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Government Shutdown Appears All But Certain; How Would a Shutdown be Felt?; No Compromise as Shutdown Closes In; Retrial Begins for American Amanda Knox; U.S. Shutdown Threat Worries Investors

Aired September 30, 2013 - 09:00   ET

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

CAROL COSTELLO, CNN ANCHOR: As hope dwindles, anger builds. According to a new CNN/ORC poll, nearly seven in 10 Americans believe it's Republican lawmakers who are acting like spoiled children in this stalemate. Nearly six in 10 blame Democrats and almost half say it's President Obama's fault. A general disgust with Washington seems to cross party lines.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I just wish the people that we elected into office would do their job. It seems like it's a lot of grandstanding for the people they're trying to win votes from rather than doing what's best for the country.

UNIDENTIFIED FEMALE: I think it's another scheme to get us citizens very worried and try to get us on board with an agenda that we don't want. I think it's politicians' efforts to really just put their agendas through and not get their work done.

(END VIDEO CLIP)

COSTELLO: The impact of a shutdown would be far-reaching. It would hurt the economy, putting a hold on paychecks and hiring. Some 783,000 federal workers would face unpaid leave and this morning Wall Street is already facing a hit. Investors hate uncertainty and federal loans will grind to a halt affecting everything from home buying to small businesses.

Now it is worth noting that about three-quarters of all government employees still will go to work, even if there is a government shutdown. That's about 2.5 million workers who are deemed essential employees, like postal workers and members of the military.

We are covering all angles of this story from the White House to Capitol Hill, and we'll have the view from both within the debate and outside the fray.

Let's start at the White House, shall we, with Brianna Keilar.

Good morning.

BRIANNA KEILAR, CNN SENIOR WHITE HOUSE CORRESPONDENT: Good morning to you, Carol. The Senate is expected to take up and then very quickly dismantle what the House passed over the weekend. And barring any unexpected agreement here we're on a fast track to a government shutdown.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: This is the old football strategy.

KEILAR (voice-over): House Republicans rallied on the steps of the Capitol calling on the Senate to come back to work. Inside, a ghost town. Not long after the House GOP passed a bill in the early morning hours Sunday.

UNIDENTIFIED MALE: The motion to reconsider is laid on the table.

KEILAR: It funds the government, but delays Obamacare for one year. Now just hours to go before a deadline for a deal, the first government shutdown in 17 years seems all but certain. The blame game in full swing with Republicans on preemptive damage control.

SEN. TED CRUZ (R), TEXAS: So far, Majority Leader Harry Reid has essentially told House of Representatives and the American people go jump in the lake.

SEN. RAND PAUL (R), KENTUCKY: He is saying 100 percent of Obamacare or the highway. The president is the one saying, I will shut down government if you don't give me everything I want on Obamacare.

KEILAR: They argued they budged. Demanding the president's healthcare program be delayed after initially voting to defund it altogether but Senate Democratic Leader Harry Reid won't put this latest House passed bill up for a vote and President Obama, who met Sunday afternoon with his economic team at the White House, has threatened to veto of any measure that delays or defunds Obamacare.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Let me repeat it. That's not going to happen.

KEILAR: The Senate is expected to strip out the Obamacare delay today and send it right back to the House. Meanwhile, the clock is ticking toward midnight when a government shutdown would close national parks, furlough hundreds of thousands of federal workers, and stall new passport applications.

There was one area of possible agreement, however, a repeal of a tax on medical devices that was included in the bill Republicans passed this weekend. A top Democrat said he was open to the measure, but not with a shutdown looming.

SEN. RICHARD DURBIN (D), ILLINOIS: I'm willing to look at that, but not with a gun to my head, not with the prospect of shutting down the government.

(END VIDEOTAPE)

KEILAR: A couple of public events on the president's schedule today. He'll be meeting with Israeli Prime Minister Benjamin Netanyahu, then later in the day, Carol, he has a Cabinet meeting. There will be cameras on both of these events. If he does want to say anything on the shutdown. Also though he's made it pretty that when it comes to tinkering with Obamacare and in any substantive way, that really just a non-starter for him.

COSTELLO: All right. Brianna Keilar reporting live from the White House this morning, let's head over to Capitol Hill now, shall we, because the finger pointing continues there. The Senate expected to reject the House's latest spending bill when it returns to work at 2:00 this afternoon, that's Eastern Time.

Majority Leader Harry Reid slamming the House's plan which would delay Obamacare by a year in exchange for funding the government. Comparing the measure to extortion by what Reid calls, quote, "Tea Party anarchists".

Athena Jones is on Capitol Hill with that side of the story.

Good morning.

ATHENA JONES, CNN CORRESPONDENT: Good morning, Carol. This is a case of "here we go again" again. As you heard in Brianna's piece the Senate is preparing today to reject a plan that the House sent over a bill to keep the government running and send back to the House a bill that the House has already rejected.

Let's do a quick recap. Last week the House sent the Senate a bill keeping the government running, keeping these federal workers at work, getting their paychecks but they included this provision that would defund Obamacare. Now the -- the Senate rejected that and sent back to the House a clean, what they call a clean spending bill that would keep the government running but leave all this Obamacare, anti-Obama care provisions out.

Well, over the weekend the House sent back to the Senate another spending bill reattaching new anti-Obamacare provisions, this one would delay it for a year rather than defund it and also another provision that would repeal a tax on medical devices that helps fund the law.

The Senate already warned the House that they would reject that. The White House has said that they would veto -- the president would veto that bill and so that's where we stand today. The Senate is going to come in this afternoon, strip those same anti-Obamacare provisions out once again and send it back over to the House so here we have this game of legislative hot potato with the time ticking down to midnight and it's not totally clear what the House is going to do.

Now who is going to be to blame here? You know, you saw at the beginning of that poll you showed a lot of people think that both the Republicans and the Democrats aren't acting like adults. So who's to blame if there is a shutdown? Well, our latest poll shows that 46 percent would blame Republicans, 36 percent would blame the president, and 13 percent would blame both.

So even though the president comes out a little bit better than Republicans in Congress there's still a lot of blame to go around. It's not going to be good -- Carol. COSTELLO: OK. So why isn't the Senate meeting until 2:00 this afternoon? If -- if everything is so urgent, why aren't they in there right now talking about things?

JONES: Well, the Senate would argue that they -- the House knew all along what they were planning to do, and so for them, they say it's fine, we'll come in, in the afternoon, maybe the House can quickly come together and send something back over, but the point of view of the Senate majority leader Harry Reid is that the House Republicans knew all along that the Senate was not going to accept any bill that was loaded down with these anti-Obamacare provisions.

And so to them, this game of hot potato could have been avoided in their view, in the Senate Democrats' view if the House just listened to that initial warning but as it comes, here we're going to be at 2:00 this afternoon with only 10 hours to go until the end of the day, and it's not clear exactly how this is all going to shake out but we will be watching very, very closely.

COSTELLO: I think it's looking pretty clear, right?

(LAUGHTER)

I think it's looking pretty clear.

JONES: We'll it's looking pretty bad but we don't know exactly what the House is going to send back and kind of who's going to be left holding the bill -- holding the bag at the end of the day.

COSTELLO: All right. Athena Jones reporting live from Capitol Hill.

So talk about a little gamesmanship and a game of hot potato. Whatever you want to call it. But how would a shutdown, a government shutdown if that happens, affect you?

Christine Romans is in New York with that side of the story.

Good morning, Christine.

CHRISTINE ROMANS, CNN BUSINESS ANCHOR: Thank you, Carol. Because I cannot stand the theatrics anymore from Washington. Let's just talk about what's going to happen if there is a shutdown. What you feel first.

Look, national parks, museums, zoos, monuments, anything that's free probably is going to be closed because those national parks if you're in a camper, for example, right now at a national park you'll probably have a couple of days, couple of days to clear out. Many federal offices and programs anywhere from 700,000 to 825,000 people will be sent home, nonessential workers will be sent home.

Just in case you're wondering, Congress is considered essential. Congress will still be paid, Carol. You can rest assured Congress will be paid even though Congress has not done its job and could be putting us on the brink here of a shutdown. Let's take a look at some other services here that are incredibly important, federal courts can remain open for about 10 days. There's enough operating functions for that. Passport offices, unless they're in a federal office building, passports, visas, these are still going to be issued. Last time around in '95 they weren't. This time there will be.

Air traffic control, border protection, key parts of the department of defense, the power grid will be maintained, all of these things are still open. There's something called mandatory spending, and net Social Security, Medicare, Medicaid, food stamps, all of those things will continue to operate. So if you get a direct deposit of Social Security that will continue. If you have SNAP, supplemental nutrition benefits, the debit card will be reloaded, postal service still works, jobless benefits, those checks will continue to come.

The bad news here, you still have to pay your taxes, Carol. You still have to pay your taxes. You will not be able to dodge any of that even if your government shuts down. Congress will be paid, the president will be paid, those are essential offices overall and the cost of all of this, though, I mean, we're running into the millions of dollars a day, depending on how long this thing last.

Last time around it was $1.4 billion for the shutdown in '95. You know, this is just -- it's counterproductive, it's a lot of wasted time for people, it'd be wasted money, too -- Carol.

COSTELLO: All right. Christine Romans, thanks, I think.

(LAUGHTER)

Still could come in the NEWSROOM, if Congress cannot reach a deal before midnight what will it mean exactly for job creation and the nation's long-term economic health? We'll talk about that next.

(COMMERCIAL BREAK)

COSTELLO: The U.S. Senate convenes at 2:00 p.m. this afternoon. It's expected to shoot down a House bill that would fund the government but delay Obamacare for a year. That means the Senate will come up with a new plan and send it back to the House. But not many think a deal will come in time.

So let's talk now about what a shutdown, a government shutdown would mean for the nation's bottom line.

CNN global economic analyst and "TIME" magazine assistant managing editor, Rana Faroohar, joins me now.

Good morning, Rana.

RANA FAROOHAR, CNN GLOBAL ECONOMIC ANALYST: Good morning.

COSTELLO: OK. So our politicians say they care deeply about job creation. In light of what's going on today, A, are they fibbing, B, living in a bubble or C, are they clueless about what really drives our economy?

Hmm, I might have to say D, all of the above.

(LAUGHTER)

FAROOHAR: You know, if you look, if you look at the statistics that are out there. Every week that we would be in a government shutdown would save about 0.2 percent off of growth. Now doesn't sound like that a lot at first, but when you take that to a month, you're talking an entire percentage point of growth off an economy that's already growing just a little above 2 percent. So it's a really, really serious head wind.

COSTELLO: What this really does is this creates uncertainty in the economy and that means like maybe a major retailer like Target won't be so willing to hire new people because the government can't seem to come up with one major plan on how to run our economy.

FAROOHAR: Absolutely, and I think that you can see the disconnect already. You know, stock prices are still up, but that's because the Federal Reserve has been pumping so much money into the economy in part because they're so worried about the beltway bombshell that may be coming down the road here.

But if you look at consumer confidence it's down off its peaks, business confidence is down, sales at big firms like Wal-Mart, for example, have been weak recently. So I think that you can see a lot of people out there are concerned and are already feeling the pain.

COSTELLO: There are some who say a short-term shutdown, a short-term government shutdown probably will not have a major effect on our economy. After all, we've been through it before and the stock market went up eventually. But a week's long shutdown coupled with the fight over the debt ceiling could have catastrophic effects so tell us what those effects might be.

FAROOHAR: That's right. I mean, the fact that we have these two events coming up, you've got, you know, this need to pass federal spending authority by tomorrow, but then in just a few weeks, you need to raise the debt limit in order for the government to keep paying its bills. Those two events being to close together and back to back have not happened before.

I will say that if we had problems raising the debt ceiling and went into another potential shutdown or, you know, heaven forbid, refused to pay our bills to creditors, that would be really a major economic event, of the kind that we have not really seen before, and there was one small technical default on debt in 1979 for silly reasons, word processing program failed. But even that caused interest rates to rise over a half a percentage point. So -- and that resulted in additional $12 billion in interest payments taxpayers had to pick up.

So, that's a tiny little thing. If we were to have a serious default that would be a catastrophic event.

COSTELLO: Could it throw us back into a recession? FOROOHAR: Yes, I think if we defaulted on our debt and really failed to come to some resolution about the debt ceiling and you had an ongoing shutdown, absolutely, it could.

COSTELLO: Rana Foroohar, thank you so much for joining us this morning. We appreciate it.

FOROOHAR: Thank you.

COSTELLO: Still to come in THE NEWSROOM, the sensational murder case that rippled around the world. This morning, the retrial of American Amanda Knox, is under way, but she's not there. We'll talk about that.

But first, what you have to say about a possible government shutdown.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Words fail me, really, we've got ourselves in this position where we can't compromise to the point we got to shut the government down. That's what I think.

REPORTER: Who do you blame for this position we're in now?

UNIDENTIFIED MALE: Everybody.

UNIDENTIFIED MALE: We spend way too much money. I think Obamacare is a total disaster and I think it needs to be defunded, so whatever it takes to do that, I'm for it.

UNIDENTIFIED MALE: I think that everybody should get together and just review the plans at hand. I mean, I think that by us being Americans, we need to come together on certain things because we've already been through a lot of turmoil as far as 9/11 and a few other things.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

COSTELLO: We'll have more on the effects of a government shutdown in just a minute.

But, first, a murder case that has riveted millions from Europe all the way to America or the other way around. Right now, in Italy, a retrial is under way for Amanda Knox, the Washington exchange student accused of murdering her British roommate. She was first convicted and then acquitted and now she faces a new trial. But Knox is not going to be there. She's not going to return to Italy.

CNN's Erin McLaughlin is in London to tell us more.

Good morning.

ERIN MCLAUGHLIN, CNN INTERNATIONAL CORRESPONDENT: Good morning, carol. Well, today was largely a procedural hearing. The defense asked for new tests on evidence at the crime scene. We also now know that the jury will be comprised of two judges and four what they call popular judges which participate in the discussion.

Now, as for what this is all about, two years ago, both Amanda Knox and Raffaele Sollecito were acquitted, but now, they're facing a new trial -- a new trial for the murder of 21-year-old Meredith Kercher.

(BEGIN VIDEOTAPE)

MCLAUGHLIN (voice-over): The latest chapter in Amanda Knox's long legal battle begins today in Florence, Italy, with a new appeals trial for the 2007 murder of his British roommate, Meredith Kercher. Knox will not be in court for the retrial, concerned about returning to the country where she spent four years behind bars.

AMANDA KNOX, MURDER CONVICTION OVERTURNED: I'm afraid to go back there. I don't want to go back into prison. I don't want them to all of a sudden do a court order when I'm there just respecting the court and going there, and the prosecution ask, could I be put in preventative detention again. I mean, I was there four years.

MCLAUGHLIN: At 22-years-old, Knox was convicted of brutally killing Kercher in the villa they shared in a small Italian town of Perugia. That ruling was overturned in 2011 due to lack of evidence and she returned home to Seattle.

KNOX: Thank you to everyone who has believed in me.

MCLAUGHIN: Bu those cries of relief in no way signal the end of the legal ordeal. In March, Italy's highest court ordered the acquittal overturned saying significant evidence was neglected, evidence that supported the prosecutor's theory that Knox and her then-boyfriend, Raffaele Sollecito killed Kercher in a twisted sex game gone wrong.

RICARDO MONTANA, LECTURER AT CITY UNIVERSITY: What happened with supreme court send the case back to the courts of appeal may be interpreted by the American authorities as double jeopardy twice tried for the same fact, the same case. In Italy, it's not like this because this is still the same trial.

MCLAUGHLIN: If convicted, Knox will be ordered to return to Italy. If she refuses, Italy could request her extradition from the United States. And while she won't be in court, Knox says she'd be willing to take a lie detector test.

KNOX: I'd do anything to prove my innocence. I don't think that's necessary, but, like I said, I'm doing everything I can to prove my innocence. I just think that it's very sad that that is what it has come to.

(END VIDEOTAPE)

MCLAUGHLIN: Amanda Knox is not the only one watching this trial from afar. Her former boyfriend, Raffaele Sollecito tells CNN he's in the Dominican Republic with a friend. Meanwhile, Meredith Kercher's family remains here in the United Kingdom. Her brother today submitted a letter to the court saying their parents are too ill to attend the trial. We can only imagine how difficult this must be for them -- Carol.

COSTELLO: Erin McLaughlin, thanks so much, reporting live from London this morning.

Checking other top stories, 24 minutes past the hour.

NTSB investigators are on the scene of a plane crash at the Santa Monica airport. A twin-engine business plane crashed into a hangar, starting a fire. No one survived. There's no word on how many people were on board but the jet can carry up to nine people.

More than a dozen car bombs exploded on crowded streets in Baghdad this morning. Reuters says the attacks killed at least 54 people. More than 100 others were wounded. The attacks appear to be targeting predominantly Shiite Muslim neighborhoods.

An historic day for the Catholic Church -- Pope John XXIII and John Paul II will be declared saints April 27th. It's the first two popes would be canonized at the same time. To become a saint, a person needs to lead a holy life and perform two miracles.

In money news, bank fees have been spiking for 15 straight years, this according to "USA Today" and bankrate.com. Both say overdraft fees and out of network ATM costs have also hit record highs. Overdraft charges now average $32.20. And you can expect to pay an average of $4.13 if you use another bank's ATM.

And two boaters from the Florida Keys getting up close and personal with waterspouts, five of 'em. Erin Osters (ph) and Kevin Johnson were fishing for lobster when they came face to face with that, and they steered their boat right into them. That can be deadly but Johnson is a veteran charter boat captain and he's really brave. He says he's done it twice before but only when conditions were right.

Still to come in the NEWSROOM: just the idea of a government shutdown is eating away at some of our savings, our investments. We're heading live to Wall Street for the opening bell and a look at what the uncertainty in Washington is doing to the Dow. We'll be right back.

(COMMERCIAL BREAK)

COSTELLO: Good morning. I'm Carol Costello. Thanks so much for joining me.

We're watching the opening bell on Wall Street closely because investors are worried about a possible government shutdown. That could start in less than 15 hours.

CNN's business correspondent Zain Asher is at the New York Stock Exchange.

All right, we're ready. Hit us. ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Hey, Carol.

You know, this is going to be very interesting to watch. We know the markets hate uncertainty. Pretty much got a little over 14 1/2 hours to go before a potential government shutdown.

Right now, the futures are down about 150 points. But listen, this has not come out of left field. You know that stocks have been taking a hit the past few days. It's down 1 percent last week. Traders I spoke to say that they're hoping Washington will strike an 11th hour deal but if they don't, there is some fear about what sort of effects this is going to have on the economy.

Even though stocks have recovered quickly from previous government shutdowns, analysts say if the government shuts down for just one week, that could actually reduce quarterly economic growth by 0.1 percent.

Another problem quickly is that investors may not have anything to trade on if key economic reports are not released. Obviously, the most important, Carol, being the jobs report, we don't know whether Friday's jobs report is going to come out. That, of course, has traders scratching their heads.

And lastly, you know, for investors who are worried about their 401(k)s, the bottom line is, sit tight, stocks will almost certainly rebound when all of this blows over.