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THE SITUATION ROOM

Egypt in 'State of Revolt'; Chopping $500 Billion From the Budget; Rahm Emanuel Drama; Ferry Rescue on Hudson River; New Doubts About Health Reform; Why All the Talk about Sputnik?; New Info May Spell Trouble for Tucson Killer's Defense

Aired January 26, 2011 - 18:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


WOLF BLITZER, HOST: And you're in THE SITUATION ROOM.

Happening now, breaking news. A state of revolt in Egypt, what happens there could have dire consequences for the U.S. indeed for the entire Middle East.

An air of bipartisanship during the State of the Union. Less than 24 hours later, is it over? We're talking with two senators on opposite ends of the political spectrum, Rand Paul and Bernie Sanders.

And assassinations and lethal injections, just a couple of things the accused Tucson gunman, Jared Loughner has said to have looked up on the internet before the shooting spree.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

We begin with breaking news as thousands of protesters take to the streets of Cairo in a stunning explosion of rage against the Egyptian regime. Our reporters on the scene are calling and I'm quoting them now, "a state of revolt."

As push came to shove today, police used clubs, water cannon and tear gas against the crowds who are demanding the ouster of the President Hosni Mubarak who's been around for 30 years as president.

Mubarak has been a key American ally. Egypt, the largest Arab nation and the first to make peace with Israel has been a source of relative stability in a very volatile region.

But if the lid blows over there, the consequences for the United States, indeed for the region, could be extraordinary. To help find out where this fury in the streets might lead, let's go live to our senior international correspondent Ben Wedeman.

He's been in Cairo. He's been there on the scene. Ben, you tweeted just a little while ago that Egypt is, quote, "in a state of revolt." How bad is the situation right now?

BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, right now it's relatively calm outside, but early this morning the Egyptian Interior Ministry put out a statement saying they would tolerate absolutely no protests whatsoever. What we saw is that they tried all day to put down demonstrations, but every time they dispersed one crowd of people, another one went out to the streets and started to demonstrate.

We've seen just up the street from here clashes outside the foreign ministry. There are hundreds, possibly thousands of riot police employed around the city, but they simply don't seem to be able to quell the protests.

We're hearing from the city of Suez, which is on the Suez Canal, about an hour and a half drive from here and in that city protesters have taken over down parts of the downtown area and have torched government buildings.

The government simply doesn't seem know how to react to all of this. President Hosni Mubarak has made no statements about these protests. In fact, his only public appearance was at a meeting with the emir of the Bahrain where they discussed the situation in Palestine -- Wolf.

BLITZER: Ben, is the unrest in Cairo spreading to other parts of the country?

WEDEMAN: Yes, very much so. In Alexandria, in other cities in upper Egypt, they've had demonstrations in many of the major population centers and of course, let's not forget, Cairo is a city of -- in almost every part of the city, some small, some big.

But this I could tell you in a city where we've seen demonstrations here on a regular basis, but they're always small, Wolf. A 100 people, 150 people, 10,000 people, 15,000 people is something this city has not seen since 1997 when you had the bread riots under President Anwar Sadat -- Wolf.

BLITZER: And we know officials in Egypt, they've been blocking Twitter, Facebook, some internet traffic. What roles are the social network sites playing in all of this?

WEDEMAN: A massive role, really. It was two Facebook groups that came up with the idea of the big demonstration yesterday. Words spread through the internet, through Twitter and through text messaging. And I can tell you, the entire press corps in Cairo, Egyptian and international, we're stunned because we were expecting yesterday limited demonstrations in various parts of town.

But I can tell you that sort of my moment of profound realization was I was driving in a taxi underneath one of the main bridges over the Nile and I looked up and the bridge was completely full of people thousands of people who had apparently come from Cairo University pouring over the Nile into the center of the city.

This social networking whether it's Twitter, Facebook or texting has really helped mobilize and organize people in a way that most people never expected - Wolf.

BLITZER: We're following you on Twitter @bencnn. We'll stay in close touch with Ben Wedeman. Thanks very much.

Tunisia may have been the spark that set off the explosion of rage in Egypt, but Egypt plays a far more critical role in the region and a violent upheaval there could be dangerous for the Middle East and for the United States, certainly for Israel as well.

Our Brian Todd has been looking into this for us.

Brian, what's going on?

BRIAN TODD, CNN CORRESPONDENT: We're watching the situation in Egypt very closely and with a lot of concern. Violent protests like those that upended the government in Tunisia have now reached a critical point with the world's biggest Arab state experiencing some real upheaval.

(BEGIN VIDEOTAPE)

TODD (voice-over): Like their counter parts in Tunisia, they're calling for the ouster of a long time heavy handed ruler. As in Tunisia, they're frustrated by government corruption, sagging job prospects and a rising cost of living. But there's no question, the stakes in Egypt are much higher than in Tunisia.

AARON DAVID MILLER, WOODROW WILSON CENTER: If this regime were to collapse or massive street demonstrations in response to violence and counter violence on the part of the regime, you could see changes happening quickly in other areas. Jordan for example, which suffers from some of the same economic and political problems.

TODD: Aaron David Miller advised six U.S. secretaries of state on the Middle East. He doesn't think the regime of Egyptian President Hosni Mubarak will fall soon, but Miller and other analysts point out.

Egypt is a crucial U.S. ally. It's the largest and most powerful Arab country and unlike Tunisia, instability in Egypt directly impacts the national security of the U.S. and it's other allies.

(on camera): Instability in Egypt could cause real problems along the border with Israel, right?

MARC GINSBERG, FORMER U.S. AMBASSADOR TO MOROCCO: No doubt because in the event that the Egyptians are pre-occupied with internal issues, Hamas could very well take advantage by in effect breaking the blockade once again and bringing missiles in that from Iran that could actually target Israel again.

TODD (voice-over): Marc Ginsberg is a former U.S. ambassador to Morocco. Like Miller he worries about the rise to power in nearby Lebanon of a leader backed by Hezbollah, which the U.S. considers a terrorist group.

These analysts say Egypt's military likely wouldn't' let radical Islamic groups there like the Muslim brotherhood take power. But they say those groups could stir violence that would disrupt something else near and dear to the west. (on camera): Oil could be in the balance here. Not only because of Egypt's production of oil, but because of the Suez Canal, right?

MILLER: Absolutely. Geography is everything and Egypt controls the canal, which is a key transshipment point. Not just for patrolling, but for other products from the Persian Gulf. You could also see a rise in prices if you have serious instability throughout of the rest of the region in Egypt.

(END VIDEOTAPE)

TODD: Now other big oil producers nearby, like the key American ally Saudi Arabia are also nervous about Egypt's problems. But analysts say Saudi Arabia is more able to pre-empt that kind of instability because the Saudi government gives its people a lot more financial support and social services than Egypt does - Wolf.

BLITZER: Brian, there are also some alarming parallels here with Iran. What happened in the late '70s there, I don't want to go overboard, but there seemed to be some similarities.

TODD: Absolutely and that's the key reason for concern here. Like the Shah's regime in the late '70s, here in Egypt you have a key U.S. ally, a key player in oil production, a huge population, very influential in the region. Once Iran went to the Islamic hardliners, the entire equation in the Middle East changed. That's something American leaders are watching very closely here in Egypt.

BLITZER: And they're watching closely because they don't know how important or how significant these demonstrations. The Muslim Brotherhood, which has been banned although tolerated to a certain degree in Egypt, really is.

All right, Brian, thanks very much.

In his State of the Union address, President Obama offered a message of determination, suggesting the country should gather itself and push forward. Today, he took the message to the heart land. He toured businesses in Wisconsin, offering a version of the old refrain that when the going gets tough the tough get going.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Here in America we play to win. We don't play not to lose. Having gone through a tough time and having gone through a recession, having seen so many jobs lost. Having seen the financial markets take a swoon. You get a sense a lot of folks are playing like we got to not lose. We can't take that attitude. If we're on defense, if we're playing not to lose, somebody else is going to lap us.

(END VIDEO CLIP)

BLITZER: President Obama may have called for belt tightening, but one upcoming Republican wants to go way beyond that. Joining us now from Capitol Hill, Senator Rand Paul, the newly elected senator from Kentucky.

Senator Paul, thanks very much for coming in.

SEN. RAND PAUL (R), KENTUCKY: Good to be with you, Wolf.

BLITZER: Let's talk about your $500 billion proposal to cut all the spending, including basically eliminating or restructuring the departments of housing, energy, education, a lot of people are saying it's not going to go anywhere. Give us the bottom line. What's going to happen to all these people who are going to lose their jobs?

PAUL: Well, here's the amazing thing. I'm talking about $500 billion in cuts, but that's only a third of the problem for one year. Our deficit is $1.5 trillion so I figure I'm being very modest with my proposal because I'm only going to tackle a third of the problem.

And what I tell the people who say we can only go $50 billion or $100 billion because it will dislocate people. What I say is what are you going to do when we have no money left to pay for our bills? Can we continue to borrow from China to pay for operating costs?

It's untenable. The Federal Reserve chairman says it's unsustainable. A lot of smart people are starting to wake up and say we can't sustain this level of debt.

BLITZER: Have you done a study how many people if your plan were approved would lose their jobs? How many federal employees?

PAUL: Well, I guess, I look at it the opposite way. If you shrink the government sector, you expand the private sector. Right now, the government sector is spending one out of four GDP dollars. Twenty five percent of our gross domestic product is being spent by government. I want to reduce that percentage, but that allows the private sector to grow and more private sector jobs to be created.

BLITZER: Because our little, you know, ballpark estimate based on your proposals, about 100,000 people would be out of work if these programs that you recommend be killed actually were approved. That's a lot of people who would lose their jobs.

PAUL: Well, the other thing is $500 billion that's being borrowed from China wouldn't have to be borrowed from China. What I'm concerned about and I admit it won't be easy. But what I'm concerned about, if we do nothing, if we coast along as we've been coasting, entitlements and interests will consume the whole debt within a decade. It will consume the whole budget.

There'll be nothing left for anything else. What my fear is we can have a precipitous calamity where nobody gets any checks from governments. Social Security fails, Medicare fails. Unless we start making the tough decisions now, and where I'm different than some in Washington is I'm willing to stand up and say these are tough decisions. They're not easy. I'm going to propose a solution before we have a calamity.

BLITZER: You basically though not touching at least very much, Medicare, Medicaid, Social Security of defense for that matter are you?

PAUL: Well, we do cut military spending by 6 percent out of the 2011 budget and I think that is the only compromise that will ever balance the budget or get us out of our debt problems, is conservatives have to be willing to give up military spending and liberals have to be willing to give up some welfare spending. When those two get together, we can cut spending enough to really have a serious impact.

BLITZER: You want to end all foreign aid as well, is that right?

PAUL: Yes and in fact, the other day Reuters did a poll, 71 percent of American people agree with me that when we're short of money, where we can't do the things we need to do in our country, we certainly shouldn't be shipping the money overseas.

BLITZER: What about humanitarian aid for example to Africa? Do you want to end all of that?

PAUL: Well, you know, it's interesting. I have a great deal of sympathy for people in Africa or struggling under AIDS and various diseases, malaria, but it's interesting. Foreign aid has been estimated that 70 percent of foreign aid is stolen off the top by corrupt dictators in Africa and various other places.

You know, look at Haiti. I have a great deal of sympathy. I've been to fundraisers privately to send money to Haiti, but at the same time. You don't want to just keep throwing money to corrupt leaders who steal it from their people.

Look at Zimbabwe where the money is stolen by the leader. They don't have running water and electricity in most of the country, but they've got rubies and diamonds and leaders who live in mansions bigger than anyone in the world.

BLITZER: What about the $2 billion or $3 billion that goes every year to Israel? Do you want to eliminate that as well?

PAUL: Well, I think what you have to do is you have to look. When you send foreign aid, you actually quite a bit to Israel's enemies, Islamic nations around Israel get quite a bit of foreign aid, too.

BLITZER: Egypt gets almost the same amount?

PAUL: Almost the same amount so really you have to ask yourself, are we funding an arms race on both sides? I have a lot of sympathy and respect for Israel as a democratic nation, as a, you know, a fountain of piece and a fountain of democracy within the Middle East.

But at the same time, I don't think funding both sides of the arm race, particularly when we have to borrow the money from China to send it to someone else. We just can't do it anymore. The debt is all consuming and it threatens our well being as a country.

BLITZER: All right, so just to be precise, end all foreign aid including the foreign aid to Israel as well. Is that right?

PAUL: Yes.

BLITZER: All right, Senator Rand Paul, thanks very much for coming?

PAUL: Thank you, Wolf.

BLITZER: We're going to talk to Independent Senator Bernie Sanders in just a few minutes. We'll get his take on cutting the deficit and a lot more.

And Rahm Emanuel's political future now in the hands of the Illinois Supreme Court. Why the focus is turning to one judge in particular.

And a tiny reason for a big law suit. Why is a former presidential candidate Dennis Kucinich taking a Capitol Hill cafeteria to court?

(COMMERCIAL BREAK)

BLITZER: The political future of the former White House Chief of Staff Rahm Emanuel is now in the hands of the Illinois Supreme Court and it could come down to one of the justices on that court making the final decision.

Our national political correspondent Jessica Yellin has been looking at all this for us. It's a little complicated, Jessica, but what's going on right now?

JESSICA YELLIN, NATIONAL POLITICAL CORRESPONDENT: Well, you know, there's never a lack of drama around Rahm Emanuel it seems and this time, there are some especially odd plot twists.

As you know, Emanuel is running for mayor of Chicago. His critics take him to court because they claim since he lived in Washington working as chief of staff to President Obama. He's not a Chicago resident and therefore not eligible to run.

Right now his political fate is in the hands of the Illinois Supreme Court and one of the crucial voices on that court is Justice Ann Burke. Now that's interesting because Anne Burke is married to powerful Chicago Alderman Ed Burke.

Wait for it, Wolf. Yes, he is a political nemesis of Rahm Emanuel. In fact, he is the finance chair for Gary Chico. Well, you ask who is Gary Chico? Gary Chico is running against Rahm Emanuel for mayor.

And if Emanuel is kept off the ballot - "Politico" think Chico will probably win the mayor's race. Now one Chicago Democrat said to me this all is so old school, it's like an episode of "Boardwalk Empire." A very good show.

Now it's up to Justice Burke, Wolf, to decide if she wants to recues herself from this case and so far she does not. Today, she told Chicago business paper, quote, "aren't we beyond that? Women have minds of their own. We have spouses in every kind of business."

But many people there are scratching their heads and asking shouldn't she be refusing herself offices for both Alderman Burke and Justice Burke declined our request for comment, Wolf.

BLITZER: Jessica, what's the status of the case right now?

YELLIN: Well, the Supreme Court could decide this any time now likely tomorrow or Friday because early voting begins on Monday, but here's another awkward twist. There is mayoral debate tomorrow night. The Emanuel campaign says he is participating, Wolf.

BLITZER: And as of now, his name is on the ballots that have gone to the print shop. All right, thanks very much, Jessica. "Boardwalk Empire," a very good show on our sister network, HBO.

A lawmaker takes on a Capitol Hill cafeteria in court. Why Dennis Kucinich is suing?

And drama on the Hudson River, what's spark the scare in the middle of a snow storm?

(COMMERCIAL BREAK)

BLITZER: A big scare for ferry riders cruising on a rigid and snowy Hudson river. Kate Bolduan is back. She's got that from the other top stories in THE SITUATION ROOM.

What's going on, Kate?

KATE BOLDUAN, CNN CORRESPONDENT: Some interesting stories to tell you about, Wolf. Check out this dramatic rescue video. Twenty seven people evacuated from the Smokey Ferry after the coastguard says a fire broke out in the engine room. The ferry company disputes that claiming there were no flames, just an overheated engine. No one, fortunately, was hurt.

Nelson Mandela though is in a hospital right now for what's being called routine tests. The former South African president's foundation says he's in good spirits and in no danger, but the archbishop has described the 92-year-old Mandela as, quote, "frail." Of course, we hope everything is OK there.

And you could call this Dennis Kucinich versus the olive, quite a battle. The Ohio congressman is suing one of the Congress's cafeteria, yes, I said that for $150,000. According to courthousenews.com, Kucinich cracked a tooth in 2008 after biting into a wrap with unpitted olives.

The legal complaint says he had serious and permanent dental injuries. Other damages include, quote, "significant pain, suffering and the loss of enjoyment." I think we know one thing is for sure, Wolf, the lost of enjoyment is definitely true. BLITZER: It's painful, I'm sure. All right, thanks very much for that. Stunning statements from the country's Medicare chief about health care reform and what it may mean to you. We're talking about that and more with Senator Bernie Sanders of Vermont. He's standing by live.

Also, he mentioned it last night and again today. Why does President Obama keep talking about an old Soviet satellite from the 1950s?

(COMMERCIAL BREAK)

BLITZER: House Republicans are getting new fuel for their fight to repeal President Obama's health care reform law. Let's talk about that and more with Senator Bernie Sanders of Vermont. He's an independent. He caucuses, though, with the Democrats.

Senator, thanks very much for joining us.

I want to play a little clip just today. Medicare's chief actuary told the House Budget Committee people won't necessarily be able to keep their insurance if they like it as the president promised they would. And that the new law won't necessarily hold down costs.

Listen to this exchange that he had with Congress.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Thank you, Mr. Chairman.

Two quick questions we've touched on, but it's just true or false? The two principle promises that were made in support of Obama care were, one, that it would hold costs down, true or false?

UNIDENTIFIED MALE: I would say false more so than true.

UNIDENTIFIED MALE: The other promise that Dr. Price just touched on is a promise that if you like you plan you can keep it, true or false?

UNIDENTIFIED MALE: Not true in all cases.

(END VIDEO CLIP)

BLITZER: All right, Senator Sanders, I want to give you a chance to respond because this is the professional. This is the actuary.

SEN. BERNIE SANDERS (I), VERMONT: I heard what he said, having to give one word answers, which I think is insulting and absurd. Look, I voted for health care reform under no illusion that it was going to solve all of our country's health issues.

The reality is the Republicans and President Bush had an opportunity to do something. They did nothing. The number of uninsured soared. Today we have 50 million Americans without any health insurance. Health-care costs are soaring. We are the only nation in the industrialized world that doesn't guarantee health care to all of our people, and we spend twice as much as most other nations.

And the Republican strategy is let's do nothing. I think that's absurd.

Now, Wolf, my own view -- and by the way, I hope Vermont will lead the nation in this direction -- is that we should go forward with a Medicare-for-all, single-payer program, the most cost-effective way to provide health care to every man, woman, and child in this country.

I should also tell you that, in Arizona and in other states right now, people who are on Medicaid are being thrown off of that program, and God only knows what is going to happen. Right now as a nation, according to Harvard, 45,000 Americans die every single year because they don't have access to health care. Clearly, until we address that issue, the problem is only going to get worse.

BLITZER: You support what's called the public option, senator. But the president, he could have fought for that. But he decided there were not enough votes, and he abandoned that. So --

SANDERS: Wolf, I support -- I support more than the public option. I did support the public option. I support a Medicare-for- all, single-payer program, which eliminates private health insurance companies whose function in life is only to make money, which provides Medicare coverage for all Americans.

I hope that Vermont will lead the nation in that direction. And when we do that, we're going to eliminate a huge amount of waste in bureaucracy and in profiteering and provide cost-effective care to all of our people.

BLITZER: But on a national level, Senator, you can count. You know there are 47 Republicans in the Senate. And I'd venture to say most Democrats in the Senate would reject your proposal, as well.

SANDERS: I think that that's right. But what I would hope, at least, is that states will have the option and the freedom -- not asking for any more federal money -- but have the flexibility to go forward in ways that they think best. That's what the federalist system is about. We've got 50 states. Each one of those states has great ideas. Let's learn from each other.

So what Vermont is going to ask for is the flexibility to use our federal funds, not a nickel more than we would otherwise get, for a single-payer program.

BLITZER: We heard in the last hour from Senator Jim DeMint, Republican of South Carolina. He says he's probably got 47 Republicans who will vote to repeal. I don't know if he's got all 47. But the question is, even if he did, are there four Democrats in the Senate who would join the Republicans in getting to 51 to repeal the health-care law? SANDERS: Well, I haven't the vaguest clue. But even if they did, the president would certainly veto it. Again, the idea when we are the only nation in the industrialized world that doesn't guarantee health care for all people, 45,000 people dying because they don't have access, to say the solution is "let's do nothing, let's go back to where we were" doesn't make a whole lot of sense. We should do better. We should do more, not less.

BLITZER: One point five trillion-dollar budget -- budget deficit is estimated for this year. What would you do to eliminate that deficit?

SANDERS: Well, for a start, we lose about $100 billion every single year by corporate interests and wealthy people who use tax havens in the Cayman Islands and Bermuda; don't pay their fair share of taxes. It is insane and, I think, totally hypocritical for our Republican friends to profess concern about the budget deficit at the same time as they fought, successfully, for hundreds of billions of dollars in tax breaks for the top 2 percent. They want to eliminate completely the estate tax. A trillion dollars -- a trillion dollars -- in tax breaks over a ten-year period going to the top three-tenths of 1 percent.

In my view, we are also spending too much on the military. A lot of our weapon systems are geared towards fighting the Soviet Union and the Cold War. Guess what? Soviet Union doesn't exist anymore. We can make cuts there.

But we cannot -- cannot -- balance the budget on the backs of a collapsing middle-class or lower-income people who are really hurting. We have the most unequal distribution of income and wealth in the industrialized world. The rich are getting much richer while the middle class is shrinking. Those are the folks who are going to have to have some shared sacrifice and contribute to us dealing with this very serious deficit problem.

BLITZER: All right. Some specific proposals from Senator Sanders, Bernie Sanders of Vermont. Appreciate it very much.

SANDERS: Good to be with you, Wolf.

BLITZER: The historic reference that fell flat for President Obama. We're digging deeper into his Sputnik line and whether it's really the answer to more jobs.

Plus, new reports linking accused Tucson killer Jared Loughner to assassins, the death penalty, and that's not all.

(COMMERCIAL BREAK)

BLITZER: It's becoming a familiar, if not necessarily winning, theme for President Obama: the old Soviet satellite Sputnik and the space race it launched with the United States. He mentioned it in last night's State of the Union and once again today.

(BEGIN VIDEO CLIP) BARACK OBAMA, PRESIDENT OF THE UNITED STATES: A chunk of metal came crashing down to the earth right here. I promise you. We did not plan this originally. The press won't believe me. It turns out that it was part of a satellite called Sputnik that landed right here and that set the space race into motion.

So I want to say to you today that it is here, more than 50 years later, that the race for the 21st century will be won.

(END VIDEO CLIP)

BLITZER: Let's talk about this and more with our senior political analysts, David Gergen and Gloria Borger.

David, why do you think he's talking so much about Sputnik right now? It doesn't seem to be resonating with a lot of folks out there.

DAVID GERGEN, CNN POLITICAL ANALYST: Well, it resonates with me, Wolf, because I remember it, as a young boy. And it was such a surprise and stunning that the Soviets could do that, and it led President Eisenhower in the late '50s to, you know, propose all sorts of things in the name of national security, such as the interstate highway system.

But more importantly, inspirationally, it was the grounding for President Kennedy's daring call to go to the moon. Nobody thought we could do it. He said, "Let's do it in ten years." And people didn't think America had the capacity. We were down on ourselves at that time. And we did it in less than ten years.

And so I think the spirit of Sputnik is right. But the truth is, of course, that unless you're over 60, you don't remember it very well. And only a tiny proportion of the population does.

BLITZER: It sort of resonates with folks of a certain age, shall we say?

GLORIA BORGER, CNN POLITICAL ANALYST: But Obama's not of a certain age.

GERGEN: Gloria, you wouldn't --

BORGER: Way too young. Way too young. But Obama is young. And of course, he's using -- he's using this metaphor.

Look, what they want to do is sort of bring it up a notch. Tell the American public, look, we have to live up to our potential. We can't kick the can down the road any more. We have to get into another gear and do something. Whether it's about innovation, competitiveness, whatever you -- research, development, education, whatever, that -- that this is a moment for us to realize, yes, we're suffering from deficits, but we've got to look in the long term and we've got to realize what we need to do to make sure we thrive well into the next century, right? So it's a metaphor, better or worse.

GERGEN: But Wolf, a lot of the stressing about it, of course, is the president had to go back over 60 years to find an example when Americans rallied in that way. And that does say something about why Americans are sort of anxious and a little discouraged today about -- about what we can do and getting so anxious about the possibilities of decline.

You know, there have been times when we rallied. But it's been less well known in the last few years. You know, in the 1980s when Japan -- Japanese seemed to be ten feet tall, you know, there was a real sense that Silicon Valley was going to get swept away and -- with all the Japanese technology. And they came roaring back. They did an extraordinarily good job.

But with the government's, by the way, partnership, but the -- we have had other examples. But nothing as dramatic in the last 60 years.

BORGER: But here's the interesting thing to me, which is that the president talks about the Sputnik moment. And I think, actually, he may have missed a Sputnik moment last night, which is that if we really are going to confront the problems we have head on and get ahead, one of the things we have to do is figure out how to deal with this deficit.

And I think for political reasons, because they understand that they've got Republicans dominating the House, et cetera, they didn't take that issue head on. And that -- you know, we've got an emergency in this country right now. And that -- on the deficit. And that would have been kind of a Sputnik moment to me to say, "You know what? I'm going to be the president who's actually going to deal with this."

BLITZER: Good point. All right, guys. Thanks very much.

I am encouraged, by the way, to a certain degree. We are beginning to hear specifics. We heard Rand Paul, the new congressman from Kentucky, has got a $500 billion plan with specific cuts that we just heard. Senator Bernie Sanders with very different specifics on where he would cut spending, as well. All right. We'll continue this conversation.

Gloria and David, thank you.

New reports on what Jared Loughner did allegedly before -- before -- the Tucson tragedy. Why it could put the suspect's defense in danger.

And good news for Congresswoman Gabrielle Giffords. What doctors announced just a little while ago.

(COMMERCIAL BREAK)

BLITZER: Congresswoman Gabrielle Giffords has been moved from intensive care to a rehabilitation facility at Houston's Memorial -- at a hospital in Houston with her condition upgraded from serious to good. Eighteen days after she was shot in the head at a forum with constituents, doctors are optimistic about her recovery.

(BEGIN VIDEO CLIP)

DR. DONG KIM, MEMORIAL HERMANN HOSPITAL: At this point I think we can say that her speech function, along with everything else, has been improving quite a bit. And as I said, we're seeing daily progress. And we'll have to assess that over time.

Since Gabby arrived last Friday, we have noticed daily improvements in her neurological condition. We're very pleased with that. In terms of recovery for brain issues, this is really at lightning speed.

(END VIDEO CLIP)

BLITZER: Meanwhile, a law enforcement source tells CNN there are some chilling clues on suspect Jared Loughner's computer. Our homeland security correspondent, Jeanne Meserve, has been working this part of the story for us.

What are you finding out, Jeanne?

JEANNE MESERVE, CNN CORRESPONDENT: Wolf, we know that Jared Loughner spent time online. We have seen some of his postings. But CNN's Susan Candiotti has now received confirmation from a law enforcement source of something first reported in the online edition of the "Washington Post." That Jared Loughner spent time on the Internet searching for information about people who had committed political assassinations.

The source would not say exactly who he had researched but said the Web surfing took place in the weeks and days leading up to the shooting of Gabrielle Giffords. This source says Loughner also looked at information about lethal injections and solitary confinement.

This was gleaned, of course, from the forensic examination of Loughner's personal computer, which was seized after the Tucson shootings, Wolf.

BLITZER: What impact, Jeanne, could all of this have on the prosecution?

MESERVE: Well, Wolf, it would appear to undermine a possible insanity defense. Because it looks like Loughner knew his actions were wrong and he was aware of the possible consequences.

But one attorney versed in the insanity defense says that is not necessarily true.

(BEGIN VIDEO CLIP)

BARRY BOSS, COZEN O'CONNOR LAW FIRM: What people are going to automatically conclude is that obviously he knew what he was doing. He planned this. And he wasn't insane. That's the conclusion that people will reach and the prosecutors may reach when they hear this.

But what I'm saying to you is that that conclusion is premature, because you don't know the reason that he was looking at those things. And you are coming at it from the perspective of a rational, sane person. And you're drawing conclusions. Those are not reliable when it comes to drawing conclusions from an irrational and delusional person.

(END VIDEO CLIP)

MESERVE: That attorney, Barry Boss, was prepared to use an insanity defense in the case of Russell Weston, who killed two U.S. Capitol police officers in 1998, but the case never went to trial because of Boss -- excuse me, because of Weston's mental issues.

By the way, we do not know that Loughner's attorney is going to use an insanity defense. She has not yet asked for a mental evaluation of her client -- Wolf.

BLITZER: All right, Jeanne. Thanks very much.

He's the newest member of "The Best Political Team on Television." We're talking about Piers Morgan. He's standing by to join us live for a unique perspective on U.S. politics and the Tea Party darling, Michele Bachmann. Stand by.

And the mystery of a piano in the middle of a sand bar. You might call it a piano bar.

(COMMERCIAL BREAK)

BLITZER: Piers Morgan is joining us right now here in THE SITUATION ROOM. Piers, you were part of "The Best Political Team on Television" last night around the president's State of the Union address. How did that feel?

PIERS MORGAN, HOST, "PIERS MORGAN TONIGHT": It was incredibly exciting, I have to say. I mean, to be here at CNN and be actually part of that title, which is one of the great titles in world news. I loved it. And watching you, the machine, just careering away through this chaotic thing in such a sublime way. It is very exciting. Very interesting, I think, to watch live unfold the reaction to the speech because of Obama.

To me the most fascinating thing that remains, the fact that you then had two responses. And I think for American politics right now, this is the big story. The big story is, when it comes -- when push comes to shove as we say back home, who's going to stand against President Obama? Are we going to see a Tea Party candidate? We see, Sarah Palin. Are we going to see a mainstream GOP candidate?

BLITZER: Like Mitt Romney or somebody?

MORGAN: Somebody. But I think it's fascinating.

BLITZER: Well, Michele Bachmann, you know, we're getting a little grief, as you know, for carrying her response live here on CNN. Did -- be honest. Did we do the right thing?

MORGAN: Completely did the right thing, because to me, it is the main story. When I hear Rachel Maddow saying that you shouldn't have aired it on CNN and yet, at the same time she's saying this, Brian Williams is interviewing the Tea Party spokesman, the speaker, at that precise moment, then I think NBC and MSNBC should swap stories.

Because to me it's the most fascinating aspect of this whole thing, because it will determine in the end, I think, who wins the next election. If they don't sort their act out, the Republicans, they've got real problems. And last night you had it there laid back, polarized: two different speeches, two different representatives. If I'm a voter who votes Republican, I'm confused.

So for Rachel Maddow to say that's not news, completely crackers.

BLITZER: You know, both of us are doing a lot of tweeting --

MORGAN: Yes.

BLITZER: -- on Twitter: @WolfBlitzerCNN.

MORGAN: @PiersMorgan.

BLITZER: @PiersMorgan. And I tweeted earlier today, should Piers Morgan interview Michele Bachmann on your new show, "PIERS MORGAN TONIGHT"? And I said I would ask you if you want to interview her. Do you?

MORGAN: Definitely. I think she would be a great interview. I find the Tea Party phenomenon really intriguing. And right now, as I say -- I'm going to repeat it -- you know, I think it's a very important story. And I think it's the most important political story developing in America.

And you know -- and MSNBC, if you don't want to run the stuff, we will at CNN proudly and correctly. This is news.

BLITZER: I totally agree.

Let's talk about your show tonight. You've got two -- two -- special guests for the hour, right?

MORGAN: Yes.

BLITZER: Tell us.

MORGAN: Well, it's Joel and Victoria Osteen. He's obviously America's No. 1 TV pastor, preacher. And it's a really fascinating interview, because we've seen the State of the Union. If you want to see what the state of faith in the union is like, watch this interview tonight.

There are some, I think, really electric moments between Joel and myself, where I challenge him, really, about great issues in the church, you know. Does he think that homosexuality is a sin? He answers that question in a provocative manner. Would he forgive the shooter in Arizona? So there are really fundamental questions here, which I think right now this guy is the face of the church to millions of Americans. Tune in. It's fascinating.

BLITZER: I've interviewed him before. He's a very smart guy.

MORGAN: Charismatic, smart.

BLITZER: Yes.

MORGAN: Very rich and says God wants me to be really wealthy.

BLITZER: Very good on TV, as well.

MORGAN: Very good on TV.

BLITZER: You're very good on TV, as well.

MORGAN: And so are you, Wolf Blitzer. You remain the best name on TV.

BLITZER: Piers Morgan, go ahead. You can follow him: @WolfBlitzerCNN. Thanks very much.

MORGAN: Always a pleasure.

BLITZER: Florida already has the Keys but our Jeanne Moos found 88 new ones, thanks to a mysterious appearance.

(COMMERCIAL BREAK)

BLITZER: A "Most Unusual" castaway off the coast of Miami. We're talking about a piano. CNN's Jeanne Moos may have the answer to this mystery.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): It's not your usual piano bar: a piano on a sandbar that appeared a few weeks ago about 200 yards from shore in Miami's Biscayne Bay.

UNIDENTIFIED MALE: That's too funny.

MOOS: Leaving boat captains scratching their heads.

UNIDENTIFIED MALE: It's probably the weirdest thing I've seen out here.

MOOS: In the words of the local press --

UNIDENTIFIED MALE: How the heck did this happen?

MOOS: Well, we think it may involve these two, but first a few theories and jokes. "It's from 'The Titanic'." "Payback in a nasty divorce."

It's so unexpected, so charming you could almost imagine a mermaid tickling the ivories.

(MUSIC: "UNDER THE SEA")

MOOS (on camera): It would strike a nice chord if we could tell you that the piano is still playable, but reporters who have made it out to the sandbar say no.

UNIDENTIFIED MALE: The piano is so banged up you can't even bang out any tunes on it.

MOOS (voice-over): Suzanne Beard was so smitten with it that she took about 225 photos, and "National Geographic" included one in its "Photos of the Week" feature.

SUZANNE BEARD, PHOTOGRAPHER (via phone): I think it's awesome.

MOOS: Now, when the piano first appeared, residents saw what some thought was a music video shoot.

UNIDENTIFIED MALE: There was a piano bench, and a guy was sitting there, like he was playing the piano.

MOOS: Some spotted a woman with long hair on the piano, which conjures up images of Michelle Pfeiffer singing "Making Whoopee."

(MUSIC: "MAKING WHOOPEE")

MOOS: Instead, try picturing these two lugging an old piano out into Biscayne Bay. William Yeager called CNN, saying he and fellow filmmaker Anais Yeager did the deed, a claim we can't confirm, while making a film called "Jesus of Malibu" about a spiritual journey across North America.

UNIDENTIFIED FEMALE: I want you to help me to change the world.

MOOS: Yeager told "The Miami New Times" it took them six hours to get the piano out to the sandbar. They pulled a homemade barge behind a boat and say they've left pianos in other places from Malibu to Death Valley. He called this one "highly symbolic and profound."

Less profound is the "Miami Herald's" caption contest. The entries range from "You can tune a piano but you can't tuna fish" to our favorite, "Play it again, sand."

INGMAR BERGMAN, ACTRESS: Play it, Sam.

(MUSIC: "YOU MUST REMEMBER THIS")

MOOS: Jeanne Moos, CNN --

UNIDENTIFIED MALE (singing): As time goes by.

MOOS: New York.

(END VIDEOTAPE)

BLITZER: Thanks, Jeanne.

Remember, you can always follow what's going on in THE SITUATION ROOM on Twitter. You can get my tweets: Twitter.com/WolfBlitzerCNN, @WolfBlitzerCNN.

You can follow THE SITUATION ROOM on Facebook, as well. Go to Facebook.com/CNNSituationRoom to become a fan.

That's it for me. Thanks very much for watching. I'm Wolf Blitzer in THE SITUATION ROOM.

"JOHN KING USA" starts right now.