i hate to say. for all of us furious of you getting all the women, to see you so scarred. >> it makes you feel better. >> it brings a warm glow to my heart. great pleasure to see you. i still hate you for pulling all of the women in my home town and marrying them. that's all for us. "ac 360" starts right now. good evening, everyone. there is breaking news to tell you about. another blow for the economy and condemnation of the way that the government has been doing business. america's credit rating just got clicked. it's been a solid aaa, best in the world since 1917. not anymore. today standard and poors issued a downgrade to double a plus. s&p's top man behind the decision will join us to tell us why. the white house got wind of it earlier, trying this evening to challenge the assessment saying that s&p's model was off by million. the treasury spokesman saying a

judgmentment flawed about i a 2 trillion error speaks for itself and john king will join us shortly, these guys make congress look good, talking about s&p. but it is congress that they need to be taking specific exception to and washington politics. from their news release, the brinkmanship highlights what we see as america's governance and policy making becoming less stable, less effective and less predictable than what we previously believed. the agency says that produced a weaker long-term reduction plan needed. it slams democrats and republicans from being unable to agree on deeper cuts and discretionary spending and the ability to reach entitlements. quoting again, quote, we have changed our assumption on this because the majority of republicans in congress continue to resist any measure that would raise revenues. the position we believe congress

reinforced by passing the act. not a moment for anybody to be proud of when markets were recovering from the 500-point carnage. a new jobless number came in mediocre but better than expected than many feared. our panel will join us shortly but john chambers, head of the downgrading at standard and poors. >> thanks for having me. >> why did s&p downgrade the united states credit rating today? >> two reasons. the one that you outlined, from our view, the political settings in the united states have been altered. we've taken them and the political brinkmanship was something that was really beyond getting to the last day before they had cash management problems. there are very few governments that have the debt authorization

process and we also think more broadly that this debate has shown that although we do have an agreement that will and we do believe will deliver at least $2.1 2ri8 general of savings over the next decade is going to be difficult to get beyond that at least in the near term and you do need to get beyond that to get to a point where the debt to gdp ratio is going to stabilize. >> so it's interesting, you're saying without a doubt, the recent road blocks in congress, the tenure, the timing, the tone of the debate had a major impact on this? >> yes. i think that's what put things over the brink. in addition, we have a medium term fiscal forecast that we see, you know, the debt to gdp ratio continuing to rise over the forecast horizon and putting it in a position where it would no longer be compatible with many other triple a ratings. >> republicans and democrats are pointing their fingers at each other, republicans and congress.

do you blame one side more than the other? >> no, i think there's plenty of blame to go around. this is a problem a long time in the making whether this administration and prior administration. it's a matter of the medium and long-term budget position of the united states that needs to be brought to under control and in the fiscal position or having matching revenues to pay for those entitlements. >> what could the united states have done to have avoided this? >> well, i think it could have done a few things. the first thing it could have done is raise the debt ceiling in a timely matter so the debate would have been avoided to begin with. 60 or 70 times since the 1960 without that much debate. so that's point number one. and point number two is they could have come up with a fiscal

plan, for example, to the bowles simpson commission, which was bipartisan. it had the majority vote and came up with a number of sensible recommendations. you can envision other recommendations but that would have been a start. >> i want to bring in two folks who are a lot smarter than i am, ali velshi and david walker. i know they would like to ask you a couple of questions. david, let's start with you. >> john, thanks for coming on. obviously s&p said back in april that you were looking for something meaningful to happen and up to $4 trillion in deficit reduction over the next ten years, that didn't happen. you know, what are you looking for with regard to the committee that is being established? and if it would get to the $4 trillion target that you were talking about back in april? might that do it as far as being

able to regain aaa status? >> it's going to take a lot to get back to aaa because once you lose your aaa it doesn't bounce back in that way. but a key debate will be coming up regarding the extension of the 2011, 2003 tax cuts. because if you did let them lapse for the high-income earners, that can give you another $950 billion. i think the question there is, a, what we've already achieved with the trillion or if it was agreeable with a gift, that is being accounted for at the congressional committee that is looking to achieve. >> john, a couple other things real quickly. first, there's obviously at least a dispute being discussed between the treasury department and s&p about the calculation of debt to gdp and they are alleging that there was a several trillion dollar

difference between what you guys came up with and what they asserted. we all know that there are real questions about the economic growth assumptions, the health care cost assumptions, revenue assumptions and the interest rate assumptions. can you enlighten us at all as to what the nature of the dispute is and whether or not there is any validity to them protesting about it? >> the nature of the discussion centered on which baseline to use? and we had a discussion over the baseline. we agree with the treasury's position on this and our figures that we have published reflect that. >> i think that the important thing, too say in this is that, you know, the amounts that we're talking about, say up to 2015, you're talking about 1.5% of gdp, it doesn't make him and

change the assumptions will continue to rise. >> john, i want to bring in ali velshi in a moment but i want to ask you, this is a facts be dammed decision. their analysis was way off but they wouldn't budge. >> we come to our conclusions and it was in the public domain and it looks at five factors. it looks at the political settings and they are still strong but not quite as strong, highly rated sovereigns, both on the deficit side and on the debt side and again here in the united states fiscal position is weak and then it looks at other

factors in the economy and the prospects are as good as most italian countries. so that's a strength. it look at the external position, the dollar is the key and is likely to remain so. that is pretty much the monetary policy that is unquestioned. >> john, tonight, you have unnamed officials in which these guys look congress look good talking about the s&p. s&p sent treasury an error in their analysis that inflated the deficits by $2 trillion and that the agency acknowledged and said, did you make a mistake of $2 frill general in your analysis? >> it's published and the difference between the baseline calculations of 2015 is 1.5% of gdp. >> ali?

>> john, let me ask you this. this will apply to a lot of our viewers who have 401(k)s and pension plans. they often have convenance that invest in aaa companies. now, you have had a policy at s&p that a company can have a higher credit rating than the sovereign nation that it's in. do those companies now get downgraded as a result? >> the u.s. corporations, i think there are four of them. >> yes. >> they are not affected by this directly. what applies is whether or not you think the central bank and private entities won't be able to get foreign exchange to foreign debt. there's no question about that here in the united states. that is not a constraint. in terms of other people who might be -- have portfolios who

are minimal and force selling because of this. >> i want to thank ali velshi and john chambers. i know it's been a long day. any piece of news can make a difference. the question right now is how much of a difference. joining us, as promised is jong king, host of john king usa. also joining us is dan lothian and ali velshi. global editor at large for reuterss and david walker, former of the united states, heads up the comeback

initiative. and also did the administration know this was coming and what exactly are they saying tonight on or off the record? >> they are at 1:30 this afternoon i'm told sent the analysis to the treasury department. and said that we were going to do this. let's do this. do it now. they call a $2 trillion doll mistake. the administration says when they pointed that out, we're going to change our treasury officials saying and other administration officials and s&p made its decision and in the

market and when they rebutted the analysis, mr. chambers made his case of the administration's position and consider the source. president obama would be the first president in history to ever downgrade on his watch. they fought this and they lost. but their position is it's going to be a big mistake and s&p essentially put the train on the tracks. >> it's already occurring among liberals, republicans, democrats flowing and aware of the implications of this for president and i should point out, first of all, you touched on this ap the top of the show, a treasury spokesman said, quote a judgment flawed by a $2 trillion error speaks for

itself. the u.s. has come a long way in getting the fiscal house in order since the beginning of the year. certainly nonetheless they felt that they have come a long way. and the feeling among the sources is that the s&p rushed to judgment, that they should have taken a step back after the $2 trillion mistake was pointed out, they should have taken a few days, reviewed it before reaching this decision, in a sense, among these sources is that a decision that was initially was based on math and economics ended up becoming based on politics. the question is what happens going forward? at least according to these sources, they don't believe that interest rates will go up or stock market will down. >> jeff toobin, put this in context for us.

>> i think it's also important to recognize that standard & poor's is not the voice of god here. standard & poor's had itself an appalling record during the -- what led to the financial collapse of 2008 and they were the ones giving clean bill of health to banks that had invested in the mortgage-backed securities. so the idea that they have perfect insight into who is sound and who is not is simply incorrect. as for what this will mean, i mean, obviously it will be a political football. i don't think most voters have heard of this issue. i don't think most voters care. most voters care about what they see in the world, unemployment, whether houses are selling, whether the economy is moving. i think this is likely to be a big side show. >> erin burnett is back with us at cnbc. were the others wrong? >> it's interesting.

i think s&p saw this as a political moment and $4 trillion in cuts or else and they were put in a position where they had to go through with it. as john is pointing out, this error is an embarrassment for them. but i have to say, the biggest investors in the world that i have been seeing in the last couple of weeks have been adamant that the u.s. should be downgraded and in fact that was already priced in. in a sense, it would seem talking to them that the error -- the $2 trillion error that you were referring to doesn't seem to matter. the downgrading credit agencies, china has already downgraded. but i would note that i know ali has pointed out before. three-quarters of the top debt is linked to the united states government. so there really isn't in just a pure technicality for the money to go. and they have more debt and

lower rating and lower borrowing rate than we do. and they might consider it as well. i think this is a wakeup call that we needed and it's not necessari necessarily armageddon. >> they spin the credit rating deficit as you heard with the s&p and as you've been hearing about political conditions and the will of washington to get this done or in this case holding it hostage in the negotiations and secondly to erin's point, there are other countries like canada, like australia that have higher yields. you can get higher interest on buying their bond but there are not enough of them. the u.s. bonds cannot be replaced by other such instruments. there just aren't enough of them. number three, as erin also said,

there are countries with lower credit ratings and higher interest paid on those bonds. so not everybody goes by what s&p says. i talked to the head of pimco that there are other things that go into the decisions for investors to invest. s&p and moodys didn't do a stellar job among the financial crisis. they had aaa countries that went into conservative ship the next day. you have to take all of this into account with the to ttalit. i don't think it's with no effect but i think it's muted more than we expect it to be. trickle down to home loans, car loans, things like that, don't know what the reaction is going to be there yet. >> all good things to put in mind. a lot more panelists ahead. everybody stick around. let us know what you think on facebook. we're on twitter. i tweeted about this before the

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our breaking news, america's credit rating has been cut, being downgraded from aaa to aa plus. reaction starting to come in, from 2012 gop front-runner mitt romney. america's worthiness just became the latest casualty of leadership on the economy. standard & poor's is a deep indicator. shawn egan, david walker, jeffrey toobin, several weeks ago what led to your decision to downgrade and when i talked to saying the tone and tenor of the

decision? >> actually, we put the u.s. on negative watch as of march 1st and we downgraded it as of july 16th. this is a watershed event. never in the history of the country has this happened and europe is having a lot of difficulty. we've been here before in terms of a high debt to gdp, approaching 100%. but after world war ii when the rest of the globe was in terrible shape and the gdp towards the u.s. was very high and therefore we could grow the gdp and get out of the problems very easily and we don't have the situation. the gdp isn't growing to speak of. first quarter, 4.3% in the second quarter. the problems are much more untractable at this point. >> shawn, do you believe that

congress needs to raise revenues? >> you have to be careful about that. our financial flexibility is limited right now. if you believe in the n neo kenseyians, to damp enwhat little economic activity there is. you have to be careful to not push the country back into a recession. >> david walker, could this have been avoided? >> well, it could have been. look, let's focus on a few things. there may have been a math error by the s&p but that math error while being embarrassing may not be enough to change their judgment that this downgrade was still appropriate. secondly, there's absolutely no question that the political system in washington is dysfunctional. and, shirdly, there's no question that both political parties are to blame. the last ten years have been the most fiscally responsible here in the united states. they took the issues off the

table and took off medicare, medicaid, social security, comprehensive tax reform. these people need to grow up and get serious. we have more time in the european nations and we're not exempt of the laws of prudent finance. >> we heard from mitt romney from gop. john chambers said, look, there is plenty to go around on both i'lls of the political i'll. >> i would like to hear all candidates respond about what we heard from chambers about higher taxes and the expiration of the bush tax cuts. that is the part in this verdict that is going to be unpalate table to the republicans. the other thing that is important to bear in mind, it's not just the u.s. which is in trouble. we're also seeing lots of sovereign debt issues in europe. ironically, the fact that the rest of the world is in trouble, too, is in the short term to the

advantage of the united states. pimco, the world's largest bond trader, likes to talk to the u.s. as the cleanest dirty shirt. you have to put your money in somebody's treasuries and right now, notwithstanding the verdict of the s&p, the u.s. is looking like a pretty good bet and we saw that in the markets this week. just today the u.s. ten-year treasury, the yield was down to 2.34%. that's still really cheap. so in the short term, investors are putting their money in u.s. treasuries. >> what about that to chrystia's point, letting the bush tax era expire? >> i don't think it's up to any agency to tell a sovereign nation how to put its finances in order. what they need to be concerned about is where are we headed with regard to deficits and where are we headed with regard to debt to gdp and it's part of elected officials to decide how

to bring those numbers under control. and has r as already has been said, there's no question we're going to need revenues 18% of gdp, which is historical average over time, in addition to entitlement reform and cutbacks and restraints. but we're dealing with a very economic recovery right now. we have very high unemployment and it's not just a matter of what you do. it's how you do it and when you do it that matters. >> ali, what do you think this means for ordinary -- go ahead, ali. >> i was just going to say to david's point, there's a problem with that analysis. s&p has been very clear, the very public threat of not upgrading the debt ceiling and not paying bills being used as a political tool was part of the decision. generally when you pay your mortgage, the bank doesn't see the arguments go on in your house until you make the payment and that's all they care up. th but in this case the process actually matters and the fact

that they saw this play out with a number of fiscally conservative republicans and tea partyiers to the end saying do not increase this debt ceiling, should and did threaten our credit limit. i think america lost its right to a aaa credit limit with that show. i'm not sure -- when david says it's not the s&p's business to play politics, it caused a problem. it came to you and your spouse and your kids and if they say that play out, they are not going to be a place to comment on this. >> let me come back. first, let me agree that the dysfunction na dysfunctionality went through with regard to the debt ceiling limit is not appropriate for them to consider. so i agree with ali on that. what i'm saying is they should

be focused on making sure we get our deficits under control and it's not their job to say how much of that should be done through entitlement reforms, through defense and other spending cuts, through revenue increases. that's not flatheir job. but the fact that they have a democracy that plays out in the way that it did is very relevant. it lessens their confidence in being able to make the difficult choices. >> chrystia? >> i would like to point back to david's point. the s&p, they are not god, for sure. this is just an opinion. but their job is to give an opinion on the credit worthiness of companies and countries and part of their judgment on the credit worthiness is about how the country's budget is put together and if their judgment is more refer knew is part of what makes the economy stronger

and we shouldn't be afraid to say that. >> already there is policies going on about this. a lot of people, what does this actually mean? is there a possibility of a growing interest rates and if we see that if that is in fact going to happen? >> the result that we may not see an increase, the extent to what people get worried about the debt and that may have a rather caring fact that makes the interest rate lower in the united states. it's unclear what we would see. over time, bill gross referenced, the biggest bond investor in the u.s., indicates that we will see an increase in a quarter of a percent. that would affect taxpayers and

credit card mortgages and a lot of other things. you would see that trickle all the way through the economy. but, again, to end on a positive note here, we still have interest rates right now at the lowest level that they've been at since 1953 when dwight eisenhower was president. so we have incredibly cheap rates. continuing coverage continues. we'll continue with the political fallout for president obama and what it means for the election. we'll be right back. now get an incredible offer on the powerful c300 sport sedan. but hurry before this opportunity...disappears. the mercedes-benz summer event ends august 31st.

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breaking news, america's downgrade for the first time ever means higher interest rates for you, possibly we've been talking about this at this hour. it's n it's necessarily a political fall out. how will this affect president obama and dan lothian is joining us, ali velshi. the reports i've seen, the

treasury department takes a step back from the s&p. what are you hearing from sources? >> it's unclear if the president will release any kind of statement or come out on camera over the weekend. he is away at camp david. that doesn't mean he can't come back and appear on camera. but right now what we're hearing from source, it's treasury taking the lead on that. in fact, during the pushback that occurred before 2 clack this afternoon, i'm told that the white house was not involved in the push back and it was between treasury and s&p. and, john, we've seen republicans blasting, no surprise, president obama, the campaign has probably right themselves politically. how big of a problem is this

moving forward? >> the s&p will move forward and saying that the agency should have stuck to where the united states should get in terms of a reduction deficit and republicans will say that's a political statement and economic statement. look, you can -- we only have one president. he's the incumbent up for re-election next year. let me cut the instant add for you. he says he would change washington. it's still partisan gridlock. he says the stimulus plan, would never go above 8% and he said it would improve america's standing in the world. the first president in american history would have the credit rating downgraded. is that fair to leave that up to the voters to decide? this president's economic record will be the choice, the referendum in the campaign and when something like this embarrassing happens, whether

you think it's right or wrong or fair or unfair, that's how it will play out politically. >> this is video of president obama and tim geithner at the white house. this paragraph i'm going to read seems to ignore what mr. chambers from the s&p said on this broadcast earlier, which is that there is plenty of blame to go around on both sides of the political aisle. the decision, says speaker boehner, is the out of control spending that has taken place in washington for decades. the spending binge has resulted in jobs destroying economic uncertainty and sends destructive ripple effects across our credit market. no knowledge from speaker boehner that there is blame on both sides of the aisle, john. >> harry reid, the most important man in congress, his statement tonight pointed specifically to what s&p said about the need for revenue

increases. that is the political divide. republicans will say we need to have more reduction. democrats will say they downgraded in part because republicans refused to raise some revenues. so we'll have this partisan political sniping, which is one of the reasons that we're here in the first place. the question is, when you shove all of that aside, when the super committee gets to work, will they take some impetus here? will they be embarrassed and shamed to doing actual deficit reduction? there's no rule they can't come up with 2.3. they can do anything as long as it equals 1.5 or more. the question is, once all of this rhetoric clears, will they feel a quick in the you know what, anderson, and find a way to resolve their differences? you can have revenue increases and a big tax reform proposal and in which a lot of republicans would not support. it cuts everybody's rates and

takes away a lot of loopholes and you create more taxpayers and get more revenue in washington. the question is would they sit down and agree to do it before we head into a big election year. a lot of people thought before a president election if you thought it would benefit president obama, why would you cut it? maybe the republicans and democrats will sit down and excuse the term, behave like children. >> alex, i think you've written campaign commercials in your term. john king just kind of laid out what republican strategy or republican tag lines might be against president obama moving forward but do you think, given what the s&p is saying, that there needs to be way to raise revenues. do you think that this will motivate the so-called super committee to actually compromise, to move forward in a way in which all options are on the table?

>> i think, anderson, i've written a lot of campaign commercials, but as a political advisor, i wouldn't be writing any tonight. instead, i would be calling candidates and elected officials that i worked for and i would be telling them, settle down. this is serious. it would be better for you politically and better for the country financially to look like a leader, to reach across the aisle tonight and tomorrow and say, we all know how serious this is. we can do something about it. this is a moment we don't have to pass on to our kids. this is one of those rare moments where, what's good for candidates politically is what is good for the country. >> that's one of the nices advice that i've heard, the most hopeful advice. do you think people would actually listen to that advice? already we're seeing these statements and we're seeing

statements from mitt romney, which is pointing fingers at president obama and saying -- >> it's a misleadership chance for they have a chance to be big or small. it's a chance for big leaders to help us deal with the problem. so the finger pointing is going to lessen them. that's what i would be advising candidates and congress tonight. we're going to take a quick break. our coverage continues in just a moment. i'm good about washing my face.

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good evening and continuing breaking news coverage for the first time in history, the credit rating being downgraded from aaa to aa plus. we're already getting a number of statements.

this is speaker from democrat harry reid. quote, the action by s&p reaffirms the need for a balanced approach, a deficit reduction that includes revenues that gives taxes to corporate jet owners and makes the work all more important and approach committee's work with an open mind instead of hard liners who have already ruled out the balanced approach at the market agencies like at s&p are demanding. we've also seen a statement from mitt romney. i want to put that up on the screen. america's credit worthiness just became the latest casualty in president obama's failed record of leadership on the economy. it's an indicator of the country's decline. standard & poor's downgrading to

aa plus. john king is with us on the phone. dan lothian who has been working his sources as well. also, john avalon is with us, cnn contributor. john, you're just joins us. we heard alex saying that this is an opportunity to show real leadership on the part of politicians on all sides of of the aisle to step up, to not necessarily be using this to score political points by throwing darts and to say, this is a serious time for the country and we need to start doing something? >> well, that's exactly right. it does improve the importance for the committee to really do some serious long-term deficit and reduction. but schltd s&p cited specifically the debate that led to this unexpected downgrade. the other factor, of course, the deal that was ultimately struck at $2 trillion in deficit

reduction, instead of the 4 trillion that s&p set out as a benchmark. it's a major wakeup call for the need of sustainable responsibility and this will send a really difficult message to the markets but not only that, it could end up increasing the cost of borrowing and compounding the fiscal hole we're in, not only at the federal level but by increasing the cost of borrowing. >> john king, for those folks who are going to be on this so-called super committee, obviously, i mean, do you think tonight changes things for them? >> yes. although, an easier question to answer is if we knew who they were. we're awaiting the leaders, the speaker of the house and republican leader of the senate, the four leaders get to appoint these members. they have two weeks from when the president signed the legislation. we assume that they are going to turn to the people on the budget committee, the people on the appropriations committee and people who have a history of making these fiscal issues a priority. that doesn't mean those people

necessarily want deep cuts in spending. it doesn't mean it's not necessarily open to revenue increases. there are a group of lawmakers, whether you look at the gang of six proposal from the senate or the democrats and whether you take the simpson bowles commission report and involved with no labels has put out proposals of his own. david walker has put out proposals of his own. there are ways to get there. what you need to do is set aside your ideology yolg. set aside the fact that liberals will scream if they touch social security. the conservator groups will scream if you have significant tax reform even if it lowers rates for everybody. some of those will scream if it brings one more penny into washington, let alone billions or trillions into washington over the next ten years.

but there are many proposals to get there. it's political trust and will. will this embarrassment give them the kick to do that? it can. there is debate in december and flip the page and skeptical and find that will. but it's not out of their reach. >> there's a the lof reasons for skepticism. dan, there must be a lot of concern at the white house. they can't not be concerned. >> well, obviously there has been concern about it. over the past week we've been talking to sources at the white house and what they have been saying is, look, this is not something we can control. certainly there is hope that with the debt ceiling solution that perhaps something like this could be avoided. but, you know, that was not seen as sort of the perfect anecdote to it. everyone at the white house and certainly democrats wanted the big deal because they felt that that was something that could really satisfy not only the

markets and certainly prevent a downgrade from happening. that did not happen. how did they get back on track? i think that's unclear. sources talking to them tonight say that the s&p has not made it clear as to how they can regain that aaa rating and listening to s&p, they say that this is not something that will happen very quickly. and the next few days and weeks, what the u.s. can do to get that rating back. >> john king, john avalon, alex, thanks for bringing us all up to date and keeping things in perspective. we'll be right back. the sons of former slaves and the sons of former slave owners will be able to sit down together at the table of brotherhood. i have a dream today!

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we've had to move a story and we'll have that next week. in somalia, millions of people are starving and i'll be reporting from the area on monday night. several people were killed and several others wounded at a camp in the capital of somalia and working with the world program in somalia and 12 million people in the region need food and other supplies and estimated 29,000 children died in the last month. the estimate is that it could climb up to 600,000. it's been long coming and adding to the chaos and militants associated with al qaeda.

they've thrown out aide workers. join us monday night for live coverage. somalia, "on the front lines of famili famine." i hope you join us for that. susan hendricks is with us. she has the 360 news and bulletin. >> warren jeffs asked to leave the courtroom today and will not be representing himself in the penalty face of the assault trial. before he left the courtroom, warren jeffs demanded that jurors end the proceedings. one of his defense attorneys who he fired earlier in the trial will now represent him. the jury accused him of sexually assaulting girls that he claimed were his spiritual wives. in new orleans, several shootings and chaotic aftermath of hurricane katrina. five officers were found guilty

of violating the rights of five unarmed people. two of the victims died. sentencing is set for december. the rescue of the chill le general miners that were trapped underground for 69 days, it was one year ago that the mine collapsed and 17 days before the world knew that the 33 men were alive. and an unwanted guest at the maritime aquarium in connecticut. somehow a deer fell into a tank and someone posted it on youtube. it's been hot in the northeast. anderson? >> thanks very much, susan. the top man behind the decision to downgrade america's credit rating joins us to explain why. only on "360." you won't see it anywhere else. stay tuned. i love that my daughter's part fish.

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good evening, everyone. there is breaking news to tell you about. another blow for the economy and a sharp condemnation for the way that america is doing business. it's a solid aaa, best in the world since 1917. not anymore. in just a moment, a 360 exclusive, the top man behind the decision will join us to tell us why. the white house earlier tried to challenge the assessment, saying s&p economic was off by trillions. a judgment flawed by a $2 trillion error speaks for itself. and frustrated official tells john king who joins us shortly,

these guys make congress look good. but it's s&p making an exception to dysfunctional washington and recent months of highlights what we see as america's governance and policy making becoming less stable. this is s&p. less predict tif of what we previously believed. that produced a weaker long-term reduction plan and slams democrats and republicans for being unable to agree on steeper cuts and discretionary ability and trimming entitlements and singles out republicans for refusing to look at revenue. quoting again, quote, we have changed our assumption on this because the majority of republicans in congress continue to resist any measure that would raise revenues. not a moment for anyone to be proud of tonight. a day when markets were recovering from yesterday's 500

point carnage and mediocre and better than expected than many have feared. john chamber bers, the man behind the decision for downgrading at standard & poor's. thanks so much for being with us. >> thanks for having me. >> why did s&p downgrade america's credit rating today? >> i think there were two reasons. the view of the united states has been altered. we've taken the rating down a notch. the political brinkmanship we saw raising the debt ceiling was something really beyond our expectations. the u.s. government getting toed it last day before they had cash management problems. there is a budget process from the debt authorization process. and we also think that although

it shows that we have an agreement and we believe deliver $2.1 trillion of savings over the next decade is going to be difficult to get beyond that, at least in the near term, you need to get beyond that to the point where the debt to gdp ratio is going to. >> so you're saying the recent road blocks in congress, the tenor, the timing of the debate had a major impact on this. >> yes. i think that's what put things over the brink. in addition, we have a medium term fiscal forecast that we see the debt to gdp continuing to rise and putting it in a position where it would no longer be compatible with many other aaa ratings. >> already on twitter, republicans and democrats are pointing their fingers at each other and republican and congress. do you blame one side more than the other? >> no, i think there is plenty of blame to go around. this is a problem a long time in the making, well over this administration, the prior

administration. it's a matter of the medium and long-term budget position of the united states that needs to be brought to under control and in the fiscal position or having matching revenues to pay for those entitlements. and its entitlement reform to pay for those at the crux of the matter. >> what could the united states have done to have avoided this? >> well, i think it could have done a few things. the first thing it could have done is raise the debt ceiling in a timely matter so the debate would have been avoided to begin with. as it has done 60 or 70 times since the 1960 without that much debate. so that's point number one. and point number two is they could have come up with a fiscal plant, which is bipartisan it had the majority vote and

came up with a number of sensible recommendations. you can envision other recommendations but that would have been a start. >> i want to bring in two folks who are a lot smarter than i am, ali velshi and david walker. i know they would like to ask you a couple of questions. david, let's start with you. >> john, thanks for coming on. obviously s&p said back in april that you were looking for something meaningful to happen and up to $4 trillion in deficit reduction over the next ten years, that didn't happen. you know, what are you looking for with regard to the committee that is being established? and if it would get to the $4 trillion target that you were talking about back in april? might that do it as far as being able to regain aaa status? >> it's going to take a lot to get back to aaa because once you lose your aaa it doesn't bounce back in that way. but a key debate will be coming up regarding the extension of

the 2011, 2003 tax cuts. because if you did let them lapse for the high-income earners, that can give you another $950 billion. i think the question there is, a, what we've already achieved with the trillion or if it was agreeable with a gift, that is being accounted for at the congressional committee that is looking to achieve. >> john, a couple other things real quickly. first, there's obviously at least a dispute being discussed between the treasury department and s&p about the calculation of debt to gdp and they are alleging that there was a several trillion dollar difference between what you guys came up with and what they asserted. we all know that there are real questions about the economic growth assumptions, the health care cost assumptions, revenue assumptions and the interest

rate assumptions. can you enlighten us at all as to what the nature of the dispute is and whether or not there is any validity to them protesting about it? >> the nature of the discussion centered on which baseline to use? and we had a discussion over the baseline. we agree with the treasury's position on this and our figures that we have published reflect that. >> i think that the important thing, too say in this is that, you know, the amounts that we're talking about, say up to 2015, you're talking about 1.5% of gdp, it doesn't make him and change the assumptions will continue to rise. >> john, i want to bring in ali

velshi in a moment but i want to ask you, this is a facts be damned decision. their analysis was way off but they wouldn't budge. >> we come to our conclusions and it was in the public domain and it looks at five factors. it looks at the political settings and they are still strong but not quite as strong, highly rated sovereigns, both on the deficit side and on the debt side and again here in the united states fiscal position is weak and then it looks at other factors in the economy and the prospects are as good as most italian countries. so that's a strength. it look at the external position, the dollar is the key and is likely to remain so. that is pretty much the monetary policy that is unquestioned. >> john, tonight, you have unnamed officials in which these guys look congress look good

talking about the s&p. s&p sent treasury an error in their analysis that inflated the deficits by $2 trillion and that the agency acknowledged and said, did you make a mistake of $2 frill general in your analysis? >> it's published and the difference between the baseline calculations of 2015 is 1.5% of gdp. >> ali? >> john, let me ask you this. this will apply to a lot of our viewers who have 401(k)s and pension plans. they often have convenance that invest in aaa companies. now, you have had a policy at s&p that a company can have a higher credit rating than the sovereign nation that it's in. do those companies now get

downgraded as a result? >> the u.s. corporations, i think there are four of them. >> yes. >> they are not affected by this directly. what applies is whether or not you think the central bank and private entities won't be able to get foreign exchange to foreign debt. there's no question about that here in the united states. that is not a constraint. in terms of other people who might be -- have portfolios who are minimal and force selling because of this. >> i want to thank ali velshi and john chambers. i know it's been a long day.

any piece of news can make a difference. the question right now is how much of a difference. joining us, as promised is john king, host of john king usa. also joining us is dan lothian and ali velshi. global editor at large for reuterss and david walker, former of the united states, heads up the comeback initiative. and also did the administration know this was coming and what exactly are they saying tonight on or off the record? >> they are at 1:30 this afternoon i'm told sent the analysis to the treasury department. and said that we were going to do this. let's do this.

do it now. they call a $2 trillion mistake. the administration says when they pointed that out, we're going to change our treasury officials saying and other administration officials and s&p made its decision and in the market and when they rebutted the analysis, mr. chambers made his case of the administration's position and consider the source. president obama would be the first president in history to

ever downgrade on his watch. they fought this and they lost. but their position is it's going to be a big mistake and s&p essentially put the train on the tracks. >> it's already occurring among liberals, republicans, democrats flowing and aware of the implications of this for president and i should point out, first of all, you touched on this at the top of the show, a treasury spokesman said, quote a judgment flawed by a $2 trillion error speaks for itself. the u.s. has come a long way in getting the fiscal house in order since the beginning of the year. certainly nonetheless they felt that they have come a long way. and the feeling among the

sources is that the s&p rushed to judgment, that they should have taken a step back after the $2 trillion mistake was pointed out, they should have taken a few days, reviewed it before reaching this decision, in a sense, among these sources is that a decision that was initially was based on math and economics ended up becoming based on politics. the question is what happens going forward? at least according to these sources, they don't believe that interest rates will go up or stock market will down. but we'll know more about that when the reality hits next week. >> jeff toobin, put this in context for us. >> i think it's also important to recognize that standard & poor's is not the voice of god here. standard & poor's had itself an

appalling record during the -- what led to the financial collapse of 2008 and they were the ones giving clean bill of health to banks that had invested in the mortgage-backed securities. so the idea that they have perfect insight into who is sound and who is not is simply incorrect. as for what this will mean, i mean, obviously it will be a political football. i don't think most voters have heard of this issue. i don't think most voters care. most voters care about what they see in the world, unemployment, whether houses are selling, whether the economy is moving. i think this is likely to be a big side show. >> erin burnett is back with us at cnn. were the others wrong? >> it's interesting. i think s&p saw this as a political moment and $4 trillion in cuts or else and they were put in a position where they had to go through with it.

i think as john is pointing out, this error is an embarrassment for them. but i have to say, the biggest investors in the world that i have been seeing in the last couple of weeks have been adamant that the u.s. should be downgraded and in fact that was already priced in. in a sense, it would seem from talking to them that the $2 trillion error that you refer to doesn't seem to matter. they are inder a lot of pressure to compete with them. china has already downgraded so there's a lot of political pressure. but i would note that i know ali has pointed out before, three-quarters of the top debt is linked to the united states government. so there really isn't in just a pure technicality for the money to go. and they have more debt and lower rating and lower borrowing rate than we do. and they might consider it as well. i think this is a wake-up call

that we needed and it's not necessarily armageddon. we continue with breaking news throughout the hour. follow me on twitter. i've tweeted about this before the program. meanwhile, late reporting on what it is like in the heart of the city of hama. snipers on rooftops targeting civilians, shooting people dead in the streets. details ahead. has two times thn of regular yogurt. you'll feel satisfied. [ female announcer ] yoplait greek. it is so good. oh, and there's a smile. it is so good. we're going to head on into the interview. krystal. . . krystal . . . what lead to your decision to go with the fusion? i just keep on going back to looks; it's a great looking car. how do your co-workers feel about your decision? they were the ones who were against ford.

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first time in history, challenging s&p's assumption but it's the agency's assessment of american politics that stands out and mitt romney says, the america's worthiness just became the casualty in president obama's failed record of leadership on the economy. standard & poor's rating downgrade is deeply troubling indicator of our country's

position. shawn egan, david walker, jeffrey toobin, several weeks ago what led to your decision to downgrade and when i talked to saying the tone and tenor of the decision? it played a big part of this decision? >> actually, we put the u.s. on negative watch as of march 1st and we downgraded it as of july 16th. this is a watershed event. never in the history of the country has this happened and europe is having a lot of difficulty. we've been here before in terms of a high debt to gdp, approaching 100%. but after world war ii when the rest of the globe was in terrible shape and the gdp towards the u.s. was very high and therefore we could grow the gdp and get out of the problems very easily and we don't have the situation. the gdp isn't growing to speak of. first quarter, 4.3% in the second quarter. the problems are much more

untractable at this point. >> shawn, do you believe that congress needs to raise revenues? >> you have to be careful about that. our financial flexibility is limited right now. if you believe in the neo kenseyians, to dampen what little economic activity there is. you have to be careful to not push the country back into a recession. >> david walker, could this have been avoided? >> well, it could have been. look, let's focus on a few things. there may have been a math error by the s&p but that math error while being embarrassing may not be enough to change their judgment that this downgrade was still appropriate. secondly, there's absolutely no question that the political system in washington is dysfunctional.

and thirdly, there's no question that both political parties are to blame. the last ten years have been the most fiscally responsible here in the united states. they took the issues off the table and took off medicare, medicaid, social security, comprehensive tax reform. these people need to grow up and get serious. we have more time in the european nations and we're not exempt of the laws of prudent finance. >> we heard from mitt romney from gop. john chambers said, look, there is plenty of blame to go around on both sides of the aisles. >> i would like to hear all candidates respond about what we heard from chambers about higher taxes and the expiration of the bush tax cuts. that is the part in this verdict that is going to be unpalatable

to the republicans. the other thing that is important to bear in mind, it's not just the u.s. which is in trouble. we're also seeing lots of sovereign debt issues in europe. ironically, the fact that the rest of the world is in trouble, too, is in the short term to the advantage of the united states. pimco, the world's largest bond trader, likes to talk to the u.s. as the cleanest dirty shirt. you have to put your money in somebody's treasuries and right now, notwithstanding the verdict of the s&p, the u.s. is looking like a pretty good bet and we saw that in the markets this week. just today the u.s. ten-year treasury, the yield was down to 2.34%. so in the short-term, investors are still putting their money in u.s. treasuries. >> what about that to chrystia's point, letting the bush tax era expire? >> i don't think it should be the business of any rating

agency to tell a sovereign how to put their finances in order. what they need to be concerned about is where are we headed with regard to deficits and where are we headed with regard to debt to gdp and it's part of elected officials to decide how to bring those numbers under control. and has already has been said, there's no question we're going to need revenues 18% of gdp, which is historical average over time, in addition to entitlement reform and cutbacks and restraints. but you've got to be careful when you're doing that because we're dealing with a very delicate economic recovery right now and we have very high unemployment and it's not just a matter of what you do. it's how you do it and when you do it that matters. >> ali, what do you think this means for ordinary -- go ahead, ali. >> i was just going to say to david's point, there's a problem with that analysis. s&p has been very clear, the very public threat of not

upgrading the debt ceiling and not paying bills being used as a political tool was part of the decision. generally when you pay your mortgage, the bank doesn't see the arguments go on in your house until the day you make your payment. they don't care what led up to it. and the fact that they saw this play out with a number of fiscally conservative republicans and tea partiers to end saying do not increase this debt ceiling, should and did threaten our credit limit. i think america lost its right to a aaa credit limit with that show. i'm not sure -- when david says it's not the s&p's business to play politics, it caused a problem. it came to you and your spouse and your kids and if they say that play out, they are not going to be a place to comment on this. >> let me come back. first, let me agree that the dysfunctionality went through with regard to the debt ceiling limit is not appropriate for

them to consider. so i agree with ali on that. what i'm saying is they should be focused on making sure we get our deficits under control and it's not their job to say how much of that should be done through entitlement reforms, through defense and other spending cuts, through revenue increases. that's not their job. but the fact that they have a democracy that plays out in the way that it did is very relevant. it lessens their confidence in being able to make the difficult choices. >> chrystia? >> i would like to point back to david's point. the s&p, they are not god, for sure. this is just an opinion. but their job is to give an opinion on the credit worthiness of companies and countries and part of their judgment on the credit worthiness is about how

the country's budget is put together and if their judgment is more refer knew is part of what makes the economy stronger and we shouldn't be afraid to say that. >> already there is policies going on about this. a lot of people, what does this actually mean? is there a possibility of a growing interest rates and if we see that if that is in fact going to happen? >> the result that we may not see an increase, the extent to what people get worried about the debt and that may have a rather caring fact that makes the interest rate lower in the united states. it's unclear what we would see. over time, bill gross referenced, the biggest bond investor in the u.s., indicates that we will see an increase in a quarter of a percent. that would affect taxpayers and credit card mortgages and a lot of other things. an accident doesn't have to slow you down. with better car replacement, available only with liberty mutual auto insurance, if your car is totaled, we give you the money for a car one model year newer. to learn more, visit us today.

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breaking news, america's debt downgraded for the first time ever means a higher interest rate for you, possibly, possibly political fallout. the question is how much and for whom. how this will affect president obama and the campaign. joining me is dan lothian and jeffrey toobin and ali velshi. the reports i've seen, the treasury department takes a step back from the s&p. what are you hearing from sources? >> it's unclear if the president will release any kind of statement or come out on camera over the weekend. he is away at camp david. that doesn't mean he can't come back and appear on camera. but right now what we're hearing from source, it's treasury taking the lead on that. in fact, during the pushback

that occurred before the 2:00 this afternoon, i'm told that the white house was not involved in the push back and it was between treasury and s&p. and, john, we've seen republicans blasting, no surprise, president obama, the campaign has probably right themselves politically. how big of a problem is this moving forward? >> the s&p will move forward and saying that the agency should have stuck to where the united states should get in terms of a reduction deficit and republicans will say that's a political statement and economic statement. look, you can -- we only have one president. he's the incumbent up for re-election next year. let me cut the instant add for you. he says he would change washington. it's still partisan gridlock. he says the stimulus plan, would never go above 8% and he said it would improve america's standing in the world. the first president in american history would have the credit rating downgraded. is that fair to leave that up to the voters to decide? this president's economic record will be the choice, the referendum in the campaign and when something like this

embarrassing happens, whether you think it's right or wrong or fair or unfair, that's how it will play out politically. >> this is video of president obama and tim geithner at the white house. john, i have this statement now from speaker boehner. i'm just going to read the first paragraph because it does seem to sort of go against or ignore, i should say, what mr. chambers from s&p said earlier in this broadcast, which is is that there's plenty of blame to go around on this particular side of the aisle and they did point out the republicans. the decision, says speaker boehner, is the out of control spending that has taken place in washington for decades. the spending binge has resulted

in jobs destroying economic uncertainty and sends destructive ripple effects across our credit market. so no acknowledgement, obviously, from speaker boehner that there's blame on both sides of the aisle, john. >> none whatsoever. but harry reid, the most important man in congress, his statement tonight pointed specifically to what s&p said about the need for revenue increases. that is the political divide. republicans will say we need to have more reduction. democrats will say they downgraded in part because republicans refused to raise some revenues. so we'll have this partisan political sniping, which is one of the reasons that we're here in the first place. the question is, when you shove all of that aside, when the super committee gets to work, will they take some impetus

here? will they be embarrassed and shamed to doing actual deficit reduction? there's no rule they can't come up with 2.3. they can do anything as long as it equals 1.5 or more. the question is, once all of this rhetoric clears, will they feel a quick in the you know what, anderson, and find a way to resolve their differences? you can have revenue increases and a big tax reform proposal and in which a lot of republicans would not support. it cuts everybody's rates and takes away a lot of loopholes and you create more taxpayers and get more revenue in washington. the question is would they sit down and agree to do it before we head into a big election year. a lot of people thought before a president election if you thought it would benefit president obama, why would you cut it? maybe the republicans and democrats will sit down and excuse the term, behave like children.

>> alex, i think you've written campaign commercials in your term. john king just kind of laid out what republican strategy or republican tag lines might be against president obama moving forward but do you think, given what the s&p is saying, that there needs to be way to raise revenues. do you think that this will motivate the so-called super committee to actually compromise, to move forward in a way in which all options are on the table? >> i think, anderson, i've written a lot of campaign commercials, but as a political advisor, i wouldn't be writing any tonight. instead, i would be calling candidates and elected officials that i worked for and i would be telling them, settle down. this is serious. it would be better for you politically and better for the country financially to look like a leader, to reach across the aisle tonight and tomorrow and say, we all know how serious this is. we can do something about it. this is a moment we don't have to pass on to our kids. this is one of those rare moments where, what's good for

candidates politically is what is good for the country. >> that's one of the best advice that i've heard, the most hopeful advice. do you think people would actually listen to that advice? already we're seeing these statements and we're seeing statements from mitt romney, which is pointing fingers at president obama and saying -- >> it's a missed opportunity for candidates that do that tonight. they have a chance to be small or they have a chance to be big. and the country is looking tonight for big leaders to help us deal with the big problem so the finger pointing is going to lessen them. that's what i would be advising candidates and congress tonight. our coverage continues in

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good evening and continuing breaking news coverage for the first time in history, the credit rating being downgraded from aaa to aa plus. we're already getting a number of statements. this is speaker from democrat harry reid. quote, the action by s&p reaffirms the need for a balanced approach, a deficit reduction that includes revenues that gives taxes to corporate jet owners and makes the work all more important and approach committee's work with an open mind instead of hard liners who have already ruled out the balanced approach at the market agencies like at s&p are demanding.

we've also seen a statement from mitt romney. i want to put that up on the screen. america's credit worthiness just became the latest casualty in president obama's failed record of leadership on the economy. it's an indicator of the country's decline. standard & poor's downgrading to aa plus. john king is with us on the phone. dan lothian who has been working his sources as well. also, john avalon is with us, cnn contributor. john, you're just joins us. we heard alex saying that this is an opportunity to show real leadership on the part of politicians on all sides of of the aisle to step up, to not necessarily be using this to

score political points by throwing darts and to say, this is a serious time for the country and we need to start doing something? >> well, that's exactly right. it does improve the importance for the committee to really do some serious long-term deficit and reduction. but s&p cited specifically the debate that led to this unexpected downgrade. the other factor, of course, the deal that was ultimately struck at $2 trillion in deficit reduction, instead of the 4 trillion that s&p set out as a benchmark. it's a major wake-up call for the need of sustainable responsibility and this will send a really difficult message to the markets but not only that, it could end up increasing the cost of borrowing and

compounding the fiscal hole we're in, not only at the federal level but by increasing the cost of borrowing. >> john king, for those folks who are going to be on this so-called super committee, obviously, i mean, do you think tonight changes things for them? >> yes. although, an easier question to answer is if we knew who they were. we're awaiting the leaders, the speaker of the house and republican leader of the senate, the four leaders get to appoint these members. they have two weeks from when the president signed the legislation. we assume that they are going to turn to the people on the budget committee, the people on the appropriations committee and people who have a history of making these fiscal issues a priority. that doesn't mean those people necessarily want deep cuts in spending. it doesn't mean it's not necessarily open to revenue increases. there are a group of lawmakers, whether you look at the gang of six proposal from the senate or the democrats and whether you take the simpson bowles commission report and involved with no labels has put out proposals of his own.

david walker has put out proposals of his own. there are ways to get there. what you need to do is set aside your ideology. set aside the fact that liberals will scream if they touch social security. the conservator groups will scream if you have significant tax reform even if it lowers rates for everybody. some of those will scream if it brings one more penny into washington, let alone billions or trillions into washington over the next ten years. but there are many proposals to get there. it's political trust and will. will this embarrassment give them the kick to do that? it can. there is debate in december and flip the page and skeptical and find that will.

but it's not out of their reach. >> there's a lot of reasons for skepticism. dan, there must be a lot of concern at the white house. they can't not be concerned. >> well, obviously there has been concern about it. over the past week we've been talking to sources at the white house and what they have been saying is, look, this is not something we can control. certainly there is hope that with the debt ceiling solution that perhaps something like this could be avoided. but, you know, that was not seen as sort of the perfect anecdote to it. everyone at the white house and certainly democrats wanted the big deal because they felt that that was something that could really satisfy not only the markets and certainly prevent a downgrade from happening. that did not happen. how did they get back on track? i think that's unclear. sources talking to them tonight say that the s&p has not made it clear as to how they can regain that aaa rating and listening to s&p, they say that this is not something that will happen very quickly. and the next few days and weeks, what the u.s. can do to get that rating back. >> john king, john avalon, alex,

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several people were killed and several others wounded at a camp in the capital of somalia and working with the world program in somalia and 12 million people in the region need food and other supplies and estimated 29,000 children died in the last month. a worker session the challenges facing somalia are enormous. the crisis is staggering. they need food and other supplies. the number of deaths may climb to 600,000. the catastrophe was triggered by the worst drought in decades. join us monday night for live rufr rage, 8:00 p.m. eastern. we'll still be on at this time

slot at 10:00 p.m. monday night. hope you join us for that. susan hendricks is with us. >> warren jeffs asked to leave the courtroom today and will not be representing himself in the penalty face of the assault trial. before he left the courtroom, warren jeffs demanded that jurors end the proceedings. one of his defense attorneys who he fired earlier in the trial will now represent him. the jury accused him of sexually assaulting girls that he claimed were his spiritual wives. in new orleans, several shootings and chaotic aftermath of hurricane katrina. five officers were found guilty of violating the rights of five unarmed people. two of the victims died. sentencing is set for december. the miraculous rescue of the

chilean miners that were trapped underground for 69 days, it was one year ago that the mine collapsed and 17 days before the world knew that the 33 men were alive. and an unwanted guest at the maritime aquarium in connecticut. somehow a deer fell into a tank and someone posted it on youtube. you can see the deer swimming around a bit before being helped by the aquarium workers. it's been hot. maybe it was trying to cool off. >> thanks very much, susan. the top man behind the like, megared softgels are small and easy to swallow try megared today. oh, we call it the bundler. let's say you need home and auto insurance. you give us your information once, online... [ whirring and beeping ]

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this week, cnn heroes, a young cancer survivor is helping other women battle the disease. meet debbie can'twell. >> when i was diagnosed with cancer, i was working full time and struggling. when you start adding medication costs, it throws your life upside down. my husband took care of me, took care of the kids. my parents, my friends, did everything for me. through treatment i was meeting women that just didn't have it as easy as me. all of these people were there for me and i couldn't possibly pay everybody back. i decided that i was going to pay it forward. my name is debbie cantwell and i provide care and comfort to

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