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The Situation Room

'Disaster' for Middle Class; Michael Steele Elected as RNC Chairman; Middle Class Task Force

Aired January 30, 2009 - 15:59   ET

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

WOLF BLITZER, CNN ANCHOR: Happening now, America's economic disaster gets even worse. And President Obama tries to throw a life raft to middle class families.

Economic doomsday in New York City as well. The mayor takes an ax to the city's budget and thousands upon thousands of jobs right now on the chopping block.

And President Obama's debut out there on the world stage. Our top international correspondents rate his moves and his message in week two of this administration.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

All that coming up, but I want to alert our viewers, we're expecting the final ballot over at the Republican National Committee to determine the new chairman of that committee. Several candidates already now have dropped out.

You're looking at live pictures over from a hotel here in Washington. It's either going to be Michael Steele, the former lieutenant governor of Maryland, or Katon Dawson, the chairman of the Republican Party down in South Carolina. If it's Michael Steele -- and the odds are looking good for Michael Steele right now -- he would be the African- American chairman of the Republican National Committee, clearly a new face for the GOP right now.

Bill Schneider is over there. We're going to go there shortly. They're getting ready for the final ballot. It looks like it could come down very, very soon, and we'll alert you as soon as we know more about what's going on. So stand by for that.

Meanwhile, the sledgehammer of dire economic news coming down hard once again today on the nation and its new president. Barack Obama responding, as he has nearly every day he's been in office, trying to show hard-hit Americans he gets it. His message today directed mainly at middle class families.

Let's go to our White House correspondent, Dan Lothian, with more.

The president speaking passionately once again today, Dan.

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: That's right. And you know, the president realizes that all Americans are being hurt by this negative economy. And that's why he's really pushing this stimulus plan. He's sitting down with Democrats and Republicans to really try to find some compromises as this makes its way through the Senate. But as you mentioned, today, the president was really focused on the middle class.

(BEGIN VIDEOTAPE)

LOTHIAN (voice-over): Another blow to America's middle class, a shrinking economy, the worst in almost three decades.

BARACK H. OBAMA, PRESIDENT OF THE UNITED STATES: This isn't just an economic concept. This is a continuing disaster for America's working families.

LOTHIAN: As President Obama signed executive orders that he says levels the playing field between labor unions and employers, he reached out to what he calls the backbone of the country -- middle class families, people White House spokesman Robert Gibbs suggested the Bush administration ignored.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: I think one of the critiques that the president had of the previous administration was a tendency to help those that already had done quite well.

LOTHIAN: But Obama says the middle class is in desperate need of help, losing their jobs and homes, unable to afford college tuition for their kids. The American dream in reverse.

OBAMA: When I talk about the middle class, I'm talking about folks who are currently in the middle class, but also people who aspire to be in the middle class. We're not forgetting the poor.

LOTHIAN: Vice President Biden will lead a new middle class task force, looking at creating green jobs, making retirement more secure, and child and elder care more affordable.

JOSEPH BIDEN, VICE PRESIDENT OF THE UNITED STATES: Quite simply, a strong middle class, in our view, equals a strong America.

LOTHIAN: Obama has long focused on the middle class, a frequent theme on the campaign trail.

OBAMA: Middle class families have the kinds of quality of life that has always been the hallmark of the American dream.

LOTHIAN: But beyond setting up a Web site, holding high-level meetings, and going on a national listening tour, will this task force get the middle class closer to the help they need? Gibbs says yes.

GIBBS: I think the beginning of that is in this recovery and reinvestment plan, to ensure that the tax cuts that are contained in it are focused towards those that need it the most.

(END VIDEOTAPE)

ANNOUNCER: This is CNN breaking news. BLITZER: I want to go right over to the hotel at Washington. It looks like the vote is happening right now on the new chairman of the Republican National Committee.

Bill Schneider is on the scene for us.

Two candidates in this new ballot. What do we know, Bill?

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: What we know is that Michael Steele, the former lieutenant governor of Maryland, has just been elected the new chairman of the Republican Party. It is an historic moment.

Remember people went to bed on November 4th and they said, "I have never thought I would live to see the day when an African-American is elected president." Well, how many people thought they would live to see the day when the Republican Party elected -- the Republican National Committee members elected an African-American to lead the Republican Party?

Michael Steele is about to get up. He will address the delegates. He is the first African-American to lead the Republican Party.

He is known as a very effective communicator. He is a conservative, though he has a reputation as a relatively moderate conservative. He is a Roman Catholic and he is thought of as a very effective communicator, which is what the Republicans here in this room say they need to lead the Republican Party.

BLITZER: He's a former lieutenant governor of Maryland, as well, as you know, Bill. And he ran for the U.S. Senate for Maryland, he lost to the Democrat Ben Cardin, who is now the Democratic senator for the state of Maryland. Although, by all accounts, he did relatively well in what is largely seen as a very Democratic state.

Is that right?

SCHNEIDER: That is correct. Maryland is a very blue state. It was one of Obama's better states last year.

Michael Steele has remained strongly affiliated with the Republican Party. He wants to see Republican outreach.

The delegates, as you can see in this room, very excited. This is a breakthrough. They only got about four percent of the black vote last time.

He's about to speak.

BLITZER: Let's listen in briefly to Michael Steele, the new chairman of the RNC.

MICHAEL STEELE, RNC CHAIRMAN: This is awesome.

(APPLAUSE) It is with a great deal of humility and a sense of service that I accept and appreciate and thank all of you for the opportunity to serve as the next national chairman of our very proud, our very strong, and our very, very hardworking Republican National Committee.

(APPLAUSE)

Thank you.

To our friends, to those who support us, to those who believe in the ideals, those conservative principles that have made us the strong and proud party that we are, to Americans who believe in the future of this country, to those who stand in difference with us, it's time for something completely different. And we're going to bring it to them.

(APPLAUSE)

We're going to bring this party to every corner, every boardroom, every neighborhood, every community. And we're going to say to friend and foe alike, we want you to be a part of us, we want you to work with us. And for those of you who wish to obstruct, get ready to get knocked over.

(APPLAUSE)

So I want to thank all of you, especially. I remember sitting on this body in 2000 and 2002, and I never thought this day would come. I want to thank especially my friends in the territories, who I can assure you, as I assure all of you, will be a part of helping us build and grow this party in a way we have never seen before.

(APPLAUSE)

To my friends in the Northeast, get ready, baby. It's time to turn it on and work to do what we always do well. And that is win.

We're going to win again in the Northeast. We're going to continue to win in the South. We're going to win with a new storm in the Midwest. And we're going to get to the West, we're going to lock it down and win there too. This is our opportunity.

(APPLAUSE)

This is our opportunity. I cannot do this by myself.

As I said to so many of you when we met, this is about empowering you, our chairmen, our national committee men, our national committee women to lead this party, to grow this party, to strengthen this party. We stand proud as the conservative party of the United States, and we will make sure we work hard to make sure those principles, those values that have made us the party of Lincoln are part of the issues, are part of the policies, are part of helping set a new direction for this country. We will cede no ground to anyone on matters of principle, on matters that matter to the people of this country.

So, my first official act as your chairman is to end this speech right now...

(LAUGHTER)

(APPLAUSE)

... because we have a few more races to do to fill out the leadership team that you will select to lead you the next two years. I look forward to visiting all of you in your neighborhoods, in your back yards, as we grow and build the Republican Party of this country.

Thank you again for this honor. God bless you. God bless our party. Thank you.

(APPLAUSE)

BLITZER: Michael Steele, the former lieutenant governor of the state of Maryland, is now the chairman of the Republican National Committee. He's 50 years old. He was born at Andrews Air Force Base outside of Washington, in Maryland, Prince George's County. He was raised in the District of Columbia.

He spent three years, by the way, as a seminarian at the Order of St. Augustine in preparation for the priesthood, but ultimately chose a career in law, as opposed to that. He got a law degree from Georgetown University Law Center.

Many of you probably will remember him when he was running for Senate in the state of Maryland. He was a frequent guest right here in THE SITUATION ROOM.

Congratulations to Michael Steele. We hope he'll be joining us soon as the new chairman of the RNC.

We'll have more on this developing story coming up, but let's check in with Jack Cafferty to see what's up in "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Republican senators are vowing now to fight the economic stimulus package after it passed the House with no support from their party at all. Republicans swear this is not a case of the usual political games, and they insist the bill is a waste of money unless it includes more tax cuts and details on where the more than $800 billion is going. But they are still also whining that they were left out of the process in the House, saying the Democrats are ignoring their concerns. These protestations come despite the fact that several changes were made in the House version of the bill specifically to placate the Republicans.

The Democrats have launched an offensive now. They're starting to run ads targeting Republican senators who are up for reelection and urging them to vote for the stimulus package.

Mississippi Senator Roger Wicker pointed out an ad in "The Washington Post" in which 300 economists agree with Wicker and his Republican colleagues that passing the stimulus bill is the wrong thing to do. Wicker added, "A trillion dollars is a terrible thing to waste. Let's be careful we're not making the situation worse in an attempt to make it better."

Despite all the bickering, at the end of the day it's expected the bill will pass the Senate, but with changes from the version that passed the House.

So here's the question: How should the stimulus bill be changed?

Go to cnn.com/caffertyfile and post a comment on my blog.

BLITZER: Good question, Jack. Thank you.

In these early days of the Obama administration, it's not all about the economy. Is President Obama making a good impression overseas in week two of his presidency?

CNN's Christiane Amanpour and Michael Ware, they're both standing by live.

Also ahead, President Obama in his own words, commiserating with the middle class about the economic disaster we all face. So we'll hear extensively this hour from the president

And New York City workers in the line of fire. As Mayor Bloomberg scrambles to cut spending, thousands -- we're talking about thousands and thousands of jobs in New York in peril right now.

(COMMERCIAL BREAK)

BLITZER: President Obama said today he's going to do whatever he can to help the middle class of the country. Over at the White House, he said the recession is getting worse and the nation expects Washington to act and to act, in his words, "boldly and swiftly." And he's launching a new middle class task force.

(BEGIN VIDEO CLIP)

OBAMA: Today we learned that our economy shrank in the last three months of 2008 by 3.8 percent. That's the worst contraction in close to three decades. This isn't just an economic concept, this is a continuing disaster for America's working families. As worrying as these numbers are, it's what they mean for the American people that really matters and that's so alarming -- families making fewer purchases, businesses making fewer investments, employers sustaining fewer jobs.

The recession is deepening and the urgency of our economic crisis is growing. Yesterday, we reached a new threshold, the highest number of Americans receiving unemployment benefits on record. Every day it seems there's another round of layoffs, another round of jobs lost and families' lives turned upside down.

We lost 2.6 million jobs last year, and another 2.8 million people who need and want full-time work had to settle for part-time employment. So this is a difficult moment. But I believe if we act boldly and swiftly, it can be an American moment when we work through our differences together and overcome our divisions to face this crisis. While our GDP may have grown smaller, it's undiminished when it comes to our innovative spirit, our work ethic, our values, and our resolve and resilience as Americans.

For two years, I traveled across this country. I met thousands of people, hard-working, middle class Americans who shared with me their hopes and their hardships. These are the men and the women who form the backbone of our economy, the most productive workers in the world. They do their jobs; they build the products and provide the services that drive America's prosperity.

These are the folks who approached me on the campaign trail, in union halls and church basements and coffee shops and VFW halls and shop floors, and they told me about jobs lost and homes foreclosed, hours cut, and benefits slashed, the costs of life slowly slipping away and shipping away at the hopes of affording college or a new home or retirement. It's like the American dream in reverse.

These are the families who have, by no faults of their own, been hit hardest as the economy has worsened. They need action. Now.

They need us to pass the American Recovery and Reinvestment Plan, a plan that will save or create more than three million jobs over the next few years, and make investments that will serve our economy for years to come. We intend to double our capacity, generate renewable energy, while redoubling our efforts to use energy more efficiently.

We will rebuild crumbling roads and retrofit aging transit systems and renovate 10,000 schools for our children. We'll bring health care into the 21st century by computerizing medical records, counting -- saving countless lives and billions of dollars.

I am pleased that the House has acted with the urgency necessary in passing this plan. I hope we can strengthen it further in the Senate.

What we can't do is drag our feet or delay much longer. The American people expect us to act, and that's exactly what I intend to do as president of the United States. But passing my plan is not the end; it's just the beginning of what we have to do.

We know we need to create jobs, but not just any jobs. We need to create jobs that sustain families and sustain dreams; jobs in new and growing industries; jobs that don't feel like a dead end, but a way forward and a way up; jobs that will foster a vibrant and growing middle class. Because the strength of our economy can be measured directly by the strength of our middle class.

And that's why I've created the Task Force on Middle Class Working Families. And why I've asked my vice president, Joe Biden, to lead it.

There's no one who brings to bear the same combination of personal experience and substantive expertise. Joe's come a long way and has achieved a great deal, but he has never forgotten his roots as a working class kid from Scranton, Pennsylvania. He has lived the American dream, and lived and worked to make that dream a reality for others. (END VIDEO CLIP)

BLITZER: The president of the United States speaking earlier today about his efforts to try to help the middle class.

Breaking the mold in the Obama administration. It's possible. Republican Senator Judd Gregg says he's being considered for the post of commerce secretary. How such a move could tip the balance of power in the Senate.

First, it was a health investigation over the salmonella contamination. Now the FDA confirms a Georgia peanut farmer -- a peanut butter plant is under criminal investigation.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Christiane Amanpour and Michael Ware, they're standing by. We're going to assess week two -- week two of the Obama administration globally. Stand by for that.

In the meantime, let's check in with Zain Verjee. She's monitoring some other important stories incoming to THE SITUATION ROOM right now.

(NEWSBREAK)

BLITZER: President Obama sending a message to the world that he's not George W. Bush. How are Mr. Obama's early moves playing around the globe? CNN's Christiane Amanpour and Michael Ware, they're standing by live.

And a new kind of Obama phenomenon, what the Japanese are learning from America's new president.

(BEGIN VIDEO CLIP)

OBAMA: The world is paying attention.

UNIDENTIFIED MALE: The world is paying attention.

OBAMA: We say, we hope, we believe.

UNIDENTIFIED MALE: Yes, we can.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

BLITZER: The White House has just announced that President Obama has spoken by phone with the president of China, Hu Jintao. They had what the White House is calling a positive -- they both insisted that they want to achieve a positive and constructive U.S./China relationship, and both of these presidents, according to the White House, promising to work together on several global economic and political issues, including North Korea, Iran, Afghanistan, Pakistan, counterterrorism, and nuclear proliferation, among other issues, including climate change.

An important phone conversation, the first between the new president of the United States and the president of China. We'll have more on this story coming up.

President Obama, as you know, is picking his battles and setting his tone this, the second week of his administration. Today we begin a new weekly segment looking at some of the tough decisions made and policies set by team Obama. A lot of movement this week on the international front.

Let's go to our -- we're going to be joined shortly by our chief international correspondent, Christiane Amanpour -- she's in Davos, Switzerland -- and Michael Ware, who's in New York.

But first, Don Lemon. He's getting ready to set the stage.

An important week internationally for this new president, Don.

DON LEMON, CNN ANCHOR: It was an important week, a symbolic week for the president. He visited the Capitol, he visited the State Department to talk about foreign policy. And also, he did an interview with a foreign network.

All of this with the economy -- with the economy, Wolf, at center stage.

(BEGIN VIDEOTAPE)

LEMON (voice-over): President Barack Obama's first Monday in the White House began with a foreign policy announcement.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: When he speaks, he will be speaking for us.

LEMON: He sent Middle East special envoy George Mitchell to the region, Egypt, the West Bank, Israel, Jordan, Turkey, and beyond...

GEORGE MITCHELL, SPECIAL ENVOY FOR THE MIDDLE EAST: The situation in the Middle East is volatile, complex, and dangerous.

LEMON: ... while new Secretary of State Hillary Clinton tackled the environment.

HILLARY RODHAM CLINTON, U.S. SECRETARY OF STATE: America will take the lead in addressing this challenge.

LEMON: Reaching back into her husband's administration, she appointed former White House official Todd Stern as special envoy for climate change.

Tuesday delivered a big surprise to the U.S. media.

OBAMA: My job to the Muslim world is to communicate that the Americans are not your enemy.

LEMON: President Obama gave his first major interview to Al-Arabiya television network.

OBAMA: My job is to communicate to the American people that the Muslim world is filled with extraordinary people, who simply want to live their lives.

LEMON: Nearing week's end, the president was dealt a blow to his Guantanamo Bay policy, a defiant judge refusing to suspend a hearing for the man accused of masterminding the attack on the USS Cole. The administration had asked that action on all Guantanamo cases be suspended for 120 days, so it can conduct a review.

(END VIDEOTAPE)

LEMON: And, as I said, the national economy at center stage here, and, of course, overseas, Wolf, the president monitoring the world economy and what's happening in Davos.

BLITZER: And, next hour, you're going to have an assessment of what happened in -- in week two on the economic domestic front as well.

Don, thanks very much.

Joining us now, two of CNN's top international journalists, our chief international correspondent, Christiane Amanpour, in Davos, Switzerland, and Michael Ware. He's usually in Baghdad, but he's in New York right now.

Christiane, how is this decision he made to give Al-Arabiya this first interview, reaching out to the Muslim world, the Arab world, how's it actually playing out there?

CHRISTIANE AMANPOUR, CNN CHIEF INTERNATIONAL CORRESPONDENT: Well, very well. I mean, it's very significant.

In fact, I asked several of the foreign ministers from Iran, from the other parts of the Arab world here what they thought, and they thought it was a very positive sign. You know, it's never been done before, and President Obama not only mentioned the Muslim world in his inauguration president-elect, but really went out of his way to reach out in that interview with Al-Arabiya.

BLITZER: And he didn't waste any time, Michael, in saying that he's going to have a special envoy for the Middle East, the former Senate Majority Leader George Mitchell, and he sent him over to the region right away.

I assume that underscores his commitment to try to jump-start this Israeli-Palestinian peace process.

MICHAEL WARE, CNN CORRESPONDENT: Absolutely, Wolf.

And I also believe that it shows us the imperative that the situation in Gaza currently poses, not just for the region there, but for U.S. policy interests beyond the Middle East, as far-flung as -- as Pakistan. So, this week, we have actually seen a -- a time of sweeping statements in both word and in deed, obviously the Al-Arabiya interview that he conducted re-branding the new American administration to the Muslim world, as well as the appointment of envoys, former Senator George Mitchell to the Middle East, and a new ambassador for Kabul, so really up and running.

(CROSSTALK)

BLITZER: It's interesting, Christiane, that he -- he clearly is reaching out to the Iranians as well. And he wants to have a dialogue.

But, in response, the Iranian president, Mahmoud Ahmadinejad, says he wants an apology from the United States for, supposedly, 60 years of crimes against Iran. What kind of response is that?

AMANPOUR: Well, you know very well, Wolf, that Mahmoud Ahmadinejad has sent also sent congratulatory letters to President Obama on his election and after the inauguration.

We spoke to the foreign minister here. And, yes, for public consumption, they say they want to -- you know, to talk about some of the things that went on over the last 60 years of U.S. involvement there, for instance, putting back the shah after the -- in 1952, after the democratically elected prime minister there.

But, in general, the thing to focus on is what was said here. And that was, the foreign minister reached out. He said, we really appreciate this reach-out. He didn't sort of go overboard in negotiating right here in public, but he said, yes, we will meet that extended hand.

And, of course, he also said that, you know, we don't want just rhetoric about change. We want to see real change.

But I think it's important to say, we talked to a lot of world leaders here in Davos. They're all here. It's a captive audience. There's a genuine sense of a page being turned, not just by the Islamic leaders here, but by Russia, by China, by all these world leaders who we have heard speaking here.

BLITZER: You're one of the great experts on Iraq, Michael. Normally, as all of our viewers know, you're in Baghdad.

He's telling the U.S. military brass, start a process of withdrawing all U.S. combat forces from Iraq over the next 16 months, and move some of them, at least, a big chunk of them, to Afghanistan.

There are elections going to be taking place over the weekend in Iraq right now. What's going to be the fallout from this?

WARE: Well, this election, it's -- it's for the provincial governments, not for the central government itself. That comes later in the year. What we're going to wait and see is, A, whether the elections are peaceful. And I think most of the indicators are that it will go through the -- the poll without, hopefully, too much disruption.

But what we're waiting to see is how the chips fall. All the parties in Iraq right now are playing the political game. They have rolled back their military and paramilitary campaigns, waiting to see what are they going to get out of this political process. And this is the first big step.

What we will have to see is who gets what, and those who feel that they have been underdone, how are they going to react? That's going to present challenges for President Obama as he's pulling the troops out -- Wolf.

BLITZER: And, on this developing story we're getting, Christiane, this phone conversation between President Obama and Hu Jintao of China, one of the important items included in this White House statement, the two presidents discussed the international financial crisis and agreed that increased close cooperation between the U.S. and China is vital.

A lot of people don't understand how intertwined these two economies are right now.

AMANPOUR: Well, yes, and very interesting that, you know, there was a bit of a controversy, because Secretary -- Treasury Secretary Tim Geithner, in his confirmation, talked about accusing China of manipulating their currency.

And this, of course, was a bit of a buzz here. So, you know, probably President Obama, in any event, was going to be talking about some of those issues. But, certainly, the Chinese here, Wen Jiabao, the prime minister, talked about, for instance, their huge stimulus package, and how, you know, the world is globalized, and how it has to really react as a -- as a global unit to try to solve this global economic crisis.

And that also was what Vladimir Putin said here, the prime minister of Russia. You know, he didn't do the normal hard-line thing, swiping at America, as he has been doing in public. Here in Davos, at least in public, he was talking about trying to work together, trying to get out of this global crisis together.

So, it was a definite change of tone by both those leaders.

BLITZER: Interesting.

Michael, can President Obama marginalize al Qaeda and other extremists out there, as he's clearly trying to do in reach out -- reaching out to the Muslim and Arab world?

WARE: Well, that's an extremely tall order, Wolf.

I mean, there's a lot of damage control that has to be done to recover from America's image from the previous administration. And even those who -- in the Muslim world who may not side with or sympathize with al Qaeda, they still have a very skeptical view of America.

And, tactically, on the ground, can this new administration, militarily or otherwise, get at al Qaeda in its safe havens in the remote Northwest Frontier areas of Pakistan? That's the big question.

Can President Obama get Pakistan to cooperate? If he can't, then that's a major stumbling block for his policies throughout the region -- Wolf.

BLITZER: Michael Ware and Christiane Amanpour, guys, thanks very much.

And we have an important programming note for our viewers. Christiane has a special that will air this weekend. You're going to want to see it. It's called "Dateline Davos: Obama's World." It airs at 2:00 p.m. Eastern, 11:00 p.m. Pacific, right here on CNN Sunday, Christiane's report.

Well, just days after the first black president took office, the Republican Party has now elected its first African-American chairman. Can Michael Steele rescue his party? The breaking news in our "Strategy Session."

Plus: Big bonuses for Wall Street executives, President Obama says they're shameful. But former New York Mayor Rudy Giuliani has a different take, a very different take.

And cocktails at the White House -- how the president is loosening things up at 1600 Pennsylvania Avenue.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: New York City's economy is going from bad to worse, and the mayor, Michael Bloomberg, is desperate to slash spending. Right now, thousands of city workers are dreading pink slips.

Let's go to New York. Allan Chernoff is working this depressing story for us.

Allan, what's the latest?

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Well, Wolf, Mayor Michael Bloomberg is taking a knife to the budget to eliminate a projected $4 billion deficit. He's warning that he may have to cut the city's work force by 7 percent.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): Mayor Michael Bloomberg is cutting into the core of the Big Apple, warning of plans for 23,000 job cuts, 7 percent of the city's work force.

MICHAEL BLOOMBERG (I), MAYOR OF NEW YORK: We cannot afford a work force the size that we have now. CHERNOFF: Hardest-hit would be New York City schools. Fourteen thousand teachers may be dropped unless New York State changes a proposal to slash the city's education funding. The United Federation of Teachers calls the cuts devastating, and parents agree.

UNIDENTIFIED FEMALE: The children are not getting the education that they need. And that should be the first priority.

BLOOMBERG: We will have to find the ways to keep the school system going. We're not walking away from our school system. But would you like to cut the entire police department to pay for it?

CHERNOFF: There will be modest cuts in the police force, through attrition, the same for fire and sanitation.

(on camera): Bloomberg is demanding that city employees pay more for their health insurance and that unions agree to pension plan changes. Otherwise, he warns, the job cuts could be far worse.

(voice-over): New York is also proposing to raise its sales tax by one-quarter-of-a-percent. The tax hike and belt-tightening comes as the recession is crushing New York's revenue, especially the downturn on Wall Street, where workers earn more and pay more in taxes than any other business sector in New York.

(END VIDEOTAPE)

CHERNOFF: Bloomberg says the budget cuts would be even worse if the city had not built up a surplus in recent years. For next year, though, there's no surplus planned. So, if the economy does not improve by then, New York will be facing more cuts.

And, Wolf, what's happening in New York is happening across the country.

BLITZER: All major cities and some not-so-major as well, no doubt about it.

All right, Allan, thank you.

The same army of online supporters that helped President Obama win the election is now being called upon by the Democratic Party to help with the economic recovery plan.

Let's go to our Internet reporter, Abbi Tatton.

Abbi, what are they being asked to do?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, this is the first call to action since the inauguration: Host a party for the economic stimulus bill.

This is the e-mail that went out to Barack -- the Barack Obama campaign's most dedicated supporters this morning, asking them to host one of these gathering in their home, get their friends and neighbors talking about President Obama's economic agenda. There's a Web site that goes with it that promises video, materials to help them along.

And the recipients of this e-mail are the people that hosted house parties of this type during Barack Obama's successful campaign. This is the first challenge we have seen from the group Organizing for America that was announced by President Obama just a couple of weeks ago as the organization that now houses the 13 million-strong e-mail list.

It's a branch of the Democratic National Committee. And they're hoping that thousands of these house parties for recovery will be organized next weekend -- Wolf.

BLITZER: Abbi, thanks very much.

He's having a dramatic impact, not only in this country, but around the world. We are going to be going to Japan, to Tokyo, shortly -- how Japanese students -- Japanese students -- are now trying to emulate Barack Obama. Stand by for this report.

Also, the breaking news this hour -- the Republican Party picks a new leader and makes history in the process.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Final ballot for chairman is Michael Steele 91, Katon Dawson 77.

(CHEERING AND APPLAUSE)

UNIDENTIFIED FEMALE: Congratulations.

(END VIDEO CLIP)

BLITZER: We will talking about Michael Steele's historic victory and how he will work with the Obama administration. That's coming up next right here in the "Strategy Session."

And former New York Mayor Rudy Giuliani defends those big Wall Street bonuses. Are they really an economic boon to the Big Apple?

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MICHAEL STEELE, CHAIRMAN, REPUBLICAN NATIONAL COMMITTEE: This is awesome.

(CHEERING AND APPLAUSE)

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BLITZER: There he is, the new chairman of the Republican National Committee, the former Lieutenant Governor of Maryland Michael Steele.

Let's talk about this historic development right here in Washington.

Joining us, our CNN political contributors, the Democratic strategist Donna Brazile and the Republican strategist Leslie Sanchez.

You know Michael Steele. He grew up here in Washington, D.C. He's pretty well-known to you and to a lot of our viewers. He used to be a frequent guest here in THE SITUATION ROOM.

DONNA BRAZILE, CNN POLITICAL ANALYST: Let me congratulate Michael Steele. He is a dynamic, charismatic figure. I think he's going to do a great job for the RNC.

He has to transform that party, Wolf. He has to enlarge the tent. He has to reinvigorate it with new ideas, new blood, new energy. And Michael is up for the job.

BLITZER: It's interesting. He's the new face of the RNC.

LESLIE SANCHEZ, CNN POLITICAL CONTRIBUTOR: He's been a good, strong Republican face for a long time, talking about a lot of different issues, and he has been an important voice of the party.

I think the best headline is from "National Review." It says, in a tough time, GOP elects a man of Steele. That's what we did. It took six ballots. It was a very tough race. I just came from there. But he's talking about bringing the party together.

And, if you listen to that message, he's not taking any area for granted. He wants to compete in the Midwest, the South, the Northeast.

BLITZER: Take -- take a look at the audience, though. And I want to show our viewers a picture of the audience.

Michael Steele, the first African-American leader of the RNC.

Leslie, I don't see a whole lot of black people, at least in that group over there.

SANCHEZ: Well, I think that's a testament. The party is not -- in terms of committee men and women, is not inclusive of a lot of minorities.

I think, right now, that's part of the party process. But there's different parts to the party. I think, if you walked around that room, there's so much diversity there. There was so much excitement for Michael Steele. There was so much excitement about winning these elections.

And, if you look at 2009, you have governor's races, Virginia and New Jersey. He's got to get...

(CROSSTALK)

BLITZER: It's encouraging -- and I'm sure you're encouraged -- that all these white people, basically, elected an African-American to be their leader.

BRAZILE: Well, look, there's no question that the RNC, the Republicans, clearly, they have taken a page from the Democratic Party.

Ron Brown was the first African-American to lead a major political party.

BLITZER: The Democratic Party.

BRAZILE: Absolutely, back in 1989. And he was a great party leader.

Look, Michael Steele will have to grow the party, enlarge the party. And his biggest challenge is -- is not only to rebuild the opposition, but to find ways to work with the -- President Obama, who is reaching out to Republicans, opening up a -- a door for them to be involved in this process.

BLITZER: Listen to Rudy Giuliani, the former mayor of New York. He was on "AMERICAN MORNING" here on CNN earlier today. He made the point that these huge Wall Street bonuses that are going to these banks that were bailed out by U.S. taxpayers, that they're positive.

Take a listen to this.

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RUDOLPH GIULIANI (R), FORMER NEW YORK MAYOR: It does have a reverse effect on the economy if you somehow take that bonus out of the -- out of the economy. It really will create unemployment. It means less spending in restaurants, less spending in -- in -- in department stores. So, everything has an impact.

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BLITZER: What do you think about that argument?

(LAUGHTER)

SANCHEZ: I don't think that's the best argument to make, with all due respect to the mayor. I think people are hurting right now. They really want to see that every dollar is -- is managed carefully.

And that is not the way to do it. I think -- I think I will show you another kind of faux pas or a big problem today, is you have a lot of Republican members at the homestead doing their retreat...

(CROSSTALK)

BLITZER: Which is a resort out in...

SANCHEZ: It's a big -- optically, it's not a good image. I think that, Republicans, we have some work to do. And I think Michael Steele is going to start that work.

(CROSSTALK) BLITZER: What do you think -- what do you think about that argument that Rudy Giuliani makes?

BRAZILE: I agree with...

BLITZER: Because, yesterday, we heard the president of the United States, he said he's outraged by those $18 billion in bonuses to so many of these banks and financial institutions that were bailed out, to the tune of billions of dollars, by U.S. taxpayers.

BRAZILE: He also called it shameful. And I appreciate the wisdom that President Obama is showing.

But, look, Claire McCaskill has introduced legislation to cap the salaries of CEOs. If they're going to get money from the taxpayers, they should learn how to live like the rest of us.

BLITZER: All right, Claire McCaskill, the senator from Missouri.

Guys, thanks very much for coming in.

BRAZILE: Thank you.

BLITZER: President Obama's words are having an impact all the way to Japan, where people are now scrambling to speak his language.

Back here, at home, the president is making a new play for bipartisanship. Wait until you hear how he's reaching out to Republicans. He's actually inviting some of them to join him for a Super Bowl party.

And eight newborns, plus six other kids, equals controversy for the new mother of octuplets.

Stick around. You're in THE SITUATION ROOM.

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BLITZER: Coming up later, a new dress code over at the White House. Stand by for that.

And, meanwhile, many Americans are certainly inspired by President Obama and his words of hope and change. It turns out, many people in Japan are also inspired by President Obama, in a somewhat surprising way.

Here's CNN's Kyung Lah.

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KYUNG LAH, CNN CORRESPONDENT (voice-over): In this high school English class in suburban Tokyo, the teacher is relying on an outside voice.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The world is watching what we do here. LAH: You may have heard of him.

OBAMA: The world is paying attention.

UNIDENTIFIED MALE: The world is paying attention.

OBAMA: We say, we hope, we believe.

UNIDENTIFIED MALE: Yes, we can.

(CHEERING AND APPLAUSE)

LAH: Their textbook is an English-language book and C.D. set featuring the speeches of Barack Obama. The students mimic his speaking style and take grammar quizzes from the president's election night victory speech in Chicago's Grant Park.

OBAMA: It belongs to you.

It belongs to you.

LAH: "The way he speaks is different from us," says Asato Maejima.

Their teacher says, that difference is inspiring them to learn English. The book isn't just a hit in high schools.

OBAMA: ... with my words.

LAH: It's a bestseller across Japan, a nation that's embraced guides on learning English with gusto, but never like this.

(on camera): This book has sold so well, the publisher has followed it up with a sequel, this one featuring the inaugural address of Barack Obama. This is number one on Japan's version of Amazon, this one number two, based on book reservations alone.

OBAMA: Today, I say to you that the challenges we face are real.

LAH (voice-over): "People wrote us letters, saying they were moved and they cried," says the publisher. "Obama is giving Americans hope, and Japanese people feel it as well."

As far as a book on President Bush?

YAMAMOTO YUZO, DIRECTOR, ASAHI PRESS: Maybe.

(LAUGHTER)

LAH: Not really bestselling potential, says the publisher, and Japan's own lawmakers quite a bit more subdued than the American president.

Most readers don't understand all the words, but the publisher says the speeches still manage to capture the Japanese imagination.

OBAMA: Yes, we can. "It's not just English," says this teacher. "It's communication," beyond language and proving beyond borders.

Kyung Lah, CNN, Tokyo.

(END VIDEOTAPE)

BLITZER: Let's check in with Jack Cafferty for "The Cafferty File."

He's got a book coming up. I hope it's a bestseller in Japan, not only here, but in Japan as well. If that happens, Jack, you would be in good shape.

JACK CAFFERTY, CNN ANCHOR: That would be fine. I -- I would take that.

BLITZER: Yes.

CAFFERTY: The question this hour is, how should the stimulus bill be changed?

Tony in Michigan writes: "I wonder how many of those 300 economists who took out an ad in one of the big newspapers today recommended handing out $700 billion so fast we don't know where it all went? Senator Wicker and the Republicans are acting like they did not just get done helping Bush ruin this country financially. They need to sit down and shut up."

Jack in Ohio writes: "The change I suggest is, forget the bailout and see the fallout. This will cost billions of dollars less, with no net change on the perceived problem anyway. The suggestions mean the public is no less broke, without enhancing the lawless financial culture."

Mike in Colorado: "Reduce the work week to 32 hours, keep the salaries the same, net result, a 20 percent gain in jobs. Reimburse employers. Sunset the law. Eliminate other tax reductions for business. Establish import taxes for companies that have exported jobs to start in two years unless those jobs are brought back."

Jean in Connecticut: "It seems to me we need to start with an agreement on what 'stimulus' is. I would recommend a set of guidelines, starting with a time frame, like 12 months, in which the funds have to be spent, then some guidelines on how they will be allocated. I like 50 percent on infrastructure, 25 percent on business incentives -- lower corporate tax rates, investment tax credits, et cetera -- and 25 percent on consumer incentives -- lower tax rates, consumer rebates on selected purchases, et cetera."

Joe in Minnesota: "The whole thing ought to be scrapped, and the free market system should be permitted to work. And if the government doesn't trust the free market system anymore, then stop calling it a bailout and start calling it socialism, which is what it is."

And Jack in Shenandoah, Pennsylvania: "Jack, let's add a barrel of beer to every unemployment check, so we can all sit around and get good and stimulated, because this bill sure as hell isn't going to put any of us back to work anytime soon."

If you didn't see your e-mail here, you can go to my blog at CNN.com/caffertyfile, and look for yours there, among hundreds of others.

BLITZER: All right, Jack, thank you.