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Europe's Crisis, America's Problem; Protecting Your Money; Politics Could Give Rise to Economic Headwinds in an Otherwise Bullish 2012

Aired January 8, 2012 - 15:00   ET


ALI VELSHI, CNN ANCHOR: As we count down to New Hampshire, the economy is still the driving force in the minds of voters in the United States. But is it the driving force in the Republican primary?

Welcome to YOUR MONEY. I'm Ali Velshi.

The latest CNN Opinion Research Corporation poll shows 57 percent of Americans think that the economy is the most important issue facing this country. I want to bring in CNN Senior Political Analyst David Gergen.

David, the polls say Mitt Romney has the best chance to beat President Obama in the Republican field. Do conservatives who are still reluctant to get behind Romney feel he lacks what it takes to turn the economy around, or is it something else all together ?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: He is actually doing well, when people asked is your most important issue the economy, in Iowa. He won a healthy plurality of those voters who thought the economy was number one.

He's having some trouble connecting with voters emotionally. They see him as stiff, as reserved. They can't quite understand him. Santorum, in the case of Iowa, struck people as I think a little more connected.

Having said that, I do think it's worth pointing out that if you look at the overall Iowa survey, the entrance polls, what you find is that Ron Paul did very well among voters who thought the economy and economic related issues were important. Some 42 percent of voters said the economy was the number one issue and Romney won a plurality.

But another 30, let's see, it is another 34 percent said that the deficits, budget was the most important issue. And there, Ron Paul won a healthy plurality. Both voters are appealing on that. You can't discount what Rick Santorum is doing right now in New Hampshire. That is, he's making the argument about manufacturing jobs, white, blue-collar workers. He's trying to appeal to them with a manufacturing strategy.

VELSHI: Let's take this a bit further. Will Cain is a CNN contributor.

Will, so the point David is making, and a number of people have made, is that Mitt Romney is lacking an emotional connection that Rick Santorum, for instance, was connecting to voters on. There may be a bigger issue here. That is the inherent definition of what it means to be a conservative in this country.


VELSHI: Because you've got Rick Santorum, Michele Bachmann, Rick Perry, Herman Cain, all of whom are defining their conservatism differently than Mitt Romney is.

CAIN: It seems that way, right. Are we defining at least our priorities within conservatism by economic issues or social conservative issues? Let me say this, I'm doubtful it's about the economy, that it is about economic issues. I look at the embrace of economic stalwarts from Michele Bachmann to Newt Gingrich, to evidence that fact.

Let's just focus on the current flavor of the month, and that is Rick Santorum. Set aside his big government tendencies, from the bedroom to the battle field, that he'd stay in Afghanistan until we win, whatever the hell that means. And let's just focus on Rick Santorum's economic record and policies. He has embrace-he rejected NAFTA, he has rejected free trade agreements. He embraced Medicare part D and No Child Left Behind.

In the end, just like David Gergen just said, he's embraced this economic populism that he is going to, in fact, specifically drop the corporate tax rate for just the manufacturing sector but leave it, or reduce it to 17 percent. This is picking winners and losers in an economy, not economic liberty, which says to me the economy may be important to these voters, but not free market conservative principles within the economy.

VELSHI: It is very interesting, because economic populism can be handled in a few different ways. One is the way Ron Paul is handling it, saying you're freer to make decisions with your money than the government can do for you. Or it can be this Rick Santorum economic populism, it can even liberal economic populism.

Let's go to the Tea Party and talk about what influence they are having. Mark Skoda, founder and chairman of the Memphis Tea Party.

Mark, this is a bit of a redefinition of what the Tea Party has been doing for the Republican Party movement. At this point we're at a crossroads. Where do guys like you fall on this one?

Do you go along that Mitt Romney road because he stands the best chance at this point of beating President Obama, and doing things with taxes the Tea Party would like? Do you go down Ron Paul road that libertarian, less government road, or do you go down this economic populist road, with somebody like -- with Santorum?

MARK SKODA, FOUNDER, MEMPHIS TEA PARTY: Well, Ali, I'll tell you I think the free markets element, which we obviously embrace as the Tea Party Movement, ultimately pushes me towards Mitt Romney. I think there's a lot of folks that disagree with me. I think, quite honestly, the challenge we have in the Tea Party right now is sort of this idea, do they trust Romney?

I think from a business point of view and his practical governance, as a businessman, I think he would do a terrific job. But the challenge, of course, is convincing the rest of the grassroots movement. I don't think Santorum's sort of what I call, populist manufacturing approach to taxation, is appropriate. It doesn't define - that's not a free market value.


VELSHI: As Will just pointed out. Here is my question for you, Mark. Then what happens? Because really Michele Bachmann was the head of the Tea Party Movement in Congress. She was a Tea Party darling. Those candidates who have become Tea Party darlings are not actually doing what you're talking about. Mitt Romney wasn't the Tea Party darling in this thing.

SKODA: Well, if you look at what he does, he's about fiscal responsibility, smaller government and certainly free markets. Those are values of the Tea Party. Now, the issue is can he connect to the trust issue, right? Thus idea which has been, that is in the mainstream media about him being sort of a liberal leaning governor. He had 800 vetoes in his time there. He cleaned up the Utah International Governance of the Olympics.

Certainly when we look at his platform and what he promises to do in terms of cutting overall tax rates and being able to reduce the size of government, the question is can he connect to the trust issue within the Tea Party.

Now for me I think it's very practical. I believe he does. I believe his representations are fair. Ultimately, the rest of the grassroots are going to have to make that decision coming through New Hampshire, and of course South Carolina and Florida.

VELSHI: Let me ask David Gergen this, then. Clearly, Rick Santorum has proved one thing. For a guy who has not been able to raise a lot of money, he has been able to run an effective shoestring campaign, where he does connect to individual voters. Does that actually matter right now? Does this flirtation that the Republican Party is having with social conservatism matter if the goal is to have a Republican in the White House and to beat President Obama?

GERGEN: Well, I think social conservatism is a major strand within conservatism. There are many people out there who consider the social issues, whether it's family, abortion, some of the other social issues, as quite important to them.

So he does have that. And he's appealing to that group. But he's not going to win on that alone. He does have to convince people that he's got an economic plan that will put the country on a faster track than we are right now. He doesn't have much time to do it. He can't do retail in New Hampshire he doesn't have time. These debates this weekend are really, really important. For him, Ali, what's going on here now, he needs to come in second in New Hampshire and see if he can close that gap down with Romney, put himself in a position where he slowed Romney's momentum some and also built up his own head of steam in South Carolina.

He's running second in South Carolina right now. But he could-if Romney wins South Carolina, he's going to be very close to wrapping this thing up. Because he'll probably then win Florida and that could shut this thing down unless there's some mystery candidate who comes in a side door.

VELSHI: Hold on everybody. David, Will, Mark, stay where you are.

As of this week there's a new man in charge of protecting consumers. Why are Republicans so unhappy about that? I'll explain next on YOUR MONEY.


VELSHI: I've stated many times on this show that the protests of Occupy Wall Street would be better served picketing lawmakers who are blocking the Consumer Financial Protection Bureau from fully functioning. In case you haven't heard of it, the Consumer Financial Protection Bureau is an organization devoted to protecting you and me from the banks and financial companies that got us into the financial mess in the first place.

This week, in a highly controversial move, Republicans termed an abuse of executive power, President Obama appointed former Ohio Attorney General Richard Cordray to be the first director of the Consumer Financial Protection Bureau.

Will Cain joins me again.

Will, Boehner termed this an abuse -- a remarkable abuse of presidential power. He said the reasons Republicans don't support that, is because this Consumer Financial Protection Bureau is bad for jobs. What do you have to say for that?

CAIN: The argument is going to be made, Ali, at least at the surface level is that the Consumer Financial Protection Bureau is a problem structurally. We had FTC, the FDIC, we have all kinds of alphabet soup of government watchdogs that have done a poor job. And by making this uber-agency, and by the way it would be an uber-agency with a huge amount of power, you're not going to solve the watchdog problem.

But look, there is a bigger argument at the rood of it. And that is transactions between the consumer and a bank, or the consumer and a credit card company, are voluntary transactions, do not need the government being the arbiter of those transactions.

The argument you just heard from Cordray, there, is that they are complicated, right? It is too complicated for the consumer to understand. What I would say to you is this. We all sign credit card agreement, bank loan agreements, we know they are 10, 20, 50 pages long. When you skip to the back page without reading it, you know you're doing something bad.

And by outsourcing that judgment to the government, you're not going to solve your problems.

VELSHI: I'm not sure, though, that even if we read the whole thing we would fully understand it.

David, Republican opposition to the CFPB predates the controversy over the recess appointment that President Obama made. We saw the agency's founder, the sort of intellectual heart behind it, Elizabeth Warren get into heated clashes with congressional Republicans. Both parties say they speak for the middle class. Why is protecting consumers-how has this become a Republican versus Democrat issue?

GERGEN: Well, it's always a question on regulation about how far you go. From my point of view, I'm sympathetic with the need to protect consumers. And with the federal government playing a role. That is, what after all is the Securities & Exchange Commission, which was invented back in the Depression, but a way to protect investors so that they get the truth from companies before they get their investments.

And we all agree, I think, conservatives and liberals, that the SEC has been a by and large a very, very helpful instrument. There's always a question of how far the regulations go.

Ali, in this case there's an additional question, which is serious. That is that the president is permitted to make recess appointments, that is appointments when the Congress is in recess. Republicans argue, and they have got a strong case here, that the Congress is not officially in recess. So this appointment, not only of Cordray, but of National Labor Relations Board members, doesn't come during a recess and clearly was done with the political intent.

The president wanted to stick it to Republicans.

VELSHI: Right.

GERGEN: He's running against the Congress. I happen to think going into this last year of his presidency, running a whole year against the Congress without getting much achieved there is a mistake for the country. It helps his campaign. But I think we need -- we need to get some work done here in Washington and not just politics.

VELSHI: Right.

Mark, let's talk about where the Tea Party stands on this. The Tea Party does not pride itself being comprised of the wealthiest 1 percent of all Americans. We've been through a lot in this economy. People have been abused by financial institutions. Wouldn't the Tea Party think that Americans would benefit from at least some of the protections that this Consumer Financial Protection board offers?

SKODA: I have looked at this. So many of us have talked about this. There's a couple of fundamental problems. First of all this agency is a secretive agency, in as much as it will reside in the Federal Reserve. So, it won't even have congressional oversight. Secondly it is a clear expansion of government which is antagonistic to Tea Party values. We want smaller government.

Third, the last time we had this big crash was Sarbanes-Oxley, which has done nothing to forestall the next big crash. Yes, I get those 50-page agreements. I read most of them. The fact of the matter is just because government mandates that you write something done doesn't ultimately inform the final buyer.

VELSHI: In fairness, Sarbanes-Oxley was meant to stop CEOs from saying they didn't know what was going on. Now it is the law that a CEO has to say-so I guess there's this issue. David brings it up, you bring it up, and Will brings it up. There can be over reach in regulation but is the answer to not regulate?

SKODA: No, I think, look, in this case the issue is-we have sufficient regulation already. You point out, you go for a home loan, first of all, most of our loans are granted through Fannie and Freddie Mac. We have extraordinary oversight on those two agencies. Why do we have to do more? Credit cards, quite frankly, are a small subset of that action. And quite frankly, there is a lot of oversight already. There is a lot of reporting requirements.

I mean, good gracious, if they change anything on your requirements you get a stack of paper in the mail every single time. It is not a problem of fundamental regulation, it's a problem of informed consent, as David suggested. You're making a voluntary agreement with the bank or lending institution. Be informed. Let's stop pushing everything to the government --

VELSHI: You big anti-regulation bunch, the three of you.


VELSHI: I will remind you, anybody who has a credit card statement, I want you to open it up, and remember the little thing on your credit card statement that tells you how much you will pay if you only make minimum payment duration of that credit card is a government regulation that made that happen. That is the single biggest improvement in the world of credit cards since I've had hair.

CAIN: Don't throw David under the bus, he's trying to say, no, no, no.

GERGEN: What we need, what we do need -- I think consumers deserve something, which goes along with the 20 pages, which gives it to you in one page. Every executive who runs a big company in this country, they get the long memo. They also get a short form they can understand it very simply. That is not too much to ask from credit card companies. If the government needs to do that, let's do it. But consumers ought to be protected against these 20-page agreements that you can't understand.

CAIN: Can I just build upon that. We have a constant problem of confusing regulations and rules. We had 200 regulators that existed inside Fannie and Freddie. They did not do their jobs. We're now layering regulations on top of banks that are completely complicated. Make simple rules. In fact, here's one: Break up banks. If you are too big to fail, too big to exist. Put leverage ratios on banks. That's an example of a rule versus regulation. We can do this throughout regulatory bodies.

VELSHI: It may be semantics then, maybe we are closer on this than we think.

CAIN: It's not semantics, it's important.

VELSHI: Will, good to see you, as always. Thank you very much. David Gergen, CNN senior political analyst and Mark Skoda, is the founder and chairman of the Memphis Tea Party.

Does a better-than-expected jobs reports for December mean we can finally expect the big economic recovery that we've been waiting for?


VELSHI: The stock market matters, home prices matter, but nothing matters as much as jobs. Let's talk about this. Every month we get the jobs report. This the one for December. It has just come out. Look at that, 200,000 new jobs created in December. That's a net number, the number of jobs created, minus the number of jobs lost.

It also combines the private and public sector. We want our jobs created in the private sector. We had 212,000 private sector jobs created. We lost 12,000 jobs in the public sector. The unemployment rate is down. It's 8.5 percent now. There have been at least 100,000 jobs added in the last six months.

That's the first six-month period we've seen that happen since 2006. I want to show you those bar charts again. What's important here in job creation is not what happens in a month, it's the trend. You can see we had a trend June through September and then we pulled back in October. Then we've seen this trend October, November, December, more job growth. That is what we need.

I want to show you how this breaks down, by the way. The total population, the unemployment rate is 8.5 percent, adult men have an unemployment rate of 8 percent. That is now lower than the national average for many, many months it's been above the national average. Adult women have an unemployment raft 7.9 percent. Teenagers, that's a tough group. Teenagers who are working, the unemployment rate is almost 23 percent.

Whites, in general, have an unemployment rate of 7.5 percent, that is lower than the national average. Blacks, it is much, much higher. It's been that way for a while, 15.8 percent. Hispanics have a higher than average unemployment rate as well.

We'll talk about why this is happening and whether these are good signs these numbers are going down.

Alexis Glick is the CEO of Gen Youth Foundation. She has tons of experience, both working on and reporting on Wall Street. Alexis, welcome to the show. A 1.6 million jobs gained for all of 2011. That is better than the 940,000 jobs that were gained the year before in 2010. It's the right direction. Do you think that continues in 2012?

ALEXIS GLICK, GEN YOUTH FOUNDATION: Absolutely. Right now the predictions are we could see north of 2 million jobs created in 2012. Frankly as you move into this election cycle for President Obama, right now the trend is his friend.

You know better than anybody, when you look specifically into these numbers, you want to see the workweek continue to improve. You wan to see average hourly earnings improve. We're starting to see both of those show very positive signs. Six consecutive months, Ali, you cannot ignore the trend is moving in the right direction.

VELSHI: Good. That's something we all share a view on, we all think that is important. It's hardly a surprise, but Republican presidential candidate Rick Santorum was in no mood to give President Obama any credit for this is job numbers. Listen.


RICK SANTORUM, (R) PRESIDENTIAL CANDIDATE: I'm very gratified to see that in spite of President Obama's policies that the job market is beginning to pick up a little bit. I think there might be some optimism that maybe Republicans are going to take the White House. Maybe that's spurring people to start taking some risks.


VELSHI: Stephen Moore, an editorial writer for "The Wall Street Journal."

Stephen, listen to that. He says in spite of President Obama's policies, jobs have been created. Republicans have consistently blamed President Obama for the job losses during his time in office. Is it fair for Rick Santorum or others to say the gains are in spite of President Obama's policies?

STEPHEN MOORE, EDITORIAL WRITER, "THE WALL STREET JOURNAL": First thing Rick Santorum has to do, Ali, is loose that sweater vest. I just hate that thing.


Look, I've been a grouse on this show for a year and a half in terms of the jobs numbers. I just read through the entire report. It's a very bullish report. It's hard to find any kernel of bad news in there. As Alexis just said, one of the pieces of good news is the workweek expanded. We also saw, Alexis, a rise in numbers, which is good news; 200,000 jobs is a good number.

I might disagree a little bit with Alexis, in terms of the 2012 forecast. I still think it is a little dicey to say we're going to continue to see those kinds of robust job numbers. VELSHI: What makes it dicey for you? What are the head winds? We still have Europe. We know we are going to have low interests going on. We just saw auto sales numbers come in. Trucks are being bought again. Which indicates that contractors in this country buy pickup trucks. What's the headwind that you are worried about in 2012?

MOORE: You're right about everything you just said, Ali. By the way these numbers on jobs are consistent 3.5 to maybe even 4 percent growth for the fourth quarter, which is a good number. What worries me I think is one of the head winds is political. I do think if there's this perception that you're going to get that bit tax increase in 2013, that's one of the big issues in the campaign, I think that does have a negative effect starting in the second half of 2012 of employers going out and hiring more workers.

VELSHI: Let me tell you, though, one of the things, I've been looking through the report to see if there are problems. One of the things that we have been looking a this morning is that chronically high black unemployment rate.

MOORE: Right.

VELSHI: We have looked into it. A number of more blacks in America joined the workforce which has pushed that unemployment rate up a bit, so even that is not a net negative. It is still a problem.

MOORE: Except that, Ali, except, let me just say one thing.


MOORE: Is that one of the negatives on the labor market, over the last three years, is we have had a contraction in the labor force. And if we went back to the kinds of labor force participation rates we had in 2006.

VELSHI: Absolutely, right.

MOORE: We'd have a much higher unemployment.

GLICK: Absolutely.

VELSHI: That's a very good point. Which is why at this point in the recovery -- let's bring Greg Valliere in, by the way, Greg Valliere is a chief political strategist at Potomac Research Group.

Greg, the White House loves to crow about these numbers when they come in. But this is a point Stephen makes that is very valid. At this point in the recovery we should forget unemployment rate all together. It is not reflective of the number of people in America who are unemployed. The job-created rate is important. The 200,000 jobs created is valid. But if I were really being critical, I would say to the White House stop talking about 8, 8.5 percent unemployment rate. It's not actually reflective of the truth.

GREG VALLIERE, CHIEF POLITICAL STRATEGIST, POTOMAC RESEARCH GROUP: They are going to sound tone deaf if they crow about an economy that's really turning around.

However, I agree with Alexis, the trend is really crucial. I predict that over the next few weeks more and more people will talk about 1984. It's not quite as great, but we came out of a really ugly recession. Ronald Reagan had a trend that worked in his favor in the summer and fall of '84. If I'm not mistaken Ronald Reagan got reelected.

VELSHI: All right. Guys, hold on there, because this is a good discussion. We need to talk about what we do not only to sustain this economic growth we've got, this creation, this stability in house prices, these low interest rates, and a stock market we'd like to do a little more in 2012 than it did in 2011. A lot more to talk about right ahead. Stay with us.


VELSHI: The future of your job, your savings, your investments, it is the question that everybody wants to know. What is in store for the economy in 2012?

Greg, 2011, I think we're all going to look back at this as a year of political gridlock and economic frustration. Is a deficit of leadership in Washington going to hold back our economy in 2012 or have we all priced this in and realized Washington is not going to do anything to help us in 2012, let's just move on.

GREG VALLIERE, CHIEF POLITICAL STRATEGIST, POTOMAC RESEARCH GROUP: I'd love to say we've priced it in, but Stephen made a very important point. That is as we get into the second half of this year, there's going tab growing dark cloud.

That is, of course, do we extend the Bush tax cuts? Does the capital gains rate stay at 15? Does it go back to 20? Does top rate go back to 39.6?

All these enormous tax issues are going up in the air. I think the markets are going to worry about that as we get into the fourth quarter.

VELSHI: But, Greg, don't you think we'll sort that out really early with lots of time and great deliberation.

VALLIERE: It's so bad -- one other quick point. It's so bad. What a way to run a railroad. It's so bad we're not going to know until the end of February what we're going to do on the payroll tax cut. It's a crazy way to run policy.

VELSHI: What do you think, Alexis, what happens in 2012 for our viewers, somebody interested in their investments growing, buying or selling a house or getting a job or getting a better job?

ALEXIS GLICK, CEO, GEN YOUTH FOUNDATION: You know, you still have to keep your seat belt fastened. I mean, frankly the market is still going to be very challenging. You're going to have a lot of volatility particularly because of the head winds of what's going on in Europe.

But what I still think we need to focus on here in the United States is not only what's going on in Washington, D.C. you have an election year. OK, that's fine. Housing is still a very big problem in this country.

We have not figured out how to deal with it. Short sales, foreclosures, I mean, refinancing. It's taking six, nine, 12 months to deal with some of these situations. Frankly, I don't know about you, but I've heard more than my share of stories about people who cannot refinance. So you can argue that the fed is keeping interest rates as low as possible for 2013. It's not doing --

VELSHI: Let me ask you this, Stephen, Alexis makes a great point. Interest rates are remarkably low and the fed had signalled that they will remain low for sometimes.

So that impetus to go out and buy a house, by the way, has all of a sudden disappeared because you don't have to be in a rush because you're rates are going up.

Home prices continue to be low. There are a lot of reasons to invest in a lot of different things. What is going to be the stimulus that causes people to get in? I challenge you to answer this without saying tax cuts.

STEPHEN MOORE, EDITORIAL WRITER, "THE WALL STREET JOURNAL": You know, the interest rates, I have maybe a little bit of a different take right now.


MOORE: Look, I mean, I will make a bet with you -- we've made a lot of bets on these shows. That a year from now or two years from now, interest rates are going to be higher than they are today.

VELSHI: Do you mean mortgage rates or interest rates, or both?

MOORE: Both. They go in tandem. Now, look, whether they go up by 100 basis points or 200 basis points, I'm not making a very bold bet there because they can hardly go lower than they are right now.

So I would say that the interest rate risk is probably negative not positive. But I do think to add one thing, like Greg said, to add the word taxes, don't forget payroll taxes also would be going up in 2013.

So there is going to be a lot of uncertainty come July, August of next year about where is this economy going, one statistic, though that I want to point out. That I think is maybe the most important one in terms of where the direction of the economy is going.

We've talked about this before, Ali. That $2 trillion of capital that still on the sidelines, if we start seeing that reinvested in American jobs and businesses, you could see a big boom.

VELSHI: Alexis, what's the best way to get that money reinvested because ultimately we're on this cusp of recovery. We are on this cusp of growth. We are on this cusp of good job creation. What is the thing that is going to make companies put that money back in.

GLICK: You know, listen, I mean, to Stephen's point, not only do they have a bundle of cash, but they have access to interest rates that are so historically low that I do believe -- I agree with Stephen, they are going to put that money to work.

Now they might not put it aggressively to work in the first quarter. But with money being so cheap, I think you'll continue to see mergers and acquisitions. So you'll see more and more deals.

I also think that, you know, look at the end of the day, if we don't have a good trade balance, we've got an issue, right? If you look at Europe, let's look at China as well. China is an issue.

We've got to make sure we're continuing to export, but with a slowing Chinese economy, that could be a risk. So I think if you're a multinational corporation, you've had a great year on trade, you've had a great year on interest rates, you've got a pile of cash, you haven't hired, you've got a good environment.

VELSHI: All right, great talking to you all. Best of the new year to you and we hope to talk to you many, many more times. Stephen Moore is an editorial writer with the "Wall Street Journal." Alexis Glick is a CEO of Gen Youth Foundation and Greg Valliere is a chief political strategist.

Greg, good to see you. Thanks very much, with the Potomac Research Group. Thanks to all of you. Alexis just talked about China and Europe being head winds, may be a New Year, but Europe is still facing many of the same problems it ended 2011 with.

Why this is something that all of you out there should be paying close attention to next on YOUR MONEY.


VELSHI: Europe's debt crisis threatens the entire global economy and it could drag America back into recession. Diane Swonk is chief economist at Mesirow Financial. Diane, good to see you. Happy New Year.

We've got some interesting numbers, those employment numbers continue to look more positive. Our economic growth numbers look like even Europe may not pull us into a recession.

But the second question everybody asks about 2012 is what about Europe? The first one is what is the economy going to do? What about Europe?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Well, Europe is certainly one of the biggest risk factors out there. The European debt situation is a European banking crisis. As we know from our own banking crisis from 2008, there's nowhere to hide if Europe really does melt down and the eurozone fails to maintain the euro. So the risk is still out there. I have a lot of faith those in the eurozone are very committed to making this work. That said it's going to be a very rocky year. You know, every day, day in and day out, you know, we find financial markets are watching what the Italian bond auction is, what the Spanish bond action is, what the German bond auction is, what the French bond auction.

And this seems odd to us and that means we really aren't decoupled. You can have a reacceleration growth in the United States, but this is a headwind for us, not only because directly exports to Europe is slowing as Europe goes into recession, but indirectly Europe is China's largest trading partner and China is slowing as well and they buy a lot of our stuff.

VELSHI: Richard Quest is the host of CNN International's "Quest Means Business," and our Europe expert, Richard, happy New Year to you.

The euro fell against the dollar to lows that we haven't seen in more than a year this past week. There are worries still that France's credit rating could be downgraded. What does the crisis in Europe feel like in Europe?

Is there a fear things are slowing down. Are people retrenching? Are we seeing those things that it's slowing down? Because we know the numbers indicate that that's happening.

RICHARD QUEST, HOST, CNNI'S "QUEST MEANS BUSINESS": With the exception of Germany, which seems to be lowering to itself in the economy, lowering unemployment, fast economic growth, but elsewhere the situation is by no means a rosy picture.

Look to the south of the continent, the so-called peripherals, look to Italy and to Spain's austerity, to Greece, which is still to negotiate and finalize its second bailout. Time and again, we now know that the eurozone will probably enter a recession in 2012.

So that is the scenario. People are exceptionally worried. What they are particularly worried about is the seeming inability of European leaders to actually get ahead of this. Some are suggesting, some like Jim O'Neill of Goldman Sachs suggesting that maybe leaders are impotent to actually get ahead of this crisis.

If we need to have any look at this, this is the fed minutes just released this week. I just want to quote, and I'm the sort of sad person that reads on page six --

VELSHI: I read them, too.

QUEST: Then we have shall a sad united meeting. It says the greater financial stress appeared likely to dampen economic activity in the euro area and could pose a risk the economic recovery in the United States. When the fed is worried about it, we should be worried about it.

VELSHI: Diane tell me this, you and I talked about this a few weeks ago. But what is it, when Richard said, it's not just that there's this massive problem, it's Europeans concern that their leadership, their financial and economic leadership and political leadership can't get ahead of it.

What would involve getting ahead of it because it seems like we have all the research. We know what the options are. We know what Europe needs to do. Who needs to get ahead of it and what do they have to do?

SWONK: Well, certainly Germany needs to get ahead of it and they are one of the ones holding everyone back. There's a balance between, sort of -- they don't want to reward the countries that have gone too much in debt and have these debt problems.

But in not rewarding them, they are also going to be taking the losses on their own bank balance sheets and that's going to hurt their economy. So it's a bit of a catch-22 situation. One of the key issues is the European Central Bank.

And you know, Richard points out a very good point, we have to listen to the fed. The European Central Bank has been very reluctant to actually step in and do the kinds of quantitative easing in the magnitude that we saw the U.S. Federal Reserve do during our financial crisis and also there's not this sort of mechanism to recapitalize the banks.

So there's this reluctance to sort of stick to the German model. They want to keep the fire on austerity, on these peripheral countries, but can you go too far on that. So there's a balance that it seems it will actually take an actual crisis for the European Central Bank to do what is necessary to stabilize the situation. That's not exactly the best solution out there.

QUEST: The ECB is desperate not to be caught, A, in the politics of the situation.


QUEST: -- which is really absolutely to the core of it and B, the moral hazard argument. They don't want to have monetary financing of governments, which is effectively what being the lender of last resort will be.

So they continually hold out this carrot that says make the reforms and we'll do more. Make the reforms and we'll do more. But we do get numbers from the ECB and I can tell you that just nearly half a trillion dollars every night is parked with the ECB by banks that is too frightened to lend amongst themselves.

Meanwhile the weak banks are lending, they are filling their boots with money, low rates from the European Central Bank.

VELSHI: And I hasten to remind our viewers that credit crisis and credit freezes are the worst thing that can happen at all. We're not there. We've got expensive and tight credit, but when it freezes like it did in 2008, we have ourselves a global problem. Let's hope we avoid that. Diane Swonk, great to see you again. She's the chief economist at Mesirow Financial. My good friend, Richard Quest, with whom I will be working much more closely in 2012. Have a great new year to both of you.

SWONK: Take care.

VELSHI: And the reason I'll be working most closely with Richard Quest is starting Monday, January 9th, I will be anchoring a show called "WORLD BUSINESS TODAY." It airs at 9:00 a.m. Eastern.

But not in the United States, it's in the rest of the world, 2:00 p.m. in the U.K., 7:30 p.m. in India, 10:00 p.m. in Hongkong, 11:00 p.m. in Tokyo. If you're traveling around the world, make sure to tune in every day, "WORLD BUSINESS TODAY" on CNN International.

Well, it's probably one of the most important questions facing your family, where do you put your money in 2012? We'll talk about it next on YOUR MONEY.


VELSHI: The 2011 was a roller coaster ride that dumped off investors pretty much exactly where they started. The S&P 500, which is how a lot of you will have invested had zero percent return.

It really did end up at the end where it started, but look at the volatility that got us there. It wasn't a flat line. Is that volatility going to continue? And what does it mean for your investments, your 401(k), your IRA, your other investments, the money that you use for your kids' college savings?

Jim Awad, a good friend of the show, is the managing director of Zephyr Management, and Caryn Zweig, is the chief operating officer at Abner, Herman and Brock Asset Management. Welcome to both of you. Happy New Year.


VELSHI: Jim, you say that the U.S. economy as we've seen, from indications like the new job numbers and GDP growth is doing a little bit better. What do you think that means for stocks?

JIM AWAD, ZEPHYR MANAGEMENT: Well, in its own in a vacuum that would mean higher stock prices. We are definitely doing better in the U.S., corporations are in great shape and therefore, profits are going to be positive and up.

So if you had just the United States, it would be a nice up year for the market. Unfortunately, we have to worry about Europe, which is in a recession has the potential for a financial accident.

We have to worry about the slowdown in the emerging markets. So there are pros and cons as we look at 2012, and I think it's going to be challenging like 2011. VELSHI: Caryn, a lot of our viewers sort of have two ways of looking at the market. One is opportunities for big growth and the other is preserving your money. What should govern you now?

CARYN ZWEIG, ABNER, HERMAN & BROCK ASSET MANAGEMENT: I think in this kind of volatile environment as Jim speaks of with the various uncertainties you want to think about choosing investments that are opportunistic, but look at your downside risk. And that is thinking about preservation of capital and minimizing those risks.

VELSHI: Where would you say are the greatest opportunities and risks? Whether it's geographically or in terms of the kinds of things you invest in?

ZWEIG: The opportunities that we see are in some of the consumer staples area and some of those areas where people really are going to every day, no matter what kind of environment they're in. So they don't want to give up that beverage of Coca-Cola and they'll continue to purchase those and those companies will do nicely.

VELSHI: Some of those companies, the big companies that deal in consumer staples are great dividend paying companies. And I know, Jim, this is a favorite of yours to recommend. Companies that will have some good return, they'll be relatively stable, and they'll give you some income.

AWAD: Right, you getting almost nothing in interest rates, so you can't get any return on your capital by being conservative and big stocks are cheap.

So I'm recommending that people buy the Dow Jones select dividend trust, it's got 3.5 percent dividend yield. So it allows you to participate in whatever growth we do have around the world.

On the other hand, if it turns out to be a tough year, at least you have that dividend yield providing some return in case we have another year of zero returns in the equity market.

VELSHI: So that's as Karen described, there's something where you get some upside. You get that protection a little bit because of a dividend yield, but you've got exposure to the market.

AWAD: Absolutely.

VELSHI: All right, Karen, you like consumer staples in a volatile market like this, and there is a fund you can invest in like this, the S&P global consumer staples index fund. What do you like about this?

ZWEIG: I like the fact that the biggest positions in that index are Proctor & Gamble, Nestle, and those types of names that are multi- national U.S. companies that will continue to grow with these predictable products and some dividends.

VELSHI: These staples continue to be purchased by Americans regardless of the economy, but these people are -- these companies are taking advantage of growth in other countries? ZWEIG: Exactly. So the existing customers want to have their repeat product detergents and alike whereas they're introducing these terrific products across the world. They're benefitting from that growth.

VELSHI: Let's talk about two other areas, Jim. I just want to know what you think about, first of all, energy.

AWAD: Energy based on geopolitics is at great risk, and therefore the risks are that the price is going to go up. And long-term, it's definitely an area where as the world grows and the emerging markets grow, there's going to be more and more demand for it. So I think energy's a place you want some of your money invested.

VELSHI: And as always, you recommend that people look at funds or exchange traded funds. Things where you can get a basket --

AWAD: Where you get diversifications and let the managers or the indexes pick the individual stocks.

VELSHI: Great to talk to both of you. Jim Awad is the managing director at Zephyr Management, and Caryn Zweig is the chief operating officer at Abner, Herman & Brock Asset Management. Thanks for being here, have a great year.

AWAD: And you also.

VELSHI: In 2011, we mourned the passing of Steve Jobs and many feared for the future of innovation in America. Well, fear not, innovation is alive and well, and I'll show you where the next generation of innovators are coming from next on YOUR MONEY.


VELSHI: Time now for the X, Y, Z. Last Thursday, the National Academy of Engineering announced the winners of two important prizes, the Draper and the Gordon prizes. The Draper Prize is often referred to as the Nobel Prize of engineering. This year, it went to four pioneers of the liquid crystal display. LCDs are on your smartphone and on your TV that we take them for granted, but they have changed the way we live.

Liquid crystals use the energy much more efficiently than earlier display technologies did. LCDs are a large part of the reason that you can watch an entire movie on your handheld device without the battery dying.

Now the four Draper Prize winners were cited for their accomplishments in developing and enhancing LCD technology in the 1960s and '70s, technology that's now utilized in billions of consumer and professional devices.

For those accomplishments, I salute the winners, but they had to learn their engineering skills somewhere and that's what the National Academy of Engineering's Gordon Prize celebrates. The three winners of the Gordon Prize are being honored for leading innovation in engineering and technological education.

Think about it tomorrow's tech applications are going to come from today's engineering undergrads and that's why their curriculum, what and how they are taught is critical. All three winners of the Gordon Prize come from the engineering clinic at Harvey Mudd College in California.

They pushed to integrate the design and making of tools and prototypes into the classroom. They advocated a hands-on approach to teaching engineering in which small teams of students are given design problems to solve from the real world.

Our congratulations and gratitude to the winners of the Draper and Gordon Prizes and to the National Academy of Engineering for recognizing them.

That's my XYZ, thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday at 1 p.m. Eastern and Sunday at 3:00 p.m. and make sure to check out my new book with Christine Romans "How To Speak Money."

It's a step by step guide to understanding the language of money with everything you need to know. Head to or to pick up your copy now.

You could stay connected to us 24/7 on Twittre. My handle is @alivelshi, the show handle is @cnnyourmoney and I do read every one of your tweets. Have a great weekend.