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Budget Battle; Pope Says Goodbye; Interview with Mayor Michael Bloomberg of New York; Interview With Tom Vilsack; Hagel's First Day As Defense Secretary; What Makes A Cut "Devastating"

Aired February 27, 2013 - 16:00   ET


WOLF BLITZER, CNN ANCHOR: Truth behind the numbers. Why will cutting $85 billion out of more than $3 trillion in spending, almost $4 trillion, cripple the government and the economy?

We're also looking into why President Obama was completely unaware, supposedly, that several hundred illegal immigrants already have been freed because of the forced spending cuts.

And I will ask New York City's Mayor Michael Bloomberg if he will run for president in 2016.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

All that coming up, but let's begin today with today's big rally on Wall Street, major gains that could affect your retirement savings and more.

With the closing bell just now, the Dow Jones industrials completely erased a steep drop earlier in the week.

Let's go live to Felicia Taylor. She's over at the CNN Money Desk in New York.

What happened, Felicia?

FELICIA TAYLOR, CNN CORRESPONDENT: Really, what the most important thing today was Ben Bernanke in his testimony in Washington basically saying that we are going to see quantitative easing, in other words, a stimulus in the marketplace, through 2016.

That's what the market is focused on. Yes, we have got some better-than-expected numbers on manufacturing and home sales, but when they heard that Ben Bernanke still believes we aren't going to see unemployment drop to 6.5 percent until 2016, that means stimulus measures are going to be in place and that's what Wall Street wants to hear -- Wolf.

BLITZER: The 14076, just to give some perspective, the first year of the Obama administration back in 2009, the market had collapsed, as all of us know, because of the housing crisis and all of that. It was down at one point well below 7000, approaching 6500 and now it's more than doubled. It's a pretty dramatic comeback.

TAYLOR: Absolutely. There's no question about it. Frankly, the looming deadline of sequestration isn't even enough to bother Wall Street right now.

They are on a tear and the bulls are definitely in command. The belief, though, is that this won't actually last that long. There's going to be a sustained rally. But we could see some of these people, some of these bulls pulling out because we got also today is something called window dressing and that's what happens at the end of the month, where people literally add into their portfolio because it looks better obviously to be holding stocks.

One of those stocks that people are not holding right now is Apple. What we didn't get to hear from them at their annual shareholder meeting today was we thought was going to be a two-for-one stock split. So Apple shares ended the day down about 3 percent.

BLITZER: And this cautionary note to our viewers, Felicia, as I'm sure you know, it was 14500, around there, back in 2007, but then in 2008, early 2009, it collapsed to 6500. Just because it's at a record high right now doesn't necessarily mean it's absolutely going to be that high six months from now or a year from now. This is a very volatile potential situation.

TAYLOR: And you have got to remember, there's not as much volume in the marketplace as we once saw. Volume numbers have been very, very low.

The other thing we saw earlier this week was the volatility index spike by about 30 percent. When you have got these big swings like that, you have got to be very careful in this kind of marketplace because there are people out there that do what they call quantitative trading. That's what makes this market so volatile.

BLITZER: Certainly does. A big day on Wall Street today. We will see what happens tomorrow and the days to come. Felicia Taylor at the CNN Money Desk, thank you.

BLITZER: All right, this just coming into THE SITUATION ROOM, word of a resignation because the federal government started releasing illegal immigrants to save money because of the upcoming forced budget cuts.

There's a lot of outrage here in Washington and indeed around the country because several hundred detainees who had been held in jail have been freed already, even though the cuts don't even take effect for another two days.

Our chief White House correspondent, Jessica Yellin, is here. She broke the news that the president didn't know anything about any of this. That's what they are saying at the White House, that the president was totally in the dark. He was just as surprised by all of us were when he heard that they started releasing hundreds of detained illegal immigrants.

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: That's right, Wolf. Their point is that's how this process works, that it happens at the agency level and the White House does not know. The news right at this hour, Wolf, is that Gary Mead, the head of the U.S. Immigration and Customs Enforcement director of enforcement removal operations, big title, bottom line is, he's part of the operation that helps decide who is let go and who stays at the immigration departments -- is leaving his job. He is leaving his job and this news comes just a day after we learned that hundreds of undocumented immigrants were released yesterday as part of this decision to prepare for coming budget cuts.

Now, administration officials tell me that decision was made by career officials, the decision to let them go, at the immigration service. The White House and Department of Homeland Security headquarters didn't even know that decision was coming. In fact, they found out from the same press release that came from an advocacy group that notified the rest of us in the media, so, again, a big surprise to the White House.

BLITZER: When you say this official is leaving his job, was he fired? Was he told to go? Did he decide to resign because of the huge embarrassment?

YELLIN: Well, according to the Department of Homeland Security, no, it was not a firing. What they say is that this was a planned retirement and I'm just going to quote here: "Gary Mead announced several weeks ago to senior leadership that he planned to retire after 40 years in federal service and six years at ICE," that he told his staff weeks ago."

That's what they say. But, Wolf, we have got to point out the coincidence of timing. Yesterday we found out that hundreds of these detainees, some of them criminals with just misdemeanor charges, none of them violent criminals, yesterday, we found out they were being released. Big embarrassment to some officials. Today, we find out that he is retiring. You have got to scratch your head and wonder if it is just a coincidence.

BLITZER: Now, here's the other question.

Janet Napolitano, she's the secretary of homeland security. She oversees this department. Did she know what was going on?

YELLIN: No, she did not know that these cuts, these releases were coming yesterday.


BLITZER: So she was as surprised as the president was?

YELLIN: She was as surprised as the president was. But, again, I should say that this is how it's supposed to work, they tell me, that this is a decision that's made at the more junior level and because budget cuts are coming and they have to prepare for these budget cuts. That's sort of the process when you know your money supply is shrinking.

BLITZER: Thanks very much, Jessica Yellin. We will see what happens.


BLITZER: I suspect there's going to be a lot of fallout from this and a lot of people are going to be skeptical of what the White House is seeing, but we will see what comes up. Appreciate it very much.

We're now only two days away from those forced spending cuts that just about everyone here in Washington would like to avoid, but nobody seems willing or able to take the important steps necessary to stop them. President Obama and congressional leaders aren't planning to talk about it until Friday, but they briefly got together today when everybody was backstage for the unveiling of a statue on Capitol Hill.

Our chief congressional correspondent, Dana Bash, is watching what's going on.

Update our viewers. This is an ugly situation, Dana.


It was kind of a confluence of events that put the president together with the House speaker and other leaders, an event actually that happened right behind me. They were sort of forced together. What happened was, according to the Senate majority leader, Harry Reid, he told me that there was a huddle, but Jake Tapper was told that the president told lawmakers to be prepared to -- quote -- "talk solutions" at this meeting on Friday. That certainly would be a change.


BASH (voice-over): The president, Republican and Democratic leaders coming together to unveil a statue of civil rights icon Rosa Parks, all pulling in the same direction, the partisan tug-of-war over.

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: Mr. President, you honor us with your presence. Thank you for being here.

BASH: But this bipartisan moment was just that, a moment. Here's the Senate leaders going at it just 45 minutes earlier.

MCCONNELL: He wasn't elected to work with the Congress he wants. He was elected to work with a Congress he has.

SEN. HARRY REID (D-NV), MAJORITY LEADER: Republicans are too busy fighting among themselves to unite behind a course of action, so they are instead doing nothing, zero.

BASH: The president did ask congressional leaders to the White House to discuss forced spending cuts for their first face-to-face meeting about averting cuts the Democrats call devastating. But the invitation is for Friday, the same day those cuts kick in. Democrats came to the president's defense.

(on camera): Why wait so long?

REP. DEBBIE WASSERMAN SCHULTZ (D), FLORIDA: Well, look, it is entirely within the purview of Congress to pass legislation and send it to the president. So actually the real question is, is, why isn't John Boehner reaching out to Harry Reid, sitting down with Nancy Pelosi and Mitch McConnell and hammering out a compromise?

BASH (voice-over): But House GOP leadership aides wasted no time hitting the White House on the timing, one asking why the president scheduled the meeting on Friday -- quote -- "when the sequester hits at midnight on Thursday. Either someone needs to buy the White House a calendar or this is just a belated farce. They ought to at least pretend to try."

That led to some confusion and a bizarre back and forth not about how to stop the cuts, but about when the cuts take effect.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: The sequester begins I believe midnight on the 1st of March. So --

QUESTION: Right, but it happens after.

CARNEY: Well, actually it happens before, because it happens midnight --

QUESTION: But the meeting happens after these things begin.

CARNEY: No. It begins midnight, March 1.

BASH: That prompted this tweet from the speaker's spokesman: "White House waits until sequester arrives to call a meeting 10 months after House passed a plan, then argues about whether cuts at morning or at night."

Here's the real deal. The president does have until 11:59 p.m. the end of the day Friday to sign an order for the forced cuts. So it turns out everyone agrees on the timing, but the fact that they fought about it speaks volumes.


BASH: Meanwhile, preparations are already under way here in Congress for those forced cuts.

The House speaker told lawmakers today that they will no longer be able to use military aircrafts for fact-finding missions that they frequently go on. This clearly is a way for John Boehner to try to make sure that his members get criticized for going on effectively some junkets while their constituents are being hurt.

But, Wolf, there also might be something going on here and it may be a way to tweak the president for using his military aircraft, known as Air Force One, for trips like the one yesterday to Virginia to hit Republicans. BLITZER: Good point. Thanks very much, Dana. I know a lot more coming up on the story.

Also in a few minutes, the agriculture secretary, Tom Vilsack, will join us live here in THE SITUATION ROOM. Can his department cut in other places in order to spare some jobs, assuming the forced budget cuts go effort? We all assume they will. I will speak with him in about 20 minutes.

Now we turn to today's very historic events in Rome over at the Vatican. Take a look at the crowd that came to say goodbye to Pope Benedict XVI. Vatican officials estimate 150,000 people packed into Saint Peter's Square. That's at least three times the number of tickets that they gave out. The pope who retires tomorrow told me the past eight years contained in his words many days of sunshine and also, and these are once again his words, times when the water was rough and the lord seemed to sleep.


POPE BENEDICT XVI, LEADER OF CATHOLIC CHURCH: I will continue to accompany the church with my prayers and I ask each of you to pray for me and for the new pope.


BLITZER: Our chief international correspondent, Christiane Amanpour, is on the scene for us in Rome. She's joining us now with more.

This will be an emotional and historic moment tomorrow when all of this ends for Pope Benedict XVI.


It was emotional for his devotees today as he made his final appearance, the final general audience, as you said. St. Peter's Square behind me was packed and the pope came out in his popemobile and there were a lot of waves and hugs as children were presented to him to kiss.

Behind me, of course, night has fallen. St. Peter's is behind me and the Vatican is where this pope is spending his last night on the throne of St. Peter as pope. After that, tomorrow he will final meeting saying goodbye to cardinals and then at 5:00 p.m. local time here in Rome he gets on a helicopter and leaves the Vatican and goes to Castel Gandolfo, which is traditionally the papal summer residence, which is where he will be staying for a period of months while his Vatican apartment, his new residence, will be readied.

And also of course people want there to have some distance between him and the conclave to elect the next pope. And certainly after 8:00 tomorrow, the papal apartments will be sealed. Sede vacante sets in. That is the empty seat and this interregnum period before a new pope is chosen, Wolf. BLITZER: Christiane, during this interregnum period, there will be an interim pope, an acting pope? Walk us through that between now and the time a new pope is elected.

AMANPOUR: Well, not really. Not formally in that name. But certainly there's the papal hierarchy. There's a secretary of state, and there's all the different heads of the Curia, the heads of the Congregation of Faith, the heads all of these very different bureaucracies here at the Vatican.

But is literally an empty seat. So, no, there is not a pope and this is when the cardinals come to gather and then have their meeting to actually then choose the date for the conclave to start. As we know this is the leader of the world's 1.2 billion Catholics. But as we know, the pope is more than just a religious leader. He's virtually a statesman by virtue of the importance of the world that confers upon him and what he does, what he says, who the new pope will be will matter not just to Catholics but to people all over the world.

All the good of the Catholic Church and all of the bad and challenges of the Catholic Church are in play as we go forward. And, of course, there's this unfinished business of settling these priest sex abuse cases and finally coming to a full accountability and getting beyond that so the Catholic Church can continue without what the pope referred to as these choppy waters, as the ship of state sometimes he said flew against the wind and how at one point he said to himself God cannot let the Catholic Church sink -- Wolf.

BLITZER: Christiane Amanpour on the scene for us in Rome, we will check back with you of course tomorrow. Thank you.

New York Mayor Michael Bloomberg is standing by. He joins us in THE SITUATION ROOM. I spoke with him earlier today up on Capitol Hill. He's telling me why he's making gun control his mission, even if it winds up costing him many, many millions of dollars.

And today is the first day on the job for the new defense secretary, Chuck Hagel. And he started it off by surprising his staff. That's coming up as well.


BLITZER: Gun restrictions are on a front-burner on Capitol Hill. At a hearing today, the father of one of the children killed in last December school massacre in Newtown, Connecticut, pleaded with lawmakers to ban the sale of automatic weapons.


NEIL HESLIN, FATHER OF STUDENT KILLED IN NEWTOWN MASSACRE: Jesse, he gave me a hug and a kiss and at that time said goodbye and love you. He stopped and he said, "I love mom, too." That was the last I saw of Jesse as he ducked around the corner. Prior to that, when he was getting out of the truck, he hugged me and held me. I can still feel that hug and the pat on the back. He said, "Everything's going to be OK, dad. It's all going to be OK." And it wasn't OK. I have to go home at night to an empty house, not my son, something that should never have happened at an elementary school. People argue about the Second Amendment. Well, the Second Amendment says well-regulated militia, to bear arms, safe and freedom of state. It hasn't been well-regulated.


BLITZER: Our heart goes out to that father and all of the families of those killed senselessly in Newtown, Connecticut.

The New York City Mayor Michael Bloomberg is taking a very, very active role in this gun control fight. He spent millions of dollars to help a pro-gun control congressional candidate win in Illinois. She won the race last night.

And I spoke to Michael Bloomberg about it earlier when we met up on Capitol Hill.


BLITZER: Why did you decide to come to Washington?

MAYOR MICHAEL BLOOMBERG (I), NEW YORK: Well, yesterday in Illinois, the public had a chance to learn all the facts about who stood for what in terms of enforcing gun laws that are on the books and keeping people safe. And they spoke. And the results were exactly what the polls had said they would be, 90 percent of the people in this country want responsible gun laws.

And I'm down here to try to explain to others that this is a great victory for the public. It's a great victory for our kids who have been getting murdered on the streets and they have been getting murdered in the streets of urban, as well as rural, as well as suburban areas.

BLITZER: And you were ready to put your money where your mouth is?

BLOOMBERG: Well, you know, it's -- the NRA has had the field to itself in talking about guns and it's time for a balanced approach so the public can get the information and then we'll let the public decide.

BLITZER: That win in Chicago, did it underscore that in order to fight the NRA, you really got to come up with a lot of money? Is that -- is that the lesson you learned?

BLOOMBERG: No, but I think it's a harbinger of what is going to happen here. You don't have to -- have to put into every race. In the end, the money doesn't matter. It's the people that show up at the polls and express themselves.

BLITZER: But money doesn't hurt.

BLOOMBERG: Well, it does -- it takes something to get information out. Media costs money. CNN charges for advertising. But it's -- this is really a chance for the public to just get the facts.

BLITZER: So your message to the NRA right now is --

BLOOMBERG: Well, I don't have a message for the NRA. I have a message for people that if they want to be heard, if they want to make this country safer for themselves and their kids, you've got to go to the polls and you've got to express yourself and vote for people who want sensible gun rules, sensible interpretation of the Second Amendment, protect the Second Amendment but also to make sure that people who are minors, who have criminal records or substance abuse problems or mental illness don't get their hands on guns.

And it's particularly poignant when you think about every year in America, 12,000 people every year get murdered with handguns. Per capita, the same as the rural areas as the urban areas.

But even more tragic, something like 19,000 suicides with handguns every year, every parent's worst nightmare. And we've got to make it harder to get guns. In New York City, our suicide rate is half the national average and that's because our suicide rate of guns is a tenth the national average. If you make it somewhat harder to get guns, people don't kill themselves.

BLITZER: But you're willing to put in can we say tens of millions, hundreds of millions?

BLOOMBERG: You know, the most important thing here is making people understand. They will, from watching your program and you explaining what happened in Illinois and the fact that the people spoken -- have spoken, I think that will have as much impact as anybody else will have.

BLITZER: I'm watching Congress for a long time. I think you and your side have an excellent chance to expand the background checks, maybe a chance on the magazines. Not much of a chance on assault weapons bans.

BLOOMBERG: Well, Wolf --


BLITZER: Here's the question, are you ready to see all of these individual components split up into separate pieces of legislation or is it all in one big package?

BLOOMBERG: Well, I would be in favor of all of those things. I thought, there's a number of military people that talk about assault weapons saying these are instruments of war, they don't belong on our streets. They certainly don't keep you safe. If anything, they increase the danger. They will get into the wrong hands and that you will be the victim. Same thing with high-capacity magazines, you don't need these things for sport, and you certainly don't need for hunting. But what we need to do is pass these and if it gets them -- if they can be done as one package or they can be done individually, as long as they get done, I think this country will be a lot better off.

BLITZER: Let's talk a walk and continue this conversation. I know you got to get going for another meeting.

The spending cuts that are about to take place, have you looked, assuming they will take place midnight Friday, and I believe they will, how that will impact the city of New York?

BLOOMBERG: Yes. There are federal programs that will get cut back.

Keep in mind, sequestering was put in place by both the Republicans and the Democrats, by both Congress and the White House. They all thought it was a good idea and, unfortunately, it's one of these things they created something that's so untenable that nobody can use it. It's almost like weapons of mass destruction, nuclear bomb you can't use because it's so powerful, or it's so changing the game.

So, I think what will happen here is they will find some other solution. But it's also true that nothing is going to happen overnight. It does take a little while now. You can see some of the letting people out of jail. You can see an employer saying I'm going to lay you off.

But if it will take some time before it really has a dramatic impact and I think during that time, sensible people will come together and they will say, look, there's got to be a better way of doing this.

BLITZER: This is really a dumb way of doing it.

BLOOMBERG: Well, it's a dumb way of doing it. But you tell me, what's a good way of doing it?

BLITZER: Well, the Republicans or some of them are at least saying to the president, you know what? You want to cut, we want to cut $85 billion. This across-the-board, meat cleaver kind of cut is stupid. We're going to give the authority. Come up with $85 billion in waste, fraud, abuse, stupid ideas --

BLOOMBERG: Well, the truth of the matter is, there isn't $85 billion in waste, fraud and stupid ideas.

BLITZER: You don't think you can trim $85 billion?

BLOOMBERG: We -- well, if you can trim $85 billion, then it's a de minimis amount of money and you shouldn't be wasting your time.

BLITZER: Because the budget is almost $4 trillion.

BLOOMBERG: Well, that's exactly right. You have to make big cuts. We have to decide to do less with -- to do more with less or to do less with less and we've got to pick things. Everybody's going to say not my program, your program.

If you looked at Simpson/Bowles, I think -- well, I've always been in favor of just adopting it. It has in there many of the same things the sequester does.

BLITZER: Make sure it's accepted (INAUDIBLE), the president --

BLOOMBERG: Perhaps they should have, but it wouldn't have been that much difference. We have --

BLITZER: Four trillion dollars in cuts.

BLOOMBERG: But we have come to depend and expect services and we haven't yet understood we're going to have to pay for them or we can't have them. And somebody -- we need leadership to stand up and say, I'm sorry. There's no free lunch here.

BLITZER: Have you decided what you're going to do after you leave office?

BLOOMBERG: Three hundred and seven days from now? I have not.

BLITZER: But who's counting?

BLOOMBERG: But who's -- well, we have a countdown clock with the thing -- we have a countdown where it says, make everything count.

My first concern is to get people jobs who have been loyal and that sort of thing. And then I'll worry about it.

BLITZER: You haven't endorsed anybody for your successor?

BLOOMBERG: Not yet. No.

BLITZER: Do you think you will?

BLOOMBERG: We'll see.

BLITZER: Is it possible?

BLOOMBERG: Yes, it's possible.

BLITZER: Have you done any thinking about 2016?

BLOOMBERG: No. 2016 is three years from now. I will be 74 years old.

BLITZER: But you look great. You're feeling good.

BLOOMBERG: Well, thank you very much.

BLITZER: Your healthy (ph) --

BLOOMBERG: It's tougher to get up in the morning, as you know, as you get older.

BLITZER: Do you exercise a little bit?

BLOOMBERG: Every day.

BLITZER: You do?

BLOOMBERG: Pretty much every day.

BLITZER: I do, too. You got to run. Good luck. Thanks very much.

BLOOMBERG: All the best.


BLITZER: In just a minute, I'll speak live with the secretary of agriculture, Tom Vilsack, and I'll ask him why he can't find other things to cut besides meat inspectors, food for poor people. Lots going on. Secretary Vilsack from the New York Stock Exchange when we come back.


BLITZER: I'm going to circle back now to the forced spending cuts that hit in just two days and how they will affect ordinary people all across the country. The U.S. Department of Agriculture employs about 100,000 people and its 2013 budget calls for $155 billion in spending. It's being forced to cut $2 billion out of that. Some meat inspectors, programs to feed low-income families, they are potentially all on the chopping block. It would have huge ramifications for so many folks out there.

Republican lawmakers are asking why can't the cuts come from targeting other programs, including farm subsidies for millionaire farmers, for example.

The agriculture secretary, Tom Vilsack, is joining us now live from the New York Stock Exchange. Mr. Secretary, thanks for coming in.


BLITZER: What's the answer? Why not eliminate some of those huge subsidies for the wealthy farmers out there and not eliminate jobs for meat inspectors or food for poor people?

VILSACK: Well, the way the sequester law and the Budget Control Act was crafted, Wolf, we don't have that capacity or flexibility to do that. Every line item of the budget, with the exception of some of the nutrition programs, is subject to the same amount of cut, the same percentage cut. Indeed, farm subsidies may very well get cut at the same percentage as the food safety budget gets cut because it's every line item. And the food safety budget, unfortunately, is mostly people.

And I've heard also members of Congress complain about the fact that maybe there's travel that could be cut or supplies that could be cut. We've already done that, Wolf. We can show you somewhere between seven hundred and $1 billion worth of cuts that we've already absorbed and that we've already had savings in in a variety of categories. So it's not like there's a great deal of unnecessary travel or conferences or even personnel. We don't even have 100,000 folks working for us anymore. Our workforce is down by eight percent, and we're dealing with a budget that's less than it was in 2009.

BLITZER: Because Phil Graham, the former U.S. senator -- I don't know if you saw his article on the op-ed page in "The Wall Street Journal" today. He made this point, and I'll read it to you. He said, "Instead of protecting children from cuts in nutrition programs, the president will continue to allow $2.7 billion of fraud and mismanagement he has identified in the food stamp program." Can't you eliminate that $2.7 billion of what is described by the president as fraud and mismanagement?

VILSACK: Wolf, that fraud rate in the SNAP program is roughly one percent. It's the lowest fraud rate in the history of the program. It has declined every single year that the president has been in office. We have enforced a new alert system. We are doing a much better job of doing investigations. Last year, we did over 800,000 individual investigations and several thousand investigations of convenience stores and grocery stores. Forty-some thousand people were disqualified for the program. So, that is already happening. And we're continuing to reduce that rate as we speak.

But this is a situation where it's not about being able to focus on a particular area. Every line item of the budget is required to be cut. There's no wiggle room, especially in food safety because most of what food safety is is people. And most of the people are the folks who actually inspect your meat, your poultry and your processed eggs. When they walk off the floor because they have to be furloughed because the way in which this is structured, they essentially will shut down the entire production facility.

BLITZER: You raised the issue of SNAP. Briefly tell us what SNAP stands for?

VILSACK: SNAP is the Supplemental Nutrition Assistance Program and it's essentially exempted by Congress from the sequester. So, a good deal of what you refer to at the opening of the $150 billion budget, which it's actually substantially less than that now, a good portion of that is actually exempted from the sequester by congressional action.

BLITZER: That's food stamps, in other words, right?

VILSACK: That's correct.

BLITZER: All right. So, there's another -- I raise the issue of SNAP, because John Boehner, among others, have pointed out that there's a program -- a lot of people don't know this -- a billion, maybe two billion dollars of giving free cell phone service to poor people who qualify for the SNAP program, for the food stamps program. Boehner wrote in "The Wall Street Journal" the other day, "No one should be talking about raising taxes when the government is still giving folks free cell phones." I know this is not a directly administered by the Department of Agriculture it, but what do you think of his complaint?

VILSACK: Well, Wolf, I think that's done -- if I'm not mistaken, that's an FCC issue, and I don't know the details of it. But I can tell you this and I can tell the speaker this: we have engaged in the last couple of years focusing on ways in which we can save resources. We actually had 833 cell phone contracts when I became secretary. We've now condensed them into 30 cell phone contracts and we've saved billions of dollars. We've reduced the number of landlines. We've reduced travel and conferences, as I've said before. We're strategically sourcing. We've reduced our workforce. We've actually closed 250 offices and labs around the country, much to the concern and criticism by some members of Congress when we did that.

So we have already taken the difficult steps, and we'll continue to do that. But the way that the sequester is structured, as the president says, it's not a smart way to reduce the budget. It just isn't the right way to reduce the budget, and hopefully over the next couple of days, cooler minds will prevail and we'll avoid this unfortunate circumstance.

BLITZER: We can only hope. Mr. Secretary, what about this proposal from some Republicans? They say to the president, you ought to cut $85 billion, half domestic spending, half defense spending. This is a stupid way of doing it across the board. We're going to give you the flexibility so you don't have to cut meat inspectors, you don't have to cut food for poor people, you can go ahead and do it in a smarter way. The White House saying, not so fast. They are not interested in getting this flexibility. Here's a question to you as a member of the president's cabinet, the secretary of agriculture. Why?

VILSACK: Well, first of all, I'm not sure that all Republicans are united in that concept. But just assume for the sake of discussion that they are. That deals with the micro problem. It doesn't deal with the macro problem. And the macro problem is the economy at large. When you take $85 billion out of the economy in a relatively short period of time in a matter of months and you combine that with the payroll tax deduction that went into effect at the first of the year, you're taking roughly $250 billion out of the economy, which is absolutely going to affect gross domestic product. When that happens, you're talking about jobs at a time when we're trying to increase the number of jobs, not decrease the numbers of jobs.

In my circumstance, with the food safety issue, when those inspectors walk off the floor, there is as many as a quarter of a million folks who are impacted by that decision. So, you've got to look both at the macro and micro aspects of this. There's a smart way to do this. The president has put a smart way on the table, of a balance of revenue and reductions over a long period of time. And he's open to a discussion of entitlement reform. Seems to me that's a pretty good deal, and folks in Congress ought to take him up on that deal.

BLITZER: Mr. Secretary, good luck. A lot of people are worried about what's happening. I know you're deeply worried yourself. Let's hope they can come up with sort of resolution over the next 48 hours. I'm worried that they won't, but let's hope they can. Appreciate it very much.

VILSACK: You bet. Thanks, Wolf.

BLITZER: Secretary Vilsack, the secretary of agriculture.

Much more news coming up. Jesse Jackson is here in THE SITUATION ROOM. We've got a lot to discuss with him. Stand by. My interview with Jesse Jackson, Sr. Not Junior. There's a picture of Junior. He's got his own problems. Jesse Jackson Sr. will join me in THE SITUATION ROOM.

Also, Britain's Prince Harry cuts loose. You're going to find out how these kids got him to dance. That's next.


BLITZER: Let's get back to the breaking news that we were following at the top of the hour. Lisa Sylvester has the final closing number on Wall Street. Some of the other top stories in THE SITUATION ROOM right now. What else is going on?

LISA SYLVESTER, CNN ANCHOR: Yes, Wolf, what a rally that we saw on Wall Street today. The Dow Jones Industrial Average gained more than 175 points, rising more than one percent to close at a new five- year high. The NASDAQ and S&P 500 were also up. An uptick in home sales cheered investors. And the biggest spark to the rally, though, seems to be Ben Bernanke's testimony on Capitol Hill that the Federal Reserve's effort to stimulate the economy will continue.

Yahoo!, they're firing back at criticism of its decision to ban employees from working at home. Some say the new policy will be bad for morale. But in a statement, a Yahoo! spokesman responded saying, quote, "This isn't a broad industry view on working from home. This is about what is right for Yahoo! right now. To become the absolute best place to work, communication and collaboration will be important, so we need to be working side by side," end quote.

And in other news, a key part of the Voting Rights Act could be in danger. The Supreme Court today heard arguments on the provision requiring areas with a history of discrimination to get federal permission before making any voting law changes. Officials in Shelby County, Alabama, say that is too burdensome, and some of the justices seem to agree, asking why some states are subject to oversight and not others. A ruling is expected in June.

And Britain's Prince Harry, he is showing off his moves. Check it out there. It's all for a good cause. In the African nation of Lesoto, the royal (INAUDIBLE) school for blind and deaf children today. Hey, I'm watching right there. He's like part of the traditional dance with some of the children. He also tried baking a traditional bread and he learned a few words in sign language. The prince's charity is helping fund the school.

I don't know, but I think the kids are doing it much better than he is.


BLITZER: Much better. But he's learning. He's new at that dance.

SYLVESTER: That's right.

BLITZER: Maybe there's other dances - oh! He's --

SYLVESTER: Don't fall there.

BLITZER: Give him credit for trying.

SYLVESTER: Don't fall, Prince Harry. And you know what? The best part of all is it looks like he's having a really good time. Love it.

BLITZER: Good work. Thank you.

Chuck Hagel takes over the helm at the Pentagon. First day at the job, he shook up his schedule and he's laying out what the U.S. must do to lead. Chuck Hagel. That's next.


BLITZER: It's the first day on the job for the Defense Secretary Chuck Hagel following a bruising nomination fight. Another fight may lie straight ahead. The military facing millions of dollars in looming cuts. Our Pentagon correspondent Barbara Starr has the details.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Wolf, Chuck Hagel survived a tough confirmation fight on Capitol Hill, but topping the priorities now for this one-time Army sergeant, overseeing $46 billion in looming spending cuts.


STARR (voice-over): Soon after arriving at the Pentagon and being sworn in to office, Defense Secretary Chuck Hagel had his first surprise for his staff. He did something not on the official schedule.

Hagel stopped to pay his respects at the Pentagon's 9/11 Memorial then, handshakes and waiting to be introduced to hundreds of Pentagon employee. Hagel's most immediate challenge, $46 billion in mandatory spending cuts that now appears unavoidable.

CHUCK HAGEL, U.S. DEFENSE SECRETARY: Budget, sequestration, I don't need to dwell on all of the good news there. That's a reality. We need to figure this out.

STARR: Hagel's Joints Chief of Staff already grim at the prospect.

GENERAL JAMES AMOS, COMMANDANT, U.S. MARINE CORPS: By the beginning of next year, more than 50 percent of my tactical units will be below acceptable levels of readiness for deployment to combat.

STARR: Hagel remains true to his position on the need to be careful on the question of the use of American military power.

HAGEL: We can't dictate to the world, but we must engage in the world. We must lead with our allies.

STARR: He's now getting intelligence briefings on everything from the war in Syria to North Korea's nuclear weapons program, but for this Vietnam War veteran introducing his top brass, a moment of G.I. humor.

HAGEL: We've got the chief of staff of the Army. He makes me shake a little being an old Army sergeant. But the sergeant major of the Army scares the hell out of me so --


STARR: What is still to come is the ultimate responsibility for any secretary of defense, signing deployment orders, possibly sending troops far away from home -- Wolf.

BLITZER: Barbara Starr, thanks very much.

The forced spending cuts only represent a fraction of this year's federal spending. Coming up, today's big question, why is such a relatively small cut threatening to cripple so much of the federal government?


BLITZER: The U.S. government is spending about $3.8 trillion this year, but if there's no deal by Friday night, agencies will have to cut a fraction of that, about $85 billion. So our big question is this, why would that amount have such a devastating potential impact on the overall economy?

CNN's Tom Foreman has been trying to find an answer. Have you got one, Tom?

TOM FOREMAN, CNN CORRESPONDENT: Well, you know, Wolf. You're right to use the word potential there because that's really the question here. When you look at the $3.8 trillion, all these different programs out here, if you've cut out this amount down here, $85 billion, how can that little slice of all of this make a difference?

One of the reasons it makes a difference, one of the reasons is because Washington is not really looking at the whole budget and they haven't for a long, long time because what you have to consider is that all of the entitlement programs are basically out of the equation. And these programs are bigger than all of the other programs.

We aren't really cutting a whole budget. We're talking about putting these cuts in part of the budget. Do you want to see why that really matters? That matters because if you look at what has happened with entitlements over the years, from 1962 up here, look at just defense spending, which we talk about a lot.

Here's defense spending which is way up here at 50 percent. That's a percentage of the total budget, dropping down and dropping down. Look what happened to entitlements, it moved up and watch what entitlements has done as the baby boomers have grown older.

Up and up and up and now look how high it is. This line is not being addressed because politically, Wolf, as you know, neither party really want to tangle with that issue. And so a lot of economists look at this and say, look, you can do what you want with these cuts.

They may be painful to a lot of people but in reality if you're trying to get at the deficit, we're going to have a hard time doing it if you don't address this line at the top, entitlements -- Wolf.

BLITZER: Some comments out there, even suspect that cutting back $85 billion over the next seven months could potentially send the U.S. back toward a recession. Is that possible?

FOREMAN: You know, it's possible because anything is possible, but I think there are enough economists out there who will say they are wrong. Right now, we think about all the fears that people may have in all of this. Look at the things that indicate a recession.

GDP is one of those. The last quarter of last year, GDP went negative by a tiny sliver for the first time in three years. Our GDP has generally been moving up. It moved down a tiny little bit. People said that it had something to do with a lot of companies getting rid of inventory at the end of the year.

And with Hurricane Sandy, but either way, you'd have to have another quarter of that before it's a real indicator of the recession. So we're going to call that sort of a neutral yellow warning about that.

What about employment? Employment has been slowly creeping up but slowly. So it's not a negative indicator that it's where it is now, but it's certainly not positive either. That's also this way.

Housing has been better right now. We're going to call that green because that's doing better in the country. What about "The Sequester?" Even if we call that red, here's the bottom line. Yes, there are a lot of scare tactics out there.

A lot of talks about what is going on with the recession, but the CBO, the Congressional Budget Office and many others have looked at this very carefully and they say, unless more of these factors really tie together, the sequester alone can't do that. It won't push us into a recession or at least it's very, very unlikely, despite all of these dire warnings -- Wolf.

BLITZER: Tom Foreman, good explanation. Thanks very much.

Coming up, Jesse Jackson Sr., one on one, right here in THE SITUATION ROOM. We'll talk with him about a lot.