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President Obama Speaks 10:20AM ET; Economic Growth Slows; Mother May Be Phone Hacking Victim; F-16 Slides Off Runway; Pilot Treads Water for 15 Hours; Astronaut Forced to Retire; Police: Fort Hood Soldiers Targeted; Dow Sinks as Default Closes In; Obama Talks Debt Soon;

Aired July 29, 2011 - 09:59   ET

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

PHILLIPS: It's almost 10:00 a.m. on the East Coast; almost 7:00 a.m. out West. I'm Kyra Phillips. Thanks so much for joining us.

A stunning setback in the race against the debt deadline. A revolt among House Republicans forcing a critical vote to be delayed. Meanwhile President Obama about to speak just minutes from now; we will carry it live.

Police in Texas say a Muslim American soldier confessed to plotting an attack on Fort Hood just two years after a Muslim officer shot to death 13 people on that same base.

Tropical storm Don could hit the sought Texas coast tonight, drought-stricken farmers welcoming the prospect of up to seven inches of rain.

And this morning, a sobering reality check on the debt crisis and just how daunting the challenge has become. In less than four days, the federal government could run out of money and default on its bills.

But on Capitol Hill, the process has taken a huge step back. House Speaker John Boehner abruptly delayed a vote on his debt plan because of a revolt within his own party.

We're covering all angles of this developing story. Athena Jones on Capitol Hill and Dan Lothian at the White House. Dan, let's start with you. The President about to speak in 20 minutes. I think we all can expect what he's probably going to say.

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: That's right. I was talking to a senior administration official a short time ago and what we can expect from the President is to continue to express in a short statement a sense of urgency and the need for both sides -- or all sides, I should say, because there's a lot of division among the Republican caucus -- all sides to reach a compromise. And then for the president, again, to spell out the economic consequences if, in fact, an agreement is not reached by that August 2nd deadline.

Now over the last few days, there have been some up on Capitol Hill critical of the president not being actively involved in the process. This would be the first time that we've heard from the president on the debt crisis this week since the Monday prime time address.

But the white house pushing back saying the president has been very involved. That there are conversations happening behind the scenes and that those conversations between the White House and Capitol Hill continue today. Kyra --

PHILLIPS: Well, Athena, what's the latest on the House voting on the Boehner plan?

ATHENA JONES, CNN CORRESPONDENT: Good morning, Kyra. We know things are changing minute to minute. We know that the House is having a special GOP conference at this moment.

They're going to figure out how things are going to go the rest of the day. We know they've been trying hard to rangle these votes and so the real question is, what does close really mean.

You know, I had a GOP describe -- tell me that the Republicans were relatively close to getting the votes they needed, but we really don't know the exact number. We'll have to see what comes out after the 10:00 a.m. conference meeting.

PHILLIPS: And so, Dan, the talk all along has been that any plan that calls for revisiting the issue in six months would have a presidential veto. Any give on that to get this process moving?

LOTHIAN: You know, not at this point, but as the hours continue to tick down and everyone realize that the alternative is the country going into default, it's unclear exactly whether or not the White House would change its position at this point.

The president and top Democrats have made it very clear that they do not buy into this sort of two phase plan whereby you raise the debt limit for the rest of this year and then you have to be dealing with it again in December during the holidays, an important economic time for the country.

They say that's not the way to do this. They want it long term through 2012. That's the position of the White House. Now, it's unclear if that will change.

PHILLIPS: Dan Lothian at the White House and Athena Jones on Capitol Hill. And Athena, big welcome to you. It's great to have you on board.

JONES: Thanks, Kyra.

PHILLIPS: You bet, and just a reminder President Obama due to speak on the debt crisis and the rapidly approaching deadline at 10:20 Eastern. We will carry it live.

The debt crisis has already helped pushed the market to five straight days of losses, but now investors have new cause for concern. A government report shows the economy may be in worse shape than we thought.

Allan Chernoff from the New York Stock Exchange. Allan, we were watching when Harry Reid was speaking on the floor there, the numbers just continued to take a dive. Right now, Dow Industrials down 107 points.

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: That's right. On top of all this concern we have regarding the debt ceiling, now we get bad news about the economy. This is looking back, OK?

For the last quarter, we had growth of only 1.3 percent. That is very, very slow. The traditional rate, the normal rate for the economy is closer to 3 percent. That's what we need to start to improve the employment situation.

We're nowhere near that. And then back to the first quarter, real revision there, the economy was barely moving at all, a growth rate of only 0.4 percent. Now, let's look forward which is what the stock market normally does.

When you add in this entire debt crisis, gridlock in Washington that leads investors to want to pull back from risk. It leads consumers and corporations to want to pull back from spending. Nobody wants to make commitments. And what happens?

The market tanks and the economy is in danger of slowing down even more. So that's what the stock market is telling us right now. Things going forward look even worse than the economic reports we've just gotten. Kyra, that's why we're seeing red all across the board right now.

PHILLIPS: Well, economists have been saying that we're in this soft patch. So could it be worse than that, do you think?

CHERNOFF: It certainly is possible. I mean, the sooner that Washington gets its act together, the sooner we reduce that risk. But right now, this is all that Wall Street is talking about so major investors talking to their advisers, talking to the economists. That's what they're all concerned about.

Obviously, it's really raised a lot of concern and already we've had many companies cautious and not willing to spend. You know, corporations have tremendous amounts of cash on the books right now. They don't want to commit.

They want to know that the economy is going to be getting better, that their profits will continue to grow. It's hard for them to have faith in that if the U.S. government can't even pay its debts, if it can't pay everybody who is owed money. So a real concern here, Kyra.

PHILLIPS: Yes, no doubt. All right, Allan, thanks so much.

Well, just when you thought that the Rupert Murdoch scandal had settled down, more disgraceful allegations surrounding "News of the World" tabloid.

We're going to straight to CNN's Zain Verjee. She's been following the story, getting a lot of buzz in the papers. And Zain, it actually involves another relationship with the mom of a slain girl in Britain?

ZAIN VERJEE, CNN INTERNATIONAL ANCHOR: Yes, it does. This stuff continues to drip out, Kyra. Sarah Pane was the mother of a murdered British girl and it turns out now that her phone was targeted by a private investigator who was working for the "News of the World," which as you know has been closed down with this whole crisis that has happened over the phone hacking scandal.

Sarah Pane is totally devastated. She became a pretty prominent anti-pedophile activist after her daughter was murdered. She's saying she can't believe that this has happened and in fact, in the very last edition, Kyra, of "News of the World," she actually even wrote a column for them and said, you know what, amid all the criticism, "News of the World" has been a force for good.

The police have confirmed that she was a target of phone hacking. She also had a very close relationship with Rebekah Brooks, former editor of "News of the World" and a former executive of News International.

Listen to what "The Guardian" newspaper has to say today. They have this headline and it reads "Fresh test for friendship, forged in bleakest days." It talks about their relationship. It says one woman was an ambitious young tabloid editor, the other a grieving mother who had just lost her 8-year-old daughter in the most horrific circumstances imaginable.

But over the next decade, Rebekah Brooks and Sarah Pane forged a close relationship that started as a professional partnership, but became a close friendship. Rebekah Brooks has responded to this story saying this is totally abhorrent and News International has said that they're really concerned about this and this will be investigated, Kyra.

PHILLIPS: My guess is this will definitely not be the end of the scandal. Zain Verjee out of London. Zain, thanks.

I want to remind you once again President Obama due to speak on the debt crisis in just a few minutes, 10:20 Eastern Time. We will carry it live.

Also, the Texas Gulf Coast bracing for Tropical Storm Don, but will it rain enough to quench the drought stricken state? We'll take you there straight ahead.

(COMMERCIAL BREAK)

PHILLIPS: Checking stories cross-country. Let's go ahead and start in Oshkosh, Wisconsin, an F-16 fighter jet slides off the run way in an air show. It ends up crashing into the grass. Don't know what caused that yet, but the pilot thankfully was able to walk away from it. No one was injured. In Michigan, another lucky pilot after 15 hours of treading water, Michael Trapp survives after crashing his plane in Lake Huron.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: About six boats went by me after I crashed. By the grace of God, they slowed down. I started crying when they slowed down. I was like, my God, yes, thank you. Thank you.

(END VIDEO CLIP)

PHILLIPS: As you can see, he's still in the hospital, but expected to be fine.

In Orlando, former astronaut Lisa Nowak being kicked out of the Navy. You'll remember her as the one who was busted for confronting a romantic rival after driving cross-country with a car full of adult diapers. She's receiving an other than honorable discharge.

He went shopping at a gun store via a taxi cab. It was just one suspicious move that got police thinking that something just wasn't right with this guy.

Now the AWOL Army private is in jail suspected of plotting to kill Fort Hood soldiers. CNN's Ed Lavandera live in Killeen, Texas and Ed, as cops investigated, they tracked I guess materials that could have been enough to make two bombs?

ED LAVANDERA, CNN CORRESPONDENT: That's right. That's what we've been learning over the last 24 hours since this story first emerged. But Private First Class Nassar Abdo is just a short while away from making his first court appearance in Wako about a 30-minute drive from where we are here in Killeen.

But according to investigators that we have spoken with, after he was arrested, authorities found in a hotel room that he was staying out here in the Killeen area, bomb making materials. There is Islamic extremist literature in his back pack.

And it all stemmed from a Tuesday afternoon visit to a local gun shop in Killeen where he walked in, started purchasing a few items, some smokeless gunpowder, shotgun shells, a magazine for a pistol.

But the whole situation there just didn't sit quite right for the man working behind the counter, Greg Ebert. A 20-year police veteran, a retired 61 years old, said something just didn't seem right. And after he left, he called authorities and told them about this man's visit.

(BEGIN VIDEO CLIP)

GREG EBERT, GUNS GALORE SALESMAN: He shows up here in a taxi cab. How many people go shopping at gun stores in a taxi cab? He paid cash, took his bag and left without the receipt or his change.

LAVANDERA: Left without his change?

EBERT: Yes. Wasn't much, 18 cents, 20 cents.

(END VIDEO CLIP)

LAVANDERA: Authorities say that his plan was to attack soldiers off the Fort Hood base. Killeen here is just right next to Fort Hood. A little different from the attack that happened here two years ago when Major Nadal Hasan gunned down 13 soldiers on the Fort Hood Army post.

Authorities here say this is slightly different, but it hadn't been for Mr. Ebert they say that the press conference they gave yesterday would have been a much more tragic case that they have been - they would have been talking about, Kyra.

PHILLIPS: Well, Greg Ebert is a hero indeed for just having suspicions out there. Ed Lavendera, thanks.

Rarely does the welcome mat go out for a tropical storm, but folks along the drought parched Texas Gulf Coast are doing exactly that for Tropical Storm Don. Our Rob Marciano is there live on Padre Island, still expecting this about midnight?

ROB MARCIANO, AMS METEOROLOGIST: Midnight for the actual landfall of the storm, butt rainfall will come in ahead of it. Obviously, it's not happening now. We have beautiful sunshine. We've got fairly tranquil gulf, although the surface has come up just a little bit.

Beach goers, vacationers are still here. They're not going anywhere. There are not many people who are evacuating. There's really no need for that. Coastal effects of the storm are going to be minimal. Just a one or two foot storm surge and some winds maybe 50, 60, maybe 70 miles per hour, but the rains are going to be the big deal.

Here's where it is on the satellite picture. A 50-mile an hour winds, about 250 miles from this point heading in this direction, so it should be here midnight tonight as far as actual landfall at the center.

Here's the track. The expected landfall somewhere between here and Brownsville, Texas and again most of the action will be overnight tonight and tomorrow. Rainfall will be significant, but not as widespread and not as significant as most would like here in drought stricken Texas.

Some of our computer models saying two to four inches that would be nice and if we can get it all the way to West Texas, even better. Here are some of the numbers as far as the amount of rainfall that we haven't seen.

Over a foot deficit this places like San Antonio and Austin and Houston. Places like Lubbock and Midland have seen virtually nothing as far as what they normally see, so they'll take the rainfall that they can get.

There have been evacuations from some of the oil rigs, nonessential personnel from Exxon Mobile have evacuated. Some businesses and some of the community colleges have shutdown, but other than that, we are waiting for the storm to arrive.

It was around that time last year Tropical Storm Hermine missed this area to the south. They're hoping that Don doesn't miss. This is one of the few times, Kyra, where people are begging for a tropical cyclone.

PHILLIPS: Yes. It's quite a twist. All right, Rob, keep us updated. All right, President Obama due to speak on the debt crisis at 10:20 Eastern. Just about five minutes away or so. We're going to carry his remarks live.

(COMMERCIAL BREAK)

PHILLIPS: The nation's debt crisis has brought Capitol Hill to a standstill and is bringing the president to the microphone. He's due to speak at any moment, possibly about three minutes or so.

And of course, all our troops are in place. Kate Bolduan out there on the Hill, Wolf Blitzer in Washington. Wolf, let's go ahead and start with you. What do we expect to hear from the president?

WOLF BLITZER, THE SITUATION ROOM: I think the president will underline the urgency of what's going on. That clock is ticking and there's not a lot of time left right now. At stake is not only America's credit worthiness, actually paying bills to a lot of folks out there come Tuesday, Wednesday, Thursday.

They're going to have -- Treasury Department already has contingency plans in the works. Who will get paid, who will get a check, who won't get a check. They obviously will take care of America's debt, the interest on the international debt obligations first and foremost.

They'll pay the military. They'll make sure that Social Security checks are going out, but a lot of agencies in the U.S. government are simply going to have to shut down for the time being. They're not going to be able to get the money to pay the employees the federal employees and others.

And they're going to be enormous ramifications if the credit rating agencies decide, you know what, that AAA rating that the United States government has right now, it doesn't belong. The AAA, it's going to down AA.

Let's say that means interest rates will go up. It will have a direct impact on people all over the country and a spill over effect on people around the world and I think the president is going to underscore that right now.

And he's going to urge the House and the Senate, you know what, you just got to do it. You got to do it quickly. The big issue for him right now is to avoid what the House Speaker John Boehner wants another vote in five, six, seven, eight months, in the middle of a campaign season.

He wants whatever they do in the House and Senate to get the debt ceiling raised through the next election into 2013 to avoid this kind of political economic disaster that could take place in a few months. I think that's the big issue standing in the way of an agreement right now.

PHILLIPS: Well, disaster indeed. We're talking about our mortgages. We're talking about car loans. We're talking about student loans, our credit cards, all of that. That's why Americans are paying such close attention.

I mean, Wolf, we took Harry Reid speaking live on the floor there, we watched the Dow Industrials go down, down, down. And the numbers aren't doing any better at this moment. Right now Dow Industrials down 107 points.

BLITZER: And you remember, Kyra, because we were covering it at the same time, back in 2008, October 2008, just before they passed TARP, it failed in the Congress. The emergency economic recovery funding that was needed at that time. It failed and the market collapsed 700 points in a day.

Some are saying, you know what, they're going to need to see that kind of action. That kind of drop on Wall Street, might even see is it today. I hope we don't, but if we see it today, that would spur the House and Senate over Saturday and Sunday. This will be a tumultuous weekend.

And Monday, I must say, because it could go all the way through Monday into the night. They're going to be urged to do something to come up with some sort of compromise and get this job done. I suspect they will.

I suspect by Tuesday morning they will have some sort of if not a Band-Aid, some sort of temporary solution to move on. Even if it's only for a week or two or three just to get over this immediate bump and then dealing with the longer term fix.

But they can't go into Tuesday without an agreement to raise the debt ceiling because the consequences would really be enormous.

PHILLIPS: And any second now, the president of the United States expected to step up to the mic there. He will speak live on the debt ceiling. We will carry those remarks live. It's now 10:21.

BLITZER: Let me just say one other thing, Kyra.

PHILLIPS: Go ahead, Wolf.

BLITZER: You see where the White House decided to make -- have the president make that statement in the diplomatic reception room and there's a bunch of camera crews and reporters there.

He's not in the White House briefing room where after his statement he would be open to answering a few reporters' questions. In an environment like this based on the years that I covered the White House.

It looks like he's going to make a statement then say thank you very much and simply leave. I'd be surprised if he answers some questions. He might. There will be reporters there who might be able to shout a question or two.

But my suspicion is he'll make a statement. He'll underscore the urgency, the consequences of failure if you will and then he'll walk out of that room.

PHILLIPS: Wolf, you're watching this along with us waiting for the president to step up to the mic there. Kate Bolduan is on the Hill. Kate, I saw you there on your phone working your sources.

What more you can tell us? Obviously, as I mentioned we've been monitoring all the members speaking on the floor there and taking that live as the clock is ticking here toward that deadline and toward the president who is speaking any second now.

KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: Yes, absolutely. One thing that we're keeping our eye on here on the Hill is a meeting of House Republican members that is going on right now.

This was announced late last night after clearly things fell apart and House Republican leaders could not wrangle the votes to hold some kind of vote. They could not get enough support around House Speaker John Boehner's bill as it stance.

So they're having a meeting, a closed door meeting right now and we're told that in this meeting they're going to be talking about kind of the path forward. Deidre Walsh, my colleague, was told that one thing that is at least going to be discussed is how to tweak the bill, possibly tweaking the inclusion of a balanced budget amendment and what role that would play in this measure.

This is something that House conservatives are very supportive of and have been calling for, for quite some time. So obviously we need to wait until they come out of that meeting, but it will be very interesting to see if they have reached any decision of the path forward, if it's tweaking Boehner's bill as it stands and how they will proceed with that.

But that's one thing we're keeping an eye on here on Capitol Hill. On the other side of the capitol, I'll tell you we're also keeping an eye on the Senate because Senate Majority Leader Harry Reid who just took to the floor this morning and said he -- they're not waiting any longer.

And he's now going to proceed with his bill or a modified version of his bill. They're going to start the legislative ball rolling today filing closure is the technical term that would then set us up for a first test vote on this measure, on his measure, for a 1:00 A.M. Sunday morning vote.

Of course, they can come to a gentleman and lady's agreement to move to a more reasonable hour, but you can see that they're moving very, very close to this deadline now. And so Senator Harry Reid is now proceeding on his own bill.

PHILLIPS: Wolf, you heard Kate. Wolf, I mean, how much more tweaking can you do?

BLITZER: Not a whole lot because they have to get some legislative vehicle passed in both chambers that the president can sign. And there's not a whole lot of room for grand maneuvering. You heard the Senate Majority Leader Harry Reid, and Kate referred to this.

He came up with his plan. It's been scored if you will by the Congressional Budget Office. It would raise the debt ceiling through all of next year into 2013, about it $2.5 trillion in proceed projected reduction in debt and spending.

But a lot of that, about a trillion of that is already basically part of the deal because it includes the reduction in spending for the wars in Iraq and Afghanistan. So what the Republicans have been saying, some of that math is a little fuzzy right now and they want steeper cuts.

But the great concession that the Democrats already made to the Republicans, Harry Reid pointed it out, and the Republicans should see this as a great victory. There are no tax increases at all, no tax changes, no revenue increased from any tax reform in Harry Reid's proposal.

So on the issue of taxes, the Republicans have already won. It's a major victory on their part. The Democrats are no longer at least on the Senate side, no longer seeking any increase or any changes, any elimination of tax loopholes, subsidies, any of those controversial tax aspects.

So it's a major concession on the part of the Democrats. They need it in order to get some sort of deal through. And the White House has accepted that, as well, reluctantly because you heard Monday night in the president's speech how much he wanted increased revenue from changes in the tax laws.

So they made a major concession already and they're hoping that will be enough to get a combination of moderate Democrats and Republicans in the House of Representatives when all the dust settles to support this in order to revert what could be some sort of economic real disaster.

PHILLIPS: Dan Lothian, you're at the White House. The president was supposed to beginning six minutes ago. What's the hold up?

LOTHIAN: Well, we don't know what the holdup is at this point. We expect him to come out at any moment now. But just to reinforce what you've been talking about with Wolf Blitzer. I was talking to a senior administration official earlier and told me not to really expect anything new from the president in his short remarks, but really to reinforce what he has been saying now over the last few weeks.

And that is to essentially express a sense of urgency, that there is an opportunity here for both sides to find some kind of compromise. And then to lay out the consequences, the economic consequences of what will happen if there is no agreement.

You've been talking quite a bit about that, about not being able to pay Social Security payments or disability checks, figuring out who gets paid and who does not. The president again will be talking about that and putting pressure on Congress to act quickly as the clock runs out.

PHILLIPS: Well, and Harry Reid about 40 minutes ago pretty much laying out that he feels the House plan is doomed. Let's go back to the floor and take a listen.

SEN. HARRY REID (D-NV), MAJORITY LEADER: -- Band-Aid approach, the world crisis is an embarrassment to Congress, frankly, the country and the world. And that's a sad commentary. The united Senate Democrats, all 53 of us have informed the speaker it was doomed in the Senate because we would not vote for a short term extension of the debt ceiling.

PHILLIPS: Wolf, Harry Reid using the word embarrassment. As you know in the past couple of weeks, we've heard a lot of various leaders around the country questioning our street credit.

BLITZER: You know, people all over the world have been watching what's going on here in the United States and they're really stunned. I was speaking to Richard Quest in London the other day, our correspondent there.

But I've been speaking to our correspondents not only in Europe, but in Asia, in Africa and South America, they're really worried because, you know, when the United States has an economic crisis like this and the credit worthiness of the United States is even questioned, there are enormous ramifications for those countries as well, the U.S. is the world's largest economic super power.

So anything that undermines America's economic strength automatically undermines so much of the rest of the world, as well and they're watching this really, really nervously. They just simply assume this there's going to be a deal by Tuesday because the consequences of failure are unthinkable to them and so many other people around the world.

And most people in the United States think, you know what, this is Washington politics. They're bickering. They're obnoxious, if you will, but in the end of the day, they're going to have to make a deal. They probably will. I'm pretty confident that they will, but I'm not 100 percent certain by any means given the positions that have been staked out even though when you take a look at the Boehner position, which he can't even get through his own party with enough votes without any Democrats.

You take a look at the Harry Reid position. There are similarities there under normal circumstances. You could you craft a compromise, you could have a House and Senate conference committee, they could work on a middle of the road compromise and it would get not necessarily unanimous passage of the House or the Senate.

But you could get the majorities, moderate Democrats, moderate Republicans working together to come up with something. Those are normal circumstances, but this is not necessarily the normal environment that those of us who have covered Washington all these years have come to see.

So it's unpredictable. It will be a long weekend for all of us. A lot of nervousness is going to go on. In the end, I suspect they'll work out some sort of deal, one way or another, but it's going to be complicated.

PHILLIPS: Well, there comes the Tea Party members as well, Wolf and we're seeing all the finger pointing. You've got people like John McCain saying see you've got these young people, they're inexperienced.

Look at what they're doing to the process and they're coming back saying, no it's people like you, John McCain that know better. You shouldn't be doing this.

It's this back and forth. Now, age and experience is getting thrown into the mix.

BLITZER: Yes. Well, it's not always just age because you have a guy like Ron Paul, the Congressman from Texas, he's in his 70s just like John McCain. And they totally disagree. So it's not necessarily always just completely age, but you're right. There are 80, 90 freshmen Republicans, many came into office with a lot of Tea Party support.

And you know, they're not necessarily just encouraged -- they can't just be arm-twisted by a speaker or majority whip or majority leader. Even though John Boehner and Eric Cantor and Kevin McCarthy and these guys are pretty powerful, they can't simply dictate as in the old days when you had a speaker, he would tell a freshman Congressman, you know what, this is what you're doing. You go back to your district and explain why you're doing it, but this is what you're doing. Otherwise you'll be punished and you're not going to be happy here.

Those days are gone for all practical purposes. You can't just arm twist like that as they used to do, and it's a whole new world, I should say, in Washington.

PHILLIPS: Kate Bolduan on the Hill as we continue to watch these live pictures. You're not far from where we're seeing these closed doors and what's happening behind them. I saw you once again working the phones. Any update? We see a lot of people going in and out, whispering in between the cracks. We're wondering OK, when is the president going to speak, when will we get something coming out of that meeting that's happening behind those closed doors?

KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: Right. We're trying to get guidance on how long this meeting could actually be. It kind of became a new ball game here last night as everyone was expecting the vote to happen early yesterday evening, and then it clearly unraveled. Not a display that House Republican leadership wanted to see spilled out in the public, that they were having to work for hours to try to get support, and there was clearly a breakdown there.

One thing that they are talking about, we're told by a source, that is at least one of the options, and I'm sure there is a lot of stuff being talked about in that meeting this morning - one option that they're discussing is how to tweak the bill in some way to include a balanced budget amendment, and this is an amendment to the Constitution that would require the federal government to balance its books, basically. And many conservative members find this very important and very important to the structural change that they say they want to see in Washington in how they spend Americans' money.

But this is one thing that's being talked about, we're hearing is at least is being discussed, how to include it, how to tweak the bill to include maybe a stricter version of it.

But I'll tell you the reality outside of that room is that included in a bill makes it probably even more unpalatable to Democrats and specifically Democrats in the Senate. So, again, we return to this same kind of square one or whatever square we're on at this point, Kyra, which becomes where is the compromise going to end up being to find something that can pass both the House and the Senate? And, again, today and I'm still repeating myself, we have not found that compromise.

PHILLIPS: Yes, square one, square two, square three, we keep going up the chart on that.

And what's interesting, too, Mark Preston, you follow all the polls. What's it look like for Obama now, his popularity rating -- staying the same, going up, going down?

MARK PRESTON, CNN SENIOR POLITICAL EDITOR: Well, Kyra, it's certainly going down, and we really can't understate enough - or emphasize enough - the fact is that there's a lot of political gamemanship going on right now.

The president is speaking now at a time when the House Republicans are behind closed doors. That's very important, because today will be driven by message, and whoever owns the message of the day wins the day. And that's why we're seeing the president come out so early as House Republicans are behind closed doors trying to figure things out. At the same time, the president does have some problem with the polls. We've seen a couple polls overnight that show that his approval rating now is right above 40 percent. That is not very good.

The only saving grace right now for the president as he heads into his reelection year, the fact that Republicans are doing worse. So, a lot of political gamesmanship going on right now. We look at that poll, it shows he's lost considerable territory just over the past month or so. And again, we're really gearing up for the 2012 collection. So even though we're talking a lot about policy today and there's a lot on the line, let's not lose sight of the fact that this is all driven by politics. Kyra.

PHILLIPS: All right. Mark, stay with us. Kate Bolduan, once again working the phones there on the Hill. Wolf Blitzer, standing by for special coverage.

Wolf, I mean, the president was supposed to start speaking at 20 after the hour. We've got a two-minute warning I'm being told now, Wolf. Two-minute warning til the president will address all of us on the debt talks.

For those that are just tuning in and catching up on where we stand, still, at a standstill wondering what the president will say. Will it be more of the same thing? How much of an impact will this have? The deadline loom looming just a few days away.

BLITZER: And it's important, Kyra, that all of us appreciate it's not just the House of representatives. It's not just the Senate. It's the president of the United States, the executive branch of the government, they have a huge stake in this as well. So you have to - when all is said and done, you have to reach some sort of compromise. Not necessarily going to make everyone happy - probably won't make anybody all that happy -- but you have to reach some sort of deal that brings in a majority in the House, brings in a majority, super- majority, if you will. Sometimes you need 60 in the Senate. And has the backing of the president of the United States, something the president can sign into law.

So, that's what they got a few days to do this. And the president will underscore the urgency when he walks in to the diplomatic reception room over there at the White House and addresses the nation. And as I like to say, he's not only addressing the nation, he's addressing the world right now. The whole world will be watching. And it's at a time when almost everyone in the world is awake right now, watching very closely to see what's going on. And markets will be jittery, to be sure, on this day.

But I suspect the president has to walk a sort of fine line. On the one hand underscoring the urgency, the catastrophe that could develop. But at the same time, reassuring the markets, reassuring the people out there that in the end, things can be achieved if there's some good will. If there's a little compromise. If cooler heads prevail.

So, it's not an easy speech for him to deliver and as Dan Lothian, our White House correspondent said, we're probably not going to hear anything new. No new offer, no new concessions, anything like that.

But here he comes. So let's listen to the president.

(BEGIN LIVE COVERAGE)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I want to speak about the ongoing and increasingly urgent efforts to avoid default and reduce our deficit.

Right now, the House of Representatives is still trying to pass a bill that the majority of Republicans and Democrats in the Senate have already said they won't vote for.

It's a plan that would force us to relive this crisis in just a few short months, holding our economy captive to Washington politics once again.

In other words, it does not solve the problem, and it has no chance of becoming law.

What's clear now is that any solution to avoid default must be bipartisan. It must have the support of both parties that were sent here to represent the American people, not just one faction. It will have to have the support of both the House and the Senate.

And there are multiple ways to resolve this problem.

Senator Reid, a Democrat, has introduced a plan in the Senate that contains cuts agreed upon by both parties.

Senator McConnell, a Republican, offered a solution that could get us through this.

There are plenty of modifications we can make to either of these plans in order to get them passed through both the House and the Senate and would allow me to sign them into law.

And today, I urge Democrats and Republicans in the Senate to find common ground on a plan they can get support -- that can get support from both parties in the House, a plan that I can sign by Tuesday.

Now, keep in mind, this is not a situation where the two parties are miles apart.

We're in rough agreement about how much spending can be cut responsibly as a first step toward reducing our deficit. We agree on a process where the next step is a debate in the coming months on tax reform and entitlement reform, and I'm ready and willing to have that debate.

And if we need to put in place some kind of enforcement mechanism to hold us all accountable for making these reforms, I'll support that too if it's done in a smart and balanced way.

So there are plenty of ways out of this mess, but we are almost out of time. We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time, as we always have; bills that include monthly Social Security checks, veterans' benefits, and the government contracts we've signed with thousands of businesses.

Keep in mind, if we don't do that, if we don't come to an agreement, we could lose our country's AAA credit rating. Not because we didn't have the capacity to pay our bills; we do. But because we didn't have a AAA political system to match our AAA credit rating.

And make no mistake: For those who say they oppose tax increases on anyone, a lower credit rating would result potentially in a tax increase on everyone in the form of higher interest rates on their mortgages, their car loans, their credit cards. And that's inexcusable.

There are a lot of crises in the world that we can't always predict or avoid: hurricanes, earthquakes, tornadoes, terrorist attacks.

This isn't one of these crises. The power to solve this is in our hands. And on a day when we've been reminded how fragile the economy already is, this is one burden we can lift ourselves.

We can end it with a simple vote, a vote that Democrats and Republicans have been taking for decades, a vote that the leaders in Congress have taken for decades.

It's not a vote that allows Congress to spend more money. Raising the debt ceiling simply gives our country the ability to pay the bills that Congress has already racked up.

I want to emphasize that: The debt ceiling does not determine how much more money we can spend, it simply authorizes us to pay the bills we already have racked up.

It gives the United States of America the ability to keep its word.

Now, on Monday night I asked the American people to make their voice heard in this debate, and the response was overwhelming. So please, to all the American people, keep it up. If you want to see a bipartisan compromise, a bill that can pass both Houses of Congress and that I can sign, let your members of Congress know. Make a phone call, send an e-mail, tweet, keep the pressure on Washington and we can get past this.

And for my part, our administration will be continuing to work with Democrats and Republicans all weekend long until we find a solution.

The time for putting party first is over. The time for compromise on behalf of the American people is now. And I'm confident that we can solve this problem. I'm confident that we will solve this problem.

For all the intrigue and all the drama that's taking place on Capitol Hill right now, I'm confident (inaudible) but, as I said earlier, we are now running out of time. It's important for everybody to step up and show the leadership that the American people expect.

Thank you.

(END LIVE COVERAGE)

PHILLIPS: All right. Wolf Blitzer, as expected, he did not take any questions from reporters there in the room. Like you said, he made his statement short and sweet.

And you heard what he said. He said, look, we're not miles apart on agreeing to something. But for the average American who just continues to see all this bickering, no solution, and a deadline looming, it's really hard to believe that something really is -- that something could be, I guess, as the president puts, very easy to handled.

BLITZER: He did drawn that fine line, that balance that he as president of the United States need to draw. While on the one hand underscoring the urgency and the dire consequences of failure. At the same time, suggesting you know what? It's not that complicated if there's some good will, they could reach a deal because there are a lot of similarities between what Harry Reid has proposed and John Boehner has proposed. And even what Mitch McConnell, the Republican leader in the Senate, has proposed. If these guys were to sit down, they could probably come up with something.

The big difference, though, and I don't know how they're going to work this one out - the big difference is if they need a second vote. Right now, Boehner and the Republicans in the House say we can raise the debt ceiling for six, eight months, but then it's got to come up, this whole issue has to come up again. And you heard the president say that's simply not acceptable. They're not going to go for another -- round two of this kind of debate in the middle of next year.

There are ways you can get around that. McConnell had a way of dealing with it, a complicated legislative formula that would allow the Congress to have resolutions of disapproval on another raising of the debt ceiling that the president could then veto. And then of course, it would be very unlikely for the House and Senate to override with a super majority of presidential veto.

It's a little complicated the legislative process. But the president just said he could live with what McConnell was suggesting. He could live with Harry Reid's proposal. It's up to the House leadership right now to come up and work out some sort of a deal, and there isn't a lot of time left. And as you've been pointing out to our viewers here in the United States and around the world, Kyra, the markets are watching this very, very carefully.

PHILLIPS: And I'm curious, I don't know, can we take -- do we have a live shot from the New York Stock Exchange just to check on the markets there? Since the president -- okay. It's remained about the same since, Wolf we heard Harry Reid on the floor, Mitch McConnell from the floor, president of the United States. It's staying just at about negative 100 there, Dow Industrials.

Kate Bolduan on the Hill. Any reaction from there since the president spoke just less than a couple of minutes ago?

BOLDUAN: I haven't gotten reaction quite yet because as we were talking about earlier, House Republicans, they are still in the meeting this morning. Of course, House speaker John Boehner and other leaders are trying to find some way to get their own members in line to vote on some variation, maybe a modified version of his bill somehow to get it through the House.

At the same time, as we've just discussed earlier, while we hear the president calling for compromise and saying that he could support the re-bill, Senate majority leader Harry Reid has announced this morning that he's starting to move forward. He says he cannot wait for the House to act any longer because we had heard -- and there was a sense that the Senate was waiting to act until they saw what happened with Hose speaker John Boehner's bill.

But now Senate majority leader Harry Reid, he announced this morning he is moving forward. He's going to file cloture, which is a technical time to get the ball rolling, which go would set us up for some pretty interesting voting times on his measure or some modified version of it. A 1:00 a.m. first test vote Sunday morning is possible. And that would put us into Tuesday for a final -- for a vote on final passage.

So, this would also mean if this would be the route that we end up taking, that Congress ends up taking here, that would be very last minute and would honestly kind of jam the House, if you will, to see if they're going to support it or not. So, he of course still needs to get Senate Republicans on board for this, but it's kind of - kind of a new ball game now, Kyra.

PHILLIPS: Kate Bolduan on the Hill, Wolf Blitzer there in Washington, our Dan Lothian at the White House. Thanks to all three of you. You just heard the president of the United States. His final remarks there on the debt crisis. Bottom line, he says we must reach a deal, and we've got to reach it by the 2nd.

Quick break. More from the CNN NEWSROOM straight ahead.

(COMMERCIAL BREAK)

PHILLIPS: All right, checking our top stories now.

You just heard the president of the United States speak to Americans. We're talking about a scramble now to try and find a deal on the debt. Republicans in the House are meeting right now after putting off a vote yesterday on their bill to raise the debt ceiling and cut spending.

Norway holding a national memorial service for the 76 people killed in last week's bombing and shooting massacre.

And new dosing labels for Tylenol this fall. The makers of the painkiller recommending the maximum dose of extra strength Tylenol be lowered in order to help prevent accidental overdosing of acetometaphin.

All right, Allan Chernoff at the New York Stock Exchange. Allan, it was interesting. We thought possibly Dow Industrials would tank even more as president was speaking, but it's remained about the same since we were taking testimony from the floor.

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Yes, we're actually picking up a little bit here. The Dow at the moment is off about one- half of 1 percent. And the other major indices, the NASDAQ composite, the S&P 500 off a little more than one-third of 1 percent. So, certainly an improvement from what we saw at the open.

But nonetheless, the concern remains hanging over Wall Street, this concern that the gridlock in Washington is just going to hurt the economy in a severe way going forward. Just investors, consumers, corporations, everybody stepping back. And when you step back, you don't spend, that hits the economy.

PHILLIPS: And so, what do you think Wall Street wants to hear from Washington? Did Wall Street hear what they wanted to hear when he spoke just about ten minutes ago?

CHERNOFF: Wall Street wants the president to say we've got a deal. We are resolving this issue. We're putting it behind us and we're moving forward. And once Washington is able to resolve its concerns, then consumers, corporations, people will feel better about making commitments, taking on some risk. That's what economic growth is all about. People spending money, people making commitments. It's not happening if Washington is not able to pay its most basic bills. Kyra?

PHILLIPS: We're all going to feel it. Allan Chernoff from the New York Stock Exchange. Allan, thanks. Now, here's some stories that will be making news later today. At noon Eastern in New York, friends and families of detained U.S. hiker Shane Bauer and Josh Fattal hold a freedom rally as both men face espionage charge this is Iran.

And then tonight at 7:00, former Utah governor and GOP presidential candidate Jon Huntsman slated to address college Republicans at their convention in Washington, D.C.

And consumers sounding off on the nation's debt crisis, we'll hear from them next.

(COMMERCIAL BREAK)

PHILLIPS: Checking stories "Cross-Country" now

JetBlue rolling out new all-you-can-fly travel packages. The blue passes are tailored to business people flying out of Boston and Long Beach. The cheapest costs about 1,300 bucks.

In New York, police say a man dressed as an armored truck driver robbed a check cashing store of almost $15,000 without arousing suspicion until hours later when the real armored truck officer arrived for the scheduled pickup.

And north of the border, new dad David Webber won't forget the day his daughter Annabella was born. He drove more than 100 miles an hour just so his wife could get an emergency C-section. And guess what? He got a pretty hefty fine and license suspension, as well. Doctors told the judge his wife's pregnancy was high risk, he needed to get there. But the judge was unmoved.

So, you can imagine consumers sounding off on the nation's debt crisis all over the country. CNN's Sandra Endo is actually in the L.A. suburb of Santa Monica, taking the pulse of the people as it relates to the ongoing talks. And I'm betting you probably have received an earful already.

SANDRA ENDO, CNN CORRESPONDENT: That's right, Kyra. I'm here on 3rd Street Promenade in Santa Monica. People are coming out for their morning coffee. The stores will be opening up soon.

Already consumer confidence because of the recession is sagging, and if this debt ceiling deal doesn't come through as the president said, if the country's credit rating is lowered, that means interest rates will increase for anyone carrying a credit card with debt, looking for a car loan, a mortgage. So, it severely impact as lot of Americans here.

And we stopped Christian over here, who has been paying attention to the debt debate going on in Washington. You just heard from the president. What did you think about the comments?

CHRISTIAN SPICER, CONCERNED ABOUT DEBT CRISIS: I think he had some good things to say. I like I how he stressed that raising the debt ceiling doesn't mean it has to be an increase in spending, that the two aren't related. I think it was important to stress that raising the debt ceiling is to pay off our prior debts, and it doesn't necessarily mean we have to incur new ones.

So, hopefully they can get a deal done because otherwise, it gets scary.

ENDO: It does get scary. And how would it impact you if there is no deal?

SPICER: Well, since the recession, we've kind of been pinching pennies, so we've been lucky not to have a lot of credit card debt. But certainly on a home mortgage stance, we're thinking about moving soon. And if that happens, it will make selling our old house that much more difficult and qualifying for a new mortgage or a loan for a new house, you know, a little more scary than should be.

ENDO: Yes, very concerning here for a lot of Americans, Kyra. Thank you so much, Christian.

We also stopped Steven here after he got his morning coffee, and you're just waking up hearing the news about the president and still a stalemate this morning. How would this affect you?

STEVEN TROOST, CONCERNED ABOUT DEBT CRISIS:I think it would affect me greatly seeing the fact that I am going to be in the market for buying a house. And if interest rates went up, that definitely affects the fact that it would be tough to qualify for a loan.

Also the standards for a loan definitely have to increase so I mean, it's definitely going to affect me on that front. At the same time in terms of the amount of debt that I already have, I really don't have much. I watch my pennies. So, in terms of that, I'm not really too concerned.

ENDO: Yes, it's been a lesson pounded into us for the last couple of years or so. And you just heard from the president, as well. Got a glimpse of his speech.What did you make of his comments?

TROOST: I agree with what he says. You know, we don't want our credit rating to drop. And we do need -- we probably do need that money. Kind of sounds like getting credit card to pay off another credit card. But at the same time, we need to cut our spending. So, I can see this just this once, but not anymore.

ENDO: And you've been paying attention to the fight in Washington. What do you make of all the back and forth?

TROOST: It seems like there's a lot of blaming. And not enough of just, kind of, just saying, like, hey we just both need to come to terms and agree on something.

ENDO: All right. Thank you so much, Steven. Yes, come together and agree on something, Washington, because it affects everyday Americans here on the street. Kyra?

PHILLIPS: Sandra Endo there live in Santa Monica, California. Thanks so much.

Suzanne Malveaux, this was your beat. You've covered the White House. You've covered bickering like this before. What do you make of this?

SUZANNE MALVEAUX, CNN ANCHOR: I've never seen it this bad. I mean, we've covered the whole thing with the economic stimulus package, T.A.R.P., health care reform. I mean, people are so energized, they're so involved. But people are incredibly frustrated when they look and see what's happening in Washington. So, I mean, this is really kind of unprecedented when you think about it and when you watch it and you see it develop.

So, I mean, nobody really knows what's going to happen come Tuesday and Wednesday of next week.

PHILLIPS: So the combination of not knowing what's going to happen, and then all the different areas of our lives that it can impact us, from our kids going to school, right, to buying a home, to getting a car loan, to our credit cards, which all of us were talking about that this morning in the morning meeting.

MALVEAUX: Right. I mean, it could make it much, much harder for us just to live. You know? I mean, in this tough time already for so many people.

So it's unbelievable. We just don't know. We're at a point here where there is a lot of concern because it is so uncertain. And people are following this.

I mean, people are following it, they're talking about it. Everywhere we go people are talking about this.

PHILLIPS: And you'll be doing that for the next two hours. Have a great weekend.

MALVEAUX: All right. You, too, Kyra.

PHILLIPS: Hopefully we'll have something by the beginning of next week.

MALVEAUX: God, I hope.

PHILLIPS: All right.

MALVEAUX: Thanks, Kyra.

PHILLIPS: You bet.