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Mullen: Washington 'Doing Handstands' as if Grave Problem of National Debt 'Has Gone Away'

The fifth big challenge is caring for this nation's veterans who are facing "very tough employment numbers" as well as health and education challenges -- though he thinks the answer is found on a local scale instead of within Washington.

"I find this 'sea of goodwill' out there on the part of the American people; you need local leaders to galvanize that," Mullen said, stressing that service members are "leaving at 1,000 a day, which is normal, and we're hiring them at about 100 a day."

But the admiral said it's also important that the military retain the best of the best. "After every war we lose a lot of our best people… particularly as the economy improves, they're going to leave," he said. "We need to keep the best we have in the military."

While it's early to gauge the full impact of sequestration -- "one of the areas I stay out of is Obamacare," Mullen quipped -- the recent fiscal uncertainty in the military may reverberate notably in retention numbers.

On the foreign policy front, Mullen said he's concerned Obama's pivot to Asia is giving a sense of U.S. retreat and withdrawal from other hot zones in the world.

"I'm very supportive of rebalance," he said, noting "that's an economic zone that feeds the world -- it needs to be stable."

"That said, the Middle East is not going away… I don't think we can do it and not continue to focus on the Middle East."

"We don't need to get into a fight with China," Mullen added. "That doesn't mean it isn't going to happen."

Watching Iraq become infested with al-Qaeda again in Anbar province has left the former chairman "extremely disappointed" but "not shocked."

On the National Security Agency, he said from what he saw the NSA was "complying with the law; they have the interest of the United States of America at the top of their list."

"I hate what Snowden did. I think Snowden is a traitor," Mullen said, adding that nevertheless he's glad there's a debate about security vs. privacy that ensued in the wake of Snowden's revelations. "The threat's not going away, the danger is out there, so how do we balance that?"