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JOHN KING, USA

Jumpy Stock Market; Double-Dip Recession?; AAA Credit Rating

Aired August 5, 2011 - 19:00   ET

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


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

Tonight Syria's regime broadcasts images of a devastated Hama, a government that is brutally gunning down its own people has the gall to claim it saved the city from thugs. But images the regime would never show you tell a different story.

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KING: But up first tonight, breaking news that could impact your mortgage rate or what you pay for your credit card. I'm told by a senior Obama administration official tonight that the ratings agency Standard & Poor's served notice this afternoon that plans to downgrade the government's AAA credit rating. If that happened, it would not only affect the government's borrowing costs but it could have a domino effect on consumer interest rates, but this official tells me the administration found what he called quote "serious" and quote "amateur" errors in the S&P analysis of the recent debt ceiling compromise.

The administration official says S&P's models were off again in his view by trillions of dollars. Now the officials say S&P acknowledged some errors and agreed to rethink its analysis. At this hour no final word and the official described it as a quote, "moving target" when asked if S&P would change its mind and keep its AAA rating in effect. We'll stay on top of that story. A downgrade from AAA to AA not only would hurt the government. It could hurt you as well. We'll stay on top of that and that news into us after a roller coaster day on Wall Street as a decent but hardly robust jobs report from the government quiets but doesn't silence talk of a double-dip recession.

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BARACK OBAMA (D-IL), PRESIDENT OF THE UNITED STATES: What I want the American people and our partners around the world to know is this; we are going to get through this. Things will get better, and we're going to get there together.

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KING: In a moment, the politics of the economy and what those numbers tell us about the president's job security.

But first your reality and your anxiety about a stalled recovery and the stagnant jobs market. The government's July employment report showed the private sector added 154,000 jobs last month, but government shed 39,000 positions leaving it a net gain last month of 117,000 jobs. Now that was more than most economists predicted, but it takes double that number in monthly jobs gains to make any serious dent in unemployment.

July's jobless rate, 9.1 percent, that's down a notch from 9.2 percent in June, but the sad reality is the biggest factor in that slight decline is the fact that many discouraged Americans just stopped looking for work and the way the government calculates if you aren't actively applying for work you don't get counted among the unemployed. The so-so report also factored into a roller coaster Friday on Wall Street.

Initial reaction to the jobs numbers quite positive and then stocks fell because of European debt worries and rumors about that S&P decision, next a rally of sorts and when it was all over the Dow closed up 60 points. Alison Kosik rode out the volatile day on Wall Street and is here now. So Alison, why the ups and downs?

ALISON KOSIK, CNN CORRESPONDENT: Oh gosh, do you know what was happening today, John? We saw these wild swings because Wall Street was really riding on every headline that came out. You know, first we had that positive jobs report at the open and we saw the Dow go up as much as 172 points. You know, everybody took a deep breath, thought the day was going to be great and before you knew it the Dow was plunging 244 points down on unsubstantiated worries that Standard & Poor's, one of the top credit agencies, would downgrade the U.S. credit rating after the closing bell.

Now we did call S&P. They had no comment on that. But then we got some positive news out of Europe and we saw the Dow rise another 118 points after that. After the ECB said it's ready to buy up Italian and Spanish debt. You know there had been worries that no one would buy its bonds, so what you saw was a market clearly still on edge. The fear is still there. And we saw that in the wild swings that we saw today on Wall Street -- John.

KING: And as you wrap up the week, if you look around the world and we need to realize this is a global economy at the moment, stock values down in Asia, down in Europe. Where are we heading here?

KOSIK: Yes, I mean, you talk about the global view here, you know, 10, 15 years ago all we had to really worry about is our own economies, but you know we're so interconnected. And we had our own debt problems. That was spooking the markets overseas and now we're hearing more worries about Greece coming up again and more particularly, you know, Italy and Spain and their debt issues.

They've got big debt issues as well. You know, one trader said it this way, you know Europe has a cold and then we start sneezing over here. You know we're just so interconnected that we wind up spooking each other and that's why you're going to see sort of this market continually on edge until these problems go away -- John.

KING: A wild week and a wild day on Wall Street. Alison Kosik thanks.

KOSIK: Yes.

KING: Let's go behind the numbers now with Mark Zandi. He's the chief economist at Moody's Analytics and Chrystia Freeland, editor at large of Reuters. You know Mark, in a relatively strong economy we would look at this report and call it modest, maybe even tepid, but given what we've gone through the past week is there hope even though this is not huge job growth, is there hope here?

MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS: It's really good news in the context of all the fear and angst out there. The economy isn't home free. It's still very weak, we're not creating enough jobs to bring down unemployment, but I think this strongly suggests that we're going to skirt recession and clearly that's a very positive thing and the best message we can take out of this data.

KING: Is Mark right? Is the double-dip talk going to stop now?

CHRYSTIA FREELAND, GLOBAL EDITOR AT LARGE, REUTERS: No, I don't think the double-dip talk is going to stop, because there are so many other signs of weakness. And I do think the shock to the stock market yesterday is really going to have people jittery. But I agree with Mark in general. You know this was one piece in good news in an otherwise grim week. Other thing that to me is interesting if you look sort of under the hood in these job numbers is they would look even better if the government wasn't laying so many people off. So, part of what's going on is the private sector is the little engine that could, it's trying to get up the hill, but we're actually hurting the economy because the government is throwing more people into unemployment.

KING: And there's no end to that in sight because states don't have much money. You mentioned dig a little deeper. Let's go over and take a look at some of the numbers. I just first want to pop up the unemployment line graph. If we look through, I'm going back to July '09 here. Remember the administration had hoped the stimulus program would keep the unemployment rate below eight percent.

We're at 9.1 percent now. Mark Zandi, if you look at 150,000 jobs last month what we've been through in recent weeks, 9.1 percent now, what's the prognosis for the next year? We're going to be somewhere in the 8's I assume at best?

ZANDI: Yes, that's right. Even under the best most optimistic scenario by this time next year we won't be below eight percent. I do think, though, there are some reasons for optimism and the most fundamental is that businesses, American companies are in very good financial shape, they're very profitable, their balance sheets are strong, they reduced their debt. And it's really not a question of can they hire. It's really a question of willingness.

KING: And I'm going to just try to give our viewers a little bit of historical context there, Chrystia, as I bring you in. Here's what we've seen since January 2009, January through December, 2010, here's where we are now when the president took office we were in recession obviously. You see bleeding jobs, then a little up-spurt and then a little down. This is where we've been in recent months and again it's pretty if (ph), it's a little better this month and they've readjusted the last two months, but here I want to show some historical numbers here.

We go back in time. Here back in 2004 to 2007, when the unemployment rate was in the four percent, five percent range; the economy was creating 250,000 jobs or more, sometimes above 300,000 a month. Chrystia, is that kind of job growth anywhere, anywhere on the horizon?

FREELAND: You pointed to the central economic and also frankly for the president political issue right now, that, you know, tepid job growth is not going to be enough. We need real -- a really, really strongly growing economy to bring all of those unemployed people back to work. And another issue that you see when you look again a little more deeply into these job numbers is, there is sort of a hardcore unemployed group that is forming because of the length of this recession.

KING: And how does that work out, Mark Zandi, as we watch this -- I want to pull this up. Chrystia just made an important point. The government says about 14 million unemployed, 6.2 million of them long term, and if you add in the underemployed, people who'd like to work full time but can only find a part-time job, that's another 8.5 million people, so you've got 22.5 million people in the United States who are either unemployed or underemployed and more than six million of them have been unemployed for a very, very long time. What is the prognosis for them?

ZANDI: We've got a lot -- a long haul here, a lot of work to do. It's going to take a number of years to get unemployment back to the numbers you were suggesting in the '04, '05 period, four or five percent (INAUDIBLE) unemployment. And even then I don't think we get back there because as Chrystia pointed out, we have a lot -- a large number of long-term unemployed who are going to have a great deal of difficulty getting back in the job market, because they've been out of work for so long.

KING: Let me ask each of you in closing and I just want to bring up on the screen here just some of the sector changes. Chrystia noted the government bled about 37,000 more jobs last month across the country. State and local governments don't have money. They're laying people off. Here's what grew, manufacturing -- that's encouraging -- 24,000 jobs up, the mining industry, retail trade.

That's good. That means consumers are spending a little bit more money. Health care, the tourism industry -- again consumers are spending a little bit more money. As you look long term, though, as we went through obviously the debt crisis, Mark, you mentioned how that caused some confidence crisis, some issues in the markets there, but we have a lot going on overseas as well. Chrystia, to you first, where is the calming point or the turning point or are there too many bouncing, negative balls right now to even see that?

FREELAND: Lots of bouncing, negative balls, I appreciate your effort at positivity, but I'm going to focus in on one of those negative balls that I think we should be looking at the most and that is really Europe. You know, Mark pointed to the fact that the economy seemed to be recovering at the beginning of this year. I think the problem is the economy is so weak that any external shock just knocks it down, and the place where it looks like some of those shocks might be coming from, as they did this week, is Europe, particularly Italy and Spain. So, watch those countries.

ZANDI: More of a policy response. You know, in my view the problem here is confidence, a lack of confidence, just flat out fear, a nervousness and it amplifies the impact that anything that goes wrong, so in a normal economy you get hit by these things and you kind of shrug it off. In the economy we're in today and given what we've been through, we just can't get beyond it.

So we need policymakers here and particularly in Europe to act very decisively and I think they will. I think they're getting the message. And, you know, its steps they're not sure exactly what they should do and how they should do it, but I think they're getting to that point and I think we're going to see more policy action. When we see that, I think that will be for me the signal that things have turned definitively.

KING: Mark Zandi, Chrystia Freeland, appreciate your help tonight.

FREELAND: A pleasure.

KING: Still ahead, the Syria regime that is brutally killing its own people uses state television to suggest it's fighting terrorists, but our reporting and new images expose the crackdown and the brutal truths.

But up next, back to our breaking news story, S&P serves notice to the Obama White House today it plans to downgrade the U.S. credit rating. The government is fighting back -- more on that just ahead.

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KING: Back now to tonight's major breaking economic news. I'm told by a senior Obama administration official that at about 1:30 this afternoon the administration received notice from the ratings agency Standard & Poor's -- Standard & Poor's telling the Obama White House it planned to downgrade the United States AAA credit rating because the agency said it was not convinced that the deficit reduction plan agreed to just last week would do enough to get the U.S. economy back on track, to get the U.S. government back on a path toward fiscal sanity. Now the administration is fighting back tonight I'm told. It challenged the economic assessment from Standard & Poor's. One official telling me it was off by quote "trillions of dollars" in its assessment of how the debt deal would impact future deficits and future government spending. Let's dig deeper now on the prospect. I'm also told by that official that as of now it is a moving target, no decision, no final decision made by Standard & Poor's, which agreed to re-look at its numbers, but the official sounded convinced that some at Standard & Poor's wanted to continue to press ahead and to go ahead with this downgrade. Let's talk about the implications if that plays out.

CNN senior correspondent Allan Chernoff with us in New York tonight and on the phone is "CNN MONEY's" Poppy Harlow. Poppy I want to start with you and I just want to go over to the "Magic Wall" just so people can visualize this at home. If Standard & Poor's were to take us, the United States government, down from extremely strong to, say, AA, very strong, all of these, of course, the lower ratings. We assume if they went down, it would be just go down a notch. What would the impact be on the government and what might the impact be on a consumer?

POPPY HARLOW, CNN MONEY (via phone): Absolutely, John. I have two words for it, unprecedented and uncharted. Those are not my words; those are what a New York Stock Exchange trader told me after the market closed today. That's the fear heading into Monday's session. If we have a downgrade from S&P that is what traders not only in the United States, the investors, the average Americans and people all around the world are concerned about. That is -- that is what is sustaining this fear heading into Monday's session.

We'll get a first indication if we do have a downgrade on Sunday night. We'll see how the Asian markets react when they open at 8:00 p.m. Eastern on Sunday. For the average person, this is huge. This has never happened before in the history of the United States. That is why it's so unprecedented. What it would mean for you at home watching right now is that your cost of borrowing would go up. The treasury yield would be affected and, therefore, your interest rates would go up.

We're talking about your mortgage, if you have an adjustable rate mortgage. We're talking about your college loan, if you have a privately funded college loan, your car loan, so this really spans the gamut. And I think, John, the timing of this is so critical because it comes at a time when clearly our economy is in peril and if you make the cost of borrowing for consumers and for businesses more expensive, that does nothing to help pull us out of what feels realistically like a recession. Still it does nothing to pull us out; it just digs us deeper in the hole, John.

KING: And Allan, it's extraordinary the way this plays out. Standard & Poor serves notice middle this afternoon. The administration says, no, your numbers are wrong and starts to fight back. Standard & Poor says OK, we'll look at it. The market closed obviously. Those discussions were in private while the markets were open. The market is closed. We have no word from Standard & Poor's. To Poppy's point isn't there now a burden on the company to say yea or nay as soon as possible?

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: There's actually been a lot of pressure on Standard & Poor this entire week because of course at the beginning of the week the country did avoid default. But that was not enough for Standard & Poor's and back on July 14th when the company put the U.S. on a negative credit watch, the company said, Standard & Poor's said that they wanted to see a credible program for reducing the U.S. government debt burden. That's their phrase. They clearly don't see that just yet.

Standard & Poor's, though, didn't act right away when the program came out of Washington. What they do is they assess the U.S. economy, the liquidity of the country, monetary policy, fiscal policy; they look at all of that. They have a committee. There is an odd number of people that actually sit on that committee. Once they receive a report from the analysts, they then decide. So, they go through a whole long process.

That's why it's taken all the way until Friday, right now, and you better believe during this entire week there has been tremendous pressure coming from the administration on S&P not to move. The other credit agencies said we're not going to change the rating. S&P is under serious heat.

KING: And, Poppy, to that point, Moody's says OK, we'll leave it the same. We'll keep an eye on you. Fitch says we'll leave it the same. We'll keep an eye on you. For Standard & Poor's to break with them how significant would that be and would the agency itself be going out on a limb to do that?

HARLOW: John, I couldn't hear the last part of your question there, but I did want to say one point. I heard you talking about Fitch and Moody's and them saying they're not going to downgrade. I want to point out one very important thing. If indeed Standard & Poor's makes the decision independently on their own despite your reporting that the Obama administration is pushing back fiercely against the downgrade saying their math is off, if we see a downgrade from Standard & Poor's, that is important, but it is less important if we don't see also a downgrade from Moody's and/or Fitch.

Meaning the more agencies that you have downgrading the credit rating of the United States, the more substantial the blow is. So, we have confidence that Moody's and Fitch will not downgrade. We'll see if S&P does. But independently, it is still important, but it means less than if we saw, say, Standard & Poor's and Moody's, John, downgrading the rating and I think that is a very, very important point.

At the same time I think it's important when you look at where Americans have been putting their money, when they pulled out so aggressively of the market yesterday and we saw the biggest decline for stocks that we've seen since the financial crisis, where did people put their money? They put their money, interestingly, in U.S. treasuries, in government bonds, so much so that short-term one-month T-bills were getting a negative return. Meaning people were paying the U.S. government to hold their money.

If we see a downgrade, you will see a dramatic shift and people will be going away from what they thought was a flight to safety in treasuries and they will be looking for another safe haven for their money. They don't feel like that safe haven is in the stock market, if they don't feel like that (INAUDIBLE) the U.S. treasuries. The question is where do they feel like their money is safe -- John.

KING: And Allan, it's remarkable you could see if, you know, if you or I were trying to get a loan, we might be arguing with our bank back and forth, but to think here that the highest levels of the Obama administration, people in the Treasury Department and other agencies essentially having a debate about economic model, the economic numbers with a ratings agency and it's remarkable to just think of that and the stakes of that lobbying effort.

CHERNOFF: Indeed. I mean S&P really would be going out on a limb. But we need to put this all in perspective. I mean keep in mind S&P and the other major credit rating agencies, pretty much missed the financial crisis, right. Their ratings were all off. The mortgage-backed securities, they gave them very high ratings. They turned out to be not worth the paper they were printed on.

So now S&P wants to be extremely vigilant. Do they get super tough with the United States of America? It appears perhaps they will. And that really is highly controversial. Books will probably be written about it. Will it destroy the U.S. economy? Well I know Poppy gave some strong language there, but perhaps not.

I mean, there have been other major countries who have seen their debt downgraded and they've survived just fine. And, of course, this can always be changed. If the U.S. does put in place a credible plan, then S&P could bring it back up to AAA.

KING: We'll stay on top of this story; Allan Chernoff and Poppy Harlow appreciate your insights on tonight's breaking news. We'll stay on top of it, promise you at home.

And still to come here anti-government protesters march across Syria risking their lives as the Assad government intensifies a brutal bloody crackdown. And next the reason why your GPS system, well it may have some problems this weekend.

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KING: Welcome back. If you're just joining us here's the latest news you need to know right now. Security officials at Philadelphia's International Airport evacuated and they're checking an airliner after a threatening note was found this afternoon. The US Airways plane arrived from Glasgow, Scotland, and was headed to Anchorage, Alaska.

Barely two years out of bankruptcy General Motors' second quarter earnings nearly doubled to $2.5 billion and GM now passed Toyota to become the world's largest carmaker.

Experts say cell phones as well as airplane and car navigation systems well may be affected this weekend by magnetic and electrical turbulence created by a massive explosion on the sun. Thursday's solar flare was the third in three days.

NASA's Juno spacecraft -- look at that -- headed to Jupiter this afternoon, but it's taking the scenic route. There's an earth flyby in 2013 before it orbits Jupiter in mid 2016. Beautiful pictures there.

Next Syria's version of what's happening in a sealed off city and the brutal reality of what's really happening.

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KING: Syria tonight, remarkable bravery by anti-government demonstrators and galling propaganda from the brutal regime that is killing its own citizens. Hama, Syria's fourth largest city is the biggest battleground. Let's take a look at video loaded there. Again, these videos flown up on YouTube, listen to this.

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KING: You can hear the gunfire there. Again the Syrian regime cracking down on citizens that it says are terrorists.

Look at some of the other demonstrations all across country today -- braving and risking their lives to be out on the streets. Peaceful demonstrations chanting in support of Hama, also calling for the end to the regime here.

In Homs, look at these pictures as well here.

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KING: Chants in the street, supporting the demonstrators elsewhere.

In Deir Baalba as well. Violence here. This mosque, people gathering for Friday prayers and you can hear glass breaking. There was gunfire there on that mosque there.

And here in Duma, just watch the tear gas here, violence, the Syrian regime cracking down, again, against on its own citizens.

CNN's Arwa Damon is tracking this brutal crackdown for us. She's in Beirut tonight.

Arwa, you've been able to speak to some residents, some sources inside Hama. What do they describe today?

ARWA DAMON, CNN CORRESPONDENT: They describe an ongoing military crackdown -- one that appears to be getting even more intense and more brutal. This morning, we got through to one resident who was speaking to us on a satellite phone, as all communications have been cut off since Wednesday morning. And during that conversation you could clearly hear the sound of gunfire.

We were able to get in touch with him a few hours later, and he said that the gunfire had intensified to such a degree that he was forced to make a run for it. He said his vehicle was shot at and he was especially worried that if he was caught, he would possibly be executed, killed on the spot, because he was in possession of a satellite phone.

But, John, it really goes to show you the lengths and the risks that these activists will take. And they say that this is something that they absolutely have to do. Not just this resident whom we were talking to, but all of the individuals that we see filming the YouTube videos that have provided such a critical window in to not just what is happening in Hama, but throughout the entire country.

And they say it's part of their duty to do this, because, they tell us, the world has to be aware of this massacre that's being carried out by the Syrian regime.

KING: And, Arwa, the regime took what I'll call the brazen step today of broadcasting some images of Hama on state TV, but not, shall we say, in proper context. What was that all about?

DAMON: Yes. Syrian state television appears to have a crew that was actually in Hama. We believe it's the first time that they broadcast their own images from the city since this uprising began.

And in this report, the military offensive was being described as an attack on armed terrorist groups. The reporter was saying that the military had gone through, was removing barricades that were set up by these terrorist elements. That it was pursuing them throughout the city. And they were saying that it was foreign elements that were fueling all of this.

KING: And, Arwa, we also have images and reports of other demonstrations, protests, across the country today. Are demonstrators also where being met with the same force that we see in Hama?

DAMON: Not necessarily the same level of military force, but most certainly, there have been a number of reports where demonstrations throughout the country came under attack by Syrian security forces. There are some pretty dramatic images that show people who appear to be holed up in a mosque coming under attack. And this, again, John just goes to show you the bravery and the defiance of these demonstrators. There's one clip in particular where you see the cameraman, the person filming it, appears to be on the roof of the mosque, and you see a plume of smoke rising. You hear gunfire, but you also hear the chants of the people want the downfall of the regime.

So, it seems that despite everything that the government is trying to do, despite the fact that it appears to be literally trying to bomb and shoot these demonstrators into submission, at this point, it's not working.

KING: Arwa Damon for us tonight from Beirut -- Arwa, thank you.

Let's continue the coverings with Syrian human rights activist, Mohammad al-Abdallah; a University of Maryland professor and senior fellow at the Brookings Institute, Shibley Telhami.

Mohammad, let me start with you. You belief 2,000-plus have been killed in this brutal crackdown. I don't doubt your numbers at all. But since we can't get in there, we've had reporters in there briefly. The government won't let us in. I just want our viewers to get a sense of how -- you're in touch with the network of activists in the country -- how you come about these numbers?

MOHAMMAD AL-ABDALLAH, SYRIAN HUMAN RIGHTS ACTIVIST: Basically, we're in touch with a huge number of people via Skype and via social networking. People are reporting the number of deaths, and there's more than 2,000 get killed. We have names and locations and date that are killed, and we expect the number is very higher. But that's the number we managed to document.

And basically more people are afraid. They broke the fear and they're not afraid now to report about the death, about the arrest and about torture incident.

KING: And as it plays out, Shibley, we've heard ratcheting up of the international condemnation. But presidential statement only, not a solution from the Security Council. I want you to listen to the U.S. ambassador to the United Nations, Susan Rice. I spoke to her yesterday and she insists the regime is starting to feel some pressure.

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KING: Is there any evidence, Ambassador, any evidence at all, that President Assad feels enough heat to even think about stepping aside?

SUSAN RICE, U.S. AMBASSADOR TO THE U.N.: Well, he's certainly feeling more and more heat, John, with every day. The heat is coming in various forms. The economy is crumbling. The people of Syria are rising up in city after city, day after day, night after night, making claims that they are determined to forge a future of freedom and democracy. And that does not include Bashar Assad.

(END VIDEO CLIP) KING: Really, though? I mean, he is killing his own people. We saw more images today. It seems that his reaction is to intensify the crackdown, not think about leaving.

SHIBLEY TELHAMI, AUTHOR, "THE STAKES: AMERICA & THE MIDDLE EAST": There's no question. Look, I mean, if he's looking at -- if you look at it from his point of view. First all, he'd rather be where Gadhafi is, and not where Mubarak is, not in a cage -- for one thing.

KING: Right.

TELHAMI: You can assume that there will be no military intervention against him. There won't be from anybody from the outside. And an international resolution that might come from the U.N. is unlikely to materialize if it is strong because of Russian likely veto.

He has not seen huge demonstrations in Aleppo and Damascus, the two largest cities, some in Damascus, more evidence of it today, but on the scale of elsewhere. So, he can -- he's had some defections of the military but not on the large scale. So, he can -- he can really believe that he can withstand that.

I don't think he can, actually. I think he's now at a point of no return for a number of reasons, because the battle wills. And even if he doesn't feel the heat directly, all of this is involving the people. It's a battle of wills.

The public is out there. The barrier of fear has been broken. It's expanding to many different cities. It's very hard to turn it around.

KING: And you met with the Canadian foreign minister, today, I think, if I have that right. And so, what are you looking for in terms of the human rights -- if Russia and China won't sign on to a tough U.N. Security Council resolution, that means sanctions from the United Nations Security Council -- what can everyone else do?

AL-ABDALLAH: They can push more for sanctions. And that's the word for foreign minister, Canadian foreign minister. There's a crack in the wall with the Russians -- at least push now to make this crack bigger and bigger. And I met with Secretary Clinton today as well and that's what we asked Secretary Clinton that we need President Obama to say publicly he has to step down.

KING: And what's her explanation, why won't he?

AL-ABDALLAH: She asked three questions about the unity of the opposition, about the minority joining or not joining the protests and the political vacuum of the president absence. And we answered those issues with her.

And I think her statement, the strong statement, in the last 24 hours, was based on the view, on the explanation we provided.

And we asked Canada -- especially Canada because you asked has no oil and gas companies working in Syria, we're working now with Europeans and Canadians to impose oil and gas sanctions because I think the economy factor is going to be a key factor. When the government cannot finance this method of operation, I think we're going to win this battle.

KING: You make an important point I think when you make the point that he would rather be like Gadhafi than like Mubarak. I want to follow-up in a couple of ways. But first, the Arab League was key to the U.S. and the NATO operations in Libya because the Arab League said he had lost his legitimacy. The Arab League has been silent when it comes to Bashar al Assad.

Why?

TELHAMI: Well, I think it's complicated. But it's not just the Arab League. I mean -- and the Gadhafi case was always unique case -- in part, there were so many different factors, including score settling with Gadhafi, like with Saudi Arabia, essentially, you know, settling scores.

But the interesting thing is you have public opinion, Arab public opinion supporting international intervention. You do not have it in the case of Syria. Even people who are angry with Syria, you don't find the public opinion pushing for a military intervention by the international community. They want pressure, but they don't want international intervention.

I think in the Gulf states, obviously, they're also worried that they are not yet comfortable that this is not going to come back to haunt them and this has been the interesting situation, particularly with the case of Syria.

KING: Take us inside, when we listen -- our Arwa Damon has been doing fascinating reporting. You have your network of activists. We you see these -- some demonstrations peacefully in the streets. But otherwise, you hear about the siege in Hama, the Syrian military moving other places.

In terms of the humanitarian crisis and needs -- how many people are without food, without medical supplies, afraid to go out of their house because they think a sniper might shoot them?

AL-ABDALLAH: Exactly. Now, that's the case in Hama, and it will be the case soon in Deir Baalba (ph) as well because the tanks are besieging, 300 tanks. The government did not pay the salaries for people, and they're preventing the food trucks to enter or get out of the city. No electricity, no water and no communications.

It's the same case with Hama now for more than four days and the people cannot even get out of their home to bring food or something.

And furthermore, they attack hospitals. They shut down the electricity for hospitals and that caused lots of deaths and deaths of everybody in the hospitals.

We're through talking now about humanitarian crisis, and this was, again, one of the demands from the international community to push more, to allow the ICRC to enter Syria and do some humanitarian enforcement.

KING: Mohammad al-Abdallah, Shibley Telhami, I appreciate your time. I will stay on top of this one. It's a horrible story. We'll see if the international pressure changes at all. I appreciate your insights today. Thank you.

Ahead tonight here: Joplin, Missouri, is getting ready to go back to school -- a challenge underscored by these horrific new images of the power of the deadly May tornado.

And next, they say the numbers don't lie. If that's the case, the new unemployment numbers are a tough truth for a president hoping to win four more years.

(COMMERCIAL BREAK)

KING: On the one hand, word the economy added 117,000 jobs last month is progress --given more anemic hiring last month and al the other downbeat economic news of recent days. But unemployment is still high, 9.1 percent. And it takes monthly job gains in the ballpark of 250,000 to get the jobless rate heading down at a steadily clip.

So, it's no surprise President Obama says his singular focus now will be, in a word, jobs.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: When Congress gets back in September, I want to move quickly on things that will help the economy create jobs right now -- extending the payroll tax credit to put $1,000 in the pocket of the average worker, extending unemployment insurance to help people get back on their feet, putting construction workers back to work rebuilding America. Those are all steps that we can take right now that will make a difference.

(END VIDEO CLIP)

KING: November 2012 might seem a long way off, but election is, if you're counting at home, 459 days away. And most economists predict at best the unemployment rate by then will be in the ballpark maybe 8.5 percent.

Now, history suggests a rate that high would spell trouble for the president's re-election prospects.

Let's take a closer look. Let's just look right here at the unemployment rate. We're at 9.1 percent today. If you look back to FDR, no incumbent president has won re-election above 7.2 percent. Ronald Reagan was that president back in 1984.

One other number to look at here: job growth. Job growth in the economy you see when the president started we were still in recession, and then we came up, and we had a little flat line. This is recent months. It's in the positive but it's not exactly robust. History again suggests, an incumbent president needs job growth similar up in this ballpark, above 200,000 to 300,000 range to be assured, history says, of re-election.

So, let's explore the politics of the economy with Republican pollster Bill McInturff, Democratic pollster Margie Omero.

Let me start with the Democrat. When you look at history and you look at what is an anemic economy right now, if you're the president of the United States and you are planning re-election, you are running on hope and change -- what can you say this time?

MAGGIE OMERO, DEMOCRATIC POLLSTER: Well, there are a few things. First, the progress has been made since 2008 and when I talk to voters, they feel that things have improved since 2008. I mean, there was a poll recently that showed more people blame Congress and President Bush and Wall Street -- former President Bush -- than they blame President Obama.

Another thing to look at, think about with those numbers and think about what it means for the dialogue, is that they would have been a little bit higher, but we lost some jobs in the government sector. And private sector gains have been much more -- much less volatile and actually increased more. And, in fact, the biggest drop- off was in Minnesota where there was the huge fight caused by Republicans.

So, Republicans have really kind of made this a more difficult climate on top of what people are already feeling.

KING: I think you probably wouldn't be that upset if President Obama ran around the country saying we need more government jobs?

BILL MCINTURFF, PARTNER, PUBLIC OPINION STRATEGIES: Well, here's the issue. We can look at consumer confidence, and today consumer confidence has dropped to a lower level than we saw since 2009, and no incumbent president of this country has ever won re-election with consumer confidence as low as it is today. So, what it says at best he's facing a too-close-to-call campaign.

And the reality is, we have one more year to go until they can try to make it better. It's economy -- the economy is growing way too slowly. And history says, sooner or later, you're the guy -- you're the guy who's been there four years, you take the hit.

KING: I want to show that consumer confidence number, because I know, Bill, it's number you focus on a lot in your studies. I just want to bring it up here and ask Margie how the president deals with it. Because this is the University of Michigan survey, down in May, down in June. Now, it's down here in July in the danger zone.

Incumbent presidents in recent story have been above 95. If you are above 95, you get re-elected. If you're down here, it's a lot more dicey. This reminds me of some way of 1992 in which you had -- the economy was getting better. When George H.W. Bush, a Republican president, was there, it was getting better, but at a slow rate. It was hard to break the psychology. Voters had decided it's bad, and even though the data was there, the president couldn't convince them.

Is President Obama going to have that same problem even if things start to get better?

OMERO: Well, I think the debate is who is actually paying more attention to voter struggles and who is really trying to focus on fixing the economy. It's clear that the president wins that debate over Republicans in Congress or over any of the Republican candidates for office. I mean, they are fighting over who is going to be farther extreme, who is going to be signing the most extreme pledge, who is going to be holding up the most bills. They haven't introduced a single jobs bill.

So, if this really comes down to who is more interested in fixing the economy or who is like, Mitt Romney, trying to -- you know, hope nobody asks him tough questions, then it's going to be really clear who wins out in that debate.

KING: I think, a shorthand -- way to shorthand that is it a referendum or is it a choice? Is it a referendum on President Obama -- then the statistics are tough. Even you can say it's not my fault, it was worse when I came into office. Those are tough statistics if you're the guy in charge. I don't care whether you're "D" or an "R," that's tough.

If it's a choice, the president has a better chance, right?

MCINTURFF: Well, here's the reality. The reality is we've used this index since 1952, so what we know, as I said, no incumbent party has ever won with the consumer confidence below 74.

And here's the other thing. This consumer confidence hill normally changes a point or two. It dropped eight points. We do tracking for CNBC every quarter in economic confidence.

People say now, right now, my wages are -- I don't think my wages will go up. My housing values are the worst they've been. I don't think the market will go up.

These are all lower than they've been at any point during this three-year recession.

No incumbent president wants to face that electorate and says give me another chance. Sooner or later, people say, I know that didn't work. What's the next guy?

And that helped him in 2008. It could also ironically be the force that crushes him in 2012.

KING: Let's set the politics aside to the degree we can, Democratic and Republican pollster. It's probably not easy. But when you do talk to voters, when you do your focus groups and you look at polling, what is it? What are they so down? Why is that consumer confidence dropping so much?

OMERO: Well, there's a few reasons. And one is the economy is not -- you know, we have a ways to go, right? I think everybody can agree to that.

And I think they look at Washington and they look at the debate in Washington and what just happened with the debt ceiling fight and they say here are some folks who are just not paying attention at all to what we're talking about. They are grandstanding.

I mean, the Tea Party has highest unfavorables than they've ever had. Even the Republicans say the Tea Party had too much influence over the debt ceiling debate.

So, you know, they're looking at the fighting in Washington, where even though it's been frustrating and folks have expressed frustration this week of how this all played out, the Republicans really have suffered the most in the polls. I mean, they may feel they won, but that's not what the voters feel. The voters feel they lost and feel that Republicans into nearly as much for voters or Democrats in Congress or the president.

KING: When you look ahead -- I think you would concede the point that the president is a gifted politician. Do you see -- I think you're firm is doing some polling for the Romney campaign so I should be careful and open about that.

But do you see -- of all the Republican candidates for president, we don't know who the nominee will be -- do you see a new and interesting, captivating economic message? Or do you see a message that if you're working for the other side, the president could say -- that's the same old stuff, George W. Bush did that and what did we get?

MCINTURFF: Well, what I would say is that the president is running on, we tried almost a trillion-dollar stimulus. We add a trillion-dollar health bill, and we try to believe that we can make sure we try to improve the economy because we can increase government spending.

Instead what happened is --

KING: So, the Republicans have to run on a negative economic message? Is there positive, doing different than they're doing?

(CROSSTALK)

MCINTURFF: I think what we can say is we try what the president said would work and it failed. And whenever that's happened, people are willing to look to who is the other guy? Now, I think our party is a long way to go. I think our party nominee say long way to go to reiterate what is a different idea.

But by the way, I believe that what we know for sure -- and let me talk about President Obama in 2008. People would try to argue he's untested and didn't have this experience and I have said, look, here's what I know. What I know about Americans is if you try something and it doesn't work, what they say is here's what I know for sure. That didn't work, let's try something new.

And the problem for the president on year four of his presidency is his idea of how to make this economy grow didn't work and he didn't meet his own standard. He said if you pass my stimulus, unemployment won't go up above 8 percent. And instead, we've had the highest, sustained unemployment since the Great Depression. It didn't work and sooner or later, all that comes crashing down.

I agree with Margie. I think those numbers dropped so much because of the debt ceiling. But the other person who suffered is the president with job approval and his number with independents.

KING: All right. This is a little snapshot of the campaign to come. We'll come back and debate it again another day.

Margie and Bill, appreciate you coming in.

OMERO: Thank you.

MCINTURFF: Thank you, John.

KING: When we come back here, new images of a deadly tornado that devastated Joplin, Missouri. And when you see them, you'll wonder how in the world students there are going back to school in just a few days.

(COMMERCIAL BREAK)

KING: We're a little over a week away from the opening of schools in Joplin, Missouri, where the spring semester was cut short, you will remember, by last May's deadly tornado. Incredible pictures continue to surface from the day the storm hit.

You're looking here at video from surveillance cameras in Joplin schools. The death toll from the May 22nd tornado now stands at 160. Officials have had fewer than three months to find some place to teach about 4,000 students.

With us now, Joplin high school principal, Kerry Sachetta.

Sir, I just want first. When you look at these new images that are emerging, does it stir it back up all over again? Does it help you put it behind you? What goes through your mind?

KERRY SACHETTA, PRINCIPAL, JOPLIN HIGH SCHOOL: Well, you live the tornado, the devastation again when you se them and you remember where you're at and when you heard about it and what you saw directly after it. So, yes, I've seen some of the footage and, yes, it's a really a reminder of what we've been through.

KING: And when you see those pictures, the cafeteria area, the hallways, you must think, thank God this happened on the weekend, nobody in schools.

SACHETTA: We're so lucky it did not happen when students were in school. With 4,000 plus students that were all scattered throughout the district in different buildings, and with the path of the tornado, the tornado took about as bad a path as you could have taken to hit our schools, and it's obvious that there would have been a lot of people hurt.

KING: And when you look at these new images, obviously the students were not there. They were not in the halls of the school, music room or cafeteria and the like. But they were somewhere. Their homes had been damaged. They have been destroyed.

When I was in Joplin and the days after, people talked about, you know, the counseling and conversations that will be necessary to help the psyche of people through this. How confident are you, you start the school year and turn to a new chapter, if you will, and not have people still looking back about this painful event?

SACHETTA: We feel good about where we are right now, but we are preparing for students still upset, adults to be upset or concerned.

When we get the students back together, we've had several activities during the summer to get students back together, see their teachers and so on, and we're going to do that again next week to try to get over some of that anxiety, and bringing up the memories of what they lived through.

Several of our students lost their home. They lost their school. They lost their church. They lost the places that they go to.

KING: I'm looking forward to coming back sometime soon. But take us around the town through your eyes. And how far along is Joplin in getting rid of the debris in beginning to turn the page?

SACHETTA: You saw the devastation right afterwards, so you know how bad it was. And when you get to town again, you're not going to believe what you'll see. It's virtually cleaned up, except for a few locations. Obviously, our schools have not been cleaned up yet because they're one of the last group and St. John's hospital is still in a situation where as it had been torn down.

But you're not going to believe what you'll see in Joplin. The people of Joplin, the volunteerism statewide and all over the country, we've had people coming in from all over and we're just so happy and pleased and proud that people have taken (INAUDIBLE) they can offer.

KING: Kerry Sachetta, the principal of Joplin High -- we wish you the best, sir, and your community remains in our thoughts and prayers. Best of luck as you begin the school year.

Final update on our final story tonight. A senior administration official is telling me the Obama White House aggressively challenging a decision by the Standard & Poor's rating agency to downgrade the government's AAA credit rating. We'll stay on top of that.

That's all for us tonight, though. See you, Monday

"CNN PRESENTS" begins right now.