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Roadblocks to Recovery; Deficit of Leadership; More Budget Battles Ahead; Jack Lew Nominated to Be Secretary of Treasury
Aired January 12, 2013 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN ANCHOR: America's road to economic recovery is wide open, it's right there in front of us, if our elected officials don't put some major blocks in the way.
I'm Ali Velshi. This is YOUR MONEY.
Debt ceilings, budgets and spending cuts are all you're going to hear coming out of Washington for the next few months. And the partisan warfare in Washington could put a dent in any recovery. The threat is real. The next battle will be another clash over raising the U.S. debt ceiling. The current ceiling was officially hit on December 31st, but like last time the U.S. Treasury is using extraordinary measures to get through about late February or early March. If Congress doesn't act by then, the government risks not being able to pay some of its bills.
Republicans seem to think the debt ceiling is a useful tool to limit how much the government spends, but that is not what the debt ceiling law is supposed to do. It gives the U.S. Treasury the flexibility to borrow money to pay the government's bills without going to Congress to get approval every single time. It has absolutely nothing to do with spending control or even debt control.
Let me be clear. You might think it's about spending control. You might like it to be about spending control just like I'd like to be in "People's" list of 50 most beautiful people. But wishful thinking isn't going to make that happen either.
Republicans say my reasoning doesn't matter. Apparently reason itself doesn't matter much. They can use the debt ceiling as a hostage just like they attempted to use the fiscal cliff as a hostage, to get something else done, something they haven't been able to do using the normal democratic process because that process is broken.
The fiscal cliff deal that passed Congress on New Year's Day puts off dealing with those massive mandatory spending cuts until March 1st. And Republicans fully intend to use the debt ceiling to extract concessions from Democrats on spending. They'll target things like Social Security and Medicare. Democrats will stand in their way. The U.S. will find itself at another dead end just like 2011, threaten to shut down the government and possibly result in a credit rating downgrade again.
But outside Washington the road to America's prosperity looks brighter. Foreclosures are down. Home sales and housing prices are up. The S&P 500, you may have something like this in your 401(k). It hit a five-year high this week. And a rebound in domestic energy production and manufacturing could lead to a true economic renaissance in America.
According to the latest forecast, U.S. oil imports next year will fall to their lowest level in 25 years. That is in part because more supply is coming online right here in America. Already the boom in natural gas extraction has bought -- brought prices down to historic lows. And all that could mean more high-paying jobs in energy, in manufacturing, and technology. Add all of that up and this economy is poised to soar as long as Washington doesn't bring it down.
Fareed Zakaria is the host of CNN's "FAREED ZAKARIA: GPS."
Fareed, the real deal to temporarily avoid the fiscal cliff that may have ruined my New Year's plans, you correctly stated, was a small victory for sanity. The greater issue is what is missing from that deal and the many cliffs that we're going to encounter, the debt ceiling cliff, the sequestration cliff, and then an actual budget battle.
Does this stand in the way of the stuff that you and I talk about could be happening in this country?
FAREED ZAKARIA, HOST, FAREED ZAKARIA GPS: Well, it stands in the way in two senses. Firstly, if you're a business, imagine if you're a company that does business with the Defense Department. This is a huge part of our economy.
ZAKARIA: If you're watching this sequestration madness or the debt ceiling madness, are you going to be hiring new people? Are you going to be expanding production? No. You're going to be wondering to yourself, is the Defense Department budget going to be cut by 20 percent, by 10 percent? So there is that --
VELSHI: So you will make -- you will hesitate to make certain business decisions particularly hiring.
ZAKARIA: Exactly. I mean, Republicans often talk about how uncertainty -- makes businesses not expand production.
ZAKARIA: Well, this is the biggest uncertainty, is the craziness over the debt ceiling.
ZAKARIA: And the second biggest is on the sequestration. So there's that piece of it. But there's the broader piece that you and I have talked about which is we need to do more than just have a cyclical upturn. What you were describing very elegantly, I'll say exactly right, is that there is a cyclical rise of return of the American economy. VELSHI: Right.
ZAKARIA: Housing is up, energy production is up. But there's a broader issue, which is how do we get the kind of growth we used to have in this country, 3, 4 percent growth?
ZAKARIA: In order to do that, we have to invest more in this -- in this economy. We're investing half as much as we used to in infrastructure. We're investing half as much in science and technology. And we're investing much less than we used to in core areas of education -- state universities, for example, are being decimated. So if you don't invest for the future, where are you going to get the growth in the future?
VELSHI: But in 2008 and 2009, invest became a bad word. Invest became government spending. When you're talking about investing, you're talking about an unfairly sophisticated manner. Some of it would be government, some would be in private sector, some each would do on their own and some they would jointly.
VELSHI: But that kind of discussion feels dead on arrival in this political environment where we can't even get a basic thing like a budget done.
ZAKARIA: And the problem is we're going to have to do some of this anyway. Anyone who owns a home knows this. If you defer maintenance, if you say to yourself, my boiler is leaking but I'm not going to fix it, that's actually a penny wise, pound foolish decision.
ZAKARIA: Eventually the whole thing will break and cost you three times the amount. That's what's happening with our roads, bridges and highways. If you look at air travel. We have one of the world's most antiquated air traffic systems. We need to update the computers. It's $25 billion. We're not spending that money because as you say spending is a dirty word. But one day you're going to have, you know, terrible problems or you're going to have a kind of -- the system will break down. And then it's not going to cost $25 billion. It's going to cost $50 billion.
VELSHI: There's another thing that we don't talk about enough. We're talking about spending as if there's this generally irresponsible spending around. And some of that might be true. The bigger issue is entitlements, the growth in what those are going to cost us over time. That's actually the real threat, it's the one that is hardest to deal with because it's stuff people want.
ZAKARIA: We don't distinguish, as you said, between spending that is really on consumption, as I'm giving you a check.
VELSHI: Right. ZAKARIA: Whether it's Social Security or unemployment insurance, whatever it is, interest deduction on your mortgage. That's stuff that is just -- it gets spent. It's not investment for future growth.
ZAKARIA: But when you build a bridge, when you update your air traffic system, you're increasing economic activity. And that's going to produce returns for the next 50 or 100 years. The Brooklyn Bridge is still paying off.
VELSHI: You've traveled to countries where business gets done, I think India is one example. Business gets done despite the fact that government is largely seen as an impediment in many cases. Won't money just find its way around these impediments? If there's business to be done won't it get done regardless of the uncertainty and lack of government vision and initiative?
ZAKARIA: No, because in places like India the best thing they have going for them, beyond anything else, is they're a very poor country. You know, you're just getting basic increases in standard of living. India's per capita GDP is $1,500. Our per capita GDP is about $50,000. When you're at our level, when your workers have the kind of wages our workers have, which we want them to have.
ZAKARIA: You've got to get very smart because you're trying to move up the value chain. You've got to have world-class manufacturing, world-class infrastructure, and a world-class skilled workforce.
ZAKARIA: That's the piece we haven't talked about, investing in education. So unless you have all that, you know, yes, we could get economic activity if we were willing to work for, you know, a dollar an hour.
ZAKARIA: But we want to work at $50,000 -- we want to have real advanced highway jobs. For that, you need to get a lot of things right.
VELSHI: Fareed, thanks for being with us as always.
Fareed Zakaria is the host of "FAREED ZAKARIA: GPS." Tune in -- you know, by the way, he's got a special, "A MEMO TO THE PRESIDENT: ROADMAP FOR A SECOND TERM," that's Sunday night, 8:00 Eastern.
All right, coming up.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I will not have another debate with this Congress over whether or not they should pay the bills that they've already racked up through the laws that they passed.
(END VIDEO CLIP)
VELSHI: Sadly, oh, yes, you will, Mr. President. And that debt ceiling debate is going to get nasty again, especially since many congressmen don't seem to understand the issue at all. I'll set them straight right after this.
VELSHI: The dealt ceiling is the next self-inflicted crisis that Congress needs to deal with. The debt limit is not like a credit card. It is simply not. It makes me crazy when Republicans and Democrats alike, including the president, continue to use this misleading analogy. It's also not the same as your household budget with a few zeros taken out.
For those who don't remember the last time Congress pushed us past the debt ceiling, here's how it works. Congress and the president spend money by creating bills and signing them into law. That is when the money is committed. Last year the U.S. government spent $3.8 trillion. Two-thirds of that, the green, came from revenues, mostly taxes. The rest of it, the red, came from barrowing. That's the deficit.
The subtotal of all of these annual deficits plus the interest on it is the national debt.
Today the national debt stands at $16.4 trillion. The Treasury is empowered to borrow money to make up for that shortfall but only up to a certain amount. That's the debt ceiling. Just keep this in mind, the Treasury does not make decisions about how the money is spent. They are simply empowered in this case to borrow the money and write the checks to pay the bills already incurred by your democratically elected Congress.
Today the debt ceiling is $16.3 trillion, which is less than our deficit. The U.S. breached the debt ceiling on December 31st but the Treasury can use what it calls extraordinary measures to raise an extra $200 billion. Those extra funds will only last until about mid -February or early March, according to the Bipartisan Policy Center.
Well, good luck trying to explain this to conservative talk radio show host Rush Limbaugh.
(BEGIN VIDEO CLIP)
RUSH LIMBAUGH, CONSERVATIVE TALK RADIO SHOW HOST: I think of the debt limit as your monthly credit card limit. You can't go over it on your credit card. And the United States government can't spend more that what it's credit limit or its debt limit.
Now Ali Velshi of CNN says that has no relation to spending.
(END VIDEO CLIP)
VELSHI: That's right, Rush. The debt ceiling was created so that Congress wouldn't need to constantly authorize the Treasury to borrow more money. Raising the debt ceiling doesn't authorize any new spending. It authorizes payment. It does not increase deficits. It just allows the Treasury to pay for the things that the U.S. government has already bought. If Congress doesn't raise the debt ceiling, Treasury won't be able to pay the bills and the U.S. government will start defaulting on some of its obligations.
Here is what happens, for instance, on February the 15th of this year. The federal government will take in an estimated $9 billion in revenue. That's the good news. But compare that to the $52 billion in bills that it will need to pay, everything from interest on the debt to pay for members of the military.
The Bipartisan Policy Center estimates that roughly 40 percent of the bills for the month would go unpaid.
Now what's the consequence of not paying? The truth is nobody really knows since it's never happened before, but you try telling American Express that you're not paying your bill this month because you spent too much money going out to dinner last month. Even talking about not raising the debt ceiling in 2011 caused the S&P to lower the U.S. credit rating because investing in U.S. debt is so safe. Interest rates are low, 1.58 percent for 10-year bonds. But missing an interest payment could cause those rates to rise.
That's still not enough to sway some members of Congress. They say they need to hold the debt ceiling hostage to get real spending cuts.
Ron Johnson is a Republican senator from Wisconsin. He is the member of the Senate Budget Committee.
Senator, as I just said -- welcome, by the way. As I just said the debt ceiling is not actually about future spending. It is for paying for bills that we already bought. Whether or not you think we should spend less money in the United States, do you agree with my premise?
SEN. RON JOHNSON (R), WISCONSIN: No, I don't, Ali. And hello, by the way. What the debt ceiling is all about is providing the president the authority to borrow more money, put that on the backs of our children and grandchildren. So there's no doubt that we are not going to default on our debt. But what the debt ceiling allows -- what the debt ceiling allows Congress to do is continue to deficit spend. If we would stop incurring deficits we wouldn't need to increase the debt ceiling. But it's not really about paying past bills. You start getting into the cash flow aspect of this thing. But basically what you're talking about is if -- in order to increase the debt ceiling we are actually just basically giving the president the authority to put that debt burden on our children and grandchildren. So it's really not about spending at all.
VELSHI: OK. Let me ask you a couple of questions here. First of all you said --
JOHNSON: It's called deficit spending.
VELSHI: You said there's no doubt we are not going to default on our payments.
VELSHI: I just -- but the math indicates that if at some point we don't increase the debt ceiling --
JOHNSON: Because, because --
VELSHI: -- why won't we?
JOHNSON: Listen, our interest payment this year is under $250 billion. We're going to bring in $2.5 trillion in tax revenue, so that's 10 times what our interest -- the servicing on the debt is. There is some casual aspects about turning over some debt but basically the only reason we have to increase the debt ceiling is because we continue to deficit spend. We're actually spending a trillion dollars more than we were bringing in --
VELSHI: But we're not anywhere close to not -- when you say we continue --
JOHNSON: Well, that's why we have to increase the debt ceiling.
VELSHI: When you say we continue to deficit spend, we have deficit spent under this entire administration, under the -- under the entire previous administration, as well. This isn't new. We never don't deficit spend. We've hardly ever not deficit spend. And we're not going to get there anywhere soon. So why would you pick this moment to have that fight?
JOHNSON: We need to stop doing that.
VELSHI: Well, we -- you can't. Can you come up with a budget?
JOHNSON: Because what --
VELSHI: Paul Ryan couldn't come up with one.
JOHNSON: Well, Paul Ryan did pass a budget in the House. Where we haven't passed a budget is in the United States Senate controlled by Democrats for over three years.
JOHNSON: So what we need to -- what we need to use the debt ceiling moment as is a moment to educate the American public about all the deficit spending, the fact that we blew through, by the way, a $2.1 trillion increase in the debt ceiling in just 17 months.
JOHNSON: Now, Ali, it took us 200 years to incur $2.1 trillion from our founding to 1986.
JOHNSON: We blew through that same amount in 17 months. We have got to start bringing --
VELSHI: But Senator --
JOHNSON: -- reducing spending, reducing our deficit so we don't have to keeping doing that.
VELSHI: The debt ceiling is a technicality. You're talking about the budget, you're talking about federal spending.
Let me just show you a piece of an editorial from "The Wall Street Journal."
JOHNSON: But if you --
VELSHI: I'm going to get your comment on this. They said, "You can't take a hostage you aren't prepared to shoot." Now that is -- that is charged language these days so I don't certainly want to ask you about hostages and shooting. I want to ask you a question on a different way.
VELSHI: Do you -- do you understand that the consequences or what the consequences are of the U.S. even technically defaulting on its financial obligations and are you willing to let that happen?
VELSHI: Because you talk about interest rates, but the U.S. government has a lot more to pay than interest.
JOHNSON: Ali, I don't want to play brinkmanship here. When you start coming to the terms of the fact we cannot continue to run deficits over a trillion dollars per year.
JOHNSON: Because what's going to happen is our interest rates is going to increase and then interest expense can -- if we just revert to our 30-year average --
JOHNSON: -- interest cost from 1970 to 1999 that adds $600 billion in interest costs per year. That is what we are trying to prevent.
JOHNSON: So what my suggestion would be is we just start increasing the debt ceiling in incremental amounts --
JOHNSON: -- until we get President Obama to actually get serious about reducing spending.
VELSHI: And will increase it. You will vote to increase it.
JOHNSON: Reducing the increase in the rate of spending. That's --
VELSHI: You will vote to increase it in an incremental amount.
JOHNSON: It -- listen, there's a very good construct in terms of giving, you know, $1 -- increasing the debt ceiling for every $1 in deficit reduction.
JOHNSON: That's what we have to start using the debt ceiling to -- to impose that spending discipline on this administration. And let's face it, President Obama is saying that we don't have a spending problem. We have a spending problem, this nation. We have a deficit spending problem.
VELSHI: We've all -- we've all --
JOHNSON: We should be doing this incrementally. This debate is not going away.
VELSHI: Senator, we've heard all of the -- both sides, bumper stickers. Let me bring you back to my example of February the 15th. OK. On February 15th, we had $52 billion in committed spending, $9 billion in money that we're taking in. And by the way, there isn't a chest of money sitting around for all the extra stuff. So I've got a list there. I've got interest, which is the one you're talking about, it's absolutely the biggest part, it's $30 billion.
OK, so, we're taking in $9 billion, we have $30 billion in interest. You've said that there are other ways to handle that. You've got refunds, tax refunds, $6.6 billion.
JOHNSON: Yes --
VELSHI: Federal salaries -- hang on, sir -- $3.5 billion. Military pay, $2.7 billion, Medicare and Medicaid $2.3 billion, Defense vendors, $1.5 billion, other stuff $4.4 billion.
Which one are you cutting, sir?
JOHNSON: Ali, you're taking a look at one day's --
VELSHI: I could pick any day. I could pick any day.
JOHNSON: Which is a distortion. Now let's take a look at the year. In a year we will get about $2.5 trillion worth of tax revenue. Last year we spent $3.5 trillion.
JOHNSON: Now if you actually utilize the Social Security trust fund to make the Social Security payments, that's another $775 billion. So now you're up to revenue of over $3.2 trillion. Basically you're funding all of government. And that's why we need to take a look at this. We -- I don't want to play brinksmanship. We should make sure that we can fund as much of government as revenues coming in.
JOHNSON: But we have got to start seriously taking a look at how we reduce the rate of growth in spending. And that's what we're talking about. For really nobody is talking about cutting government in total, we're talking about reducing the rate of growth in government so we stop adding this burden of debt to our children and grandchildren.
JOHNSON: And that's what this debt ceiling is about. It's how much are we going to allow the president to increase the debt burden on our children and grandchildren. And he says he doesn't even want to have that debate. Listen, anytime we talk about debt it should be a very serious debate. We've got to start coming to --
VELSHI: I get you, I get you, and I hear you. But I'm glad --
I'm glad that you don't want to play brinkmanship. I guess my point is that the raising of the debt ceiling beyond the money that we're at right now is for money that is already committed. So that is not actually more spending.
JOHNSON: No, it is not. It --
VELSHI: That's fire preventing.
JOHNSON: It is not. It is -- it is to pay for additional deficit spending, which I agree with you, nobody says we can start balancing our budget immediately.
JOHNSON: But what Republicans are saying is if you're going to increase the debt burden on our children, at least start working with us to restrain the -- the rate of growth in spending over the next few years so we can finally start bringing our budget into balance.
JOHNSON: So we don't totally mortgage our children's future. That's what this debate should be about.
VELSHI: You were absolutely right. It should be about that. And we're going to discuss that later in the show. The idea about why we don't have budgets and how we can fix that.
Senator, thanks for taking the time to talk to us. We hope to talk to you more in the coming weeks.
JOHNSON: Have a great day.
VELSHI: Senator Johnson is Republican from Wisconsin. He is on the Senate Budget Committee.
This fiscal cliff nonsense, the sequester, the exploded debt and deficits. How did we get here? It all started with the budget and it's worst than you think. We haven't had one in almost four years. Warren Buffett had this solution.
(BEGIN VIDEO CLIP)
WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY: I could end the deficit in five minutes.
UNIDENTIFIED REPORTER: How?
BUFFETT: You just pass a law that says that any time there's a deficit of more than 3 percent of GDP, all sitting members of Congress are ineligible for re-election.
(END VIDEO CLIP)
VELSHI: I'm going to tell you exactly what the problem is. Why we don't have a budget and what you need to know about fixing it. When we come back.
You're watching YOUR MONEY.
VELSHI: It's clear since the fiscal cliff debacle at the end of the year that Uncle Sam's biggest problem is in his wallet. It's been almost four years since your federal government had a real budget. There have been some political stunts to make it seem like budgets were failing in Congress, bill put forward for an up-or-down vote. That is not how the system works. There's never been a budget passed like that and there probably never will be. It's not how it's designed to work.
Christine Romans is the host of "YOUR BOTTOM LINE."
Christine, a lot of misinformation out there. Set us straight. If government were working properly, how would we actually get a budget done?
CHRISTINE ROMANS, HOST, CNN'S YOUR BOTTOM LINE: It is a complex process and it starts with the president. By law the commander-in- chief is the one who's required to submit a budget proposal to Congress before the first Monday in February, Ali. Since the Constitution grants the power of the purse, though, to Congress, final budget decisions are really up to it.
So let's talk about that. Once the proposal gets to Congress, budget committees in the House and the Senate, they work with public officials and other congressional committees to decide on a budget resolution. And that's where it starts to get interesting.
The budget resolution serves as a guide for all spending and revenue decisions for the year. At least that's how it's supposed to work in theory. But none of this, Ali, has happened since 2009.
VELSHI: And we're going to discuss why. Christine, thanks very much.
Why don't we have a budget? Gridlock, basically. In fact, Senate majority leader Harry Reid, a Democrat, says it was not worth trying to go through the process of passing the president's budget. That's why you hear that old Republican saw that Harry Reid won't even present a budge to the Senate. You may have also heard the of repeated claim that President Obama's budget was struck down in the House and the Senate, getting zero votes. Goose eggs from either party.
But those bills were not the budget. They were shell versions of the president's budget put forward by Republicans designed to fail. They were not budgets. They were just politics.
Republicans did put out their own budget plan in the form of Paul Ryan's "Path to Prosperity," but bipartisan bickering resulted in no progress there either.
Part of the reason our government has been able to survive without a budget is because of something called continuing resolutions, which are essentially an extension of the existing budget. So it is not true, as many of you enjoy tweeting me, that the U.S. doesn't have a budget. We just haven't had a new one in some years, and that is a bad thing.
It's also not true that Obama's budget got no votes because that wasn't Obama's budget. But the sad truth is that we do not have a new budget in the United States, a new one, and there are consequences for that, not the least of which are the dozen or so close calls with government shutdowns in the past few years. We'll probably face another one of those in the coming weeks.
Plus those continuing resolutions, well, they're short term. They avoid tackling long-term problems like federal debt and the deficits. The uncertainty of that short-term thinking wreaks havoc on businesses and their investment and on employment. Look no further than the debt ceiling showdown in summer of 2011 that led to the Budget Control Act, which was a last-minute deal to raise the debt ceiling in exchange for automatic cuts that were to take place at the end of 2012.
You know those as the sequester, which I've said many times is a stupid name for a stupid thing that only Washington could come up with.
Big surprise with those sequester cuts, by the way. Washington gave themselves another extension, two more months, to March 1st. America has another cliff to worry about going over.
These people are really worse than a fourth grade flunky, who why not just write your constituents and say, sorry, the dog ate my homework? That mangy dog has become the U.S. political process.
Christine Romans is still with me.
Christine, you've often said that America's chief export these days seems to be economic uncertainty. Incredibly, that only seems to be getting worse. What's the likelihood of this changing?
ROMANS: Well, I think that when you have all of these mini cliffs ahead of us, and you're going to see a lot of ugly politics, Ali, no question, you're going to see some ugly politics in the next few weeks and months, but this might be capitulation. Right? This might be this moment where you're going to see the system thrashing around, getting through this, and the optimist in me says, after that you're going to have deficit reduction, you're going to have an eye to debts and deficits, and you're going to have a blueprint for what kind of country we're going to be, because that's what a budget is. Right?
The budget is the blueprint for what your priorities are, what your vision is for the American standard of living.
ROMANS: The continuing budget resolutions, they're nota vision. They're --
ROMANS: They're nothing like a vision. So I think that if you can get through this very tortured time over the next maybe three to six months, maybe after that we'll start talking about what the vision is going to be for America again.
VELSHI: All right. Let's hope you're right.
The last Congress accomplished something the U.S. hasn't seen in at least 40 years. As usual, it's much ado about nothing. I'll explain next.
And later, "Rolling Stones'" Matt Taibbi joins me to point fingers, name names, and make his case for why he's warning the worst of Wall Street is yet to come. Big words but we'll find out if he can back it up.
You're watching YOUR MONEY. (COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
RAHM EMANUEL, FORMER AIDE TO PRESIDENT OBAMA: You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.
(END VIDEO CLIP)
VELSHI: Congress has been seizing those opportunities left and right. Nothing happens unless severe consequences are looming. That has led to the least productive Congress in 40 years, the 112th Congress that just left Washington and acted 220 laws. That number is less than half what the 110th Congress achieved just five years ago. And compare that to the late 1980s when Congress enacted more than 600 laws each four-year term.
I want to bring in Will Cain, a conservative CNN contributor, Chrystia Freeland is the editor of Thompson Reuters Digital, Richard Quest is the host of "QUEST MEANS BUSINESS" on CNN International.
WILL CAIN, CNN CONTRIBUTOR: Yes.
VELSHI: Before we start I want to -- I want to show our viewers this timeline that you sent us. You called these do-or-die moments in Washington. In late -- I hope I'm representing you well. In 2010, Democrats and Republicans started a fight over extending the Bush tax cuts for wealthy Americans. Ultimately President Obama signed an extension of the tax cuts for all taxpayers.
Now four months later, the president and congressional leaders cut a budget deal that cut $38 billion in federal spending for the year. That agreement, if you recall, came less than two hours before the government would have shut down. In August of the same year, the White House and Congress were in the same position they're in now, bumping up against that debt ceiling. That provision of the deal created the fiscal mess, which we have still not solved.
And Congress closed out 2011 with the payroll tax cut and unemployment benefits two days before Christmas. Yet another massive fight on a relatively modest stopgap measure that both sides had largely agreed on.
And of course I don't need to remind you about the fiscal cliff fight that we just got done with. Congress could not come to an agreement even as massive spending cuts and tax hikes were scheduled to take effect.
But Congress still hasn't had enough. Now we have three more fights looming. If the debt ceiling isn't raised by mid-February or early March, the government won't be able to pay its bills, which would put the United States' credit rating at risk and damage the fragile economic recovery. And while Congress did resolve the tax portions of the fiscal cliff they put off a decision on the sequester, those are tax -- those spending cuts, and that fight will play out in March. And finally, because the president and Congress have not been able to agree on a budget since April of 2009, the U.S. government is operating on these continuing budget resolutions, the current one expires at the end of March.
Now, Will, you say this dysfunction is a symptom of an underlying problem that we are not talking about. Please explain to me what that underlying problem is.
CAIN: That schedule you just laid out has been extremely advantageous to you, Ali, in this program because it's giving you something every --
VELSHI: To talk about it, yes.
CAIN: I'd say, what, four or five months to talk about.
CAIN: And lambast.
CAIN: Appropriately so. You look at the Congress, and particularly sometimes you have focused in on Republicans using these moments -- as leverage to get essentially the federal budget in order. To fight over what our priorities are in spending and taxes. And you know what, sometimes I think you're 100 percent right. I don't like seeing Republicans use the debt ceiling in particular as a moment of leverage.
But you are using and focusing on symptoms of this crisis. Not the cause and it's a fact that for 44 months, this Congress has not passed a budget.
CAIN: Forty-four months, almost four years, we have no idea what the priorities of this government are.
VELSHI: Right. And as Christine pointed out, the budget are the priorities of a government.
I want to discuss how serious this might be, Chrystia. Let me show you this poll from Gallup. It's about the way politics work in Washington. More than three quarters of Americans say that it is causing serious harm to the United States but 52 percent -- see this other poll. Fifty-two percent are optimistic that the way politics works will improve in the next 10 years.
And I think they also think we're going to domesticate unicorns.
In November Americans voted to keep Washington divided. Democrats control the House of Representatives -- sorry, control the Senate, Republicans control the House of Representatives. That stayed the same. Why would anybody think this is getting better?
CHRYSTIA FREELAND, EDITOR, THOMSON REUTERS DIGITAL: Well, there is something known as the optimism bias, which is well known in social science. We all tend to be a little more optimistic than our real experience tells us. And you know what, I love the optimism bias. That's what makes you, you know, believe you can write a book even if you can't write the deadline, believe you can get up and face the day. So thank god for the optimism bias.
And I think this is just a view, not social science backed, but my personal belief as a non-American who loves America --
FREELAND: -- is Americans are particularly prone to the optimism bias and that is great. Having said that, when it comes to these political battles, you know, I think actually a do-nothing Congress is not always a bad thing.
CAIN: I agree.
FREELAND: Not tackling things --
CAIN: I agree.
FREELAND: Not tacking things -- not legislating is not always bad.
VELSHI: So that's a good point. Because somebody -- when I tweeted that information out, somebody said to me the job of Congress is not just to pass as many bills as they can.
VELSHI: So there may be something to the effect that we're not passing as many bills.
FREELAND: Right. Exactly. And right now I think these artificial crises, because they are manmade, these are not things that the world economy is forcing upon the United States.
FREELAND: In contrast, say, with Europe.
FREELAND: I think the best thing for America, for anyone who runs a business, for anyone who wants a job.
FREELAND: Would be if the debt ceiling and the sequester, people just forgot about it for 12 months.
VELSHI: OK. So this is an interesting point. Richard, before you go there, I want to ask you something because -- I think we may be lying. Chrystia may have a point that we may be lying to people about because Christine says it, and you say it, and I say it on our shows all the time. That the businesses hate uncertainty.
You know what, all we've had is uncertainty. Seriously, all we've had for five years is uncertainty.
RICHARD QUEST, HOST, CNN'S QUEST MEANS BUSINESS: Yes --
VELSHI: And guess what, the stock market is at a five-year high.
CAIN: Actually, you can call this certainty. That's half --
VELSHI: Right. Right.
CAIN: It was such frequency that you can be certain it's going to happen again.
VELSHI: So are we -- is this just the new normal and it doesn't matter? I mean, can we just forget about this and move on?
QUEST: They like certainty and markets will wobble if there's no certainty, but business gets on with doing business.
QUEST: They learn how to trade in the most unfavorable scenarios. Look at the great recession, 2008, 2009. Business knows what has to be done. It has to cut back when it has to spend more, all those sorts of things. When it has to shift production. It may be uncomfortable, it may be unpleasant when it shifts production to low- cost environments. So business corporations and companies, they know what has to be done. They just wish this lot would get --
FREELAND: No, and the main point, Ali, you talked about the fragile recovery. And it is fragile, but it is a recovery.
FREELAND: And I think that now that Washington has gotten past the big tax debate, the best thing would be do no harm.
FREELAND: It's a fragile recovery. Let it get stronger. This is not the time for the grand budget bargain that some people are talking about.
CAIN: So both -- both of these people have pointed out things that I would actually agree with. In Richard's point out essentially the fact -- FREELAND: Don't be so surprised.
CAIN: -- that business is resilient. That business can operate in a worst case environment.
QUEST: It has to.
CAIN: We just -- we just wish it wouldn't have to.
QUEST: It has to.
CAIN: You just wish it could operate in an optimum environment.
CAIN: And I want to just underline something Chrystia said that just because you pass more laws than a Congress that may follow you does not make you a better Congress.
CAIN: And some of this fight, some of these crises is natural. It's going to happen when you must make difficult decisions about your spending and taxing. It's natural consequence of a big, big choice.
QUEST: It's also a product of the system you've got. And I'm with you on everything. You know, love this country, lived here, but it's the system you've got.
CAIN: But an efficient parliamentary system would be so much better to get things done.
QUEST: Well --
CAIN: And always.
QUEST: Well, at least it does get things done --
VELSHI: Will, I think Richard and I came to a disagreement last week that there are certain things for which the American political system works better and certain things where a parliamentary system works better. This is one of those instances where a --
CAIN: The key is what do you want to get done.
FREELAND: No, and --
VELSHI: Right. Right.
FREELAND: No, and the other -- the other issue is, Will, that the American system is well designed for a country which has an effective political consensus. You -- the divided government --
FREELAND: -- which is structurally there, works when you have parties that are able to come to an agreement and do deals.
FREELAND: The reality right now is I think the nation is quite fundamentally divided and certainly the elected representatives are very divided. It hasn't always been like this.
QUEST: What we can't have, the rest of the world. I'm going to stand out a bit now from --
CAIN: No, I am. I'm the only American standing at this table.
CAIN: All right. So you --
FREELAND: I said normal.
QUEST: What the rest of the world cannot have is more of what you were just showing, month after month after month.
VELSHI: But you know what, you're going to be back because that's what you guys did in Europe. You must feel really good about this when you come up here and say, you guys are disorganized as we are.
Will is not apparently going to shave that beard until the debt ceiling is --
VELSHI: Debt ceiling is raised.
CAIN: Right. Debt ceiling beard.
VELSHI: All right. Will, good to see you. Chrystia, thanks so much.
Richard, stick around for a minute. You're not going to have Tim Geithner to kick around anymore.
(BEGIN VIDEO CLIP)
JACK LEW, TREASURY SECRETARY NOMINEE: As a kid growing up in Queens, I had dreams of making a difference in the world.
(END VIDEO CLIP)
VELSHI: As Jack Lew gets to make a difference now. He's going to be the next Treasury secretary of the United States. But will he actually make a difference? Richard and I go head-to-head for some "Q&A" after this.
VELSHI: New term, new Treasury secretary. President Obama has just nominated Jacob "Jack" Lew to be his next Treasury secretary. He is 57 years old, he's the -- got the weirdest signature ever, which is soon going to appear on a dollar bill near you. Lew has been the White House chief of staff, he's described as a budget wonk and a consummate Washington insider.
Lew is also -- he's done two stints at the head of the Office of Management and Budget, you'll know that as the OMB under Presidents Obama and Clinton. He was a key player during the 2011 debt ceiling talks that almost shut down the government.
He'll have his work cut out for him because Democrats and Republicans on Capitol Hill are gearing up for another battle over extending the debt ceiling while the global embarrassment that serves as economic policy debate in Washington these days, I've got a hunch that Tim Geithner won't miss taking part in another one of those showdowns. But why should the rest of the world care if Jack Lew or anyone else is running the U.S. Treasury?
Joining me now, and he's taken off his jacket, so he's got his suspenders for a little "Q&A."
Richard Quest, so -- I'll do the same thing. I'm going to -- let's get rid of the jacket here. Vests and suspenders. Vests and bracers as you call them.
Richard Quest, host of "QUEST MEANS BUSINESS" on CNN International.
Richard, does it really matter who the U.S. Treasury secretary is for the rest of the world?
Let me go first. Give me 60 seconds on your bell.
All right, generally, I doubt most Americans are all that concerned about the Treasury secretary. But in 2008, who it was mattered a lot to the world. Tim Geithner was the right guy at the right time because the global banking system was teetering on the edge of collapse. Geithner knew the ins and outs of Wall Street, of commercial banks, of global credit and central banks. He could, in Obama's words, hit the ground running.
Jack Lew is a budget wonk and his nomination will be mostly an American affair. This time around the U.S. has a budget problem, it's a -- and it's an internal problem. It may blow a hole in the American hull but China is not going to start selling off its U.S. dollars because the government doesn't have a budget and might shut down again.
So Democrats and Republicans cannot agree on how to cut our bloated expenditures, but that, Richard, is an internal problem. Washington needs an inside man in Treasury. I've got 10 seconds left. Jack Lew is an inside man. So long as the world doesn't implode, Americans much less the world will pay little attention to who -- heads the U.S. Treasury.
What do you think?
QUEST: What do I think? It's really very simple. Simple once again. It's not as easy as it's now a domestic issue with the budget battle. If only it were. This is all about who the man is and what does he bring to the table. If we look back at Treasury secretaries, Paul O'Neill and John Snow, they were major men in their own industries. But they didn't bring --
VELSHI: Nobody remembers.
QUEST: Nobody remembers them and they were not huge successes. Lloyd Benson even. Look at what he was. A great man in his field.
QUEST: But did not bring much to the table. Now you look at Paulson, Geithner, Summers, Ruben, even Morgenthau, you don't remember him any more than I do, but the fact is they were the men who actually were able to make the Treasury work.
Now there's no doubt Jack Lew comes with the authority of the president and the White House. But he has to go further than that. He has to take the financial community, the G-8s, the G-20, the IMF, the World Bank. If he can't do that, then he is sunk.
VELSHI: All right. We will be watching this and talking about it a lot. Good to see you, brother.
Richard Quest, the host of CNN International's "QUEST MEETS BUSINESS."
Hey, coming up, President Obama gave some big props to the man Jack Lew is replacing. The one Richard just talked about.
(BEGIN VIDEO CLIP)
OBAMA: When the history books are written, Tim Geithner is going to go down as one of our finest secretaries of the treasury.
(END VIDEO CLIP)
VELSHI: Mike Taibbi of "Rolling Stone" joins me after the break to tell us why he thinks the president is dead wrong on Geithner. Why he argues the bailouts may have rescued Wall Street but didn't come anywhere fixing the economy.
You're watching YOUR MONEY on CNN.
VELSHI: This week we got a stark reminder of the audacity and bullish attitude that still rules Wall Street. AIG, remember that name? The troubled insurance giant that was given a $182 billion taxpayer bailout to stay afloat, this week AIG considered joining a shareholder lawsuit against taxpayers challenging the terms of the bailout, which saved the company and possibly planet earth from financial meltdown.
I know what you're thinking, how could they? Well, outrage followed and AIG said they couldn't -- they wouldn't join the lawsuit after all but the company is holding off on giving us the reason why. And to be fair, AIG has publicly thanked you for your help.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: We've repaid every dollar America lent to us.
UNIDENTIFIED FEMALE: Everything, plus a profit of more than $22 billion.
UNIDENTIFIED FEMALE: For the American people.
UNIDENTIFIED FEMALE: Thank you, America.
UNIDENTIFIED MALE: Helping people recover and rebuild. That's what we do. Now, let's bring on tomorrow.
(END VIDEO CLIP)
VELSHI: Government did turn a $22 billion profit on the deal, and I know AIG has a responsibility to its shareholder, employees, and customers to be successful. But what does this episode say about the state of Wall Street in Washington right now?
Matt Taibbi joins me now in the studio. Matt is a masterful writer with "Rolling Stone." His latest is called "Secrets and Lies of the Bailout." I think -- what we said, I like Matt a lot. I think he's a little bit crazy but he is masterful at putting this argument forward.
All right, Matt, you start with AIG. You mentioned that the bailout funds were used in some cases for retention bonuses. This latest chapter certainly doesn't help AIG's reputation.
MATT TAIBBI, CONTRIBUTING EDITOR, ROLLING STONE: Yes.
VELSHI: You really say that the government failed in changing the way Wall Street thinks.
TAIBBI: No, I think what the real lesson -- you know, my assignment was to look at the bailout, what did it accomplishment.
VELSHI: Yes. Yes.
TAIBBI: Was it effective and was it not. And what I think what we really focused on in the end was, they told so many lies on behalf of these companies over the years.
VELSHI: Yes. TAIBBI: In the -- in the interest of instilling confidence in the markets, that in the end they ended up vouching for a system that was -- that was bankrupt or was insolvent. And we're stuck vouching for that system now. And I think that's -- that's really the problem. Where does that end? When you start lying for a company, you end up having to keep doing it over and over again.
And you have to publicly endorse the health of these companies. And that's the ongoing legacy of these bailouts.
VELSHI: And -- where does it end is an interesting theme of your story. In fact, I want to read a line from it, it's right on the first page. We wouldn't have to get far into it. It said, "We thought we were just letting a friend crash at the house for a few days. We ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn."
Who are the hillbillies here and who are sleeping nine to a bed and who's got the meth lab?
TAIBBI: Well, for instance, you know, look at the HSBC settlement, you know, last month or the UBS settlement, you know, four years ago. Could you have imagined that we would let banks off for laundering $9 billion for terrorists and Mexican drug cartels?
And the rationale they gave was very similar to the rationale they gave for endorsing the -- the solvency of banks that were insolvent. They said we have to do these because these are systematically important companies and we can't let something happen to them because if something happens to them, then we'll have another disruption.
VELSHI: So what you brought out here -- it's interesting. You said that there might have been some hope in the way the bailout was originally structured. Then within days it changed into something else.
VELSHI: And within days it changed into something else. So it went from something that was going to help America.
VELSHI: Through its banks into helping homeowners and banks into something that was just about banks.
TAIBBI: Just about banks. Right. And then it became something that what didn't even necessarily help banks. You know, the original rationale is we're going to give a whole bunch of money to healthy, viable banks to help start to grease the economy and start lending all over again and stimulate business activity all over the country.
TAIBBI: But what it turned into is we're going to fill capital holes for failing institutions. VELSHI: Right.
TAIBBI: And we're going to get no new lending stimulated and we're not going to create business and we're not going to create jobs. And that's sort of the situation that we ended up with.
VELSHI: So when you look at the -- you look at the last 30 some odd months where we have actually created jobs and the stock market which a lot of our viewers invest in through their 401(k)s or IRAs into five-year high.
VELSHI: Do you attribute any of that to the bailout?
TAIBBI: Absolutely. I do. But the whole -- the question is going to be, will it continue. I mean, the proof is going to be in the pudding.
TAIBBI: Is this just -- is the situation sustainable or is it not sustainable? I mean that's -- it really comes down to, do you believe that these too big to fail banks are solvent? That do you believe in their accounting and do you believe that going forward they're going to remain healthy or do you believe that there's trouble ahead.
VELSHI: The way I teased that you were coming on is that President Obama really, really spent a lot of time talking about Tim Geithner and the applause that he got in the White House was -- you know, was extended. You don't -- you think Tim Geithner and so does Neil Barofsky has written a book about this. He was the special investigator general -- inspector general of TARP. The bailout.
VELSHI: You both think Geithner is not -- he's more part of the problem than the solution?
TAIBBI: Well, I think -- you know, I agree with Neil Barofsky on a lot of these points. I think that Tim Geithner's legacy is he's going to be remembered as the architect of too big to fail. I think, you know, what -- he had the opportunity with the bailouts to go in and correct a lot of problems, restore fiscal honesty and transparency in the system, and instead, they just sort of papered over the problem, they threw a lot of money at these corrupt failing institutions, and they created these sort of monsters that now we have to publicly back even when they're backing -- laundering money for terrorists and drug dealers.
VELSHI: But when you write an article like this, it puts you -- it gives you strange bedfellows. It puts you into bed with a whole lot of conservatives who say see, we should never have had that bailout.
TAIBBI: I -- I absolutely agree.
VELSHI: Do you believe that there shouldn't have been a bailout at all?
TAIBBI: No. I believe there should have been -- I think it should have been done differently.
TAIBBI: It should have been done with conditions. It should have been done in a way that encouraged transparency instead of just papering over problems. But I do believe that this is an inherently conservative issue. I think there should be some linkage here between liberals and conservatives because it's not a partisan issue at all.
VELSHI: Well, it's a good read. Matt Taibbi's article called "Secrets and Lies of the Bailout." Matt is a contributing editor with "Rolling Stone."
Coming up, this high-tech jumbo jet was supposed to change the industry. But now more problems with the Dreamliner. I've flown on one. I'll tell you what I think next.
VELSHI: One week five mechanical glitches and billions of dollars on the line for a major U.S. company. I'm talking about the Boeing 787 Dreamliner, Boeing's latest and greatest high-tech jet. Monday a Japan Airlines Dreamliner filled with smoke after landing. Tuesday another Japan Airlines Dreamliner had to be towed back to the gate in Boston because of a fuel leak. Wednesday an All Nippon Airways Dreamliner was grounded in Tokyo because of a systems error message in the cockpit.
Then two more incidents on Friday, an oil leak and a crack in the cockpit window both in Japan. But Boeing executives say they still have, quote, "extreme confidence in the 787." The Federal Aviation Administration not so much. It opened a probe into the design, manufacture and assembly of the Dreamliner.
Boeing says it welcomes the review. Listen, I've flown on a couple of these Dreamliners. They are sweet, no question about it. But at $200 million a pop, Boeing has a lot at stake. It has 800 of the planes on order from airlines. It's been dogged by production delays and now mechanical glitches since its debut in late 2011.
Safety comes first in the airline industry but profits come second. And if any airlines start pulling their orders, Boeing will be in trouble.
New airplane programs usually have issues, by the way, in the first couple of years. Bottom line is Transportation Security Secretary Ray LaHood says this plane is safe to fly. Let's hope he's right.
All right. What's your take on the Dreamliner or anything else we've talked about, got any responses to Matt Taibbi or any of our others guests, or maybe Washington's intransigence has got you angry and you want to vet, finds me on Facebook at Facebook.com/alivelshi. Tweet meet, my handle is @alivelshi. Thanks for joining the conversation this week on YOUR MONEY. We are hear every Saturday, 1:00 p.m. Eastern, Sunday, 3:00 p.m. Eastern and weekdays at 3:30. Have a great weekend.