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AROUND THE WORLD

Debt Ceiling Talks; U.S. Default Effects; White House Meeting on Debt; U.S. Federal Government Partial Shutdown Continues; Debt Ceiling Looms; World Reacts to U.S. Political Squabbles

Aired October 14, 2013 - 12:00   ET

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


MICHAEL HOLMES, CNN ANCHOR: We are 60 hours away from something that hasn't happened before, when the U.S. reaches its borrowing limit and could default on its bills. Now world leaders have a message for Washington, raise the debt ceiling now.

Also this.

(BEGIN VIDEO CLIP)

UNIDENTIFIED REPORTER: Interest rates on home loans could spike or even worse, we could see another credit squeeze making it much harder to borrow.

(END VIDEO CLIP)

HALA GORANI, CNN ANCHOR: Racing for default with Thursday's deadline could mean for home buyers, investors and the global markets.

ANNOUNCER: This is CNN breaking news.

GORANI: Welcome, everyone. Welcome to AROUND THE WORLD. I'm Hala Gorani, in for Suzanne Malveaux.

HOLMES: And I'm Michael Holmes. Thanks for your company today.

I want to bring you some news we just got in from White House officials, saying that today at 3:00 p.m. the president and vice president are going to be meeting with the majority leader, Reid, Minority Leader McConnell, and the speaker, Boehner, and Leader Pelosi. That's going to happen at 3:00 p.m. What comes of it, we're not sure. But, of course, with only a few days to go before that debt ceiling is reached or the -- we trip over into the risk of a default, obviously, a very important meeting. A White House official says that the president is going to reiterate principles to the leaders that, quote, "we will not pay a ransom for Congress reopening the government and raising the debt limit."

GORANI: Right. And it's a crucial meeting happening at 3:00 p.m. And, of course, we'll bring you the latest on that.

Meantime, happening right now on Capitol Hill, not too far from the White House, the House of Representatives is back in session. And they really need to be. It is day 14, you can see it there on your screen, of this government shutdown. HOLMES: Yes, at the moment, lawmakers still haven't reached a deal to end the shutdown and avoid that even bigger economic calamity going through into that debt ceiling period on the 17th. That deadline, that's now just three days away, less than 60 hours. And it's when the U.S. officially reaches the borrowing limit and then, in a matter of days, could default on bills already racked up. This is not new borrowing.

GORANI: Now, two hours from now, the Senate is officially back in session, but senators have already been meeting behind closed doors today. A little while ago we heard from Senator Susan Collins, who's been working on a bipartisan plan with Democratic Senator Joe Manchin and others. And she says things are looking more optimistic. Listen.

(BEGIN VIDEO CLIP)

SEN. SUSAN COLLINS (R), MAINE: We're making progress. We're going to continue to meet throughout the day. And the conversations have been very constructive.

UNIDENTIFIED MALE: And are you making any changes to your proposal at this point?

COLLINS: We're not going to release any details until we have an agreement. I hope we will have an agreement. We're making progress toward an agreement, but we're not there yet.

(END VIDEO CLIP)

HOLMES: Now, we also heard from Senator Bob Corker.

(BEGIN VIDEO CLIP)

SEN. BOB CORKER (R), TENNESSEE: But I think, at the end of the day, the culmination needs to be something between McConnell and Reid. And I think that all of the side talks that have occurred have helped create an environment for that to happen. So, you know, I think Mitch and - I know Mitch and Harry are talking and I think we're about to get to a place where, you know, again, we can move something hopefully off the Senate floor that's widely bipartisan. I think it's going to take that to having something move productively on the House side.

(END VIDEO CLIP)

HOLMES: So, with all this discussion, will the Senate really go for that agreement? And even if they do, what's going to happen when the deal moves to the House?

GORANI: Right. Let's bring in our chief congressional correspondent Dana Bash.

So we're finally seeing senators, it looks like, it appears as though they are making some sort of progress in this stalemate. And, I guess, if you look at it, in a certain way that's good news, quote unquote. But there's still many sticking points and then it needs, whatever agreement comes out of this, to go back to the House. DANA BASH, CNN CHIEF CONGRESSIONAL CORRESPONDENT: That's exactly right.

Let's start with where I'm told the key discussions are right now, which is they are between the Democratic leader in the Senate, Harry Reid, and the Republican leader, Mitch McConnell. Now, unclear if they've actually met face to face yet today or not, but my understanding, according to sources in both parties, is that they actually had discussions that were more productive than they were perceived to be over the weekend and that, you know, the issue still is, how long would they raise the debt ceiling for and how long would they fund the government?

Now, those are not unimportant issues. Those are obviously the key issues that they have had problems over. And the line in the sand for the Democratic leader, I'm told, in these discussions, is that he doesn't want to open the government and to fund the government longer than the end of the year.

Why is that? Because what happens in January is a new round of forced spending cuts, across the board spending cuts kick in, meaning we're already in them now and then another round is going to happen. And Democrats simply do not want that to happen and they're afraid if they fund the government through then, then that would lock those spending cuts in place and it's harder to get out of them.

So - and I'm also told that Mitch McConnell, the Republican leader, is saying, you know, that he's driving a hard bargain as well because he knows that conservatives, for the most part, like the idea that they are forcing the government to cut spending. So I'm told that that is sort of in and around where the discussions are now. You know, we'll see what happens when they go over to the White House.

HOLMES: And, Dana, so you've got a group of senators working on this deal. Maybe it will get traction, maybe it won't. But you've also got the Senate leaders talking.

BASH: Exactly right. As I just mentioned, the Senate leaders are talking, but this group of bipartisan senators, they're important for many reasons, but primarily because if and when the Senate is going to vote, they're going to need these senators to, you know, help carry the water. They're going to need the kind of senators that are in these rooms, meaning moderates, on the Democratic side and the Republican side, to sign on to this in order to get the big vote that you heard Senator Corker discussing just now in the hallway.

So, right now, if you look up on the screen, this is sort of the -- these are the parameters that they're talking about, obviously funding the government, extending the debt ceiling. Senators who came out of the meeting this morning said that they are sort of working -- they're flexible on those dates, which is really key to getting a deal. But then they are also talking about things that have to do with Obamacare, delaying a medical device tax that helps pay for Obamacare and verifying income levels for people who want to get federal subsidies for Obamacare. Now those are issues that Democrats have said, you know, and even the president has said over and over again, in public and in private, he doesn't want to even discuss changing his signature law until and unless the government is reopened and the debt ceiling is raised. But you do have senators who are -- Democratic senators who are in these bipartisan meetings who say, you know what, we might have to give a little bit, not just to get it through the Senate, but to get this through the House, which, as we have seen for the past few weeks, that is obviously going to be the big challenge.

GORANI: Right. Right. Eventually it will have to get back to the House, as well. Thanks very much, Dana Bash, live on Capitol Hill. We'll be in touch, of course.

HOLMES: Indeed. Well, the uncertainty over the U.S. government possibly defaulting on its obligations obviously making a lot of people nervous, especially people who have money invested on Wall Street.

GORANI: Although maybe let's not overstate it too much.

HOLMES: Yes. It was -

GORANI: Because if you call nervous down 21 points -

HOLMES: Yes.

GORANI: Things have been worse. We've seen -

HOLMES: It was down half a percentage point earlier.

GORANI: And even so, half a percentage point, 1 percent, I mean that's not panic. Overall it appears as though Wall Street is betting on a resolution to this. They don't believe politicians in Washington will be -

HOLMES: Yes.

GORANI: Let's be honest, insane enough to let the U.S. default on its debt. Right now we're seeing the Dow Jones, as I mentioned, there above 15,000 comfortably, losing about 22 points.

So the question is, how would a default impact people personally?

HOLMES: That's what's everyone wants to know. Alison Kosik with some answers.

(BEGIN VIDEOTAPE)

ALISON KOSIK, CNN CORRESPONDENT (voice-over): The U.S. is three days away from the debt ceiling deadline. The possibility of default sparking concern of potential economic turmoil around the world.

OLIVIER BLANCHARD, IMF ECONOMIST: If there was a bomb lifting the debt ceiling, it could well be that what is now a recovery would turn into a recession, or even worse. KOSIK: Here at home, a default could mean a serious hit to your investments. Like your 401(k). Wall Street now waiting on Washington to dictate the trades as banks are predicting the S&P 500 could see painful losses as high as 45 percent if an agreement isn't reached.

GEORGE HOWELL, CNN CORRESPONDENT: Here in Chicago, we've seen the housing market really pick up here in the last year. And like many places, that has been helped by low interest rates for people looking for loans. But all of that could change if the government defaults because interest rates on home loans could spike or, even worse, we could see another credit squeeze making it much harder to borrow.

KOSIK: A default also means interest rates for credit cards and student loans would spike as well as payments from the government would dry up.

UNIDENTIFIED MALE: Washington meet main street. We're here outside of a local Social Security Benefits Administration office here in Washington, D.C. Could we be seeing worried recipients of those benefits show up at offices all across the country? Roughly 58 million Americans rely on those benefits, but Treasury Secretary Jack Lew, he says if the debt ceiling isn't raised, it could be a problem paying them.

KOSIK: The ripples of a default would be far reaching. The global marketplace feeling the effects of the weakening dollar. The U.S.'s current debt limit sits just under $16.7 trillion.

JACK LEW, TREASURY SECRETARY: Our systems were not designed to not pay our bills.

KOSIK: Despite some cries of impending chaos, some Republicans say sounding the alarms is a bit sensational.

UNIDENTIFIED MALE: I'd rather have a managed catastrophe now, which I don't think will be there.

UNIDENTIFIED MALE: I think this is the 11th time I've been through this discussion about the sky is falling and the earth will erupt.

KOSIK: More recently, the U.S. teetered dangerously close to the debt ceiling deadline in August, 2011, where a deal was struck in the 11th hour.

(END VIDEOTAPE)

GORANI: Well, Alison Kosik joins us now with more.

So you would think, as we were mentioning there before your report, Alison, that markets would be down more right now. Investors, not too worried, at least as far as the Dow is concerned. Why not?

KOSIK: Exactly. So, Hala, what seems to be happening here is Wall Street seems to be resigned to the fact that a debt deal is going to come in. They think it's going to come in, in the 11th hour. They're kind of used to those 11th hour deals. Doesn't mean they like it. But some traders that I've talked to today, they say as we get closer to the deadline, without a deal, though, you may see this change, where a selloff would stick.

Look at today's 100-point drop on the Dow at the opening bell. That only lasted a short time. One trader puts it this way, saying, you know what, Wall Street, it's like a voting booth. And at the open today, when the opening bell rang, you saw Wall Street express disappointment. Now when you see movement through this White House meeting happening at 3:00, you're seeing Wall Street kind of pare its losses and you're seeing more optimism on the hope that with talk would come a deal.

Hala.

GORANI: OK, Alison Kosik, thanks very much. She's live on Wall Street.

HOLMES: Here's more of what we're working on for you this hour on AROUND THE WORLD.

China, the biggest foreign holder of U.S. debt. And with the debt ceiling deadline just days away now, look at that, 59 hours, 48 minutes. Well, that country, China, airing some frustrations, saying perhaps it's time to consider a de-Americanized world.

GORANI: Plus, she was only three when she vanished on vacation with her parents. Now there are new leads in the Madeleine McCann investigation.

HOLMES: And check out this video. Some scary moments for dozens of people when a bridge they're walking on falls into the water. We'll have that as well.

(COMMERCIAL BREAK)

ANNOUNCER: This is CNN breaking news.

GORANI: Welcome back, everyone. You're watching AROUND THE WORLD.

So we're reporting that at 3:00 p.m., President Obama is going to be meeting with congressional leaders from both parties in an effort to resolve this big crisis that has led to the government shutdown and just a few days away from the debt ceiling crisis.

HOLMES: Not long. Look at that, 59 hours, 44. We'll keep counting it down for you.

Brianna Keilar is at the White House.

What is the message that you're hearing that the president is going to deliver to the congressional leaders?

BRIANNA KEILAR, CNN SENIOR WHITE HOUSE CORRESPONDENT: You know, we're still really trying to figure that out, Michael and Hala. We understand that there is this meeting that President Obama will have here in a few hours. But the question really is, is it to push congressional leaders along towards a resolution? Might it be to highlight some of the progress that has been made? We don't really know at this point.

What we do know is that Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell have been in discussions about trying to find some common ground here in order to reopen the government and increase the debt ceiling.

They've been apart as we understand it on some pretty key issues, that being the White House and Senate Democrats want that debt ceiling increased, really, for as long as possible, but there's kind of a hitch when it comes to reopening the government.

If the government is reopened through, really -- or if it's funded through the new year, there's a whole new round of spending cuts. Remember, we're already in them. It's called the sequester.

But there's supposed to be an additional $20 billion in spending cuts that kick in at the new year. Democrats are worried that, if the government is funded into January, that those spending cuts go into effect for the rest of the year.

So there's still some things they're wading through here and we're obviously hoping to see if there is some progress from this meeting where President Obama will be meeting, we understand it, with the vice president as well as Mitch McConnell, the Senate Republican leader, and Harry Reid, the Senate Democratic leader, Nancy Pelosi the House minority leader and House Speaker John Boehner.

Michael and Hala?

HALA GORANI, CNN CO-ANCHOR: And, Brianna, what is the sense among your sources at the White House and those people you speak with at the White House, off-camera even?

Is there a real concern we're headed for a debt default right now, or is the feeling, as it is on Wall Street, that, OK, it's a crisis now, it's a little scary, but eventually we'll come to some sort of an agreement at the 11th hour?

KEILAR: You know, they're -- I think ultimately, Hala, everyone always thinks that they will come to an agreement at the 11th hour. Why is that? Because they have to. That's what people will tell you. They have to, because if they don't, the economic ramifications would be huge.

But when it comes sometimes to the progress, it's really unclear. That's why we're sort of hanging on to really every little movement to see if there is that progress.

There is real concern here that we could move towards a default, and over the weekend, things seemed kind of doom and gloom, not a lot of movement. We saw plans, Republican plans, rejected in the Senate and the House.

So I think there is concern, but we're also told that these discussions going on between Harry Reid and Mitch McConnell have been more fruitful than maybe we sort of got the feeling of over the weekend.

But really in terms of concrete, is there this agreement, what does it look like, we don't know and that's really the thing that will inspire some confidence that we're not heading to a default.

GORANI: All right, we'll see if it's short term or not, which is also a big deal, kicking the can down the road.

Thanks very much, Brianna Keilar, live at the White House. And we'll keep our eye on Washington with more.

But internationally, there's also reaction to this giant mess.

MICHAEL HOLMES, CNN CO-ANCHOR: Sure is. China, for example, the biggest holder of U.S. debt, biggest foreign holder of U.S. debt, and with that deadline just days away, the country airing frustration, talking about, is it time to consider a de-Americanized world?

The outside world certainly looking in and not liking what they see with the system.

(COMMERCIAL BREAK)

GORANI: Welcome back, everyone.

While Congress haggles over raising the government's debt ceiling -- we should say the country's debt ceiling -- the world is starting to chastise the United States.

HOLMES: Quite frankly, most of the outside world looking in can't believe it's come to this.

Now if Congress doesn't increase the debt limit come Thursday, the U.S. inevitably and eventually won't be able to borrow the money to pay its bills and creditors.

This is debt that's already racked up. We're talking about creditors like China, which holds $1.2 trillion in U.S. treasuries.

GORANI: And for not the first time, by the way, China is saying that it's frustrated.

Here's what China's government-owned newspaper published. Quote, "It is perhaps a good time for the befuddled world to start considering building a de-Americanized world."

Let's bring in Richard Quest who's been following the markets and world reaction.

So here you have China once again, because we had the vice minister -- correct me if I'm wrong, Richard, but was it the vice minister of the economy or foreign affairs, just a few days ago, essentially saying Washington, get your House in order?

Now we have government press saying maybe the world should be America- free. HOLMES: On top of that, the IMF, World Bank, everybody's worried.

How significant is China?

RICHARD QUEST, CNN INTERNATIONAL'S "QUEST MEANS BUSINESS": China is very significant in the sense of it has this $1.2 trillion worth of U.S. debt.

Of course, that's a double-edged sword. You know the old line. Owe the bank $50, that's your problem. Owe the bank $500 million, that's the bank's problem. It's a bit like that.

China can't be seen to do too much damage to the U.S. economy, its threats and its comments because they've got so many of their bonds and they'll be the first to suffer as a result.

This article calls Washington -- this is in the Xinhua news agency. It calls Washington "self-serving," it says the United States is a hypocritical nation and it finishes with, "The beltway politicians first begin with ending the pernicious impasse that is exists."

Now it's not clear exactly why the Chinese have got themselves all of a swivet and so soon. Earlier last week, the deputy governor for China's central bank, the People's Bank of China, he, Mr. Yi Gang -- he was far more moderate, but quite steely when he told me what he wanted.

(BEGIN VIDEO CLIP)

YI GANG, DEPUTY GOVERNOR, PEOPLE'S BANK OF CHINA: Adding this budget and that limit uncertainty would be hurdle for the recovery and for the future development of the economy.

So that I think they should have the wisdom to solve this problem as soon as possible.

(END VIDEO CLIP)

QUEST: Now, that's classic understatement, and what we're seeing is the ratcheting up of the rhetoric, and for a very simple reason, Hala and Michael. The rest of the world is very worried.

The IMF downgraded global economic growth. It's only just returned to the eurozone, emerging markets are being clobbered at the threat of U.S. tapering by the Fed.

So whichever way you turn, the last thing anyone needs, including incidentally, the U.S. economy with its 1.8, two percent growth in sequester is another shoe to fall in the form of this.

HOLMES: And, Richard, you just spent a few days in Washington talking to economic leaders around the world.

When they look at the U.S., the system here, do they say why do you have a debt ceiling to begin with? Now the Americans will argue, well, it's in the Constitution, but the reality is, there's two countries in the world with a debt ceiling and, when it can be used as a weapon, that can't be a good thing.

QUEST: The debt ceilings is an artificial construct. They can change that in a flash. There's a thousand-and-one different things they can do to get rid of the ceiling without having any great problems. It's completely artificial in that respect.

No, they -- anybody who was an attending the IMF and World Bank has a pretty good knowledge of U.S. affairs and they know the balances and checks and balances between Congress and the administrative and the executive and all that and the legislative.

What they say is this is no way to run a country, and whilst is might be, ho-ho, hee-hee, the Americans are in trouble, now they're actually saying this is very serious because it could affect the rest of us.

And the U.S. has spent the best part of the last five years lecturing the rest of the world, they. say on how to put their house in order, not least the eurozone, and now the boot is very firmly on the other foot, and they want the deal done and done now.

GORANI: Right. Well, the debt ceiling raised many times without much fuss. Now very much politicized which is leading to the situation we're in now.

Thanks very much, Richard Quest, live in New York.

Error message and technical glitches apparently linger on the ObamaCare Web site. Our reporter Elizabeth Cohen has been trying to sign up for it for almost two weeks.

HOLMES: She even set her alarm for 3:00 in the morning to avoid high- traffic times, didn't work.

We'll talk to her when we come back.

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