was this: immigration reform. The U.S. needs immigration reform to retaintalented workers educated in the U.S. and attract talent to the U.S. Immigration reform could provide an instantjolt to the U.S. economy which we need.

I know you agree with thatstatement, but it’s hard to see that happening right now. You’ve got the Senate off on one track -- it’spassed a comprehensive bill the House won’t even agree to take up. Democrats want to do comprehensivereform. Republicans want to do step-by-stepreform. It’s a poisonous politicalatmosphere. Can you make it happen?

THE PRESIDENT: I am actually optimistic that we’re going toget this done. I am a congenitaloptimist. I would have to be -- I’m named Barack Obama and I ran forPresident. (Laughter.)

And won.

THE PRESIDENT: And won twice. (Laughter.)

So, look, keep in mind, first ofall, that what the CEOs here said is absolutely right. This is a boost to our economy. Everywhere I go, I meet with entrepreneursand CEOs who say, I’ve got these terrific folks, they just graduated fromCalTech or MIT or Stanford, they’re ready to do business here, some of themhave these amazing new ideas that we think we can commercialize -- but they’rebeing dragged back to their home countries, not because they want to go butbecause the immigration system doesn’t work.

The good news is that the Senatebill was a bipartisan bill and we know what the component parts of thisare. We’ve got to have strong bordersecurity. We’ve got to have betterenforcement of existing laws. We’ve gotto make sure that we have a legal immigration system that doesn’t cause peopleto sit in the queue for 5 years, 10 years, 15 years -- in some cases, 20years. We should want to immediately sayto young people who we’ve helped to educate in this country, you want to stay,we want you here.

And we do have to deal with about11 million folks who are in this country, most of them just seekingopportunity; they did break the law by coming here or overstaying their visa,and they’ve got to earn their way out of the shadows -- pay a fine, learnEnglish, get to the back of the line, pay their back taxes -- but giving them amechanism whereby they can get right by our society. And that’s reflected in the Senate bill.

Now, I actually think that thereare a number of House Republicans -- including Paul Ryan, I think, if you askhim about it -- who agree with that. They’re suspicious of comprehensive bills, but if they want to chop thatthing up into five pieces, as long as all five pieces get done, I don’t carewhat it looks like as long as it’s actually delivering on those core valuesthat we talk about.

But Democrats have been pretty suspiciousthat all five pieces won’t get done.

THE PRESIDENT: And that’s the problem. I mean, the key is -- what we don’t want todo is simply carve out one piece of it -- let’s say agricultural jobs, which are important, but is easier,frankly, or the high-skilled jobs that many in your audience here wouldimmediately want to do -- but leave behind some of the tougher stuff that stillneeds to get done. We’re not going tohave a situation in which 11 million people are still living in the shadows andpotentially getting deported on an ongoing basis.

So we’re going to have to do itall. In my conversations with theRepublicans, I actually think the divide is not that wide. So what we just have to do is find a pathwaywhere Republicans in the House, in particular, feel comfortable enough aboutprocess that they can go ahead and meet us.

This, by the way, Jerry, I thinkis a good example of something that’s been striking me about our politics for awhile. When you go to other countries, the political divisions are so much morestark and wider. Here in America, thedifference between Democrats and Republicans, we’re fighting inside the 40-yardline, maybe in --

You’ve fooled most people on that in thelast few months, I’d say. (Laughter.)

THE PRESIDENT: Well, no, no. I would distinguish between the rhetoric and the tactics versus theideological differences. I mean, in most countries you’ve got -- people call mea socialist sometimes, But, no, you’ve got to meet real socialists.(Laughter.) You’ll have a sense of whata socialist is. (Laughter.)

I’m talking about lowering thecorporate tax rate. My health carereform is based on the private marketplace. The stock market is looking pretty good last time I checked. And it is true that I’m concerned aboutgrowing inequality in our system, but nobody questions the efficacy of marketeconomies in terms of producing wealth and innovation and keeping uscompetitive.

On the flip side, mostRepublicans, even the tea party -- one of my favorite signs during the campaignwas folks hoisting a sign, “Government, keep your hands off my Medicare.” (Laughter.) Think about that. (Laughter.) I mean, ideologically, they did not like the idea of the federalgovernment, and yet they felt very protective about the basic social safety netthat had been structured.

So my simple point is this: If we can get beyond the tactical advantagesthat parties perceive in painting folks as extreme and trying to keep an eyealways on the next election, and for a while at least, just focus on governing,then there is probably 70 percent overlap on a whole range of issues. A lot of Republicans want to getinfrastructure done, just like I do. Alot of them believe in basic research, just like I do. A lot of them want to reform entitlements tomake sure that they’re affordable for the next generation; so do I. A lot of them say they want to reform our taxsystem; so do I.

There are going to be differenceson the details, and those details matter and I’ll fight very hard forthem. But we shouldn’t think thatsomehow the reason we’ve got these problems is because our policy differencesare so great.

Well, the details are obviously importantenough to shut down the government just a couple of weeks ago. And everybody knows we’re headed back towardshowdowns again -- January, budget; February, debt ceiling. Jack Lew was here earlier, your TreasurySecretary, and said he thought maybe the system crossed a threshold in Octoberand has realized it doesn’t want to go back and do that again. Are you confident it’s not going to go backand do that again? And by the way, theOECD, the Organization of Economic Cooperation and Development, suggested todaythat the U.S. just get rid of the debt ceiling entirely. Would you be in favor of that?

THE PRESIDENT: I think that the way our system is set up islike a loaded gun, and once people thought we can get leverage on policydisputes by threatening default, that was an extraordinarily dangerousprecedent. And that’s a principle that Ihad to adhere to, not just for me but for the next President -- that you’re notgoing to be able to threaten the entire U.S. or world economy simply becauseyou disagree with me about a health care bill.

I’d like to believe that theRepublicans recognize that was not a good strategy, and we’re probably betteroff with a system in which that threat is not there on a perpetual basis. I do not foresee what we saw in October beingrepeated in January. But the broaderpoint is one that I think all of us have to take to heart. We have to be able to disagree on policyissues without resorting to the kinds of extreme tactics that end up hurtingall of us.

And that’s been my maindisagreement with a lot of my Republican friends. And frankly, the American people agree withthat. They don’t expect us to march inlockstep. There’s a reason why we’ve gottwo parties in this country. They doexpect that we are constantly thinking about how are we making sure they canfind a job that pays well, that their kids can go to college and afford it,that we are growing and competitive, that we are dealing with our fiscalposition in a sensible way. And if wekeep them in mind consistently, then I think we’re going to be successful.

One thing -- you’ve got someinternational CEOs here, and I think they’ll confirm this -- when I travel, what’sstriking to me is people around the world think we’ve got a really good hand.You just take the example of energy. They say America is poised to change our geopolitics entirely because ofthe advances we’ve made in oil production and natural gas production. It means manufacturing here is much moreattractive than it used to be. That’s ahuge competitive advantage.

We’ve got the most productiveworkers just about in the world, and our workers have become more and moreproductive, and a lot of companies look at that and say we wish we had workerswho were able to operate the way these folks do.

Our university systems, ourresearch infrastructure -- all those things are the envy of the world. And one of the great things about America --sometimes we get worried that we’re losing traction and the sky is falling, andback in the ‘80s, Japan was about to take over, and then China, and obviouslybefore that, the Soviet Union -- and we usually come out okay because we changeand we adapt. I just want everybody toremember that we’re in a very strong position to compete as long as ourpolitical system functions. It doesn’thave to be outstanding. This is sort oflike Winston Churchill, two cheers for democracy. And it’s always going to be messy. But it’s got to function better than it has.

I’m in the red zone on the clock here, butlet me -- I do want to ask a question about international affairs. You’ve mentioned the world and the U.S.position in it. There’s the possibilitythis week of an agreement with Iran, a preliminary, limited agreement in whichthey would free some of their nuclear activities in return for some relief onsanctions. Your Israeli friends havebeen arguing, along with some of your friends as well as your foes in Congress,that if you give the Iranian regime any relief on sanctions, the sanctionsregime will fall apart; countries that don’t want to be there in the firstplace will head for the exits; it will all come apart -- and that’s the dangerof what you’re negotiating right now.

I know you talked to somesenators about this very topic today. Isthere going to be a deal? And why canyou ease sanctions without having them fall apart?

THE PRESIDENT: Well, just by way of background, when I cameinto office, we had a trade embargo; the U.S. had done some thingsunilaterally. We did not have a strong,enforceable international mechanism to really put the squeeze on Iran aroundits nuclear program, despite the fact that it had violated a range of U.N. andnonproliferation treaty requirements.

So we built, we constructed, withthe help of Congress, the strongest sanctions regime ever. And it has put a bite on the Iranianeconomy. They have seen a 5 percentcontraction the last year in their economy. It’s projected to be another contraction this year. And in part because the sanctions have beenso effective, we were able to get Iran to seriously come to the table and lookat how are they going to give assurances to the international community thatthey are, in fact, not pursuing a nuclear weapons program.

I don’t know if we’ll be able toclose a deal this week or next week. Wehave been very firm with the Iranians even on the interim deal about what weexpect. And some of the reporting outthere has been somewhat inaccurate, understandably, because the P5-plus-1, themembers of the -- permanent members of the Security Council in addition to --and Germany as well -- have kept the negotiations fairly tight.

But the essence of the deal wouldbe that they would halt advances on their nuclear program; they would roll backsome elements that get them closer to what we call breakout capacity, wherethey can run for -- a weapon before the international community has a chance toreact; that they would subject themselves to more vigorous inspections eventhan the ones that are currently there, in some cases, daily inspections.

In return, what we would do wouldbe to open up the spigot a little bit for a very modest amount of relief thatis entirely subject to reinstatement if, in fact, they violated any part ofthis early agreement. And it wouldpurchase a period of time -- let’s say, six months -- during which we could seeif they could get to the end state of a position where we, the Israelis, theinternational community could say with confidence Iran is not pursuing anuclear weapon.

Now, part of the reason I haveconfidence that the sanctions don’t fall apart is because we’re not doinganything around the most powerful sanctions. The oil sanctions, the banking sanctions, the financial servicessanctions -- those are the ones that have really taken a big chunk out of theIranian economy. So oil production andoil sales out of Iran have dropped by more than half since these sanctions wereput in place. They’ve got over $100billion of oil revenue that is sitting outside of their country. The rial, their currency, has droppedprecipitously. And all those sanctionsand the architecture for them don’t go anywhere.

Essentially, what we do is weallow them to access a small portion of these assets that are frozen. Keep in mind, though, that because the oiland banking sanctions stay in place, they will actually still be losing moneyeven during this six-month period relative to the amount of oil sales they hadback in 2011.

So what we are suggesting both tothe Israelis, to members of Congress here, to the international community, butalso to the Iranians, is, let’s look, let’s test the proposition that over thenext six months we can resolve this in a diplomatic fashion, while maintainingthe essential sanctions architecture, and, as President of the United States,me maintaining all options to prevent them from getting nuclear weapons. I think that is a test that is worthconducting.

And my hope and expectation isnot that we’re going to solve all of this just this week in this interim phase,but rather that we’re purchasing ourselves some time to see how serious theIranian regime might be in re-entering membership in the world community andtaking the yoke of these sanctions off the backs of their economy.

Well, Mr. President, with that, let me justthank you again for joining us. Iappreciate it very much. (Applause.)

THE PRESIDENT: I enjoyed it. Thank you very much. (Applause)

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