republican presidential race. and those are today's top stories. thank you so much for watching "state of the union." i'm candy crowley in washington. we hope you have a wonderful rest of your memorial day weekend. up next for our viewers here in the united states, "fareed zakaria gps." this is "gps," the global public square. welcome to all of you in the united states and around the world. i'm fareed zakaria. we have a great show for you today. as you know, the big question mark in the arab world remains saudi arabia. will the central banker of oil be the next one to face revolt and revolution? a fascinating conversation with the 26th richest man in the world, saudi prince al waleed. later, who says only mother nature can make rain? we'll explain.

but first up -- the chances of peace in the middle east after the latest round of speeches by prime minister netanyahu and president obama. i'll be joined by tom friedman of "the new york times" who is just back from the middle east. now, here's my take for this week. we've just gone through an arcane debate about whether barack obama said anything new when he called for an israeli/palestinian settlement based on 1967 borders with mutually agreed upon land swaps. in fact, that has been the working assumption of all negotiating parties, america, israel and the palestinian authority, for over 20 years. it is what the camp david talks of 2000 were based on, it's what elmert's talks were based on. the real shift in u.s. policy was president obama publicly condemning the palestinian strategy to seek recognition as a state from the u.n. general assembly in september. instead of thanking obama for

this, prime minister netanyahu chose to stage, in the words of the former israeli diplomat, quote, nothing less than a bizarre tirade at the white house on friday educating the president about the plight and the problems of jews throughout history, end quote. so why did netanyahu do this? does it help israel's security or strengthen it otherwise to stoke tensions with its strongest ally and largest benefactor, washington? does such behavior further the resolution of israel's problems? no. but it helps netanyahu stir up support at home and maintain his fragile coalition. the real revelation, which has been picked up by many in the israeli press, is that it shows finally that netanyahu simply doesn't want a deal. he always has a new objection, a new problem, a new delaying tactic because at core, he has never believed that the palestinians should have a state.

here is the young bb 33 years ago at a forum in cambridge, massachusetts. >> i think the united states should oppose the creation of a palestinian state for several reasons. the first one being that it is unjust to demand the creation of a 22nd arab state and a second palestinian state. at the expense of the only jewish state. there is no right to establish the second one on my doorstep which will threaten my existence. there is no right whatsoever. >> prime minister netanyahu's references to the indefensible borders of 1967 last week also reveal him to be mired in a world that has really gone away, the chief threat to israel today is not from a palestinian army. israel has the region's strongest economy and military by far complete with an arsenal of nuclear weapons. the chief threats to israel are from new technologies, rockets, biological weapons and from d demography. its physical existence is less

in doubt as it continues to rule millions of palestinians who are entitled to neither a vote nor a country. ironically, the young bb understood that it was impossible to keep the palestinians in such serflike conditions forever. listen to him advocating that palestinians should be given citizenship, either in jordan or in israel. >> in the event that this negotiation process will continue, i am sure that what we're talking about is, in fact, eventual citizenship of some kind, either jordanian or israeli or any other arrangement. >> if the palestinians were smart, they'd take the prime minister up on citizenship in israel, and then bb would wish he'd been for a two-state solution all along. let's get started. so what does it look like to thomas friedman, the author of

"from beirut to jerusalem," winner of two pulitzer prizes, "new york times" columnist. this week, questions you may have or i may have, bb netanyahu goes back to israel, and he is hailed a hero. >> there's no question when you stand up to foreign power, you insert your demands, that's going to support that. it's good work if you can get it. but what happens next week? i think we have to step back and really ask the big strategic question, why is israel popular? why has this been an enduring relationship all these years? why is that cameraman and that sound person support israel, whether they're jewish or not jewish? because we see them like us, we see them as a country that shares our values. and most importantly, we see israel as a bastion of democracy in the middle east. that's israel's greatest strategic strength vis-a-vis the united states. and those of us who have been critical of prime minister netanyahu on this issue are basically saying is that's

precisely what is imperilled if there is no peace agreement that allows israel to cede the west bank to a palestinian authority in a safe and secure way so it doesn't absorb all those palestinians so we don't end up with a situation where a jewish minority is ruling over an arab majority between the mediterranean and the jordan river. we know where that goes. that's called jewish apartheid. that would be the biggest strategic threat to israel. and the way you know that is if you look at the strategy of hamas, hezbollah and iran. what is their strategy? it is to make sure israel must never leave the west bank. okay? because as long as israel's there, that is the key to their strategy for globally delegitimizing israel. why play into that strength? >> he gets 29, 28 standing ovations in congress. >> you know, there's a parallel between what the palestinians could get at the u.n. and what the israelis can get in congress. they can both stand up and read the phone book and be assured that a bunch of knuckleheads in the audience will stand and give

them a standing ovation. so but let's think about how bb could have really gotten a standing ovation. that would also have been in his long-term interest. let's say bb had stood before congress and said, you know, my fellow friends and my american friends, your president, president obama, has come to me and said that he believes that there's an opportunity here to break through with the palestinians. i have to tell you, i personally don't believe it. but i know one thing. when our best friend, our oldest ally, our most important strategic partner in the world, comes to me and makes the request, there's only one right answer. mr. president, yes. you want a six-month moratorium on settlement building? i've already got 500,000 settlers in jerusalem and the west bank. you know what, mr. president? that's not really a strategic risk for me. the potential payoff of that is so great, i don't believe it. i'm skeptical. but when you, president obama, ask me that, there's only one

right answer. yes, sir. we will do that. barack obama, this bud's for you. then he would have gotten a standing ovation that would have not just included the u.s. congress, it would have included europeans. it would have included arabs. it would have included people all over america. said hey, there's a guy who's going the extra mile. and that's my point, fareed. i have no idea whether there is a palestinian partner for a secure peace with israel. along the lines of president clinton has laid out. i just know one thing. given the implications for israel, if it gets stuck permanently holding the west bank, it is in israel's overwhelming interest to test, test and test again, okay? because that would be a huge strategic threat to israel if it has no choice but to absorb the west bank. >> but you travel there a lot. and you know the american jewish community here, both those crucial constituencies, it's always struck me that to get peace, you're going to have to convince a majority of israelis because they have the land. they have the land and the guns, in a sense.

they're the power on the ground. it's drifting to the right. they are less interested in the kind of deal you're describing. >> well, you have a more conservative on this issue right wing, nationalist population in israel now between the growing orthodox population and the russian jews. there's no question about that. you know, as far as american jews, you know, to me, the question, fareed, is yes, bb netanyahu, because of political reasons and campaign donations and apac's influence can get standing ovations in the u.s. congress anytime they want, seven days a week, 24/7. how many standing ovations do you think he could get at the student government at the university of missouri? at stanford? at harvard? at the university of virginia? at the university of texas? if you went to those student governments, they're the future. they're the future of voters. they're the future of people who will maintain the strategic relationship with israel. and there i can tell you, as anyone who goes to college

campuses knows, that people don't get israel, what israel is doing right now. some are alienated. some more -- and this is the bigger part, more -- i don't know. it's messy. i don't want to get involved in this at all. you know, that's where -- don't worry about me. i grew up, you know, identifying with israel very strongly, believing in a two-state solution that the right of the jewish people to a state in the middle east next to a palestinian state, you're not going to lose me, you know. but what i don't see is people like me. jews or non-jews being emotionally involved in this issue, growing up and caring about it. so that's the long term. that's israel's strategic strength. again, fareed, i understand, this is complicated. palestinians have missed a million opportunities including the last israeli government. and there's a really legitimate question to ask, can they get their act together? forget for a hard-line deal, for the deal that president clinton put out, that olmert, i don't

know. i just know one thing, you've got to test, test and test again because the complications of not are strategically enormously dangerous. >> when you look at israel today, what i'm struck by is that some level it's so secure. there's booming economy. it's powerful military. it's gotten more powerful every year. nuclear arsenals some of which is on submarines. >> they behave like a disarmed costa rica. and this is not a disarmed costa rica. this is a powerful country with a powerful society, a powerful economy. but, again, i understand nine miles wide at its narrowest. i wouldn't ask israel to take any risks that seem unreasonable. but boy, if they could strike a deal now with the palestinians, when you do have actually a decent palestinian authority, that has actually built a security force, that the israeli army will tell you has been effective. you know, this is what i've been saying from the beginning of the arab revolt, fareed, which is when is the time to make big

decisions in life? when you have all the leverage on your side. you see farther. you think more clearly. what did hosni mubarak do? he had 30 years of leverage vis-a-vis the egyptian people to democratize his people. then in one week he tried to do what he should have over 30 years. he failed. people didn't believe a word he said. you don't want netanyahu to be the mubarak of the peace process where they look back, we had all this time, decent palestinian authority to test -- i'm not saying cut a deal -- i don't know whether there's a deal -- but to really test whether they can deliver and do what we can to embolden and encourage and empower them. and we didn't use it. we sat back and said, look, i got a good poll from my week in washington. we threw you a fish. what is that good for, you know? ultimately, you want to anchor this in a really secure relationship. you don't want to be the hosni mubarak of the peace process where people say what did you do when you had all that leverage? you say to the poll?

when we come back, we'll talk to tom about what's going on in egypt, lebanon and syria. he's back from the region in a moment. at bayer, we're re-inventing aspirin for pain relief.

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we are back with "new york times'" tom friedman who is back from the middle east. you were in egypt. you were in lebanon. let's first talk about syria because it's the place that everyone's trying to figure out. and none of us can get into syria, but lebanon is the closest you can get. what's your sense? >> a couple things strike you when you're in beirut. the first thing is how incredibly brave the syrian people who have been resisting their authoritarian government have been. you know, when egyptians gathered in tahrir square, one thing they knew for sure. after the initial effort by government thugs to put them down, when the army stepped in, they knew they were safe. they knew they could go down to the square. and they gathered by the tens and hundreds and thousands and even over a million. syrians, when they walk out the

door to protest, they know they're dealing with a government and regime and will gun them down and has killed somewhere between 900 and 1,000 already, wounded we don't know how many and jailed stadiums being used and big facilities to hold all these people. and yet they still come out. and that's -- that is quite remarkable, and it shows you, again, this level of incredible -- not only the tyranny of these regimes but this deep desire for dignity, justice and freedom which just transcends everything and spreads across that region. and so that's what's most impressive. now, syria, of course, this is complicated. it's the keystone of really the whole area. you change egypt, you have a big impact in the middle east, but mostly you change egypt, you change libya, you change libya. you change bahrain. egypt and libya and bahrain implodes. syria explodes. because if the government came

down, it's not like egypt. egypt, you had the regime and the army, a totally separate institution. syria, they are basically one and the same. so if syrian regime goes down, the whole state collapses. the syrian state collapses, that affects power relationships in lebanon, with hezbollah, syria's main client. it affects turkey, which has -- syria has a big kurdish population, a big alloway population. it affects iraq and the stan stability of the border, it affects israel, iran, jordan. so basically the whole middle east would potentially change. >> egypt, we did the show from egypt last week, and i was struck by how unfinished that revolution seems. i mean, we've stopped paying attention, but you go there, and it's still very much an ongoing question about what's going to happen. >> we're in a critical moment, fareed. and it's one that has to be dealt with not by speech and not by writing a check but with

really active, smart and subtle diplomacy. what is this moment? the egyptian army, which is the authority, has basically set a pathway forward of how egypt progresses from tahrir square. first we have parliamentary elections. then the parliament will write a new constitution or sign people to do it. and then we'll have presidential elections. sounds good on paper. here's one problem. the only people organized now for the parliamentary election which has been set for september are the muslim brotherhood because they've had a party living underground. basically i wept to their headquarters. they inaugurated last week. beautiful building. they're happy to give you a tour. they're all ready to go. but the whole strength of the tahrir movement was that it never had a leader. it was broadbased. deliberately they did so there was no within to arrest. you had to arrest all the people. wonderful for a revolution. not good for running an election. that's where we really need to weigh in. leading egyptian figures, you interviewed mohamed elbaradei, moussa have come out to generals to postpone the elections so

everybody has a chance to get organized. i think quietly, subtly, we need to let the generals know that that is where we are going to be. the motto about the middle east, when it comes to elections, the arab world has had so few fair and free elections is that when they have one, everybody wants to vote. not just the people in that country. you can beat people in saudi arabia will want to vote with their donations and qatar and uae. a lot of those will go to the muslim brotherhood. all i say is we need to vote, too. >> there is a powerful role for the united states. this is one of those crises we were talking about earlier which was unexpected. but this is going to be a very important defining moment for obama's foreign policy. >> yeah. you know, i've had a chance to cover many secretaries of state. and every one of them has a moment, you know, which in baker, it was the fall of the berlin war, colin paul, the fall of the iraq war, kosovo, warren christopher, bosnia. you never see it coming when you go into office. they never saw it coming.

but ultimately they are defined by how well they manage it. as much as control they have over it. i think that would be true for secretary clinton. i think this whole arab spring not only her but for president obama as well, how they manage it is going to be very central to how they're perceived in foreign policy. and i don't want to hold the bar up too high. as i said earlier, events on the ground or in the cockpit, but we need to understand that with a little voice here and a little voice there like maybe you guys should delay this election three months until the progressives and all the parties get organized can be hugely decisive because this bus, fareed, is not going to come around. you're not going to get another egyptian election. this is really important. >> tom friedman, a pleasure, as always. >> thank you. and we will be back.

time now for "what in the world" segment. what caught my eye this week was a classic flip-flop. no, newt gingrich hasn't changed his mind about the ryan plan once more. once upon a time, as repeatly as a year ago, there was a country desperate to have membership in an organization formed by its neighbors. the country's president said that his country needed to be included without delay. today, one year later, the tune is very different. a top official from that country saying this week there's no reason to join. can you guess the country and the group? it is poland and the euro zone. it seems that warsaw no longer wants to exchange for euros. there's surely no greater sign of the euro's plummeting

reputation. just a few years ago countries like britain and denmark that had chosen to keep their own currency rather than adopting the new euro were seen as old fashioned, parochial, reactionary and out of sync with the new world. that was then. but over the past year or two, britain's position has begun to look pretty sensible. the euro has obvious benefits. no more worrying about dozens of currencies going up and down. but given how it was set up, it also has many flaws. let's take a look at them through the prism of one country, greece. the poster child of the euro's problems. when it first joined the euro zone, it rode a wave of excellent economic growth, about 4% a year for eight years. that's more than germany, more than the u.s. finally, greece had a solid currency and was able to borrow lots of money at low interest rates. but that was the problem. it wasn't really greece's currency. the european central bank in frankfurt was setting rates. tiny greece wasn't even a

factor. so athens borrowed and spent like crazy, creating a little welfare state paradise of its own. but when trouble hit, that same single currency proved to be a straitjacket. growth has collapsed. greece's debt is about 150% of gdp, and it cannot devalue its currency to make its goods cheap and attractive on world markets. it's stuck with the euro. and rich european countries, chiefly germany, resent having to bail greece out because they can't force it to change its spendthrift ways. the fancy economic way of saying this is that the euro zone has unified monetary policy one currency but still has diverse fiscal policies. so what to do? two options are being debated. and those two options highlight europe's opposing forces. first, the eu leadership's plan, stay the course. more austerity for greece. more budget cutting. and, of course, more loans to tide it over. ignore the fact that greece can actually never repay them.

the second option, some top german officials say they don't want to keep bailing out their poorer cousins. so instead, extend greece's repayment deadlines, a debt restructuring. but the european central bank calls that a horror scenario with the possibility of bank defaults and a vicious domino effect throughout europe. and that is the real worry. this isn't really about greece. it has a $350 billion economy about the same size as michigan's. it's 1% of the euro zone. but if greece defaults, it would be the first rich country in six decades to do so. and it could lead investors to free the other fringe euro zone economies, portugal, ireland, even spal ain and perhaps even italy, and that would be really problematic. so the reality is that germany and to a lesser extent france and the netherlands will end up spending more and more money bailing out their less prudent neighbors. countries like poland that once clamored for euro membership

will keep their distance. and the brits will say, i told you so. in fact, they already are. here's what prime minister david cameron told me earlier this year. >> i think we were right not to join. and while i'm prime minister, we will not join. >> looks like those words in davos resonated far beyond the confines of the euro zone. and we'll be right back. >> we want the price to be between 70 and 80. not only to help the west but to help ourselves. and my hands were full. i couldn't sort through it all. with unitedhealthcare, it's different. we have access to great specialists, and our pediatrician gets all the information. everyone works as a team. and i only need to talk to one person about her care. we're more than 78,000 people looking out for 70 million americans. that's health in numbers. unitedhealthcare.

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the arab spring has been a fascinating story. but one with relatively small, immediate impact on the world economy or on your life in america. but that could change if things were to shake up in saudi arabia. instability in saudi arabia would mean that oil prices would not just rise but could double. so that's the country we need to look at as closely as we can. we do so now through the eyes of perhaps the most famous saudi arabian in the world. our guest is one of the most successful investors on the

planet, the 26th richest man in the world according to "forbes." he is the biggest foreign inv t investor in the united states, and he is also a prince, a grandson of the founding king of saudi arabia. he is prince al waleed. al waleed straddles the worlds of america and saudi arabia, two worlds that need each other but barely seem to understand each other. so we are going to try to bridge that gap. prince al waleed, welcome. >> it's a pleasure to be with you my friend, fareed. >> let's start with the question everybody has on their mind. you are a prince of saudi arabia. how stable is saudi arabia? you see this sea of revolution taking place across the middle east. and it seems the one country that has not been particularly affected is saudi arabia. >> yeah. thanks god, saudi arabia is in a very unique situation. the relationship between the king and his people is very close. people love the king a lot. that's one reason, obviously, for not having any civil

disturbances over there. plus the saudi arabia situation, although economically, we are not in a-1 shape for sure. we have issues in our country, but the situation is not dire and bad. so all these reasons will help in explaining to you that why saudi arabia's situation is stable and thanks god, you know, the latest call to demonstrate failed completely in saudi arabia. >> but tell me a little bit about the tensions in the country because clearly the king and the royal family is worried. when these revolutions began in the middle east, the saudi government effectively wrote a check for $40 billion. $40 billion is a lot of mean even for saudi arabia. so there are concerns that people feel a lack of openness, a lack of freedom, a lack of progress. do you think that this current system can provide that, or does there need to be significant progress in the next year or

two? >> singapore is a country with democracy in the far east. he was having lunch with him one time and asked him what kind of democracy do you have? he said we have our own democracy. it's not u.s.-type democracy. what he meant by that, we have a system whereby it's special of the people, it has to be implemented. and i believe that saudi arabia will have to enact some new laws whereby it has to do for one another. >> what about the relationship of the saudi royal family to the religious establishment? ever since the taking of the grand mosque in mecca, the saudi royal family seemed to get into a deal where they ceded very important parts of the kingdom, education, rmeligious affairs t fairly radical wahabi people.

my sense is over the last five, seven years there has been a turn where it was recognized that this was not such a good idea. what can you tell us about that? >> clearly, the last seven, eight years, saudi arabia began changing and forming. clearly and unfortunately, there are some saudis who are extreme, but they shout and scream very loudly. and the west things, oops, these are representatives of the religious community and saudi arabia. which not the case. they have rightly said that the last five, six, seven years, the king has been trying to neutralize them and get them off the system so they don't get saudi arabia off track. >> is it succeeding? are these forces declining? >> it's succeeding but slowly. you and i would like this to be expediteded. i think now, the king, some of these people are being sidestepped. for example, saudi arabia has never had a university where they could be together.

it is happening. >> there are lots of people who when they think of saudi arabia, they think of the support for very extreme islamic preachers, islamic centers, islamic movements and terrorists. and there's a lot of documentation that says that money did come from saudi arabia. not always the saudi government. in fact, very often not the saudi government but saudi individuals. while i was in cairo and the people in egypt said that their most extreme religious people are all funded from saudi arabia. when will this stop? >> you know, this problem is there, was there, actually. but, you know, the saudi arabian government's official position is really not to do that. not to support those people at all. we encourage the fact that there are some saudis who are supporting some of those groups that want to be terrorists. when they were supported, the assumption was that these were not terrorists. they were only islamic jihadists

or advancing the cause of islam. clearly when this turned out to be not the case, saudi arabia enforced strong conditions. >> yet when i go to iraq during the war and you tried to figure out who was funding the most extreme sunni militants, al qaeda-affiliated organizations, what we would hear is that the money was coming in from saudi arabia. >> i think this is a bit old news in history. i can assure you, fareed, right now, the situation has changed a lot. we were the victim of many terrorist acts. my own center, my kingdom center, which is the highest priced tower in saudi arabia, was vacated twice because of terrorist attacks, terrorist threats. remember last november when saudi arabia gave a tip to the u.s. government whereby two planes were saved from being bombed by these two bombs that were supposed to explode in midair. so rest assured saudi arabia is

better today than it was five or years ago. >> given the high price of oil, i have to ask you questions about oil because saudi arabia is the center of oil. explain to me why the price of oil is now averaging over $100 a barrel for the year. you don't have a substantial increase in demand right now. if you look at china, india, the united states, europe, growth is actually not as strong as it could have been everywhere. you don't have a particular disruption of supply. there was a little bit because of libya, but they're very tiny. the saudis increased supply, but then they cut back when nobody wanted to buy this spa supplupp. if you don't have increased supply and demand, why did it go up? >> first, you're too smart. no doubt the price was hovering around $85. it jumped to $100 after what happened in libya and bahrain. there is also a speculation

factor. bahrain is now stable but still they're not 100% sure what's going to happen. you hear once in a while iran coming and jumping and organizing the region. >> but if fundamentals in one place and speculation takes the price higher, ultimately the speculation will fail, right? the price -- >> it should. >> so do you think prices will come down? >> the stiff position of saudi arabia, we want the price to be between $70 and $80. not only to help the u.s. but to help ourselves. the higher the price oil goes, the more incentive we have to go and find alternatives. to have the price for around $70, $80 which is a price good for consumers and for producers. >> so let's talk a little bit about the economy, the global economy. you're one of the most successful investors in the world. you're still investing in america? >> oh, for sure continue. clearly the united states has

stable system, has due process, has stability. you know exactly where you're heading. when you go to third-world countries, the united states is down for sure. it's not out. >> let me ask you, this new process of electing a new king of saudi arabia. is it conceivable that they will -- their new council will look around and say, well, the most qualified man in saudi arabia is clearly prince al waleed? >> in saudi arabia, there are 34 people exactly, that once the succession comes, they will meet and they will elect a king. i will always serve my country in every capacity, but i'm very happy with what i'm doing right now. >> if by some chance you were to become the king of saudi arabia, i will insist that you come and do an interview. in that case, we will go to riyadh to see you. >> i will come to you anyway, my friend, fareed. >> thank you very much. >> thank you. we will be right back.

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i'm candy crowley, and here are today's top stories. missouri governor nixon told me earlier on "state of the union"

that 44 people remain unaccounted for in joplin after last week's devastating tornadoes. the joplin city manager told cnn the death toll stands at 142. president obama will be in joplin later today to meet with victims and deliver remarks at a memorial service. nato is investigating allegations that one of their air strikes in southern afghanistan killed a dozen children and two women. the civilians were reportedly killed saturday during a strike against insurgents who were attacking coalition troops in afghanistan's helmand province. and sarah palin wheels into washington today. the former republican vice presidential candidate is kicking off an east coast bus tour that coincides with the annual rolling thunder motorcycle ride. the tour fuels speculation that palin will join the 2012 republican presidential race. and those are your top stories. up next, more "fareed zakaria gps." and then on "reliable

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personal pricing now on brakes. tell us what you want to pay. we do our best to make that work. deal! my money. my choice. my meineke. federal reserve bank presidents who run the regional federal reserve banks and are crucial advisers to the chairman, ben bernanke, tend to

be rather conservative economists and businessmen and the like. they are not known for their rebellious spirit, for their dissenting opinions and for being outspoken in public. but thomas honig is the president of the federal reserve bank of kansas city, and he thinks the federal reserve is making all the wrong moves as it tries to guide america to recovery. welcome. >> thank you very much. delighted to be here. >> so the most important thing the federal reserve does is set interest rates. and by keeping interest rates very low ever since the financial crisis essentially at zero, it has allowed banks, corporations, but also individuals to borrow money cheaply. this has fueled this recovery such as it is. you're saying we need to stop that. we need to raise interest rates. there are a lot of people who look at you and think, this is crazy. this is the weakest economy

since the great depression. the recovery is the weakest since the second world war. and in this context, to raise interest rates, would put the brakes on the recovery such as it is. >> well, i think, first of all, it is important to remember that the policy that was implemented that we have today was implemented during the crisis itself. and in that sense, i agreed with that. i've provided lots of liquidity into the system. but we are well into our second year of recovery. and we have to think forward from here. and that is what is the consequences of an extended period of zero interest rates for future years? and we already see some of the effects. not too much just inflation. but in terms of imbalances in the economy. and i'm not advocating for tight monetary policy. but i do think we have to get

off zero. if we want to avoid repeating some of the mistakes of the past with a very easy credit environment. >> is it fair to say that if you look at the charts from the 1980s onward, what happened is that we have achieved a lot of our growth not by dealing with some of these structural issues but by encouraging americans to spend more money. >> correct. >> to take out more credit card debt, to take out more housing debt, and that consumption as a share of gdp basically went from 62%, 63% up to 70%. and so we've had a generation of a kind of expansion of credit that was unsustainable because it was not coming as a consequence of an expansion of people's incomes or wages. >> absolutely. we've created a generation of instant gratification because our savings rate, which was running at 8% for years and years, between 8% and 10%, fell to 2% or less. and if you look at countries, those who stay great, become great and stay great, they have

reasonable savings rate, not necessarily high but reasonable savings rate, 8% to 10%, they don't consume everything they save for the future. and their governments don't carry that. that is nearly 100% of their gdp. so we have to step up to that. if we want to be a great nation and continue to be a great nation, then we do have to address our fiscal challenges. we do have to change the incentives. and at zero interest rate, i'm afraid encourages consumption. why would you hold on and save your money when you get .02% in the bank? the incentives are to spend. and that's why i say, i'm not for high interest rates, but i am for rebalancing, renormalizing policy over a period of time so that you do award thrift. i think it's extremely important we do that. >> in terms of what you said, the one pretty strong criticism that you've made is the conditions that allowed all this to happen, the low interest rate conditions in 2003, 2004, that

allowed a lot of this to happen. is it fair to say that history will look back on alan greenspan very differently and more critically given the effect, the consequences of his decision, particularly after the bursting of the tech bubble to keep interest rates very low which clearly created a housing bubble? >> i think that is -- i was on the open market committee, so that's something we all have to think our way through, acknowledge that at least i acknowledge that i think there were errors. but the real history on that will be years in the judgment, if you will, in terms of all the circumstances. >> what's your analysis? >> my sense is we erred. we kept the interest rates too low, 1%. it's not that i want to point blame to myself or anyone else, but i do have to say, this is what happened. what were the consequences? and what have i learned from it?

and adjust policy the next time going forward. and it is, frankly, one of the reasons that i'm more, if you will, i use the word "cautious" in the sense of saying we need to not tighten -- not have tight monetary policy but to let the markets know that we aren't going to assure them of everything anymore. >> thomas hoenig, pleasure to have you on. >> thank you very much. my pleasure to be here. >> and we will be right back. [ male announcer ] this is lara. her morning begins with arthritis pain.

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our question this week from the "gps" challenge is, what unusual british food is on its way to being banned in denmark?

is it "a," jellied eels, pretty self-explanatory, "b," chip butty sandwiches, that's french fries and butter between bread, "c ", marmite, a beer product spread on bread, or "d," black pudding, sausage made with blood, among other things. stay tuned and we'll tell you the correct answer. make sure to go to cnn.com/gps for ten more questions. and while you're there, make sure you check out our website, the global public square. you'll find smart interviews and some takes from some of our favorite experts. you'll also find all our "gps" shows. to if you've missed one, you can click and watch. this week's "book of the week" is really excellent by "washington post" columnist david ignatius. it's called "blood money." it's about the cia conducting a super-secret mission in pakistan that goes awry. it's fiction, but it is utterly

realistic in its portraits of pakistan and america and the spy system. you'll feel as if you're reading the front page of the newspaper only much better written. it's a great way to start summer reading. and now for "the last look." how to make it rain. it's a question that's puzzled humans from time in memorial. native americans have their traditional rain dance, of course. some hindu holy men sit in tubs to ask for rain. and the method in one mexican village is called the flying rope ritual. but china, of course, tried a more scientific method this week. it's launching hundreds of missiles into the skies to try to make it rain. it's called seeding. where they shoot silver iodide into the clouds to induce rainfall. according to state tv, the mission worked, and the drought-stricken province of hubei. i'd go out to a limb and say those traditional methods are probably a little safer even if they are less effective. the correct answer