The Deficit Problems and The Debt Problems.

ALI VELSHI, CNN ANCHOR: Hello my friend, Tony. I was having a big conversation with my friend Christine Romans about these deficits and what they mean. I got caught up and almost forgot I have a show to do. Good to see you my friend and we're going to pick up that coverage of the cruise ship just came in. You have a great afternoon.

This country's crushing debt and deficit can bring to mind Mark Twain's famous like about the weather. Everybody talks about them but nobody does anything about them. That's not strictly true of course, but not since the '90s has Washington done anything big and bold to balance the budget and level off our long-term debt until maybe now.

An independent, bipartisan commission that President Obama tasked with doing what politicians won't has done just that. Weeks ahead of schedule -- it was supposed to be released on December 1st -- it has gone public with a plan that it says would slash deficits by almost 4 trillion, with a T, dollars over the next decade.

Here's what the plan is going to look like. I'm going to level with you; even economists have a hard time grasping these billions and trillions, so they use GDP, the total size of the economy, as a reference point. Next year's deficit will likely hit -- and that's the bar on your extreme left there -- will likely hit 8 percent of GDP.

But if you follow the dark red bars, not the lighter parts above it, the dark red bars; it drops to under 2 percent of GDP by 2017 and then stays there. That's the commission's scenario. So if they didn't do anything under current policy, it would be those lighter colored bars. Under the projections that they're making, under this proposal, look at where the deficit goes in this country.

The pink bars are nothing much below 4 percent as far as the eye can see, now I know this is a lot of numbers, I'm going to give this to you in a different way. The way that's probably more important to you. Check out the debt. What I showed you was the deficit. The debt is the accumulation of all those deficits. It's the accumulation of all our yearly borrowing. The middle line, the red line there assumes that current law in this country stays exactly where it is, in which case the debt never drops below 60 percent of GDP.

That's kind of scary. Now let's just look at the light blue line. That's the top line. That's a real world projection because law is not going to stay as it is. That assumes that the Bush tax cuts are not renewed for the wealthy and you can see that that ends up with debt equaling twice the U.S. economic output by 2035. Think about that; debt that is twice as big as everything that we do in this economy.

Some people would call that bankrupt. Now, look at the bottom line, that dark blue line. That is what the commission proposes. They say that if you put into force the things that they want based on a number of economic assumptions, the debt starts to go down, it starts to get a lot lower. OK, how would that happen? Let's say we all like that - obviously if you look at that thing you're going to say, "I want that bottom line, I want that dark blue line."

Everything is on the table; everything that we spend money on has got to be on the table. Defense gets cut just like everything else. To bring military savings up to $100 billion in 2015, the panel recommends freezing pay, including non-combat pay in the ranks, cutting procurement, buying less stuff and reducing overseas bases by a third. Now that's the military.

To cut as much from domestic spending, the panel recommends freezing government pay, cutting the government work force, and eliminating earmarks, what critics call pork. In fairness, earmarks are not a substantial part of the problem right now, but they are looking at everything they can cut. How many times have we heard that? The panel says reform and simplify.

Cut rates, cut income tax rates at the federal level but also cut out deductions, credits, what the Wogs call tax expenditures, by the way, some of those -- that includes the credit that you get for your mortgage interest to some degree. They want to keep it in for people with not very big mortgages. Members also want to jack up the gas tax 15 cents a gallon. It will cost you more to drive.

I haven't even gotten to social security, and I stress, this is a draft of a proposal. The real proposal is coming out December 1st and this is light years from actually becoming law, but it is a whole lot to chew on. Joining me to chew on the business and the politics are two of the best - CNN Senior Political Analyst, David Gergen and my partner on "Your Money", CNN Business Correspondent Christine Romans.

I'm going to start with you, Christine, because I want to get to that social security part of things. The bottom line is this does include changes to social security. It means not receiving social security, increasing the retirement age.

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Absolutely, up to 69 years old by the year 2050. So seniors right concerned about "wait a minute, what does this mean for my check next year?" Nothing. For generation why, it means some big changes to you. You're going to have to work longer if these sorts of provisions make it.

VELSHI: But you've got 40 years to plan for it.

ROMANS: You've got 49 years to plan for it. And frankly, when you ask surveys for Generation Why, many of them know, they know that changes are coming and that maybe the safety net will be a little different looking for them. Also changes to how inflation is calculated for these benefits and also maybe means testing these benefits.

VELSHI: That means not everybody gets them.

ROMANS: That means not everybody gets them.

VELSHI: You have to qualify.

ROMANS: More of an insurance program than an investment program. You know, so those are things that are problematic for the aggressives. You already heard Nancy Pelosi and Senator Dick Durbin coming out very strongly against these plans, but the President in Seoul said, let's put it all on the table. And do not shoot anything down yet.

VELSHI: And this is -- let's bring David Gergen in. David, I mean, that's the bottom line. I think a six-year-old can solve the deficit problems and the debt problems. The issue is we have to have the resolve as a country to make the difficult decisions, and this panel has come forward with some things that will be very hard for some people to swallow. There is no free lunch. Somehow we are going to have to pay to reduce this country's deficit.

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: Well, as you well know, Ali, we've been having a party here on the money we're borrowing from the future for a long time. And the same politicians now put us in this mess are objecting to ways to try to get us out of it. And I must say, yesterday when this first came out, many of us looked at it, the leaders of the commission - and let's remember, it's just the leaders who propose it.

They don't have the votes inside the commission as of this moment. But they were both bold and courageous in proposing this. In the cold light of morning, when you look at it, as Matt Miller a wonderful columnist pointed out in Washington Post blog section today, this is actually courageous but not very bold.

It does not balance budget, even with all these screens. This doesn't balance a budget until 2037. It takes us 27 years to balance the nation's budget? Come on, give me a break.

VELSHI: So you think there need to be tougher stuff inside. Tougher medicine.

GERGEN: Absolutely, absolutely. This isn't - we're not really being tough enough on ourselves here if we're going to take 27 years to balance a budget. You know a responsible, political answer here, the commission really ought to come up with something that votes something very much like this, but it's just a starting point.

It ought to get tougher, not a lot lighter and not torn apart. We're too close, as you know, to the edge financially. You just mentioned how big the debt was compared to the GDP. It's around over 60 percent. That's up in a very, very problematic zone. It's heading toward 100, which is very dangerous.

VELSHI: Right and you don't need to be a mathematician or an economist to understand what a 100 percent debt as a 100 percent of everything you put out there. That is a very dangerous situation. By the way, we're American individuals were for a while.

GERGEN: Well Greece got to 115 percent and went bankrupt, right? So, and traditionally, since second world war, since slightly after second world war, our average debt as a percentage of GDP has been around 36 percent. We're in the 60-plus percent range right now, and that is growing increasingly dangerous. We have a choice now. Either we can show that we are mature adults who know how to govern a society responsibly, or we can refuse to do that and just take this country straight off the rails.

ROMANS: And the big issue here is that when you have your debt that is such a big part of the size of your economy, that means what you're paying in interest is money that is going out the door to pay an interest, it's not going to running your country. And the prosperity of America has always been what has made her special around the world and what has allowed her to flex her foreign policy muscle at the same time.

So, this is an issue that is not just an economic issue, but it becomes an issue in terms of diplomacy, and that is a very serious thing for us to think about. One thing I asked a bunch of analysts earlier today, David, was how do you sell to people that they're going to have to take some pain here in the middle class? This is going to hurt for everyone, no matter who you are.

And she told me, if you don't do it now, there won't be a car to drive for your complaining about 15 cents gas, there won't be a job to work that you're complaining about having to work until your 69. There won't be a house to live in where you're complaining about your mortgage deduction. That's how serious it is for some budget analysts. VELSHI: Good discussion and David and Christine and I are all committed to continuing to having this discussion with you in great detail. We're going to do what we have to do to break this down. Americans have said this is a very, very important concern to them and they are right about that, so we will stay on top of this. David, good to see you. We'll have a fuller discussion about this again, and Christine, we'll stay on top this together. Christine will be with us again in an hour.


Part of the Transcript from CNN Newsroom aired November 11, 2010