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YOUR MONEY

Storm Warning; Fixing America's Crisis of Confidence; The Rise of China; Voters in Greece Face Crucial Decision

Aired June 16, 2012 - 13:00   ET

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


ALI VELSHI, HOST: You probably heard everything you need to know from these two guys about the economy and how they plan to fix it. But what if I told you they are both misleading you about how they can fix it and how right now things may be about to get a lot worse?

Welcome to YOUR MONEY. I'm Ali Velshi. I'm going to tell you the truth about the economy. I'll tell you what the candidates aren't telling you about what is and what is not within their power to change. But first, I'll tell you about a storm that's raging in the distance. It's headed to our shores.

It's an economic storm. It hasn't hit yet. But we're starting to feel the outer bands of it. Those who watch me every week know I'm generally optimist but I understand the economy.

The U.S. economy is driven by the confidence of its citizens. You see, the customer, in this case is the American consumer, is always right. If they think things are slowing down, it will become self- fulfilling because they'll stop spending. Businesses will stop hiring. And the economy could grind to a halt.

Let me tell you what I'm talking about. Here's the news. We have had 20 straight months of job growth in the United States. The pace of that growth is slowing. For the last five months, there have been fewer jobs created each month than were created than in the month before. But jobs are being created, not lost. So that should make people feel better, not worse.

Let's talk about your homes where a lot of your equity is there. The home prices in the United States are probably at or near their bottom. The so-called shadow inventory of homes is lower. Foreclosures are up. But those are a new wave of foreclosures from the robo -- signing scandal. We're probably near the end of this thing.

Fewer homes, less inventory makes it a good time to buy. And if you're buying a home, at 4 percent mortgage interest rate or lower on a 30-year fixed mortgage, the rate that you pay has much more impact on the total price of that house over the course of owning it. Mortgage rates are at record lows right now.

And how about gas prices? When they are up, they're like a tax because it causes you to pay more money for exactly the same amount of something that you bought before. But those prices are down. The national average for a gallon of gas, $3.52, not cheap, but a lot lower than they were a couple of months ago. Speaking of energy, by the way, we hardly had a winter so Americans saved a lot of money on home eating bills. But the problem is that none of this is pushing consumers to spend. And without consumer confidence, another recession looms.

Already we've got a jittery stock market. The S&P 500, the broadest representation of stocks that you probably own if you have a 401(k) or an IRA, down more than 5 percent over the last three months.

We're seeing record lows in treasury yields. That's because the smart money doesn't want to take risks right now and it's parking itself in U.S. government bonds. Why is that smart money so nervous? Because of Europe. The potential collapse of European buying power if the euro breaks up. Europe is an economy the size of the United States. The worst things get there, the fewer American goods and services Europeans buy. That costs us jobs.

And let's not forget about the fiscal cliff that lies ahead in Washington. Some tax cuts are expiring. Some benefits are going away at midnight on December 31st if Congress does nothing. Happy New Year. Congress may be the one body, by the way, which you have some influence over which can avert the disaster. But I probably have a better chance of growing an afro by December 31st than Congress has of getting its act together.

And while I grow my hair, I have one piece of advice, deficit hawks, you can leave the room for a while. This is not the time to be discussing spending cuts.

And you Democrats, this is not the time to be raising taxes.

All right. We put together the best minds in business and politics for you this hour. Christine Romans, the host of "YOUR BOTTOM LINE" is here with me. She'll tell why you this is an important moment for America and why it's Europe and China, not the U.S. presidential election, that will decide the outcome here at home.

Jessica Yellin is CNN's chief White House correspondent. She says neither President Obama nor Republican rival Mitt Romney are being honest with you about the depth of the problem and their ability to arrive at a solution.

John King is CNN's chief national correspondent, anchor of "JK, USA." He can read the political tealeaves like no one else can. So I'm going to ask him if Americans are better off today than they were four years ago, and more importantly if they feel better off.

Will Cain is a CNN contributor and a conservative who I think agrees that cutting spending or raising taxes now are both the wrong thing to do.

And Harvard economist Ken Rogoff is a former IMF chief economist. He is the world's leading authority on financial crisis.

And we're going to start with you, Ken. You're the expert. You've made a career out of studying economic crisis around the world. I've just laid out how I see this gathering storm. Where am I wrong?

KEN ROGOFF, ECONOMICS PROFESSOR, HARVARD UNIVERSITY: Well, you said, Ali, you're normally an optimist. I'm normally pretty calm. I'm nervous right now. I mean you look at what's going on in Europe, if that blows up, there is nowhere to hide. We have to hope it doesn't. I mean it's not a certainty by any means, but it's not just the Greek election, there's instability in Spain, there's instability in Italy, and we're looking really at a nation in the making here.

Are they going to pull it together or won't they? And China also is having problems. That's another engine of growth. I mean I think we have our own self-made problems. Fundamentally the U.S. is still a great franchise. We're not an island. And there are some just huge risks out here. And you're right, it's making everybody nervous.

VELSHI: And ultimately, what it makes the consumer nervous, it starts to cost us all.

President Obama and Governor Romney had a showdown in the critical battleground state of Ohio on Thursday. Both laid out why not to vote for the other guy but neither has a clear plan for getting us out of the mess.

(BEGIN VIDEO CLIP)

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: It's usually the president is right when he said the private sector is doing fine. Well, then he's the guy to vote for.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: If they win the election, their agenda will be simple and straightforward. They have spelled it out. They promise to roll back regulations on banks and polluters, on insurance companies and oil companies. They'll roll back regulations designed to protect consumers and workers.

(END VIDEO CLIP)

VELSHI: Want to bring in our chief White House correspondent, Jessica Yellin.

Jessica, you have heard those words many times over. And you think both candidates are running on their ability to turn this economy around, or at least that's what they'd like us to think. But neither candidate is leveling with Americans about the depth of the problem that we could be facing.

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: I think that's right, Ali. And I think part of it is natural politics. Neither one of them wants to sound like a pessimist because that's not appealing.

But there is an appeal to authenticity and honesty. And neither one of these candidates is saying to the American people that this could be a long and protracted hole that we're in or a long, slow slog. And neither -- we're not offering you a policy that's going to get us out of it terribly quickly. But stick with me because I'm being honest and telling you the truth. What they're saying is -- President Obama is saying, I have shown progress and it might be not happening as quickly as you'd like. But if you stick with me, we'll get more progress down the road. And the other guy, he's going to serve you something that's really rotten. It's like Bush.

And Romney is saying well, he hasn't turned it around fast enough. So let's change horses. You know, neither of them is really telling you this could be bad for a while.

VELSHI: Right. Because that's now how you win elections around here.

The one other question that's often gets asked of Americans, are you better off than you were four years ago? It's a question that ultimately decides many presidential elections especially those coming out of a financial crisis.

Now a recent CNN/ORC poll asked Americans that very question and today we have a hung jury. Forty-four percent of respondents say they are doing better, 43 percent say they are doing worse. But the final verdict comes in November.

John King is CNN's chief national correspondent. John, I'm telling you that there's zero question that America generally is substantially better off with a trend toward being not better off. You follow the politics of this. Can the president or Mitt Romney convince voters that they will be better off with one of them?

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Well, the confidence question, which candidates wins the confidence debate is important going forward. But when you ask the basic question now, are you better off? Ali, we elect presidents state by state, those are national poll numbers you just showed.

You could go to the state of Ohio where the two candidates duke it out this week. You know the unemployment there is actually down a little bit from when President Obama took office. But go out to Nevada, the unemployment rate up is a little bit. Michigan, it's down a little bit. Virginia, it's down a little bit. I could give you other states where it's up a little bit.

So we'll go state by state with through question. But when you have a hung jury, as you put it on the question, are better off today, people ask a second question then if they're not quite sure on that one and they look at their children, and they say, will they be better off? And you went through some of the data.

But when people look around, and they think about their children, their legs are tired. They've been treading water for two or three years now. They have had to make very tough choices in their own lives. They don't see any tougher bold choices being made in Washington or any tough or bold new proposals being made by the candidates. So you do have a hung jury at the moment.

This election as we speak today is as close as they get. And if one of the candidates can change the confidence question about what's around the corner and what's over the hill, they'll win the election.

VELSHI: Jessica, how does that happen? How do you engender the confidence that you need to turn things around, get businesses to hire, get people to feel good about the economy if you do what you suggest that these candidates should do? Be honest that this is going to be a tough slog. It's going to take a long time and it's not going to feel a whole lot better for a while?

YELLIN: I'm arguing that the -- that authenticity allows them to say that's why we need to make certain kinds of choices. And that gives them a frame to outline an agenda. For example, President Obama could have said at the very beginning of his administration, look, this is -- could be a longer turnaround than we would like.

And so I'm asking for everybody's patience so we should be able to spend and stimulate for a while, for example, because that is the philosophy he clearly believes in. But we're going to have a plan to save in the long term, to cut down our debt in the long term. And here's how I'll lay it out. And so you understand a framework then why he's stimulating and also why he believes in debt reduction.

And that could have made sense of his entire agenda. Instead, he kept saying, we're going to stimulate. Now I support debt reduction. Now we're going to be for jobs bill. But, no, I also support debt reduction. And he kept telling us we're in the summer of recovery, we're in the moment of regrowth.

VELSHI: Right.

YELLIN: And it was whiplash for the American people. There is no framework.

VELSHI: And John --

YELLIN: A framework now would be helpful.

VELSHI: You've got -- you've got Mitt Romney saying under him unemployment will go down to 6 percent. But he didn't invent that number. The Congressional Budget Office also has that kind of thing. But that's the kind of specificity that Mitt Romney gets hammered for not having when he talks about tax cuts and he talks about spending cuts.

So the minute you bring specificity in it, it made guys like me say you can't control the unemployment rate. You're -- the world is controlling the unemployment rate right now, not Washington.

KING: Of course they can't control it. And as you said, that's a fair -- that's not a very bold prediction. If the economy starts to come back, if you -- we can get 2.5 percent, 3 percent growth, that's the unemployment rate you would get. If you get that consistently. But that's not terribly bold.

Look, again to the confidence crisis. No American voter trusts any big institution anymore. They see what happened to JPMorgan Chase. You're watching what's happening in Europe. They don't see Washington or any politicians making bold decisions or thinking outside the box, and they have had to do all these things themselves.

So what can Mitt Romney do? In part, Ali, it's a very different challenge. And one of the reasons his campaign will tell you he's not changing his plan despite the changing circumstances is we have an incumbent president. And if the American people reach the threshold decision you've had 3 1/2 years, Mr. President, sorry. You're a nice guy. We don't think you've done enough. You haven't tried hard enough. You haven't been bold enough. Things aren't that much better.

Sometimes the challenger can win just on that. So you have a fear on the Obama side, I think, of doing something big and bold. He could reach out and say OK, I'll extend the Bush tax cuts for two years and I'll do it before the lection. But only if you give me construction spending. There's still some summer months left. Let's put some money out there.

Only if you give me the teachers, the police, the firefighter money so I can give that to governors and mayors. Let's try to cut that deal before the election. The president doesn't want to do that because extending the tax cuts would infuriate his base. But he could put pressure on Governor Romney. Would Governor Romney say yay or nay when congressional Republicans, if such a deal were offered, said what should we do, Mr. Nominee?

(CROSSTALK)

VELSHI: That becomes --

KING: Now that'll be will an interesting question.

VELSHI: That becomes a key question. When you arrive at that grand compromise, which candidate is more likely to embrace it? That may get them the votes.

John, always a pleasure to see you. John King.

Jessica Yellin, our chief White House correspondent, thanks to both of you.

Ken Rogoff, stay where you are. Christine and Will are here as well.

Coming up next, we know what the problems are, we know what the politics is. What do we do about it? How do we avert that storm that's heading to our shores? The conversation continues on YOUR MONEY next.

(COMMERCIAL BREAK)

VELSHI: I said at the beginning of the show that storm clouds are gathering over the U.S. economy. The question is, what, if anything, can be done about it?

Ken Rogoff is with me. He's a former IMF chief economist. He is one of the world's leading authorities on financial crisis. You've seen him on the show a lot. But he really does understand this. And, Ken, study this for us. Help our viewers who don't study crisis to say this is just not a slow recovery. There is something that is alarming you, alarming me and alarming other people, about a shift in sentiment of the American consumer that suggests something -- this might just not be just a slowdown. Something else might happen.

ROGOFF: Well, the basic problem is that we're not growing that fast. We're still fairly weak from the deep financial crisis recession we had which unfortunately is typical. And now we might be hit by another hammer blow coming from Europe, coming from China and already from Europe there's a lot of uncertainty. So even if you don't know that the meteor is going to hit, you're sort of hiding and worrying about it.

So it's a very, very tense state where I think the only move in this situation, the only move is really to have the central banks flood the economy with liquidity to try to support the short-term confidence. It's not a good thing in the long run. But Europe has to lead and they've still been timid because nobody is in charge. They don't have a central government in Europe.

VELSHI: That's right. And we're going to address this a little later on about why China is able to make those decisions because they're so centralized. But to your point about the only thing that can happen that can really have an effect on this is the Federal Reserve putting more money into the economy.

Will Cain, why is that a problem?

WILL CAIN, CNN CONTRIBUTOR: I wouldn't suggest that it is a problem. Now I would emphasize the word can. Ken said it's the the only thing that can happen. The central bank is the only one that has essentially the authority and power and the political will because it has -- doesn't have to respond to political will to put any kind of short-term solution. That's what we're talking about here, right?

We're talking about short-term solutions to batten down the hatches for an economic storm. There is no political solution to this. The central bank is the only one that can put something together. It is surely not the prettiest picture in the world as Ken suggested. But again, it's the only thing that can be done.

VELSHI: Christine Romans. Here's the problem we've got. That what Ken is suggesting is something that would create liquidity. It would make banks able to lend more. People could borrow more. You think that fundamentally we've got a problem now. We're fueling this economic fire with stuff we shouldn't be using as fuel.

CHRISTINE ROMANS, HOST, YOUR BOTTOM LINE: Well, we're talking about -- look, my concern is that we keep talking about the consumer slowing. And oh no, the consumer is slowing. And didn't we learn from the financial crisis that the consumer -- the consumer is the middle of a -- of a very long deleveraging. They have too much debt. Maybe the consumer doesn't have borrowed money, savings and money in their house that they can spend anymore. The consumer is still kind of in a weak position. So thinking that we can rescue ourselves with the consumer after we've rescued ourselves with the Fed and with central banks, I mean, there are going to be fundamental -- the economy will grow faster. Ken is absolutely right. And there need to be fundamental drivers of growth that aren't just necessarily consumers on borrowed money which is what drove so much of the economic activity over the past --

(CROSSTALK)

VELSHI: Let me show you, Ken. Let's just take a look at consumer confidence and what we're talking about, where some of this alarm comes from. Consumer confidence is a measure of how consumers feel about the economy and how it's going. It's been going up in the last year or so, but the last three months you've seen a little bit of a drop. It's not drastic. It's not crisis, Ken. But why is all of this stuff that we're talking about -- a potential slowdown in China, the European crisis and whether Greek leaves the Eurozone, Greece leaves the Eurozone.

Why is all of this somehow playing out for the consumer? Why would that happen? What would the American consumer be saying to themselves, I want to keep that wallet in my pocket?

ROGOFF: Well, for one thing, it's not -- they know that obscure risks can all of a sudden blow up, hurt their jobs, make the price of their home go down even more potentially. And you know they're in a very weak position.

Ali, the government -- the Census Bureau recently reported that wealth of the average American had fallen by 40 percent in the last three years. Their home prices have gone down. They've been running down their savings to keep up consumption. A lot of unemployment. I mean people are already nervous. And they know that something else could hit. That the other shoe could drop.

I do think we have to work on the long-term fundamentals. I completely agree with Christine. I mean there isn't a quick fix to this. We have to improve our tax system, our education system, our infrastructure. And certainly when I talk about flooding the world with money, that's a drastic response to a very, very dangerous situation. But that does not solve the long-term problem. I'd like to see the presidential candidates talk about the long-term more.

VELSHI: All right. So now this is the issue that we have to move to. And that is, a lot of people have asked me, what can we do about this? If there is this hurricane, if there is this storm coming towards our shores, what control can we have over it?

We discussed the Federal Reserve. We've discussed central banks. Now we're bringing in the politics. Stay with us. We're coming back with Ken, Will and Christine in a moment.

And then voters go to the polls in Greece for the second time in a little over a month. Could the choices made by this small country, the 34th biggest economy in the world, set off this worldwide economic meltdown?

CNN's John Defterios joins us from Athens.

(COMMERCIAL BREAK)

VELSHI: I'm back with Ken Rogoff, economics professor at Harvard and former IMF chief economist. Also I'm joined by CNN contributor Will Cain and Christine Romans, host of "YOUR BOTTOM LINE."

Ken, you just said, and many agree, that the biggest thing that can happen is that the Fed can inject some more money into the economy, create more liquidity and make up for any drop-off in consumer spending. I'm going to offer that there's something else that can happen. And that is that the American people can speak in some fashion loud and clear before the election and certainly on Election Day to tell their Congress avoid that fiscal cliff at the end of the year where taxes go up, some benefits get eliminated and there are spending cuts across the board.

Could that have an impact?

ROGOFF: I think they will avoid it. The question is which direction? President Obama really does have a very different vision than Governor Romney. And I won't get into the details. But I mean the question -- we don't know which way it's going. And they might not win a strong enough majority, a strong enough plurality to be able to do all that much. And we could be frozen for a while.

I mean so we're stuck in this limbo facing this crisis not able to act comprehensively, decisively with a long-term vision. Everybody is struggling for tactical advantage in the short term. And meanwhile, the economy is very, very frail. And as you say, Ali, it could get a lot worse.

VELSHI: And it could get better if we do the right thing. Who knows?

Will Cain, let me ask you about this. Democrats, generally speaking, like the idea of an environment like this increasing spending, call it stimulus if you will, and cutting back on taxes. Republicans typically have been saying they want to see spending cuts.

CAIN: Right.

VELSHI: And they want to see lower taxes.

CAIN: Right.

VELSHI: The truth lies in the middle. We shouldn't be increasing taxes right now and we certainly shouldn't be cutting short term spending. If we were to propose that, which candidate would embrace it?

CAIN: I would submit you to, and by the way, we should add this caveat, that's a short-term solution for what we're talking about as an economic storm headed our way.

VELSHI: Right.

CAIN: High spending, low taxes. That can't last forever.

VELSHI: And the long term -- yes, absolutely right.

CAIN: Right. I would suggest to you that Mitt Romney is the candidate more likely to be able to deliver some kind of situation like that. I would say that he campaigns on spending cuts. He campaigns on short-term spending cuts. But I don't know that I truly believe that facing an economic storm he wouldn't embrace some kind of stimulus.

And if we're talking about a stimulus here that actually works, that's not hung with Christmas tree ornaments from every congressman across the United States. Mitt Romney is the guy who can put together some kind of infrastructure, stimulus package combined with a tax reduction package that might, maybe, could get bipartisan support.

I would suggest to you President Obama has lost any bipartisan will at this point.

ROMANS: That's interesting. I think that neither of these candidates has talked about what's really happening right now in the economy. You say we're -- today, we're telling the truth about what's happening in the economy. They haven't said what's really happening, you guys. Because they either have to say, you can have his version of bad or my version of bad.

VELSHI: Right. Right.

ROMANS: Nobody wants anybody's version of bad. Everybody wants to know, I'm going to have a job, my kid is going to be able to go to college. My generation is going to be better off than the one before them. Oh, and I don't want to know about the fact that 30 percent of all of the college graduates by 2030 are going to come from China and only 5 percent of them are going to come from this country.

VELSHI: Right.

ROMANS: And we're doing nothing to address, as Ken says, the long- term issues.

VELSHI: Let me ask you this, Ken. Will said to me in the hallway earlier, you said part of the problem with stimulus is it's just -- it's a four-letter word now. You can really use it. You have argued for a long time that there is a way for the government to spend money in the United States lots of it, timed it properly, and make it actually work to stimulate the economy. What is that way?

ROGOFF: I mean who can doubt that we need better infrastructure? We really have been deteriorating relative to the rest of the world. You want to bring back manufacturing. You want to have more jobs. You have to have the infrastructure to support it. Interest rates are very low.

If the government could borrow and actually do something useful with it, build things we need, improve the electric grid, improve our road system, improve our courts, et cetera, of course that would be a very good investment. But it's all paralyzed by politics that everybody has their pork barrel projects. Everybody has their priorities.

VELSHI: The Christmas tree scenario.

(CROSSTALK)

ROGOFF: I think that the real winners here --

VELSHI: The Christmas tree that we talked about.

ROGOFF: Yes.

ROMANS: And one man --

CAIN: Yes, doesn't that -- doesn't that make stimulus good in theory and bad in practice, Ken, and therefore fiscal stimulus, stimulus coming from the Democratically elected branch is fundamentally flawed then? If it can't be put into practice in -- in an efficient manner, then we shouldn't waste time worrying about it.

ROGOFF: We need infrastructure. I mean and so --

CAIN: No doubt.

ROGOFF: -- if we're not going to it through borrowing by the government, we have to find a way to let the private sector do it. And the U.S. has been very slow to do that compared to a lot of other countries. You want the government to do everything coming to roads and bridges. Other countries are much more -- you know, will take private money.

VELSHI: All right. Ken Rogoff, Christine Romans, Will Cain, I'd elect the three of you. I suspect you guys could solve our problems.

Great --

ROMANS: Who is president? Am I president?

VELSHI: Great -- now you work that out between the three of you.

ROMANS: Who's the vice president? Treasury secretary?

VELSHI: I would definitely like Ken to be somewhere where he's making decisions. I like that idea.

Thanks to both of you.

Hey, listen, my next guest agrees that there is a crisis coming. In fact, he's got a book by that name. He want to know -- he knows how bad it's going to be if we continue with government as usual. But he actually has a solution to turning the economy around. Stay with us. You're watching YOUR MONEY on CNN.

(COMMERCIAL BREAK) VELSHI: The U.S. economy is paralyzed by indecision. Economic growth measured by GDP remains stubbornly low. The economy is adding job. It has for 20 months, but not enough jobs. And consumer confidence has declined for three months in a row. And that, by the way, is despite record government spending.

The nonpartisan Congressional Budget Office, the CBO, projects that the U.S. will end the fiscal year with a $1.33 trillion deficit. That's the shortfall between what we take in and what we spend, and that's just for one year.

Chrystia Freeland is the editor of Thompson Reuters Digital. She's joining us from my hometown of Toronto. David Newton is a professor of entrepreneurial finance and a venture capital expert. He's the editor of a new book called "Crisis of Confidence," which by the way the foreword by written by our -- our good friend Stephen Moore.

David, thank you for joining us. Chrystia, good to see you.

David, you lay out two scenarios for the U.S. economy going forward. The first scenario, we change nothing. The economy grows at 2.3 percent and in 10 years the GDP stands at just over $19 trillion. The government takes in 15 percent of that in taxes.

Here's the second scenario on the right. The economy grows at 4 percent. That pushes GDP a lot higher, to $23 trillion. It gives the government $3.9 trillion of tax revenue at 17 percent. Now we'd all prefer the second scenario. How do we get there?

DAVID NEWTON, EDITOR, "CRISIS OF CONFIDENCE": Well, one of the things we have to do is we have to be very serious about taking on these entitlements and recognizing that they are not sustainable. In their current form right now they're already in deficit. They're only going to remain in deficit going forward. And ultimately the spending that creates all these annual deficits and adds more debt each year is ultimately going to have to be paid in terms of the interest on that.

VELSHI: Now, Chrystia, let's show you this poll from the National Federation of Independent Businesses. They represent small businesses. Twenty-six percent of small businesses or their owners cited uncertainty over business conditions as a severe impediment, 24 percent cited the lack of demand and 19 percent cited a lack of finance. We've talked about all of these things. Access to finance ranks almost as high as uncertainty.

Does that mean David's point is exaggerated?

CHRYSTIA FREELAND, EDITOR, THOMSON REUTERS DIGITAL: I wouldn't say it's exaggerated. But what I would say is, look, you can think about the U.S. economy as a person who has a bullet wound and also dangerously high cholesterol levels. Now if you're a doctor, I would handle the bleeding gushing bullet wound first.

VELSHI: Right.

FREELAND: While being concerned about the cholesterol level. And for me, the cholesterol levels are the fiscal situation. David is right. This is a medium-term issue which must be addressed. I think entitlements have to be fixed like you, Ali, I'm a Canadian. I think the health care system has to be totally fixed. But the short-term issue, the short-term uncertainty which is killing the economy right now, that is not about the U.S. budget deficit.

The world is practically paying the U.S. Treasury money to lend the U.S. money. The big problems right now are that the world economy is coming apart at the seams.

VELSHI: And, David, one of the things in the book is a focus on government spending. You say the deficit is out of control. And that's undermining businesses' ability to plan for the future. But cutting government spending did not lead to growth in Europe.

Is that what you're proposing in the United States?

NEWTON: We have to do several things. We have to cut spending. But it doesn't -- it doesn't have to be 30 or 40 percent across the board. It has to be intentional. Probably it the range of 11 percent. Get us back to about $3.3 trillion as a spending pace. Then we have to get entitlements under control and we have to recognize that those are not sustainable in their current form.

And ultimately we then have to send a signal to the private sector that taxes, labor costs, health care costs and ultimately energy costs are going to be something they can plan on.

VELSHI: Chrystia, David says cut 11 percent from the federal budget. I don't know if we got 1 percent from the federal budget given the way Congress operates these days. I mean our biggest problem is, are they going to get things done that are going to send us off a fiscal cliff at the end of the year? And we can't speak with certainty that they'll even do that.

FREELAND: Well, that's absolutely right. There is deadlock. There is paralysis in Washington. I think it's not just a question of, can they get things done. It is a question of -- I think the speeches that we heard this week from Mitt Romney, from Barack Obama, pointed attention to one important thing, there are two very different ideas out there right now about the direction the U.S. has to take.

VELSHI: Chrystia, great to see you. Say hi to Toronto for me.

David, always a pleasure to see you. Thanks for being here.

NEWTON: Thanks, Ali.

VELSHI: And coming up next, politicians here in the United States are proven incapable of fixing the big economic problems. But in one country, that's simply not an issue. And that country is kicking our you-know-what.

(COMMERCIAL BREAK)

VELSHI: America's got economic problems. And despite what you hear on TV, neither Barack Obama nor Mitt Romney can fix most of them. Our problems are big. They are caused in large part by global issues and they require long-term planning. Not the kind of short-term fixes that the U.S. Congress fixates on. But we need a good example. Now we actually have one. It's China.

Christine Romans, host of "YOUR BOTTOM LINE" joins me now.

Christine, Jim Rogers is making a big bet on China.

ROMANS: Right. And Ali, when Jim Rogers bets, you should pay attention. He's bearish on America. So why is he placing his money and his family in Asia? We took a walk in the park so he could explain.

(BEGIN VIDEOTAPE)

ROMANS (on camera): Let me ask you about China. Is China the answer here? I mean China is slowing as well.

JIM ROGERS, AUTHOR, "A GIFT TO MY CHILDREN": China has been trying to slow its economy for three years, rightly so. They got overheated. They had a property bubble. They need -- they have inflation. They need to slow down.

China cannot say this, Christine. They've done a great job. The American and European economies together are 10 times as big as China.

ROMANS: Right.

ROGERS: Ten times. So even if China booms, if the rest of us have problems, China cannot save us no matter how smart they might be.

ROMANS: A lot of people think we're looking back on a -- you know, a chapter that will be written in the history books where the 19th century belong to the U.K., to England. The 20th century belonged to the United States and the 21st century belongs to China and the big rising Asian nations. Do you think so?

ROGERS: I have moved -- I have sold my house in New York. I have moved to Asia and my girls speak Mandarin, speak perfect Mandarin. What more can I tell you? They are -- I'm preparing them for the 21st century by knowing Asia and by speaking perfect Mandarin.

ROMANS: Can you still get rich in America? Or do you only get rich in China?

ROGERS: It's better -- it's easier to get rich in Asia than it is in America now. The wind is in your face. We're the largest debtor nation in the history of the world. In China -- I mean, in -- all the assets in the world --

ROMANS: Are you parish-American?

ROGERS: Aren't you?

(LAUGHTER) ROGERS: Don't you know we're the largest debtor nation in the history of the world? I don't like saying this, I'm an American taxpayer and citizen like you. But we're the largest debtor nation in the history of the world. And the debts are going up by a trillion dollars, over a trillion dollars every year.

The largest creditor nations in the world are China, Japan, Korea, Taiwan, Hong Kong, Singapore. The assets are in Asia. You know who the debtors are and where they are. Look at Greece. Look at Spain. I mean, I don't like saying this. You know, I'm an American, too. But facts are facts.

(END VIDEOTAPE)

ROMANS: So if those are the facts that Jim Rogers lives by, what is he doing with his money? Well, he says he has short stocks. Short U.S. stocks. He also says you got to -- you got to own real things like silver and rice, real commodities. He still likes commodities. He has gold in his pocket, Ali. He carries around gold coins in his pocket.

VELSHI: Wow.

ROMANS: But he's not buying more gold here. He's not buying more gold here. But he says that you've got to look at stocks to be short, long commodities, and you got to just hold on for -- buckle up for a couple of years that are going to be rough, he says.

VELSHI: OK. You and I better get those little Rosetta stone Mandarin things and buck up so that we're safe in our own --

ROMANS: I know.

VELSHI: In our economies.

As Jim Rogers says that if you want to understand what China means to you and your financial future, you have to read a book called "Winner Take All" by Dambisa Moyo. Now we took him so seriously that we brought her here. But before we asked her what we need to know about our competition with China, let me lay out her issue. And let's start with oil.

Oil is still the thing that we consume in America more than anyone else. America is number one in oil consumption in the world. Using 21 percent, 22 percent of the world's oil every day. That's about a fifth. China is responsible for consuming about 10 percent of the world's oil.

It's the only commodity, by the way, the only major commodity that the U.S. consumes more of than China. So let's look at some of the others. Every other one of these, wheat, aluminum, zinc, copper, and steel. Look at steel. America uses 5 percent of the world's steel. China, which is still building a lot of infrastructure, uses almost 46 percent.

China uses more of all of these things except oil than America does and China has a long-term plan for securing those resources that might put them at an advantage and puts the U.S. at a disadvantage.

Dambisa Moyo, as I told you about. She's an economist. She's the author of "Winner Take All: China's Race for Resources and What It Means to the World."

Dambisa, thank you for joining us. Why does America not think this way? Why is America not outbuilding those long-term relationships? In your book you point to Africa, for instance, which has a much higher economic growth rate than America or Europe. And yet, China is the key partner involved with these African countries in building resources and building infrastructure.

America seems mostly consumed with matters that are coming due at the end of this year and short-term types of economic concerns.

DAMBISA MOYO, AUTHOR, "WINNER TAKE ALL": Well, I think you point out exactly what -- the schism that exists. The Chinese approach is a multilateral approach. They're focused on building symbiotic relationships with countries, not just in Africa, in Brazil, Argentina, Colombia, Russia, Kazakhstan, even Canada. And Australia, for example, is one of the largest, if not the largest recipient of foreign direct investment from China.

And it is that which has been basically the big marker that has separated the Chinese approach from that of the United States which has tended to be a unilateral approach when looking to secure resources.

VELSHI: All right. So, you know, I started this discussion with Christine and talking to Jim Rogers about the idea that we need an example of long-term planning. And that perhaps America should look to China for that. They don't -- they are not driven by the same political concerns that we're driven by in the United States. But they are driven by economic concerns.

Is that a fair statement? Should the United States be taking that page out of the Chinese book? We don't want all the pages. But shouldn't we be taking that type of long-term planning page out of the Chinese book?

MOYO: Absolutely. In the context of the United States and indeed Europe there -- you know, the lens to look at economic problems I believe is three key ingredients, capital, labor and productivity. And you can see in the United States and across Europe that these three key ingredients for economic growth have been eroded very, very detrimentally.

If you look at capital, labor and productivity in a place like China, we know they've got a lot of money, we know that their labor force is big and the quality is improving, and in terms of productivity, they've been -- there've been significant productivity gains over the last several decades. So that is where the difference really lies.

I would say that fundamentally, you would hope that they would be much more focused on long-term issues in the United States. But, again, very rationally political sort of imperative in the United States and in a democratic society like Europe are driven by short-term concerns. The incredible -- incredibly focuses in myopia. And you get what you pay for, basically. And it's a bit unfortunate --

VELSHI: Well, let me just address that. Let me address that.

MOYO: But one of the things -- one of the things that they could do, perhaps, is maybe extend the terms of a presidency as they've done in South America, for example.

VELSHI: I was just going to get to -- is it -- is it because it's a mature democracy where we roll over governments on a regular basis which, by the way, many Americans will think is a great idea. You can throw the bums out every two years in Congress and every four years everywhere else and six years in the Senate. But that does create short-term thinking. It creates less of an imperative to have long- term thinking in relationships, the sort that China has developed.

MOYO: Yes. Absolutely. And, you know, I think no one -- whether you're on the left side or the right side would agree with the statement that the problems that the United States faces right now are basically at their core long-term problems. Issues are on pensions. Issues around the poor and declining education standards. Issues around deficits and debt. These are all structural problems that need to be addressed.

But the way that you solve those things are a very painful long-term solutions. And in a myopic sort of short-term democratic cycle where you have elections every two years, there is no space for an incumbent president or Congress, a Senate to focus on those issues when every other time -- every other year there is new elections campaign to be fought.

VELSHI: Dambisa Moyo, pleasure to talk to you. Thank you so much.

Dambisa Moyo is an economist.

MOYO: Thanks very much for having me.

VELSHI: Is the author of "Winner Take All: China's Race for Resources and What It Means for the World."

Later, Greece is on the brink of economic ruin. Most people here in the U.S. say who cares? I'll tell you why you should care.

(COMMERCIAL BREAK)

VELSHI: Greeks return to the polls on Sunday a little more than a month after an inconclusive parliamentary election that failed to form a government. The two leading contenders are the right-leaning new Democracy Party and Sirisa, the left-leaning party.

The main point of contention is whether or not to continue harsh austerity measures that Greece agreed to as part of two internationally financed bailout packages totaling hundreds of billions of euros. Unemployment in Greece has grown to 22.6 percent and it's more than double that for youth, 52.7 percent. Greeks are angry over government spending cuts and tax hikes. Now the left-leaning Sirisa-led government promises to cancel all of the austerity measures. The consequence of that could have a huge impact, not just on Greece, but on the entire world. Many fear that Greece would default on its financial obligations and quit the euro either by choice or by force, and a Greek exit to the euro could lead to a brake-up of the entire Eurozone.

Either way, European banks would face severe stress. With banks in Spain, Italy, and Portugal already on the ropes, the risk of a global contagion is real.

Now why? Think back with me to 2008, the financial crisis, the failure of Lehman Brothers. It set off a worldwide credit freeze, proving just how interconnected the global financial system is. Back then a car buyer in Oklahoma found out he couldn't get a loan because an investment bank in New York he probably never thought about collapsed.

Well, that credit crunch hurt America and the world. It forces businesses and economies to pull back and when a business needs to cut costs, it lays people off.

The question now is, could the same thing unfold in Greece? Could Greece be the new Lehman Brothers? Well, how do choices made in a small country in Europe, the world's 34th largest economy, set off another worldwide credit crisis?

Whatever the answer, the eyes of the world are on the Greeks as they go to the polls. Joining me now from Athens, CNN's John Defterios. He is the host of "Global Exchange" on CNN International. John, you're in Athens where the fate of the world could really be in the hand of the Greeks for the second time in 2,000 of years. Do they get it? Do they feel that pressure that this isn't just an election about Greece, this is an election about the world's economic condition?

JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: I think they're more aware of that than ever before, but I think we should take a step back, Ali, and think about this. We're on Syntagma Parliament Square. This is the cradle of democracy. If you give a deeper thought to this, there's a potential here they could be voting in communism and at the same time opting out of the euro.

You talk about the unemployment, 22 percent. One out of two youth don't have a job right now and the economists I've spoken to say we could have another three years of austerity. So in America, recession, as you know, lasts 12 to 24 months. We're in the fifth year now. Another three years. They're so desperate, they're saying we may vote in communism. They fought off communism in this country between 1947 and 1949.

That is extraordinary if it happens and it would be a jolt to the world markets and I think the Greeks are well aware of this, so you have a very divided society. VELSHI: Let me ask you this. Jessica Yellin said earlier, what would be great is if Mitt Romney and Barack Obama were honest with Americans and said we're in for a rough, long slog, it's not going to be fantastic on the other end. In Greece, this is the reality. You were asking people with a 25 percent unemployment rate, a 50 percent youth unemployment rate, to take more cuts and there isn't even an obvious light at the end of the tunnel.

So why would they make the choice? Why would they vote for greater austerity?

DEFTERIOS: Well, greater austerity is one thing and also the reforms are another. So the unions here have been resisting the reforms but the reality is, Ali, and this is quite interesting, that there is a productivity gap in Greece. It's 40 percent between a Greek worker and a U.S. worker. It's about 29 percent between a Greek worker and his brethren here in the European Union.

They delayed the tough austerity when they came into the euro. So they had low interest rates from Germany so they could borrow like crazy. They had a structural boom because the EU money, the European Union money was coming into the country leading up to the Olympics, so between 2000 and 2007, this economy here was booming. It was growing 4 to 5 percent, but at the same time public spending was going up 40 to 45 percent a year.

VELSHI: Wow.

DEFTERIOS: So right now the payback is very, very painful, and that's what the Greeks are voting for now. Do they go for more austerity or do they kind of follow the euro line, stay in and have the confidence of that currency or not.

VELSHI: All right, John Defterios, part of CNN's team in Athens covering those elections. Thanks, John.

Coming up next, some final thoughts from me on the economic storm that's heading toward the United States.

(COMMERCIAL BREAK)

VELSHI: Let me end the show the way I started it. I told you about an economic storm that is gathering up our shores that we're starting to feel the effect of, and the way I know that is because the U.S. consumer is starting to slow down. This may be temporary. They may pick up again, but there isn't a lot that they can look at on our shores and across the world to suggest to them that things are getting better any time soon.

It's up to Washington to do whatever it can to create a little bit of certainty for the American consumer so that they stay in the game and this economy continues to improve. Right now, Washington isn't doing its job.

That's it for us. Stay connected to us 24/7 on Twitter, my handle is @alivelshi. The show handle is @CNNyourmoney. We're here every Sunday, 1:00 p.m. Eastern, Sunday at 3:00 p.m.

Have a great weekend.