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Storm Warning, U.S. Economy On The Brink; Heading Over A Cliff; The Blame Game; Europe's Crisis, America's Problem; Cheap Money, Blessing Or Curse

Aired June 30, 2012 - 13:00   ET


ALI VELSHI, HOST: An economic storm is headed our way. The next president likely can't help you. Your Congress refuses to act. But I'm not running for office. I'm just here to give you the truth.

Welcome to YOUR MONEY. I'm Ali Velshi.

For the last several weeks I've been warning of a coming economic storm, possibly another recession in the United States. Some of you don't believe me. You've accused me of fear mongering. And you are rightly demanding proof. That's fair. So here you go.

You probably know that more than any other developed nation, the U.S. economy is driven by its citizens and on how confident they feel about their future. This week we learned that the measure of consumer confidence fell for the fourth month in a row to its lowest levels since January.

You may disagree with why it's down. But, again, the customer who in this case is the American consumer is always right when it comes to the economy. Why? Because if Americans are worried about the economy, they delay making important purchases and a perceived economic slowdown can easily become a reality.

OK, so it's happening, but why? Well, probably the biggest reason is this, jobs. Twenty straight months of job growth, yes. But over the last five months, look at that trend, roughly corresponding to the drop in consumer confidence, hiring in America has slowed.

A week from now we'll have the job creation numbers for June to see where this trend is going. But until we have a strong jobs recovery, Americans are going to hold back and that is going to hamper a wider recovery.

Frankly, there is good and real reason to be nervous. It's that economic storm I warned you about. A crisis in Europe that's causing its citizens to seek shelter, you don't buy things, particularly expensive important things from America when you're seeking economic shelter.

In China and India, the fastest growing economies in the world, fewer people are making their way into prosperity and into this global economy because the west is buying fewer of their goods and services. That's the storm out there that's headed to our shores, but there's one brewing right here at home. I don't want to mix metaphors. The U.S. storm is actually a cliff, a fiscal cliff.

That is the expiration of some tax cuts, some of which you'll know as the Bush tax cuts and some other benefits on midnight on December 31st if Congress does nothing.

I don't know about you, but I am pretty concerned about what this all adds up to. If you're not, that's good for America because you'll keep spending and if I'm wrong, then I'm wrong. I'll wear that. But I'm not running for office.

My job is to arm you with the truth about what is happening in this economy. People's futures are at stake and now more than ever you need to be informed.

Joining me to discuss our best line of defense against this storm is Stephen Moore. He is the editorial writer for "The Wall Street Journal." Diane Swonk is the chief economist with Mesorow Financial, Mohammed El-Erian, the CEO of PIMCO, the world's largest investor in bonds.

Stephen, let me start with you. Romney-Obama, Romney-Obama, who cares, it truly doesn't matter who becomes the president of the United States because if they win, the things that have to be done to fend off this storm have to be done in Congress. Nobody seems to get anything done in Congress.

STEPHEN MOORE, EDITORIAL WRITER, "THE WALL STREET JOURNAL": Ali, with all due respect, you are wrong on this. I actually think this is one of the most economically consequential elections we've had in 30 years precisely because of these very big different visions that Mitt Romney and Barack Obama have.

VELSHI: Are they that big and different?

MOORE: They are. What are we going to do on taxes? What are we going to do on health care? We have the big health care decision that throws it to the voters now.

So I do think this is an extraordinarily important election. I'm not saying this because I'm a Republican. But I do think if you got a change in leadership, I think you talked about consumer and voter confidence.

I think maybe a change right now would bring that kind of confidence and bring policies that would grow the economy.

VELSHI: Ultimately, gridlock is more of a problem.

MOORE: Yes, but you know what? If Mitt Romney becomes president, he almost certainly is going to have a Republican House and Senate. You're not going to have the gridlock.

Even if Barack Obama wins, some of the gridlock will go away because the voters have said we want what President Obama wants. If Romney wins, I think the voters give the president a mandate to do the right thing.

VELSHI: What about Congress where these bills have to pass and they don't get done? I guess that's the point I'm trying to make to my viewers.

Don't -- maybe we don't throw out interest in the presidential election. But can we at least put a lot of it on the people in congress, Republican and Democrat, liberal and conservative who might get something done versus those who simply will not and who refuse to.

MOORE: Yes, bipartisan, I agree with you on that. The partisan divide right now in Washington and the gridlock is as bad as I've seen it in 30 years.

And that's going to be a real challenge to overcome that. But remember when Barack Obama won, he was able to get a lot of big things through Congress right after the election.

VELSHI: All right, Diane, you said we never escaped the storm clouds. I want to continue my vision of this. In the first place, we've never really been fully in the clear.

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: We haven't. What we've seen is many of the problems that we faced over the last through years, which seem to come around summer, so summer vacations become a bit of an oxymoron is Europe.

The fiscal situation in the U.S. and we've kicked the can down the road in dealing with them and only compounded them. Also, I want to expand on something you said about consumer sentiment.

Consumer confidence measures came out this last week. But so did consumer sentiment, which is the broader measure by the University of Michigan and Thompson Reuters Index, which shows buying patterns in a breakdown by income level.

What was really startling about the decline in sentiment in the month of June was almost all of it occurred in high-income households, households earning more than $75,000 a year.

That's where your support in consumer spending is, of course, and they said they're going to cut back on their purchases of big ticket items like vehicles and that's very important because we've already seen the vehicle sector suffer by a slowdown abroad.

And a failure of pent up demand to really produce the kind of self- feeding recovery we'd like to see in the U.S.

VELSHI: And we just got a warning from Ford. Something, that you know, this is a company that's been firing on all cylinders for years now, at least for a couple years now.

They're warning partially because of activity overseas. But there is a concern here in the United States. We also have a new report out this week, Diane, that says personal incomes in the United States as they're measured monthly are up.

And yet personal consumption is down. So this is all working into this idea that it may not be as bad, but people are worried that it might get worse.

SWONK: Well, actually, you know, part of the increase in consumer incomes, ironically enough, came from increased retirees. Social Security payments, transfer payments went up in the most recent income numbers.

All those 1947 babies born in the baby boom, the first big year of the baby boom are turning 65 this year. So we saw an increase in income because people took retirement income that is not exactly it's the thing you want to bet your money on because they're not the biggest spenders out there.

I think that is important as well. So we do have this issue. I want to also add on to something Steve said. I think it's important that we have bipartisan movement forward. Steve talked about there was some movement the Obamacare and things like that under President Obama when he first came in.

It was largely Democratic based. The kinds of decisions we make need to be bipartisan. If they're not, they can be easily thrown out and overrule down the road.

We cannot afford to have deficit reduction without bipartisan and durability and credibility going forward, something Mohammed talked about. If we have a medium term deficit reduction plan, we have to know it's a credible path that can't just be thrown out by whoever is in office.

VELSHI: This is key to this whole discussion of why Congress is so important. Mohammed, you have said this before. When you have distrust of Congress, when bond investors have distrust that they will do the right thing, you don't get a settled economy going forward.

MOHAMMED EL-ERIAN, CEO, PIMCO: That's right. Ali, listening to you and listening to others, this image flash in my mind. A car which is the economy, going forward very slowly. The drivers are arguing, the administration and Congress. The engine needs a revamp and there's very little gas left.

Why because cash cushions have been driven down and unemployment remains very high. Now it's bad enough that this car is moving slowly. We have two really big headwinds.

We have Europe and we have the fiscal cliff. So translate all this into numbers, we think the probability of a recession is about 30 percent. Now, that may be good news because it's less than 50 percent, but I'll tell you 30 percent recession --

SWONK: It's a lot higher than it was.

EL-ERIAN: -- at this stage of a weak recovery is really worrisome.

MOORE: Look, could I make the case for optimism. I want to paint not such a gloomy picture.

VELSHI: I'm going to hold on to that because we need a case for optimism. So stay there because we have to pay the bills unlike the American government.

And when we come back, we're going to look at what stands between you and a recession maybe as early this year. That 30 percent, it can be fought off. Let's see how we do it.

I've told you, it is cowardly and dangerous for Congress to wait until after the election to act. I'm going to show you exactly what Congress can do right now to help avert that recession.


VELSHI: We're joined by Stephen Moore, editorial writer for the "Wall Street Journal" as well as Diane Swonk, chief economist for Mesirow Financial and Mohammed El-Arian, the CEO of PIMCO.

Steven has a curious of the three of us of depressing him so he is going to make the argument for why you out there should not feel as pessimistic about the economy as you do, Steven?

MOORE: I think there is too much doom and gloom here. First of all, corporate balance sheets are so much better today than they were three or four years ago.

The debt problems that corporations had, they're sitting on a lot of money, trillion dollars of money that is ready to be re-injected into the economy.

Second of all, I do think you're going to see a bipartisan agreement in 2013 to really fix the tax system on both the corporate and personal side.

VELSHI: Really?

MOORE: I really do because I think consensus is coming that the system is now --

VELSHI: Do you think that people in congress -- do you think they see things differently? We don't compromise. We don't go to the other side. We don't cross the aisle.

MOORE: I think that's going to change. I think we're going to see a reduction in the loopholes and a special interest provisions. And when they get the rates down, it will be more compatible.

One last thing, the energy future is so positive for the U.S. I mean, in the next 10 or 15 years, we could actually be exporting energy, oil and gas so all of these things, I think, just point to a more optimistic view. Don't forget one other other thing. It's always darkest before the dawn. VELSHI: Wow! It's also always brightest before the hurricane hits. Diane Swonk, I guess, the issue that I'm trying to put over here is that I could be wrong. We cover hurricanes.

SWONK: We hope you're wrong.

VELSHI: We tell you, your only choice is to board up your house or whether you leave. If it doesn't come, I'm happy to have that hang on my face. Here we have maybe 30 percent chance of a recession.

The argument I'm trying to make some people will say that's a business cycle, can't do anything about it. I'm saying that maybe congressional action early could do something to create a shelter for that. Is that wrong? Should I just forget that whole argument?

SWONK: No. I think it's absolutely right. I'm encouraged. If Steve really believes there is a bipartisan compromise out there, that might avert a debt downgrade even if we just kick the can down the road.

And temporarily deal with the extension of tax cuts and cut off the sequestration, which is retroactive into this year, the cutbacks and mandatory cutbacks in spending by the government.

So I'm optimistic if he believes that. Great. I would love to see that. I'd like to see it sooner rather than later. I also think it important to note Steve talk about corporate balance sheets being in such good shape.

Actually, you know, I was really excited about that, too, until we saw revisions. And unfortunately, the amount of cash we thought corporations had on their balance sheet is now $500 billion less than we originally thought. They miscounted. Guess what, it was $2.2 trillion and then revised down to $1.7 trillion.

It's up $700 billion from 2000. At a time, when you didn't need any cash on your balance sheet. So the fact that corporations have less cash than I thought makes me a little less optimistic about how much can be redeployed in the U.S. economy and pulled from the sidelines. So I'm a little concerned about that.

MOORE: That's a lot, Diane.

SWONK: It is still a lot, but it's not $500 billion.

VELSHI: We also started to see --

SWONK: It helps to explain the less than stellar investment numbers that we've seen. We're still seeing investment. We're still moving forward, but I agree with Mohammed.

I mean, you know, I'm looking at actually 1.5 percent growth on the second quarter now. That is really tepid and barely significant in terms of positive.

VELSHI: So Mohammed, bring in the U.N. again here. You can negotiate between -- SWONK: Come on, Mohammed.

VELSHI: Mohammed, the other concern -- you just come back from Europe. We got a deal, which I have to tell you, I woke up on Friday morning thinking not to expect the deal of the magnitude that they seem to have arrived at in Europe, which we're going it talk about later in the show. As far as my storm metaphor goes, did the storm over Europe just weaken a little bit?

EL-ERIAN: It did weaken, but it's still there. I mean, we got a deal and they took some important decisions, but they didn't make the breakthrough. Why is that important to us?

Totally agree with Steve. You can put the positives clearly for the U.S. first as an engineering solution to our problems unlike Europe where the engineering is really difficult.

Second, yes, cash balances are lower among corporate, but they're still high. And thirdly, we have a massive technological shock positive in terms of shale gas. All this is important.

But it will not be triggered to a full extent unless we get the political side right. So I hope he's right. I hope we can move this political dysfunction. If we don't, then the storm over Europe is going to start having an even bigger impact on us.

VELSHI: But you have often used the expression and Bill Gross has used the expression that the U.S. interest rates are so low because they are the cleanest dirty shirt.

If you're on a trip and you have to stay an extra day, you didn't bring enough shirts, you pick the cleanest one to wear again and that happens to be the U.S. shirt at the moment.

Will we be the cleanest dirty shirt if we wait until December 31st to deal with the fiscal cliff and wait until whatever date in early 2013 that the next debt ceiling limit gets, you know, we get hit?

Would there be some advantage to keeping our shirt clean if we acted on this before the elections or earlier than the end of the year?

EL-ERIAN: There's a huge advantage of keeping our shirt clean. I mean, let's not forget it's the well-being of people. The unemployment numbers are scary. The long term unemployment numbers are really worrisome.

So absolutely, you know, now in the short term, we benefit from the fact that we are relatively good when compared to Europe. But, remember, you cannot be a good house in a bad neighborhood. So there is a limit to how long we can be the cleanest dirty shirt.

VELSHI: Yes, all right, great conversation. Go ahead, Diane.

SWONK: Just adding on. I mean, Mohammed knows this. In Switzerland, they have negative interest rates because people are so willing to buy Swiss Francs and get the safety there. And they're paying the government a premium of principal to keep their money safe there. So, you know, we're not the only cleanest dirty shirt out there.

VELSHI: All right, thanks to all of you. Mohammed and Steve stick around.

Coming up next, I've told you that by doing nothing Congress is making things worse. I've told you how the partisan bickering designed to win elections is driving our economy back to the brink.

When we come back, I'm going tell you exactly what Congress can do now to protect you and the economy.


VELSHI: I have been telling you about the economic storm that has been making its way to our shores. From Europe where the debt crisis blowback could hit America at hurricane strength from Asia where growth engines like China and India are stalling in the wake of fewer exports to the west and from Washington where scorched earth partisan politics could push America over a fiscal cliff if Congress doesn't act.

Legislation needs to be passed now. To head off a series of tax increases and spending cuts that are mandated to take infect on January 1st because Congress couldn't come up with a proper deal to raise the nation's debt limit last year.

So that is the ridiculous compromise they came up with. If Congress doesn't act before the elections, it may be too late to fight off the economic storm. You heard it from Mohammed El-Erian.

A 30 percent chance of a recession he says. So frankly, after listening to me saying this endlessly, even I'm starting to think I'm full of hot air. So I'm going to give you three specific things that Congress can do and must do now to address the coming economic storm.

First, head off that so-called sequester, the $1 trillion of automatic across the board spending cuts that are mandated by Congress. The ridiculously named sequester legislation was passed as part of last Augusts' debt ceiling extension, which followed, as you recall, but would like to forget.

It's an intense partisan blackmail by both sides that nearly shut the government down and led to a downgrade of the United States credit rating, a stupid name for a stupid thing that could hurl the U.S. head long back into recession so solve it, Congress.

Second, all right, we have grown to look another debt ceiling extension next year. So what say we all get together ahead of time and act on it before the election, before Washington gets tempted to take America back to the brink a second time.

And finally, third, negotiate another agreement on whether to extend the Bush era tax cuts and adjust the alternative minimum tax to avoid slapping Americans with a higher tax bill next year.

These are three simple things that Congress can do now, three things Washington needs to do before the elections to avoid falling over that fiscal cliff in January. If politicians in Congress put off the work that needs to be done, let them be held accountable for the next recession.

Joining me now, Norm Orstein, a resident scholar at the Conservative American Enterprise Institute. He describes himself as a centrist and his book, it's titled, "It's Even Worse Than It Looks: How The American Constitutional System Collided With The New Politics Of Extremism."

Plus, CNN's political director Mark Preston and CNN's conservative contributor Will Cain. Do they actually call you that? I keep adding that.

WILL CAIN, CNN CONTRIBUTOR: I let you describe me.

VELSHI: He describes himself as a conservative. He says that two parties working together to achieve a solution has created today's problems.

CAIN: That's true.

VELSHI: I don't even understand what you're talking about. You heard Mohammed El-Erian say, you know, first do no harm. Doing nothing before the elections in an environment where we have a 30 percent chance of recession if you believe Mohammed El-Erian, is doing harm.

CAIN: When you say that I think bipartisanship has created our problems, what I'm talking about is a historical perspective. I know we have Norm to join us in a few minutes here that I'm sure will thoroughly rebut what I have to say.

But what I'm saying to you is this combination of Democrats and Republicans seeking low taxes and high spending is created everything from Social Security to Medicare to no child left behind.

And I don't think we can look at these across the board and say pump our fist, good job, Congress. Yes! Now we're in a terrible situation, Ali. Yes, we're looking at a fiscal cliff.

And I've going to take a pen and put yes, get these three things done. But before you just put bipartisanship up on Mt. Rushmore, realize also who got us here in the first place.

VELSHI: I'm not objecting to whether it is bipartisanship or partisanship that got us here. I just think these three things need to -- from getting done.

Mark Preston, why can some congressmen not fall on their sword and do the right thing if that's what it takes to help the economy? Would voters really turn on someone who has the guts to say this is the best thing to do for the future of this country and your job and our economy regardless of party agenda and partisanship? MARK PRESTON, CNN POLITICAL DIRECTOR: Ali, look at the macro level. When you talk about getting things done on Capitol Hill, everything is done through the parties.

Quite frankly, what we've seen on the Republican side is we've seen the rise of the Tea Party, which had an enormous amount of influence over how House Republican leaders approach legislation and approach how they do things.

But at the same side, on the Democratic side, you have the liberals who are really pushing hard on the agenda. When you talk about the folks who are in the middle, these blue dog Democrats, these folks who try to build bridges, folks that perhaps are saying might be the problem because they are trying to chart some kind of middle course.

But the bottom line is it so poisonous right now on Capitol Hill, Ali. And I hate to say this to you this is not going to get fixed until after the election.

If we think things are bad now politically, wait until after Election Day when they have to deal with all these major issues.

VELSHI: And that's my concern. If you are so adamant as Stephen Moore was that this isn't going to get done beforehand, but somehow after the election there will be more impetus, the only thing we have after the election are more deadlines.

Norm, in addition to all the issues I mentioned, you're predicting a -- one of those possible government shutdowns over spending bills in October because House Republicans are going to try and keep every dime for defense.

They're going to double down on domestic discretionary cuts. I mean, I don't -- my head will explode if we can't even deal with the problems we've got and now we might face a shutdown?

NORM ORNSTEIN, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE: You know, Stephen Moore said it's always darkest just before the dawn. I'll remind you of what John McCain often says, it's always darkest just before it turns completely black.

But, you know, the fact is that the deal that was worked out to avoid the last debt limit, and remember really, it was really the House Republicans, not John Boehner who warned them that they had to get something done.

But others in the leadership who held the debt limit hostage the last time now it's Boehner who is threatening to do it with the next debt limit.

But the deal they reached that included these sequesters if they couldn't do the other actions, now you have the House Republicans saying never mind that deal. We're not even going for it for the spending bills for the fiscal year that begins October 1.

We're going to renege on the defense part and double down on the domestic side. That doesn't bode well for any kind of a deal before the election. The fact is in the Senate, you are seeing some bipartisan action.

An attempt to try to find that golden mean, the broader deal, the larger deal, the grand bargain that we've talked about. And it has to include inevitably over the long run more revenues and a significant slowdown in the growth of spending including in the big entitlements.

If you have, however, 90 percent of the Republicans in the Senate and 237 out of 242 in the House who have taken the Norquist pledge that, doesn't bode well either.

So, you know, I'm nervous, but I think Mark is right. The likelihood of things getting done before the election remained exceedingly slim.

VELSHI: Things -- you just brought up the Norquist pledge. Let me bring you in on this. The Norquist pledge, Grover Norquist, Americans for Tax Reform, a pledge that has been signed by virtually every Republican in the House, which says you will not support any net new tax increases.

Which means that if you need emergency short term spending because your economy is going down, the tank again, you risk Grover Norquist and his people campaigning against you, why is that acceptable in our dynamic economy and our democracy?

Why can't we tell people stop with the pledges? Go in there and make the necessary deals that have to be done. I'm not asking you as a conservative. I'm saying this is something liberals and conservatives need to do, Democrats and Republicans got to move on this.

CAIN: The reason I think guys like Grover put that pledge out there and politicians follow that pledge is because where I started this. The historical perspective is you give a dollar to the government and it finds a dollar to place in spending.

It finds a way to spend that dollar. Grover, I would assume, I don't want to speak for him. We have to cut off the spending of government. You are right. It doesn't allow basically for emergencies.

We've arrived at two emergencies you point out, one is the fiscal cliff and the other is the one you're not talking about that Norm just alluded to and that is the long term debt and deficit problem, right?

By the way, both of those problems are working in opposite of each other.

VELSHI: Correct.

CAIN: So we have to, yes, perhaps let go of some of our historical perspective to make concessions on those emergencies and get action on those in the short term. He's not wrong on the long term.

Long term is we've got some lessons to learn about governance, bipartisanship and the concept of getting things done. VELSHI: Mark, later on the show we're going to talk to Olympia Snow. Next week, I'm going to talk to Lee Hamilton. We are dredging up everybody we can find who once walk roughly in the middle of the road. Do you come across those on your travels now while we're looking at a campaign?

PRESTON: Let me just say, Ali, I spent six years on Capitol Hill as a newspaper reporter. I spent a lot of time with the likes of Olympia Snow, Tom Dashel and Trent Lott, and it's amazing.

Now a days, Trent Lott would be considered a centrist. They wouldn't think he is conservative enough. What is happened in Congress things have gotten so polarized at this point, you're seeing the likes of Olympia Snow say enough is enough. I'm leaving.

We saw that with Evan Bayh, a Democrat from Indiana. He left Congress. What is going on in Capitol Hill is bipartisanship is not a bad word. It's actually a very good word.

What is a bad word is punting. That's what you see from the leaders on Capitol Hill keep punting the ball down. We'll deal with it later. That's where we stand right now, Ali.

VELSHI: All right, Mark, Norm, Will, great to have a conversation with all three of you. Thanks so much.

Coming up next, intense partisanship and the my way or the highway ideology in Congress has left one of its strongest serving senators so frustrated she has decided not to seek another term. As promised, Republican Senator Olympia Snowe when we return


VELSHI: After three terms in the Senate, more than three decades in Washington, Republican Senator Olympia Snowe shocked the beltway earlier this year when she said she would not seek a fourth term come November.

Her reasons, intense polarization and partisanship that are crippling our political processes. Senator Snowe joins me now from Washington.

Senator, thank you for being with us. You have a reputation for being a practical politician who is willing to cross lines to get things done.

You said in an opinion that you wrote when you announced you weren't running, I'm going to read this to the viewers so they know. "For change to occur, our leaders must understand that there is not only strength in compromise, courage in conciliation and honor in consensus building.

But also a political reward for following these tenants, the reward will only be real if the people demonstrate their desire for politicians to come together after the planks in their respective party platforms do not prevail." Are things more partisan than they were when you first entered that building? SENATOR OLYMPIA SNOWE (R), MAINE: Without a question, since I entered the Senate and most especially since I served in the U.S. House of Representatives when I was elected in 1979. I came to the Senate in 1995.

There's been dramatic change and it's grown, you know, exponentially worse and most especially over last few years where you're seeing very little of the legislative process working in a way that it should.

That allows for openness and transparency and accountability to see what we're doing, how we craft legislation, allowing amendments to be offered, working through the committee process first, reporting the bills to the floor, having an open amendment process.

So the public has a chance to see how these bills are fashioned and what the differences are in views. But none of that is transpiring today in the Senate virtually speaking.

So what you're having is up or down votes, either/or situations, cultured petitions and cultured votes so all of these procedural blocks are impeding the public's interest and the country's interests.

VELSHI: You're exactly right when you say that. This procedural stuff goes over our heads generally speaking. What we want to see is veteran politicians or new politicians who somehow have the creativity to arrive at compromises that I, we the voters have neither the time or the inclination to arrive at.

You are going to be elected to go there and try and solve our myriad of serious problems. Is there a sense amongst your colleagues that at this point in time, this very specific point in time, this inability to compromise could put us back into remarkable economic turmoil, largely because of what's going on around the world, but this really could do great damage?

SNOWE: You are absolutely right and that's precisely my point and precisely my concern. And, yes, many of my colleagues do realize that I think the question is now can they transcend that and overcome it?

And to make the difference in the United States Senate to get something done and that really is in the hands of the leadership. It determines the agenda and what happens and what doesn't happen, how it comes about.

For example, Ali, the fact that we're postponing all of the key issues on the fiscal cliff, you know, until after the election. We wasted all of this year. We wasted all of last year and the way we handled the debt ceiling, for example. We created the super committee. We knew that wasn't going to be a possibility.

They're going to achieve all these reforms in a short period of time with so few people. And then, of course, we've had no budget and now we're facing this monumental fiscal cliff at a time where we're seeing international turmoil.

Let alone our own domestic economic turmoil that could paralyze any one event could trigger a financial crisis. So all of that, everybody recognizes that. The question is it's not happening to change that.

There is no circumstance to change that here in the United States Senate unless you have the president and the leadership on both sides coming together and recognizing that we need to do this in a way that's going to build consensus.

And the American people have to understand that, too. They have to demand it of their elected officials.

VELSHI: And that's what I'm trying to -- I mean, I haven't been as articulate as you have been in just a few minutes. I've been saying for a half hour on this show that this is what we have to demand of Congress.

And they act sooner rather than later, before the election. All I've been told by those who are much smarter than I am about Congress is I have a better chance of growing hair on my bald head than that happening.

So what I would like to do for my viewers over the next few weeks is form a list of people who are like you, willing to reach across party lines, willing to reach across ideologies.

You have worked with these people directly for 30 years. Tell me who the best people to start that list with would be.

SNOWE: Well, there are a number -- you know, there have been a number of people on both sides. I won't give out name now. I'll be glad to work with you on that question because I do think it is important.

There are people who are willing to do that. I think I would also suggest and starting with leadership. I mean, obviously, that is very important in term of what happens and doesn't happen.

And secondly, it is using the social media and the technology today to get the message out. If we use social media technology and how to vote, you know, either/or situations, whether it's conservative, liberal, then we can also use that in a way to say let's build consensus. We demand consensus in the political process.

VELSHI: I know you're leaving the Senate. I hope that wisdom and that spirit of compromise stays after you're gone. I'll take you up on the offer to find those people in that building and the House and Senate who can, who might just act earlier than the election and stave off the second economic storm.

Senator Olympia Snowe, a pleasure to talk you to. Thank you.

SNOWE: Thank you.

VELSHI: Well, I have been telling you about that storm. It's centered over Europe right now. So what are leaders doing over there to prevent it from hitting our shores?

You might be surprised. Some things actually happening in Europe that could dissipate that storm. Stay with me. (COMMERCIAL BREAK)

VELSHI: All right, so I got up on Friday morning. I had no idea that they were going to really come to some kind of a deal in Europe. Boy, markets really acted like they did.

Investors really liked the idea. It does seem that something is happening in Europe. So to explain this better than I can, I'm bringing in my buddy, Richard Quest. He is standing by for us in London. Richard, did something actually happen?

RICHARD QUEST, HOST, CNNI'S "QUEST MEANS BUSINESS": Yes! It did. And not only did something happen, something meaningful actually happened.

For the first time in this crisis, they seem to have done something that was not only putting a sticking plaster over the problem, Ali, but actually move things forward both in the short term for Spain and Italy and in the longer term towards banking union.

And this is the agreement. It's a little bitty two pager, but in this little bitty two-pager rests what they decided.

VELSHI: Well, if you recall back when TARP first started, when the economy was going down the tubes in September, they first went and asked for $700 billion with one or two pages. Sometimes crisis demand simplicity so in the interest of simplicity, where will Europe go now that it wasn't on Thursday?

QUEST: All right, well, you'll remember with TARP that one page piece of paper turned into a several hundred page behemoth. That's what's going to happen now.

On the Spain and Italy front, basically they recognize the need to move forward and move forward fast. Italy still has to ask for help. Otherwise, that's got to move forward. On the much bigger question of architecture for the future, we are now really down and dirty in the mud.

The fighting is going to begin over what it will look like. They've given themselves a deadline to the end of this year, Ali. This being Europe, I guarantee you can take this to the bank that they will be negotiating this to the 59th second of the 59th minute. We'll see how that one goes.

VELSHI: Let me ask you this -- this is how -- I mean, Americans have to concede with the fact that in Europe in 17 countries there is a common currency.

But the other things you would think to be common in an economy don't exist. To the extent that the amount of hours you work, the -- when you retire, the taxes you pay, the expectations you have from government.

There are a lot of things when they introduce the euro they thought that would pressure these different governments into gaining some commonality and that didn't happen. Is that now going to happen a little more? Is Europe going to feel a little more common?

QUEST: That's the battle. That is the fighting ground. How do you have fiscal policy, a common fiscal policy, common budget policy and economic policy, but at the same time still have national democratic rights?

The closest analogy I can give you to this, Ali, is states' rights versus the federal government. You know, the reality is that the federal government sits where it wants to sit. But here in the European Union, we still have this process of subsidiarity.

It's much more complicated. You have E.U. 27, which is it all the countries. You have then got E.U. 17 those that use the euro and then you've got groups within that.

But the core of it going forward is just -- think of it this way -- how much sovereignty does Alabama, Illinois, California and Oregon, how much sovereignty to the states have to hand over to Washington to make the United States work as an entity?

And that's what they're really battling now on the economic front with Europe. But I'm pretty much certain we will have a European treasury, I would say, within a couple years.

VELSHI: Excellent. You made it very clear for us, Richard, my friend, always good to see you. Richard Quest, host of "Quest Means Business" on CNN International.

Money is cheap right now. It sounds great, but is it really a blessing or is it a curse? I'll explain next on YOUR MONEY.


VELSHI: I'm fully aware that not everybody who wants a loan right now can get one. Things are getting a little easier, but it is still tough to borrow money.

However if, you got credit and can you get a loan, borrowing money can get a loan, borrowing money has never been cheaper than it is right now, not just for consumers who want to buy a house or a car, but banks and governments also getting loans at rock-bottom rates.

Christine Romans, the host of "YOUR BOTTOM LINE." While the money is cheap, I don't know how you turn this around into a bad thing. You've turned into a toxic environment for our economy, why?

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Because it's called the curse of low interest rates, Ali. Here's why, the global economy seems to be at a standstill. Europe is a mess. Growth in China is slowing so investors are turning to U.S. government bonds and they're saying, please, keep my money safe.

It's no longer about a return on investment, but a return of investment. So take a look at the 10-year note from the U.S. Treasury. Last July, the yield was more than 3 percent. Now it's almost half that, showing demand for these bonds, American debt is skyrocketing. Now it's easy for the U.S. government to live well beyond its means in this kind of condition. This year, the U.S. is borrowing $3.6 billion every single day. That's just to maintain how America is living right now and that's the curse.

At a crucial time when we must start to figure out how to meaningfully tackle debt and deficits in this country, it's never been cheaper for the government to borrow more money and Ali, that gives Washington and policymakers more time to punt the ball on things like the fiscal cliff.

And the potential debt downgrade because of the things we have to do to raise the debt ceiling and actually start making some meaningful changes.

VELSHI: OK, let's bring in Stephen Moore and Mohammed El-Erian back. Stephen, here's what I think, the money is so cheap, let's borrow more of it and use it to build infrastructure and bridges and electrical grids and high-speed rail.

And resist the instinct as our conservative to say, no, no, you shouldn't borrow money because people say, you borrow this money and you saddle our grandchildren with the debt. They'll get the bill.

I got the bill for someone else's irresponsibility back before me, guess what, I've got roads. I've got bridges. We'll leave our grandchildren high speed rail and a great electrical grid. Why is that so bad? Someone's got to buy something and someone's got to pay for it, but they get to use it. They get a stronger economy because they don't get a crumbling infrastructure that we have right now.

MOORE: Well, it depends on what you use the money for. For example, I think high-speed rail is one of the biggest wastes of money there is, so I don't see any long-term benefit from that.

But it is true when they've got basically and Christine was right. People around the country are basically giving us money and paying us to hold on to the money. So it's cheap as it's been in 50 years.

VELSHI: Do you see any benefit to that to borrowing money when it's cheap?

MOORE: Well, here's the problem. Number one, we've been doing that in spades for the last five of six years under Bush or under Obama. We're already borrowing $1.2 trillion a year. How high do you want this debt to go?

The second issue is what do we want this money for? Now if we could actually use the money to have a world class tax system that really solves a lot of the problems, I think we all agree the corporate taxes are a mess.

It might cost money to reform that and the long-term benefits of that are very large. The one thing I would add to what Christine said and I agree with virtually everything she said. The last time we had interest rates this low was the great depression. You're right. Sometimes low interest rates aren't always the blessing we think they are and the reason people aren't borrowing is the TV show, "Fear Factor." There's so much fear out there nobody wants to invest.

VELSHI: That and the combination of some people who would like to borrow still can't get access to that money. But, yes, a combination of either access to it or the fact that I hope I'd like to have a job or business to pay that back.

Mohammed, your company, PIMCO is the world's largest bond investor, what do you think, low interest rates in the United States, a blessing or a curse?

EL-ERIAN: So listening to the three of you I feel like the U.N. I'm going to put on my blue helmet and say you all have a good point. First, interest rates are low for the wrong reasons. Growth is sputtering.

We'll be lucky to get 2 percent. The fed is in major experimental mode and we're getting the flight to quality because of the mess in Europe. So we're here for the wrong reasons.

Now this is a window, but we are not using this window properly. You'll only borrow if you know a couple of things, one that you'll enhance the growth potential and two, that you'll be able to pay off the debt in the long term.

And we neither have growth-enhancing measures nor do we have a medium- term fiscal plan. So the risk is that we waste this window and we find ourselves with lower growth, more debt and more political polarization.

VELSHI: You're right. You really did come down entirely on the middle of this. You're saying take the low interest. Use the money if you can prove that you've got growth and the ability to pay it back. What would you, because you were the rubber hits of -- and you would invest.

What would convince you that the U.S. has that type of plan? What kinds of things and -- as you know, I'm focusing on Congress here. What kinds of things can Congress do that would give you some certainty?

EL-ERIAN: Well, first, do no harm, so we need to get the fiscal cliff out of the way. The numbers are clear. As I said, we're lucky to go at 2 percent. The fiscal cliff alone is minus 4 percent so that would throw us into recession.

So we need to get this out of the way and do it in a sensible, coherent fashion so first thing is do no further harm. Second, let's do some good. Let's combine some borrowing fiscal stimulus with medium-term fiscal reforms.

Let's unclog the credit channels that you're talking about, medium and small enterprise can borrow. Let's clear the housing market and let's focus on education and investment. We can do this. All we need is some political compromise in Washington.

VELSHI: And that's exactly where we are in this conversation. Stephen, let me bring you back into this for a second. So we have this general agreement that investment can be used in the right way. We have a disagreement.

So here's part of the problem. I said high speed rail. You said you don't like high-speed rail. I don't understand why because high speed rail brings commerce. It brings competiveness and they do, we don't.

Not in the U.S., but my point is how do we get some agreement. Let's say you and I are on opposite sides of this, we're not and say we were and we've got to make a deal because Congress can't do that. Where do we go?

Do you think there's enough common ground between conservatives and liberals to say, we agree, rates are low and we agree with Mohammed that we want to pay people back and we agree that we want growth?

MOORE: I don't know. I do think this debt is a big problem. I think most Americans do. I mean, we can't keep borrowing a trillion dollars every year.

And the problem I have with what he said and I agree with a lot of it is that I've been in Washington for 27 years. We always say we'll borrow now and then we'll cut spending later and we never do.

It never comes and that's when I first came to Washington, we had $400 billion in deficits and I think Americans realize that there isn't the political will to cut spending and if there isn't today there won't be that tomorrow.

VELSHI: All right, Mohammed, Stephen and Christine, thank you very much.

Listen, you've heard my thesis and now it's your turn. Tell me why I'm wrong. I'll show how to get you the answers to the questions you're asking next.


VELSHI: You tweet, I listen. I read them all and last week you demanded further proof of the economic storm that I keep warning about. Did I make my case today? You'll let me know. My handle is @alivelshi.

Thanks for the conversation this week on YOUR MONEY. We're here every Saturday at 1 p.m. Eastern and Sunday at 3 p.m. Have a great weekend.