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Debt Crisis Continues

Aired July 29, 2011 - 22:00   ET


ANDERSON COOPER, CNN ANCHOR: And breaking news everyone, tonight.

Right now in that building over on the Senate side, according to Democrat Harry Reid, who spoke last hour, nothing is going on. The Senate is now adjourned. But the clock is still ticking and the government is running out of money to pay the bills. At this moment because the debt limit was not raised back in May, the United States Treasury has less cash on hand than Apple Computer.

On Wednesday the government will have $23 billion in Social Security checks to send out and not enough cash to cover them unless it doesn't send out a whole lot of other checks. Now, earlier this evening, after a string of delays, the House narrowly passed Speaker John Boehner's version of a debt reduction bill.


REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: I stuck my neck out a mile to try to get an agreement with the president of the United States. I stuck my neck out a mile. Hey, I put revenues on the table in order to try to come to an agreement to avert us being where we are.

But a lot of people in this town can never say yes. A lot of people can never say yes. This House has acted. And it is time for the administration and time for our colleagues across the aisle, put something on the table. Tell us where you are!



COOPER: Well, the bill, which had new language requiring Congress to pass a balanced budget amendment before the debt ceiling is raised, was quickly rejected on the Senate side.

Then lawmakers took up Majority Leader Reid's debt proposal. After a question from Minority Leader McConnell, Senator Reid tried to get a vote on it tonight by a simple majority. Minority Leader Mitch McConnell refused, meaning that nothing happens until Sunday.


SEN. HARRY REID (D-NV), MAJORITY LEADER: It really is the worst possible time to be conducting a filibuster. They're forcing us to wait until tomorrow morning at -- let's see. Today's still Friday? Until Sunday morning at 1:00 a.m. to have this vote. Our economy hangs on the balance. And for the first time in the history of our country, unless there is a compromise or they accept my bill, we're headed for economic disaster.


COOPER: Well, Harry Reid accusing Senator McConnell of using obstructionist tactics.

Now, some Republicans tonight accusing Senator Reid of game playing trying to run out the gun and jam his own bill into the House at the last minute.

Now matter how you slice it, the time it takes the Senate to do anything means that this is all coming down to the wire. The markets don't like it one bit, the Dow industrials shedding nearly 100 more points today. And newly revised numbers on the economy reveal the recession was much deeper than first believed. We learned that today and that economic growth today is much slower.

We're on this throughout the hour.

Jessica Yellin is at the White House tonight. John King is at our Washington bureau along with chief political analyst Gloria Borger. And with me here to help me explain the ins and outs of the money, your money is our own Ali Velshi.

So, John, you anchored your show from the Capitol earlier tonight. What is the latest? Is nothing actually happening at the Capitol right now?

JOHN KING, HOST, "JOHN KING, USA": We talked a bit about this last night. And we are making progress if you view planting the flags as progress.

The House finally had the vote today. The proposal went to the Senate. It is now dead. Leader Reid is going to have his proposal. And forgive me. I'm not criticizing Senator Reid, but he's now doing exactly the same thing the House Republicans did. He knows his plan cannot be the final plan and yet he is going to have the motions. We're going through a debate over the weekend. So if you consider at least moving the ritual forward we're making some progress.

Are they negotiating behind the scenes? I just was having conversations with Democrats and a Republican aide in the Senate who said not yet. That they expect those conversations to start over the weekend. There is still a sense of optimism, not bubbly optimism, that they will figure this out over the weekend. But, Anderson, this is not a process you would like to teach in your civics class.

COOPER: John, I will ask you this question. I kind of know the answer but I'm just going to pretend that I'm naive here. Why not -- why should Senator Reid go through the motions on a bill he knows isn't going to pass? Why not start negotiations tomorrow? J. KING: I think they will start the negotiations tomorrow. Let's be clear. I think once the Senate comes in tomorrow they will start to feel each other out. But the Republicans passed their bill. Now the Democrats want to make the Republicans stand up and oppose the provisions of their bill, want to keep every bit -- this is part of the ritual to get a compromise unfortunately and both parties have done this.

I'm not criticizing the Democrats here. I'm not criticizing the Republicans. This is the game Washington always plays. Keep everybody in over the weekend. Get them tired, finally convince people we better figure this out.

I did say when I was up -- I was on Capitol Hill all day. But I talked to a number of people in both parties, some of whom were defending these votes, defending the parties drawing the lines, but then in the next breath under their breath saying we need to figure this out over the weekend and we think, think we will.

COOPER: And, Jessica, no doubt John is rightly using the word games here that are being played and when people at home are probably watching this getting just boiling mad that they're playing games at this late hour. What's the latest you're hearing from the White House?

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: The latest little bit of news I can report is that, Anderson, sources are telling me that Senate Minority Leader Mitch McConnell, who is sort of the linchpin now, the Republican in the Senate, to cutting a deal, is insisting that the White House be present in any negotiations to raise the debt ceiling.

So expectations were that perhaps he might negotiate directly with Harry Reid, the Senate majority leader. But sources again telling me that he wants the White House in the room if there are any negotiations. Clearly from one perspective so that the White House -- so that they clearly have a deal locked in. From another perspective you could say so that everybody owns the political fallout from whatever comes.

So clearly this is an ever-expanding politically complicated story when as you point out the economic ramifications are what most Americans are thinking about. And everybody's scratching their head, why is Washington playing so much politics with this?

COOPER: Gloria, what do you make of all this?

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Well, have you ever heard the expression fiddling while Rome burns?

You know, that's exactly the situation I think we're in. And I think in a way you could look at what the House did today and say that Republicans in the House moved further from compromise because John Boehner had to give them a guaranteed balanced budget amendment passage in order to get their votes. So I think it's clear those people and that would mean most of the freshmen Republicans, one would presume, if not all of them, are not going to vote for any compromise.

On the other hand, going to what John was saying, now that this dance is sort of getting finished, the outside game, if you will, I do think that the White House and Mitch McConnell and Harry Reid and whoever else wants to sit at that table can finally get together and come up with a deal. And by the way, there is a way out of it. There's kind of -- if you look at these two proposals, it's kind of obvious how they get out of it. It's not -- it's not rocket science.

COOPER: And that is how?


BORGER: Well, they could come up -- you want the Gloria Borger solution?


BORGER: They could come up with a couple trillion in cuts which has no tax increases. They get a vote on the balanced budget amendment, but it doesn't have to be guaranteed to pass. You get a debt ceiling that is sort of automatically approved in six months. And you get a trigger for cuts if Congress can't do its work. How's that?

BALDWIN: All right.

Ali, how much -- is there any way to know how much this has already cost the United States?

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Yes. Well, we haven't seen many interest rate increases. I was watching the mortgage rate this week. It went up by .001 percent because everybody is betting that this is going to work. But let me just tell you the stock market. The Dow was down 4.2 percent this week.

The S&P 500 which reflects your 401(k) down 3.9 percent -- $700 billion in the market capitalization of U.S. companies has been lost this week. A lot of that is these new numbers that came out on the GDP which indicate that this recession was worse than we thought it was and our growth is not as strong as it is. But much of that, five out of the last six days where we have seen down markets is because of this indecision in the stock market.

And we have 48 hours before Asian markets open up for the trading week. And you know this. We have been through this, Anderson, together. You see what happens in those Asian markets goes through to Europe and follows through to us on Monday. These losses could be substantially bigger if we are talking in 24 hours -- in 48 hours and there is not significant progress on this.

COOPER: And at what point would we know whether our credit rating, our credit score has been downgraded?

VELSHI: Well, that could happen either way. It's not likely to happen on the weekend but that can happen at any point from Moody's or S&P. I'll tell you the problem is that a downgrade that they might give us now because we're not handling things properly is a downgrade from AAA, from stellar, from perfect to one below that.

A downgrade as a result of a default, if we don't make any more payments that's a much serious issue. That doesn't drop you one notch. That drops you several notches. And then interest rates really do go up. And that falls into your mortgage rates, your credit cards rates, your auto loan rates. So that is what we have to be very careful about.

You mentioned August 3, that big Social Security payment? According to some people, according to many Republicans, unless we default on an actual debt we don't have to get our debt downgraded. According to S&P and according to Ben Bernanke, if you default on any payment you're supposed to make, even if it's not to a bondholder, you could face a downgrade.

COOPER: There are a lot of Republicans who say, look, I don't buy that it's this big catastrophe waiting to hit after August 2.

VELSHI: Sure. And they absolutely could be right. But, Anderson, you and I were together on September 15, 2008, after they decided -- a lot of smart people decided to let Lehman Brothers fail thinking it's not going to be that big a deal. I don't think I have to say anything more about that.

I don't know which way it's going to go. I don't know if we should be playing with fire like this.

COOPER: John, what do you make of Jessica's reporting that she's hearing that Mitch McConnell is wanting President Obama to be at the table in any negotiations?

J. KING: Well, there's a couple -- there's political reasons for that in the sense that then you can't cut a deal, then have the White House will say, whoa, we're going to try to move the goalposts.

The Republicans say -- the White House denies it. The Republicans say they had a deal, Speaker Boehner essentially had a deal and then the president moved the goalposts. So at least you get everybody in the room. If you say you have a deal, everybody has signed onto it. It allows the process -- in other words if you get a compromise now it would be a final deal.

That still does not mean if Leader McConnell, Leader Boehner -- I mean Leader Reid and the White House cut a deal you still have the House involved. To Gloria's point, the calculation is that they know the rough outlines of a deal. The question is when it goes back to the House, is Speaker Boehner willing to bring to the floor a deal which might pass the House but in which he as the Republican leader, the speaker of the House might lose a majority of his members? That's always embarrassing for a speaker to lose a majority of your people on a final vote.

And if you look at the vote today, if it comes back without a mandatory pass the balanced budget agreement, just with a spending cap, triggers to cut spending, a vote on a balanced budget agreement but not a promise that it has to pass, Speaker Boehner if things don't change is likely to lose a majority of his people, which would be a painful pill to swallow.

YELLIN: Anderson, may I add just briefly, it doesn't have to be President Obama, I'm told. It could be a proxy for him. But there's also a willingness here to add a meeting this weekend if that's necessary. So we're all on standby for that.

COOPER: Good for the clarification.

John, Gloria, Jessica, Ali, thanks. Still around. We're going to talk to some of you coming up.

Let's turn next to one of the Republican Congress members holding out for balanced budget language in the now defunct House bill. He switched from a no to a yes when he got that.

Georgia Congressman Phil Gingrey, appreciate you taking time for us tonight.


COOPER: A lot of Tea Party groups and other conservatives are pretty upset with members who did change their vote. You did. Why did you back the Boehner bill?

GINGREY: Well, Anderson, the speaker was willing to listen to us, those of us who were very committed in Cut, Cap and Balance, especially for the balanced budget amendment.

And he listened to us. He called us in. We sat down. We pressed our point. And he pulled the bill back and actually put that provision in there, not just a vote, but, as you know, before any second tranche, the $1.6 trillion additional increase in the debt limit, we would have to take a vote on a balanced budget amendment, pass that and submit that to the states. So that got me there.

I mean, I certainly felt that it was necessary to press that point. The last time we had a balanced...


COOPER: What happens now, though? Is there any way you could back a compromise bill that does not include some provision for a balanced budget amendment, for passing one?

GINGREY: Anderson, I could not. I absolutely could not do that.


COOPER: What about just a vote on a balanced budget amendment?

GINGREY: No, no, no. I have been listening to you and Gloria about different scenarios. You may end up being right. That may be exactly what plays out. But this member who made that pledge cannot support it without a balanced budget amendment in there that passes both the House and the Senate and is submitted to the states.

You know, in '96, we failed by one vote, didn't we, in the Senate? And since then, the debt in this country has gone up $9 trillion, $9 trillion in 15 years. So if that doesn't tell the American people and members of Congress that we cannot do the fiscal things that we need to do in this country unless our hands are tied by a balanced budget amendment, it's absolutely necessary -- 49 out of 50 states have it. We need it here in Washington.

COOPER: Do you believe August 2 is a real deadline, that there are catastrophic, as some people say, consequences after that?

GINGREY: Well, I do, I mean, give or take a few days. And certainly we anticipate taking in maybe $175 billion in tax revenue in the month of August. But we come up $130 billion short at the end.

Yes, we can pay the interest on the debt. We can renew the $500 billion worth of bonds that are coming due. We can mail out our Social Security checks. We can make sure those Medicare claims are honored. We can pay our military. We can protect our veterans.

But when you get beyond that, the soup gets a little thin. So I'm not ignoring that. And nobody in my party -- and especially our leader, Speaker Boehner, has said months ago, we don't want and we will do everything in our power not to let that happen.

COOPER: Congressman, I appreciate your time. Thank you very much for staying up with us tonight. I know it's been a long day. Appreciate it.

GINGREY: Well, thank you, Anderson. I was glad to be with you.

COOPER: Let us know what you think. We're on Facebook. You can follow me on Twitter @AndersonCooper. I will be tweeting throughout the hour tonight .

Up next, a surprising debate on this from the left and the right about who's playing games, who's handled this well and who hasn't and who gets hurt in the end. James Carville joins us, along with Erick Erickson, as our breaking news coverage continues.


COOPER: Breaking news tonight.

The Senate is now taking up debt reduction, having rejected the House bill. Senate Republicans are blocking action on Majority Leader Harry Reid's bill. Debate may not even begin now until early Sunday morning and it could take 30 hours. House Republicans have scheduled a vote tomorrow on a new bill with language identical to Senator Reid's bill just so that they can be on record rejecting it. Does that make sense? Well, it's happening. Of course, the clock is ticking.

I spoke about all of it just before airtime with Democratic strategist James Carville and Erick Erickson, editor in chief of


COOPER: So, before we talk about what happens next, I want to talk about what has happened over the last couple hours.

James, what do you make of what we have seen happen tonight in the House?

JAMES CARVILLE, CNN POLITICAL ANALYST: Well, I mean, what I make of it is that Speaker -- what I will tell you, he didn't have the votes and they voted on a balanced budget amendment again, which it's the second time that they have done it. And I think that's a cover that some of these House Republicans figured they needed to vote on this.

But what I really want make of it is I have no idea what can come back to the House that can pass the House with Republican votes. Maybe Erick can help me on that, but I don't see -- I see this thing as far away from a resolution now as any time before.

COOPER: Erick, what about that? What can pass, especially these conservatives in the House?

ERICK ERICKSON, CNN CONTRIBUTOR: Listening to several of the congressmen speak today and several of the solid conservative congressmen and some of the phone calls I have had from them and their staffs, and they realize that something's got to pass.

And what they're saying to me at least, and maybe it is naive in Washington, but we will give the president a completely clean debt ceiling increase if he will send our balanced budget amendments or rally the Democrats to send it out to the states. The states don't even have to pass it. We just want it to get out of Congress. And they'd do it.

COOPER: But there's...

CARVILLE: But that's not going to happen.

COOPER: Yes, that's not -- OK, go ahead, James.

CARVILLE: Yes. Sorry. I mean, it's just -- it's not going to happen. So, I mean, we're living in a real world. And as I say, I'm sure that they believe that. And I'm sure that that's their position. And that's why I'm saying I just don't see the resolution of this.


ERICKSON: James, I would agree with you. I would completely agree with you on that, James. (CROSSTALK)

ERICKSON: I see what you're saying. But at the same time these guys are saying their compromise is to raise the debt ceiling. And all they want is the balanced budget amendment to go out.

CARVILLE: You know, again, it's not going to -- first of all, it takes two-thirds of the vote in both houses. It's not going to happen.

And a constitutional amendment is something that comes along very, very rarely. And a lot of people think this is just horrific policy. But at any rate, I'm not really here to argue with you. It's not going to happen and I don't really see anything any closer than it's ever been.

COOPER: Erick, isn't compromise at some point at some hour essential?

ERICKSON: Well, I will tell you what's going to happen is by Monday afternoon, there will be a panic. We saw this with the TARP vote back in 2008. There will be a panic. The Democrats will come together on a plan. John Boehner will be able to get about a third of the conservatives. They will come together. They will pass it. The conservatives won't vote for it in the House. It will go back to the Senate. The Senate will pass it. It will go to the president.

And then this hurts John Boehner. People forget that, for example, No Child Left Behind, that was the vote that radicalized, if you want to use that word, for lack of a better term, a lot of conservatives against George Bush and he started having a harder and harder time getting Republicans after that in Congress to support some of his plans.

And that's probably going to happen to John Boehner. He should have never done this Boehner plan. He should have made Cut, Cap and Balance, for whether you like it or not, make that the starting point. At least it had Democratic votes in the House.

COOPER: So where do you see the possibility though for some sort of a deal? Where do these John Boehner Republicans meet up with the Democrats?

ERICKSON: They will hold their nose and vote for something like the McConnell-Reid plan that was floated a couple of weeks ago to let the president do it and then they gave vote of disapproval. And ultimately when they get down to the last 30 seconds on the clock they will take a deal like that, some of them.

COOPER: James, are you confident of that?

CARVILLE: You know, I was. I'm a little less sure today.

I suspect that the speaker's going to have to go and he is going to have to go and get something with some Democrats here, probably a lot of Democrats, to get anything through. And I'm sure that people are back-channeling everything right now. And hopefully they will -- I hope Erick is right.

But there's a lot of Republicans that believe that there's nothing magic about August 2, that there's nothing particularly catastrophic about a partial default, that there's plenty of money there. And they don't feel any pressure whatsoever to do this. And they say that this is -- they always say this and this never sort of happens.

And there just are not 218 Republicans that can vote for a bill that the Senate can pass. That is abundantly clear to me. And I think Erick is saying the same. I think it's one of these rare instances where we are kind of agreeing.

COOPER: So, Erick, what are the politics that you think the Democrats are playing with this? Because there's obviously political calculations on both sides of the aisle. People don't like to talk about political calculations for their own party.

So, Erick, what do you think is the political calculations that the Democrats in the Senate have been playing?

ERICKSON: Well, running out the clock, to a degree. I think historically we have seen in just the past five years with a lot of the Republicans there, even George Bush was able to do it with the Republicans, is get them down to the last few minutes on the clock and they will fold over and do most of what you want.

And the Senate Democrats I think by and large are playing a lot smarter game than the House Republicans.

COOPER: And, James, what kind of politics do you think the Republicans have been playing? What is their angle on this?

CARVILLE: Well, look -- I think -- look, I think that these Tea Party people are doing exactly what they said they would do.

I mean, look, and I think that they wouldn't vote for this. It's a kind of foreign thing to me. But it's not like there's any false advertising going on here. I mean, I will give them that. And they don't want to compromise.

ERICKSON: I had a couple of freshman congressmen e-mail me and point out. They said, we really view the way we got into Congress as beating people who were willing to lose to support Obamacare. And we're willing to lose to support this.

And to a degree there's no negotiating with people whose mind-set is that, whether you agree with them or not.

CARVILLE: I agree with you. I'm not disagreeing with you at all, I hate to tell you.


ERICKSON: It's kind of nice to see some guys who won't take backdoor deals. CARVILLE: Yes, well, you know, maybe -- the only thing more dangerous than a politician who thinks about reelection is a politician who doesn't think about reelection. That's the dangerous person.

ERICKSON: Having been one of those, I can agree with that.

COOPER: Erick, appreciate it.

James Carville, as well, thanks.

CARVILLE: Thank you.

ERICKSON: Thank you.

CARVILLE: You bet.


COOPER: A lot more breaking news tonight and a question, is the Tea Party following through on its pledge to change the way Washington does business, as Erick said and as James said actually, or is it holding the country hostage? I will talk to a Tea Party congressman who voted no on the Boehner bill. And I will talk to Fareed Zakaria, who also joins me, next.


COOPER: More on the breaking news out of D.C.

If you're just tuning in, here's the latest. Around 8:20 this evening, the Senate voted down the debt reduction bill that the House had passed about two hours earlier. Now, this was the bill put forward by House Speaker John Boehner. He had to cancel a vote on it last night, as you remember, because he didn't have enough support.

Tonight, it passed by just a narrow margin. Senate Majority Leader Harry Reid has said all along the Boehner bill would be dead on arrival in his chambers, so no surprise the Senate killed it. Now Senate Republicans are blocking debate, says Reid, on Reid's bill, which he introduced just after the vote to kill Boehner's bill.

Meantime, House Republicans have scheduled a vote tomorrow on a new bill with language identical to Senator Reid's bill just so they can be on record rejecting against it.

A short time ago, I talked to Congressman Steve King, a member of the Tea Party Caucus who voted against the Boehner bill in the House.


COOPER: So, Congressman King, the bill that's been put forward by Speaker Boehner in the past makes more than a trillion in discretionary spending cuts. It doesn't raise taxes. It's got provisions for finding more spending cuts down the road. And it calls for a balanced budget amendment, all of which is in line with bedrock principles of conservative Republicans. So why did you vote against it?

REP. STEVE KING (R), IOWA: Well, the only thing we can really count on is what we can control in this next upcoming fiscal year of 2012.

What it does is, it takes the $31 billion in cuts from the Ryan budget and reduces them down to $7 billion is all. And when you project that out over the period of the next decade, you can see that our national debt would have grown to only $24 million under this proposal, as opposed to $25 million otherwise. It doesn't get us much.

It's a very short-term fix. It dials it down, rather than up. Now, the Ryan budget isn't enough. It doesn't balance for 26 years. This is less. And what it does is, it takes away some of the arguments of the Ryan budget.

So we're worse off if -- we're worse off with how we project the cuts that we need to do to get this spending under control.


S. KING: And another six months goes by and we have failed to address the problem adequately.

COOPER: So what happens now? I mean, is there anything that any bill that the Senate can come up with that you would, if it comes back to the house, that you would agree is an OK compromise?

S. KING: Well, I would just remind you that this Boehner bill did pass, 218-210. So, it isn't so much what I would agree to.

But here's what I would like to see. I would like to see a balanced budget amendment goes to the states.

COOPER: But that's not going to happen. I mean, that's not going to get out of Congress.

S. KING: Here's the argument. Whatever I propose that's going to be logical and actually solve the problem, I'm going to hear just that rebuttal. I've heard it over and over again in these halls. It's not going to happen because the president won't go along with it or it's not going to happen because Harry Reid and the Senate Democrats won't go along with it.

So, logical solutions can't be applied because illogical people won't go along with it.

COOPER: What do you have to say to the people who worry that come August 2nd the government defaults on its debt? That either Social Security or Medicare checks won't go out, interest rates will go up and that ordinary Americans suffer?

Do you think this date is real and do you think the results of defaulting will be as cataclysmic as some people say? S. KING: I don't think it will be as cataclysmic at all. I think there's been a real effort on both sides of the aisle to take this subject matter of default, which let's just define default. That would be in the very rare and extraordinary event that United States would decide not to service its debt, not to take the first dime of each dollar coming in and apply it to service our debt. That's all it takes, $20 billion out of each $200 billion per month.

If United States decided not to do that, that would be a willful act on the part of the president. It would be malicious for him to do that. So, we're not going to default on our debt. But if we get past August 2nd, then some very serious priority decisions have to be made.

And I wanted to pass priority legislation. I still think we should pass prioritization legislation. And I think we've got two or three months that we could go through this debate. It's going to take brinksmanship. We're in the middle of brinksmanship.

And I regret the American people see this as a business deal that each side needs to get done with and move on. It's a political agreement that requires brinksmanship. And the pressure just isn't great enough to resolve this yet.

COOPER: Bottom line in the final hours do you think there will be some sort of compromise between some Republicans, probably not yourself, and Democrats to get something done by that date?

S. KING: I think something is going to be. It's going to be resolved. And I've never taken the position that debt ceiling will not be increased. I think that more pressure we have, the more responsible we're going to be with the decisions we make on our budget and the closer we get to solving this problem.

But I think something gets worked out, maybe not over this weekend. If we get past August 2nd and people understand that it's not a cataclysmic event as you described it, then maybe we can -- saner heads apply -- and maybe we can keep a balanced budget alive.

I might just challenge the president and the Democrat: Are you opposed to a balance budget? It's what it takes to get this Congress responsible. I want to keep that idea alive and keep the full faith and credit of the federal government in place.

And I want to take care of our seniors and our military in particular, Anderson.

COOPER: Congressman King, appreciate your time. Thank you.

S. KING: Thank you.

COOPER: We'll talk about this with our panelists coming up later on the program. As we said, the Boehner bill passed by narrow margin, 218-210 and only after the speaker spent the day rounding support from Tea Party conservatives.

Fareed Zakaria, host of "GPS" and editorial at large at "TIME" magazine joins us now on the telephone.

Fareed, you say the Tea Party is anti-democratic at this point. And you talked about the polarization that is occurring. How can you that -- how do you mean that they're anti-democratic?

FAREED ZAKARIA, HOST, "FAREED ZAKARIA GPS" (via telephone): Well, Anderson, if you think about what's going on, the Tea Party is trying to pass a particular agenda, which is basically a balanced budget or, you know, this all cuts budget. It cannot get it through the Congress of the United States. It cannot get it through the political democratic process that we have which is that Congress passes something and the president must sign it. That's the normal workings of democracy.

So, instead of accepting some compromise that can get through the democratic process, what they're saying is we'll blow up the country if you don't listen to us. We'll hold hostage the credit of the United States, the good standing of the United States, and we'll blow it up.

Now, that is why even Charles Krauthammer, columnist for "The Washington Post," fire-breathing conservative urged today in his column in "The Washington Post" not to go down this path because he called it counter constitutional. In other words, they are not acting in the way that constitutional democracy expects you to act. You are meant to respect the Democratic process. You try your best to convince to get a majority in the House, a majority in the Senate and the president to sign it.

But if you control just one of those three branches of government, you can't hijack the entire system and say I'm going to blow the country up unless you listen to me.

COOPER: Well, Fareed, they're saying though that --

ZAKARIA: They have only won one election to one house once.

COOPER: They're saying they're not holding anybody hostage. They're saying, look, this is what we said we would do to get elected. We've been elected. This is what people elected us to do.

ZAKARIA: Well, unfortunately, as I say I think they don't understand the workings of democracy. They have not been elected as dictators of the United States. They have been elected to one house in one branch of the American government. The only way you can translate your wishes into public policy in America is if you can convince your branch and the other one, the Senate and the White House, to go along with it.

If you can't, you've got to figure out amongst yourself what you can agree on. This is why it is fundamentally anti-democratic, counter constitutional in the words of Charles Krauthammer to be trying to do this. You know, it's just an extraordinary act of hostage taking on the part of the Tea Party. It is holding the country hostage. And it has already damaged the good standing of the United States. Our debts -- it's very important to understand that Tea Party talks a lot about morality. In a capitalist framework, the obligation you owe in terms of repaying your debts is a moral obligation. When the Visa bill comes you can decide that stuff you bought is stuff that you don't want. You pay the bill.

Then you can have an interesting conversation about how to reform your spending. But you can't renege on your debts.

COOPER: What do you think is going to happen now?

ZAKARIA: It seems very difficult to see how the kind of people you were talking to, Anderson, are going to accept some kind of compromise. You know, it seems to me you have to accept that 300 million people in this country, not all of them agree with you. And so you make your best case, you take as much as you can.

They had a deal. John Boehner provided a deal with $3 trillion of spending cuts for $1 trillion in revenue enhancements -- all of it through closing tax loopholes, none of it through raising rates.

Now, if that's not acceptable, I really don't know where you go. And my sense is, I hope that President Obama is seriously exploring the possibility of invoking the 14th Amendment.

COOPER: Really? You think that's a valid option?


ZAKARIA: -- will not be questioned, and saying that he has the legal authority to simply raise the debt ceiling himself. I think that President Bill Clinton thinks that it is a viable argument. I'm not a constitutional lawyer. But I think we have reached a level of dysfunction here that this is the kind of national emergency almost like a war.

And if the president were to invoke that and if it were to go to the Supreme Court, I have a feeling the court would as it does with War Powers issues say this is a political issue. We're not going to get involved. And the president's writ would stand.

COOPER: And, Fareed, to the Republicans who say, well, look this August 2nd is not really going to be the ca cataclysm that people talk about?

ZAKARIA: Look, it may not be August 2nd. It may be August 4th. Nobody doubts that we're running out of money. Nobody doubts that we have to borrow more money, whether it's August 2nd or 5th, or whether you can go some (INAUDIBLE).

Is this how the greatest economy in the world should be run that we should be saying, well, we can first pay the -- we'll take the first 20 cents out of every dollar and pay the debt, but we won't pay the veterans and we won't -- and if you listen to what the congressman said to you, Anderson, he said I don't want any tax increases. No closing of loopholes. I want to pay the interest on the debt. I want to look after our seniors. That's Medicare, Social Security. And then I want to look after the army.

Well, you know, I've got news for you, Congressman. There ain't much money left. If you aren't willing to cut any of those things and not willing to raise tax revenues then you're going to have to rely on magic to somehow balance the budget.

That's all the big money. That's where it is. It's not in some mythical waste fraud abuse. The bulk of the money is in Social Security, Medicare, the military, interest on the debt.

You can abolish the space shuttle program and the Department of Education and that's going to get you four days' worth of money.

COOPER: Fareed Zakaria -- Fareed, appreciate it. Thanks very much.

ZAKARIA: Thanks.

COOPER: Much more ahead in our breaking news coverage of the stalemate. We'll check back in with our reporters and chief political analysts and what's likely to happen now.

And also more about this balanced budget amendment you hear a lot of Republicans keep talking about and insisting on.

Also tonight, news on polygamist leader Warren Jeffs breaking his silence in court, getting combative. He also read aloud a letter he read claims came from God calling for an end to the trial. Gary Tuchman was in court today. We'll talk with him, coming up.


COOPER: And back with the breaking news coverage. The battle over the debt ceiling tonight, the House approves Speaker Boehner's by a razor thin majority, or margin I should say. But a short time later, the Senate killed it, and the plan put forward by Senator Harry Reid has yet to come up for debate. That's not going to happen until Sunday.

We're back with our panel. Chief White House correspondent Jessica Yellin, congressional correspondent Kate Bolduan, chief political analyst Gloria Borger and here in New York, our own Ali Velshi.

So, Kate, what's the latest on Capitol Hill now. Have members of Congress left for the night or are there some backroom meetings going on?

KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: It seems they have called it a night, at least for this evening. The House is back in at noon tomorrow and the Senate is back in around the same time. But other than the very symbolic vote that you've been talking about, Anderson, where the House is going to take up Harry Reid's bill and block it to prove it can't pass in the House.

Other than that action on the floor, the action's not going to be on the House or Senate floor. It's going to be in these backroom, behind-the-scenes conversations between leaders. If there is going to be a compromise reached it's going to be between them. But as we've been talking about that hasn't started yet.

COOPER: And, Jessica, at the White House any word tonight on what happens next from their perspective? I mean, how involved are they going to be over this weekend?

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: There are no plans Anderson yet for any kind of a meeting. But I believe that if they decide it's necessary the president will sit down with these leaders, I do suspect at some point we will probably see the president over the weekend.

Look, this is the weekend when something has to happen. So, whatever he needs to do he's got to do it now and they know that. I also know that in the treasury building which is behind me, they will be making preparations over the weekend for alternative plans. What checks will go out, what won't go out, if we start to -- if we don't hit that deadline.

And then there are also talks about possible mini extensions -- three-day, four-day extensions if negotiations have to go just a little bit longer in Congress.

That is something that White House has made clear that they would be open to, that kind of very short, short-term extension.

COOPER: Gloria, we're getting some tweets from people asking about the whole balanced budget amendment idea. You know, Republicans saying that is what they want, many conservative Republicans saying that is what they are insisting upon. You heard James Carville say that is just not going to happen.

Can you explain why to our viewers that won't happen?

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: Well, it's interesting, because what Erick Erickson said before is what a lot of Republicans want, which is they want a clean vote on a balanced budget amendment which says that you cannot raise taxes to balance the budget. If they got that, they would be very happy.

The balanced budget amendment that is contained in the Boehner bill says, you know, you have to get that through the Congress in order to raise the debt ceiling.

Democrats are generally opposed to a balanced budget amendment because they think it puts the country in a fiscal straitjacket, that if you have an emergency like a huge recession as we had in 2008, that you have to be able to spend the money to get -- to help get yourself out of it, to pay those unemployment checks. You have to be able to have leeway to fund wars, et cetera, et cetera.

If there's a vote on a balanced budget amendment, I think generally that doesn't have to pass, I think that's one way to compromise on this. I don't see why Democrats in either chamber should react against just voting on it.

But don't forget -- a balanced budget amendment has to pass with two-thirds of the how, two-thirds of the Senate, then it has to be ratified by 38 states. So, we're talking about a process that all in all could take a decade or more -- so not likely to happen in the short term.

COOPER: And, Ali, a lot of economists, even deficit hawks are saying this is exactly the wrong time to cut spending.

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Yes. So, Gloria just made the point what you need the freedom to do, when you have a recession, companies stop spending and individuals stop spending. If government stops spending everything grinds to halt. It feeds on itself and more people lose their jobs.

So, even deficit hawks, those who understand the economy of which there is a shortage in Washington right now, are saying you cannot when you have economic growth in the second quarter as we found out this morning of 1.3 percent --

COOPER: Worse than we thought.

VELSHI: Much worse than we thought. And the first quarter was .04 percent.

So, in our effort to placate conservatives, what we're forgetting this is economically unsound to pull back on spending at the rate that they're trying to.

If you want to balance the budget, I got no philosophical objection to that. You got to do it with raising taxes. There's no --

COOPER: But Republicans are saying don't raise taxes, raise taxpayers.

VELSHI: Yes, it's a great way to say it. Reagan raised taxes in a recession. Clinton raised taxes in a recession. Neither one of them put us into a second recession as a result.

It's just falsehood out there that raising taxes in an unfair tax system which is what we have in the United States would send us back into a recession. They just keep saying it and it doesn't become real because you keep saying it.

COOPER: Ali, appreciate it. Kate, thanks very much. Jessica Yellin, been a long day for all of you reporting. I appreciate it. Gloria Borger as well, we'll see what happens over the weekend.

We'll be right back. Our coverage continues. We'll have more on the breaking news on Capitol Hill.

Also ahead, crime and punishment. Fascinating day in this trial, polygamist prophet -- so-called "prophet" I should say -- Warren Jeffs, had a courtroom tirade. Remember, he fired his whole defense team yesterday. Now, he's acting as his own attorney.

Plus, also new on tropical storm Don making downfall in Texas tonight. Forecast on the amount of rain it will dump has changed. We have detail on that in a moment.


COOPER: Quick "Crime and Punishment" segment tonight. Combative moments in the courtroom today during the trial of Warren Jeffs -- he changed his tactics and made sure he was heard loud and clearly as supposed to yesterday when he remained silent.

Today, he repeatedly interrupted the testimony of prosecution witnesses and he declared that his religious freedom was being violated. The judge even accused him of threatening the jury.

Yesterday, he fired his defense team so he's representing himself. He's the leader of the fundamentalist Mormon sect that firmly believes in polygamy.

He's accused of sexual assaulting two girls.

Gary Tuchman was in the courtroom today. He joins us from San Angelo, Texas, with more.

Gary, so, what were the threats from Warren Jeffs today in court?

GARY TUCHMAN, CNN CORRESPONDENT: Well, Anderson, single strangest day I've ever spent in a courtroom after he repeatedly interrupted court proceedings. The judge sent the jury out. The jury was just open mouthed. They couldn't believe all the stuff that Warren Jeffs was saying about polygamy and why his religion is so great.

But then after the jury left, Warren Jeffs who says he's a prophet, who says he's the closest man on earth to God, said he had received a letter from God and he wanted to read it to the judge. Here's what the letter said. The letter said, quote, "I. the lord God of heaven, ask the courts to cease the prosecution of my holy way. There will be a judgment against all who prosecute the church. I shall let all people know of your unjust ways. I will bring sickness and death. Let this cease."


TUCHMAN: Now, the judge as you might expect, took that as a threat and she said, if you say that when the jury is here I will kick you out of the courtroom. He said, hey, I'm not issuing a threat. This is just a message I received.

COOPER: Was this that an actual letter from God? Or was that -- I mean, did he transcribe it? I mean, did he actually explain how he got a letter from God?

TUCHMAN: Well, no. But I will tell you that some courtroom observers and some FLDS supporters, particularly the FLDS supporters, say that was written directly by God and somehow given to Warren Jeffs. At least that's what Warren Jeffs has said to his followers in the past.

COOPER: So, what happens next in the trial?

TUCHMAN: Well, the trial is expected to last about a month. But because Warren Jeffs is now his own attorney and not doing any cross- examination, the prosecution announced today it believes this case could go to the jury as early as this Tuesday. And next week, the prosecution plans to play an audiotape in which it says you can hear Warren Jeffs having sex with a 12-year-old girl.

But there's a big wild card here, and that is Warren Jeffs. If he keeps talking as much as he did today, this trial could last a lot longer than Tuesday.

COOPER: Just when you think it couldn't get any more bizarre.

Gary, appreciate it. Thanks very much.

Tom Foreman is following some other stories for us tonight. He joins with the 360 news and business bulletin -- Tom.


Tropical storm Don made land fall tonight along the Texas coast between Corpus Christi and Brownsville. That's further south than expected, meaning its rains won't bring much relief to areas that needed most. Texas is suffering its worst drought in recorded history.

At his arraign ant, a defiant Army private accused of planning attack on Fort Hood soldiers yelled the name of Major Nidal Hasan, the accused gunman in the 2009 Fort Hood. Twenty-one-year-old Naser Abdo was charged today of an unregistered destructive device. The prosecutor say more charges are likely. He's being held without bail.

In Oslo, a memorial service for those killed one week ago in Norway's twin terror attacks. The first funerals were held today as well. Meantime, another person injured in the attacks has died raising the death toll to 77.

And something to chew on as the debt ceiling battle rages, as you mentioned at the top Anderson, tech giant Apple now has more cash on hand than the U.S. Treasury. Apple signature on $76.2 billion, about 2 billion more than Uncle Sam at this point.

COOPER: That's amazing.

FOREMAN: That's a lot of money.

COOPER: Yes, amazing. Tom, thanks very much.

A lot more ahead at the top of the hour. Breaking news tonight, Senate debate on a bill to end the debt crisis on hold until Sunday morning. House bill to do it rejected tonight. Details ahead. (COMMERCIAL BREAK)

COOPER: Breaking news, everyone. Tonight, right now, in that building over on the Senate side, according to Democrat Harry Reid who spoke last hour, nothing is going on. The Senate is now adjourned.

But the clock is still ticking and the government is running out of money to pay the bills at this moment because the debt limit was not raised back in May, the United States Treasury has less cash on hand than Apple Computer. On Wednesday, the government will have $23 billion in Social Security checks to send out and not enough cash to cover them unless it doesn't send out a whole lot of other checks.

Now, earlier this evening, after a string of delays, the House narrowly passed House Speaker John Boehner's version of a debt are reductions bill.


REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: I stuck my neck out a mile to try to get an agreement with the president of the United States. I stuck my neck out a mile and I put revenues on the table in order to try to come to an agreement to avert us being where we are. But a lot of people in this town can never say yes. A lot of people can never say yes. This House has acted.