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Washington's Crazy Calendar; Fear Builds Over Spending Cuts; The Consumption of Economy; America's Coming Demographic Disaster; Should You Invest In Stock Market?
Aired February 10, 2013 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN ANCHOR: A cringe-worthy calendar in Washington. The small thinking about big problems continues.
Welcome to YOUR MONEY. I'm Christine Romans. Ali Velshi is on assignment trying to stay warm in the snow this weekend.
I want to show you what I'm talking about here. March 1st, automatic spending cuts take effect unless there's a deal to avoid them. They were never supposed to happen, folks. The results of a deal to end a debt ceiling debacle in 2011.
Next, while Congress takes a two-week break for Easter and Passover, funding for the federal government will expire. That means a shut-down if Congress doesn't act in time. Then, April 15th, thanks to the no budget, no pay act, the House and Senate, they must pass a budget or they stop getting paychecks. And finally, on May 18th, the current debt ceiling suspension ends.
And with no deal, even the threat of the U.S. defaulting could again result in the downgrade of America's credit rating. The consequences for you could be dire. Your borrowing costs would likely rise along with your taxes. Meanwhile, you could expect cuts to the programs and government services you rely on.
John King, the CNN's national correspondent. John, President Obama says he wants a big deal on budgets and debt. He won the battle for public opinion. He won a second term while Congressional approval continues to be super low. Is there something more he could be doing to end the small thinking about big problems that has become the norm in our nation's capital?
JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Well, Christine, he still wants that grand bargain, he's been talking about for several years. But this past week he came out and said, we need another temporary fix. Look, the term sequester is essentially a fancy word for the President and Congress not doing their jobs. So, you just laid it out pretty clearly. They're supposed to pass the budget.
The President has even -- he is late submitting his own budget. So he's part of the problem, too. But he does have the upper hand in the public opinion right now. And the Republicans are very wary. They think the President just wants more revenue and modest cuts, but he won't do the big structural things to Medicare, to Social Security that are necessary for any part of grand bargain. So, now, at the moment, we're in this game of chicken.
And as you mentioned, there are lots of deadline coming up. But another thing is happening too if you talk to smart pollsters around the country, they say every time we do this, consumer confidence starts to go down and consumer confidence in decline would threaten already fragile recovery.
ROMANS: Oh, it's so irritating. The only time you really ever hear the word sequester outside of this crazy budget wonk conversation, is when it's a jury, when you sequester a jury, and John, when you sequester a jury, they're doing work. They're actually doing something.
KING: Then maybe we should sequester the Congress and the President.
ROMANS: Maybe we should. Maybe we should.
All right. A budget would address a lot of our problems here, right? But the last time Congress passed one of those, was April 29, 2009.
As chairman of the House Budget Committee, Jim Nussle, there he is, welcome. He guided six federal budgets through Congress. He also served as director of the office for managements and budget under President George W. Bush.
Congressman, from 2001 to 2007, you were the House Budget chairman. Today, that job belongs to Paul Ryan. So, the obvious question for you is, why were we able to get budgets done when you ran things and we can't do that anymore? Is this stalemate really about tax policy and spending cuts? Or is there some fundamental problems with our political leaders and how they're dealing with each other today?
JIM NUSSLE, FMR. DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET: This is totally about personal ability, Christine.
(LAUGHTER)
No, no, obviously, no, look.
ROMANS: And charm and good looks.
NUSSLE: Look, everybody wants to go to heaven, but nobody wants to die. I mean, that's what's going on here. The choices have not changed. The solutions to these challenges are still pretty much the same kinds of options that we faced earlier in this decade and for years to come. There are certain things you have to do with benefits, certain things you have to do with eligibility.
You can change formulas, but by and large you've got the choices that have remained for some time. They've gotten bigger, the problems have gotten and the ability to get out of this hole has gotten more steep. But really, it's a matter of people not wanting in Congress in this instance and with the President, to not want to make the tough choices that are getting tougher by the day. In order to get to that promised land of a reducing the debt and reducing the deficit.
ROMANS: You know, John, it might be quite frankly that he got a Dem because he's an Iowan and Iowans get things done. But we won't be phrasing Iowa the entire show. I got to sequester conspiracy theory for you, John. Both Republicans and Democrats are using these automatic cuts as cover. They pretend to disdain them, but Democrats are actually OK with $1.2 trillion in deficit reduction that does not touch Medicare, Medicaid and Social Security.
Meanwhile, Republicans are railing against slashing defense. But in the end, they've got a deal for the big cuts that they have long coveted. Both sides can claim it's the other side that's unreasonable and they get automatic cuts. Is this Oliver Stone stuff or am I on to something here?
KING: No, there are people in both parties who think a sequester just as they thought going off the fiscal cliff would be a good thing for them. There are a lot of Republicans who think the President is never going to budge and they also point to a lot of this newly elected Democrats. I'll give you one. The Massachusetts Senator Elizabeth Warren, she ran television ads, a lot of Democrats did saying, I will never cut Medicare.
Chairman Nussle knows you can't get this deal unless you have some call them reforms, call them programmatic savings, call them what you will, but there are cuts, there are big changes in the programs. So, you have people on the Left saying, we'll never do that and so they think if we have the sequester, we can blame the Republicans, because the Republicans are lower on the notch of public opinion right now.
Not that the Democrats in Congress are particularly high. The Republicans are a little bit lower. And there are some Republicans who say this is our only leverage over the president. Our only leverage is to have a calamity like this happen, so that he has to come to the table and cut a bargain. Is that a majority of opinion in both parties? Probably not. But are there strong opinions in both parties and let's do it and see what happens? Yes, there are.
ROMANS: Yes. Republican Senator Saxby Chambliss recently announced his retirement saying, quote, "This is about frustration, both at a lack of leadership from the White House and the dearth of meaningful action from Congress, especially on issues that are the foundation of our nation's economic health."
Now, Senator Chambliss broke with Grover Norquist's pledge signed by nearly all Congressional Republicans to never raise taxes. Chambliss said that, you know, he understands that sometimes higher taxes are appropriate. Congressman, I see a country that is not adding enough jobs, struggling for economic growth. Lagging in education, I'm not putting Saxby Chambliss on a pedestal here. But more has message as he heads out the door.
Are too many of our political leaders just too beholden to the extremes of their parties to be part of the solution?
NUSSLE: Yes. There's no question that that's the case. I think John hit it exactly right when he talked about Democrats being extremists on the point of entitlements, but Republicans are also being extremists when it comes to the tax code. Our tax code needs reform. And if you reform it in the right way, the economy can take off. That's certainty that can be there for small businesses and corporations that have $1.7 trillion of cash sitting on the sidelines right now.
Could go to investment in plant and equipment and job creation that would create taxpayers and that would bring revenue actually into the treasury if you did this right. So you know, even to those folks that are saying don't touch the tax code, I would say tax reform can actually increase the amount of revenue coming into Washington. And that's a good thing because it causes, because the economic growth is what's causing that.
So, I think both sides need to listen to one another a little bit more carefully. Talk with one another more often. And I think if they did that, people like Saxby would not be quite as frustrated. He's a good guy, he's somebody that wants to work with not only Republicans, but also Democrats. And we need more of those people.
ROMANS: All right. Gentlemen, thank you so much for joining me this weekend. John King and Jim Nussle. Nice to see both of you. Thanks.
Up next, do cuts equal crisis? Mandatory cuts are looming and they're coming to a government-funded program near you most likely if none of our current politicians will help us, maybe George Washington has the answer.
(COMMERCIAL BREAK)
ROMANS: Sequester, it's the second mini cliff that came out of the last-minute fiscal cliff deal at the end of last year. When Congress first agreed to that sequester as part of a deal to end the debt ceiling fight in 2011. It was considered to be such bad policy that it would have forced both parties to agree do a much smarter deficit reduction plan. Ha ha ha ha ha. That didn't happen.
They just extended the deadline from New Year's to March 1st. If Congress does nothing, a series of automatic across-the-board spending cuts takes effect. It will total $1.2 trillion over ten years. Hitting the defense budget along with things like education, aviation safety, the FDA, food inspections. Imports. Just about everything you can think of.
Take look at this. It would lower, the point is to lower our $16 trillion national det. But even the threat of lowering the debt is slowing our growth.
The commercial, the Commerce Department says, a large cut in federal spending, primarily in defense contributed to the economy shrinking in the last three months of 2012. The first time that it's happened, the economy that shrink into recession. This week, President Obama urged Congress to pass a short-term deal that puts off the cuts, basically buying time sometime to negotiate a big long-term deficit reduction plan.
But the president says, any deal should include more revenue. Which means ending some tax breaks and that angers some Republicans.
(BEGIN VIDEO CLIP)
REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: I don't like the sequester, I think it's taking a meat axe to our government, a meat axe to many programs and it will weaken our national defense. The Americans do not support sacrificing real spending cuts for more tax hikes.
(END VIDEO CLIP)
ROMANS: John Avlon is a CNN contributor and senior political columnist of The Daily Beast, economist Peter Morici is a professor of the international business at the University of Maryland, both friends of the show.
John, let me start with you. I can remember being here with you in the final days, the days following the New Year's fiscal cliff punt. You had some optimism but a new Congress would make a difference. Do you see any signs to the end of the Congressional malpractice that brought us here?
JOHN AVLON, CNN CONTRIBUTOR: I wish I could say yes. I mean look, you know, nothing focuses the mind like the prospect of hanging. In this date, they just kicked the hanging date to March 1st. There's still a pervasive denial. And Republicans are saying, we hate the sequester but maybe we could just take the defense, you know, cuts off the table. That denies the painful reality that was supposed to compel the action in the first place, which there was broad-based pain. Everyone would have to give a little bit.
This is such a dumb, self-inflicted problem. And yet, the real resolve to get something done, a grand bargain, doesn't exist. You know, when the President talks about closing loopholes, that should be consistent with tax reform, simplifying the system. But no, it's cast as a tax hike by Republicans, and Democrats still seem total in denial about the real nature of the problem, which is entitlements, that's what's really driving long-term debt.
ROMANS: And so, we're basically exactly where we were in August of 2011. Basically, we're right where we were with no resolution.
Peter, I want you to listen to New York Democrat Jerrold Nadler who articulates a lot of the I guess, fear, so many have as the sequester deadline looms.
(BEGIN VIDEO CLIP)
REP. JERROLD NADLER (D), NEW YORK: CBO says that the sequester would cut economic growth by one-in-a-quarter percent which means cut it in a half, cut our economic growth in half, that would cause us almost a million jobs. At a time when we see the result of this kind of stupidity in Europe.
(END VIDEO CLIP)
ROMANS: Peter, are you buying into the nightmare scenario there?
PETER MORICI, PROFESSOR UNIVERSITY OF MARYLAND SCHOOL OF BUSINESS: Well, no, I'm not buying into the nightmare scenario. Certainly, a sequester would reduce aggregate demand. However, a lot of things are hurting the economy right now and if we have a recession, it won't be because the sequester, it will be because of a variety of factors. You know, the tax hikes and the inability to deal with a lot of the structural problems in the economy ranging from banking to health care to trade.
ROMANS: Did you just say, if we have a recession, I can't even believe we're having this conversation? If we have a recession again, it actually turned my blood cold.
MORICI: Well, look at the growth rate. I mean, in the last quarter, we contracted. And the prospects for this quarter are very low rate of growth. You know, when you're growing at one percent, it doesn't take much to tip the economy into a recession. Sequester probably isn't enough to do that. Because the spending cuts won't bite soon enough.
However sequester really has profound consequences in the next fiscal year. You know, this year, you can postpone, you know, painting the buildings a bit and things like that. But think about readiness in the marines if this goes on another year, there's just a lot of things that you can postpone for six months. But then things get nasty.
ROMANS: All right. John, you sent me a quote from President George Washington, I want to read it to you. This is the Washington quote. "In his farewell address he wrote, it is essential that you should practically bear in mind that toward the payment of debts there must be revenue. That to have revenue, there must be taxes."
Now, stop laughing guys, he also warns that racking up debt in times of peace should be avoided. This seems so simple.
AVLON: Absolutely.
ROMANS: When did America get so far away, John Avlon from its principles?
AVLON: When did Math start getting partisan? I mean, this is, you know, radical common sense from the nation's founding father. There's certain universal principles, you know, a nation should spend more than it takes in. That excessive public debt takes brings down empires, it takes down civilization. That's why this stuff matters so much. And of course, you need economic growth.
But the fact of this is a self inflicted problems were facing, the fact that our Congress is probably been the greatest impediment to a full-fledged economic recovery, that should be a wake-up call. This is at the end of the day a crisis of self government were facing.
MORICI: I think you're putting too much blame on Congress, I think there's shared blame up and down Pennsylvania Avenue. The President has really been unwilling to recognize the need to cut entitlements, even a neutral paper like the "Washington Post" had called him on that. On the other hand, some of the spending cuts Republicans do propose in the House of Representatives are absolutely comical.
You know, reforming health care by giving grandma vouchers to negotiate with Aetna is absolutely absurd. The reality side is neither side wants to embrace the fundamentals reforms that are necessary for example to address health care. We're probably going to have their price controls, the way they do in Europe if we're ever going to get health care spending under control. No matter how we decide who gets health care and how much. And no one wants to embrace that.
Well, you know, the reason why is because Americans would have to take sacrifice and no one is going to tell people. Look, here is the better medicine, you have to take it, you know, you have to take it.
And you say, you know, the blame isn't just Congress, it's all up and down Pennsylvania Avenue. I mean, could you argue John Avlon, that it's all across the country because we don't elect people who don't give us stuff.
AVLON: I think that's the key point. We keep getting in a mindset where, you know, we've paid in but we want do get more back than we actually paid for. This is a basic compact that we have violated.
MORICI: That's right.
AVLON: Which is that your rights and responsibilities are balanced. You should get back what you pay in. I mean, until we start getting that reality check and taking real responsibility ourselves, we're going to have this fundamental problem. Look, State of the Union is Tuesday, so I'll keep hope alive for another few days. If the President can really lead and pull a Nixon in China on entitlement reform, maybe that can start to change the long-term tied. The deficit is improving right now. The debt, the long-term debt, that is the real problem.
ROMANS: All right. Peter Morici, John Avlon, great to see you guys, thanks so much, have a great weekend.
Of all the things our government spends money on. What do you think is the most expensive? The answer wasn't the same case 50 years ago, I'll tell you, when we come back.
(COMMERCIAL BREAK) ROMANS: Budgets, sequester cuts, debt ceilings, everything we've been talking about comes down to government spending. Over the last 50 years, the U.S. government has gone from one that invests in the future to one that fuels consumption. The amount of money the U.S. government spends on entitlements has risen from one-third to two- thirds of all government spending over the past 50 years. Going from millions of dollars to trillions of dollars and the percentage of people receiving benefits has skyrocketed.
Today, about half of American households receive some kind of government benefit in the form of Medicare and Social Security. Medicaid, unemployment insurance as well as other transfer payments as they call it in Washington speak. A transfer payment is a term economists use to describe money moved by the government from one taxpayer to another. The intentions are good.
These are deserving causes that help real people in need many times. But the return taxpayers get on their money is falling. It's money not spent on things like rebuilding bridges, our electrical grid and other infrastructure projects, education, research, other valuable investments that would set our economy up for future growth. We need to rethink our government the way we spend our money.
I want to bring in Jonathan Last, Jonathan is the author of "What to Expect When No One's Expecting." America's coming demographic disaster.
Jonathan, if this trend continues and we can't afford to spend on investment, then what happens?
JONATHAN LAST, AUTHOR, "WHAT TO EXPECT WHEN NO ONE'S EXPECTING": Well, what happens is what we've seen in Japan, right? In the 1980s, Japan was an economic colossus. We were all going to have to learn how to speak Japanese. But Japan's demographers were warning them that their demographic base just couldn't support their economic growth. It turned up, they were right. In the 1990s, they ran into this demographic wall, they've experienced what we thought was a lost decade. They're still mired into it now, 23 years later. And this what demographics went to looks line.
ROMANS: Let me ask you about the Demographics. So, demographics magnifying Washington politics right now do you think? Or complicating it.
LAST: Magnifying it. You know, I mean, look, Washington politics have been dysfunctional and broken since the beginning. You know, the system we have is the least worst of all the other systems. But what happens is, you know, we've seen the work of Bill Bishop in the The Big Sort. People are sorting themselves out by demographics, they're sorting people who have children tend to coagulate in places, people who don't have children tend to coagulate in other places. We've seen an increase in what's bishop called landslide counties. In this point, meaning, we have more polarized in the aggregate, even the one at the individual level, we're still the same people we've always been. ROMANS: Let's bring in Ron Brownstein, CNN's senior political analyst, editorial director at the "National Journal." Ron, we've become a nation of takers, have we or something else going on here?
RON BROWNSTEIN, CNN SENIOR POLITICAL ANALYST: No, I think something else is going on. I mean, the basic challenge we have is exactly what you phrased. I mean, if you go back to 1969, one-third of federal expenditures, one-third was classified as investments in the future, R&D, education, infrastructure. One-third was payments to individuals. Today, 62 percent is payments to individuals, 16 percent is investment.
One has doubled, one has fallen and half. And the long-term stress here is really unmistakable. The number of seniors in the society is projected to double over the next 30 years, by definition that's going to mean that government is going to consume a larger share of the economy than it has historically. I think that's something that conservatives are going to have to accept.
But what I think Liberals will have to accept is that unless you put some constraint on these entitlements programs, given that demographic pressure, there's not going to be money left for any of the other things you want to do, particularly these investments in the future and ultimately, no society I think can survive if it is spending, it's tilting its resources so much toward the current generation and stinting future generations.
ROMANS: But that can also be directed -- generational warfare, you know, we're paying the old people and we're starving the young people. The young people have to have investments in their generation because they need to make money so they can continue the cycle.
LAST: Right. There is a problem with having a sub replacement fertility rate which is where we've been in America since 1973.
ROMANS: I'm not there, you're not there, right? Are you there? OK.
LAST: So, this table is pretty good. But the problem is that once you're not growing your population base, you wind up in a zero sum gain. This is where, you know, this is where the generational warfare comes into account. Look at Japan, just last week, the finance minister in Japan said that it was time for Japanese old people to hurry up and die, that's what it's look like. It's really out there.
BROWNSTEIN: Yes. Politically by the way, the question I think is often asked the wrong way. People asked, will the millennial generation pay for the baby boom as they retire? We're they be willing to do that? The answer overwhelmingly is yes. I mean, in polling, I mean, young people are showing substantial, surprising degree of willingness to fund a decent retirement for older generations.
The question is more of the opposite. I mean, you're seeing more of kind of older Americans, particularly older white Americans moving toward a skeptical view of government and government spending and whether they are willing to make the investments, as you correctly point out, if you don't move more of these young people, which is heavily nonwhite generation.
Half of Americans under 18 will be nonwhite within this decade, if we don't succeed in moving more of them into the middle class, there's going to be nobody to pay their payroll taxes, to fund Social Security and Medicare for this aging baby boomers, which are currently becoming very skeptical of investment in that younger generation.
ROMANS: In Russia, what they're doing to incentivize birth, I also want to talk about immigration reform and whether immigration reform could be a key here to all of this demographic issues. Don't go away because we're going to continue talking about it. Here we go.
Bottom line, Americans aren't having enough babies and that's wreaking havoc on the country's finances, we'll be back in three minutes.
(COMMERCIAL BREAK)
ROMANS: America has a baby problem and it's getting bigger, not the baby, the problem, on average American women need to have 2.1 children in order for the overall population to stay stable. The number of children per woman started falling in the 1800s, it spiked up after World War II, the so-called baby boom, but it's been going down since then.
That means America's population is getting older. That means Washington's priorities are changing to match America's demographics. More money spent on health care and retirement programs, and a reduced focus on investing for the future.
Let's continue our conversation with Jonathan Last and Ron Brownstein. Jonathan is the author of "What to Expect When No One's Expecting: America's Coming Demographic Disaster," and really a hell of a book title. And Ron is CNN senior political analyst and editorial director at the National Journal.
So Jonathan, you know I like kids, you like kids, together around this table I think we do have population replacement. But why aren't most people having more kids?
LAST: This is the big question, and it's global now, there's a global phenomenon. 97 percent of the world's population lives in a country where the fertility rate is falling. But what we see in America is there is a big gap between the families people say they want to have and the families they do. The ideal fertility, that is a measure demographers use to see how many people, how many kids people would have in a perfect world, it has been constant for 40 years at 2.5. The fact that there is this big chasm between our achieved fertility and our ideal fertility suggests that what we've got is we've got these cultural and economic roadblocks that have popped up in a way of you know, pretty consistent desires.
ROMANS: Like what? LAST: Like college, for instance, college is a great example of this. College costs have increased by 1,000 percent in real dollars since 1965.
ROMANS: So kids are expensive, in other words.
LAST: Kids are expensive, but also, it delays family formation. If you don't get out of college until you are 22, maybe get a graduate degree at 24, it sort of backs your whole life up. And so you know, maybe you are starting your family at 30, you're not able to achieve the family size you want.
BROWNSTEIN: Also, I wonder to what extent this is part of it -- we doubled the median income -- excuse me -- between 1947 and 1973. And since 1973--
ROMANS: How did we do that?
BROWNSTEIN: And since 1973, it has been largely stagnant for many workers, you know.
LAST: That's a great point.
(CROSSTALK)
ROMANS: But it's stagnant with two incomes to need to work -- to try to (inaudible), two people have got to work.
BROWNSTEIN: Right, but '47 to '73, it grew, you know, it grew steadily across the income distribution. I think it was easier for people to feel they had the resources, because as you say, it is expensive, and we're also seeing a widening separation, we're talking about college. If your parents graduated from college, you are today five times more likely to graduate yourself than if your parents were not. So you know, the way in which our ladders of opportunity kind of reinforce rather than tear down social stratification, also, all of this I think does kind of fit in.
LAST: But as you know, there's also, there's a cultural thing going on that goes way beyond our society.
ROMANS: As societies get more money and they can raise their standard of living, they want fewer children. Is that universal?
LAST: Yes. And one thing you see is children become sort of a marker of social failure. And you go up the socioeconomic scale right now--
ROMANS: I call them my cost centers, not a failure, but--
LAST: The people at the highest end have the fewest children, and to a large extent, maybe they're doing better because they're not spending the $1.1 million it takes to raise a kid right now in middle America.
ROMANS: I think as you look at Putin in Russia, right, aren't they incentivizing people to have kids? Should we be doing that in the United States? We already do give people tax breaks for kids. Should we be doing that?
LAST: You know, there's a lot of research on this. There are both conservative and liberal pro-natalist (ph) policies. And the research suggests that both policies are effective at best at the margins. You get about a 0.5 percent increase in your fertility rate for every 25 percent increase in government spending.
BROWNSTEIN: Let's understand, there's a significant racial and cultural dimension to this as well. We passed a tipping point in the last year. A majority of newborns for the first time were nonwhite. As I mentioned, 47 percent of Americans under 18 today are nonwhite. In this decade we will have majority-minority in the under 18 population and in the K-12 population at a time when our older population is still preponderantly white. And finding ways to kind of reconcile the interests of these two generations, what I've called the brown and the gray, is a structural political challenge we face in the decades ahead.
ROMANS: There's sort of this common I guess conventional wisdom that immigrants have more kids than native-born Americans, and that the future for us is going to be in more immigration, bringing people in, they're going to have more kids, that's going to be pay into Social Security, but it's not quite that simple, is it?
LAST: No, it's not. For one thing, immigrants come here having more kids, but they regress to the mean at an incredibly fast rate. If you look at the fertility decline, the dx/dt, the slope of the curve for newly arrived immigrants, it's much faster than it is for native fertility declines, but then there's a supply aspect to immigration as well. Fertility rates are falling in Central and South America. Within 20 years, all of those countries will be below the replacement level as well. Historically, subreplacement countries don't send immigrants out into the world. We may not be able to get any more immigrants, regardless of what we do here politically.
ROMANS: Huh. Can I ask you about China? Because this is a country that for years, you know, tried to limit its population. Now, I mean in the sort of new world, what does it mean for China?
LAST: What it means for China is they're going to have about 300 million people over the age of 65, and no way to support them.
There are no government programs, there are no kids to support the people who didn't have children. It is what demographer Nicky Berstadt (ph) calls a slow-rolling humanitarian disaster. And this kind of thing is -- you know, traditionally we think of China as a strategic competitor in terms of military. I actually think that the challenge China presents is very different. And that is we should be wary about managing the sudden decline and sudden internal combustion of China.
ROMANS: Politics of all this. We're doing debt ceiling, we're doing the sequester, we're trying to get a budget, and we have a Washington that's really focused as you point out on the gray, not necessarily on the young generation that needs investment.
BROWNSTEIN: Well, part of what makes it so challenging is that the two coalitions now largely overlap. At the heart of the Republican coalition is now older white voters. Over three-fifths of whites over 45 voted for Mitt Romney. The heart of the Democratic coalition is younger, and nonwhite voters. 28 percent of the population that was minority, the 19 percent overlapping that was part of the millennial generation. If you look at the House -- we talked about the sorting, the big story that Bill Bishop (ph) wrote about. Very different, the constituency is 80 percent of the Republicans are in districts that are more white than the national average; two-thirds of the Democrats are in districts in the House that are more nonwhite than the national average.
So the challenge is finding a way to kind of reconcile the interests of these very different coalitions around what I think is correct, that there is a common interest here, that ultimately that unless we do a better job of getting more of these young people into the middle class, there is no one to create the tax base to kind of support what is inexorably a growing senior population.
Our politics doesn't really allow for that expression now of that common interest. They're kind of fighting between tax cuts and spending cuts, but in the long run, ultimately we're all in this together.
ROMANS: Ron Brownstein and Jonathan Last, thanks, guys.
BROWNSTEIN: Thank you.
ROMANS: Coming up, stocks are within striking distance of an all-time high, and you're still deciding whether to jump in. Should you buy stocks now or will this be the first bubble that could burst? Find out next.
(COMMERCIAL BREAK)
ROMANS: Stocks are on a tear, and the individual investor may finally be convinced. After yanking $150 billion out of stocks last year, cash has come pouring back into U.S. equities. Remember that old saying from mom, if your friends are going to do it, are you going to do it, too? Well, suddenly, individuals are racing after their friends to get into the stock market. What would mom say?
(BEGIN VIDEOTAPE)
(MUSIC, "1999")
ROMANS: Prince had it right, 1999 was quite a party for the stock market. But a year later, it crashed. Wiping out trillions in wealth. Recalling this warning from the maestro.
ALAN GREENSPAN, FORMER FED CHAIRMAN: How do we know when irrational exuberance has unduly escalated asset values?
ROMANS: Translation -- a bubble. It looks so obvious after it pops. Is it happening again? Four years into this bull market, record cash flowed into the stock market in January. It's a running of the bulls. Either that, or investors are late to the party.
Getting in now goes against that legendary advice from Warren Buffett, when they all zig, you should zag.
WARREN BUFFETT: Be greedy when others are fearful. And you want to be fearful when others are greedy.
ROMANS: There is more greed here than fear.
MARK NEWTON, GREYWOLF CHIEF TECHNICAL ANALYST: In my view, it's a correction waiting to happen. I don't think it's real.
ROMANS: Real or not, the S&P 500 has doubled since the lows in 2009. Companies are flush. Profits are growing. And there's this guy.
BARRY RITHOLTZ, CEO, FUSION IQ: If the Fed wasn't doing quantitative easing, the markets would easily be 20 to 30 percent lower than where they are today.
ROMANS: With apologies to the little rascals, it's baby Ben, throwing money into the economy, $85 billion a month with no end in sight. But does that mean you should jump in?
LEE MUNSON, FOUNDER, CEO, PORTFOLIO: You always have to step back. Why are we investing in stocks or investing in bonds? It has to fit your own personal situation. And until we do that, I don't think anybody should be really investing in anything.
ROMANS: Will stocks keep going higher? If I knew that, I'd be on a Caribbean island.
The better question -- do you have a plan?
RYAN MACK, PRES., OPTIMUM CAPITAL MANAGEMENT: If you have a financial goal of buying a house or starting a business in the next year, this is not your time to use the stock market as a gamble.
MUNSON: This is the perfect time to surrender to a financial plan. You've got it in -- you've got the fundamentals and you've got Uncle Ben pumping billions into the system.
(END VIDEOTAPE)
ROMANS: All right, making it even more tempting to jump in now, the last stages of a bull run historically serve up the best returns. But how do you know you're in the final stages and when it's going to be over?
Stephen Leeb is chairman and chief investment officer of Leeb Capital Management. And Stephen, this caught my attention this week. Last week, insiders were nine times more likely to sell the shares of their companies than to buy new ones. New shares. That's the highest level of insider selling since March 2012. Is that a flashing sell signal? Or is that perfectly natural because you've seen a big run- up? If you're smart money, you say I'm going to take a little off the table.
STEPHEN LEEB, CHAIRMAN & CEO, LEEB CAPITAL MANAGEMENT: I think it's natural, Christine, and if you look at March 2012 to where we are right now, we're higher. So I mean, we may have gone down a little bit after March 2012, but we're still higher. I mean, and the thing is, you do see a lot of skepticism out there, and for good reasons.
ROMANS: What?
LEEB: Well, what's going on in the government. For instance --
ROMANS: Oh, there's nothing going on in the government, that's the problem.
(LAUGHTER)
LEEB: That is the problem. Democrats and Republicans, this and that. But basically, I mean, if you look at the history of markets, OK, you really don't get serious corrections, anything much more than 10 or 15 percent, unless you have a real spike in something, unless there's something that drives it. Even in 2011 and 2010 and 2011, you had big upticks in oil prices. Admittedly, they came from very low levels, but you still had oil prices going up 80, 90 percent, year over year, and if you look at the history of our markets, since the early 1970s, you really don't have major, major market corrections unless oil prices spike.
ROMANS: Oil prices are moving higher, aren't they?
LEEB: They are, they are.
ROMANS: That's a risk for you.
LEEB: So that's the temperature of the market right now. But according to history, unless you see oil prices go up a lot, like in 2012 -- this is an amazing statistic to me -- 2012, no growth in the developed world, oil prices on average hit record levels. If you take the average, you know, average for the entire year.
But it was a very, very gradual increase. Now it's picking up steam. I'll give you a number. I mean, because an investor is (ph) a number. Unless you see oil over 150, and I'm talking about brent oil.
ROMANS: Brent crude.
LEEB: And if you saw WTI, the oil in this country around 135, 140, I think the market is still good.
ROMANS: But there is also an old saying on Wall Street, it's a market of stocks, not a stock market. And I think that really is true here as well, because there will be some rotation between sectors as people look for the next leg up. So where are the good values?
LEEB: I think you could actually find good values in a lot of places. You know, one thing that people don't realize, if you put your money in the bank today, what are you getting, 1 percent on short-term?
ROMANS: If you're lucky.
LEEB: OK. If you buy Wells-Fargo, you had Warren Buffett on there. If you buy Wells-Fargo, which is the biggest mortgage lender in the country, in the world, you're getting a stock that's going to pay you nearly 3 percent.
ROMANS: That's the dividend yield.
LEEB: Right.
ROMANS: So just for owning that stock, the company every quarter is going to give you money back.
LEEB: And continue to raise their dividend unless something really terrible happens in the economy.
But something terrible did happen in the economy, and Wells-Fargo managed to strengthen their position.
Alan Greenspan was on. You quoted him, irrational exuberance, well-known quote. When he made that quote, I'm guessing stocks were trading, tech stocks on average were maybe 35 times earnings. Today, the best tech stock around, maybe Google, I mean it's certainly a good one, and they dominate mobile, they dominate searches. They -- driverless car, you name it. They're running on all cylinders, no pun intended. They're trading at about 16 times forward earnings. Half the P/E when former Fed Chairman Greenspan, I want to repress his name, I do. Because --
ROMANS: You can just call him the maestro.
(CROSSTALK)
(LAUGHTER)
LEEB: When he said irrational exuberance, Google with a P/E of today would have been a cheap stock in that kind of market. Now it's about the most expensive tech stock out there, and it's not expensive, it really isn't.
ROMANS: Thank you, Stephen.
Taking a break from Facebook. A new study suggests Americans are getting tired of the social network. What that means for the stock, next.
(COMMERCIAL BREAK)
ROMANS: If the stock market were a popularity contest, there would be some pretty clear winners. Apple, Google, Coca-Cola, McDonald's and of course Facebook to name a few. But as we know, that's not how things are supposed to work. Stocks are a bet on the future profitability of a company, not its popularity. But for a while there, Facebook's prospects looked pretty good, didn't they? That stock shot up 50 percent over the past three months. In the last month, the Facebook like parade petered out. The company reported better than expected profits and sales in its earnings report at the end of January, but it also -- it also reported higher expenses, and said it would be spending a lot more money in the next year to hire people and build more features.
That makes sense, Facebook is a young company that needs to keep growing and finding ways to make money off of you, its 618 million active users. Trouble is, there seems to be a little Facebook fatigue settling in with some of those users. CNN's Alison Kosik has the story.
(BEGIN VIDEOTAPE)
UNIDENTIFIED FEMALE: I've considered I need to take a break from this. It's taking up too much time.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: She's talking not about TV nor online shopping. But about Facebook. And she's not alone. According to the Pew Research Center, more than 60 percent of Facebook users have decided to take a break from the social network, sometimes for weeks at a time. And during the Super Bowl, Americans seemed to turn more to Twitter, blowing it up with tweets about the commercials, the blackouts, the Harbaughs.
So is Facebook fatigue setting in? Not according to a group of college students we spoke to at New York University.
UNIDENTIFIED FEMALE: I think it's kind of the standard.
UNIDENTIFIED MALE: I find it easier to coordinate events. And also, you get a lot more information about your friends.
UNIDENTIFIED MALE: I'm really addicted. Sometimes like I wake up in the middle of the night with my phone plastered to my face, because I go to sleep like on it.
KOSIK: Despite its popularity, with more than 600 million active users, the company has lost value since going public. Facebook debuted in May at $38 a share, tumbled almost immediately, and hasn't fully recovered.
KEN SENA, EVERCORE PARTNERS: I think that it caught investors by surprise to think that Facebook really didn't necessarily have sort of a clear monetization path when they went public. Not just in terms of the advertising, but also on the sort of payment side, virtual goods and so forth.
KOSIK: Founder Mark Zuckerberg says recent numbers have been better than expected and is confident about expanding Facebook's audience. But one of the company's biggest challenges has been how to make money off its mobile users, a group growing by the hour. Just last month, the number of people checking Facebook on mobile devices topped the number checking the site on the web. But mobile ads are cheaper, and fewer people click on them. Facebook has rolled out new features like Graph Search and Facebook Gifts. But Zuckerberg said he wants to temper expectations for the new additions.
SENA: I think it's important for them to be able to sort of, you know, evolve the experience from something where they're trying to push and create demand to one where they're trying to satisfy demand for their existing user base.
KOSIK: Revenue concerns aside, Facebook still has a lot going for it. It's unique. It's ubiquitous. And it's only nine years old. Alison Kosik, CNN, New York.
(END VIDEOTAPE)
ROMANS: For the first time in its history, Facebook reported that more of its users visited the site on their mobile devices. Mark Zuckerberg knows that his company is becoming more of a mobile company, but you know, competition is tough there. LinkedIn, the social media network geared specifically for job seekers and those looking to hire, it could be seen as Facebook's closest competitor. The Silicon Valley neighbor is growing at a furious pace, making most of its money from selling information to head hunters and companies instead of ads that users might rather avoid.
State of the Union this Tuesday. The more things change, the more they stay the same.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Much remains for us to master. In some areas, the jobless rate is still three or four times the national average.
(END VIDEO CLIP)
ROMANS: We look at the state of your union, next.
(COMMERCIAL BREAK)
ROMANS: President Obama will address Congress and the nation on Tuesday night, the first State of the Union of his second term. Cue the applause.
(APPLAUSE)
ROMANS: He won't be able to please everyone in Washington, of course, but this speech isn't for them, it's for you. What presidents try to do is show the state of your union through the state of your job.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Help for small business means jobs for Americans.
BILL CLINTON, PRESIDENT OF THE UNITED STATES: Persistent unemployment and underemployment.
GEORGE H.W. BUSH, PRESIDENT OF THE UNITED STATES: Create new jobs.
RONALD REAGAN, PRESIDENT OF THE UNITED STATES: The ladder of opportunity to full employment.
(END VIDEO CLIP)
ROMANS: So how did this president do? President Obama stopped the slide, but jobs are slow to come back. If you have a job, you're working harder, your productivity is up, and America's output, it has risen, but what's not rising, your paycheck. Wages are stagnant. In fact, you're probably making less money this year because payroll taxes are up. The typical American will take home about $1,000 less in 2013.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The only way this century will be another American century is if we confront at last the price of our dependence on oil.
(END VIDEO CLIP)
ROMANS: And nowhere do you feel that price more than when you fill up your car. Gas prices are back above $3.50 a gallon, and frankly they are showing no signs of letting up. But hey, if the state of your union depends on the state of your stock portfolio, well, this president gets a pretty good grade, doesn't he? The man derided by his critics as a socialist and an enemy of Wall Street -- look at the Dow since he took office. Up 70 percent in just four years. That rally probably looks good in your 401(k)s and IRAs.
I always say presidents get too much credit and too much blame for the economy and stocks. In this case, we need to look, I don't know, down Constitution Avenue to the Fed. By pumping money into the market and keeping rates row, investors are enjoying a rush into riskier assets like stocks. The downside is, those low interest rates mean savers earn next to nothing on their money. So in 2013, the state of your union might seem complicated, but the state of the union is all about simple solutions.
(BEGIN VIDEO CLIP)
GERALD FORD, PRESIDENT OF THE UNITED STATES: Let us mobilize the most powerful and most creative industrial nation that ever existed on this earth to put all our people to work.
(END VIDEO CLIP)
ROMANS: That's a pretty good goal for any president.
Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday, 1:00 p.m. Eastern, Sunday at 3:00. Weekdays, you can find Ali at 3:30. You can find me on Twitter. My handle is @christineromans. And of course, Ali will be back next week. He's off covering the storm this weekend. Until then, you can find him on Facebook, and Twitter. Have a great weekend.
