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Government Shutdown Continues; Debt Ceiling Looms; Interview with Congress Steve King; Questions Over Wall Street's Reaction to Debt Ceiling Debate; Oarfish Found on Catalina Island

Aired October 16, 2013 - 07:00   ET


CHRIS CUOMO, CNN ANCHOR: Here's what we do know. The government is still in partial shutdown. Families suffering, the treasury is at risk of running out of borrowing power. So what will happen then? We're going to lay out the dominos for you and show what could fall and on whom, what it could mean for the economy, and more important what not paying obligations could mean to you and people like you.

So we'll also talk about what every day Americans are doing to deal with the situation right now, and we will do our best to hold feet to the fire and ask the questions we have to do. That will be Kate's job down there in Washington, D.C.

KATE BOLDUAN, CNN ANCHOR: That's right, Chris. This morning we'll be joined by several lawmakers to talk through where they stand on this and where we're going to go from here. You see them right there on the screen. We'll get to that, much more in just a second.

So let's take a look right now about where things stand. The Senate called it a night just after 10:00 with no deal in place, though there are glimmers, promises of hope this morning. This morning, markets open at 9:30 eastern. We'll see if lawmakers make an effort to calm investors before then.

The House is back in at 10:00 and the Senate returns at noon where they will be picking up efforts to hammer out a deal. But it remains unclear, quite honestly, no one knows how any plan that comes from the Senate could be received by more conservative members of the Senate and in the House and by the Republican-controlled House. We have every angle covered for you this morning to try to figure out what this means for you. Let's start with senior White House correspondent Jim Acosta at the White House. Good morning, Jim.

JIM ACOSTA, CNN SENIOR WHITE HOUSE SECRETARY: Good morning, Kate. Senate leaders Harry Reid and Mitch McConnell are busy working on a deal to prevent the government from going into default. Here is what the deal looks like right now, just got this in the last several minutes from a Senate GOP source. Let's put this up on screen.

The government would be re-opened and funded through January 15th. The debt ceiling would be raised until February 7th. A new budget commission would be created presumably to work through this briar patch of various budget issues that House Democrat and Republicans, Senate Democrats and Republicans have been wrangling over. Also, income verification requirements for the new health care law and sequester flexibility, giving agencies some flexibility to manage those forced budget cuts in the sequester. I talked to a Senate GOP source earlier this morning who said they believe there's still some time to avert a government default in the next several hours. In the words of that source, fear not.


ACOSTA: Time is running out, the debt ceiling is within sight and, the last best hope of avoiding a potential default once again rests with Senate leaders Harry Reid and Mitch McConnell, who are back to working on a last-minute deal.

REP. CHARLIE DENT, (R) PENNSYLVANIA: John Boehner will likely be in a position where he will have to essentially pass the bill that is negotiated between senators McConnell and reed. I believe the House would first pass it and send it to the Senate.

ACOSTA: President Obama called for quick action.

BARACK OBAMA, (D) PRESIDENT OF THE UNITED STATES: We don't have a lot of time. And so what I'm suggesting to the congressional leaders is let's not do any posturing. Let's not try to save face.

ACOSTA: The president appeared to put the blame on House Speaker John Boehner's inability to corral Tea Party backed Republicans.

OBAMA: There have been repeated situations where we have agreements, then he goes back, and it turns out he can't control his caucus.

ACOSTA: That caucus is once again up in arms despite Boehner's tough talk.

REP. JOHN BOEHNER, (R) HOUSE SPEAKER: I have made clear for months and months that the idea of default is wrong, that we shouldn't get anywhere close to it.

ACOSTA: The speaker failed to convince House conservatives to line up behind Republican proposals to lift the debt ceiling and end the shutdown. It didn't matter anyway. As Reid said, the GOP's plans were dead on arrival in the Senate.

HARRY REID, (D-NV) SENATE MAJORITY LEADER: Extremist Republicans in the House of Representatives are attempting to torpedo the Senate's bipartisan progress with a bill that can't pass the Senate.

ACOSTA: That portrait of Washington dysfunction was all the respected Fitch ratings agency needed to see. Fitch issued a warning it may downgrade the nation's AAA credit reporting, a potential repeat of what Standard & Poor did after the last debt ceiling debate of 2011. Although Fitch continues to believe that the debt ceiling will be raised soon, the agency says the political brinkmanship could increase the risk of a U.S. default. Some House conservatives were brushing off talk of dire consequences to come.

UNIDENTIFIED MALE: I just think most folks understand October 17th is not the drop dead date. There are no payments due for a couple weeks.


ACOSTA: Now, the White House has a different view on that. And we may be hear something of that from President Obama and Treasury Secretary Jack Lew who are scheduled to meet later today. While the White House has been hinting that the treasury department may go into a process they call here in Washington a prioritization, and that is picking and choosing which bills to pay, a senior administration official did tell CNN last night that they are hopeful that if a Senate deal starts to come into shape and it appears that the house Hill take a look at it and perhaps even pass it, get it to the president, or if that happens in the reverse order, that perhaps they won't have to go into that process, and they're hoping that the markets will remain calm during all of that unfolding.

But of course, Kate, there is a long way to go. We started out with a lot of hope yesterday and it didn't end as the evening fell here in Washington. Who knows if we'll see that all over again, Kate?

BOLDUAN: Who knows? I think that's the only thing we know at this point. Jim, great to see you. Thank you so much for laying that out for us.


BOLDUAN: Let's talk more about this, the potential economic impact, where negotiations are right now, with a key Republican in the House, Congressman Steve King, Republican of Iowa. Congressman, it's great to see you. Thank you so much for joining me this morning.

So as Jim Acosta was laying out the potential, the threat of what will happen if the nation hits the debt ceiling, what are you concerned about? Are you concerned about the potential economic crisis that could be caused if we pass this deadline on Thursday, because we are in the 11th hour now?

REP. STEVE KING, (R) IOWA: I'm not worried about this thing they term default because we are going to service our debt. We're going to pay the interest first and roll the principal over. It takes eight percent of our revenue stream on average to pay the interest on our debt. So we'll manage the national funding stream. We'll be just fine.

But I am concerned about all the rhetoric around this, about the weeks and months building up to this point and the utilization of that term "default." I'm concerned it will scare the markets. I'm concerned that the president's remarks on this will scare the markets. So I don't know what happens when we get to tomorrow, midnight tomorrow, as to whether there will be a dramatic reaction or not.

BOLDUAN: Then what do you make of when the credit ratings companies, Fitch, is threatening to downgrade the credit rating. You're not worried about that?

KING: Of course I'm concerned about that. If we watched last time there was a threat, and we raised the debt ceiling. And then our credit rating was downgraded after we raised the debt ceiling, not before. And so you would think that if raising the debt ceiling would give us a better credit rating, that would have happened in the opposite way.

BOLDUAN: What about all the other things we need to be focusing on? Paying the interest on our debt is very important, but you know the list. We've talked about this. We have a big Social Security payment coming up. We have Medicare, Medicaid, veterans benefits. All of these things are being threatened right now. How do you prioritize?

KING: Actually all of those things you mentioned we'd have the revenue stream to pay.

BOLDUAN: You believe that?

KING: I do. But I think we get down into that point where it gets really, really tough in a relatively short period of time. It isn't something that happens at midnight tomorrow night, but it's something incrementally where we are bringing in 60 percent of the money we're spending. So over time this will squeeze these accounts down, and it's a matter.

BOLDUAN: Over time could be days.

KING: Probably of weeks is how I estimate it.

BOLDUAN: Why do you even want to get there? I need to understand and I know American people want to understand right now. This is go time. Where do you stand? What are you willing to pass?

KING: My stand is there's two things I would put on the table, and say let's go down one path or another, even both. The first one is a balanced budget amendment to our constitution.

BOLDUAN: Not going to happen right now. You know that.

KING: Not today. It takes a little bit to push that, and not next week. But if that passed out of the House and the Senate, it takes a two-thirds majority, they came within one vote of getting that done in 1995. Had that happened --

BOLDUAN: Very different make-up of Congress right now, you know that.

KING: It is. And I think that we have a lot of prudent conservatives there that will follow on that.

BOLDUAN: That may be an admirable goal. We're hours out from a deadline.

KING: Setting that aside.

BOLDUAN: Is there anything that can come over from the Senate you're going to pass?

KING: Yes. BOLDUAN: You know the contours of what's being negotiated. Be honest with me here.

KING: Let's take a good, serious look at the entitlement spending and let's put a plan in place to get that under control. If we fail to do that and the expression kick the can down the road, kick it down the road, at a certain point our children are having their children and they're still in a greater and greater debt. If we're not willing to take a stand now, then when will we take this stand? We watched this thing move ahead and watched our debt go up by more than $1trillion a year an average each year of this presidency.

BOLDUAN: I hear you're standing by your principles, but I'm also hearing you're saying basically there pretty much isn't anything that's going to come out of the Senate or the House that you'll vote for.

KING: Not in the next 36 hours I don't expect will be the case. And so that means then if the Senate, put this in quotes, "jams the House" and sends a bill over that rolls in the CR and into the debt ceiling together, then the speaker has to make a decision on whether he will take that up or refuse to take that up.

BOLDUAN: I want to ask you about Speaker Boehner. This has unraveled in spectacular fashion in a very public way and people have been watching this closely. Do you support speaker John Boehner and how he's handled this? Do you support him still today?

KING: I would say generally, yes. I've made those remarks on almost a daily basis since this thing began.

BOLDUAN: Yesterday it seemed to change some things for some folks.

KING: Here's the situation is that he's in a box now. One of the things that have happened is they put an offer on the table, the House Republican, Speaker Boehner. And then Harry Reid rejected it. And then another offer, another offer, another offer, actually four offers out there. And the president and Harry Reid have refused to negotiate it each step of the way.

And so what we should have really done, this is what I argued for, is don't give a second offer. Just say my offer is on the table, and until you come with a counteroffer we're done talking.

BOLDUAN: His support unraveled yesterday. Conservatives wouldn't give him anything. Moderates started falling off the boat. He's got nothing.

KING: This is the 12th or 13th propose all altogether. He is in a place where he narrowed it up to where there's nothing left except a tiny difference between the House's offer and Harry Reid's position, which was my way or the highway.

BOLDUAN: This is reminding me of a line I hear a lot covering Capitol Hill whenever we're in the middle of a big crisis -- don't let the perfect be the enemy of the good. It seems that's what you're doing here.

KING: We're so far away from what's perfect, I think the American public lost track of that.

BOLDUAN: What are the American people getting out this, congressmen? Right now all they see is the government still shut down, they're threatening to hit this debt ceiling, and what they're get is a two or three-month patch and we'll be right back here.

KING: Here's what the American people get out of Barack Obama's proposal and Harry Reid's proposal -- perpetual debt, perpetual increasing deficits --


KING: Do you think that's the case? Do you think that the American people, and this is a decision that is worthy of discussion, are the American people more interested in getting rid of the argument here and accepting whatever comes after that or do they want to see fiscal responsibility?

BOLDUAN: I think they want to see fiscal responsibility, of course they do. But not --

KING: There's a price to be paid for that, though. You have to hold your ground at some point. Harry Reid is not interested in fiscal responsibility. Barack Obama surely is not. He's interested in borrowing more money.

BOLDUAN: The price being paid isn't being paid by you or anyone in that building. It's paid by everyone outside of that building.

KING: I have to agree with this -- if this is conservative Republican plan had been implemented five years ago, say at the inception of what is now the Obama presidency, we would have far less debt and deficit. We wouldn't be in this situation today and the American people would say, good, we're glad you took a sacrifice in the short term so in the long term we're better off.

And if we see interest rates rocket up, I'm not as concerned about our credit rating as I am interest rates. They could easily double. We're at historically low interest rates. It's eight percent of our revenue stream it takes to pay the interest on the debt. That could double, go two-and-a-half times in a matter of months, and then where are we? We'll go back and revisit this conversation, and then they'll say Republicans why didn't you stand stronger and longer?

BOLDUAN: I need to talk strategy, because I want to know where things go today. Do you have any indication they will?

KING: I don't have an indication they will at this point. I don't know if John Boehner wakes up with another new idea. I don't have a new idea that I can offer to him this morning. If Harry Reid decides to move and jam us, then Speaker Boehner has to decide am I going to bring it to the House.

BOLDUAN: One key factor is Senator Ted Cruz. I believe you were at that meeting that everyone talked about.

KING: The secret meeting.

BOLDUAN: Or not so secret. What are you hearing? Where is he? What's he going to do?

KING: I think he would speak to the press if he wanted a strategy to be discussed. I'll say this, that he made some strong, good points. He's taken a leadership position on this from a fiscally responsible and constitutional perspective. I think a lot of Ted Cruz and those who have taken a stand in the Senate. If they hadn't done that it would be redundant for the House almost to do so.

I will say something that concerns me is that just -- I'm not speaking of Ted Cruz, but I speak to a lot of conservatives, the discussion that's going on about the question, would the president refuse to pay the interest on our debt if we get past midnight tomorrow night? That one is chilling to me to think we're actually having discussions on whether the president would essentially willfully default on our debt.

BOLDUAN: The only thing --

KING: That's how that would happen.

BOLDUAN: I don't think the president would ever willfully default on the debt. I think you know that. Are there any measures left, tricks in the toolbox, something we don't know? One thing for sure people are concerned about, we're in unchartered territory. We don't know what will happen if we walk off the cliff. I don't know if we want to be there.

KING: Say we get to tomorrow and they declare they're out of means to borrow money. I actually don't believe it's a hard break tomorrow. It's just a date they picked on the calendar. We expected this to come maybe as far back as last May.

BOLDUAN: If Congress had only been working all the way to this point to avoid this.

KING: But they delayed it. So we are where we are today, and I don't think it's a hard break. I'm more concerned about market reaction than I am default itself. And I think the markets will adjust. Smart money always adjusts in the right direction.

BOLDUAN: Smart money would also like Congress to do its job. We'll talk more about this later. Congressman, great to see you. Thanks for coming in, as always. Thanks for having me back on the Hill.

KING: It is a beautiful morning.

BOLDUAN: It is actually a very beautiful morning. We're going to have much more on our coverage of the debt ceiling and where things go from here in the negotiations. Congressman Steve King with me here right now. But Chris, right back to you first.

CUOMO: All right, Kate. You are right. One thing is for sure, the men and women in Congress are not the ones paying the price for the shutdown right now. One of the things that the congressman just said there, is that this deadline not that important to him. That may rile markets. So, let's bring in business correspondent Alison Kosik to explain.

The congressman very calm, but was he correct? The recollection of what happened to last time when we took the rating hit in 2011 with the debt ceiling, what happened to the markets afterward?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: The markets did not react favorably. The Dow tanked 600 points, that's despite the fact that the debt ceiling was raised. The problem is the way the markets perceived it is that this political brinkmanship was right down to the wire, to the minute. The market doesn't like that, politicians playing with things. That uncertainty made the Dow tank. How did that affect Americans? They felt it in their 401(k)s because the S&P fell as well. They're playing around here. They seem like it's just numbers, but it's hitting America's pocketbooks, at least it did in the last political brinkmanship over the debt ceiling.

CUOMO: You heard the Congressman say he would reject any plan that comes along now, the next 36 hours. The markets are listening to that. Stock futures up, bond futures down. That's the fear that we're talking about, especially as we look at prioritization of payments. Is the congressman right? Can you have enough money they way it fluctuates in revenue coming in, to pay everything that's coming up?

KOSIK: How does he know what's going to happen? We've never been here, we're in uncharted territory. We've never been to the point where we don't raise the debt ceiling. How does he know what's going to happen? What everybody's assuming, what many people are assuming, is that you're going to have to have a choice, do you not pay those getting Social Security checks? What about veterans' benefits? How do you make that choice? Who gets priority? Why would the folks getting Social Security benefits get their checks but the veterans won't? That's down to pocketbook issues. That's where it hurts.

CUOMO: Have you seen a model yet that says we'll have enough revenue to pay everything if we don't raise the debt ceiling?

KOSIK: No one knows. I mean, it's a big question mark. That's the irony in all this is that everybody is talking theory. No one really knows.

CUOMO: Alison Kosik, thank you very much.

We'll take a break. On NEW DAY when we come back, an arrest in the dry ice bombings at Los Angeles International Airport. How police say the suspect was able to re-enter restricted areas.


CUOMO: Welcome back to NEW DAY. Breaking overnight, an arrest has been made in connection with the dry ice explosions at Los Angeles International Airport. CNN's Casey Wian is in L.A. with the latest. Good morning, Casey. What do we know about who did this and why? CASEY WIAN, CNN CORRESPONDENT: Good morning. Well, Chris, Los Angeles police department last night said it arrested a 28-year-old man by the name of Decarlo Bennett. He's an employee of a grounds services company here at Los Angeles International Airport. He was arrested in the city of Paramount about 15 miles to the east of here.

He is being held on a charge of possessing or exploding an explosive, destructive device near an aircraft, where some of those bombs were left right behind me on the tarmac at the Tom Bradley International Terminal.

Just to show you how seriously law enforcement authorities are saying this situation, even though no one was hurt, no damage was done, his bail has been set at $1 million. Chris and Michaela?

CUOMO: Thank you very much. Appreciate the latest from you this morning.

PEREIRA: Let's take a look at the headlines this morning. Starting with Iran. Back at the table in Geneva to convince world powers its nuclear program is for peace, not war. In the hoping for a break from economic sanctions. A senior State Department official telling CNN that for the first time, the nuclear discussions have been very technical and detailed. Israel raising caution about this optimism saying don't be too quick to relax sanctions.

The Tokyo area pounded overnight by Typhoon Wipha. At least 14 people are dead, most of them from flooding and landslides. More than 500 flights at Tokyo's two major airports have been canceled, along with bullet train rail service in central and northern Japan.

A Pennsylvania teen is in custody, two others are being sought after a disturbing videotape beating on a school bus was posted on Facebook. The victim was taunted and punched in the face. The video showing blood pouring from his mouth. That student asked the driver to stop but the driver refused and in fact did not report the incident. That driver could now face charges.

A suspect who attempted to car jack of Cal Ripken Jr.'s mother is in custody. Violet Ripken was at a bank in Aberdeen, Maryland when she was approached by a man brandishing a gun. She set off the car alarm on her key fob. The man fled. Police were able to track him down a couple hours later. This is the second such incident for Mrs. Ripken, who just last year was kidnapped and held for 24 hours.

Okay, Mr. Angler, or pescatore, here we go! A giant creature from the deep washes up off the shores of southern California. Look at this. This is 18 feet long. It's called an oarfish. Very serpent-like. It took more than a dozen people to pull it on shore. Oarfish apparently live thousands of feet below the surface and almost are almost never seen. For this reason, scientists are going to study this one which apparently died of natural causes. They're going to preserve it, let it decompose, take the skeleton, preserve it, and mount it because this is something that most of us never get a chance to see. Why the face?

CUOMO: I don't want to see it.

PEREIRA: You don't want to see it.

CUOMO: You know what I also hope didn't happen. Sometimes we hear that these draggers wind up dumping fish and they wind up dumping them because they're not part of the catch. Hopefully this is just natural reasons.

PEREIRA: But again, it's been so rarely seen when it just kind of comes to the surface like that.

CUOMO: What do you think, Indra Petersons?


PEREIRA: No comment?

PETERSONS: I have a lot to say. I'm just going to go like this. Totally zipping it for like 30 seconds, then it all changes.


PETERSONS: All right.

We're talking about a cold front today across the entire country again. Very slow moving, bringing some light rain with it. Heavy rain down through Texas. We have remnants of octave in the pacific. With that still, even 4 to 5 inches of rain. Possible through Texas and spreading through Arkansas and Louisiana. That's the trouble spot.

The bigger story will be the cold pocket of air making its way across the country affecting the Midwest and Ohio valley. Look at the temperatures and you'll notice where you see the blue and green, that's where the cool air is. By the weekend we see the cool air moving into the northeast.

This is where I stop zipping it, 62 degrees, a magic number for Mr. Cuomo, right? It looks like 62.4 is holding him back. No game at that point. Everyone tweet Chris, let him now that 0.4 degrees should be holding back his game. A little bit farther north --

CUOMO: What's that?

PETERSONS: We can start to see a little bit of game.

CUOMO: What's that?

PEREIRA: So many pictures of him fishing.

CUOMO: What's that? That's the size of Cape Cod, according to your map.

PETERSONS: So let us know what you think -- 0.4, should that be holding him back?

PEREIRA: That's a young Chris Cuomo there. CUOMO: No, not really.


CUOMO: That's a striped bass. You're not taking the air out of the balloon. That was a great moment.

PEREIRA: Good eating?

CUOMO: I think that the smaller ones are better eating. We do catch and release. Those bigger ones sometimes don't make it.

PETERSONS: Very nice photo, Chris.

CUOMO: 62.4, ocean temperature is right. You'll love it when I bring back the fish for you.

PEREIRA: Can't wait.

CUOMO: Coming up on NEW DAY, a sheriff takes a stand against cyber- bullying. Important story. Drops the hammer on two girls charged with driving a young girl to her death. About time? Too little too late? We'll get into it.

BOLDUAN: Also ahead, the threat of a default now a matter of just hour, not days. We get the latest on the potential deal making its way here on Capitol Hill as we are covering from all angles in Washington.

We'll also talk about how it will affect your wallet. Much more, coming up.


BOLDUAN: Welcome back to new day, everyone. Wednesday, October 16th. I'm coming to you live from Capitol Hill in Washington. As you well know at this point, in less than 17 hours, the United States hits the debt ceiling deadline. Senate leaders, they say they are optimistic that they can finalize a deal today that would re-open the government and keep it funded into next year.

We're told the Senate deal will fund the government through about January 15th, and raise the debt ceiling through February 7th.