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The Debt Mess: What Happens Next?

Aired August 7, 2011 - 21:00   ET


CHRISTINE ROMANS, CNN ANCHOR: Consequences from the downgrading of U.S. credit for the first time in history. Markets one by one are beginning to open on the other side of the world.

I'm Christine Romans. Welcoming to our viewer in the U.S. and around the world to a CNN Special Report -- The Debt Mess: What Happens Next? The first Asian markets opened in Tokyo an hour ago. Others will follow this hour. We are closely monitoring to see the reaction to the news that Standard & Poor's downgraded from a Triple-A to Double-A plus rating.

The U.S. stock futures are also trading tonight and they are trading lower. About two percent lower. They are one of the first gauges of investor attitudes to S&P's down grade.

Treasury Secretary Timothy Geithner this evening taking part in a conference call with other member nations of the group of seven nations strategizing as Republicans call for his head over the downgrade.

A downgrade of America will be a line in the history books someday but what does it mean for your pocket book today?

This hour, we are going to break down exactly how and why and we are going to do it with the help of our own Richard Quest and Candy Crowley. We'll get to them in a moment to help us make sense out of it.

But first to the White House. President Obama returned there earlier after spending the weekend at Camp David.

Our White House correspond a Brianna Keilar standing by live for us.

Brianna, the administration is striking back sharply against the S&P assessment in the S&P downgrade. Isn't it?

BRIANNA KEILAR, CNN WHITE HOUSE CORRESPONDENT: Certainly. The White House is, top officials are, Christine. We heard White House officials and surrogates for the president today blanketing the Sunday shows, calling this amateurish, calling it bad math, calling it a political decision. And you saw it just seriously, a blanketing of the Sunday shows by White House officials, top advisers.

You had David Axelrod, the president's top political adviser. Outgoing economic adviser, Austan Goolsbee. The president's former top economic adviser, Larry Summers. Larry Summers was actually on CNN on state of union with Candy Crowley.

And all of them were saying in a very coordinated fashion, a couple of thing. First they were really hitting on a calculation error that the treasury says it found with S&P's number. What they're calling a $2 trillion mistake in calculating deficits. But this was a back and forth that went on between treasury and Standard & Poor's.

And standard & Poor's Christine, standard's report said it still stood by its ultimate decision in the downgrade. And the other thing that you are really hearing from White House officials and surrogates for the president is because S&P really cited that very chaotic process that really took us to the last minute of getting that debt ceiling deal this week. You heard White House officials and surrogates really blaming house Republicans for being in their words, very uncompromising.

So certainly pointing fingers there, Christine.

ROMANS: And it sounds like there will be no more uncertain about who will be running the treasury secretary.

Let's talk about the future of Treasure Secretary Timothy Geithner.

KEILAR: That's right. You know this was pretty interesting because there have been a lot of speculations about whether Secretary Geithner would go. And honestly, his answer was which was that he would be here essentially for the foreseeable future, didn't really do a whole lot to clear that up. Well now, it has been cleared up. He will be staying on. We're told into fall of 2012. So election season. And White House Press Secretary Jay Carney, Christine, put out a statement today saying the president himself asked treasury Secretary Geithner to stay and welcome the news that he is staying.

ROMANS: All right, there you go. OK Brianna Keilar. Thanks Brianna.

Of course, all eyes on the Asian markets right now to gauge reaction to the downgrade. We've got Kyung Lah standing by live Tokyo where the market is already open. And Pauline Chiou live in Hong Kong where the market opens at 9:30pm Eastern so it's about 27 minutes. Eunice Yoon is live for us in Beijing.

Let's start with Tokyo where trading is already underway. It is already happening. What are investors there saying about this downgrade? At least as you can see the Nikkei and how the Nikkei is trading?

KYUNG LAH, CNN CORRESPONDENT: Let's start with the numbers, Christine. The market here in Tokyo did open down sharply, 1.5 percent. It is slightly recovering off that low. We're down about one percent. And in making some call to traders this morning here in Tokyo, what they're describing, the mood here as is tense. And frankly, all that bickering out of D.C. over the weekend isn't helping matters. They already feel set-up with Washington politics. Even on this side of the planet. Because it is having a true economic impact in Asia pacific.

Tokyo is the largest stock market here in Asia. It is also the second largest holder of U.S. debt. What they want to talk about are some market fundamentals. They want to hear that there is going to be some sort of turn-around and what they know is that this is a brave new world where it is no longer a Triple-A world for the United States.

ROMANS: Interesting though. A one percent decline early going in the market. That is a run of the mill sell-off. That's nothing that makes it into the history books.

LAH: Certainly. And part of the reason for that is because of the G- 7 statement, we're thinking. That's at least the thinking from the Tokyo stock exchange. Or there has been some positive movement out of Europe. So, all of these factors combined. People were preparing over the weekend for a really bad day here, Christine. And so perhaps the preparation of that and some positive moves may have contained some of the damage here.

ROMANS: It will be a long day of trading still ahead. Then another few hours before we get into the U.S. so we'll continue to watch Kyung Lah and see what's happening there. We'll check back with you very soon.

Let's go to Pauline Cho. She's standing by live in Hong Kong where that market opens up in less than half an hour. What are the indications there this morning? Nervousness but mostly, it feels as though the selling, the anticipation of the selling is modest.

PAULINE CHIOU, CNN CORRESPONDENT: Yes, that's right. And I think that Kyung made a great point that the markets are off their lows and most of the markets here in Asia started out in negative territory, Christine.

As the cost was down further than it is now. Right now, it is down by about 1.3 percent. Sydney is down by about one percent. Taiwan just opened. It is down by one percent. Singapore opened down two percent. Singapore and Taiwan just opened within the past couple minutes.

So at least and Sydney are off their lows from earlier this morning. It is mostly financial and energy stocks that are being dragged down. For Australia, there was a big commodity sell-off last week. So we're seeing the effects of that.

But they're off their lows mainly because of the information that is coming out of G-7. The G-7 finance ministers coming out saying they want to support and sustain growth and also the move by the ECB saying they'll move into the bond buying program.

But also, this negative reaction, Christine that we're seeing on this Monday morning here in Asia, definitely pegged to that U.S. debt downgrade by Standard & Poor's.

ROMANS: All right, Pauline. We'll check in with you exactly in 23 minutes when your markets open there as well. So don't go away. All right let's go to union live for us in Beijing. What we're seeing around the region as markets are beginning to open, one by one is selling. Big selling. Then also backing off a little bit. Not as dangerous as some people had thought. It is still early though. Isn't it?

EUNICE YOON, CNN CORRESPONDENT: It is still early. But like you said, these are run-of-the-mill declines. Not much really to speak about. And for the most part here in Shanghai, what we're hearing is that the market is going to open down but at the same time, a lot of the talk about the downgrade was already baked in and priced into the market.

So because of that, there is some debate going on as to whether or not this will be a one of decline or it is going to be a signal to a longer term bear market. Still up in the air as to whether or not, which way that would go.

For the most part now though, investors have been focusing on economic data coming out of China. Because the consumer price index is going to be released tomorrow. So people are talking about how the inflation figure in China could come in on the high end and that could possibly lead to an interest rate hikes on the part of the Chinese authorities.

However, now there has been talk that maybe the Chinese authorities won't raise interest rates, won't tighten further because of what's going to in the United States, Christine.

ROMANS: We're going to check in with you too Eunice in just about 20 minutes or so. So stay close. Thanks so much.

I want to expand this conversation now bringing our own Richard Quest and the host of CNN STATE OF THE UNION Candy Crowley.

So with you first Richard. As I've said again in the last eight minutes. These are run-of-the-mill declines. These sort of when you've got selling or unease, you sell one percent, you sell two percent. It is not vigorous sell-offs but it's early.

RICHARD QUEST, CNN HOST, QUEST MEANS BUSINESS: No, it's not panic selling and that's to be congratulated and fairly welcomed. However, there is nervousness and volatility, the people I've been speaking to in the market and those who look at these things.

There is a worry about what is happening here. And it is not just concerning the U.S. debt downgrade. It is mainly about Europe and Spain and Italy and whether or not there will have to be bailouts in those countries.

And Christine, the truth of the matter is, nobody believes that this crisis is over or that the regulators and the policy makers are ahead of the curve. Unpalatable to say but that's the situation.

ROMANS: That's right. Many people who have been in market that been saying did you see last week? Did you see we already had a correction in U.S. stocks? And much of the malaise in stock markets over the summer they say is for exactly the reason why the S&P downgraded of the United States.

QUEST: Exactly.

ROMANS: So it is one of those that by the time S&P does it, it has been baked in.

Let me to go Candy Crowley quickly because Candy I know this weekend you had some fantastic analysis on your program as well from both sides of the aisle. From you know, on the right and on the left, who were both against the S&P downgrade. Tell me about that.

CANDY CROWLEY, CNN ANCHOR, STATE OF THE UNION: It was interesting to me. We had Larry Summers who is, as you know, Bill Clinton's Treasury Secretary. Also a top economic adviser to President Obama. And then we also talked to Steve Forbes, who is CEO of course of Forbes Inc. Both very good economic analysts.

And so I expected they come from different ends of the spectrum here as they look at what's wrong with the economy. But the first question out of the bat, of course, was what do you think of this S&P downgrading the U.S. credit rating? And they agreed on that. Take a listen.


STEVE FORBES, CHAIRMAN, FORBES MEDIA: I think in a narrow sense, it is a political move and I think it is really, it will sound strange for me to say the, an outrageous move. The government can't pay its debts. It is legally obligated to do so. It's got the wherewithal to do it. In a larger sense about the economy, I think the U.S. economy is in a perilous state. This recovery has been the worst from a severe recession since the great depression but I'm surprised S&P would play politics.

LAWRENCE SUMMERS, FMR. DEPUTY TREASURY SECRETARY: Look. S&P said to sell Warren Buffett said to buy. That should tell you something about the quality of U.S. bonds. At the same time, this happened because S&P was seeing what most Americans are feeling. Which is unhappiness with the solution that is coming out of Congress for critical economic problems? To say that S&P is suspect is not in any way to say that all is well.

(END VIDEO CLIP) CROWLEY: And what I loved about this, Christine, is that all weekend long, the White House was pushing back so hard on S&P. I mean amateur hour, you know this was a vanity tour. They suggested that S&P was looking to you know help its own tarnished image. That it Warren's 15 minutes of fame which is really rough stuff.

And at the same time they kind a want Warren to brace the part that seemed to criticize conservative Republicans. So it was this, I think you saw Larry Summers do that a little bit. Well, no, this was terrible them shouldn't have done it. This was an awful move on their part. On the other hand, they have a point about how bad the politics are. So I found that interesting. To both sort of trash it and say, but by the way, they have a good point that Republicans were terrible about this.

ROMANS: It is a careful maybe contradictory message. S&P is wrong but it is the tea party's fault.

CROWLEY: But it's right. Exactly.

ROMANS: All right. Thanks, Candy and also Richard Quest. We'll come back to both of you.

And just to give you an update, on where our futures are right now. U.S. stock futures, the S&P futures are down about 1.5 percent.

Let me translate that to you for the DOW. DOW futures right now are down about 177 points, meaning all else staying the same over the hour and hours until the DOW opens tomorrow morning, Monday morning, a 177 points decline for the Dow Jones industrial average. Of course, thing will, I assure you change, between now and then and then change again.

All right. Countries around the world vowed to stay committed to financial stability. But if we watch how Asia reacts that opens up, we can't help but wonder how U.S. trading will shape up tomorrow morning. We are going to get the inside scoop on Wall Street pre- opening day jitters.

And how could financial problems in Europe whittle away at the global stability. We dig a little deeper there, next.



JOHN CHAMBERS, HEAD, SOVEREIGN RATINGS, S&P: We come to our decisions by applying our criteria - my criteria which has been in the public domain for almost 20 years. It has recently been upgraded. Our decision to lower the rating to Double-A plus from Triple-A was really motivated by two things.

One is the increasing political polarization which we think is going to impede the ability of policy makers to act proactively to get our public finances in order. And the second really is the public finances themselves. You know the current level of debt is high.


ROMANS: Welcome back to the CNN Special Report. We're all waiting to see what happens on Wall Street in the morning. Joe Duran, CEO, United Capital Partners, one of the largest independent private wealth counseling firm in the country with some $15 billion in assets under management. He joins us from Irvine, California.

What that fancy introduction means Joe is that you've got clients and you've got money invested in the markets around the world. And what happens on these markets is important to you and your clients. And you're cautioning people, don't overreact. Don't make any big moves. Don't panic.

JOSEPH DURAN, CEO, UNITED CAPITAL FINANCIAL PARTNERS: Yes. The one of the worst thing that people do at times like this, they react their emotions. Your emotions are probably - definitely not a friend when it comes continue to investigating.

So what we tell everyone is, quite simple, don't make any decision when's you're emotional. It is very important to step back and think about the long term implications. This is, I don't often get to say it but it is different this time. We've never experienced our rating going down. And - but we have examples of it happening in other countries from Triple-A down and then coming back. So, what I tell everyone that is first doesn't overreact.

ROMANS: Let's talk about those examples. Because you know this happened to Canada back in 1993 and over the next year, Canadian stocks were up 15 percent. It happened in 1998 in November. 1998 to Japan. Over the next year, Japanese stocks rallied and had a big rally.

You know, interest rates, of course, went up. That hurts real people in the economy who are trying to borrow money about it means if interest rates go up, that help some people who are on a fixed income or who are living on interest payments for things. I mean it is complicated and we don't know how this time will play out. Is that right?

DURAN: I would say yes. But the things I've shared with you that are very important are, this is like a long term tax. Because out there, it is less attractive to other countries. But the reality is as long as our economy is weak which it has been, and a lot of concern it will continue to be weak, you don't need to worry about interest rates going up.

Now, if you have a lot of long dated bonds or municipals, they are not going to react initially. We have a down day tomorrow. If you might see interest rates actually go down. The implications are much longer lived in nature.

So this is a big surprise to the folks who haven't been following this but not a big surprise to the institutional investors. A research team has been waiting for this. What I can say for everyone is, the long term implications are that on a relative basis, our rates will be higher than they would have been if we had kept our Triple-A rating because a lot of folks would rather now buy German debt or English debt or Australian debt which is Triple-A rated. But there is very little, in fact no different level of risk to us repaying what we owe.

So if you have U.S. government debt, you're still in the same place you were with a Double-A plus as you are with Triple-A over the course of ten years, so don't over-react.

The other thing I share with people is, very important that you think about what it means to your investing. Because the reality is that we have the Italian and the European situation which is a much bigger issue for us in the short term and secondly, our own very anemic recovery.

Now, what I hope this does is put a firm hand in the back of our government to actually do something and compromise because the underpinning of what is being said is you can't do this by reducing spending. Because your economy needs to also generate more revenues. You have to grow the economy. What I think you saw last week in the decline was a statement about the fact that if you cut spending, you're going to have a slower growth. And if you slow growth, it is much harder to earn your way to a better rating.

So what we're seeing now are the implications of a very soft recovery in concerns that it is going to continue. And the reality is, we all expect a fairly weak market for some time but there are many good strategies you can have in times like this, too.

ROMANS: You talk about, and those strategies include making sure you own companies that are the big companies. I keep saying it is the big boring companies with a lot of cash. The companies we have been saying why aren't they hiring more people? Why they are not investing? Because they're worried about things like this which is why they're being so cautious. What do you recommend to people?

DURAN: Well, think about it. You have now U.S. companies with a better rating than the U.S. government. What that mean is they're going to have even more attractive debt rates in the future which allows them to grow more in the future.

So I would strongly suggest you do is you think about if the U.S. is graded at below Triple-A, who has the Triple-A rating? Because their cost of capital will come down. We set the standard for the world. And what the means is, think about of investing in countries whose debt is being improved. Emerging markets. Think about the mega cap companies that take advantage about falling dollar. And the fact that they have money, it will be cheaper because our rate will stay the same and we set the standard. So there are other opportunities. It is going to be choppy. Don't do anything while your emotions, especially fear or in place but think about shifting your portfolio to larger companies that can take advantage of what will be a surely weaker dollar. Because what these all means your people are going to run and invest the U.S. in a weaker dollar, so.

ROMANS: All right, there is the old Wall Street adage I think someone told me a long time ago, on a day like tomorrow, don't just do something, stand there. And then after that, figure out where you want to be.

Joe Duran, Thank you so much. Really nice to talk to you, especially for that little dose of optimism in there and calm. Thanks so much.

Let's bring in my colleague, Candy Crowley, host of the CNN STATE OF THE UNION and Richard Quest, host of QUEST MEANS BUSINESS.

Candy, he's talking about you know a push to the back of the head of our policy makers to have consensus and move forward and get our fiscal house in order but that's something that S&P said they didn't see happening. And many people say the reaction from Washington, from all quarters, just reinforced the idea that they're all you know, have reverted to their ideological bankers.

CROWLEY: Exactly. But the thing is, in Washington, it can always be both. And I think in this case, it is. You had the Republicans reacting saying, well it is President Obama's lousy policy that's got us to here. You know he's the person in charge and he is the one that has seen this downgrading of our credit rating. The Democrats are saying it is the conservative Republicans, the tea party. So it's the big bludgeon.

On the other hand, it can also be a push. Because while they are using it politically, while they're using the downgrade from S&P politically, they also take it seriously, this is an embarrassment. Yes, they think it may lead to slightly higher interest rates, et cetera, et cetera. But you know , for the U.S. to lose its Triple-A rating even to you know double-A plus, it is an embarrassment and nobody like Republicans or Democrats.

Do it can be a push to this super Congress that is going to be looking at how to bring down the deficit by another 1.5 trillion. So I think it can serve as both, believe it or not. But in the time between now and that committee gets working, it is going to be used as a political bludgeon.

ROMANS: Richard, let's talk a little about Europe because that is something that Joe Duran also talked about. I mean it doesn't take very long when you talk to market participants, they look at future. They look at what is happening in Asian markets and then very quickly, they said you know but the debt crisis in Europe. This is another very big issue. Almost as big as the downgrade. The downgrade getting all the headlines in the U.S. But tell me what's happening with the European situation?

QUEST: No. No, no, no. No, no, no, no, no. No, no. I've got to take issue with you here.

ROMANS: Please do.

QUEST: The European debt crisis is a bigger issue than the U.S. debt downgrade. The U.S. downgrade was expected. It is not going to have a noticeable effect. It is a constant that has become a variable as (Mohammad Alariah) puts it. And it is certainly an absolute that has been changed. But actually business as usual tomorrow.

What you have in Europe is a fire that is smoldering, in some cases, and heading out of control in others. And if that continues, if they, if the ECP does not get a handle I know what the European Commission and others on Italy, on Spain, worries about whether Portugal and Ireland will need a second bailout, what will happen to freeze long term even though it has been put off the agenda for the time being? Fiscal union within the union. If they don't haggle on those, everything else, pardon the pun Gandhi, everything else looks like a tea party.

ROMANS: There you go. OK, Richard Quest, stick with us. We'll hit a break on that note. On Richard telling me no, no, no.

But he says Europe is a bigger, bigger issue than the downgrade, we are all talking about. We're going to talk to John Vause about this as well. Europe needs a bond buying boost. But will the European central bank explore the risk?

We are going to close those topics. More about what Richard was talking about, next. Futures are down about twp percent right now.


ROMANS: The world now reacting after Standard & Poor's' down grading of the U.S. credit crating, Friday. So far, markets tonight have opened in Tokyo, Singapore, Sydney. And we're watching them for any indication to what the U.S. markets will do tomorrow. All of the markets have opened lower but they're off their lows. And with stock index futures which are really good indicator of what the sentiment is with U.S. stocks, those are down but they're off their worst level as well. Only down maybe two percent at this point. The senior correspondent John Vause joins me now.

John, how volatile a situation is this?

JOHN VAUSE, CNN SENIOR INTERNATIONAL CORRESPONDENT: You know there is the expectation that it will be incredibly volatile. Especially for the Europeans. An indication of how big this crisis is, not one but two conference call for the G-7 over the weekend. That's France, Germany, the United Kingdom, Japan, the Unites States as well as Canada. They put out a fairly vaguely worded statement a short time ago promising coordinated action to support financial markets, financial stability, economic growth. Officials from the G-20 have also been talking.

But overall, there is a growing anxiety. Richard touched on it a short time ago about what that debt downgrade might mean for Europe, especially for the countries which have a high level of sovereign debt. We keep talking about Spain and Italy. They're ones who are particularly in the firing line of the bond markets right now.

What we saw last week is that concern over their position pushed up their costs of borrowing -- essentially, if you have a bad credit history or a bad credit rating, it costs you more to get a loan for a house or to buy a car. The same is true if you're a government. And that's what's happening to Italy and Spain right now. And that was one of the big reasons why there was such a sell-off in world markets last week.

So, what's happened over the weekend is that the European Central Bank has said it will go out there and actively buy euro bonds, didn't specifically say it would buy bonds from Italy and Spain, but that's the assumption. What that should, Christine, is do push down the cost for borrowing for both Rome and Madrid -- get both of those governments a chance to get their balance sheets in order, put in some austerity programs. The Italian prime minister has said that will happen, hasn't given details. Now, be sure about this -- not everyone at the ECB is happy. The Germans in particular are not happy -- Christine.

CHRISTINE ROMANS, CNN ANCHOR: Why are the Germans so unhappy?

VAUSE: Well, you know, they're the ones who essentially bank rolling all of it. They hate the bailouts. They hate this kind of fiscal -- what they may see as irresponsibility on the parts of various governments around Europe. They don't like the monetarization of government debt. And really don't like the Central Bank taking on so much risk.

ROMANS: All right. So, let's bring in Candy and Richard again and talk about this.

So, Richard, Candy, John -- let me start with you, first, Richard, I guess.

I mean, this is so important, what happens, what's going on here next with the G-7 issue, the G-20 issue, and the European issue. I mean, what are the big -- what are the big sticking points here? Where's the progress if there? Because if the future is going to do better, if there the markets are going to have a decent day tomorrow, it's because of what's happening out of Europe?

RICHARD QUEST, HOST, CNN'S "QUEST MEANS BUSINESS": Well, yes. Look, I just to come in first of all with a bout of indigestion on what the G-7 statement said. Look, you and I, Christine, have spent far more years than is honest or decent reading this boilerplate nonsense. And there is an entire raft of it tonight from the G-7.

And I understand that they had to say tonight that if they did not -- f they did not come up with a form of words saying that they would do everything possible, it's mere absence would be noted. But the fact is you've got flames licking all around the world in the financial markets. You've got nerves, all sorts of thing.

And the best they can come up with is a wishy-washy statement saying that: "A," they'll do whatever they can. Well, one would hope they would. "B," that the fundamentals don't justify the reaction to Spain and Italy. Well, that may be true.

But once again, it seems to me that they're living in some sort of parallel universe. What they expect this sort of statement to do, I have no idea. You're seeing the market reaction. You're seeing nervousness of individual investors and that's going to be the problem for the next few days and weeks.

ROMANS: You know, Candy, so here's the issue. I mean, if you've got Spain and Italy, if you got the pigs, the Portugal, you know, Ireland, Italy -- you know, the whole Greece, Spain, the whole European problem we've been talking about for a year now, the White House must -- I would think they would rather us be talking about that than talking about the downgrade that has happened under the watch of this president -- Candy.

CANDY CROWLEY, CNN CHIEF POLITICAL CORRESPONDENT: Well, they, in fact, do agree with what Richard had said earlier which is, when I was talking to administration officials this weekend, prior to the show this morning, they said, listen. The story of what's going on with Spain and Italy -- I mean, the story right now is about those European markets. Not this downgrade.

Now, they were worried about the downgrade in so far as it was another element to spook the markets, that it would just sort of add -- you know, pile on and become a part of the snow ball. But they saw the European economies as a much larger issue as to how, what was affecting the global marketplace than the downgrade.

ROMANS: OK. You guys stick there with me because we're going to check in with all the reaction in the Asian market.

Hold on. Hold that thought, Richard, because we've got to come back. We're going to check with the Asian markets. They've just opened. They're just opening up. We're back in less than two minutes.

Stock index futures, you know, the futures gauge of U.S. markets. Those are down about 2 percent. Dow futures down triple digits right now.

We're going to get back to you in two minutes. Don't go away.



ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN: What I think is S&P did was hit a nerve, that there is something basically bad going on. And it's hit the self-esteem of the United States, the psyche. And it's having a much profounder effect than I can conceived could happen.


ROMANS: But it will hit the markets? More markets are starting to open in Asia right at this moment. Everyone is waiting, watching to see the reaction from that U.S. credit downgrade.

Pauline Chiou is live in Hong Kong. Eunice Yoon is live in Beijing for us.

Pauline, let's start with you. They've been open for seven minutes or so. What are you seeing there?

PAULINE CHIOU, CNN INTERNATIONAL ANCHOR: We are seeing all the major indices down in negative territory, Christine. So, to answer your question, it is affecting the markets. The Hang Seng just opened here in Hong Kong. It's down by about 2.6 percent. The Nikkei is also down by about 1 1/3. The KOSPI in Sydney also down. So is Taiwan and Singapore.

But here is the bright spot this morning is that most of these indices are off their lows. For example, Sydney opened down 2 percent. But now, it's only down by eight-tenths of 1 percent. I think part of that is because the S&P downgrade of U.S. debt was slightly built into the markets, with the people absorbing that over the weekend.

But also, we got those statements, Christine, that you were talking about with John Vause and with Richard Quest and Candy Crowley about the G-7 coming without the sort of boilerplate statement and also the ECB saying they're going to move back into the bond-buying program. I think the question now is: are they really going to buy the Italian bonds and the Spanish bonds?

But for the Asian markets here, the real question is what is it going to do to the U.S. dollar. Is the dollar going to stay weak? Because there are so many trading partners here with the U.S. -- Christine.

ROMANS: All right. Excellent. Thank you, Pauline. We'll check in to you again soon.

And let's get to Eunice Yoon, standing by for us live in Beijing. What are you seeing? The same story there?

The story that we've been hearing across the region is, an initial shock opening a couple of percentage points lower, and then not so bad after that.

EUNICE YOON, CNN CORRESPONDENT: Well, that's right. The Shanghai market opened lower, but really modestly so. It's currently down by about 1 percent. In the context of emerging markets, that isn't a very big move at all.

What people have been telling me is that the S&P downgrade was baked into the markets. They were, for the most part, expecting to see something like this. And right now, the debate is more about whether or not this is short term volatility or if what we're seeing is the beginning of a longer term slide.

Now, what hasn't been debatable is the frustration on the part of the Chinese. There hasn't been any official reaction on the part of Chinese government.

However, there have been several scathing editorials in the state-run press. Xinhua News Agency just had one which said really put the blame on Washington politics, and U.S. debt, saying that Washington politicians, or politicians in Washington, really should stop playing chicken with the global economy. And also, they've been saying that as one of the largest creditors of the United States, China has the right to demand that the U.S. look and review and change the structural problems with its debt.

So, there is a lot of frustration on the part of Chinese, especially there have been other suggestions that perhaps this is a time for a new international reserve currency -- Christine.

ROMANS: And we've heard that before. And we also have heard sort of the Chinese, I guess, a little salt in the wound, if you will. Of what some have seen as a humiliating downgrade for the United States.

Thank you so much both of you. We'll continue to watch those markets. Coming up, how the debt mess impacts your bottom line. A personal finance expert whom you all know very well, who used to be a trader, gives us her perspective. Terry Savage on the other side of the break.



OMEKONGO DIBINGA, IREPORTER: Look, at the end of the day, many Americans are too busy worrying about their own credit rating to care about the AAA credit rating downgrade for the United States.


ROMANS: I could not agree more with that iReport. Maybe this is a chance for all of us to really take a look at our own personal finances because -- could the United States losing its AAA status as a borrower affect you as a borrower? What's it's going to mean for you?

We're going to ask Terry Savage, personal finance expert and author.

Terry, I'm not doing anything different tomorrow except making maybe working a little longer. I have a feeling you are on the same boat.

TERRY SAVAGE, PERSONAL FINANCE COLUMNIST, CHICAGO SUN-TIMES: Yes, I'm not going to do anything different.

But there is one market we've been avoiding here. And I think it means a lot ultimately to Americans. We live in dollars, plan in dollars, how much do I need to retire?

But what will that dollar be worth? You know, we talked about Europe. They're now, the central bank said it's going to buy bonds. With what? Where are they getting the money?

We had Alan Greenspan today that you didn't quote there, but he said, you know, we're never going to default on our debt. We'll just print the money.

And so, we should take a look right now at the gold market, which reached a new high just a few hours ago of $1,697 an ounce.


SAVAGE: It backed of to the $1,680's, now back to $1,693.

And what's that telling you is that all the scared money around the world is trying to figure out which place is safest. And I have to tell that you given the problems in Europe, Japan has got a debt problem twice the size of our borrowing (ph) ratio to GDP. I don't think we want to trust China to be the world's currency.

So, probably on Monday morning, you're going to see that global scared money coming back to the United States. And the fact that it all wants to be here has pushed interest rates down. Not up temporarily. But let me just take this one step further. If we've got the smart money coming here, putting the money on the banks, you know, on Friday. Some large banks said we're paying you zero interest and you have to give us a fee just for the privilege of leaving your money on deposit, because it's safe here.

Now, don't you think some of that smart money might look around and say, you know, we're getting zero interest but we're in dollars, we want to be in dollars -- maybe we should look at some of these big companies. They're paying dividends. They're food companies. They're not going out of business. People are still going to eat.

And maybe some of that money in dollars moves into the stock market. There is a contrary wave here -- a positive spin for stock.

ROMANS: Yes. And, you know, the big -- and here's sort of contrary way to look at it. So, big, boring companies that do things that you know every day that have been sitting on a ton of cash and not necessarily hiring people. We've been complaining because they're not hiring people. They're sort of the safe harbor in all of this.

SAVAGE: Yes, their business will continue. Many of them pay dividends. On the edge, you know, they might not be quite as profitable.

But the fact is these businesses aren't going away. America is not going away. We have a lot of people out of work. We have financial problems and we have a government that doesn't seem to be able to get together and deal with them.

But America is still here. So, before you get caught up in this panic of -- oh my goodness, I'm never going to go through this again. I said the last time I would sell my stock.

Don't do that and panic because it might just be that the place to be is stocks. Stocks, by the way, have a long term track record with dividends included --

ROMANS: Right.

SAVAGE: -- of beating inflation.

So, if what you fear is the value of the dollar going down, maybe you want to have some exposure in a diversified way over the long run to your stock market.

ROMANS: Let's talk about the loans that you take out -- you know, your home mortgage, your car note. I mean, you've heard a lot of very simple analysis over the past few days that those rates are going higher. It is not clear that those rates are going higher.

You know, your mortgage rates could be going lower in the near material. And if you're in a 30-year fixed rate below 5 percent, God love you, because you should be, because rates have been very, very low for a long time. SAVAGE: Yes, you should have already refinanced if you can and if you could qualify. The people I worry about -- you see, if this inflation issue is really comes to the front and center, if everybody tries to bail out their economy by creating more credit, like Europe has announced it will do, for example, then we have to worry about the value of the currency. That's when interest rates go up.

So, home equity loans are all floating rate loans and many of them are interest rates only. You could see those payments double. You know, most people don't remember that in 1980, we had inflation. And the prime rate was 21.5 percent. Mortgage rates were 15 percent.

So, I'm not predicting that to happen again. What I'm saying is that if you are exposed to floating rates and your credit card.

Americans are smart. Americans have been paying down credit card debt. It's not your job to go out and consume and save the economy. It's your job to get your family finances in order.

So, try to pay down the credit card debt. Lock in fixed rates.

ROMANS: Yes, there you go. Terry Savage, fantastic advice. Thank you so much. We'll talk to you again soon. Really good analysis there.

So, you know, the United States doesn't have a AAA rating anymore -- big deal? Not so. We found out from the experts why that slight downgrade could mean big bucks for your wallet and how.

And how getting an affordable loan just might be a thing of the past.



DAVID BEERS, S&P GLOBAL HEAD OF SOVEREIGN RATINGS: Both Congress and the administration are jointly responsible for the conduct of fiscal policy. And so, this is really not about either political party. It's about the difficulty of all sides in finding, you know, a consensus around fiscal policy choices now and in the future.


ROMANS: A failure to find consensus landed us in this mess. Now, the markets will decide what it will cost us.

Here to help us understand is Drew Kanaly. He is chairman of the board and CEO of the Kanaly Trust Company, managing some $2 billion in assets.

Here's my question. First of all, your reaction to what we have seen from Asia and stock index futures? This is a run-of-the-mill sell-off so far by estimation so far.

DREW KANALY, CEO, KANALY TRUST COMPANY: Yes, it will probably spill over, you know, from our week last week here in the U.S. And let me say this -- what's going on in the equity markets is not a reaction to our downgrade. It's a reaction to the potential for a general economic slow down both here and in Europe. And if the Chinese have their way in their inflation battle, you could see a slow down there.

So, all the equity markets are correcting based upon an assumption that we may be seeing an economic slow down, not tied to our downgrade.

ROMANS: That's an interesting point because we had a tough week last week in stocks. We are seeing that continue this morning. You think it's more tied to a slow down in the U.S., a global slow down, concerns in Europe. Not a -- what is a historic downgrade of our U.S. credit rating but the real world impact of that will be minimal. This is about a slow down.

KANALY: Yes. Let me be clear about it. I assume, you know, CNN viewers at home it's news, right, that we've had a big downgrade. It never happened before to the U.S., and that is news.

But in financial markets, both here and around the world, this was really expected. I mean, this was -- this was telegraphed quite a bit ahead of time. And when you have, you know, debt to GDP ratios both here and in Europe at unprecedented levels, this is the type of thing that happens.

And the viewers should understand that AA rating is still a very, very good rating. I mean, it's not pretending that we're not going to make payments. In fact, the structure of U.S. debt is far superior to European debt in that not so much of our debt is coming due too soon. We -- it's not like we really have a debt payment problem.

ROMANS: Right.

KANALY: Now, we have political problems, right? We have political problems about how to solve the debt ceiling. But our issue here domestically is one of changing a spending habit that we've been into for, what, 30 years, 40 years, 50 years?

I mean, it's not something we're going to change overnight. It's a political workout. We as a nation have to decide about how big a role government is going to play and how much we can spend.

So, that's --

ROMANS: Drew, let me ask you --

KANALY: -- sort of what's going on there.

ROMANS: And we've got what could be -- I mean, frankly treacherous politics as we head into December 23rd when this super committee, this bipartisan committee, has to decide how to cut another $1.5 trillion.

What are you forecasting or what are you expecting, I guess, for how complicated that could be for markets? I mean, every now and then, you get some kind of a reaction in markets to political things. I mean, do you think that it could be tough going?

KANALY: Right. Yes, it is because you just don't know why. And markets can discount good news and bad news but they can't discount what they don't understand. And you certainly are not going to understand the politics of what's about to unfold for quite a while. I mean, I don't think anyone really understands specifically how all this is going to work.

But what markets do know now right is if there is a concern about financial markets around the world, chances are the U.S. bonds is probably the best place to be. It's the most liquid, it's the deepest market. It's the place where you can park several billion dollars overnight without worrying about being money good the next day.

And so, it's kind of an interesting confluence of situations, isn't it? And that we have a downgrade, but yet, we are probably the best possibility for parking money.

ROMANS: I know.

KANALY: And so, that's why I wouldn't be surprised this week if our interest rates didn't go down in the face of our downgraded debt. That's how deep the situation.

So, for viewers to look at things, at least from our perspective at Kanaly, we'd be watching Europe first. We'd be watching European bank stocks. We'd be watching the Asian markets, specifically about the plane -- the slope of the growth rate in China going forward. And then we'd be watching earnings impact on our stocks here domestically.

And that's sort of the order of thinking, the AAA to AA thing is not quite as far up there on the worry list presently.

ROMANS: Drew Kanaly, thank you so much. Really great to talk to you.

KANALY: Thank you.

ROMANS: We'll talk to you again soon.

I wanted to take a look at the futures board just to tell you how futures are doing right now, folks. You know, they're down.

The Dow is actually slipping back a little bit more. Again, it's down 211 points -- Dow futures. S&P 500 futures, that's -- the S&P is the broader gauge that your 401(k) is tied up. The stock in your 401(k) is down less than 2 percent.

I want to return to Candy and Richard.

Richard, I mean, what we are hearing here, he says the downgrade has no impact in the markets.

QUEST: He's absolutely right. It won't have an impact in the market.

But John McCain summed it up today when he said, is anybody seriously saying that the S&P decision doesn't tell us that there is something wrong with what's happening in the U.S. economy at the moment?

I'm paraphrasing Senator McCain in there.

And that really is the importance of the downgrade. One big thought to take away tonight is this: how do the regulators and how do the policy makers get ahead of the curve? They have failed to do so time and again, particularly in Europe. And that is what the markets are looking for. The sort of leadership qualities that let them say this crisis is finally under control.

ROMANS: You know, Candy, a source close to S&P told me earlier this weekend that they expected only mild real world impact from this. And that's what we have been hearing from a lot of other folks as well from this downgrade rather -- that it's other things that could hurt you like the fact that there aren't jobs in this country, as many as we'd like; that you still have a lot of problems in the economy overall.

You know, the fact that this guy -- that Drew Kanaly is saying the downgrade won't affect stocks, that must make the White House happy.

CROWLEY: Yes. And it's what they said all weekend long, which is there's a difference between whether or not we are credit-worthy, which we are, and whether or not the economy is in trouble globally and in the U.S. They think those are two separate issues and readily agree that the economy doesn't look good.

In fact, one of the things that Summers said and, remember, he was an architect of the stimulus plan, a lot of the things that the Obama administration put in place. He's now a former official. But nonetheless, he was there when they were doing the planning.

And I asked him, I said, you know, now, we are seeing headlines about double dip recessions. And he said, you know, it's a possibility. He thinks what the U.S. needs to do is pump more money into the economy, you know, become that employer of last resort and put more stimulus money in. I don't think there's a political will with either the Democrats or the Republicans to do that.

But that was what --

ROMANS: He could just call up the Tea Party caucus and say, hi --

CROWLEY: We need more money. Yes.

ROMANS: -- it's Larry Summers, I was wondering if we could spend a bunch more money that we don't have to try to get the economy going again. I mean, another stimulus is almost unheard of.

Richard, would it have to be the Fed to do something like that?

QUEST: Well, look, everybody's a bit busted. Monetary policy is virtually out of the game. Q.E.2 proved -- I'm not sure what it did prove, but it certainly didn't work as they hoped to. And about the Q.E. 2 1/2 or Q.E. 3, it would just create huge problems for the Fed in terms of unwinding the balance sheet and what it does for the monetary transmission policies. Fiscal policy is tied up with Congress and it's clearly not going anywhere while the Tea Party carries sway.

In that scenario, the gridlock is total and that is where S&P comes in and launched this grenade.

ROMANS: Final thought from you, Candy, about whether we'll see a kumbayah moment and we'll able to have a super committee that just very easily agrees on $1.5 trillion and says, oh, we found $2 trillion more that we can bring for you.

CROWLEY: Yes, right.

ROMANS: And that will make everyone happy in the market.

CROWLEY: Yes. Key word here, "easily."

No, they will not easily find it. And, honestly, I don't know. I mean, Congress does tend to come through under two circumstances. One, when they have run out of time, and, two, when their back is against the wall. They do tend to get something done.

And you can always tell because no one's ever happy when they do it because they all sort of hate parts of whatever it is.

And so, you know -- yes, you can say, look, this S&P was, you know, a smoke signal, that they've got to do something that this super Congress has to come up with solutions that Congress then has to pass. But I will tell you, we are in a presidential election cycle. And that makes things more difficult than they normally are.

ROMANS: All right. Sometimes markets can be more difficult than presidential cycles. So, we'll have to see how the next few months bear out.

Richard Quest, Candy Crowley, thank you so much.

Just to update you: futures are lower. The Dow futures down about 211 points right now.

I'm Christine Romans in New York. Stay with CNN for continuing coverage of the debt mess and the market reaction.

Now to Don Lemon in the "CNN NEWSROOM."