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Countdown to Debt Crisis

Aired July 28, 2011 - 21:00   ET


PIERS MORGAN, CNN HOST: Tonight, deal or no deal.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: You need to start doing things that actually can pass both Houses and be signed into law.

SEN. HARRY REID (D), MAJORITY LEADER: No Democrat will vote for a short-term, Band-Aid approach.

REP. MICHELE BACHMANN (R), PRESIDENTIAL CANDIDATE: The American people have said enough.

REP. JOHN BOEHNER (R), HOUSE SPEAKER: It's time for somebody in this town to say yes.

MORGAN: Nothing gets Washington's attention like a deadline. So what are they waiting for?

REP. KEVIN MCCARTHY (R), MINORITY LEADER: Americans deserve an honest approach. No more tricks. No more accounting gimmicks. No more broken promises.

MORGAN: Tonight, the White House, the right, the left and the clock. Countdown to crisis.

SEN. CHARLES SCHUMER (D), NEW YORK: We are simply four days away from one of the worst financial catastrophes that could face this country.


Good evening. Chaos on Capitol Hill tonight. Speaker John Boehner's debt plan is stalled in the House without sufficient support from his own caucus to get the bill passed. That's up to Harry Reid whether the Boehner bill has zero chance in the Senate. This country is moving closer and closer to an almost unthinkable national default.

We're going to ask some of the smartest people in Washington to explain, if they can, what is going on tonight.

And CNN's John King, Jessica Yellin and Kate Bolduan.

But first, I want to go straight to the White House.

President Obama is beating the job of compromise but is it too late for that? I want to bring in now White House communications director Dan Pfeiffer.

Dan Pfeiffer, thanks for joining me. Normally, I would think that Republicans in a divisive meltdown with each other is a good thing for the White House. But not today, right? This can't be helpful.

DAN PFEIFFER, WHITE HOUSE COMMUNICATIONS DIRECTOR: No, it's actually -- it's harmful because we are running out of time. We have just -- you know, not -- a little more than 100 hours until we hit the August 2nd deadline. And we're spending hour after hour here waiting for the Republicans to twist arms for a vote that is essentially irrelevant, because as soon as they pass it, if they are able to, the Senate will vote it down and we'll have to get right back to the table and get something done.

MORGAN: I mean it's pretty worrying, I would have thought, that Speaker Boehner that he doesn't seem to have control of his party today. There's a sense that the Tea Party element of the Republicans are driving this delay. Yesterday, we saw Senator McCain calling them hobbits.

I mean they're in some kind of fibril meltdown here but that's really not helpful to the American people. I mean at the moment, as things stand, do you actually have any hope of doing a deal?

PFEIFFER: Absolutely we do. Because the deal is not that hard. Everyone knows what we need to do here. We need to make real spending cuts that both Democrats and Republicans agree to. We need to have a mechanism in place that ensures that we make another run at serious deficit reduction.

And we have to make sure we're not having this exact same fight over five months from now over the Christmas holidays. That's easy to do if the Republicans are willing to move in the right direction.

What we've known from the very beginning is that this is -- anything that got out of the House of Representatives is going to need Democratic votes and Republican votes. So once we're down with today's pointless partisan exercise, hopefully the people can get to work and find the appropriate bipartisan compromise to get this done.

Time is -- the clock is ticking, but there's still time.

MORGAN: What are the -- what are the Armageddon options here for the president? Because you've publicly ruled out from the White House deploying the 14th amendment. Would you consider a veto? Where are we going here? Because something has to happen, doesn't it?

PFEIFFER: Well, the only thing that can -- the only thing that can break this impasse, the stalemate, as the president talked about on Monday night, is compromise. That is how this problem has been solved for 50 years. That's how it was solved the last six times that Speaker Boehner voted for a debt limit increase like this.

It's what's been done with Democratic presidents, Republican presidents, Democratic Congresses, Republican Congresses. So that's what we're going to need to do here. And it's inevitable because the leaders have said -- all the leaders have said that default is not an option. And so we take them at their word. We just now need to see some actions to back those words up.

MORGAN: I mean do you guys really appreciate how ridiculous this all looks to ordinary people?

PFEIFFER: Yes. We absolutely do. It is a -- there is a dysfunctional system right now. And it's -- the reason it's dysfunctional is we have divided government. And divided government requires compromise. And even though we've had big disputes over the years, there's always been a situation where both parties want to work together to solve the things that have to happen like this.

And I know people around the country are frustrated and angry. And the president shares that frustration and -- with what's happening here. And that's why the phone lines have been jammed on the Hill. That's why e-mails and Web sites are going out because people don't understand why compromise is a dirty word in this town.

MORGAN: Yes, how much responsibility does the White House take for the current state of the economy? Because there comes a point when blaming George Bush for everything no longer holds water. And when you look at the unemployment figures at the moment you look at the potential crisis as it would be of the credit rating coming down, you know how much blame are you guys taking in there for where we are today?

PFEIFFER: Well, what the president has always said is that we didn't get into this mess overnight, we're not going to get out of it overnight. We have -- this president inherited tremendous challenges -- economic challenges from the financial crisis that happened right before the election in 2008. And we're working to get out of it.

As the president said the recovery is happening, but it's not happening fast enough. We're not creating enough jobs, we're not -- the economy is growing quick enough. And so we're going to keep working on that.

But the thing is, in divided government, if we're going to have a real solution, this is going to have to be Republicans and Democrats working together, which is why the president has been pushing the Congress to first get this debt limit fight over with so we can move on to things that help create jobs and grow the economy like the trade agreements that are stuck in Congress, like an extension in the payroll tax cut that was passed in December of last year.

So there are things we can do. We just have to get past the current impasse we have in Congress.

MORGAN: We've seen some of all these top CEOs from Goldman Sachs and JPMorgan and others writing the president demanding a resolution because their real concern is not just about default, but as this drags out, the threat of the credit rating being reduced gets ever more urgent and realistic. And you could get a situation where that happens before a default. I mean are you concerned about that eventuality?

PFEIFFER: Well, we are -- we are certainly concerned about a potential downgrade. It's why we've been pushing to get this resolved quickly. Unfortunately we are in a situation right now where the House of Representatives controlled by the Republicans refuses to do anything other than 100 percent of what they want. And until that happens, we can't get something through Congress.

And you're exactly right about the CEOs. It's not just CEOs on Wall Street, it's small businesses on main street, are very concerned about this. It's creating tremendous uncertainty all around the economy. And it has to get resolved. This is serious business which is why all these political games that are happening in the House right now are so damaging.

MORGAN: Has president responded to the CEOs yet?

PFEIFFER: He has -- people all across the White House have been in touch with CEOs around the country to talk about this. And what he's doing is trying to push Congress as quickly as he can. But until the House is -- you know, we're sitting here waiting hour after hour for them to pass this bill that is dead on arrival on the Senate. That's what's holding this crisis up. It's critical for the House Republicans to -- to do what's best for the country right now and try to find some compromise here.

MORGAN: I mean if you're worried about the wording for the letter back to the CEOs, what about hey, you guys got us into this mess, now leave me to sort it out.

PFEIFFER: Well, you know, we -- what we have to do is focus on finding a way to compromise and everyone and anyone who can call the Republicans in the House and let them know how frustrated they are with what's going on here, whether that's a CEO on Wall Street, a small business owner on main street, or just an average American who is fed up with the way their government is working right now, that's what needs to happen.

MORGAN: Final question, Dan Pfeiffer. Obviously a default would be completely unprecedented. The first in the history of America and the first for any president. Does the president have sleepless nights about this? I mean this could be a catastrophe for your administration.

PFEIFFER: This would be a -- this is -- it's an unthinkable situation that we could actually be in a place where on -- 12:01, August 3rd, we are in a position we may not be able to pay the bills that have been run up on the congressional credit card.

Actually I think it's important for people to understand. This isn't about new spending. This is about paying for spending we've already done. Paying for the tax cuts that were passed 10 years ago. Paying for wars. Paying for other things we've run up without paying for them over the years. And so this is very serious. It would have tremendous effects on our overall economy, on the individual lives of American families and seniors and veterans. And so that's why we have to get this done. That's why it's so dangerous to be playing games with such an important -- something so important as the forfeit in credit of the United States.

MORGAN: Dan Pfeiffer, thank you very much.

PFEIFFER: Thank you, Piers.

MORGAN: I mean, I'm going to go straight to Kate Bolduan who 's on Capitol Hill.

Kate, what's the mood down there? Are we heading towards any kind of this compromise the president talked about?

KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: I'll tell you, it's a really strange mood, if you will, Piers. It's a very fluid situation and what we're seeing right now at this late moment, we're hearing one thing but it seems like we're seeing another.

We're hearing from the spokes people of the leaders that they will have a vote tonight. But we are nearing the end of the evening and what we're still seeing is the leaders in their offices and members, rank-and-file members, shuttling in and out.

And what we're told is that they're bringing in members at this point who were pretty much firm no's on this proposal, on Speaker Boehner's proposal, and trying to talk with them, trying to twist their arms and trying to convince them to get on board. So this -- they are still working late this evening trying to round up support. And they are clearly having a hard time doing it.

And Piers, this is obviously part of the legislative process the House Republicans did not want to have the public having to see that they're still working late tonight trying to round up support for their proposal.

MORGAN: Yes, I mean, Jessica Yellin, let me come to you here. It's been a pretty embarrassing day for Speaker Boehner, hasn't it? It looks like he's lost control completely.

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: Yes, not a good day for the speaker by any stretch. And it's not (INAUDIBLE) for the White House, because look, on one hand, there's enormous frustration with Speaker Boehner. They wanted to get this grand bargain with him. He walked away. And so there's a measure of look, you could have cut a deal with us and look what you're stuck with.

On the other hand, this is still the man they need in order to get this bill through the House in the very end. To get some deal through the House in the very end.

I've asked, will the president -- has the president called for a meeting of the Hill leadership here at the White House? So far they have not asked for that, I am told. But we should expect that if that's what's needed, the White House stands ready to do that in the coming days.

The bottom line is, this entire town is waiting to see this bill passed so that they can move on, get past the House, Piers, and on to the Senate where we've seen finally compromise sometimes in the past. That's where compromise can finally get done. Question is, when can this finally get through the House and on to the place where the grown-ups sometimes take over.

MORGAN: And talking of grown-ups, let's go to you, John King, who despite your youthful appearance --


MORGAN: You've been around the Washington block a few times. What are -- let's cut to the quick here, getting all through the Washington BS. Where are we?

KING: We're stuck right now because we're talking about a financial deficit. A budget deficit. A long-term debt. But Washington is stuck because we have a huge trust deficit. Not only does the Democratic president not necessarily trust the Republican speaker of the House and his group, but a lot of these new members don't trust their leadership.

A lot of these new members, the Tea Party members, don't -- it's not necessarily that they don't trust Speaker Boehner but they don't trust where he wants to go.

You were just mentioning, Piers, these letters from the bankers. You know the bankers were saying this would be Armageddon. The Treasury secretary says this would be Armageddon. Senior Republicans like John McCain are saying hey, new guys, you have to compromise, you have to cut a deal because this would be horrible.

What a lot of these new members are saying is these are the guys that just got us into this mess over the last 10, 20, 30 years. Why should we listen to them? And they're not, to their credit -- I'll get angry e-mails for this. To their credit, they're not afraid to keep their campaign promises and they're not afraid to lose their jobs.

And so Speaker Boehner tonight is trying to wrestle the votes. And one of the most remarkable things happening in Washington right now is all these incredibly powerful people don't have as much power as they thought.

The president of the United States who is supposed to be transformational, he can't move this debate right now. The speaker of the House, he got the gavel, he has a new majority, but he has new members saying you're our speaker, but we are going to call some of the shots around here.

MORGAN: And, John, I mean, we've been through this deadline thing many times. And it always gets resolved. America has never gone into default. Are you getting any sense that we could have to start thinking of the unthinkable? Could you imagine a scenario where actually the country does go into default or not?

KING: I would still say tonight that most of the people who have the votes and the power think it's unlikely. Think they will work this out over the weekend. But tonight, Piers, the unthinkable is actually thinkable.

Yes, I can see a scenario where we get to that point because it's so hard to reconcile these plans. And to get to that point, we first have to go through this ritual. We're planting flags tonight. The Republicans want to plant their flag and say this is our second proposal, take it, Mr. President.

Then Leader Reid wants to bring his proposal up and say no, this is the Senate Democratic proposal. This is a better plan. Well, guess what? The House plan can't pass the Senate, the Senate can't pass the House.

After they plant their ritual flags, then they have to negotiate. But until we get that process moving, they can't -- they refuse essentially. The president of the United States says he won't call the congressional leadership. The congressional leadership, we want on the Republican side. They say we don't want to take the president's call until we have their votes.

And so until they go through this ritual, they can't then try to actually cut a deal and, you know, you don't need a calendar to tell you that we're running out of time.

MORGAN: John King, thank you.

Now I want to go to the House and bring you Representative Cathy McMorris Rodgers who's the vice chair of the House Republican Conference and who spent the early part of the day with Speaker Boehner.

Congresswoman, thank you for joining me. It's been a pretty awful day for the speaker, hasn't it?

REP. CATHY MCMORRIS RODGERS (R), WASHINGTON: Actually the speaker says he's made tremendous progress today and that we're narrowing in on those final votes. The large majority of House Republicans do support the plan that he's bringing forward tonight and he's just getting those final votes. And we're confident that we're going to get those votes.

We're going to get it to the Senate and hopefully on to the president's desk. And I would urge my colleagues in the Senate to give serious consideration to this plan. This is the second plan that we passed out of the House in just last week. And it's clear that it is -- it's been tough to get the votes for this plan. And I think they need to look very seriously at this being the best option as we approach the final days leading up to August 2nd.

MORGAN: Let's be honest here, though. This plan has two hopes of getting through. No hope and Bob Hope.

RODGERS: I'm not sure. This is a plan that was largely negotiated over the weekend between Speaker Boehner, Leader McConnell and Leader Reid over the weekend. And then the president raised some concerns with the plan. But it is one that was negotiated in a bipartisan fashion.

Speaker Boehner has been at the table negotiating in good faith. I think it's important that the administration and the Senate recognize that this new majority in the House believe that we need a game changer. We cannot continue the current path. And that's where you see in our plan to be voted on tonight that there are the spending caps, there is the required vote on the balanced budget amendment which we believe is very important. And it does contain the cuts.

It's a step in the right direction. Many of our members don't think it goes far enough. But it is us sitting down and saying OK, what can we get through the Senate and on to the president's desk because we don't want to see America default?

MORGAN: I mean you talked there about game changing, I think the American public are sick and tired of games for a start. It always seems to happen with these late deadlines on this kind of thing. But you're actually playing here with not just fire but catastrophe.

America has never defaulted before. But the state of the American economy is so powerless, you could see through all this petty squabbling in Washington, the credit rating downgraded anyway.

And I think people are fed up with it, you know. They really are. You must get a sense of that from the public that you meet, don't you?

RODGERS: Absolutely. And I take that very seriously. I take where we are very seriously. I also take the mounting debt, the record amount of debt that we've accumulated as a country very seriously. And I'm concerned that if we don't start being honest about the impacted that it's having on our future, that we won't have the opportunities that we've had in America.

The Republicans have been a part of the solution. We put forward cut, cap and balance. And the polls showed that two-thirds of the American people supported our plan. And yet the Senate wouldn't even debate it, wouldn't even bring it up for a vote. That's frustrating to us.

We need everyone to be honest about the situation that we find ourselves and be bringing their proposals forward. Bring your solutions forward. The time is ticking and we're running out of money.

MORGAN: I mean what we've seen today is a power struggle in the Republican Party. And it appears to be being won at the moment by the Tea Party. Would you agree with that?

RODGERS: I would say that there are those that believe that this -- the plan that Boehner has brought forward doesn't go far enough. They want us to do more. They believe that the situation is so serious that we need to impose even more serious cuts immediately.

And finding enough votes to move something forward through the House, through the Senate, on to the president's desk, is the -- is the art of politics. And the art of the doable.

I believe that this is the -- this is the most doable plan that we can put forward and that we should -- we should take what is doable and then come back and see what we can accomplish at a later time.

MORGAN: Congresswoman, thank you very much.

RODGERS: Thank you.

MORGAN: Coming up, I want to bring in Senator Chuck Schumer who says that even if the Boehner bill passes the House, the Senate will vote it down.


MORGAN: Even if the Boehner bill passes the House, Senator Chuck Schumer says the Senate will vote it down. And he joins me now to explain why.

Senator, why are so fatalistic about this?

SCHUMER: Well, because the short-term bill that has us going back at these three months from now when you've seen how much trouble it's causing now will just roil the credit markets, risk our credit agency, and tie up the Congress from doing other things like focusing on jobs and the economy. So it makes no sense, absolutely no sense to do this for three months.

And our Republican colleagues in the House are playing a game here. Speaker Boehner has to keep throwing piece after piece after piece of red meat to the hard-right lion that seems to be dominating his caucus. It's about time he tame the lion, not just continue to throw red meat to him which isn't going to accomplish anything.

There's now talk that they're going to have to change the bill. One of the rumors at least is that they're changing it because some of these conservatives want to cut back on Pell grants. Money that helps kids go to college which has overwhelming support among the American people.

And the reason you bring that up is, the points that's made, it shouldn't be 100 or 80 hard-right people who don't represent America, who don't even represent the Republican Party, determining what is done here. But thus far, Speaker Boehner has allowed that to happen.

MORGAN: I mean it's fascinating to listen to all the Democrats at the moment, all of your sweet, innocent smiles, it's all the Republican's fault, nothing to do with us gab. I mean the reality is that you guys have continued to preside over a tanking economy for a long time now and the point we can keep blaming President Bush and the Republicans is rapidly getting to the point where you can't do it anymore, isn't it?

SCHUMER: Well -- I mean, you can talk about the economy. We want to get back and start working on jobs, legislation, which they blocked, and many other things. But on this issue it's hard to say or sort of say, well, on the one hand Democrats, on the one hand, Republicans.

Look, they believe in cutting. We believe that there ought to be some revenues on the highest income people to balance the budget. We've moved a great deal on cutting. We're willing to make significant cuts that many of our constituencies don't like.

Have they moved one nickel? One nickel off revenues? They have said no to everything. So, you know, I know it's in -- fair in the media to say you're both to blame. In this case actually, it's been the hard, hard right that has refused to compromise that actually thinks a default would be OK, who's calling all the shots and holding everything up.

I would hope that Speaker Boehner and in particular Senate minority leader Mitch McConnell would understand that and step up to the plate and start talking to Leader Reid in trying to make some kind of compromise. We have shown we're willing to move way off our starting gate to compromise. They haven't moved a dime off it.

MORGAN: I mean the president does have an option, of course, under the 14th amendment to go it alone. Why wouldn't he do that? Wouldn't that be the master stroke here to say, look, I can't work with these intransigent Republicans for a second longer, the country comes first, I've got the power to do this, and I'm going to do it?

SCHUMER: Well, here's the -- the ideal situation, frankly, is to just raise the debt ceiling which has been undone 39 times before by Republicans and Democrats alike. Never before has a group said, I am not raising the debt ceiling, we are not raising the debt ceiling unless our conditions are met.

That's playing with fire. That's sort of as if you have a mortgage on your house and you tell the banker, unless you, Mr. Banker, build another room on my house, I'm not paying the mortgage. It makes no sense.

Well, the same thing is happening here. But here's what we believe will happen. The Boehner bill -- I mean, I guess they'll try to figure out a way to pass it. And if they do, it'll be immediately defeated in the Senate. We've already have 53 senators signed a letter saying they won't vote for it. And Miss McMorris Rodgers who was on a minute ago -- I mean she saw that letter and she's still saying that's the way to go.

I mean it's sort of like being in Never Never Land. The Reid bill will come to the floor. The Reid bill is compromising. It has some compromises in it. Some things Republicans like, some things Democrats like. It meets the two criteria the Republicans have asked for. No revenues. We'd prefer to have revenues. And an amount of cuts equal to the amount of raising the debt ceiling. That's not our criteria, that's a Republican criterion. And then that will be on the floor and that would be the last vote. And a yes vote on that will mean you don't want to default and a no vote on it will mean you'll default. And we think at the end of the day, that's a much better way to go. And we think at the end of the day our Republican colleagues will join us in that because it doesn't violate a single one of their ideological principles.

MORGAN: If we get to next week and America does default, do you think the decent thing to do would be for all of you to resign?

SCHUMER: Well, God forbid we default. We're working really hard to make sure that doesn't happen. But again, Piers, that's the kind of question that says everyone is to blame. In this case, everyone is not to blame. The hard right, which doesn't represent America, which has refused to compromise, which is even driving Speaker Boehner crazy, are the people who should resign, not everybody else who has agreed to try and make compromises.

MORGAN: Senator Schumer, as always, thank you.

SCHUMER: Thank you, Piers.

MORGAN: Coming up, a member of the bipartisan gang of six. Could they have a plan that will get this country out of this mess?


MORGAN: The bipartisan Gang of Six deficit plan may be the last hope on Capitol Hill. Here now is Republican Senator Mike Crapo, who is a member of that group. Senator Crapo, thank you for joining me.

A lot of people in America waiting now for you guys to do something. What is holding it up?

SEN. MIKE CRAPO (R), IDAHO: Well, frankly, right now, we have all kind of politics going on that are, as I call it, toxic. The House of Representatives has sent two proposals to the Senate, if they send the one tonight over, both of which are probably going to die on the Senate.

In the Senate, there's really no plan available that really does deal in a realistic way with the spending problems that we have. I'm concerned that we may not be able to resolve the issue with one of these two that is on the table now.

I'm hopeful that the Gang of Six proposal will receive greater attention. We are developing much broader support for it in the Senate. I think more than a third of the members of the Senate now have expressed an interest, on a bipartisan basis, to move forward with it.

And hopefully, at some point, a comprehensive approach like that, about a four trillion dollar approach, is what the credit rating agencies have told us we really need in order for them to look away from their concern about downgrading American credit. MORGAN: The situation, senator, seems to most neutral observers to be the Democrats not exactly showering themselves in glory here. But at least they seem relatively on the same song sheet.

The Republicans are just completely split, aren't they? You have the Tea Party faction of the Republican party basically saying no, we are not going to sign on to any deal. All the ones who don't want any revenue from taxation, and they are just saying no, we're not having this.

Your party is split in two. How does that help America and the American people, who are now 100 hours or so from the biggest financial crisis the country has ever seen.

CRAPO: Well, I'm not sure I'd agree with the characterization that the Republicans are split in two. In fact, it's the Republican party, united in the House and the Senate, that has sent to the Senate the budget that was then rejected in the Senate by the Democratic party. Sent them a proposal to put some cuts in place and some caps in place that were really relatively modest, in terms of the issue we are dealing with, and asked for a vote on the Balanced Budget Amendment, which the vast majority of Americans support.

That was rejected in the Senate. Now they are proposing to send another proposal over that will try to find that common ground. And it's already been said that that will be rejected by the Senate or vetoed by the president.

Frankly, I think that the Republicans are trying to put forward alternatives here to simply walking away from the debt ceiling issue and the debt crisis. I again point out, the credit agencies have made it very clear that it's not just raising the debt ceiling that they are focused on, but that if we raise the debt ceiling without some significant fiscal reforms attached to it, to show the credit markets of the world that we truly mean business and that we are changing our fiscal policy in the United States, then they will still probably downgrade us.

MORGAN: But, I mean, most Republicans, at the moment, have a completely irresolute view of any rise in taxation. Whereas, most financial experts outside of America say of course that's what you have got to do. Until there is less intransigence by the Republicans on that key thing, how can you talk about a great reformation?

CRAPO: First of all, the way we need to approach tax reform, which I think most of the experts acknowledge, is to reduce rates and reduce the tax expenditures accordingly, and then grow the economy through the kind of stimulative impact that that kind of powerful tax reform would have.

That's the approach we took in the Gang of Six plan that is agreed to on a bipartisan basis. So putting revenue into the equation through the right approach, by making our tax code much more competitive globally, is the approach we should take. And growth is a key part of the solution. That being said, the proposal to increase tax rates is one that the Republicans across the board do not accept. But I think that's just one of those points where there is great disagreement.

The president refuses to accept the plan that does not involve increased tax rate. The republicans refuse to increase tax rates. It's that issue that is one of the major sticking points that we have faced over the last three to four months.

MORGAN: Finally, Senator Crapo, I mean, a pretty embarrassing day for Speaker Boehner to not being able to push this vote through. What's going on there? Has he lost control?

CRAPO: I don't think he's lost control, but it's very clear that the effort by the speaker to come through with yet another -- a third approach now to try to put something forward to the Senate that the Senate Democrats can accept is moving so far in that direction that he's starting to lose votes on the other side.

And I think what we are seeing in the House right now is that as the plan diminishes and gets less real and less powerful, in terms of its fiscal reforms, we lose support. Unfortunately, I think it's very, very close right now. I don't know, if I had to make a prediction, which way I would predict as to whether the speaker will ultimately get the votes for this final plan.

MORGAN: Senator Crapo, thank you for joining me.

CRAPO: Thank you.

MORGAN: Coming up, as the clock is ticking, Washington is battling. I'll be back with all the latest breaking news in a few moments.



MORGAN: I now want to bring back John King and Gloria Borger from CNN to explain what's happening or happening in Washington tonight. Let's start with you, Gloria. Does anybody actually have a clue what's going on?

If an American ordinary member of the public watching this, I'm hearing about a vote that may or may not happen. But even if it does happen, it's meaningless because it's never going to get through anyway. And I'm thinking, the country is on the precipice of disaster. What the hell are you lot playing at?

GLORIA BORGER, CNN POLITICAL ANALYST: I think you summed it up quite nicely, Piers. I -- look, a lot of members of the Congress honestly feel the same way. I think what you see going on now is the Speaker trying to twist the arms of new members of Congress, largely, who don't owe him anything, who came to Congress kind of outside and separate from the establishment. He's trying to convince them to cut a deal with him so they can be in a good negotiating position with the Senate, because he knows their bill isn't going to go anywhere in the Senate. So it is kind of ridiculous, if you will.

What really strikes me is that you have a president of the United States elected because he wanted to be transformational. You have a group of House republicans, 87 strong, who were elected as freshmen because they want to be transformational in making the government smaller.

These two sides cannot seem to find a way to just approve the debt ceiling. So, it seems a little crazy to me.

MORGAN: John King, are we seeing something bigger going on here, where you have the battle between the Republicans and Democrats over the debt crisis, but you also seem to have -- and it's never been more obvious -- a battle internally in the Republican party between the Tea Party end and the others. And is that a precursor to what we may see going forward to election year?

JOHN KING, CNN ANCHOR: It is, absolutely. We are having a major generational divide and philosophical divide, an old guard, if you will, with the new guard. They new guard, a lot of them don't much political experience. They're car dealers. Maybe they were prosecutors back home.

But they haven't been in the legislature back home for 10 or 15 years before coming to Washington. They think, you know, you are the guys. You're included. Remember, George W. Bush was president. He had a Republican Congress for a long time. A lot of this debt was run up then.

Now people can say 9/11. They can say Iraq. They can say Afghanistan. But it was run up in that period of time. So these new guys look at the older conservatives and say, I'm not going to listen to you. They're not afraid to lose their job.

Piers, we have something else in play here. The American people have been very fickle the last few years. In 2008, they gave Barack Obama an electoral college landslide. They gave Democrats huge margins in the House. Then they didn't like what they saw. So in 2010, they sent this new Republican class here. They elected all these Republican governs back home.

And those Republicans say, in the last election, we won. President Obama says, oh no, in my election, I won. You have two incredibly different perspectives, each claiming they have the support of the American people, because the American people swung so wildly between 2008 and 2010. And a lot of these debates are going to be left for the American people to settle or not, if they continue divided government, in 2012.

BORGER: And you know what, they could swing again, right, John? You know, this is a very fickle electorate now. They don't like what they are seeing, as Piers was pointing out earlier. They think it's crazy. And they really wanted them to work together to get something done.

That's not what they are seeing. They are seeing these guys in and out of the Speaker's office, getting their arm twisted, nothing getting done, pizza being ordered in for dinner, but no vote.


MORGAN: Gloria, let's put the pieces aside for one moment. Let me ask you, Gloria. Let me ask you, Gloria, about the repercussions here if we get to Tuesday and America goes into default. This is clearly a national catastrophe.

BORGER: Terrible.

MORGAN: Would the president have to step down? What happens?

BORGER: Somebody has to stand down. There are lots of people who have lots of very logical ways of coming up with some kind of a compromise here. There is a way out of this. I think people know what it is. But the problem is, Piers, that until you get the vote in the House and then until you get a vote in the Senate, the outside game has to play out before people like Senator Mitch McConnell and Joe Biden and the president and Harry Reid get together to figure it out, because Mitch McConnell is committed to the House Republican plan.

So he can't sort of negotiate right now while that's going on. I think there's a -- there's a way out of this. I do.

MORGAN: John King, scale of one to 100 of political crises that you've covered over the years, where are we with this?

KING: Scale of one to 100. If you -- it depends on how you score them, in the sense that everybody views this through their partisan prism. So there are some people at home who think, you know, these people who say it would be Armageddon if we defaulted, they are the same people who spent all this money. They're the same people passed the Tarp, the bailout program.

So there's a lot of -- people at home view this through their ideological prism. I was here when they impeached the president of the United States in the Clinton administration. I was here when George W. Bush, you know, led the country into war in Iraq with a high approval rating and then had it go quite south.

I have been here for 9/11 and for things like the Challenger disaster. So it depends on what exactly we are talking about.

But in terms of a test to the system, this is a profound test to the system. If you are scaling at that, can your government work, every American family, Piers, in the last two or three years has had to do this on their own scale, deal with the bad economy, deal with defaults, deal with their housing losing half its value.

They look at the children in Washington saying why didn't you do what I did, put the family around the table, maybe you have to bring in the in-laws. It can be ugly and messy, but you have to get it done. That's why I think people at home watching, on a scale of one to 100, would probably put this in the 60 or 70 range.

As we get closer to August 2nd, they probably bump it up some.


MORGAN: Gloria, if I could just ask you, It's the playground politics nature of all this that is insulting to the American people right now. Because they're really hurting. You've got nearly 10 percent unemployment. A lot of people have lost their homes, their jobs, their livelihoods. They can barely feed these children.

They see these politicians continuing to play these stupid games and they're like, no, enough. I don't want this anymore.

BORGER: Right. And that's why we could be looking at sort of another anti-incumbent wave, because they don't like what they are seeing. I mean, if this goes past August 2nd -- I know there are some members of Congress on the Republican side who say that it's not going to be Armageddon and that we still have some revenues coming in and we will still be able to pay our bills a day or two past that.

But let's just stipulate that at some point soon, something very bad is going to happen unless this gets down. The question that I have is how do the politicians then go to their constituents and say, well, these are the bills we can pay, and they are the bills we can't pay. We have to make a decision between paying Social Security and paying Veterans' benefits. That's where the rubber is going to meet the road.

MORGAN: It certainly is. Gloria, John, thank you both very much.

Coming up, a man who knows a lot about government battles, the former president of Mexico Vicente Fox.


MORGAN: Mr. president, I'd like to start by talking to you about this current financial crisis that America has found itself in, literally 100 hours now from a possible default. When you were president of Mexico, could you ever have imagined a scenario like this?

VICENTE FOX, FORMER PRESIDENT OF MEXICO: No, not at all. I don't. I witnessed how U.S. debt and U.S. deficits been growing since time ago. But it's accelerating.

And I think it's a very dangerous play what is going on today here in the United States. And I would ask anybody that is involved to find out a solution. Because if not, only going to work against the U.S. economy.

It will with the rest of the world. And I think that this moment just coming out of that other mammoth crisis that was also created in this nation, the world doesn't deserve this to be repeated.

MORGAN: Why has the world's number one superpower got itself into such a terrible mess financially?

FOX: Well, it's incredible, because people are not thinking on the future. People is thinking on today. So the savings rate of this nation is very poor. In exchange, the consumption rate is incredible. So people and specifically government doesn't seem to be thinking about the next generation.

And I think they deserve this nation to be much more careful than just out to spend itself. And when we have this huge challenge coming from Asia, this transfer of this ship from the west to the east, not only of markets, not only of power, but also on financial capacities.

And if we don't do something in North America and do it very quickly -- and this I'm including Mexico and Canada through NAFTA -- we're going to lose this battle. And this shift is going to happen.

I have witnessed in Korea, in Japan, when I do conferences, that they're preparing to lead the world. And the big question is, what is going to be the ideology? What are going to be the values if they start leading the part of the world?

Are we still going to have the deep commitment with democracy, with freedom, with equal opportunities to everybody? So where are we going to be leading the dream of the Founding Fathers of this nation?

MORGAN: It's a very worrying time. It's a dangerous time, as you say, for the world's economy. When you see the politicians on both sides, Democrat and Republican, squabbling now, trading insults and all the rest of it, with such a serious situation so close, what do you think of that?

FOX: Dangerous game that is being played here. And you know, in Mexico, I think, and in part of Latin America, that the presidential system as we know it is over. I think parliamentarian systems are going to be the future, because there you don't have this kind of situation. Everybody's forced to work towards cohesiveness, towards agreements.

I think it's much better. In our central parts in our presidential library, one of the ideas we're promoting strongly is to let people know, public opinion and politicians, that that other system, the parliamentary system, can be much better today. Because either bipartisan, like it's here, like the dog and the cat fighting for the bone, or a multi-party system like we have in Mexico, where 12 years after we reach a total democratic status, we have not been able to make our democracy deliver.

We have not been able to come to agreement, to consensus. And so the key in the reform that we need are laying there dormant in Congress.

MORGAN: If you were President Obama, and you've been a president of Mexico for six years -- if you were in his shoe right new and you're facing a 14 trillion dollar debt in this country, what can he do quickly to try and sort things out, do you think?

FOX: Well, he has to negotiate. I mean, when you talk about the discussion, it has two parts. Both the Republicans and the Democrats must find an agreement. They have to find it. And they have to find it in the very short term.

MORGAN: The Republicans are very adamant, many of them, that you cannot raise taxes even in such a crisis. Many financial experts outside of America think, of course, taxation should go up. You've got to get revenue coming in as well as cutting spending. What do you think?

FOX: Yeah. But the economy has many combinations. All of them can be mutual if it's under an agreement. You can have an increased taxes when you need to do some expenditures, well-invested in people, infrastructure, schools and everything. And that works.

But also there are times where you have to pull the rope, slow down, and build up to the future. And I think this moment, the least thing that this nation should be doing is increasing its deficit, spending more than what it has. So it has to be stopped on both ways.

One, yes, increasing income and taxes. The other one is by reducing expenses. I mean, (inaudible) expenses, talking about trillions. I asked this morning, what's the next figure? They tell me it's hundreds of trillions.

I don't know what's the next. But in my time, just 20 years ago, we would talk about -- we would speak about billions. Now we're talking trillions. And what is next? I mean, that cannot be --

MORGAN: Is America going bust effectively? If it was a business, would it go bankrupt the way things are going?

FOX: Oh, yes, no doubt. No doubt. If you get to spending more than what you have, you cannot just get loans and credit all the time. Not even if you invest that productively. There's times when you have to refrain your expenses. I think that to keep the wealth of this nation, to keep the quality of life of people here, somebody has to start thinking about the future and increase the savings rate, reduce the deficits.

And that would also benefit the rest of the world. Look at Latin America, how well we went through this mammoth crisis of '08 and '09, because we were controlling our deficits, which we did not in the past. Because we have healthy economies, because we are very careful on inflation.

And now so Latin America, fortunately, one year was back to growth again. And this year, Latin America is going to growth as the whole of the region over five percent. That's incredible.

And that's the same thing that is happening in Asia. That's what we see in those economies. Why? Because they think about the present and they think about the future.

MORGAN: Been a real pleasure. Thank you very much.

FOX: A pleasure to be with you.

MORGAN: That's all for us tonight. Now here's Anderson Cooper with "AC 360"