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YOUR MONEY

The Dow Disconnect; Busting Budget Myths; Betting on the Market Boom; Fixing America's Infrastructure; The Battle Over Oil

Aired March 9, 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: More job hires in February and an all-time record high for the Dow despite the forced spending cuts that went into effect last week. The economy is doing OK. Markets are spectacular. Where is the disconnect?

I'm Ali Velshi. This is YOUR MONEY.

What if I told you there isn't that much of a disconnect? But maybe the economy feels worse than it actually is. The U.S. added 236,000 net new jobs in February. That's up from 119,000 in January. The unemployment rate dropped from 7.9 to 7.7 percent. That's keeping with a now three-year trend of job growth in the private sector.

Still far short of where we need to be, though. If President Obama is going to keep his campaign promise to create 12 million jobs over four years. To fulfill the president's promise, we need to see an average of at least 250,000 jobs created every month for 48 months in a row. That will get us to 12 million by the end of his second term in office. One month in and the president is only 14,000 jobs short of where we would need to be right now.

I was skeptical when both Mitt Romney and President Obama said that it could be done, so skeptical that I wagered that it wasn't likely, not with the economic growth that we've got in the United States. Before the election, I promised that I would wear a dress if 12 million jobs are created over the next four years under any president. And whether or not I plan to honor that pledge, I am constantly reminded of it.

As crazy as this sounds I actually want to lose my bet. Not that I want to wear a dress, but I want a lot of jobs to be created.

Now none of this seems to matter to investors right now. The Dow broke a record high last week, highlighting that disconnect that some of you think between the wider economy, how you feel, and corporate America.

There was a time when the stock rally went hand in hand with economic prosperity. Now American companies make their money abroad or make it by eliminating inefficiencies and increasing productivity with fewer workers. And there's also the Fed. Low interest rates and low inflation have conspired to make the stock market the only liquid investment gain in town. And that's pushing the Dow to record highs.

Stephen Moore is a senior economics writer and editorial board member at "The Wall Street Journal."

Stephen, you are a deficit hawk. You must be ecstatic about the forced spending cuts in Washington one week into this forced spending cut sequester. The sky hasn't fallen despite the president's warnings. The Dow is flying high. We've got job creation continuing. Do you think we're on the right track despite having a president that many consider anti-business?

STEPHEN MOORE, EDITORIAL WRITER, "WALL STREET JOURNAL": Well, I'm not quite as jubilant as you are, Ali, but I think this was a very positive jobs report, no question about it. And these are the kind of numbers that we need as you've quite correctly said for the next three or four years and that we should expect given than we're in a recovery.

Now I do think that the sequester has really been a nonevent with respect to the financial markets. Businesses are plowing ahead. And I think a lot of the dire forecasts that cutting government spending was going to hurt the economy, at least -- look, it just started so we've only had this for a week or two

VELSHI: Sure.

MOORE: But I was one of the people who said, look, this might actually be a positive thing for the economy in terms of giving business some assurance that at least Washington will start cutting somewhere.

VELSHI: All right. Let's look at -- let's look behind those numbers on the jobs report.

Christine Romans is the host of "YOUR BOTTOM LINE."

Christine, gives us a breakdown of February's jobs numbers. What do you see?

CHRISTINE ROMANS, HOST, CNN'S YOUR BOTTOM LINE: Well, you know, I often there's a the good, the bad, and the ugly in these jobs numbers. This time I'll say it's the great, the good, and the ugly in these numbers.

Let's look at the great first. I mean, when you look within the private sector hiring, it's 36 months in a row of private sector job creation, 36 months. That's what we want to see, companies' confident in deploying their assets by hiring people. Where are they hiring? Business services, up 73,000. Construction, Ali, at 48,000. That's a sign of strength in the housing market. I mean there were some construction jobs earlier, maybe last year, they were probably because of Hurricane Sandy rebuilding, but now you're seeing help from construction because of housing.

And healthcare, 32,000 jobs in healthcare. We've seen that again and again and again. There are two economies in America. One of them health.

(LAUGHTER) The healthcare economy. The other economy is the one the rest of us live in. And then the ugly, 133,000 people dropped out of the labor market. They couldn't -- there was no place for them. They simply stopped looking. And you look at the labor force participation rate, this is something that's a number that is still so troubling, 63.5 percent. It's the lowest since July 2012. To get -- to get worse to than that you've got to go back to September 1981.

You want to see that number getting bigger as more people come back in and feel like the economy is getting better. There's a place for them in the economy. That's the ugly.

VELSHI: Let me bring in Diane Swonk. She's the chief economist at Mesirow Financial in Chicago.

Diane, Christine laid out the things that we know are the ugly. All I've been asked all week with these market highs, why is there this disconnect? How is it that we're breaking records on stock markets? It's not just the Dow. The S&P 500, you would have made more money over the last five years in the S&P 500, in the broader market as well.

Explain this to me. Why the disconnect?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Well, the disconnect, I think you laid it out fairly well, Ali, is one, corporations are making money by cutting costs and increasing productivity and they've reduced their interest expense. They've de- levered amazingly with the low interest rates the Federal Reserve has provided but also the low interest rates the Federal Reserve has provided is meant to boost asset prices.

And one of the places you've seen it is in the stock market. And of course we've certainly got this battle going on between easy monetary policy trying to offset fiscal drag. And so far it's a battle where, you know, you sort of see two steps forward, one step back. They're winning but not winning big in terms of that. And in terms of -- on the other side of it, the sequester that might -- talked about earlier, I think it's -- that you talked about, I think it's really important --

VELSHI: Yes.

SWONK: -- to point out that we haven't seen the effects of that yet.

VELSHI: Right.

SWONK: And the first effects will be furloughs and income, later jobs.

VELSHI: All right. It's a good discussion. Thanks, friends, for being with us. Diane Swonk is the chief economic at Mesirow Financial, and Stephen Moore, editorial writer with "The Wall Street Journal." All right. Coming up, why is America's debt ballooning? If you say ineffective politicians, wasteful government programs and moochers are the problem, my next guest says you're wrong. I'm going to bust some budget myths.

Plus calling all compromisers, as you know, I've been casting a wide net looking for anyone willing to reach across party lines to solve our economic problems. Could Rudy Giuliani actually be the answer?

(BEGIN VIDEO CLIP)

RUDY GIULIANI, FORMER NEW YORK MAYOR: I did try it once. It didn't work.

(LAUGHTER)

VELSHI: That's history. What's the future?

GIULIANI: I was a little too moderate on -- on social issues.

VELSHI: But you haven't really changed on that front.

GIULIANI: I haven't changed at all. If anything, I problem have become even somewhat more moderate so --

(CROSSTALK)

VELSHI: But isn't that -- isn't that likely -- I mean, if the Republican Party stands a chance to win --

GIULIANI: You want to know what I think?

(END VIDEO CLIP)

VELSHI: We do actually want to know what he thinks. Don't miss my eye-opening interview with Rudy Giuliani. You're watching YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: The Dow is hitting new record highs, 236,000 net new jobs added in February. Some things are looking good. Lest we forget, though, we've got a serious fiscal problem in this country. We're one week into the so-called sequester, the forced spending cuts, because your elected leaders couldn't come up with a better, smarter way to shrink our debt.

On Tuesday, House Budget Committee chairman, Paul Ryan -- you know him, he ran for vice president. He'll release his budget, sure to create a new whirlwind of controversy over taxing and spending.

Let's talk about that. Joining me now is David Leonhardt. He's the Washington, D.C. bureau chief for "The New York Times." He's also author of a must-read great new e-book called "Here's the Deal."

David, welcome to the show. In your book --

DAVID LEONHARDT, WASHINGTON BUREAU CHIEF, THE NEW YORK TIMES: Thank you. It's great to be on.

VELSHI: -- you argue that we have come to believe a story about the deficit that simply isn't true. In fact you write, "Looming deficits seem to stem from weak-willed politicians, wasteful government programs that do not benefit us, and tax avoidance by people we have never met."

Now in truth, in truth, the coming deficits stem above all from the fact that most Americans are scheduled to receive far more in Medicare benefits than they have paid in Medicare taxes. And you cite a shocking stat from the Urban Institute to back that up.

Here it is. I want to give my viewers this. A couple earning average wage who retired in 2010 paid $88,000 into Medicare, including the employer portion, by the way, that they didn't pay. That couple will receive benefits worth $387,000.

David, Medicare is the biggest driver of our debt. How do we fix it? Should we -- should we voucherize a la Paul Ryan? What's the solution?

LEONHARDT: And one thing that's important to know about those numbers, that includes premiums. It includes inflation. It includes all the things that a good calculation would include. And so, basically, the problem is to some extent is we're all takers. Right? You hear this whole notion of makers and takers but the reason we have a deficit is that on average we're takers. We're getting more from Medicare than we're paying in.

And while our deficit in the medium term seems to be under control in part because of all this austerity we've hard, in the long term it's a really big problem. And so I think the first step is simply acknowledging that and saying the way to solve it has to be some combination of tax increases on us or benefit cuts to us.

It's not something you can do just by affecting the other guy.

VELSHI: One of the criticisms that the media get, it's actually a criticism I get a lot. People say whether it's Medicare or Social Security, we -- they are entitled to the money, in fact, they're called entitlements because they paid for it.

With Social Security, they're more right than they are with Medicare.

LEONHARDT: That's correct. With Social Security, there is a long-term problem with Social Security in part because we're going to have many more retirees in 25 years than we have today, particularly relative to the number of workers. But with Medicare, it's just not true that you've paid for your Medicare benefits.

Sure, if someone works their whole life and then dies at the age of 67, well, that person has more than paid for their Medicare benefits, but the average person does not. And at base, that is why we have a deficit. And I think it's it's really hard for people to get their minds around. And that's part of the reason why the deficit is so hard to solve because if any politician comes out with some sort of proposal to actually deal with it, it's easy for the other side to attack them because people have these views of the deficit that don't completely conform with the actual deficit.

VELSHI: Is it -- is it fair to say, though, that we can reform these things by changing some of the benefits? Sure, it will hurt people a little bit, but we also can find a way to not benefit those who don't need the benefit?

LEONHARDT: Yes, so that's the second half of this. I think that's right. And it's important. We have a serious long-term deficit problem. But it's not like it is so big that solving it requires completely ripping up the social contract. Some combination of relatively modest tax increases and/or relatively modest but still significant changes to the way the health care system works could do it.

It's worth remembering, we spend almost twice as much per person on health care as any other country in the world. So there's got to be some waste in there because while we've got in some ways the best health care system in the world, in many ways we don't. And there have got to be ways to do it that don't completely ruin our current health care system.

VELSHI: David, good to talk to you. We can talk for a lot longer. And the book is very interesting.

David Leonhardt is author of "Here's the Deal," he's the Washington bureau chief with "The New York Times."

OK, back in 2009 I wrote a book called "Gimme My Money Back." And in there, I talked about the stock market. And I said despite what's going on in the stock market, remember, January 2009, the market was almost at the lowest that it reached. I said I'm sticking to my investment plan. Despite the current turbulence I haven't changed it one bit. I know the market will recover and that my investments will grow.

The Dow hit record highs this week. If you've been listening to me yell "buy" for the past five years, you are rich right now. You probably don't need to watch this show. If you ignored me, I forgive you, I guess. In either case, we'll look at where to put your money now.

And Rudy Giuliani says the U.S. government is spending too much of your money on the wrong things. I'll tell you where he wants to put it instead.

(COMMERCIAL BREAK)

VELSHI: Record highs for the Dow Industrials this week. The good news is that investors who were waiting on the sidelines are getting back into the market. The bad news is that a lot of you have been hiding out for the past few years as the stock market basically doubled. $150 billion a year came out of stocks over the past three years.

Now I know a number of you see these highs in the market, you worry that it's a ticking time bomb. I don't really like to make too much of a deal about stock market records but you can't ignore the trend, and the trend is is strong. Why? Well, low interest rates for starters courtesy of the Fed mean that you can't make much money in the bank or in bond funds.

Stock market is the only liquid investment game in town. Now the price of a stock is a factor of how much a company is expected to earn because you as a shareholder are entitled to a piece of that profit. And right now stocks are priced lower in relation to their expected earnings than they were the last time we hit a market high in October of 2007.

To be sure the rally will end one day, they always do. A change in the Fed's lower interest policy or if the Fed decides to stop pumping tens of billions of dollars into the economy every month could precipitate that.

I want to bring in Matt McCall. He's the president of Penn Financial Group.

Matt, if you are one of those people who now wants to get into the market, which people are tempted to do when we get to new highs, how would you do it?

MATT MCCALL, PRESIDENT, PENN FINANCIAL GROUP: I think you buy right into the market. Honestly, I mean, just get into the overall S&P 500. There's a lot of ETFs and a lot of funds out there to do that.

VELSHI: Sure.

The problem is a lot of investors right now they see individual stocks hitting highs so they're going to try to pick those individual stocks.

Listen, as you just showed the entire stock market more than doubled from the bottom. You didn't have to pick stocks. You could have just been in the U.S. market and rode this wave.

VELSHI: Robert Luna is the chief investment officer of SureVest Capital Management. He's a bear but not really a hard-line bear, he's more of a gummy bear.

Robert, nobody wants to buy stocks when they're down and out. Everybody wants to get in when the records are being set. You think now is not the time to buy into the broader market that Matt just described.

ROBERT LUNA, CIO, SUREVEST CAPITAL MANAGEMENT: Well, like you said, I mean, I'm not an extreme bear, but I think we've come a little bit too far a little too fast here. Let's not, you know, forget what happened last year around this time. The first quarter of last year the S&P was up 13 percent, only to correct 11 percent right into the second quarter.

So while I'm not advocating you go out there and you sell everything in your entire portfolio right now, what I am advocating you do is you do what we're doing for our clients right now. It's take a break while all the pandemonium is breaking loose, take a look at what you hold in your portfolio right now, not necessarily you got ETFs, you have stocks, bonds, what's the dollar value of your portfolio today?

And ask yourself one simple question. If I had that money to invest today, would I place it exactly the same way I'm allocated today? If the answer is no, then those are the areas you want to look to sell in your portfolio, because at the end of the day there are some areas technically and fundamentally that are just priced way too high right now.

VELSHI: All right. Let's take look at what some of the things are that both of you like and don't like.

Matt, you are -- you're liking something called the wisdom tree cap -- small cap dividend, ETF. ETFs are exchanged-traded funds, you buy and sell them like stocks.

MCCALL: Yes, I like this because typically when a market is strong like I believe it's going to be strong for the next year, if we're going into into the fifth year of the bull market, you know, that happened only five times in the past. The five times it's done that, up 20 percent and typically small caps relief. On top of that, you're getting a dividend, 3.4 percent. That's almost double where you're getting a 10-year with this ETF.

VELSHI: Sure. Sure.

MCCALL: So I like the exposure to small caps and the income coming in.

VELSHI: You also like -- I've always followed this one with interest. The iShares U.S. oil equipment and services because we've got this an energy boom going on.

MCCALL: We have an energy boom going on and this is one sector that has actually lagged the market. As you see in that chart, it's actually pulled back as the market is hitting highs. I think it's a great valuation right now. We're going to continue to expand to drill onshore, deep offshore. These are companies that will benefit from that.

VELSHI: And, Robert, you like oil as well. You like ConocoPhillips, you like Lincoln National, a financial company, and you like Chevron and JPMorgan as well.

LUNA: Yes. You know, we think the same thing that Matt was talking act right now, we like oil simply for the fact that it's undervalued right now. It's one of the cheapest S&P sectors. And when you look at a stock like ConocoPhillips right now, that's yielding about 4.5 percent. They're going to be expanding production over the next five years so they actually have the capability to increase that dividend we think pretty substantially over the next five years.

You know, the financials have done pretty well as of late, but if you look back to where they were at their highs when the S&P was back at their highs in 2007, they're still down about 50 percent. And they've got everything in their corner right now. Interest rates are starting to rise, which will definitely help them. Property values are stabilizing. And if you look at the case like a Lincoln National, variable annuities, which one of their biggest -- is one of their biggest growth areas, they're one of the only major players that are left in that area.

VELSHI: Right.

LUNA: So as you see the market stabilizing that's going to tend to benefit those companies as well.

VELSHI: Great advice from you guys, who don't share exactly the same view of the market. You reflect our viewership. Thank you for that.

Matt McCall is the president of the Penn Financial Group, Robert Luna is the chief investment officer at SureVest Capital, joining us from Phoenix.

All right. Want a great return on your investment? Check out what your tax dollars could bring you.

(BEGIN VIDEO CLIP)

GIULIANI: This kind of spending stimulates the economy for real.

(END VIDEO CLIP)

VELSHI: I'll tell you what kind of spending he's talking about. I'll go one-on-one with Rudy Giuliani. And then actress Daryl Hannah will make her case on why the controversial Keystone Pipeline will be literally a disaster. Is she right? Is it worth it?

Don't go anywhere. You're watching YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: You've heard me say this before. U.S. infrastructure is in a sorry state. The American Society of Civil Engineers gives America a big fat D grade but the U.S. isn't planning to fix the problem. The American Society of Civil Engineers estimates that the U.S. will need $2.75 trillion by 2020 to bring infrastructure into a state of good repair but it predicts the U.S. will spend less than two-thirds of that, leaving $1 trillion funding gap.

We know that investment in infrastructure has long-term benefits. By investing $1 trillion in infrastructure, the U.S. saves more than that in costs to businesses alone, not to attend -- to mention massive costs savings to households. A $3 trillion bump to GDP and an additional $3.5 million jobs created. That's for $1 trillion.

America may not be making the investment but other countries are. China spends 9 percent of economic output on infrastructure. Europe spends 5 percent. The U.S. spends less than half of that, 2.4 percent. That's changed over the years. We used to spend a lot more.

Former New York City mayor, Rudy Giuliani, was once a Republican presidential contender. Today he's one Republican who is not opposed to spending as long as he sees a return on that investment.

(BEGIN VIDEOTAPE)

GIULIANI: When you build a school, when you fix a railroad, when you fix a pipeline, when you build electrical or water connections, that benefits people for 30 years, 40 years, 50 years, 100 years.

VELSHI: So your grandchildren might be getting a bill for getting the benefit, too.

(CROSSTALK)

GIULIANI: So they should pay for it. They should pay for it.

VELSHI: Yes. The federal government, look, bottom line is everybody's looking for ways to cut. So why not something, for instance, like an infrastructure bank where the government puts something in --

GIULIANI: It would make a lot of sense.

VELSHI: -- and the private sector really gets to --

GIULIANI: And I -- and I have no problem with financing a lot of that because, in fact, you can spread that cost out over 20, 30, 40 years, because the benefit is going to be spread out over 20, 30, 40 years.

VELSHI: But what about the criticism that it happens at the state level, the criticism that can happen at the federal level that the national interest in infrastructure will play second place to getting money for districts in my state or getting money for a particular place?

GIULIANI: Well, that's why it needs some protection. Mayor Koch, one of his great accomplishments was, because of the fiscal crisis in New York, money was taken out of infrastructure. He had to live with that for two, three years when they really almost had no capital budget.

But the mayor got very concerned the city would fall apart. So he began a capital expenditure campaign. We're going to be 20 years. You can't do it all at once, but he put aside what he could afford, $3 billion at first, then it got to $4, he handed it over to Jenkins. Jenkins expanded it, Jenkins handed it to me, I expanded it, I gave it to Bloomberg, Bloomberg expanded it. That has been going on for 24, 25 years.

The city is in much better shape as a result of it. We spend somewhere between $5 billion and $6 billion a year on fixing our infrastructure. And we finance all of that because it's going to benefit the future.

VELSHI: Right.

GIULIANI: So here -- so two Republican mayors and two Democratic mayors able to agree with this. This isn't liberal -- and I -- I consider myself a political fiscal conservative.

VELSHI: Right.

GIULIANI: That kind of spending is very, very tight. It's very important. It gives long-term benefit. And if the president had done this with the stimulus program instead of the giveaway it became, this economy would be humming right now.

VELSHI: But then he tried to do it with an infrastructure bank in his jobs bill.

(CROSSTALK)

GIULIANI: He screwed it around with the -- he lost credibility with the shovel-ready projects. We have all these shovel-ready projects. Now it came time to find the shovels and there were none.

VELSHI: Right.

GIULIANI: The president did the same thing unfortunately recently with the sequester.

VELSHI: We've got a lot of shovel-ready projects, I'm going to let that go for a second.

(LAUGHTER)

We -- in a political climate like ours it's unattractive to push this kind of agenda.

GIULIANI: There are things that are more politically attractive.

VELSHI: Yes.

GIULIANI: This is more for the good government types.

VELSHI: Yes.

GIULIANI: The people who look at government budgets and really understand it. But this is where our leadership comes in. This is why we need leaders.

VELSHI: With what's going on in the political situation right now, I think we're going to be looking for fiscal conservatives and leaders to compete, particularly for the Republican Party. You thought that -- thought about that? You thought about going back to --

(CROSSTALK)

GIULIANI: Well, I mean, I did try it once.

VELSHI: I know.

GIULIANI: Didn't work.

(LAUGHTER)

VELSHI: That's history. What's the future?

GIULIANI: I was a little too moderate on -- on social issues.

VELSHI: Well, you haven't really changed on that front.

GIULIANI: I haven't changed at all. If anything, I probably have become even somewhat more moderate so --

VELSHI: But isn't that --

(CROSSTALK)

VELSHI: But isn't that likely -- I mean, if the Republican Party stands a chance to win --

GIULIANI: You want to know what I think?

VELSHI: Yes.

GIULIANI: I think -- I think a Republican candidate, not necessarily me, but a Republican candidate who's a fiscal conservative, let's call him a foreign policy conservative for shorthand, but is a social, not even progressive but social moderate. Open to -- open to choice, open to gay rights, gay marriage, maybe yes, maybe no, but certainly civil unions and protection against discrimination. I think a candidate like that is almost unbeatable. I mean the -- the way --

VELSHI: But the CPAC, for instance, is not embracing that sort of thing.

GIULIANI: Well, you can get nominated.

VELSHI: Yes.

GIULIANI: This is a chicken and egg thing.

VELSHI: Yes.

GIULIANI: You can't -- you can't nominate a candidate like that. The Democratic Party used to have this problem back in the '80s.

VELSHI: Yes.

GIULIANI: And that's when the new Democratic coalition emerged. Al Gore, Bill Clinton, the best example of that.

VELSHI: So basically they said to those who were -- were on the fringe, go out there, you can form your own party if you want, do something else.

GIULIANI: Give us a guy that can say something like --

VELSHI: Yes. Yes.

GIULIANI: -- we're going to end welfare as we know it.

VELSHI: Yes.

GIULIANI: And old-line liberal, if they have said, could not have gotten nominated.

VELSHI: Right.

GIULIANI: But now Bill Clinton says, let's end welfare as we know it.

VELSHI: Do you think the Republicans can do that?

GIULIANI: Man, you've got to be -- that happens when people start to get desperate because --

(LAUGHTER)

They see themselves with no influence on policy for years.

VELSHI: Yes.

GIULIANI: I don't know if we're quite there yet but we may -- we may be there.

VELSHI: Would you be open to that call?

GIULIANI: I don't know if I'd be but I'd certainly be hopeful to try to find somebody like that.

(END VIDEOTAPE)

VELSHI: Interesting discussion with Rudy Giuliani.

Coming up, I'm going to take you to my home country of Canada and show you what the real fight over the Keystone Pipeline is all about.

(BEGIN VIDEO CLIP)

VELSHI: All right. This is it. We are literally walking on black gold. This is what we came here to see. This is oil sand. It's sand that's encased in water and oil. In fact, this is about 10 percent crude oil.

(END VIDEO CLIP) VELSHI: All right. Daryl Hannah is going to join me next to explain exactly why environmentalists are drawing a line in the tar sand when it comes to building the Keystone Pipeline.

(COMMERCIAL BREAK)

VELSHI: After one false start and much anticipation, the State Department finally released a draft report on the environmental impact of the proposed Keystone XL Pipeline extension. Now if it's approved it would move more than 800,000 barrels of oil per day from Canada's oil sands to the U.S. heartland and beyond to global markets via the Gulf of Mexico.

Proponents say the pipeline expansion would bring a crucial energy source, oil, to the U.S. from our friendly neighbor next door, Canada, and reduce America's dependence on imports from other more volatile regions of the world.

Seems obvious but it's not without controversy. Environmental groups oppose the pipeline because the landscape in Canada's Alberta province is already devastated from oil sand mining there and they say it will be more so with the Keystone XL expansion.

The State Department report downplays those claims which effectively clears the way for the pipeline to move forward.

Now this is what we are talking about. Black sticky sand. I soaked -- it's soaked in oil. I picked this up almost five years ago when I travelled to Alberta to see the oil sands for myself.

(BEGIN VIDEOTAPE)

VELSHI (voice-over): One-third of the world's known oil deposits are right here in the dirt. So that's where we headed on our energy hunt, from New York to Fort McMurray, Alberta.

(On camera): All right. This is it. We are literally walking on black gold. This is what we came here to see. This is oil sand. It's sand that's encased in water and oil. In fact, this is about 10 percent crude oil.

(Voice-over): Large quantities of oil embedded in sand only occur in two places in the world, Venezuela and Canada. Giant shovels scoop up 100 tons of oil-laden dirt at a time. Hundreds of trucks move across the landscape all day and night every single day.

(On camera): You need a lot of earth to make oil. It takes about two tons of oil sands to make one barrel of oil. Now this big hauler holds 400 tons of oil sands, so once that's all filled up and made into oil, you'll have about 200 barrels of oil.

(Voice-over): That's right. Two tons of oil sand makes one barrel of oil. But at today's oil prices it's wildly profitable. That's why major players like ExxonMobil, Shell, Chevron, and others squeeze 1.5 million barrels of oil out of this land every day, and they send most of it to the U.S. It's costlier than getting it from a simple land well because the tar-like oil has to be separated from the sand. And that uses lots of natural gas and warm water. The result is a heavy molasses-like oil which has to be upgraded into a lighter, high quality form of crude that can then be easily refined into gasoline, home heating oil, and other petroleum products.

Canada produces much more oil than it needs, so the excess oil is sold and sent by pipeline to its best customer, the United States.

(END VIDEOTAPE)

VELSHI: All right. Joining me now to discuss the negative side of the oil sands in the Keystone XL Pipeline is Van Jones. He was President Obama's green jobs czar during his first term in office, advising the president on ways to promote growth in the alternative energy sector in this country. He's now a CNN contributor.

And joining us from Los Angeles is actress Daryl Hannah. You may know her from her roles in movies like "Splash," "Wall Street," and "Kill Bill," but she's a public activist for environmental causes. Now she is the executive producer of a new documentary movie coming out this weekend called "Green Lying Bastards."

Here's a clip from the trailer.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Uncover the conspiracies behind the campaigns.

UNIDENTIFIED MALE: This club these changes in. This is what I want it to look like.

UNIDENTIFIED MALE: And the greedy lying bastard behind it all.

UNIDENTIFIED MALE: Could it be that man-made global warming is the greatest hoax ever perpetrated on the American people? The greatest hoax ever perpetrated on the American people.

UNIDENTIFIED MALE: Corporations who have us where we are, who have us over a barrel, would love to keep it that way.

(END VIDEO CLIP)

VELSHI: Daryl Hannah, welcome to the show. There are two issues with the Keystone XL Pipeline --

DARYL HANNAH, ACTRESS/ENVIRONMENTAL ACTIVIST: Thank you.

VELSHI: -- that the environmental community raises. One is what the expanded pipeline network could mean for increased oil sand mining in Canada, which arguably devastates the environment there.

HANNAH: Expansion. VELSHI: And releases more carbon emissions than normal drilled oil. But number two is the safety concerns of the pipeline itself in the United States. So let's focus on that for a second. America has pipelines crisscrossing the country sending oil and gas from one place or another. There's already a network that sends oil from the oil sands into America. They're not foolproof. But why so much concern about pipelines now? We've got a lot of pipelines already.

HANNAH: Well, this is -- this is not conventional crude. Right? You saw it for yourself. This is called bitumen, it is a much more corrosive, heavy substance. It needs to be heated 250 degrees to get it to move. They need to inject it with a lot of chemicals to get it to move through the pipe so that makes it a much more corrosive substance. And that will greatly endanger our fossil non-replenishing aquifers which is we cannot risk when we have unprecedented droughts and wildfires and crop losses in the -- in the breadbasket of our country.

All the aquifer, which it's going to go through is -- serves as a water source for a third of our country's ranch and farm lands and drinking water for millions of people. And then it's going to go through further aquifers down the way.

But that -- I mean, there are so many issues. These aren't the only two issues.

This is a pipeline that's going through America, not to America. We're already processing some of that oil in Oklahoma, like you said. But the reason they want to get it to the Gulf is so they can get it, as you said, to the global market. And they can't get this to the global market the easiest way through their country, to the Pacific, through that (INAUDIBLE) line because their citizens have stopped it.

VELSHI: Let me show my viewers what we're talking about here. This is the oil sands over here. And when you make it into that bitumen, diluted bitumen, I showed you that sticky substance, it becomes this. Once it's refined from there to here, it becomes something like oil and that becomes refined into gasoline or home heating oil.

Van Jones, you have referred to the administration's approval of this, if it comes, as jabbing a dirty needle of a pipeline into America. You've likened it to drug addiction. You've said this will become Obama's pipeline.

VAN JONES, CNN CONTRIBUTOR: Yes.

VELSHI: You're a Democrat.

JONES: I'm a Democrat. And I'll tell you what, this is one of the most remarkable stories I think that has not been covered. I'm so glad you're covering this. Our president, my beloved president, has said he wants to be this climate champion. You heard that. Beautiful speech he gave at the inauguration. Brought tears to my eyes. People all around the world. But then what happens? We say we're going to do this pipeline. This pipeline is a very, very interesting thing. First of all, it's a foreign corporation that's saying it can -- it's going to take land from American famers. When you point to that bitumen, that is the problem for America's farmland. That is not oil. That is a -- that is a --

VELSHI: Put some meat on the bones here.

JONES: OK. OK.

VELSHI: You have an example.

JONES: Sure. Kalamazoo, Michigan. There was a pipeline trying to move that stuff. That is -- that is pipe-eating goo. That is not oil. And that pipeline cracked and when that stuff hit the water, nobody knew what to do with it. And so now we spent almost $1 billion, it's been four years and the Kalamazoo River may never come back. That's from one leak.

This is not oil. This is a pipe-eating, planet-cooking, water- fouling goo that nobody knows what to do with, and we're going to shoot it across America's farmland and America's waterways. Why? So a foreign corporation, who's made no promises to sell any of it to us, can get it to the global market, mainly China.

This does not make sense for America.

VELSHI: Let me ask you.

JONES: And as a Democrat, I'm begging for somebody to stop this crazy thing.

VELSHI: Daryl Hannah, let me ask you something. We use a lot of oil in this world where there are many people who would agree with you it would be great if we use less. Bottom line is we don't use enough alternatives. We've had a lot of problems with that. That's a topic for a another conversation as to why we don't. The argument is that that oil is going to get used by somebody in the world.

HANNAH: Well, part -- part of the -- part of that problem is because one of the issues behind why we don't use enough of that is because Canada has been sending their diplomats all over the world to fight climate legislation. They've actually lobbied the European Union to fight climate legislation, but you know, because they want to increase projects like the tar sands because they know that if they can expand the tar sands to the size of the state of Florida that they have billions of dollars to make.

But this pipeline is not in our national interest. It doesn't have any benefit to the American people. We will assume all the risks and they will reap al the benefit by making billions of dollars. This fuel is not destined for us. It is -- they're just using us. They're using us. It's like -- it just doesn't make any sense.

VELSHI: Well, you set it up very nicely because I actually have a Canadian diplomat going to be joining us on the show momentarily, actually, the Canadian ambassador to the United States.

HANNAH: Ask him about why they keep sending their diplomats everywhere to battle climate -- the climate change legislation.

VELSHI: I will have that discussion.

(CROSSTALK)

I will -- thank you for teasing my next segment.

Daryl Hannah, executive producer of "Greedy Line Bastards" which opens this weekend, and a resume that the rest of you all know.

And Van Jones, CNN contributor and the former green jobs adviser to President Obama.

All right. Think of the jobs. Think of the energy independence. Think of greenhouse gases. We're going to talk about the other side of the controversial Keystone Pipeline debate when we come back with, as Daryl Hannah promised, a Canadian diplomat.

(COMMERCIAL BREAK)

VELSHI: Let's continue our conversation about the Keystone XL Pipeline, the controversy. Ambassador Gary Doer, the Canadian ambassador to the United States, joins me now.

Daryl Hannah still with us from Los Angeles.

Mr. Ambassador, let's start with you. Boy, there's a lot of -- a lot of material in that last one including the fact that Canadian ambassadors are going around the world to, you know, to get sort of -- sell everybody on this idea.

GARY DOER, CANADIAN AMBASSADOR TO THE U.S.: Well, the Canadian ambassador was in Copenhagen. We obviously joined with President Obama committing to the reductions, the greenhouse gas reductions, the same ones. We were in Copenhagen talking about how we could reduce greenhouse gases by having light vehicle energy efficiency standards, which we've implemented. So has the president.

VELSHI: So the issue, though, is that the production of oil, if you drill a hole in Texas for oil, it is -- it doesn't -- the actual drilling of the oil doesn't produce greenhouse gases. But the argument is that the production of this oil sand, the way to get the oil out of -- out of this nugget, out of the sand, uses greenhouse gas because you've got to use natural gas and warm water.

DOER: Yes.

(CROSSTALK)

VELSHI: So for instance, more -- there's more greenhouse gases produced in the production of the oil, not the use of it.

DOER: No. The use will be dependent on demand. And that's why light vehicle standards that we both agreed to, yes, the ambassador was fighting for that, I actually fought for it before I was an ambassador. It has been implemented. But the Canadian oil, of course, it's being reduced in its greenhouse gases every year, as you know.

VELSHI: Because of what? Technology?

DOER: Well, technology, energy efficiency and water utilization is way below ethanol production now. But also, if you look at it, the displacement of Venezuelan oil by Canadian oil and oil from North Dakota and Montana, which is never mentioned, Balkan oil goes on this pipeline from the United States, Canadian oil, and this oil has less greenhouse gases presently than the Venezuelan crude it's going to displace. And it has less GHGs and some of the California oil.

VELSHI: Greenhouse gases. Let's take a look --

DOER: And it has more, as you say, than the average -- (CROSSTALK)

VELSHI: Let's look at what we're talking about here.

DOER: Yes.

VELSHI: This is the -- this is the oil sands in here.

DOER: Yes.

VELSHI: This here is the -- what's it called? Dilbit, diluted bitumen. That's the stuff that goes through the pipelines, that's the stuff that Van Jones called pipe-eating goo that tore through the pipe in Kalamazoo, Michigan.

Talk to me about this because I spoke to the CEO of TransCanada, the pipeline company.

DOER: Yes.

VELSHI: He said this is no more corrosive than regular oil.

DOER: Well, the bottom line is the State Department, again, last week came out and evaluated all these allegations. And I guess the old saying -- I guess you're entitled to your own opinion but not your own facts. And in the State Department report written by scientists, not by a CEO of a company, not by an ambassador, it basically said it will have no difference because the oil is going to be harvested in Canada.

It will make no difference to the greenhouse gases. And in fact, if the -- if it's stopped, the pipeline is stopped, the oil will come down to the United States or go to market on trains which has 8 percent higher greenhouse gases than the pipeline. So actually, the unintended consequence --

VELSHI: Right. DOER: -- of blocking the pipeline with all the noble intentions on climate change, because we agree that we all have to take action on climate change.

VELSHI: Right. So Daryl Hannah --

DOER: Higher emissions.

VELSHI: The Canadian ambassador says that you -- he shares the view on climate change and that there are going to be more greenhouse gases if you don't use this oil.

HANNAH: That's just ridiculous. First of all, the State Department report has been unilaterally written off as inaccurate and incomplete. It was also written by someone who has close ties with TransCanada. And so it's being looked into.

Second of all, you're not even -- you're not even taking into the calculations the fact that in order to create these vast toxic lethal strip mines, the one which exists now up in Alberta is the size of the city of Chicago, and they plan to expand to the size of Florida.

It has to decimate, completely strip away an entire boreal forest. That has to be calculated in terms of carbon emissions as well.

DOER: Let me get in.

(CROSSTALK)

VELSHI: Let's answer that.

HANNAH: Excuse me, let me finish.

VELSHI: OK. I just want to get -- I want to get an answer to that, the boreal forest. Let the ambassador --

HANNAH: Right.

DOER: Well, as somebody who've set aside half the boreal forest in my own province of Manitoba, we've set aside the size of France. The provinces of the federal government are boreal forest. So there -- you know, the --

(CROSSTALK)

DOER: The holier than thou material that we're getting is quite interesting. I would just say to people that are opponents of the pipeline, you can listen to Daryl Hannah, or you can listen to a professional scientist that produced the report by the United States State Department that was released last week. I as a citizen will choose --

HANNAH: That was co-written with a TransCanada associate.

DOER: Yes, yes, yes. HANNAH: But here's the thing. Let's talk about science.

DOER: You can listen to scientists or you can listen to a celebrity.

HANNAH: Let's talk about -- let's talk about science. If -- you can try to, you know, diminish me, but I'm just --

(CROSSTALK)

DOER: No, no, I'm not.

HANNAH: -- going from reports that I've read and studies, but if you want to listen to science, why don't you listen to the science of, say, the Pentagon or the World Bank or the last Citibank report? The World Bank report that came out about the climate crisis said that if we continue using fossil fuels and especially these carbon-intensive fossil fuels like tar sands, we are looking at total systems collapse, and they recommended, the World Bank, recommended themselves that we end our use of fossil fuels as quickly as possible.

Now the good news is, if solar energy continues to grow and expand the way that it has the last five years for the next five years here in the United States, we will be getting 50 percent of our energy from solar. Your oil that you're trying to get out to the marketplace because right now you don't have access because you can't get it to your coastline through Enbridge, you want to us because you can pay our politicians the money.

VELSHI: OK. OK. Let's let the ambassador respond to that.

DOER: OK. Excuse me, but the whole issue -- we agree. We've signed on to the Copenhagen agreement along with the president. We are reducing per capita demand on oil in both Canada and United States. I think a lot of environmentalists don't give the president enough credit for the most radical action on reducing oil usage in the United States through the action he took with light vehicles and heavy vehicles.

We also know and we are supporting renewable energy. Canada has 63 percent of its electricity produced by renewable energy. So I'm glad you're moving ahead on some of these areas in the United States. So -- but the bottom line is, you can't use solar energy to drive a car or a truck right now compared to the oil that's necessary for that kind of mobility.

VELSHI: What you are getting --

DOER: And the electricity in the hybrid cars.

VELSHI: What you are getting, my viewers, is a taste of the controversy over these oil sands. Guess what? We are not going to solve it on this show, but we appreciate the passionate discussion here. I have been there several times. I'm going to keep on going and reporting all of the facts to you. Thank you for being here for this discussion. Gary Doer is the Canadian ambassador to the United States. Daryl Hannah is the executive producer of "Greedy Lying Bastards " which opens up this weekend. This conversation obviously doesn't end here here and I'd like you both back to continue it.

Don't go anywhere. You're watching YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: Thanks for joining the conversation this week on YOUR MONEY. We are here every Saturday, 1:00 p.m. Eastern, Sunday at 3:00 p.m., weekdays at 3:30 p.m. Eastern. Find me on Facebook at Facebook.com/alivelshi. Tweet me. My handle is @alivelshi.

Have a great weekend.