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Economic Storm Warning; The 12 Million Jobs Pledge; The Fed's Bold Plan; The Big Fix; Putting Billions on the Line

Aired September 15, 2012 - 13:00   ET


ALI VELSHI, CNN ANCHOR: That economic storm I've been telling you about is still there, still approaching U.S. shores, and still able to do a lot of damage to you.

I'm Ali Velshi. This is YOUR MONEY. And as long as your politicians won't tell you the truth about the economy, I will.

They want you to believe that 12 million jobs will magically appear within four years if you put one of them into the White House. What I want them to do is level with you, because you could get duped into voting for someone who promises sunshine in America in the face of an approaching economic storm that they may not be able to stop.

The storm clouds are coming in from a Europe, a continent that is still in recession, that can't afford to buy American products and services. That storm has reached Asia, where factories that made exports for Europe continue to shut down. It's slowing things down here in America. Last month, America lost 15,000 manufacturing jobs.

There's only so much Washington can do about that storm. But with some real work, they could help avert the storm that's being created in the nation's capital. That second storm started a year ago when the president and Congress made a deal with the devil. Buying a deal to cut the deficit or subject America to a scorched earth policy of reckless across-the-board budget cuts.

It's called sequestration, a stupid name for an equally stupid idea. $1 trillion of mandatory spending cuts that may shed a million jobs when we need them most. And right now nothing is more important to our country than creating jobs.

But there's more. A series of mandatory tax hikes that will hit us all, middle class, working class, and wealthy alike, we'll all pay more after January 1st if Congress doesn't act soon. But Congress won't act now, before the election, because that would mean bipartisanship and compromise. Two things that don't seem to get votes these days.

Even the chronically understated Ben Bernanke keeps warning Congress that it has to deal with unemployment. This week, the Fed christened the good ship QE3. It's not a ship, but it's the third round of quantitative easing. Yet another entirely counterintuitive phrase to the unwashed masses.

The goal is to do something for the economy that politicians in Washington should have done but won't.

So America, you could get pushed over that fiscal cliff that I think will wreak havoc on the economy.

Well, Stephen Moore is an editorial writer at "The Wall Street Journal."

Stephen, you'd rather cut off your toe than increase America's debt. So why shouldn't we put that -- why should we be putting that off until after the storm?

STEPHEN MOORE, EDITOR WRITER, WALL STREET JOURNAL: Look, Ali, I have to say, I'm frustrated with this discussion. Because, you know, this fiscal storm that you're talking about, the economic storm, you're right, it's here. I think a lot of Americans think it never left from 2008. But, look, at some point, you have to pay the piper. And what frustrates me is, Ali, when we discussed this three or four years ago, you were all in favor of the -- of the big $830 billion stimulus bill.


MOORE: And many of these other programs --


MOORE: And what you're essentially saying right now is, Ali, is, boy, whoever thought this was going to happen, we have to pay the piper. And of course that always happens. And it seems to me what you're saying is, let's continue to borrow, let's continue to have what Ben Bernanke wants, which is easy money, and I just don't think that works anymore.

I think we do have to get serious about bringing this overspending problem, this debt problem down. You don't tell somebody with a personal financial problem who's got enormous debts, well, just put it off for another year.

And my frustration, Ali, I think -- it seems to me, that's what your advice is to the congressmen and to the president. Put it off for another year, let's keep borrowing, let's have another drink.

VELSHI: You know, you'll be interested to know, I actually think that the Fed action disguises what Congress should do. It gives them a little bit of cover.

MOORE: OK, so we -- we agree on that one.

VELSHI: We actually agree on that point.


VELSHI: Let's bring Austan into the conversation.

Austan Goolsbee is a professor at the University of Chicago Booth School of Business, he's a former economic adviser to the White House, to President Obama. Austan, you were part of the administration that has been accused of not using its full political capital to create jobs when it had a chance. How do you respond to that criticism?

AUSTAN GOOLSBEE, ECONOMICS PROF., UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS: Look, I don't think that's fair, and -- that's coming at the president from the left, and you just heard Stephen saying, he wished they hadn't done anything. I mean, I think though it may have no implication for the election in 2012, historians are going to look back and avoiding the Great Depression in 2009 was -- is going to be viewed as a major, major accomplishment.

VELSHI: You know --

GOOLSBEE: The financial crisis and the economic crisis at the end of 2008 was bigger than the one in 1929, that led us into the first depression, and finance is a bigger share of the economy now than it was then. So I think if you don't think it could be worse, you were not paying attention to what was going on.

VELSHI: Christine Romans, host of "YOUR BOTTOM LINE" -- Christine.

CHRISTINE ROMANS, HOST, CNN'S YOUR BOTTOM LINE: I'm telling you, all this looking in the rearview mirror is making me crazy, because I'm so scared looking forward.

Look, we have to figure out in Washington how we can fix the right now and look longer term to cutting our debts and deficits.

Why can't we do both, Stephen Moore? Why can't we do both at the same time?


ROMANS: I'm not convinced that Washington and party politics will allow us to do -- we have to be juggling a lot of balls, it can't just be debt reduction.

MOORE: Right.

ROMANS: And it can't just be near-term stimulus. It has to be that -- all of that and more.

MOORE: Yes, look, Christine, I agree with you that it would be wonderful if we could do both. If we could stimulate the economy and then have these congressmen and senators turn into fiscal saints and then, you know, and then cut the spending. I've been in this town for 30 years.

ROMANS: I'm sorry.

MOORE: But all I ever hear is put out -- put out the punch bowl and let's party. They never take the punch bowl away. And that's the problem I have with I think what the three of you are saying, is look, I think Americans believe this debt is a real financial crisis. That this is not a fire drill. This is a really important component of why the economy is doing so well.

And, Austan, look, I'm not saying we shouldn't have done anything in 2008 and 2009, you're right, the president inherited a great economic crisis. The crisis we have now is, here we are 3 1/2 years later, the Census Bureau just came out with numbers this week which are a disaster, incomes are still falling, the poverty rate is at a record high.

What I'm saying is, those policies you had put in place just didn't work very well and all we've got to show for it now is this fiscal cliff.

GOOLSBEE: And what I'm saying is --

VELSHI: Austan?

GOOLSBEE: Look, we agree that the fiscal cliff is a problem.

MOORE: Right.

GOOLSBEE: Though you should recognize that in your saying that you're afraid of the fiscal cliff, Stephen, you're contradicting your own point by saying, well, I'm real estate nervous that if they raise taxes and cut spending at a time like this, it's going to tank the economy.

I think if you want to try to blame policy, then you have to explain why is it that in Europe, in Japan, and in the rest of the advanced world, where they're following different policies than what they followed in the U.S., they're actually growing slower than they are here. The U.S. is among the fastest growing of all the countries in the advanced world.

Ali, I think you're 100 percent right. This is a tidal wave that's sweeping the world economy. This is a tough struggle to get out of. I'm not advocating 100 percent, just short-run stimulus. In my view, the role of the government is the main driver of recovery. It should not be a permanent basis. That's absolutely not the sustainable way to do it.

That was the thing that you have to do when the private sector is in free fall. But at a time like this, we should be doing everything we can to encourage exports, investment --


GOOLSBEE: -- and a return to the --


MOORE: OK. How about --

GOOLSBEE: -- private sector growth.

MOORE: But hold on.

ROMANS: But one of the things -- wait. One of the things --

MOORE: If you want --

GOOLSBEE: Going back to tax cuts that gives work.

VELSHI: Hold on -- hold on, Stephen. He said --

MOORE: But --

VELSHI: He said that my -- he said - and I was absolutely right so he gets to -- no, I'm joking.

Christine, go ahead.

ROMANS: Ali didn't hear anything after, "you're absolutely right, Ali." Look, the issue here, too, though is that we've got --


We've got so many problems in the very near-term and we can't even agree on -- basically all they can agree on is running the government for the next, what, six or six months, right? And there are also these mistakes that both parties have made and I don't see anybody really owning up to their mistakes.

Now early on, maybe, Austan, this is a point for you but early on, you know, I don't think anybody really knew how deep the economic crisis was. And that's not a knock on the administration, because I don't think Republicans knew how deep the economic crisis was, too. Some of the -- high marks for the administration the early months of the crisis. But then after that, it's almost as if the messaging and the ability to get a targeted jobs plan through just evaporated.

And now we are spending all this time looking backward. We've lost this political ability to look forward together.

VELSHI: But ,Stephen, we've got to -- the bottom line is, you and I, the green -- in fact, I think it was last week where we both agreed that you are not as obsessed with debt as some of your Republican colleagues are. And I'm using that word. It is absolutely a dangerous and misguided obsession. It's a serious problem.



VELSHI: Jobs is where the obsession should be. Creation of jobs and economic growth --


MOORE: No question about. And see, here's the point. First of all, Austan, I agree with you. I think the tax increase cliff is a disaster. I mean, you put it right. We've got an investment problem in this country, we've got an export problem in this country. Why in the world would you want to raise taxes on investments? If President Obama wants to raise the capital gains tax, the dividend tax, the small business tax, I'm against that. If I actually believed, Ali, that spending another $1 trillion of debt would get us out of this economic rut we're in, I'd be all in favor of it. I think it's the wrong thing to do. I think the government spending is actually making the economy weaker.

VELSHI: All right. You're going to watch the rest of the show, Stephen, because I have an idea that you might actually support then we'll talk about it again next week.

MOORE: I'll be all ears.

VELSHI: Stephen, good to see you, as always. Thanks very much.

MOORE: Thank you.

VELSHI: Austan, stay right where you are.

Christine, stay where you are.

I've told you that the economy could create 12 million jobs in four years, I will wear a dress for a week. Coming up, I'm going to introduce you to someone who thinks I should start shopping now.

And later, it's one of the largest public works projects in U.S. history in New York. Second Avenue Subway, and you're helping foot the bill no matter where you live. I'll tell you why projects like these could jump-start the economy.


VELSHI: The most important election issue this year is jobs. But you could end up basing your vote on a lie. It all started with the Romney camp claiming that a President Romney would create 12 million jobs in his first four years as president. That's three million a year or an average of 250,000 jobs a month.

I have asked Mitt Romney's advisers how they came up with that number. They've had vague answers about economic growth and tax reform. Then instead of calling out the Romney campaign for making claims with scant evidence, the Obama campaign gave it legitimacy by repeating it, calling it a low bar.

Well, if it were such a low bar, why didn't the Obama campaign come out with it first?

Both sides have made the following cynical political calculation, selling you an optimistic view of the economy is more important than telling you the truth. Twelve million jobs in four years has happened before in America, twice in the last 50 years. The economy added 12 million jobs between 1983 and 1987 when Ronald Reagan was president. The average economic growth in those years was 4.5 percent.

It also happened between 1996 and the year 2000, under President Clinton, while the economy was growing at 4 percent, or 4.3 percent, on average, each year. So far this year, the economy has grown at 1.7 percent.

Next year, if we're lucky, and the storm doesn't hit, and we don't go over a fiscal cliff, and nothing else goes wrong with China or Europe, maybe we'll hit 3 percent. That's optimistic. Nowhere near where we were the last two times that America created 12 million jobs in four years, three million jobs a year, or 250,000 jobs per month.

Austan Goolsbee is back with me. He's the former chairman of the Council of Economic Advisers and a professor at the University of Chicago Booth School of Business.

Austan, you have a chance, right now, to call out the biggest lie in this campaign. Please tell my viewers that they will not be seeing me in a dress, which is what I promised if 12 million jobs were created in four years. They won't see that because this economy is not going to allow for 12 million jobs in the next four years.

GOOLSBEE: Look, Ali, I learned a long time ago not to make forecasts because all you can do is look dumb. So I would be a little careful. I mean, the private sector, even in the last two years, which has been, as you say, modest growth, has added something like four million jobs over two years. So it would have to speed up, but it wouldn't have to speed up to something unbelievable to do that.

VELSHI: All right. Let's bring in a guy who's made the forecast, actually. Moody's Analytics chief economist, Mark Zandi, is the author of "Paying the Price: Ending the Great Recession and Beginning A New American Century," which at least is an optimistic enough title to suggest that you think we're going to create lots of jobs.

Mark, I'm very in favor of big ideas and optimism in this election. We don't see enough of it. But the nonpartisan Congressional Budget Office predicts that the economy will create 9.6 million jobs in the next four years. So that is higher than the average we've seen in the last two years that Austan was talking about. That would be eight million. Substantially lower than the 12 million.

You are on side with this idea of 12 million jobs in the next four years, regardless of who becomes president. And you make an interesting argument, that housing is going to drive this.

MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS: Yes. Well, I think you should start shopping for that dress, Ali. I think it's very doable we get 12 million.

Austan's right. Over the past year we created -- and the year before that, we created two million jobs in each of those years, and this is obviously in a very tough economy. And it's also in a period when government is laying off lots of workers. And that's not going to continue for four years, a year or two down the road, the government is going to stop laying off and hiring again, so that's going to add a little bit of juice.

But the real thing that's going to be the kicker is the housing and construction cycle. As you know, coming out of every other recession in the post World War II period, it's housing and construction that provides the real boost, where all the jobs -- a lot of the jobs come from. It's not happened this go-around because housing was ground zero for our problems. But housing is going to kick in. It already is starting to kick in. And a year or two from now, it's going to be in full swing.

That's a lot of construction jobs, that's a lot of manufacturing jobs, think about all the things that have got to be produced to build those homes. Transportation, distribution, landscaping, Home Depot, Lowe's, you know, you can go on and on and on. And that's going to give you the added jobs to get get you to that 12 million number. So it's very, very doable.

VELSHI: All right. And Austan, you know, one of the thing we've looked at some when you look at this silver clouds, the silver lining around some of the economic clouds, we know markets are doing well and in particular the housing sector we know is doing well, as Mark said. But you know what, we've got -- you can get a 30-year loan for 3.8 percent and home affordability is at the lowest it's been.

What -- people still don't have jobs. How is that going to solve this problem?

GOOLSBEE: Well, look, if the mechanism that Mark described kicks in, that we finally turn the corner and we kind of plow through these five million vacant homes that got overbuilt in the bubble, normally, the job creation, as Mark highlighted, is up to a third of the typical expansion coming out of a recession. It's coming from either construction or housing-related stuff. So I think you could start seeing some jobs from that.

And look, you could start seeing the jobs coming from an increase in investment and an increasing shift to exports. The fundamental problem of why it's taken so long to get out of this downturn is we can't go back to doing what we were doing right before the recession began. Normally in the V-shaped recoveries like 1983, '84, you just go right back to what you were doing before.

But what we were doing before was building -- over-building housing and consuming more than we were earning, and you can't go back to that.

VELSHI: Mark, you say, and clearly, you've said this, because you've made this prediction, that this doesn't depend on who becomes president?

ZANDI: Right. Right. And it doesn't. I mean, the key working assumption, and you've been talking about it all morning, is that we're able to reasonably, gracefully navigate through the fiscal issues that we're going to have to struggle with after the election. The fiscal cliff, the treasury debt ceiling, we're going to have to come up with the spending cuts, tax revenue increases that allow us to get to something that's close to fiscal sustainability.

So we've got to do these things. But my view is, that regardless of who wins the election, the policy makers are going to come together because it's in their interests and it's in the economy's interests, and they're going to reasonably, gracefully address these issues. It's going to be tricky and it's going to be soft next year, and I'm not saying we're incurring a lot of jobs over the next six, 12 months, we're not.

And unemployment, even with what the Fed did, isn't going to decline very much over the next six to 12 months. But once we get past these issues, and again, I think we will, this time next year, and particularly into 2014, '15, and '16, the economy is going to be in full swing.

And here's one other thing, Ali, the private sector, if you look at businesses, American companies, if you look at American banks, if you look at American households, you know, we've still got some issues with foreclosures, as Austan pointed out, but outside of that, the private sector is in very good financial shape. The only missing ingredient is confidence and we're going to get that confidence back if we nail down these fiscal issues. And again, I think we will.

VELSHI: You boys are optimists. I appreciate it. Thank you both for being with us.

And by the way, if I do end up having to wear that dress in four years, it's going to look an awful lot like a three-piece suit ---

ZANDI: Call me. Call me, Ali.

VELSHI: -- and a shirt and a tie. Good to see you both. Austan Goolsbee and Mark Zandi. What a pleasure.

All right, coming up next, are the central banks saving the world or making things worse?

And later we'll get a third-time presidential candidate Ron Paul's take on the latest move by the Federal Reserve, an institution that he calls dishonest and immoral.


VELSHI: This week the Federal Reserve announced a new round of quantitative easing. $40 billion in bond purchases every month meant to get banks to lend more to businesses and individuals here in the United States. In the same week, the European Central Bank cleared a major legal hurdle to its permanent bailout fund. Italy and Spain, two big countries considered too big to fail in the ongoing Eurozone crisis, could get bailouts going forward to bring down their borrowing costs.

Both are instances of central banks initiating action when the political will to act is the lacking, whether in Washington or in Europe's capitals.

Joining me now to debate the topic is Richard Quest in London. He's the host of "QUEST MEANS BUSINESS" on CNN International.

Richard, welcome. Today's Q&A question is, are central banks saving the world or are they making things worse? I'll go first, Richard. Give me 60 seconds on the clock, starting now.

Richard, central banks are doing the right thing by taking action to shore up our troubled economies, but it is only half the equation. When there's a world financial crisis like the one we witnessed four years ago when Lehman Brothers collapsed, two things need to be done. Number one, central banks need to step in with emergency fiscal moves.

Two, you need smart political decisions and that is what's lacking in the United States and in Europe's capitals.

America today is not in a crisis, but it is facing this upcoming economic storm that you people are blowing out of way by taking crisis-style emergency action this week, like the Fed did. It showed that the real problem ailing America today is a complete lack of political will and leadership. In other words, the Fed provided cover for Washington's useless politicians.

So can central banks save the world? Yes. But -- and this is a big but -- they can't do it alone. You need the right political decisions as well, and in Washington, Richard, our politicians have abdicated their responsibility to uphold the public good.

Richard, your turn.

Well, one's never surprised with the -- with your views, and here we go.

RICHARD QUEST, HOST, CNN'S QUEST MEANS BUSINESS: The core question, shave or scupper. Are the central banks doing what is necessary to prevent a bad situation becoming worse? And the answer is yes, and for one very simple reason. They are the only game in town.

You're right, Ali, up to a point. The U.S. Congress has abdicated its responsibilities. In Europe, the countries' governments, they know what they want to do, they just can't get re-elected if they do it, and they can't agree. So in this scenario, it is only, only, only the central banks that can really make progress. But, and here's the difference between the Fed and the ECB. What price do those central banks exact? In the ECB's case, they've got economic reform. They get commitments. They make sure they only buy the bonds after they've got promises. VELSHI: Right.

QUEST: As for the Fed --

VELSHI: Yes. Keep printing money.

QUEST: They're printing away.

VELSHI: Keep printing money.

QUEST: They are printing away --

VELSHI: No reforms. QUEST: -- without any promises or reforms to show for it.

VELSHI: That was a minute and 15 seconds, but nonetheless, you make a strong argument.

Richard, always a pleasure to see you.

Coming up, you've heard from me, you've heard from Richard, now you're going to hear from this man.


REP. RON PAUL (R), TEXAS: I would give the Federal Reserve a very, very low grade. I would think -- I don't know whether it's an F or an F minus, but it's very, very bad.



Congressman won't help and Congressman Ron Paul is certainly not turning to the Fed. I'm going to find out just who he believes can help America protect itself from the economic storm that could be headed our way.


VELSHI: I just told you about the Federal Reserve's latest attempt to stimulate the economy. And my next guest doesn't want the Fed to save the economy. In fact, he doesn't really want the Fed to exist at all.

Ron Paul, a name you know. He's a congressman from Texas, a three- time presidential candidate, and he calls the Federal Reserve system, quote, "dishonest, immoral, and unconstitutional."

Now, as Richard and I just discussed, the Federal Reserve has two mandates, keeping prices stable, that's inflation, and promoting full employment.

Congressman, welcome to the show. Our number one economic issue is jobs. If everybody's employed or lots of people are employed, a lot of these problems go away, because you're not supporting people, people are paying taxes.

Your fellow congressmen are not helping the situation and you don't trust the Fed. So what's the fix?

PAUL: Well, they haven't done their job. And you know, they're supposed to have full employment or take care of unemployment, and they've done a lousy job, so I don't know why we can trust them to do something that quite frankly they're incapable of doing. They can't practice central economic planning through management of money and credit, and I think we're seeing the results.

They can create a bubble, and they can -- you know, they can create times that look good, but they're artificial, they're distorted, there's mal-investment, and you do have inflation now that people don't admit to.

And you know, you said that I don't want the Fed to fix the economy. I want to fix the economy, but we could fix the economy if we had not had the Fed trying to manage the economy for a long time.

So, yes, I believe in the market, and most people, you know, who are investors and believe in the free enterprise system, believe in the markets, but not in money. Why, why? And money is half of the economy. So you want price fixing in there with the money and that's the interest rates. And price fixing doesn't work anyway.

VELSHI: So tell me --

PAUL: So tell us, why would it work with money?

VELSHI: Let's just this -- for a second put aside the "what you would do with the Fed" question and go back to the Fed was trying to fix things in the economy. You say that they're not an effective tool to do that, but they're trying to increase unemployment.

Congress isn't really helping on that front. Could -- do you believe Congress could have a bigger role in supporting and growing employment in this country?

PAUL: Well, absolutely. Congress is a culprit, and they're allied with the Fed, because the Congress is always too involved. Too much regulations, too much taxes, too much spending. But the spending wouldn't occur if you didn't have the Fed. Because the members of Congress are politicians, and they spend money, and they won't cut, because they're afraid they're going to lose the next election.

But if you have the Fed standing ready, they are the moral hazard, because they're always ready to buy the debt. So there's no incentive under these circumstances for a politician to spend less. So if they want to be the -- run the American empire around the world, no reason to back off for economic reasons. If you want the welfare state forever, no reason to back off, until the collapse comes. So I'm trying to come back to a sane policy, and trying to prevent the collapse of the dollar.

VELSHI: Let me ask you this. You've -- refused to fully endorse Mitt Romney. He says, by the way, he supports an audit of the Fed. He says he wouldn't reappoint Ben Bernanke as Fed chairman. He's criticized the latest round of Fed stimulus, QE3.

Is there something Mitt Romney could do to get your support?

PAUL: Probably not at this stage, because I'm concerned, as much by the foreign policy as domestic policy and monetary policy. But I feel good that he and I have had discussions on the Fed, and he has made some statements, and he supports, you know, this position now about auditing the Fed. So I would say that is very good. But there -- you know, we had a lot of debates and we got along quite well, but we had a lot of disagreements on the policy or what the role of government ought to be.

VELSHI: You don't like his foreign policy position. Do you like Barack Obama's any better?

PAUL: Not much. Because I don't like the foreign policy since Woodrow Wilson, you know? Because we have become, you know, this policeman of the world. And we're broke. And we have an empire, and just look at what's happening in the Middle East today. Eleven embassies have been involved in anti-American demonstrations, that people around the world are sick and tired of us telling them what to do and propping up dictators they don't like and prompting these demonstrations.

So it's the Woodrow Wilson idea that we're going to make the world safe for democracy, we're going to fight a world to end all wars, and just look at what's happened. Hundreds of millions of people have died, you know, not that that's our fault in our policy, but we have been trapped into believing that we have to be just like the economic planner, the Fed at home, overseas, it's a foreign policy that supports an empire that we cannot maintain. It's bad policy and we don't have any money.

VELSHI: Ron Paul, it was a pleasure to talk to you. Thank you for joining us.

PAUL: Thank you, Ali.

VELSHI: Coming up next, the economic storm is coming, but there is a way out. We can prepare for this one and other economic storms that will inevitably come our way in the future. I'll show you how, next, on YOUR MONEY.


VELSHI: Parts of America are crumbling. Parts of America are simply not keeping up with the rest of the world. We need to upgrade our roads, our ports, our bridges, our railways, our pipelines, our power utilities, our broadband capabilities. All of it. It's how you attract and keep business.

You spend the money now to give America the tools to grow for decades to come. And in the process, you create jobs to build it and living wages that allow Americans to thrive.

Now this is a big idea. It sounds a lot like what many thought the stimulus of 2009 was supposed to be. At the same time, it wreaks of deeper government involvement in the economy. That's why nobody's really talking about it.

It also won't do anything about this economic storm that could hit in coming months, but it will be the best storm shelter money could buy for the future.

A recent trip I took to China reminded me that there are parts of the world that are simply working better and smarter while America is struggling to keep up. In post-war America, FDR's new deal and the Interstate Highway System under Eisenhower created millions of new jobs and great infrastructure, but, boy, they cost a lot of money. Since World War II, there have been thing in the U.S. economy that have been major drivers of growth and employment, growth that usually centers around the middle class. Think about manufacturing and then cheap credit and housing, technology, all of it made the middle class richer.

Infrastructure could be the next big driver of that kind of prosperity. Now the American society of civil engineers does a study every four years on everything from train lines to the electrical grid and drinking water. Here's their breakdown of how America is doing.

Well, the part of infrastructure you probably think of first is transportation. Here's the grade. Bridges get a C. Rail gets a C- minus. Aviation gets a D. Transit gets a D. Roads get a D-minus. Now energy, we touch that every day. Progress has been made over the past decade but demand for energy is also rising quickly. It gets a D-plus. Our dams, many of which also produce power, receive an even lower grade, a D.

You take all those areas and a few more into account, that's what America gets, a D. Not failing grade, but pretty poor.

I want to bring in Fareed Zakaria. He's the host of "FAREED ZAKARIA GPS" here on CNN.

Fareed, if we spend the money required now, and it's a lot of money, to upgrade America's infrastructure to the point that it is actually competitive, that it attracts business and it keeps business here, what do we think the return on that type of investment could be?

FAREED ZAKARIA, HOST, CNN'S FAREED ZAKARIA GPS: Historically, the return has been extraordinary. If you think about the Erie Canal, you think about the land grant colleges, you think about Eisenhower's Interstate Highway System, you think about the state universities we built -- California, after all, was built with the greatest highways, the greatest public parks, the greatest state universities, and that produced everything from Silicon Valley to Hollywood.

Historically, this has been a huge multiplier. And so we should look upon it as laying the foundation, as you were saying, for the next generation of growth.

VELSHI: Part of the problem with the stimulus in 2009 is -- while it was supposed to lay the generation -- lay the foundation for the next generation of growth, it was also supposed to provide immediate jobs. And a lot of people said that much of the stuff in there was too complicated, there was too much red tape or didn't create the jobs.

Is there a way to do this efficiently? To employ, let's say, $1 trillion, in a way that really builds the things that we just talked about, efficiently, and yet creates jobs?

ZAKARIA: There is. Remember, the stimulus was one third a tax cut, one third went to local governments to stop them from firing schoolteachers and firefighters, and a third of it, or a little less than a third, was stimulus. That piece of it actually worked pretty well.

The best thing we could do is to create a national infrastructure bank. Because then you take public capital, that is state government money, and you attract private capital. You get all these big funds, hedge funds, pensions funds, private equity players, they come in and we do it together.

There is something odd in the United States. We build infrastructure in this country in a more socialist fashion than any other part of the world.

VELSHI: I.E., government builds it.

ZAKARIA: Government --

VELSHI: Business uses it.

ZAKARIA: Government builds it, government owns, it, government operates it.

VELSHI: Right.

ZAKARIA: The way they do it in Europe, often, the private sector will build roads, bridges, highways. In Asia, you bid the stuff out to private contractors. Think about the way airports work now. That's the only place where we have a public/private partnership. The government owns it, JFK or whatever, but we lease out a lot of it to private operators.

We say to them, you pay us something back, you make money off of it, we both win. That's the best way to do it, because the government doesn't have to put up that whole $1 trillion. They will probably only have to put up a tenth of it.

With money as cheap as it is now, remember, you can borrow 15-year money, 30-year money --


ZAKARIA: -- if you're the government of the United States, essentially at no interest rate. This is the time to do it, and this is also the time to do repairs. That's another very important piece.

VELSHI: Fareed, good to see you. Thanks for coming.

ZAKARIA: A pleasure, as always.

VELSHI: All right, coming up, we've made the case and now it's on to how much it's going to cost you. I'm going to put a price tag on the suggestion that Fareed just made. You're watching YOUR MONEY on CNN.


VELSHI: Take a look around you this weekend. Bridges need repair, railroads need more tracks, and our energy grid needs to be updated. This country's infrastructure gets a D from the American Society of Civil Engineers. America's got work to do, but you're asking what it's going to cost.

Well, the group estimates that we need to spend $2.2 trillion over five years to bring everything into good condition. That's their word. Now that includes projects already in the works, like President Obama's American Recovery and Reinvestment Act, what you'll know as stimulus bill. But everything in place only accounts for about half of that $2.2 trillion. So either the public or the private sector is going to need to come in and invest.

Now one of the ways to do that is to create an infrastructure bank. You -- heard Fareed talk about it. It's an idea that's already on the minds of lawmakers. It's in the jobs bill that President Obama produced. Well, here's how it would work.

First, the government would create a bank. And they'd fund it. They'd put about $1 trillion in. Let's just say. That's a made-up number. But, essentially, this would make the bank part of the federal budget. This would be taxpayer money. The next thing is that states or cities or towns or private companies would submit proposals for projects. Those proposals could be an energy grid, it could be airports, bridges, high-speed rail, whatever you want.

The bank would evaluate these projects and select certain ones based on the cost and the benefit that they would get for that investment. Then the bank would issue a loan guarantee or a line of credit to help start the project. Once the project's done, fees, taxes, tolls, and other revenues would be used to pay the bank back.

Now at the end of the day, everybody wins. The government gets paid back, states, cities, and towns get the upgrades they need, and businesses make money. They put people to work building these projects and they put people to work as these projects need maintaining over the course of years.

Christine Romans is the host of "YOUR BOTTOM LINE," Stephen Leeb is the author of "Red Alert: How China's Growing Prosperity Threatens the American Way of Life," and he runs Leeb Capital Management.

In fact, Stephen, I just came back from China, which really underscores the difference between Shanghai and New York or Chicago or San Francisco or Dallas. They have infrastructure there that works. Now putting aside the fact that Chinese -- that the Chinese do things in a way sometimes that we wouldn't want to ever do here in the United States, the trains run on time, the bridges are better than ours, the roads are better, the buildings are better, the broadband infrastructure is better. Is this the way to get it done?

STEPHEN LEEB, PRESIDENT, LEEB CAPITAL MANAGEMENT: Ali, it has a lot of advantages to it, but China has a couple of advantages we don't have. First, they're starting from scratch and that sometimes can be big advantage. If these are to put up a smart grid from scratch than to replace an old grid.

But more important, China has also prioritized things. I think this is a terrific idea, the infrastructure bank. But if you think the biggest infrastructure project this country has ever had was World War II. The priorities were crystal clear. We had to develop, I think it was $3 trillion worth of infrastructure to win that war. We did, and guess what, we also built the foundation for prosperity there after.

If we can set the priorities right now, from my point of view, energy would be number one. Somebody else may disagree with me.

VELSHI: Right.

LEEB: But if we can set the priorities right, get the politicians aboard, this infrastructure bank makes a lot of sense. A lot of sense.

ROMANS: To me the differences, though, between the United States and China, China is a communist country. So there's a politburo that decides what the national strategy is going to be of the country. We have far more people involved. And they have, you know, conflicting views on what our strategy should be. So that's number one. I don't think anybody is ready to trade a better bridge for a communist political system.

Number two, China has cash, American dollars, lots of them, money that we've been sending them for years. We borrow money from China, we buy Chinese goods, every one of those dollars goes back to China, sits in the bank, so they're using cash. In this country, we have to borrow the money to put in the bank and that starts to get a little bit tricky.

VELSHI: Let's bring you back from China for a second, because I -- gosh, I know you're all going to be mad at me for citing China on this. Let's bring you back to America. Let me show you a poll or a study that was released by the National League of Cities.


VELSHI: And it says that 48 percent of cities are still cutting jobs, 43 percent are still raising fees like tolls, 25 percent are cutting spending on public safety and human services like parks and recreation and libraries.

Bottom line is, we are not prioritizing whether it's the war or China. We are not prioritizing things that make life better, things that make people want to have their businesses here, things that make people -- things that make businesses want to stay here and not go elsewhere.

ROMANS: Because stimulus has become a dirty word because of politics in Washington. You say -- I mean you can't get a Democrat to say the word stimulus. They won't even hardly defend their stimulus, in part because they're worried about getting hit for borrowing money that America can't afford to pay back, to do boondoggles and shove-ready project, you know.

But the issue really here is the same Congress that brought you the fiscal cliff, and now has to fix the fiscal cliff, we're asking them that they will be able to have vision and leadership and figure out a way to invest in our country for the future? No way. That has to be reincarnated in completely different group of people. (LAUGHTER)

VELSHI: Well, that's where your politburo --


LEEB: No, but there was a time in this country, Ali, where the top businessmen used to get together, they didn't conspire to do anything, but they did try to set priorities for the country. We can re-create that kind of environment again, and maybe that should be the top priority that would lead to an infrastructure bank because private enterprise must be involved in this project.

VELSHI: Sure. That's my definition.

LEEB: And we've got to get them all together and say, hey, guys, we have a massive problem in the United States of America, but you know, if we roll up our sleeves like we did in the Second World War, we can win.


ROMANS: And maybe --

VELSHI: OK. We're going to talk about this a lot actually over the coming weeks. Maybe somebody will hear and decide that they're going to make infrastructure -- infrastructure building and an infrastructure bank part of their campaign platform.

Stephen and Christine, good to see you. Thank you.

Coming up next, one of the nation's largest public works projects. Well, doesn't matter where you live, you're still paying for New York's latest and most expensive subway line to be built. But just what goes into building a subway? I went underground to find out.


VELSHI: We're talking a lot about infrastructure, it's one of the biggest public works projects in American history at a cost of $4.5 billion just for the first mile and a half. I'm talking about New York's new Second Avenue subway line. To complete the line which would run nearly the length of Manhattan would cost between $22 billion and $24 billion.

So what's behind the mammoth tab? Well, I went 10 stories beneath Manhattan's surface to get to the bottom line.


VELSHI (voice-over): Backhoe excavators that can cost $700,000 apiece. Manlifts that sell for up to half a million bucks. See that hydraulic drill jumbo? They can go for 800 grand a pop. These are the machines of modern day civil engineering. New York City has them working full speed ahead on its new Second Avenue subway line. (On camera): Subways are expensive, just to give you a sense of perspective, way back when, the first subway in Manhattan was 21 miles and it cost $35 million. This one, about a mile and a half for about $4.5 billion. That's more than a billion dollars a stop.

(Voice-over): And that's just for phase one.

We went digging 10 stories below Manhattan to find out what goes into the bottom line on a new subway line.

TOM PEYTON, PARSON BRINCKERHOFF: It's a bargain. Then again it's a bargain. $800,000 a pop.

VELSHI: The most massive piece of equipment used is the tunnel boring machine. The last time New York built a subway it used the cut and cover method, digging from street level. Boring is much more efficient and it disrupts life above ground a lot less.

PEYTON: The one that did this is 22-foot in diameter. A little over two stories tall. It can go on average about 50-foot a day.

VELSHI: One of these things costs $12 million and requires 20 people to operate it. At 50 feet a day, boring two mile-and-a-half tunnels takes a long time.

PEYTON: This is a linear project.

VELSHI (on camera): Right.

PEYTON: You must do the tunnels before you do this.

VELSHI (voice-over): And highly specialized laborers are the ones doing that. Sand hogs or urban miners work alongside operating engineers who drive and maintain the machinery.

PEYTON: On average, we pay a guy about $1,000 a day, and that's base salary plus benefits.

VELSHI: It's putting people to work in a tough economy. The Metropolitan Transit Authority expects phase one of the subway, that's three and a half stops and a new tunnel at a fourth spot, to create 134,000 jobs with an economic impact of almost $18 billion over the nine years of construction.

(On camera): New Yorkers keep asking why does it take so long?

PEYTON: It is normal.

VELSHI: It is what it takes.

PEYTON: It is normal. It is what it talks.

VELSHI (voice-over): All the while, Americans are footing the bill, no matter where they live.

PEYTON: Second Avenue right now, $1.3 billion come from the federal government and the rest of $3.15 comes from New York.

VELSHI: The portion from New York comes largely from New York state bonds and MTA bonds.

PEYTON: And in 2016 when we swipe our card and ride the first train, it's going to feel real good.


VELSHI: That was fun to watch.

All right. Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday at 1:00 p.m. Eastern and Sunday at 3:00 p.m. Find me on Facebook at, and tweet me, my handle is @Alivelshi. I read every message. I want to hear what you think of our discussion on infrastructure and central banks.

Have a great weekend.