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Meet the Press transcript for August 7, 2011

Transcript of the August 7 broadcast featuring John Kerry, John McCain, Alan Greenspan, Austan Goolsbee, Rachel Maddow and Alex Castellanos.

MR. DAVID GREGORY: This Sunday, America's credit rating is downgraded for the first time ever, and it's Washington dysfunction that's said to drive the decision. It comes after a volatile week on Wall Street with the Dow plunging more than 500 points in a Thursday sell-off. The big question now, are we headed toward another recession? High anxiety about America's economic outlook as the July jobs report beats expectations, but unemployment stays above 9 percent.


PRES. BARACK OBAMA: What I want the American people and our partners around the world to know is this, we are going to get through this. Things will get better.

(End videotape)

MR. GREGORY: Analysis this morning on what it all means from Austan Goolsbee, outgoing director of the White House's Council of Economic Advisers, whose last day advising the president was Friday; and former chairman of the Federal Reserve, Alan Greenspan. Plus, the rest of our panel. The focus: With the economy in distress, how will our troubles affect the race for the White House?


PRES. OBAMA: When I said change we can believe in, I didn't say change we can believe in tomorrow.

(End videotape)

MR. GREGORY: With us, MSNBC's Rachel Maddow and Republican strategist Alex Castellanos.

But first, the Washington debate over jobs, growth and the economy. What can government do? After the toxic debt debate, will Americans trust their leaders to make the tough choices still ahead to cut the deficit? With us, two former presidential nominees for their parties: Senator John Kerry, Democrat of Massachusetts, and Senator John McCain, Republican of Arizona.

Announcer: From NBC News in Washington, MEET THE PRESS with David Gregory.

MR. GREGORY: Good morning. All eyes will be on the stock market tomorrow after the S&P's announcement Friday night of the unprecedented downgrade of America's credit rating, citing concerns about the nation's budget deficit and rising debt. The ratings agency called the outlook, "negative," signaling another downgrade is possible in the next 12 to 18 months. Officials at the White House, meantime, and Treasury Department are critical of the move, claiming it was overly political and based on faulty accounting.

But this weekend the nation is coming to grips with another story: the horrific loss of U.S. soldiers in Afghanistan. Saturday insurgents shot down an American helicopter, killing 30 U.S. soldiers, some from the Navy's special forces SEAL Team 6 that killed Osama bin Laden three months ago. Also among the dead, eight Afghan commandos. This was the single deadliest day of the war. The rising U.S. death toll comes as the administration has announced a withdrawal timetable and will raise fresh questions about America's strategy to end what is the longest running war in our country's history.

Joining me now, Senator John Kerry, Democrat of Massachusetts and, of course, chairman of the Foreign Relations Committee.

Senator Kerry, good to have you. Welcome back to MEET THE PRESS.

SEN. JOHN KERRY (D-MA): Thank you. David. Glad to be with you.

MR. GREGORY: I have to ask you, when you see news like this, when you hear about this loss of life among our soldiers, is your reaction, "What are we still doing there?" or is it, "Are we doing everything we need to do to beat the enemy?" Which is not al-Qaeda, it is the Taliban, the insurgency.

SEN. KERRY: Well, my first reaction, David, and I'm sure John McCain's also, is just an extraordinary sense of loss, a sense of gratitude for the quality of their sacrifice and their service, and just our hearts go out to their families. I think John and I join every single American in feeling as if we've lost a member of our family. So the first thought is sadness and sorrow for the loss. John and I and, I think, many others believe that we are in a transition in Afghanistan. The effort that they are making there is, is one that is important to our national security in this transition. Notice there were seven Afghans there, members of a commando force. It is part of the transition that is taking place. So I think, you know, we have to find out exactly what happened. I'm going to be very interested to see sort of who might have been involved in this and what the linkages may be. And that's something we need to check out very carefully.

MR. GREGORY: Let me...

SEN. KERRY: But it's really a loss for the country.

MR. GREGORY: Let me put this into some context and ask one of the strategic questions that I think has to come to mind in this debate. First of all, a sense of where, of location, as we put it up on the map. This was in Wardak province, which is adjacent to the province where the capital, Kabul, is, which has become a lot safer. And, indeed, when I was with General Petraeus in Afghanistan last summer, Wardak province had a lot of success stories about security and political advance as well. The New York Times, in its lead story this morning, put some of the context this way, and I'll put it up on the screen: "Saturday's attack came during a surge of violence that accompanied the beginning of a drawdown of American and NATO troops, and it showed how deeply entrenched the insurgency remains even far from its main strongholds ... American soldiers had recently turned over the sole combat outpost in the Tangi Valley to Afghans. ... The redoubts in these areas pose the kind of problems the military faced last year in similarly remote areas of Kunar province, forcing commanders to weigh the mission's value given the cost in soldiers' lives and dollars spent in places where the vast majority of the insurgents are local residents who resent both the NATO presence and the Afghan government. The dilemma is that if NATO military forces do not stay, the areas often quickly slip back under Taliban influence, if not outright control, and the Afghan National Security Forces do not yet have the ability to rout them."

We're on a glide path, Senator, out of this country. The question is, what are we leaving behind?

SEN. KERRY: Well, that's up for grabs, obviously, and that is exactly what this is about. Nobody is surprised by these spectacular attacks. It is, in fact, very much in the pattern of what the Taliban have left, and partly because we have been successful. Our, our, our military efforts with ISAF and our own forces have been extraordinarily successful. And they have created less space for the Taliban to be able to operate in, so the Taliban are choosing to attack in Kabul, to assassinate people individually, to take on this kind of event. That doesn't represent their strength across the country. There is a broad struggle for power in Afghanistan between Pashtun, Hazara, Uzbek, Tajik, between Karzai's folks, others and, of course, the Haqqani network based in Pakistan. And Pakistan's influence is also significant. That's why the administration is putting huge effort right now into the reconciliation process. The Pakistanis, the Iranians, the Russians, the Chinese, the, the Stans to the north, all of these countries can be critical to this, including India. And what we need is a regional approach. We need great intensity in our diplomacy. We need to try to find that political solution that everybody has said from the get-go is the only way to resolve what's happening there. But our presence must continue to diminish to the point that we have the ability to protect our national security interests as we go forward. We are not getting out completely. We are reducing the level to a point that I think has the ability to prevent the Taliban from taking over the country.

MR. GREGORY: Senator, as you know, this is part of a debate about America's influence in the rest of the world. And our economy and this debt fight has raised similar questions. And now the other big news that markets are going to be reacting to tomorrow and that is the downgrade of America's credit rating. Standard & Poor's issued a release on Friday, and this was part of its justification: "The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, less predictable than we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge." ...

Is this a wakeup call to Washington?

SEN. KERRY: Well, it's a partial wakeup call. I believe this is, without question, the "tea party downgrade." This is the tea party downgrade because a minority of people in the House of Representatives countered even the will of many Republicans in the United States Senate who were prepared to do a bigger deal, to do $4.7 trillion, $4 trillion, have a mix of reductions and, and reforms in Social Security, Medicare, Medicaid; but also recognize that we needed to do some revenue. I think this is one of the most telling, important moments in our country's history right now. We've had a fairly straightforward economic road throughout the 20th Century. But now, David, this poses a set of choices. It's not just about a recession, it's about a financial crisis and a structure of our economy which really has been misallocating capital. We've had an enormous amount of capital going into arbitration over these last years--phony deals, commissions, not creating jobs. And the real problem for our country is not the short-term debt. We can deal with that. It's the long-term debt. It's the structural debt of Social Security, Medicare, Medicaid measured against the demographics of our nation. That, then juxtaposed to the lack of jobs and job creation and growth. That's our problem, structural. And what we need is a Washington that stops this bickering, that gets rid of these hard positions that I noticed even in Speaker Boehner's comments about the downgrade, politicizing it in the sense that, you know, sort of blaming it on the Democrats and the lack of decision. Barack Obama put a $4.7 trillion deal on the table. Three times he was refused that deal because there were some people in the Republican Party, and Mitch McConnell even admitted this, who wanted to default. He said there were people in his party who are willing to shoot the hostage. In the end, they found that the hostage was worth ransoming. This is not about ransom. This is about our nation. It's about our country. It's about growth. It's about statesmanship. I know John McCain and I know many of his colleagues in the Senate are prepared to sit down and be serious about how we deal with this quickly because our nation's security, our nation's future is at stake in an unprecedented way.

MR. GREGORY: The, the, the political debate about the, frankly, the viability of our political system right now because of these entrenched interests and disagreement, still gives way to the more pressing problem. If you look at the unemployment numbers, and we'll put a summary of that over the president's term, the high point, 10.1 percent unemployment in October 2009. It's still stubbornly at 9.1 percent, even though the jobs report for July did beat expectations. Bottom line is, what is a growth plan for Washington that Washington can actually execute on?

SEN. KERRY: I'll give you a growth plan very clearly. Number one, we've got to deal with this debt and deficit, send Wall Street and the marketplace a message that the United States of America is deadly serious about dealing with this long-term structural debt. That means putting a plan on the table, $4 trillion plus, if necessary, that lays out how we go forward in terms of our debt and deficit. But we do it, David, in a way that doesn't turn our backs on the history that we've created, where we know how to do this without cutting off our job creation and our economic future. In the 1990s, we balanced the budget. We did it without a constitutional amendment. We balanced the budget, we created 21 million new jobs, and we put ourselves on a glide path to pay off our debt for the first time since Andrew Jackson by next year. That changed when we went into credit card debt, two wars, two tax cuts. We couldn't afford them. And boom, you have six point some trillion dollars of the debt goes to George Bush, $2.4 trillion goes to Obama, three times to George Bush, and Obama's was largely in response to George Bush and Hank Paulson asking us to bail out the financial structure of America. So we have to get real about what the problem is. The second piece of this, Senator Boxer and Senator Inhofe have a terrific highway bill. If we were to do that and do it quickly, we will save 600,000 more jobs than what the House is setting out to do. Three, we need to pass the infrastructure bank, which is bipartisan. Senator Kay Bailey Hutchison of Texas and myself have introduced this, with Lindsey Graham of South Carolina and, and Mark Warner of Virginia. We have $2.2 trillion of infrastructure deficit in America. China's putting 9 percent of GDP into infrastructure. Europe's putting 5 percent into infrastructure. The United States of America is putting 2 percent or less into infrastructure. We have $80 billion of loss every year just to bail out--just to grid problems with our energy structure to our highways that are clogged because we don't build a transportation system. We know how to do this. We could have patent reform. There are millions of jobs being wrapped up in the bureaucracy of patent reform, which isn't moving forward. We could have regulatory reform so we don't take 10 years to give business people a decision. There are countless things we could do. And yes, we can cut waste. There is waste. And we could come together and do that.

MR. GREGORY: All right.

SEN. KERRY: But we have to be statesmen here. We have to find the happy middle ground of compromise and common sense. I know John McCain's prepared to do it. I'd like to see the members of the House of Representatives prepared to do it. And that would avoid the future confrontation.

MR. GREGORY: All right. We're going to leave it there. Senator Kerry, thank you, as always.

SEN. KERRY: Thank you.

MR. GREGORY: Joining me now, Senator John McCain, Republican of Arizona, ranking member of the Senate Armed Services Committee.

Senator McCain, I, I want to return to the issue about Afghanistan in just a moment because of its crucial importance, but I would like you to respond to your Senate colleague on this issue of the downgrade of America's credit rating, which is an important development. He calls it a tea party downgrade, reflecting dysfunction in our system. How do you respond to that?

SEN. JOHN McCAIN (R-AZ): Well, I agree that there is dysfunction in our system and a lot of it has to do with the failure of the president of the United States to lead. I would remind you that Republicans control one-third of the government. The Senate and the presidency are controlled by the Democrats. And the fact is that the president never came forward with a plan. Now, I was gratified to hear that he had plans, but there was never a specific plan. There was always the so-called "leading from behind." Now, look, we could have reached an agreement a lot earlier, but the members of the House of Representatives had a mandate, had a mandate last November, and it was jobs and the economy and spending. And for them to then agree to tax increases and spending increases, which was obviously a repudiation of the mandate that they felt they had from last November.

MR. GREGORY: Right. But Senator, you talked about...

SEN. McCAIN: And again, the president has not led. Yes.

MR. GREGORY: You, you talked about the tea party.

SEN. McCAIN: Go ahead.

MR. GREGORY: I mean, you, you had some critical words. You talked about a rush in the House of Representatives to pass a balanced budget amendment as being foolish. There were Republicans and Democrats who said tea party members, a lot of them freshmen conservatives, were digging in and, actually, some used the word hostage, holding the whole process hostage because they would not raise any taxes at all. I mean, doesn't--it's not just you--you know, you know how Washington works. The president was dealing. John McCain--I mean, John Boehner was dealing. They were coming up with a plan. They couldn't sell it. Was this really failed presidential leadership?

SEN. McCAIN: I think it's failed presidential leadership when you don't put forward a plan, a specific proposal to work off of. Previous presidents certainly have when we are in a crisis. And by the way, talking about hostages, of lately the Democrats have been calling us terrorists. So we need to lower that level of rhetoric, obviously. But the fact is that we need to cut the corporate tax rate. We need to fix the tax code. We need to, obviously, have a, in my view, have a moratorium on new federal regulations. There's been thousands of pages of new regulations. By the way, one has been repealed. I'm sure you know, spilled milk. Thank God there's no longer an oil spill. We obviously need to do a lot of things.

But remember, it was the housing market that triggered this crisis. We put liquidity into the financial institutions and obviously they're doing fine. They're sitting on a trillion and a half of cash that they're not spending. But the reality is that the housing market is what triggered this crisis, and it's going to be the housing market that recovers. And that means to me, go out and buy up people's mortgages as we did during the Great Depression, and give them a mortgage that they can afford the payments to make, and then we will begin to come out of this problem. And by the way, on the S&P thing, don't shoot the messenger. Is there anybody that believes that S&P is wrong in their assessment of this situation--the fiscal situation of this country?

MR. GREGORY: Well, there are questions about what their rationale was. But I want to ask you again about S&P. One of the things you said as a presidential candidate and have been saying for a long time is that lawmakers were spending like drunken sailors in this town for years and we're now all paying the price. But this was the reaction in part from House Speaker Boehner, and I'll put it up on the screen. He talked about "decades of reckless spending cannot be reversed immediately, especially when the Democrats who run Washington remain unwilling to make the tough choices required to put America on solid ground. The administration," he says, "and Democrats in Congress had sought an increase in the debt limit without any spending cuts or reforms. Republicans made clear the American people would not tolerate that and fought for the largest spending cuts possible." Do you not see this downgrade as something akin to war that should galvanize political leadership on both sides of the aisle, rather than politicizing it?

SEN. McCAIN: I do. And I believe this special committee or select committee will now, I hope, have added incentive--without the president's input, by the way, this is strictly a Congressional committee that will address these issues. And the elephant in the room, as we all know, is Medicare and Social Security. And unless we're ready to reform those entitlements, we're not going to have a long-term fix for our fiscal problems. So let's announce to the American people that we are going to fix those entitlement programs which are unsustainable. Otherwise we end up like Greece, and then we'll be unable to provide those benefits.

MR. GREGORY: David Walker, who was the comptroller general for the U.S., head of the GAO, had a discussion with me during our Press Pass conversation this week, which is available on our Web site. He was rather skeptical about the road that this new super committee is going to take in addressing the very problems you outlined. This is what he said in part.

(Videotape, Wednesday)

MR. DAVID WALKER: Candidly, the deal that was done was very modest. We have to do a lot more. They punted on the big four, namely Medicare, Medicaid, Social Security, and tax reform. And you know, we'll see what happens with this special joint committee. But, candidly, I think the tough choices are probably going to not be made until after the 2012 elections.

(End videotape)

MR. GREGORY: After 2012, which includes the question of whether tax increases of any stripe can and should be part of the deal that this super committee works on?

SEN. McCAIN: Well, there's a fundamental belief that many of us have is why should you raise taxes and take money from people and give it to the government, which has grown enormously in size or debt has grown from one--$10 trillion to $14 trillion. What's the point? The point is that we need to take on the entitlements and we need to reform the tax code so it's flatter and fairer. Why is it that people are sitting on all this money? It's because they don't know what the next regulation that's coming down on them. They don't know what their future is so that they can invest, and that's why a lot of them are going to overseas and where they're making most of their profits. So, look, this select committee, I believe, can really do what we haven't had the courage to do in the past. And the difference is between it and any other, as you know, is that it is an up or down vote. And I think that a lot of us would have the courage to vote for what the most experienced people in Congress come up with.

MR. GREGORY: Senator, in--with a few minutes left, I want to turn to Afghanistan. Secretary of Defense Panetta, in his statement, indicated that the U.S. would stay the course to fulfill the mission that these brave soldiers died for. My question to you is, do you have fears that, indeed, your fears of withdrawal of surge forces that are on a path to come out by the end of 2012, leaving still tens of thousands of U.S. troops there, is too aggressive, too fast to accomplish that mission that Panetta says we're going to stay on?

SEN. McCAIN: Well, absolutely. The president's decision to withdraw at--on the schedule that he has outlined, there was no military recommendation. All our military leaders have said that it increases the risk. Why would we want to increase the risk to the lives of our young men and women who are serving? The second problem, David, and it's serious, is this continued sanctuary that is now in Pakistan with the Haqqani network, the ISI cooperation with other organizations, including the Taliban. And we have to have a realization that the present sanctuary situation in Pakistan cannot continue, otherwise it places enormous burdens on our ability to succeed. And I believe we've made significant successes. Our prayers and thoughts go out to the families of those brave, brave, brave elite of our elite that have sacrificed. But at the same time, we're going to have to address this sanctuary situation, and we're going to have to address the problem that the president has created, and that is that out there there's a perception, Afghanistan and other parts of the--of that part of the world, that America is withdrawing. That can't be good.

MR. GREGORY: But the reality is, Senator, we've been at this over a decade now. This sanctuary problem has been with us the entire time. You know there are going to be people who are watching this who say, "Well, then why are we still there? We don't seem to have Afghan soldiers who are a partner enough to take care of the problem, and oh, by the way, we went to Afghanistan to defeat the Taliban--rather, al-Qaeda, which is not really active there. We're fighting against an insurgency unlikely to prevail."

SEN. McCAIN: Well, first of all, on the 10 year thing, the fact is that we have only had a surge for a couple years now, since the president announced it, as you know, at West Point. So we've had a very short time. There's no doubt that we have had significant success, particularly in the southern part of Afghanistan. The reason why I worry a lot is I'm not sure we have sufficient number of troops for another fighting season so we can gain control in the eastern side of the country. We all know that the Taliban cooperated with and assisted al-Qaeda initially, which is the reason why we went to Afghanistan as a result of 9/11. So there's no doubt in my mind that we would have al-Qaeda presence and influence in Afghanistan and even a return to a base for attacks on the United States of America. And also, there's a fundamental question, do you want to condemn the Afghan people to the rule of the, of the Taliban? I think we should try to avoid that as well.

MR. GREGORY: All right. Senator McCain, as always, thank you for your views.

SEN. McCAIN: Thanks for having me on.

MR. GREGORY: And coming up, the state of the economy. The unprecedented downgrade of the U.S. credit rating and a volatile week on Wall Street. Fears that we may be facing another recession. We'll have special analysis this morning from the chairman--former chairman of the Federal Reserve, Alan Greenspan, as well as outgoing economic adviser Austan Goolsbee. Plus, the rest of our panel on how the economy will play in the race for the White House in 2012. With us, MSNBC's Rachel Maddow and Republican strategist Alex Castellanos. It's coming up after this break.


MR. GREGORY: Coming up, with the economy in distress, how will our troubles affect the race for the White House? Joining me, Rachel Maddow, Alex Castellanos, Alan Greenspan, and Austan Goolsbee. It's up next after this brief commercial break.


MR. GREGORY: We are back with our roundtable discussion. Joining me now, host of MSNBC's "The Rachel Maddow Show," Rachel Maddow herself; Republican strategist Alex Castellanos; former Chairman of the Federal Reserve Alan Greenspan; and the outgoing director of the White House's Council of Economic Advisers, Austan Goolsbee.

Welcome to all. I want to start on this side of the table.

Chairman Greenspan, the markets tomorrow, how are they going to view this downgrade of America's credit rating?

DR. ALAN GREENSPAN: It's difficult to say, but the only test we have at the moment is the Israeli market, which is open today, and it is tanked. The problem I have with that, however, is there are riots in--not riots, I should say--real significant protests within Israel at the moment. So I can't tell whether one is the other. But considering the moment in which the market went down over the last week, it is very unlikely, if history is any guide, that this isn't going to take awhile to bottom out. So the initial reaction, in my judgment, is going to be negative.

MR. GREGORY: Are U.S. Treasury bonds still safe to invest in?

DR. GREENSPAN: Very much so. I think there's--this is not an issue of credit rating. The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default. What I think the S&P thing did was to hit a nerve that there's something basically bad going on, and it's hit the self-esteem of the United States, the psyche. And it's having a much profounder effect than I conceived could happen because the economics of what they're talking about is very clear, and you cannot see any way in which we can go as we were on Friday for a vast movement of international funds into the dollar at very low interest rates and then turn on a dime. That is not going to happen. And so this is not the issue that they make it.

MR. GREGORY: Austan Goolsbee, you heard John McCain say, "Don't shoot the messenger. Don't shoot S&P." And yet the White House has been engaged in just that in a detailed taking down of the basis for why S&P downgraded the United States. Make that case.

MR. AUSTAN GOOLSBEE: Well, the basic case is they made a $2 trillion math error and forgot to check their work. So the, the rating agencies that didn't make a $2 trillion math error reaffirmed the AAA status. You saw Warren Buffet say that, if they had a AAAA, he would put U.S. Treasuries in AAAA status. I think with the S&P downgrade being based on, let's say, questionable mathematics was the root of why the Treasury was saying that. I think in this case if you get away from just the was there a mistake in, in what they did, the broader point being we've just gone through a period where members of the U.S. government were standing up in public and saying maybe it would be OK if the U.S. government defaulted on some of its obligations. That was a deeply unsettling moment. I think that that calls on us to maybe do some of the bipartisan things you saw Senator Kerry talking about--an infrastructure bank or whether it's the free trade agreements or things where there is bipartisan agreement that we could show the world that actually it's not complete dysfunction in Washington. But this debt ceiling debate obviously made some people nervous.

MR. GREGORY: Right. Before I widen out the discussion to, to the whole table, let me do one more, Chairman Greenspan, with the cover of The Economist magazine, which caught my eye. "Time for a double dip?" is the question. And whether we are bracing for a double dip recession. Is that where we're headed?

DR. GREENSPAN: It depends on Europe, not the United States. The United States was actually doing relatively well, sluggish but going forward until Italy ran into trouble. That destabilized the European system, and the crisis re-emerged. Europe is very critical to the United States in the sense not only do we have a fourth of our experts there, but more importantly, significant proportion of the foreign affiliate profits, in fact half of U.S. corporations, are in Europe. And that has been a very important driving force in the overall earnings of U.S. corporations and, therefore, the stock market rise, which has been the most important driver of economic activity in the United States. When Italy showed signs of significant weakness in selling its bonds--the yield is now over 6 percent, which is an unsustainable level--it created a massive problem within Europe because Italy is a very large country, cannot be easily bailed out and, indeed, cannot be bailed out.

MR. GREGORY: This...

DR. GREENSPAN: And that's what's causing our problem.

MR. GREGORY: This is a wider discussion.

Rachel Maddow, it does get back to political dysfunction at some level because, if Americans are wondering where are the jobs, the bigger question is where's the economic growth? Like my kids, I like cartoons. This is one I saw this week in Roll Call from R.J. Matson. The easy part shows where the parties jumping over the debt ceiling, if anybody thought that was easy. The much higher hurdle is job creation, is economic growth. We may be cutting the deficit some; but, frankly, Austan Goolsbee and the economic team projected growth for this country that has been wildly off the mark so far this year.

MS. RACHEL MADDOW: We also had a revision in how bad the recession was that the Obama administration started with over the last couple of weeks. And so we know that the hole that we have been digging out of is even deeper than we thought. The question is whether or not the stock market dropping 500 points in a day and dropping as much as it did over the past two weeks; plus, this downgrade is going to be a political wakeup call. It's going to change what, what is politically feasible in Washington. And, I mean, the, the downgrade message whatever you think of S&P, they mentioned the need for increased revenues and for revenues being on the table three separate times. They absolutely indicted the fashionable intransigents of the Republican Party right now in Washington. And there's a question about whether or not there will be a change in fashion, whether or not that will be a sort of wakeup call that the parties need to work together rather than the Republicans' fashion right now, which is that any deal is a bad deal.


MR. ALEX CASTELLANOS: Oh, where to begin? I don't think Republicans are saying any deal is a bad deal. But when you look at what these rating agencies are all saying, Standard & Poor's or not, is that we can't continue to maintain an unsustainable level of debt. And these Republicans in the Congress are saying how can you grow an economy when you have to service an unfathomably growing amount of debt? And so they put their foot down on that. And the problem is not Republican intransigents, I think the problem is balance, as the president likes to call for. We have balance. We have Republican intransigents and "We have to stop spending," and Democrat intransigents that "We must continue to keep spending." That's why we got nothing done.

MR. GREGORY: But we...

MS. MADDOW: That's not why S&P says they downgraded us, though. S&P says, "The downgrade was motivated by all the debate about raising of the debt ceiling. It involved a level of brinksmanship greater than what we had expected." That's why they say they downgraded us. Not because there's too much debt, but rather that Washington is not working, and we did something insane with getting that close to defaulting on purpose...

MR. GREGORY: Well, the other...

MS. MADDOW: the debt ceiling debate.

MR. GREGORY: Well, the other, the other question is what Paul Krugman writes about, Austan Goolsbee, in his column on Friday. I'll put it up on the screen. "Now only are vast numbers of Americans unemployed or underemployed, for the first time since the Great Depression many American workers are facing the prospect of very long-term--maybe permanent--unemployment. ... it's a human catastrophe. And why should we be surprised at this catastrophe? Where was growth supposed to come from? Consumers, still burdened by the debt that they ran up during the housing bubble, aren't ready to spend. Businesses see no reason to expand given the lack of consumer demand. And thanks to that deficit obssession"--and this is what I think Rachel is getting at--"government, which could and should be supporting the economy in its time of need, has been pulling back."

Are we going to look back at this period and say, that was the wrong answer to get into a big deficit reduction conversation?

MR. GOOLSBEE: I mean, it could be if we go, if we go too far in that direction in the immediate term. It's taken the focus off where it should be, which, as you said, it's got to be about growth. Now, the, the depth of the recession and the nature of it, that it's coming out of a bubble, that we can't just go back to what we were doing before the recession began makes this particularly hard to get out of. Where the growth must come from is business investment, exports, innovation, small business. It can't be just going back to building residential houses and consuming more than we're earning, which were the drivers of growth before. But what we saw until the growth started slowing down at the beginning of this year, we were making progress. We were growing at a moderate rate. You were seeing balanced growth across a lot of industries, and we added more than two million jobs. When the growth slows down--because of Europe, because of gas prices, because of Japan--the job engine stalls. And now I think there is a danger that if we just keep saying, "Well, our--the number one thing we have to talk about is all about the short-run deficit," we are losing sight of the fact that we've got to reignite the engine of job growth. It doesn't have to be just the government driving it...


MR. GOOLSBEE: ...but the government's got to be doing everything it can to get the private sector stood up and driving recovery.

MR. GREGORY: But the question is how, Chairman Greenspan. I mean, there is a view on Wall Street--Jamie Dimon has said this publicly, the CEO of JPMorgan, when he questioned Federal Reserve Chairman Bernanke by saying, "Look, there's a cumulative effect to what this administration has done to try to remedy the excesses of the financial system that resulted in collapse." That cumulative effect of regulation and capital requirements and all the rest may ultimately be depressing economic growth by keeping major corporations from making the sort of investments that Austan say are crucial. What do you say?

DR. GREENSPAN: I say the evidence is reasonably strong that that is a correct evaluation. There's one thing that we have never discussed, which is how do we get what is now really an excess of $500 billion in liquid assets held in non-financial corporations in the United States, largely as a result that they refused or could not find profitable opportunities to invest in, so they put it in cash flow, put it in liquid assets. How do you create a degree of certainty about the long-term future that would induce the people who hold those liquid assets to invest them in long-term assets because this is the only source of expansion, which is very large, in which debt is not relevant. You don't need to borrow. All you have to do is to pull those funds which are sitting there because they don't know where else to profitably invest them. If we can get that going, it's a major positive.




MR. CASTELLANOS: The day the debt ceiling played in, the president has a press conference outside the White House and says, "Corporate America, the wealthy, I'm coming after you. I'm coming after you with higher taxes. I still think I was right." Fairly petulant statement. Now, what does that do if you're--if you're out there, if you're an investor, if you're corporate America? You're going to sit on that $2 trillion worth of cash you have because you don't know that you're not going to need it tomorrow. On top of the uncertainty of a healthcare bill, on top of whether we're going into a double-digit--double-dip recession.

MR. GOOLSBEE: With all respect...

MR. GREGORY: I want--I want--yeah, just let me have Rachel respond to this piece of it because I think this is important because there was also petulance, if you call it that, from Republicans. House Speaker Boehner, as I referenced before, his reaction to the downgrade was to go after presidential leadership, or what he thinks is lack thereof, and the Democrats' penchant for spending. Doyle McManus, in his column in the Los Angeles Times, wrote this on Thursday about the president's leadership through all of this. He called it a clarity gap. "Obama," he says, "has suffered in part from a clarity gap. Even his own supporters aren't always sure what he's willing to fight for.

"`He needs to plant a flag somewhere,' complained William A. Galston, a former top aide to then-President Clinton. `I don't care what color it is. But periodically planting a flag and then lowering it is no way to inspire confidence.'

"The president took a clear position on only one issue in the debt ceiling negotiations: He said any deal had to be `balanced,' meaning it had to include new tax revenue as well as spending cuts. But in the face of Republican opposition, he backed off even that one demand." I mean, the reality is, and I've talked to House Democrats who say, "Look, we're the enablers here. Republicans seem to have won this debate and they won the negotiation and here we are."

MS. MADDOW: The debate in Washington right now, the difference between the two parties is whether or not there are negotiations or whether there are not. On the Republican side, everything is a hard line, even when they're talking about who they might appoint to this sort of super committee that's going to have sort of scary amount of power over fiscal matters coming up, the Republicans are already saying, "Here are our litmus tests. There will be no negotiations over revenues. There will be no negotiations over whole areas of fiscal policy." Democrats' position is not on any one particular policy. Democrats position is, "We would like to talk, we would like to negotiate, we would like to compromise." I'm a liberal and, to me, that's upsetting because I want the Democrats drawing all sorts of red lines. But they won't. The Republicans are saying, "No negotiations, no deals, our way or disaster."

MR. GREGORY: Well...

MS. MADDOW: And that's the difference between the parties right now.

MR. GREGORY: There is, Alex Castellanos, look at the approval, or shall I saw, lack thereof, of Congress job performance at 82 percent. One of our producers asked me in a, in a question that actually made me laugh, but then I realized it wasn't so funny, "What happens when it gets to 100 percent disapproval?" I mean--but this is a problem here.

MR. CASTELLANOS: We actually put a question on a survey a couple of years ago, "If you could get rid of everybody, both parties, and start over, would you?" And it was something like 70 percent.


MR. CASTELLANOS: So we're getting close to that.

MR. GREGORY: But where is the political will to engage on some tough choices that really both sides wanted to avoid? Republicans wanted to avoid tax increases, and Democrats, despite what the president was talking about in his deal, want to do--to get away from some really tough choices on entitlements and Social Security.

MR. CASTELLANOS: Well, we have some intransigent differences on how to grow the economy. Republicans are not against more revenue. Republicans in Congress will tell you they just have a better way to produce those, and that is planting the seeds of growth in the fertile free market, not in the barren concrete of Washington.

MS. MADDOW: What revenues will Republicans agree to increase right now?

MR. CASTELLANOS: Well, the same way to grow revenues that John F. Kennedy did it, that Bill Clinton did it, that George Bush did it. When you cut taxes, you actually grow the economy.


MS. MADDOW: Come on.

MR. CASTELLANOS: We still think that's an important part of it.

MS. MADDOW: Wait. But what--so--but revenues is, is a synonym for taxes. What taxes will Republicans concede to raising or tax loopholes will they concede to closing?



MR. CASTELLANOS: Right now there's a better way to do that. When you have...


MR. CASTELLANOS: ...the top 2,000 corporations in American paying 70 percent of the corporate tax load, when you have a--you're not at a competitive position globally, this is not the time--Republicans would argue the same as Democrats would.

MR. GREGORY: Well, let me...

MS. MADDOW: Well, what...

MR. GREGORY: Go ahead.

MR. GOOLSBEE: The thing that's distressing about this discussion, there's--there are a hundred things that the parties in Washington disagree on, but before we got into the debt ceiling debate, there were at least a handful of important things that they could agree on--the free trade agreement and bipartisan infrastructure bank. We could look at extending the payroll tax cut for 150 million workers. We could change the patent reform to try to encourage innovation. Let's do those things. It--how can--even with the jobs numbers coming in better than expected on Friday, it's still a wake-up call, it's still not a good report. If this was six months ago when we were growing at a more robust rate, we would've said it wasn't that impressive. We've got to get back to that. And if we could at least show that Washington could do something, they could agree on something, I guess I just keep asking for the sake of the economy, "Can't we wait on the things that we're going to yell at each other about and start on the things that we agree on?"

MR. GREGORY: Well, when--but starting doesn't happen, Alan. I mean, this is the problem. You have--you have a potential default, and yet what does this Congress do and the administration? You create another super committee, 17 months after this uber-deficit commission that the recommendations for which, which were tough to both sides, were not acted on. What's...

DR. GREENSPAN: You know, they eventually will be. There's going to be a solution to this, and it was--and the great irony and sadness about this whole process is that, it's that they basically--the Bowles-Simpson Commission's recommendation, which will be the core of the final result. But there's another issue here, which with all of this bickering going on, the economy is slowing down. You can see it in all of the data. I don't see a double dip, but I do see it slowing down. This deficit problem that sits out there is much larger than we've been calculating because the actual numbers employed by those who are calculating the deficits are based on a level of economic activity which we are not achieving.

MR. GREGORY: But then, what, what solves--in other words, if we're going to be aggressive about deficit reduction, and there's some questions about how aggressive we're going to be even with this deal, but even if we are, is that what gets growth back or are--is government now in a position where it should be doing more and can't because of the policies?

DR. GREENSPAN: First of all, there's a general view out there that we're somehow going to solve this problem without paying. There is no conceivable scenario in which that is true. Cutting back on government spending will cause some contraction in economic activity, but according to the IMF, who has done a considerable number of valuations of related issues, they conclude that increases in taxes do significantly curtail economic activity. So do expenditure cuts, but significantly less.

MR. GREGORY: There's an issue, Alex, too, about you now have Republican candidates in this field piling on when it comes to this downgrade. They want to make this the president's downgrade of the credit rating. This is more ammunition, from their point of view.

MR. CASTELLANOS: And, and if I were advising them, I would say don't do that because big problems give you an opportunity to be a big leader. And this would be the time to get everybody around the table and say, "Look, we may have differences on how we achieve this, but now we need a plan for growth." Every Republican candidate ought to be at the Instaprint right now with the strategy for American growth and strength in the 21st century. That's what's going to get us out of it.

MR. GREGORY: But, but the--who's the front-runner right now? Mitt Romney, a man you advised, who couldn't have been farther away from what happened in Congress over this debt ceiling debate, and then at the end he says, "By the way, I'm against the deal." Is that big leadership?

MR. CASTELLANOS: I think riding, you know, it's like being a newspaper editor, riding out of the hills down to the battlefield after the battle's over and shooting the wounded. I don't think that's particularly productive. But I think something Mr. Greenspan says is important and that is that this is not going to be without pain. There's a reason alcohol, drugs, and promiscuous government spending are all addictive. They feel good at first. When you stop doing them, it's going to feel less good.


MR. CASTELLANOS: Republicans out there politically are saying, "Take the pain now. Don't pass it on to the next generation." That's why they're being so firm.

MR. GREGORY: I suspect you disagree with it, that that's their view.

MS. MADDOW: To the extent that we are taking the S&P downgrade as a serious thing, that we believe that S&P has the credibility to have done this, and this actually does levy a blow against the U.S. economic credibility. I mean, honestly, we should talk about the fact that during the financial crisis, S&P was handing out AAA ratings to any pile of junk tall enough to reach the doorbell and ask. So they do not have the most credibility on this. But if we are going to take them seriously, let's take them on their word about why they did this. They said they did this because of brinksmanship over the debt ceiling. They did not say they did this because there's too much government spending.

MR. GREGORY: All right. Let's, let...

MS. MADDOW: They said they did this because of Republicans holding the debt...

MR. CASTELLANOS: Because of the debt.

MS. MADDOW: No. The debt ceiling. Brinksmanship...

MR. CASTELLANOS: Yeah, but the debt ceiling is the ceiling...

MS. MADDOW: their word.


MR. CASTELLANOS: What is the debt ceiling...

MR. GOOLSBEE: What is a rating? A rating is simply an estimate of the probability of default.

DR. GREENSPAN: That is true.

MR. GOOLSBEE: The probability of default on Treasury is zero. It's the safest asset in the world by far. But we've just gone through an experience that anybody looking at it has to say, "Whoa, maybe somebody might actually default in the future," if we were going to go to the edge of, of insanity.

MR. GREGORY: Right. Let's...

MS. MADDOW: That's right.

MR. GREGORY: Let me get in here. I want to take a break. When we come back in our final segment, I do want to talk about the debate over Afghanistan after the tragic loss of our soldiers this weekend. We'll also look at our Trends & Takeaways, what was said here today and what to look for in the coming week, plus the hot political stories trending this very morning. That's coming up right after this.


MR. GREGORY: Our final moments now with our roundtable. The trend tracker, the big political stories that we're following today, we'll put it up on the screen for you: Washington's anger over the credit rating we've talked about; Rick Perry, governor of Texas, in that prayer rally he had, the question is whether he's a presidential candidate; and U.S. troop deaths in Afghanistan, which we'll talk about in a moment.

Quickly, Alex, is Rick Perry someone who gives Mitt Romney the real run for his money?

MR. CASTELLANOS: He'll, he'll get some strength on the conservative side, but only for awhile. He has some challenges. One of them is that people think he's a little bit of a coffee table book, just kind of Sarah Palin with a skirt, not a substantive candidate. He's the candidate of jobs and growth, but Republicans don't think that governors and governments create them, they think businessmen do. He's running against businessmen. And he echoes the last campaign, which I think we lost, which was, you know, Obama ran against George Bush, and in many ways, Perry's just a lighter copy.

MR. GREGORY: Rachel Maddow, a conversation going on on Twitter, online generally this morning, has to do with this debate over Afghanistan after the loss of our soldiers. And this from ABronzo on Twitter: "The real question is, what will it take for the war in Afghanistan to be part of the 2012 election conversation?" And the irony is, despite the stakes, neither party really wants it to be there. And for Democrats, they don't want it there unless it's taking about how to get out.

MS. MADDOW: That's right. The president is slightly to the right of his party on Afghanistan, I would say. I mean, the substantive question is whether or not the continued U.S. presence in Afghanistan does harm to al-Qaeda, whether or not us leaving now vs. two and a half years from now makes the Taliban any less likely to pose a challenge to Afghanistan's government. But the, the president--Democrats, I think, would vote nearly unanimously to speed up the withdrawal, if they could. The president would dissent from that. And the Republicans are more or less deeply split on this issue. But I don't think any presidential candidate other than Jon Huntsman wants the debate to be about this.

MR. GREGORY: We talked a lot about the credit rating downgrade. Senator John Kerry on the program, at the beginning of the program, reacted to it this way.


SEN. KERRY: This is the tea party downgrade because a minority of people in the House of Representatives countered even the will of many Republicans in the United States Senate who were prepared to do a bigger deal, to do $4.7 trillion, $4 trillion, have a mix of reductions and, and reforms in Social Security, Medicare, Medicaid, but also recognize that we needed to do some revenue.

(End videotape)

MR. GREGORY: Alan Greenspan, about 15 seconds, what's the prospect that this super committee gets to some of the hard questions that Senator Kerry talked about?

DR. GREENSPAN: Very low. It's going to require one person amongst those 12 to switch positions that their party has held very strongly over this period.

MR. GREGORY: And we don't even know who the 12 are yet, and that's going to be a question of who gets on there.

All right, thank you all very much.

Before we go, a programming note. A special edition of "Dateline" premieres tonight on NBC as Tom Brokaw reports on "The Road Back," a story that follows three families through the war in Iraq. This is tonight, 7 PM Eastern on NBC.

And next Sunday, we will be live from the state of Iowa, the straw poll. As our MEET THE PRESS Candidate Series continues, I will interview Republican presidential candidate Michele Bachmann. Plus, we'll have complete analysis of Saturday's straw poll results. That is live from Ames, Iowa, next Sunday. Check our--your local listings.

Our thoughts and prayers are with all the family members of our men and women in uniform on a very difficult weekend.

That is all for today. If it's Sunday, it's MEET THE PRESS.