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Interview With Condoleezza Rice; Interview With Henry Paulson

Aired July 20, 2008 - 11:00   ET


WOLF BLITZER, HOST: This is LATE EDITION, the last word in Sunday talk.

PRESIDENT GEORGE W. BUSH: I believe we will come through this challenge stronger than ever before.

BLITZER: President Bush shows confidence in the U.S. economy, but soaring gas prices, failing banks and the housing crisis are major concerns for worried U.S. consumers. I'll put the tough questions to the Treasury secretary, Henry Paulson.

RICE: If Iran is ready to suspend, then the United States will be there. It's very clear that more has to done. We're about halfway there.

BLITZER: In an exclusive wide-ranging interview, Secretary of State Condoleezza Rice tackles Iran, Iraq, the war on terror and much more, plus answers some personal questions.

BLITZER: Have you decided who to vote for?

RICE: Wolf, yes.

PELOSI: $4 plus per gallon for oil is attributed to oil men in the White House. Bless his heart, the president of the United States, a total failure, losing all credibility with the American people.

BLITZER: House Speaker Nancy Pelosi comes out swinging against President Bush, the Republicans and inaction in the Senate. Our exclusive interview and the Republican response from the number two GOP leader in the house, Roy Blunt. And as always, insight and analysis from three of the best political team on television. The first hour of LATE EDITION begins right now.


BLITZER: It's 11:00 a.m. here in Washington, 8:00 a.m. in Los Angeles and 7:30 p.m. in Kabul, Afghanistan. Wherever you're watching from around the world, thanks very much for joining us for LATE EDITION. We'll get to issue number one, the U.S. economy and my interview with the Treasury secretary, Henry Paulson, in just a moment.

But first, we're following some developing stories, and for that we go to CNN's Fredricka Whitfield at the LATE EDITION update desk in Atlanta. What's going on? WHITFIELD: Good morning to you, Wolf. Democratic presidential candidate Barack Obama has wrapped up his first visit to Afghanistan. He held talks today with President Hamid Karzai and later spoke to CBS News.


SEN. BARACK OBAMA, D-ILL.: The situation in precarious and urgent here in Afghanistan, and I believe this has to be our central focus, the central front on our battle against terrorism.


WHITFIELD: John McCain, who has criticized Obama for making policy statements on Afghanistan before actually going there is spending his afternoon at the ballpark today. He attends a New York Yankees home game with former rival Rudy Giuliani.

An Iraqi militia holding five British hostages reportedly says one of the captives has killed himself. The videotaped statement is posted on the Web site of London's "Sunday Times" newspaper. British Prime Minister Gordon Brown calls the video abhorrent and is demanding the hostages be released immediately. Back to you, Wolf.

BLITZER: All right, Fred, thanks very much. We're going to have a lot more on Barack Obama's visit to the Middle East. That's coming up here on LATE EDITION, stand by for that.

In the meantime, over the past 10 days, there's been a lot more proof that the U.S. economy is in serious trouble. One major bank has failed, two major financial institutions, Fannie Mae and Freddie Mac, are reported to be struggling. I discuss all of this and a lot more with the Treasury secretary, Henry Paulson, only moments ago.


BLITZER: Mr. Secretary, thanks very much for joining us. Welcome back to LATE EDITION.

PAULSON: Wolf, it's good to be here.

BLITZER: Let's talk a little bit about what you said back on May 7th. It's not that long ago, but this is what the "Wall Street Journal" quoted you as saying. "The worst is likely to be behind us. There is no doubt that things feel better today by a lot than they did in March."

Well, now we're in July. Do you want to revise or amend that, Mr. Secretary?

PAULSON: Well, I would say there's no doubt they did feel a lot better in May than they did in March, and I've also said that we're making progress, but it's not going to come in a straight line. There are going to be some bumps in the road. It takes a while, as our financial institutions reprice risk, deal with the stresses, de- leverage, recognize losses, raise capital. You know, Wolf, this is about a housing correction, and that's what caused the turmoil largely in the markets...

BLITZER: Because it seems so much worse now than it did in June or May.

PAULSON: Well, the housing correction, I think, has been going on for some time. And the quicker we get this behind us, the sooner we'll have the turmoil subside if the stresses in the capital markets will lessen, the sooner housing prices will stabilize, investors will come back in the markets...

BLITZER: So what needs to be done to turn this economy around?

PAULSON: There's no single thing, there's no silver bullet...

BLITZER: Give me two or three things that need to be done right now to help turn the economy around.

PAULSON: OK. Well, obviously, my big focus has been stability of the capital markets. That's our number one priority.

BLITZER: Tell me what that means.

PAULSON: And what stability is all about confidence and it's all about our institutions having enough capital so that they won't shrink and they can continue to play the role they need to play in the capital markets.

BLITZER: Because even now, these two mortgage giants, you know, government-backed, Fannie Mae and Freddie Mac, all of a sudden there are questions being raised about their security.

PAULSON: And Wolf, it's very important right now that we do what we can to increase the confidence in the capital markets, the stability of the capital markets, and these two institutions are very important. They are very important to our economy, to our housing markets. Investors all around the world own their securities, and those investors need to know that we in the United States understand how important these institutions are to the capital markets and how important they are to our housing markets and our economy.

BLITZER: How stable is Fannie Mae and Freddie Mac?

PAULSON: As I said, Fannie Mae and Freddie Mac are very important to our markets. Their regulator has said that they have adequate capital. There is some worry, some concern in the capital markets, and that is why we came in with a plan to assure the markets that there will be adequate capital for them to meet all their needs...

BLITZER: If necessary, will you in effect bail them out?

PAULSON: No, I said there will be adequate capital if necessary to help them meet their requirements as they go forward. BLITZER: We saw long lines at these IndyMac banks out in California this past week, and that, you know, generated a lot of concern out there. People are worried about their money. They are worried about other banks going under. How worried should they be?

PAULSON: Well, first of all, let me say, in the 75 years we've had the FDIC...

BLITZER: The Federal Deposit Insurance Corporation.

PAULSON: Federal Deposit Insurance -- right -- we have not had a single depositor lose one penny on an insured account. So, remember, if you've got insured accounts, there is nothing to worry about in terms of your own -- your own finances...

BLITZER: That's up to $100,000 per account.

PAULSON: That's up to $100,000 per account.

Now, secondly, let me say our banking system is a safe and a sound one. That there had been I think maybe five bank failures this year. When we're going through the housing crisis, S&L crisis, '82 through '92, there was an average of 250 bank failures a year.

I get reports regularly from all of the regulators responsible for the banks -- the FDIC and the other regulators -- and again, they assure me -- and this certainly was the case as of the end of March -- that 99 percent of the banks in our country -- and remember, we have almost 8,500 banks, and so here we're talking about one bank, IndyMac -- but 99 percent of the banks, with 99 percent of the assets, fall into the category which the regulators have set, which is for those banks which have the highest amount of capital, the highest amount of capitalization.

BLITZER: So what you're saying is it's only a tiny number of banks that are in trouble right now?

PAULSON: Yes. What I'm saying is our banking system is safe and sound, and we've only had five bank failures, which is a very small percentage of the total.

BLITZER: Since we spoke the last time, inflation seems to be going up as well. In fact, the latest numbers show the highest increase in inflation in almost three decades. Chuck Schumer, the Democratic senator from New York, said this about the economy. "We're now seeing danger for the economy on both sides. Growth is too slow and inflation is too high. For the first time, worries about stagflation are getting real."

Does he have a point?

PAULSON: Well, there's no doubt that the American people feel the burden of high energy prices. They feel the burden of high food prices. But when you look at the inflation numbers, although the headline inflation numbers are creeping up, the core inflation seems largely contained in this country. So we have some good news there. BLITZER: "The Wall Street Journal," in an editorial the other day, on Thursday, was very critical of you. I'll read to you among other things what it said. "The treasury chief is also still behind the curve in cleaning up the financial system. The Fannie Mae debacle caught him by surprise, and he still hasn't triggered the Federal Deposit Insurance Corporation Improvement Act, to prepare for the inevitable bank failures. With more IndyMacs on the way, this is the kind of advance financial plumbing that would help restore confidence."

PAULSON: Well, let me begin with Fannie Mae and Freddie Mac.

PAULSON: I think my view on those institutions has long been known. It was clear that they posed some systemic risk...

BLITZER: Were you caught by surprise?

PAULSON: I was not caught by surprise. I was working quite diligently with Congress to get reform, and we're very close to get reform.

These are very important organizations. They have a very important role to play, and we need to make sure that they have access to adequate capital to get through this period and get through this period in a way in which it's going to help us return to a stable housing market in the United States.

BLITZER: The last time you were here on "Late Edition," March 16th, we spoke about the job losses...


BLITZER: ... that had been increasing every month since January 1st, now about half a million since the beginning of the year. This is what you told me then. I'll play the clip.


PAULSON: Jobs are important, and the stimulus package is aimed at that. If the stimulus package works the way economists are projecting it's going to work, it will add 500,000 to 600,000 additional jobs this year.


BLITZER: All right, that would be pretty impressive if it happens in the next six months, but is that likely?

PAULSON: Well, I would say the stimulus package is clearly working. When you look at the consumer data we have for the second quarter; you look at retail sales, the stimulus package is working. And it's coming at a time when it's very much needed. And I believe we're going to have 500,000 or 600,00 jobs we wouldn't otherwise have.

BLITZER: New jobs?

PAULSON: We're going to have jobs we wouldn't otherwise have. And we also have some other issues that have cropped up since that time, including rising energy prices.

BLITZER: Because, since the stimulus checks started going out in May and June, about 124,000 jobs were lost in those two months.

PAULSON: Yes, Wolf, I understand that. But as I said, I'm talking about jobs we wouldn't otherwise have. And we've also had energy prices that have moved up significantly. We've got some tough issues with housing and in our capital markets. But one thing that I'm very confident has worked is the stimulus plan. It has worked and it's working.

BLITZER: Because, as you know, Barack Obama, Nancy Pelosi, a lot of Democrats, some Republicans say, you know what, we need a second stimulus package of about $50 billion to help Americans deal with this.

PAULSON: I'm focused on this stimulus package. It's made a difference in the second quarter. It's going to make a difference in the third quarter. We need to watch this very carefully. We need to continue working to stabilize our capital markets, to do the things we're doing to get through this housing correction, avoiding those foreclosures that are avoidable. And that's what my focus is.

BLITZER: Would a second stimulus package be helpful?

PAULSON: I don't want to speculate about a second stimulus package. The first one was sized. And remember, we put it together so it would be big enough to be meaningful to the economy today, and not so big that it was going to jeopardize our fiscal responsibilities and some of our longer-term priorities.

BLITZER: So, bottom line, right now, give us your assessment on where the economy is and where it will be, let's say, six months, a year from now?

PAULSON: Wolf, right now we're doing through a tough period. There is no doubt about it. But the stimulus plan is making a difference. We're focusing very much on housing, because, as I said before, that's going to be a big key here, is the sooner we can get the biggest part of this housing correction over and housing prices begin to stabilize, buyers come back to the market.

Energy, energy prices -- there's no doubt that that is a significant headwind, and it's going to prolong this slowdown.

But remember one thing. The fundamentals of our economy are solid long term. The long-term fundamentals are strong and they compare favorably with the long-term fundamentals of other industrial companies around the world -- other industrial economies around the world. And our financial system is a safe and a sound one.

BLITZER: All right. Well, we hope -- we're counting on you. We're hoping you're right, Mr. Secretary. Thanks for coming in.

PAULSON: Thank you, Wolf.

BLITZER: And just ahead...

(BEGIN VIDEO CLIP) PELOSI: What we are saying is, Mr. President, free our oil from the Strategic Petroleum Reserve.


BLITZER: The House speaker, Nancy Pelosi -- she comes out swinging in an exclusive interview. You're going to want to see it.

And that's not all.


RICE: The Iranians are certainly building capabilities that would allow them to have a nuclear weapons program, should they choose.


BLITZER: Secretary of State Condoleezza Rice -- she talks tough on Iran. It's another "Late Edition" exclusive.

And Barack Obama takes the campaign to the battlefield. The best political team on television is standing by to weigh in.

Stay with us. "Late Edition" continues right after this.


BLITZER: And welcome back to "Late Edition." I'm Wolf Blitzer in Washington. Coming up later this hour, we'll hear from the number two Republican in the House of Representatives, Congressman Roy Blunt. He'll respond, live, to my exclusive interview with the Democratic House speaker, Nancy Pelosi.

I spoke with her this week in her Capitol Hill office.


BLITZER: Madam Speaker, thanks very much for joining us.

PELOSI: My pleasure.

BLITZER: Back when you wanted to be in the majority, you issued a press release on April 24th, 2006. At that time, the price for a gallon was $2.91.

Among other things, you said then, "Democrats have a common-sense plan to help bring down skyrocketing gas prices by cracking down on price gouging, rolling back the billions of dollars in taxpayer subsidies, tax breaks and royalty relief given to big oil and gas companies, and increasing production of alternative fuels."

That was then. You've been in power, now, as the majority for more than a year and a half. The price of a gallon of gas is more than $4 in some parts of the country, including in your area -- closer to $5 a gallon -- and there's no relief in sight. What are you doing to fix this?

Because a lot of people are disappointed in the record so far.

PELOSI: Well, we have passed, in the House of Representatives, every one of those initiatives. They have run into a brick wall with the Republicans in the United States Senate and with the president of the United States.

But, in passing our energy bill, we were able to achieve, with public support and outcry...

BLITZER: So it's all the fault of the Senate?

PELOSI: Yes, absolutely.

BLITZER: As simple as that?

PELOSI: Every single one of these bills passed the Congress of the United States. The price of oil is at the doorstep, $4 plus per gallon for oil, is attributed to oil men in the White House and their protectors in the United States Senate.

Make no mistake. All of these initiatives have passed. They get to the Senate, 59 votes on repealing the subsidy; 59 votes on renewable electricity standards; 59 votes...

BLITZER: And in the Senate they need a 60 to break a filibuster?

PELOSI: Thank you for calling that to everyone's attention. You need 60 in order to have a bill even brought up.

But these are the things that we have to do. We have to protect the consumer and we have to increase domestic production. And that means not only in oil and gas but also into renewable energy resources.

BLITZER: There are a lot of people out there, including plenty of Democrats, who say one of the most important things to do right now is to resume offshore drilling off the coast of California, Florida, elsewhere around the United States.

Take a look at this poll that CNN Opinion Research Corporation recently did.

BLITZER: Do you favor offshore drilling? Seventy-three percent said yes. Do you oppose offshore drilling? Only 27 percent.

You're among the 27 percent. What's wrong with letting the oil companies go ahead and develop those offshore oil drilling opportunities?

PELOSI: Well, there are 33 million acres offshore that all of these companies have the opportunity. These are for lease, and many of them with the environmental approvals to go forward. That's why in the House on Thursday, today, we have the drill bill. Drill responsibly in leased lands. This does not mean go into protected, environmentally-protected areas and drill.

The impression that the White House would give you is that if you could drill in these protected areas, the price of gasoline will come down. Even the president, in his press conference the other day, acknowledged that that was not the case.

BLITZER: There's a huge potential for domestic oil production that would reduce our dependence on foreign imports.

PELOSI: Absolutely. Yes. There are 68 million acres in the lower 48, that's why we're saying the drill bill.

All of these people are saying drill in the protected areas. We're saying you have 68 million acres right here in the lower 48, as we say, and many more millions of acres in the -- in Alaska.

BLITZER: But the oil companies say the opportunities offshore are much better, much more robust, the potential is greater there than it is in the lower 48.

PELOSI: Thirty-three million acres offshore are allowed for leasing. And we're saying to them, use it or lose it. You have the opportunity to drill there.

When you have exhausted those remedies, then you can talk about something else. But let's be clear about this. It will take at least 10 years from any of that oil to get to the pump. And at that point it will save about 2 cents on the gallon.

What we're saying is, Mr. President, free our oil from the Strategic Petroleum Reserve. There are over 700 million barrels of oil in the Strategic Petroleum Reserve. BLITZER: That's supposed to be used for dire emergencies.

PELOSI: Yes, and we are in one, 97.5 percent full, this SPRO is, larger supply than ever there. And we're saying let's take 10 percent of that, which has been paid for by the American taxpayer, and use that to put on the market so that we increase supply, reduce price. And when the price comes down, we can buy back the oil at a lower price, put it in the SPRO, use the spread for renewable energy resources.

BLITZER: John Boehner, who's the Republican leader in the House, he says you have to let this come up for a vote. He says that you're walking your blue dogs, who are the moderate and conservative Democrats, and other vulnerable Democrats off a cliff by not allowing this to come up for a vote, the offshore oil drilling legislation.

PELOSI: Is that right? Well, you know, just because John Boehner, who is my friend and whom I respect, says it, doesn't make it so.

The fact is, 68 million acres in the lower 48, many millions of acres more in Canada -- excuse me, in Alaska. We're saying to the petroleum companies and to the federal government, instead of talking about the ANWR, which is a protected area...

BLITZER: That's the Alaska National Wildlife Refuge.

PELOSI: Thank you for...

BLITZER: But you oppose drilling there.

PELOSI: I oppose drilling there, but near there, west of there, and in a bigger supply, billions of gallons of oil -- billions of barrels of oil is the National Petroleum Reserve, Alaska. And we're saying drill there. Drill there. You have no reason to say you want to drill in an environmentally sensitive area, and so you have drilled every place else that you can drill.

BLITZER: Are you afraid if this comes up for a vote in the House you will lose, given the support for offshore oil drilling among these so-called blue dogs, or moderate Democrats, who will join with Republicans?

PELOSI: Afraid is not a word that is in my vocabulary.

BLITZER: Will you let it come up for a vote?

PELOSI: You know, I mean, the point is, is we are putting forth the alternatives that we need to put forth, and that is, drill, use it or lose it. And in that bill, we're saying, and you're not allowed to export any of this oil to China, Japan or any other countries. We're saying build the pipeline from Alaska down.

Let's put this in a perspective for a moment, Wolf, because I think it's important to note what this is about.

We have had seven and a half years of failed energy policy by the Bush administration. We have a faltering, downturning economy. The president needs a decoy, so he's going out there -- he's even had the nerve to say the economy would be better off if we could drill in protected areas offshore.

He even again had to pull back on his statement that drilling in these protected areas would bring down the price at the pump. What brings down the price at the pump in 10 days would be to release oil from the SPRO, the Strategic Petroleum Reserve. What takes 10 years is drilling anyplace.

BLITZER: So let me get -- will you allow this issue, offshore oil drilling, to come up for a vote on the floor of the House?

PELOSI: We're going to exhaust our other remedies in terms of increasing supply in America by...

BLITZER: So the answer is no?

PELOSI: I have no plans to do so.

BLITZER: OK, let's talk about Congress right now. The latest Gallup tracking poll numbers when asked, "Do you approve or disapprove of the way Congress is handling its job?" Fourteen percent. And that's a record low in these Gallup numbers going back almost 30 years. Fourteen percent approve of the job Congress is doing, 75 percent disapprove.

That's even worse than the numbers for President Bush right now. PELOSI: Well, let me say this: I think that is largely because we have not ended the war. Everything I see says this is about ending the war.

I disapprove of Congress' performance in terms of ending the war. We in the House, of course, have over and over, five or six times, sent to the Senate legislation for a time certain to reduce our deployment in Iraq and bring our troops home safely, honorably and soon. We haven't been able to get it past the Senate or the president of the United States.

So on the basis of that, count me among the 70-some percent. But that is one measure.

The other measure that I'm more interested in is the one that talks about, what is their view of Democrats? And the generic, who do you prefer to run the country on all of these issues?

We're in double digits in any poll that you can take. In fact, more like 15 percent most of the time -- health, the environment, the economy, the economy, the economy.

So those are the numbers that I watch. I hope that we can lift Congress, and I'm sure we will when we have a new president who is willing to work with Congress to end this engagement in Iraq.

BLITZER: And you say either Obama or McCain, a new president, you expect to be able to work better with the new president as opposed to the current president?

PELOSI: Well, I'm counting on it being President Barack Obama who is committed to a redeployment of our troops in a safe, honorable and responsible way out of Iraq.

(END VIDEOTAPE) BLITZER: In just a moment, more of my exclusive interview with the speaker, Nancy Pelosi.


PELOSI: God bless him, bless his heart, the president of the United States, a total failure, losing all credibility of the American people.


BLITZER: But President Bush says the Democrats in Congress aren't doing their job. You're going to hear what the speaker has to say about that.

And in a few minutes afterwards, the House Minority Whip, the number two Republican in the House, Roy Blunt, he'll get his chance to fire back. He's standing by to join us live. LATE EDITION continues right after this.


BLITZER: Welcome back to LATE EDITION, I'm Wolf Blitzer in Washington. President Bush has very harsh words for the Democratic controlled U.S. Congress. He says they simply aren't getting the job done. The House speaker, Nancy Pelosi, begs to differ.


BLITZER: Here's what President Bush said on Tuesday about your leadership, not just you personally, but the Democrats' leadership in Congress.


BUSH: There are just 26 legislative days left before the end of the fiscal year. This means that to get their fundamental job done, Congress would have to pass a spending bill nearly every other day. This is not a record to be proud of. And I think the American people deserve better.


BLITZER: Do you want to respond to the president?

PELOSI: Well, you know, God bless him, bless his heart, the president of the United States, a total failure, losing all credibility with the American people on the economy, on the war, on energy, you name the subject. And for him to be challenging Congress when we are trying to sweep up after his mess over and over and over again, at the end of the day, Congress will have passed -- honored its responsibility to pass legislation starting with our Department of Defense bill.

The president knows it. He needs something to talk about because he has no ideas.

BLITZER: You worked very cooperatively with him on the first economic stimulus package which passed very, very quickly.


BLITZER: He's open, he says, to a second economic stimulus package, although others in the administration seem skeptical that it would do much good right now. You're pushing hard for one. How much money do you want in a second economic stimulus package? PELOSI: I would hope that we could have about a $50 billion -- there are others who want more -- but I think in these stimulus packages, you have to look at what helps stimulate the economy without spending more money than you should, because you weight the economy down by going deeper into debt. So you have to make that calibration.

BLITZER: But that $50 billion would come from going further into debt, right? PELOSI: But if it stimulates the economy, that is its purpose. And there is also a countercyclical going against a downturn in the economy opportunity -- in fact, responsibility...

BLITZER: Do you believe that you have the votes in the House and then in the Senate and for the president to work together and get something like that done?

PELOSI: Yes, I think so. Well, we hope that the -- we have to have the president's signature.

Everybody has to remember, Congress can only do so much. We need the signature of the president of the United States.

Elections have serious ramifications, and that's why in November it's very important to elect a president and to elect Barack Obama president of the United States, because then we will go in a new direction, where the people's interests, not the special interests, are being served.

BLITZER: Madam Speaker, we invited viewers to send in their questions for you via our CNN i-Reports.

Jordan Klein of Los Angeles is a 16-year-old high school student, and has this question.


JORDAN KLEIN, LOS ANGELES, CALIFORNIA: Dear Madam Speaker, if you're wondering why Congress' approval ratings are at a record low, look no further than your counterpart, Harry Reid, in the Senate Democrats. While you and the House Democrats have worked endlessly to challenge the Republicans, the Senate has repeatedly caved in to them on the countless issues like the war and FISA. Reid claims that he needs 60 votes to get anything done, but that excuse isn't going to fly.

My question to you is, how disappointed are you in Reid and the Senate, and what can we expect from them in the future?

Thank you.


PELOSI: That's quite a question from a 16-year-old.

BLITZER: He's a smart kid. PELOSI: He is indeed that.

Well, the 60 vote is -- I agree with him in that frustration with the 60 vote. The public doesn't want to hear about our process and why we can't get something done.

But it is a fact. And those 60 votes are hard to achieve, because the Republicans in the United States Senate are guarding the gate of the president of the United States. If they voted with us, and we put these issues on the president's desk, they would receive much more visibility the president's vetoes would be much more damaging to the Republican Party.

So, that's a part of what's at work. Senator Reid is a staunch, committed Democrat working for working families in America. He has to deal with the 60 vote. In the House, the power rests in the speaker, the power of recognition, of setting the agenda...


BLITZER: Very different rules.

PELOSI: Very different rules.

So -- but, you know, when we have a Democratic president, I think some of these Republicans in the Senate will no longer be guarding the gate, and we will have more bipartisanship there. But, in terms of the war, when people have spoken out so clearly in their opposition to it, it is a giant tragedy, because this is -- this war in Iraq is the worst national security blunder you could ever recognize in the history of our country.

BLITZER: All right. We're...


PELOSI: And the Republicans in the Senate have perpetuated this war on behalf of the president. We're there two years longer than we were in World War II.

BLITZER: The last time we met in February, I asked you if you thought we were in a recession right now. You were reluctant to say the country's already in a recession.

Over the weekend, Senator Obama said this.


OBAMA: I have little doubt that we have moved into recession at this point.


PELOSI: The -- we are in a recession. The only reason it's not there, technically speaking, is because of the stimulus package that we passed in February. It has given a boost to the second quarter. BLITZER: Has it done what you wanted it to do?

PELOSI: Well, it has done what we wanted it to do, but there are other things that should have happened, and the price of oil, the price of groceries, and price of groceries, cost and education and health care and all the rest, have offset what it would have done. It would have been worse without the stimulus, but I think we have given it enough chance to see its impact, which has been positive, but not enough to -- to help the American people.

So, we need some of the initiatives that the president didn't want to have first time around, like food stamps, assistance to the states in terms of Medicaid, building infrastructure...


BLITZER: Increasing unemployment benefits, too?

PELOSI: We did that in the supplemental. And we will take a measure of that when -- as we get toward the end of those.

BLITZER: All right. We've got a lot of questions from our viewers about your decision weeks, months ago, to simply reject or rule out the notion of the so-called dream ticket, Barack Obama and Hillary Clinton. He's still considering who his running mate is going to be. Are you still thinking that this is a bad idea?

PELOSI: I didn't say it was a bad idea. I just said it was never going to happen.

BLITZER: Tell us why.

PELOSI: Well, that's ancient history. Now we're going to the future.

BLITZER: But do you think he shouldn't even be considering her right now?

PELOSI: Look, my point was that Hillary Clinton, should she be the nominee and Barack Obama, should he be the nominee, should have the right to choose their own vice presidential candidate and that has always been the way. I didn't want the first woman to have to say we're telling me who should be on your ticket or the first African- American candidate, we're telling you who should be on your ticket. So it's up to the nominee to decide who the vice president is.

BLITZER: So you would be stunned if he picked her?

PELOSI: I'm not stunned at anything, surprised, stunned, no, I've been around too long to be stunned by anything here, but I do think that there are many great choices. Hillary Clinton has emerged from this campaign, as I said when she came here, the most respected political figure in America. She is a great leader, vice president or not, a respected leader in the United States senate and most recognized figure probably in America or certainly one of. And she has influence and strength beyond being a junior senator from New York but being a national figure so I don't think her -- the impact that she will have on policy depends on her being vice president of the United States. We're very proud of her candidacy. It broke new ground in so many ways.

BLITZER: We're out of time. Let me thank you.

PELOSI: Well, thank you.


BLITZER: And in just a moment, we'll get the other side from the House minority whip, Roy Blunt. He's standing by live. Also, we're going to go to Kabul, Afghanistan, for the latest on Senator Barack Obama's fact-finding tour of the war zone. Stick around. Much more coming up right here on "Late Edition."


BLITZER: And welcome back to LATE EDITION, I'm Wolf Blitzer in Washington. The presumptive Democratic presidential nominee Barack Obama is right now in the middle of his tour in the Middle East and Europe. Just spent two days in Afghanistan. He's now departed Afghanistan. For understandable security reasons, the campaign is not releasing his exact itinerary right now so we can't say where he's heading next. Let's get a little wrap up of what happened in Afghanistan over the past couple of days. For that, we'll go to Kabul, CNN's Reza Sayah is joining us live. Give us an update, what happened,? What did he see, what he didn't see? How did he emerge from this visit, Reza?

REZA SAYAH, CNN CORRESPONDENT: Well Wolf, Senator Barack Obama's first ever trip to Afghanistan is over. A plane carrying him and a congressional delegation left Kabul earlier this afternoon local me. Before that, a meeting with Afghan President Hamid Karzai. According to Karzai's spokesman, they spoke about a number of topics. Most notably, beating back the Taliban who are gaining strength in increasing attacks, especially in eastern Afghanistan and southern Afghanistan. Senator Obama has said the solution to beating back the Taliban, withdrawing forces from Iraq and adding them here in Afghanistan.

Earlier this morning on Sunday, it was breakfast in Kabul. That's what Senator Obama woke up to. He visited U.S. Camp Eggers here in central Kabul. He served a porridge to U.S. troops and sat down and talked a little NFL football. This trip lasted about 26, 27 hours for the senator. His camp will call it a fact-finding tour, but this trip certainly crucial in changing perception among U.S. voters that Senator Obama is weak on national security, weak on foreign policy. Wolf?

BLITZER: All right, Reza, thanks very much. We'll check back with you and have more on Barack Obama's trip to the region. That's coming up on LATE EDITION. Up next though, the Republican response. The number two Republican in the House of Representatives, Congressman Roy Blunt, he's here, he's live. We'll get his views on the economy, much more, his reaction to Nancy Pelosi as well.

And tough talk from the secretary of state, Condoleezza Rice, on Iran, among other subjects. My exclusive interview with Secretary Rice. That's coming up as well. Much more happening right here on LATE EDITION.


BLITZER: Welcome back. I'm Wolf Blitzer in Washington. This is LATE EDITION. You just heard my exclusive interview with the House Speaker Nancy Pelosi. Now it's time to get the view from the other side of the aisle. Roy Blunt is the number two Republican in the House of Representatives. He's with us here in Washington. Congressman, thanks very much for coming in.

BLUNT: Wolf, good to be here.

BLITZER: Let's go through point by point what she says. She says there are millions of acres out there offshore already available, not environmentally in danger. Why can't the oil companies still start drilling there without endangering the environment?

BLUNT: Well, you know, I really don't understand why the speaker thinks this big area in Alaska is less environmentally in danger than using the drilling platform that was set aside in the ANWR, but that's only part of the issue. But that's only part of the issue. It's drilling there, it's looking at the deepwater drilling that's looking at oil shale in the Rockies. It's looking at all these alternatives.

One of the things I was most interested in is suddenly the speaker discovered the Senate in the last year. We repeatedly sent these good pro-American energy bills to the Senate for 10 years when they weren't popular. They are popular today and the Senate repeatedly said what we're saying right now. Let's go for more supply, let's encourage energy and conservation.

BLITZER: But she said there are plenty of offshore areas that are already open for the oil companies, that they are not taking advantage of.

BLUNT: That's just not accurate, I think.

BLITZER: What's not accurate about that?

BLUNT: Every industry observer pointed out that this use it or lot is just a canard. It's out there, it's not real. These companies have lots of money invested in the leases they have. As it turns out, every lease doesn't produce oil. If it did, Blitzer and Blunt could be oil men. All we'd have to do is get a lease and suddenly you've found oil. Just because you have a lease doesn't mean you'll be able to produce oil on that property or you're going to be able to produce oil on every acre or gas on every acre of that property. I don't think that's a problem.

I think the problem is like in the deep water, we are the only country in world that can drill in deep ocean water that doesn't do it. The Scandinavian countries do it, the western European countries do it. There is no reason we shouldn't be out there.

BLITZER: She also says an immediate way to help Americans, consumers, is to release some of the oil from the Strategic Petroleum Reserve. It's a dire situation right now. The reserve is almost full. Why not allow that to go forward? BLUNT: Well, you know, what i like about that argument is that by making that argument, you're arguing that supply does matter. The very people that say you can't drill your way out of this problem are now the people in Nancy's case, the speaker's case are saying release money out of the Strategic Petroleum Reserve. Supply matters but a short-term response isn't going to solve that problem.

BLITZER: That would be available right away.

BLUNT: It's available right away, but not for long.

BLITZER: But if you start drilling offshore, that could take five or 10 years to get that supply.

BLITZER: But what you do Wolf, is you send a message to the global energy community that America is now going to go after its resources.

BLITZER: So you oppose releasing the Strategic Petroleum Reserve?

BLUNT: I think it's little part of this argument. I think it's not a big part of the argument. I think what you've got to realize here is by saying we should do that, you're really admitting that supply makes a difference. That means we should be going after real supply, not what we've been able to hoard away hoping that the people that don't like us very well in the Middle East or Venezuela stop selling us oil and that would be our backstop.

BLITZER: She's not going to let the vote come up, a vote to allow offshore oil drilling earlier than these environmentally protected areas off the coast of Florida and California, for example.

BLITZER: There's nothing you can do about that. She's the speaker of the House.

BLUNT: She is the speaker of the House, and she's going to have live that decision. That decision does not make sense to the American people.

And let's be sure we know. When we're talking about offshore, we're talking about 50, 100, 200 miles offshore. Nobody's going to see that. This is an environmentally safe thing to do. And it goes back to the politics of the 60s, when drilling offshore may have had some environmental danger, rather than the reality of this century.

BLITZER: But, you know, Arnold Schwarzenegger, the Republican governor of California -- he opposes it, as well.

BLUNT: It is all California politics. I don't care who's taking that position. It has no -- no essence in reality. If there was ever a test of this system, it's in the one place where we do drill, which is the Gulf -- 4,000 platforms in the Gulf. Thank God we've got them.

Two hundred thirty-eight of them were injured by either Katrina or Rita. There was really no oil loss of any appreciable kind at any of those. Less oil was lost than used to seep up out of the Gulf floor.

BLITZER: She wants a $50 billion second economic stimulus package, right now, that she thinks would help American consumers, help the overall economy.

You worked closely with her; the president worked closely with her in getting that first economic stimulus package passed. Henry Paulson -- we just heard him say -- the Treasury secretary -- that's helped.

Why not a second one?

BLUNT: Well, it has to be significant. It has to be stimulative. And it has to happen in a hurry if it's going to have any impact.

Let's see what they bring to the table.

BLITZER: So you're open minded?

BLUNT: I'm open-minded on it, but let's see if it's something the president could be for; the secretary of the Treasury could be for, before we decide whether it's just a political discussion or really trying to do something that helps the economy.

If they bring things to the table they know the president's not going to do, that has very little to do with stimulating the economy. It's all about a political discussion between now and the election.

BLITZER: Yesterday, in the magazine Der Spiegel, the German magazine, the Iraqi prime minister, Nouri al-Maliki, he said -- he was quoted as saying, "U.S. presidential candidate Barack Obama talks about 16 months. That, we think, would be the right time frame for a withdrawal, with the possibility of slight changes."

Now, later, one of the spokesmen said that's not exactly what he meant to say, but it seemed to have pulled the rug out of John McCain, who has been a strong opponent of any timetable. The president has been a strong opponent of any timetable.

But now the democratically elected prime minister of Iraq seems to be siding with Senator Obama. What do you make of this?

BLUNT: Well, you know, what I think is most interesting about that is that Americans think it matters what Prime Minister Maliki is saying. Because a year ago they didn't.

The policies that we're pursuing now, that has stabilized this government, that really are proving to the world it has a future are the reason that these comments make any difference at all.

If he had said that a year ago, everybody would have said, that government's not going to last; it doesn't matter what Maliki thinks. The very policies that have stabilized that government make any comment he makes, at least, meaningful.

Clearly, the situation on the ground at the time should decide this, not some date set in the future.

BLITZER: Although even the White house is now talking about a general time horizon.

BLUNT: Sure. And why not? That's exactly what we thought, a year ago, when Barack Obama and Speaker Pelosi and others were opposing the policies that now let that look like it might be able to happen, with a stable Iraq.

Iraq is central to the problem we face in the Middle East right now. A big loss in Iraq is a huge loss because of where it is.

A win (inaudible) with a stabilized Iraqi government is a huge win for the future of what can happen in a place where our enemies could take over, or the right kinds of things can happen.

And Maliki's comments indicate that suddenly we've got a stronger government there. I wonder how that happened. I was also interested that Barack Obama, who is back-and-forth on this issue, announced what his position was going to be before he went on his fact-finding mission. Now his mission is a prove-I'm-right mission, rather than a real fact-finding mission.

BLITZER: Roy Blunt is the number two Republican in the House.

Congressman, thanks for coming in. Appreciate it.

BLUNT: Good to be with you. Thanks for letting me come by.

BLITZER: And we have much more coming up on "Late Edition," including my exclusive interview with the secretary of state, Condoleezza Rice. What she told John McCain about being his running mate -- you'll hear it, right here on "Late Edition."


BLITZER: After hearing all the gloomy economic predictions, it's refreshing to get a positive view on the economy. I spoke about that with the economist and comedian Ben Stein, this week, in "The Situation Room."


STEIN: Do you know how -- you're a smart guy -- what percent of all the mortgages held by Fannie Mae and Freddie Mac, do you think, are in default, delinquency, or foreclosure?

BLITZER: I have no idea. I have no idea.

STEIN: 1 percent. The total rate of mortgage foreclosures in this country is barely -- barely -- 1.5 percent.

BLITZER: But how many people does that translate into? How many homes are we talking about?

STEIN: It translates into a lot of people. But a lot of those people shouldn't have bought those houses in the first place.


BLITZER: When we come back, my exclusive interview with the secretary of state, Condoleezza Rice. We'll be right back.


BLITZER: This is LATE EDITION, the last word in Sunday talk.


RICE: The issue here is sending the Iranians a strong message. I'm not going to get into our into our internal deliberations. We're there at the invitation of the Iraqi government.

BLITZER: In a wide-ranging exclusive interview, Secretary of State Condoleezza Rice talks about Iran, Iraq, the Middle East and much more and answers some personal questions, as well.

RICE: Wolf, I said it to everybody who will listen.

OBAMA: George Bush and John McCain don't have a strategy for success in Iraq. They have a strategy for staying in Iraq.

BLITZER: Barack Obama tries to bolster his commander in chief credentials with a tour overseas.

MCCAIN: Senator Obama will tell you we can't win in Afghanistan without losing in Iraq. In fact, he has it exactly backwards.

BLITZER: But how will it play out on Election Day? Insight on the race for the White House from three of the best political team on television. LATE EDITION's second hour begins right now.


BLITZER: And welcome back to the second hour of LATE EDITION. We'll get to my exclusive interview with the secretary of state Condoleezza Rice in just a moment. But first, the presumptive Democratic presidential nominee Barack Obama right now in the middle of a fact-finding tour of the Middle East and Europe. We know he has left Afghanistan for security reasons. We're not being told his next stop. But before he left, Iraq certainly was expected to be on the itinerary at some point.

Let's get the latest on what's going on, what happened in Afghanistan, what expect to happen in the days to come. CNN's Frederik Pleitgen is joining us from Baghdad with what we know. Fred, update our viewers.

FREDERIK PLEITGEN, CNN CORRESPONDENT: Wolf, you're absolutely right. Barack Obama has left Afghanistan earlier today. Now earlier this morning, he had breakfast with U.S. troops there. He talked to them about sports and he also praised them for their service and for the sacrifices that they are making, serving in Afghanistan at this point in time.

Now later today -- or earlier, he had a meeting with Hamid Karzai, the Afghan president, where he pledged support to the Afghan government in the war on terror. Now we've been saying this for a very long time and Barack Obama has been saying it for a very long time. He wants to shift the focus in the war on terror away from place, away from Iraq, towards Afghanistan.

Now as you said, we don't know when he plans to visit Iraq. But certainly when he does come here, it's going to be a very, very important visit. He has laid out a very detailed plan on how he expects to extract U.S. forces from his country. He said 16 months after he's elected president, after he takes office as president if he is elected, he will have most U.S. combat forces out of this country.

When he hits the ground here in Iraq, he's going to get a detailed and very honest reality check on if it is possible from U.S. commanders, if it's viable logistically and also what that would mean for the stability here in Iraq.

And that brings us to the Iraqi people and the Iraqi government. And we've been talking a lot to Iraqis in the past couple of days to politicians and also to regular Iraqis. And most of them tell us, yes, of course, we want U.S. forces to leave our country. But we're afraid that might happen too fast, Wolf.

BLITZER: All right Fred, thanks very much. We'll stay on top of the trip every step of the way. Let's get to my exclusive interview now with the Secretary of State Condoleezza Rice. In a wide-ranging discussion, we covered negotiations with Iran, so-called time horizons for troop withdrawals in Iraq and prospects for a peace agreement between the Israelis and the Palestinians. I also had the chance to discuss with her some political and personal questions. But we started with the Bush administration's decision to dispatch a high- ranking diplomat to meet directly with the Iranians this weekend.


BLITZER: Madame Secretary, thanks very much for joining us.

RICE: Pleasure to be with you, Wolf.

BLITZER: Let's talk about Iran right now. The number three diplomat at the State Department, indeed the man who's office we're sitting in right now, is meeting this weekend with high-ranking Iranian officials. Now, until now, the U.S. position was there would be no such meeting on nuclear issues until the Iranians stopped enriching uranium, which they're still doing. Why the change?

RICE: Well, let me very clear. That the U.S. demand for a preconditioned -- for the suspension of uranium enrichment and reprocessing prior to negotiations, stands. And in fact, what Bill Bonds will do, is he will go to demonstrate the unity of the P-5 Plus 1, as we call it. Russia, China and the three European countries. He will go to demonstrate that we are unified. He will go to affirm that the United States fully backs the package, by the way, I signed the letter transmitting that package. And he will receive the Iranian answer. He will also make very clear that there will be no negotiation in which the United States is involved, until there is a suspension of their enrichment and reprocessing.

BLITZER: So, this is just a one-shot deal, here?

RICE: Yes is it. This is.

BLITZER: That we're going to listen, deliver a message, receive a response.

RICE: Well of course he will be listening intently to see if the Iranians demonstrate that they are ready to accept the condition, the demand, and by the way, it's not a U.S. demand, it is now a demand that is enshrined in three separate security council resolutions. He will listen. And if Iran is ready to suspend, then the United States will be there. But it's really important to recognize that this is to reinforce a position that we've held since 2006.

BLITZER:: But the idea now, is that this is a change.

RICE: I've acknowledged that what we've done is to make a step that we'll see demonstrates to everyone our seriousness about this process. But, what has not changed is that the United States is determined to have negotiations only if when Iran has suspended its enrichment and reprocessing. That's when the United States can join.

BLITZER: This is what you said back on June 3rd. "If Iran will suspend its enrichment and reprocessing activities, I will join my U.N. Security Council colleagues, I will meet with my Iranian counterpart. I will do it anytime, anywhere. Now, could you envisage your doing what the Under Secretary of State of Political Affairs is now doing? In other words, listening, receiving not negotiating, but meeting?

RICE: We have one chance to receive the Iranian response. That's going to be on Saturday when Bill receives that response. I am prepared to go and talk to my counterpart anyplace, anytime, anywhere. But there really must be a suspension, verifiable suspension of their enrichment and reprocessing.

BLITZER: What about just participating in the meeting and listening in --

RICE: No --

BLITZER: -- along the lines of what the under secretary is doing?

RICE: I think everybody understands, and we've talked to our counterparts in the P-5 Plus 1, that this is an opportunity for Iran. Very often we hear, Wolf, well, we're not sure that the United States is really behind this. Well, I signed the letter. Now Bill will go to receive the response. It's a book end. I transmit it, the proposal, he will receive the response. That should give the Iranians every indication of how strongly the United States supports this package.

BLITZER: So this is really designed as an incentive to them to do, from your perspective, the right thing?

RICE: That's right. That's right. And it is, by the way, a very clear message also that there is complete unity on both tracks. Because, of course, we've submitted this proposal to the Iranians, but we've also designated Iranian banks and other entities. Just a few weeks ago, a couple of weeks ago, the Europeans designated Bank Melli, a major Iranian bank, major companies are pulling out of Iran, like Total, which has pulled out of gas and oil deals there. And so the world is sending Iran a message on both tracks. First of all, there are consequences for continuing to defy the will of the international community: continued economic isolation, continued isolation that is leading to an ever-worsening economic situation in Iran. And on the other hand, a pathway out -- suspend and negotiate.

BLITZER: Because the Iranians are sending sort of mixed messages as well. They say they got their missile tests that we all saw, only the only day. They're continuing by your account, to enrich uranium. John Bolton, who was your United States ambassador to the United Nations, he said this on Thursday. He said, "This is a complete capitulation on the whole idea suspending enrichment. Just when the administration has no more U-turns to pull, it does another.

RICE: John's a private citizen and he can say whatever he wants. But the issue here is sending the Iranians a strong message about American policy and the unity with our allies. That has been our policy since 2006. Now, it's to their missile tests. We have an answer to that too. It's called missile defense. And we have the very strong work that we're doing to security allies in the Gulf. We have the very strong statements the president and others have made. The Iranians know that we will defend our interests. They're not confused about that.

BLITZER: Well, the Israelis as you know, are especially nervous right now. And the Defense Minister Ehud Barak said on July 10th. "Israel is the strongest country in the region and has proved in the past, that it won't hesitate to act when its vital security interests are at stake." If Israel deems its necessary to protect its vital security interests, would the U.S. go along with a preemptive Israeli ---

RICE: I think you know, Wolf, that I'm not going to speculate on things that haven't happened. I can tell you that we have consistently talked with the Israelis. We consult about policy toward Iran. We're all committed, as the international community's committed, to a diplomatic path. The president keeps all of his options open concerning Iran.

RICE: But we believe that there is pressure growing on Iran to do the right thing, as you put it.

Now, the Iranians may choose not to do the right thing. And if they choose not to do the right thing, then we'll continue to look at other measures, including potentially going back to the Security Council.

BLITZER: I want to move on to a couple other important issues. But are the Iranians still building a nuclear bomb right now? RICE: Well, the Iranians are certainly building capabilities that would allow them to have a nuclear weapons program, should they choose.

The enrichment and reprocessing is, in fact, the long pole in the tent for a nuclear weapons program. But the Iranians have been -- it's been demonstrated to Iran; we've told Iran, if you want a civil nuclear program; if you're concerned for some reason about energy, there are plenty of ways to have a civil nuclear program, as long as you don't enrich and reprocess the so-called fuel cycle.

We've supported the Russian effort to have a civil nuclear plant there, where there's a fuel take-back provision. We've supported an idea that the Russians had, and that the IAEA has had, about perhaps the short fuel supply. That's an idea the president put on the table.

There are lots of ways for Iran to have a civil nuclear program. And enrichment and reprocessing isn't necessary.

BLITZER: But you believe they're building a bomb?

RICE: Well, I'm concerned, as, by the way, the IAEA is concerned, because they haven't been answering the questions about their activities, that Iran is determined to acquire the capabilities, the technologies that could lead to a nuclear weapon.

And I just have to add, of course, they continue to improve their delivery systems, as we've recently seen.

BLITZER: The United States has not had a diplomatic mission in Tehran since 1979. All of us remember those 444 days when American diplomats were held hostage in Iran.

But now there's word that you and the Bush administration are thinking of establishing a diplomatic interest section, a diplomatic mission with American diplomats in Tehran, the first time since then.

Is that true?

RICE: Well, I'm not going to get into our internal deliberations. We are always looking for ways to reach out to the Iranian people. We believe very strongly that the Iranian people are -- they harbor no animosity toward the United States. And we certainly harbor no animosity toward them.

We would like to find ways to reach out to them, to make it easier for them to come to the United States, to have access to the United States. But we're always looking for ways to do that.

BLITZER: It sounds like the answer is "yes," then.

RICE: I said, we won't talk about our internal deliberations. We'll look at all the options and then we'll let you know.

BLITZER: A sensitive internal deliberation question: The vice president, Dick Cheney -- is he on board with all of this outreach that we've been seeing toward Iran?

RICE: I'm not going to get into our internal deliberations, but of course the vice president is a very important part of the national security team. The vice president and I talk all the time. We talk all the time with the president about these issues. And ultimately, of course, the president sets the direction.

BLITZER: So -- but he's with you -- can you say that?

RICE: Wolf, it is the president who sets the direction. But the vice president and I are on very good terms about this issue. We meet frequently about it. He, like I, is concerned that Iran is a dangerous country, that Iran is clever in its use of asymmetric warfare.

But I think we also understand, too, that Iran has its vulnerabilities. And we are beginning to systematically exploit those vulnerabilities.

BLITZER: Do you believe there are different schools, different camps, in Iran right now; there are hard liners led by the President Mahmoud Ahmadinejad, but there are others who are more receptive to working with you and the United Nations Security Council?

RICE: Well, far be it from me to try to read internal Iranian politics. But I do know that there are mixed voices these days coming out of Iran, that there appears to be debate about the policies of President Ahmadinejad, that there are those who are publicly saying that Iran's policies are costing it in terms of isolation, in terms of its own economic troubles.

And obviously, while I am not going to spend time looking for moderates in Iran, if there are reasonable people who would like to see an Iran -- Iran on another course, and who would be more responsive to the needs of Iran's people, that would be worth pursuing.

The way for Iran to show that, of course, is to suspend its enrichment and reprocessing.


BLITZER: And the undersecretary of state, William Burns, did attend that meeting with his Iranian counterpart -- actually, with the Iranian nuclear negotiator, on Saturday, in Geneva, Switzerland.

No progress was reported in that meeting. Iran would not address, directly, that major U.S. concern, and indeed the concern of the international community, that Iran must stop enriching uranium, at least temporarily. We'll update you on on what we know, as soon as we get more information.

But when we come back, Secretary Rice answers questions about withdrawing U.S. troops from Iraq, and then we talk, a little bit, about politics. Has she spoken directly to John McCain about possibly joining the Republican ticket? A lot more with Condoleezza Rice and our exclusive interview, right after this.


BLITZER: Welcome back to "Late Edition." I'm Wolf Blitzer in Washington. Let's go right back to part two of my exclusive interview with the secretary of state, Condoleezza Rice.


BLITZER: Let's talk about Iraq right now. There is word, as we speak right now, of what Bush administration officials are now calling an agreement between the U.S. and the Iraqi government for a, quote, "general time horizon for the withdrawal of U.S. forces from Iraq."

Now, that's an ambiguous phrase, but it sounds like something you've opposed for a long time, which would be a deadline or a timetable for withdrawal of U.S. troops.

RICE: I think you will find, Wolf, that, in anything that we talk about with the Iraqis and anything that is agreed, that we and the Iraqis are going to want to be sensitive to the conditions.

We certainly have views about how well the Iraqis are starting to do. They are taking over security responsibility in the provinces.

The day is coming when American forces will step back, more and more, from combat roles. The day is coming when we will be doing more in the way of training and less in the way of fighting. Those goals are being achieved now, as we speak.

And so, it's not at all unusual to start to think that there is a horizon out there, in the not too distant future, in which the roles and responsibilities of the U.S. forces are going to change dramatically and those of the Iraqi forces are going to become dominant.

BLITZER: Is this -- is that a euphemism for a time line for withdrawal of U.S. forces from Iraq?

RICE: I think that you will find that both the United States and Iraq want to be very attentive to what is actually going on on the ground. And to the degree that you can turn over provinces to the Iraqis because they are stronger, because their enemies are weaker, because political and economic activities are taking hold, of course you will want to do that.

And there is no problem in having an aspirational, if you will, time horizon for doing that.

BLITZER: The "Washington Post" reported the other day that it is now unlikely that you'd be able to negotiate what's called a Status of Forces Agreement with the Iraqis before your administration ends and that that would probably be left to the next administration. Are they right? RICE: Well we will find a way with the Iraqis to have a basis for our forces to continue to do what they need to do for Iraq. Iraq wants that as well. Status of Forces Agreement may be a complicated arrangement to make. One of the things that is happening is that the Iraqis want to do more and they are asserting their sovereignty and we are trying to be sensitive to their sovereignty.

BLITZER: They say they want a timeline.

RICE: They have just said that what we want is a kind of aspirational time horizon which allows us to look out into the future and say here is what we expect in terms of American forces and their roles and responsibilities and those of combat forces.

BLITZER: If they say the United States should leave, what would the U.S. do?

RICE: Well we are there at the invitation of the Iraqi government. But I think you will find that the Iraqis recognize that they need and want a partner. What we have to recognize is that we have achieved an enormous amount over the last year, really since the surge, a lot. Violence is down, the Iraqi political system is beginning to function. You have Sunni leaders coming back into the government. And I think we would be foolish and they would be foolish to put at risk those gains by too rapid a decline in the American forces there.

But we can look at the situation, we can have an aspirational time horizon. We can look at the changing rules and responsibilities of Iraqis and Americans. Those are all perfectly logical things to do.

BLITZER: Here's what John McCain said back on May 30th in Milwaukee.


MCCAIN: I believed for four years nearly that the strategy that was employed in Iraq was wrong and I fought against it. It was a flawed and failed strategy and I fought against it."


BLITZER: Now, you've been involved in this strategy from day one, as the national security adviser, now the secretary of state. Is he right that for four years there was a failed strategy in Iraq?

RICE: I believe Wolf, that we were making progress in Iraq until really 2006 when conditions changed, and they changed a lot. They changed as a result of a new strategy by the then leader of al Qaeda in Iraq, Zarqawi, who was determined to set Iraqis against Iraqis in civil conflict. And frankly, with the bombing of the Golden Mosque, he succeeded. And it is true that the strategy that we were pursuing was not going to improve the situation in Iraq, had we stayed with it. And that is why the president ordered a review of that, that's why the president ordered an increase in American forces, that's why we went to a more classical counter-insurgency strategy. It's why we had a civilian surge, including increasing the number of provincial reconstruction teams.

Yes, we did make a change in strategy at the end of 2006, the beginning of 2007, because as the president said, it wasn't working. Now, when you know something isn't working, when you know conditions have changed, of course you need to make an adjustment. But the president made that adjustment.

BLITZER: Let's talk about Afghanistan and Pakistan. Right now, the new government in Pakistan, are they doing everything you want to do to go after the Taliban and al Qaeda in those tribal areas along the border with Afghanistan?

RICE: It's very clear that more has to be done to stabilize that border between Afghanistan and Pakistan. More has to be done.

BLITZER: So there are not doing enough?

RICE: More has to be done.

BLITZER: You've conveyed that --

RICE: We --

BLITZER: The United States provides a lot of aid --

RICE: More has to be done. But more has to be done, not just because of Afghanistan's security, not just because of concerns about threats to American interests, but because of threats to Pakistan. We're talking about a place in which militants have killed Benazir Bhutto. They've carried out attacks near the Red Mosque. They've carried out attacks on Pakistani soldiers. And so, Pakistan has a very strong interest and a very strong stake in dealing with the places that the militants are able to gather and train and carry out their activities.

BLITZER: Here's what Senator Obama said on Tuesday, about this issue.

(BEGIN VIDEO CLIP) OBAMA: I will make the fight against al- Qaeda and the Taliban the top priority that it should be. This is a war that we have to win. I will send at least two additional combat brigades to Afghanistan and use this commitment to see greater contributions with fewer restrictions from NATO allies.


BLITZER: Is he right?

RICE: Well, first of all, I'm not going to comment on what Senator Obama says. Let me just comment on -- let me talk about the substance. The circumstance -- it's clear that we do need better action on the border between Pakistan and Afghanistan. It is also the case that the Taliban has come back somewhat stronger. But the Taliban is actually being defeated when they come back in as military organizations. The problem is, that they've taken to acts of terrorism, which terrorizes the population and make it difficult for the government to extend its writ our into the more remote parts of the country. So, it's a combination of military strategy, reconstruction and development, better governance in these areas, that will help to improve the situation in Afghanistan. And that's the strategy that we are pursuing. In terms of restrictions on NATO forces, those have been dropping more and more.

But, I will tell you, it's going to be very difficult for some of our NATO forces -- our NATO allies, to drop restrictions. They also have parliamentary systems. They also have publics that have views about Afghanistan. We've worked on this issue very hard. Some have dropped caveats. I suspect that others will not.

BLITZER: Last November, the president met with the leaders of Israel, the Palestinians, and among others. And he said this.


BUSH: We agree to engage in vigorous, ongoing and continuous negotiations and shall make every effort to conclude an agreement between the Israelis and the Palestinians before the end of 2008.


BLITZER: Now flash forward to now, we're getting close to the end of 2008.

RICE: Not that close. We're about half way there.

BLITZER: Well, do you believe that this is still doable?

RICE: I think it is still doable. We're about half way there. The parties are negotiating and they're negotiating seriously. I've had a series of bilateral discussions with them. The Palestinians were just here week. I also am having a series of trilateral discussions with them. They are doing this in a way that they don't go to the cameras everyday and say what has or has not been agreed. I think that's really appropriate because these are very delicate issues. And let's look at where we are. A year ago, we had no process. And the peace process is now underway. They're talking about the most delicate issues. And I think they still have a chance to get an agreement. It won't be easy. There's no guarantee because to be frank, if this had been easy, somebody would have solved it a long time ago. And as close as people have supposedly come, they've never gotten it across the finish line.

So, we will keep working. I think they've got a chance. But these are really hard issues.

BLITZER: Good luck to you on that one.

RICE: Thank you, thank you.

BLITZER: If you achieve that, that would be quite a little legacy for yourself.

RICE: Well, I'll tell you. I won't achieve it and it won't have anything to do with my legacy. But it will -- I'll tell you, the achievement will be Palestinian and Israeli leaders who are able to take difficult choices and the real benefit will be to the Palestinians and the Israelis.


BLITZER: When we come back, my conversation with the secretary of state turns from the geopolitics to politics right here at home. We'll talk about what's happening in the election. Who is she going to vote for in November?

And then our political panel will tackle the race for the presidency, the kind of analysis you can get only right here on CNN. LATE EDITION continues right after this.


BLITZER: Welcome back to LATE EDITION. In my final part of the exclusive interview I had with the secretary of state, Condoleezza Rice, I asked her some personal questions about politics and her own plans for the future.


BLITZER: You've made it clear you don't want to be vice president of the United States. How clear have you made it? In other words, have you told the Republican nominee in effect, you know what, don't even consider me?

RICE: Wolf, I tell everybody who will listen, you know, through you and everybody else. Look, I've done my part. And I've got six months to sprint to the finish and then I have other things that I want to do. I want to go back to California, I want to write a serious book about American foreign policy. There are issues that have come to concern me greatly. Some that I was concerned about before I came here, like the state of education in the United States. Which I think is at the root of our competitiveness. It's at the root of our confidence and therefore it's at the root of our international leadership. I'll go back and work on issues like that. And it will be time for somebody else to take the stage.

BLITZER: Does John McCain know that?

RICE: Wolf, I've said it to everybody who will listen.

BLITZER: Including --

RICE: John -- Wolf, I've said it to everybody who will listen.

BLITZER: Right. So I assume he probably knows that. One final question. You're immediate predecessor Colin Powell. I interviewed him many times. But he said this to Tavis Smiley, back in January. About this race and about the phenomenon of Senator Barack Obama.

(BEGIN VIDEO CLIP) COLIN POWELL, FORMER SECRETARY OF STATE: Let's enjoy this moment where a person like Barack Obama can knock down all of those old barriers that people though existed, with respect to the opportunities that are available for African-Americans. And my congratulations to him. (END VIDEO CLIP)

BLITZER: Now, you grew up in the segregated south. You know what racism is in our country. The fact that Barack Obama is now the Democratic presidential nominee, what does that say to you?

RICE: I think it's great. And I think it's great for our country. And I do think it says that we've come a long way. But it's interesting that it's from Colin Powell. He knocked down a few barriers of his own. He knocked down the barrier of chairman of the joint chiefs of staff. He knocked down the barrier to the first black secretary of state. Yes, I've knocked down a few too. It just shows that our country has been doing this for a while and it's great that this last barrier perhaps, has also come down.

BLITZER: Have you decided who to vote for?

RICE: Wolf, yes.

BLITZER: Do you want to tell us?


BLITZER: OK. You don't have to.

RICE: Thank you.

BLITZER: Madame Secretary, it's been a pleasure.

RICE: Pleasure, too.

BLITZER: We're counting on you to achieve some of those goals in these last six months.

RICE: Well, I'm going to do my very, very best. And it has been a great -- it will have been at that time, a great honor to have represented this great country. It's an extraordinary country. And when I'm out representing it, what resonates with people is not our great power or our great prosperity, but it is the extraordinary values that are exhibited by this country. And I couldn't have had a better job for the last several years.

BLITZER: Thank you very much.

RICE: Thank you.


BLITZER: And up next on LATE EDITION, how will Senator Barack Obama's trip abroad play right here at home? We'll get insight and analysis from three of the best political team on television. We'll be right back. (COMMERCIAL BREAK)

BLITZER: Senator Barack Obama has spent this weekend and indeed the coming week he'll be spending it abroad to bolster his foreign policy credentials, but will it cost him with voters who are deeply worried right now on the number one issue in this election year, here in the United States, the U.S. economy?

I'm joined now by three of the best political team on television. Our senior political analysts Gloria Borger and Bill Schneider and joining us from Chicago, our senior political correspondent Candy Crowley. She is getting ready to head off to Jordan to meet up with Senator Obama over the next day or so. Candy, lots of potential benefits for Senator Obama right now. But there are also some pitfalls.

CROWLEY: Well, absolutely. Look, he can control center stage both in Europe and the Middle East and back here at home, obviously one of the most closely watched trips of a presidential contender.

So yes, there are all kinds of things. He raises his stature here, he shows people how he can play on the international stage, going toe to toe with all these leaders he's going to meet with. But you're right. First of all, the economy has become the focus. He could clearly make some sort of mistake and it could also look to be kind of pushing it. So he walks a very fine line here.

BLITZER: At least so far, Gloria, the picture we've seen from Afghanistan, he spent a little bit of time in Kuwait on the way to Afghanistan. The reception he received there, the meeting with Hamid Karzai, the interview he did with CBS this morning. He seems to be - he seems to be at the top of his game, at least so far.

BORGER: So far, but as Candy says, we're all watching everything he does under a microscope. And one more thing, Wolf. As the McCain campaign points out, he can't appear to be seen as running for the president of Europe. He's going to be really cheered in Europe, he's going to give a huge speech. He's going to have a lot of support there. But he's running for the president of the United States. And so they have to walk a very, very fine line here because they don't want to be seen having too many adoring people after him in Europe because he's running for president of the United States.

BLITZER: And in the middle of all of this, Bill, he gets a major potential boost from the Iraqi prime minister himself, Nouri al- Maliki. Nouri al-Maliki telling the German magazine "Der Spiegel," the "U.S. presidential candidate Barack Obama talks about 16 months. That, we thin would be the right timeframe for a withdrawal with a possibility of slight changes."

Now his spokesman later said maybe that's not exactly what he meant, but still, it seems to pull the rug out of John McCain, who says, you know what? There shouldn't be any timeline.

SCHNEIDER: That's right. And you were just talking to Condoleezza Rice, who said they have an aspirational time horizon now. Everyone seems to be moving towards timetables, and the prime minister of Iraq has essentially endorsed the idea of timetables.

One quote that I found devastating for the Bush administration. He was quoted as saying -- we don't know how accurately...

BLITZER: This is Nouri al-Maliki.

SCHNEIDER: Yes, Nouri al-Maliki. "The Americans have found it difficult to agree on a timetable for the exit because it seems like an admission of defeat by them. It isn't. It isn't. A timetable is not an admission of defeat," the prime minister of Iraq has been quoted as saying, which is what, you know, directly in contradiction with what McCain has been saying.

BORGER: He's the odd man out here right now. The administration is talking about an aspirational time horizon, whatever that means, and Maliki's talking about some kind of timetable. And where's John McCain?

BLITZER: And Candy, it's also interesting that on other points, sensitive points -- reaching out to the Iranians, a direct dialogue, if you will -- the Bush administration itself seems to be taking steps that Barack Obama has long called for.

CROWLEY: Well, that's certainly what the Obama -- how the Obama camp is framing this. From the time we learned that a high-level State Department official would sit down with an Iranian official, at least in some limited fashion, the Obama campaign put out a press release saying, oh, glad to see they're moving our way. Certainly with al-Maliki, another example.

So obviously the timing couldn't be better. Here the man who is landing in Afghanistan and Iraq, and all of these things come out in advance of that trip, and they think it gives him real win.

BLITZER: But Gloria, John McCain is not backing down at all. I'm going to play a little clip of what he says about the overall strategy that Barack Obama seems to be employing.


MCCAIN: I'm astonished. I'm really astonished that he should give a policy speech on Iraq and Afghanistan before he goes to find out the facts. Remarkable. I've never seen that before. I usually go to the place and find out the facts and then develop a policy.


BLITZER: All right, Gloria, what do you think?

BORGER: Ouch. He's essentially trying to paint Barack Obama as somebody who really doesn't understand the issues, he's not experienced in foreign policy. But I think what Obama was trying to do is not look like he was being educated for the first time when he goes over to Iraq and Afghanistan, that he has a certain policy, and that he may tinker with it around the edges, but he wanted to point out to voters that there is something that he believes. Now, McCain is saying, no, there isn't something he believes. He keeps shifting -- he keeps shifting on it, and this is an argument that's going to come up time and time again.

BLITZER: He did deliver major speeches this past week on the eve of this trip, outlining a strategy towards Iraq and Afghanistan.

SCHNEIDER: That's right. McCain is trying to paint him into a corner. Because McCain is saying, well, if he shifts position, I'm going to call him a flip-flopper. And if he doesn't shift position, I'm going to say, well, he went there and he's not listening to anyone.

I think Obama's doing a pretty good job of saying I'm listening, I'm learning, but my policies are not fundamentally changing.

BLITZER: And he's got two experienced senators along on this part of this part of the trip...

SCHNEIDER: With military experience.

BLITZER: ... with military experience, Jack Reid and Chuck Hagel.

BORGER: But we'll see what he says about the surge, because that's one area in which he really hasn't been that vocal in saying the surge has succeeded.

BLITZER: All right, guys, stand by, because we have a lot more to discuss.

Up next, Barack Obama gives his assessment after seeing the situation on the ground in Afghanistan. We'll share it with you. It's part of our very popular "In Case You Missed It" segment. Much more of our panel and more right here on "Late Edition."


BLITZER: We'll get back to our political panel in a moment. But now, "In Case You Missed It," let's check some of the highlights from the other Sunday morning talk shows here in the United States.

Barack Obama was a guest on CBS, interviewed while he was still in Afghanistan today. He called the situation there precarious and urgent, and called on the Bush administration to begin moving troops into Afghanistan immediately.


OBAMA: If we wait until the next administration, it could be a year before we get those additional troops on the ground here in Afghanistan, and I think that would be a mistake. I think the situation is getting urgent enough that we have got to start doing something now.

(END VIDEO CLIP) BLITZER: On Fox, the chairman of the Joint Chiefs of Staff, Admiral Michael Mullen, pointed out the consequences of setting a firm timeline for troop withdrawal from Iraq as opposed to the idea of a quote, "general time horizon," agreed this week by President Bush and the prime minister, Nouri al-Maliki.


ADM. MIKE MULLEN, JOINT CHIEFS CHAIRMAN: I think the consequences could be very dangerous in that regard. I'm convinced at this point in time that making reductions based on conditions on the ground are very important. We've been able to do that. We've reduced five brigades in the last several months. And, again, if conditions continue to improve, I would look to be able to make recommendations to President Bush in the fall to continue those reductions.


BLITZER: Some highlights from the other Sunday morning talk shows here on "Late Edition," the last word in Sunday talk.

Up next, Bill Clinton offers Barack Obama some help on the campaign trail. What role will the former president play? That and much with our panel right after this.


BLITZER: Welcome back to "Late Edition." I'm Wolf Blitzer.

We're joined, once again, by three of the best political team on television, Gloria Borger, Candy Crowley, and Bill Schneider.

Al Gore -- he spoke out on Thursday and he delivered this challenge. Listen to this.


FMR. VICE PRESIDENT AL GORE: I challenge our nation to commit to producing 100 percent of our electricity from renewable energy and truly clean, carbon-free sources, within 10 years.


BLITZER: That was also a challenge, Gloria, to Barack Obama, among others.

BORGER: It sure was. And it wouldn't be an easy thing to do, I might add. And he knows that it would take the political will to do it.

He also said that he doesn't want to be vice president and that he doesn't want to serve in Barack Obama's Cabinet, that one time as vice president was enough -- or two times.

BLITZER: Two terms.

BORGER: Two terms.


BLITZER: "Two term limit," he said.

BORGER: Right. So, you know, I think he's laying down gauntlet here, which -- why not?

BLITZER: What was the reaction, Candy, from the Obama camp to Al Gore?

CROWLEY: Well, they praised him as certainly in the forefront of the fight against global warming. They do note, as does everyone, that, in fact, there are a lot of people who think, woo, this is not only really expensive; this may not be doable.

But, listen, Al Gore's role, since he left -- since after the campaign, has been to, kind of, be in the forefront. He's a little bit like the canary in the cage. He is always out there, and the first one in, certainly when it comes to this issue of global warming.

And I think, probably, what's happening here is that he's setting an ambitious goal. There's still a lot of Senate in him. You reach for the stars so that you push others along.

And I think this certainly was a signal to Obama and to those Democrats that they hope to help elect into an even greater majority.

SCHNEIDER: He has a powerful ally in this crusade, and it's a sad ally, really, the market.

With energy prices increasing as rapidly as they have, Americans are beginning to conserve. You can't legislate that kind of behavior. You can't mandate it. You can't tell people it's good for the country and expect them to do it.

But if energy prices start soaring and it's creating enormous dislocations in people's lives, all over the country, the fact is, it's going to lead to more exploration of alternative energy sources and it's going to lead to a lot more conservation. That may be the only way to do it.

BLITZER: On the same day that Al Gore was speaking out, Bill Clinton had a news conference. He delivered an important message on malaria drugs. He and his foundation have been working on that. That will save lives.

But he was also asked about why isn't he more active in working with Senator Obama?

And, Gloria, listen to how he responded.


FMR. PRESIDENT WILLIAM J. CLINTON: He said he wanted me to campaign with him and I said I was eager to do so. And, you know, he's busier than I am, on politics, anyway. So I just told him that, whenever he wanted to do it, I was ready.


BLITZER: All right. What do you think about that?

BORGER: Yes, I'm sure he will. I think...

BLITZER: The two of them will go out there; they'll raise their hands...

BORGER: I'm no sure if they're going to go out there together or they're going to go out there separately.

Bill Clinton can be a great deal of help to him in battleground states. He did very well for his wife in some rural areas, in some of those battleground states in which Barack Obama could surely use some help.

So I think they're going to deploy him, as well they should. Whether they're going to go out there together and campaign -- maybe once; who knows?

Candy would have better idea of that.

BLITZER: Well, let me ask Candy.

What are you hearing, Candy?

CROWLEY: I think they do want to be out there with him at least once. You certainly will see that on the stage at the convention, with probably both Hillary Clinton and Bill Clinton.

But the Obama campaign has said that it does want the two of them to campaign. But, obviously, resources are quite valuable during the fall campaign. I think that's where you will see this happen.

But you also saw, I think, in that news conference, one of the reasons why the Obama campaign has to be a little careful about the use of Bill Clinton, because here he is saying what, in fact, his office has been saying forever, at least since the end of the primary season, two or three week afterwards. But it's huge news.

So they have to, in fact, use him pretty carefully. I think Gloria is exactly right. Rural America, in the South, Bill Clinton can be very useful, and I think most of his flights will be solo, down there, for Obama.

BLITZER: What do you think?

SCHNEIDER: I think that you're going to see a tense convention, really. Because half the delegates will be Obama -- a little over half; a little under half will be Clinton delegates.

And it occurred to me, he, Obama, is going to give his acceptance speech in a 76,000-seat stadium. Why?

Here's one reason. There are going to be 2,000 Clinton delegates and 74,000 Obama fans in that stadium.


The Clinton delegates are going to be in a sea of Obama fans. They're not going to be heard...


BLITZER: But, by then, they're hoping that most of those Clinton supporters will come around... SCHNEIDER: Well...


BLITZER: ... and be Obama supporters.

But you make a good point, and we shall see.

All right, guys. We've got to leave it right there. Excellent discussion.

Candy, have a safe trip to the Middle East and to Europe. We'll be in touch, every step of the way, with you.

And to our viewers, if you'd like a recap of today's program, you can certainly get highlights on our "Late Edition" podcast. Simply go to "Late Edition" continues right after this.


BLITZER: And coming up, right at the top of the hour, "Fareed Zakaria: GPS." This week, Fareed speaks with Sudan's ambassador to the United Nations.


FAREED ZAKARIA, HOST, "FAREED ZAKARIA: GPS": The 1948 genocide convention has, as Article 3, a clause about complicity in genocide.

Are you worried that men like yourself, who are defending the regime and defending its actions, could be charged with complicity for genocide?

ABDALMAHMOOD ABDALHALEEM MOHAMAD, SUDANESE AMBASSADOR TO THE U.N.: This is absolutely a joke. What complicity are you talking about?

If you want to address genocide, then you have to address situations in Iraq and Afghanistan and in Gaza.


BLITZER: Stay tuned the entire interview. That's coming up next on "Fareed Zakaria: GPS."

And that's your "Late Edition" for this Sunday, July 20. Please be sure to join me again next Sunday and every Sunday at 11 a.m. Eastern for the last word in Sunday talk. I'm Wolf Blitzer. Thanks for joining us.