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tv   Your Money  CNN  April 10, 2010 1:00pm-2:00pm EDT

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those answers. stay with cnn throughout the day for the latest breaking news, including what is happening with the plane that went down in western russia. cnn's isea solutions. we're taking a look at the u.s. debt. tweet your thoughts to cnn biz.
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$41,000, what every person watching this program would owe if we were to pay off the national debt. isea solutions, american debt crisis. i'm christine romans. we put together a panel for you covering all angles of this debt debate. it's a big debate, a big problem and a big panel. i'll introduce you to them as we go along, but i want to start
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with david walker, president and ceo of the peterson foundation sponsored this film. david, last year in the isea documentary, that number was 32,000 for every man, woman and child in america. that number has grown, a lot has changed over the year. >> dramatically. the deficits have almost gone up ten times, but it's important for people to understand that the threat to our future is not the short-term deficits, it's the deficits that will exist after the economy is recovered, after unemployment is down, after the wars are over, after we pass the crises. these so-called structural deficits threaten our future, both internationally and domestically, and we need to start doing something about it. >> we'll get to everyone else in a moment, but first let's rewind just a bit and pick up where we left off. >> in 2008, the national debt was $9.6 trillion. today it's almost 12.7 trillion,
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a 32% increase. that's nearly 41,000 for every american. and our budget deficits in national debt are only part of the problem. if you were to add up all of our nation's total liabilities and unfunded promises in social security, medicare and other programs, you would get over $62 trillion, 6 trillion more than in the fall of 2008. this is how much money our federal government would need invested today to pay for our nation's liabilities and promises. how much of this 62 trillion do we have today? zip. that's over $200,000 for every man, woman and child in the united states. for decades, our leaders have warned of the dangers of our large and growing national debt. >> the trouble is we've been self-in d hif i-i self-indulgent, and now the bill has come due.
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>> today the situation is more dire than ever. >> if we don't take steps to minimize our debt, it could jeopardize our recovery. i refuse to pass this problem on to another generation of america. >> we didn't create this problem. >> we weren't the ones who spent the money. >> we weren't the ones who left the bill for someone else. >> we didn't ask for this problem. but we are the ones who will have to pay for it. >> a great nation cannot stay great if it can't keep its economy strong. let me talk to you about a way forward. >> doing nothing is not an option. it's not an option for our generation, and it's certainly not an option for future generations. >> there are many possible solutions to our fiscal problems. we will discuss some examples to illustrate the kinds of changes that should be considered. many combinations are possible, but what is critical is that we
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get started. >> the failure to make the choice now of how to pay for the government we want is to dump the choice on our kids who will have no choice. so one of the calculations we need to make is, is that okay? are we okay with that? >> this time, rather than talking about the problem, we're talking about solutions. >> you heard president obama say he will not pass our debt onto the next generation. we've heard the same in past decades from presidents ford and reagan. it seems every president says he's going to do something about it and then political realities gets in the way and that bill keeps getting pushed forward. >> and they seem so impassioned about it, don't they? every president believes this is the main thing, and make you believe. both parties, it doesn't make any difference.
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the reality is this is very tough to do, and that's one of the biggest problems. you say cut defense spending. people don't want you to cut defense spending. social programs? no way. social taxes? no. and when it comes to retirement, the chairman of the ways and means committee used to tell a story of a discussion over cutting social security or medicare or medicaid, and he said that a senior citizen in his district climbed up on the hood of his car and screamed at him, don't cut my social security! so you see how hard it is, and it's a question of priorities. where do you start, who do you start with? you almost need a kamikaze congress who says, we're going to cut all these things and then we're going to leave because we won't be reelected. >> but elections are -- dan rostonkowsky. that's a colorful character in his own right.
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who is getting the tab? it's the next generation who will have to pay up, and they're not happy about it. >> it's kind of being handed to us on a plate and they're saying, here you go, have fun with this. it's your problem. so there's this pressure to figure it out. ♪ this is onstar. i've received a signal you've been in a crash. i'll contact emergency services.
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starts as low as $119 a year. for an agent, call the number on your screen. chicago, illinois. 150 members of the generation are meeting to talk about this. the gathering of milleniums that focus on the economic condition of their generation. >> i'm myra easton. they're taking the state of all of america and putting americans on a stated path. >> the debt situation, we're the one in her ting that. we're the one paying it off. >> i think the thing about bringing all these young people together with different ideas for solutions is we learn from each other.
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>> we're presenting our project, we can't pay that tab dot org. >> i don't think it's a republican or democrat issue, it's an issue for everyone. >> i think the solution to it is going to be multi-facetted. it's going to have to be fought on multiple fronts. >> i think the really scary part for us is it's kind of being handed to us on a plate and said, here you go. have fun with this. congratulations. this is your problem. there is this pressure to figure it out. >> the national debt, or total federal debt, includes money the government owes to federal program like social security and medicare and debt owed to the public. because public debt has direct impact on the economy, it's the number we pay closest attention to. by the end of the year, the federal government will owe an estimated 9 trillion to the public. so just how much money is $9
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trillion? with a number this large, it helps compare it to the size of our overall economy, our gross domestic product. our gdp is estimated to reach $14.6 trillion by the end of 2010. this ratio is known as our public debt to gdp and is the number most experts use when discussing our national debt, because it is a way to determine how much we have borrowed relative to our national income. by the end of this year, our public debt to gdp will be approximately 62% and growing quickly. as with any loan, the more we borrow, the more we have to pay back, with interest. and, therefore, cannot spend in other areas. therefore, the interest won't be in our budget if we don't change course. in 1812, the year our government was formed, we've had ups and downs with the national debt. we've always been able to bring
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that back down to manageable levels, even after world war ii, which is when the debt to gdp was at its highest point ever. then, beginning of the 1980s, the national debt began growing quickly, despite the fact our country grew in peace and prosperity throughout that time. in the early 2000s, when our government was running surpluses, our budget has been consistently in the red, and the national debt has been on an upward path as a result. at the rate we are going, we will pass the debt levels we saw at the end of world war ii in just ten years. >> well, the debt crisis we face is entirely of our own making. we have chosen to borrow so much money. and now we've borrowed more and more from foreigners. >> last year, of the number we borrowed, 68% of it came from foreign sources. those foreign sources are warning us that they're increasingly impatient with our inability or unwillingness to
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tackle this debt explosion. if they would decide to not continue to loan us the money, we would be in a very tough situation. we would either have to raise interest rates dramatically or cut spending sharply or raise taxes dramatically. >> this is what debt does. it constrains you and puts you in a position where you're not going to be able to respond to crises that may confront future generations. >> if we stay on our present course, estimated spending levels will be twice as large as projected revenues, and debt held by the public will exceed 200% of gdp. life in america, especially for younger people who will be left to pay these debts, will be much different than it has been for their parents and grandparents. it doesn't take much;
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borrowed, 64% of it came from known sources. they're continually warning us they are ready to tackle this debt situation. if they would not continue to loan us the money, we would then be in a very tough situation. >> so if china, among other countries, our bankers, and china is a method of key policy, sometimes it seems we lose choices on the domestic policy or foreign policy front when you owe others so much money. >> you lose clout, you lose the ability to determine your own future, and you either have to raise taxes or you have to let your currency to value. something bad is going to happen. there is really no consensus in the green room on that question, but we did throw it around a bit. >> bill bradley? >> well, china is the world's greatest saver.
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we're the world's greatest consumer. so we lend them money to buy goods. they give us jobs, we get debt. and the debt gets bigger and bigger and bigger. so if we want to control our own destiny, we're going to have to save more, and the quickest way you can save more is by reducing the federal budget deficit. and that's what the american people have to understand. every time they pay taxes, the first place their tax dollar goes is not for defense or health care or education, it goes to repay those lenders who have given us money over the years. >> you point out something that just happened recently in the past week that shows how our fiscal relationship with china can also be very tight into our foreign policy relationship with china. >> absolutely, when we are that dependent on any one country for borrowing, they start to have more clout over other areas. our budgets and our foreign policy, even. just this week, the white house said it's going to postpone coming out of its currency where they have to decide whether the
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white house is a currency manipulator. most people think they are, but we don't want to be picking fights with someone we're very dependent on. and right now we have an economic situation of mutual dependency, and that's not what you want. you don't want to be dependent on them for borrowing, and they need their currency to stay strong, but this is not two countries staying strong, it's being dependent in an unhealthy way. >> you talk about fixing global balances. these big deficits we're looking at, these are the global imbalances that have to be fixed. >> that's right, although i am a little curious what people on the panel think about those who say china cannot afford to mess with us in terms of our debt, because they are dependent economically on us, and so if we're not going to be their consumers, what happens to them? i'm a little curious how that's going to play out. >> there's a flip side to that. you know the adage if you owe the bank a little, it owes you,
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but if you owe the bank a lot, you owe them. so there is another component, but as you say, it's an unhealthy one. >> it's not just an arm's length economic problem. our debt hits families on a personal level. meet one family you just might relate to, next. if you've taken your sleep aid and you're still fighting to sleep in the middle of the night, why would you go one more round using it ?
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because big deal days won't last long. at priceline. nearly $12.8 trillion. that's where our national debt is headed. it's a big number out there in ether. so let's break it down to something we can understand. that big number understands how
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society functions and how families function. we're going to talk to the navolios in a moment, but first, here's their story. >> we're into this for some personal reasons and some more ide idealistic reasons. >> my parents did everything by the book. they tried to make it so when they retired, they wouldn't be any type of financial burden on their children. >> if you told me that 40% of our retirement would not be around, i wouldn't believe that would happen that fast, that's for sure. >> in the past year, drew's parents, margaret and steven, downsized twice, from a large home in the suburbs to a large apartment, then to a small apartment in the city. >> see, when i was a young parent, everything was up, okay? your career, the possibility for making money, you know, six-figure salaries were the minimum, you know? that's not the case today.
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i'll be lu-- they'll be lucky t make 80,000 and their whole lifestyle will be different. it's the reality of life. my parents grew up with the depression. they didn't expect anything and they were always grateful for what they got. we were trained to expect -- you know, we're the first generation where everybody went to college. we expected the world, and it turned out we got large chunks of it. but now i think it's probably receding back to a more realistic world, but they're going to have to deal with that, and i understand it, and i think they understand it, too. >> as a parent, you always want more for your children. you want them to have things you didn't have that you didn't think were possible. you want them to have just an easy time, if not easier, achieving or staying in the middle class. how do you feel about that, steve? >> well, i think, you know, the middle class is going to be
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redefined. what we thought the middle class was going to be, it grew and it grew, and everybody had money, and we chased after it. i don't know that the middle class is going to be as large nor as well off. but i think what we've done, or hopefully what we've done, is given it enough tools to survive and to cope with the world as it comes to them. you can't change that. you have to deal with the day to day and plan for the future, and hopefully, you know, they have the tools and the experience to accomplish what they need to accomplish in their lifetime. >> drew, you're of the mill len yal generation and part of a group raising awareness of our national debt. we're going to talk to you about that later, but how do you feel about having to work harder to be part of the middle class? do you think that your generation is going to have to work harder to be part of the middle class, harder than your parents and maybe even your grandparents? >> yeah. and i think kind of to echo what my dad said in terms of what the
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middle class is, i think we're going to redefine that, and our generation is going to be real interesting in terms of what we set as standards as success and what we find joy in, and i think that's going to redefine what makes up a middle class, and i agree with the statistics and the research that show we may not be as well off as our parents were. but we are going to have to work harder, and i think we're equipped, without a doubt. we are going to be the most educated generation in this country's history, and i think that's going to help us, but at the same time, that education has a cost, and that's going to kind of prevent us from having what we're accustomed to having, the big home and the two cars. that will be moderated a little bit with our generation, i think. >> steve, you downsized twice now, and you make a good point in the film that all the new
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generation go to college. how does this affect how we're going to pay for it? >> the debt is huge. how you're going to pay for it, when the kids graduate college and they have anywhere from 10 to $20,000 of instant debt at the age of 22. i owed nothing. my first credit card i didn't get until i was about 30 because they weren't available. now they have credit cards, they have the debt. their whole life is built around debt. you can't expect them, then, to go out and achieve, you know, the american dream, own a home, do this, do that, and, you know, when you start off with 25,000 in the hole. when we bought our first condominium, we didn't owe $25,000. it's going to be a real different world, and i think it's going back the right directions, quite frankly. stay away from being too far in debt and don't spend everything
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today because while we'll make more tomorrow, that may not be the case. >> margaret and kristin, i want to ask both of you about this idea of downsizing and cutting your own budget and living within your means. margaret, you first. how has that been for you after being part of a generation that has seen such great prosperity for this country? >> at first it was exciting because we could get rid of a lot of things we didn't need and it was sort of a new adventure. but it's a combination of exciting and m little wistful because there are things i can't do that i used to be able to do. you know, i don't get man and my hair done the way i did. those are extras. but i think it's mostly the extras that we've kind of taken out of our life. we're very lucky in that we were sensible, we didn't use our home as a piggy bank, we've saved money, we saved for retirement and things like that, so the downsizing for us is a practi l practicalality of losing a lot
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of our necessity worth, certainly, because it changed how you can live. but it also always was a goal of ours to reduce our lifestyle a little as we got older so we wouldn't be a burden to our children and we would be able to enjoy life with fewer pressures than what we had. there is a lot of pressure to maintaining a certain kind of a lifestyle, and i think to drew's point that this might not be necessarily a terrible thing for america to sort of get more sensible about our money and to enjoy other things in life, that's kind of what we've been doing. >> kristin, that's a very optimistic way to look at it, but it's time to get back to basics and the like. do you live and operate under the assumption that it's going to be a little bit harder for the younger generations because they're paying off some of that prosperity from the generation before? >> yes and no. i think i did more before everything that happened last fall, i think i was more focused on how i was going to attain what i needed to be able to have
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the house in the suburbs and the two-car garage and the 2.5 kids and pay for the college. and now i think i've re-evaluated what i need and what i want, and i've -- i think i've done a good job, as has drew, of figuring out how to take what we have and make that be what we want and then re-evaluate, okay, how can we make that better? what are the steps to take to do that? >> the navolio family in chicago. drew, thank you so much. we'll talk to you again when we talk about your generation and some of the hopes and solutions from that perspective. cutting the budget, it's an important step to getting out of debt, whether you're an american family like the navolios, or the united states government. how to make tough choices and which choices to make, next.
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when you're in a hole you're trying to get out of, the first thing you need to do is stop digging. serious budget reform is a first step in the right direction. the current budget process is not designed to address our overall fiscal challenge. >> i think there's broad agreement in a time of real deep recession that it's okay to run budget deficits, even big budget deficits. when the economy begins to recover, we really need to do something to be sure we don't keep running even bigger budget deficits and adding to the debt. >> the problem is really quite simple. americans want lots of services for their government, and they have made promises in law that will mean higher federal spending in the future. >> when we've had budget problems in the past, our
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leaders have done a better job of working together and enacting. during the 1990s, for example, tough budget controls, along with a growing economy, help make fiscal responsibility a reality. >> in a few moments, i will sign into law the first balanced budget in a generation. >> those budget controls helps take us from large and growing deficits to large and growing surpluses. but these controls expired in 2002, and we were recovering from a recession. the budget situation in washington has been out of balance ever since. >> welcome back to io usa solutions. back to the film in a minute, but first let's get back to a graphic here. mandatory versus discretionary spending. it's nice that you want to balance the budget, right, but how do you do that? you can either raise taxes, cut spending or a little from column a or column b or a combination of all those things.
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we'll have to pay social security, medicare and medicaid as well the national debt. so the yellow area is discretionary spendinging, things like social programs or spending. you were elected to serve the people, and it's very difficult to make some of these tough choices and also continue to run in the election cycle, isn't it in. >> yes, it is, unless there is a freight train coming at you that concentrates the mind. for example, in the early 1980s, social security was about to go bankrupt. and we had to act. and so congress did act. and the way i always look at it, you go where the money is, and if you have this gigantic budget deficit, you go to programs for the elderly, you go to health care, you go to defense, and you go to interest. and those are, by 2016, going to be about 88% of the total federal budget. and so i look at this and i say, the key thing is to begin and to
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take action in those areas. just for example, if we cut defense spending 10%, we would still spend twice as much as the following countries spend on defense combined. russia and china, india, germany, britain, france. now, i think we can have a fairly secure world and a secure society and not spend as much as we're spending on defense. >> you say we can cite modern battles without a cold war kind of military. you're talking about making some different lines of thinking in defense spending. >> adjusting the floor structure and the technology to the current threat as opposed to the cold war threat. if we did that, we could save money. under the guise of the iraq war in afghanistan, the defense budget on weapon systems going very high up, and it's not all for those areas.
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>> the campaign trail is played by the opponent as soft on national security, and look, you know, we're going to be less safe because who wants to cut spending, you know. it starts to get tricky when around the corner the freight train that's coming at you is your election, not this crisis. >> well, the key thing is you can't do only defense. you have to also do the so-called entitlement, social security, medicare, health care, civil service pensions, things like that. if you distribute the pain broadly, what we found in the early 1980s was that people signed on for lengthening the age of retirement, having taxes to cutting some benefits because it saved the larger system. that was social security then. today it's our whole economy that's at stake. >> diane rogers of the concord coalition. he said disperse the pain broadly, but we've been dispersing the wealth without getting anything back.
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we've had lots of tax cuts, medical program which was unfunded. we've been spending pro lifically, haven't we? >> we've been giving away a lot of stuff without paying for it, and that's the problem, we've been on an unsustainable spending path. and, you know, our largest components of the federal budget, the biggest challenges on that unsustainable path happen to be things we're fond of, and we're not willing to talk about ways to ratchet down that spending that don't just sound like cutting waste fraud and abuse. even if we control spending better and even if we cut away the waste fraud and abuse that's in the budget, it's not going to help our situation. it's not preventing us from having to make tough choices, and there's a whole other side of the federal budget that we forget that we do a lot of spending on, and that's the tax side of the budget. the tax system is actually not just there to raise the revenue
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to pay for our spending but is actually there as a different way of spending the money. so we have a lot of tax preferences in the tax system, and we have to decide, are those preferences worth their cost? just like other ways that we directly spend money in the federal budget. >> it's not impossible. it's been done before. we've had budget surpluses, we have cut the national debt. what our current leaders and policymakers can learn from the past to get us on a more sustainable path. that's next. [ female announcer ] breathe right asks... [ woman ] could i ask you to strip on e ? absolutely! i have a lot of stuffiness at nightit wakes me up. i have allergies. ♪ you're right. i'm getting more air. -oh, yeah. -oh, wow! [ female announcer ] for two free samples, go to [ male announcer ] we call it the american renewal. because we believe in the strength of american businesses. ♪ ge capital understands what small businesses need to grow and create jobs.
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so cut spending or raise taxes, both very unpopular choices in washington where there is an election cycle around every corner. the last time we cut the debt was in the '90s under former president clinton. that was the last time we actually had a budget surplus, and some say the economy was going in the right direction to help that along. the reason tough spending rules also require congress to pay for things as they go, also known as paygo. >> there are two different types of categories and budget tools that can really help fix the situation. there is one category that helps fix budget rules. >> there is paygo. for discretionary programs, there are spending cuts. >> i have long been an advocate for pay-go.
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if someone is going to propose a tax cut, they have to pay for it. if someone is going to propose an increase in mandatory spending, they have to find a way to pay for it. >> our fiscal challenge is too great for one step. last week i signed into law the pthe pay-go bill. it says that the united states should pay as they go and live within our means. >> this is a weak version. a strong pay-go would not exempt so much spending and tax increases and would apply to all the programs. the other type is expenditure caps. >> that limits how much the growth of discretionary spending can go forward each year. those have been really effective in the past in limiting budget growth and keeping deficits from becoming a greater problem. >> pay-go and spending caps are positive measures, but they only
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help to keep the problem from getting worse. many other steps will need to be taken. >> congress just by nature are good with the next selection but they're not good for the next generation. as a result, congress for a long time has been ignoring our long-term problems. and the long-term problem is there is so much deficit on the books, our kids can't handle it. there was an $8 million federal mandate that shouldn't have gone on the books. >> the estimated cost of the medicare d prescription drug bill was 395 billion over ten years, which was the only cost that was debated and considered. the cost of the program exploded beyond ten years, adding between 7 and 8 trillion in unfunded promises. >> when we should have been digging our way out of the problem, we dug deeper. >> if you don't have an attitude within congress that wants to limit spending, you're not going to limit spending.
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basically, congress wants to spend money because it's easier to get votes if you spend money than if you don't spend money. >> one of the solutions to help our annual budget situation is to set a target for the nation's debt levels. >> we should talk about stabilizing the debt at amount shoot for. it's higher than we've historically been at, but would require an aggressive amount of debt reduction to get there. it's tough to do, politicalically realistic. that's the goal we need to think about. >> the european monetary union sets a public debt no higher than 60% of countries. countries who exceed the target must take action to reduce their debt or face sanctions. that level is intended to reassure creditors while allowing room for new borrowing. >> if you wanted to get into the european union you couldn't have a public debt that exceeded 60% of gross national product. within three years we will have a public debt around 70%. we couldn't get into the
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european union. lithuania could get in, but we couldn't get in. >> if we set this goal for ourselves, we'll have a realistic benchmark to shoot for when considering major reforms. >> we just heard senator judd gregg say congress is by nature great with the next election, but not good with the next generation. so, how do we convince a politician to make our deficit reduction a priority? do we have to convince the voters first? pete peterson, who is behind this documentary and what's behind this is awareness. you want to go straight to the people and tell them this is the problem, we've got to get our policy makers to start thinking about it. >> at the present time, it's safer for the politicians to do nothing. we have to change this so that it's safer for them to do something about the problem. only when the public understands
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the problem and puts pressure on our political system are we likely to get reforms. let's hope to god that it doesn't take a huge crisis because as senator bradley was pointed out, if the foreign powers lose interest in the united states, it has enormous impact on foreclosures, on inflation, on standard of living and so forth. so we have to educate the public about the seriousness of the problem. one of the problems we all have is these numbers i've been hearing are so unbelievably large, you know $62 trillion, $10 trillion, people have trouble identifying with them. part of our education job is to say what does this mean to you? for example, when dave walker and i talked to groups on behalf of the foundation, when people understand, particularly young
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people, that their taxes would have to double, and they understand for example payroll taxes are the big tax paid by 80% of the public, they begin to say, hey, this has got something to do with me. >> you make a very good point, david walker, about how some of the choices our leaders made in the past that we're not following today. tell me about that. >> we can learn from history. leadership starts at the top with the president of the united states. let's learn first. president bush '41 and president clinton did three things in common. broke campaign promises on tax he didn't expand entitlement programs. guess what? president bush '43 did the opposite. so far it's early for president obama. president obama needs to learn from president bush '41 and president clinton. there is a way forward. >> christine, if i could jump in, i think this fall elections is very much about this issue, about the deficit. you've seen polling data.
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it's the number one issue for voters. voters are fearful and they are educated. they get more educated by this show. as a conservative, i would be remiss if i didn't mention the tea party. that grew up as an anti-tax and anti-deficit movement. we see it only gaining strength and adherence. there have been studies done on tea partyers. 17% are democrats. i think people are very aware of this and if they are going to those same politicians that want to give them bennies and tell them the election issue i'm concerned about is cut government spending. >> the near term crisis that's inspiring the tea partyers is tangential to the cries sichlts. >> the spending that is taking place and the skyrocket in the last 18 months is spending to get us out of where we are, get us away from a depression.
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then you have the spending that you have over the long term and that's what you have to reduce. i think politicians are ready to do that when the people are ready to do that. you mention the tea party movement or whatever movement this year is going to do it. the point is, the point of this kind of program is to say, mr. and mrs. america, this is a problem that affects you directly. you make some of the trade-offs, too. don't wait for a politician to tell you an answer and then criticize the answer. you decide how much are you prepared to sacrifice on social security or medicare? how much are you prepared to spend lesson defense in order to get the budget deficit down and secure the economic strength of america for the next generation. >> let's talk about the sacrifices and what kind of solutions we need to make and how sacrifices and solutions go hand in hand here. the united states spends a tremendous amount of money
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around the world. next, is it time to reel in the spending and at what cost to the spending and at what cost to the nation's national security?
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-- captions by vitac -- we allowed the government to spend for it year and year out throughout our time. >> let's look at defense on other spending. social security, medicare and medicaid, the federal government operates many other programs. of these, national defense is the largest. this year, including spending for operationin


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