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Secret Meeting; Mubarak Mystery; Debt Fight

Aired July 18, 2011 - 19:00   ET


JOHN KING, HOST: Thanks Wolf and good evening everyone.

Tonight President Obama may have the upper hand politically now in his debt and deficit showdown with congressional Republicans, but we'll show you why the White House is worried the president would pay the bigger price in the long term if no deal is reached soon.

But up first tonight, exclusive CNN reporting about a secret U.S. diplomatic effort designed to get the Libyan strongman Moammar Gadhafi to step down. Our Ivan Watson broke this story earlier today. The secret meeting held Saturday in Tunisia.

Several high level Gadhafi regime officials attended and the U.S. delegation was led by the U.S. ambassador, Gene Cretz (ph), who was recalled from Tripoli when the Libya uprising began five months ago. U.S. officials tell CNN the meeting was to deliver this blunt message.

Gadhafi has no choice but to yield power. These U.S. officials tell me no additional meetings are planned because the message again that Gadhafi must go was in their view clearly delivered. But Gadhafi spokesman, Musa Ibrahim, in an exclusive conversation with our Ivan Watson had a different take.


MUSA IBRAHIM, LIBYA GOVERNMENT SPOKESMAN: This is the first step and we welcome any further steps and we are prepared to talk war and explain what is happening in Libya and take the matter forward. We don't want to be stuck in the past. We are people who want to move forward all the time for the good of the Libyans and the good of the international community.


IBRAHIM: If I may, you know, it's not the time now to name people but, you know, it's a first step dialogue, OK.

UNIDENTIFIED REPORTER: But it was direct face-to-face Libyan/American talks in Indonesia on Saturday?

IBRAHIM: Yes. Yes.


KING: Ivan Watson with us now live from the Libyan capital -- Ivan, fascinating reporting there. What was the answer when the United States delegation, as I'm told, said he has to go. This is nonnegotiable. And he has to go soon. I assume the Libyans want to drag this out.

IVAN WATSON, CNN CORRESPONDENT: Well, you know in that conversation with Musa Ibrahim, the Gadhafi government spokesman, he said that the Libyan side took this time to try to explain their position to deny many of the accusations against Gadhafi and the security services here claims that they were killing civilians and other types of human rights abuses. So we're hearing two completely different versions here.

I didn't hear anything at all about a message being delivered that Gadhafi had to step down and that the regime here in Tripoli has been vehement about this that there is no way forward if that is going to be a precondition from the U.S. and its allies and NATO before negotiations can take place. But this was a three-hour meeting, John, according to the State Department, officials who have spoken to us. And if the U.S. officials were just giving one clear blunt message, Gadhafi had to step down, clearly a bit more than that was discussed at that meeting.

KING: And Ivan, as this diplomacy, as we watch to see whether it continues, or whether it was just one meeting between the U.S. and the regime, some developments on the military campaign today, including the first-time bombing of one target. Tell us about that.

WATSON: That's right. The fighting is grinding on here. We're into four months of NATO bombing. Early this morning before dawn Tripoli International Airport, the main gateway into Tripoli was hit. A precision attack on a radar station there that NATO says was being used to detect NATO warplanes and Libyans denying that completely saying it was a civilian target. Of much more concern is the fifth day of fighting now in the eastern strategic oil town of Brega where rebel fighters say they have been trying to attack Gadhafi forces there. They have run up against mine fields.

They say they have suffered casualties and today the Libyan government here in Tripoli saying that they have killed up to 500 rebels who they say were even trying to attack in waves from the sea in small boats. That battle appears to be going on and both sides say they have suffered casualties as a result with disputing claims about who is in charge of that key town. The Tripoli government, John, they are saying that they will turn Brega into hell rather than let it fall into the hands of their enemy.

KING: More tough rhetoric from the regime, fascinating reporting from our Ivan Watson live for us tonight from Tripoli -- Ivan, thank you.

Today's disclosure from this U.N./Libyan meeting comes nearly four months into the NATO bombing campaign. Let's get some perspective on where we may be headed. CNN national security contributor Fran Townsend is a member of the CIA's External Advisory Board. In 2010 she visited with high-ranking Libya officials -- Libyan officials at the invitation of their government. Also with us, Professor Fouad Ajami, the senior fellow at the Hoover Institution at Stanford University. Fran, the United States thought it was important to deliver this message. Are there risks in sitting down with a regime that clearly now thinks maybe there could be future conversations?

FRANCES FRAGOS TOWNSEND, CNN NATIONAL SECURITY CONTRIBUTOR: Well that's right, John. To your point earlier with Ivan, it's in their interest of course to play this out. By the end of September, the current authorities that permit the NATO bombing will expire. And so they want to play this game as long as they can. It's interesting that they would not name which Libyan officials were there because of course that's very important. Was it Sonusi (ph), who is the head of the Interior Ministry? Was it Gadhafi's sons? Who was there really would speak to what authority they had to conduct these negotiations.

KING: And it's a key point, Professor, because who was there? Let's assume the United States, the officials are telling us the truth that they were blunt. They said he has to go. They said he has to go soon. They said it's nonnegotiable. Do the Libyans at the table go back and deliver that same message to Colonel Gadhafi?

PROF. FOUAD AJAMI, SENIOR FELLOW, HOOVER INSTITUTION: No. Because in fact what the Libyans will basically think is that the bizarre (ph) is open. Once you get the customer into the tent then you do business with them. That's the Libyan way. That's the Gadhafi way. Look the man has been around for a long time and he has committed massive crimes against the United States and we still negotiated with him. He now is an indicted war criminal. The international criminal court has an indictment against him for crimes against humanity. What exactly do we have to offer this bandit? I don't think this report eventually will mean much.

KING: And so do you think it's a good idea? The U.S. position is that Secretary Clinton went to the meeting in Turkey that the United States for the first time recognized the transitional, the rebels essentially, the transitional counsel as a legitimate government of the Libyan people and that the State Department decided they should relay that face-to-face with the Gadhafi regime so that they understood essentially, we've moved on, you have no choice, you must go, and we're going to take your frozen assets, your money and give it to them.

TOWNSEND: You know John we didn't have to sit down with Gadhafi's representatives to do that. We didn't -- we haven't done that in Syria. It was very clear in Secretary Clinton's statement. Bashir al-Assad we're not tied to him. He's not necessary. The fact is you can make a very clear statement publicly and have it stick without sitting down face-to-face. There's an error of legitimacy you convey by sitting down face-to-face with them while he's still in power.

KING: And so do you think it was a mistake?

AJAMI: Well look, I think what really matter, what really I think is important was the meeting in Istanbul and the recognition of the Transitional Council. We have made it clear that we now recognize these people and the question is are we going to give them access to their money? It's the Libyan people's money and it will change the terms of the encounter (INAUDIBLE) Gadhafi and the people of Benghazi. This other stuff is really just vapor, in my opinion.

KING: Vapor, but how do you judge -- how would you draw a threshold that says we can judge whether or not the United States handled this right when?

TOWNSEND: Well I mean --

KING: Or how?

TOWNSEND: The question is going to become, can you -- what are the results of it? What are the consequences of it? John, if we were to say that all of a sudden having had this meeting Gadhafi actually left power you'd say that meeting was a success. It was worth it. I think that's unlikely and I think it's likely to have absolutely no effect on Gadhafi's thinking or reasoning in whether or not he stays in power.

KING: We'll watch as it plays out. Fran Townsend and Fouad Ajami, thank you so much for coming in tonight.

Now today's disclosure of this U.S./Libya meeting comes nearly four months into the bombing campaign there. It also comes of course months after the Arab Spring in Egypt. And what has happened there since is we had reports over the weekend that Hosni Mubarak was perhaps in a coma. Then we had reports that he was out of a coma. The questions is, is this a public relations standpoint? Is it not? A bit earlier I spoke to a former Nile TV (ph) anchor who resigned in the middle of the uprising there. She says the people on the streets in Egypt simply do not trust these reports, anything at all their government tells them or the lawyers tell them about Mubarak.


SHAHIRA AMIN, FREELANCE JOURNALIST: I personally think the lawyer's statement was to test the public's reaction. If people believe the lawyer (INAUDIBLE) trial, which is two weeks away maybe avoided. I was in Tahrir Square yesterday. People are fed up of being lied to. Some don't even believe that Mubarak is still in hospital anymore. And we've been deceived and lied to for years, so now we question everything we hear, especially that many people feel extremely letdown by the military.

KING: And so if the goal was to somehow generate sympathy in public opinion, perhaps the public saying well he's old, he's hospitalized. Forget the trial, then that failed?

AMIN: What -- these statements have been met with ridicule; people are fed up with lies, John.

KING: And do the people trust the new government, the transitional government, the military government, essentially to put President Mubarak on trial? AMIN: No, we have to see it to believe it. You've seen in recent weeks people hare very disappointed at the lack of progress since the uprisings that forced Mubarak out. It's been five months and very, very little has happened on the ground. Nothing has changed. None of the goals of the revolution have been met. The regime is still very much there. And that's why the protesters have back in Tahrir. They've been there since Friday the 8th, and they have vowed to stay put until there is real change until the reforms happen.



KING: Fascinating story there, we'll keep on top of that one as well. Still ahead here the Texas Governor Rick Perry is calling key Republicans around the country to let them know he might soon enter the presidential race and in those conversations he speaks of a calling to join the fray.

And the markets were nervous today, gold prices soaring. Why? Because of worries the United States might soon max out on its credit line. The president says default could mean economic Armageddon, but many of you just don't buy it -- the growing political trust deficit next.


KING: New indications today the markets, well they're getting a bit nervous about the debt ceiling stalemate. The Dow Industrials, S&P 500 and the Nasdaq all closed lower today and gold settled at a new high of $1,602 an ounce all because of the uncertainty over a possible U.S. default. Moody's, the ratings agency today suggesting the debt ceiling itself should be eliminated to avoid quote "periodic uncertainty and to bring greater stability to the economy."

The White House today revealed President Obama did meet over the weekend with the House Speaker John Boehner and the Republican Majority Leader Eric Cantor but no deal and so the House will spend much of this week debating the Republican "Cut, Cap and Balance" bill. the White House already says it would veto.

Joining us now Moody's analytics chief economist Mark Zandi and the former U.S. Comptroller General David Walker -- he's the founder and CEO of the "Comeback America Initiative". Mark Zandi, we talked last week. You said if it didn't get more serious in Washington the markets might get skittish. Was today sort of a down payment? Not an awful day, but a beginning of some nervousness.

MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS: Yes, I think so. I think with each passing day that we don't get an agreement investors will start to grow increasingly nervous. Stock prices will continue to move south. Ultimately interest rates will start to rise. And if we don't get an agreement in the next couple of weeks I think the markets will be in turmoil. KING: And yet, David Walker, if you look at some new numbers out tonight from the Pew Resource Organization (ph), Americans are split on this question. Forty percent of Americans say yes, it's absolutely essential that we get a deal before we reach August 2nd, but 39 percent of Americans say we could pass the deadline and, in their view, you would not have major economic turmoil. Why the mixed message? Are people just viewing this through their political prisms?

DAVID WALKER, FORMER U.S. COMPTROLLER GENERAL: I think they are primarily view it through political prisms. I mean frankly we've never been here before. Why would we ever want to take the chance of figuring out what will happen to interest rates and what will happen to competence in America if we end up having to decide which bills we're going to pay and which ones we're not going to pay. But the debt bond holders don't have to worry. There's the 14th Amendment, but we're spending four billion a day every day, more than we're taking in. Somebody is not going to get paid on time if we hit this limit.

KING: Mark Zandi, a majority of Republicans, 53 percent and a plurality of Independents, 43 percent, say we can pass August 2nd. They don't think it would be a big deal. Let me give you a few seconds to look them in the eye and say, you're wrong.

ZANDI: Yes, I think they're wrong. Now, of course, I don't know for sure. This is unprecedented, but what I do know is that there is a $23 billion Social Security payment due on August 3rd and is not at all clear that there will be enough cash in the Treasury to make that payment. So you know I think David is right. I mean why would you want to take that chance? It doesn't make sense not for those Social Security recipients, not for the economy, not for the entire global financial system.

KING: And so David Walker, the president meets with Speaker Boehner and Leader Cantor again over the weekend. They're keeping the conversations going, but they are clearly not making at least any tangible progress. So the House will go forward with some votes this week. The Senate will most likely vote on a balanced budget amendment and some other things that simply, to be honest, can't pass or even if they did pass the Congress the president would veto. Now on the Senate side they say they need to do that so then they can move to the McConnell plan, need to first convince the Republicans you had your vote. Do those votes undermine confidence in the markets and confidence in a deal ultimately might be reached?

WALKER: Well, I think the markets know that those are not going to pass. You have got to have two-thirds of the House and two-thirds of Senate and ultimately (ph) three-quarters the state. That's not going to happen. It's preconditioned to do something more substantive. The fact of the matter is the leaders have all said that they are going to raise the debt ceiling limit. The president has been calling for that.

The real question is what kind of substantive deal are we going to get? Are there going to be meaningful budget controls with automatic enforce of mechanisms? Are there going to be significant cuts that would be viewed as being credible by the rating agencies, by our foreign leaders, and by the American people? That's the real question.

KING: And Mark, Moody's today is saying you know what, let's just get rid of this whole idea. Let's not have a debt ceiling. Let's not let the politicians get involved here. I don't see the Congress agreeing to that in the short term, but is it just because of this showdown do you think this is necessary or is this a cumulative effect?

ZANDI: Well, I think we've had trouble with the debt ceiling vote many times in the past and I don't think it's a very productive process, as we can see. So yes, I'm very sympathetic to the idea of let's just get rid of this debt ceiling debate altogether. Now having said that, I am hopeful that you know since we're going through all of this pain right now that the policymakers will come together and provide some meaningful deficit reduction. I mean we're not going to solve our problems, but at least we can make a down payment on those problems and -- so there might be something good that comes out of the current debate and process.

KING: And Mark, let me stay with you a second. You say meaningful. How do the markets define meaningful? Is it 2.5 trillion? Is it three trillion? Is it four trillion?

ZANDI: Yes, I think if we get a deficit reduction, 10-year deficit reduction of say 1.5 to $2 trillion, I think that's what is expected in the marketplace. If you got four trillion, that's the goal that we set for ourself and I think that's the appropriate goal. The markets would be off and running and I -- so too would the economy. I think that would be wonderful. If we got nothing that would be a problem because investors wouldn't like it and I'm not sure the rating agencies would either.

KING: And so David Walker, do you see a reasonable plan, perhaps behind the curtain right now because they are still pointing fingers at each other, with chance with success and is the McConnell plus as I'll call it, where the president would have the power to raise the debt ceiling, but then Congress would name this commission that would come up with a package of cuts. They'd have to vote up or down. Is that a viable alternative in your view?

WALKER: My view is not -- that's not credible in and of itself unless there's some type of targets and triggers and automatic enforce of mechanisms based upon deficit reduction or debt to GDP targets that will get us more than the one to 1.5 trillion. I don't think that's a credible number, one to 1.5 trillion. By the way, the "Comeback America Initiative" on Wednesday will lay out two fiscal frameworks to show our way forward. One is three trillion plus in cuts over 10 years. The other one is six billion -- billion -- trillion plus in cuts over 10 years. Stay tuned. There's a way forward.

KING: We will watch for that way forward. We'll also watch the debate in Washington and in the financial markets. David Walker and Mark Zandi, appreciate your time tonight.

UNIDENTIFIED MALE: Good to be with you.


KING: Thank you, gentlemen. And still ahead, why the upper hand in this debt debate now doesn't necessarily mean long-term political gain for President Obama. But first, a key whistleblower and the news of the world phone hacking scandal is found dead.


KING: Welcome back. Here's the latest news you need to know right now. A key whistleblower in the British hacking scandal turned up dead in his home today. Police call Shawn Orr's (ph) death unexplained but not suspicious. (INAUDIBLE) for Rupert Murdoch's now defunct "News of the World" newspaper, last year he told "The New York Times" his editor encouraged reporters to hack into voice mail accounts of public figures.

Another of Murdoch's British papers "The Sun" apparently got hacked today. "The Sun's" Web site is down and the hacker group Lulz Security is taking credit. Here in the United States, Borders announced today it cannot find a buyer for its remaining 399 stores and so it will liquidate, costing almost 11,000 jobs. It is the country's second largest book seller.

Up ahead here, still to come, David Ignatius of "The Washington Post" and our David Gergen dissect President Obama's handling of the debt crisis. Is he really a punching bag for Republicans and next how your confidence level about the economy impacts the president's re- election odds.


KING: Trust and politicians are not words that seem to fit much in the same sentence these days. But when it comes to the showdown now over deficit spending and the country's borrowing limit, the numbers do suggest President Obama has the upper hand. A new "CBS" poll found 71 percent of Americans disapprove of how congressional Republicans are handling the debt ceiling negotiations. The public -- take a look at the numbers there -- more evenly split on the president. Yet combine your current mood and some history and what you see is that the president cannot afford for this showdown to end in a way that causes any more pain for the economy.

Let's take a look -- I'm going to walk over to the wall here to show you a little bit of -- first, it's your mood. This is a consumer driven economy right now. So if you look at this, consumer confidence, this is from the University of Michigan. In May, consumer confidence was starting to edge back up. The economy has struggled, it's come back down. This is where we are right now in July, down to 63.8, remember that number 63.8. Because the average it takes to win, for an incumbent, again the election is not until next November.

But the incumbents who have won the average consumer confidence level has been in the 90's -- incumbents who have lost below that in the 80's or lower. Look at this -- this is where we are today. At that number right there history says President Obama would lose; now the election is not today of course. Or here is one way to look at it. The incumbents, Carter, George H.W. Bush, they lost.

The two here you see -- look where they are -- below 80, below 90, Reagan, above 90, Clinton, close to 100, George W. Bush, above 90. Where will the president be? Right now again, remember, he's in the 60's. Another way to look at it, the economy, is it growing. A lot of people make the Obama/Reagan comparison, saying well Ronald Reagan struggled with high unemployment too, but he won an easy re-election.

However, if you look at this, by the time Reagan started to run for re-election, the economy was starting to grow, the year before the election 1983. Look at this 5.1, then the next quarter, 9.3, 8.1 percent growth, 8.5 percent growth, eight percent growth, 7.1. So a tough recession, but as Ronald Reagan geared up to run, the election over here, the economy was booming. President Obama can't be so confident. Look at this, the only comparison we have so far 1.9 percent in the first quarter of this year. Reagan had 5.1. The question is will the president get growth anywhere like this?

Heading out --there's not an economist no matter you find it, who think the economy is going to bounce back like that as the president runs for re-election.

So, again, one last way to look at it, October, a way out, President Obama here. January, the year before the election, President Obama actually in slightly better shape than President Reagan, but because of that booming economy, look where President Reagan ended up in election day.

President Obama now in the 60s. Where will he be in October, 2010? That is the key question.

So, now, let's talk to politics of the economy and the debt debate.

With us: Republican Nicolle Wallace, veteran of the Bush White House and the John McCain presidential campaign; Democratic pollster Jeff Liszt, who helped the 2008 Obama campaign in several key battleground states; and John Avlon, a CNN contributor, who is founding member of the centrist group, No Labels.

I want to start with the Democrat on the table.

When you look at that, the very sober economic numbers -- so even though the president might now be in the right place the White House thinks. He's the grown up in the middle. If we get to default, unemployment goes up, the markets get jittery, this president, even if he has, quote-unquote, "the upper hand" in this debate, could lose re- election?

JEFF LISZT, PARTNER, ANZALONE LISZT RESEARCH: Well, I think there's no question that the economy is the most important issue on the table. The Americans say it's the most important issue and even as the news is focused on the budget debate right now, just 7 percent of the voters are saying that the deficit is the most important issue facing us.

But I think that part of the reason that Republicans are content to have the budget debate right now, as opposed to a debate on the economy is that the proposals they're going to be putting forward on the economy in the 2012 election looked a lot like the policies that got us into this mess in the first place. I think if voters understand that it took us longer than eight years to get us into this mess, I think they're also going to give the president some latitude because it's going to take us longer than a few years to get out of it.

It's an optimistic view of how voters over history treat incumbents. I understand.

But I asked you, to the best of your ability here, someone who has worked in the White House, you're a Republican. But as someone who has worked in the White House and has had to look at economic numbers and look at the polling data, sand say, what are going to do here, I mean, in terms of this White House -- they can't expect the growth Ronald Reagan had. They can't expect the consumer confidence Ronald Reagan had.

So, Jeff is right? Do they just have to make the case that it's not as -- the ditch, we're filling in the ditch? It's not as deep as it was when we got here?

NICOLLE WALLACE, FMR. COMM. CHIEF FOR PRES. G.W. BUSH: The heaviest burden that President Obama is going to carry in his attempts to be re-elected is his own record. We're having a debate mostly consuming Washington about raising the debt ceiling. But his record -- and you see Republicans increasingly threading all of these things together. Part of the reason why we're in this situation and part of the reason that we're out of money is because of the massive stimulus that he passed. He had no appetite for compromise then. It was a government spending boondoggle. I think Republicans like John McCain called it generational theft.

Then he passed Obamacare in the 2010 elections with a referendum on this massive expansion of the role of the federal government and I think Republicans feel that if they hold up President Obama's record and the reality of today's economy for, I think, they are almost 20 million Americans who are underemployed or unemployed, that Obama is going to be in a weaker position than his historical -- you know, the folks that you held him up against.

KING: And, John Avlon, do you take the long-term pressures of this president? He's just simply politically -- as an American, he doesn't want one. As a president, politically, he can't afford a hit from the economy. So, how do you overlap his thinking, where do I need to be in October next year with what he needs to do today?

JOHN AVLON, CNN CONTRIBUTOR: Look, John, there's no question that incumbent presidents, they tend to live or die by the economy. Simply history shows us that. Except there's one big problem, which is ultimately elections are compared to what propositions, and President Obama's record can't beat him at the polls. A Republican has to beat him at the polls.

And the fact that a generic is consistently doing better than any of the specific candidates speaks to the comparative weakness of this Republican field. That's the reality. And that is to some extent.

So, he can say, look, things are getting better than when I got in. And I think, Americans, every poll shows that people are currently blaming the Bush administration more than the Obama administration for this economic mess. But then it's going to be a head to head match up and right now, it doesn't look so good for the Republicans.

KING: If you look at the poll of the debt ceiling right now, it essentially is like so many other issues, even though the president says it's a huge national debate and to Nicolle's point, people think about upping the credit line. But for the impact on the economy, if you look at the polling, Democrats agree with the president, Republicans don't. And they think, when you get to August 2nd and have a default, so what, who cares?

Independents are more split, but more independents agree with the Republican position that we could probably not have huge economic damage. Why is that? It's just a political trust deficit? Do we live in a world where if you are a Republican and a Democrat says it, it can't be true?

LISZT: Well, I think we live in a world in which most Americans are concerned with how they're going to pay their bills than with, you know, the economic impact of raising the debt ceiling, which is a relatively esoteric issue. I think that you see in a lot of issues that people haven't really considered a great deal, the question where it matters a lot.

And so, you ask people whether or not we should be raising the debt limit, you're going to get a different answer than whether or not we should be defaulting on the United States' obligations.

KING: Go ahead.

AVLON: I always got a little bit -- you know, when people say it's the question phrasing, they are usually trying to avoid the obvious -- I mean, with due respect. I mean, if you look at the independents, it's pretty clear. Independents are always close to Republicans on economy issues. They tend to care a lot about the deficit, as well as the economy overall.

But it's not a clear sell. And if you look at some of the polling also, independents can't say that they're going to blame Republicans if we default and blame Republicans for the economy more than President Obama. So even though he's underwater, he's still comparatively a good shape.

WALLACE: The single place where the independent voters in this country are most closely and passionately align with not just the establishment of the Republicans but the Tea Party is on the size and the cost and rapid expansion of the federal government. So, if Republicans, you know, again have a philosophical discussion about the size and the role of federal government and American life, there's no way for Obama and the Democrats to come out on top.

KING: It's an interesting point that you make because the last election that we had was 2010 midterms. You run into people, let's say, in the place like New York City. They tend to be a little bit more liberal than where we are today with the rest of the country.

WALLACE: You think?

KING: I think. And people will say, what are these Republicans up to? How could they possibly think that they could have us default?

However, if you're one of these new Tea Party members, if you're one of these new House members, you were just elected, some of them overwhelmingly so, in races in which they said that they were going to do this. And so, you could take their political promise and match it up against the debate at the moment and that's why you have this in Washington.

LISZT: They also ran for the left of Democrats on Medicare, saying that they were going to save the program and then they voted to end it. I mean, if you want to talk about where voters are on fiscal issues, look at the most recent Gallup Poll. Just 20 percent of the voters want to balance the budget with spending cuts alone, which is the position that Republicans are going to the mat for and are willing to tank our entire economy over.

That's not just the Democratic position. That's an independent position as well.

WALLACE: But voters aren't stupid, and I think they're going to see that President Obama has not put forth a budget that cuts a dollar in spending. He's never advocated any cuts. He's never articulated a specific entitlement reform that he's for.

So, I think, if you treat voters like they're stupid and they're not going to get to the truth, you pay a price.

So, I think these poll numbers are temporary.

AVLON: Independent voters voted to Republicans to reduce the deficit and the debt. They did not vote for default. Anyone who has a credit card, I can understand the results of that. What happens is, you don't pay your bill if you get deeper in the hole.

KING: At that point, I don't think any of the politicians have explained it like that.

AVLON: Right.

KING: Every family has done this at their table at some point in the last two years, and had to deal with these issues. Now, Washington has to deal with it. Everybody stay put.

We're going to take a quick break, but we'll be back with our group in just a minute.

Next, Texas Governor Rick Perry suggests that he's being called to a higher ambition. We'll discuss how his appeal among evangelicals could reshape the Republican presidential hopefuls.


KING: A source close to the Texas Governor Rick Perry tells me tonight a Republican presidential candidacy is more likely than not, but insists that the final decision hasn't been made. A second source says the would-be campaign is waiting and a little bit more fundraising and polling research before decision time.

But to hear Perry is to hear a candidate leaning in with the language that some evangelicals might find appealing.

Here's what Governor Perry told the "Des Moines Register" over the weekend. Quote, "I'm getting more and more comfortable every day that this is what I've been called to do. That this is what America needs."

Smart language or presumptuous?

Nicolle Wallace, Jeff Liszt, and John Avlon is still with us.

As a Republican who has navigated the evangelical politics with George W. Bush, you had an appeal, and with John McCain who did not -- that language, the calling language. Governor Perry tonight, I want to read this, Governor Perry saying, "I'm a man of faith. I don't make any apologies about my faith in this. There's a lot of different ways to be called. My mother may call me for dinner."

So he's trying to say he's not overtly. But in Iowa newspaper, to use that language, a lot of people connect the next dot and say he's trying to speak to evangelicals, right?

WALLACE: Well, look, I think we do a lot of injustice to evangelicals by failing to understand that this can be compelling. It's not that they understand the language of, you know, cutthroat politics. But I think speaking to them in terms of what you're called to do, based on your faith, is powerful, and I think we're going to have a real race on the right about who can speak the language and, more importantly, who can walk the walk, not just talk the talk.

KING: You criticized the field in the last time. You said there's a hunger for somebody new in the field. I mean this with no disrespect to Governor Perry and it is early. He can raise money. He's a big state governor.

But we go through this every cycle. And just to use two words, Fred Thompson. He was the next Ronald Reagan. He got in last time and he helped John McCain in South Carolina on one night by beating Mike Huckabee in the couple of counties. But otherwise --

AVLON: Yes, I don't think actually Rick Perry, if he gets in, he'll be another Fred Thompson. I don't. I think he's less likely to be game changer however rather than a field changer. I think he will soak up a lot of the social support that's being split among a number of different candidates who so far have failed to distinguish.

So, I think, very quickly, it would become a Rick Perry-Mitt Romney race. It's like best ever. It's something to look forward to.

But, you know, but in all seriousness -- look, I mean, this is since dog whistle politics, but they're calling the language as dog whistle. And it can very much help in an Iowa caucus. It can help in South Carolina. Independent voters, you can vote in New Hampshire, right, are the least religious segment of the electorate.

So, there is a question of whether he adds something in this field, or whether he simply coalesces the right. I think he really does the latter, and there's still opening in the center right.

KING: So, is the Democrat watching, knowing that the map will be different and tougher for President Obama this time in 2008? When you look at a Rick Perry, you have a field that's out there and then a Rick Perry who might get in, who do you worry about the most?

LISZT: Well, I mean, first of all, with Rick Perry, I think that there are a lot of Americans who have heard an element of a call and understand that language. I don't know that that's necessarily a liability for him.

I think that a bigger liability is that as Democrats we expect that economic proposal coming out of the Republicans in 2012 are going to look a lot like the policies of the Bush era. I think it would be too much to ask almost that the messenger for those policies would be another governor from Texas.

AVLON: Who sounds eerily similar.

LISZT: Who sounds eerily similar.

I think that coming back to the elements of the call, I think that there are going to be a lot of attention to veer off in the social issues. And if you look at the last Pew (INAUDIBLE) study, there's less of a line between fiscal and social conservatives. And there has been.

KING: You speak about veering off into the social issues. This has been a field day, for the most part so far, unless there are asked questions. For the most part, some of the appeals to evangelical voters -- they're talking about them, and some of their more targeted male pieces they are. But in the most are, in their big speeches, they are talking about the economy and they are talking about jobs and they're talking about the deficit.

Rudy Giuliani, who may run again, I tend to think not, but he's flirting with it.

John Avlon, you are on the Giuliani team last time. Listen to him talking to our Candy Crowley. He was in New Hampshire again. He likes to go up there every now and then. He has a Giuliani social moderate, the mayor of New York City, has a message for the rest of the Republican field.


RUDY GIULIANI (R), FORMER NEW YORK CITY MAYOR: I think that marriage should be between a man and a woman and I think that the Republican Party will be well-advised to get the heck out of people's bedrooms and let these things get decided by states. And the reality is that this is something that, you know, the New York decided by a Democratic vote. I think it's wrong, but there are other things that are wrong that get decided by Democratic vote.


KING: Do you really see this issue bubbling up in this Republican race? Same sex marriage? I mean, New York did what it did when it did?

AVLON: Sure. Well, look, I mean, Michele Bachmann is running as a social conservative and never speaking about social conservatism, although that's really the core of her appeal historically. I think Rudy was actually making a very honest and important point that someone in this Republican field should make, which is that for all of the libertarian rhetoric of individual freedom, how about consistent conservatism on that front? How about actually saying, you know what, we may disagree on this issue, but let's leave it to the state, let's not get the government out of the people's bedroom and the boardroom.

And when Rudy speaks like that, I think a lot of people nod their heads and that's the guy I worked for. Proud to do it.

WALLACE: Yes. Look, I think that -- I happen to agree with him. I think there's an argument to be made that a purely conservative position is to leave this to the state. I mean, you have Dick Cheney still far to the left of President Obama on the issues. So, it is an issue that doesn't necessarily align with the two parties.

I think that the point that Rudy is really getting at, though, I think is that times are so serious that we should move off of this. You know, people keep suggesting that Republicans are right on the Bush policies. The time is so different.

I don't know if that Republican presidential candidate could run on the tax cut package that President Bush ran on, the deficit is massive, that problems we face, we fought two wars. We're still in both countries.

So, you know, I think that Democrats are foolish to think that it's going to be a breeze to run against the Republicans who's running on a smaller federal government and lower taxes.

KING: You're shaking your head, Jeff.

LISZT: Tim Pawlenty is running on that platform if I'm not mistaken.

WALLACE: They both are running on a historical level. Well, look, Republicans, seriously, they are running on growing our way out of the deficits, which a lot of people outside of Manhattan think is a pretty good idea.

KING: If the economy would start growing. But, Jeff, I asked Nicolle at the beginning of the conversation to try, if she could, to put her Republicanism aside.

Let me ask the same question of you. When you look at this field, do you see anybody there who you identify as new, as different? And not just how they look like but in how they sound, what they say?

LISZT: Well, I think the question is less who the Republican field is now and more who they are going to be once they come to a primary. And I think the question is whether they are going to be able to deliver some of that message that Nicolle was talking about without to veer too far off into the right and to the Tea Party want to compromise on the deficit. But you're still got this very strong intractable view because they're pondering this segment of the Tea Party.

KING: This is why we go state by state, New Hampshire, South Carolina and beyond.

Jeff, John, Nicolle, thanks for coming in tonight.

WALLACE: Thank you.

KING: When we come back, the president's handling of the debt talks is being watched closely here and around the world. "The Washington Post's" David Ignatius and CNN's David Gergen applaud the president's goal but they see a lot lacking in his approach. We'll get their take, next.


KING: As the debt debate plays out, President Obama's every move is being closely watched, and his leadership style closely analyzed.

In one recent column, "The Washington Post's" David Ignatius described the situation this is this way. "The world looks to America in times like this. Governments and business leaders want a basic framework so they can make decisions. What they get from the Obama White House, too often, is silence."

David Ignatius is with us now, along with CNN senior political analyst David Gergen, who's advised four U.S. presidents.

And, David, in that column, this is something that the president said that caught your eye, or better put, caught your ear, at his Friday's news conference. Let's listen.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We are obviously running out of time. And so, what I've said to the members of Congress is that you need over the next 24 to 36 hours, to give me some sense of what your plan is to get the debt ceiling raised through whatever mechanism they can think of, and show me a plan in terms what you're doing for deficit and debt reduction. If they show me a serious plan, I'm ready to move, even if it requires some tough decisions on my part.


KING: Now, David Ignatius, you said the president sounded custodial there. It is now 72-plus hours later. The Congress has not shown president a plan. They are still bickering.

Why custodial?

DAVID IGNATIUS, WASHINGTON POST ASSOCIATE EDITOR: John, I thought that film clip you just showed is a perfect example of the way in which this president isn't using the office of president to communicate with the American people, and with the Congress, and be a leader. We're facing a real national crisis. The notion that it's OK for the president to say, I'm sitting here waiting for Congress to give me something that I can act upon, just seems to me to be insufficient.

And the more I looked at areas of foreign and domestic policy that I follow, I saw the same phenomenon of the president really not articulating a clear vision, not speaking over the heads of noisy, Washington chorus that we're all part of, to connect with -- with the public and to get things done.

KING: David Gergen, do you agree with that? Remember, I'm not sure this president has much of a choice given the politics of the moment. But we were promised, or maybe we led ourselves to believe we would get a transformational presidency, and it seems at time to time we have a transactional presidency, where he essentially goes from deal to deal, whether it's David Ignatius makes the point, is whether or not to increase troop levels in Afghanistan or now, how to negotiate this budget deal, that deficit deal.

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: Well, John, you just implied something. And that is a leader, to lead well, has to have followers. And right now, you know, Congress is a pretty cantankerous bunch. And, indeed, most Americans are right. We're in a pretty sullen mood.

So, it's hard to lead under those hard circumstances. That said, I think David Ignatius is on to something very, very important. The way this president has chosen to lead consistently right from the beginning does not fit the normal pattern we have seen in the past.

He, after all, his formative experience as a leader was as a community organizer, and as a community organizer, you tend to lead from behind, the famous phrase now -- you tend to herd people along, and that's a style he brought to the White House. It doesn't fit our sort of stereotypical sense or the hunger people have for a leader who is out front, who is visionary, who is brave, who said this is where we ought to go, and fights in the arena to get it done. And I think Americans have had a very hard time adjusting to this very different style, which was I thought exemplified by that clip that David Ignatius pointed out.

KING: And so, David Ignatius, what is it in his style, in his character, in the way he carries himself that leads to you see this? And I want to quote from your column. "The Obama White House is blessed, if that's the right word, in having such an irresponsible Republican opposition in Congress. As the debt limit day of reckoning approaches, the GOP will pay for its reckless, roundhouse swings. But the president needs to start acting like a fighter and a leader, rather than a punching bag."

We don't want a president that's a punching bag, do we?

IGNATIUS: We don't. That may sound harsh. But watching the debt limit debate and people really assault the president, this very corrosive debate that we have, the -- what's required is for the president to find forceful language to lead the country on issues that matter to people. I'm struck by the increasing breakdown of some of our political institutions. They're just not solving the problems that people care about.

You can say that's the fault of a cantankerous Congress. But American history shows that in many -- I'd say even most periods -- we've had a very noisy, cantankerous political process. The essence of leadership -- now is the time of George Washington, Andrew Jackson -- is to find a way to govern over the heads of all of those noisy people, all of those journalists who are causing you trouble.

It's not impossible. It's difficult. This president has a very dry, austere reticent style -- and my sense increasingly is that it's not sufficient for the challenges that he faces.

KING: He doesn't like the word, some use, professorial and have from the beginning.

David Gergen, does it matter? You've been in the White for four U.S. presidencies. Does it matter in the end if a week from now, he gets a pretty good deal? Does it matter how he got there? How maybe not so strong he looked? Or how much of a punching bag, as David Ignatius, says he was?

Does it matter in the end, if in the end, he gets a significant reduction deal?

GERGEN: Well, obviously it matters a lot less and I think we'd all give him credit for having woven his way into the position. But, John, right now, it doesn't look like he's going to get there. I think the chance of getting the grand bargain, that vision that he did present two or three weeks ago finally has vanished. I just don't think he's going to get it any time soon.

He may get -- he's going to get a patch. So, I think David Ignatius' point still holds. One other aspect of the David's column that I think is worth bringing attention to and that he raised the question about a second term and that ordinarily, the president who is seeking reelection by this time has thought through what his agenda might be for a second term, and, of course, the campaign will lay out some sense of where he's going, what he wants to do.

I think the American people right now are having a hard time figuring out if we do re-elect the president, and that's a good prospect we will still. You know, I think it's really 50/50, if not a little higher. What is it he's going to do?

I don't think this same style will work in a second term. And second terms are notoriously tougher than first terms, and this style has not worked particularly well now and it would work even less well in a second term. I think he needs to change his style.

KING: That's a very important point. I want to close on this one, David Ignatius. You also make the point about the world is watching this debate, and the president campaigned on the theme that after all of the controversies on the global stage, particularly the Iraq war of George W. Bush, that he was going to redefine America's image, the redefine the role of the American president in the world stage? Has he failed that test?

IGNATIUS: Well, I think he initially had some success and give credit where credit is due. The United States is much less unpopular overseas today than it was during the Bush presidency. The polls all show that.

I do hear increasingly what I quoted one prominent foreigner who I was talking last week saying and that is, tell us what you want. That's especially true in the area of greatest crisis, danger in the Middle East.

With the Arab Spring, people are wanting to understand more clearly what is the strategy of the United States? How do we see a transition taking place to a democracy in Syria, for example? That's a place that could blow up with terrible bloodshed and there is a need for an American president, not just a secretary of state to articulate how we see it, where we want it to go, and then people begin interestingly to conform to that. And I'm not sure this White House has yet really understood that the best part of the inherent power that American has.

KING: We'll see you tomorrow night.

"IN THE ARENA" starts right now.