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Your Money
Emergency Edition: Countdown To Crisis
Aired October 13, 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 HOST: I'm Christine Romans, and this is an emergency edition of YOUR MONEY: "Countdown to Crisis."
In a moment, Fareed Zakaria will join me, and I'll ask him if the damage is already done here. Remember, Washington's short-term thinking is causing long-term economic harm. If it's not fixed and fast, you will be stuck with a massive bill.
The world's financial system is based on trust, and trust in the U.S. is eroding quickly.
(BEGIN VIDEOTAPE)
ROMANS (voice-over): Behemoths of big business speaking with one voice.
UNIDENTIFIED MALE: Shouldn't use the threat of causing the U.S. to fail on its obligations to repay its debt as a cudgel.
WARREN BUFFETT, CHAIRMAN & CEO, BERKSHIRE HATHAWAY: Well, it ought to be banned as a weapon.
UNIDENTIFIED MALE: Both sides deserve a spanking for this.
ROMANS (voice-over): 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 (voice-over): The administration foretelling economic chaos.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Every American could see their 401(k)s and home values fall, borrowing costs for mortgages and student loans rise.
JACK LEW, TREASURY SECRETARY: 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 dell 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.
SEN. TOM COBURN (R), OKLAHOMA: I would rather have a managed catastrophe now, which I don't think will be there.
UNIDENTIFIED MALE: I think this is the 11th time I've been through this discussion about the sky is falling and the Earth will erupt.
ROMANS (voice-over): And Florida Republican Ted Yoho insisting not lifting the debt ceiling would, quote, "bring stability to the world market."
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 VIDEOTAPE)
ROMANS: And that's your money that they are risking. Never forget that.
Fareed Zakaria is the host of "FAREED ZAKARIA GPS" on CNN.
Is there something wrong with our system that this is happening again, three years of this budget stalemating?
FAREED ZAKARIA, HOST, FAREED ZAKARIA GPS: It's a good question, because look, let's be honest. The American system is designed to allow for easy gridlock.
The Founding Fathers created a system fearing English tyranny, fearing an English king, so lots of different ways to veto stuff. There's lots of checks and balances. So, I think that's part of the issue.
But really, what's at work here is something much more dangerous, which is here we're getting into an anti-democratic process, which is not the way the system was meant to work. Look, if you want to repeal Obamacare and you're the Republican Party, you're the Tea Party, great. Go for it.
If you want to get rid of entitlements, you want to cut government spending, that's great. There is a procedure. You pass a bill in the House, it passes in the Senate and the president signs it.
What's happening here is because the Tea Party does not have that ability, does not have a majority in the House or the Senate, and certainly the president wouldn't sign it, what it's trying to do is really extortion, which is to say, we will block everything if you don't give us this, which we know we couldn't get passed through the democratic process, normally. That seems to me something quite new.
ROMANS: And so, when the number one concern near-term -- and long- term concern in this country should be about jobs, a new Gallup Poll is showing for the first time ever, it's dysfunctional government that is the most important problem we face. Things have really changed here. It's our own government that Americans are most worried about. ZAKARIA: You know, it used to be -- I was talking to an investor who worried about political risk. That's what investors talk about when they worry about places like Indonesia or banana republics or some African country. And he was saying to me, what we have now realized is the place we need to worry about political risk is the United States of America.
ROMANS: Right.
ZAKARIA: It's not, you know -- it's not all the third world countries with creaky dictators.
ROMANS: I think there is no question we would pay the interest on our bills to our lenders. I think you have to pay your interest on your treasury bonds. But what could happen in the eyes of the world if we're giving IOUs to seniors or we're not managing books properly is unknown and scary.
Yet this week, I'll tell you, in this testimony from Secretary Lew this week, on the Hill talking to the Senate Banking Committee. And I want you to listen to something that -- a Republican from -- Republican senator from Wyoming said to him, Mike Enzi.
(BEGIN VIDEO CLIP)
SEN. MIKE ENZI (R), WYOMING: Government keeps growing and growing and growing. And when it grows, that means there are more people in the wagon and less people pulling the wagon.
(END VIDEO CLIP)
ROMANS: Less people in the wagon and -- more people in the wagon and less people pulling the wagon. This is the makers and takers argument.
President Obama won the election, remember, and it was the makers and takers argument on the Right. It's come back around and now it's wagon pullers and wagon riders.
Is that it at the core of this budget debate here, that too many people are getting too much from government and not enough people are pulling their weight?
ZAKARIA: You know, it is at the core, and it's part of the problem. By which I mean to say, look, again, if you feel that way, craft legislation that gets people off Medicaid, Medicare, Social Security, get it passed. You know, that's the democratic way you deal with this.
You don't do it by extortion, by holding up the legitimate functions of paying our bills. But there's a broader issue here, which is it seems to me that if that is the case, you know, does a government that is totally dysfunctional help -- I mean, I don't understand how --
ROMANS: I know.
ZAKARIA: -- burning down the house helps you make that case.
ROMANS: And it's incredibly counterproductive to shut down the government, to be fighting internally. You look at this picture of world leaders in Indonesia at the APEC summit. There is somebody missing there, and it's the President of the United States. It is counterproductive to be fighting like this at home, fighting against ourselves at home when there is so much work to do around the world.
ZAKARIA: Well, it's a huge opportunity cost. In Asia, remember, the president had pushed kind of a pivot to Asia, because he felt this is where America's economic future is, it's the fastest growing part of the world. And it was a very successful move. It was a way of countering Chinese influence.
Well, guess what's happened, because the president can't be there, the Chinese sent both their president and their prime minister. They went out there -- inducements of aid. So they're making hay while we're away.
ROMANS: No question.
ZAKARIA: It's very, very unfortunate.
ROMANS: Final question about presidential leadership here. A lot has been made about the Tea Party and the Tea Party -- some would say intransigence and changing the script from Obamacare now to balancing the budget.
Should the president be showing a different kind of leadership, a better kind of leadership?
ZAKARIA: I don't believe so. I think, look, what it's meant to say is it's a plague on both your houses on one hand. On the other hand, this is not one of those cases.
The president is standing firm on I think a core constitutional and democratic principle, which is precisely what we have been talking about, which is you have to -- you know, part of a democracy is, you -- if there is a process in place that is democratic and constitutional, you accept the outcome.
You know, whether it's your guy who won or the other guy, you accept that. If it's the legislation you like or you didn't like, you accept it.
That core principle is at the heart of our democracy. If the process worked, Obamacare was passed by the House, by the Senate, signed by the president, affirmed by the Supreme Court, the Congress passed a budget on the same way. You have to live with that.
And if you want to change it, change it using the same process. Don't take hostages.
ROMANS: All right. Fareed Zakaria, nice to see you. Thank you. ZAKARIA: Pleasure.
ROMANS: All right. Up next on this emergency edition of YOUR MONEY, from political football to an iconic head coach hitting hard. Find out why Coach Mike Ditka claims the biggest mistake of his life is President Obama's gain.
(COMMERCIAL BREAK)
ROMANS: This is an emergency edition of YOUR MONEY. Washington working to avert an economic crisis of its own making. Washington is also the focus of our weekly look at the business of sports.
Here's the score. Mike Ditka says President Obama would not be in the White House if he ran against him in the 2004 Illinois Senate race. Ditka tells the "Dickinson Press" not running was the biggest mistake he has ever made and he probably would have won that Senate seat. Ditka has described himself as an ultra, ultra, ultra conservative.
President Obama says if he owned the Washington Redskins, he would consider changing the team's name.
Protesters in Washington and even at away games want the name and the logo dropped. The real owner says -- has repeatedly said, he's not changing the Redskins' name and this week he responded to the recent criticism saying, quote, "The name was never a label, it was and continues to be a badge of honor."
It would also cost an awful lot of money to change everything. Uniforms, merchandise, stadium signs, new branding, rebranding, the Redskins' brand valued at oh, some, what, $145 million by Forbes.
And finally the partial government shutdown shutting down safety, Donte Whitner. We told you last week the San Francisco 49er player is trying to change his last name from Whitner to "Hitner" basically in protest from an NFL fine for a big hit he took. But now, reports says the paperwork cannot be processed until the government gets back to work.
Whitner tweeted, "Damn government shutdown, LOL."
Washington shutdown and worse -- the debt ceiling crisis stopped the year's rally in its tracks. Expectations so low for some grown-up behavior, that just talk of talking sent stocks way higher on Thursday. OK, so what now? Be brave and ride it out?
Matt McCall is the president of Penn Financial.
Matt, there is a year of fantastic stock market gains at stake here for a lot of investors. They have good 401(k) returns since the start of 2013, Dow is up 15 percent, NASDAQ up 24 percent, S&P 500 up 18 percent.
Matt, what do we do now?
MATT MCCALL, PRESIDENT, PENN FINANCIAL GROUP: Unfortunately, you know, a lot of people, when they asked that question, you either want to buy or sell. I'm going to drop it right in the middle and say sit there on your hands. Do not touch the buy button or sell button on your computer. Take a break, go on vacation, whatever it is, just do not make an emotional decision.
Those gains are great, and, yes, people do not want to lose them. That's a big reason we saw the market sell off heading into Thursday, because people thought, OK, I'm locking into gains. I'm happy into an 18 percent gain this year.
ROMANS: It's so interesting. One of the first things I learned covering markets was don't just do something, stand there. And sometimes that's the best advice for individual investors. Who might -- if you had sold stocks earlier last week, boom, you would have lost the year's biggest rally.
MCCALL: Exactly, and you look at all the studies back there. When you miss the biggest one or two days of the year, how much that affects you long-term in your portfolio. So, yes, you don't want to miss out in that big day, because what's happening, people missed out on Thursday, what are they doing? They're buying Friday, 300 points higher in the Dow, unfortunately.
ROMANS: This week, the Treasure Secretary, Jack Lew, told the Senate Finance Committee that this is unthinkable, what we're facing here. Listen.
(BEGIN VIDEO CLIP)
JACK LEW, U.S. TREASURY SECRETARY: There is a parlor sport in Washington of when is the last minute? You can't do that with a debt limit. With a debt limit, if you look for the last minute and you make a mistake, you have done serious damage to the U.S. economy, to the world economy. It's just not responsible. It's reckless.
(END VIDEO CLIP)
ROMANS: So is this dysfunction and uncertainty something that investors are going to have to get used to?
MCCALL: I think so. I don't think this is going away any time soon.
(CROSSTALK)
ROMANS: These deadlines. (Inaudible). It's going to be governing by deadlines.
MCCALL: I mean, just look back in history the last couple years. We had the fiscal cliff coming at the end of 2012; 2011, this debt ceiling debate once again, we have the S&P downgrade, the U.S. rating from AAA to AA-plus.
So we have seen this in the past. But, also, look at that chart, Christine. Every little crisis that we've had within about a few weeks to a month, we had a major rally following that. ROMANS: Is that because the Fed is pumping so much money into the system? I mean, the Fed is the only one operating here. There's so much money sloshing around.
MCCALL: I think the Fed obviously affects that entire long-term chart which is an up trend. But I also believe that people when they invest, they invest for the long-term, earnings, and where they believe the economy is going to be many years from now.
The problem most investors make, is they're basing their long-term investment decisions on this short-term event. The government is not going to be shut down forever.
ROMANS: Let me ask you something, I've been hearing money managers say people should be more into cash, especially if you've got really nice double digit returns, so far this year, in your stock portfolio.
Do you think that this is a time for people to really look at the stocks, the bonds, the cash allocation, and measure make some changes right now?
MATT MCCALL, PRESIDENT, PENN FINANCIAL GROUP: I don't disagree with that. Completely. But I do to a point, because typically when you have a very strong bull market, we've had one for five years now, the very end of that bull market is where there is very big gains. You have a big rally at the end and I still believe you probably have six to 12 months left in this bull market.
So it's not too late for me. And you're never going to pick the top, I get that. But I still think we can get some more on the up side and you mentioned a key word there, the Fed.
Do you think the Fed is going to stop pumping anything into it with Yellen now coming in and the fact we have this government shutdown? The Fed is not going to stop any time soon. The tapering will not begin until 2014.
So with that being said, we have much higher prices in stocks.
ROMANS: All right. Matt McCall, so nice to see you. Have a great weekend.
MCCALL: Thank you.
ROMANS: All right. Up next, love, American style. Why the drama in D.C. is looking more and more like a failing marriage. Can it be saved?
Last week, we talked to a hostage negotiator. This week, we're going to talk to a relationship counselor, next.
(COMMERCIAL BREAK)
ROMANS: This is an emergency edition of YOUR MONEY.
Remember this economic crisis, the collapse of Lehman Brothers, mid- September 2008? The economy was in freefall, stocks tumbling., the Great Recession was hitting with full force and millions more would lose their jobs.
Well, this week, a survey of consumer confidence posted the biggest weekly drop since then, since Lehman went bust. About three times as many people now say the economy is in poor shape as those who say it's doing well. You can thank Washington for that.
For other stories that matter to your money, give me 60 seconds on the clock. It's "Money Time."
(BEGIN VIDEOTAPE)
ROMANS (voice-over): Raising children is more exhausting than a day job. But time with Junior is also more rewarding. A Pew study finds parents are happy 35 percent of the time caring for kids and feel the same way just 19 percent of the time at work.
There will be no women on Twitter's board of directors when is it eventually goes public. All seven members are male. The lack of female leadership is a problem in Silicon Valley, but Google, Microsoft, Facebook and Amazon are among a few tech companies with at least one female board member.
Shutdown support or PR ploy? Starbucks is giving award free cups of coffee this week. If you bought a cup for a friend, Starbucks gave you a free one in return.
UNIDENTIFIED FEMALE: Here you go. Have a good day.
ROMANS: CEO Howard Schultz says Americans need to come together in these challenging times.
This is the new $100 bill. It went into circulation this week after months of delays. The new look includes a 3D ribbon and color- shifting ink.
Speaking of 3D, the next craze in 3D printing: food. A developer at the South by Southwest Eco Conference this week is printing pizzas, pizzas that could help solve the world's hunger problems. That's if the FDA gives approval.
(END VIDEOTAPE)
ROMANS: Also this week, JetBlue starts allowing families to pool their frequent flyer miles. JetBlue says it's the only U.S. airline to allow this, and it's letting customers decide who qualifies as family. It can be immediate family members, close friends, same-sex partners, really anyone you want to share your miles with.
So it won't just be families with crying babies, that's rough. But not as rough as the family feud in Washington.
(BEGIN VIDEO CLIP) UNIDENTIFIED FEMALE: I am the one who found this house. I bought everything in this house!
UNIDENTIFIED MALE: With my money. It's a lot easier to spend, but it's (inaudible), honeybun
UNIDENTIFIED FEMALE: You might not have made it if not for me, sweet cakes.
(END VIDEO CLIP)
ROMANS: It's not exactly "The War of the Roses", but all the big talk, name-calling and mudslinging on Capitol Hill can sound like a bad marriage headed for divorce.
Wendy Walsh is a clinical psychologist and author of "The 30-Day Love Detox."
Wendy, I was thinking of you, and I don't -- I don't want to make light of the situation, what's going on in Washington, because it's incredibly important. But you know what, last week, we had a hostage negotiator on. This week, we need you to tell us, are these irreconcilable differences?
WENDY WALSH, CLINICAL PSYCHOLOGIST: I don't think they are. But I want you to understand, a lot of Americans can relate to this, Christine. It's a blended family metaphor. Think of Obama as the never-before-married bachelor who marries a single mother with an angry stepchild, that being the Tea Party, of course, and John Boehner.
So, here, I say never married before, because, of course, he's never been a governor. He hasn't had to have those harmonious relationships with legislators on the other side of the aisle that maybe, you know, Reagan had with Tip O'Neill, or Clinton had with Newt Gingrich. He's not good at the small talk and the chitchat. Not, how was your day, dear, stuff.
And you take Boehner, who's actually having a hard time choosing between his angry stepchild, the Tea Party, who loves confrontation, and his new marriage. At the same time, Boehner's husband, if you will, Obama, is about to become a star.
I mean, let's talk about it. The Affordable Care Act is really Obama's signature legislation. It's been law for a few years. It's been approved by the Supreme Court. And now it stands to really make him a star. Now, Boehner's jealous. So he's doing what a woman often does, which is she stops sleeping with her husband, which is the worst thing you can do.
ROMANS: That is quite a metaphor. You have taken it to the very, very extreme. I will -- I will say, Wendy.
(LAUGHTER)
ROMANS: We know that money and couples has always been a real tough issue. There's research out of Utah State and the National Marriage Project shows couples who argue about finances once a week are more than 30 percent more likely to divorce than couples who disagree about finances just a few times a month.
WALSH: Right.
ROMANS: Here's the thing. That's what this is about. They're disagreeing about money. This is all about money, how to spend it, and the priorities in the household, and the --
WALSH: Oh you love to think --
ROMANS: -- family, in the country.
WALSH: -- you think it's about money, Christine. But even couples who argue about money, it's really about power and having a voice. Money is just the convenient metaphor, if you will. It's the currency that they use.
I think this rift in the relationship goes back to 2011 with the grand bargain that didn't happen, and I think at that point, Boehner closed the door on the whole idea of ever negotiating with Obama.
Now, the problem is, these two are forgetting about the rest of their children, which are us, the American people. So, I think they've got to present a unified front with that angry stepchild, the Tea Party, and then they've got to start to think about all the rest of the children in the family, and put that ahead of their own individual needs. That's what saves marriages.
ROMANS: You know, sometimes it feels like they're fighting about one thing, and then suddenly the fight takes a turn and they're fighting about something else that's not related to the first thing -- fighting about Obamacare, now fighting about balancing the budget. That happens in couples, too.
WALSH: Yes, it's called flooding. And you're not allowed to -- you know, once water goes under the bridge, you cannot bring it up ever again. You have to move on to the next thing.
But as I said, you also have to look for what are the underlying issues. We use money and sex as our fighting things in relationships, but the truth is, it's always about power and compromise. These guys have to remember as everybody married couple has to remember that what they can accomplish together is so much greater than what either can do as an individual.
It's important that they're both there in the marriage; we need to have the Republicans as a watchdog and we need to have the president making his signature legislations. But they need to get along so that the rest of the family, the country, can grow and thrive.
ROMANS: If you had your 30-second, I guess, psychology pitch (inaudible) --
WALSH: Session? ROMANS: -- the session, your 30-second session, you sit them down, you say this is what you both need to do today to fix this relationship, what would you tell them?
WALSH: Well you know, Obama tried to call a meeting with all of Congress and Boehner held back and only let about 20 of them go, I think. I think they need to meet personally, these guys need to meet off the political arena. They need to go golfing together, they need to go for a jog together. They need to just hang out, have a beer and say how was your day and not talk about anything else except each other so that they can get to know that there's a real human there and it doesn't have to be a fight.
ROMANS: This is a fun metaphor to explore. It was fun. I don't mean to make light of it, but it really was fun. Wendy Walsh, nice to see you. Have a great weekend, Wendy.
WALSH: Nice to see you, too.
ROMANS: Up next, can this recovery withstand a government shutdown, the sequester and maybe new sharp budget cuts? Is this the time for austerity in America? We'll take a look, next.
(MUSIC PLAYING)
(COMMERCIAL BREAK)
ROMANS: 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.
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 for 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 that this has hurt Republicans and the Republican brand greatly.
Do I know whether that will live through 2014 or into 2016 to affect 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 issue 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 confidence 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 very 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 Washington, and no way to run your 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 checks will 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 versus takers argument is back again, only now it's the wagon pullers and the wagon riders. This sound bite caught my attention in the questioning of Secretary Jack 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 people 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 you're talking about budgets and the priorities of this government, 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 see this as an aging population needing more, you know, looking for the services that an aging population has always seen as theirs, which of course is Social Security, Medicare. They see more and more people that are going to join in to Obamacare, the Affordable Care Act, which will cost the government more money.
So they see 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. It is also about, are the funds there.
ROMANS: In the meantime the real action, the only action is really coming from the Federal Reserve.
Ken, 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 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 buy at some point 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 (inaudible) doing more 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.
Thank you so much, Candy Crowley and Ken Rogoff. Nice to see you.
Coming up on this emergency edition of YOUR MONEY, Richard Quest joins us to explain the debt ceiling like only Richard Quest can.
(BEGIN VIDEO CLIP)
RICHARD QUEST, CNN HOST: As the spending continues, eventually the government will reach the legal limit of its authority to borrow.
(END VIDEO CLIP)
ROMANS: The global reaction next.
(MUSIC PLAYING)
(COMMERCIAL BREAK)
ROMANS: Welcome back to this emergency edition of YOUR MONEY. Take a look at this: $16.7 trillion and change. That is the total outstanding debt of the United States, the maximum allowed by law. It's also nearly the same as the value of the goods and services our economy creates in an entire year.
If you stacked up what America owes in dollar bills it would reach to the moon and back nearly five times.
The U.S. pays interest on all that debt. So just who are America's bankers? Well, you and me. The public holds the biggest chunk -- about 40 percent of our debt. This includes banks, mutual funds, Americans who buy savings bonds and just about any investment that holds Treasuries.
Foreign governments hold about a third of the debt. China and Japan, with more than $1 trillion each, China the biggest foreign holder of U.S. debt. Finally the U.S. government owns the rest, a little less than a third. The Social Security trust fund investments in Treasury bonds. Think of it as keeping the money it takes out of your paycheck safe. That's right; takes it out of your paycheck and puts it into Treasury bonds until you're old enough to go get the benefits.
Retirement funds for military and civilian government employees are also included in that. And the Federal Deposit Insurance Corporation, the agency that insures your bank account, also has a big holding in U.S. debt.
Now Tea Party Republicans call this spending money we don't have on things we don't need. We have brought in CNN international guy Richard Quest to explain the way the U.S. government finances what is essentially the largest business in the world, the United States economy.
Richard?
QUEST: You have to bear in mind that all governments of every complexion at some stage need to borrow money. There is nothing obscene or unusual about that. And the United States perhaps has borrowed more than most but it is a very sizable economy. What is different in the U.S. to other countries is the way you go through this annual or biannual or every now and again business of having to decide when you can borrow more, and that is the problem.
(BEGIN VIDEOTAPE)
QUEST: 'Round and 'round every few years, the U.S. government goes into battle over the debt ceiling, the essential law needed so that the government can keep borrowing more money, because day-by-day step by step the U.S. has to keep borrowing to keep the government open.
Sometimes the U.S. government goes through $60 billion in a day. The money goes far and wide paying for government workers, infrastructure, even interest on existing debt. All this costs Washington money.
As the spending continues, eventually the government will reach the legal limit of its authority to borrow. It has reached the debt ceiling and unless the ceiling is raised, the options range from nasty to disastrous. At the moment, the U.S. Treasury has its head just under the ceiling. But decisions have to be taken. There can be instant austerity, hold spending at existing levels. That would push the U.S. and possibly the world economy towards recession.
Then there is robbing Peter to pay Paul, deciding who gets paid, prioritizing, technically very difficult. And finally, there is always default, a catastrophe of dizzying proportions sending confidence in the U.S. economy tumbling down. Because there is so much debt in the global economy, any form of default would have disastrous consequences for the markets.
The only thing that is certain is it would take years to clear up the mess and chaos. And of course the thing one has to remember in all of this, even if the worst-case scenario does not arrive, the sheer drip- drip-drip effect eventually creates a lack of confidence, consumers stop spending, businesses stop investing, foreign governments become wary and that in itself can have very a damaging effect, Christine.
ROMANS: You know, Richard, what's so interesting is that we have been talking about debt and deficits for years. In very good times you started to hear, 2005, 2006, 2007, talking about making sure that we had long-term priorities about lowering our debt, not just racking up more debt, but lowering our deficits, lowering our debt to more sustainable levels.
And then the financial crisis happened and you can't do that when you're trying to fight a global fire. And so now is the moment that it has come back where this austerity, this fiscal prudence is back and what the Republicans say, Richard, is that this Congress has never done it. They have never tightened their belt, ever.
So they are going to do it. They're going to force it.
Is that the right approach? QUEST: Well, you have got to do it somewhere. You are talking about the difference -- all right. Let's get into the deep weeds of budgetary stuff. You are talking about the difference between the cyclical deficit and the structural deficit. The cyclical bit, because you're in recession, you have to spend more, higher unemployment benefits, higher social services.
Everybody accepts cyclical deficits will be normal as part of government spending.
It is the structural deficit that is of more concern. And Europe, for example, is really having to deal with its structural deficit as indeed are many other countries around the world. That is the bit that even in good times you are spending too much.
Health care, Social Security and all sorts of benefits. And that is the bit that the critics say where the U.S. is concerned it has to address the structural, the long-term old age pensions, Social Security --
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ROMANS: That is the hardest thing to tackle. And that is the hardest thing to tackle because everything has a constituent who is Grandma or who is using Medicare and Social Security.
Let me ask you this very quickly, is there any risk that the world would stop lending money to the United States or at least slow that pace?
QUEST: Absolutely possibly maybe, thinking about it; on reflection, no.
ROMANS: Richard Quest, I tend to agree with you, sir.
Thank you so much. You're there at the IMF meeting in Washington, getting the scoop on the international perspective, thank you so much.
All right. Coming up.
SEN. PAT TOOMEY (R), PENNSYLVANIA: There is zero chance that the U.S. government is going to default on its debt.
REP. STEVE KING (R), IOWA: When we stop servicing the debt, that would be default. We are a long, long ways from that.
ROMANS: We go inside the minds of the debt ceiling deniers. That is next on this emergency edition of YOUR MONEY.
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(BEGIN VIDEO CLIP) BARACK OBAMA, PRESIDENT OF THE UNITED STATES: This does not add a dime to our debt. It simply says you pay for what Congress has already authorized America to purchase.
JOHN BOEHNER, SPEAKER OF THE HOUSE: When it comes to the debt limit, I agree with the president. We should pay our bills.
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ROMANS: Big business, economists, Democrats, some Republicans, even China agree the U.S. cannot default on its debt. Goldman Sachs warns it could tip the U.S. back into recession; the International Monetary Fund warns of a worldwide shock.
Despite all of that, 38 percent of Americans say not raising the debt ceiling would be a good thing. And it's an idea that's getting support from some lawmakers in Washington.
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KING: All of this talk about a default has been a lot of demagoguery.
SEN. TOM COBURN (R), OKLAHOMA: Here's a thing that all the media does say is default equals not raising the debt ceiling. That's not true.
REP. JOE BARTON (R), TEXAS: We are not going to default from the public debt. But that doesn't mean that we have to pay every bill the day it comes in --
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REP. MIKE POMPEO (R), KANSAS: Lots of businesses make decisions about how to prioritize spending. The government will do that, too. There's plenty of cash flow to pay interest payments come October 17th.
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ROMANS: I want to be very clear. Even if the Treasury could work through the legal and technical issues and pay bondholders first, the U.S. would still be breaking promises to pay its bills. Breaking promises on things like Social Security or military pay or contracts with small businesses.
Frank Keating is CEO of the American Bankers Association and a former Republican governor of Oklahoma.
Governor, this debt ceiling fight has really taken the business community -- it's made it very concerned. I mean, across the board. Trade associations, big and small businesses alike. All kinds of different companies saying stop this madness. Even talking about a default is just showing that we're -- it's setting a terrible example. We don't run a country like this.
FRANK KEATING, FORMER GOVERNOR OF OKLAHOMA: Happy Halloween. I don't know what else to say. You're absolutely right. It is a wretched place in which the country finds itself.
Yesterday, I testified in front of the Senate Banking Committee. Both democrats and republicans agreed. Default would be awful. Default is unprecedented. Default is over the cliff. Default could tank the stock market, could obviously dramatically raise interest rates, grind down enterprise and economic activity, put us back into the recession.
But, somebody says, we really have enough money to pay bills. Or the other person says but we're not ready to talk about entitlement reform.
So what I'm seeing today, if that's true, and maybe tomorrow or the next day, is that we'll have a plan to address entitlements, the looming bankruptcy of the United States and we'll raise the debt ceiling. We'll live happily ever after. That happens, great.
But these people are not paid as Democrats or Republicans. They're paid as American citizens representing us. And they need to get their act together.
ROMANS: Get their act together. And it's interesting because some trade associations are talking about waging primary campaigns against Tea Party Republicans.
I think that's kind of interesting that you could see trade groups actively campaigning for much more, I would say, mainstream Republicans going forward to try to get this element out of the process.
What do you think about that?
KEATING: Well, that will happen. How much and how effective it will be and how long it will last, who knows. But the problem with my party, the party of Lincoln, is we think we are all conservative and we're careful fiscal behaving people. The truth is from 1789 to 2000 it took George Washington 230 years to President George W. Bush's beginning of his term to amass a $5 trillion debt. Now, in eight years of George W., that about doubled to 10. Now it's doubling again, both Republicans and Democrats -- remember the spendthrift parties? This has to end. There has to be long-term entitlement reform.
In the year 2025, every cent will go to Medicare, Medicaid, Social Security and interest on the debt. This is all a part of it. So just let's go. Raise the debt ceiling. But don't have to go raise the debt ceiling all the time. Get our debt down.
ROMANS: So many business leaders, you know, Is the GOP still the party of business? That's my question to you. Is it still the party of business when you see so many business leaders saying, wait, the way you're doing business right now is not good for any of us. It's not good for our earnings, it's not good for demand. It's not good for the American people.
KEATING: Well, it may be still the party of business; certain small business. In the community banking space, two-thirds of new jobs that are created, as you know, are created by small business. So Republicans and Democrats do focus on that.
But the reality is you're elected to legislate to resolve the problems of the country. It's true it's a $17 trillion debt. This is awful. OK. But we're here. Now what are we going to do about it?
Recognize the fact that we're here, raise the debt ceiling and then try to address the long-term problems of the country.
ROMANS: It's also a $16 trillion economy, meaning we have an awful lot of earnings potential. You don't want to kill the golden goose while you're trying -- while you're trying to fix the debt and deficit. It's a delicate balance; they're just not really getting it.
KEATING: It is. But it takes bipartisanship, people need to get together. The Chinese are laughing at us. We just simply can't have this.
ROMANS: Frank Keating, it's nice to see you, thank you.
KEATING: Good to see you.
ROMANS: Happy Halloween.
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ROMNEY: All right, coming up. Who's winning and who's losing in the debt showdown in Washington? The answer may surprise you.
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ROMANS: Welcome back to this emergency edition of YOUR MONEY.
Sometimes in the midst of all the gloom and doom, you just have to laugh. Cue Congress and the cameras they love.
For example, the congressional gym is open, but the staff has been furloughed, which means members need to provide their own towels.
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REP. EARL BLUMENAUER (D), OREGON: The electricity, the hot water, the towels, they're not provided by gym fairies, they're provided by taxpayers.
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ROMANS: Of course, all you can do is laugh, the government shutdown, look no further than Miley Cyrus and "Saturday Night Live."
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ROMANS: Oh, yes, sometimes you really do just have to laugh.
That's it for this emergency edition of YOUR MONEY. The "Countdown to Crisis" continues, some late nights ahead, it looks like. Have a good weekend.
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