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Consequences of the Government Shutdown for the U.S. Economy

Aired October 19, 2013 - 09:30   ET


CHRISTINE ROMANS, CNN ANCHOR: The government is open for business. Hey, America can pay its bills for now. I'm Christine Romans and this is "YOUR MONEY."


ROMANS: Don't be fooled, the countdown to crisis continues. Congratulations, Washington ...

BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: I want to thank the leadership for coming together.

ROMANS: Once again, narrowly averted a disaster of your own making.

UNIDENTIFIED FEMALE: Major partisan poison pills.

ROMANS: Holding the U.S. hostage.

UNIDENTIFIED FEMALE: In exchange for ransom.

UNIDENTIFIED MALE: With the gun to your head.

ROMANS: Yes, the debt ceiling was raised and the government reopened. In other words what should have occurred from the start?

OBAMA: This whole shutdown has been completely unnecessary.

UNIDENTIFIED MALE: So, it's the worst case scenario hurt the American people.

UNIDENTIFIED MALE: Everybody loss.

ROMANS: Investors are certainly happy to be back from the brink. The Dow climbed 200 points, just after the Senate announced the deal, but before you pop the champagne, remember these dates? Well, now add two more of them to your calendar. January 15, that's the day we face another government shutdown and February 7th we hit the debt ceiling again. There is no end in sight to Washington's short-term thinking while avoiding long term problems. We've seen the bad ...

OBAMA: I will not negotiate over the full faith and credit of the United States.

ROMANS: The worst.

JOHN BOEHNER, (R-OH), SPEAKER OF THE HOUSE: This isn't some damn game.

ROMANS: And the ugly.

SEN. TED CRUZ (R-TX): I intend to speak in support of defunding Obamacare until I'm no longer able to stand.

ROMANS: So, what comes next?

SEN. JOHN MCCAIN (R) ARIZONA: We're not going to shut down the government again, I guarantee it.

ROMANS: The countdown to crisis continues.


ROMANS: It is really something, isn't it, when the progress is just doing your job. John King, the CNN chief national correspondent, Greg Valliere is the chief political strategist for Potomac Research Group. Gentleman, thanks for joining me. John, this is no way to run the world's largest business. Odds of a repeat in January?

JOHN KING, CNN CORRESPONDENT: You don't think this is the way to run a business? I was thinking of quitting and starting a new university, the management school of how not to.


KING: CSPAN can be your video textbook right there. Just of people watch and see. Look, the odds - you heard Senator McCain, you've heard the leadership saying we won't do this again. We won't do this again. The biggest motivation for not doing it again, Christine, is the damage to the Republican brand heading into those last dates you just circled on a calendar, happened to be in 2014 the election year. So, the budget committee people, they are starting to talk. They say they're going to work this out. Logic tells you they won't do it again for both policy and political reasons, but I will end with this, I have not met logic in Washington in quite a long time.

ROMANS: Yeah, I haven't either. Getting to you, Greg, you predict the 40 percent - 40 percent chance of a budget deal. That's less than 50/50, but it is higher than most?

GREG VALLIERE, CHIEF POLITICAL STRATEGIST, POTOMAS RESEARCH GROUP: Yes, I actually think there is a decent chance not because they want to do the right thing, God forbid, but they - everyone hates the sequester, Christine. Defense hawks hate what it's doing to the Pentagon, liberals hate what it's doing to NIH and I think there is a decent chance because of this antipathy to sequester that we're going to get a deal.

ROMANS: That's good news then. John. But we still had damage and damage that is growing. S&P estimates this shutdown cost $24 billion. Listen.


REP. NANCY PELOSI, (D-CA) HOUSE MINORITY LEADER: Was there a temper tantrum worth $24 billion? I don't think so.


ROMANS: The president has been pretty pointed in his criticism of Republicans since the deal, but this doesn't sound like the conciliatory tone Washington might need to move forward. You can't be blaming, right? And counting winners and losers if we're really going to get a decent budget deal?

KING: But that is the problem. That is why we have had Band-Aid budgeting for the last several years, and it's why - that we haven't prospect of doing this all again, and having it come right after deadline again. Because every time it ends up this: you have the policy concerns everybody knows, Christine. You've had guests on this program for a long time. You know, you have to make your choices, but you put Democrats and Republicans in a room, you tell them, this is the budget target, we have to look at Medicare, if we raise the retirement age, or maybe we means test it, everybody knows the policy choices that they have to go into a room and make and reach a bipartisan (inaudible). The problem is, policy keeps getting trumped by politics. And if you move into politics, you heard the president's tone, yes, he is trying to get some political gain here. Some Democrats think, this is very unlikely, but some Democrats think and it is possible they can get the House back in 2014. So do you have serious policy discussions and cut an early deal, or do you still get the politics to try to drive the mid-term elections, and Republicans have their own political concerns. Just now, do you have Tea Party saying, we are going to target the Republicans that voted yes on this compromise. So there are profoundly serious policy issues that date back, really, to the Clinton administration.

You just simply have to deal with them.

ROMANS: And then Greg, you also, you have personal ambitions too. I mean you know, this week I talked to Olympia Snowe, a former senator from Maine who called them podium thumping belligerents who had taken over the House and the Senate, and I said is Ted Cruz one of those? And she said, yes. He sets the bill. We're not going to do anything if people are moving forward, still on their own - for their own political reasons. What do you think about that?

VALLIERE: Well, you would like to think that the ambitions that could get realized are from governors. I think they are the winners in all of this, whether it's Chris Christie or, you know, Midwestern governors like Kasich, I think they are the adults in the debate. But let me just point out one of the things, if I might, Christine. That despite all of this dysfunction in theater, there is still two great stories in Washington for the markets. Number one, the Federal Reserve ....


VALLIERE: Because of all of this, is going to stay accommodated, very (inaudible), for longer than perhaps they would have. That's great for the market. Number two, the budget deficit is in free fall.


VALLIERE: We're going to get final numbers in about a week for the last fiscal year, we'll be down over 400 billion. The deficit continues to fall and most people don't realize it.

ROMANS: That's a very good point. Both of those reasons, one of the reasons why you had stocks at record highs this week, even though we know this countdown to crisis is not over. Greg Valliere, John King, nice to see both of you, thank you.

VALLIERE: Thank you.

ROMANS: So how do we get from gridlock to grand bargain? We'll turn to the inspiration behind Tom Cruz as iconic character. Jerry Maguire.


UNIDENTIFIED MALE: Show me the money. Show me the money.


ROMANS: Can a famous sports agent with a history of negotiating gargantuan deals under harsh public scrutiny, can that be the way to find the solution to Washington stalemate? Leigh Steinberg, next.


ROMANS: Debt ceiling, shutdown, gridlock. You're sick of hearing it, I'm sick of saying it. To get the long term solutions the U.S. deserves, it may just require something no one in D.C. has thought of yet. But on this show, it's not for lack of trying. Already, we've turned to political leaders, as well as business CEOs. That's not all. But American economy held hostage, we brought you a former FBI crisis negotiator. And last week, we even turned to a relationship counsellor. The goal? Repair the marriage between President Obama and the Republicans, a marriage strained by money and power. Still searching, we turn to Leigh Steinberg for "The Score." You want to figure out how to solve a big money negotiation playing out in the public eye? You turn to the man credited with inspiring Tom Cruise's character in "Jerry Maguire."


UNIDENTIFIED MALE: Show me the money. Show me the money.

UNIDENTIFIED MALE: Congratulations, you're still my agent.

(END VIDEO CLIP) ROMANS: We need a sports agent and attorney like Lee Steinberg to fix this negotiation. Welcome to the program. Leigh, now "Show me the money," it sounds a lot like the debt ceiling debate between Democrats and Republicans. If you're negotiating on behalf of a player, a player who wants more money and a stubborn owner, how doesn't want to pay, how do you get a deal that works for everyone? Tell me.

LEIGH STEINBERG, SPORTS AGENT AND ATTORNEY: The critical key is to look at the person representing the other side and understand their value system and their priorities and see the world the way that they see it. It's the only way to craft a win-win solution.

So that instead of looking at each other needs, the congressional Republicans and President Obama stock to their own agenda. And that never is going to be a way to solve anything. When you take proud men and put them up against a wall, and push them into confrontation, there comes a point at which neither side will ever give in.

ROMANS: It must be so fascinating to watch all of this from your vantage point, as somebody who is a master negotiator and has been in these very big deals with these big characters before. You wrote a book in 1999. It's called "The Winning with Integrity: Getting What You Want without Selling Your Soul." It focuses on non- confrontational negotiating. Maybe these guys should read it. Listen.


SEN. HARRY REID, (D) MAJORITY LEADER: I'm very disappointed with John Boehner who had once again tried to preserve his role at the expense of the country.

REP. STEVE KING (R) IOWA: We know that he is fightful. He is trying to teach America a lesson. This is a president that is not trying to do with the tools he's got the best that can be done for the American people.


ROMANS: How can Washington sharpen these negotiating skills? Or maybe they need to be more polite?

STEINBERG: What they need to do is to be able to project a future well before it comes. So the reality is that if I'm dealing with a general manager I might say OK, let's assume that the players now I had a camp, the public is angry, the owner is angry, everyone is in flames, what positions should we take then? And to take those positions before the actual confrontation ever occurs. And the whole concept of blaming each other, there has to be, again, a paradigm of cooperation. Where people know that they are going to deal with the other person over and over and over again. It's going to come back over again. So no one negotiation loses sight of the long-term. And they're sitting in a little bubble, in which their reality is completely screened off from the reality of people that actually are out of work.

ROMANS: And that is what really, really hurt about this. That it looks like a very political fight, for political winners and losers, and the American people really lost in the end. Leigh Steinberg, the sports agent and attorney, really nice to meet you, thanks for your perspective on this.

STEINBERG: My pleasure.

ROMANS: Billionaire Mark Cuban is off the hook for insider trading. You might know him as the owner of the Dallas Mavericks or for his brutal honesty on the show "Shark Tank." But he's also been in hot water with the SEC. Back in 2004 he said I'm out, he damped his entire share of Before details of the plan stock sale were announced. That saved him $750,000. A judge found that sale did not break any federal rules. For more stories on "Your Money", put 60 seconds on the clock. It's money time.

A hidden cost for the want fries with that economy? Low wages and you pay. A new study finds 52 percent of fast food workers families get government aid. Programs like food stamps and Medicaid.

Twitter is heading to the New York stock exchange. The stock's November debut drying a lot of attention. It's a big loss for the NASDAQ following last year's boxed Facebook IPO. Apple just hired its only female executive. Burberry CEO Angela Ahrendts will head up the retail arm starting next year. She will join nine men in Apple executive suits.

Netflix might not be cable's arch enemy after all. The online video service reportedly in talks with Comcast and others to make Netflix available on cable boxes. Quid pro panda? Do China a favor and you could be rewarded with a bear. Beijing has 50 pandas on loan to zoos around the world. Those loans tend to follow major trade in investment deals with China. And finally, congratulations to a good friend of the show, economist Robert Shiller. He won a Nobel Prize this week for predicting the housing and dotcom bubble.

Way to go, Bob. Really happy for you.

All right, the government opens for business, but the shame, the shame of Washington's dysfunction remains.


UNIDENTIFIED FEMALE: I do everything that I'm supposed to do, I get my bills paid, I pay my taxes, and all of a sudden, I'm trying to do an improvement for myself only to have them say you can't do that.


ROMANS: How the shutdown held back one Connecticut woman, next.


ROMANS: Congratulations, Congress, you did your job. You funded the government and allowed the U.S. to pay its bills. But in the meantime, $24 billion is gone. That's how much the shutdown yanked out of the economy, according to Standard & Poor's. For that price, we could pay fund the national school lunch program for two and a half years. We could pay for more than half of all 2013 Pell grants, or make much needed investment in our aging infrastructure, the airports. Instead Washington's dysfunction hurt the economy and a lot of innocent bystanders. Alison Kosik joins me now with more. Alison.

ALISON KOSIK, CNN CORRESPONDENT: Christine, the government is up and running, but that doesn't mean all is back to normal. The shutdown's effects were felt across this country even delaying mortgage refinancing. We met up with one Connecticut mother whose re- fi was shut down by Washington's dysfunction.


MARY BRADY, MORTGAGE HELD UP IN SHUTDOWN: But I feel like I gave my checkbook to toddlers.

KOSIK: Mary Brady is feeling trapped, the refinance on her $260,000 mortgage is yet another victim of the government shutdown.

BRADY: I know my problem might seem like a small thing, I'm just - I'm just a cog in the machine, but to me it's affecting a lot of other things.

KOSIK: The Connecticut nurse and divorced mother of two was scheduled to close on her refinancing last week. A run of the mill transaction that would save her almost $600 per month according to Michael Menatian, her mortgage banker.

MICHAEL MENATIAN, PRESIDENT, SANBORN MORTGAGE CORPORATION: Credit history, job stability, equity in the home, I mean you could not ask for a better loan.

KOSIK: At issue, a routine fraud report found that her Social Security Number may have been compromised, requiring verification from the IRS. But furloughs at the tax agency meant there was no one there to do so.

MENATIAN: The form's been sent in, and we can't get anybody. There's no one to talk to.

KOSIK: That means Mary is missing out on cold cash, money she planned to use to fund her Master's degree and home improvements.

BRADY: Unfortunately, with this kind of up-in-the-air, I might have to put those plans on hold. You can see they're difficult to open. I do everything I'm supposed to do. I get my bills paid. I pay my taxes. And all of a sudden I'm trying to do an improvement for myself, only to have them say you can't do that.

MENATIAN: Here's somebody that's, you know, for no fault of their own, because this fraud (ph) was pulled in the government shutdown, I mean who would have thought, you know, can't go forward with their lives.

KOSIK: Even with the shutdown lifted, the IRS is facing a massive backlog for this request. That means a simple Social Security verification, a process that normally takes a few days could take a few weeks. We called the IRS for more information, no word on exactly how long these delays are going to be. Christine?

ROMANS: All right. Another reason why the shutdown is over, but it still matters. Alison Kosik, thank you.

All right, take this can, fill it, fill it with some more money, and kick it right down the road. That was Washington this week. Get this, another record high. Google crossed $1,000 a share. How long can this possibly last? The best in CNN business with the answers to that next.


ROMANS: The reaction from market, foreign creditors and ratings agencies to Washington's dysfunction, not impressed. Kind of like McKayla Maroney at the London Olympics, that's how we feel. It's time to turn now to the best in the business, though. CNN business news, that is. Maggie Lake, Richard Quest and Zain Asher, all join me today. Maggie, let's just say for this for a moment: the government is open. There is no shutdown. S&P ended the week, you know, hit record highs for the week. And it's the weekend. What could possibly go wrong, Maggie?


MAGGIE LAKE, CNN BUSINESS CORRESPONDENT: Everything, because nothing's changed. But for the moment, no. For the moment we're hearing, and that's for stocks, not much. Because yesterday, the government opened, but more importantly, you have the Fed on the sidelines. And that's what stock investors care about. With Washington still in dysfunction, and it is, and still facing the same argument, most people think it's going to keep the Fed's foot on the gas. And that is good for (inaudible).

ROMANS: Google topped the $1000 this week, so everyone is talking about stocks for all the right reasons. Richard, you know, the president of the United States this week, he said that the U.S. is still the safest and most reliable place to invest. Listen.


OBAMA: Today, I want our people and our businesses and the rest of the world to know that the full faith and credit of the United States remains unquestioned.


ROMANS: All right. At the same time, China's official news agency says the deal nearly extends the fuse on the U.S. debt bond. Richard, can America regain her standing and reputation?

RICHARD QUEST, HOST, CNN'S QUEST MEANS BUSINESS: Yes and no. And in the sense that it may have gone, but it's not gone completely. It's still the biggest market in the world. And where does the 600- pound gorilla sit? Where it wants to. So, as long as it's got big, deep, liquid markets, vast bonding requirements, investors will still be coming here. What it is - what has it lost, its credibility. It has created an element of exasperation and frustration, because as the can has been kicked down the road ...


ROMANS: Or passed, in this case, nicely.


QUEST: And then once again, you know, the can gets kicked back again. It keeps getting kicked backwards and forwards, then what eventually happens, of course, and as people loses that temper. And they feel that the U.S. can't get its act together.

ROMANS: All right. So, meantime, here's the can. We've got to fill it with cash, because the more we kick the can, the more it costs the United States to borrow money. Right? If we have interest rates going up, Zain, the irony here, if interesting rates rise, the irony here, it actually - it will cost more for the United States to service the debt that we already have. The ratings agencies this week, again, talking about a warning of a downgrade. We had an actual downgrade back in 2011. But Americans, I feel like, Americans, are they paying attention to downgrades and warnings anymore? Do they matter?

ZAIN ASHER, CNN BUSINESS CORRESPONDENT: That's $10 million question. But I mean I think the fact is they didn't actually downgrade us. If they did actually downgrade us, this would be a completely different discussion. It was just a warning. Everybody and their grandmother knew that we weren't going to default. We pay bills on time. The effects of the S&P downgrade in 2011, if you look at it, fine, equities did tank immediately after.

ROMANS: Right.

ASHER: But they since have come back with a vengeance. The Dow is up more than 40 cents since that time. Treasures have rallied. Rates are lower. It's had virtually no impact on the cost of borrowing. And I think that I've been talking to Richard about this. In terms of public perception of ratings agencies, they did take a hit in 2008 during the financial crisis. They took the most toxic mortgage-backed securities and ...


QUEST: Don't, you're all trying to turn the tables away from where the discussion lies. And the discussion here is we're in the new game.

ROMANS: Yes. QUEST: And the new game is in a rising China, an emboldened Asia, a Europe that's getting its act together. Getting its act together. Come on.


QUEST: No. Europe managing puts in place this week, the single supervisory mechanism, for super banking. I'm not saying they're going gang busters. And they are doing it very soft.

LAKE: Youth unemployment 50 percent, it's impossible to push the austerity. And Germans who want to pick up the bill - they have a lot of problems at the end of the day.



QUEST: What I'm saying is ...

LAKE: And they have a credibility issue, too.

QUEST: What I'm saying ...

ASHER: You think credit agencies do matter, they're crucial.

QUEST: Ratings agencies matter because the market says they matter.

LAKE: No, the market tells you that if you have to hear from a rating agency, then you're in trouble. Because you should have known it long ...

QUEST: But making that - rating agencies are still used for the basis of the funding decisions.

ROMANS: All right, at times like these, sometimes you just have to laugh, right? Figuring out a compromise on the debt ceiling, figuring out the definition of the debt ceiling is still stumping a lot of Americans, as "Late Night" host Jimmy Kimmel and his team discovered this week.


UNIDENTIFIED FEMALE: Do you think that the debt ceiling fan should be oscillating?

UNIDENTIFIED MALE: Yeah, yeah, to a certain extent.

UNIDENTIFIED FEMALE: And do you think the Republicans do the right thing by allowing Obamacare to move forward, even though the impending debt crisis ...


UNIDENTIFIED FEMALE: Do you think that the ceiling fans need to be reupholstered?

UNIDENTIFIED FEMALE: Like what would be the right thing to do?

UNIDENTIFIED FEMALE: Yeah, I guess so. I would say. They need to be reupholstered.

UNIDENTIFIED FEMALE: Of all of these sequesters in our government, who's your favorite?



ROMANS: All right. Check out Jimmy Kimmel live, on the whether people - catch the full version of Kimmel's confusing question of the day. We cover this stuff. We think it's confusing to you. Coming up, a brand new, "YOUR MONEY", at 2 P.M. Eastern, Republicans consider the party of business forever. But is that party over as a result of a rift within the GOP?

And coming up in the CNN NEWSROOM at the top of the hour, the fit Facebook mom who posted this, "What's your excuse" picture. She's ignited a social media firestorm, she is live to talk about it coming up in the next hour of the CNN newsroom. What's my excuse?