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CBO Crunches Numbers on Boehner's Bill; Tea Party Big Winner?

Aired July 27, 2011 - 18:00   ET

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


WOLF BLITZER, HOST: And you're in the SITUATION ROOM.

Happening now, as the White House and Congressional leaders lurch for the dangerous debt ceiling deadline, the Tea Party movement may be a big winner, but the economy may turn out to be a huge loser.

And while he's going toe-to-toe with the president, you better watch his own back. Does the House speaker, John Boehner, have what it takes to handle a revolt in the Republican ranks?

And even if there's a last minute deal, the United States of America may see its credit rating downgraded. So, what does that mean for you?

We want to welcome our viewers in the United States and around the world. Breaking news, political headlines, and Jeanne Moos all straight ahead.

I'm Wolf Blitzer. You're in the SITUATION ROOM.

As the debt crisis deepens, the House Speaker John Boehner was supposed to put his deficit plan to a vote, but went back to the drawing board and after the Congressional Budget Office found it would save less money than advertised. Also back at the drawing board, the Senate Majority Leader Harry Reid. The CBO now says his plan, too, would save less than stated.

When votes are eventually taken, both could come up short. A Boehner aide calls Reid's plan is a grab bag of gimmicks. Reid calls the Boehner plan a big wet kiss to the right wing. But Boehner isn't getting many kisses from conservatives. Behind closed doors today, the speaker used a crude term in telling the GOP to get its act together.

Meantime, the clock is ticking. Congress has just five days to raise the debt limit, or the country risks default. A downgrade of its debt and potentially catastrophic economic fallout. The country may turn out to be the big loser if the debt crisis worsens, but for now the big winner would be the Tea Party movement. Supporters were out enjoying the moment today. Let's bring in CNN's Jim Acosta. He is watching this story for us. He was watching what was happening out in Washington today.

What happened?

JIM ACOSTA, CNN CORRESPONDENT: Wolf, the Tea Party wanted the power, they got the power in the last mid-term elections, and now with Tea Party backed members perhaps standing in the way of a deal to raise the debt ceiling, the world just might get to see what they do with that power.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Hold the line!

ACOSTA (voice over): The Tea Party rally was small, but implications could be huge if leaders of this conservative movement, who now boast powerful positions in the Senate and big numbers in the House-

UNIDENTIFIED MALE: Take the fight to the enemy, brother

ACOSTA: a-insist it's their way, or the highway in the fight over the debt ceiling.

SEN. JIM DEMINT, (R) SOUTH CAROLINA: Now, folks we have got to hold the line. We have got to stand strong. We can't let down the people who elected us last November.

ACOSTA: Tea Party-backed Republicans are hinting they may not go along with the debt deal that doesn't include a balanced budget amendment. And they don't buy into White House warnings the nation would default on its obligations if the debt ceiling is not raised by August 2nd.

(On camera): This is a severe crisis?

SEN. RAND PAUL (R), KENTUCKY: This is artificial crisis. The president has created and concocted a crisis.

HERMAN CAIN (R) PRESIDENTIAL CANDIDATE: I don't believe the debt ceiling should be raised. I don't believe the ceiling has to be raised. Secondly --

ACOSTA: Wouldn't we go into default? Wouldn't there be consequences?

CAIN: Those of scare tactics.

ACOSTA (voice over): The Republican presidential candidate Herman Cain told CNN the country could simply pick and choose which bills to pay.

CAIN: We have enough money in the Treasury to pay the interest on the debt, pay our soldiers and their families, and pay the Social Security recipients and pay Medicare and Medicaid, now.

ACOSTA (On camera): What happens to the rest of the federal programs. They just go on ice for awhile?

CAIN: No, you put everything else on the table.

(Voice over): That's just fine with Tea Party activists. UNIDENTIFIED FEMALE: You do that by cutting things that you don't need. Like the Environmental Protection Agency.

ACOSTA (on camera): So, just get rid of that altogether?

UNIDENTIFIED FEMALE: Oh, yeah, think of how much money we save. It doesn't do anything.

ACOSTA (voice over): They Obama administration warns there are consequences to that. Defense contractors could be stiffed like those providing ammunition to soldiers on the battlefield.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: Choices that have to be made. And it is a "Sophie's Choice" right? Who do you save? Who do you pay?

ACOSTA: The president found an unlikely ally and an old campaign foe, who blasted Tea Party leaders.

SEN. JOHN MCCAIN (R), ARIZONA: To hold out and say we won't agree to raising the debt limit until we pass a balanced budget to the Constitution. It's unfair, it is bizarro.

(END VIDEOTAPE)

ACOSTA: Asked whether the country will face a virtual government shut down on August 3rd, one Tea Party backed Senator Rand Paul described it this way. He called it a government in transition. Transition to what, is anybody's guess, Wolf.

BLITZER: I saw the pictures of the Tea Party protests here in Washington. You said it was a small number of people. Any idea of how many were there?

ACOSTA: We counted roughly 50 people, Wolf. But the Tea Party movement, they don't much need rallies anymore, they have real power in Washington now.

BLITZER: They certainly do. All right. Thanks very much for that, Jim.

The calendar clearly shows August 2nd as the deadline for raising the debt ceiling. But can the deadline be stretched? Can the government keep sputtering on as the money begins to run out? Let's bring in the White House Correspondent Brianna Keilar. She is working this part of the story for us.

What are they saying over there about keeping it going for a few extra days?

BRIANNA KEILAR, CNN WHITE HOUSE CORRESPONDENT: They are disputing here at the White House this assertion by some lawmakers that this isn't really a hard and fast deadline. And also, Wolf, some financial experts have questioned if there is not some more wiggle room, days beyond August 2nd that would allow the Treasury to continue using these extraordinary measures, as you heard the White House call them, to make sure the U.S. does not lose its ability to borrow money.

So, I pressed Jay Carney, the White House press secretary, on this today about just how hard and fast this deadline is. He said that if the debt ceiling is not raised and August 2nd comes and goes, you wouldn't see the economy falloff a cliff. But he said it would be a downhill slide, and basically things would be on fumes. Here's what he said at the briefing today.

(BEGIN VIDEO CLIP)

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: Look, I invite people, and don't count on me, talked to economists and business leaders. If they are so convinced that this is all made up, you know, buy and hold, see what happens. Tell your members of Congress, don't worry about it.

I mean, honestly. It's just a false argument. This is the gorilla dust that I've talked about. This is real and dangerous. There is a reason why it has never happened before, because it's dangerous territory for the largest, most important country and economy in the world.

(END VIDEO CLIP)

KEILAR: Now, Wolf, the White House and, pardon me, the president and White House officials have talked about the millions of checks that go out each month; 80 million to Social Security recipients, veterans, and disabled Americans. Those could be in jeopardy in the case of loosing the borrowing ability. Also payments, perhaps, to venders, who provide services to the U.S., including those who provide services for troops overseas fighting in the wars.

Here in the coming days, Wolf, in the absence of a deal, expect the White House to do something that it has not so far. And that is really to say what will get paid and what will not get paid, in the case of a default. Because while we are hearing from the White House Press Secretary Jay Carney, still that the president is confident the debt ceiling will be increased, what we are going to be seeing is the White House illustrating what happens if it is not, Wolf.

BLITZER: All right, Brianna, thank you.

Let's get a closer look at this critically important debt crisis, the drama unfolding. Joining us now our Chief Political Analyst Gloria Borger, and our senior political analyst, David Gergen.

Gloria, first to you. Any reason, at all, for optimism that this will be resolved by Tuesday?

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: I wouldn't exactly say optimism, Wolf, but it is very clear that there things going on, on different tracks here. You have the outside track, which is John Boehner's bill, which lots of people now believe will probably pass the House tomorrow. And you have Harry Reid's version of the bill. He hasn't introduced it yet. But there is also an inside track. And I was told today by leadership aides on both sides of the aisle that talks are continuing. And the Democrats' main concern, as you know, is they don't want to vote on raising the debt ceiling, you know, six months down the line. And they are worried about this debt commission, too. And they're all looking to Senator Mitch McConnell, who is the Republican leader in Senate, and it will be a refrain, I'm told, that you will hear from Democrats a lot later this week, to try and get McConnell to cut a deal. And as one said to me today, "We need McConnell to step up and give the big boy talk to the Republicans."

BLITZER: Well, we heard Senator McCain just do that on the floor, a little.

BORGER: Right. Maybe he can help.

BLITZER: Let's bring in David.

You watched these dramas unfold in Washington for many years. Have you seen anything like this?

DAVID GERGEN, CNN SR. POLITICAL ANALYST: No. It's the biggest act of collective irresponsibility I think we have seen, Wolf. I don't know if you can remember anything analogous. It's already been a huge embarrassment for the United States. The stock market went down some 200 points today. I think that sent a clear welcome signal that we are not playing games here. This is serious.

And it is almost guaranteed now that we will have some kind of downgrade of our credit rating. This is the first generation in history to squander our AAA credit rating. All of that is done.

But I agree with Gloria. I still think there is hope a deal can be pulled out. I do think that you could-the Boehner and the Reid deal, even the CBO is has scored them. The Congressional Budget Office has scored them. So they are not that far apart in terms of their basic spending cuts. What is needed is a mechanism that allows the debt ceiling to go all the way through January 13 but still comes down like a meat cleaver if this commission doesn't reach an agreement that reduces spending next year. Something that would be automatic, but what would separate it out from the debt ceiling. So, it would be automatic cuts, but without going to the edge on the debt ceiling. Don't you think, Gloria, something like that is possible?

BORGER: Yes, I do. I do think something like that is possible. The problem the Democrats have with this commission is they think it could be a trap for them. Because if Republicans appoint no-tax Republicans to the commission, then you are not going to get anything out of it that calls for revenues and they will be back in the same situation they are in now. So there has got to be a way to try to avoid this. They are kind of hopeful, but you need grown ups sitting around the table.

BLITZER: David, I think an objective analysis would say the Republicans, including Tea Party activists, they have done remarkably well in generating all of this commotion right now. And a lot of people would say, you know what? They should just take yes for the answer.

GERGEN: Well, there is a lot of truth to that. The irony here is the Tea Party has done extremely well in terms of substance. They have gotten both parties now to agreed to over $1 trillion worth of cuts. That is a big change. Not big enough, but it is a big change.

But politically, I don't agree that they are the winners on this. The first pieces, maybe they are winning big. This could be very devastating for the Tea Party if they are seen as taking this close to the brink. And indeed, if they go over the brink, I just don't see how they continue as a major force in American politics if they take us into default. If they are blamed for it, at the end of the day.

BLITZER: Let's hope we don't go into default. That would be a disaster for the entire country. All right, guys, thanks very much.

The House Tea Party freshman versus their own leader, the Speaker John Boehner. We have two of them, here with us. One supports John Boehner's debt ceiling plan. The other does not. They will debate. Stand by.

And home mortgages and other loans all in the line of fire right now if the credit rating of the United States is downgraded. We are looking at real world consequences to this looming debt disaster.

(COMMERCIAL BREAK)

BLITZER: Let's go right to Jack Cafferty for "The Cafferty File"-Jack.

JACK CAFFERTY, CNN ANCHOR, THE CAFFERTY FILE: Here is more evident of the suicide mission this country is on. General Electric announced it is moving its 115-year-old X-ray business from Waukesha, Wisconsin to Beijing, China. The X-ray business is part of General Electric's GE Health Care unit and the move is part of a broader plan, by GE, to invest $2 billion in China. This will become the first GE business to be headquartered there. A handful of the unit's top executives will be transferred to China. Otherwise the company says none of the 150 staffers in the Milwaukee area facility will lose their jobs or be transferred.

However, GE plans to hire more than 65 engineers and a support staff at the new facility in China. This is the kind of news that makes you want to reach for something sharp and jab it in your eye. General Electric's Chief Executive Jeffrey Immelt is one of President Obama's advisers on? Ready? U.S. job creation. In January President Obama asked Immelt, a self-described Republican, to head of the president's council on jobs and competitiveness. Tapping Immelt was supposed to provide the Obama administration with a business world perspective on job creation-not in China, here.

The administration also hoped it would give the president a leg up negotiating with the Republicans controlled House on deficit reduction, jobs programs, and health care. And of course we can all see how well that is working out. Two months after Immelt was named to the council, "The New York Times" reported that General Electric paid no income taxes last year, thanks to some fancy accounting footwork. Even though the company earned $14.2 billion in profits last year, more than $5 billion of it in the U.S. of A.

Here's the question: General Electric is moving its X-ray business to China. What message does that send to Americans? Go to cnn.com/cafferty file. And post a comment on my blog. You cannot make this kind of stuff up. This is twilight zone material.

BLITZER: Yes, $14 billion in profit, in one year, $5 billion in the United States and Jack Cafferty you paid more federal income tax. I paid more federal income tax.

CAFFERTY: Yeah!

BLITZER: Almost all of our viewers paid more federal next tax than GE did. How do you explain that?

CAFFERTY: Well, and the arguments, one of the arguments going on in Washington is, oh, no, we can't close these tax loopholes for these big corporations as part of the deficit/debt reduction program. That will never go. We have to subsidize big oil, give all the places like GE these tax breaks. We will have to leave that stuff in place. Let's cut Medicare and Social Security. It's just --

BLITZER: Well, the argument is that these are job creators. Well, they are actually creating some jobs in China, right?

CAFFERTY: Yes, they are.

BLITZER: They want to invest in China.

CAFFERTY: They want to invest $2 billion they are going to invest, eventually, in Beijing. And that will just be the beginning. Now, granted it's a wonderful market for American business, but what about the jobs here? The jobs are not here anymore. They are all over there.

BLITZER: I want to invite Mr. Immelt to come into THE SITUATION ROOM and explain what is going on. I think that would be a good interview.

CAFFERTY: I just think that would be delightful and I'll be front row center to watch you grill him about this stuff.

BLITZER: All right. Thank you.

The United States has always been seen as a safe bet for investors around the world. But depending on how things go in the days ahead, the country may start to look more like a deadbeat. Let's got to CNN's Mary Snow, she is taking a looker look at this part of the story-Mary.

MARY SNOW, CNN CORRESPONDENT: Wolf, as you have been pointing out, never before has the U.S. had its credit rating downgraded. So, it is difficult to quantify the impact. But the immediate effect would be higher borrowing costs and average Americans would not be spared the costs.

(BEGIN VIDEOTAPE)

SNOW (voice over): On Capitol Hill officials from credit rating agencies fielded questions but gave no direct answers about whether they would downgrade the U.S. government's stellar credit rating. At the same time a senior government bank examiner told lawmakers there is reason to worry.

REP. BRAD MILLER, (D) NORTH CAROLINA: Am I right to worry that this could be real bad, if our debt was downgraded?

DAVID WILSON, OFFICE OF THE COMPTROLLER OF THE CURRENCY: It's hard to measure, but I think you are right to worry. It could happen. It could be a big thing.

SNOW: Just how big is a mystery, since the downgrade of the U.S.'s AAA, the highest there is, would be unprecedented.

(On camera): The big picture one economist estimates that a credit downgrade could eventually cost the U.S. government $100 billion a year in extra borrowing costs, over the long-term. Now, consumers would also pay. If interest rates on U.S. Treasuries rise, that would mean higher borrowing costs on things like home mortgages and car loans and student loans. By exactly how much is unclear, but just to give you and example of the impact, of rising interest rates, let's say interest rates were to go up by 1 percent. On a $200,000 mortgage, that would mean an extra $124 in payments each month.

(voice over): Credit cards would be affected, 401(k)s could lose ground from stock market losses triggered by a credit downgrade. Businesses, too, would feel the effects.

CHARLES RILEY, CNNMONEY.COM: Businesses are always talking about how uncertainty is prohibiting them from making big investments, big business decisions, hiring more people. This is not going it help that if the United States is downgraded.

SNOW: While many view a downgrade as damaging, economics professor Joseph Foudy says it wouldn't be catastrophic.

JOSEPH FOUDY, NYU STERN SCHOOL OF BUSINESS: Even countries like China, which make noises about let's put their money somewhere else. Where could they put it? There is no market in the world that is as large as this. Where you can buy and sell $100s billions in securities, every week, or month if you need to.

(END VIDEOTAPE)

SNOW: Now, even if there is a last-minute deal on raising the debt ceiling, the U.S.'s credit rating may still suffer. That is because rating agencies are looking to see if long-term plans to cut the nation's debt are sufficient. Someone on Wall Street now believe a downgrade is inevitable at this point, Wolf.

BLITZER: Mary, thank you. The debt crisis could cause pain for five states. The credit rating agency Moody's placed Maryland, New Mexico, South Carolina, Tennessee and Virginia under watch for potential downgrades. They have top ratings now, but all receive significant federal payments. And even with a debt deal spending cuts could hit them hard.

Maryland is considered a blue state, voting mainly for Democratic Party. Tennessee and South Carolina are considered red states are voting predominantly Republican. New Mexico and Virginia are they are so-called purple states, reflecting their battleground status.

He is battling President Obama, on one side, some fellow Republicans on the other side. We will have a closer look at the House Speaker John Boehner who is caught in the middle of a debt battle right now.

(COMMERCIAL BREAK)

BLITZER: Let's go right to Capitol Hill. Kate Bolduan our congressional correspondent is getting some important information on this debt struggle that is under way right now.

What's the latest?

BOLDUAN: Hey there, Wolf.

As you know, House Speaker John Boehner has been scrambling since yesterday to rewrite his bill because the cost estimate that came out showed he had fallen short of his target number. Well, he has finished rewriting his bill, the Congressional Budget Office, which is the gold standard of making these cost estimates. They have released this analysis just now, its revised analysis of the Boehner bill, and the long and the short of is, that it meets the test that the House speaker has set for himself.

It says, according to the Congressional Budget Office, it reduces the deficit by $917 billion. Which, while falling short of its target it importantly, here,--and this is the key-it is greater than the $900 billion, the amount of raising the debt ceiling. This is important, of course, as you know, Wolf. We have talked about it many times. One key point the House Speaker John Boehner, a principal he set for himself, is that the cuts be greater than the amount they raised the debt ceiling. While it falls short of his target it is a victory for him this evening. Because now he does meet his test, which is a signal that they could very well be moving forward tomorrow with the vote, Wolf.

BLITZER: But even if it passes in the House, Kate, the Democrats in the Senate have just released a letter saying-they have 53 signatures on this letter saying they won't vote for the Boehner legislation if it comes to the Senate. Where does that leave us?

BOLDUAN: That leaves us exactly where we thought it was going to leave us. Well, Boehner bill, he was fighting for it to get enough votes to pass in the House. It looks like he could be moving in that direction. If that still happens, it still does not likely, as you just pointed out, does not have the votes in the Senate. But as we have been talking about, the Senate seems that it wants to wait to act until they see what first happens with the Boehner bill. And then, at some point, Wolf, we have been talking about it all along they will be looking for a compromise, but it doesn't seem like they have reached the point yet.

BLITZER: No, not yet. The clock is ticking. Thank you, Kate.

While he has been face-to-face with the president on the debt crisis, the Speaker John Boehner has had to watch his own back. Does he have what it takes to handle a revolt in the Republican ranks? Lisa Sylvester has been taking a closer look at what is going on over here.

What are you finding out?

LISA SYLVESTER, CNN CORRESPONDENT: We have been taking a closer look at John Boehner. And he is known for a lot of things. His seemingly perfect tan, his love of golf. But several sources told me he is also a guy who is known for not having a big ego. That he knows how to work with different personalities. And it is a skill that he learned growing up.

(BEGIN VIDEOTAPE)

SYLVESTER (voice over): This is the John Boehner we have seen this week going toe to toe with the president at dueling news conferences on Monday.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: While Republicans might like to see deeper cuts and no revenue at all.

REP. JOHN BOEHNER, SPEAKER OF THE HOUSE: We have done our best to convince the president to partner with us.

SYLVESTER: Boehner knows about partnering and getting along.

JERRY VANDEN EYNDEN, BOEHNER CHILDHOOD FRIEND: To think there were 12 kids in here is pretty amazing.

SYLVESTER: John Boehner grew up in this modest house in Redding, Ohio. The second oldest of 12 kids, he helped keep order around the home.

EYNDEN: They'd all run to the woods because they knew he'd be barking orders at them, about cleaning this or cleaning that up.

SYLVESTER: Jerry Vanden Eynden has been friends with Boehner since junior high. As a kid Boehner mopped floors in his family's tavern and Andy's Cafe, which is still operating today. He put himself through Xavier University working odd jobs, including night janitor. Boehner was actually raised in a household of Democrats. But his first big paycheck changed that. EYNDEN: When he became a manufacturer's rep he was making pretty good money. He saw how much money the government was taking out of his pay. I don't think he was happy with it. So, ever since then, I would say that kind of changed his mind to become a Republican.

SYLVESTER: From neighborhood association to running a small business to state politics to speaker of the House of Representatives.

BOEHNER: I spent my whole life chasing the American dream.

(APPLAUSE)

SYLVESTER: One former congressional aid who worked closely with Boehner said he may seems like a laid back kind of a guy, but has laser beam focus and, quote, "always figures out a way to win." But winning this time around means getting a bill to raising the debt ceiling that can pass muster with Senate Democrats and win enough votes with the more conservative members in Congress; hard needles to thread. Friends, including Representative Pat Tiberi, says one of Boehner's greatest gifts is his ability to check his ego at the door and to get along with others, and have others go along with him.

(On camera): Do you envy the job that he has right now? The position he is in?

REP. PAT TIBERI, (R) OHIO: No, you couldn't pay me enough to do this job. It is a tough job. But you know what, as he always says, as a guy growing up in a very big family, with 11 brothers and sisters, and his dad owning a bar, he learned a long time ago how to deal with people.

(END VIDEOTAPE)

SYLVESTER: I asked the Representative Tiberi, how does Boehner get reluctant members of his party to sign on? He said that Boehner is going around one by one and showing them the art of the possible. That you are not going to get everything that you want, but that is a lot better than the status quo, Wolf.

BLITZER: Good report. Thanks very much.

We will take a quick break. When we come back, a major debate between two Republicans and two Tea Party activists, one who supports John Boehner's plan, the other does not. We will hear from them and what they are saying when we come back.

(COMMERCIAL BREAK)

BLITZER: Let's get back to our top story. Only five days left before that deadline next Tuesday comes. The nation's debt ceiling has to be raised. Otherwise, there could be economic disaster.

Tea Party loyalists in the U.S. Congress have forced the Republican leadership to steer to the right in this debt battle, but even within that faction, there are serious differences over where to go from here. (BEGIN VIDEOTAPE)

BLITZER: Joining us now from Capitol Hill, Representative Joe Walsh is the Republican of Illinois, and Representative Allen West, Republican of Florida.

Gentlemen, thanks very much for coming in. Appreciate it very much.

REP. JOE WALSH (R), ILLINOIS: Thank you.

REP. ALLEN WEST (R), FLORIDA: Thanks for having us.

BLITZER: All right. Both of you support the Tea Party. Both of you are activists among conservative -- conservatives in the Republican Party. Congressman West, you're with the speaker of the House right now. You support what he's trying to do, even though your critics are suggesting that the speaker is blinking, in effect, in the face of Democratic and White House pressure. Explain your stance.

WEST: Well, I explained it yesterday when we had our House GOP conference. We can sit around and try to come up with the 100 percent plan, and this plan definitely is not it. I'll give it about a 70 to 75 percent rating. But it is a plan that I can take and I can execute to 100 percent. I think the most important thing when I look at this, it still does fit within the framework that I'll support of cut, cap and balance.

Could it be more cuts? Absolutely, but this is a start, and it gives me what I think will satisfy my supporters, as far as a vote. It does cap, and we're going to have a balanced budget amendment brought forth the first of October. We're also going to have the House budget amendment that will be brought forth after we have this vote.

So I'm very pleased that I can stand to support this because we don't have the tax hikes that I don't want to see happen, and we don't have the complete blank check that's going to be given to the president of 2.4 trillion. So this is the first time in the history that we've had the raising of a debt limit also with spending cuts.

BLITZER: All right. So what's wrong with that thinking, Congressman Walsh?

WALSH: And again, full and total respect for my friend and colleague, Allen West.

Look, I think our speaker has done a wonderful job negotiating, trying to get the best he can get. We always have to remember that I really do believe he's dealing with the president who hasn't been serious in this debate at all and a Democratic Senate that hasn't even been involved.

Look, that having been said, I wish we'd all take a breath and the only difference I've got with my friend, Allen, is I think we've got a unique moment in time where I really would like us to try to get more. I just don't believe that we can change the culture in this town, the spending culture especially, unless we force politicians to balance their books. It's why I so firmly believe in a balanced budget and amendment, and I really need to see a passage of that balanced budget amendment before I can sign to raise the debt ceiling.

BLITZER: But you're going to vote against Boehner's proposal tomorrow? Is that right, Congressman Walsh?

WALSH: Again, yes, assuming what I see. And remember that we're going to change that proposal a little bit. There will be some new members thrown in there. I think that all members want to take a good hard look at it. But based on, again, a valiant effort by our speaker. To me it's just not enough, and I want -- I want us to try to get more. And I'm not obsessed with August 2. If it takes us a couple days to get something better, I think that's what we need to try to do.

BLITZER: All right. Let's let Allen West respond to you. Go ahead, Congressman.

WEST: Well, I think one of the things that I'm looking at is, first and foremost, I have a moral obligation to the constituents out there and also to the American people. I want to alleviate any type of fear and anxiety about the second of August and don't want to see any type of interest rates go up because of the skittish nature coming out of our markets. So that's one of the key things I want to make sure that we take care of and we make sure that we passed this Boehner plan.

But I think also we have to have the long-term strategic vision about how do we start getting serious and getting those spending control measures in place. Look, I think that Washington, D.C., has had a spending disease that probably -- going on about 30 years. I've been here for seven months. At least what we're trying to do is chip it away.

The thing that I look at is so clear and so simple, is that we have changed the lexicon. We have changed the conversation up here in Washington, D.C., from going to let's just simply raise the debt limit without any considerations of cuts and spending. They're seriously talking about cuts and spending. No one else has put forth any type of plan except for the House GOP, and I will continue to stand with the speaker.

BLITZER: Well, that sounds reasonable, Congressman Walsh. You know, you say you're not worried about August 2. I don't know if you saw what the stock markets, what happened today, the Dow Jones going down. The NASDAQ going down. About 200 points on the Dow Jones. They're getting jittery right now while you guys dawdle up on Capitol Hill.

You've got to do something. You tried to get that -- that legislation passed last week. It didn't go anywhere in the Senate. You've got to -- you've got to be realistic, Speaker Boehner says.

WALSH: Well, I can tell you, nobody up here, especially in the Republican conference, is dawdling.

Look, reports came out yesterday that the administration was having private conversations with big banks telling them don't worry. Take it easy. Don't worry. There's going to be no default. We'll get this all taken care of. And this is the same administration that has been doing nothing but trying to scare the American people to do something by August 2. There are also reports that...

BLITZER: Don't you -- do you not believe, if there's no deal by August 2, that bad things won't happen? Is that what you're saying, that the country can sustain whatever happens on August 2 if there's no increase in the nation's debt ceiling?

WALSH: I can tell you this whole notion of default is a myth come August 2, and the president knows that. Look, we're going to have about $171 billion in revenues in the month of August. You could service your debt, pay Social Security, and pay your military benefits, and that's only going to eat up half of that. This president knows that.

That's why I'm just -- and again, I know Allen is with me. We all want to make sure we get this right. And let's not steer the American people into thinking we've got to do something by August 2. Let's get it right.

BLITZER: Well, let me ask Congressman West. How worried are you that if there's no deal by August 2 or August 3 or whatever that date might be, the American people will suffer, interest rates go up, the value of a dollar will go down. There could be inflation. There could be a real economic disaster out there. How worried should your constituents, Congressman West, be about that?

WEST: Well, I have to you something, Wolf. My nature is that I do not worry. My 22 years I spent in the United States Army taught me this, and of course, the trips I had in combat zones. You always prepare for the most likely and the most dangerous course of action. So as I go forth, I'm preparing for the most dangerous course of action. And I do not want to see any type of catastrophic event.

And that's why I'm going to support this plan. And I have to tell you, now the onus is on Harry Reid and a Senate that has not passed a budget in 817 or 818 days. They tabled the plan that we sent over last week of cut, cap and balance that would have given the raise to the debt limit. I think that right now Harry Reid and the president need to come forth and stand with the speaker and the plan that we're going to send forth to them after we vote on it tomorrow.

BLITZER: And what do you say to Eric Cantor, Congressman Walsh, who tells you and those who oppose the speaker of the House right now, "Stop whining."

WALSH: You know, look, leadership, Eric and John Boehner, they're all doing a wonderful job. And I understand frustration. Because again, they're dealing with a president who doesn't get it.

But understand something. The crisis we've got is a debt crisis. This country is falling off a financial cliff. We've heard from the credit agencies that they're likely to downgrade us even if we raise the debt ceiling. What we know for sure is, if we raise this debt ceiling and don't get real spending reform, they're likely to downgrade us. So we've got to make sure we do this right.

BLITZER: All right. Let's leave it on that note.

But I quickly want to ask you, Congressman West. You got into a big fight with your colleague Debbie Wasserman Schultz last week.

WEST: No fight here.

BLITZER: And among other things, you called her "You are the most vile, unprofessional, and despicable member of the U.S. House of Representatives. If you have something to say to me, stop being a coward. Say it to my face. Otherwise, shut the heck up." That -- you remember that last week.

She was on my show last week. I asked her about that. I'll play the clip of how she responded to you.

(BEGIN VIDEO CLIP)

REP. DEBBIE WASSERMAN SCHULTZ (D): Well, I would appreciate an apology.

I think Congressman West really needs to understand that when we're debating on the House floor, that's what we do. We engage in a back and forth. And if you can't handle that than h e-- particularly on an issue as important to our constituents as Medicare, then you probably need to reconsider his really ill-advised position on Medicare.

(END VIDEO CLIP)

BLITZER: Have you spoken with her? Have you apologized to her? What's the latest?

WEST: I have not spoken to her, and I'm not going to apologize to her. As a matter of fact, this is not an isolated incident, which she has tried to make it seem. Debbie Wassermann-Schultz has been attacking me even last year when I was a candidate.

The fact that she ordered for a protest to be held outside of my campaign headquarters last October of 2010, that is some of the things that have been happening.

Look, with -- Wolf, I've been turning the other cheek so much that my neck is starting to get a crick on it. And I have to stand up for myself, for my honor. And I'm not apologizing. It's time to move forward and deal with the issues that are important to the American people.

BLITZER: One final question. She made a big point of suggesting you're one of her constituents. You live in her district, not in the district you represent in the House of Representatives. Is that true?

WEST: Yes. Well, when I returned from the military in 2004, I didn't retire looking for a congressional district to live in. I told my wife, who had been drug around all over America, that wherever you decide to live, that's where we will. Now, we've got redistricting coming up. When I'm successful in winning, based upon the new district, then I'll move. But I will tell you this, that Debbie Wasserman-Schultz did not say a word when Robert Wexler was living up in Maryland, and that was one of her compatriots.

BLITZER: He's the former Congressman from Florida.

All right, Congressmen Allen West, thanks very much for coming in.

Congressman Joe Walsh, thanks to you, as well. A good discussion, a good debate, as I like to say. The stakes are obviously enormous. Appreciate it very much.

WALSH: Thank you.

WEST: Thank you for having us.

(END VIDEOTAPE)

BLITZER: Real people facing real consequences if -- if -- a debt limit deal isn't reached. For some, their livelihood right now is on the line.

(COMMERCIAL BREAK)

BLITZER: There is growing concern about the real-world consequences of the federal government defaulting that's looming, unless Congress and the White House can reach a deal on raising the U.S. debt limit. Higher interest rates are almost certain, and that would mean a devastating blow to many businesses, including car dealers. CNN's Sandra Endo has more.

(BEGIN VIDEOTAPE)

SANDRA ENDO, CNN CORRESPONDENT: Wolf, if it's a battle being played out in Washington, but it's businesses like this car dealership in California which are caught in the crossfire.

RON WHEELER, BUERGE CHRYSLER & JEEP DEALERSHIP: Here at Buerge Motors, we've been in business since 1915. And we've certainly seen a lot of ups and downs in the automotive industry but nothing -- nothing anywhere near what we're seeing today.

ENDO (voice-over): A sagging economy, higher gas prices, a tighter supply of parts and paints from tsunami-stricken Japan. Now a stalemate in Washington over raising the debt ceiling. That could lead to higher interest rates and fewer car loans.

WHEELER: Our pace is off, so we need to make sure that we catch up. ENDO: Los Angeles auto sales mean Ron Wheeler is closely following the political fight, knowing an impasse would seriously affect his bottom line.

(on camera) What would you say to lawmakers in Washington who are duking it out, really standing their ground, not coming together on a deal? What would you say to them?

WHEELER: I'm saying to Washington, "Let's get it together. Let's realize the impact that it's having on the American people. Get out of your vacuum. Get off your butt. Make a decision. Make the tough decision. Make the hard decision, because it's affecting everything that we do, the American people, at the ground level."

ENDO: And you describe this fight as what type of feud?

WHEELER: As a -- as a civil war. As a financial civil war. It's -- it's a battle over who gets what, you know, for their team. And supposedly, we're supposed to all be one team. We have a lot of sacrificial lambs out here.

ENDO (voice-over): Like car shoppers, who will have to make hard decisions if rates do go up.

TIM MCNULTY, CAR BUYER: We'll probably have to lower expectations our expectations a little bit or maybe even delay what we're going to be doing until they settle down again after the implosion in Washington.

TONY MILLS, CAR BUYER: If you've got a group of people that aren't -- aren't able to working together, and it's punishing the whole country. And I think it's really frightening, you know, what might happen in the next couple of weeks, if they're not able to work things out.

ENDO: Whether or not lawmakers come together on a deal in time, the political wrangling is already leaving a strong impression in voters' minds, especially if the public ends up paying the price -- Wolf.

(END VIDEOTAPE)

BLITZER: Sandra Endo, thanks very much.

America's unprecedented debt crisis, the whole world is watching as this drama plays out. CNN's Fareed Zakaria talks to our own John King on "JOHN KING USA." That's coming up for our North American viewers at the top of the hour. And the debt crisis follies. There's a lighter side to just about everything. And of course, Jeannie Moos will have it.

(COMMERCIAL BREAK)

BLITZER: Let's get back to Jack for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: The question this hour, Wolf: "General Electric is moving its x-ray business to China. What message does this send to us silly Americans?"

Olga writes, "It says we can give big corporate perks to companies who ship jobs overseas. The GE situation is a perfect example. How do you expect President Obama to create jobs if the corporate bigwigs are unemploying our own people? We should take the company tax breaks and perks away until they bring the jobs back from overseas."

Ava in Tennessee: "Wait, isn't the CEO of GE supposed to be Obama's top jobs guy? Why, yes, he is. First they pay no income tax and now this. It's official: no one in power cares about getting people back to work. All they care about is keeping their profits, their offices and the status quo. The real question is how long will it take the rest of America to realize this and then do something about it?"

Brad in Oregon writes, "It tells the U.S. that free trade is a scam and that we have to have fair trade instead. It's too easy for companies to outsource to China and bring the goods and services back to the U.S. with few restrictions. We need to have tariffs on imports to account for the difference in labor costs between the two countries. Then China could compete with American manufacturers on the basis of quality instead of cheap labor."

Frank in Mill Valley, California, writes, "The message is eloquent and wonderfully concise. It consists of only two words. It starts with the letter 'F' and ends with the letter 'u'."

Donna writes, "Does anybody see a conflict of interest here? Why would a corporate chief executive move an arm of his business to China when he's responsible for jobs in America? I find it outrageous."

Laurie in Pennsylvania: "It says the U.S. company executives and stockholders are greedy and want to share as little of the profits they make as possible. I guess the national debt crisis hasn't opened their eyes as to what happens when millions of average citizens don't have a paying job."

And D.W. in St. Louis, Missouri, writes, "Thanks for all the tax breaks, suckers!"

You want to read more on the subject go to my blog: CNN.com/CaffertyFile -- Wolf.

BLITZER: See you tomorrow, Jack. Thank you.

A rapper finds unusual inspiration in the debt ceiling debate.

(COMMERCIAL BREAK)

BLITZER: U.S. debt limit is inspiring some folks. Here's CNN's Jeanne Moos.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): A rap video, a cops and robbers movie, and Amy Winehouse?

AMY WINEHOUSE, SINGER (singing): No, no, no.

MOOS: What do they have to do with the debt ceiling fiasco?

REMI MUNASAFI, COMEDIAN: Raise the debt ceiling. Raise the debt ceiling.

MOOS: Remi Munasafi is a comedian from Virginia who likes doing political videos.

MUNASAFI: All the spending fits in well with a bad rap. I just happen to be a bad rapper.

(RAPPING) Fourteen trillion in debt, but yo, we ain't got no qualms dropping $100 bills and million-dollar bombs.

MOOS: Speaking of bombs was that really the "A" bomb dropped by House Speaker John Boehner as he tried to get his fellow Republicans to get in line?

LAURA INGRAHAM, TALK RADIO SHOW HOST: Is it true that you told some of the Republican members this morning that you need to get your "A" word in line behind this debt ceiling bill?

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: I sure did. Listen, this is time to do what is doable.

MOOS: "The Washington Post" reported that the House majority whip played a movie clip to motivate Republicans to pull together. The clip featured Ben Affleck as a bank robber planning revenge in "The Town."

BEN AFFLECK, ACTOR: I need your help. I can't tell you what it is. You could never ask me about it later, and we're going to hurt some people.

UNIDENTIFIED MALE: Which car are we going to take?

MOOS: But Democrats turned the car against the Republicans.

REP. CHUCK SCHUMER (D), NEW YORK: They chose to inspire their House freshmen. One of the crooks gives a pep talk to the other right before they both put on hockey masks, bludgeon two men with sticks, and shoot a man in the leg. Ladies and gentlemen, this is your House Republican majority.

MOOS: Asked about Republicans playing his clip, Ben Affleck said, "I don't know if this is a compliment or the ultimate repudiation, but if they're going to be watching movies, I think 'The Company Man' is more appropriate," a film about corporate layoffs.

AFFLECK: You're firing me?

MOOS (on camera): Now, here's a head scratcher. What possible connection could there be between the debt and the death of singer Amy Winehouse?

WINEHOUSE (singing): Trying to make me go to rehab.

MOOS (voice-over): Republican Congressman Billy Long from Missouri tweeted, "No one could reach Amy Winehouse before it was too late. Can anyone reach Washington before it's too late? Both addicted, same fate?"

Long later apologized, saying he meant no disrespect to Winehouse with his analogy about Congress' addiction to spending.

If this keeps up, we'll have to raise the limit on debt-related doozies.

MUNASAFI: Raise the debt ceiling. Raise the debt ceiling.

MOOS: Jeanne Moos, CNN...

MUNASAFI: Raise the debt ceiling.

MOOS: ... New York.

(END VIDEOTAPE)

BLITZER: That's it for me. Thanks for watching. I'm Wolf Blitzer in THE SITUATION ROOM. For our international viewers, "WORLD REPORT" is next. In North America, "JOHN KING USA" starts right now.