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America at Risk; Debt Ceiling: Countdown to Default
Aired October 5, 2013 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN HOST: Your government shut down as of Tuesday. Is this short-term stupidity or long term distraction?
I'm Christine Romans. This is YOUR MONEY.
ROMANS (voice-over): Flashback to 2011, lawmakers warn of impending doom.
SEN. DICK DURBIN (D), ILLINOIS: This political tactic could kill our economic recovery and drive unemployment rates even higher.
ROMANS: The debt ceiling debacle leads to the first downgrade of U.S. credit in history. Fear of what could come next was rampant.
SEN. CHARLES SCHUMER (D), NEW YORK: It's playing with fire.
ROMANS: In an effort to avert future crisis moments, Washington agreed on two so-called poison pills.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The sequester is not something that I propose. It is something that Congress has proposed. It will not happen.
ROMANS: Remember the fiscal cliff? The majority of tax hikes were averted at the last minute. But as the across-the-board cuts went from unthinkable to inevitable, the president changed his tone.
OBAMA: Consequences for the entire global economy would be catastrophic.
As a nation, we've already fought back from the worst economic crisis of our lifetimes and we'll get through this, too.
ROMANS: And as Washington headed toward a shutdown, fatigue.
SEN. TED CRUZ (R), TEXAS: As I said at 2:30 afternoon yesterday, that I intend to stand against Obamacare as long as I'm able to stand.
REP. JIM MORAN (D), VIRGINIA: We've got a great country, a strong economy, a terrific society. And all we can do is to erode trust and confidence in our government. We should be ashamed of ourselves.
ROMANS: But where was the fear?
REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: The Senate decided not to work yesterday. Well, my goodness, if there is such an emergency, where are they?
ROMANS: Treasury Secretary Jack Lew is warning that if Congress fails to raise the debt ceiling by October 17th, the U.S. is unable to pay its bills.
DAVID GERGEN, CNN POLITICAL ANALYST: All the experts say you could have a worldwide financial meltdown if the United States goes in default. So, that's what we need to head off, that's why we need this period constructively.
ROMANS: But is the public feeling like they've seen this movie before. Call it crisis fatigue or the Chicken Little effect.
CHARACTER: The sky is falling. The sky is falling.
ROMANS: The countdown is on. But is it the calm before the storm or the storm before the calm?
ROMANS: John King is CNN's chief national correspondent:
John, has Washington cried wolf too many times here to get the public to realize the catastrophe that could be on hand if this debt ceiling is not raised?
KING: I certainly do think, Christine, that is part of the problem, because every couple of months, we seem to be having a crisis. So, much of the country doesn't like to watch a day care center at work now anyway. And that's what they have now in the United States Congress and at the White House for that matter.
And so, you keep hearing these warnings and warnings and warnings, that's part of it. There is another part that is very important. If you look at our polling here, you know, you hear from the economists and you hear from most leading Republicans that God forbid we never go into default.
But if you look at our latest poll done just this past week, a majority of Republicans, 52 percent of Republicans say they are OK, they are OK with not raising the debt ceiling. And so, politicians, Republican politicians have focused on this government spending more than it takes in for so long that many people now equate that wrongly, but they equate that with the debt ceiling question.
ROMANS: I want to bring in Keith McCullough. He's the CEO of Hedgeye Risk Management. We turn to Keith when we want a straight talk about what it's going to mean for your money.
Now, Keith, you know, the big bank CEOs and the president singing the same song for the first time in five years. He called them fat cat bankers. Oh, now, they're on the same page. Listen. (BEGIN VIDEO CLIP)
LLOYD BLANKFEIN, CHAIRMAN & CEO, GOLDMAN SACHS: There is a precedent for a government shutdown. There is no precedent for default. We're the most important economy in the world. We're the reserve currency of the world. Payments have to go out to people. If money doesn't flow in, then money doesn't flow out.
(END VIDEO CLIP)
ROMANS: The treasury secretary also really -- he's telling America that not raising the debt ceiling could be a catastrophe. Is he right or are they overdoing it?
KEITH MCCULLOUGH, CEO, HEDGEYE RISK MANAGEMENT: Yesterday, I said, shame on Lew. I mean, look, shame on Jack Lew on that front, because he knows better than that, Christine. The reality is that, that was a political statement and, unfortunately, President Obama wants that same political statement out there at this juncture.
ROMANS: Wait, wait, stop, stop. You think if we don't raise the debt ceiling, it will not be bad news for the financial system and global economy?
MCCULLOUGH: Look, no, the debt ceiling is a trivial matter. The president can make that happen whenever he wants --
ROMANS: Wait, stop, stop. How can he make it happen? Because the view from the administration is that they don't have the legal authority. It's Congress with the authority to raise the debt ceiling.
MCCULLOUGH: Yes. I mean, look, they do. They have and they will. I think that --
ROMANS: How can the president make it happen?
MCCULLOUGH: Because he's got enough votes to make that happen. At the end of the day, I mean, he's got actually an unbelievably amount of power on this front. You go back to the 1917 Act where it was created for war measures, Christine.
So, the president has a tremendous amount of power. He knows it. Jack Lew knows it. They both know that we're not going to default on the debt.
And I do think that that's really the perverse reality here is that -- you know, to John's point, you have a bunch of politicians to scare people for political gain. And I don't think people don't buy it anymore because you have a lot of different channels or sources like Twitter that are really debunking that and saying, come on, guys, just get over yourselves. This is about your political power.
ROMANS: So, I want to John in quickly, because, you know, John, you have been on Capitol Hill for a very long time. There is no one, no one that I'm talking to who really believes the president can raise the debt ceiling.
KING: Well, there are people who say he has the constitutional authority to so do. The administration says no, it does not, if we get there. If -- if we get there, we'll see what happens. I assume what we would do is the government would shuffle for a couple of days if we reach that deadline and then you would face the crisis point.
But I will say this, one of the -- I'll call it an encouraging sign. One of the signs anyway in recent days has been Speaker John Boehner making clear to his rank-and-file lawmakers that he is not going to be the speaker of the House when the United States for the first time goes into default.
So, I actually do think now that the speaker may take some heat for this. The speaker may be in the precarious political position for this. But it is clear that he is prepared to raise the debt ceiling even if it means he does it with a majority of Democratic votes and then some Republican votes in the house. What is not clear is what price the speaker will want.
KING: Because the administration says, flatly, Christine, it will not negotiate. But we know, and you led the show with it, in 2011, the president did negotiate. The sequester, the forced budget cuts came out of this.
So, the question is, can they all save face? Can Speaker Boehner give the president what he wants, which is a debt ceiling vote in the House of Representatives and can the president then give Speaker Boehner -- maybe separately -- so they don't say it's a negotiation, some package of the new spending cuts, some package of entitlement reform.
ROMANS: All right. We're going to keep -- continue to talk about this. I'm going to be honest with you. I think that if the president could just raise the debt ceiling, would you not have 75 different times when president had to go to Congress to raise the debt ceiling, you know?
I mean, there have been a lot of fights, they haven't used it before. Maybe this time it's different.
Don't go away, guys, because -- remember when Washington united to prevent financial catastrophe?
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, FORMER PRESIDENT: There is a spirit of cooperation with Democrats and Republicans and between Congress and this administration.
(END VIDEO CLIP)
ROMANS: Remember? Imagine that was the good old days, trying to prevent calamity and people coming together. I'm going to show you exactly how a debt ceiling disaster could change your life. That's next.
ROMANS: The debt ceiling poses the biggest threat to the economy since the recession. And if Congress doesn't act, it could actually be worse. That's according to many economists. They are using the "D" word even as the absolute worst-case scenario. Depression.
John King and Keith McCullough are back with me right now.
Hey, guys, here's a deal. In a shutdown, part of the government is still funded. Part of the money is still flowing here.
But when you hit the debt ceiling, the money runs out. It disappears. Why? Because the Treasury loses its ability to borrow money, to keep the government going.
We finance this economy. We finance it with borrowed money. So, it will have to rely on the $30 billion cash on hand in treasury coffers. The daily revenue fluctuates.
So, the Treasury will have to make tough decisions about what bills to pay and which IOUs it will have to issue.
I mean, imagine, consider you want to make sure seniors get their Social Security checks. So, you're going to pay out billions, tens of billions to seniors. You want to pay out veterans benefits. There are some $10 billion in veteran benefits that come due the month after the debt ceiling is hit, Medicare and Medicaid payments incredibly crucial because of the lines of credit the banks have with the hospitals. And that source of funding is really important oxygen in the system.
So, say, maybe people would not have to get their IRS refunds. Maybe you furlough more government workers in you had to, because you certainly have to pay the interest on your bonds. That is non- negotiable or you risk really hurting the global system.
So, John King, basically, the administration faces paying its Chinese bankers or paying grandma if you boil it down to its most simplest, simplest essence. We just don't have the money to do everything. Are they getting it? Do they get it in Washington, it's the dangerous game they're playing here?
KING: The leadership gets it, which is why I'm going to crazy and be a quasi-optimist in Washington these days, which is a nutty position to take and believe that Speaker Boehner and Leader Reid in the Senate are going to work this out and the president will actually get the increase in the debt limit.
Now, there is a lot of quick sand between what they are saying today and actually getting a bill passed. So, it could go off the rails. At the Treasury Department, they are running the math to figure out who would get those IOUs if it comes to that.
The reason Speaker Boehner is saying he's prepared to violate what's called the Hastert Rule, the previous Republican Speaker Denny Hastert. Under that rule, you don't pass anything that doesn't have majority Republican support. That's been sort of a litmus test.
But Boehner says he's ready to abandon that if it comes to this. He's trying to rally his troops, Christine. We'll see what happens. This is happening in the middle of the shutdown and fight over Obama care complicates it. But the speaker is pretty clear to his members that he does not want this to happen on his watch. Now, we're going to see if he can pull the rabbit out of the hat.
ROMANS: So, Keith, how does it play out for our 401(k), for our savings? For you, you know, the average person's investment and their nest egg here? I mean, because it looks to me like Congress has a lot of room to mess things up.
You know, is that a great year in stocks? The fourth quarter was a free, you know, third quarter was very good. The fourth quarter just started. What could happen here?
MCCULLOUGH: Well, in the stock market side, of course, it's got a huge amount of risk, because there's all this brinksmanship and it's associated with un-credible threat.
So, I agree with John and the bond market, by the way. To be very clear, probably the most important thing I'll say is that the bond market, Christine, does not believe that the U.S. is going to default on their debt.
ROMANS: Interest rate is still very low, yes.
MCCULLOUGH: And more importantly, the bond market hasn't moved this week. So, what's happening is that both Jack Lew and Obama understand it's a political football that they can use as fear-mongering. And guess what they're scaring? They're scaring the growth expectations embedded in the U.S. stock market. And that's the risk to the 401(k).
Like you said, year-to-date, we have double digit gains in stocks, double digit gains in home prices.
The real threat is government itself in this regard because they are creating fear instead as opposed to building confidence like John and I are both doing right now, which is -- this is very fixable. It will get fixed. Basically stop freaking out about the whole thing.
ROMANS: They should be creating jobs, not sending people home without a paycheck. And that's kind of the bottom line here.
We have no jobs report this week. We've gotten so far away from what we should be focusing on in the economy and instead, we are focusing on this brinkmanship.
So, let me ask you, John -- I mean, Keith seems to think that the president could just fix this and the scare-mongering about the Armageddon is just that. But is there a lack of presidential leadership here? I mean, you hear some people say, this is the president who hasn't built strong ties across the aisle and that's the problem.
KING: There's no question about that. Look, any Democrat watching is going to say it is the Republicans who planted this "my way or the highway" flag on Obamacare, even though the president won re-election, even the Supreme Court upheld the law. The Democrats are going to say, this is all Republicans and, obviously, the Democrats will say, well, we've never done this before in terms of not raising the debt ceiling. So, it's all the Republicans.
You can make that case and you can make it quite passionately. But here's where presidential leadership comes in. This is his second term, Christine. The first year of his second term has been frittered away because they cannot get anything done. At some point, even if you're right, the CEO of the operation has to bring everybody into the room when it's so dysfunctional and try to figure it out.
The president just tried to do that this past week. A lot of people, even fellow Democrats say he should have done that weeks and months ago. We know when these deadlines are. We know when the fiscal year begins. We know when the debt ceiling needed to be raised. Why always wait until the last minute?
And some of the president's friends say he doesn't like that kind of wheeling and dealing. So, he waits until the last minute.
He will pay a price. Even if he wins politically, even if the Republicans get all the blame for the shutdown and if we had all the default, got all the blame for not raising the debt ceiling, the president in his second term is running out of time. If he wants to get things done, he has to crack the code of dysfunction.
ROMANS: All right, guys. Thanks so much.
For the record, I think they're going to pay the interest on I mean, they're going to pay our creditors no matter what. There's no way they'll have technical -- I mean, we're not some banana Republican. This is not a country that doesn't pay its bills, especially its foreign creditors.
So, that is -- talk about building confidence, Keith McCullough. That I think is pretty sure. Everyone agrees on. Keith McCullough, John, thanks so much.
Treasury Secretary Jack Lew saying not raising the debt ceiling would be a catastrophe. He's going to sit down with Candy Crowley make that case again on "STATE OF THE UNION." That's tomorrow, 9:00 a.m. and 12:00 p.m. Eastern.
All right for more stories that matter to your money, give me 60 seconds on the clock. It's "Money Time."
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ROMANS: All right. Perfect. All right. What's the September jobless rate? Thanks to the shutdown, I have no idea. That's right.
More on the other ways we're feeling the shutdown, next.
ROMANS: There is nothing more urgent in America than creating jobs. Congress has been screening for two years about creating jobs and whose fault it is that we don't have them. Guess what? We don't know how many jobs were created in September.
We don't know the September unemployment rate. Why? Because Congress shut down. The very people who have been screaming about creating jobs for years.
So you can see the shutdown is already here. We're already feeling it.
Zain Asher is here to tell me other ways that Americans are feeling the shutdown every single day -- Zain.
ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Hey, Christine.
I want to talk to you specifically about Head Start, because this is really sort of a bedrock for low income family. The shutdown is really taking a toll on education specifically.
So, what happens is that a lot of Head Start programs based on their funding run out on September 30th. So when the government shut down October 1st, they were left with new funds for teachers or for their students. Take a listen.
MELANIE RHODES, HEAD START PARENT: I just told him that there's no school. You know, you can't go to day care today, and he gets upset becomes he loves coming here.
ASHER (voice-over): Three-year-old Malachi Rhodes suffers from autism. He's been getting regular speech therapy class from this Head Start program in Bridgeport, Connecticut. Malachi is too young to understand spending bills and political stalemates. All he knows is he can't come back to class.
RHODES: They're punishing us. And he's, I don't like that.
MONETTE FERGUSON, HEAD START DIRECTOR: I've gotten a lot of sad phone class, just asking why and what should they do?
ASHER (on camera): Malachi's program is one of 20 Head Start programs across the country at risk of closing because their grant expires the same day the shutdown began. Those programs won't have access to new federal funds until the government reopens.
FERGUSON: I don't have Head Start dollars anymore.
ASHER (voice-over): That means closing their doors to more than 1,000 children.
RHODES: I'm so tired of the bickering and fussing and fighting and blaming Obama, and blaming it on Obamacare. Obamacare has nothing to do with what we're going through right now.
ASHER: With no children to care for, over 300 teachers here very sent home without pay.
STACY RUBENACKER, HEAD START STAFF MEMBER: My daughters who are 20 and almost 18 say, mom, we have never seen you without a job. What are you going to do? I said, I don't know.
ASHER: Empty Head Start classrooms are now multiplying across the country, potentially leaving 19,000 children without services.
FERGUSON: These are preschoolers. And this is a heck of a way to learn government at 3 and 4 years old.
ASHER: The shutdown is yet another blow to the program that has already seen its fund slashed by about 5 percent due to forced budget cuts. Parents and children protested on Capitol Hill this week, pleading with lawmakers to show them mercy.
In the meantime, Malachi's mother worries without the therapy he receives here at Head Start, her son will regress.
RHODES: What's taking so long? Why can't they come to an agreement? You know, why they were kicking this, rejecting that? You know, all we're concern about is, we need to our day care to be open, because we're struggling out here, and it's not easy.
ASHER: Hmm, it's so sad. And, you know, I want to talk more about Melanie's story. The one we just saw. You know, she was unemployed for several years. She was also homeless. Now, she's hoping to get a job as a school bus driver.
So, now is the time that she desperately Head Start to take of her son while she worked. And now, of course, she doesn't have them.
ROMANS: What a story.
ROMANS: That child is adorable. And it shows you that shutdowns matter. They matter.
Are you listening inside the Beltway? They matter.
Thanks, Zain Asher.
All right. Up next --
(BEGIN VIDEO CLIP)
GEORGE CLOONEY, ACTOR: I think cooler heads will prevail.
SANDRA BULLOCK, ACTRESS: For the amount that they're closed, I'm not paying my taxing.
(END VIDEO CLIP)
ROMANS: Hey, I like Sandra Bullock's idea but it doesn't work like that. The IRS is not sending refunds during the shutdown. They're not really doing audits but they are still collecting taxes. As we wait for Washington to come to its senses, sometimes all you can do is laugh. That's next.
ROMANS: The government shutdown but fans didn't get shut out. Here's the score.
The Air Force and Navy football game got a high level clearance for kickoff. The secretary of defense reportedly had to give the OK because of the government shutdown. Non-budgeted funds will be used for travel and expenses.
Air Jordan versus King James -- what a new way to advertise a video game. In an interview promoting NBA 2K14, basketball legend M.J., Michael Jordan himself, number 23, said he could beat LeBron James one on one. He's 50 years old by the way.
After practice this week, LeBron told reporters it's, quote, "never going to happen." And, finally, this is Donte Whitner. He just got fined $2,100 by the NFL for a hard hit on a Ram's receiver. He's not happy about that fine and he's tweeting about changing his name in protest, from Donte Whitner to Donte Hitner.
Now, come on, most people don't expect an NFL player to make that big of a point over what, $21,000? It must not mean much to him, but guess what? It is a lot of money. It takes the average U.S. household six months to make 21 grand.
All right. Political gridlock grinding the gears of government to a halt, a health care law that's been on the books for three years is standing in the way, nothing funny about that. But sometimes you just have to laugh.
ROMANS (voice-over): Late night hosts had it easy.
CONAN O'BRIEN, COMEDIAN: Big story, of course, our government has shut down. How you doing? Everybody good?
JIMMY FALLON, COMEDIAN: Or in other words --
ROMANS: On the same week enrollment in the Obamacare exchange is open.
UNIDENTIFIED MALE: I am so relieved that my dumb, lazy, good for nothing son has full health coverage. We kept telling him. Hey, idiot, you have to get a job to earn health care. But Mr. Obama here, he makes sure my son will never have to lift a finger to get insurance.
ROMANS: Politicians even tried their hand at making fun of the dysfunction in Washington.
BOEHNER: I talked to the president earlier tonight. "I'm not going to negotiate. I'm not going to negotiate, I'm not going to do this."
ROMANS: NASA doesn't see it as a laughing matter. With its funding suspended, asteroid strike alerts on Twitter were put on hold. We will not be posting or responding from this account.
With all this government shutdown talks, some people couldn't get past the "Breaking Bad" finale. The Oracle of Omaha, Warren Buffett, tweeted his third tweet ever. "Not even the Oracle knows what will happen tonight. #waltsuccessor."
ROMANS: And coming up right now on "CNN NEWSROOM", the frightening high speed motorcycle chase that left a driver and cyclist with serious injuries, has former members of a motorcycle gang speaking out. You're going to hear from them. Up next, the former leader of a notorious group explains why he's not surprised by Sunday's tragic event and why he got out.
"CNN NEWSROOM" starts right now.