'Meet the Press' transcript for Jan. 11, 2009

MR. ZANDI:  But we, but we have no choice.  We really don't.  I mean, if we don't do something like this, a stimulus package, a foreclosure mitigation plan, the economy is going to slide away.  Unemployment is going to rise into the double digits and we're going to lose tax revenues as a result and the deficit's going to be even larger than otherwise.

MR. GIGOT:  But, Mark, don't you think that monetary policy is very powerful here?  I mean, Christina Romer, who's the president's economic adviser now, she has written in 1994 that fiscal actions have relatively small effects. The big bang for the buck is monetary policy.

MR. ZANDI:  In normal times I would agree with you, Paul, but this--the link between the Fed and the economy runs through the financial system.  The financial system is literally broken.  There--if--you can provide as much cash as you want; but you don't get credit, you don't get it done.

MR. GREGORY:  Let's talk about what that means, monetary policy, which means the Fed's intervention.  One of the things the Fed is doing, called quantitative easing, which is, you know, is a big term to say they're going to buy up all this long-term debt.

MR. ZANDI:  Print money.

MR. GREGORY:  Right, they're going to print money.  But what does it mean?

MR. ZANDI:  Print money.

MR. GIGOT:  Well it means they're buying $500 billion of mortgages, for one thing.  They're buying $200 billion worth of auto loans and, and, and consumer debt.  So they're just shoving money into the economy.  That has to have an impact at some point.

MR. ZANDI:  But...

MR. GREGORY:  Right.

MR. HARWOOD:  And it raises the question...

MR. GIGOT:  In fact, it may be an inflationary one in the long term.

MR. HARWOOD:  And it raises the question--even if Mark is right, and I think the consensus among economists left and right is closer to what Mark is suggesting; that is, we have to do this.  But it raises the question of what's the exit strategy and when do we shift from the short term to the long term and look at the long-term fiscal health of the country?

MR. GREGORY:  Well, it's also a question of, Congressman, what is the timeline for really feeling some of this?  I come back to this point, because I think a lot of Americans are wondering, "OK, well, we're having all of this talk, when do we actually feel something?"

REP. BONIOR:  Well, there's--you know, talk in the economic community is that hopefully by the third quarter that we'll be able to see some differences, third and fourth quarter of this year, some differences in the change in the economy.  That might be optimistic.  It, it may be longer than that.  But I would say that if we run this--we run the program that President Obama has suggested on the spending side through a prism of a green new energy economy, there ought not to be a worker in this country, a building trades person that's on the bench.  They out to be out rebuilding our schools, our highways, our bridges, our buildings, our office buildings, our autos and our trucks.

MR. GREGORY:  Hm.

REP. BONIOR:  All of that needs to go through a prism of a green new energy economy, because I think that's the new economy that he is striving for, the president and the Congress, and that's the one that's going to really bring us out of this.

MR. GREGORY:  I want to come back to deficit policy, and I just want to provide some context here.  The deficit of fiscal year 2008 was at $455 billion, a number that will seem, you know, almost quaint now when we start to move forward and talk about these new numbers in the trillions.

Paul Gigot, in The Wall Street Journal the lead editorial on Friday was "Deficit Spending Blowout.  Mr. Obama and Democrats have been talking about at least $800 billion, and probably $1 trillion, in new spending or various tax credits and reductions over two years.  Toss that in and add more expected bailout cash, and if the economy stays slow the deficit could reach $1.8 trillion"--and it's supposed to be at 1.2 trillion this year--"or a gargantuan 12.5 percent of GDP.  The 2006 Democratic vow to pass `pay as you go' budgets seems like a lifetime ago, when in political terms it was." What is the new president's deficit policy?

MR. GIGOT:  It's spend whatever you can to get us out of this, and worry about the deficits later.  That's his, that's his policy.  And look, there, there is a certain sense--it makes a certain sense to have a deficit when you have a recession.  I'm not totally--I'm not a deficit-phobe.  I don't mind it. It depends what the deficit dollars are going to buy.

MR. GREGORY:  Mm-hmm.

MR. GIGOT:  I mean, if you're borrowing it for aircraft carriers like Reagan did to win the Cold War, you get a big payoff down the road.  If you're doing it for tax cuts that really stimulate and drive private investment, and in two or three years' time bring the economy back, great.  But if it goes to pork, if it goes to green jobs that may sound good in the short term but may not have a market response or a market for them, then it's a waste.

Offscreen Voice:  Right.

MR. GREGORY:  But...

MR. HARWOOD:  David, one of the fascinating things is Obama said this week in my interview with him, we're not going to do this sequentially.  We're going to be looking at the long term right as we go along with this stimulus.  And in his news conference he talked about trying to take on Social Security and Medicare.  When is he actually going to do that?  I can't imagine he's going to try to push through very politically volatile fixes for Social Security and Medicare long term in this year, but he's talking about doing it in his term.

MR. GREGORY:  One of the factors here--we were talking about this the other day, Bethany--is it's not like this money's in a bank account here, when we spend all this.  We have to go get it from somebody.  Somebody's got to give it to us.  One of the people who give it to us the most are the Chinese, except the Chinese government now is pulling back and saying, "Well, first of all, we don't have the kind of cash reserves we normally do, and we're not going to go out and buy U.S. debt anymore." That's a big deal.

MS. McLEAN:  It's a really big deal.  It comes back to my question, how do we pay for it?  And if we're reliant on other nations, particularly China, to finance our deficit, that's a question that I think is worth grappling with. Whether we decide to spend the money or not, and we will decide to spend it, but it's worth at least thinking about the possibilities.  What happens if China starts pulling back from buying U.S. debt?

MR. GREGORY:  Mm-hmm.

MR. ZANDI:  But...

MS. McLEAN:  What do we do, then?  Yeah.

MR. GREGORY:  Yeah.

MR. ZANDI:  Can I make a point about this?  I mean, no one else is borrowing. There's no private sector borrowing.  Businesses aren't borrowing, consumers aren't borrowing.  There--so the government can come in and borrow at a very low interest rate.  The 10-year Treasury bond, the key interest rate is 2.5 percent.  So we do have a window.  We can borrow very cheaply and finance this, and we should walk through that window quickly.

MR. GREGORY:  All right, I want to get to a couple of quick items here. First of all, Congressman, on the Bush tax cuts, the president-elect has not said exactly what he'll do.  Does he let it sunset?  Does he let it just expire in 2010, or do they try to repeal it before that?  What's the best idea?

REP. BONIOR:  Well, from my perspective we've got to get a hold of this inequality we have in this country today on, on wages and income, and this Bush tax cut piece is a, is a big part of that.  The top--over the last 20 years, the top 10 percent took 90 percent of the income gains in this--in the country.  And the top 1 percent took roughly 60 percent.  And the top 1/10th of 1 percent took 35 percent of that.  I mean, it's skewed the wrong way.  And what we need to do is focus in on not only monetary policy and fiscal policy, as we have talked this morning, but we've also got to talk about where we want to end up.

MR. GREGORY:  Mm-hmm.

REP. BONIOR:  And the way we end up with helping actually people is to give them the chance to bargain collectively at the table.  With 7 percent unionization in this country, you're not going to get the dispersion that you need.  We were successful in this country--after the second World War, the three most profitable decades for working people.  Shared prosperity occurred after the second World War because unionization was at 35 percent.  The Employee Free Choice Act is an important piece of legislation that President-elect Obama and Biden support, the Congress support, 60 percent of the American people support, and that will help share in the benefits and the bounties of the country.

MR. GREGORY:  I want to quickly touch housing, Bethany.  A lot of people believe that the economy will not begin to recover until housing prices truly bottom out.  Should the government be in the business of either trying to bail out homeowners or reversing the slide in housing prices?  Is that really a way to cleanse the economy?

MS. McLEAN:  Well, I think the scary question here is what's the right level for housing prices, and can we--should the government be involved in determining that?  One of the big issues with housing is that the, the price of a house has so radically outstripped the growth in income in recent years, and if you don't get that back into whack and you try to hold housing levels--housing prices at a level that is artificially high, I don't think you fix anything over the long term.  You may address a short-term issue, which is that the continued decline in housing prices is going to be traumatic, but I think you've pushed the issue off for another day.

MR. GREGORY:  Let me ask a final question here in a conversation that will certainly go on.  Mark Zandi, on the other end of all this, what's the future of capitalism?

MR. ZANDI:  Oh, capitalism's going to be fine.  I mean, we've got a crisis of capitalism.  We made a lot of mistakes as capitalists.  And that's why we have a government, and that's why government has to be bold and step in the breach, and that's what they're doing.  And on the other side of this, government will figure out a way to step out gracefully.

MR. GIGOT:  Well, I think capitalism will survive, but I think a good question now at this particular juncture is what kind of capitalism?  Are we moving to a European brand; a, a much larger welfare state, a much larger entitlement state with slower growth, higher long-term unemployment?  Or are we going to stick with what has been for the last 30 years, more or less, a relatively successful model?  We've had this blowup.  If we don't make mistakes, we can get through this.

MR. GREGORY:  All right, we're going to leave it there.  Thank you all for being here.  It's a big conversation and it's going to continue to be big for a long time, and we'll keep having it.  So, thank you all.

And coming next, our presidential leadership series.  This morning, the Obama presidency and how it will confront the challenges in the black community. With us:  Bill Cosby, Dr. Alvin Poussaint, D.C. mayor Fenty and Congresswoman Maxine Waters.  It's an important discussion that's coming up next here on MEET THE PRESS.

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MR. GREGORY:  The Obama presidency and its impact on black America, after this brief station break.

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