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Unity For Change Rally; Obama lays out Ambitious Energy Plan; Learn to Beat Inflation

Aired June 27, 2008 - 12:00   ET


ALI VELSHI, CO-HOST: What a day. Oil well over $140 a barrel. Gas prices remain near record levels. The markets are jittery. Some blame oil speculators.
But today, one man says not so fast. We're fact-checking the very ambitious energy plan of Senator Barack Obama.

We'll show you how to beat inflation. And we're taking your phone calls.

Issue #1 is the economy. A jam-packed hour of ISSUE #1 starts right now.

Hello and welcome to ISSUE #1. I'm Ali Velshi.

We're all over high gas prices, inflation, your credit, and trouble ahead for your food.

We'll show you how more and more Americans are keeping their cars parked, and let you in on a new gas solution using hydrogen, of all things.

And I'll bet you didn't know your lifestyle, like charging a trip to the bar on your credit card, could hurt your credit rating. We'll get into all of that and tell you how to fix it.

And on top of all of these stories and solutions, we're going to be taking your phone calls today on ISSUE #1 topics. The number is 866-792-3399.

From the ISSUE #1 headquarters to the newsroom, we are all over the stories that matter to you.

GERRI WILLIS, CO-HOST: That's right, Ali.

We begin with the big story today: oil prices, gas prices, and the stock market. Crude soared more than $5 Thursday, taking the Dow down 350 points to a nearly two-year low. And today, oil prices are climbing even higher.'s Poppy Harlow, she's here with our "Energy Fix" -- Poppy.

POPPY HARLOW, CNNMONEY.COM: Hey, Gerri. Yes, show the top story here today. A lot of momentum, folks, in the energy markets these days. Yesterday, crude topped $140 a barrel for the first time ever. This morning, it topped $142. Oil has since pulled back just a bit from those record highs, but still, we are up more than 45 percent since just the beginning of this year. So you've got to be asking, what is going on?

A number of factors that play here, folks. The dollar continuing to fall against the euro. Libya threatening to cut its oil production. And OPEC's president says oil prices could get as high as $170 a barrel this summer.


HARLOW: Ouch, exactly.

Meantime, on Wall Street, the Dow heading lower. Adding to yesterday's 350-point decline, concerns about gas and food prices pulling consumer confidence down to a nearly 50-year low.

And airline stocks are certainly taking a hit. Record fuel prices mean more expensive flights, folks.

Check this out. Southwest Airlines, Delta and United say they are all hiking fares yet again. The surcharges range from $10 to $40 roundtrip.

And Gerri, guess what? Delta is now going to charge for award tickets.


HARLOW: Yes, exactly.

WILLIS: If I'm a frequent flier and I'm saving up all those points, and I go out to buy, they're going to charge me for that? That's crazy.

HARLOW: About $25 here for domestic tickets, $50 for international tickets. Pretty shocking.

WILLIS: That is shocking.

OK. Well, let's talk about -- I don't understand what's going on with oil prices. Look, the Saudis said just this past weekend that they were going to boost production. Shouldn't that bring down oil prices?

HARLOW: It should, but the energy markets are so volatile right now, Gerri. One little piece of news can send prices off and running. That's what's happening.

Even though Saudi Arabia said it's going to increase production if the markets demand it -- I think they're demanding it right now -- one analyst we spoke with is skeptical about the impact there. He said production increases won't be enough, and we're really in what he calls an inflationary spiral. You've got to also think about the Federal Reserve and how their actions factor in here, as well. Even though the Central Bank held interest rates steady this week, it slashed rates from more than 5 percent down to 2 percent, where they stand right now. That pulls down the value of our currency, prompts investors around the world to jump into the market.

And don't forget about demand here. A lot of demand coming from China.

I thought this fact was very interesting. In China, heating oil imports were 34 times higher last month than a year ago. So you see what the rest of the world is calling for.

WILLIS: Wow. That's interesting. OK, but let's get down to what everybody wants to know about, gas prices.


WILLIS: Where are they going?

HARLOW: Gas prices, folks, likely going up. We've seen a bit of easing this week, but remember, it takes about two weeks for oil prices to affect the price you pay at the pump.

And AAA says the national average for gas, right below $4.07 right now. So even though prices have dipped this week, that's nearly 40 percent higher than you were paying last year.

And for the latest oil and gas prices, Gerri, you can look on our Web site. But, you know, it's hard for folks out there. And you've got to think that this move in crude yesterday and today is certainly going to affect Americans across the board.

WILLIS: You bet it will. Next time you come, you have got to bring some happy news.

HARLOW: I know. I'm always the bearer of bad news.


VELSHI: Thanks, Gerri.

Well, it's the speculators' fault. That's what it is. That's what you hear everybody saying.

Oil prices this high, many members of Congress continue to blame speculators. But is speculation really driving the price of oil up?

Our next guest says no, and he says politicians simply don't understand oil trading. And probably the rest of us don't either.

John Burger is a senior writer for "Fortune."

John, you've laid this argument out very well. Fundamentally, you believe there is a reason why speculation doesn't play no part in this. There's obviously -- you need speculation for any market to work. But you're saying speculation is not where Congress should be looking.

JOHN BIRGER, SR. WRITER, "FORTUNE": Well, at least not right now. It's not having an impact now.

I mean, the thing to remember here is these so-called speculators are not buying oil, they're buying oil futures. And that's a big difference. People don't fill up their tank with oil futures.

And unless these speculators are actually taking delivery of oil and changing the supplies on the open market, their ability to affect price is pretty limited. And if you look at oil inventories, which have actually been declining, it's obvious that they aren't taking delivery. Mutual funds and hedge funds and pension funds, they don't take delivery of oil.

VELSHI: So you buy a fuel -- you buy a contract for oil. You buy a contract that says that on a particular day this is the price at which I can buy oil for. And by the time that day comes around once a month, it typically only is people who are using the oil who then own those futures.

BIRGER: Right. The PIMCO Real Return fund is not going to take delivery of that oil. They're going to sell that future before delivery is due. And if you believe that it creates a buy signal in the market that every time they buy the August (ph) future, then you have to believe the converse. It's creating a sale signal in the market every time they sell that future.

VELSHI: Which would mean we would see a dip every month at the same time, typically the day when they take delivery. And we haven't really seen that.

BIRGER: It means it's a wash. I mean, certainly there have been times where excessive buying in the futures market does have an impact.

If the future price of oil -- if the December '08 price is $150 and the current spot price is $140, that creates a real incentive for an investment bank to go out and buy oil on the spot market, pay for storage, and then sell it forward and pocket the difference. But right now, you don't see that. You don't see the storage numbers going up.

In fact, the future price is no different. It's in some cases lower than the spot price. So you don't see the evidence of speculation driving prices maybe the way you once did in the past.

VELSHI: So, largely, you think that it is supply and demand, or concerns over supply that's driving these oil prices?

BIRGER: Sure. We're seeing significant increases in demand overseas. This is the summer driving season, it's not a coincidence that the price increases seem to be the most extreme in May and June and July. I'd be surprised if we don't see some relief in September and October.

VELSHI: All right, John. Good to talk to you. Thanks very much.

And for more detail if you want to educate yourself on futures contracts. John Birger's article in "Fortune" magazine is a good place to start -- Gerri.

WILLIS: Ali, thank you.

Well, that brings us to our "Quick Vote" question today, where you get to weigh in.

Back now to CNNMoney's Poppy Harlow.

Hi, Poppy.

HARLOW: Hi, Gerri.

Of course, focusing on gas and oil prices today. You know, we've hit another record high for oil. How high can it go? We don't know, but an OPEC official says it can reach $170 a barrel this summer.

We are constantly hearing about all of the risks associated with our country's addiction to oil. But we want to know what you are most concerned about.

Here's our question today: Which is the worst aspect of our dependence on oil, environmental damage, lack of financial independence, or national security?

Make your voice heard on, we'll bring you the numbers later in the show -- Gerri.

WILLIS: Well, we look forward to that.

Poppy, thank you.


VELSHI: Well, why hydrogen could be the next big thing in fueling your car.

Plus, why certain foods could soon end up on the endangered list.

And we are taking your phone calls today. The number is 866-792- 3399.

We're all over issue #1 right here on CNN.


WILLIS: Could hydrogen be the answer in the quest to become less energy dependent? Shell opened its first hydrogen station in California yesterday. It's the second in the nation.

Our Chris Lawrence takes a look at whether or not it could be the way of the future.


CHRIS LAWRENCE, CNN CORRESPONDENT (voice over): The bright blue sign sticks out and promises an alternative to buying gas.

DR. GRAEME SWEENEY, SHELL FUTURE FUELS: And it creates that sense that this is an ordinary thing to do.

LAWRENCE: California's first retail hydrogen fuel station is only the second in the nation, but it's vital for automakers that one day want the general public to drive these cars.

DAVE BARTHMUSS, GENERAL MOTORS: No one's going to buy a vehicle like this until they have the confidence that they need that they can get to a pump and refuel and not get stuck.

LAWRENCE: So far, only a few hundred are on the road. Most are loaned out to companies and government agencies to build acceptance. But this summer, Honda will actually lease one for $600 a month, with the automaker subsidizing most of the cost.


LAWRENCE: Jamie Lee Curtis will be one of the first to get the Honda Clarity, and actress Joely Fisher is already driving a hydrogen- fueled BMW.

JOE ROMM, CLIMATEPROGRESS.ORG: Celebrities, like my 16-month-old daughter, are attracted to shiny new objects, I guess.

LAWRENCE: Joe Romm is a former Energy Department official. He says hydrogen cars have about half the range of a hybrid and it costs several hundred thousands to build one. So why are so many automakers getting into the fuel cell business?

ROMM: I think perhaps the biggest reason is that the Bush administration is still spending about $300 million a year promoting hydrogen. And companies want to get a piece of that money, and they like the good publicity they get.

LAWRENCE: Critics say emissions are produced during the creation of the fuel, but these cars generate no tailpipe emissions other than water vapor. Right now the price of fuel is a wash. Hydrogen costs twice the price of gas, but it's also twice as efficient.


WILLIS: The gas station in Los Angeles.

Chris, can you tell me, what kind of timeline are these companies looking at to get these cars into mass production and into the showrooms?

LAWRENCE: Well, Gerri, companies like GM have some pretty aggressive plans. You know, they'd like to be producing these in the hundreds of thousands in even the next seven years.

That kind of volume is what you would need to get the costs down and actually make a profit. But you can't put that many cars on the road unless you've got the fuel stations to service them. So, you know, to spin an old analogy, the chicken and the egg have got to show up at the same time.

WILLIS: All right, Chris. Thank you for that. The chicken and the egg, we'll be watching for that with the hydrogen cars -- Ali.

VELSHI: Well, Gerri, high fuel prices are crimping Fourth of July travel plans. And for the first time in a decade, the AAA Auto Club expects a decline in the number of people driving and/or flying for the upcoming Independence Day weekend.

AAA projects approximately 40.5 million drivers, or 13 percent of Americans, on the road during the holiday weekend. That's down 1.3 percent from the 41 million who traveled last year. Air travel down too by 2.3 percent.

The second consecutive travel holiday this year where a year-to- year decrease was forecast. The first one being the Memorial Day Weekend.

Well, as the summer driving season gets under way, gasoline prices are hovering above $4 a gallon. And that's forcing many Americans to make a change in their lifestyle. They are driving less, as Allan Chernoff reports.


ALLAN CHERNOFF, CNN SR. CORRESPONDENT (voice over): Jen Castagna parks near her home and shares a 40-minute drive with co-worker Ceciley Robinson to their office in Danbury, Connecticut. With gas prices so high, carpooling is a big money saver for both of them.

JENNIFER CASTAGNA, COMMUTER: What does it cost to fill this up, Ceciley?

CECILEY ROBINSON, COMMUTER: Oh my gosh, like $60, $70.

CASTAGNA: Oh my God.


CHERNOFF: Rich Levy, a pharmaceutical executive, doesn't have to worry too much about gas. He's got six vehicles sitting in his driveway, including a motor scooter. Even so, he still takes the train whenever possible.

RICH LEVY, COMMUTER: I think it's ridiculous. I think it's not only the monetary, but it's the principle of it, as well.

CHERNOFF: Rich, Jen and Ceciley reflect what's happening around the country. As gas prices soar, Americans are driving less. For six months in a row, motorists have been curbing their driving, logging nearly 30 billion fewer miles between November and April, the latest month on record, then during the same period a year earlier when gas prices were averaging well below $3 a gallon.

(on camera): The expensive gas is a primary motivator for Americans to drive less. But there are other reasons, as well. They're trying to avoid traffic, high tolls, and, they say, they want to be more environmentally conscious.

UNIDENTIFIED FEMALE: We all are much more conscious about the environmental effects and much more conscious about energy and our resources of energy today.

CHERNOFF (voice over): Four dollar gas seems to have sparked something in the psyche of our car-loving nation.


CHERNOFF: If gas prices keep rising, or even remain at their sky-high levels, then this trend away from driving may have just begun -- Ali.

VELSHI: Allan, I mean, you were saying that for about six months we've seen this drop in driving. When was the last time we saw any sort of sustained drop in Americans driving?

CHERNOFF: Ali, it's been a very long time. Not since 1979 have we seen this type of decline. So this is very, very significant. A major change for the country.

VELSHI: All right. Allan, thanks very much.

Allan Chernoff in New Jersey.

WILLIS: Well, the countdown is on to the first campaign appearance with Barack Obama and Hillary Clinton together. It's happening within the hour, and we will have a preview.

And why one man says the world needs to wake up and deal with an impending food crisis now before it's too late.

You're watching ISSUE #1.


VELSHI: While, we're looking to find a solution in the energy crisis, there's another global crisis that could affect us all here at home. I'm talking about food, the lack of it, and the rising price of it.

My next guest says the world needs to wake up and deal with an impending food crisis now before it's too late.

Paul Roberts is the author of "The End of Food," joins us now. Paul, you started writing this book before the price of food started rising. You're not really talking about energy and food, you're talking about food itself.

PAUL ROBERTS, AUTHOR, "THE END OF FOOD": Well, that's right. I mean, you know, there's parts of the world where we're seeing grain prices higher than we've had them for 50 years. And even in the United States, I think there's a lot of troubling signs that the food system's really struggling to maintain the success we've had for the last century.

VELSHI: OK. So it's -- I mean, I think we have to make a distinction. Is there an issue where we're going to continue to pay more for food like we have the last couple of years, and like all projections say we will for the next several years? Or are you talking about shortages of food?

ROBERTS: Well, I mean, it depends on what part of the world you're in. Certainly there are parts of the world where it does feel like we're running out.

But again, in the United States, we're asking two questions here. We're asking, how do we produce enough grain or meat or food generally? And how do we produce it sustainably? How do we reconfigure our system so they're safer? Because right now consumers are concerned about both high prices, but also about food safety. It's like we've been caught in a perfect storm of bad news about food.

VELSHI: What's the -- is there something connecting these stories about bad news about food that we're seeing?

ROBERTS: I think so. I think really what we've had is a system that, you know, for most of the last century got really good at producing a lot of food very cheaply. And, you know, that's been hugely beneficial, but at some point you cross a threshold where you're trying to push down costs too far.

So, for example, we start trying to cut, you know, standards in terms of growing produce, and we get salmonella outbreaks in tomatoes. And you're going to see those kinds of patterns, whether we're talking about meat or fresh produce. You know, the harder you try to push down those costs, the higher the risk is that you're going to have a safety problem.

VELSHI: Interesting pieces in your book. You think if everybody just stops eating meat, or eats a little less meat, maybe just stops once a week, doesn't eat meat once a week, that would have some impact on the whole food chain.

ROBERTS: It would have a huge impact. I mean, meat's the single most, you know, resource-intensive food that we eat. It takes eight pounds of grain to make a single pound of meat.

So, as meat intake rises -- and that's what happens when people get richer. They get rich enough to afford to eat the foods they want, and what they want is meat. But that has a huge boost in terms of the demand for feed grains.

And that's really what we're looking at now. It's not so much in this country, but in places like China, where people are not only -- you know, there's not only a huge population, but they're rich enough to afford to eat like Americans.

VELSHI: Right. People have often said how come prosperity in China and other parts of the world means greater demand for corn? Do people just as they start getting rich eat more corn? You're saying they're using it to feed their cattle, their livestock.

ROBERTS: That's exactly right. And as you see those patterns, you know, duplicate around the world, that's really what's going to be driving this.

VELSHI: All right. And we've also seen the price of corn go up because of its use in ethanol.

ROBERTS: Right, so we've got, you know, a number of factors driving it. Clearly, we decided that we needed -- we had an energy crisis, we had to solve that. But it turns out that, you know, turning so much corn into energy has a huge impact on the food markets.

And of course, you've got, you know, weather events. We've got the flooding in the Midwest that's just going to have a major negative impact on a harvest next fall. And keep in mind, that harvest was what we were really hoping would take pressure off prices. So we're getting even more bad news.

VELSHI: As we know from issues like the housing crisis or the energy crisis we're in, it takes a long time for policymakers to actually determine that this is worthy of taking some serious action.

What should Washington be doing about this?

ROBERTS: Well, right now Washington needs to, first of all, accept that this is a serious problem. They're going to have to look at biofuels. I know that's going to be politically very tough because biofuels are really -- that's the administration's one sort of energy policy that it has.

But it's clear that if you quadruple the amount of the corn crop that you're turning into biofuels, go from 5 percent to nearly 30 percent of the corn crop we're not turning into fuel, you're going to have an impact on prices. We're going to have to rethink that.

Longer term, though, we're going to have to accept the fact that, you know, eating as much meat as we do is probably not going to be sustainable. How do you begin that conversation in a country like America? That's tough. I don't think we're going to hear that in an election year. But sooner or later, we're going to have to have that conversation about finding ways to eat less meat.

VELSHI: Paul, it's a good conversation, a great book. Thank you for being with us to talk about it. It's called "The End of Food." It's a good read -- Gerri.

WILLIS: Thank you, Ali.

Paying your bills on time doesn't guarantee a good credit rating. We'll show you how the types of charges you put on your credit cards could actually hurt you and what to do about it.

And we're getting set to take your phone calls. That number, write it down, 866-792-3399.

You're watching the home of ISSUE #1, the economy, CNN.


WILLIS: Well, when you think of things that affect your credit score, it's usually a late payment on a bill or an outstanding loan. But did you know a trip to the bar or even hiring a marriage counselor could impact it, as well? Not in a good way.

Recently the Federal Trade Commission filed a suit against the company called CompuCredit, a credit card issuer, for practices like cutting credit lines based on spending behavior.

So, what expenses can hurt your credit?

Earlier this week, I spoke with John Ulzheimer of


WILLIS: My lifestyle choices affect my credit?


WILLIS: This is outrageous.

ULZHEIMER: Yes. I'm quickly going to become your least popular guest in years.

WILLIS: Oh, never.

ULZHEIMER: This is called psychographic data, and it's essentially shopping patterns and merchant behavior, meaning where am I shopping? Am I tending to use my credit cards at bars, at restaurants, marriage counseling, pawnshops? Am I taking out large cash advances? And how does this stuff paint a picture about your credit risk?

WILLIS: So if I'm spending money at something these folks consider maybe unsavory or not positive, that's going to ding my credit score even if I'm paying my bill on time?

ULZHEIMER: Yes. And let's just make sure we clear this up.

This isn't the FICO credit store that we're all very familiar with. This is an internally developed credit score that most large credit card issuers use that just evaluates where you're shopping and your shopping patterns. But absolutely, if you're going to merchants where they would consider that type of shopping behavior to be more risky than not, then absolutely it's going to affect the way they treat you.

WILLIS: Is this legal?

ULZHEIMER: It's definitely legal. This is unregulated data. And guess where most of this information comes from?

WILLIS: Where?

ULZHEIMER: It comes from not only the merchant I.D. when you're actually making a purchase with your credit card, but also from the warranty cards that you fill out when you make a purchase and send it in. It tells all about you.

WILLIS: That's just crazy.


WILLIS: I think most people would be shocked to find this out.

What do I do if I'm a consumer? And forget about the effects on your credit score. It's also a privacy issue I think, too. What should I be doing as a consumer?

ULZHEIMER: Well, there's good news and there's bad news. The bad news is there's really not a whole lot you can do. You're not going to stop using your credit card simply because of this.

I think the good news here is that this lawsuit has really shed light on something that's been going on for many, many years. All large credit card issuers do it.

There's really nothing you can do. Don't change your shopping patterns, don't change where you use your credit cards. Just be aware that there's a big brother out there now watching every single transaction you make with your credit cards. And if you choose to pay with cash some places, then fair enough.

WILLIS: Well, that would be an easy way around the problem, right? You put cash down instead of leaving a trail, a credit card trail of everywhere you've been.

Any other suggestions for people today who are trying to bring that credit score, move it higher, move it up, and really be able to borrow at the best rates?

ULZHEIMER: And that's important. Today we found out that now you have to have a FICO score of 770 to get the best interest rates on a mortgage. It's 150 points higher than it was 24 months ago. So it's a major difference.

Of course, the important things are, to make sure you're making your payments on time. You due date is not a suggestion. Keep your credit card debt to as close to 10 percent of the credit limit as possible. And don't excessively shop for credit. Don't ever use your credit report as a 10 percent off coupon at the mall.

WILLIS: Right. Well, John Ulzheimer, as always, great advise. We appreciate your help today.

ULZHEIMER: My pleasure.


VELSHI: All right. What's the solution to the energy crisis? We're going to take a closer look at Senator Obama's plan to get you some relief.

But ,first let's get you caught up on the latest headlines. Don Lemon in the "CNN NEWSROOM."

Hello, Don.

DON LEMON, CNN ANCHOR: Ali V., how are you? You doing all right?

VELSHI: Good to see you.

LEMON: It's good to see you as well.

Can't we all just get along? Let's talk about Barack Obama and Hillary Clinton searching for harmony in Unity. The former rivals campaign together for the first time about a half hour from now in Unity, New Hampshire. At a private fund raiser last night, Clinton introduced Obama to her top donors and both appeal to their supporters to come together. In another show of unity, Obama and his wife each donated $2,300 towards Clinton's campaign debt.

We'll bring you the Obama/Clinton Unite for Change rally live when it happens right here on the CNN "Newsroom." That's scheduled for 1:00 p.m. Eastern in Unity, New Hampshire. We'll have it for you.

Midwest flood zones facing another threat. Heavy downpours could drench the region today making this situation more dangerous. You're looking at video from this morning of a levee in Winfield, Missouri. A portion of it has given way there. Officials suspect muskrats burrowing tunnels caused the levee to fail. Almost everyone in the immediate area was told to evacuate and the National Guard is reinforcing the levee in an area near about 100 homes there.

Rain could also push swollen rivers in Missouri and Iowa back up, possibly triggering flash floods. There are also health concerns. Tests show flood water contaminated with bacteria.

No ice at the North Pole. Scientists tracking the ice say to be prepared for a big melt. That's what they're saying. What does it mean about the global climate and how does it affect you? We'll bring that to you in the 2:00 p.m. Eastern hour of the "CNN NEWSROOM."

I'm Don Lemon. I'll be back in the "NEWSROOM" at the top of the hour with the coverage of the Obama-Clinton rally live for you.

Now let's throw it back to Ali V. in New York for ISSUE #1.

VELSHI: Let's go on a field trip, you and me, Don. Let's go to the arctic, check it out ourselves.

LEMON: All right. Let's go. All right. Let's go. We can check it out.

VELSHI: A nice little adventure for us.

LEMON: Do a little report. Make sure you have a good weekend too, Ali.

VELSHI: Don and Ali on the North Pole.

Good to see you, Don.

All right. High gas prices are worrying more Americans more than any other issue. Which is why the energy plans for the candidates are being so closely followed and fact checked.

Here's CNN's special correspondent Frank Sesno.


FRANK SESNO, CNN CORRESPONDENT, (voice over): Wind, solar, biofuels. Photo-ops Barack Obama uses to say he's looking to the future while John McCain looks to the energy past.


SESNO: In fact, McCain favors new technologies and conservation too, but emphasizes the supply side of the oil and gas equation. For now, he says, we need more.

Obama leans on the demand side. He proposes to reduce oil and gas use through conservation, higher mileage standards, requirements for utilities to use renewables, like wind and solar. Obama's plan offers logic, but also inconsistencies. He opposed additional offshore drilling, largely because it would take years to get the oil flowing. True enough, but just about every significant energy proposal would take years to bear fruit. His own plan gives automakers 20 years to double mileage standards.

Obama's criticized McCain for saying more drilling would have a positive, psychological impact.

OBAMA: In Washington speak, what that means is, it polls well.

SESNO: But there is psychology in energy markets. Worries about soaring demand in China or supply disruptions in Nigeria send prices up. Expectations of more production can send prices down.

Obama's stand on corn ethanol also raises questions. Despite its limited energy value and its impact on food prices, Obama's long supported it, including billions in government subsidies to promote it and steep tariffs keeping cheaper Brazilian sugar ethanol out to protect it. Obama's home state of Illinois is a big ethanol producer. "The New York Times" reported this week, close ties in Obama's campaign to the ethanol industry, from his top environmental adviser, to one of his most vocal surrogates, former Senator Tom Daschle, who serves on the boards of several ethanol companies.

Obama often criticizes big oil and a big part of his energy plan revolves around higher taxes on oil companies to help fund R&D for new energy technologies, to pay for tax credits for some consumers, even to spur exploration.

But oil companies have faced a windfall profit tax before, back in the 70s and 80s. It was ultimately eliminated because it didn't deliver as much revenue as hoped, was difficult to administer and many said actually discouraged oil exploration and drilling.

Frank Sesno, CNN, Washington.


WILLIS: Important information about how you can beat inflation. We'll tackle that issue.

Plus, your phone calls. Your chance to be live on ISSUE #1. The phone number 866-792-3399.

Issue #1 is the economy and we are all over it right here on CNN.


VELSHI: All right. Just in to CNN, new pictures of Senators Barack Obama and Hillary Clinton on the plane, heading to their first campaign event together. CNN's Candy Crowley, part of the best political team in television, is live in Unity, New Hampshire, with more on this.

An interesting name for their first campaign visit together. Candy, what's the scene?

CANDY CROWLEY, CNN SR. POLITICAL CORRESPONDENT: Well, they had to go out of their way to get here, I can tell you. You land in Manchester and then you drive an hour and a half to get here to Unity. But, obviously, they didn't want to leave anything to any guess work. This is the Unity for Change rally in Unity, New Hampshire.

We saw that beginning on the tarmac in Washington, D.C., when we left. He kissed her on the cheek. They both shook hands with some airport workers. They sat next to each other on the plane. Outwardly, here's the message. The message is in the picture today and the picture is the two of them together.

The message they will say in verbal terms is, listen, the primary was the primary. We understand there are hard feelings because it was so hard fought. But keep your eyes on the prize. And the prize is in November. And that's what everybody ought to be looking toward. They thinks that's the best unifying message they can give. That this is about the fall now, look ahead, don't look behind -- Ali.

VELSHI: All right, Candy, thanks very much. And we will check in with you a little later as this gets underway.

Candy Crowley, part of the best political team on television -- Gerri.

WILLIS: Thank you, Ali.

Well, most of us are trying to cut back because of the tough economy. And our next guest says you better keep cutting back because inflation is taking a bite out of your savings and our national financial security. Terry Savage is a nationally syndicated personal finance columnist.

And good to see you, Terry.


WILLIS: All right. Let's talk about inflation. You say it's more than just the rising price of gas and food. What do you mean by that?

SAVAGE: What it really is, is the eating away of the value of our dollars. And inflation, you know, it doesn't -- we have a generation that hasn't really seen inflation. Currently it's a little over 4 percent year-over-year in consumer prices. Historically, it's only been about 3.4 percent since they started keeping statistics nearly 100 years ago. But, you know, at even that small rate, it adds up. Since 1913, at that average rate, we've had 2,000 percent inflation, which a better way of saying it is, in today's dollars, that would only buy -- a 1913 dollar is worth only 4.8 cents.

WILLIS: So a 1913 dollar, in today's dollars, would be worth about a nickel?

SAVAGE: About a nickel.

WILLIS: That's depressing.


WILLIS: Inflation is important. OK.

You say this is a looming crisis. It could get worse because of what the Fed and the federal government have done to try to solve the housing crisis, the economic crisis. We've seen so much money pumped into the economy. You say people overseas, they look at our dollar and they're not so impressed.

SAVAGE: You know, they're lending us a lot of money. We've been in debt. We go more into debt. Our budget deficit this year will be $400 billion. How do we get the money? Well, we either print it or we borrow it from them.

Now the Fed has also cut interest rates. If you're in Middle East and selling oil, if you're in China with all those dollars we've sent over there, aren't you going to be a little bit upset at interest rates? My mom's upset that rates are only down at 2 percent. How about if you're the Chinese Central Bank? We're printing more dollars. Rates are only 2 percent. We're not going to lend to you unless you raise rates.

WILLIS: All right. Let's get to some advice because I think our viewers out there are really interested in now they combat this problem because this is affecting them at every level. What do you suggest they do to combat this inflation?

SAVAGE: All right. Well, first of all, if you're a borrower, inflation benefits you in a way you pay back with cheaper dollars, but only if you borrow at fixed interest rates. So if you have a floating rate mortgage and you can refinance, you definitely want to lock in a fixed rate now at these rates.

WILLIS: And the good news here is that those rates are pretty much historical lows, although not the lowest.

SAVAGE: Exactly. And if your home is still worth it, you definitely want to take steps to lock it in. All the other debt you have, you want to pay it down. You want to pay it down because credit card rates will go up because every other piece of debt that you have will have a higher rate and you don't want to be buried in debt.

WILLIS: Terry, tell me, OK, I'm saving for retirement, my 401(k), this kills bond prices, right? I mean, what do I want to invest in now given the fact that inflation, as you say, is going to go higher and higher?

SAVAGE: It's very interesting. People e-mail me. They're scared of the stock market. They see the market going down because of inflation fears, because of higher energy prices. So they're scared to be in the market, which actually, over the long run, has beat inflation handily.

So they're telling me they want to buy bonds and I say, oh, no, bonds can be as dangerous as stocks. If you lock your money up for 10 to 20 years at the current rates, inflation always brings with it higher interest rates. And so your current bonds at 5 percent won't be worth that $1,000 if you have to sell them in two or three or four years and other interest rates have moved higher.

So then they're left with money market funds. Well, 2 percent, gosh, that doesn't even keep up with inflation.

WILLIS: You're losing money in a money market fund. CDs, very quickly.

SAVAGE: Well, CDs. Short-term rates are all just below inflation. If you pay taxes on the interest, it's worse. But it gives you flexibility. And if we are going to have inflation, rates will rise, you'll be glad you stayed short-term, what I call chicken money, so that you can take advantage of rising rates in the years ahead if we have inflation, if it gets out of hand.

WILLIS: Terry Savage, you are the author of "The Savage Number." We appreciate your time today. Thank you.

SAVAGE: Thank, Gerri.


VELSHI: Well, the man who helped revolutionize the way you live your life is calling it quits. We're going to tell you all about it.

But first we are turning the show over to you. Your phone calls on all issue number one topics. This is our Help Desk, or at least two-thirds of it. The number is 866-792-3399. We are all over issue number one. We're going to get you the answers you need right here on CNN.


VELSHI: The reason we do this program every day is because most of you said the economy is the number one issue facing this country. But it's time now to hear from you. The phone number is 866-792-3399.

WILLIS: And we have a dynamite panel today to help out. Mike Santoli is with Barron's. Terry Savage is a personal finance columnist from Chicago. And Doug Flynn is a certified financial planner.

Let's take that first phone call. It's from Vickie in Utah.

Vickie, are you there?

CALLER: Yes, I am.

WILLIS: Go right ahead.

CALLER: OK. My question is, my husband is 63. I'm 60. We have in the stock market about enough money to pay off our $80,000 mortgage. Should I pay off my mortgage and take my house payment and put it into something that's a little bit more secure? CDs, bonds, something or stay the way I am and just hope for the best with my money?

WILLIS: Doug, what do you say to that?

DOUG FLYNN, CERTIFIED FINANCIAL PLANNER: Typically, no, if your interest rate is fairly low on your mortgage and it's fixed and it's tax deductible. It would be, I think, a shame to take it out because the interest rates you're going to be investing it in something safe are probably going to be very low. So if you can afford the monthly payment, I would not recommend doing that.

WILLIS: And when you say low interest rate, what do you mean by that? FLYNN: Well, she said something safe. So we're talking CDs or money markets and you're talking 2 percent to 3 percent. So, you know, after taxes, you're better off keeping that money and keeping it invested in something else than taking it out and paying it that way.

WILLIS: Great answer.

VELSHI: Let's go to Sheila in California.

Hi, Sheila.


VELSHI: What can we do for you?

CALLER: Well, I'm 57 years old. Single, self-supporting. I am currently invested in my company's 401(k) and I have a feeling it's tanking. I'm just wondering if at my age I should stay where I am or go with something a little more lucrative.

VELSHI: What do you think, Terry.

SAVAGE: Well, tanking. You'll have a choice of investments inside your 401(k) plan. And these days you can move at the cost of a dime. You can call it tonight. So what you need to do is take a look at what funds you've chosen inside the plan. But remember that you're going to retire probably seven or eight years, but you're going to live another 20 or 30 years beyond that. So you need to plan for long-term growth. And you do need stocks or the stock market -- diversified stock market funds within the 401(k) plan. So you don't want to run, but you want to think carefully. Now it's a good time to think, am I diversified?

WILLIS: Yes, and diversification is key.

Terri in Nevada has a question.

Terri, are you there?

CALLER: Yes, I am. Hi. Thank you for taking my call. My son will be entering Syracuse University this fall.

WILLIS: Congratulations.

CALLER: Oh, thank you. And, of course, even with his scholarships, there will be a tuition balance. Now the university does offer a monthly payment plan that is extended over the academic year for a $60 annual application fee. And so I'm trying to figure out, is this going to be more advisable than, say, a student loan which would then build up his credit, et cetera? Or possibly just leaving all the funds, taking advantage of this, and still keeping his college fund basically the bulk of it intact over the next years because of all the volatility?

WILLIS: All right, Mike, you've got to weigh in on this. This is always a critical question, how do I finance my child's college education?

MIKE SANTOLI, ASSOCIATE EDITOR, BARRON'S: I would say, honestly, if the monthly payments are affordable and if it's -- there's not an egregious interest rate on top of that, if it's simply spreading the tuition payment over the 12 months, I don't see a reason not to do that, if the alternative is taking long-term savings out that's already accumulated.

WILLIS: All right.

SAVAGE: And current student loan levels are at a much higher rate than you're going to -- the now fixed rate student loans. Even if they're deferred on the interest, their interest cost is very high. So if you can avoid them and pay with your own money, you'll be much better off in the long run.

FLYNN: And one thing I like about the ten (ph) payment plans is that a lot of times you can put that on your credit card and pay it off monthly and then you're racking up those miles, especially if you pay it off in full each month.

WILLIS: Hey, unanimous conversation here. I'm impressed.

VELSHI: Yes, we had that thing earlier where they said don't use your credit card at bars too much because it'll give you a bad reputation. This is a good way to -- I'm very responsible paying student loans on credit cards.

Angela in Puerto Rico, welcome to the show.

CALLER: Hi. How are you?

VELSHI: Good, thanks. How are you?

CALLER: Fine. Thanks to watching ISSUE #1 every day and with scores of over 800, we just bought a brand new builder's inventory listed at 358 and paid 285 in Austin for a 5.25 percent fixed. We are keeping our house in Puerto Rico and we've never owned two homes. So my question is, when it comes tax time, which house can I take, or can I take both, because we live in both places?

VELSHI: Well, that's interesting. What do you know about that? Don't you have to live in one place more than six months in most cases?

FLYNN: Typically you have to claim a primary residence and then your second one is -- it could be an investment home. If it's an investment home you're renting out, you get certain tax breaks. But if it's just going to be a vacation home, you really can't live in both places. One of them is going to be there for more than six months. Even if it's six months and a day. That's going to be your primary. So there are certain things you can take on your vacation home, but you're not going to get the same writeoffs as if it were an investment property.

WILLIS: Isn't there $1 million limit on deduction (ph)? SAVAGE: There's a limit, exactly, on that deductibility on the second property, I believe. But I'm not the tax expert.

WILLIS: All right. Well, it's a highly complicated question and, you know, you might want to talk to your tax accountant on that.

Let's take an e-mail from Eddie in Massachusetts. He asks, "I am looking to become a first time home buyer. I am 25 years old, have a secure job and ready to buy. Considering the state of the market, should I buy now or should I hold off?"

You know, this is a question that all of you should weigh in on, but let's start with Mike.

SANTOLI: You know, I think if you want to catch the absolute bottom of house prices, you can never know you're going to be there. If you can afford the low rate that you might be able to lock in right now, if you can afford the payments, I think that one of the things that has to break is this mentality that your home is principally an investment as opposed to a place to live. It's a place you want to live, you can afford it, you can cover the costs of it, I think it's not a bad time to buy.

WILLIS: All right. Terry, do you agree with him?

SAVAGE: I'd have to agree with that, especially because, if we are going to have a new round of inflation, we'll see higher interest rates. So the home price might bounce back, but the mortgage rates might be higher as well. So you can't stand around waiting to get the absolute best point as long as you can afford it.

VELSHI: Do you agree, Doug?

FLYNN: Yes, I think that first time home buyer, that means typically that the person's probably not going to intend to keep this home for the rest of their lives. So you do have to be careful when you buy. If it's a home you're going to keep for 30 years, then it really doesn't matter when you do it if you find a good deal, a good price, a good interest rate, just go ahead and do it.

WILLIS: Go ahead and do it. All right, unfortunately, people only hold on to those houses about eight years these days.

Let's grab that next e-mail.

VELSHI: All right. Khaled from, I don't know where he's from, wants to know, we're just talking about interest rates, "are my school loans affected by the Federal Funds Rate?" That's always a question. When the Fed cuts rate, people want to know whether it affects their loans.

SAVAGE: Good timing on this question because student loan rates will drop on July 1st for older loans. Now if you took out a loan last year or the year before and in this coming year those loan rates are fixed at much higher rates over 6 percent. But if you have floating student loan rates, you can consolidate after July 1st at a much lower rate. So the lower interest rates on Treasury bills set the lower rates on adjustable rate student loans. And after July 1st, you want to look for consolidation. That's not going to be so easy to find. A lot of banks have gotten out of that business this year, though.

VELSHI: All right. We're going to continue to take your calls.

Also coming up, Bill Gates cleans out his office desk after 30 years there. We'll tell you how he was sent off and what is next for the IT mogul.

Stay with us. You're watching ISSUE #1.

Plus, it's not too late to weigh in on your Quick Vote question.

WILLIS: That's right. Which is the worst aspect of our dependence on oil? Log on to We'll have the results next.


VELSHI: OK, don't touch that dial because you're going to watch history in the making. Those are live shots from Unity, New Hampshire. For the first campaign event together, Barack Obama and Hillary Clinton. We are understanding that they are -- have arrived, perhaps, on the scene. Our team is there. Candy Crowley is covering it for CNN. We've got the best political team on television on hand at Unity, New Hampshire, for that first rally with Senator Barack Obama and Senator Hillary Clinton.

WILLIS: A lot of people there.

VELSHI: That is. It looks like a nice rally.

WILLIS: A ton of folks there from New Hampshire.

All right. Which is the worst aspect of our dependence on oil? That's today's Quick Vote question.

For how you voted, let's check back in with Poppy Harlow from -- Poppy.

HARLOW: Hey there, Gerri.

Well, most people said it's a lack of financial independence as a nation. Fifty-six percent there. Sixteen percent of you say environmental damage. And 26 percent say national security is your greatest concern. We'll be back Monday with another question -- Ali, Gerri.

VELSHI: That's good. That's always useful to know what people's biggest concerns are, after the fact that they pay to much for energy.

WILLIS: Well, they're worried about that, that's for sure.

VELSHI: Yes. Well, all of us here at ISSUE NUMBER ONE want to wish the best of luck to geek number one, Microsoft co-founder Bill Gates, who logs off for the final time today at the computer giant that he helped build into a programing powerhouse. After 33 years and millions of gigabytes, not to mention the billions of dollars in his pocket, the 52-year-old computer wiz formally retires today.

For the past few years, Gates has been scaling back his duties at Microsoft in lieu of more charitable work that he and his wife, Melinda, have been doing with their foundation. Gates plans on doing more of that, but he won't be totally out of the office. He'll still handle chairman of the board duties and help consult Microsoft's CEO. Up until March of this year, Gates was atop the Forbes list as the richest man in the world. He's now third. Third.

WILLIS: That's a lot of competition, yes.

VELSHI: Can you imagine that? It's not bad for the ultimate (INAUDIBLE).

WILLIS: Are you aiming for that number one position? You're the person to take his place.

VELSHI: Yes, I have to figure out, if you can get rich off of some fantastic idea like he and others have had.

WILLIS: Absolutely.

VELSHI: I haven't had the best ideas.

WILLIS: He's doing that charitable gig full-time now, though. I mean he's busy, busy, busy with that.

VELSHI: It's the world's biggest charitable foundation. And he's got some big donors, like Warren Buffet. I mean they've got some work ahead of them.

WILLIS: Powerhouse team.

The economy is issue #1, and we here at CNN are committed to covering it for you. ISSUE #1 will be back here all next week, same time, 12:00 p.m. Eastern, right here on CNN.

VELSHI: Time now to get you up to speed on other stories making headlines.

"CNN NEWSROOM" with Don Lemon and Brianna Keilar starts right now.