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Congress to Vote on Debt Deal; Can U.S. Still Lose AAA Credit Rating?

Aired August 1, 2011 - 14:00:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Pushing the debt deal up Capitol Hill. Now it is time to put it to the vote.

A relief rally is short lived. The real challenges are ahead.

And for all the sound and fury, will the deal stick. The U.S. could still lose its AAA rating.

I'm Richard Quest. A good day to you, live from Washington, D.C., I mean business.

Good evening.

From Washington, the sweltering heat of the summer. Well, the push is on to make the debt deal a done deal. The House of Representatives could take up the measure soon, within the next couple of hours and a vote possible this afternoon, certainly this evening it all goes well.

The challenge is for party leaders to sell the deal to the rank and file members. But neither party has been quick to get behind the agreement.


SEN. HARRY REID, (D) SENATE MAJORITY LEADER: It was a compromise. It is not always easy to reach consensus. That's what we did. We did it on a bi-partisan basis. So I believe reasonable Republicans and Democrats alike understood in this case without compromise our country faced a very, very difficult situation.

And we did send, Mr. President, to the world, and to the American people, that our great democracy is working. It is difficult and as hard as it is, it works.


QUEST: The deal is on the table. Now, Washington will decide. Both Houses of the U.S. Congress will vote, probably today, on the plan. If they don't, there will be a disastrous default. These are the key points of that package that you need to know as part of our comprehensive coverage tonight on QUEST MEANS BUSINESS.

There would be at least $2.1 trillion in spending cuts imposed over the next decade. The debt ceiling would be raised through 2012, by a similar, perhaps smaller amount. And that would come into phases. The first phase could begin almost immediately. The debt ceiling will be raised by $900 billion. And there will be some cuts.

The rest depends on the bipartisan congressional committee, a special committee, they're calling it. Welfare spending is protected. If targets are not met then sequestering takes place. And that is a posh way of saying across the board cuts to social programs and military spending, the new deadline for Congress this year.

Congress must approve committee cuts by then cuts across the board cut in, if they do not. Now the important thing is, at least from one political point of view-I'm joined now by Stuart Eizenstat who was deputy Treasury secretary in the administration of President Clinton. He joins me now.

Sir, the deal-we know what the deal is. And time will tell us if it is going to actually pass Congress. Is it a good deal? Does it make economic sense?

STUART EIZENSTAT, FMR. U.S. DEP. TREASURY SECRETARY: First, it will pass. But from an economic standpoint it is only a down payment of about $2.5 trillion of what is, by consensus, a requirement to cut our debt by $4 trillion over the next 10 years. But the problem, Richard, is because our economy is so weak this will actually come at the worst time. It is necessary, but it will de-stimulate and already weak economy and retard growth across the board.

QUEST: Which is worth also mentioning we are talking about reducing a deficit. There will still be annual deficits, even under these plans.

EIZENSTAT: There will not only be annual deficits there will be a cumulative debt, which will increase quite dramatically and that is why most experts, including the president's own bipartisan commission wanted $4 trillion in cuts. That is not going to happen even under the best if circumstances.

QUEST: So, we know that people have looked for a debt plan rather than immediate debt relief. Because frankly, in this weakened economy immediate relief is not what is what is needed, is it?

EIZENSTAT: No, quite the contrary, in fact, one of the things that is not part of this deal, that would have been very desirable, is a continuation of the payroll tax cuts, which would have encouraged employers to hire. That is now out and it is a casualty of this agreement.

QUEST: So, if you weigh up, I suppose, whether you think it is a good deal or not? I mean, never whether it is the only deal they could get. Is it a good deal?

EIZENSTAT: It was a necessary deal because the Republicans insisted to raise the debt limit this cut could come. Is it a good deal? It is good for the long term, but in the short-term it will retard growth. It will make job growth more difficult to achieve. It is a mildly de- stimulative package, because most of the big cuts, Richard, come in 2013, when hopefully the economy has improved. But what we need now is actually a short term stimulus. And that is no where in sight.

QUEST: And nor could really the nation afford it, perhaps?

EIZENSTAT: It could not afford it, not given the debt we have built up. And that is the real conundrum.

QUEST: OK, caught between a rock and a hard place. If this debt-if this deal does not pass, let's just, play with me if you will on this. Humor me. If this deal does not pass do we end up with at TARP 2 type reaction?

EIZENSTAT: Well, first, the deal will pass, but if it did not pass, we would have a Lehman Brothers reaction in which you would have a catastrophic impact on bond markets. And that is why the normal capacity of one senator, to delay a consideration of this package for several days, by objection, probably won't happen. And both the Senate and House will pass it because they realize there would be truly catastrophic impacts.

But may I say that even with this package we have gone through such a hellacious period, that it has impacted already on our standing the world.

QUEST: That is really significant. Because never mind whether your bond rates tick up a couple of basis points or whatever, in future, people look at this place and say, they don't know what they are doing. And even if they do know what they are doing, they do it very badly.

EIZENSTAT: There are no political winners in this. Not the White House, not the Republicans, and not the Democrats. It is sort of a pox on all your houses, from the American people. And what we have got to show is that we can come up with a long-term structural debt reduction package, that hits in 2013 and includes Medicare, health care savings, Social Security and other entitlements.

QUEST: Right.

EIZENSTAT: Plus, an increase in our revenue base, which is now Richard at its lowest level in 50 years. That is raising taxes which the Republicans won't-well, we'll put that to one side. Fundamentally, Stuart, isn't the real problem here that Americans are not yet prepared to accept, they can no longer live at the means they have done, and are going to have to cut back dramatically.

EIZENSTAT: Absolutely.

QUEST: Greece, U.K., France, Germany, every other country has decided this.

EIZENSTAT: We have created a social welfare structure we can't afford, at this stage. And the American people don't yet understand that they theoretically want reductions, but they don't understand now that we're entering an era of austerity. This is going to reduce the political military and economic footprint and clout of the United States over the next several decades. We are going to have to pull back. We are going to be cutting military-

QUEST: But there is no choice, it has got to be done?

EIZENSTAT: It has to be done. Now, in our last three years, when we were at Treasury, with President Clinton, we handed President Bush three straight years of surpluses. Those have long since past.

QUEST: Thank you very much for joining us, in the heat of the Washington summer.

EIZENSTAT: Thank you.

QUEST: Good to see you, Stuart Eizenstat joining me there. Live pictures now to show you. This is the scene. We are awaiting the Speaker of the House John Boehner to address and to give his view, what he says will be of crucial importance, because it is basically whether he can heard the cats of the Republicans Party into maybe passing the deficit deal.

It is make or break time. Well, we know that much. What's the wider world think of the United States, and what is happening? International analysis is on the way, the (UNINTELLIGIBLE) with me after the break.


QUEST: Welcome back. It is a special edition of QUEST MEANS BUSINESS. We are live today from Washington on the U.S. debt deal. Congress is in a cold sweat, which is ironic, since it is a baking Capital Hill, sunny day. The Dow is seeing red and early rally on the back of the debt deal fizzled, uncertainty, some bad weak economic manufacturing numbers are taking their toll on the Street. Up on Wall Street, Maggie Lake, is there at the New York Stock Exchange.

Afternoon, Maggie.

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Hi, there, Richard. And you are right, you summed it up. That relief rally fizzled pretty quickly in the day. Let's bring in Alan Valdes right away, director of floor operations at DME Securities.

Alan, what is bothering the market?

ALAN VALDES, DME SECURITIES: Well, you know, as Yogi Berra would say, "It's not over until it is over." There is no vote yet. It seems both parties are trying to line up votes. We are going to hear from the speaker in a few minutes. So, we have to see how that is going to go. But you know, generally, also, people forget that the economy has just been generally weak and we saw that today with the ISM number that really tanked the market. The debt ceiling actually had the market up 130 at one point.

LAKE: And then it turned right around.

Clearly the economy is so fragile. What do the investors, what do traders make of the compromise? Is it a good thing, or are they disappointed?

VALDES: They are disappointed, as a whole. Because two-thirds of it comes years down the road, and it is just not what they wanted to hear. It is just not-it is very weak, it really is. It doesn't cut spending enough. It is just one of these deals that helps the politicians, but really doesn't help Wall Street.

LAKE: You mentioned uncertainty. That is something I hear over and over again, not only from investors, they are ringing up their retail brokers, they are concerned about what to do. CEOs tell me, it is like business came to a halt again. Is the market worried about a downgrade? We may get through the debt ceiling, but then what happens. How much of a risk is that for the market?

VALDES: A big risk. And that is the big problem. The debt ceiling we all thought was going to be resolved one way or another. But the downgrade is something else. Fitch and Standard & Poor's, want $4 trillion in cuts. We are nowhere near that. And the trouble with a downgrade in a weak economy it is going to raise interest rates, which will bring mortgages up, loans up, student loans up. But more importantly for the average guy, inflation, inflation follows right behind that. Gas prices go up. And food prices go up, when everything but wages are going up, big problem.

LAKE: These are a lot of concerns, a lot of headwinds, do stocks continue to sell off into this, or do we just sit here and take a wait and see attitude until we see if Washington can get its act together with this special committee.

VALDES: Well, you know, we have seen so many blue ribbon committees, and special committees, we don't take that serious anymore. The feeling is you could see this market trickle down, for a while now, you definitely could and that is the problem.

LAKE: One last thing, everyone says, yes, it is bad here, but it is worse everywhere else. Is that the-does that, in some ways, help mitigate the pressure that we feel here in the markets?

VALDES: Sure, I mean, we are the best horse on the sloppy track, we like to stay down here. Because if you look at Italy today and Spain today, they are markets collapsed early on. If you look at Brazil, which was the darling of South America, they are fighting inflation. They are market was the worst market in the world last quarter. So there are problems out there that make us look-even if we go from AAA to AA, we are still the new AAA.

LAKE: Alan Valdez, thanks so much.

And there you hear it, Richard, a lot of concerns, but once again, it is in the context of a global economy, everything is looking problematic, Richard.

QUEST: Maggie Lake, who is on Wall Street. Our coverage, we have so far looked at the economy. You have heard the markets reaction. Now let's consider the ratings agency. Because the deal still has to win final approval from Congress. But as you were just hearing, even if it goes through, there are questions over the AAA credit rating. What do the rating agencies, what have they said, on the deal so far. Moody's said, "It remains our expectation that the government will continue with timely debt service and that our review for downgrade will more likely than not conclude." In other words, "with a confirmation of the AAA rating, albeit with a shift to a negative outlook." Now that is a clear indication that Moody's is not thinking of downgrading.

Fitch said, "We will only comment after a final deal is approved."


That is sitting on the fence. And the other major credit rating agency, S&P declined to comment at all. They had been hoping for a much bigger deal to be announced.

That is what the ratings agencies, what are the private economists in the world's major investment banks saying about the deal? What are they telling their clients? Jim Boulden has been finding out.

Jim, give us the inside track on what people are saying tonight in their research notes.

JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: Well, certainly, Richard. We have heard a lot of instant analysis from the banks. Let's get to some of the big ones around the world. We start with Daiwa Capital Markets.

Daiwa says, "The package may not be sufficient to avoid a downgrade," a very clear message from the Japanese bank.

Let's got to BNP Paribas, the French bank says, this whole deal is "unlikely to instill faith in the long-run prospects of the U.S. achieving a sustainable budget position." So, BNP looking wider, saying, this still isn't enough to bring the budget back into balance.

Let's look now, ING Bearings, very interesting one for them. They say "the AAA is not assured, with the downgrade still potentially having severe negative consequences for the economy." Not all the banks agree with that. Using the words "severe, negative consequences".

Now Commerzbank, out of Germany, said, "the deal would at least remove the risk of a U.S. default and short-term ratings downgrade."

I can also tell you, Richard, that UBS says that overall this should be stock market friendly. So very different views from very different banks around the world.

QUEST: Jim, if we accept that the banks are of consensus, that a default is no longer-you know, eminent and, therefore, quote, "that is a good thing." Is there a consensus on whether this deal is a good deal?

BOULDEN: This is what they were all saying. They were all saying the deal is one thing, how the rating agencies look at the deal is another thing. They say that, of course, the devil is in the details. They want to see what happens with this bipartisan group down the road, whether they can come up with more serious cuts. The biggest worry, of course, is that it is just a short-term deal now, and that Congress cannot get back to normal business. That is really worrying people. And if you have this happening, with U.S. manufacturers numbers, could you have the U.S. going into recession? That seems to be worrying people. Because, of course, if there is a ratings downgrade the U.S. will have to pay more money on its debt, instead of using that money to stimulate growth, Richard

QUEST: Jim Boulden, with the banks, and briefing us on what the investment world is saying, in their private notes, and advice.

Uncertainty over the deal and disappointing economic numbers for the European bourses. And the markets closed, as you will see. The benchmarks gave up the early surge. The DAX and the CAC currant in Paris sank more than 2 percent during the course of the day.

Banks, not surprisingly, were amongst the biggest losers. Lloyd's bank dropped almost 5 percent. Credit Agricole and Commerzbank, Agricole in France, Commerz in Germany, down by almost 4 percent. Staying with the banks and Europe's biggest bank managed to buck the downtrend, HSBC shares held onto the gains in London. The bank said it will loose roughly, give or take, 25,000 jobs around the world. That is 10 percent of its workforce when you include the 5,000 that it announced earlier this year. HSBC also reported a surge in profits. The Chief Executive Stuart Gulliver said, he is pleased with the results. Not the job losses, obviously. His focus is now squarely on faster growing regions.


STUART GULLIVER, GROUP CEO, HSBC: We remain positive on emerging markets. We anticipate a soft landing China. And expect the risk of overheating in Hong Kong to ease. We expect continued strong growth in the rest of Asia and Latin America. And we remain positive on the outlook for the Middle East. But there are clear short-term concerns. The geopolitical and regulatory is uncertain and presents challenges for the developed economies.



When we come back we leave Washington, the heat of Washington. But out of the ashes, we go to Lebanon, to Beirut, to where the capital is rising like a phoenix.



QUEST: After the break, a tale of resilience, the many makeovers of the city that learned to dust itself off, and rebuild. We are in Beirut for "Future Cities" in a moment.


QUEST: Good evening to you. It is a special edition of QUEST MEANS BUSINESS. We're live in Washington as we await for the final and vital votes on the U.S. debt deal. We understand that the press conference that was going to be held by Speaker Boehner is now postponed. It will be after, it will be after the next hour or so.

So, let us leave this city and tap into the energy of a city that is bouncing back in its own way, this time in the Middle East. Throughout the month of August we are going to be in the "Future City" of the capital of Lebanon, Beirut.


QUEST (voice over): They called it the Paris of the Middle East. And then came a civil war; 16 years of battle on Beirut's streets and the Paris of Middle East became the ruins of Lebanon.

BILAL HAMAD, BEIRUT MAYOR: You know, this was the hottest war zone in Lebanon. Streets were actually dividing fighters from different factions. All these buildings were set on fire, watched them destroyed, as if an earthquake hit the downtown area of Beirut.

QUEST: After the war, seemingly there was nothing but rubble. The late Prime Minister Rafik Hariri created a new company, Solidere, to rebuilt the city center from scratch.

NASSER CHAMMAA, CHAIRMAN, SOLIDERE: We had no infrastructure. We had the majority of the 1,800 buildings destroyed or completely destroyed. And we had a huge environmental problem. Several million square meters of rubbish and that was a major problem that was not going to go away. It needed major work.

QUEST: The legal mandate was controversial. It gave Solidere almost total control over the future of Beirut's downtown.

CHAMMAA: Mr. Hariri believed that this is probably the most important step in the rebuilding of Lebanon. He rightly believed that you cannot tell people that Lebanon is back in business and the heart of its capital completely destroyed.

QUEST (On camera): At the heart of the rebuilding is the Beirut Central District, the Downtown, if you like, where dozens of expensive shops have risen from the remnants of the civil war.

(Voice over): Damac, Versace, luxury apartments. The new Beirut Central District comes with a new kind of price tag. The critics say it has priced normal Beirutis out of the once vibrant city center.

I used to come down with my mother, when I was a kid. I used to see people from different backgrounds, different levels of income. The shops in Downtown Beirut are for the rich now. The heart of the city is not for the rich. The heart of the city is for all Lebanese, and for the Beirutis.

NABIL GHOLAM, ARCHITECT: There are a lot of image issues.

QUEST: Lebanese architects, like Nabil Gholam, say public resistance is inevitable after such a devastating war.

GHOLAM: I think there is memory, when you have something that is there, and a war comes and destroys it. Anybody who comes and touches it again, and rebuilds it in one form or another, preserves it, changes it, adapts it, is bound to fluster people. There again, I think it takes time. It will grow on people.

QUEST (on camera): Those buildings over there, for example-

If you had to say to your critics, why they are wrong, what would you say?

CHAMMAA: I have always said, that it would not have been possible for Lebanon to attract tourism, to demonstrate to the world that we are back in business, if we had not rebuilt downtown Beirut to this high standard. I think that, in my opinion, is enough for people that criticize us to take into account.

QUEST (voice over): As the city center is rebuilt, Lebanon's prime minister joins those in silencing the critics.

NAJIB MIKATI, LEBANESE PRIME MINISTER: I believe what they did in Downtown Beirut is really, really great. What we mean by the center? The center it means we can meet altogether. That is the most important. It is the place where all humanities can meet, and they are all together, the church beside the mosque, and with complete freedom.

QUEST: Even today Beirut's story is one of triumph over adversity. For instance the Hezbollah war with Israel, Arab spring in the Middle East, and political instability at home. Nevertheless, in this resilient capital construction continues.

(On camera): This piece of land is at the heart of Beirut; a building site under construction. And yet, the rubble all around me tells the story of this city and its legacy.

(Voice over): By the end of the war this shoreline was buried by a mountain of toxic waste. Spreading into the Med, rubbish was turned to reclaim land. And today this is the future Beirut.

(On camera): From the marina we see the three faces of Beirut. The war-torn Holiday Inn Hotel, the gleaming towers and wide boulevards of the new Downtown, and the reconstruction and building of the waterfront.

(Voice over): Past, present, and future, the ability to meld all three will define this as a future city.


QUEST: And we will be in Beirut each Monday throughout the month of August.

So, the talking on Capitol Hill continues, the markets are relatively unhappy with what they see, and the whole world is watching. QUEST MEANS BUSINESS, live from Washington.


After the break.


QUEST: Hello, I'm Richard Quest. QUEST MEANS BUSINESS.

A special edition today, in the hot and windy American capital, Washington, DC.

This is CNN. And on this network, the news always comes first.

Lawmakers are scrambling in Washington to approve a stay -- a deal on raising the U.S. debt ceiling before tomorrow's deadline. Both houses of Congress are planning to vote in the coming hours. Members of both major parties are still expressing reservations.

The compromise that's been put forward removes the threat of default by raising the U.S. debt limit. But it also cuts more than $2 trillion in spending.

Human rights activists say Syrian security forces have killed another six people during the day two of the crackdown in Hamad. Amnesty International says at least 52 people were killed on Sunday when tanks and troops stormed the city. State-run media say they were targeting armed groups. The U.N. Security Council is set to discuss the crisis in about three hours.

Norwegian lawmakers joined royalty and the prime minister in a tribute to victims of last month's bombings and shooting attacks. A minute of silence was held on Monday. The names of all 77 people killed were read out in parliament. There will be a national day of commemoration on August the 21st.

Europe's largest bank has announced it will slash 25,000 jobs. That's on top of the 5,000 that HSBC has already cut. The bank posted a pre-tax profit of $11.5 billion for the first half of the year.

We're live in Washington. We are watching for the big U.S. debt vote, which is clearly much doubt in the air.

The global view now, Credit Suisse senior adviser, Bob Parker, joins me from our London studios.

Bob, the -- the deal is done. They are deciding what to do and to pass it.

How is -- how do you rate this deal, Bob?

BOB PARKER, SENIOR ADVISER, CREDIT SUISSE: Well, the market reaction initially, for the first few hours, was obviously positive. It's what we call a relief rally.

However, that rally basically ended around midday London time today. And the reason why it ended, I think, was for two numbers -- there are two reasons.

The first reason was that we had the announcement of the ISM Manufacturing Index for the US. That was significantly weaker than expected. And it has raised doubts about the outlook for U.S. credit.

QUEST: Right.

PARKER: I think the second reason is uncertainty about whether phase two of this debt deal will actually pass. And, you know, phase one will be voted on and hopefully implemented fairly quickly. And that takes away the risk of immediate U.S. default.

But phase two is that the politicians have to agree to a second round of public expenditure cuts in the United States...

QUEST: Right.

PARKER: -- by the end of the year. That -- that may not happen.

QUEST: If this deal holds and do you believe the U.S. is safe from a debt downgrade?

PARKER: No, I don't. And the reason why I say that is that even if this deal holds, it means that we are looking at only, really, an improvement in U.S. budget deficits as a percentage of GDP, moving down from 9 percent currently, to around 6 percent in 2013 and 2014. That is still an elevated level for the budget deficit.

I think another concern for global investors is the fact, given that we've had this string of weak economic data out in the United States, how can the budget deficit be cut significantly in an environment of mid-term weak growth?

QUEST: All right. OK, Bob. You have set out the problem.

So now let me put it bluntly to you.

What on earth do economists like you want?

You want a plan that's going to cut the deficit, but the moment a plan comes up, suddenly, you can't be cutting the deficit because of the weakness in the economy.

So is that not an element that they're damned whatever happens?

PARKER: I would argue they're not. And there are a number of innovative things that could be done.

The first observation is that U.S. corporates have the largest cash level on their balance sheets for the last 60 years. A very significant part of that is actually being held overseas. Changing tax laws to encourage U.S. corporates to move that money back to the U.S. and invest it in the U.S., I think, would be positive for the economy.

I think a second factor would be a statement reducing corporate tax levels to encourage further investment. And that would, in turn, encourage employment.

I think a third factor would be dealing with regulation and a trend toward greater deregulation of the private sector. Likewise...

QUEST: All right...

PARKER: -- I think would boost private sector growth.

QUEST: All right.

If the House or the Senate or either does not vote to pass this, do -- Stuart Eizenstatz, the former deputy Treasury secretary, said it would be a Lehman-like moment.

Do you subscribe to that?

PARKER: I think I largely do, because it means that if this vote does not pass tonight, that the U.S. Treasury, this week, has got a problem with a very long maturity of U.S. Treasury notes maturing later this week. It's got $30 billion of interest to pay in the middle of the month and for the whole of August there's $500 billion of U.S. Treasury debt coming up for rolling over. It matures this month.

Apart from the fact that obviously paying Social Security, paying public sector workers, paying contractors, becomes extremely problematic.

QUEST: Bob Parker, joining me from London.

We thank you for that.

Coming up after the break, there's a deal on the table.

The only question is whether Congress will pass it?

And in any event, what do people -- what do the ordinary people think, Americans?

We'll be live in Orange, New Jersey and, of course, in middle America, after the break.


QUEST: You heard the views of Wall Street. You've heard the views of the markets and the senior economists in the world.

But, of course, any deficit deal will really hit ordinary men and women, the citizens of America. They will bear the brunt of the budget cuts being announced.

Felicia Taylor is live for us tonight.

She's in Orange, New Jersey, just across the Hudson River from New York City.

Felicia is with me now.

The brunt is borne elsewhere.

FELICIA TAYLOR, CNN CORRESPONDENT: Richard, there's no doubt about it. And what's really of concern for people in Orange, New Jersey is, will they get their Social Security checks, will they get Medicare, are those spending cuts going to affect them and how soon? they might get their checks tomorrow, but that doesn't mean that they will down the road.

I'm joined by the mayor of New Jersey -- of Orange, New Jersey, who can help give us a better picture of what your constituents are feeling right now.


ELRIDGE HAWKINS, JR. ORANGE, NEW JERSEY MAYOR: Yes, they're -- they're certainly very concerned, because, as you indicated, there's a lot of senior citizens on fixed income that depend on their Social Security checks and Medicare and Medicaid for their livelihood. And without that, they don't have an ability to survive. And -- and it's not even just a matter of it disappearing. Even a simple delay, you know, if Congress is - - is unable to reach a successful agreement or make the appropriate cuts in time, which causes a delay, whether it's federal employees being furloughed or what have you, where they don't get those checks, they may miss their rent payment that month.

So these are very serious issues that affect people locally.


TAYLOR: The mayor mentioned the fact that there could be something as simple as a delay, whether that's one month or two months.

Now, literally, some people are living check to check. And that affects whether or not they get their prescription medications. People are wondering, how come there hasn't been a plan in place for a long time?

The mayor and I were able to visit a senior center earlier today.

Here's the brutal words from the people that really are being affected.


UNIDENTIFIED FEMALE: For eight months this have been going around in politics and there has been no plan for it for us seniors in case the government defaults, that we will get our checks in time.

TAYLOR: How angry does it make you?

UNIDENTIFIED FEMALE: Very, very angry, because I don't have anything to live on except my Social Security.



UNIDENTIFIED MALE: I went to the doctor a couple of weeks ago. And I had a copay of $45. If I don't have that money in my Social Security, where am I going to get $45 from?



UNIDENTIFIED MALE: It's a part of people worrying. They say, oh, man, I've got it made. I can stay home. But when they don't know whether their Social Security checks is coming or not, that's fearful. Some of them get so frantic they don't even come out of their house. So many of them won't say nothing to you. Some of them won't answer their door.

I'm it's a -- it's like a tragedy.


TAYLOR: That fear and uncertainty is palatable. You can hear it in their voices. And some seniors are saying that they can't believe that the United States is turning their back on them.

But the other things there's going to be affected, possibly, are federal grants. And, again, the mayor is with me to talk about that.

And you've had the -- the blessing of having some federal grants up until now.


TAYLOR: How has that affected you and what happens if they're taken away?

HAWKINS: Well, the grants have been a blessing. It's no secret that right now, we're facing the worst recession since the Great Depression or the worst economy since the Great Depression. And I think in times like that, everybody has had to tighten their belts and cut costs.

And the city of ogee, like many other communities throughout the country have had to, you know, in fact, have lay-offs and cut services. And in a time like that, where we're balancing our budget the best we can, to have federal grants like FEMA grants or Safer grants or -- or other, COPS grants, things like that, that you can draw upon to successfully rehire or hire new people at no cost to the immediate tax base I think is critical.

We had lay-offs that caused the closure of one of our firehouses. And now, with a FEMA grant that will actually give us $1.3 million to fully fund 12 fire personnel individuals over the next three years, we'll be able to open that firehouse once again.

TAYLOR: So I mean it really gets down to the security and safety of individuals in this community, doesn't it?

I mean if you have to close down firehouses, what does that mean, sort of the trickle down effect?

HAWKINS: Well, I -- I think what you're talking about is a break down in services statewide and nationwide. Obviously, communities rely on one another for mutual aid, which -- which allows us to pretty much be protected under all circumstances.

But, you know, if you can have a firehouse that's one minute closer to your house instead of five minutes, that can be a life.

So these federal dollars are key to saving lives and helping municipalities move forward in the best manner possible. So we can only hope that the president and the Congress work together cooperatively in the best interests of the residents. And when they get to this point where they have this super committee that's doing their due diligence in these cuts, that they did it in a manner that really positives the interests of those that need these funds the most and also with the municipalities in -- in mind, as it relates to our ability to deliver services.

TAYLOR: Mayor, thank you very much.

HAWKINS: Thank you.

TAYLOR: And so, Richard, that really lays out what this means in terms of a deal in Washington, how it really affects Main Street America. And, frankly, it might be a victory for them, but that's not definitely a victory here in Orange, New Jersey -- Richard.

QUEST: The view from Orange, New Jersey.

Felicia Taylor has that.

Carrie (ph) is with me here on The Mall in Washington.

You're from Wisconsin. That really is sort of middle and up.


QUEST: So the heartland of America.

How annoyed are you that the situation got so bad as we've -- as we've seen?

CARRIE: It is annoying. It's -- I think if you were to ask me, in a word, it would be disappointed. I think that...


CARRIE: Disappointed. It -- it's -- it's beyond egos and it's beyond sides and it's beyond the right and the left. It's beyond that. It's about doing what is right now for the American people.

QUEST: Right. So we have a deal that's in place. The House and the Senate have got to vote on it. Surely you think they must do it.

CARRIE: I do. And I -- and I wish I was a little bit more well versed as to exactly what is going into it. I -- I need to educate myself a little bit better on that. But absolutely something needs to be done.

QUEST: OK, but do you fear that whatever happens, there will be cutbacks as a result?

I mean you can't carry on living at the rate America has been living on?

CARRIE: No. There -- there will be. There will be. And I think that maybe...

QUEST: Are you ready for them?

CARRIE: I am. I am. We -- Wisconsin is -- Wisconsin has not been the -- in the news. I mean we have. We've been so in the news as to what needs to happen and there have been cuts. And I think if you were to ask the true people in Wisconsin, were those necessary, they would say yes. And I think that it's -- it is, it's something that needs to be done.

QUEST: Carrie, many thanks, indeed, for joining us.

CARRIE: Thank you.

QUEST: I appreciate it.

Enjoy the day.

CARRIE: Thank you.

QUEST: Enjoy.

Now, on Friday's program, we spoke to Carol Mihal, a retired market researcher from Westchester, Ohio. She voted for Speaker Boehner in the past. She's now thoroughly upset.

Carol is back with me now.

So, the debt deficit deal was done.

From what you know about it, what do you think?

Do you believe this is going to do the trick?

CAROL MIHAL: No, Richard, I don't. I wish I could say that it would. I think what we've done is we've pushed off this conversation that was going to be everything around the holiday and it will only be that super committee that will be dealing with it.

But it still handcuffs the president and everyone else. We've all lost. We have lost.

I wish I -- I almost wish that they had stayed the course and not even voted one in, although my true feelings is that would hurt worldwide. That would destabilize our dollar, trading products, big business and everything else. It doesn't create jobs. Not one job is going to be created from this. You can keep cutting to the bone but eventually there's nothing left to cut.

Where do you get any other income if you haven't created jobs...

QUEST: All right -- MIHAL: -- and that's what's caused this.

QUEST: All right -- all right, Carol, let me just interrupt you there.

So if you don't -- you're not wildly excited about it. But let me ask you the same question I asked Carrie.

Whichever way this goes, Carol, are you prepared, as an American, for the austerity and the cuts that are going to come your way? MIHAL: I think we're somewhat prepared. Last week, certainly, when you when you had the market dropping 500 points, that affects our 401s.

I think we're prepared. It means cutting back more. It doesn't move this country forward and that is a major problem. We need to be moving forward.

We're prepared, but what about the millions that are unemployed?

They're not moving anywhere.

QUEST: All right -- MIHAL: What about the people...


QUEST: -- you understand, though, that here on -- well, well, hang on.

Can you understand, Carol, that here on Capitol Hill, the both sides believe they are fighting for the heart and soul of this country and the Republicans say that they need to do this without tax rises and the Democrats say they need to do it without spending cuts? MIHAL: I -- I understand. And I have researched it. Of course, I'm truly in favor of a flat tax, number one, because I think a flat tax, then you don't have deductions. Everybody pays the same percentage. The dollar value is different.

But when we have, right now, a tax code that is so unbalanced, that the top percentage is not paying their share based on the income...

QUEST: Right. MIHAL: -- they're only paying after the deductions. And then you have corporations not paying it by reinvesting their money in foreign entities.

Who is winning?

It's not the American people, who are actually carrying...

QUEST: All right. MIHAL: -- the load. It's not. I mean we have not...

QUEST: Carol joining me there from -- oops, I thought you -- forgive me, Carol -- joining me there from Ohio. and you never know, now I'm in the United States, I might just pop around for dinner one night.

MIHAL: You're welcome.

QUEST: I'm pretty close to (INAUDIBLE). I'm sure -- I'm sure you serve a fine meal.

Ha-ha, actually, I thought you were going to say that. Always looking for a good free meal.

Carol joining me from Ohio. let me remind you were we stand at the moment.

The deal has been done. The Senate is debating or will start debating it. The House will take it up later. But from where I can tell you, both inside, politically, it's very hot. And here, it is just roasting.

They say mad dogs and Englishmen go out in the midday sun. Well, I don't know where the mad dogs are, but the Englishman is boiling in his suit.


Good evening.


QUEST: The world is watching the situation here in Washington and the U.S. is not short of its critics. Earlier today, the Russian prime minister, Vladimir Putin, compared America to a parasite. In a speech, Mr. Putin said: "This country lives on credit. It does not live within its means and is laying part of the burden of its problems on the entire global economy."

Meanwhile, Australia's finance minister, Wayne Swan, said politics could still hold back progress in these talks. And he said, in his words: "I don't think anybody in Washington should be popping the champagne corks now."

So that's the way that the international reaction looks. Let us turn our attention to the weather forecast.

I am so dying to know from Guillermo the core -- is it Guillermo or Jenny Harrison who is at the -- it's Jenny Harrison this evening at the World Weather Center.

Forgive me, Jenny -- I am dying to know from you, Jenny, what the temperature you think it is roughly here today.

JENNY HARRISON, CNN METEOROLOGIST: I saw you and I know. Yes, 26 Celsius, Richard. And you can't even say, there's no real humidity there, believe it or not. So 36 Celsius. And I did hear you say that it was windy. Well, I can tell you, the winds are at about 20 -- 21 kilometers per hour.

So, yes, you picked a fine time to come across this side of the Atlantic.

Look at this the last two hours. It is a bit dry, though, where you are. There have been one or two scattered showers and thundershowers further to the north. There are some warnings in place there. So there's actually some stronger thunderstorms.

But the story again this week, it's going to be about the heat. It really is extending across the south. It's going to push eastward again. And, of course, the humidity back in place, too. All that moisture coming up from the Gulf of Mexico.

But this shows you the temperature trend for the next couple of days. So the real heat is on out across the west. But as I say, as we go through the week, it will extend across much of the south and the southeast.

So for the next few days, Dallas is one of the cities with temperatures well above average. Look at this, 35 Celsius is the average, 42 degrees for the next few days. It will feel a bit warmer than that, too, certainly in Oklahoma City. There was quite a lot of humidity here. So, again, the high -- the average is 34. We can see there 41 and 42 for the next couple of days.

So there are plenty of warnings in place. In fact, Oklahoma City and Dallas are actually under the excessive heat warning.

Right now, all these warnings are across the central states. But, also, you'll notice, they have pushed well up to the north, across in through the Dakotas. And that will all shift eastward as the heat moves east as we go through the week.

One or two scattered thunderstorms, but really, apart from that, for the next couple of days, it is a fairly quiet picture.

Here are the temperatures now for us. Twenty-one in San Francisco; 24 in Los Angeles; and another 36 there in Atlanta.

Now, heading further to the south, we're watching this disturbance. We've been watching it for a couple of days. It's just to the east of the Leeward Islands.

This is the forecast sort of tracked by all the different agencies, all pretty much in agreement. And it does look, though, as if it could be another few hours before it really gets going. It looks as though it's going to come through the Lesser Antilles and then really begin to develop then.

But either way, it's going to produce some very heavy amounts of rain. It's moving quite quickly. That's always a good thing. But you can see these -- the northern islands there could be picking up about 150 millimeters of rain.

And then the Eastern Pacific, we are watching this, Tropical Storm Eugene. It has gained in strength quite a lot in the last 24 hours. Right now, winds sustained at just over 100 kilometers an hour, heading off toward the west. And you can see that it's well away from the coastal areas of Mexico. And, again, pretty much all of the computer models in agreement with that track.

And there's the rain. As I say, most of that will stay offshore for the next couple of days.

And then across into Europe, some very nice weather generally across much of -- of the continent. You've got a bit of a system across the northwest, some clouds, one or two showers in there. But for the most part, it's fairly fine and quiet.

We've got temperatures pretty down to the average, a bit cooler across eastern regions, but warm across central and western areas. Just one or two showers and maybe just one or two strong thunderstorms across central and eastern regions of Spain.

But apart from that, as I say, it's a fairly quiet picture -- Richard.

QUEST: Jenny, before you go, I'm nearly 50, so 36 Celsius means absolutely nothing to me.

What's that in real money?

HARRISON: It's 90 -- about 97, I think, actually. Yes, 97. It sounds better with -- in Fahrenheit, doesn't it, when it's hot?

Yes, 97.

QUEST: Absolutely boiling in Washington.

Jenny at the World Weather Center.

Joe Biden, the U.S. vice president, has just been speaking, giving his views on the likelihood of the Senate and House voting on the debt deal.

Here's what he had to say.


JOSEPH BIDEN, VICE PRESIDENT OF THE UNITED STATES: I didn't go to convince, I went to explain and lay out exactly how we got to where we were and why this is so important for the country.

In my career up here, after 36 years, I never asked another person to vote against what they think their interest is. I am confident -- my sense -- I was...


BIDEN: -- treated well. My sense is that they expressed all their frustration, which I'd be frustrated if I were sitting there as well, that -- that we're -- that we came -- were taken down to the wire like this.

And so what they want to know is, they asked questions specifically about the proposed legislation -- excuse me, I'm sorry -- the proposed legislation. I thought it was a good meeting. And I -- I feel confident that -- that this will pass.


QUEST: So, finally tonight's Profitable Moment.

It is hard the see how the real winners are from the debt debacle and deal.

It's certainly not the Republicans, who failed to get the amount of cuts they wanted.

It's definitely not the Democrats. Well, after all, they failed to get any new tax increases on the country's wealthiest.

So what about the American people?

They could have more than $2 trillion in cuts to contend with over the next decade. They're not winners.

Republicans aren't happy.

Democrats aren't happy.

And most importantly of all, the rating agencies aren't happy. What they wanted was action on the deficit. What they got was a political system that woke up too late and had to meet in the middle instead.

OH, yes, default may be avoided. Downgrade still may be inevitable. This is not so much death by a thousand cuts as death by a thousand compromises.

And that is QUEST MEANS BUSINESS for tonight.

I'm Richard Quest live in Washington, DC.

Whatever you're up to in the hours ahead -- even the bell doesn't work in Washington -- I do hope it's profitable.

"WORLD ONE" is next.