emails and tweets on "washington journal" wednesday on c-span. >> in a few moments, an event simulating the disruption of the " oil supply. in a little more than 2.5 hours, a look at what can be used from the debt and -- the french revolution. after that, the freddie mac chairman on the standard and poor's downgrade of the u.s. credit rating. >> up with an candida test are gathering in iowa for grass- roots politics, starting thursday. we will interview candidates and take phone calls about candidate said. saturday, we will go to ames. road to the white house, in iowa, this week on c-span. >> next is simulated disruption

of the global oil supply it with former white house officials and retired senior military officers. the group offers recommendations on how to deal with an attack on a saudi oil field. this simulation was part of the national summit on energy security, hosted by the group's securing america's future energy and the electrification coalition.

i just wanted to say a few words about energy security and the role of this summit. -- today's e's -- session, we will try to examine how the mayor of's supply of energy is dangerously vulnerable and why instant action is required to remedy this totally unacceptable state of affairs. let me explain. the entire u.s. transportation system is totally dependent on just one fuel source, which is

oil. currently there is no alternative. any disruption in the supply of oil will cripple our transportation system and create total chaos in our society. we unfortunately import 50% of the oil we need. most of this oil comes from the regions of the world which are unstable and usually hot style to the best interests of the united states. this morning, we will explore how vulnerable these sources of supply are. in addition to security concerns, we spend $300 billion a year to purchase this oil,

again, from people who are not friendly to the and i did states. this is a huge, huge transfer of wealth that has been going on for many many years. the amount and price of this imported oil is not set by free markets. as you all know, it is set by foreign governments who actually own 90% of the oil reserves. therefore, it is not difficult to conclude that this total dependence on imports and will is a clear and present danger to the national security and economic stability of the united states. dependence on oil distorts the

american foreign policy, forcing us to compromise on our values. oil dependence empowers foreign governments to impose unreasonable prices on american consumers. at $4 a gallon for gas, some american families are forced to spend more on fuel than they do on food. this current situation is not acceptable. for several years, the leaders in this room have attempted to bring attention to the importance of energy security. this summit is an excellent opportunity to draw attention to the threats caused by our dependence on oil, and, more importantly, to provide a forum to discuss solutions needed to solve our energy dependence once

and for all. we have been talking about this for more than 40 years. we definitely do have alternatives, but we need to take the future into our own hands and act now. i hope this summit will spark action to truly reduce our dangerous dependence on imported oil. so without further delay, i would like to thank you again for attending the national summit on energy security, and i would like to thank the electrification coalition for organizing this very important event. here is the president and chief executive officer of safe the electrification coalition, mr. robbie diamond.

>> thank you very much. thank you for coming. this is a profound challenge for the united states. when we did the shock wave in 2005, the price was pushing $60 a barrel. in fact, our first news clip for oil shock wave asked if we were pushing these psychological threat shows -- threshold of $60 of burarrel. we have now seen at $60 a barrel is the good old days. we have seen $140 a barrel oil in 2008, and when you look at the implications of what is gone on in the world with rising instability, restrained production, as well as increasing demand, the situation appears bleaker. it is much easier to break the

scenario now than we first did them in 2005. there is good news. there has been great technological advances, whether it be the find -- the profound find of national -- natural gas in the united states, as well as the new electric vehicles on the road. there is some hope. the problem is time. all these types of things that we must do as a country take decades, billions of dollars, and we do not really have that time. we have oil shock wave here, which time is something to bring up. i want to tell you four things about simulation. number one, in any cabinet meeting, people would be under time constraints. the president will want answers now. information will certainly be

difficult to come by in a crisis, which is not different from many of these meetings. i would note the scenarios, the members of the cabinet do not know the assimilation before. it will happen. they're walking into a situation as you are, and no one knows what breaking news there will be. they are unscripted. that these are all new scenarios that will put together in the past several months, based on world events -- we're not predicting the future, pointing out something that might happen. finally, i would say that i want to point out that simulation is vetted group of experts. we were people who come off with some ideas for how oil come off the market. " we have talked to national security experts. we have shared that with people

who have traded oil and the market, and finally he will speak with economists that run through models that come with the profound in for me -- implications to the gdp, and other types of in the chemical -- indicators. we are just the circuit master's in the middle of bringing experts to bring this together. with that, i want to say thank you to the teen, and chris williams productions did a wonderful job. also stan who has been running shockwave for several years now. finally, i will introduce you to the shock wave cabinet. thank you very much. ♪

>> welcome back to gnn. now our continuing coverage on an attack on the world's largest crude oil processing facility in saudi arabia. the assault by a group of heavily armed attackers has left treatmentty's water and power generation facilities badly damaged. detail of the attack are still

emerging. i witnesses reported seeing helicopters heading into the facility just before a series of explosions rocked the compound. the helicopters are reported to have been mistaken for saudi equipment and may have had company logos. the attack apparently took as little as 10 or fenty -- 15 minutes. oil markets reacted to the news with a surge in prices, exchanges in london seeing the single greatest jump in history, kicking off a chaotic day of trading in which officials considered suspending trading. markets in new york open under normal conditions this morning. to help us make sense, we have standing by in blunting our correspondent. what can you tell us? >> there have been real moment of panic on the markets. instability throughout the middle east and north africa

have been nagging issues throughout 2011, but this attack takes things up to a high level of fear and uncertainty. >> expand on that and give us a sense of context. how significant is this one facility? >> keep in mind total world oil demand recently hit $90 million -- barrels a day. saudi arabia is one of the world's key oil producers and accounts for up to 10% more of the global supply. it is exported to the ports on the east coast and west coast. it was processing 6 million barrels a day, so the majority of the output -- >> there is no such cushion to

absorb this kind of a blow? >> there is such a cushion. saudi arabia has usually been considered a buffer. this has affected markets particularly badly. the spigot could be closed. >> we will be back with you shortly as we follow the financial implications. we have with us now a gnn correspondent who has more news on the situation. what are you hearing? >> the word here is one of shock and disbelief. it was considered to be one of the most secure oil facilities in perhaps the world. the fact that has been substantially damaged has shaken everyone here. sources indicate this was a very sophisticated and well thought out attack against the heart of

the world's welle production. i am being told the attackers badly damaged at least one of the gas turbine powered generators, one compression train was ruptured, causing severe damage to out the plant. one piece of good news is that critical infrastructure at the heart of the plant is believed to be undamaged. the multiple operators, but restoring the plant to full capacity will take some time, perhaps a week or more. >> has anyone claimed responsibility? >> not as of yet. the speculation that attack was related to recent turmoil in the middle east is rampant. the government of the gulf states have been highly aggressive in their crackdown

on since banned extremist groups, and in some cases we are seeing violence. some observers believe the attack could be designed to weaken the saudi monarchy. of course, the specter of sophisticated terrorist groups like al qaeda is at the forefront of concerns in a region where terrorist group leaders continue to openly call for the overthrow of the autocratic government. essentially, there are other possibilities. some observers have noted there is a potential for blow back against saudi arabia, an operation designed to prop up an increasingly popular monarchies there. >> we will be right back with more coverage of this attack on the world's largest wool processing plant. stay with us.

this is reporting for gnn. ♪ >> i want to thank you all for assembly in here on short notice. it is obviously a serious blow. we do not know what it is gone to do to saudi production capacity, what it is going to do for how long, and given the tight oil markets and difficulty with our economy, the impact on our economic recovery could be dramatic. the president needs to be out there. he wants to be out there. he needs to be saying things that will calm the oil markets, give the at america -- give the american people a way ahead. he will want concrete recommendations from us as to what he should say. he has specific questions and we

could get to and we will try to move to this fairly quickly. i want to first turn to the deputy national security adviser to give us an update. what do we know that we have not seen on the monitor? >> i want to direct your attention to the powerpoint behind you. we cannot underestimate the importance of this. they are responsible for 7 million barrels a day for crude processing. the united states into doesn't tend produced 7.5 million barrels a day. this is a very serious issue. we are gathering information as we can. in terms of spare capacity, which, as you know, is used by the cartel to keep in reserve and manage prices, rising oil demand in 2011 has eroded that spare capacity as low -- as well as the libyan on rest.

the attack has significantly altered the book for spare capacity in 2012. the plant will need to be shut down completely, perhaps a week or more. the estimates are up to two weeks. after that we assume even a loss of something like 2 million barrels a day processing capacity, which would be essentially eliminate the saudi spirit capacity. as we heard, they're generally responsible for the spare capacity in the market. with global command passing 90 million barrels a day in the fourth quarter, there is little spare capacity outside saudi arabia. the outlook for the supply demand balance is green. we project shortages through

march. production elsewhere in the kingdom is going to take weeks to come on-line, and any further incidents could lead to very serious shortfalls. there are commercial stocks available, and to some degree, commercial inventories will offset the shortage is in asia. there is an availability working to be partners, call stocks into use, and the iea cannot of course direct fuel anywhere, but there would be an effort made, possibly calling on the united states to release some of our stocks and then divert iraqi oil to deal with the asian market. that is what we know today, sir. thanks very much. >> the president thinks he needs

to address three particular issues at this press conference. he thinks they are going to,, -- one, given the limitations of destruction and supply, what about the strategic petroleum reserves? is this something we should do? what are the criteria? how long do we do it for? that is one thing he wants to know. we do not know what did this is the first of a coordinated series of attacks to go after the infrastructure and put the world global economy in the toilet, if you will. what are the other areas of vulnerability? do we have options for enhancing security at those areas? he wants to be able to press that. currently, what are our policy, options for impacting the price of crude oil and for products in the short term? the price ofy see

oil heading to the roof. what can we do to reassure consumers? those of the things the president thinks he needs to address. let's start with a strategic reserve, and let me turn to the secretary of energy to kick off the discussion, and give us a little bit of background on the petroleum reserve, that the criteria of what we have used it, and what are our options at this point. but in terms of the overall situation of the strategic petroleum reserve, this has been our around for some 30-odd years, prompted out after the oil and barkers of the 1970's. it is a robust supply, the world's largest supply of crude oil. it is in caverns in louisiana and texas. we have 700 million barrels stored. we have designed it so there is instant access to it within days. we could start producing all the

way up to 4 million barrels a day and could sustain that for a considerable period of time. the industry has not been accustomed to take it into their refinery system. if in fact there is a declared emergency, and that is one of the conditions for the use of the strategic petroleum reserve, it is designed for emergency conditions in which there are feared shortages in which we are trying to make up for those shortages. another option is the president's determination, another option is what you're talking about, subtle the markets, and which the president can make that decision. which should not think about using the strategic petroleum reserve as a price offset. that is not what it is therefore. there are other sources of oil, and if we start using this as a price offset, we set a dangerous

trend. while the temptation is always there, especially with t ike, i recommend we do not use the strategic reserve. we may have flexibility in taking the time to open it up. it takes about two weeks to get in, if that decision is made, but it is pretty close to an instant relief. in the first instance, we do not have a shortage. we have robust inventories in this country. we have got a flow of oil into the country already on its way, so we are not facing an immediate supply crisis tomorrow, this week, or next week. we should keep that in mind. >> if there is a supply shortfall and something needs to be done to make it up, is this of and we would have to do on

our own, article other global resources available? how big a pool the we have to draw from if we have to do it? >> generally, if we do something, we should also include the iea. the international energy ex association exists to help, so she we should be in touch with the iea. i would make sure that happens instantly before the president speaks. so we have a dialogue open up and going on. in addition, most of the major companies, state owned companies as well as the international majors, do have their own supplies on hand. most of them would have anywhere from a 30-day supply, in excess of 30 days, which could be part of the overall stock that we have on hand.

>> ari fleischer is that counsel to the president. let me turn to you. the secretary has made clear this is not something we used to store shock to price. it is something that we use if the supply is interrupted. will the american people understand that? when the public sees the price of oil going to the groove, how should the president framed this for the american people? their instinct is gone to be the price is going up, do something. >> i think we have a huge problem on our hands is that if we release oil from libya -- libby is a teeny. the press will instantly say, what are not be doing it when you did it previously? i am worried about the direction we're. here in that pressure is building and the press is going to be a huge part of the pressure.

the president needs to be working the phones right now, calling the king of saudi arabia, the leaders of saudi arabia, as well as other nations. i am worried about the timing of this news conference in an hour. we did not have time to push this back. the secretary of energy needs to be working the phones. i would not do a news conference. my strong recommendation to the president would be a statement. the problem with having a news conference is the press will already haul in on questions that we do not have answers for, and his part is to reassure the country. taking questions from the press will create a signal of lack of answers. i would change what we recommend to the president to do and push back the timing as well. >> that occur on the press, it is already out there that the president will meet on the press. if we differ it, it increases

the notion they do not know what they are doing it. let me -- before turning --sue schwab, let me push back on that. maybe no questions, otherwise looks defense said. it may look like we're not on top of this thread put those nets together, what would be your recommendation? >> the press understands if you were running late, you are running late. i do not worry about that. from his point of view he needs to calm markets, it is the press nastyary's job to take a questions, so send him out later. >> sounds like the voice of experience. [laughter] >> is now the time for --

>> i do not think so, and there's something to be said for being up front with the american people when the president speaks. and when the press is being briefed by the white house staff, it is worth pointing out that in the case of the intervention to address the libby of problem, all that happened was there was a $5 drop in the price per barrel. was temporary. it came right back. all we succeeded in doing was getting a bath to a couple of speculators, in terms of long- term impact it has had, it has not had one on oil prices. there may be something to be said for keeping the opportunity in conjunction with the iea to surprise the market from time to time so you have less of a speculative push up, but it

strikes me that the reassurance that is needed with come as much from the defense establishment, how to preclude or is there anything we can do to make sure that this does not get worse? if as we have been told you can have a process clear by march, then you are talking about a near-term problem, and there's virtually nothing that will happen or can happen in the near-term other than people reacting to price pressure and conserving. that will happen. the broader question, and i am looking at the secretary of the treasury as i say that, is the rest of this knocking us back into recession. aren't there things that we can and should be proposing year term, midterm, and then long term, because after this is resolved we will still have energy shortage issues going forward, just by the normal

course of economic growth in asia, in the united states, and the world. >> let me ask you to respond to the comment and address the issue. what are the things -- how concerned are you that this impact on the economy and what are the things we can do outside to try to address that? >> we have a weak economy at this point, and the key is to avoid this will shock rippling through into wages and prices and going back into in 1970's type stagflation. a double dip recession here, and then rising prices and interest rates. that has to be avoided at all costs. the way to do that, steve takoma is that we want to do everything we can to recognize this is an international problem we need to get financed ministers together,

to coordinate growth-oriented policies so we did not choke growth with these rising prices. the prices will take money out pockets of consumers. they will be spending less. we want to make sure no one reacts in an inappropriate way, and this learns the lessons of the 1970's. we did not want the central bank of england to start raising rates in anticipation that says gone to have an inflation impact. we want to coordinate this, and i would also have ready? i would not propose it yet -- since then by policies to ask congress to lower payroll taxes for employers and employees. i would be prepared to suspend the major budget cutting tax increasing initiatives we've been talking about in association with the debt limit, which we dealt with a couple of

months ago. i would have them ready, because we did not aggravate an already bad problem. on the inflation side, there's no reason to think we're going to go into a 1970's problem. we now do not have that kind of inflation mentality we had then, with globalization. there is great downward pressure on raised -- on wages. we have a weak economy, a weakening economy in china and europe, so the pressures are pretty low, and i do not think this particular problem, even if it leads to a spike in energy prices, is necessarily going to spread throughout the economy worldwide. >> are you worried about the impact on this on the dollar? he said now is not the time to raise interest rates. >> the interesting is with all the talk about our growing debt, we have seen in times of crisis,

even recently, that there is a flight to the dollar and a flight to u.s.-based assets when there is a world crisis. there is not a lot of other places to go. this is not on to cause a run on the dollar. we will probably seek yields stay low, and it is important to make sure that ben bernanke and the fed did not try to raise interest rates in anticipation that this will shock is on to lead to higher inflation. to keep interest rates near 0 and have that kind of coordinated interest-rate policy on the g-seven countries as well. >> if we just say now is not the time and the goal is to reassure the market, it seems to me it unleashes it. the question is, is there something we can do to show that a slow release is a -- >> thank you.

you almost have to consider question one and two together, because we have to have some judgment as to whether or not this is the first in a series of attacks or not. it be interesting to hear from the director of national intelligence as to what his view is on that stage. that will be an devolving picture. in the meanwhile, we do not know at the moment. the president will probably say i do not know whether this is part of a coordinated series of kind of thing.t a one- i think we ought to do something soon and visibly to beef up that assistance effort to reassure him, both the saudis and the markets, that we're on to do everything in our power to help them protect those facilities against future

attacks. those of the two things i would suggest in connection with this issue of whether this is a one- off thing, or the beginning of a series of attacks. >> let me ask john hannah, what do we know? this is the first of the series? should we be expecting more in the next weeks? >> the attacks just happened this morning. it is still very early in the crisis. the entire intelligence community is all hands on deck trying to get to the bottom of this. the initial read out we do have from our experts and from our people in the region is that the attacks does feature of the hallmarks of an al qaeda operation. there are several aspects that leave substantial uncertainty, and the secretary of state is right that if the president decides to go out, he will need to be very careful in assigning

any responsibility for this attack. i do think however, based on our initial soundings in saudi arabia itself, in addition to sending a boost of confidence and sense that we are on top of this with the american people, and reassurance to the american people, i think our allies in the region are trying to beat that for much as well, and i think the president is on the haft have that in mind in any statement he makes. the attack was planned and financed. the helicopter pilots appeared as protocol and access codes. assistance from within aramco not be ruled out at this stage. how aramco record is its people, much less the entire saudi security establishment, is quite updated to our intelligence committee. although the saudis have made

progress in stepping out outcry that, as you know, the disintegration of central government in yemen has allowed hawkeye that in the arabian peninsula to once again forced their in 2011. u.s.-led anti-terrorist efforts have stalled because of the lack of the strong partner inasanaa. some elements of the military have been in open defiance of the government. western intelligence agencies have detected increased chatter among extremists in to those 11. the focus of intercepts has believed to be attacks in u.s. and europe. we have also been monitoring would sides -- web sites, and

last month we had a posting from the leader of al qaeda in the arabian peninsula, specifically threatening to target will and economic infrastructure in saudi arabia, specifically. it is not clear where the helicopters were sourced from, but access to such equipment opens the possibility of state support in the region. having discussed al qaeda as a possible perpetrator of the attack, i do not -- we do not have anything strong on this yet, but the issue of iran can never be: -- ruled out. the attention in the region surrounding the uprising in bahrain and the crackdown has raised the temperature between the iranians and the saudis, shiite-sunni tensions, and while

thes hiites are a majority, only 10%, they're almost all concentrated in the saudi arabian eastern provinces, where all the oil is for sure is located, and we do not have to go too far back in history, the saudis were implicated in an attack on americans at cobar x in saudi arabia. we are continuing to work very hard. we will come back to you when we have anything more credible. >> secretary of defense, do we have an assessment of where the vulnerable points are in terms of the oil supply, whether it is saudi or elsewhere, and do we have -- and the chairman make comment on this -- the existing

contingency plan of assistance we can provide to the saudis and other key countries as a hedge against this is the first of a wave of attacks, or someone decides to take advantage of this opportunity to hit the wall for in for chartres again? >> -- to hit the oil infrastructure again? >> this is only a onetime attack and we are taking measures in connection with the rest of the world to toughen up the defenses. if you look at that top-10 question -- countries from which the oil comes from, russia, united states, saudi arabia, canada, mexico, iraq, and kuwait. although we did not have a formal international system that says everybody goes oil defcon

ii, we should be in touch with all those countries to ensure that all of us are taking individual measures we need to protect our critical if archer, and each country knows what it's critical infrastructure is. then if the united states is filling it with those countries who may be more limited in their ability to help themselves, and in that territory, i would say saudi arabia, where we have the potential arrangements with and uae, iraq, and kuwait, who together could use some assistance. the other aspect, once the oil gets in a tanker, a has to get to the country that consumes it, and that is the area in which the united states has the greater capacity. their other countries who can help us to ensure passage through straits, said there

cannot be a successful attack at those points. my advice would be that the president tell us, and we have already started some of the actions, to ensure that the world oil supply is safer today than it was the day before yesterday, when this attack took place, and that will require a lot of work through embassies come out with military relationships, and then i would turn to the chairman the overall this position of our kurdish forces and how we might have to move them to fill some of the gaps, and especially to make sure that the oil tankers are safe for a while here until we sort this thing out. >> i agree with the secretary. from a this positional standpoint, there are battle groups in the regionone right outside the straits of hormuz.

we have requested the secretary to put another battle group that could move into that region. we have forces there present, and we are in contact with them. we have been advised to prepare a disposition where we can go to the gcc states for a request of activity in there. we have contacted the omanis to ask for use of the bases there and contacted others that asked for permission for diego are syria -- garcia. i will go back to the secretary's point and say thetwo is our concern, and that is, is their right to be a fall of on this activity?

i would like to interject that from a military perspective, it has economic issues. alternately, if we did get into some escalated situation, we would meet that fuel for assurance. i think a statement that the sp ro is ready. force weis we are in good shape. >> there seems to be an emerging consensus that while the president ought to talk about the spro, our only strategic petroleum reserve, but what is available internationally, and indicate that it is available for an interruption of supply. at this point, so there is a bit of a backstop in the market of our ability to help assure

supply, but your recommendation at this point would not to be invoked a spro release at this time. is that the consensus? >> one of the problems with repeated use is the more you use it the less value it has in terms of the price impact. frankly, using it the libyan situation, where it was crisis oriented rather than emergency oriented, already devalued it, and using at it again, unless a true emergency would further devalue it when we needed it. i lived through the second oil shock when i was president carter's chief executive adviser, and one of the things i want to make sure the president does not do this time which we mistakenly did before was to policies which will aggravate the problem. for example, trying to artificially reimpose gasoline price controls or have odd-even

days to try to restrict driving. those will only aggravate the problem, create more panic in the market, so let's learn lessons and not make the situation worse. >> i have been watching fox news. the stock market is down 700 points already this morning. west texas features are up 15% already, and as we were watching markets earlier in the summer, these are going to translate into the pot over night. we are looking at $6 a gallon gasoline when people go to their pop tomorrow. the president is going to get killed over this. i am understand that libya did not work when we released from the spro, there are other issues

the get to the reassurance of the public that i worry about the most said the president is in the strongest position to address this. if he does not take any action, we're looking at economic conditions today, we are right to cut the legs out from under the president tomorrow in terms of him being able to reassure the people. there is one other elephant i need to raise. it is outside my lane, but i did hear the report didamaan isn't the issue whether iran was involved in the attack. we have to be careful here because if there is any evidence iran was involved, now deals with an act of war. another reason the president should not take questions because he will be asked by the press to rule out iran, and we did not want to raise that to this presidential level yet. i am worried about that issue

with iran, but i think it has to be an action on the spro. >> if we cannot do spro, did not want to do spro, there is tension between shown there is action on top of this, and we did not know whether this the first of the series. we need to leave a little bit because we may need to go back to get a second time. is there something else we can do in the short run? the third question, the things we can put in place now to relieve this vulnerability over the longer term? point.ri's what can we do t? >> ari's point is it cannot buy something with nothing. even we did not have all the information, the president is going to have to lay a set of

activities. it seems to me he can explain why not going into the strategic reserve now makes sense without taking it off the table. you do not want to take it off the table. a needs to be out there as an option. there are other things like that that he could allude to in addition to laying out what he is going to do to secure to the extent possible the market so you do not get further destruction. if this is a problem we believe by march we will have gone through, people, when gas at the pump goes up to $5.50, that is going to have a significant impact. if people know that here is what is happening between now and then so as to bring it down again without imposing artificial -- did not want to

impose anything artificial -- there's nothing you could do in the near impact. market prices will have an impact, so that will have an impact. the question is, can he talk about the near-term and use this the start leveraging mid term and longer term so we did not end up in this race again? i think it is worth started to talk about, what are the things we can and should be doing? i do not know about refining capacity and having a discussion with oil companies -- there is some things like that that he could talk about, but longer term, we need to be talking about things like suspending regulations related to canadian oil stands, the pipeline from canada -- why should canada be

talking about shipping it to a show when they could be shipping it here? regulations having to do with nuclear, having to do with permitting natural gas, having to do with offshore drilling -- the president can talk about these things and hear our options, and he will speak to the country again in a week when we have had a chance to look at what kind of impact we can have. in the long term, reassured of the market and show we are thinking about it, we have a lot of options on the table, but near term, not a whole lot you can do. >> the news says the global spare capacity says with this incident be down to 2 million barrels a day. is that a real figure? is there something we should be doing to go to opec members, but not opec members? remember

the majority of production comes from non opec members, to see if we can generate more spare capacity, because that is a good signal to the market if we can do it. >> we have to equip the president with very powerful messages. his powerful messages will calm a lot of people plus fears. the worst thing that can happen is we do not have strong messages, we end up with people going out tomorrow to top off their tank. here are some of the powerful messages. we look at it as the short term, medium, long-term basis. the most powerful message we have is the united states of america has more oil than any other country in the world that we know of. more than saudi arabia. we have simply been holding ourselves back from producing backup oil. as a

is a key simulation to finally convince members of congress that it is time to get off the dime and put the message out there of let's produce more domestic product to meet the needs of the nation, to grow our economy, to create american jobs, and all the powerful signals. does that happen overnight? no. but let's equip the president. let's go back to producing 10 million barrels a day as a start. we can deal with other alternatives that the road, which is another set of solutions, so we are left dependence on oil per se. we have to equip him with a 10- year time horizon and walk back from that. i think it is time to engage the oil companies to get them involved to getting some of the messages out there about how they see the future prospects,

started with a message there is no sewage. we have to keep coming back to that in the near term and that is the strongest near term message we have -- there is no shortage. we do not know how much damage has been done yet, but in the region there is such a brain trust and there is such a set of skills that knowing how the redundancy of these facilities in the original design are set up, once we do a damage assessment, then we can put some powerful messages out there about how long it is fun to take it back into normal production tricks may be in the same month, maybe two or three months. unless there's something new that we did not learn this morning, the should not be a long-term shutdown of this facility, because of the redundancy built into these refineries from the get go. if you combine those, no shortage, we have over the long

term more oil than we will ever need, it is a matter of releasing our domestic capacity to go make it possible, i fear avoid the temptation of topping off your tanks, i think we can send messages of assurance that put people in a much better place than they are today. >> with all due respect, there is not a shortage to the extent that supply and demand will always balance out at some price, but longer term, there is a shortage to the extent that prices are going to get going up. this is a quick look at what we're in for in the next 10 years and no increase in u.s. production of oil in the next five years is going to stop that. china is growing at 9.5% a

year, and developing crow countries will grow at 7% and change. even developed countries at 1% or 2%. seems to me that at minimum, yes, in the near term, maybe we can staunch this. president ought to be making a point that yes we are doing with this in the near term, talking to the companies, but we are going to not let ourselves be in this position five years, 10 years from now, as an inevitable and church rector of price increases. -- as an inevitable series of price increases. >> longer term we need

alternatives to oil. we need to diversify our energy supply. >> we need to mention this cable from our ambassador who just met with the saudi oil minister and the president and ceo of saudi aramco, it is not too different from what we have heard before, but they now have a specific estimate it will take about 10 days to replace the damaged equipment and the plant will be reopened within 10 days. and then, they figure until they fully repair facility, processing capacity will be about 5 million barrels a day as opposed to the normal capacity of 7 million barrels a day. finally, interesting point here, they say they are not asking for

any further assistance at this time and that they see this as a strictly internal matter, which says to me to the extent that we offer any kind of assistance, we got to be careful to do it discreetly. >> i agree with everything that has been said about short and medium term, including suspending regulations for domestic drilling. we are not addressing the international aspect. oil is a global commodity, and we have to coordinate what we do with our key partners. on the production side, to send a positive signal to the market, we should be closely coordinating with key energy producers, canada, russia, brazil, have them send signals they are prepared to use all their capacity, they are prepared to accelerate their near-term production, to coordinate the energy side but

also the economic side so we have a coordinated message on keeping growth-oriented policies on the fiscal side, and solve this problem ourselves. in fact only about 10% of saudi oil actually comes to the united states. the vast majority goes to asia. we need to look the president needs to get on the phone with some of the key leaders to make sure we have a message to the oil markets from key producers who may be willing to say they will try to wrap up whatever capacity they may have. >> that will be a job for you, secretary. i agree that we need to get on the phone. we also need to get time on the plate. but the american people figure out that it is a global market,

that is not going to work politically. he will have a real problem with that trip we have to find a way to get full -- we have to find a way to get china into play. i want to do this now. i am a little worried about starting to move the forces. if there is something really to be done in terms of enhancing security and saudi arabia, we will probably have to do it discreetly. we have to show we are on top of the problem but not produce panic which will make it worse. let me turn to the two of you. what will you do, and what would you recommend to the president? should he talking about it at all? and is there anything we want him to announce either to show we are being prepared to head off another attack were basically to show solidarity in the region and allies in the region that we are with them in this crisis point. what would you recommend to

them? >> i think the actual actions should be as we discussed -- with countries we now have the facilities so we know what they are doing here we have offered any assistance that we can. i think we need to have enough forces available both of aden, that we can react quickly and there. as the chairman said, we have a considerable amount in the area. without making it a major deal, i think one thing that will not help the president with the press conference but i think it

is very important -- an attack with helicopters and paramilitary tactics was not done by a couple of guys in a jeep or on the internet. there had to be a place for this team was gathered or practice where it took off from. we should put a little group together with representatives from state and the defense department and the intelligence agency to examine the two possibilities. even if this thing was planned and conducted out of yemen, or it was done out of i ran. i think we ought to put two groups together to look at what our security responses it should be in those two different cases. i am sure we will find out who these people are, where they came from. we need to be ready with a range of options not only military, but also diplomatic.

certainly, economic to deal with stopping activity from continuing. that is in the staging area that was in the country that clout or updated it to happen. in the meantime, i will let the chairman check the details. i think it ought to be prudent movements that are not a rush to call in troops from liberty and put them on planes or get ships on the way that our three months early from their deployment dates. they are proven from where we know it reassurances are required accurate >> let me ask deputy national security adviser to stand up. really start a 24/7 operation. so that we can try to get a head

of this. i think we are running out of time. i will try to summarize briefly what i think is the message of this group. anything else people want to put on the table before i do so? anything else he needs to hear? >> i do think we need a balanced international and domestic prices. i do nothing which it announced removing troops. i think some international reassurance that in a subtle way -- probably the secretary can do this. we are aware of the vulnerability is that this has caused. i do not know how we do this critic should be obvious. we need both the domestic musses that was articulated and a good strong international alert to this issue. >> right. i have something in from my station chief in the emergency

cable. there was renewed turbulence in iran after the attack this morning. a group of men were arrested. all members are iran muslim majority. protestors have returned to the streets in very large numbers. attacks on suny shopkeepers. iran reporting that one officer was killed and several wounded. this is a developing situation. let me stress again, our continuing concern is about the situation in saudi arabia and in the eastern province. there is a possibility of instability. our state department has been on the ground. they have security under control. that is almost a sign they

don't. i do think we need to be worried and keep a watchful eye. i think the heart of the president's messages and what you just read. i think the heart of the president -- >> this is the processing capacity at that refinery. >> so until it has been fully prepared, it will be 5 million barrels per day compared to the normal capacity of 7 million barrels. >> my point here is that the most calming message the president can get is an attack took place, and damage was done, but it did not affect the majority of saudi production. give the facts and give the numbers. what we have is if you're in the marketplace. if the president can speak, pass the information, call markets. yet to me is the most reassuring thing a president can say.

>> if this is to believe that they can replace the damaged equipment and the pass will be opened in 12 days. >> i have already sent a message that we bought an extra half hour news conference, we will have an opportunity to get this to the president. let me just summarize what i think where we are. in terms of town, we want a realistic assessment of where we are in the nature of this crisis. he has to be candid in in terms of fact. i think john is to started the core of this message. it is at this point something that has a discrete limit to it, something 10 days or so. things are being done to restore capacity. hopefully, that is a calming

message that will cut the possibility for panning. and then he has to talk about some concerns. we do not know who is responsible. we should avoid putting a blight on al qaeda but recognize it as possibly them. this might be a first of a series. therefore, the message of reassurance in terms of the security standpoint that we stand with countries in the region. we are taking steps within to enhance their ability and to protect other infrastructure. we stand ready to offer that help. i think the things we have talked about operational lead and making sure we have adequate forces, he does not talk about it. but he sends a strong message of reassurance internationally

before our allies. i think he must also talk about a warning for others but to try to explore this information. but there it is al qaeda or the explorers or other actors of the market like chavez. this is not a time to try to gang up on the international economic system in think a little warning might be helpful. i think we decided that we do not suggest he make a release at this point. he should talk about the availability of our reserve and international reserves and correct it -- private sector reserves. we will be coordinating with them so that if there is a supply shortage, we can move and promptly. that should also help to reassure the markets i think internationally, we need them to be reaching out to companies

with the same messages. we need to build in the message that the secretary of the treasury said. we need to keep an eye on global growth. this is not a time to respond by raising interest rates. we need a coordinated pro-growth policies, artillery if this is the first of a series. finally, i think as we talked about short, medium, and long, this powerful message the secretary talked about in the medium term, this is what we will do in the short run. in the medium term, we have to get oil out of the ground. a lot of this or that we control. we have to make the message of a comprehensive energy policy so to can get off of the course of dependence on oral. that is where we are. we will get the messages to him. it is your call, but i think this is particularly important

enough that we ought to keep getting ready for an actual speech on this subject. i think the press conference will not be enough to establish the president's leadership. >> sound okay? >> one thing i would say, and i say it has to be done in a measured way, it does offer a way to fold this thing in to remind the american people about the war we happened in. we just passed the 11 anniversary of september 11 without heightening the alarm to munster to fold into the larger context of the challenge we face going forward that continues to exist. the death of an london -- the death of osama bin laden did not remember what happened to president -- it is too early. let us collect facts.

>> we should also encourage whether it is api or some of the majors to send a message of insurance out there. >> we will look to you to take the lead on that. i will go to the president and passes for the press conference. he needs to hear directly from you on what your views are. we will get the deputy committees to get it. they will develop this on a real-time basis. thank you very much. we will take a brief --

>> welcome back, there is breaking news coming out of the meeting in austria. moments ago, and the press conference held off a today put the regular scheduled meeting, i ran and the venezuela announced a joint conference in the middle of one of the severe sustained drives an energy crisis in memory. they are cutting their production of oil by 15%. at this totaling 8,000 barrels per day. the meeting has been expected to result and members bringing additional capacity on line to cover the loss of capacity in

saudi arabia. today's unexpected move will almost certainly call -- cause further disruption in the world economy already reeling from a sharply rising pool prices. will prices started today at $170 per barrel is expected to rise dramatically. many experts predicting over $200 per barrel in a matter of hours. standing by, our correspondent. what can you tell us about this? >> his action by iran and venezuela was announced here today at opec world headquarters. you will recall that there june 8 meeting, which was also expected to reveal the increase in production, revealed no increase in quotas. the meeting broke up after a

heated exchange between saudi arabia's will minister and representatives from venezuela and iran. >> can you tell us what the issues are here? i assume it has something to do with elsewhere in the golf? >> it is more complicated than that. he has asked all opec companies to recognize that is is in long- term interest to discard and produce at the maximum rates. representative in countered that it was time for the oil producing companies to recognize they have to use their power to help those who are suffering from western oppression. the iranian representatives lashed out at the data sets accusing the american government of oppressive actions toward vessels in the persian gulf.

also, manipulating markets the world stocks earlier this summer. >> these companies are using their oil supply as a weapon? >> that is what some analysts are saying. as you know, iran has been critical of the military support. he likened it to a genocidal attacks on the people. it took a turn for the worst of the past week as the violent confrontation between the government's have moved to a new level of intensity. saudi and iran security forces taking fire at demonstrators. to make situation worse, hank navy destroyer was involved in a tense as a dent in the persian gulf. >> what does that mean? >> and means that they believe, and many experts agree, they have the power to hold the global economy hostage until they get what they want. i bring in spokesman said they

would not restore production until all foreign sources had exited from iran. and most want to return from his economic turmoil, they should encourage them to let them express their political opinions anyway. any further violence must be avoided korean of foreign governments must leave a immediately. >> can you stand by for a moment? adam, you just heard our report from the net where we are being told that iran and and this will let intend to hold our economy hostage until we do what they want. how much power do they have? >> the press conference ended 10 minutes ago. the price of oil has gone from hundred $80 a barrel to 197.

nobody knows how high it will go. the people here are more than worried. if the market continues to -- concludes that the united states economy, which everybody agrees is falling into a deep recession is going into a recession, nobody knows how bad the situation can get. >> we are telling us is the weapon is very powerful, but they have the power to inflict real pain on our economy and the well-being of our nation? >> that is what i am telling you. you have to keep in mind that what we are seeing here is a conflict of different forces. there are given the lack of spare capacity in the world market. there are given the precarious nature of the market, major or producers like united states, china, and several european nations are facing a devastating outlook.

this move is sure to be a moneymaker. >> how do you mean? >> the rise in oil prices eclipse the by you of any production they take. they will make more money while selling class. >> it is certainly looking like we are in for a difficult situation. stay with us for more coverage of the story. get >> thank you for meeting on short notice. i think the president's press conference was fairly successful in getting through the first hurdle of this. as we spoke in our last meeting, the former ability of the world economy coupled with the tight

world supplies and lack of spare capacity is a problem. it plays into the hands of oil suppliers like venezuela and iran who use that leverage over the world economy to pursue other objectives. that looks like what we have got today. john, you can let us know whether this is iranian conspired or not. iran is now through their announcement of the cutbacks of production. the price of peace is to back out of their rain and let iran take it over. the saudi reaction -- the saudi reaction to that. we are creeping power depends

on petroleum and the countries that do it are either unstable or hostile to our interests. that is the process we are seeing played out. the president has to give an address and the talk a little about that. his guidance to me is that he needs to clarify the significance of the event, he wants to add some policy things from us. he wants to show his way to the american people on how we will get to this challenge. let me start again by turning to the debt piddle -- deputy national security adviser. dave, where are we at this point? >> just to reemphasize, prior to the announcement, gears were really grinding. we had essentially no spare capacity.

it will cause actual shortages. now we have supply and demand imbalance is moving through the rest of this winter into spring. cold weather is forecast in north america. we have the keating pressure. this is a serious problem which will essentially lead to significant demand destruction going forward. at this stage, the idea of government stopped and a drawdown is important. s why the show prices will peak at $200 per barrel. it will not come down below $150 until april. i should point out in previous discussion last month, we talked about china.

this does not include chinese stocks. estimates are that the chinese have 100 million barrels in their stocks. this only represents drawdowns from i e a, member countries. any see has done some analysis that shows the 2012 economic outlook is grim and. we will be slipping into a sharp recession. baseline assumption of 3.5% growth in 2012 now down to 1.7%. the basic assumption of 8% unemployment up to nearly 10%. an inflation rate in 2012 as opposed to the 4.5. the economy recovers somewhat in 2013, partly due to the fact

that world prices dropped. primarily command -- severe relocation. pretty bleak picture. that is all i have. >> the president asked us to look at 3 inches. he wants to know about the impact of the crisis, what do we say about what men as well and i run are doing. specifically, what are we doing about the rain? given to the blackmail, or let them critter the economy. second, economic impacts. what will it do to our economy? what can he say to the american people that he is doing about it? what can we do about it? finally, looking a little bit forward, and what did he say to

the american people that we are doing to get our country out of this situation and get leverage back in our hands rather than being in everybody else. let us talk about foreign policy impacts. let me talk about you and ask or the saudis are on this and what is your thinking about what we should do and what the president should say about -- >> i have -- as far as saudi arabia is concerned, too thought occurred to me. first, we have to continue to bear in mind that they are the largest supplier to the international markets. we do not want to do anything that would alienate them. i think what ever we do in terms of our dialogue with them on the

subject, i think it should not be public. it has to be quiet. we have to see if there is some way out of this under the impasse with respect to the situation. i would above all placed a goal of avoiding some kind of a public breach with saudi arabia. for policy and political reasons and because of their critical position as the major supplier of oil to the international market. notwithstanding the withdrawal of this saudi production by the venezuelans. we have an analysis in our embassy caught all of the iranian situation well. it shows that he faces a very bad domestic situation at home. he met will be trying to fabricate this crisis to enhances on political standing in a country with a culture.

is this something that can perhaps be through some strategy waited out in some kind of a way? >> what is the intelligence tell us about whether this crisis and iran is manufactured by the i iranians. he is there any way we can use that evidence to you hear what the iranians on the defensive? >> there is no question when at at least in the latest reiteration, the shiite unrest was that really triggered. is that a coincidence? i do not know. it began happening on the same day. here it is not to say that there is not legitimate nicolas --koz

there is no doubt that the iran hands specifically to -- there special forces operation that they are actively fuelling some of the unrest. we had them dead to rights on the smuggling of weapons to the militants. it is important enough that this does come in a context in which iran is engaged in a much broader his campaign against united states interests and assets in the region. pat is on weapons smuggling and particular. for several years we had them dead to rights on weapons into iraq, specifically these weapons as well as the projectiles that are killing

american forces. that has only been as we withdraw the drawdown of u.s. forces. by the end of 2011, we also earlier this year -- british forces intercepted a ship of rockets moving from iran into afghanistan. they are actively working with clear syrian counterparts to crush unrest in syria and preserve the hacking. iran continues to deliver weapons and missiles capable of hitting israel to hezbollah in lebanon. we have the irgc now operating on all cylinders, this economic component is their declaration of war against the united states. and that is just the latest sign we have that the iranians

are pursuing a comprehensive strategy to weaken the united states and the middle east and damage our economy. they for a long time with u.s. sanctions that have been significantly amplified since 2010. have said that they do have capabilities of striking back against the united states in the west and imposing economic pain on us. and i think our judgment is that's what we're seeing come to pass as part of the very strategy in which iran sees itself as engaged in very much of a -- almost an existential struggle with the united states. >> i want to ask this question and throw it open, what's our leverage on iran? right now leverage in iran that will make them reconsider the strategy they're playing in about a raun -- in bahrain to make them rethink their effort to put a gun at the head of the international community? so i want to talk about

leverage on iran, what do we have? let me start -- i want to start actually, john, with you on the diplomatic side, but then i want to go on the economic side, and then i want to get, mr. secretary, at the end what we have in terms of the military. let's run through, if we can, what leverage do we have on iran to make them reconsider their policy? and i put on the table both leverage from the outside but also what we might be able to do to encourage dissent within iran to preoccupy this regime. so secretary of state, let me start with you. >> first of all o on the side of positive leverage, we have precious little because we've been in an embargo situation with iran economically for decades now, so there's not much on that side of the leverage, at least of our own. there certainly are economic relationships between allies of ours and iran that we might be

able to influence in some way and there are even economic relations with competitors of ours, if you will, such as china, which we might in some way be able to leverage. i think the area where we have exerted leverage and could perhaps consider ratcheting it up in some way is in the area of sanctions against their economy which we know both financial and commercial, which we know have started to have some affect and maybe there are ways we could look at to increase those. and then of course we have the implicit threat of some kind of more coercive efforts, the potential use of force in certain types of situations which we've always been very careful about indicating, but we've also been careful not to remove it entirely. off the table. so that's something that's also

there. >> let's see if we can add to that list. secretary of the treasury, and then the economic advisor schwab, lease. >> the secretary department through my steward levy, has been very effective in supplementing the fourth round of u.n. sanction which is were aimed at the nuclear program of iran with u.s. and european sanctions and that is in fact been aimed in part at iranian imports of gasoline. they import about 40% of the gasoline needs. and what i think we can do here on the economic side is ramp up both u.s. and european sanctions on that imported oil. for example, as of may of 2011, iranian imports of gasoline had been cut almost 50%. we can now go to the chinese who have been frankly back-filling some of that and say, look, this iranian cut and

venezuelan cut hurts you as much indeed perhaps more than it hurts us, because you're increasingly relying on iran for your oil and gas. therefore, you should join us with a very stern message to them and a willingness to support a ban on all imported oil and refined product. even with all their huge reserves, their refinery capacities are limited. they do have to import, as i've indicated, a substantial amount of gasoline, so this would be a logical next step. frankly, in the short term, this could spike the crisis even more but we have to take that risk if in fact we're certain that iran is behind this attack. but in addition to send them a signal that they can't simply take hundreds of thousands of barrels off the market. this is for me reliving a bad reality show because in the late 1970's when i was working

in the carter white house, we had a five million barrel per day reduction in the production of iranian oil from the world market. it caused 120% increase in 12 months between february of 1979 and's february -- in oil prices. we've got to be able to send the market a signal we're not going to allow this again. again, i think china is key. china has a lot of leverage here and they'll be hurt as much as we. >> let me turn to sue for a minute and then i want to hear from the secretary of defense. >> i agree absolutely with the secretary of state, secretary of treasury in terms of using leverage but we should also talk about venezuela and having colombia, argentina, peru, chile, and in particular brazil putting pressure on venezuela at this point. i think we can use the g-20 to, at minimum, do no harm.

if you look at the makeup of the g-20, we have a number of major producers including the u.s. and including saudi arabia, including canada, mexico, russia, and having countries pledge not to launch policies in terms of export bands, saying we're going to step up in terms of production that we are going to allow market forces to, at minimum, market forces to reduce consumption, the do no harm plus using the leverage we have. >> let me pick up something from the secretary of state, don't we want to internationalize this problem? this is not a standoff between iran and the united states. venezuela is the united states. this is two oil suppliers threatening the entire world economy and the bad guy in this is clearly the ringleader is iran. and is there a role, john, of

taking this to the g-20, something you mentioned last time, as a way of both consuming countries can all get together? it's a way of putting pressure on china which we talked about needs to be done, going to the security council, having a gsks-20 meeting. let's try to internationalize this thing. this is a threat to the whole global economy and iran is the villain and we ought to be focusing pressure on iran and those that are thrown into it. isn't that the thematic we should be doing on this? >> yes. no sanction can be effective if it's only the u.s. >> right. >> and as i mentioned in our first meeting, having first the g-7 finance minister so we get the major industrial democracies to make sure, steve, that we take coordinated stimulus action and second, broadening very it quickly to the g-20, both to the economic impact but also with respect to

iran so that we have a forum, as sue mentioned, where we can deal with the venezuela problem, because venezuela, even if we get china to help on the imported gasoline, venezuela could also back-fill the needs and we have to make sure they don't. we have to internationalize it. >> mr. secretary, let me quickly hear from the secretary of defense, the last piece of this. is there some military leverage we have? can we put pressure on iran kind of the old-fashioned way? what kind of options do we have? >> the military hammer we've had hanging over iran for several years has to do with their nuclear program, and we have never taken off the table the option of taking military action to prevent iran from attaining a nuclear weapons capable -- capability now. last time i looked at the evidence from the intelligence

community, the situation was still ambiguous. iran had all the components of a nuclear weapons capability, but it still kept the situation ambiguous, whether it had it or not. but i certainly think that the elements are there to reroute -- or to flash that stiletto, should we choose to. but as far as military actions more related to the crisis at hand, i think there are two things we should consider, we're in the midst of a drawdown of our forces, both from iraq, which lies to the west of iran and from afghanistan which lies to the east. i would recommend that we have the chairman take a look at those deployments and determine if we want to continue with the previous plan which was premised on a quite different iran from the iran we seem to be facing today.

so i certainly think that the adjustments, our redeployments out of those two countries we share a border with iran are something we should look at and those could be used for pressure. >> let me ask this, let's ask you and the chairman to look at that, slow down drawdowns, whether there's some additional deployments we want to make in terms of signaling to iran this may not be a free run, and let me ask the d.c.i. to look with c.i.a. and d.o.d. about whether there's some covert options, things we should look at to cause some disruptions that will raise some questions in the iranians' minds. let's take a look at that. let's move, if you will, to the broader challenge. we talked a little bit about what we want to try to do diplomatically to try to rally the world to save the global economy but that's what's at risk here. what else should the president say to help us get through this

economic crisis and ease the impact of the american people. mr. secretary? >> i think there are some, again, powerful messages for the president. in some respects, iran and venezuela announcing that they're cutting back production is actually a fait accompli of what the sanctions have done to iran. iran is cutting back production because they don't have the capability of maintaining production. i think we should equip the president with the message that sanctions are working. we've known for a long time that iran's ability to keep their production going depends upon international help, international equipment, supplies, particularly higher technology capability. and they don't have it. they're running out. so they are in decline. we've known hugo chavez and pen

avesa has been in decline for some time. the incompetence that now overwhelms penavesa and is amazing they've sustained production as much as they have thanks to the large ventures we have in venezuela. it shouldn't to a large supply. these folks have been mismanaging their oil fields for a long time in venezuela and show the incompetence of venezuela is the problem here and pull a rug out from mr. chavez with respect to ahmadinejad with respect to the fact the sanctions are working and pull the rug out from him as well, put a point to we're taking big actions and tape and bailing wire is not holding it together. >> could this be the end of opec? >> i think they've done serious damage to themselves within opec where the more rational producers, like saudi arabia, like nigeria and some others who really see oil as value

-creating for their nation rather than a political weapon, yeah. i think this could -- whether it's the end or whether it's a serious dent in their ability, they could always change government in venezuela or iran and come back in and be part of the mainstream. but i also think going back to our earlier discussion, we equip the president with some powerful domestic messages and i think we keep reiterating those powerful domestic -- for example, as everyone knows, i've taken issue with the secretary of interior's decision with respect to the gulf of mexico. it's time to put the gulf of mexico back to work. i mean, we're not doing what we could be doing to help ourselves in regards to the gulf of mexico. in addition, an overall program was just announced yesterday to bring the various departments together to try to ease the regulatory burden on individual companies and how they're operating by coordinating federal efforts. let's accelerate that. let's look for enablers in terms of domestic production

because every enabler is the creation of american jobs. and in terms of the economic impact, if we could portray a massive job creation scheme through domestic production of our own resources, that's a very positive message. i think, also, we have to come to grips with, and is this the right time, to sit with some of the major n.g.o.'s who take issue with the hydrocarbon production that we have in this country and see if there isn't some way to help the n.g.o.'s understand that their resistance to the reality that we are in an oil age, it's not in the past, help us help ourselves, and if we want an alternative future, we can move to an alternative future faster by not going into economic recession by prohibiting the production of hydrocarbons. >> i want to get to this messaging issue but i

understand there's some breaking news just coming in. let's turn to the screen. they're going to put it up here in the situation room. ♪ >> welcome back to gnn where we are covering breaking u.s. financial news at this hour, at least one of the three credit ratings agencies is expressing concern about the sustainability of the u.s. debt position today amid what is perhaps the most severe oil shock in modern history, fierce of a deep recession and sharp worsening of the u.s. debt to g.d.p. ratio are undermining confidence in america's ability to meet its obligations. this month's spike in oil prices has sent u.s. equity indices tumbling by more than 10% over the past year and led to expectations regarding u.s. economic growth in the fourth quarter of 2011 and the first quarter of 2012.

a recent gnn poll earlier this week found broad sentiment among economists the u.s. is headed for another recessionary period. the united states triple-a credit rating was the focus of attention earlier this year while legislators debated raising the u.s. debt ceiling. rating agencies put a negative outlook on the u.s. long-term debt and some prominent investors made widely noted moves to reduce their exposures to u.s. treasuries. we go now to our financial correspondent adam dell who joins us from new york. adam, what can you tell us? >> i can report now that two of the three credit rating agencies have issued public statements today warning that the current trajectory of the u.s. economy is cause for concern from their per secretive. >> what -- perspective. >> what promised this -- what prompted this move from the rating agencies? >> it's a look at the u.s. economy as we're headed towards what looks like a deep

recession before we've gotten back to our feet from the last recession. it's also about risk posed. and consumer spending is expected to fall sharply and next as gasoline prices eat into household budgets. u.s. businesses will suffer as well, shipping and logistics companies, airlines, and some of the automakers, just some of the industries that respond to a spike like this. >> as the industries suffer and the economy ticks back towards recession, unemployment will rise and federal tax receipts will decline. at the same time credit rating agencies fear spending son safety nets like unemployment insurance and food will rise again. based on this the agencies cited a worsening debt to g.d.p. issue as their core concern. >> the natural question is, does this mean the u.s. is headed towards a downgrade? the united states has been rated triple-a for as long as there have been ratings, hasn't it? >> i think we can now expect the rating agencies to engage with the federal government and ask for some sort of serious plan for moving forward.

the previous financial meltdown and recession, the u.s. essentially doubled and not all was directly related to the recession but agencies will like lie want assurances to enter another period of exploding federal debt. the key question facing the united states will be given the known budgetary obligations, can the united states achieve the great rates required to pay down the debt, particularly if it means so vulnerable the debilitating energy shock we have. and the other industrialized nations have more intensive economies than the united states. france ranks below triple-a and requires a 1/3 less energy to the u.s. single unit of g.d.p. >> before before you go, give us the consequences of a downgrade, however likely or unlikely that may be? >> if the u.s. were downgraded it could create a vicious cycle. many investors in u.s. treasuries like pension funds, money market funds, endowments and insurance companies are

required to hold a certain percentage of their assets in triple-a rated securities. a downgrade would thus automatically trig area sell-off. no is sure how much debt will be affected by that but analysts on wall street are working overtime to try and find out. >> thanks for that reporting. so to summarize where things stand at the moment, oil is now trading above $190 per barrel, rating agencies voicing concern over u.s. debt on a sharply reduced outlook for economic growth and there seems to be little the policymakers can do to unwind the problem in the short term. the president will address the nation from the oval office tonight. you'll see it here live on gnn. ♪ >> well, we've gone from a bad dream to a nightmare. we've got a debt and long-term

spending problem that's confronting the country that we can get out of only if we can get the economy growing and revenues up. and yet our economy getting -- getting our economy going and revenues up depends on an oil market that is now being taken hostage by iran and venezuela. so we've got to give some guidance. i think the bar went up. what the president needs to do tonight, i'd like us to address three things. one, we need a plan to absorb the short-term impact on this. secondly, we'll need a plan to address the downgrade issues and finally, we need a plan on energy. to avoid the repetition. seems to me that's what the president needs to talk about. and it seems to me the president's job got a lot harder. what is your initial reaction? what are your thoughts to how he should try to frame this? >> well, with all respect to

the conversation we were just having, we're going past the president's grave yard. this is unsustainable. the president is about to lose his re-election. we're heading into an election year. look at the trend, since november and the attack on saudi arabia, oil has been above $140 a gallon, $185 now. it costs people $100 to fill up their mid size vehicles, more than $100 to fill up their s.u.v.'s and we're heading into a recession and even with that reception, the perception of it is bad enough. this is how bad michelle balkman is beating the president in all the polls. newt gingrich, newt gingrich -- >> is that a surprise? >> newt gingrich is even with the president in all the polls. e.j. dione wrote a column that says not only does the president sound like jimmy carter, he's increasingly looking like jimmy carter. none of what we're talking about is going to solve the real-life problem the president

has. we need to think much bigger, change the subject and present something brand-new to america so the president is seen as leading our way out of this to big things, not traditional leverages that we may have. i think the solution is to go back to what happened for america in 1940, 1941 before we entered the world war when we were seen as the armament of democracy and we started to get the world ready to solve a problem. we need to do that now with energy and become the armament of energy. and i think there are only two ways for the president to go. they are polar opposites and we need to make the recommendation to the president for which one of these huge courses of action to take. and we need to announce we're going to open up america and take tracts of land that were previously totally closed, anwr, offshore oil, domestic oil and open them up to make america the armament of energy. we're going 100% opposite direction and make america

green once and for all and go in the direction of wind to solar and the other things that are now increasingly economicly possible because of high oil prices. anything else is just lost in the margins of history and we need to put the president on track for something so big the country gets excited behind the new mission he's established. i meant that about the reference to 1940 and 1941. this is a chance to do something big in advance of something globally catastrophic where america leads the world out of it. and i think those are the only two courses to take. >> you put them as alternatives. let me ask the secretary of energy, are they alternatives or can they be complementry? >> they're both ends. we have a short and medium term which only can be met with more hydrocarbons. with all the cars we have, nobody is rushing out to buy batteries tomorrow because cars aren't available. so we have to make room for the next 10 or 15 years, healthy supplies of domestic hydrocarbon energy and the whole pathway for the green

economy. those can happen simultaneously. we've only been twittering with the green economy because the efforts have been so small. we can paint a much bigger picture of what that looks like but we shouldn't do it at the expense, not a decade and a half or even two decades of the hydrocarbon reality we face. you can't fly airplanes on wind power. it doesn't happen. you can't move trucks across the highway with all the goods that you carry with biofuels. it's just not there yet. so we have to rely on the historic. there's a lot of what i said a few minutes ago about creating this whole jobs agenda and enables thousand go after domestic production and can list out year by year by year exactly how much capital the oil industry or the other industry with gas producers are going to spend. it's not billions, it's in the trillions that we could open up

for this country. and those are big jobs, high-paying jobs. it's commercial for big oil here. "a reality that we have just been hiding and not talking about literally for decades, and let's reopen that up. >> let me ask the group. in our area it's a problem, but yeah, how did we let this happen? how does the president ask the question, you know, we've known we were dependent on oil for 20 years, everybody has talked about energy independence. how come we're at this point? why haven't we done more? >> i think that the situation here is that the reality is really less grim than the perceptions. but the way this thing is wired together, something like a less than 1% withholding of oil by two countries that are using against the united states can

have far more influence on the economy and stock market and all of those things. and we have allowed ourselves to be worked slowly into a very delicate position with this international oil market largely controlled by countries who are at best neutral towards the united states, at worst end antagonistic and it's delicate that one quiver here can shake the whole thing. so we've got two real choices here. we can become less dependent on that system by decreasing the oil intensity of the country. and i think the reason we got here was we allowed the oil intensity to increase while sort of holding the geopolitical structure together well enough so it didn't really hurt. but i think $200 a barrel really hurts. and we've got to make some structural changes to not allow that geopolitically fragile system hurt us and to look at the basics, which i think we

can control in terms of supply and demand. >> secretary of the treasury. >> i want to focus on the economic impacts because i've just been given a report the dollar is continuing to fall and hedge funds are selling a dollar short and that we've been asked to meet with moody's immediately. now, the fact is it this persists for any length of time, we are in the potential of my being the first secretary of the treasury since alexander hamilton to have to announce a downgrade of the dollar a and if the president is the first president, more importantly, to preside exactly over the political impacts that are mentioned. but economically, a downgrade or even the threat of a downgrade will inevitably lead to higher long-term interest rates. and you can do all the efforts you want with ben bernanke and the fed to go back to purchasing more bonds. it's very difficult to effect

long-term interest rates which are market-driven. so we have the real risk, steve, of going into a double-digit recession now. we need to do, therefore, the following and it's a very careful balance. first we need a short-term stimulus by a payroll tax, holiday or a substantial reduction in employer and employee payroll taxes. second, we've had these continuing impasses on the debt limit. we just went through this over the summer and only put a band-aid on it. you know, winston churchill said the american people always do the right thing after they've exhausted all alternatives. we've now exhausted all alternatives. this could be the shock that gets us to a deficit reduction package. now, mind you, it needs to be a long-term one in impact. if we were to do that immediately now, it would send a terrifically positive signal to the market that finally this

crisis brought us to a genuine deficit reduction, long-term package dealing with our structural deficits, putting entitlements and tax revenues on the table. and third,and the third is the s part. china, which has always been hoping that their own currency could be an international reserve currency, and that oil is trading dollars that the dollar tanks, they, and the rest of the world economy will suffer. we need to get the g20 to put out strong statements of support for the dollar backed up by administration action dealing with the deficit so that we do not let this iranian situation, which is only a blip in the amount of oil but has major psychological impact, we need to

send a message from our international partners that they have confidence in the dollar and our capacity to handle the structural deficit. we need to demonstrate quickly. i would have the president in his speech tonight say he is going to ask congressional leaders to come to the oval office tomorrow morning and reach a deal on the deficit. maybe this spread it will shock us into the action we should have been taking over the summer. >> to balance this a little bit, i agree that these are long-term solutions that need to be started today. no doubt about it. " concerns me is the -- what concerns me is the -- if that is disrupted in some way, all of the gains would go for naught.

the concern for me is the fifth fleet headquarters is in bahrain. we need to see where that is going to be operating from. the idea that iran could make us leave would be important but not operational lee. -- operationally. i feel like the sanctions have the been ineffective. the next step would be an embargo or blockade. those are acts of war. i am not suggesting we do that " we need to prepare ourselves for alternatives. the threat from iranian small boats has been there before. it is still there. i am worried about a maneuver that would escalate this in an unforeseen ways. we need to start thinking behind

the scenes with our allies in the middle east for alternatives. to the speech tonight, we are short on a time. i want to focus on the energy possible. stuart has outlined things well. if the president is going to outline an energy plan, to get us out of the vulnerability we are in, i want to have some comment on what that is starting with sue and then john. >> i think would be worth the president pointing out the two things -- we have met the enemy and he is us. we are the largest consumer of oil in the world, one-quarter of the global -- comes to the united states. that is twice what the chinese consumers.

most of that, 70%, is for transportation. let's start with those data points. we can start backing into solutions. one of the things worth pointing out is that one of the reasons saudi arabia has calibrated its capacity so that you did not see this kind of price hike. they did not want to see the world going to recession but also did not want market forces and a market prices to stimulate the kind of innovation away from hydrocarbon, away from oil that we now have the chance of generating. i agree with the secretary of energy on the expanding domestic production side it but i think one, expand. second, to the extent that the prices at the pump, i am not

sure what that is. i do know that between gasoline prices and heating oil prices, the average household income has gone down by a $137 billion. we need to be in a situation where there is a motivation. the price at the pump will contribute to this. motivation to buy fuel efficient vehicles that are sustained. producers and consumers will need to know this is not just a temporary aberration. the prices will stay high. we need to develop alternative sources of energy, whether that his nuclear, natural gas. we have a lot of natural gas in this country. we have seen that in terms of prices. how can we translate that into

more energy self-sufficiency? >> in 1974, the oil shock gave impetus to the creation of the iea and the whole idea of stockpiling. against future shocks of this kind. i am wondering whether opec has run out its string. what we would not want to take them on in a diplomatic confrontation, maybe there is a way of getting the saudis and other friendly oil producers to sit down with us in a different context like a meeting of the key consumer and producing nations where we could include russia and north america, canada as well as the oecd

countries. it seems to me that architecture of our energy diplomacy, find some new formulation where we would be able to create a somewhat friendlier atmosphere to the major economic interests we are trying to pursue. >> a part of that effort has to recognize that oil is traded in dollars. i think we need to have the ben bernanke organized a central bank support for the dollar so that it is not plunge and hurt everyone. this has been done before. it can be done. we showed the hedge funds that they cannot sell our dollars

short. that has to be an economic and energy policy. >> in terms of how we consider going about this, there is a consensus in the intelligence community that we are in for a protracted situation in the middle east. 2011 is not going to go away anytime soon. and yet, all of our mainstream energy forecasts all depend on substantial production growth from the middle east, from saudi arabia, iraq and other states to make -- meet future oil demand. whatever strategy we put together, we have to take into account the restraints that are going to exist on any short-term increase in the production capacity globally. >> and what i think we have

heard tonight and the guys " run by the president. i want to start where we already started. we have to do something bold. the president has a real challenge and an opportunity to become a great president. something brand new for america but also the president leading the world out of the economic crisis, providing leadership out of the energy crisis. 3, we need energy. as part of that leadership we need to sketch out a comprehensive plan. on the economic peaciece, the dollar. we have to get the central bank to lead an effort to defend the dollar.

the president has to avoid a double-dip recession. some of stimulus measures, you want to put people to work. you have to reduce the cost of labor to give them an incentive. of course, this is an opportunity to say we need to get a deficit-reduction. call for a meeting to try to get our hands around the deficit-reduction. third, we talked about internationalizing this problem. calling for international groups to come together, the g7, g20 kind of approach. that showed of the crisis we face is mobilized in the international community

including countries like china and putting pressure on iran and venezuela and those people in the international system. -- putting the international system at risk. the president needs to put out a comprehensive energy plan that is molded beyond what we have seen in the past. opening up the domestic markets. getting hydrocarbons out of the ground and into the market, decreasing the intensity of our dependence and other matters. on the transportation sector and in which is where the oil consumption is, moving toward electricity which allows us to power cars from a variety of sources. petroleum is only 1% of what we use in terms of the generating electricity. it diversifies to other sources

and non petroleum -- we have to do all of those in a big way. part of the international is moving beyond opec. opec is no longer for stabilizing the economy. it is a vehicle for assaulting the economy. we need to move beyond opec. the president needs to call for a different set of approaches to dealing with the economy. it is a challenge for the president but it is an opportunity for the president to lead the country and world to a better place. that is the message we take to the president. comments? suggestions? >> i would add one other thing to your excellent summary. when the suit was -- when sue was in her other position, she

negotiated three free-trade agreements. it would send a signal that our political system is not dysfunctional. that is what it has been showing during this debt limit problem. if we could use this crisis to get that done and put in the payroll tax cut and the long- term deficit reduction package, it would send an axle and message. when there is a crisis america rises to it. this is a time when congress needs to do that. that would be another element that adds to the package. >> amen. >> the president has to be clear with the american people that while he is going to provide this leadership on a national and global basis, this is a problem that has festered too long. we are behind the mall. it is going to take a long time to keep these things moving. it will be a rough times for america and the world until it gets down. not a great message but that is where we are. i will take that to the

president. thank you very much. >> on time and on message. [laughter] >> thank you very much everybody. well done. [applause] i am the voice of doom. it is no doubt comforting to know that when the warning occurs everybody on television will have a british accent. [laughter] this is the point at which we allow this terrific team to come out of character and abandoned the roles that they are played over the last couple of hours and talk about the experience of securing out this sand -- stimulation -- simulation. we're doing this at such an extraordinary time in washington with the debt crisis been

discussed hour by hour at the white house and on capitol hill. stuart, do you leave this thinking differently about those conversations and about how, the extent to which the united states is flirting with grave danger? >> yes, it is something that i have realized. but the simulation emphasizes that this may have some impact on the the talks that are going on now. this is a short-term palliative. successive presidents have talked about energy independence and energy security. here we are back at it again in 2011. it gives me a sense of urgency. the key is whether it is urgency for the congress, the administration to come together now to avert a problem before we

get a downgrade which will send the economy into a tremendous spiral. we talked about a seconds double dip. it could be a second great recession. >> we will be opening this up for questions and a few minutes. feel free to think about what questions you would like to ask. i was struck by the fact that when you ended part one of the stimulation -- simulation and you listed the ideas you're going to take to the president, the last thing on the list was developing a comprehensive energy policy. isn't the lesson is that this has to rise up the list and that it cannot wait for the fictional events to occur before policymakers actually grant but? >> i think that is the takeaway. this is a time to be bold. it is true that the country

faces enormous challenges. but enormous challenges tend to make great presidents. what i would say to president obama and all of those poor trying to run for president is, this is a time for boldness. we are locked in too small things. we're not talking about major leadership. the american people are looking for it. that is what they want to see. i agree with you. we are late on this. we have known this was a problem for 20 years on the energy side. we talk about energy and the -- energy independence. each year if it's worse and worse. >> you were playing the role of the counselor to the president. you were raising the political issues that the president had to

face. to what extent do those concerns and constraints mitigate against the possibility of a comprehensive strategy? >> especially with a divided government, it mitigates it tremendously. there are severe handicaps. if the president decides to open up america and have a rebellion in his political base because of the democrats will say let's go cream. how quickly is it is achievable? republicans [unintelligible] the same thing with the debt limit. these are the handicaps' we have. in the end, after exhausting everything, we do the right thing. churchill was right. that is an open question. it handicaps' both parties. governing from the center is the hardest thing to do in

washington, d.c. >> sometimes there are two ways to get a consensus. it is to boil it down to the lowest common nominators. -- common denominator. but sometimes it is good to go big. this time it is go both. that way you may be able to generate a consensus and enthusiasm. >> i wanted to ask you about the issue of [unintelligible] ari and others were making the point out, how could you not be prepared for the fictional crisis that was rolling out in the saudi arabia. in a sense, if it were better designed for dealing with lower level global relations rather than seismic issues, what is

the take away from that? >> having been at this for a while, i think this approach should be a life insurance policy only. it is only in case of death. anytime you start manipulating it for other purposes, you dilute it. then it becomes like a faucet. turn it on, turn it off. that is not what it is therefore. i think that takes discipline. bold is important. courageous is also important in terms of the decisions that need to be made. from where i sit in the country, the most courageous decision would be a those made without regard to reelection but rather what is right for the country in terms of resolving these big issues. last political tactics and more the substance of what is

courageous. the country has to do with these issues. >> can that happen in this town? >> probably if the crisis is big enough. i think we are on the right track. [laughter] the crisis came and the talk came. it creates an opportunity. so the question for us is can we anticipate this and make those kinds of decisions before a crisis arises. i am not brimming with optimism on that score. >> what strikes me in this simulation is the inability of our national security instruments to solve this problem in a satisfactory way. our armed forces, a powerful as

they are, cannot get this particular problem. our diplomacy, skillful as it may be, it drives me back to doing the things we can control in our own country in terms of our own energy resources and conserving every barrel that we do news and then looking at becoming less dependent. we have been using some tools to do this. we have spent huge amounts of money. we have a served. the problem lies with them. it is something we need to do at home. we can do that. we do not control opec or iran.

we do not control saudi arabia. we control the things we can do in this country. i think we need to look inward to solve this. >> i presume you would agree with that. we have met the enemy and he is us. >> you have to wonder if we cannot get beyond no-brainers like the debt limit or the free trade agreement, how can we come to grips with this in the absence of a crisis? there is nothing that -- once the crisis has started, we are in deep, deep trouble. how do you generate -- we talked about courage. we need to talk about leadership, leadership, leadership. there are some things that are important enough to risk losing your job. whether you are elected or

appointed, i think being honest with the american people about these issues, the american people can take the real story. it is going to require a longer- term solutions. we were scared so much of what had been going on -- spared so much of what had been going on. the congress had passed a stopgap measures. we did not talk about subsidies. some of the mistakes that were made in the 1970's were mentioned. but we were largely spirit. -- spared. so a lot of us need to step

up. >> the crisis -- you need a crisis to motivate you. you have options before you get in the crisis and you have options after. but in the crisis, your options are few wis. one of the tricks about a crisis is to be able to articulate a sustained agenda that people can buy into and they can be executed over the long term. but when you're in the crisis, you are precooked. key iss point, the education of the public. everybody is for deficit reduction. but when you put the component parts on the table, we're going to have to have limits on social

security, discretionary spending, on the taxes, the fact is we cannot afford the structure we have built in the today's tax limits. we have to come to terms with that. it takes a bold politician and it takes the public to believe that in which they do not believe. they have this theoretical sense if we just make a few cuts here and there we can solve it. the same with energy. a sustained honest dialogue to explain where we are is difficult to do before the crisis. when there is a crisis, perhaps it is easier. can we take these actions to avert a crisis? in a democracy like ours, so open, it is very difficult. it takes a high level of education of the public. >> a quick footnote, which did not talk about the private sector.

we talked a little bit about ngo's. we should be talking about what can the private sector be doing? i happen to set on the fed -- serve on the fedex board. fred is walking the walk. he is doing. to the extent that we can see a consensus to build a long-term lan in conjunction with ngo's and have that as a force multiplier, that would be a tremendous benefit. >> let's open it up to questions. we have a couple of microphones out there. back there and there. anyone from the floor with a question or comment over and what you have witnessed over the past few hours. we have someone right over

there. a gentleman over there. >> i'm with the association for the study of oil. i would like to follow-up on your conversation with a dual strategy of being more bold and aggressive about a green future. it seems politically and economically essential to have a strong economy. we should link the two. i would like to hear about a grand bargain where we open up the gulf of mexico and tired those resources to investments in accelerated strategy, the practical details of what that would look like, what would be acceptable to a different sides of the equation. >> you made the point about and aing out to the ngo's

talking about a future with hydrocarbon. >> i think with a profit in leadership, that bargain is, where companies produce oil. let's open it up and at the same time, part of the deal is, let's change the royalty rates. let's change the royalty scheme. the industry does not want to hear that. the best deal in the world is producing oil in the united states of america. regimes elsewhere are fall -- far less lucrative to the oil companies. let's change the royalty rate and a change production and let's use of those and royalties for the next generation of energy, the new technology. the so-called green energy. that deal could be struck. i think getting the ngo's on we're going to find

methods that are going to pay for the green energy sector. all of the sudden you have democratic forces coming together in coalition rather than in opposition. that may be a dream too far but i think it possibility. >> we are in a situation now. challenge -- chad is number one in the production of solar panels. a lee the family in new england is opposed because of aesthetics, putting a wind farm in the bay. there is always a checkmate in our system, and perhaps it takes a crisis to allow people to say we have got to put aside these

kind of narrow parochial views and let it all hang out, regular production, alt manager, nuclear, all this test be done, but it requires the people to be sacrificing and be willing to allow these things when there are some risks to be taken. >> i want to get your take on the simulation. >> this notion that we have known about this problem forever, we have not discussed the huge economic impact on the united states, a greater way in which we're held hostage, but the national security impact of this. i mean we have sat around that table and especially after 9/11, and what came out of that region of the world, and to some extent or other are hamstrung about what we can do.

there are restraints on u.s. national security flexibility and the policies we can bring their on the middle east because of this link back to oil, the opec, and the kind of stranglehold it has on the global market, the commodity that is truly the central to our way of life. knowing that, as long as we have known that -- one is just talk about how incredibly urgent this problem is and how little we have done about that. >> one more question from the floor. a gentleman from back there. >> what is most striking about this event today is when we did our first shock wave, 2005, 2006, the conclusions were

strikingly similar -- big ideas, big plans, we got to do this, we're sitting on our hands -- basically we had no options and crisis was not an option, just as it is here. that is not dealing with the immediate needs of our present. oil prices were probably $25 or katrina, and cap, pre- we came up with speculation all at $100 a barrel and we talk about what it would do to our economy, and this recession was not about oil prices. it was something much bigger. since then with oil prices much higher we have had unprecedented economic growth, but our deficit has grown up to three times, perhaps. what we ought to be reflecting on is where we have come from, where we are, and are we really going to do something when it becomes a problem, because you

cannot have $200 a barrel oil. i said that as a provocative thought, an observation of putting that into context. >> having worked on a presidential campaign, the thing that will stir action is that price of the gas at the pump. that is what creates pressure on politicians. i cannot conceive -- where i lived it costs $4.50 a gallon to fill up on premium. i suspect we are close to the point where the consumer is at a rebellion stage, and that is the event that forces action, and it comes from the individual, and

politicians respond. we are close. >> one more question. >> thank you. this has been a fascinating morning. one issue that did not come up that i kept thinking about is somebody is making a tremendous amount of money off of this shock wave that is happening, and is there any thought around whether that is the global oil industry or financial companies? is there some role we need to be thinking about, his funds, people who are speculating, that amplifies is a supply crisis, but not as urgent, as opposed to when you look at the impact on wall street. i am curious if the secretary of the treasury thems. schwab has

any thoughts on that. >> in the 1970's, when we deregulated the price of oil, would put in a windfall tax. take all that money, and put it in the payroll tax reduction or the deficit reduction, or some part into alternative energy. not on a permanent basis, just to deal with this extraordinary saturation where you will have a lot of companies, not because they want it, but because the market will put that in. another thing sue and i were discussing is the have one of the gasoline price, some based so you do not get what fluctuation. this crisis may end, we would go back to $2.50 gallon. if you had a base under will price, and we got through this

in two ministrations where we had our heads handed to us if we did it -- 100% of it, you put a base on, it sounds like a signal of the market that they can go out and buy energy efficiency. there are some thoughts of how to deal with the extraordinary is attrition. >> i would say most sadly in this scenario, most of the economic benefits are going to russia, of venezuela, iran, saudi arabia, they are going to producers. yes, there is some spinoff, but by and large, it is not a speculator is so much as the producers, and they get that premium and they get that rent. that sue isspoint

making," dealing in the short term to deliver live market signals so we do not forget after two years that we ought to be developing a hybrid vehicle. >> when you are going to open up america, it is very expensive, and it requires an enormous investment. we should think about windfall profits. a lot of this windfall profits the to go into investment. secondly, someone was mentioned last night, 90% -- i think this is right -- 90% of the oil reserves are controlled by state-owned oil companies that are controlled wholly largely by countries. and those companies are not investing, which is why production is going down in so

many places in the world. one of the challenges is we have got to invest, we have got to get those countries, those oil producers, to invest in more oil globally, not just out of the and i did states. it is one of the amazing facts in terms of opec production, since opec was created in the 1970's, if you look at their capacity, it has flatland at 30 million barrels a day, and that is when you see historically a tremendous loss of price stability in the price of oil. >> we rail about multinational oil companies. we need to encourage the saudis and other major or producers to open talks private multinational

investment to help them. it is in their interest to do it, to bring in the new technologies, and to bring in the exxons and shells to help them increase their production. >> we are out of time. i want to thank stuart eizenstat, eric fleisher, stephen hadley, john hannah, john-master, john negroponte, susan schwab, and charles wal. -- wald. thank you very much indeed. >> a look at what can be learned from debt reduction from the french and american revolutions. freddie mac chairman john koskinen. after that, we will re-air the

event just saw on the simulated world destruction of the global oil supply. >> tomorrow, the commander of u.s. forces in afghanistan briefs reporters at 9:00 eastern on c-span2. general allen singh command from general david petraeus last month. on c-span, at 2:30 eastern takoma the tsa administrator is at the newseum. >> c-span will follow the republican presidential candidates this week at the iowa state fair. live coverage begins friday at 11:30 a.m. eastern. you hear from tim pawlenty and

michele bachmann. debbie wasserman schultz is also scheduled to speak. on saturday, the live coverage of the iowa straw poll begins at noon eastern. residents older than 18 can vote for one of the nine republican ballcandidate said. you can follow us at twitter/com/roadwh. >> this weekend, frederick law olmstead is remembered for designing the u.s. capitol grounds, but just the market looks at his life as a journalist and abolitionist. "book tv" on juan williams on his book "muzzled."

we take you inside the pirates of somalia. tv" alerts."buook >> this 45-minute discussion is openness -- hosted by the libertarian group freedom fast 2011. >> we are delighted to have you here, and we're on to talk today about the american versus the french revolution. to get this discussion started

we will talk to tom palmer, who was with atlas international, and he has been reading numerous books, and coming up to speed on the french revolution. he is well versed in the american revolution. tom, what have you learned that you can share with our audience regarding your views of the american versus french revolution? >> before we get started, this guy has an eye that, a computer, and he is better prepared than anybody else. >> life is unfair. i would like to start by taking issue with a remark that was made by john adams on stage here, and it is common among anglo saxon speakers.

it is mistaken that somehow bastille day, today, is a bad day to celebrate. i think it is a great day to celebrate, the tearing down of the best deal, and the liberation of the small number of prisoners who were held there. seven people at the time. what happened later, which recall the french revolution, was a disaster, and it was a disaster because of economic policies that could have been avoided, and our good friends who were friends of thomas jefferson, they moved to america, and their son set up the dupont company. he said to not do this. it had to do with monetary policy, which matters a great deal.

a little bit of background. the dominant interpretation of the french revolution is either a marxist, a clash of protective forces, the feudal system versus the rising capitalist course policy. this is rubbish. it has been established this is false on every count. there is nothing to be said for that interpretation. no good historian today -- and it persists. we still hear this language read the other is the conservative interpretation. it is also mistaken, the one with an associate with john adams, that somehow it was a mistake talking about the rights of man. in fact, most americans were enthusiastic about the origin. it started in a fiscal crisis, as did the american revolution, a lot of debts and a call for new taxes to pay them off. the french king them had bankrupted itself in 1786. it was declared to be insolvent.

they had already paid out to tax revenues. they said, where is the money going to come from? they found they could not get anything done. finally, in 1788, the call for the meeting of the state's general for the next year, the first time in 175 years that the body was to be convened. when they met, they made some decisions that were quite right. the third estate among the three said we are the assembly of the nation. we do not want to be covered in this medieval fashion anymore. the fundamental crucial mistake was not repudiating the debt, and it is what we're on to face, coming up right now, with the debt ceiling, a similar question. i think they should have said this is not our debt. we're not responsible for this. the consequence was that they could not find a way to raise taxes and they could not repeat that, partly because it was a widely held, so be quite so many

people were owners of government that, and did not want to lose the rents that would accrue. they've made a catastrophic decision. the nationalized the lands of the church, which is not exactly what we think about churches today. these were state-favored institutions, and said they would seize these lands and auction them to pay off the debt. they issued the interest-bearing loan that they replaced the old debt with this new loan that would be used to buy the church lands picnic the scheme -- church lands. the scheme was a big mistake. here is what edmund burke had to say and i have never found a conservative who will cite for a criticism of the revolution who understood burke.

he said, and read it carefully, this audience will understand what he is saying. most readers cannot comprehend lives. "industry without vigor, congress expiring, revenue unpaid, people impoverished, a church pillaged, a state not relieved, anarchy made the constitution of making them, and everything human and divine sacrificed to the idol of public credit." people read this today and have no idea what they're talking about. he means the national debt. national bankruptcy is a consequence, and the crown all, the paper securities of new top during power, the discredited paper security of impostures -- impoverished supporters held at as the support of an empire. in lieu of the two great

recognized -- today people think he is talking about birds or lizards -- species -- gold and silver. the lasting conventional credit of mankind, which disappeared and hid themselves in the earth from whence they came. when the principle of property was systematically subverted. he understood the economic foundation of what was the turn out to be a disaster. it was not that they started with bad principles, as many conservatives misunderstand. it was a big mistake to challenge the market, to establish representative government, but rather, they started out very early on by is destroying their own monetary system. this was a catastrophe. bad money drives out good,

because they traded at a fixed ratio, in order to pay a debt in either gold or paper, as paper was the proceeding because they were putting more of it, i paid in paper, not in a bowl. gold was court said. -- gold was hoarded. there was a currency shortage because the notes were only issued in large nets. they had to issue small notes. this may sound familiar to some of you, and i would like to read one of the arguments, a poor, 1791, another issue of the paper currency. they should make up for the scarcity of cash, and revive trade and manufacturing, by reviving circulation, which has languished because of the means to sustain it. can you say stimulus, quantitative easing?

this is the essentially the same thing. the economy is languishing because there is not enough money in circulation, and samuel dupont said money is the medium of exchange. what you need is production of wealth. money is not wealth. it is a medium of exchange. wealth is good and services, which ultimately exchanged against each other. the consequence of this was accelerating inflation, more inflation, the collapse of the monetary system, skyrocketing prices, and price controls. that is of course the solution, price controls. people clamored for controlling prices. you'd see the consequence of these disasters policies. 1793, the law the maximum is installed, and in all the

histories of the french revolution i've read, most of them mentioned this on one page, as a passing sort of thing. when are the guillotine's established in leon? for the purpose of be heading speculators. people who are not bringing brad to the market. they have the bread. they know what. if we chop off the heads of more bakers, there will be more red. unassailable logic. this accelerates the total social economic collapse. the root of this was bad economic policy. it was largely an economic terror, and it was not inevitable that they do this. they should have gone their house in order early and said we are going to cut spending, which is what we should ask our congress to do, because we are not at -- not that far off from the same fiscal problem.

it is a very hard thing to do, and i think holding out the possibility of repudiating the debt or restructuring it has the colleted it restructuring its day, is much better. i will mention parallels that she's given us pause for concern. first is the immediacy of many of our economic leaders. timothy geithner, who is a smart guy, i saw him on television saying, if we do not raise the debt ceiling and allow more borrowing, the credit markets will downgrade our bonds. they will find out we are spending more money than the treasury is getting in. they do not know that? i think they know that already. i do not think that is thought to have big impact on the willingness of people to lend money to our government. the second thing is we have

institutional rigidities. everyone gets a subsidy, no one wants to lose it. on the tax side we have another problem. two major features the remind me of the pre-revolutionary situation in france, homeowner'' mortgage interest deduction. this is one cause that contributed to the fiscal crisis. everybody got to get a bigger more and more money going out. this is a big problem. and that particular tax privilege or tax preference has pushed us in the wrong direction. the second one that is pushing us toward socialized medicine is in on taxability of your insurance, so that everybody gets it from their employer. this is not the case before. this goes back to world war ii,

insurance is not a taxable benefit. you do not shop around, and the consequence is it has put in a set of things that is moving us to a single-payer system, which means the state, rationing, favored people get treatment, on favored people did not. we need to address those on the tax side to avoid these incentives that are pushing us more and more towards the control of financial markets and health care. long and short-term i'm a big fan of the principle of the french revolution, but the economic policy was a catastrophe, and this is the primary reason why it went wrong, and there are important lessons there for the and i did states today. thank you. -- for the united states today. thank you. >> thank you.

it would be a good thing that the u.s. repeated that because it bring fiscal sanity back into government, and it would demonstrate once and for all that treasury securities are not the safest investment. they are the true job bonds of our market. it is a tragedy that joe bonds refer to private corporations who are trying to hire workers and trying to create a profitable business and they get the shaft compared to the treasuries. there's a lesson here, and i would like to get a comment on someone on the panel who would like to comment, and that is the u.s. also heavily into debt,

both the state and the federal government, they also inflated their continental dollar, not on the same level as france, but they still went in that direction. however, the hamilton plan, which is often criticized, turned out to be very successful. it was oversubscribed, and basically, a hamilton plan was to take all the state debt from the states so they did not have to repay that and added it to the federal debt that they owed to france and other foreign countries, and get it was oversubscribed. why was it oversubscribed by investors? because in the hamilton plan, they had a tax system, mainly to tariffs and to excise taxes, and what is known as a sinking fund,

to deliberately paid off the national debt by i believe 1812 or around that time, and that is when they did in fact pay off the debt. my question to you is, do we really need to go toward repudiation or could we adopt a hamilton type of plan? some of you are having a sinking feeling hearing about the scori, frank, what would you think about a plant like that to solve our problems? >> i have been trying to put out your dollar out here, and i am not sure that the treasury will be able to do that. a sinking fund is one way to repudiate -- to bring that under control it assumes at some point that you actually have the revenue to do so.

at this point, unfortunately, the numbers i've seen, i add up the numbers, does not give me that in a warm feeling that is an easy or something that does not produce revolutions in the street along the way. that is one of the issues with all the spending cuts and we all saw at the madison courthouse on a pretty minor issue, and you take good additional revenue, and good tax revenue, to establish a fund, it makes it difficult to do. >> your bank came through the tarp crisis quite nicely. you're not forced to take part money and you were financially sound throughout that time period. why was that? why were you not attempted to engage an easy loans? how did you escape from that question are >> if it was

tempting and we joke about it today. you're just trying to get this into the subprime loans. but they took a look at the market. several things that people talk about, all the liquidity in the market, with the foreign governments buying debt, pushing down the real interest rates out there, people who felt forced to buy these mortgages and establish them, you can imagine the committees sitting around, why we cannot get enough deal here, put the money into these. they will pay off. we cannot take the opportunity to do that. we are a private company and did not have to worry about the quarterly earnings. i like to see our government but the brakes on and stop doing that as well. >> doug casey is here with casey research. we're delighted to have him. what you think the government should do to solve its debt problem and now, a $14 trillion

deficit that seems to be growing higher, higher taxes, cutting government spending, off what combination would you like to see? >> i want to complement,. that was a fantastic, accurate, sound presentation. >> let me get to the microphone. >> i hate these damn microphones. they sound like you're speaking into a 55-gallon barrel. but i want to complement tom on the presentation. i do not have anything to do with anything that tom sadr frank said. but what do we do about this debt? it is going to result in the overthrow of the current civilization here in america. such as it is. my recommendation that we be

defaulted on. i would recommend many years ago, when it was a much more manageable problem that it is now. i will give you three reasons why the u.s. government, which i do not think should exist -- [laughter] but nonetheless it should default on the dead. number one, it would punish the people that were stupid enough to lend it money and make it possible for them to do all of the destructive things that have done. [applause] and i'm very sorry for the people that have pension funds and people that their banks would not be able to pay them back or anything like that. that is just tough lot. i would say, actions have consequences, number one. i like to punish the people that have lent money to the government. i cannot think that anything is owed to them because they were lending to the wrong kind of borrower. number two, if you have to default on the debt for moral

reasons. otherwise, it is an albatross around necks of the next generation and generations after that. it is turning them into service. you cannot do that to people that are yet unborn. people that are alive today, who lived above their means because of that debt and other debts, let them pay the piper. not the people in the future. that is the sec reason. moral reasons. the next generation. and that third reason is that the u.s. government defaulting on its debt might make it impossible for the u.s. government, if it is going to exist, which is no guarantee it will, certainly not in its present form, to borrow again. that is the third huge benefits. i see these three big benefits. [laughter] some will say, we do not want to overturn the basis of society. maybe we should pay it off.

well, i understand. it may be possible. look at china. 30 years ago, it was nothing but poor, ignorant, starving peasants. there was nothing in china. and now the place is blossoming. just as many countries around world, not just china. but i do not think that as possible for it to be turned around here in the united states. it is not possible to do in the next 30 years what china did in the last 30. why do i say that? you would have to overturn the whole government in this country anyway. all the regulations in this country make it so hard to produce, only an idiot, i would think, would set up a business in this country without looking at another country where it is much easier, ok? regulations are choking this country and their cars are getting worse, not better. that is not going to work.

the taxes in this country are brutally high. only an idiot would set up a business in this country without investigating what they could do in another country. and the taxes are going higher in this budget. and there is no saving, no building of capital in this country. why? because of inflation and the artificially depressed interest rates. there is no capital to do anything. let's just borrow it from the chinese. so you cannot pay off the debt. it is not going to happen. i'm very gloomy about the political future of this country. [laughter] i think we will not have a second american revolution but something that resembles the french revolution. and i am not looking forward to the revolution. every revolution, at least for a generation after word, it is worse than what they overthrew. i am so glad for the french. it was wonderful that they read the age of regime. except it was worse for the next

20 years, robespierre and then the poll in. and the same thing with the american spirit there was no reason to kick the british out. 3 percent taxes, that is what they were extracting. but this country would have been much better for having the gigantic, prosperous version then turning into the behemoths that it has today. i do not even approve of the american revolution. [laughter] look at what happened is with idiots. right after the american revolution, this of the alien and sedition acts and so forth. i do not approve of revolution, contrary to what chips said, but we are going have one. and financially, they are primarily economically based. americans are so drugged up on prozac and watching the whatever

that show is where somebody sayings. what the was that called? [unintelligible] of course company when they cannot buy things a walmart anymore because it is too expensive and the chinese will not lend us money anymore, this place, it is going to be a disaster in this country. do i care? well -- i will be watching this on my widescreen from some place that is comfortable. and you can people can watch it out your front windows. [laughter] [applause] >> there is an old saying on wall street, no one is so bearish as a sold-out world. -- bull. i would like to return to a little more sanity with hearing john mackey, who happens to be

one of those idiots to does run a major corporation in the united states. [laughter] and very successfully, not because of, but despite government regulation. john, give us your perspective -- obviously a default on debt could have major repercussions for the u.s. economy and your business. is there in your view a way out of the government to maintain some kind of stability and get back to fiscal sanity? or does it matter to you? >> one thing i love about freedomfest is that when i come there, everywhere else, i am like this radical guide. [laughter] and i am like the one same person here. -- sane person at the show. [laughter]

i wish you could see all the cool stuff tom has got here. he is showing the deficit over the next 70 years. i love dogs. he is such a funny guy. i always love listening to him because he is just got such a great sense of humor. but it is not too late now. cannot cross the point of no return yet. but the problem is we are approaching a period we can handle the deficit that we have right now but can we handle the deficit that we will see in the next 30 or 40 years? not unless there are fundamental changes that occur. today, it is a spending problem. the government is out of control. makes promises it cannot possibly keep. there is just no way debt -- we're not going to pay all the entitlements that -- we are not going to do it.

there is no way. there are not enough revenues. you can demagogue about taxing the rich, but if you just look at the statistics, there is not enough money there. they are going to cut spending. somehow or another. we have not yet passed the point of no return. if we do have -- as a business person, a ceo, i tend to be more optimistic. america has a great value tradition that in some sense has been awakened. i think that we are struggling to come take back our nation. i always said that the 2012 elections of the most important lessons of our lifetime because we are either -- [applause] we are either going to be -- we will see whether it is powerful enough to trot off -- for a lot the parasites that are infecting

us. and we just might. i am keeping our fingers crossed and doing what i can. i have not given up hope. but talk to me in another year- and-a-half, and we might know more. i think we have to deal with the entitlement issues. that is the problem for that is what is by broken the spirit we cannot afford these decisions that have been made toward they're going to have to be dealt with. there are not enough revenues. what they really want to do is get a value-added tax and more taxes in there. they really want to spend money. that is what they do. that is what we have to try to avoid. america does not have a revenue problem. it has a spending problem. i think we can correct that. hey, to know, if we do not, i am going to go to doug's island someplace and i have enough

money where i can watch the tv with doug. [laughter] i think the american revolution is still very possible. i think that is what we should be working for and i think we are working for it. i am somewhat hopeful. >> i take it that you have not been called by president obama -- if you're the ceo of a major corporation, he did invite a number of business leaders to get their opinion of how to deal with the crisis. were you called to come to the white house? i >> i am not on the tape. there has been no reason to call me. [laughter] [applause] >> thank you, john. one reason the french revolution ended so badly and their debt was so excessive was because they based on ending wars that constantly off against the

english, against russia, against italy, the list went on and on and it was never-ending. is there a lesson here for the united states of america which seems to be fight acne -- fighting and ending wars? >> let's stop doing that. [laughter] [applause] >> that is the obvious point. we are hemorrhaging a check and the amount of blood and treasure all over the planet. -- a gigantic amount of blood and treasure all over the planets. the size of our military commitments, the number a trip wires we've set up around the world, if this happens, we go to war. korea is a well-known example but there are others as well. a police decision to blunder

into iraq. the possibility of conflict with iran, absolutely needless. the ongoing afghanistan adventure which started out with getting the guy who did this and then mission creep started very quickly thereafter and now it is nation-building. and the yes, we can administration will do something never done in the history of the world, establish and the sovereign power of the afghan state from one recognized border to another. that is our current criteria of that success. i can tell you that this is never going to happen. it will never happen. but that is the standard of our foreign policy geniuses. that is what we're going to do it. and it is not going to happen. we will be defeated in afghanistan. it is an idiotic gold. but so long as there is more money and more quantitative

easing, they will continue to pump our treasure out all over the planet. this is a contributor to our current bankruptcy. i would say that a bigger contributor is the unfunded liabilities in the entitlements. these are staggering. and they do not show up in the debt. they make a promise to pay, they obligate themselves in a statutory matter to pages. it does not show up in the national accounting because we have $70 trillion just for medicare. the bush administration thought that they could buy the votes of seniors in peoria with the unlimited by at or benefit in the form of the prescription drug benefit. it is uncap, it is unbelievable, i do not think they got a single vote of a single senior. talk about dumb policy, a bankrupt the country for nothing. that is what is being piled on top of more debt and more dead,

these obligation simply cannot be met. it is not feasible. something has to be addressed and has to be done to address these problems. because of we do not, we did this scary nightmare scenario of a real collapse. >> people like scary movies. give the people what they want. >> you are quite correct but you do not go far enough. let me take this to its logical conclusion, in my opinion. first of all, that ridiculous that venture in afghanistan, which has helped bankrupt -- it's a delay, i look forward to the bankruptcy of the u.s. government because that they are bankrupt, they cannot do this stuff anymore. they just will not be able to do it. some say we have to keep our government from bankruptcy. no, no. that is wonderful that they are bankrupt.

just like the french revolution, that is the good news that they are bankrupt. the bad news is that something will come after them and be even worse. as far as afghanistan, i have to say one thing about that. y n hell today invade afghanistan when it was 15 saudis that apparently drove those planes into those towers? i gave a speech today on terrorism, which was basically, learned to make terror your friend. it was a tactically stupid thing on the part of them to have done that. but this is a major crime that was committed for the way to of salt that crime was not by launching -- and the way to solve that crime, if the japanese attacked pearl harbor,

we attack beijing and the chinese. it is roughly equivalent to that. in the constitution, which is dead letter and not preserved whatsoever, there is a section where the congress can authorize letters of marque and reprieve. it was a dead cat to criminal events -- a gigantic criminal event. you have a bounty to round of the people that did it. and we should not even have a u.s. military. crazy the way people deified the u.s. military, our best and brightest. no, they are not. they are average guys that needed job. you have three types of military. if you ever thought about it. it gets late armies, which are drafty armories. you get mercenary armies, which are better in many ways. and that is what we have today.

and you have militias. i am all for militias because they are not well organized and they cannot be used for operations abroad. [applause] that is all that this country needs is a militia. anyway, this is all turning into a war against islam, which the islamists started in the 600 and that has been going back and forth now for 1400 years. and now with u.s. government bombing six separate islamic countries, that they do not like these new crusaders bombing their countries. they do not like it. this is going to get out of control. it is a very serious thing, very bad. >> you made some good points about war and i'm not sure that there is a solution about their as there is in the case of the unfunded liabilities. that problem has been sought by

corporations, major corporations, they used to have a defined benefit plans. they were all a serious problem of unfunded liabilities because people live longer and the investments were not doing as well and so forth. can the excessive generous health-care programs, too. now they have a fine contributions instead of the fine benefits, and also by having health savings accounts which whole foods has adopted. there are solutions to the unfunded liability problem. we just lacked leadership on the top down to say, look, we have to bite the bullet and move in this direction. i like to ask one other question for our distinguished panel, and then we will adjourn. one of the reasons the french hyperinflated and had the huge

debt problem was because they lack a solid tax base. they exempted -- a catholic church was exempt from taxation, all aristocrats for example, many of the landowners did not have to pay taxes at all. without that lack of the tax base, what you have in the united states, you had a problem. my question to you, do we have a fair tax system right now, and are there groups that are being exempt that should not be exempt? president obama says the rich need to pay more. is there any validity to this argument? it might be worth doing by show of hands from our audience, how many of you in the last year paid income taxes, federal income taxes? ok, keep those hands up. i want the cameras to see this.

this is a successful group. you know they -- if you pay taxes, you made enough money to pay that tax beyond the exemptions. as you know, poor people and many middle-class people now pay no income tax. only the wealthy pay income taxes any more. clearly this situation is very different from the french situation. a body want to comment on the tax aspect of our countries doing business? >> i will be controversial and wait for doug to wait and point out why i am a sellout. i do not like paying taxes. i find taxes owed is. i do not consider them a privilege.

they are a form of robbery in my opinion. is not as the same as buying something that all food. i walked in, i'd pick up the thing i want, i say i am willing to pay this money for. i do not get that kind of choice. when i was younger and ghoulisher, i thought would it not be great if the state did not pay any taxes. you could get the things without paying the taxes at all. we have run that experiment. we of oil-based states like saudi arabia and it is not a happy outcome. it is terrible when the state does not depend on the goodwill or the willingness of the population. a broad tax base generates a better, more stable situation for liberty in a situation in which the state kids as well as from some other source. we call a resourced curse and it destroys liberty every place that they suffer from it. i think that our current system of a staggeringly complex

inventions in getting more complex as we go on, it is a big mistake and leases in the wrong direction. however much rather have a situation where everyone is paying some tax. and i mean everyone. you might have a very small exemption for people such as the tax is putting them into a condition of non-sustainablilit. but everyone should pay some taxes. get rid of the privilege status of your health care, non-taxable benefits, which create -- creates perverse incentives leading us toward socialism, and the home mortgage interest deduction and so on. the people that mark mentioned that do not pay federal income taxes, they do pay payroll taxes. takes quite a bite out of your income. i think most americans have a sense that they are taxpayers even though they may not be paying federal income tax.

but overall, the tax reform that would substitute lower, plat flatter income tax with far fewer trade of deductions, it would be a better system. it would not be ideal, it does not tackle by libertarian bone as much as i would like. i like to bring them down lower, lower, lower, as much as we can come and get things off of being subsidized by the state and onto a market-based fee and pavement based structure for them. but we need to begin looking at what the status called tax expenditures. all the money they do not get is a state expenditure, that is what they mean. but there is one element where they have a point. when certain things are exempted from taxation, it generates a

lot of bizarre, perverse incentives in the economy and in the social system. i think we should be willing to make a grand bargain in say, we will remove the exemption from mortgage interest, remove the exemption from health insurance, make that actual taxable -- taxable income in exchange for bringing those rates down very ronald reagan did accomplish that at one point made. it was a huge move forward. they wiped out 3000 pages of the federal tax code. but the bidding starts tomorrow. all the lobbyists are going to come out to get little loopholes for them and their friend. at the very least, moving back to that situation would be a big improvement and i think would eliminate the dangers of a horrifying scenario that some people present. i am in this for the long haul. i am a fighter.

i have not earned enough money to buy an island. i am just not going to give up on this country. [applause] >> one more comment and then we will close. >> i am puzzled when someone uses the word affair with taxes. there -- they're not supposed to be fair. they are supposed to take the most amount of money from the least amount of people that are likely to take over the government. what the rob banks? that is where the money is. that is how you do taxes as well. when charles i could not convene parliament for 12 years, they did not raise taxes. he did not fight any foreign wars are started spending programs. it was frustrating for him. he ended up 5 inches shorter perio.

whole thing start with a great idea. we're going to help the homeowner or do this and that. but there are unintended consequences. how we're going to find a way around it. flat, low, little, cut spending. parade. take our panel. potter, john mackey, doug casey. we will see you tomorrow morning. merci. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

>> miller went, thanks for being with us here on c-span. -- neil irwin. >> the fed gave a specific date to which they will keep rates low. for the next two years, we will have that low-interest rate policy in place. that was a giant shock but that -- they said that growth has been weaker than expected. it is clear that the fed is

nervous and they are ready to act if things deteriorate further. >> let me read from the statement, just part of what the fed announced today, and it is available our website, c- span.org. household spending plan out, the housing sector remains depressed, if the business investment and equipment and software continue to expand. what does that tell you? >> a very weak economy. it does not appear that we are shrinking or are in another recession. the fed does not expect another recession. but the college has weakened at a lot. we see we numbers on job growth, one gdp, output, even consumer spending has come off. anre right on the brink of economy that is growing, not rapidly, and something worse than that for the hope is that we can stay on the positive side of the ledger. >> at 1 point the market was up

200 points. it closed the day of more than 400 points. it was a wild day on wall street. >> and at some markets and not being driven by fundamentals and the normal type of steady and alice that people and markets did. they're being driven by sheer and uncertainty. what we're seeing are these wild swings at all of these different states and the world, they flashed before people's eyes. we saw and 11:00 p.m. drop, and now we're seeing the opposite of that. we're seeing this giant 400- point rise in the dow last few hours of trading. >> you point out that for the first time since 1992, and under the leadership of ben bernanke since he has been the that chair, three of the committee dissentingm dallas on the decision. >> a strong contingent within the fed leadership that does not

want to see more steps to try to prop up the economy predicted that any further on purchases or further efforts to ease of monetary policy cannot help the economy and help grow for jobs. but it would create risks of inflation and a rapidly declining dollar and higher energy prices, all that sort of thing. they contended does not want to see more efforts to pump money into the economy. they think the problem right now is not a lack of money supply or liquidity, but about more fundamental problems in the economy that need to be fixed. >> once again, pointing the fingers to congress and the president? >> i think so. the fed feels like they have done a lot. they applauded the economy much money. if taken extraordinary measures. there like to see less volatile decisionmaking out of the congress and white house. they like to see a long-term deficit reduction plan that phases and slowly it does not suffer too much money out of the

economy in the near term. i think it is simplistic but they do not like what they see out of the white house and congress. >> is that they have a policy tools to jump-start the u.s. economy? >> they are not out, but there is getting to the end of the quiver. last year they launched this effort called quantitative easing, buying $600 billion in bonds to pump money into the economy. they could do another round of that protected to another $1 trillion, and there's a strong reluctance within the fed to take that kind of action. those three dissents were a modest step today. they might expose the economy to this risk of inflation and not to a lot. they were pumping the $600 billion into the economy and we still have a terrible growth trajectory in the first half of the year. maybe monetary policy is not as powerful as it would be a normal times. >> the headline it came out of the meeting said that the interest rates would stay low for the next two years.

you point out that in the previous fed meeting, the statement was for an extended period. some read into that only a couple of months. what led to today's action and wife two years beyond the 2012 election? >> the data has gone a lot worse since their last meeting in june. we had two very weak jobs report, and numbers on gdp for the first half of were much worse than people thought. we're spending, industrial production, several of these numbers of, suggesting we're not going as -- growing as quickly as we thought we were. the rest of double-dip recession is higher than we thought it was. we need to keep rates low for a long time, hopefully that money will trickle out to lower borrowing rates and support the growth. >> your piece is available on- line at the of the washington post." we appreciate your time. >> on "washington journal,"

tomorrow morning, we will be joined by tavis smiley and cornel west to discuss their poverty toward traveling to more than one dozen poor communities over the next week. we will focus on the role of the credit rating agencies with jason stein, head of -- and jules kroll. "washington journal" is live on c-span every day at 7:00 a.m. eastern. >> and a few moments, john koskinen on standard and poors downgraded the u.s. credit rating. and of little more than an hour, an event depicting a simulated disruption of the global oil supply. after that, from "washington journal," a discussion of the downgraded u.s. credit and we will be aired a forum on what can be learned about the debt reduction from the french and american revolutions.

>> freddie mac chairman john koskinen says that standard and poor's met in "sound decision" to downgrade the credit ratings of the u.s. and the krajina and freddie mac. he was informed before making a speech pretty also talked but the overall economy and housing market. it is a little more than an hour. minutes. >> thank you very much. i've often thought with that checkered employment career that i thought she was going to introduce me as a guy that has a lot of different jobs, but somehow manages to always get another one. [laughter] >> when i was asked to come and speak at chautauqau, i decided you are my kind of people. you started at 10:35 in the morning. i always thought the early bird gets the worm

is told from the bird's perspective, not from the worm. on behalf of those who like to start later, i'm delighted to be here. things sure have gotten more interesting in the economy the last few days. i must admit part of this maybe is my fault. if you hang around washington long enough and in the private sector, you get to know people. i thought it might generate interest if a few friends of mine could shake things up. i think they got carried away thursday and friday. before thursday, the deficit debate was obviously not democracy's finest hour as the old churchill saying goes, americans make the right choice after they've tried everything else. [laughter] >> now that the stock market has unsettled everybody's nerves, i know there are some here this morning who can't keep away from your blackberries or ipads. to help all of us keep us to date and keep down on the background noises of brokens and cheers.

every time the market goes up by 100 points or more, it's thumbs up. when it goes down by 100 points or more, smack your head. all right. let's practice. people on this side of the audience are the happy people. they are going to be responding when the market goes up. people on this side are the unfortunately. okay, the market is up by 100 points. very nice. very nice. a lot of blackberry owners over here. on this side, unfortunately, the market just went down by 100 points. very good. very good. okay. for those who don't use blackberries or ipads, there will be salesman available afterwards to help you out. we also have made available teenagers who will help show you how to turn them into game boys. [laughter] [laughter] [applause]

>> everyone knows we're in the middle of the worst economic downturn in 80 years. what surprised us is how long it's taken to recover. a combination of a slow recovery, and a deficit growing to unmanageable levels, coupled with an apparent inability or unwillingness to solve either problem has caused many american to worry about our future. after a career in the private and public sectors as a turn around manager, i'm optimistic we will make it. but in the interest of full disclosure, you should know that every crisis manager is optimistic. it's the only way to get through the sometimes seemingly unsurmountable obstacles. to understand, we'll start with a discussion about housing, it's historic role in the economy, the role it played in getting us into the problems that we face today, and the policy choices we have to make about the future role of housing in the

economy. we'll explore the obstacle to economic recovery, presented by the deficit, and then talk about one the most significant factors that will not only positively effect housing in the future, and also the economy generally, population youth. the most stunning number i've discovered in preparing for this discussion involves population growth. so stay tuned. you'll know more later. a significant part of that population growth is derived from illegal immigration. while it's clear that educating immigrates and all of our children is increasingly important, a critical factor in our past economic success is a role that immigrants have played in the capital in this country. the question is whether we are taking it for difficult for this to continue in the future. let's start with the role of housing and the economy. the numbers tell it all. if you go back as far as 1959, you find that housing is typically

accounted for about 15% of the gross domestic product. peeking at 19% in 2006, and falling in the first quarter of 2011. housing led the financial crisis and is following the recovery, not leading. it to understand the policy questions that we face about what support we want or need to provide to housing going forward, it's helpful to understand how it's financed in this country. years ago, you got a mortgage from the friendly local banker, savings and loan and they kept it as an asset, collected your monthly payments, returned your notes, and canceled your mortgage when you paid it off. the problem with this system is that it limits the amount of capital available to housing to the amount of capital banks and s&l available. to deal with the problem in the depression, fanny

mae was formed, and then they turn around and raze cash by selling securities, secured by fools of the mortgages to general investors. they might not want your individual mortgage, but they saw a pool of mortgages as an attractive investment, because the risk was pooled together and diffused. it also helped they agreed to buy back any mortgage that was defaulted. the government stood behind because fannie was a government corporation. it was privatized in an attempt to cut the government deficit. to show how quaint they were, it was about $160 million. that's not the deaf set, it was the entire budget. freddie mac was formed

in 1970 to provide competition. the two have competed for the last 20 years. now private, investors assume should either run out of capital, the federal government would support them. while the official washington position was oh no, not so, the assumption turned out to be correction. they still kept a large amount of mortgages on the book. by 1990, residential mortgage debt exceeded all of the banks deposits. at same time as the dot-com double was forming and bursting, the investors were looking for something else to invest in. housing prices began to expand faster than incomes. this is my favorite

slide. if you ever wanted to be a bubble bursting, here it is. that's the problem with bubbles. they are always obvious after the fact. when you are in the middle, it's never clear if you are dealing with a bubble or economic progress. >> somehow people that looked at this graph every year as it unfolded thought it was possible for house prices to rise in total disregard to the income of the population. there were a few people that bet against the conventional wisdom. they made a lot of money. they are not giving it back. we're going to go on with the story. the apparent level increasing made mortgage securities look attractive. banks and wall street competed to establish them from the securitied provided by freddie mac and fannie mae for sale across the world. it will would in little

or no loss since the house could always be sold for more than the mortgage. with prices escalating, houses had become a high return investment for many owners, rather than a vehicle for savings. when i was young, just a few years ago, if you lived in a house for ten years and sold it for what you paid for it, you felt like a champion, you got settler for ten years and forced savings to boot for paying down the principal on your mortgage. now with housing prices taking off, everybody wanted in the game. the increasing demand for housing was exceeded by the increasingly demand for mortgage securities. if follow the red line, you'll see the private label security market more than doubled in one year that 22 in 2003 to 46 in 2004 and peeked at

26% in 2006. it then declined close to zero and how has come up to 6%. to meet the demand from all street, for more product, you needed more people to buy houses to generate the marges. to = those people who otherwise had earlier, the standards to decline. you ended up with the famous no dot loans or fraudulent loans fed into the system. as the side that maintains all of this was brought on by fannie and freddie, they have the lowest rate of seriously delinquent loans among the large financial institutions. as of march 31st, the default rate on freddie's mortgages of 3.6, and the market rate was 8.1%. put another way, freddie andman -- and fannie has

have of the mortgages. the other guys have the other half and 70% of the defaulted loans. in case you didn't notice, that was an unpaid commercial announcement. but i couldn't resist because there's important information. i should also made that while the over all quality of their mortgages were better than the banks, it certainly would have helpful if fannie and freddie hadn't lowered their standards. it's hard to swim against the tide and not losing market share or profit. either was able to do that. back to my house at the atm. the fact that to pay attention to here is that from 2000 to 2005 while wages were increasing modestly and the bubble was developing, housing wealth increased by almost 85%. it would have been a different story if it

had stayed, and in the old days, it would have, because you could barely get a second mortgage, and if you got one, it was a sign of financial trouble or weakness and nobody advertised they were just taking out a second mortgage. as banks allowed buyers to refinance with a bigger mortgage in light of the increased value and take the additional amount of the mortgage out, someone said why require people to go through all of those complications. the home equity loan was born. under a home equity loan, you could treat your house as an atm and draw money down as prices went up. extensive use of home equity loans added to an increase of almost $600 billion a year. it was great fun while it lasted. then the music stop. housing wealth declined by 30% in 2005 and thyme which translates into a reduction of $240

billion annually and consumer purchasing. the lost is part of the reason the economy is having difficulty recovering. and for future planning, it's clear it's going to be a long time because houses are going to be able to provide people with excess funding for personal use. another thing that you need to know before looking towards the future is notwithstanding all of the numbers, it's a mistake to assume it's what caused the collapse in the world economy. the housing bubble was not unique to the united states. many eu countries saw greater house appreciation than the united states with the declines that were just as large or larger. denmark experienced a 103 administration rise in price appreciation and a fall of 20%. aye rand saw an appreciation of 162% and

decline of 30%. some of those countries may ring a bell. they are the ones in deep trouble with the sovereign debt. the policy questions we face about what to do about housing in the future are important in light of the role that housing has played in the economy in the past. to begin, we have to decide how much support as a government we want to provide to our housing to attract capital to the industry. we provide incentives in a lot of ways. particularly for home ownership in the tax code. the deduction for mortgage and property costs us about $1.4 trillion. then years is the relevant because all of the debates is about what happens. talk about cutting or ending was always one of those third rails in politics, until the debt crisis came crashing down. dough the de -- now the

deductions maybe on the table. the next question is whether we want to have the government guarantee at least some of the securities in the secondary market. the government guarantee of fannie and freddie which has moved after they were privatized, clearly attracts capital that the lenders cannot provide themselves. if we are going to have the guarantee, we clearly need to charge for it, which wasn't done in the past. without a government guarantee of some securities, we're unlikely to continue to have 30-year fixed price mortgages. investors are not willing to take the interest rate and default risk over that lengthy period of time. but that's not illegal or immoral. canada does just fine without a guarantee program and has home ownership rates about as high as ours. but in canada, you have 15-year mortgages with variety interest rates and significant prepayment penalties. people have talked about

covered bonds as an alternative to the secretary market. for this product, the bank takes it's mortgages and sells bonds, secured by the mortgages that would stay on the balance sheet. while there's experience in europe with covered bonds, there's never been a covered bond market the size of our mortgage market. give you a feel for the magnitude of our market, the annual size of our mortgage-backed security market is about 1.3 trillion euros. as you can see. the size of the covered bond market in europe is relatively small compared to the 1.3 trillion number. even though in some countries covered bonds make up a reasonable percentage. those are much smaller mortgage markets than in the united states. there's also the question of how to resolve the

conservatorships of fannie and freddie, some way to go to a private sector without any involvement or guarantee and we should simply wind down or end fannie and freddie. they would be known as republicans. [laughter] >> because the question is what happens during the next crunch? there's basically been no private market -- i'm sorry, there's been no private mortgage support of the mortgage market for the past three years. without freddie, fannie, and fha, there would have been no mortgages. they are now 90% of the market. this isn't a good thing. the question is how do we restart the private market? one possible move suggested that would be a good indication of what appetize for mortgages exist out there would be to lower the conforming loan limit that caps of size that fannie and freddie can buy. they are as high as

$727,000. it's set to go to $625,000 this fall, and we'll see what happens at that time. because every mortgage above that side will have to be financed in the private sector. a final question is what support, if any, should housing entities provide for so-called affordable mortgages. there's a theory that it was the drive and the push for affordable mortgages that encourages freddie and fannie in particular to issue mortgages to people who are otherwise unqualified. some years ago, lending institutions were foragedden from red lining urban areas for mortgages and excluding them from financial activity. clinton administration, while i was there, decided that since increased opportunities for home ownership was an important social goal, why not require freddie and fannie to ensure that a given percentage of their purchased supported that goal. the initial supportive

housing goals were in the range of 30%. the theory was 30% was good, why not 35 or 40%. since the goals were set by the administration through hud or the congress through legislation, it really was a free good since no one had to answer the question how much, if anything, does it cost? nobody ever delivered a bill. to its credit, the bush administration also supported a home ownership society and affordable housing goals suddenly were about 50%. as i noted, nobody ever sent a bill for this until recently. we've now sent one, but it's probably not the way we ought to do it. part of the problem has solved by the passage in 2008 of the legislation that gave the government to put fannie and freddie into conservatorship. it moves the federal housing goals from hud to the newly empowered regulator. this means that the agency responsible for the safety and soundness is also the one

determining what affordable housing goals are consistent with the safety and soundness. barney frank last fall when he was running, pressure, for re-election, talked about the progress they have made with the election. don't say that. if you kept quiet about it, since we could then include this provision in whatever legislation is passed and point. if it's already in the system, you don't get credit for it. they will have to come up with some other way to change the requirements. some change is going to be required. but at least we ought to get credit for the changes that they had made. our position at freddie mac, since i started three years ago, all of the questions floating around has been not to have a position. once you have a position of what ought to happen, you then are discounted in any views that you have on it, any other options, because you are the supporter of option a. we will freddie, fannie

mae have more information. we can tell you a lot about how mortgages perform in any economic circumstances in markets all overthe united states. but to be honest, brokers analysis of the various options proposed it seems to me we ought to be very careful not to have a proposal ourselves. so we are prepared and have been prepared in discussions with the administration and the congress to consider any option from one end of the spectrum of putting everything into a huge federal, to we go away and you have a private sector solution. thus far, it's worked well and people have been comfortable that we will give them a straight answer as to the pros and cons of any permutation on those themes across the spectrum. what's clear in the politics of washington and has been for some time, there won't be much movement on the question until after the presidential election. which means we have another two years to go.

even the republicans talking about l.e.t. get rid of family and freddie have a footnote that says we shouldn't do it too quickly. everybody is concerned about the fragility of the housing market and everybody understands the numbers that we've looked at today about the critical role that housing plays in the economy. notwithstanding our no position, position, i think it's clear we will end up with a strong secondary and appropriate amount of capital available for freddie. the challenge is keeping them happy and productive while the congress and even the administration continue to talk about the need to wind down the companies and it's clear that the state of limbo is going to continue for another two or three years. the only reason the company hasn't folded is the dedication of the employees to the mission of providing and supporting housing for people across the country. and the fact that we keep them very busy and hope they are not paying close attention to this.

even resolving the questions don't be enough. there's the $14 trillion challenge and the deficit growing as we speak. as noted, we know now a lot more about the deficit than we do a few weeks or months ago. we are also confronting that government spending is critical, but we can't keep spending at the rates that we are. government spending accounts for 20% of the gross domestic product. interesting enough, it's just more than housing. deficit spending, presently accounts for about 37% of those expenditures. when i was at omb in the mid 1990s, when we were confronting $200 billion deficits, we cut federal employment by $200,000, we worked to make the agency more efficient, cut nondefense, and none of it made much of an impact on the deficit. today we're in the trouble into some extent for the first time in history during the 2000s, we tried to run

a couple of wars without paying for them for the first time. as the wars wind down, the expense will shrink. there's no easy fix. the simpson-bowles in december was an artful and balanced approach to the tough issues that no one wanted to touch. unfortunately when it came out, no one wanted to touch the report here. there are only six or eight things to do to deal with the deficits. you have to do them all. social security and medicare account for 33% of our government expenditures. defense is 20%, medicare is 8%. the short answer to the debate is that if you set aside social security, medicare, medicaid, and defense, and sell the rest of the government, you still have a deficit. and if you decide not to sell the rest of the government and only deal with entitlements, it's clear that you cannot realist click cut enough from entitlements and

defense alone to solve the problem. you'll have to end up with cuts to entitlement, cuts to defense, and tax reform with improved revenues. the ticking time bomb, in fact, is the interest cost that has to be paid on our debt. debt. the biggest beneficiary, and they are abnormally low is the federal government. even with these interest rate that is are low and in some cases that are in effect paying the government opaque their money and keep it and give it back to them, because it's easier than putting it under your matress and making it lumpy. the cost is $200 billion. the cost could easily go up another $200 billion if interest rates return to normal levels, not exaggerated levels. i think the public is ahead of the politicians on this issue. when you read the polls, they are always asking the wrong question. if you ask me, would i like to pay more taxes, the answer is no. would you like to get

less social security or get it later in life, the answer is no. but the real question is if we have a problem that needs to be dealt with, that can only be dealt with across the entire spectrum in which everybody needs to make a contribution, would you be willing to make your fair share of the contribution? the answer from the vast majority is yes. as long as it's fair. [applause] >> as long as it's fair and as long as everybody plays in the game. with a little luck, standard & poor's rate cutting will cause people to soften the rhetoric and work together to find a solution which i think the public will support. beyond that, why am i

optimistic? because of the attention i mentioned earlier in terms of population growth. we will now find population growth. the census bureau projects that the u.s. population will grow faster in the next 20 years than in any other major economy. i knew we were doing better than japan in this area, because everybody is better off in japan in population terms. but growing faster than mexico, brazil, india, and china, i must say i find that really amazing. legal immigration is an important driver, legal in the decades of the 90s and 2000ed -- 2000s exceeded the immigration wave. without the immigration, we'd be more at risk looking like japan, italy, and europe with a declining population, increasingly asian with not enough people working to support growth in the economy. one the most important

impact a population has, along with household information is the creation of a more dynamic and expanding housing market. the data shows that echo boomers, i love the way that people get generational names. why don't we ever hear about the baby busters in any event, they have delayed household formation for all of the obvious reasons. eventually they will form new households once they have more confidence in the economy and get tired of living at home with their parents. judging by the generation here, i assume those are parents who are applauding. [laughter] ironically, we'll also get increased sales when prices go up. i learned when i was the

chairman in the downturn of the 70s, when housing prices decline, as they have recently, people stop buying to wait for even lower prices. of course, it becomes a self-fulfilling prophesy, that has fewer people buy, the price goes down further, and that's how you get to deflation. the problem for the last three years for the first time in history, house prices and origin rates have been declining at the same time. usually house prices decline because interest rates are ricing and mortgages are more expensive. so people have had two reason to defer a house purchase. and they've been rewarded for waiting. with lower house prices and lower mortgage rates. once prices start to price, people then want to buy to avoid having to pay more later. oddly enough, we should be rooting for not only higher prices, but higher mortgage rates to get people who have been waiting on the sidelines for a better bargain to understand that bargains are behind us. now is the time to buy. back to the increase.

recent immigrants will account for about 1/3 of the new households in the decade. which will average growth of about 1%. to keep pace with immigration and population growth, housing starts will have to average about 1.7 million a year. to give you an idea of the impact, housing reached $29,000 annually to tell how far down we've been. at some point, we're going to increase housing starts by $1 million which will provide a stunning increase in economic activity. the only things in our way are about four million homes -- [laughter] >> -- still in foreclosures or past due in their mortgage payments by 90 days. while the rate of delinquency is declining, the overhang continues to be a drag on housing prices and new construction. they are firming and the

housing will move through the market one of these days. but it could be another 12 months before things begin notably to pick up. that may not seem like such a long time in history, we are very impatient people. pushing for things to be done faster is why productivity goes up. expecting or demanding the gang of economic downturn that dwarfs thing we've seen in 80 years can lead you to make more policy prices. there's risk as we gear up for the 2012 elections. this bring us to the role of education and the future of our economy. this country has always met it's economic challenges through the development of intellectual capital that allows us to lead the way in areas, such as building cars, planes, trains and electronic limit. as they caught up, we moved on. the irony is as education becomes more important, we are more challenged to provide it. we've all heard for

years about the challenges of educating students in our inner cities. when i over saw the daily operations of the city of washington, it was clear that poor schools for a pipeline to crime or welfare for our graduates. either way, many of the studentses were lost to our economy in terms of becoming productive citizens. our economic future depends on more than solving energy problems. 27% of degrees with the u.s. awarded in 2007 and 2008. 51% of math and statistics doctorates. historically large numbers have opted to stay in the united states and have made contributions.

civil can -- silicon valley is full of them. they have made it difficult to come to the u.s. and stay here. in the inevitable that more fortune graduates would return home as economic opportunities expanded. as foreign universities get better, they will attract more of their st. s to -- citizens to stay home, rather than come to the united states. we have exacerbated the reversal of the drain brain, by pois -- policies in particular. when bill gates said they might have to open an office in canada to be able to hire the skilled workers he needs, you can see the problem. the intellectual ability needed can be kept by the schools, of course. they still produce bright, energetic college students that move into productive roles in the economy. as the irony is that as

the need for more education as the age of technology grows, the cost of higher education is moving beyond the ability of many studentses to afford it. tuition growth has out paced inflation, growing at an annual rate of 7.9% since 1979 compared to overall price increases of 3.5%. when i was chairman of the board of trustees in the mid '90s, we worried because it was obvious even at this time that it was $20,000. we had a vigorous debate as we set tuition levels. arguing about whether we were giving away a product if the tuition didn't go up. on the one hand. and on the other hand, were we going to lose that provide not only through the university, but the economy, by foreclosures the possibility of an education. our debates got to be so regular, i suggested this we assign numbers

as the joke went that people in favor would get numbers 1, 3, 5, and 7, and people against would have acts 2, 4, 6, and 8 and we'd have a speedier decision. the rate doubles in nine years. so in 2020 at this rate, private school college education that costs $50,000 today will lost already $100,000 a year. those are after tax dollars. change may not come in forcing tenured professors to teach more than one course a semester. [applause] >> i assume that laughter and applause is not from anyone in academia. there are developments going on in technology and web and information flow that are exciting and may prevent an revolution. there's a young man

that's not a educator, he's a graduate from m.i.t., educating his niece. he was giving her advice and sending it to her by e-mail. he discovered it was easier to send it over youtube. everyone on youtube saw the lessons, 10-15 minutes solving a particular problem. and the audio began to grow and grow. there are now -- he quit his job, started doing it, there are now 2400 microlectures on the web for free from his site. he's had 69 million visits. at the same time, major europes are making videos of their best professors teaching important courses and making them available. with a little luck and continued growth of our intellectual capital and innovation, the education students need maybe as available as youtube videos. there will be appropriate concerns about quality, but my

hope is that we won't let that interfere with the development of this new technology in way of pursuing education. ultimately, in the long run, it's going to be critical for us to provide as much education as we can to those that are able to absorb it. notwithstanding the people that maybe something their what happened, i don't see anybody. we must be all right. some the things we need to do in the country in the days ahead are clear. we need to support the return of a vibrant housing economy. we need to take realistic steps to solve the growing deficit problem, and we need to do whatever it takes to continue to develop the intellectual capital that will allow us to lead the way into the future. :

he will let the ushers are what tom called mattingly a tight in their lovely mur moonves. they will bring your questions to emily who will bring them up to me. i must confess that i was a little questioning how you were going to tie housing, education and immigration altogether, you did. and in a wonderful package. but where do you start? >> where you start is -- and that works.

magic. see, technology. we have to start across the board. as i sit, population will not happen unless we some how take some of the measures, and that will influence the housing market is effectively over time almost no matter what we do. again, we need to be patient and make sure we don't screw it up in the meantime trolleying to come up with short term solutions that actually aggravate the problem over time. the deficit obviously needs to be dealt with and is an important warning and hopefully this isn't a harbinger of things to come. this morning and got a note that freddie mac securities in the aaa and aa platform and the risk is the standard and poor's is correct, that is that we are unable politically to deal with the deficit problem at which point things will get much more difficult. and in terms education and the capitol, people have been dealing with that problem and we need to understand that it is a

high priority. i used to find when i was running washington that everybody knew the schools needed to be fixed but we also moved on somehow something had happened. and my view was a few convicts one thing in the city of washington there were a lot of things that needed to be fixed i said i would fix the education system because the critical role that it plays in preparing young people to be productive members of society. [applause] i would say my philosophy and the question and answer sessions as the nice people bring them and there's no question is off-limits so feel free to ask any question you would like and i will answer it. now i've done that for years ever since i went into the government 20 years ago, and i decided that what happens is i've never gotten into serious trouble with an answer which leads me to conclude nobody is paying attention to the answer. [laughter] so until that changes, have at it.

>> this person notes 71% of college students have student loan debt of $55,000 asks want this damned in the housing recovery since graduates have less money to pay for a home mortgage? >> we are all worried about the dead students have and especially at the graduate level if you incur a lot of it as an undergraduate and in business school kuhl law school, medical school you end up with a couple hundred thousand dollars in debt. not only does it impact your ability to have a house but in practice your ability to buy anything. so while universities increased significantly their financial aid -- deutsch is one of those that still has the admission -- the way that happens is because people take out a lot of loans. and i think is going to be a drag. there is no simple answer to that except i think having spent a lot of time on higher education we are going to have to figure out a way to make it a less expensive undertaking

because if you measure it by the relative cost -- when i went to duke for four years i once on a scholarship and i can't close track because the a.d. $800 for four years. there was a long time ago but you could have brought for chevrolet's for that amount. now it's 200,000 you can buy a lot chevrolet's we have to come to grips with that problem. >> freddie mac and fannie mae have also just been downgraded by standard and poor's. can you comment as to what this will do to the home market? >> in the short run, it will increase incrementally our borrowing costs and therefore it may increase mortgage rates. a will not i don't think have in our analysis of a significant effect by itself. the risk is as i say that if we get another of the two remaining agencies that as a downgrade and investors start to not flocked to the treasury's but go elsewhere and rates go up, that

in the long run is a problem. as i noted ironically, i thought that if we could get mortgage rates to stabilize and increase somewhat it might get people off the dime - talk eclectic. my daughter but her first home this spring with a mortgage rate of 8.5. she left the house and they don't think of it as an investment so they aren't paying attention. i hope they aren't listening. when their rates are back down to 4.5% your fault is i should have waited and bought a house with a mortgage rate lower. so we've really got to break that cycle of the people who are waiting on the sidelines, get them out of the habit of making them think they will go to 4% slide on wait another year before i buy a house. >> this person says i'm not planning to move for my home and i'd still working on my job. why should i be so concerned my mortgage is temporarily under water? >> you shouldn't be. there was a good question. all right. actually, most people -- notwithstanding their experience with the house as any team -- most don't calculate the value of their house every year, every

week or every year. you get an assessment from the city every year and they tell with the assessment is because the people that bought the house are going to live in it, they live somewhere and understand values go up and down, so if you're going to be in the house a while, house prices will rebound over time. so i've always thought that the idea that men and somebody's house is under water they are going to walk away from it is a failure to understand human nature and how people respond to these things be big if you are way under water and there are condos in florida you might have a $250,000 mortgage on a $100,000 house some people have a legitimate question july keep paying on this mortgage when i'm going to end up owing the think a lot of money but we didn't see a significant increase in people walking away. those do terrible things to your credit. but most people are comfortable in their houses and are not going to in fact be microtimers and say i'm getting out of this house and then i will wait and get back into the housing market another time. >> this probably falls under

that category of "ask anything." >> walz. i was just kidding. [laughter] >> is anyone going to be held accountable for the economic problems? [applause] >> for those of you that saw the documentary quote coat the inside job," -- [applause] which i thought, by the become a was a very thoughtful analysis of the entire suite of the problem. obviously everybody has this everybody ought to suffer. one thing to bear in mind is a lot of people have suffered who worked in the companies. most of the people for instance which as i see participated were not necessarily a leader in this, had that compensation in their savings tied up in their company stock, which at one point was at $70 a share and is now about 70 cents a share. so a lot of people have had significant declines in the personal wealth because the invested in their 401k and pension plan and the company

stocks and if they are in a financial institution, they got wiped out pretty effectively. the other problem the sec and the justice department has is not a crime to be dumb or ignore what's going on. you have to intentional we intend to commit, lead a criminal statute and so there have been very few successive prosecutions. tayler whiteaker is going to jail for clear fraud. his was not the question of just ignoring the bubble gum it was actually fraudulent beating at freddie mac and others. i think in some ways it's been aggravated by the fact that after the bailouts in the t.a.r.p. program which is making money for the government in the long run, bankers and investment bankers and wall street were tone deaf enough to decide the issue large bonuses. and i think people have actually

paying a really large businesses and lobbying against the regulation and i think that's fair. [applause] estimate my advice would have been to keep the bonuses down and the argument is if we don't pay them somebody else will pay them it is not the most astute political move on their part. >> this person wants to know an irony in the title is a non-executive chief executive officer. [applause] >> good corporate government people have argued for years that the ceo of the company ought not be the chairman of the board at the same time. [applause] that's an investor and not a ceo who is chairman. the argument is the board ought

to be independent and run by an independent executive. about 70 per cent of the fortune 500 companies have the ceo and the chairman has the same person and about 30% last 15 years or so have segregated the duties. fannie and freddie have a combined ceo chairman. so when zakaria calls and asked me to come in and restructure the board and to go for the company as they went into conservatorship, the regulator asked them that they wanted to segregate the title for the first time so you will see the determination and the chairman of the board the vana executive chairman which is i'm not the ceo, the executive leadership of the management is the ceo, chief executive officer. the, executive chairman is an independent board chair who actually controls the operation of the board of management. i've never seen the term either until i was one to be on was the chairman of the board which is what i normally see people and don't know we might the ceo or

just the chairman of the board soon on executive is in fact diminutive and i am just the chairman of the board. >> what do you think about reverse mortgages offered to senior citizens? >> well reverse mortgages to the senior citizens are attractive, a little like the trademark phenomenon. you've got an equity built up in the house and you would like to rely on its for retirement planning to read it think the property is well structured they work well for people and i think they are an attractive way to enhance retirement. your children may not appreciate it that much, but it does seem to me all we have to do is be careful and some people did get caught. you don't get carried away and suddenly the government to create a mortgage significantly under water and at some point you created interest rates that are going to shoot up more of the equity in you plan on. >> what about the credibility?

>> another discussion can be what about the rating agencies clacks as people discover the rating agencies, standard and poor's, moody's and fitch, all else this debacle and sold it were paid by people to read the documents and securities and that sort of sounds like a conflict if he says here is my security give me a reading and i will pay you would not lead you to expect you're going to get a bad reading. so as a result, she's very complicated securities, straightforward. i have mortgages it to the medical it's pretty easy to understand. it's when you start slicing and dicing them and leaving the securities on top of those securities it's hard to figure out what they are worth. clearly the rating agencies would tell you they didn't really understand the level of risk and clearly provided ratings that they quickly tried to unwind all through 2009 and 2010. so the question as how credible are the ratings. people noted much of the guys in

new york who were they to say that the rating of the united states credit rating of to go down and there is a move by some people who say we should get away from credit-rating agencies doing that. in this particular case the reason it's thoughtful and sound and it doesn't tell you anything it doesn't know basically we've got this huge deficit that's growing at a rate that is unsustainable and we have a political system that seems on capable of dealing with the of the fed therefore, sooner or later the treasury securities are not going to be as risk free as they used to be so whether they are credible and other ways or not the reasoning was sound. >> apparently david brooks has written that fannie mae is the greatest political scandal since watergate. would you agree with that? [laughter] we competed vigorously for 40 years against them. so now is my chance. i think there is a book out that

gretchen has that takes jim johnson who was the head of finney in the early 1990's who built the political machine to task and what they did if you haven't read the book is basically if they were purely a private-sector company and said what is wrong with because everybody else is doing it, you provide the financial support to the campaigns for legislature, legislators, you announce programs in the districts and try to ingratiate yourself with them and fight against stronger regulation of try to get people to leave you alone. you wrap yourself in the mantel of homeownership as the public good and try to preserve the bargaining advantage you have over to slightly lower rate because of the implicit guarantee. if you are a private sector company everybody would say that's what they all do. i think what discourages people that are not happy about fannie mae is there was an era in the kind of what we are really doing

god's work, the ship is important people should leave us alone and the implicit guarantee of their relationship was such that people felt they ought to be held to a higher standard. so, i don't think it is the greatest political scandal since watergate. it's a little light penalties. when you have the president of the united states conspiring against the country that is when you call the scandal. what fannie mae was engaged in you might say was disagreeable, ana fortunate, and why is that it wasn't the watergate scandal. most of my friends appreciate the fact that i did not go forward. >> why are we talking about growth and the sustainability? [applause] >> gereed question. >> i think that's the right question. the way that we got out of the problem in the 90's was true growth the and in my years as a managing turnaround you can't

shrink your way out of a problem you have to grow your way out of it so the question was right we ought to sustain where we are and not go backward if we can afford it but what we have to figure out is what is it that will move us forward and how well we grow everybody knows we've lost a lot of manufacturing jobs and we need an appointment to sustain that growth, and that's why i think you're going to hear a lot about -- you heard about job creation and you're going to hear more about it and infrastructure development and infrastructure banks but it's one of the reasons i feel strongly that the intellectual capital. we formed a lot of companies and a lot of jobs by being smarter and being the first mover in a lot of areas. and if we don't pay attention to that and lose that vantage that we are going to have trouble sustaining growth. >> some questions about unemployment. how can we look at growth of the housing market with so much unemployment, and what you equalize the gap between the

minimum wage salary earners and professional salaries clacks spin a lot of questions here, all right. the problem with unemployment for hiring is not just the number. although it is larger and clearly over the last year, year-and-a-half the delinquencies we've had in the mortgage market have not been the subprimal and the lighter ones, those all got washed out some time ago. the challenge now comes to people who've lost their jobs or had some normal reason they can't pay their mortgage and the unemployment problem has exacerbated that. but my experience watching over the last 30 or 40 years as the the actual number is not what is important. what's important is not who was unemployed, it's how many people think they could become unemployed. and when you have going now -- there are not a lot of people very secure that they can guarantee themselves that six months from now they necessarily should have a job, because companies continue to retrench and continue to reorganize and continue to restructure. and so, until you can get people confident that unemployment is

stabilized and coming down as a general matter, and therefore, they are more secure in their jobs, it's going to be harder to get them comfortable making a major commitment. so i think we don't have to worry about can we get on the planet from 9.2 to five before everything starts. all we have to do is start to show progress and growth in the economy where people feel, after comfortable and confident things are great to get better. in terms of wealth prosperity, we are back to wall street. and to a large number of companies where everybody says you what to measure the gap between the guy on the front lines or the woman on the front lines and whoever the ceo is. and clearly the last 20 years that gap first hatfield has widened substantially and if we take a harder look at what we are paying people of the entry-level do have to be competitive worldwide and the other issue is we ought to look at what the people are worth the multi millions of dollars they are paid costs and that is where part of the regulatory reform is getting investors say on pay and

telling them to voice their views and hold them accountable because they set up the ceo pay and everything else follows underneath that. so my experience on the different parts is that directors are starting to take that more seriously, but likely to have more focus on that and again, the public needs to what people understand that it's hard to know who's worth $30 million a year. [applause] >> we have an announcement here with a thing to do half of the market has increased by 50 points since you started speaking. [laughter] >> well i will be invited back tomorrow. [laughter] >> the question is will you continue to speak for another six hours. [laughter]

>> how should underwater mortgages the results from of the freddie mac prospectus? >> that's a good question. you've heard a lot of what can we forgive debt or should there be a way to recognize the debt goes down. there's the question on the moral hazard in that, and that is how do you distinguish between the people who are hard working and paying their mortgage even if it is under water and sustaining their obligations from the people what the reason the site to throwing the towel. one kind of behavior and not another. i've always thought, and we've done a lot of that and we can probably do more that equally important for people a lie for them to refinance even if they are under water as significance because we are exposed to the mortgage as it is now. you can refinance your mortgage to buy tickets now 120%, 125% under water. but there's no reason you shouldn't be will allow wider body to refinance if they are

too wondered% under water because we are stuck with that on any way and might as well have somebody that has a stake in it. [applause] >> and the advantage of that when we have done literally hundreds of thousands of refinances under the president's program the average refinances saved people $200 a month in the mortgage payments which is a 2400 dollar and that is an ongoing stimulus for an answer to some extent if you want to get more money into the hands of people, you would in fact refinance the mortgages. the question is why doesn't everybody do that? the only people unhappy with the better the people who bought the mortgage securities and assumed there would be a certain flow of income out of the securities and if it gets refinance down their income goes down. but on balance i think we've moved to some extent in that direction and i think that is an easier way to proceed pish than trying to figure out how to write mortgages down and to get interested get the money back of the house goes back up.

>> there are several questions about people who are being left out of the system and there are some disagreements about who they might be. whether it is the lower class, lower and middle class will citizens need fuel to have food and these questions are asking if the population increase really is a solution. you have said it is that people want a little bit more clarification. >> well obviously one of the issues about particularly immigration is the concern that immigrants come to this country from mexico in place great demand on the social infrastructure increase the cost of food stamps and other issues and at the expense of people who've lived here longer who have the same challenges and i think those are significant issues also historic plea the lesson and that immigration has been that anybody who has the

wherewithal, the initiative and the strength to lead their home and leave all of their friends and families and move to a new place to start a new life generally make a significant contribution to the economy. and i think over the years -- over the years i always thought, and it's not coming true, we had a great advantage over europe because we were a much more open society. in europe immigration and citizenship have been much more tightly controlled. it's very hard to break into the system and therefore their societies stagnated in a lot of ways. we had a tremendous amount of energy flow into our economy with immigrants and the guy that does our yard is from central america and started to years ago and he has three huge trucks and seems to stick of the world. he's bought houses had made

investments and he's the guy that came with nothing, spoke broken english but is a wonderful human being and has made the most of his opportunities and has hired now he's got i don't know, probably 30 or 40 people and seems he is kind of a role model flight that kind of infusion of energy will continue to help us as we go forward. >> these folks the que are very smart about the issues that you've spoken about, but you haven't spoken about the deterioration of the environment and health care. so i think there are folks who want to know everything. [applause] scud freddie mac is wonderful when you read each week the mortgages put together she's helped me with the information to read i told him i was going to have a slide that says the satchel information and the presentation was prepared by intelligence people if it got lost in translation it's not our

fault. now what's the question? [laughter] >> they want your comment. >> i told frank tiahrt for here was to speak fast enough and get off the stage before people figured out how really delighted know. i actually know something about health care and on the positive about health care i grew up in ashlawn kentucky, a small town of 35,000 people on the ohio river which it had a huge rolling mill, six chemical plants and turn out to be a terribly unhealthy place to live, but on the other hand it was economically dynamic and all that industry has gone away. what saved the city is it has become the health care center for all the appalachians and what was once a half block castle has to get over two blocks and there's clinics on every street corner so health care has been a great job creator and it's not just an ashlawn kentucky but it's been

in cities across the country. on the other hand, health care costs are obviously rising exponentially in a way that is not sustainable and that we have got to deal with and it's not again one of those if you ask anybody would you like to have a constraint put on what to do with health care the answer is obviously know if you ask somebody to see the whole system is collapsing and here's a rational way across the board you are more likely to get positive response. it clearly is a challenge. on the river had, what you need to understand is we pride ourselves on our health care system. it used to be the best in the world but if you look at the industry's, we are in the mid teens in terms of dealing with children's illnesses that generate the body politic and so it's not as if all the money we're spending has us number one in the world. all the money we are spending in the world has us in the midteens so there is a lot of work to be done. the environment on the board of

a power company international power company in 29 countries so we spend a lot of time investing in or developing solar and wind power and a lot of alternatives to coal and gas there again looking for a quick fix if it were only that simple. a significant amount of power produced in the country by coal and if you shut it down everybody would actually get to sit with no electricity so you have to move in a regularly from here to there. a lot of power plants are now closing which out of the oil deposits is better than coal but still provides about half the amount of co2 but that's a lot better than the coal so you see a lot of closing of the coal plants if they are not closing just for a final reason their closing because they are no longer economic in the price of gas. so the markets to some extent

are helping but it is clear if we don't do something about it and in an organized way over time we will live to regret it. the biggest problem is we got people to quit driving them all morning. we would solve a significant percentage of the environmental problem. one way to help it is to get the 50 miles down in 2010. all walk around rather than driving their car. but they are both big problems. the of the potential, tom friedman years ago talked about the environment and the potential to be sources of growth rather than decline if we are creating an imaginative and how we deal with the problem which means we need to support here development of energy and put more intellectual capital into the fields of those are both worth 50 minutes of row so we will stop there unless you are ready to go for the six hour version.

[laughter] >> there are so many wonderful questions here. i'm going to ask to more by going to announce to the group that she will be of the women's club on wednesday so some of the questions that you have that didn't get asked can be asked that time. 3:30 on wednesday. a short question, how much money as freddie mac to lead to political candidates and lobbies? [laughter] >> zero. [applause] >> i was disappointed i told the ceo who was with me for six months before he left i said koschel kitfield for your grindle to the perks of the there were no country clubs or airports or stuff we could get rid of and claim victory because they were running a tight shift. >> you asked to be have the will and the patients. what do you think? >> i think we do. i spend a lot of time in the government and the senate at the

white house. i worked in the private sector and i do have a strong view that the underestimate the intelligence of our body politic. i think the people fortunately don't spend their lives the way we would washington reading the paper to do not who is ahead of how first base politically. but with the vendors to the issues costs to the two and people generally come up with a pretty good dancer and they are willing to do whatever it takes to go forward. it's one of the things that has made the country great is that people are willing as long as the system is fair to become to be sure we have moved away from that. we generated kind of an entitlement society that everybody wants everything now and nothing should ever be taken away. but that is to ask the narrow question would you like another flat screen high-definition tv answer is yes. we all grew up with one if we had one instance four or five every house has a tv it seems.

so people will win that maximize their own situation she but if you ask people direct questions broadly people are prepared and willing to make the tough choices to be patient with them and to see us through what i think will be a better future for us and more important for a were kids and grandchildren. thanks very much. >> ladies and gentlemen, john >> a discussion of the downgrade

of the u.s. credit rating. before upon what can be learned about the reduction from the french and american revolution. a couple of live events to tell you about tomorrow. the commander of u.s. forces in afghanistan briefs reporters at 9:00 on c-span2. he assumed command from general david petraeus last month. on c-span, at 2:30, tsa administrator is at the newseum. >> seen as a testing ground for presidential hopefuls, republican candidates are gathering in iowa for some grass-roots politics. starting thursday, we will interview the candidate and take your phone calls about politics.

saturday, we will go to the iowa straw poll. road to the white house in iowa, this week on c-span. >> next is a simulated disruption of the global oil supply with former white house officials and retired senior military officers. the group offers recommendations on how to deal with an attack on a saudi oil field. this simulation was part of the national summit on energy security, hosted by the group's securing america's future energy and the electrification coalition. >> good morning. i am one of the founding

members of the electrification coalition. on behalf of all of us at the securing of america's your energy and electrification coalition, i welcome you to the national summit on energy security. before i introduce i just wanted to say a few words about energy security and the role of this summit. during today's session, we will try to examine how the mayor of's supply of energy is dangerously vulnerable and why instant action is required to remedy this totally unacceptable state of affairs.

let me explain. the entire u.s. transportation system is totally dependent on just one fuel source, which is oil. currently there is no alternative. any disruption in the supply of oil will cripple our transportation system and create total chaos in our society. we unfortunately import 50% of the oil we need. most of this oil comes from the regions of the world which are unstable and usually hot style to the best interests of the

united states. this morning, we will explore how vulnerable these sources of supply are. in addition to security concerns, we spend $300 billion a year to purchase this oil, again, from people who are not friendly to the and i did states. this is a huge, huge transfer of wealth that has been going on for many many years. the amount and price of this imported oil is not set by free markets. rted oil is not set by free markets. as you all know, it is set by foreign governments who actually own 90% of the oil reserves. therefore, it is not difficult to conclude that this total

dependence on imports and will is a clear and present danger to the national security and economic stability of the united states. dependence on oil distorts the american foreign policy, forcing us to compromise on our values. oil dependence empowers foreign governments to impose unreasonable prices on american consumers. at $4 a gallon for gas, some american families are forced to spend more on fuel than they do on food. this current situation is not acceptable. for several years, the leaders in this room have attempted to bring attention to the importance of energy security.

this summit is an excellent opportunity to draw attention to the threats caused by our dependence on oil, and, more importantly, to provide a forum to discuss solutions needed to solve our energy dependence once and for all. we have been talking about this for more than 40 years. we definitely do have alternatives, but we need to take the future into our own hands and act now. i hope this summit will spark action to truly reduce our dangerous dependence on imported oil. so without further delay, i would like to thank you again for attending the national summit on energy security, and i would like to thank the electrification coalition for

organizing this very important event. here is the president and chief executive officer of safe the electrification coalition, mr. robbie diamond. >> thank you very much. thank you for coming. this is a profound challenge for the united states. when we did the shock wave in 2005, the price was pushing $60 a barrel. in fact, our first news clip for oil shock wave asked if we were pushing these psychological threat shows -- threshold of $60 of burarrel. we have now seen at $60 a barrel is the good old days. we have seen $140 a barrel oil

in 2008, and when you look at the implications of what is gone on in the world with rising instability, restrained production, as well as increasing demand, the situation appears bleaker. it is much easier to break the scenario now than we first did them in 2005. there is good news. there has been great technological advances, whether it be the find -- the profound find of national -- natural gas in the united states, as well as the new electric vehicles on the road. there is some hope. the problem is time. all these types of things that we must do as a country take decades, billions of dollars, and we do not really have that time.

we have oil shock wave here, which time is something to bring up. i want to tell you four things about simulation. number one, in any cabinet meeting, people would be under time constraints. the president will want answers now. information will certainly be difficult to come by in a crisis, which is not different from many of these meetings. i would note the scenarios, the members of the cabinet do not know the assimilation before. it will happen. they're walking into a situation as you are, and no one knows what breaking news there will be. they are unscripted. that these are all new scenarios that will put together in the past several months, based on world events -- we're not predicting the future, pointing out something that might happen.

finally, i would say that i want to point out that simulation is vetted group of experts. we were people who come off with some ideas for how oil come off the market. " we have talked to national security experts. we have shared that with people who have traded oil and the market, and finally he will speak with economists that run through models that come with the profound in for me -- implications to the gdp, and other types of in the chemical -- indicators. we are just the circuit master's in the middle of bringing experts to bring this together. with that, i want to say thank you to the teen, and chris williams productions did a wonderful job. also stan who has been running shockwave for several years now. finally, i will introduce you to

the shock wave cabinet. thank you very much. ♪

they may have had company logos. the whole attack as literal tanner 15 minutes. well markets reacted to the news with a surge in prices. london saw their single greatest jump in history, kicking off a chaotic day in trading in which officials considered suspending trading. trading. markets in new