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QUEST MEANS BUSINESS

Debt Ceiling Deadline; Hitting the Ceiling; US Markets Down; International Concern Over US Debt Ceiling; European Markets Lower; Global Impact of US Debt Crisis; Lufthansa CEO Leaving; Landmark Deal for Airbus; Large Gem Sells for $30 Million; Weather a Potential Challenge in Sochi Games; Scottish Smoked Salmon

Aired October 7, 2013 - 16:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(NEW YORK STOCK EXCHANGE CLOSING BELL)

RICHARD QUEST, HOST: Think of it as the Monday blues: debt, deadlock, and an impending deadline. No hope, and the shutdown continues and the debt ceiling gets closer. Yes, it is Monday the 7th of October.

Watch out. If the US hits the debt ceiling, world growth will be hit. We'll be talk about that in this program.

Leaving Lufthansa. The outgoing chief exec tells me the airline's on the right course without him.

And a diamond the size of an egg that cracks the record at an auction.

The start of a very difficult week. I'm Richard Quest, and of course, I mean business.

Good evening. You really couldn't make this up. The United States government is paralyzed by its own budgetary issues and careering towards a debt limit calamity. It's government shutdown day seven --

(RINGS BELL)

QUEST: -- and the debt ceiling deadline is just ten days away. President Obama today made the case that there should be no political fighting when it comes to raising the US debt ceiling.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: This is something routine, it's been done more than 40 times since Ronald Reagan was president. It has never before been used in the kind of ways that the Republicans are talking about using it right now. We can't threat an economic catastrophe in the midst of budget negotiations.

(END VIDEO CLIP)

QUEST: Now, the US treasury secretary Jack Lew has been warning all weekend and into the week that crashing into the debt ceiling would be a disaster of historic proportions.

(BEGIN VIDEO CLIP)

JACK LEW, US TREASURY SECRETARY: We've never gotten to the point where the United States government has operated without the ability to borrow. It's very dangerous. It's reckless, because the reality is, there are no good choices if we run out of borrowing capacity and we run out of cash.

It would mean that the United States, for the first time since 1789, would be not paying its bills, hurting the full faith and credit, because of a political decision.

(END VIDEO CLIP)

QUEST: If you had any doubts as to how this is now starting to create a deteriorating situation for the markets, look at how the Dow Jones finished. It had been down 60 or 70 points for most of the session, but those losses accelerated towards the end, off 136 points --

(RINGS BELL)

QUEST: -- when all was said and done. So, allow me to explain why this is all so crucial. And I want you to think of it in the most basic terms.

The sun, it rises in the east. We all knows that what goes up must come down. The Earth is round. These are truths of which we accept and we rely upon. We know them to be true.

And in a similar way, it has always been true that the United States pays its bills. In fact, the entire global financial crisis relies on one very simple point: it relies on the full faith and credit of the United States government. That is the rock, the backbone of the United States.

If Congress does not raise the debt ceiling in ten days and the US does not or is not or will not pay its bills, the shockwaves that would ensue will rock the financial system to its very core. I want you to look at this. This shows you why it is absolutely so serious. It's as if we were suddenly told the world was flat.

So far, the United States has accumulated an enormous amount of debt. Not huge bearing in mind the size of the economy, but $16.7 trillion worth of debt. Now, the US Treasury, of course, it can no longer -- it needs to raise that debt ceiling. And it represents solidarity, reliability, and the country will always pay its bills.

But if, for some reason, the debt ceiling is not raised, this is what will happen. First of all, grinding austerity. The US would literally, overnight, have to balance the budget, and that would be a 4 percent cut in GDP. Goldman Sachs estimates it to be 4.2 percent, that's the current size of the federal deficit. So, austerity would be overnight introduced.

Next one, of course. If they don't raise the debt ceiling, the full faith and credit of the United States, international credibility crisis. It could default, would cause a trigger, US bonds are the ultimate safe haven along with gold.

And financial institutions, of course, use treasuries as securities in the interbank in the money markets. All of this would be wiped overnight. It would make Lehman look like a tea party.

And then, of course, you have -- again, if they don't raise the ceiling, the longterm damage. Every interest rate that relies on the US government would, of course, be -- would rise. Before long, every single person, every single company, many countries overseas which hold debt would also feel the effects.

So, if you don't raise the debt ceiling, this is what happens. Very much the sort of 1979 accidental default. We'll talk more about that later. The seismic shock would be dramatic. At least that's my view and the view of many people. Jeremy Hill is the managing partner at TF Market Advisors. Well, am I right or wrong?

JEREMY HILL, MANAGING PARTNER, TF MARKET ADVISORS: Well, you're right and wrong. To a certain degree, right now the Kabuki Theater around the fiscal scenario in DC is almost as if Congress is a championship ski team but they can't take the gondola up to the mountain. They have some irrational far of this.

QUEST: Right.

HILL: So --

QUEST: But let's -- the budget issue's one thing.

HILL: Right.

QUEST: The budget is politics per se, pure and simple.

HILL: That's right.

QUEST: But the debt ceiling is much more serious.

HILL: Well, the debt ceiling is a mechanical type of governor, almost, on what Congress can and can't do, of course. It's been in place for quite a long time. And if you look at how markets have kind of viewed what's going to happen in the next ten days -- look, we're only ten days away from going through the debt ceiling.

If people were trading and participating in various risk assets thinking that it was calamity, we would see a much bigger sell-off already.

QUEST: In denial. They're in denial. For the same reason that you've written -- or your company's written -- you've said here, "We do not believe there will be a default on US Treasury debt."

HILL: We don't.

QUEST: But in the same article --

HILL: Yes.

QUEST: -- you go on to postulate about accidental risks, the risks of something happening. You go on to talk about the premium. You go on to talk about technical default. So, there is a real risk there of something going wrong.

HILL: Absolutely, of course, there's a real risk. And this is the charade that's happening in DC right now. You can't ignore it. If you look at what happened today to the VIX -- of course, that's the fear index on the equity side -- it's up something like 10 percent.

And of course, that's a very rational type of reaction to what we're seeing. Because again, each day we get closer. We have nine and a half days until we run out of money or until we pass through the debt ceiling. It gets a little bit worse each and every day.

However, politicians, as irrational as they've been for the last couple of weeks, I don't think they're ready to cross the Rubicon quite yet.

QUEST: If they do get to the end, what's the -- I mean, they're not going to default. Because as you rightly point out, there's enough money to pay the debt. So, you either have the austerity option, where you stop -- you have to run a balanced budget, or you prioritize spending, which may in itself be unconstitutional, or you do some sort of fudge. What do you think?

HILL: Well, I think at the very end, if we get to 24 hours in advance of running through the debt ceiling, if we're three minutes before, I think President Obama will do something -- he will shoot first, ask questions later. Listen, he's a constitutional law scholar, right?

QUEST: Fourteenth amendment.

HILL: Well, he's not necessarily --

(CROSSTALK)

QUEST: The 14th amendment.

HILL: It's not just the 14th amendment. There are also some extraordinary powers that --

QUEST: Right.

HILL: -- by implication he has, particularly as it relates to wars.

QUEST: We'll explain the 14th amendment at another occasion when it does get a little more relevant to the proceedings. I assure you, you really don't want to get bogged down in that. But finally --

HILL: Yes?

QUEST: Why are you so confident that this won't go over the cliff?

HILL: Well, I don't want to say we are 100 percent confident it won't go over the cliff, but the magnitude, the fat tail -- there is galaxy in distribution, and this is the fat tail of all fat tails. Politicians, not my favorite people in the world, but somehow, somewhere, somebody has to act as an adult in the room.

And at the very least, we've seen the Fed play that role in the past. There could be something creative coming through if we get to that point --

QUEST: Right.

HILL: -- of exigency.

QUEST: We'll talk more about it. Thank you for joining us.

HILL: Thank you.

QUEST: Many thanks, indeed.

So, the markets moved down in the last 15 minutes, 20 minutes of trade. To the New York Stock Exchange, now. Zain Asher is there for us tonight. A hundred and thirty-six or so off the Dow.

ASHER: Yes, absolutely. There is so much worry among traders about the debt ceiling deadline. But I think the consensus is that someone is going to blink at some point. I mean, come on, there really is so much at stake.

But I think what's really worrying the markets, though, is the fact that it even got to this point. How did we end up here? And I've heard you talk about this, Richard. If there is no agreement on the debt ceiling deadline this time next week, we are really going to see the markets start to tremble.

By the way, every week the shutdown lasts, that reduced fourth quarter GDP by at least 1 percent -- 0.1 percent, I should say, sorry -- if not more. But as expected, all the uncertainty had investors looking to gold as they usually do as a safe haven. It is up 1 percent today.

And then, there's also another distraction, and that is third quarter earnings. That kicks off tomorrow. If earnings disappoint, and many investors and analysts expect that it will, that really will put pressure on the markets as well. Richard?

QUEST: All right. Zain, watching the markets, we thank you for that. Zain Asher at the New York Stock Exchange.

Political deadlock in the United States and growing concern around the world. Leaders are urging US lawmakers to come to some sort of agreement as they prepare for the worst. We'll talk more about that when we return. QUEST MEANS BUSINESS at the start of a new week.

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: World leaders at the Asia-Pacific Economic Cooperation Forum, the APEC Summit in Bali, the one that President Obama didn't go to. They are voicing their concerns about what might happen if the US debt limit is not raised.

Asian economies are concerned about the fallout. China's vice minister -- let's start with the Chinese -- says it's important that the US maintain the credit worthiness of its bonds. Beijing is Washington's largest creditor, roughly $2 trillion in bonds that China has and has urged American lawmakers to come to an agreement. That's the view from China.

Singapore's prime minister says US politicians need to put the nations' interests ahead of their own political parties.

(BEGIN VIDEO CLIP)

LEE HSIEN LOONG, PRIME MINISTER OF SINGAPORE: The signal that the Americans are unable to get their act together and can't vote money to run the government and can't agree that the government needs to be run and has national interests greater than the Tea Party or the Democrats or the Republicans, I think that's a negative signal, which will last much longer than the shutdown.

(END VIDEO CLIP)

QUEST: Meanwhile, South Africa's finance minster says economies around the world must shore up their economic defenses and prepare for the worst, whilst Russia's president, President Putin, accepting and understanding why President Obama did not go to Bali, says he wants a quick resolution to the crisis because of the impact it could have on the US dollar. Here's what Vladimir Putin told business leaders gathered for the Bali summit.

(BEGIN VIDEO CLIP)

VLADIMIR PUTIN, PRESIDENT OF RUSSIA (through translator): The United States dollar remains the most important reserve currency for all of us. Very important, to a great extent. Therefore, we have the hope that all political forces in the United States will manage to overcome this crisis as quickly as possible.

(END VIDEO CLIP)

QUEST: That's Vladimir Putin. Now, worries over the government shutdown helped push European markets lower on the Monday trading session first of the week. If you take a look at how the markets finished the day, London - - I mean, Paris eked out a very small gain. But what we're clearly seeing is a very tentative, nervous session.

Greek government saw an end to the recession, but of course, even though that was -- the Greek budget surplus is 1.6 percent, that's the forecast for next year, there's still a lot of views that Greece is going to need further restructuring of its debt. The finance minister refuses to call it an -- prime minister -- another bailout, but there's just about unanimity that Greece will require further assistance from the Troika.

Meanwhile, the Serbian deputy prime minister says the country is close to bankruptcy and he's asking the UAE, United Arab Emirates, for a $1 billion loan. All that, of course, happening in the European markets.

It's not a cut and run, and it's not a fly off fast. The chief executive of Lufthansa, Christoph Franz, tells me why he's decided to leave halfway through the restructuring of the German airline. QUEST MEANS BUSINESS, good evening.

(COMMERCIAL BREAK)

QUEST: Actually, what will the effects be of the debt ceiling crisis? How much will GDP be knocked off in the United States, and those ripple effects across the world? Goldman Sachs believes it could be up to 4 percent off GDP. Everybody says it could be a couple of percentage -- a couple of decimal points from the numbers for third and fourth quarters.

Julia Coronado is the chief North America economist for BNP Paribas. What's your best guess, Julia? If -- not -- with the slowdown, what are you forecasting GDP effect would be?

JULIA CORONADO, CHIEF ECONOMIST NORTH AMERICA, BNP PARIBAS: Well, so, actually the direct effect of the government shutdown got a little bit smaller over the weekend because the Defense Department was brought back to work.

And so, if we actually look at the federal employees affected by the shutdown, it's only 12 percent of the work force, of the federal work force, only 0.3 percent of the total US workforce. So, the direct impact of the shutdown is quite small, tenths of GDP. The real deal here is the debt ceiling, how far they push this --

QUEST: Right.

CORONADO: -- how much it affects financial markets, how much it rattles confidence. That's the real question.

QUEST: OK, but -- OK. Nail your colors to the mast, Julia. I think this is one of these stories where we all have to come off the fence at some point. How realistic, how worried are you? How -- in your probabilities that they will actually push this to the edge and beyond?

CORONADO: Well, I think they are going to push this to the edge. I think -- the way the stars have lined up, it's working politically for the Democrats, it's working politically for the Tea Party, and -- because it isn't that painful, they're not getting inundated with calls to do something about this.

QUEST: Right. OK --

CORONADO: So, I think we are going to go to the brink, which is October 17th. We actually have money to continue operating through October 17th, so we could even go, technically, beyond the brink for a few days and test the waters.

And I think it really all comes down to how do financial markets take this? Do we get a bigger meltdown --

QUEST: OK, but you need to -- but just explain, because one of the things we're doing today in the program is explaining why a default or a technical default or even the risk of a default is so worrying. Let's take a bank like yours, BNP Paribas.

CORONADO: Right.

QUEST: You're stuffed to the gills, both in the interbank market and in your own fixed income divisions, you've got US treasuries everywhere, correct?

CORONADO: Yes. Yes. Absolutely. So, the effect is that the US treasury is -- the dollar is the reserve currency of the world. Everybody is holding treasuries, from mutual funds, banks, US banks, global banks, foreign central banks. Everybody's holding treasuries.

If you start actually missing payments on US treasuries, that could be incredibly disruptive. And again, it's -- it leads people to have to decide what to do. Usually these things are like cash money.

QUEST: Right.

CORONADO: And -- if they're not, then that changes the way you look at the world.

QUEST: All right. The Dow was off 136 points in today's trading.

CORONADO: Correct.

QUEST: One psychologist I spoke to today suggested that the market is -- he was putting a bit of psychology into it -- is in denial, but that as reality seeps in, we will see VIX, we'll see dollar, we will see Forex, we will see yield, we'll see equity volatility. Do you go along with that?

CORONADO: I do. And in fact, I think that in some senses, this is a very dysfunctional relationship. The government probably won't take action until they see more market distress. That is the out, if you will --

QUEST: Right.

CORONADO: -- for Republicans to concede and come to the table, and even for Democrats as well, although they have a stronger hand. So, it's almost like they're sitting around waiting for the market meltdown to give them an excuse to do their jobs.

QUEST: All right.

CORONADO: It's almost as if you're not going to get that until markets react.

QUEST: We'll talk more about it. We've got a week to go. Hold your breath. Many thanks, Julia. Julia Coronado at BNP Paribas. And we will, of course, be following. This is going to be our lead story and we will continue to follow it every nook twist, and turn between now and the 17thf.

I'll give you the Twitter address in a moment for your thoughts and your views on exactly -- as the economists summed it up, it's no way to run a country.

The chief exec of Lufthansa, Christoph Franz, has welcomed the deal that was done over the weekend on global airline emissions. Franz announced he's leaving Europe's largest airline group, Lufthansa, for the Swiss drug maker Roche. And of course, in the industry, people are saying why now is he going just in the middle of Lufthansa's biggest overhaul?

The airline announced its largest aircraft order, and that will be split between Airbus and Boeing, that will reduce the company's fuel costs. It's part of hundreds of changes it's making in its program, and that includes, for example, it's cutting the number of planes -- the types of planes, making it simpler, cheaper, more efficient and more effective.

It's restructuring the long haul and the short haul routes across the network. It's got a new labor agreement and its subsidiary, German Wings, is now the backbone of its European network, aiming to compete with Easy Jet, Ryanair, Wizz, and the other low-cost carriers.

Christoph Franz joined me from Frankfurt earlier, and I asked him about his decision not to stay at Lufthansa and why he's leaving halfway through when the job may not be fully done. Is it a fair criticism?

(BEGIN VIDEOTAPE)

CHRISTOPH FRANZ, CEO, LUFTHANSA: First of all, it's clear that with regard to CEO position, there's never the right moment. Second, you cannot prepare. So, these things, at least if you take the decision deliberately, these are always a surprise.

And third, in the case of our Lufthansa way forward, I feel that in the end of May next year, when I'm leaving the company, we will have reached a very important milestone with regard to the change program, with regard to the investment decisions, and with regard also to our strategy to -- defend our market position and grow our market position with the European traffic.

QUEST: Is it also part of the time when it's just time to do something else? I know you've certainly been at Lufthansa for many years, and new challenges and new opportunities beckon. Does that play into a decision like this?

FRANZ: Obviously, I have been working in totally nearly 15 years for the Lufthansa Group, so it's not an easy decision to move on for another challenge. But the other way around, Roche is fascinating and one of the top pharmaceutical companies worldwide and it is an extremely attractive industry, it is an extremely attractive offer.

QUEST: All the legacy European carriers have had this fundamental battle. On the one hand, competing against the low-cost carriers with their lower cost base. On the other hand, long haul, big new whole -- the new Gulf 3. Do you feel that the legacy -- European legacies have turned the corner and have got, if you like, a workable model to compete on these two very different fronts?

FRANZ: Basically, I feel that we're on our way. And with a different speed and different ways of finding solutions, it has become quite obvious that all the big guys are not in the position to leave the marketplace, but we have to reinvent ourselves.

And this is exactly the way forward of the Lufthansa Group by redefining the way how we are addressing point-to-point traffic in Europe. We have decided to use the existing low-cost platform, German Wings, and to basically triple it in size.

And on the other side, we are heavily investing into quality, heavily investing into new aircraft, and heavily also redesigning the formula of products in the long-haul business.

QUEST: Is it time -- I saw ICAO has come up with, frankly, another fudge agreement. A lot of back-slappings at the United Nations body. They're going to decide by the middle of next year or the year after, and with a bit of luck and a following wind, they might all agree by 2020.

Would you say the Europeans should now back down on their own emission trading scheme, or should they keep the pressure on because ICAO may still fail on environment issues?

FRANZ: I think it is a remarkable milestone that for the first time in history, a UN body has agreed on a global market-based approach to address environmental issues. And everybody has come to the table and everybody agreed, also, on the timeline. That is a really very positive element.

QUEST: But hang on. I'm just going to take issue with you, Christoph. They couldn't come up with anything a bit quicker that wouldn't come in until 2020 when the Europeans have managed to do it a lot quicker?

Now look, I'm no great fan of the European scheme. But I do -- fear and figure that the ICAO scheme will get bogged down in bureaucracy and the deal will be a long way off.

FRANZ: Let's be honest. The existing European emission trading scheme is not coming along without any bureaucracy, and when you look at traditional time frames to make changes happen within ICAO, I think the move forward has been a fairly even speedy one.

Does this mean that this is all perfect? No, we will probably have hope to implement it a little bit faster. But at least now it fits with the timeline of the IATA for pillar strategy --

QUEST: Right.

FRANZ: -- with regards to global climate change.

(END VIDEOTAPE)

QUEST: That's the chief exec -- the outgoing chief exec of Lufthansa, Christoph Franz, talking to me earlier. Let's stay with a little bit of aircraft news. Airbus has announced a landmark deal with Japan Airlines that boost the manufacturer's presence in the country's aviation market, an absolute revolution. Boeing has always had an iron-first grip on Japan, and now that seems to have been opened up.

The deal that's been announced with JAL for the A350 XWB, extra wide-body, it's worth $9.5 billion at list price. I guarantee you they paid nothing like that. Guaranteed. Anyway, in total for Airbus, more than 700 A350s have been sold.

It's rival, of course, to the 350 is the Dreamliner from Boeing, which has had not only the lithium ion battery problem, also had reliability issues, most recently, of course, with Norwegian's long-haul Roots, but the Dreamliner is the competitor.

And as I was saying, Boeing has remained dominant in Japan, but now, of course, that dominance has a chink in the armor, a fairly big one, with the deal with JAL. Which itself was bankrupt just a couple of years ago, and JAL is now back buying these expensive new planes.

When we come back after the break, the US government has been closed for business for seven days. We're going to see who's getting the blame. What do the polls show. It's QUEST MEANS BUSINESS on a Monday and you are (inaudible).

(RINGS BELL)

(COMMERCIAL BREAK)

RICHARD QUEST, CNN HOST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in a moment. This is CNN and, on this network, the news always comes first.

(BEGIN VIDEO CLIP)

QUEST (voice-over): Attacks in and around the Iraqi capital of Baghdad have killed at least 28 people today, according to reports. Two bombs went off near a Shiite mosque in eastern Baghdad. The violence in Iraq continues to increase with more than 190 people killed just this month.

Deadly attacks have been reported in Egypt, including a car bombing in southern Sinai, which comes a day after more than 50 people were killed in clashes between demonstrators and security forces in the capital of Cairo.

The accused Al Qaeda operative Abu Anas al-Libi is believe to be aboard a U.S. Navy vessel in the Mediterranean after his capture by U.S. Special Forces. Al-Libi was wanted in the 1998 bombings of the U.S. embassies in Kenya and Tanzania.

He was snatched off the streets of an upscale neighborhood in Tripoli early on Saturday morning. His wife says he is innocent.

Kenyan authorities have identified several suspects in last month's mall attack in Nairobi. Five of them, including a woman, were killed when the mall partially collapsed. Al-Shabaab militants have claimed responsibility for the siege in which scores of people were killed.

Argentina's president, Cristina Kirchner, is to undergo surgery on Tuesday after being diagnosed with a brain condition. Doctors have told the 60-year-old president to rest for a month. Ms. Kirchner suffered a cranial trauma back in August.

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(END VIDEO CLIP)

QUEST: The United States is on a path which could lead to two financial calamities. First, the debt ceiling and then of course there is the question of what's happening with the government shutdown.

Let me show you this in the most graphic way you can see. The two fundamental issues, you've got the government shutdown, which is now into day 7 and in 10 days, October the 17th, the debt ceiling and Congress must raise the ceiling in order to avoid default and a major shock to the global financial system.

The -- of course, government shutdown of seven days has its own problems; the inability to pass a 2014 budget, and the deadlock in Congress.

Taken together, they are the most serious issue to affect the U.S. government in its fiscal problems for many years. And the president says the shutdown could end right away if Republicans would let it.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The truth of the matter is there are enough Republican and Democratic votes in the House of Representatives right now to end this shutdown immediately, with no partisan strings attached.

The House should hold that vote today. If Republicans and Speaker Boehner are saying there are not enough votes, then they should prove it. Let the bill go to the floor and let's see what happens.

(END VIDEO CLIP)

QUEST: Now this is a situation though, whether it goes to the floor or not, the majority of Americans are concerned about the effects of the government shutdown.

According to a new CNN NRC poll, 18 percent of Americans think the government shutdown is a crisis; 49 percent think it could cause major problems; 18 percent say minor problems and 14 percent who clearly said there were no problems.

CNN's political director Mark Preston is live in Washington.

As I look at those numbers, I'm surprised that more aren't basically shrieking, run to the hills, the sky is falling, the sky is falling.

Why do you think that is the case?

MARK PRESTON, CNN POLITICAL DIRECTOR: Well, Richard, if you do take the top two numbers, though, you do come up with a number of 67 percent. And when you think of it that way, in many ways, the sky is falling.

You know, we looked at polling back in 2005, the last time the government shut down here in the United States. And the numbers were not nearly as high as they are right now. I don't think that the full effect of the government shutdown has hit everybody across the country and that's why you haven't seen the crisis mode yet.

However, give it a little bit more time. And as we get closer to the debt ceiling, which is a totally unrelated issue, I think that number is going to increase.

QUEST: And crucially, it -- the blame game, I mean, as I looked at your numbers on that, it's a plague on everyone's house, isn't it? I mean, the Republicans may be getting slightly more blame at the moment than the Democrats. But they're all getting blame.

PRESTON: They're all getting blame, and in many ways, they all deserve blame. When you look at the numbers about who is to blame, Republicans are a little bit over 60 percent; Democrats, Congressional Democrats, are in the high 50s. President Obama is in the low 50s. It just goes to show you, though, that here in the U.S., there's such a low thought of Congress.

People here in the United States do not like Congress; they don't think that it operates efficiently. And in fact, we did a CNN poll l last week, Richard, that shows that the approval rating for the entire Congress was only 10 percent. If you can imagine that, 90 percent of Americans really thought poorly of Congress. So at this point, that's why you see the American public so frustrated.

QUEST: Newt Gingrich, the former Speaker, presenter, of course, of CNN "CROSSFIRE," writing in the "Financial Times" over the weekend, advanced the argument that this was -- this had happened before in the U.S., this idea of shutdowns, gridlock, it was inherent in the system. It was not a bad thing, but it was a good thing in some ways.

And it was men and women fighting over matters of principle.

Do you think the American people buy that in any shape or form?

PRESTON: I think that when that happened, that was at a different time economically. I mean, given the fact that we are still very much in a -- in economic crisis; some would say we're not in a crisis and the economy's starting to rebound, but fact of the matter is, there's still a lot of people that are unemployed here in the United States, if not around the world.

A lot of people are still losing their homes at this point. I don't think people really care necessarily about fighting on principle here in Washington, D.C.; where people do care about that, though, is really on the fringes of the political movement here in the United States, really hardcore conservatives like the fact that people are standing on principle.

And hardcore liberals believe that President Obama and Democrats should really stand their ground.

So when you have those two factions, it's hard to get people in the middle to work together.

QUEST: Mark Preston, we'll talk more about this. And I'll be fascinated to see those numbers and how they develop as we get closer to the debt ceiling towards next week. Many thanks for joining us on that.

Now it's one of the largest diamonds known to man, or maybe once would say known to woman. It has a price tag to match. This stone breaks an auction record as precious gems become investors' best friends. But how much would you pay for that?

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(COMMERCIAL BREAK)

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QUEST: If you've got a bob or two to spend, a dollar or two that you don't know what to do with, a flawless white diamond -- too late to buy this -- it sold for a record $30 million at Sotheby's auction in Hong Kong.

Now two phone bidders were locked in six minutes of bidding over the 118-carat oval stone. Doesn't look that big -- well, it does, actually, frankly, but it's -- I mean, if you can imagine -- it's the largest diamond created by America's Gemological Institute. And it broke the record price paid for such stones set by Christie's in Geneva in May.

The successful bidder --

(LAUGHTER)

QUEST: The successful bidder wants to remain anonymous. Now why do you think that might be? Because he's not giving it to his wife? Well, maybe, who knows.

(LAUGHTER)

QUEST: Now not many $30 million investments can be carried away in your pocket or worn around your neck. I'm going to get into real trouble for that last comment. I can feel it already.

Nina dos Santos looks at the rising demand for precious stones as part of a portfolio.

(BEGIN VIDEOTAPE)

(VIDEO CLIP, "GENTLEMEN PREFER BLONDES")

NINA DOS SANTOS, CNN CORRESPONDENT (voice-over): A song made famous in the movies. In the markets, if you find the right kind of diamond, it can be an investor's best friend, too. According to dealers at this year's International Jewelry Fair in London.

CHRISTOPHER SLOWINSKI, PRESIDENT, CHRISTOPH DESIGNS: Appreciation is very strong (inaudible) diamonds. OK, we're talking about, I would say, I'm just -- I would say maybe around 6-7 percent a year.

DOS SANTOS: So --

(CROSSTALK)

SLOWINSKI: All depends (inaudible).

DOS SANTOS: (Inaudible).

SLOWINSKI: Yes. If fighting against the inflation, I think this is a perfect solution; buy yourself a diamond.

DOS SANTOS: Is it a better investment than gold?

SLOWINSKI: It's more expensive. It's -- but it's more stable. You see, fluctuation of the prices on the gold, you can see it. The prices of gold recently went down 30 percent. And not on the diamonds. Diamonds, steady going up.

DOS SANTOS (voice-over): However, experts caution it can be difficult to get clarity on pricing, which makes them harder to value than other commodities. Unlike gold and silver, stones aren't traded on an exchange. And prices can vary widely by size, color and quality.

DOS SANTOS: Which (inaudible)? Dare I ask?

SLOWINSKI: The most expensive here in my collection here in London that I have is a 10-karat crosscut (ph) emerald cut ring with me, is over half a million dollars.

DOS SANTOS (voice-over): With price tags like these, diamonds are a portable source of wealth, one that's perhaps a little too portable, though. Just this summer, the French Riviera saw two heists with more than $15 (ph) million worth of jewelry stolen. And that's a concern for jewelers like India's (ph) Arampali, selling their wares to celebrities like Halle Berry for the red carpet.

TARANG ARORA, MANAGING DIRECTOR, ARAMPALI: Once it's been handed out to a celebrity or a similar stylist (ph), at Arampali their responsibility in showing security it is the most important part of our business, definitely.

DOS SANTOS (voice-over): For those who want more glimmer in their portfolio, without the burden of security, investing in a fund could be the answer.

MAHYAR MAKHZANI, MANAGING DIRECTOR, SCIENS DIAMOND MANAGEMENT FUND: When you invest in the fund, obviously we are in charge of those stones. We have set in place, they are fully insured at our net asset value plus 10 percent.

DOS SANTOS (voice-over): With rising demand in China and India, rough diamond prices are now back to pre-crisis levels. Bain & Co. (ph) says that sales of diamond jewelry increased 1.8 percent in 2012 to $72.1 billion.

MAKHZANI: The key point about colored diamonds is their rarity. The price of colored diamonds have not gone down in the last, I would say, well, 50-odd years. The other thing that you have to remember is that every diamond have ever been mined throughout the history of man still exists. They don't melt away.

DOS SANTOS (voice-over): So while diamonds really are forever, their value may change over time -- Nina dos Santos, CNN, London.

(END VIDEOTAPE)

QUEST: OK, amongst the ridiculous questions to ask anybody, if you had $30 million to spend, would you spend it on a diamond? Of course, that all depends if it was only your total $30 million or it was $30 million of spare change.

Either way, @RichardQuest, one of those sorts of things, $30 million for a diamond. Seems an awful lot of money.

Well, I have to say, every time I've ever bought a diamond in any shape, form or description, (inaudible) the speed at which it can get into some serious numbers.

Tom Sater is -- looks horrified at the thought of me buying a diamond.

TOM SATER, AMS METEOROLOGIST: That's OK. Long as it's just one.

QUEST: Yes, well, we'll leave that there.

Tom Sater, and I hear that there are some -- I've been stuck inside all day, but I'm told reliably that in this part of the world in New York, there's some really nasty weather.

SATER: Yes, I'm surprised the windows in the building there haven't been rattling at all, Richard. You have a possibility of a tornado, too. The chances are starting to dwindle somewhat. But a very strong, potent thunderstorms activity along a cold front is providing this, airport delays currently at JFK, Miami, well that just jumped into the mix about five minutes ago.

But LaGuardia, Newark, Philadelphia, now 45-minute delays; Washington, this is at Dulles, actually an unconfirmed tornado just south of Reagan National. So we're going to have a number of delays and ground stoppages. We've had those, too, and continue.

This is the long line of severe weather that's mainly from the mid- Atlantic areas into the northeast. The same cold front responsible for dropping 18 tornadoes Saturday and then a meter of snow for the first snowfall of the year in parts of South Dakota.

But this is a tornado watch in red, a severe thunderstorms watch, this will be moving in toward around Logan Airport in Boston in about the next 2.5-3 hours. But our tornado watch, at least the area that it encompasses is starting to get a little slivered away here. And that's good news.

I mean, this will be out of here in a couple of hours. So if you are watching from Europe and you're expected someone to take an international flight, they could be delayed because right now the air traffic control operators are stopping some, of course, the flights taking off and departing.

Twenty-two degrees, though, this is better. But look at this, all this snow that fell, that meter is going to be melting quickly. Our other problems and concerns, not one, but we have two typhoons back to back, Fitow and now Danas, both of these moved near Okinawa, one to the south, one to the north.

However, Fitow making its way about 600 kilometers south of Shanghai; we have two fatalities here, tremendous amounts of rainfall. But Danas is actually stronger and the winds with this are well up to over, you know, typhoon strength. In fact, we've seen this system almost become a super typhoon. Notice some of the winds at 160 kph.

This is not headed toward China. This is headed up toward the Korean Strait, maybe some rainfall and some strong winds in extreme western Japan and then into the Sea of Japan. So Tokyo, maybe in Osaka, there could be some slight delays. But that's on the other side of the country. So that's some good news there.

Elsewhere, though, as we change our direction and get into Europe, we've got a potent little storm system that I think could really start to fire up some severe weather as we get into southern Italy and in toward areas of Albania and Greece.

So any delays may be mornings would be a little bit of fog there, Richard, Brussels and Frankfurt, with the exception of Athens, could have some strong thunderstorms late in the afternoon.

QUEST: Good grief, storms in the U.S., storms in Europe and storms in Asia. Many thanks indeed, Tom Sater at the World Weather Center.

The Olympic flame is now on a record-setting 123 journey across Russia. Phil Black has led us on the torch relay and the preparations for next year's games in the back (ph) ski resort of Sochi.

PHIL BLACK, CNN CORRESPONDENT: Most of the attention Russia has been receiving in the leadup to the Sochi Winter Olympics has been all negative. There is the extraordinary cost of staging these games and of course very strong criticism, even calls to boycott the games because of Russia's controversial anti-gay propaganda law.

But today the campaign has really begun to try and build some Olympic excitement, both here and Russia, and internationally. The world's biggest country is staging the world's longest torch relay, the Olympic flame has begun a journey stretching between Europe and Asia, ending in a stadium on the Black Sea in February next year.

(BEGIN VIDEOTAPE)

BLACK (voice-over): The Olympic spirit has returned to Russia. The flame's journey across this massive country started in Red Square, past St. Basil's Cathedral and the red walls of the Kremlin.

From here it will travel 65,000 kilometers, crossing nine time zones between Russia's eastern and western borders. This man says it feels patriotic and unforgettable to see the flame.

It's been a long time since the Olympic flame was last in the Russian capital. That was for the 1980 Moscow Games. Dozens of countries boycotted the event because of the Soviet invasion of Afghanistan.

Thirty-three years later, some people have been calling for boycotts again because of scenes like this. It's a protest against a recent law targeting Russia's gay community. It's now illegal to tell Russian children gay and straight relationships are equal. Activists say the law is discriminatory. But international Olympic officials say it doesn't breach their charter.

Planning and building in Sochi has been immense. The city by the Black Sea was a rundown, Soviet-era summer resort destination with no winter sports facilities. It's getting a total makeover. Cost estimates now exceed $50 billion.

The weather could also be a challenge. Even in the mountains, Sochi isn't always cold in winter and snowfall can be patchy. That's why organizers have spent big on high-tech snowmaking gear and storing huge mounds of last season's snow through the summer.

Those are the potential problems, but the flame's arrival marks the start of a campaign to build and spread Olympic excitement here. The relay even includes a cosmic side trip. One of the torches, without a flame, will be carried aboard a Russian Soyuz rocket to the International Space Station.

There's already been an embarrassing flame-out. A strong Moscow wind was too much for this runner's torch. Someone with a quick mind and a cigarette lighter stepped in.

Officials say the real Olympic flame, lit by the sun in Greece, is safe in special lamps and will be used for the rest of the relay.

(END VIDEOTAPE)

BLACK: Organizers say the Olympic torch has been designed and tested to perform in the very worst of the Russian winter, low temperatures, heavy frost and, yes, heavy winds. They say they're not worried about that flame-out incident; in this case, it was a one-off. One vent wasn't set correctly. So the flame, they say, wasn't burning as intensely as it should have been -- Phil Black, CNN, Moscow.

(COMMERCIAL BREAK)

QUEST: Britain is attempting to boost its food industry to a new action plan. The idea is to get rid of trade barriers and remove red tape, which would help Scotland's smoked salmon producers. In "The Production Line," which celebrates every step of the industrial process, tonight we take a look at the making of this delicious treat.

(BEGIN VIDEOTAPE)

(MUSIC PLAYING)

LANCE FORMAN, MANAGING DIRECTOR, FORMAN & FIELD: Freshest salmon, a little bit of salt to preserve it, a little bit of smoke to preserve it, too, and to help the flavor. But that's it. It's really about simplicity.

The process of curing, the hand filleting, the hand slicing of the fish, it's all exactly the same as it would have been 100 years ago.

We now claim to be the oldest producer of smoked Scottish salmon in the world.

(MUSIC PLAYING)

FORMAN: The first step of the smoked salmon process is to source the freshest and best quality salmon that you can get your hands on. We're buying on average 2 to 3 tons of salmon per day. We fillet the fish completely by hand, doing it by hand means you can work with much fresher fish.

And actually if you've got good skilled people, you get a better yield because you can follow the shape of the bone with the knife. We then sprinkle it with salt. And that is traditional curing. And we leave it in salt for 24 hours. And that draws out about 10 percent of the moisture. You can see water literally dripping off the tails of the fillets.

(MUSIC PLAYING)

FORMAN: The cured fillets are then put into the kilns, where they're smoked. And they're dried and smoked again for another 24 hours. And during that process, we lose another 10 percent of the weight.

Ooh.

So this is how we create the smoke. We take a whole log of oak and we grind it. There's an uneven metal wheel there that spins around at very high speed. And it grinds the log. And it creates smoke by friction burning it. And the beauty of this process is that you have complete control over the smoke levels.

There are a lot of skills in what we do, you know, in the filleting of the salmon and the hand slicing of the salmon, even the pin boning. These are skills that take time to develop and certainly take time to develop at speed so that you can do it in a commercial setting.

I feel immense pride not only in our factory but in the course of the product itself. You know, to have a family business in its fourth generation, I think it's quite unusual nowadays. And it's a fantastic product to be associated with. (Inaudible) Britain's first-ever homegrown gourmet product.

(END VIDEOTAPE)

QUEST: I love smoked salmon.

We'll have a "Profitable Moment" after the break.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

QUEST: Tonight's "Profitable Moment": it is difficult to comprehend the budget machinations taking place in the United States. But perhaps today, with the Dow off just 136 points, we are starting to see the very small tremors that will only escalate and accelerate as we get ever closer to October the 17th and the debt ceiling deadline.

The debt ceiling, to be sure and to be clear, is way more important than the U.S. government shutdown. The debt ceiling goes to the very heart of the global financial system. Every country, every citizen in some shape or form will be affected if the U.S. government decides to default.

And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, I hope it's profitable. I'll see you tomorrow.

END