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THE SITUATION ROOM

Budget Battle; Supreme Court Examines Voting Rights Act; Flexibility for Obama on Cuts?; Was Coast Guard Hoaxed by Distress Call?; Deadliest Balloon Crash in 20 Years

Aired February 26, 2013 - 17:59   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


WOLF BLITZER, CNN HOST: And happening now, fighting words from the president of the United States. Is he overplaying his warnings about those forced budget cuts?

A blizzard double whammy. The snow misery now and the worries that this winter will get even worse.

High court suspense. Why a landmark law from the civil rights era could be gutted.

Boating mystery. Did the Coast Guard respond to another hoax?

And a balloon disaster. We have new video of the deadly explosion and new fears about balloon safety.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER (R), HOUSE SPEAKER: We have moved a bill in the House twice. We should not have to move a third bill before the Senate gets off their ass and begins to do something.

(END VIDEO CLIP)

BLITZER: That's the House speaker, John Boehner, helping -- helping to set the tone for the next three days of spin and blame until that budget ax falls. President Obama isn't holding back either. He went to a naval shipyard in Virginia to renew his warnings about the impact of those forced spending cuts. He's now back at the White House.

Our chief White House correspondent, Jessica Yellin, is there as well with more on what is going on -- Jessica.

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: Wolf, senior administration officials tell me, they're beginning to see cracks in Republican's unified position, that they want those forced spending cuts to go into effect on Friday as is. But the truth is, those cracks are few and Friday's deadline is approaching quickly.

(BEGIN VIDEOTAPE)

YELLIN (voice-over): At a shipyard near the largest naval base in the world, President Obama fired a warning shot.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: This work, along with hundreds of thousands of jobs, are currently in jeopardy because of politics in Washington.

YELLIN: The 21,000 workers at this massive plant could suffer if Congress doesn't cut a deal to avoid the forced spending cuts that trigger this Friday. Mr. Obama says a slowdown here could have ripple effects across the economy. Virginia residents are worried and angry at both Democrats and Republicans.

ZEUS ANG, SMALL BUSINESS OWNER: We just don't have is a voice with the government anymore.

UNIDENTIFIED MALE: Set your ideological differences aside and get to creating jobs. You're about to destroy a whole bunch of people here.

YELLIN: According to the Obama administration, most Americans will not feel the effects of the forced spending cuts right away. Polling shows that while 60 percent of Americans say they believe the cuts will have a major impact on the overall economy, only 30 percent believe it will hit them in their own pocketbook.

In Washington, insiders are convinced the American people will have to suffer a while before leaders will negotiate. In the meantime, the spin game is on. Insisting he's above politics...

OBAMA: I'm not interested in playing a blame game. At this point, all I'm interested in is just solving problems.

YELLIN: ... President Obama then accused the GOP of standing in the way.

OBAMA: But I just have to be honest with you. There are two many Republicans in Congress right now who refuse to compromise even an inch.

YELLIN: On Capitol Hill, you would have to rate the Republican leaders' words PG-13.

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: We have moved the bill in the House twice. We should not have to move a third bill before the Senate gets off their ass and begins to do something.

YELLIN: The Senate's Democratic leader fired back.

SEN. HARRY REID (D-NV), MAJORITY LEADER: You know, I was raised in a little town that had 13 brothels in it, so I'm used to some pretty salty language, as you know. I think he should understand who is sitting on their posterior. We're doing our best here to pass something. The speaker is doing nothing to try to pass anything over there.

(END VIDEOTAPE) YELLIN: Now, Wolf, I spoke to senior administration officials earlier who pointed in specific to Republican Senator Lindsey Graham's interview with you yesterday in which Senator Graham said that he would be willing to talk about some sort of compromise deal to avoid these forced spending cuts.

But let's get real. Senator Graham is just one Republican who hardly speaks for the whole party and he has since come and gone from the White House -- he had a meeting here earlier this afternoon -- without mentioning that offer again -- Wolf.

BLITZER: Well, would the White House technically, theoretically be open to that so-called grand bargain, major tax reform in exchange for major entitlement reform?

YELLIN: Absolutely.

And officials here have said they have put something on the table that's very similar to that and they'd be open to discussing exactly what Senator Graham has proposed.

The problem is, as you and I can acknowledge, he is one senator, and you would need many more than that to get this done, 60 to be specific.

BLITZER: Sounds like a reasonable idea to me. Just let the negotiations begin. The country wants them.

Thanks very much for that, Jessica.

Kate Bolduan is here, and she's watching what's going on.

A lot of tough talk, a lot of hype, dire warnings, and we're trying to figure it all out.

KATE BOLDUAN, CNN ANCHOR: Yes, and especially with this debate, Wolf. And I think you would agree, so many around the country, they're really not sure who to believe or what to believe when it comes to these forced budget cuts.

We're trying to cut through the spin about these cuts and figure out the reality.

Our Tom Foreman is at the magic wall.

Tough assignment, Tom. It's really tough to figure out fact from fiction.

(CROSSTALK)

TOM FOREMAN, CNN CORRESPONDENT: Well, it really is, because you're talking about such huge systems here.

If you were listen to only the White House, you would have the sense you were going through a sequestration nation pretty soon and that everything would hit in all these different areas, food safety, education and our tax returns, our national parks, everything. And this seems to be true. If you are the right person doing the right thing, you, in fact, may see an effect here.

For example, if you are in a military town, and you rely on military business, you might see an impact fairly soon. If you're at the airport waiting for the right flight at the right busy time, you might have a delay. If you're waiting on unemployment benefits and the check comes in lighter than you would expect, that would also be a real effect on you fairly soon.

But notice I'm talking about specific groups of people doing specific things. The broader picture of the whole country may be different. And to address that, I want to talk about one of the hottest things that came up today, Eric Holder speaking up. And he has this point to say in the middle of today where he said, look, we will be less safe if our budget at Justice is cut next year from $27 billion by $1.6 billion to $25.4 billion.

If this cut happens, the nation will be less safe. These are his words. And this is why he says that. Because he says, there will be furloughs at the FBI, we will have fewer people looking into crimes and trying to prevent crimes. ATF inspections, things like gun permits and all of that will be knocked down a little bit. There will fewer people to man the prisons. So, prisons will spend time more time on lockdown, there will be fewer grants for local law enforcement.

All of these this will make things less safe in the country, according to him. The question is, we're talking about people suffering out there, voters suffering. Will people notice this? If you're not the person furloughed, will you know in your community the FBI is not there? Will you know that you spent an extra 20 minutes doing something that might have taken 10 minutes? I don't really know, Kate.

That's really the question.

BOLDUAN: And there still are so many questions. But, Tom, you know that some Republicans, many Republicans are really pushing back saying that all of that is just a scare tactic. What have you found out?

FOREMAN: I will say this. This is important to bear in mind.

Think about the statement. This is a very broad statement that sounds like scary words. I don't really know what it is he wants to do or whether or not, when he says less safe, if he means to scare people. I can't question his motives. But I can question his math.

This is the budget if he gets the sequester, $25.4 billion for next year. That's how much he would get. But look at this. This is a graph of funding for the Justice Department for the last 11 years. And if you will notice, when you look at this graph, in fact, that line would be right about here. So, in fact, for the past 11 years, only the past three years has the Justice Department had more money than they would have under the sequester. So does that mean that all these years, we were less safe when the national crime rate was steadily moving down during that period of time? These are the tough challenges out there, because in many ways, as Democrats in the White House say, all these cataclysmic things are going to hit if the sequester comes in.

I think Republicans may be betting on the idea that if a few weeks pass, a couple months pass, and the public doesn't notice it because of things like this, then they're going to be able to turn around at the White House and say, you were just trying to scare us. You said a lot of things, and we haven't seen it come to pass.

BOLDUAN: Those numbers, they sure can be mind-numbing, but they're so important for everyone to understand and see. Wolf pointed out there are still a lot of politics at play. Tom, great job on that.

Ahead, we're going to take another hard look at what will really happen when those budget cuts take effect. Two economic experts, Stephen Moore and Steven Rattner, are standing by for a very good debate.

BLITZER: This hour, it will be an excellent debate.

Much more other news we're following as well, including a record- breaking, bone-chilling, paralyzing winter weather system. That blizzard that hammered the Texas Panhandle is on the move right now. It could dump 18 inches of snow in parts of the Midwest. More than 45 million people are under at least some kind of winter weather watch, from Oklahoma all the way to Michigan.

CNN's George Howell is right in the thick of things. He's in Kansas City right now, Kansas City, Missouri. What's going on?

GEORGE HOWELL, CNN CORRESPONDENT: Wolf, look, we're talking snow on top of snow. This is the second time in a week that the Midwest has been hit hard by a snow system like this, and there's a lot of this stuff out here.

You're looking at it right now, Wolf, there's more snow in the forecast.

(BEGIN VIDEOTAPE)

HOWELL (voice-over): Snowplows hit the streets of Kansas City Tuesday to wage war against Mother Nature. This city on the Kansas/Missouri border could see up to a foot of snow from the massive blizzard before it ends.

Lindsey Hughes spent much of his day shoveling.

LINDSEY HUGHES, MISSOURI RESIDENT: This is heavy and it's wet and we're just trying to get it up.

HOWELL: The heavy wet snow has made getting around difficult, whether it's behind the wheel or on foot. (on camera): Most of these major interstate highways are passable through Missouri and Kansas and it's mainly because of these snowplow teams. They have been going through the night to make sure drivers are safe on the roads and we have seen very few drivers out here, most of the people going at a snail's pace, though we did see several accidents along the way, drivers who may have been going too fast and ultimately lost control.

(voice-over): Falling branches wreaked havoc on the power system and look what happened to a building's roof in Belton, Missouri, when cameras rolled. Elsewhere in Kansas, a 100-year record in Wichita is no more. That area has now seen 21 inches of snow for February, taking down the old mark in just six days.

The huge snowstorm has started to ease up in the Texas Panhandle now making its way northeast. Check out these amazing images shot by a CNN iReporter just outside Amarillo Monday. Parts of the Texas Panhandle saw 19 inches of snow Monday, forcing out the tow trucks in whiteout conditions. And from the ground to the air, no snow, but plenty of wind was on hand to whip around planes at the San Antonio International Airport.

Gusts hit more than 54 miles per hour at the airport. Fortunately, no injuries were reported. Back in Kansas City, people just want a break from all the snowfall.

HUGHES: It's been a long, what, seven days, 10 days, something like that. So, I'm ready to go home.

(END VIDEOTAPE)

HOWELL: And this was a big storm system.

It proved to be a deadly storm system, killing three people. The worst of it has hit us here in Kansas City, Missouri. The storm system now tracking to the north, to the northeast for Chicago, Michigan, and Canada. But our meteorologists do tell us a bit of good news. The system is weakening, Wolf.

BLITZER: George Howell in Kansas City for us, thanks very, very much.

We're joined now by the director of the National Weather Service here in Washington, Louis Uccellini.

Louis, thanks very much for coming in.

LOUIS UCCELLINI, DIRECTOR, NATIONAL WEATHER SERVICE: Thank you.

BLITZER: So what makes this blizzard, if you can call it a blizzard, historic?

UCCELLINI: Well, first of all, with the very strong winds in Texas, then the Oklahoma Panhandle yesterday, the very cold temperatures and record-setting snowfall, they had whiteout conditions, very dangerous conditions, snow approaching two feet, drifts over six feet.

So the blizzard conditions are defined by the lack of visibility and very heavy snowfall rates.

BOLDUAN: Now, let me ask you. This is the second major storm to hit the Heartland region. The Northeast was pummeled with a big storm, a massive storm earlier this month. You had Hurricane Sandy, and that's just in the United States.

There are extreme weather conditions and weather events happening all around the globe, which has people asking that same question, do you think is this global warming or is this just a band of extreme weather events?

UCCELLINI: Well, first of all, with winter storms especially, we get into -- once you get into the pattern that sets up these storms, they can repeat themselves.

So it is this episodic nature of heavy snowfall that we have seen in different parts of the country. Like, in this part of the country, we haven't had a major snowfall event now in two years, so once the pattern gets set up, you can get these repetitive storms, and this is exactly what's happened in the Midwest.

And you can't relate these individual storms to the global warming aspect. There are people doing research in this area. It's a very active research area. But, clearly, once you get the pattern set up, you can get these repetitive storms in Kansas and Missouri have been right in the alley for those storms.

BLITZER: Because there's been so much speculation about climate change, and that's why we're seeing all these extreme weather patterns emerge. You're not ready to draw that bottom-line conclusion yet?

UCCELLINI: Well, not with respect to individual storms. There is evidence to suggest that, as you -- well, if the atmosphere warms, you will get more precipitation with these storms.

We're seeing an increase in precipitation, but we don't have enough evidence yet to make that direct linkage.

BLITZER: What do you see for the rest of this winter out there?

UCCELLINI: We take it a week at the time at the National Weather Service.

(CROSSTALK)

UCCELLINI: And right now, this storm is still a very active and dangerous storm, from Michigan, into Western New York. And the mountains in New England are getting hit with very heavy snows. And once this cold air starts factoring into the eastern third of the country, it's going to be around for a while. In fact, we're starting to watch how far south this cold air outbreak is going to be toward the end of the weekend and the weekend. BLITZER: Louis Uccellini, you just took over the National Weather Service and we will be counting on you to make sure we get great weather. OK?

UCCELLINI: I will try.

(CROSSTALK)

BLITZER: Thanks very much for coming in.

At least give us good, accurate forecasts.

UCCELLINI: That, we're doing.

BOLDUAN: That's what he strives for. Yes, exactly.

(CROSSTALK)

BLITZER: Congratulations and good luck with the new job.

UCCELLINI: All right, thank you.

BOLDUAN: A new study is out on breast cancer, and it suggests there's been a slight increase in the number of younger women with advanced stages of the disease. Researchers focused on women 25 to 29 years old over the last three decades and they say more study is needed to verify the findings. And our Dr. Sanjay Gupta tells us this. There isn't enough evidence to recommend that women under 40 should start getting routine mammograms, but it sure is a study getting a lot of attention today.

BLITZER: Chuck Hagel's fight to become the next defense secretary is now over.

The full Senate voted just a little while ago to confirm his nomination after some harsh criticisms from Republicans and weeks of delay. The final vote was 58 in favor, 41 opposed. Four Republicans joining the Democratic majority in approving Hagel's nomination. The former Republican senator from Nebraska is likely to be sworn in tomorrow to replace the Pentagon chief, Leon Panetta. President Obama issued this statement just moments ago.

"I will be counting on Chuck's judgment and counsel as we end the war in Afghanistan, bring our troops home, stay ready to meet the threats of our time, and keep our military the finest fighting force in the world. Most of all, I'm grateful to Chuck for reminding us that when it comes to national defense, we are not Democrats or Republicans; we are Americans."

BOLDUAN: A busy day at the White House.

We just got a readout on the White House meeting today. Republican Senators John McCain and Lindsey Graham were at the White House, they discussed immigration reform with the president, among other topics. The two Republicans issued a pretty upbeat statement, surprisingly enough, describing their talks with the president as excellent. They say they were pleased to hear the president state his firm commitment that he will do whatever is necessary to pass comprehensive reform legislation this year. They did not, though, answer many questions relating to the sequester or the forced budget cuts.

BLITZER: A little optimism coming out. Let's hope there's some more.

It was a turning point in the fight for the civil rights, but now the U.S. Supreme Court may -- repeat -- may undo parts of the landmark Voting Rights Act. We will take a closer look at what's going on. That's ahead.

Also, the Coast Guard investigating a distress call, but did rescuers respond to yet another hoax? Stay with us.

(COMMERCIAL BREAK)

BLITZER: A landmark achievement of the civil rights area that changed American politics, guess what, it could soon be gutted.

BOLDUAN: Tomorrow, the Supreme Court will hear a challenge to the 1965 Voting Rights Act. One of its key provisions is being targeted and our crime and justice correspondent, Joe Johns, is here with details.

This is a very big deal. This is a major provision, the major provision, in the Voting Rights Act.

JOE JOHNS, CNN CRIME AND JUSTICE CORRESPONDENT: It really is. It's just a huge deal. The Voting Rights Act has been called the most successful civil rights legislation ever. It was passed to stop racial trickery and discrimination, like poll taxes and literacy tests.

Tomorrow, the Supreme Court looks at whether the very thing that is supposed to make the law effective is actually outdated and unconstitutional.

(BEGIN VIDEOTAPE)

JOHNS (voice-over): Calera County, Alabama, in the heart of Dixie, Population just under 20,000. Eight years, Ernest Montgomery was elected as only the second African-American to serve on the Calera City Council. At that time, he represented the mostly black part of town tucked between the railroad tracks and the interstate.

ERNEST MONTGOMERY, ALABAMA COUNCILMAN: I think because of our past, we have to accept, you know, the way times were.

JOHNS: Four years ago, the city council redrew voting lines. Montgomery lost reelection by two votes.

MONTGOMERY: They added four large subdivisions, which were predominantly white, to my district, which diluted the district from a 67 percent African-American district down to about a 28 percent. JOHNS: But the U.S. Department of Justice stepped in and helped Montgomery get his job back, saying the county needed to get federal approval to make the changes under the Voting Rights Act, first signed by Lyndon Johnson in 1965.

LYNDON JOHNSON, PRESIDENT OF THE UNITED STATES: To eliminate the last vestiges of injustice.

JOHNS: At the heart of the act is what's known as Section 5, which allows the Justice Department or a court to shut down discriminatory changes to voting laws, mostly in Southern states, before they go into effect.

President Bush and Congress saw need to renew the law as recently as 2006. But now Shelby County, Alabama, where Calera is located, is challenging Section 5 as a violation of states' rights.

(on camera): The symbols and historic landmarks of the old South are all around Shelby County, Alabama. Just one county to the north at this church in Birmingham, four little black girls were killed in a bombing in 1963. And now the Supreme Court is being asked to accept the argument that the South has changed enough to overturn what some say is the heart of the Voting Rights Act.

(voice-over): Frank Ellis is the Shelby County attorney.

FRANK ELLIS, SHELBY COUNTY ATTORNEY: The South is not the same South it was in 1964. The whole country has changed. We're a dynamic society.

JOHNS: How much things have changed is disputed. Whites we spoke with this in local diner said they see the reelection of the country's first black president as a real sign.

UNIDENTIFIED FEMALE: I still think about discrimination, going back even 15 years, 10 years in the South. I think we are gaining ground.

JOHNS: But African-Americans recall the battle in the last election over alleged voter suppression, and some say things have gotten worse, because Obama's election made some white voters angry.

REV. HARRY JONES, CALERA CITY RESIDENT: You have, you know, people who are very unhappy. You know, I mean, during the election time, you know, you had, you know, dummies of President Obama hanging from the trees.

(END VIDEOTAPE)

JOHNS: Judging from past cases, one of the court's biggest questions is why the Voting Rights Act applies mainly to Southern states, instead of being a nationwide thing. By the way, not all the states that are partly or fully covered by Section 5 are supporting this challenge to the law. Mississippi and North Carolina as well as New York and California have actually come out in support of Section 5. BOLDUAN: And talking about last cases, is there any indicator from how the justices have ruled in the past on how they might be leaning in this case?

JOHNS: The chief justice has actually said, in some of his writings, that he believes the South has changed. Justice Thomas, Clarence Thomas, has actually said that he thinks Section 5 is unconstitutional. So it could be a close case.

BOLDUAN: An important case, regardless.

BLITZER: We're going to speak with the Reverend Jesse Jackson tomorrow. He will be our special guest here in THE SITUATION ROOM on this and other subjects as well.

BOLDUAN: A great guest. Joe Johns, thanks so much.

So three days to go before forced budget cuts take effect. Are President Obama's dire warnings on target or overblown? Two economic experts are ready to face off on that, next.

(COMMERCIAL BREAK)

BLITZER: Republicans are accusing President Obama of resorting to scare tactics in these, the final days before forced budget cuts take effect. But the president insists his dire warnings are very real and that he's not playing politics.

(BEGIN VIDEO CLIP)

OBAMA: I have run my last election. Michelle's very happy about that. I'm not interested in spin. I'm not interested in playing a blame game. At this point, all I'm interested in is just solving problems.

(END VIDEO CLIP)

BLITZER: When Americans watch what's going on here in Washington, many of them believe both sides, though, are playing politics. So is anyone giving us the full story?

We're joined now by two economic experts. Steven Rattner was a member of the Obama administration. He served as counselor over at the Treasury Department. Stephen Moore of "The Wall Street Journal" founded the conservative Club for Growth.

To both Steves, thanks, guys, very much, for coming in.

Steve Moore, I know you have strong views on this. Steve Rattner does as well. These automatic spending cuts, if they go into effect on Friday, as we now all assume they will, is it really going to have an impact on the broader U.S. economy?

STEPHEN MOORE, SENIOR ECONOMIC WRITER, "THE WALL STREET JOURNAL": No, it won't, Wolf. And I was so -- I'm old enough to remember back in the 1980s, when we did a small across-the-board cut, smaller than this one, but the agency found ways to save money, to save on paper clips and travel and conferences and, you know, the world didn't come to an end. I think the president's rhetoric is overheated and I think it is fright night.

And what we're talking about here is about a $50 billion to $60 billion cut out of a $16 trillion economy. I don't see where this is going to hurt the economy. In fact, I would make the case, Wolf, that cutting government spending right now given how gigantic our budget deficit is, $1 trillion, I actually think this would be beneficial for the economy, if government became more economical and saved four cents on the dollar.

BLITZER: All right, Steve Rattner, what do you think?

STEVEN RATTNER, FORMER ADVISER TO PRESIDENT OBAMA ON AUTO BAILOUT: First of all, there will be an overall effect on the economy. I think every major economist who has studied this talks about 0.4 percent, 0.5 percent effect on GDP.

It may not sound like a lot, but it's material. But, secondly, when you start to look at the individual effects, they not trivial. For example, unemployment checks go down 11 percent on day one. That affects not only those people, but the stores in which they shop. Fewer agricultural inspectors in the food processing plants mean they simply can't process as much food. Economic activity slows down.

I have just given you a couple of examples. It's not going to end life as we know it, but it's going to have a noticeable and significant effect.

BLITZER: You want to respond, Steve Moore?

MOORE: Look, here's where I throw up my hands in kind of exasperation about this.

Steve is saying exactly what people in the White House and a lot of -- quite frankly, a lot of the people in the media are saying, that this is going to be -- lead to all of these dire consequences. And I guess my attitude, about this, Wolf, is if we can't do this, if we can't cut the first $50 billion or $60 billion or $70 billion out of a $1 trillion deficit, my goodness, how are we ever going to ever even come close to a balanced budget?

I mean, this is what I'm not hearing from the other side, is OK, if we're not going to do this, what are we going to do? And I quite frankly think asking every agency -- by the way, defense and domestic agencies -- to become a little bit more lean and efficient as businesses have done, makes a lot of sense.

BOLDUAN: And lean and efficient might be a good thing. I'm sure everybody wants that. But there are some more liberal economists who are arguing that this kind of -- the sequester, these across-the-board cuts, could actually hurt deficit reduction efforts. The -- the impact of the cuts, the impact of the furloughs, and the loss of revenue will actually be counteractive. It would increase the deficit.

MOORE: Well, I think that's a joke. I mean, that's the same logic that said that the $800 billion stimulus bill was going to create 3 million or 4 million jobs, which never occurred.

I mean, look, I think economy and government right now, we need austerity in government, and we need more private sector growth. We haven't had that for four years, and I'm a believer that this high deficit is one of the things that's really holding back private business.

BOLDUAN: Go ahead, Steve Moore.

RATTNER: Austerity is not the friend of growth. We learned that in Europe. I think virtually all of us who are serious people are in favor of reducing the deficit, but it needs to be done gradually over time, and the spending reductions need to be done with a scalpel, not a meat ax.

The problem with this forced deficit reduction, if you want to call it that, is that it's an across-the-board cut, and worst of all, it is an across-the-board cut focused on some of the most important programs, like education, like infrastructure, like research and development. They are bearing a hugely disproportionate share of these reductions.

BLITZER: On that point, though, Steve...

MOORE: Hold on a second -- hold on, Wolf.

BLITZER: I just want him to respond to the point. Some Republicans are saying, you know what? It doesn't have to be a meat ax. You know what, Mr. President? Eighty-five billion, we want those cuts, half in defense, half in domestic spending. You don't want the across-the-board cuts. We're going to give you flexibility, Mr. President. Go ahead and you cut the smart way, so that we don't deal with some of those critically important areas, but you could find some waste, fraud, and abuse, if you will, some excessive spending. You come up with it.

But the president says, "I'm not playing that game." Why isn't he playing that game?

I'm not sure the president said, "I'm not playing that game." I think getting that authority would be welcome for the sake of the economy...

BLITZER: Well, the president -- listen to what the president said today. I'll play the clip. He says he's not interested in getting that flexibility, which would put all of the responsibility on him. Listen to the president today in Virginia.

(BEGIN VIDEO CLIP) BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Some people have been saying, well, maybe we'll just give the president some flexibility. He can make the cuts the way he wants and that way, it won't be as damaging. You know, the problem is, when you're cutting $85 billion in seven months, which represents over a 10 percent cut in the defense budget in seven months, there's no smart way to do that.

(END VIDEO CLIP)

BLITZER: And White House officials make it clear, they don't want to play that game, Steve. But it would be -- Steve Rattner. But it would be an opening to try to come up with $85 billion in cuts in a smart way, as opposed to this meat ax.

RATTNER: Certainly, it would be better than the meat ax. But what the president is also saying is that, to do this in a very compressed period of time is not ideal for the stake of the economy.

I think all of us, and if the president doesn't believe with me, so be it. But I think all of us believe that government spending needs to be constrained but in a thoughtful way over a period of time.

And then the other point I would make is that revenues have to be part of this equation. It can't all be about spending reductions to deal with our deficit problems. We also need revenue increases.

So far, virtually all of the revenue reduction that's occurred over last two-and-a-half years, which is over $2 trillion of deficit reduction, the vast preponderance of it has come on the spending side, not on the revenue side.

BLITZER: Got to leave it there. Steve Rattner, Steve Moore, good discussion.

MOORE: Well, wait a minute. What the...

BLITZER: I'll give you ten seconds. Go ahead, Steve Moore.

MOORE: What deficit reduction? There's been no deficit reduction. I mean, the deficit's...

RATTNER: You know...

MOORE: ... 2 trillion dollars. We haven't cut a dime out of the deficits.

RATTNER: You know that's not true.

MOORE: We haven't cut anything yet.

RATTNER: Yes, we have.

MOORE: They're talking about cuts in five and six and seven years.

RATTNER: Yes, we have. We've had two rounds of spending reductions. This will be the third round.

MOORE: And they haven't cut entitlements either. When is the president going to cut entitlements?

RATTNER: The president has said everything is on the table, and I believe him.

BOLDUAN: Unfortunately, it does not look like entitlement reform is going to be managed...

BLITZER: Let there be comprehensive entitlement reform, let there be comprehensive tax reform, work out a grand bargain, get this resolved.

MOORE: I'm with you.

BLITZER: Lindsey Graham said it on this show yesterday. He's open to it. A whole bunch of Republicans and Democrats are, as well. That would be a smart way of dealing with this deficit, this exploding national debt. Guys...

RATTNER: And we're open to it, too.

BLITZER: Thanks very much, Steve Rattner, Steve Moore. Appreciate it.

BOLDUAN: Thanks, guys.

BLITZER: We had a remarkable sight today in North Korea. The basketball star -- or should we say, the former basketball star -- Dennis Rodman, look at this. He's in Pyongyang, North Korea. He's tweeting. Stay here. Kate's going to explain what is going on.

And it's called the king of beers, but a lawsuit claims that Budweiser isn't all it claims to be.

(COMMERCIAL BREAK)

BLITZER: The maker of Budweiser is now accused of watering down its beer. Kate's got that and some of the day's other top stories. How could that be?

BOLDUAN: First Maker's Mark, now beer. What is the world coming to? This is actually really very interesting and important. The claim comes from a class action lawsuit against Budweiser's parent company, Anheuser-Busch. The suit, which was filed in California, says the company's 13 breweries across the U.S. follow the same policy of diluting its products and overstating their alcohol content in order to increase profit. CNN has reached out to Anheuser-Busch but received no comment so far. Updates to come.

And a victory today for President Obama's health-care reform law. New Jersey Governor Chris Christie says his state will accept the expansion of Medicaid that's part of the law. He's the eighth Republican governor now to go along with the expansion. It means more federal money to cover more people. Christie says he still does not like Obamacare but doesn't see why money slated for New Jersey should go to another state.

And a pair of reports today show the country's housing market continues to improve. Both new home sales and home prices are up. The news about home prices, as well, corporate earnings, plus encouraging remarks from Federal Reserve Chairman Ben Bernanke caused stocks to go up. No surprise. The Dow Industrials gained back a little over half of yesterday's big loss.

And an historic moment in North Korea today. Believe it or not, and it's hard to believe, Dennis Rodman of all people, arrived for a visit along with the Harlem Globetrotters. He might become the first American to visit with North Korea's new leader, Kim Jong-un. Rodman tweeted from North Korea's capital that he's honored to represent the U.S., adding, quote, "They love basketball here." Could be the first American to meet the little (ph) Kim.

BLITZER: Could you imagine, he's going to meet with Kim Jong-un, at least that's what he suggests.

BOLDUAN: That's what he says.

BLITZER: Looking forward to it. If he does, it will be the -- I think that will be the first -- obviously, North Koreans have met with him, some Chinese.

BOLDUAN: Right, right.

BLITZER: Other than that, I don't think anybody else has met with Kim Jong-un since he took over for his dad. But remember, the former secretary of state, Madeleine Albright, when she went there during the Clinton administration, she brought a present to Kim Jong- un's father.

BOLDUAN: What was that present?

BLITZER: That present was a basketball signed by Michael Jordan, and they treasure it. When I was there a couple years ago, I saw how they treasure that basketball.

BOLDUAN: So the moral of the story...

BLITZER: They love basketball in North Korea.

BOLDUAN: ... basketball brings us together.

BLITZER: Basketball, who knows?

BOLDUAN: Strange-ola. That's all I've got to say.

BLITZER: Maybe we'll speak to Michael Jordan about this, as well.

BOLDUAN: Maybe get a...

(CROSSTALK)

BLITZER: The Coast Guard responding to a distress call, boaters missing, a family in trouble. But was it real?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Coast Guard, Coast Guard, we are abandoning ship. This is the Charm Blow, we are abandoning ship.

(END VIDEO CLIP)

BLITZER: We'll have the story, straight ahead.

(COMMERCIAL BREAK)

BOLDUAN: The Coast Guard says it's called officers for missing boaters off the coast of California amid questions about whether the distress call was even real. CNN's Dan Simon reports.

(BEGIN VIDEOTAPE)

DAN SIMON, CNN CORRESPONDENT (voice-over): They sent out numerous boats and aircraft to rescue four people, including two children, allegedly on a sinking boat. This was the last radio transmission from the vessel operator.

UNIDENTIFIED MALE: Coast Guard, Coast Guard, we are abandoning ship. This is the Charm Blow. We are abandoning ship.

SIMON: Is that the voice of a hoaxster? Was this whole thing -- a search that spanned the area the size of West Virginia and cost taxpayers hundreds of thousands of dollars -- just a prank? The Coast Guard says it's a possibility.

First, the name of the boat, Charm Blow. Don Montoro is the Coast Guard sector commander responsible for the search.

DON MONTORO, U.S. COAST GUARD: We go through our databases, we went through customs databases. We also went through databases of local law-enforcement agencies to search for the vessel, and tried to identify it.

SIMON (on camera): And what did you find?

MONTORO: We -- unfortunately, we haven't found anything at this point.

SIMON (voice-over): And what about a missing persons report?

MONTORO: We haven't received any notifications of any missing persons.

SIMON (on camera): Is that unusual?

MONTORO: I haven't experienced that before, so...

SIMON (voice-over): This isn't the first time the Coast Guard has turned up empty on a high-profile search for missing boaters. Last May, it searched for six people in the waters off Galveston, Texas, after a mayday call from a sinking boat. Then a few weeks later, a caller claimed there were three people dead and 20 people in the water off Sandy Hook, New Jersey.

UNIDENTIFIED MALE: We have 21 souls on board, 20 in the water right now. I have three deceased on board, nine injured because of the explosion we've had.

SIMON: Authorities later determined the call came from the land and was a hoax.

As for the radio transmission in California...

UNIDENTIFIED MALE: Coast Guard, Coast Guard, we are abandoning ship. This is the "Charm Blow." We are abandoning ship.

SIMON (on camera): Based upon what he's saying over the radio, you thought that was real?

MONTORO: Absolutely. And we treated it as such. We treat every call as it was our own child out there and we're searching for them.

(END VIDEOTAPE)

SIMON: Now, making a false distress call is a felony punishable by up to ten years in prison and a $250,000 fine, plus the cost of the wasted search effort. In this case, it would be hundreds of thousands of dollars -- Wolf and Kate.

BOLDUAN: As well they should get in trouble if they're wasting that time, if that turns out to be true. Dan Simon, great report. Thank you.

BLITZER: Probably seemed like a great idea to see the sights, hundreds of feet in the air in a balloon until disaster struck. Up next, we'll have new pictures of the deadly explosion and a closer look at balloon safety.

(COMMERCIAL BREAK)

BOLDUAN: They were 1,000 feet in the air in a hot-air balloon over ancient Egypt.

BLITZER: Then all of a sudden, a gas explosion.

This video taken from another balloon shows the blast and the fall. Nineteen people are dead, two are in the hospital, and many people are wondering are these balloon rides safe? Our Brian Todd went out to try to find out.

(BEGIN VIDEOTAPE)

BRIAN TODD, CNN CORRESPONDENT: Wolf, in the wake of the accident in Egypt, a lot of questions being asked today about the overall safety of commercial ballooning. Well, to answer some of those questions, to get a little more information, we came here to an airstrip in Frederick, Maryland. This commercial balloonist, Patrick Smith, and his partner are going to show us some safety procedures and talk to us about overall safety of this activity.

(voice-over): Experienced balloonists say it's rare to have a catastrophic crash like this one in Egypt captured on amateur video. When it comes to safety on a commercial balloon flight, Patrick Smith knows the drill.

Today, the wind and rain are too strong for us to go up, but Smith takes us through the checks of his tanks, valves, hoses, gauges. It's a powerful burst when he tests out the burners.

Smith and his family operate a commercial balloon business in Frederick, Maryland. He says he took up about 260 passengers last year.

(on camera): You're in an emergency. One of these hoses rips off or something, and this thing is in peril. How do you get it down quickly?

PATRICK SMITH, OPERATES COMMERCIAL BALLOON BUSINESS: Well, I'm going to shut down and secure the situation, and then at that point we're going to go ahead and look for the best available landing spot.

I'm going to use another tank, because I have a redundant system. I will be able to use that other tank to find an acceptable place to land. And if I needed to, I'm going to shut down all lines and put myself down in trees, because the basket itself will protect the passengers.

TODD: Another balloonist told us sometimes balloons strike power lines. It tends to occur on descent, and it can be deadly. He said electricity from the power line arcs through the balloon, then can punch a hole in a hose or a propane tank, causing an explosion. To minimize the overall risk, don't crowd the passenger basket.

(on camera): This is the envelope for Patrick's balloon. This is the basket, 46 by 62 in width, right? It's about four feet deep.

SMITH: Grab onto here. Don't grab this bar here. And you just hop on down.

TODD: How many does this hold safely?

SMITH: We can hold legally six passengers. I never carry more than four.

TODD: But he says there are baskets like the one in Egypt that can carry 20 people or more. Smith says there's psychology involved with passengers. He has to keep their emotions on an even keel.

SMITH: It's a lot of interaction. And so we are -- by the time they go on their flight, I've already given them a full safety briefing, they're in the basket, and we just put a little more heat in, and we lift off the ground just like an elevator.

TODD: He tells passengers, if there's an emergency, they've got to stop talking and listen to him. Bend your knees, he says, grab the handles on the inside, press yourself up against the side of the basket. Smith says, unless your basket is on fire and close to the ground, don't jump out.

SMITH: The basket is designed to absorb as much of the impact for the passengers. On a normal landing, on a hard landing, on an emergency landing. That's -- that's what it's designed for. And it's the best chance that we would have.

TODD (on camera): Patrick Smith has a lot of contingencies in place in case of emergencies. He has helmets in his basket for people to put on, a fire extinguisher, and he has a chase crew following him wherever he goes -- Wolf and Kate.

(END VIDEOTAPE)

BLITZER: Brian Todd, thanks very much.

BOLDUAN: Scary.

BLITZER: Wonder if they have parachutes, too.

BOLDUAN: I don't know the answer to that, actually. We'll look into it.

Jeanne Moos is coming up next. Be right back.

(COMMERCIAL BREAK)

BLITZER: So you go to the airport, you miss your flight, what do you do? Jeanne Moos has some incredible video.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): Fasten your seat belt. Extreme turbulence ahead. A Chinese executive traveling with his family missed not one, but two flights and when he, his wife and two sons weren't allowed to board after missing the second flight's boarding announcement, what went flying was computer equipment.

UNIDENTIFIED MALE: On this episode of "China Un-censored," watch a Chinese officials go nuts.

MOOS: And watch bystanders back off. "Get me away from this guy," who turned out to be Yan Linkun, the vice-chairman of a state- run mining company and an advisor on a Chinese political committee. Not to mention an expert desk kicker, though that might have hurt.

He definitely meant to hurt the glass doors leading to the airplane, and when he couldn't break through, he slammed the sign on the desk.

And just in case the husband may have missed a little something, his wife picked up an object and smashed it on the floor. We haven't seen a rampage like this since the British guy ransacked a T-Mobile store.

UNIDENTIFIED FEMALE: Oh, my God!

MOOS: Because they wouldn't give him a refund. Or the drive- thru customer who couldn't get Chicken McNuggets, because this Ohio McDonald's was serving breakfast. She not only smacked the server; when he finally shut the window on her, she managed to smash a hole in it.

(on camera): The McNuggets slugger ended up being sentenced to 60 days in jail; also paid a $1,500 fine for damage to the window.

(voice-over): The funny thing was that 15 seconds after she broke the window, the next guy through the drive-thru was handed his food.

The angry T-Mobile guy ended up with fans.

UNIDENTIFIED MALE: What that guy did, kudos to him!

MOOS: But the air rage rampage was attracting comments like "What a contemptible, self-important arse."

The Chinese air traffic system is a hive of delays, but there's little sympathy for tantrums for those considered elite.

Yan has been suspended from his job and has already apologized, saying, "I failed to be a qualified political advisor as well as a good father." One of his sons seemed to try to defuse his dad, or at least disarm him. Eventually, security stepped in. You, sir, are caught on camera.

That's no boarding pass, buddy.

Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

BOLDUAN: Everyone needs to take a breath.

BLITZER: That's major rage. That's out of control.

BOLDUAN: Now I think, if I get upset.

BLITZER: He was a chairman?

BOLDUAN: He was a big deal. That's all you need to know.

BLITZER: Not any more.

BOLDUAN: No, not any more. He's a big deal no more.

BLITZER: That's it. We'll see you back here tomorrow. "ERIN BURNETT OUTFRONT" starts now.