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Economy in Crisis; President-elect Obama Addresses the Nation about Economic Recovery
Aired January 08, 2009 - 11:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN ANCHOR: It is Thursday, January 8th, 12 days until the inauguration of Barack Obama. Here are the top stories we're following for you in the NEWSROOM.
The president-elect selling his plan to turn the economy around. Live coverage of his speech this hour, along with smart analysis from our guests.
A show of support for Hamas. Militants in Lebanon fire rockets into northern Israel, while the fight in Gaza rages on.
A flood in Washington State looks like one for the history books. Relentless rain and melting snow floods homes and stirs mudslides.
Good morning, everyone. I'm Tony Harris. And you are in the CNN NEWSROOM.
First this hour, as President-elect Barack Obama prepares to tackle a huge economic problem, new evidence the recession is tightening its stranglehold on your wallet.
Our Susan Lisovicz joins us now from the New York Stock Exchange.
Susan, good morning.
SUSAN LISOVICZ, CNN CORRESPONDENT: Good morning, Tony.
And remember, consumer spending accounts for more than two-thirds of economic activity. Having said that, most big retailers today are reporting their holiday sales figures, and there's little reason to celebrate.
Macy's sales tumbled 4 percent. It will close 11 stores and lay off nearly a thousand workers. Sears saw its sales plunge 7 percent. Limited, which owns Victoria's Secret and Bath and Body Works plunged 10 percent. Wal-Mart, which had been the standout during this recession, eked out a 1.7 percent gain in sales, but that's much less than the store and analysts expected.
There are more layoffs, meanwhile, to tell you about today.
PC-maker Lenovo is cutting 2,500 jobs, or 10 percent of its global workforce. And the electronics company TDK will slash 8,000 jobs worldwide and close four plants.
That is why the president-elect is talking about stimulus. Fear of jobs and the loss of jobs certainly reining in consumer spending sharply -- Tony.
HARRIS: And Susan, if we get a moment before the president-elect prepares to give his remarks, we will check back in with you and get some thoughts on how Wall Street is keeping an eye on this speech, and might react, in just a couple of minutes.
All right, Susan. Thank you.
LISOVICZ: You're welcome.
HARRIS: The speech by the president-elect set to start any minute now, and we will, of course, have it for you live. He will warn that the recession could linger for years unless Congress acts quickly on a stimulus plan. Our correspondents and experts will help us break it all down after the speech.
Right now, a preview from Senior White House Correspondent Ed Henry, live from Fairfax, Virginia.
Ed, good to see you.
I'm curious, more specifics in this speech, or more preparing the ground for the size and scope of the plan to come?
ED HENRY, CNN SR. WHITE HOUSE CORRESPONDENT: It's the latter, Tony. He's going to be making a sales pitch; he's trying to lay the groundwork for dramatic action early in his term. And you heard the dire warnings we've already been laying out from some of the excerpts that have been coming out, where he's going to warn of the possibility of double-digit unemployment if there is not quick action.
But in terms of details, his aides are saying he's not going to get into the weeds in this speech, if you will, and that may frustrate some people, specifically on Capitol Hill, who are trying to get their arms around exactly how much all of this is going to cost. We've heard estimates of $775 billion. The president-elect himself yesterday said that on the estimates of $675 billion to $775 billion, it would be on the higher end, so it would be right in that neighborhood.
But you have you to remember, there is now a forecast of a $1.2 trillion budget deficit. So the president-elect is now trying to make the case for adding $775 billion on top of that.
Let's not forget yesterday, when he was asked about the entitlement programs, Social Security and Medicare, he said that will be a big project for him to tackle once he's president, but sort of punted until February in terms of the details. What is he going to do with Social Security and Medicare to try to get his arms around this budget, this fiscal mess? And so people are going to be pressing for details in the days ahead.
Let's not forget, he also has talked, at least he did on the campaign trail, about dramatically expanding health insurance coverage in this country. That's going to cost tens, maybe hundreds of billions of dollars. And so part of what he's trying to do here is say, look, I realize that this is going to increase the budget deficit in the short term, but he feels that the economic crisis is such that short-term desperate action needs to be taken to try to turn the economy around. And then you deal in the medium to long term with some of those budget issues I mentioned like Social Security and Medicare.
But let's not forget, those problems are not going away. They do need to be tackled, they have been put off by many presidents, by many Congresses of both parties. But you get the sense, as you hear these dire forecasts, not just from the president-elect, but economists in both parties, that the check is finally coming due after years of Washington sort of pushing it down the road, government IOUs. And so he has a very difficult case here to make in terms of, you know, how does the government continue, on top of all of the bailouts we've seen in recent months, continue to write these hot checks, and hope that someday it's all going to be paid off -- Tony.
HARRIS: It's a tough sales job, but Ed, am I correct in assessing it this way -- he has some room to play with? These are huge numbers, but he has the electoral win, he has economists from both sides of the aisle saying that something bold needs to happen, he has some congressional support, obviously, and congressional Democrats, so he has some room to work with as he makes this case...
HENRY: Absolutely.
HARRIS: ... for this huge spending plan.
HENRY: He has some pluses for the president-elect, he has stronger, bigger Democratic majorities in had both the House and the Senate. That can help.
Also, I spoke to Republican senator a couple days ago who was telling me he was quite impressed by the fact that Barack Obama immediately went up to Capitol Hill not just to meet with Democrats, but to meet with those Republican leaders. And beyond the talk about reaching out to them, did put on the table, at least so far, a $300 billion tax cut as part of this broader $775 billion stimulus plan.
Tax cuts, obviously, are something that Republicans like a lot. In the campaign, John McCain was talking about cutting taxes and charging that Barack Obama would raise taxes. So now coming right out of the chute with a $300 billion tax cut, that can help him build some support on the Hill among Republicans and Democrats.
He does have some political capital to spend, but this is going to take a Herculean effort to sell it, still, given the fiscal environment he's working in right now. The clock is ticking if he wants to get action in late January, early February. And I think what it means for individual people back home is so critical, because as they're watching, they want to know what's in it for me?
HARRIS: That's right.
HENRY: So far we know that individuals will get tax cuts of $500, families about $1,000. But which families? That's what everyone wants to know, and those are the details we're not getting yet.
As a candidate, Barack Obama said if your family is making $200,000 or less, you would get that tax cut of $500 an individual, $1,000, if it's a couple, if it's a family. But right now, his staff is not saying whether that $200,000 limit still applies, whether it's going to be lower or higher.
A lot of people watching very closely. They're not going to get that detail today, we're told, but they want it in the days ahead so they know what's in it for them -- Tony.
HARRIS: Outstanding.
Senior White House Correspondent Ed henry for us.
And Ed, we will let you take your place in the hall.
We want to hear from you. Issue #1 is your job, your life, your money. Listen to the upcoming speech by President-elect Barack Obama, then e-mail us your thoughts, suggestions, ideas. The address, here it is, cnnnewsroom@cnn.com.
All right. Let's bring in our CNN money team to dig a little deeper into the speech and the president-elect's plans.
CNN's Christine Romans and Chief Business Correspondent Ali Velshi live from New York.
And guys, we are about -- oh, about eight to 10 minutes away from the start of this speech.
CHRISTINE ROMANS, CNN CORRESPONDENT: Yes.
HARRIS: And Ali, let me start with you.
Are we likely to get more specifics or, again, this idea of preparing the ground for the size and scope of the plan? And if at the end of the speech you don't have more specifics on this plan, will you be disappointed?
ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: Well, I think they're billing it as a major speech. And yet, they have built up expectations that there will be limited specifics. Now, the issue here, as Barack Obama said, is he needs to build up trust, restore confidence in the system.
It used to be that the president, as, you know, cheerleader in chief for the economy, had to be very careful. This past administration was very careful about talking about recessions and downturns for fear of spooking Americans into not spending their money because they're fearful about losing their jobs. That fear is gone.
ROMANS: Yes. VELSHI: There's no more fear about talking down the economy. I think you're going to hear a president who is going to be talking down the economy, quite possibly saying it will be worse before it gets better. And, in fact, it could be dire. It could be years of double- digit -- not double-digit -- of...
ROMANS: A lingering recession.
VELSHI: A lingering -- trillion-dollar deficits. And he's going to talk about the possibility of double-digit unemployment.
So the idea now is, you know what? We're not going to sugarcoat this one. This is bad.
HARRIS: Christine, Barack Obama is going to make the case this morning, as you were just talking about, that urgent action is absolutely necessary, or as you were just discussing, you're going to brace yourself for a years-long recession here.
Based on your reporting, is it absolutely correct in that assessment, and if you don't get some specifics out of this speech, will you be disappointed?
ROMANS: First, I think based on my reporting, I'm shocked that so many economists of all different political stripes and all different backgrounds and all different areas of expertise agree we need to spend a fortune, a fortune, more money than we can imagine. We have to spend to prevent what could be a very, very long, protracted, painful downturn that will hurt people and hurt this country. And we need to tackle it right now. And the president has a door that is open in this financial crisis, where he has the political cover to go in and try to do that.
The second part of that is the bigger picture. We're now starting to ask questions about -- what magnifies this whole thing is the fact that we haven't had our fiscal house in order for years.
HARRIS: True.
ROMANS: And that we have been living beyond our means as a country and as people, and this has all come home here to really, really hurt us.
HARRIS: OK.
ROMANS: So then he has got longer-term issues to address.
Will I be concerned if he doesn't give me the details? I don't want a bunch of details for the sake of details if things need to change a week from now...
VELSHI: We want to know that he's got the idea and...
(CROSSTALK)
ROMANS: I mean, I don't want him to make mistakes. It's got to be done right, it's got to be targeted correctly.
HARRIS: Well, then let me stop you there and pick up with this point.
So, to both of you -- Christine, you start with this one. Do you believe, based on what you know about the president-elect's plan so far, heavy on infrastructure, tax relief, that he is planning to use the money in the most efficient way?
ROMANS: I think that if you have a variety of things, if you have big tax cuts -- 40 percent of the stimulus will be tax cuts -- if you have the right infrastructure spending that keeps jobs in this country -- that's something that you know the Obama team is looking at -- if you spend a bunch of money and you're creating jobs someplace else, that's going to be a problem, creating jobs in this country. But also creating jobs that are across the spectrum, not just heavy labor jobs, not just building bridges, but also information technology.
I like the idea. I he really like the idea of modernizing health records and hospitals.
VELSHI: Right, because that's one of the only places you can start to save money.
ROMANS: It might help save money, bring down health care costs.
They have to look at this, Tony, frankly, on a whole host of different levels. So that's why I think the details are kind of sketchy at this point, because they're looking at so many different things.
VELSHI: Yes.
The problem, Tony -- like, one of the issues -- Christine talked about 40 percent of stimulus bill going to tax cuts, and some of them on the business side are actually very targeted, designed to create jobs or spending. The $500 tax return, or whatever the money that goes to individuals...
ROMANS: Credit, right.
VELSHI: ... and the $1,000 to families, I don't think that's sufficient. I think that's entirely, entirely political and designed to get votes. And I'm disappointed that there's any of that in here, because the bottom line is, as Christine said, this economy and this past election has given Barack Obama all of the political cover he needs to spend and do what he needs to do to get it done.
HARRIS: Yes.
VELSHI: And that is an inefficient way of spending money, because it didn't work last time. If it did work in the spring, we may not have been in a recession.
ROMANS: You know, more than a few people, Tony, when I was reporting on the tax cuts, more than a few very well-known economists, people who I really trust, our sources, were saying, we hope the American people realize their taxes are going to have to go up in a few years.
VELSHI: Right.
HARRIS: At some point here soon, yes. Yes.
ROMANS: And your taxes are going up, or you're going to have real cuts to government services.
HARRIS: In services, yes.
ROMANS: Our standard of living is -- our standard of living is in jeopardy.
VELSHI: Is in danger, yes.
HARRIS: OK. Let's leave it there for now. And guys, I appreciate your time, as always. And if you would, listen to the speech. I know you are.
And Christine, I know you've got other responsibilities, but if you get a moment, come on back and let's talk after the speech. All right?
ROMANS: Sure.
HARRIS: Ali, appreciate it, as well. Thank you.
Let's get some expert perspective on what we could hear from the President-elect. Peter Morici is an economist, an international business professor at the University of Maryland.
Peter, good to see you, as always.
Let's get started here. Based on what you know of the plan so far, the same question I asked to Christine and Ali a moment ago, it is essentially an infrastructure and tax relief plan at its core.
Do you believe the president-elect is planning to use the money in the most efficient way?
PETER MORICI, ECONOMIST: No, I don't. My feeling is the infrastructure spending is exactly what we need. And if we did $200 billion of that this year and $300 billion next year, that would cover it, at least through the end of 2010.
The tax cuts, we know, don't deliver a lot of results either on the business side, nor on the -- you know, the side of ordinary taxpayers, these tax rebates and so forth. History has shown those things don't work very well. So just stick to the infrastructure spending and that would keep the price tag in order.
HARRIS: You would really stick with the infrastructure components of this? MORICI: Absolutely. I might give a little bit of money back in the second quarter of this year, just to make people feel good, because it's going to take time to get the infrastructure spending going. But I would predominantly stick to infrastructure and keep the price tag at about $600 billion through the end of 2010 to keep the price tag from getting too much out of order.
Beyond that, we have to ask, why do we need stimulus after stimulus? Why is this going to take years and years and years?
The answer is, we've been living beyond our means, we have a huge trade deficit which requires us to borrow from abroad and then have lots of credit at home. Is he finally going to take that on? Because if we resolve the trade deficit, if we get rid of the net imports, the oil, the imports from China, at least by exporting more or importing less, then we won't need so much stimulus.
That's what I'm not hearing from his people. How are they going to resolve the basic structural problem that's pulling down the economy?
And of course the other issue is the banks. I expect some generations about that, but he keeps talking about more regulation.
HARRIS: Peter, let me interrupt.
The president-elect from George Mason University.
BARACK OBAMA, PRESIDENT-ELECT OF THE UNITED STATES: Thank you so much. Let me begin by thanking George Mason University for their extraordinary hospitality and to thank all the great friends, the governors, the mayors who are in attendance here today.
Throughout America's history, there have been some years that simply rolled into the next without much notice or fanfare. And then there are the years that come along once in a generation, the kind that mark a clean break from a troubled past and set a new course for our nation. This is one of those years.
We start 2009 in the midst of a crisis unlike any we have seen in our lifetime, a crisis that has only deepened over the last few weeks.
Nearly 2 million jobs have been now lost. And on Friday, we're likely to learn that we lost more jobs last year than at any time since World War II. Just in the past year, another 2.8 million Americans who want and need full-time work have had to settle for part-time jobs.
Manufacturing has hit a 28-year low. Many businesses cannot borrow or make payroll. Many families cannot pay their bills or their mortgage. Many workers are watching their life savings disappear. And many, many Americans are both anxious and uncertain of what the future will hold.
Now, I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible. If nothing is done, this recession could linger for years.
The unemployment rate could reach double digits. Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four.
We could lose a generation of potential and promise as more young Americans are forced to forego dreams of college or the chance to train for the jobs of the future. And our nation could lose the competitive edge that has served as a foundation for our strength and our standing in the world.
In short, a bad situation could become dramatically worse.
This crisis did not happen solely by some accident of history or normal turn of the business cycle. And we won't get out of it by simply waiting for a better day to come or relying on the worn-out dogmas of the past.
We arrived at this point due to an era of profound irresponsibility that stretched from corporate board rooms to the halls of power in Washington, D.C.
For years, too many Wall Street executives made imprudent and dangerous decisions, seeking profits with too little regard for risk, too little regulatory scrutiny, and too little accountability. Banks made loans without concern for whether borrowers could repay them, and some borrowers took advantage of cheap credit to take on debt they couldn't afford.
Politicians spent taxpayer money without wisdom or discipline and too often focused on scoring political points instead of problems they were sent here to solve.
The result has been a devastating loss of trust and confidence in our economy, our financial markets, and our government.
Now, the very fact that this crisis is largely of our own making means that it's not beyond our ability to solve. Our problems are rooted in past mistakes, not our capacity for future greatness.
It will take time -- perhaps many years -- but we can rebuild that lost trust and confidence. We can restore opportunity and prosperity.
We should never forget that our workers are still more productive than any on Earth. Our universities are still the envy of the world. We are still home to the most brilliant minds, the most creative entrepreneurs, and the most advanced technology and innovation that history has ever known. And we are still the nation that has overcome great fears and improbable odds.
If we act with the urgency and seriousness that this moment requires, I know that we can do it again.
That is why I have moved quickly to work with my economic team and leaders of both parties on an American Recovery and Reinvestment Plan that will immediately jump-start job creation and long-term growth. It's a plan that represents not just new policy, but a whole new approach to meeting our most urgent challenges.
For if we hope to end this crisis, we must end the culture of "anything goes" that helped create it, and this change must begin in Washington.
It's time to trade old habits for a new spirit of responsibility. It's time to finally change the ways of Washington so that we can set a new and better course for America.
There is no doubt that the cost of this plan will be considerable. It will certainly add to the budget deficit in the short term.
But equally certain are the consequences of doing too little or nothing at all, for that will lead to an even greater deficit of jobs, incomes, and confidence in our economy.
It is true that we cannot depend on government alone to create jobs or long-term growth. But at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the cycle that are crippling our economy, where a lack of spending leads to lost jobs, which leads to even less spending, where an inability to lend and borrow stops growth and leads to even less credit.
That's why we need to act boldly and act now to reverse these cycles. That's why we need to put money in the pockets of the American people, create new jobs, and invest in our future. That's why we need to restart the flow of credit and restore the rules of the road that will ensure a crisis like this never happens again.
This plan begins with -- this plan must begin today, a plan I'm confident will save or create at least 3 million jobs over the next few years.
It's not just another public works program. It's a plan that recognizes both the paradox and promise of this moment: the fact that there are millions of Americans trying to find work, even as all around the country there's so much work to be done.
And that's why we'll invest in priorities like energy and education, health care and a new infrastructure that are necessary to keep us strong and competitive in the 21st century.
That's why the overwhelming majority of the jobs created will be in the private sector, while our plan will save the public sector jobs of teachers, police officers, firefighters, and others who provide vital services.
To finally spark the creation of a clean energy economy, we will double the production of alternative energy in the next three years. We will modernize more than 75 percent of federal buildings and improve the energy efficiency of 2 million American homes, saving consumers and taxpayers billions on our energy bills.
In the process, we will put Americans to work in new jobs that pay well and can't be outsourced, jobs building solar panels and wind turbines, constructing fuel-efficient cars and buildings, and developing the new energy technologies that will lead to even more jobs, more savings, and a cleaner, safer planet in the bargain.
To improve the quality of our health care while lowering its cost, we will make the immediate investments necessary to ensure that, within five years, all of America's medical records are computerized. This will cut waste, eliminate red tape, and reduce the need to repeat expensive medical tests.
But it just won't save billions of dollars and thousands of jobs; it will save lives by reducing the deadly but preventable medical errors that pervade our health care system.
To give our children the chance to live out their dreams in a world that's never been more competitive, we will equip tens of thousands of schools, community colleges, and public universities with 21st-century classrooms, labs, and libraries. We'll provide new computers, new technology, and new training for teachers so that students in Chicago and Boston can compete with children in Beijing for the high-tech, high-wage jobs of the future.
To build an economy that can lead this future, we will begin to rebuild America. Yes, we'll put people to work repairing crumbling roads, bridges and schools, by eliminating the backlog of well- planned, worthy, and needed infrastructure projects, but we'll also do more to retrofit America for a global economy.
That means updating the way we get our electricity, by starting to build a new smart grid that will save us money, protect our power sources from blackout or attack, and deliver clean, alternative forms of energy to every corner of our nation.
It means expanding broadband lines across America so that a small business in a rural town can connect and compete with their counterparts anywhere in the world.
It means investing in the science, research, and technology that will lead to new medical breakthroughs, new discoveries, and entire new industries.
And, finally, this Recovery and Reinvestment Plan will provide immediate relief to states, workers, and families who are bearing the brunt of this recession. To get people spending again, 95 percent of working families will receive a $1,000 tax cut, the first stage of a middle-class tax cut that I promised during the campaign and will include in our next budget.
To help Americans who have lost their jobs and can't find new ones, we'll continue the bipartisan extension of unemployment insurance and health care coverage to help them through this crisis.
Government at every level will have to tighten its belt, but we'll help struggling states avoid harmful budget cuts, as long as they take responsibility and use the money to maintain essential services, like police, fire, education, and health care.
Now, I understand that some might be skeptical of this plan. Our government has already spent a good deal of money, but we haven't yet seen that translate into more jobs, or higher incomes, or renewed confidence in our economy.
And that's why the American Recovery and Reinvestment Plan won't just throw money at our problems. We'll invest in what works.
The true test of policies we'll pursue won't be whether they're Democratic or Republican ideas, whether they're conservative or liberal ideas, but whether they create jobs, grow our economy, and put the American dream within the reach of the American people.
Instead of politicians doling out money behind a veil of secrecy, decisions about where we invest will be made transparently and informed by independent experts wherever possible.
Every American will be able to hold Washington accountable for these decisions by going online to see how and where their taxpayer dollars are spent.
And as I announced yesterday, we will launch an unprecedented effort to eliminate unwise and unnecessary spending that has never been more unaffordable for our nation and our children's future than it is right now.
We have to make tough choices and smart investments today so that, as the economy recovers, the deficits start coming down. We cannot have a solid recovery if our people and our businesses don't have confidence that we're getting our fiscal house in order.
And that's why our goal is not to create a slew of new government programs, but a foundation for long-term economic growth.
That also means an economic recovery plan that is free from earmarks and pet projects. I understand that every member of Congress has ideas about how to spend money. Many of these projects are worthy; they benefit local communities.
But this emergency legislation must not be the vehicle for those aspirations. This must be a time when leaders in both parties put the urgent needs of our nation above our own narrow interests.
Now, this recovery plan alone will not solve all the problems that led us into this crisis. We must also work with the same sense of urgency to stabilize and repair the financial system we all depend on.
That means using our full arsenal of tools to get credit flowing again to families and businesses, while restoring confidence in our markets. It means launching a sweeping effort to address the foreclosure crisis so that we can keep responsible families in their homes.
It means preventing the catastrophic failure of financial institutions whose collapse could endanger the entire economy, but only with maximum protections for taxpayers and a clear understanding that government support for any company is an extraordinary action that must come with significant restrictions on the firms that receive support.
And it means reforming a weak and outdated regulatory system so that we can better withstand financial shocks and better protect consumers, investors, and businesses from the reckless greed and risk- taking that must never endanger our prosperity again.
No longer can we allow Wall Street wrongdoers to slip through regulatory cracks. No longer can we allow special interests to put their thumbs on the economic scales. No longer can we allow the unscrupulous lending and borrowing that leads only to disruptive cycles of bubble and bust.
It is time to set a new course for this economy, and that change must begin now.
We should have an open and honest discussion about this recovery plan in the days ahead, but I urge Congress to move as quickly as possible on behalf of the American people, for every day we wait or point fingers or drag our feet, more Americans will lose their jobs, more families will lose their savings, more dreams will be deferred and denied, and our nation will sink deeper into a crisis that at some point we may not be able to reverse.
That is not the country I know. It is not a future I accept as president of the United States. A world that depends on the strength of our economy is now watching and waiting for America to lead once more, and that is what we will do.
It will not come easy or happen overnight. And it is altogether likely that things may get worse before they get better.
But that is all the more reason for Congress to act without delay.
I know the scale of this plan is unprecedented, but so is the severity of our situation. We have already tried the wait-and-see approach to our problems, and it is the same approach that helped lead us to this day of reckoning.
And that is why the time has come to build a 21st-century economy in which hard work and responsibility are once again rewarded. That's why I'm asking Congress to work with me and my team day and night -- on weekends, if necessary -- to get the plan passed in the next few weeks.
That's why I'm calling on all Americans, Democrats and Republicans and independents, to put -- to put good ideas ahead of the old ideological battles, a sense of common purpose above the same narrow partisanship, and insist that the first question each of us asks isn't "What's good for me?" but "What's good for the country my children will inherit?"
More than any program or policy, it is this spirit that will enable us to confront these challenges with the same spirit that has led previous generations to face down war and depression and fear itself.
And if we do, if we are able to summon that spirit again, if we are able to look out for one another and listen to one another, and do our part for our nation and for posterity, then I have no doubt that, years from now, we will look back on 2009 as one of those years that marked another new and hopeful beginning for the United States of America.
Thank you. God bless you. And may God bless the United States of America.
(APPLAUSE)
HARRIS: The President-elect Barack Obama from George Mason University, with what his aides have described as a major speech on the economy. Let's bring in our CNN Money team to dig a little deeper into the speech from the president-elect.
CNN's Christine Romans and chief business correspondent Ali Velshi, live, both of them from New York.
And Ali, let me start with you. The president-elect said only government can spend the kind of money necessary to reverse the economic downturn that we're now in.
Is he correct?
VELSHI: Yes. He's 100 percent correct. And we spent -- we wasted a lot of time in 2008 with people arguing that case. We got to a point, we crossed a point where we needed so much money, there was no option.
And you know what, you'll still hear from people and it's a ridiculous argument that government not only isn't the only one who can do that, but shouldn't be involved in this. But it's that kind of nonsense that got us as deep in this hole as we did, so he's absolutely correct.
Now, what you asked us before we went in to this speech...
HARRIS: Yes.
VELSHI: ...is about specifics. We heard some specifics, but what we heard is no hedging that the kind of hedging we used to hear about how bad this is.
ROMANS: Yes.
VELSHI: He is painting a very serious, you know, scenario here. ROMANS: It's a bad situation. He is talking about a day of reckoning, he is use quite eloquent language to describe where we are right now and where we could be. You know, as we said...
VELSHI: Yes. Because it could get worse before it gets better.
ROMANS: ...laying out the ground work here, very frankly, about just how bad it could get -- which should -- you would think though, the motive here is that you know, you really tell it straight to the American people and Congress and then you don't have the funny business...
HARRIS: Yes.
ROMANS: ...of people trying to get their own earmarks and their own causes.
(CROSSTALK)
VELSHI: But you know what the danger was? Remember when Henry Paulson and Ben Bernanke went to Congress before the $700 billion bailout and said -- you know, I'm paraphrasing, but basically said it would be Armageddon if we didn't have this bill.
There are some people who believe that if we hadn't had that stimulus bill we'd be much, much worse off than we are. And there are others who say, we passed a $700 billion bill, the market went down, we're no better off. So this business about talking about how bad it's going to be and then saying Congress has to act (ph), does have a bad precedent to it, so that's dangerous territory.
HARRIS: Yes.
ROMANS: They were specifics in there, Tony. You know, he's talking about rebuilding America; he's talking about wiring school, you know, classrooms; he's talking all of these different -- some of the things we've heard, a lot of these things we heard on the campaign trail, quite frankly. These are the things that he wants to do.
He's very eloquent in stating, you know, we need a clean break from a troubled past, and set a new course, you know, for our nation. Very eloquent stuff. But there's some dirty business in Washington, in politics, and this is a big, huge Christmas tree of spending to try to get through.
HARRIS: Yes. Yes.
ROMANS: You know you think, Ali? I mean, it's -- it's very eloquent, but boy, he's going to have to prove serious leadership skills to get all this stuff done.
HARRIS: Yes, OK. Guys, if you will stand by, I've got a couple of other questions, but I want to get to our senior White House correspondent, Ed Henry very quickly.
And you see Susan Lisovicz ready to join us in just a second. But Ed, to you first, I was struck by this line from the president- elect. And I'm paraphrasing just a bit here, we have come to this point after a period of profound irresponsibility. It, it felt a bit -- and this is not a criticism, like a speech he could have given during the general election campaign.
HENRY: You're right. Tony, it's quite interesting. I was thinking the same thing, that this is sort of the sweeping of broad language that we saw in the campaign, but we haven't seen in the transition.
We've seen a much different Barack Obama, when he was laying out his plans, you'd see the teleprompters come out, these long speeches, you know, not the quick sound bites. And he was doing that once again. Getting back into a stride, that did, quite frankly, work well for him on the campaign.
And I did note that line, as well. You're right about irresponsibility, another line as well I wrote down about it's time to end -- and I'm paraphrasing, the culture of anything goes and usher in a new era of responsibility.
So again, as Ali and Christine are so eloquently pointing out, this is all about trying to be blunt about how deep this crisis is to sell this plan to the American people and to the Congress. About quick, dramatic action, that we can't wait any longer.
But I said it before, I'll say it again. The devil is in the details. And that is something he has still not spelled out. That is what we're waiting for.
And one last point. It turns out, I guess, that sometimes there are two presidents at a time. We've heard again and again, there's only one president at a time, specifically when he's talking about foreign policy. But you have to say, this was sort of a presidential speech in terms of its sweep, in terms of its scope, almost, and I stress almost reminisce a sort of a state of the union, a broad sort of joint session of Congress kind of speech in terms of laying out a broad vision. But, again, he's got a lot of work to do in the days ahead to sort of fill in the details, Tony.
HARRIS: That -- terrific analysis. All right, senior White House correspondent Ed Henry for us.
Let's bring in Susan Lisovicz from the New York Stock Exchange, and Susan, I know Wall Street is paying attention to virtually every utterance from the president-elect and certainly, was paying attention to this speech. A lot of attention given to job creation. I thought I detected a change in language here when the president-elect suggested that most of the three million jobs the administration plans to create or save, and I think that's a bit of a change in language, creating and saving jobs, are to come from the private sector.
And perhaps that explains the surprise of the week that the stimulus plan would include tax relief for businesses.
LISOVICZ: That's right. I mean, well, there's the -- the president-elect has been talking about a lot of things. But certainly one of the main focuses has been saving jobs for creating jobs, whether it's in health care or the infrastructure or new, clean energy. The fact is, it's urgent, and we have dramatic new evidence of why it's so urgent.
Yesterday, we had a private payroll firm called ADP, which estimated that the job losses in the private sector in December, just one month, nearly 700,000. Of course, tomorrow, we'll get the more inclusive jobs report from the government. And while it -- the estimate is much lower, it's still an eye-popping number. It's nearly half a million, which would mean job losses for the world's greatest economy every month of 2008.
And by the way, job losses for January, well, they're piling up, whether it's -- we just got Walgreens, which is a -- a drugstore chain. We have Macy's saying it's going to close 11 underperforming stores. This after reporting December retail sales, Tony, which December is the most critical month for retailers.
We've got Alcoa saying it's going to layoff 13,500 -- laying off is actually a euphemism -- slashing 13,500 jobs. This less than two weeks before we start hearing from corporate America.
So it's a very sensitive time coming after retail, very tough times for retail spending. Right ahead of corporate earnings, and by the way, we have had five consecutive quarters of -- of decline, in corporate profits. So you know, while we don't have a lot of details, we certainly know that there is a lot of urgency in what President- elect Obama is saying.
HARRIS: Yes. And Susan, very quickly, what do the numbers look like, the Dow and Nasdaq?
LISOVICZ: Well, we're, you know, well, believe it or not, in this very young new year, the three major averages are either flat or just fractionally higher, but not today. Today we're seeing the Dow pretty much, you know, where it's been all morning, down right now 88 points. The Nasdaq is down as well and the S&P 500. It's kind of a quiet day so far.
But, you know, we do have that big jobs report tomorrow.
HARRIS: That's right. All right, Susan. Appreciate it. Thank you.
LISOVICZ: You're welcome.
HARRIS: You know, we want to hear from you now. Issue number one is, of course, your job, your life, your money.
You've listened to the speech from the president-elect. Now we want your thoughts, your suggestions, your ideas, your reaction, basically. The address is CNNnewsroom@CNN.com.
And as the most serious credit crisis in decades rocks your finances, CNNmoney.com has some advice, answers for you. Check out our special report, America's Money Crisis, again that's at CNNmoney.com.
Again, your job, your money, your life and the president-elect's new economic plan. More analysis straight ahead for you in the CNN NEWSROOM.
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(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT-ELECT OF THE UNITED STATES: It's time to trade old habits for a new spirit of responsibility. It's time to finally change the ways of Washington so that we can set a new and better course for America. There is no doubt that the cost of this plan will be considerable. It will certainly add to the budget deficit in the short-term. But equally certain are the consequences of doing too little or nothing at all. For that will lead to an even greater deficit of jobs, incomes, and confidence in our economy.
(END VIDEO CLIP)
HARRIS: President-elect Obama earlier this hour, pushing Congress for quick passage of his massive economic stimulus plan. Let's get some expert perspective now on what the president-elect is proposing.
Peter Morici is back with us, peter is an economist and so much more at the University of Maryland. And Mark Zandi is chief economist and co-founder of moodyseconomy.com. He is joining us from Westchester, Pennsylvania.
Good to see you both. Good to have you again on the program. Mark, let me start with you. Barack Obama is making the case for urgent action on the economy or else. Really, brace yourself for a years-long recession. Based on your Capitol Hill testimony yesterday, I take it you believe the president-elect is correct in that assessment.
MARK ZANDI, MOODY'S ECONOMY.COM CHIEF ECONOMIST: Yes, I think he's dead-on. I mean, it's in the data. We've lost 1.9 million jobs through November. We've probably last another half a million jobs in December. Unemployment is headed over seven percent. Auto sales are at 25-year lows.
Can go on and on and on. The economy is really struggling, and the only way out is for government to be very aggressive. And I think he did -- he did the right thing and he laid it out for us nicely.
HARRIS: And Peter, let me get your reaction. We talked before the speech. Your reaction to the speech?
MORICI: Well, I think it was very up beat in the sense that he's saying we've got to get something done, we have to take this seriously, and I think Americans want to hear that. Unfortunately, I believe that he's not spending all of this money wisely, as I said. I think, we look at the full scope of infrastructure needs to be -- that he's talking about, it's not just roads and bridges, medical records, the internet, alternative energy investments; all those are useful.
But he's not addressing, though, is our very massive oil imports. A lot of the energy initiatives he talks about really would use domestic energy resources more efficiently. That's a good thing. But, you know, the big issue on energy is the tail pipe. Ten million barrels a day of imported oil, most of it for gasoline.
We could do a lot of things short of electric cars that would yield results very quickly if we chose to. I'd like to hear more about that. I would also like to hear about exactly how he is going to change the culture on Wall Street and the relationship between the culture on Wall Street and the culture on Capitol Hill. Where you know...
HARRIS: What are you suggesting? You're, you're, you're, what are you suggesting?
MORICI: Well, my feeling is that we're going to have to lay down the law and tell them to get out of the bonus system on Wall Street, now that we own a piece of it. Pay their executive salaries, pay them salaries that are in line with, let's say, what insurance executives get or industrial executives get. And require them to start to perform commercial banking again. Namely, to securitize loans of regional banks, reconnect the regional banks to the fixed income investors.
They aren't doing that. They need to be doing that. We should make that a condition of the loans.
HARRIS: OK. Let me stop you right there and bring Mark in. Mark, do you believe -- peter doesn't believe that the president-elect is necessarily planning to use the money in the most efficient way. It is at its core a tax relief and infrastructure program. What's your view of it?
ZANDI: No, I think based on what we know, I think what he's laying out here is going to be pretty effective. I mean, he's going to expand unemployment insurance and food stamps, health insurance. I think that's a slam dunk. He's going to give aid to state governments who would be cutting payrolls and programs if they don't get that aid. I think that's a slam dunk. I think the infrastructure spending, as he laid it out, all those are very good ideas, I think we can all agree that we need to invest in those things.
I think the tax cuts are reasonable. Not that they pack a big economic punch, but they can get into the economy quickly. You know, we can dicker over the fine points of this, but I think broadly speaking, I think this is a very good package. And I think it's going to be big enough and effective enough, and when we marry this with the other aspect of what he talked about, and that was I think a large foreclosure mitigation plan. I think those two things... HARRIS: Well, there you go. Thank you for turning that corner. What do you think is going to happen here?
President-elect Obama has said that he wants to do something about mitigating foreclosures in the country right now. Do you think he will do it with some aspects of this stimulus package, or the TARP Program, when he asks and Congress asks for the -- or the president- elect asks -- for the second half of the TARP Program money, or a combination of both?
ZANDI: Well, I think it's going to happen with TARP. I think we have to get through stimulus, get that done, get that out there and then turn to the foreclosure problem and use the remaining $350 billion, a big chunk of the $350 billion in the TARP Plan to help people stay in their homes.
That we need to spend taxpayer money to allow for mortgage write- downs, reduce the amount of mortgage debt that these homeowners owe, so that they can stay in the home, that the home doesn't get thrown on to the market and create bigger problems for the financial system in the broader economy.
HARRIS: And you know what, Peter, one more question to you. Members of, say, the House Budget Committee look at the size of this -- this plan, after it's gone through committee, and it's been worked on, and will they say what are we doing here? Have we lost our minds about to pass a package of this size?
MORICI: Well, I think they're going to have some pause about a package of this size. But also, in that $1.2 trillion deficit that we have for '09, a lot of that is TARP, which is a one-op (ph) and really an asset swap and the aid to Fannie Mae and Freddie Mac.
If you take those out, the deficit is about $750 billion. I know that's still very big. But spending in 2009, another two or three hundred billion dollars is doable, if you consider that that some of the deficit we're talking about really isn't deficit, it's really asset swaps.
And my feeling is that to go back to the earlier question, I'd much rather they use the $200 billion they said they're going to give people in these tax rebates, which Mark knows had very little bite the last time around and are not likely to have much bite this time. I'd rather see them use that in mortgage mitigation and so forth. I think that would have a much greater effect, if it you want to put aid, put aid where it will do the greatest effect.
HARRIS: Peter, Mark, as always, thanks for your time. Thanks for your analysis, we appreciate it. Thank you both.
(CROSSTALK)
HARRIS: Still to come in the NEWSROOM, severe weather taking its toll in the Pacific Northwest. We are bringing it to you from the CNN weather center in a moment.
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HARRIS: Day 13 of Israel's assault on Gaza. The U.N.'s main aid group in the Palestinian territory has just suspended its relief work. A U.N. spokesman says one of its drivers was killed by an Israeli tank shell while trying to bring in aid.
Israel had planned another three-hour cease-fire for desperately needed supplies to reach civilians, but the lull was marred by fighting. Palestinian medical sources say the death toll has jumped to 763. Another 3,200 wounded. Israel reports 11 people killed. The rising casualty count intensifying the push for peace.
Egypt today hosting representatives from Israel and Hamas. The two sides agreeing to talk, but not to each other. And on Israel's northern front, four rocket attacks coming from Lebanon slightly wounding two Israelis. Hezbollah says the strikes not from them.
Avalanches, mud slides and high water. Historic flooding today in Washington -- 30,000 people have been asked to evacuate. In the western part of the state, 19 rivers are expected to reach major flood stage. More than a foot of rain has combined with melting snow to create a real mess.
Take a look at this -- a house actually slid down a hill in the town of Concrete, Washington, and ended up in a crumpled heap. You can see it here. The woman who lived there road the house down the hill, but wasn't hurt. She was sitting next to a roaring fire when she says the earth suddenly gave way.
Look at this. North of Denver, fire is the problem. Eleven thousand families are being asked to leave their homes this morning. Three houses and three barns have been burned. The fire is now, we understand, 30 percent contained. Crews believe high winds knocked down power lines, igniting the fire. Rob Marciano, will you bring some order to all of this? More on the problems in the Northwest, and don't forget the Northeast as well.
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HARRIS: Absolutely. All right, Rob, appreciate it. Thank you.
Some breaking news just in to CNN. I'll read it to you. An investigative committee of the Illinois General Assembly has recommended that the House of Representatives impeach Illinois Governor Rod Blagojevich. The committee says in a report that is on its Web site that the totality of the evidence warrants the impeachment of the governor for cause.
FBI agents, you'll recall, arrested Blagojevich, actually from his home on December 9th after federal prosecutors alleged, among other things, that he had tried to sell the former Senate seat of President-elect Barack Obama. We will keep an eye on this story, and of course, Blagojevich has denied any wrongdoing.
Another addition to this story, as you know, former Illinois Attorney General Roland Burris is set to appear today before this body of state legislators investigating Rod Blagojevich's impeachment. Now, Burris can expect to be asked if he secured his appointment to the Senate seat left vacant by Barack Obama through some kind of pay- to-play politics.
Now, yesterday in Washington, Burris denied that. Both Burris and Governor Blagojevich contend the appointment is legal. And we will continue to follow developments in this story.
Your job, your money, your life and the president-elect's new economic plan in the next hour of the CNN NEWSROOM.
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