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Global Unrest Leads To Another Week Of Market Volatility; Will America's Comeback Continue?; How To Lock In The Best Mortgage Rates Right Now; The High Cost Of Wearing High Heels
Aired June 16, 2013 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN ANCHOR: Another week of volatility in the markets. The reason? Global unrest and uncertainty about the Fed's role in propping up the economy. I am Christine Romans. This is YOUR MONEY.
(BEGIN VIDEO CLIP)
ROMANS (voice-over): From space, Earth appears peaceful. But take a closer look. While science points to a U.S. economy that is ready to take off, the rest of the world is struggling to take flight.
Riots in Turkey, slowing growth in China, unrest over harsh cuts in Greece: from extreme greed to extreme fear, concerns over a global recession already creating volatility for investors.
This week saw the biggest single day decline in the Dow this year.
UNIDENTIFIED MALE: I would give our economy a B to a B-plus.
UNIDENTIFIED MALE: The other guys getting a D is dragging us down.
ROMANS (voice-over): So why might you be feeling optimistic? Housing prices on the rise, consumer confidence at a five-year high, fewer Americans filing for unemployment, but will America's comeback continue, or will the U.S. be dragged down by a world economy in turmoil?
(END VIDEO CLIP)
ROMANS: I want to bring in Keith McCullough and Michelle Meyer.
Keith is the CEO of Hedgeye Risk Management, and Michelle Meyer is senior economist at Bank of America.
Nice to see both of you this weekend.
Keith, let's start with you. You say the economy gets a B- minus but we could get an A.
What makes you so optimistic? How do we get that A? KEITH MCCULLOUGH, CEO, HEDGEYE RISK MANAGEMENT: I think if we did more of the same, it would be awesome, Christine. And, again, I'd actually say B- plus could be an A because an A actually is what it is relative to the rest of the world already.
But to get a stronger dollar would be easily my number one choice. So perversely, to have a strong dollar we need to get Ben Bernanke out of the way. So for me, the thing that scares me the most is actually him not getting out of the way.
And I think if you get him out of the way and the market is really trying to get him out of the way at this point, what ends up happening is that the dollar strengthens; commodity prices come down, job growth has been very good, I think. And at the same time you start to get some consumption growth in the economy as well, which is just really how this economy works. So I want to see more of that.
ROMANS: Household balance sheets have been improving. When you look at the numbers, household balance sheets have improved.
Keith, when you say get Ben Bernanke out of the way, you mean the economy is strong enough on its own that he doesn't need to be pumping $85 billion a month into the economy?
MCCULLOUGH: Yes, I just want the guy out of the way. I mean, I think the market -- like, again, he has got to stop with the bond buying and start the paper --
ROMANS: Take off the training wheels. Take off the training wheels and let's let it go.
Michelle, what's your rating on the U.S. economy?
MICHELLE MEYER, SENIOR U.S. ECONOMIST, BANK OF AMERICA: I don't know. I would be a little bit more careful than Keith and say let's remove all the policy, remove Ben Bernanke's presence in the economy.
The Fed has done an extremely important role in the past several years of lessening the impact of this recession. It was a real meltdown we were experiencing in '08. And what we are seeing now is an economy that's still healing from this extremely deep recession.
So, yes, things are working better in the economy. The housing market is looking better; auto production sales are picking up. Some of the most cyclical parts of the economy are healing and showing strength, strength that ultimately could generate a more sustainable, healthy recovery in the U.S. And I think we are on the beginning, in the beginning stages of that.
But what would worry me is that if you take away this Fed policy too easily and you create a big spike in interest rates, borrowing costs go up. And two of the sectors that are performing the best, housing and auto, could start to suffer. So I think you do have to be very, very careful when you are thinking about policy prescriptions for the economy right now.
ROMANS: And what you are both illustrating to me is what -- I think was the word of the week, taper. It is not a candle. It's what everyone thinks the Fed is going to be doing with its bond-buying program. The Fed hinting it'll move to the end the program as the economy improves, and just a hint of that has pushed this so-called VIX index, the volatility index, the fear index, up 27 percent higher over the last month.
Keith, what would actually happen when the Fed actually pulls back? Assuming that you get your wish and Ben Bernanke steps out of the way, how do markets respond?
MCCULLOUGH: And to be clear, I don't want the guy to jump off the cliff. I just want him to get out of the way at a measured pace and at the pace that the data suggests that he should.
So again, jobless claims continue to surprise on the downside. Housing continues to get better and consumption is good. The guy should get out of the way.
So what I would expect actually is not this freak-out of interest rates going higher. I think we're like, as a country, people are really, really scared where they should be much more progressive in their thinking.
If you go back to 1982 or 1992, interest rates were going up and the world didn't end the last I checked. So, again, interest rates going up is a pro-growth signal.
I think Americans are tough enough to handle it. And I think that people are kind of tired of the whole fearmongering about what might happen if a central planner doesn't hold our hand.
ROMANS: All right. Well, let me -- speaking of fearmongering, maybe this is fearmongering or maybe this is just a really smart forecast.
According to PIMCO, the world's largest bond investor, we are likely to see another global recession in the next few years. The U.S. economy growing by 2.4 percent each year, but Europe's economy continues to struggle; even China's growth has been slowing.
Michelle, what effect would another global recession have on this U.S. recovery?
MEYER: It would be pretty poor timing if it happens soon. So if growth in China did indeed slow faster than we're all expecting, if Europe starts to weaken significantly again, of course it will impact global trade. It will impact the U.S. recovery as well.
And you are already seeing some signs of that in the U.S.; our manufacturing industry has a little bit been slow to recover. We have seen some weak survey data recently, some weak output data outside of auto production here in the U.S. So yes, it's -- we are a global open economy, and what happens in China, what happens in Europe will certainly matter for our outlook as well.
ROMANS: Michelle, for most the people who are watching us right now, it is maybe their house or their job is how they are going to create wealth. It is not going to be a big investment portfolio.
So talk to me a little bit about both of those two things. For someone watching who says, I have no control over China; I have no control over Ben Bernanke, how can regular people make money right now or protect their money right now? What do you tell people?
MEYER: That's a great question, that's a very fair question to ask. And I think housing has a big part of that.
We are seeing real signs of life in the housing market. It is quite encouraging. Last year home prices are up about 7.5 percent nationally. This year I think we can see eight to 10 percent appreciation on the year.
Granted, we are coming off a very low level, so there are still a lot of homeowners that are underwater on their mortgage, there are still a lot of homeowners that would have to realize a loss if they were to sell.
But we are seeing momentum start to build in the market. So the outlook should be much more positive in terms of future home prices. And that's one of the biggest assets for household balance sheets. So starting to see that appreciation is very powerful in terms of building back household wealth, fueling consumer spending and helping to support overall confidence.
ROMANS: Keith, do you agree on this?
MCCULLOUGH: Yes, big time. It is the first time really since 2005, 2006 that your home and your stock market portfolio are up double digits at the same time year to date. And I think that is one of the most misunderstood and positive things that's driving positive consumer confidence.
So you get a lot of people out there that are getting very, very regressive, whereas Americans are kind of fed up with that. They are getting on with their life. The things that they own are actually going up in price. I think it's a very good thing. Housing prices we think could be up 12-15 percent year over year, Christine, which I think would just be phenomenal.
ROMANS: Well, I certainly hope that is in my zip code. But all real estate is local. Keith, Michelle, nice to see both of you, have a great weekend.
MEYER: You as well.
ROMANS: Double Irish with a Dutch sandwich. No, it is not the latest lunch craze. It's a corporate tax gimmick and exactly the kind of loophole that has my next guest crying out for business tax reform.
(COMMERCIAL BREAK) ROMANS: The double Irish with a Dutch sandwich. I mentioned it before the break. It's a strategy that lets companies like Apple route their profits around the world so they can pay less in taxes. It is perfectly legal.
Why do companies go to these lengths and extremes? Because at least on paper, the U.S. has the highest corporate tax rate in the world. The U.S. corporate top tax rate is 39.1 percent. That takes into account federal and local taxes, too. The average for the developed world is 25.5 percent.
But let's be clear, most companies do not pay that top rate. In fact, thanks to loopholes and special treatment for certain types of businesses, S&P 500 companies pay closer to about 29 percent.
Some sectors like utility companies pay an average of just 12 percent, while big energy companies pay more. It is a system that encourages companies to employ armies of accountants and tax attorneys to lower their tax burdens.
So who is at fault? Just ask Senator Rand Paul.
(BEGIN VIDEO CLIP)
SEN. RAND PAUL, (R) KENTUCKY: I think that the Congress should be on trial here for creating a bizarre and Byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simply doesn't compete with the rest of the world.
(END VIDEO CLIP)
ROMANS: Senator Rand Paul makes a very good point. Congress of course writes these laws. And Congress of course is the owner of those volumes and volumes of books that are the tax code full of loopholes. Some of those tax codes and loopholes written by the industries that benefit from them.
I want to bring in Laura Tyson. She was the chair of President Clinton's National Economic Council. Today she is an economic adviser to the Alliance for Competitive Taxation.
OK, Laura, you say that reforming the corporate tax system could unleash economic growth. Tell me how.
LAURA TYSON, ECONOMIC ADVISER, ALLIANCE FOR COMPETITIVE TAXATION: Well, basically, we're starting with the notion of really bringing the corporate tax rate down.
Study after study has shown, as the OECD recently said, corporate taxation is the most inefficient form of taxation. It encourages -- it discourages investment. It encourages companies when they can be mobile to look for lower tax environments in which to place economic activity.
If we want to create investment incentives here for U.S. companies and for foreign companies and for jobs here, we have to start with a competitive corporate tax rate. So that's the first step, bringing the rate down.
The second step is paying for that by getting rid of the kind of loopholes, preferences, credit subsidies that have been added to the code over the past 30 years that really distort the code.
So economists worry a lot about the distortions. Why do you prefer one sector to another sector, one firm to another firm? This is really inefficient and it distorts the allocation of capital. That discourages growth. So we've got to get -- we can get growth going by a much lower rate and by getting rid of it, paying for that lower rate through base broadening.
ROMANS: To get reform done, Republicans and Democrats need to give something up. And corporate tax revenues as a share of GDP is historically low. You can see companies like Apple, for example, under our current tax system, they pay U.S. tax rates on the profits they earn overseas, but only when they bring those profits back to the U.S.
So Apple keeps something like $100 billion in cash offshore. You say we need a territorial tax system. Explain in layman's terms for our audience, how would that work?
TYSON: What we need is a system which is more similar to the systems of the other advanced industrial countries that are homes to companies that compete with our companies.
So what is the rest of the world doing here? What the rest of the world is doing is basically saying to a company, look, if you earn income outside of your headquarter country because you are running real economic activity there, you are basically selling into that market, that's how you compete around the world.
Then that income, when you bring it back, you may pay some tax on some portion of that, but a lot will come back without any additional domestic tax. That's what the rest of the world does.
And then the rest of the world has a variety of different ways of trying to handle the fact that there is some money abroad which is really shifting from one location to another location, not because of real economic activity in those locations, but because of tax haven, low tax status.
So countries have said, we can figure out a way to handle this movement of income. And when money comes back from our companies, we'll subject it to some tax, but nothing like the tax rate -- or that you would confront, that Apple would confront if it brought its income back to the United States.
So we have a system now where essentially there is a very strong incentive for a company that's selling abroad, competing abroad, earning income abroad, paying taxes abroad, not to bring that money back. That hurts the U.S. economy. We want that money back. We need that money back for creating jobs here, for creating investments in our community here.
ROMANS: All right. We will see if tax reform is something that can happen in the foreseeable future. Laura Tyson.
TYSON: I am optimistic.
ROMANS: The politics of it and the economics of it are two different things all wrapped up on one. Laura Tyson, thank you so much.
Coming up next, the lowest mortgage rates in history are quickly disappearing. How to lock in the best rate right now.
ROMANS: More evidence of the turnaround in housing. As home prices rise, fewer Americans are under water on their mortgages: 9.7 million people still owe more than their house is worth. But that's down from 10.5 million during the last three months of 2012.
That's great if you've been looking to sell but it's a double whammy for house hunters. Not only are prices rising but now mortgage rates are creeping higher as well. So, if you're buying, three little words, lock it in.
ROMANS (voice-over): To buy this house just a few weeks ago, you might have locked in a mortgage at 3.5 percent. But rates may never be that low again.
GERRI DETWEILER, DIR. OF CONSUMER EDUCATION, CREDIT.COM: If you are either in the market to buy a house or you've been on the fence about refinancing, I would say do not wait.
ROMANS (voice-over): Mortgage rates are still historically low, but now a sudden move higher, up more than half a percentage point in six weeks.
BOB MOULTON, PRESIDENT, AMERICAN MORTGAGE GROUP: The rates went up very dramatically. They went up very quickly.
ROMANS (voice-over): Ironically, an improving economy is to blame.
MOULTON: Unemployment is down. The stock market is doing really well. Median home prices are up. People are feeling better. They're out there buying again.
So the economy does well, you will see a rising rate environment.
ROMANS (voice-over): And you will see it in your monthly payment. At 3.5 percent on a $250,000 home with 20 percent down, you pay about $898. The same 30-year fixed mortgage will cost you 954 bucks at 4 percent. That's $56 more a month or $672 a year. Down payment, credit score and income determine the rate you'll pay.
MOULTON: Borrowers that are getting the best rate are putting 20 percent to 25 percent down. They have income that is documentable, so they're providing W-2s and federal tax returns, and they have an excellent credit score, something over 700 or 720.
ROMANS (voice-over): A quick closing date also helps.
MOULTON: You get your best rate from a lender if you lock in for 30 days. Standard to lock in for 60 days and the longer you go out, the more expensive it will be.
ROMANS (voice-over): Ask your lender about a float down provision, so your rate could be adjusted lower if rates do slip again. If you're still looking for the right house, make sure you're pre-approved for a mortgage and pay down your debt while interest rates on auto loans and credit cards are still low.
DETWEILER: This is the time to take advantage of those rates. It means be as aggressive as you can about paying down your debt because once they start to rise, there won't be a stop.
ROMANS (voice-over): No stop, and the lowest mortgage rates in history may be gone for good.
ROMANS: Up next, America's deepest secrets outsourced everyday to contractors, public companies making billions of dollars. What many Americans may not know, next.
ROMANS: America's deepest secrets are outsourced. Every day, the contractors at dozens of companies, public companies, making billion of dollars.
I'm Christine Romans. This is YOUR MONEY.
Phone records, Internet activity, photos, file transfers -- we know the government is watching -- it's stored in places like this. Here's the National Security Agency's new facility in Utah; it's 1 million square feet, the largest of several across the country.
But the government alone doesn't see those secrets, it's big business. The NSA leak controversy has brought into sharp focus what many Americans may not know, big companies whose only responsibility is to return profit for their shareholders are doing some of the most sensitive work of American national security.
Twenty-two percent of all security clearances are held by contractors, workers like Edward Snowden, who made $122,000 a year working for Booz Allen Hamilton, before he was fired Monday for taking those secrets public.
And guess what? Our government has even outsourced the process of granting all but the highest security clearances.
Ron Brownstein joins me now. In "The National Journal" this weekend, his piece is called "So Long Privacy." Ron, the book "1984" zoomed up Amazon's "Movers and Shakers" chart this week, but Big Brother has become a private-public partnership. Booz Allen's competitors include Northrop Grumman, Lockheed Martin, even computer maker Dell, where Snowden worked before Booz Allen.
Senator Dianne Feinstein wants to rein in this outsourced intelligence industry.
Ron, is that even possible at this point?
RON BROWNSTEIN, "THE NATIONAL JOURNAL": Well, you know, there has always been a big defense contracting side of the defense establishment, but it grew exponentially after 9/11, partly because of the sense that we had to really ramp up quickly on a lot of different fronts, and partly for an ideological preference in a Republican administration for having the private sector rather than growing government in some terms, in some instances.
But overall, I think, clearly, there is a lot of debate about what this is going to mean, what these revelations are going to mean for the debate about national security versus privacy. I think it's pretty unequivocal it's going to lead to some pretty sharp questioning about the extent to which we are now relying on private companies in the national security bureaucracy.
ROMANS: And let's talk about some of those companies. Booz Allen Hamilton, 99 percent of its revenue comes from the government. It won $4 billion in contracts in 2012. That makes $4 billion. That makes it only the 14th largest federal contractor. And the ties run deeper than money.
National Security Agency director James Clapper, he previously worked for Booz Allen, and the former NSA director, John McConnell, he is now the vice chairman at Booz Allen.
Ron, amid all these revelations this week, who do people trust the most?
BROWNSTEIN: Well, it's really interesting. You know, I mean, we are focusing on the national security side of this, understandably, because that's what has been revealed. But we have this new national poll, heartline monitor (ph) poll that we do every quarter and it shows there is a lot of anxiety not only about the national security erosions of privacy, but on the commercial side.
You know, we are living out loud. We are living in public now, in this new wired world. And in our poll, there is enormous distrust of government, but also of cell phone and Internet providers, social media sites, they face a lot of skepticism.
The most trusted institutions tend to be those in terms of guarding your privacy, those that you have a more direct relationship with. And, surprisingly, at the top of our list through a series of questions, employers were the most trusted.
ROMANS: I also think there is a lot of willing sharing information, I mean, your financial information rests in hundreds if not thousands of places. And we log in and we give that information every time we go and we use our credit card someplace, we are giving our information.
But it's when it's the government, the idea of the government and these public companies watching you, that's when people get upset.
BROWNSTEIN: Well, first of all, I would say the one striking thing to me and maybe the most striking thing of all in our poll was roughly 75 percent or more of the public said that just about anything you would want to keep private, your financial records, your health records, your whereabouts, your cell phone records, they believe somebody is accessing them.
And I think you are right. I mean, there is obviously a special concern about the government, but there is concern about these commercial intrusions into privacy, and in effect, as you say, the tradeoff we make of getting services in many cases for free, whether it's social media sites or search engines.
But the price we are paying is them acquiring, compiling and then using for commercial purposes information about us. This is an issue that I think is going to come to more of a head. The NSA raises one side of it, the commercial side is another real side for people, too.
ROMANS: All right. Ron Brownstein, great to see you. Have a nice weekend.
BROWNSTEIN: Thank you.
ROMANS: We don't know how much the government spends on intelligence, that's not public information, but judging from the profits its contractors make, it's a lot of money. It's big, but is it really that scary?
Jay Leno says, hey, there's an easier way.
(BEGIN VIDEO CLIP)
JAY LENO, COMEDIAN: People are really up in arms about this NSA spying thing. You know, if the government really wants to follow our every move, do what everybody else does: stalk us on Facebook. That's how you do it, just go to Facebook.
(END VIDEO CLIP)
ROMANS: We told you the sales of the book "1984" are surging this week. It's, of course, the story of a society where Big Brother is watching you, but Robin Williams says times have changed.
(BEGIN VIDEO CLIP)
ROBIN WILLIAMS, COMEDIAN: You see, it's not Big Brother anymore, it's Little Snitch. It's like, "I see you."
(END VIDEO CLIP) ROMANS: Little snitch with cell phones and all that information, all of which brings us back to Edward Snowden. The former Booz Allen Hamilton employee who has rekindled the fear that Big Brother is watching you. Your employer often wants to know plenty about you, are you on drugs, do you have a prison record, you may even be a subject to a credit check.
But imagine if your employer needed to screen you for the likelihood of betrayal and espionage. It's all part of the process with your government outsourcing secrets to Big Business.
Zain Asher is here to explain.
ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Hey, Christine.
Yes, so if we are talking about the kind of access that Edward Snowden had, the first step would be to be sponsored by a government agency or government contractor, but clearance by itself isn't actually enough to get access to sensitive material. You have to actually prove that the cleared individual absolutely 100 percent needs to know the classified information.
But other than that, we are talking about lengthy background checks, personal interviews and a microscopic evaluation of your personal history.
(BEGIN VIDEO CLIP)
EDWARD SNOWDEN, NSA LEAKER: I am no different from anybody else, and I don't have special skills, I'm just another guy.
ASHER (voice-over): Another guy with access to highly sensitive, classified information.
SNOWDEN: Anybody in the positions of access with the technical capabilities that I had could, you know, suck out secrets and pass them on the open market.
ASHER (voice-over): But to be in that position, Snowden would first had to have undergone a thorough background investigation before being hired.
DARREN DUPRIEST, VALIDITY SCREENING SOLUTIONS: These are very strictly regulated and very rigorous processes that people are going through. The higher up the level we get toward any kind of a security clearance, they get much more intense and in depth.
ASHER (on camera): So this 127-page questionnaire is the first step towards gaining access to all three levels of security clearance -- confidential, secret and top secret. It asks about your criminal and your employment history. It also asks whether or not you've ever illegally accessed a computer database and about your loyalty to the U.S. government. ASHER (voice-over): At higher levels, investigators may conduct background checks on close family members and examine public records going back a decade.
DUPRIEST: A lot of these will take a year or sometimes longer, once again, depending on the level.
ASHER (voice-over): They may also interview old acquaintances and former coworkers.
DUPRIEST: What these investigators jobs are to do is to reach out to people that you haven't thought of, or reach out to people that you forgot all about.
ASHER (voice-over): And for top secret clearance, some candidates will also undergo a psychological evaluation to assess trustworthiness.
BEN DATTNER, AUTHOR, THE BLAME GAME: There are things that you can see in somebody's past experience, whether they are more or less likely to be a whistle-blower and to violate organizational norms and regulations.
ASHER (voice-over): The Defense Human Resource Activity, a branch of the Defense Department, has noted seven different personality traits associated with espionage and betrayal, including risk seeking, impulsiveness and narcissism.
DATTNER: People who do display narcissistic tendencies tend to think that they can live by their own rules, that they don't necessarily have to conform to societal or organizational expectations or rules.
ASHER (voice-over): But psychological evaluations and background checks are far from failsafe.
DATTNER: The best predictor of future behavior is past behavior. In most careers, individuals come upon situations that they have not been in before. And so, therefore, it's very hard to extrapolate from past experience what someone is going to do in the future.
ROMANS: So, Zain, in Edward Snowden's case, could he have obtained his security clearance once and taken it from contractor to contractor? We know before Booz Allen, he worked for Dell.
ROMANS: Before that, he had worked at the NSA earlier on.
One time you get security clearance and it's sort of like a portable passport?
ASHER: Well, in Edward Snowden's case, it's very difficult to know what he himself would have had to have gone through, right? But, generally, yes, you know, if you do have a level of clearance, be it secret or top secret, that level of clearance is transferable between government agencies.
However, you know, if you are jumping from secret to top secret like a promotion, for example, then obviously they will have to look at you again.
Also, I want to mention that if your status is inactive for a long period of time, if it's not active for a long period of time, or if you spend a long period of time abroad, they will probably of course as well take another closer look at you.
ROMANS: All right. Zain Asher, thank you so much, Zain. So interesting.
Your government is watching you, but guess who is watching your government and pretty much everything else going on in this country? Hackers, Chinese hackers. Why the one thing President Obama and President Xi Jinping failed to agree on might be the biggest threat to the U.S. economy right now.
ROMANS: Just about every day, the U.S. is under attack, repeated attack, cyber attack. And hackers in places like China are not just going after our government and military secrets, U.S. businesses are some of the most valuable and vulnerable targets.
But businesses rarely admit they have been hacked unless they absolutely have to. Why? Well, if they talk about intrusions on company systems, they risk the public's trust. And if they are publicly traded, the stock can sink. One study found, the announcement of a hack can cost shares to drop as much as 5 percent.
Cyber security was the top priority for President Obama in his historic meeting with Chinese President Xi Jinping. It happened last week.
The two agreed on climate change in North Korea, but here was no movement on the issue of hacking.
Peter Navarro is a professor at UC Irvine and the director of the film "Death by China," out in DVD this month.
Joel Brenner is a former inspector general of the NSA and author of the book "America, the Vulnerable."
Joel, let me start with you. Security experts say there are two kinds of companies, those who have been hacked and those who have been hacked but don't know it yet.
Is it really as pervasive as that?
JOEL BRENNER, FMR. INSPECTOR GENERAL, NSA: Pretty much. Pretty much. If that's an exaggeration it's not an exaggeration by very far. The degree of penetration of American businesses -- and I would say Western businesses, too, in general is astounding. It's absolutely astounding.
ROMANS: It's so interesting to me, because, Joel, we've got all of this focus right now on the government watching, you know, the surveillance programs; it's so much in the spotlight.
But really what you have every single day are foreign entities, foreign server farms outside of Shanghai, looking into America's biggest corporate secrets and that's something that could be damaging to the American economy.
BRENNER: Well, it can. I mean, we are seeing a dramatic shift of intellectual property from West to East.
What people tend not to understand is that businesses and governments create, store and transmit information on the same porous Internet that you and I use in our personal relations. Secrecy and privacy are really pretty much the same thing; they are just asserted by different actors. You and I assert a private interest. Your company, your employer and your government assert a secrecy interest.
But in both cases, it's someone asserting the right and the ability to keep somebody else from knowing something. And since we are all transmitting and working on these incredibly porous networks where identities are easy to spoof, both privacy and secrecy are heading south rapidly.
ROMANS: Yes, Peter, let me bring in you. I want to look at some of the sectors under attack last year. Manufacturing, top of the list at 24 percent, look at government, half that share, look at this. These are top industries attacked in 2012.
How does this affect the economy in the long run?
PETER NAVARRO, AUTHOR, "DEATH BY CHINA": So let's take something like an auto or pharmaceutical company, they spend anywhere from 20 percent to 25 percent of their revenues on research and development. So if a Chinese company can come in and hack and steal that pill or that process, basically they've saved that amount and so that creates a competitive advantage that steals American jobs.
So, that's one example. A second example, and this is one documented with Chinese hackers, they went in and probed the networks of these oil companies to look at the bids for oil so that they could undercut the bids.
Another one, Google -- Google goes over to China, establishes a very strong presence there, gets something like 70 percent of the market share. And the Chinese government decides we are not going to let that happen so they go in and hack their source code, and basically push Google back to Hong Kong and out of the country.
ROMANS: Let me ask you, Joel, what do you think the president should do? What do you think the administration should do? Because we've had year after year after year of these strategic economic dialogues where there's a lot of talking and you measure success in millimeters, when we have miles and miles that we need to go here.
So what should this administration do? What makes the Chinese change?
BRENNER: It's really important to understand that we're not in a war, not even in a cold war with China. We are economically interdependent on China. They are, I hate to say it, our banker, and the idea that we could somehow stop economic relations with China is a dream.
ROMANS: Edward Snowden this week said the -- he went on "South China Morning Post," he said, "The U.S. is hacking China," which played very, very well in China.
By the way, the Chinese officials always -- the foreign ministry always says that they do not hack. There is no cyber espionage. The government does not try to look at our secrets. They don't need our secrets. So that's for the record.
But, Joel, you know --
BRENNER: Yes, that's foolishness.
ROMANS: (Inaudible) both ways.
BRENNER: Let me make a distinction between the kind of espionage that's been going on since pre-biblical times, political military espionage, that goes on, everybody does it. We do it.
Americans should hope we're good at it, and we are. What we don't do is we don't use our intelligence services in aid of U.S. businesses. Why? Two really good reasons.
One is that we really do believe in the international law of protecting international -- protecting intellectual property. We're not going to -- we're not going to follow a different policy than that.
Secondly, we're not going to go to China or Russia to steal technology. They don't have that much technology. We're producing it at a rapid rate.
So there's a real difference that the Chinese are trying to obscure between the kind of espionage everybody acknowledges goes on and this use of state intelligence services to attack the other guys' private industry. That's what's really an important distinction, and it's going on and the Chinese are doing it.
ROMANS: Peter, last word to you.
NAVARRO: Well, I think Joel is dead wrong about this issue about war with China. We've been in an undeclared trade war since 2001. They have shut down 50,000 of our factories. We've lost 5 million manufacturing jobs and we've got 25 million people unemployed for the very simple reason that they do things like manipulate their currency and steal our technology. I think the problem here is that the White House and Congress have not shown a strong face to China. I mean, for all practical purposes, the president has been a eunuch on this issue.
And so China keeps having their way with us. And it's only -- as my good friend Gordon Chang has said, it's the only major country preparing to kill Americans.
And we need to recognize that. China is different from Germany and Brazil and Australia and every other country we trade with and we should trade less with them right now until they basically straighten up in terms of their protectionism and stealing our secrets.
ROMANS: We'll have to leave it there.
Certainly, Peter Navarro uses a vocabulary I haven't heard in a long time.
Peter, thank you so much, Peter Navarro.
Joel Brenner, nice to see both of you. Obviously, it's a discussion that's going to continue.
All right. Coming up, Warren Buffett has some ideas for driving the recovery.
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WARREN BUFFETT, CEO, BERKSHIRE HATHAWAY: Well, look at what we've accomplished using 50 percent of our salaries. So just imagine if we used 100 percent.
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ROMANS: And then we'll tell you why you might need to borrow some of Buffett's billions if you've ever been to a birthday party. Could Washington's gridlock actually hold the solution? That's next.
ROMANS: You may not know it, but you could owe thousands of dollars from all the birthday parties you have attended in your life. The rights to publicly perform the 120-year-old song "Happy Birthday" are actually owned by Warner Chapel Music Group. A class-action lawsuit filed this week could return it to the public domain. Until then President Obama could still be on the hook for his rendition.
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BARACK OBAMA, (D) PRESIDENT OF THE UNITED STATES: Happy birthday to you, happy birthday to you --
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ROMANS: Did you know that was a copyright on the "Happy Birthday" song? With gridlock in Washington so bad, it is no surprise John Boehner and the Republicans have a different take on the birthday song.
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REP. JOHN BOEHNER, (R) HOUSE SPEAKER: This is your birthday song. It doesn't last too long. Hey!
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ROMANS: I am not sure Speaker Boehner needs to be worry about being sued for copyright infringement on that version any time soon.
All right, from birthdays to Buffett. When legendary investor Warren Buffett speaks, investors listen. CNN's Poppy Harlow sat down with Buffett this week.
Poppy, Buffett had some big ideas about speeding up the American recovery. What did he have to say?
POPPY HARLOW, CNN MONEY CORRESPONDENT: Hey, there, Christine. Well, Warren Buffett has a message for corporate America -- you are underutilizing much of the talent in this country, women. The legendary investor sat down with us in Omaha for an exclusive interview focusing on women, work and America's future.
Buffett began by telling me how, through his lifetime, he has watched women, from his sisters to his friends to his peers, often treated as second class citizens, told they couldn't do as well in business as men. Even in 2013, Buffett does not think that women in the workplace always get a fair shake.
BUFFETT: The message my sisters heard, they didn't hear it verbally. They just heard it through all kinds of actions of people, but they didn't have the same future I had.
HARLOW: So it is interesting because you saw this play out in your own family. You had two sisters who you say that your floor was their ceiling.
Was that parenting? Was that society?
BUFFETT: It was society. But it came through parenting. It came through their teachers. In every way, they were told that sort of the best thing was if they married well. I was told that everything in the world was available to me. If I had been -- I was born in 1930. If I had exactly the same wiring I have, but I had been a female, my life would have been entirely different, you know.
HARLOW: So I wonder if your message is more for women or more for men. BUFFETT: It is for both. It's for both. Men should realize if they had male workers and those workers could accomplish more if they had more education or whatever it might be, they would jump on that in a second. And to take half the people and not recognize that they have just as much potential as the others and use them is a big mistake.
HARLOW: So as you've been more outspoken about women and the workforce, there are some that have come back at you and said, what about Berkshire Hathaway? You have got 70-plus companies and five female CEOs and only three of your 13 board members are women.
Do you think should change be happening at Berkshire? Should you be doing this?
BUFFETT: Change is happening at Berkshire. The last five directors that have been appointed, three are women. In terms of CEOs, I've probably only appointed maybe six or seven CEOs, because they come with the businesses and they stay.
HARLOW: When there is a new CEO needed or a new board member, do you look specifically more at women to see if there is a woman of equal caliber to take the job to have that diversity?
BUFFETT: Probably. I am going to pick the best person in the end. But if there are two that are nine on a scale of 10 and one is a woman, she is probably going to get the job.
HARLOW: I think one really important part of this discussion is there have been some that say the rise of women means the downfall of men.
BUFFETT: That's crazy. That's like saying if you educate more people it hurts the ones that are already educated, or something of the sort. It is just crazy to let any human operate below their potential when just by changing the rules a little, you could give them a better chance to meet their potential.
HARLOW: Our thanks to Warren Buffett for that.
Now, Christine, as for why Buffett is speaking out about this now, he told me that he has been talking about this to student groups that come visit him for years.
But after he read Sheryl Sandberg's book, "Lean In," he decided that this is a message that he wants put out there more broadly.
The way he puts it, look at how much America has accomplished not even using 100 percent of our talent. He said there is much more that we can do.
If you would like to read Buffett's essay on women and work, just go to fortune.com. Christine?
ROMANS: Thanks, Poppy. For more on the empowerment of women don't miss CNN's "Girl Rising." The film tells the story of girls around the world and the power of education.
For working women, nothing says power like a pair of stilettos. Why digging your heels in at the office may come at a painful cost.
ROMANS: And $2.4 billion, that's how much women spent in this country on high heeled shoes last year. In fact, women spent more on shoes with three-inch heels or higher than any other kind of shoe. Headhunters say what you wear on your feet projects power in the office. But are sky-high heels worth the pain?
ROMANS: J. Lo's are expensive and designer. Kellie Pickler seeks revenge in hers. When it comes to women in heels, most say the higher the better. But not all boots are made for walking.
ROMANS: A new survey conducted by New England's College of Podiatry finds the average woman begins feeling pain after one hour and six minutes of strutting around in her stilettos. Despite the agony, 43 percent of women say they have continued to wear uncomfortable shoes.
UNIDENTIFIED FEMALE: I am 32 and I'm bunion free and I have been wearing heels my whole life. So I am going to still rock them.
ROMANS: And 36 percent of women say they would wear shoes that didn't fit in the name of fashion.
UNIDENTIFIED FEMALE: You can't go to a party without heels. That just makes your outfit, the shoes.
DR. JACQUELINE SUTERA, PODIATRIC MEDICINE AND SURGERY: High heels can cause stress fractures, tendinitis, all types of bone spurs, and also encourage bunion and hammer toe formation.
ROMANS: New York City podiatrist Jacqueline Sutera says women should know that a sexy pair of shoes may be causing some not so sexy problems for your feet.
SUTERA: They do develop over time. But even younger girls are having problems with their feet due to high heel use.
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ROMANS (voice-over): Fancy footwear has even taken a toll on shoe connoisseur Sarah Jessica Parker, who's glamorized couture shoes on "Sex and the City."
She recently said that all the time in stilettos ruined her feet.
Still, most women can't give up their shoe lust, so maybe the best solution is to pack a pair of flats.
ROMANS: For the record, I'm wearing flats right now.
Thanks for joining the conversation this weekend on YOUR MONEY. We are here every Saturday at 2:00 pm Eastern, Sunday at 3:00. Until then, you can find me on Facebook and on Twitter, my handle is @ChristineRomans.