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YOUR MONEY

Your Money, Emergency Edition; Economic Analysis As Government Shutdown Continues

Aired October 12, 2013 - 14:00   ET

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


CHRISTINE ROMANS, CNN ANCHOR: The full faith and credit of the United States may be safe for a few more weeks.

I'm Christine Romans, this is YOUR MONEY. House Republicans offering a short-term fix to raise the debt limit and pull the country back from the brink of default.

Wall Street celebrates with a sharp rally. Both sides are finally talking. But this isn't over yet.

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Behemoths of big business speaking with one voice.

UNIDENTIFIED MALE: You shouldn't use the threat of causing the U.S. to fail on its -- on its obligation to repay its debt as a cajole.

WARREN BUFFETT, BERKSHIRE HATHAWAY: It ought to be banned as a weapon.

UNIDENTIFIED MALE: Both sides deserve a spanking for this.

ROMANS: Small businesses questioning as well.

UNIDENTIFIED MALE: Over and over they say the same thing. Why is this happening? We can't risk a default.

ROMANS: The administration foretelling economic chaos.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Every American could see that 401(k) and home values fall, borrowing costs for mortgages and student loans rise.

UNIDENTIFIED MALE: Our systems were not designed to not pay our bills.

ROMANS: And the world watching and warning.

UNIDENTIFIED MALE: If there was a problem lifting the debt ceiling, it could well be that what is now a recovery would turn into a recession or even worse.

ROMANS: But on the right, a vocal handful of debt-default deniers. UNIDENTIFIED MALE: My brother had a managed capacity now which I don't think will be there. I think this is the 11th time I'm been through this discussion about the sky is falling and the earth will erupt.

ROMANS: And Florida Republican Ted Yoho insisting not lifting the debt ceiling would, quote, "bring stability to the world markets." In fact, if America for the first time in history is not able to pay all of its bills, the forecast is for financial fallout worse than the collapse of Lehman Brothers. Fact -- forecasts are often wrong, but is it a risk worth taking?

(END VIDEO CLIP)

ROMANS: Is it a risk worth taking? Candy Crowley is our chief political correspondent and host of "CNN's STATE OF THE UNION." Ken Rogoff is a Harvard University professor and the former chief economist of the International Monetary Fund, and of course he is a world renowned expert of all things financial crisis. Candy, let me start with you. Gallup shows the lower approval rating for the GOP ever, 28 percent. How badly has all of this hurt the GOP?

CANDY CROWLEY, CNN HOST, "STATE OF THE UNION": Certainly we can say definitively in the short run, just looking at the poll numbers, it doesn't take a genius to know this has hurt Republicans and the Republican brand greatly. Do I know whether that will live through 2014 or into 2016 to effect the midterm elections or the next presidential election? I don't know. It's a long time between now and then.

There is a big issues that will play out next year, and that's the president's affordable care act. If that goes well, that's going to bode really well for the Democrats. But I would say it's still an uphill climb for Democrats to take over the House.

But Speaker Boehner warned his caucus when they went into this fight and it became clear what was going to happen. The government was going to shut down. He did say we could lose the House over this. So it doesn't come as a surprise to Republicans, but it certainly is, when you put numbers to it, it's a huge slap-down.

ROMANS: You saw the poll numbers falling. Ken Rogoff, you saw consumer confident just registering the sharpest drop since the Lehman Brothers collapse. Can this recovery right now withstand a government shutdown, a sequester, and then assuming you get over this debt ceiling drama and you go into a budgetary process, maybe sharp budget cuts and entitlement reform, is this the time for austerity in America?

KENNETH ROGOFF, FORMER CHIEF ECONOMIST, IMF: It's clearly not. I think this is a time when we need to sort of balance the budget over the long run, but for the moment focusing on the short with the unemployment so high I think is a mistake. There are things they should be doing like infrastructure investment where they should be spending vastly more. I think the thing that concerns me most is just the paralysis here. This is an effort to diminish the presidency. They're going to put a six-week extension, then another six-week extension, and it's just no way to run your country.

ROMANS: You're there at the IMF meetings in the country, what is the rest of the world saying about how we're running this country?

ROGOFF: Well, on the one hand they're terrified. On the on the other hand they really don't believe it. I don't think anybody thinks certainly that treasury bills won't get paid and probably even Social Security check won't get paid. But actually at these meetings, the IMF is always beating up on them, so they somewhat delight in pointing at the U.S. and saying they're a lot worse than we are.

ROMANS: Candy, President Obama won the election, but the makers verse takers argument is back again, only now it's the wagon pullers and the wagon riders. This sound bite caught my attention in the questions of Secretary Lew this week in his hearing. Let's listen.

(BEGIN VIDEO CLIP)

SEN. MIKE ENZI, (R) WYOMING: Government keeps growing and growing and growing. When it grows that means there's more people in the wagon and less pulling the wagon.

(END VIDEO CLIP)

ROMANS: If we get back to real budget negotiations, again assuming eventually they will resolve the debt ceiling crisis and talking about budgets, that's going to be at the core, isn't it, of the fighting between the Democrats and the Republicans?

CROWLEY: The fact is that Republicans do this as an aging population needing more, you know, looking for the services that an aging population has always seen as their, which of course is Social Security, Medicare. They see more and more people than going to join in to Obamacare, the Affordable Care Act, which will cost the government more money. So they seek a worker problem. The workforce is shrinking, and the need for government is getting bigger. So it's not just that old Mitt Romney 47 percent argument. The argument is also about, are the funds there.

ROMANS: In the meantime the real action, the only action is really coming from the Federal Reserve. The president just nominated Janet Yellen to head the Fed. The current chief Ben Bernanke has openly scolded Congress for its approach to fiscal policy to no avail. Does Janet Yellen bring anything different to the table?

ROGOFF: I think she's a very creative and smart person and can be tough when she needs to be. I think she's a good appointment now in the sense that she clearly cares a lot about employment. You don't have to ask if she cares a lot about employment. And I think that this is a point where the Fed's bias ought to lean that way. But she can't solve these problems, this internecine warfare, this constitutional battle. I think the Fed needs to sort of step back, try to provide some stability, but it can't cover up all these problems. ROMANS: Ken, there's no way the fed can start tapering the stimulus if you have this kind of nonsense going on Washington, can they? Can they start pulling back the money they're putting in the bond buying program if you've got this kind of stuff going on?

ROGOFF: Christine there might not be any bonds for them to but with the debt ceiling.

(LAUGHTER)

ROGOFF: But, yes, they certainly aren't going to do anything in the middle of this. But you know what, they don't even have any data to go on because the labor statistics aren't coming out. It's crazy.

ROMANS: A world without economic data is a dark, dark place, no question. I know you agree with me. Thanks, Ken. Thanks, Candy.

Just a quick programming note for you. Candy will have an exclusive interview with Senator Rand Paul about the possible deal to end the government shutdown and raise the debt ceiling. That's tomorrow on "STATE OF THE UNION" at 9:00 a.m. eastern right here on CNN.

Coming up on this emergency edition of "YOUR MONEY" Richard Quest joins us to explain the debt ceiling like only he can. The global reaction, next.

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