David Gergen's Blog, page 5

Prospects for default above 50%

Who is winning debt ceiling debate?

What Happens on August 3rd?

Transcript from CNN's Your Money aired on July 16,2011
ALI VELSHI, HOST: No one can say for certain what would happen if the debt ceiling is not raised, but the consequences are likely to be severe.

Welcome to YOUR MONEY. I'm Ali Velshi.

August 2nd is the day that the Treasury Department says it will no longer be able to pay all of our nation's bills and the United States will default on its debt. Now, Republicans are going to vote on their own plan this week, complete with spending cuts. But President Obama says he won't support deep cuts without increases in taxes.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: If you're trying to get to $2.4 trillion without any revenue, then you are effectively gutting a whole bunch of domestic spending that is going to be too burdensome and is not going to be something that I would support.



VELSHI: David Gergen is CNN senior political analyst. David, there was a time when Republican House speaker John Boehner and President Obama both talked of doing something big to change America's unsustainable economic path. What do you think? Do you think that opportunity's lost?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: Well, a week is a long time in politics, can be a lifetime, as you know, Ali. I think the -- I think what's now clear is that the big deal, the grand deal, the grand bargain of $4 trillion over 10 years -- that's dead. That's gone. I think the chances of getting a deal at $2.5 trillion or $2 trillion, the middle-level deal, very, very unlikely because the president does not want to go that high without tax increases or Republicans are not going to do it.

Here's the hard question, Ali, I think that's coming up. And that is the House Republicans are now pushing a very, very tough deal through the House. Over on the Senate side, the Republicans and Democratic leaders are working together on a version of the McConnell plan. And the president will accept that, as he said in his news conference Friday. But whether the House Republicans would accept that or not is a big, big question. It seems to me that's the lead horse. That's the lead solution right now, is a version of the McConnell plan, with throwing in the spending, which I think would be a good idea, of at least $1 trillion or $1.5 trillion worth of spending cuts. But whether the House Republicans -- they've been sending some signals they won't accept that --

VELSHI: Right.

GERGEN: -- in which case, we are really at loggerheads.

VELSHI: That's exactly right. Diane Swonk is the chief economist at Mesirow Financial. Diane, Ben Bernanke called it calamitous not to increase the debt ceiling. S&P and Moody's have both warned that it could downgrade the stellar, always stellar U.S. AAA credit ratings.

Forget the politics for a second and let's talk about consequences from an economist's perspective. If the U.S. fails to raise its debt ceiling on August 2nd, what does it mean for our already struggling economic recovery?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Well, it's incredibly bad news. I mean, it could be enough to push us into another recession, depending on how far. Immediately, they'd have to do 40 to 45 percent cuts in spending just right off the top of the board. Now, how long that would last? My -- my plan would be I would first stop paying Congress for not doing their job.

But I think the real issue is this is broad-based. You can't escape these. I know the American public doesn't like the fear-mongering that's going on around this issue, but it is real. It's a very real issue. The thought that we would all have to pay higher interest rates, the thought that we would allow the freedom of choice in this country to choose our future, which we still have within our grasp, leave to it the rest of the world to determine our future with higher interest rates and changes in the -- in spending cuts that are forced upon us and thrust upon us is just unimaginable to me.

But unfortunately, it's getting to be more worrisome as each day ticks on.

VELSHI: You economists are not given to broad statements like that. When you're doing it and Ben Bernanke's doing it in the same week, I think it means we've got something to worry about.

How might a U.S. government default affect you and your family? Tom Foreman is here to break it down for us -- Tom.

TOM FOREMAN, CNN CORRESPONDENT: Ali, "breakdown" is the right phrase because what we're talking about here, in theory, is a shock wave that would go through houses all over this country. And it would start with the value of your house itself. If the cost of borrowing money for the government gets higher, that would mean probably the cost of borrowing money for all of us would get higher. Interest rates would rise. That could mean many, many thousands more on mortgages for many people out there. Things like your car -- the rates could rise there. Gas prices could rise as a result of that. And of course, your roads might be in poor quality if the government can't afford to take care of them.

What about the people who earn the money for the house? Let's say you have a small business father (ph) up there. First of all, if he works for a small business, he could wind up unemployed because the business can't afford to operate that way anymore. He can lose money in his savings account, and he could have a difficult time getting a loan if he's trying to run his own business because money would tighten up all over.

Let's say that mom works for the government -- immediate impact. She could wind up furloughed. She could also see credit card rates rise because, again, one of the keys to this is the way the interest would ripple throughout this country.

Let's look at the kids over here. Here's a son. He wants to go to college. Student loans could become harder to obtain for the same reason, interest rates. Restrictions on financial aid could be put into place.

What about the daughter over here? Let's put her into the military. Her salary could be limited or delayed. She could possibly get IOUs, and you know how well those spend (ph) at the grocery store.

And private contractors -- really important here -- the people who supply everything for the government and the military and all these people -- they could be left hanging out on a limb simply because the money was not there.

And of course, what we heard this week, what about Grandma? Social Security could be delayed. Retirement benefits could be reduced.

All of this is just a theory. We don't really know where all of this would hit. But the simple truth is, this is not just a concern for Capitol Hill. It could be a concern for real homes across the country.

VELSHI: All right, Tom, there's a lot of "would have, should have." There's a lot of theory there. But David, the bottom line is, we don't know. You and I were together -- so were you, Diane -- after Lehman Brothers collapsed, and you know, a lot of smart people thought markets would take that in stride, and they didn't. This is a lot bigger than Lehman Brothers collapsing.

David, you have been in the White House. You understand how people think. Why are some people so concerned, particularly those who are concerned with scoring political points -- why is it this fealty to lower taxes overtaking the idea that this actually could have broader and more devastating effect, to not raise this credit limit?

GERGEN: Well, I think, ultimately, the Republicans -- at least I hope -- will agree to go and lift the debt ceiling. Certainly, Speaker McConnell (SIC) has agreed to that. Certainly -- I mean, Speaker Boehner has certainly. Mitch McConnell has over on the Senate side. But there is a strong sentiment among Republicans that the cuts that are on the table now are illusory, that there are some gimmicks in there, that just as we saw at the end of last year, we had this announcement about great, big budget cuts -- when you really broke it right down, it didn't turn out to be very much.

VELSHI: Right.

GERGEN: You remember that. Turned out to be peanuts. There's a strong feeling that what they're being asked to do is to agree to cuts that are not actually -- that are actually quite modest, and then increase taxes, and in effect, to pay for the welfare state, a bloated welfare state. And they would like to shrink the size of the welfare state.

This is ultimately a conversation, a debate, a debate, you know, a food fight over how big the American government should be. And you know, that's why they're not -- that's why they're not doing it.

But I -- the question becomes -- I cannot believe, at the end of the day, House Republicans will be so recalcitrant that they'll take us into default. It just -- I -- I -- that would be so much beyond what I think we've ever experienced, Ali, knowing we're on the edge of Niagara Falls, knowing we're on the edge of a precipice, I can't believe they'll take us over.

VELSHI: You would think so and you would hope so. I don't know.

Diane, David, stay right there.

Let's talk to one of the most powerful voices in the debt ceiling debate. I think you're going to enjoy this. He's not an elected official. He's not a government employee. Grover Norquist is the president of Americans for Tax Reform.

Grover, your lobbying group has gotten more than 230 House Republicans and nearly 40 GOP senators to sign a pledge never to support an increase in taxes. And you warn those who break your pledge will pay a political price. Are you the reason that we don't have a debt ceiling increase right now?

GROVER NORQUIST, PRESIDENT, AMERICANS FOR TAX REFORM: Well, as you know, the pledge, the "taxpayer protection pledge," is a pledge that candidates for office and House and Senate members and presidents sign to the voters of their state and to the nation. The pledge isn't to Americans for Tax Reform. It isn't to me. The American taxpayers have asked and elected a majority in the House of Representatives and 41 members of the Senate who ran committing not to raise taxes.

VELSHI: Right.

NORQUIST: Our friend, President Obama, has said he won't try and solve the problem he created with his spending unless people --

VELSHI: Oh, wait, wait, wait, wait a minute.

NORQUIST: -- give him more money.

VELSHI: He created with his spending? You didn't just suggest that our budget problem is because of President Obama, did you, Grover?

NORQUIST: Well, let's see. On August 2nd, which is the new date that Geithner gave us --

VELSHI: Right.

NORQUIST: He gave us a may date. Now there's a new absolute date -- VELSHI: Right.

NORQUIST: -- that he wasn't --

VELSHI: You know, Grover, Grover --


VELSHI: Let's have a true conversation here. You know better than what that is. You know that we hit the debt limit on May 16th, and you know that the treasury secretary said --

NORQUIST: August 2nd --

VELSHI: -- I can move things around until August 2nd. Let's -- let's have a real conversation, Grover.

NORQUIST: The new day -- why are we hitting August 2nd? Why are we --

VELSHI: Because he's moving things around.

NORQUIST: -- hitting August 2nd?

VELSHI: You know that as well as I do. OK, let's just get back to the point --

NORQUIST: Because Obama spent -- we're at this --

VELSHI: Are we in this debt situation --

NORQUIST: -- debt ceiling because Obama --

VELSHI: -- because of the Obama administration, Grover?

NORQUIST: Yes.

VELSHI: OK.

(CROSSTALK)

VELSHI: -- because that's an unreasonable position. Let me just ask you something. What is wrong with electing --

NORQUIST: $800 billion on the stimulus?

VELSHI: What is wrong --


VELSHI: Our debt problem is far beyond $800 billion, Grover. What is wrong --

NORQUIST: That's why --

VELSHI: -- with electing people, as we do, to represent us in government and get to Washington and say, This conversation is a whole lot more nuanced and complex than it was when I was running for office in Iowa or in Arkansas or in New York, and I might have to compromise. Why is preserving the inability to increase taxes more important than the overall health of the economy and the danger that it's putting us into right now?

NORQUIST: Because not raising taxes is important to the health of the economy because the president wants to spend the money, he wants to raise taxes and spend more money, and the answer to that is no.

The most important thing to turn the economy around -- we've been losing jobs since Obama started spending more money, dramatically increased -- the Bush spending was bad and too high.

VELSHI: Right.

NORQUIST: Obama's spending is a trillion dollar more this year than when Bush left office, $1 trillion in one year. He's going to add another $10 trillion to the debt during his presidency. That's what we need to pull back. He wants to raise taxes. The American people and the people they elected say, Don't raise taxes, cut spending.

That's the argument. Obama wants to spend more and raise taxes. The Republicans want to spend not as much money as Obama does and not raise taxes. Why would you have them go to the American people and say, Because Obama wants to spend more money, you're going to have to pay for it? The answer to that's no.

VELSHI: OK, Grover, hold on right there because I want to ask you whether or not there are any taxes in this country that you need to see increased to make things a little more fair. Grover Norquist is standing by. We're going to be right back after the break.


VELSHI: We're back with Grover Norquist. He's the president of Americans for Tax Reform. Grover, you've gotten so many Republicans in Congress to sign a pledge to never raise taxes. A lot of people are wondering if it's appropriate that you hold so much power in the Republican Party. You've never been elected to public office. But you certainly are influential.

What's the consequence, if somebody who has signed one of those pledges, one of those pledges of remarkable inflexibility that you forced them to sign, goes against you?

NORQUIST: Well, people take the pledge because they speak to their voters. The pledge is not to me. Can we make this clear?

VELSHI: Right.

NORQUIST: The pledge is to the voters of Oklahoma if your name is Tom Coburn. It's to the people of your state who elected you. They --

(CROSSTALK)

VELSHI: They didn't ask for the pledge. You provide the pledge. You write it. You get everybody to sign it. It's your pledge. Let's not mince words, Grover. Tell the truth. You want to make sure people don't increase taxes. This isn't -- the voter in Iowa didn't write that pledge.

NORQUIST: We offer that pledge to all candidates for office. Some choose to say to their constituents, Vote for me, I won't raise taxes.

VELSHI: OK.

NORQUIST: Obama said, Vote for me, I will raise taxes.

VELSHI: Right.

NORQUIST: So different people take different approaches. That vote, that pledge is put to the voters of their state --

VELSHI: Right.

NORQUIST: -- and then they get elected. It's important that people can trust their elected officials not to lie their way into office.

VELSHI: Is it not more important, Grover, that people can trust their elected officials to make the right decisions in their interest than to be loyal to Grover Norquist so that they get reelected again?

NORQUIST: OK, are you not listening?

VELSHI: I'm listening very clearly.

NORQUIST: The pledge is not to me. The pledge is to their constituents.

VELSHI: I'm waiting for you to tell me why --

NORQUIST: The pledge --

VELSHI: -- what you do makes America better.

NORQUIST: -- is to their constituents. Well, raising taxes does not make the economy stronger, it makes it weaker.

VELSHI: OK.

NORQUIST: Spending money you don't have does not make us stronger, it makes us weaker. We ought to spend less and not raise taxes. That's what people take the pledge to do. VELSHI: You want -- and you believe --

NORQUIST: Obama wants to spend more.

VELSHI: I'll give you this --

NORQUIST: I'm going to repeat it --

VELSHI: I'll give you this, Grover. You were into this long before it was majority opinion. But right now, you've seen the Quinnipiac poll. You've seen the Gallup poll that says most Republicans -- not most Americans, most Republicans agree with the fact that there need to be spending cuts and some corresponding tax increases.

Do you think that there is not a tax in America on the wealthy or on corporations that needs to be increased? There's just no tax anywhere that you think needs to be increased?

NORQUIST: Well, the "Taxpayer Protection Pledge," which any of your viewers can go read on Americans for Tax Reform's Web site, atr.org, makes it very clear. Tax reform -- if there's a credit or a deduction that's inappropriate, get rid of it --

VELSHI: Right.

NORQUIST: -- just reduce rates so that it's not a hidden tax increase. We're Americans for Tax Reform. We were founded to pass tax reform in '86. We want lower rates and a broader base. We want tax reform but not hidden tax increases.

VELSHI: And I'll save -- I'll save the viewers, by the way, from going to your Web site. The pledge reads this, "I, the undersigned, pledge to the taxpayers of the state of undersigned and all the people of this state that I will oppose and vote against all efforts to increase taxes." That's accurate, Grover?

NORQUIST: Pretty simple.

VELSHI: All right, so --

NORQUIST: No net tax increase. No net tax increase.

VELSHI: And you continue -- OK, good, no net tax increase. You continue to counsel those who have signed this pledge not to negotiate at all with anything that will increase the debt limit if it involves increasing taxes.

NORQUIST: And take a look at what's happened across the country and the states this year. Governors who signed the pledge have won that fight. They're not raising taxes. They are reducing spending. The healthy states are not raising taxes. They've elected people who've taken the pledge. The unhealthy states like Illinois and Connecticut are raising taxes and damaging their economies. The pledge has saved Americans hundreds of billions of dollars --

VELSHI: Are you OK with the fact -- NORQUIST: -- that would have been tax increases.

VELSHI: -- that the pledge may cost Americans when this debt ceiling is not increased? It will cost Americans a lot of money when it's not increased.

NORQUIST: I hope that President Obama will not stick to his ideological left-wing guns and demand more spending and tax increases, that he will come to the table and actually put something in writing, which he hasn't done yet. There is no Obama plan in writing --

VELSHI: Wow. Grover --

NORQUIST: -- that he's negotiating from.

VELSHI: -- it is remarkable to hear you suggesting that President Obama does not stick to his ideological guns when your entire --

NORQUIST: I hope he won't.

VELSHI: -- (INAUDIBLE) is about sticking to your ideological guns.

Grover Norquist, thanks for coming on the show. Grover Norquist is the president of Americans for Tax Reform, a name that doesn't entirely represent what he's doing.

David, Grover Norquist is remarkably committed to what he's talking about. But he -- there is a problem here. There's an underlying problem that politicians in America cannot do something that risks their seat because their voters won't let them. And pledges like this contribute to a great deal of inflexibility in Washington.

GERGEN: Well, Ali, listen, let me put my cards on the table. And Grover knows this. I have supported the Simpson-Bowles plan all along. I do believe that taxes need to go up as part of an effort -- overall effort to get the deficits under control.

But you know, in fairness, you know, Grover does have a point. And Simpson-Bowles itself said -- it wasn't one-to-one, a tax increase versus $1 in spending cuts, it was two-to-one in spending cuts versus tax increases.

The Simpson-Bowles commission recognized that the -- more central than taxes is the question of how much we're now spending. We've taken the level of spending in this country from about 20 percent of GDP at the federal level up, as you well know, to 24 to 25 percent over the last two years, another year in sight for 25 percent.

And what Republicans are saying is you got to sweat that down. And I believe that taxes ought to go up as part of this package, but I think it's unfair to villainize the Republicans when, in fact, there is a very real possibility that the Senate will present a plan which will have $1 trillion to $1.5 trillion dollars in cuts and no tax increases, and that's what the president is ultimately going to accept, and that may be where we come out at the end of the day.

VELSHI: The problem --

GERGEN: I just -- I think --

VELSHI: The issue is more political, David.

GERGEN: I think to say that default versus tax increases is -- is -- it misstates the problem somewhat.

VELSHI: Yes, well, I'm not sure why the two are in the same discussion. I would have really preferred that they deal with the debt ceiling, and they deal with spending and taxing entirely separately. But we're not in that position, David.

The reality is, in part because of people like Grover Norquist, we're not in that position. A lot of people who otherwise would vote for an increase in the debt ceiling can't do so because they are not in a position to compromise.

NORQUIST: Well, yes and no. I -- it comes back, Ali, to what people fundamentally believe is the problem. And Republicans fundamentally believe that this underlying problem is we've allowed spending to go higher and higher, and they don't want to raise taxes to pay for that. They would rather see it shrink down.

The Democrats -- I -- you know, who -- and I'm not trying to villainize Democrats, either. I think that they come from a very sincere place of really wanting to provide a stronger social safety net. They want to provide, you know, far more services to the country. And they believe that the rich ought to pay a lot more to get there to -- to get there.

VELSHI: Diane Swonk, is there any way to reduce our debt, to get into a situation where our deficits are not as big in a meaningful way to the tune of $2.4 trillion that we're talking about without increasing some taxes?

SWONK: Oh, there's a way to do it. It's whether or not that's really going to be politically acceptable to the American public. The kind of pain that that would induce -- and I agree completely with David on this one. The kind of pain that that would induce is not something that we're really ready to swallow. There's a balance in this country between spending and tax cuts. And it is more. We do need to cut spending more than raise taxes.

VELSHI: David Gergen, thanks very much. David Gergen is CNN's senior political analyst. Diane Swonk is a chief economist with Mesirow Financial.

Time for pols to find a truce

Time for a truce on debt-ceiling talks

(CNN) -- With tempers near a boiling point and the risk growing that the United States could default on its debt obligations, it is time for a truce in the budget talks in Washington -- essentially a cease-fire in place.

The outlines of a cease-fire are readily apparent, and indeed there are signs that behind the scenes some conversations are already taking place. Here's what a truce might look like:

• Democrats agree to accept some $1.5 trillion in spending cuts that have been on the table but give up their demands that a deal also include significant tax increases.

• Republicans agree to lift the debt limit by some $2.5 trillion, enough to carry past the 2012 elections, but give up their demands that spending cuts must match or exceed the debt-limit increase dollar for dollar.

• Both sides agree to close tax loopholes and raise fees for government services, but agree to use the resulting revenue for offsetting payroll tax decreases and other means of pumping life in the economy, thus making the proposition revenue-neutral.

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• Both sides agree that this fall, a new set of negotiators be appointed to press forward with additional ways to achieve credible, long-term deficit reductions.

A deal like this certainly won't meet the full expectations of Washington warriors, but it will be good for the country -- and arguably, a lot better for the parties than their partisans may think.

For the country, the single greatest urgency is to reach an agreement that averts a default. Yes, it would have been far better if the agreement included the $4 trillion grand bargain that President Barack Obama and House Speaker John Boehner envisioned or even the more modest $2.5 trillion talked about just a few days ago. But the parties are too hopelessly divided for that.

Unless one or the other is willing to cave altogether -- extremely unlikely -- it makes little sense to continue talking in ways that are poisoning relationships among national leaders, deepening resistance within party ranks and starting to scare the hell out of the world. The U.S. is looking like a dysfunctional family.

For Republicans, a truce such as this will bring severe disappointments. They wanted much bigger spending cuts to raise the debt ceiling, and, as they fear, the cuts on the table will no doubt include both gimmicks and illusory savings. But cuts of $1.5 trillion would be far more than anyone would have imagined before the 2010 elections and by any measure would be historic. Moreover, the GOP will have held the line against higher taxes -- crucial to many in their base who hate raising the debt ceiling.

For Democrats, there will be great unhappiness, too. They will feel they are signing on to a plan that in the midst of hard times, further squeezes services for the poor and middle class and, unbelievably, will once again let the rich off the hook. Some of them will think that Republicans have badly outmaneuvered them. But they know deep down that some of the cuts are justified and others don't mean much. More to the point, they will have preserved Social Security, Medicare and Medicaid from Republican knives -- an important asset for the 2012 elections.

For the president, the gains are potentially even higher than for his congressional colleagues. He would get a debt extension beyond the elections -- something about which he cares passionately. The country -- along with credit-rating agencies -- may gain greater confidence in his leadership. That, along with payroll tax cuts, could help the economy. And he will have burnished his credentials with independents as a fiscally responsible Democrat.

All in all, that is a good bargain -- especially, when one considers the alternative.

Can it happen? Yes. Ezra Klein reported in The Washington Post on Thursday that in some circles, there is already talk of splitting the difference between Boehner's insistence on dollar-for-dollar spending cuts, versus Senate Minority Leader Mitch McConnell's plan that would require the debt ceiling be lifted three times between now and the election. While that split may appeal to Republicans, it won't sell with Obama -- he is adamant the debt ceiling must be lifted high enough that it lasts through the elections.

This is not just an election ploy by the president -- he legitimately worries that a short-term fix will risk a downgrading of the country's credit rating. A truce of the kind suggested above is much more likely to win support on both sides, but it is good news that there is already talk of splitting the Boehner and McConnell plans.

One huge cautionary note is still in order: A cease-fire in place will meet the urgent, short-term challenge -- averting a default that could be catastrophic. It will also help on the deficit front. But it won't -- repeat, won't -- solve the country's two long-term and increasingly dangerous problems: our slide into massive debt and our anemic economic growth. They are related, and both will demand attention from Washington as soon as we get past default. That's one reason why it is so important for the key players to build better personal relationships.

Peter Orszag, Obama's first budget director, made a crucial argument in a column for Bloomberg on Wednesday: Unless we get higher economic growth soon, we will find the deficit outlook even worse than we think. Low growth means low revenues for Washington, and often higher costs. By Orszag's calculation, a low growth path could add as much as $2.5 trillion to the deficits over the next 10 years -- as much or even more than we gain from the current, tortuous negotiations in Washington.

So, we dare not have false illusions. It is urgent that Washington avert a default on our debt. But once we meet our short-term crisis, we must brace ourselves for bigger ones coming at us.

Speaker Boehner in charge of his caucus?

Why Obama's pushing for a mega-deal

By David Gergen, CNN Senior Political AnalystJuly 13, 2011 5:46 a.m. EDT
STORY HIGHLIGHTSDavid Gergen: An administration official explained to him Obama's push for mega-deal on debtHe says Obama thinks Dems will agree to entitlement cuts, but GOP not bending on taxesHe says Obama fears losing grand-bargain chance, damage to U.S. credit rating, marketsGergen: Obama right to seek big deal, but should be ready for mini-deal rather than default

(CNN) -- With a debt-ceiling crisis building in Washington, the administration on Tuesday opened another window into President Obama's thinking about the best ways to bring resolution.

On Monday, I wrote a piece arguing that the major players in the debt negotiations have all painted themselves into corners.

The Republicans were the first to lock themselves in, signing pledges during their campaigns promising not to raise taxes -- period. Democrats insist they won't accept any deal that doesn't have significant new revenues. And Obama on Monday promised to kill any compromise that is short term. If we are to avert a default, I wrote, all three parties must find ways out of their corners and compromise.

On Tuesday, a high-ranking official familiar with the president's thinking explained to me why Obama's opposition to a short-term solution makes sense. He made some persuasive points, though I still think that Obama may need some wiggle room before this is over.

The president clearly sees himself as the man in the middle trying to pull off a historic grand bargain. So far, he thinks that while Democrats will strongly resist, they would ultimately go along with entitlement reforms as a way to get a mega-package of some $4 trillion in savings over 10 years. There is give on their side, he believes. But there are no Bob Doles and Pete Domenicis on the Republican side willing to show similar flexibility on taxes.

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With prospects dimming for a mega-deal, the president is driving hard to ensure that whatever agreement emerges will keep the country below a new debt ceiling until February 2013. The administration calculates that it will need to raise the current debt ceiling between $2.5 trillion and $2.7 trillion to get to that point.

So far, the cuts in spending under discussion in the White House are significantly below that number. There is an additional "cut" that is available, but it has the appearances of a gimmick: The Congressional Budget Office has assumed that the costs of Iraq and Afghanistan will continue indefinitely, but get rid of those estimates, and presto, you get hundreds of billions in "savings."

Gimmicks alone will not suffice. So, from Obama's point of view, the Republicans should agree to some forms of revenue increases, and House Speaker John Boehner must drop his insistence that spending cuts must exceed -- dollar for dollar-- the size of the debt ceiling increase.

The president feels strongly that an interim agreement for 30, 90 or even 180 days is a very bad idea. That would let a moment of opportunity slip away. It would push negotiations closer and closer to elections, so that agreements would be harder to reach. And, very importantly, it could easily spook the financial markets, which will worry that U.S. politicians truly are unable to solve the problem.

The White House is very aware of the warnings that Standard and Poor's and other credit agencies have issued, threatening to downgrade the country's AAA credit rating if a long-term plan is not in place by January 2013. A downgrade, the president believes, would be like a new tax on Americans, costing billions.

For all these reasons, the president is adamantly against a short-term solution and wants a deal that is at least in the range of $2.5 trillion to $2.7 trillion.

He's exactly right about his arguments -- just as he deserves more credit than he is getting for trying to get both Democrats and Republicans to compromise. A short-term solution has always been the least desirable option.

But here's the catch: What if the parties won't compromise on a mid-level deal? What if all they can come up with is an interim patch that keeps talks going, even though our credit rating is threatened?

I have argued for some weeks that a short-term fix seems likely. former President Bill Clinton argued the same thing last week in his appearance at the Aspen Institute. The highly respected Bill Galston argued the same Monday in The New Republic.

So, Mr. President, go for a big deal -- the country needs it -- but in the event that a mini-deal is the best you can get, it is far better than a default. Keep some wiggle room, please.

How Obama deal on debt could hurt Democrats in 2012

By David Gergen, Special to CNNJuly 8, 2011 2:03 p.m. EDT

(CNN) -- The stakes are growing ever higher on deficit negotiations in Washington. And as they do, the politics are becoming ever more treacherous, especially for Democrats.

When President Barack Obama gathered with congressional leaders Thursday at the White House, almost everyone there agreed that it would be good to strike a grand bargain reducing deficits by $4 trillion over some 10 years. If you worry -- as I do -- that the country is sliding toward a debt crisis, their enthusiasm for a mega-deal is welcome news.

House Speaker John Boehner told his Republican caucus Thursday morning that he thought the chances of reaching a big agreement had risen to 50-50. While little bargaining went on at the White House meeting, Boehner reportedly left still believing those odds.

But a closer look suggests the chances of getting there seem much lower. Success rests heavily upon either the Republicans or Democrats caving in on their public positions -- and in the case of Democrats, not one but two caves. It is hard to imagine either party giving in enough.

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Leading Democrats in Congress have long argued they will agree to massive spending cuts only if Republicans agree to tax increases. Lately, Democrats have been floating the idea that the GOP should agree to as much as $1 trillion in revenue increases as part of the $4 trillion package. But Republicans are virtually united in opposing any tax increases, much less $1 trillion. It is almost impossible to foresee them backing down now, no matter how many sweeteners they are offered.

In fact, what Republicans actually hope is that the Democrats will once again give in, led there by the president. That is what happened last year when Obama persuaded his party to give up on tax increases on the affluent and instead continue the Bush tax cuts for everyone. Boehner's 50-50 estimate appears to rest on the chance that a similar scenario will unfold now -- that Obama will cajole his party into big-time compromises.

But that possibility is exactly why so many liberal Democrats are angry. They worry Obama is once again surrendering before he has even begun to fight. And in the process, they think, he may be undermining their chances of holding the Senate and regaining the House in 2012.

It's easy to understand why they are so unhappy. They believe that the GOP handed them a great cudgel for next year's elections when House Republicans voted in favor of the Paul Ryan deficit plan, including its bold but controversial plan to transform Medicare. House Minority Leader Nancy Pelosi recently proclaimed that there would be three big issues in 2012: Medicare, Medicare and Medicare.

Democrats are itching to run as protectors of Medicare and Social Security; they just love to argue that the mean, ol' Republicans want to balance the budget on the backs of the elderly and the poor while preserving tax breaks for fat cats. That theme has played well for them, so far.

Now, from their point of view, along comes Obama proposing Medicare cuts and even putting Social Security cuts in play as part of a mega-deal. Democrats in Congress complain bitterly that not only did he not consult them in advance but he could now compromise the heart and soul of their 2012 campaigns.

And what does he get from Republicans in return? Not a damn thing, they say -- just some billowy talk. One Democratic partisan said privately that he still likes Obama but he never, ever wants him to negotiate on his behalf for anything.

In effect, as they recognize, Democrats on Capitol Hill may be facing a double vise. Their own president is asking that they be willing to cut back entitlement programs. And there is a very real possibility that if Republicans hold tough on significant tax increases, the White House may be so hungry for a deal that Hill Democrats will be asked to accept that, too. That's two caves too many for a lot of Democrats.

From afar, it appears that Obama is now operating on a different political calculus for 2012 than his congressional party. He needs to win over independents -- and a mega-deal reducing the deficits could be a huge plus for him. But congressional Democrats need to have a fired-up base, and that means not caving in on entitlements, especially when there is so little in return. Even if Obama is just posturing, talking big now so he gets credit for trying, his strategy is not a happy one for the left.

Putting all of this together, the odds seem long -- certainly below 50-50 -- that the White House and Congress will agree on a mega-deal, as good as it would be for the country. Instead, it appears far more likely they will eventually settle upon a short-term fix. Nobody will be very happy -- and some Democrats will still be steaming.

Debt Deal Showdown

Warn of America's decline

CNN analyst warns of America's decline: wivb.com

Updated: Wednesday, 06 Jul 2011, 10:36 PM EDT
Published : Wednesday, 06 Jul 2011, 10:36 PM EDT

Jacquie WalkerPosted by: Eli George

BUFFALO, N.Y. (WIVB) - CNN Senior Political Analyst David Gergen has been a guest speaker at the Chautauqua Institution this week. He came to the WIVB-TV newsroom tonight and News Four's Jacquie Walker asked him about his view of leadership in America and our country's standing in the world.

Gergen said: "I'm very, very worried about it. I gave a talk today at Chautauqua in which I focused on the question of America in decline. Are we in decline? How real is the danger? I think the danger is extremely real. There's a very real threat. Financial crises have brought down great empires in the past. And when it comes, it can come very, very rapidly and it isn't pleasant. So, there are a lot of negative consequences. Not just for our standing. There are real negative consequences about the stagnation of income and lack of jobs that would continue here in the United States and will punish our children and punish our grandchildren.

David Gergen came to the newsroom to make an appearance by satellite on Elliott Spitzer's final talk show tonight on CNN. Gergen has been an advisor to four U.S. presidents.

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