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Debt Deal in the Making; Leaders Optimistic for a Deal; Iran Court to Rule in "Hiker" Case; Last Minute Reprieve; In-Flight Plane Collision Kills Four; Trees Honor 9/11 Victims; Drought Parching Texas; "Flash Mob" Violence; Matt Damon Rallies Teachers

Aired July 31, 2011 - 14:30   ET

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

FREDRICKA WHITFIELD, CNN ANCHOR: You're in the CNN NEWSROOM. I'm Fredricka Whitfield at the World Headquarters in Atlanta.

A dramatic day in Washington as Republicans and Democrats race to keep the government from faulting. Apparently, a new debt limit deal is in the works this after Senate Republicans blocked a move by Democrats to vote on Majority Leader Harry Reid's debt limit plan earlier today.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: On this vote the yays are 50 and the nays are 49. The three fifths of the Senators duly chosen and sworn not having voted in the affirmative, the motion is not agreed to.

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WHITFIELD: All right, again, the final vote 50 to 49. So lawmakers are now focusing on refining a deal after hashing out the framework of it overnight. Sources close to the negotiations tell us it's a $3 trillion package.

Here's what the Senate's top Republican told our chief political analyst Gloria Borger just hours ago on CNN's "STATE OF THE UNION."

(BEGIN VIDEO CLIP)

SENATOR MITCH MCCONNELL (R), MINORITY LEADER: We're not going to have a default for the first time in our 235-year history. We're not going to have job killing tax increases in it. We're going to deal with the problem.

The American people sent us to deal with, which is that the government has been spending too much. We don't think we have this problem because we've been taxing too little. We've been spending too much.

So I think we're very close to being in a position where hopefully I can recommend to my members they take a serious look at it and support it.

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: And get it done when?

MCCONNELL: Soon.

BORGER: Today?

MCCONNELL: Soon.

(END VIDEO CLIP0

WHITFIELD: Senate Majority Leader Harry Reid says he is now cautiously optimistic a deal will be reached, but added several issues still must be settled.

(BEGIN VIDEO CLIP)

SENATOR HARRY REID (D), MAJORITY LEADER: When an agreement has to have a long-term approach, that's a long-term approach that we've taken in the Senate, we've forced in the Senate is absolutely necessary. We must give financial markets confidence this country won't shirk its obligations now or in the future.

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WHITFIELD: So what do we know about this deal, which combines cuts and spending caps, but no tax increases? CNN's Joe Johns has been on Capitol Hill all weekend long. So Joe, what specifics do we know of?

JOE JOHNS, CNN ANCHOR AND CORRESPONDENT: Hi, Fred, you mentioned a lot of them there, $3 trillion deal, a lot of spending reduction in there also a sizable increase to the federal debt limit. That of course would extend out beyond next year's presidential election. It's also election for a lot of members of Congress as well.

So there wouldn't be very worrying about that. There are some other things in here including sort of advancing the cause of the balanced budget amendment, which is something people over in the House side, many of the Republicans there, the Tea Party Republicans are so interested in.

The other thing that I think is a bit controversial is this formation of a super-committee of Congress to recommend cuts going forward and there's some enforcement there that has made at least part of this very controversial.

Congress does not trust itself to actually follow its own rules once it makes them about cutting the budget and cutting spending and so they are trying to figure out a way to put some type of enforcement mechanism in there that affects both Democrats and Republicans and gives each the same amount of pain. So that's sort of a summation of what all this is, Fred.

WHITFIELD: And so Joe, whose finger prints are on this, you know, kind of new deal, this framework, the White House, the gang of six, Speaker Boehner, Majority Leader Reid, who?

JOHNS: I think there's a little bit everybody in there. Everybody you mentioned, obviously, Senator Mitch McConnell, the Republican is one of the key people. He's the Senate Republican leader.

Senator Reid needed a deal very badly here. The vice president and president of the United States have been on in these conversations as well as the Speaker of the House John Boehner. So it's definitely, you know, some of this and some of that right now.

WHITFIELD: OK, so, you know, while McConnell and Reid are expressing optimism, House Speaker John Boehner did apparently say in an e-mail that we have just recently got received.

That he sent this e-mail to fellow lawmakers saying there are quote serious issues that remain. That he's calling for a conference call today. Is that true? Is there time for that?

JOHNS: Yes, well, he didn't say what time the conference call is going to be, but it definitely sounds like he wants to talk to the rank in file in the Republican Party on the House side. It's not clear what they want to discuss.

We do know that a senior Republican aid on the Senate side has said there are concerns about this super committee business, not so sure about it. And fears that what they'll end up doing is instituting increased taxes, which is something Republicans don't want at all.

And they also are concerned it could lead to severe cuts in the Defense Department, something they don't want too. That's the kind of thing that has to be kind of worked out.

WHITFIELD: All right, Joe Johns from Capitol Hill. Thanks so much for that. So is there optimism from the White House on a debt plan? Let's bring in our White House correspondent Dan Lothian. So Dan, what's being said about these latest developments?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, look, first of all, the sense I'm getting is that Republicans are expressing more optimism publicly than at least Democrats and the White House are being cautiously optimistic here.

But one Democrat familiar with the talks telling me that things are in a much better place than they were 24 hours ago, but top aides at the White House and other sources also again reaffirming what we have heard over the last 24 hours, that there's still not a deal.

That there's still a lot of work to be done, but again, certainly there has been movement as one person pointed out significant progress over the last 24 hours. At this point, as far as we know, there are no meetings that are on the schedule.

No plans at this point for the president to come out and make any remarks, but of course, all of that could change at the moment's notice.

WHITFIELD: So, you know, Dan, we know the deadline is Tuesday, is the White House also setting kind of a preliminary deadline for this evening in respect of the Asian markets opening, trying to get something so there isn't another big hit on the markets?

LOTHIAN: Look, you know, the White House is quite aware of that deadline. They are not sort of making any pronouncements about when this has to get done, other than the fact it needs to be done soon, and again, cautiously optimistic that it will be.

Everyone here is painting that picture of what will happen if in fact that debt ceiling is not raise. As you pointed out, a lot of concern about what can happen in the global markets and certainly what will happen here domestically.

When you see what has happened in the past with other problems that the U.S. has had with its financial markets, it ripples across the world, the globe. So everyone is keenly aware of that. There are contingency plans, but at this point, everyone is hopeful that they can get a deal done and that the U.S. will not go into default.

WHITFIELD: All right, Dan Lothian, thanks so much from the White House. Appreciate that. This program note just what is it going to take to find a solution to the debt crisis. Wolf Blitzer and Don Lemon break down all the hurdles and options.

Don't miss "Get it Done, Countdown to Debt Crisis" tonight 9:00 Eastern Time only on CNN. We're covering every angle of this debt deadline. The concern isn't just in this country as you heard Dan say, but around the world. The Asian markets open in less than six hours and we're watching. We'll be right back.

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WHITFIELD: If you're just now joining us, we could be close to a deal to reach the nation's debt ceiling. And if a deal is not reach, the U.S. government could default just two days from now.

Right now, we're hearing some optimism from the leaders of both parties in the Senate. So the big question, is Washington on the right path to avoid a downgrade of the U.S. credit rating?

Earlier CNN's Gloria Borger talked with a top economist about that.

(BEGIN VIDEO CLIP)

BORGER: Do you think this is also enough to kind of avert a downgrade from our AAA status right now?

MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS: Well, yes, of course I'm - you know, I'm not in the rating agency, I can't speak for them. But listening to what they have to say, I think this would be sufficient, yes.

Now, all of the rating agencies have different opinions. Some may go down a different path, but I think broadly speaking, if it comes close to what they are talking about now, this is substantive and I think it should avoid a downgrade.

(END VIDEO CLIP)

WHITFIELD: So we're digging a little deeper on the credit rating issue. Let's bring in our chief business correspondent Ali Velshi. So, Ali, the U.S. has a top of the line credit rating. So what's your take? Can the U.S. come out of this with its credit rating untarnished?

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Probably not, Fred. For a lot of reasons, first of all we're talking about a $3 trillion cut over 10 years in the budget. Most of the credit ratings have said $4 trillion over 10 years is what they need.

That said, part of the reason why they've been threatening a downgrade is partially because of the U.S. debt situation and partially because of Washington's seeming inability to get this done. So as I see it, there are probably about three options here.

One is that, no downgrade if obviously we've got a deal reached and it's sufficient to the ratings agencies. Then there's possibility of a slight downgrade if no deal is reached. No, it's not a big one, but a little one.

A slight downgrade even if a deal is reached and finally, the serious one, which it looks like we're headed towards avoiding is a major downgrade if the U.S. defaults on interest payments. Now everybody seems to be saying we heard Mitch McConnell saying it to Gloria Borger today.

We heard everybody saying we're headed towards a default. The danger, of course, Fred is that everybody thinks they have some science as to what's going to cause a default and what isn't. I'll tell you this much.

The ratings agencies, Fred, have not been fantastic at doing their work. We know this from 2008, from the Lehman Brothers, AIG debacle. But I will tell you this, you don't have to be a rocket scientist to figure out the U.S. has got serious debt problem.

So we may not have dodged a downgrade entirely, but we may have dodged the worst of it if we're waiting, you know, to find out what's going on. The U.S. has never been anything, but AAA since its first rating by Moody's in 1917.

Most companies and countries pay to be rated by the way. The U.S. does not pay to be rated. We pay about $250 billion at the federal level in interest payments every year. That, of course, is what would go up if we lost the rating, Fred.

WHITFIELD: OK, this past week, you know, Ali, the markets lost a whole lot of money, $700 billion to that effect -

VELSHI: Yes.

WHITFIELD: And Dow dropped 500 points or so, so if no deal by today and once the Asian markets do open up, if it's about 8:00 Eastern Time, what are you expecting?

VELSHI: Well, it depends. You know, as we get closer to this, with each half hour or so we get new information. If it looks like by 8:00 tonight like there really is a deal and they stop posturing, we might be OK on Asian markets. And in fact, if there is a deal with terms that we can understand, I actually think markets will respond quite positively to it. If there isn't, there's really going to be a sense from the world that you guys are really, really messing around and politics is really overtaking economics and common sense. So I think things can go any way in the next six hours.

You know, you've been following as I have all day. We seemed to be edging closer to a deal and not. I will remind you of this. We've lost $700 billion in the last week or so. I tweeted this out and I had somebody tweet me to say that's ridiculous. Those aren't realized losses.

Well, if you have a 401(k) or you have an IRA and your stocks have been going down for a week and now you're panicked and Friday came along. And you said, you know what, I don't want to wait until Monday to see what happens, guess what, you actually realize those losses.

And if these interest rates go up, it could slow down home prices because if the U.S. gets downgraded so as Fannie Mae and Freddie Mac that creates interest rate increases, a lot of things could go wrong.

I think those folks in Washington if they're working on this should keep this in mind. Home sales could stall, that's one leg of our economy and those stock prices could fall down further. Fred --

WHITFIELD: Wow and as it pertains to this 401(k) loss, I heard some numbers that for every $100,000, people may have lost $8,000, that's the kind of hit --

VELSHI: Yes, it's real losses.

WHITFIELD: In their 401(k)s just in this past week alone. All right, thanks so much, Ali Velshi --

VELSHI: Yes, not everybody can afford that kind of loss, right?

WHITFIELD: Absolutely.

VELSHI: By the way, we're coming up with a special edition of "YOUR MONEY" at 3:00 Eastern about 13 minutes from now.

WHITFIELD: Very good, I was just about to remind people of that. All right, we'll be watching, Ali. Thanks so much, appreciate that.

All right, the latest on the debt crisis talks and what it means for our economy and you, that special live edition of "YOUR MONEY" covering all the angles at the top of the hour. Just a few minutes away.

Plus, just what is it going to take to find a solution to the debt crisis? Wolf Blitzer and Don Lemon break down all the hurdles and the options. Don't miss "Get It Done, Countdown to Debt Crisis", tonight 9:00 Eastern Time only on CNN.

All right, there is hope. Apparently, Iran may soon free two imprisoned American hikers. The reason why, next.

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WHITFIELD: In other news, an Iranian court is expected to rule this week on the fate of two imprisoned American hikers. Josh Fattal and Sarah Shourd and Shane Bauer were charged with espionage after allegedly strung into Iran two years ago.

Well, Shourd was released last year, but Fattal and Bauer, well, those two gentlemen remain in prison. A court hearing was held today. A lawyer for the imprisoned American said even if the verdict is guilty, the sentence may be limited to the time that they have already served.

Another Iranian court case is also drawing attention. It involves this woman, who was blinded with acid after rejecting a man's advances. In a literal case of eye for an eye justice an Iranian court sentenced the man to be blinded himself. But at the last minute today, the victim called for leniency and the man was spared from blinding.

And in the air north of Anchorage, Alaska, a fatal collision between two small planes, one of them crashed killing all four people on board. The pilot of the over plane was able to land safely. He was not injured. Both aircraft are float planes, which can take off and land on water.

Three trees were planted near Shanksville, Pennsylvania yesterday to honor victims of 9/11 attacks nearly 10 years ago. Flight 93 crashed into this field after passengers stopped hijackers from using the plane to attack Washington, D.C. Families of those who died in the crash were on hand.

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KEN NACKE, BROTHER OF FLIGHT 93 VICTIM: My dad said that a living memorial in the tree is one of the best things you could have.

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WHITFIELD: Forty trees will be planted in all, one for each passenger and crew member.

And no relief from the sizzling summer weather for Texas. The state's severe drought shows no signs of ending. It's having a huge impact on crops and livestock which could push food prices up for all of us.

In the coming week, more blistering heat with record highs of 105 degrees or even hotter expected in parts of that state. It has been 100 degrees or hotter in Dallas for 29 straight days.

And they are being described as a flash mob, a group of largely composed of teenagers prowling Philadelphia's center city district Friday night, robbing and assaulting at least two pedestrians.

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UNIDENTIFIED MALE: It looked like a bunch of roaches swarming.

UNIDENTIFIED MALE: You see 40 or 50 kids, up to no good.

UNIDENTIFIED MALE: His whole face was bloody. He wasn't like conscious by the time the police got here.

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WHITFIELD: Police have arrested four suspects ranging in age from 19 to just 11.

And actor, Matt Damon rallied with thousands of teenagers in Washington yesterday. The rally is billed as a save our schools demonstration to protest the use of standardized test to judge a teacher's effectiveness. Damon credited public school teachers with his success.

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MATT DAMON, ACTOR, EDUCATION ACTIVIST: I had incredible teachers and as eye look at my life today, the things I value most about myself, my imagination and love of acting and passion for writing, my love of learning, my curiosity. All of these things came from the way I was parented and taught.

(END VIDEO CLIP)

WHITFIELD: The protesting teachers say the current Obama race to the top education plan relies as much on constant testing as no child left behind.

Indianapolis Colt quarter back Peyton Manning just got a whole lot richer. Manning reportedly has signed a five-year contract worth $90 million. It works out to just $18 million a year. Manning is a four- time most valuable player in the NFL.

And behind closed doors on Capitol Hill, and even at the White House, ongoing negotiations to get a debt deal done. New developments happening every moment and we're bringing it live to you here from the CNN NEWSROOM.

(COMMERCIAL BREAK)

WHITFIELD: A race against time on Capitol Hill. Congress could be close to a deal to raise the nation's debt ceiling. If one is not reached, the U.S. government could default in just two days from now.

It's a dramatic story the whole world is watching and right now we are hearing some optimism from the leaders of both parties in the Senate, but there are still some stumbling blocks.

One involves a provision conservatives want, it would require Congress to approve a balance budget amendment. Democrats object to that. CNN's chief political analyst Gloria Borger asked the Senate Minority Leader Mitch McConnell about that this morning. (BEGIN VIDEO CLIP)

MCCONNELL: We intend to be voting on the balanced budget amendment in the Senate and we'll let you know when that's scheduled.

BORGER: As part of this plan?

MCCONNELL: We're going to be voting on the balanced budget amendment in the Senate. I hope it will pass --

BORGER: But you're not talking about a guarantee of passage.

MCCONNELL: That's an important restraint long term on the government of the United States, which is certainly demonstrated in the last decade that it can't get its financial house in order unassisted.

(END VIDEO CLIP)

WHITFIELD: The debt crisis is weighing heavily on the minds of U.S. troops in Afghanistan. When Joint Chiefs Chairman Admiral Mike Mullen made an unannounced visit to Afghanistan today, some soldiers asked about how the debt crisis would affect their paychecks.

Senate Majority Leader Harry Reid talked about Mullen's encounter on the Senate floor.

(BEGIN VIDEO CLIP)

REID: The soldiers Admiral Mullen talked with weren't asking about military strategy or how a drawdown would affect them. They asked whether they would get paid if Republicans force the United States government to stop paying its bills.

The reason that has been rocked by violence and plagued by suicide bombers, they wondered how they would take care of families if the checks stop coming next month.

(END VIDEO CLIP)

All right, just what is it going to take to find a solution to this debt crisis? Wolf Blitzer and Don Lemon break down all the hurdles and the options. Don't miss "Get It Done, Countdown to Debt Crisis" tonight 9:00 Eastern only on CNN.

I'll be back in one hour from now with the latest from Washington as negotiations continue to work out a debt deal before Tuesday's deadline. The best political team on television is gathering new information.

We'll bring that to you as it happens. Right now my colleague Ali Velshi has "YOUR MONEY" live from New York. Ali.