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Government Shutdown Averted; GOP Governors Versus Unions; Fact and Fiction on the Price of Oil; Investing in Oil; Teaching Math in Schools
Aired April 9, 2011 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, HOST: A government shutdown narrowly averted. But make no mistake, as budget deadlines come and go, the absence of true leadership remains.
Welcome to YOUR MONEY. I'm Ali Velshi.
Politics and posturing have taken over the budget battle. And don't be fooled. When the short-term spending deals end, the mammoth $14 trillion debt will still there.
Wolf Blitzer joins us from Washington. Wolf, we have been talking about the threat of a government shutdown for months. Who looks good in this? Does either side look good, or is this just a degree of losing at this point?
WOLF BLITZER, HOST, "THE SITUATION ROOM": Everybody looks sort of silly at this point. They've averted a government shutdown and we should all be grateful for that, especially the 800,000 federal employees, the thousands of military personnel and their families who would have gotten delays in their paychecks that could have caused a lot of grief for all of these people. Fortunately, they did work out an 11th hour deal that's going to keep the government operating. All of that is very good.
But it shouldn't have taken this long. It shouldn't have been this complicated. And over these past several days, we shouldn't have all had this angst. It just -- it just made the whole government, the executive branch, the legislative branch, Democrats, Republicans, the leadership of the House and the Senate, the president of the United States -- they didn't look as they should look in a situation like this.
There are two wars under way, one in Iraq, one in Afghanistan, maybe a third war in Libya right now. The economic recovery is so fragile, as you know, Ali. This is not an issue -- keeping the government going -- that should have come up at this point.
VELSHI: Wolf, the president is going to need a lot of currency for all of those things you just talked about, plus the fact that we're going to be punching up against our debt ceiling in a month, the fact that we've got the 2012 budget to actually deal with. What is the fallout for President Obama out of what has happened this week? By the way, the week during which he launched his presidential campaign.
BLITZER: Well, you know, it's going to be up in the air. We're going to see what the political fallout is. Fortunately, at least the government is not going to stop operating, and that's good in the short term. Let's hope it stays like that, no more talk of a government shutdown.
I think everybody realizes raising the debt ceiling is going to be a huge issue.
BLITZER: It's going to make this battle that we've just had over the past week or two, Ali, look like small potatoes because that's so enormous. And you appreciate better than most what the consequences would be --
BLITZER: -- if the U.S. doesn't increase its debt ceiling -- the default potential, the U.S. going into bankruptcy, interest rates going up. It could be a disaster.
BLITZER: They're going to have to deal with that debt ceiling. That's a huge issue, $14 trillion, $15 trillion. It's lot of national debt that we have and we're going to have to deal with that. That's going to be a big issue.
The next fiscal year budget, there are really serious differences between the Democrats and the Republicans, and the battle that we just saw here is going to be small compared to what the battle's going to be down the road, all of it further complicated because we're getting into this heavy presidential reelection campaign season for the president. The Republicans are going to be fighting for a nominee. So it's going to be very complicated. There's no doubt about that.
I'm hoping that cooler heads prevail and they can come up with some sort of good debate, serious debate, smart debate, and then they'll reach some compromise on these issues because for rank-and- file Americans, average Americans, the stakes are clearly enormous.
VELSHI: The fringe benefit is that we've all become Ph.D.s in the budgeting process, the very complicated budgeting process in this country.
Let's bring in Lex Haris, managing editor at CNNMoney. As Wolf says, Lex, is this the conversation that we need to be having, the one that we've been having all week, or is this a distraction from our true and mighty fiscal problems?
LEX HARIS, MANAGING EDITOR, CNNMONEY: Well, absolutely. I mean, the conversation has just begun, as you guys said. And it really is. It's spending. It's taxes. It's Medicare and Social Security. The ones we've had so far for 2011, yes, it's such small potatoes. But it really does begin to frame the debate. You said, you know, this was the week President Obama launched his campaign. The other thing that happened this week just a few days ago was Paul Ryan launching the Republican budget. And as Wolf said, you know, so far apart on the kind of spending cuts we're talking about. So it's just going to become even more heated in the coming months.
VELSHI: Well, Jeanne Sahadi, the senior writer for Money, if you really want to get past the politics of what happened this week and understand the issues, which we all should, you got to read Jeanne's articles. Jeanne, on Friday, the headline of your piece said it all. Quote, "This budget fight just gets dumber." Explain to me what you meant by that.
JEANNE SAHADI, SR. WRITER, CNNMONEY: Well, there was so much rhetoric in this debate about how we have to cut spending right now and we're going over a fiscal cliff, now's the time to do it. And it's true, we are in a fiscal pickle, right? We're in a tough spot.
But what we really need to do is look at the long term. And there was so much energy and so much bad blood created over, basically, the six months remaining this year. It was -- it was really -- the emphasis was in the wrong place. It was obsessive in a way that I don't think is helpful for the really big debates coming forward.
And know Wolf and Lex both mentioned, you know, how this debate was small potatoes. Here's a good example of how small potatoes. If we wanted to keep the public debt at 62 percent of GDP, which is where we are today --
SAHADI: -- the GAO says we'd actually have to cut $1.2 trillion in spending today and keep it permanent. That's how -- that's the kind of hole we're in and that's just to basically keep the status quo.
VELSHI: All right, so we -- this was a drop in the bucket, and we almost brought the government to a halt. What does that mean, Wolf, to you? Does that mean we just have an inefficient way of doing this? Are we so far into that budget hole that no one is facing reality? What does what Jeanne just said mean for the rest of this process?
BLITZER: It means that we're looking in the next few weeks and months at enormous, enormous debates. It's good for the American public to hear these debates, and they'll be serious debates because the Republicans, the conservatives, they have one perspective on the issue of entitlements, on defense spending, where most of the money that the federal government spends comes from.
The Democrats and the liberals, they have a very different perspective. We're going to hear a lot about whether there should be increases in the tax rates for the wealthiest Americans once again. This debate has been going on for many years because the Republicans don't want any tax increases, the Democrats say the richer -- the richest people should be able to pay some more to make sure that the United States' national debt doesn't increase. So we're going to hear a lot about that.
We're going to hear about Social Security, Medicare, Medicaid, defense spending. And as I said, that's where all the money is. All of this other talk of what's called the discretionary spending is 12 percent, 15 percent tops of the federal budget. The rest is money that comes from Social Security, Medicare, Medicaid and defense spending.
VELSHI: Well, let me ask you this, Wolf, because that area of the spending is the stuff that Jeanne and Lex and I sort of dwell in every day. But our experience doesn't add up to anywhere close to yours on the politics. So explain this to me. We got lost somewhere. This was about all of those things you were talking about. And sometime in the middle of this week, this past week, it became about something else. It became about social policy. It became about ideology. And it seems they were able to pull back from the brink of that. But what happened?
BLITZER: The money -- the differences in the money, whatever final sum they came to in terms of cutting the spending for the currents fiscal year -- and we're already halfway through that fiscal year -- the differences weren't that great. But what they tried to do was eliminate some funding for some sensitive issues like Planned Parenthood, for example. That's part of what's called Title X funding for women's health issues, including indirect funding, if you will, for abortion.
Now, the Hyde amendment passed two decades ago says the federal government can't spend any taxpayer dollars to fund abortions. The argument was that an organization like Planned Parenthood, which does HIV testing, breast cancer screening, other issues involving women's health -- they also do abortions, although the federal money that they get, about $340 million a year, none of that is used for the abortions.
But the Republicans, those -- and some Democrats, for that matter, who oppose abortion -- they say the money is fungible. In other words, you give Planned Parenthood $300 million, $350 million, they spend it for what they're allowed to spend it on, but that opens up opportunities to use some of their other money on abortion. And so that was such a sensitive issue. They managed to fudge that right now. It's not going to be an issue right now.
But some of the other issues, like the Environmental Protection Agency, funding NPR, National Public Radio, those were issues -- they've worked those out. But you know, they were looking for these riders to make social issue points, and they almost got it through. But in the end, they had no choice because the Democrats were very firm on this point. They didn't let that go through in this temporary spending.
VELSHI: All right. And you can bet that while we'd like to keep this clean and talk about money, the reality is, the budget is the outline of the government's priorities, and social issues are going to come up in there. Wolf, Lex, Jeanne, stand by. We're continuing this discussion in a minute.
VELSHI: this could have been a very different show. We could have been talking about a government shutdown, but one was averted. Wolf, our viewers tune in to this show to talk about money and finances, but this week they have completely blended money and politics. The economy and politics have completely blended.
We've got the privilege of having you here. Explain something to us. Republicans were going to get a lot of blame if the government shut down. In fact, Mike Huckabee said to his fellow Republicans, This is just going to play badly for us. Don't go. Pull back from the brink.
But Listen to this. For 2011 budget, the one that we just -- we're dealing with right now, the Democrats were in control of the Congress until the Republicans won in the mid-term elections. They had it for all of last year. How is it the Republicans' fault that this budget never got passed?
BLITZER: Well, you make a good point, and this is a point a lot of Republicans have made. The Democrats had a lopsided majority in the House under Nancy Pelosi, when she was speaker, a lopsided majority in the Senate. They still have a majority, albeit a smaller majority, in the Senate. Why wasn't it passed?
They make the point that on some of the -- it did pass the House, but on some of the sensitive issues in the Senate, you need 60 votes to break a filibuster, and they didn't have the 60 votes. The Republican minority could block that together with some conservative Democrats. As a result, they couldn't get this budget through.
But they should have been able to get it through, and there's really no excuse. They should have been able to get it through. They just let it -- they kicked the can down the road repeatedly, repeatedly. They do this all the time. It should have been done a long time ago. There really isn't a great excuse why this budget wasn't passed earlier, much earlier last year, when the Democrats controlled decisively the House and Senate.
VELSHI: Lex, when we look at our social media responses since this deal -- this shutdown was averted, some of it is relief, but a lot of it is people saying, Have they kicked the can down the road again? Is there any hope for the government to function with any less absurdity as we move towards what we all agree are the bigger battles of the debt ceiling and the 2012 budget?
HARIS: Well, it's going to be -- it's sure going to be hard. If we couldn't do it with last year's budget, it's really hard to see how we're going to do it with 2012. You know, as we said, you know, at a very high level, the president and the Republicans speak the same language. The president, you know, if you listen to his State of the Union address, came out and said, We have to do spending cuts. We have to, you know, tackle Social Security. We have to tackle health costs. But they're so far apart in the magnitude of how they're going to get there. One area I'd like to point out where they seem to -- you know, the possibility of common ground is in corporate tax reform. Both have come out and said, We have to do this. So you would think there's a chance at compromise. I don't know when that's going to happen, but --
VELSHI: Well, there isn't going be if we wait until the last week again to try and deal with it. Jeanne, bipartisan budget experts -- and you know them all -- say that the worst way to handle the debt is do nothing at all. And You've about how serious this is. Is either side really leveling with the American people and letting them know that the services they get from government are going to shrink and the amount they pay in taxes is likely going to increase?
SAHADI: Well, if you put it that way, then no. There's a lot of rhetoric that's saying, The debt is awful, and we have to cut spending. That's what the Republicans say. The Democrats say, The debt is awful, we have to raise taxes on the rich. They're all right, but it actually has to be a combination of the two and it can't just be taxing the rich. It has to be taxing more people than that. And President Obama is actually in the camp with the Republicans on this one. He doesn't want to raise taxes on the majority of Americans. So that's going to be a problem. It's going to be math problem for them.
BLITZER: There is -- Ali, if I can just weigh in on --
VELSHI: Yes. Yes.
BLITZER: -- one point on this. There is an area where they can increase revenue, and there may be an opportunity get Democrats and Republicans on the same page, and we're talking about the corporate tax structure, changing it so, for example, General Electric -- they make a profit last year worldwide of about $14 billion. In the United States alone, they make a profit of about $5 billion. Now, how much federal tax did General Electric pay as a result? Let's just say the $5 billion profit that General Electric made in the United States. You know how much? You know how much tax they paid.
VELSHI: Goose eggs.
BLITZER: They paid a lot less tax than you did, than I did, than any of our -- virtually any of our viewers who pay income tax. They paid nothing. They paid zero. Now, the Democrats think this is outrageous, but even some Republicans now are saying you got to change that corporate structure so a company like GE doesn't get away without paying any federal income tax.
Now, some purists will say if you change those laws and you make General Electric start paying federal tax, those are increased taxes. And they've taken this pledge "No new taxes." They're not going to support any increase in taxes. So you have some purists out there among the conservatives, among the Republicans who even say you can't raise the taxes for General Electric. That will stifle the economy. It'll stifle economic growth. It'll not encourage General Electric to hire people, all that kind of stuff. You'll hear that.
But increasingly, I'm hearing from Republicans, a lot of Republicans, including some conservative Republicans, you got to do something about the fact that a company like GE doesn't pay any tax.
VELSHI: I mean, the argument is that every dollar that you tax is a dollar that either a corporation or an individual can't otherwise employ in a way that makes the economy stronger.
Lex, CNNMoney routinely surveys economists. Many of them have lowered their forecasts for economic growth in the United States. We got a few other problems. We got rising oil and gas prices stifling growth because that's like a tax on people. You get exactly the same amount of something for more money than you paid last week.
A number of economists are also citing spending cuts, severe spending cuts, as something that could slow the economy down. Now, Jeanne alluded to this in the story that she wrote on CNNMoney about how this debate is getting done. This is tricky. We have to cut this debt. We have to cut these deficits. But we have to do it and I way that doesn't cost us economic growth.
SAHADI: Can I just jump in, though?
SAHADI: What I hear deficit (ph) talk (ph) saying is that we have to take every step possible not to harm the economy, but that doesn't mean that some of the short-term steps they take to reduce the debt might not -- I'm sorry, that some of the steps they take to reduce the debt might not harm the economy in the short term. What they're saying is you want to look long-term. In order for the economy to be prosperous over a number of years, you have to get the balance sheet more stable. And that may take a short-term nick out of the economy. It's not going to be a free lunch. We can't just cut the debt without ever affecting the economy.
The tax revenue will have to go up. How we do it, it's up to the lawmakers to decide. Spending cuts will need to happen, and it's going to be painful in lots of different ways. That's what the president's debt commission has been saying over and over again, and they really -- they're re telling the truth.
VELSHI: And Lex, you and I are going to talk a little later in the show about a couple of those things. We're going to talk about oil prices in particular and how they're affecting the economy. The Federal Reserve could have some role in helping to goose the economy. But at this point, it's probably important for Americans to understand, Lex, that this is delicate.
HARIS: It is absolutely a fragile -- you know, a fragile economy. Of course, oil, rising oil, a problem in Europe, the debt crisis keeps getting worse there. And as you said -- and there's a huge question mark about what the impact of spending cuts will be. You're getting estimates all over the place. And when you heard John Boehner speak about the deal that was on the 2011 budget, he's actually referring to it as a jobs bill, that somehow, reducing the debt is going to, you know, create jobs. And there's just a huge question mark about that.
VELSHI: He did say that. All right, thanks very much for all of your insights -- Jeanne Sahadi, Lex Haris, and of course, Wolf Blitzer.
Make sure to log in every day to CNNMoney.com, must read stuff, great explanations. Special thanks to Wolf. Catch "THE SITUATION ROOM" every week day at 5:00 PM Eastern right here on CNN.
Coming up: They've been called everything from thugs to last line of defense for workers in this country. What could the 2012 election mean for the future of unions? Next.
VELSHI: Republican governors on one side, unions on the other. Just this week, New Jersey Republican governor Chris Christie referred to the union representing teachers in his state as a group of political thugs.
Economist Thea Lee is a deputy chief of staff with the AFL-CIO. Thea, putting aside right and wrong for a second, what sacrifices will unions have to make to deal with the reality of states that are out of money and facing tough cuts?
THEA LEE, ECONOMIST, DEPUTY CHIEF OF STAFF, AFL-CIO: Well, I think workers and unions are willing to come to the table in a serious way and talk in a constructive way about what we can do together to address our budget problems. But the truth is that unions and working families and the middle class have done a lot of sacrificing over the last couple of years, and in fact, the last couple of decades. We've given up our jobs, our homes, our pensions, our health care. We've seen growing inequality and stagnant wages for a couple of decades now.
So when we talk about shared sacrifice, we want to make sure that we're talking about some of the folks who got all the gains over the last few decades at the very top, the wealthiest, Wall Street and the top corporations, that they're at that table, as well.
VELSHI: I'll pick it right up there with economist Peter Morici. He's a professor at the University of Maryland School of Business. Peter, Thea says what other public employees say -- We didn't cause this financial crisis, we weren't even close to causing it. Why are we being unfairly targeted to fix it?
PETER MORICI, ECONOMIST, UNIV. OF MARYLAND SCHOOL OF BUSINESS: Well, I don't want to be put in the position of defending the Republican governors, but to look at the calculus that they face, a lot of their budget problems do stem from a lot of promises that have been made to workers that haven't been funded -- pensions, health care in the future, and so forth. And it pits labor not just against, say, the wealthy but against ordinary taxpayers, who face rather substantial tax increases if cuts are to be avoided.
For example, in Illinois, they doubled taxes. But in Illinois, they had a lot of space to do it. Wisconsin already has some of the highest taxes in the country. You know, you simply can't have a millionaires' tax in Wisconsin. It won't cover the cost of meeting these obligations. And the millionaires will leave. We discovered that in Maryland.
VELSHI: Peter, this is a good point you make. Let's talk about this. It is taxpayers who sometimes have to bear the promises -- unfulfilled promises, albeit -- made to some of these workers. Let's look how it breaks down, support for unions along partisan lines. Look at this CNN Opinion Research Corporation poll. It asked Americans who they have sided with in the labor disputes in recent years -- of recent years. Three out of four Democrats side with the union, a very small proportion of Democrats side with the companies. In this case, we're talking about companies, by the way, not government public service unions.
Look at independents, 49 percent side with the unions, 37 percent with companies. But amongst Republicans, that is the most drastic shift, 21 percent siding with the unions, 67 percent with companies.
Thea, I guess in places like Wisconsin, unions had to know that when a Republican administration takes office, this is what's going to happen.
LEE: Well, I think we did see it coming, but I don't think anybody predicted the extent to which some of these Republican governors would go, and the overreaching we saw that was outrageous, that Governor Walker, along with some of these other Republican governors, are not just trying to solve a budget problem, they are trying to attack working people. They're trying to attack the rights that workers have fought for over many decades in this country and around the world.
And so what you have seen is a huge backlash against some of these Republican governors, and a lot of people standing up and saying, That's just not right. This is America. People have the right to form unions, if they want one. They have the right to bargain collectively and not have to go by themselves in to their boss --
VELSHI: And you're right about -- there has definitely has been some sympathy that has come the way of the worker, particularly when it comes to attacks on collective bargaining. But there has been one thing that keeps on coming back, where ordinary Americans are saying to unions, Is it fair to have these systems of seniority, where people are not judged and hired and fired on their merits?
LEE: Well, I think seniority has turned out to be a pretty good system for a lot of people. It gives a bit of job security, and so on. I mean, I think all these issues are things that can be discussed at the bargaining table, and that's where they should be discussed, between the union and the employer, whether it's the public sector or a private company.
But what I think is wrong is for these governors to say, We're going take away the right of workers to bargain collectively. We don't even want to sit at the table with you. We don't want to hear your voices. You don't have a right to be at that table. So I think that's really what the issue has been, and that's where the American people have come down squarely on the side of protecting workers' rights.
VELSHI: Peter, you don't usually go out of your way to dissociate yourself from other conservatives, but on this issue, you have to some degree because they have been targeted. There have been criticisms of some of these Republicans that they are targeting those who don't vote for them for the harshest cuts and that perhaps there was a bit of an overreach. Are unions simply a convenient political target for Republicans in these tough economic times?
MORICI: I don't think so. I think a rebalancing is required in the collective bargaining relationship within the public sector, and that has to go to the heart of unions' political activities because there's real concern that, you know, workers are on both sides of the table when the Democrats are in, and that too often, the workers are very effective in states like New York, for example, in seeing to it that the person on the other side of the bargaining table doesn't represent the taxpayer but is very sympathetic to the union.
What you've seen in Ohio and Wisconsin, though, is dramatic overreach. It is the peak of folly to think unions should go through representation elections every year. However, you know, maybe recertification elections every three to five years would be helpful. In Ohio, there's been similar overreach. And the Republicans need to look at moderate voters. Moderate voters don't like what they're saying --
MORICI: -- and they're going to be penalized for it.
VELSHI: And our polling -- recent polling indicates that, as well. Thanks to both of you. What a great conversation. For those of you, by the way, who are about to tweet that we're anti or pro- union, this wasn't a discussion about the validity of unions. This was a discussion about what's going on right now, very deftly handled by our two guests, Peter Morici from the University of Maryland School of Business and Thea Lee, deputy chief of staff of the AFL-CIO.
But you know, tweet me anyway, @alivelshi. We actually do want to know what you think.
Headlines galore on why the price of oil is moving higher, but those headlines are probably not telling you the whole story. In fact, in some cases, some of these headlines are entirely wrong. I'll explain why next. (COMMERCIAL BREAK)
VELSHI: The media has been lying to you. It's going stop now. You've all seen these headlines. These are real, ripped from the headlines. Take a look at this. "Oil $110 a barrel for the first time in two years, biggest market risk Mideast turmoil." Wrong! "Oil hits $120 after strike in Gabon." Wrong! "U.S. crude climbs on jobs data." Really wrong! That top one is the only one that comes close to being right. "Oil prices edge lower on European debt concerns and China rate hike."
Let me show you a picture, like you need to know, because if you drive a car, you know exactly what's been going on with the price of a barrel of oil because you know what's going on with the price of a gallon of gas. This is oil prices since the beginning of January, around $90-some. Look at that. In February, relatively stable, edging a little higher, then down. Look at that. In March, shooting up, all the way to now. We're up almost 20 percent since the beginning of this year.
The question is why, and it is time to separate fact from fiction. Fadel Gheit is the senior energy analyst at Oppenheimer. Fadel, I have to tell you, I get that the stuff going on in the Arab world is why speculators are buying more oil, but it is an absolute -- it just doesn't make sense to suggest that there's a problem with oil supply and that's why oil is at $110 and higher per barrel. Tell me what you think.
FADEL GHEIT, SR. ENERGY ANALYST, OPPENHEIMER: Well, let's talk about the facts first. The facts are that inventory levels are high, global demand growth is low. There is no supply disruption to speak of, except for Libya, and OPEC has already made up for the shortfall in Libya.
So why then is oil prices $20 or $30 even today than they were only few months ago? Obviously, not all the traders are crazy, and therefore, these people are putting their money where their mouth is, or at least their clients' money where their mouth is.
So the fact of the matter, oil prices always move on perception, and perception in this market, as you well know, is reality. Nobody knows what's going to happen six months from now or a year from now, but people are making a bet. People are saying, It is likely that this event will unfold --
GHEIT: -- and will have impact on oil prices. Now, two days ago, the former oil minister of Saudi Arabia, Sheikh Yemani (ph), said that turmoil in Saudi Arabia could lead to supply disruption, and if that happen, oil prices could go between $200 and $300 per barrel.
GHEIT: I think it's very irresponsible. I think it's fear mongering. And for a man of his stature, this should not be coming from him.
VELSHI: But if there is unrest in Saudi Arabia, or for that matter, Iran, we'll have to have this conversation again, and we'll be talking about real reasons why the price of oil is high.
Let's bring in Lex Haris. He is the managing editor at CNNMoney. Lex, it seems to me the media often -- all too often offers these simple reasons for why oil moves higher, like those headlines I just showed you. You know it's more complex than that. As Fadel says, it does start with supply and demand, but it goes a lot further. Tell me your take.
LEX HARIS, MANAGING EDITOR, CNNMONEY: Absolutely. I think he's got it exactly right. Supply and demand will always be the core, will always be the base for oil prices. But you cannot ignore -- I mean, we were at 85 bucks before the Egypt -- before it began to flare up, and now, as you said, we're $20 or even more higher. I mean, we're up over $111. I've heard a lot of debate about what is the risk premium in oil. I've heard 10 bucks to 20 bucks to 30 bucks --
VELSHI: The risk premium is the extra you pay because there's some risk that that supply might get curtailed.
HARIS: Right. And we don't know what the number is, but I mean, it's got to be something. I mean, we just don't know how this is all going to play out.
VELSHI: And then finally, you've got something here that is interesting. It's not something we talk about. You have a -- that wall graphic shows the Federal Reserve as a possible reason for higher oil prices. Explain to me what you mean by that.
HARIS: This is a huge debate going on right now, and the Federal Reserve will absolutely say, No way, it's not us, we didn't do it. But when we talk about the risk premium and people scared about what's going to happen in the Middle East, they want to start making bets. The Federal Reserve has cut interest rates so low and flooded the system with so much money that it's made it much more profitable for hedge funds and other investors to make these bets on oil.
VELSHI: All right. Now, Fadel, I want to ask you one thing. I'm a big alternative energy fan. I love the fact that high oil prices and high gas prices pump money into alternatives and that people conserve because we should conserve anyway, regardless of the price of oil. But if every American were to conserve energy right now, I don't think it would make one bit of difference to the global price of oil because U.S. demand has been flat to shrinking for years. While we still use more oil than anyone, that's going change over time, I don't think it matters all that much. True or false?
GHEIT: Well, it is false for a very simple reason. Every little bit helps. We're the largest energy-consuming country in the world. And we carry more weight -- if we drop our consumption by 1 percent, it's huge drop because we account for 20 or 25 percent of the oil consumption in the world. So consumption drop in the U.S. will mean a lot globally. Therefore, we have a lot to influence the market in general.
But there are other factors also come into this price hike. One of them is that a weaker dollar. Weaker dollar immediately pushed global prices higher.
GHEIT: So there is more than supply and demand. There is also currency. There is also politics. There are also the moratorium give -- the moratorium really did not have significant impact on supply, but again, it give speculators room to make another bet --
GHEIT: -- that this is going to delay development, is going to have impact on our supply, which is true, albeit very small --
GHEIT: -- but nevertheless, it gives traders another reason to push oil prices higher.
VELSHI: You make a very good point, by the way, about currency. Oil is priced in U.S. dollars, so the less a U.S. dollar is worth, the more dollars it takes to buy a barrel of oil. So because you made a good point, Fadel, I'm going to excuse you for saying that I was wrong on national TV --
VELSHI: -- even though you're smarter than me, so you're probably right about that.
GHEIT: I am not -- I am not smarter than you, I'm older than you, and that's the only difference.
VELSHI: Always a pleasure to see you.
GHEIT: Thank you.
VELSHI: Fadel Gheit is the senior energy analyst at Oppenheimer, and Lex Haris is the managing editor at Money. Thanks very much, guys, for being here.
Listen, we talked all about what's likely to happen with the price of oil, and both of my guests think it's probably going up from here. So how do you profit from it? Stay with me and I'll tell you.
VELSHI: Before the break, we talked about what moves the price of oil. Let me just recap that for you -- speculation, growth in China and India, the low U.S. dollar, low interest rates. Bottom line is we can expect high energy prices and we can expect them to remain high. And that means everything from the price you pay at the pump to the grocery store. How do you offset those cost increases? Well, you can invest.
Here to tell us how to do that is Jim Award. He's the managing director at Zephyr Management, a good friend of ours. Jim, welcome back to the show. There are a lot of different ways to play high oil prices. You've got a fund that you're following that you think my average viewer can get involved in as a way to look at oil prices. It's the IYE.
JIM AWAD, MANAGING DIRECTOR, ZEPHYR MANAGEMENT: Yes, which is the --
AWAD: -- the Dow Jones energy sector. And basically, it's a cheap and efficient way to play the long-term growth in the price of oil. And it's a portfolio. It duplicates the Dow Jones oil and gas index. So it's got oil and gas companies in it, oil and gas production companies. It's got companies that transmit oil and gas. It's got companies that make oil and gas-drilling equipment. And it's got service companies. So it gives you a basket of companies all leveraged to the price of oil and a low-cost, efficient way to invest.
VELSHI: This thing's (ph) up 33.36 percent over one year. What do we do for investors who might be concerned that they've missed the boat on this?
AWAD: Well, any time you're in a commodity like oil that can be subject to short-term speculation and geopolitical events, there's always a chance that it could have a short-term correction. But if you believe, long term, that there's tremendous demand in emerging markets, that there's tremendous strategic risk in the Middle East, which is the major supplier of oil and gas, and that we're getting recovery in the developed markets like the United States, that means long term, the price of oil is going to go up. So you might get short-term corrections, but if you're thinking long term, you want to own it, and this is a way to own it.
VELSHI: So you look at all those factors I just talked to Fadel and Lex about. And bottom line is, none of them point to a decrease in the price of oil over time.
AWAD: No. You could have a short-term decrease --
AWAD: -- in the price of oil, but long term, (INAUDIBLE) as the world grows --
AWAD: -- and the supplies become more suspect, the price should go up over time.
VELSHI: Let me ask you about hedging. This fund has a lot of holdings. Some of the top ones are Halliburton, Schlumberger. They're at the forefront of oil exploration. Tell me why I want to invest in a fund that has a bunch of companies that do different things in oil, as opposed to into oil itself.
AWAD: OK, because you want to be in all aspects of oil, not only the current profits, not only producing it, not only refining it, you want to be exploring for it, you want to be -- the companies that are helping to find more oil. So it is an integrated package play on oil, rather than just the current price. You're investing in oil for the future.
VELSHI: Excellent advice. Always great to see you. Jim Awad is the managing director of Zephyr Investment.
Hey, look, when you look at this, can you solve the problem? The answer could determine your professional future. Take a look at it. I'll explain what this is all about on the other side.
VELSHI: Welcome back to YOUR MONEY. So much dour money stuff going on this week, let's give you some other stuff. Joining me now, Pete Dominick -- he's the host of Sirius XM "Stand Up" -- and Alfred Edmond, editor-in-chief at "Black Enterprise." These two men do not shop at the same place!
VELSHI: All right, take a look at this thing. I showed it to you on the wall a minute ago. Take a look at this equation right now. I'm not going to bother reciting it you. If you don't find what is in the wall here daunting, congratulations because that means you are very likely to be successful, according to a study that's getting a lot of attention right now. That's why some states are pushing for algebra II to be taught in schools. Pete?
PETE DOMINICK, HOST, SIRIUS XM'S "STAND UP": Absurd and insane!
DOMINICK: First of all, the answer is X equals 5.
ALFRED EDMOND, MULTIMEDIA EDITOR-AT-LARGE, "BLACK ENTERPRISE": Yes. Right!
DOMINICK: But listen, why algebra II? Why are they pushing algebra II (INAUDIBLE) I personally get uncomfortable and have anxiety any time I see a letter next to a number. It's great for some people in some careers --
VELSHI: STEM! Science, Technology, Engineering, and the M stands for math. We don't train our kids well enough for this!
DOMINICK: But why not -- I don't want to bring the bar down, but why not train finance? Why not train for investing, for balancing our checkbooks, learning how to keep your credit, all of those things that a lot of people compromise just after high school or during high school sometimes. Why not teach some of those basic fundamental principles for life skills and money? No?
VELSHI: Alfred, I know, you and I have talked about this, though. We still know that if you are educated, your chance of getting a job is twice as high as everybody else's.
EDMOND: And I'm not against the idea of a standard, but I do agree with this. Math at every level is a lot easier to understand when it's tied to real world things, just like what Pete just talked about. If you're tying math to how much money I'm going to need to retire, how much do I need to save for my kids' college education, what kind of a job do I need to get in order to meet my goals --
EDMOND: And I think too much of math is theoretical, and that's why some people get it. I got it when I was in it. I don't remember any of it, but I made it through trig, so I guess I did OK. But some people don't because if it's not tied to real-life, you know, things, it feels too theoretical --
EDMOND: -- like a bunch of letters and numbers.
VELSHI: -- better job of teaching and making it sound relevant. All right, let's assume you did take algebra II and you got that equation. You have a successful career, but for whatever reason, you're working 11 hours a day. The bad news is your job might be killing you. Working 11-plus hours a day increases the risk for heart disease?
VELSHI: Time now for the "XYZ" of it. I gave you a little break from budget talk. I've got to get back to it. I am glad that at the 11th hour, we have another short-term spending extension and may be close to a budget for 2011 because we're only about 190 days late.
The irony of it is that of all the pressing financial issues that this Congress and this president face, this one was probably the easiest one to deal with. A month from now, the U.S. debt will be hitting its legal limit, and Tea Party Republicans have already said they are not interested in raising it without major concessions.
And then there's the federal budget we're supposed to be debating, the 2012 federal budget, for the fiscal year that starts on October 1st. To the 435 members of the House of Representatives, to the 100 senators and to the president, I say this. Don't get us into this mess again. Stop representing your constituents and start working in the interests of all Americans, something that this so- called brinksmanship didn't achieve. This debate felt more like electioneering. The next one needs to feel more like governing.
And to you, the American voter, I've got this to say. You elect that president, those 100 senators and those 435 members of Congress to go to Washington and run this country to the best of their abilities. That means they have to be able to make decisions that are tough, sometimes unpopular, and possibly don't put you and only you front and center.
Let them do their jobs without fear that if they don't pander to you, they won't get reelected. Give them the permission to do what really is in the best interests of the nation, even if it isn't necessarily in your best interest.
The financial decisions that Washington faces right now will affect this country for decades to come. It will take strong will, but it will surely take compromise and reason. Our economic recovery is real, but it remains fragile. A shutdown of the government would have cost us jobs that we couldn't have afforded to lose. Let's not waste precious decision-making time posturing and politicking.
All parties bear some blame for getting us to the brink. All would have borne the shame of a government shutdown. Let's not go here again. We've got real work to do.
That's it for me. Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday 1:00 PM Eastern, Sunday at 3:00 PM.
Catch Christine Romans on "YOUR BOTTOM LINE" Saturday mornings at 9:30 AM Eastern, and stay connected 24/7 on Facebook and on Twitter. I read everything you write. My handle is @alivelshi.
Have a great weekend.