>> here we go, boys. see you, guys. [get out of the way. >> special presentation. captions by closed captioning services >> on the brink, answers from the abyss. now, neil cavuto. >> france is ahead of us. actually, as of last night, more than a dozen countries are ahead of us because of the first time in 70 years, the united states of america is no longer the top financial dog on earth. the investment ratings agency standard and poor's taking care of that, yesterday. officially dinging our top notch a.a.a. rating and kicking us out of a very elite club that includes the likes of france, germany, switzerland, australia, but not us. not now we are in with belgium

and new zealand and just getting our arms around that one not proving easy now. for years top of the heap and kicked to the curb. growing fears morning kicked in the markets. we just don't know. after all of this spending the world is essentially telling us we are spent and the jig suspect and the pain could be severe. we are all over the fallout that could be swift with the likes of presidential candidates michele bachmann, ron paul and herman cain who say that the spending has got to stop. democratic congressman dennis kucinich who says that the spending has actually got to double. mark zandi who says both republicans and democrats got to talk but, before that first, the latest what's happening right now. georgia republican jack kingston,calling on congress to reconvene immediately to pass a new deal with more cuts in the wake of the downgrade. the congressman will be here later this hour. china taking a shot at us wasting no time saying quote the

good old days of borrowing is over. in uranium g 7 finance will meet this weekend to discuss the impact of the downgrade and the dow losing 700 points this week. that was before the s&p announcement. saudi arabia the first market on earth to trade on this news since this news and it wasn't pretty. stocks there down about 5.5%. banking issues in particular getting clobbered. the problem here is not the downgrade. it's the debt that brought it on. a message that seems to be getting lost in this drama. not with my next guest ron paul on the phone. congressman, you weren't and aren't surprised but what now? >> well, it looks like we are going -- we are in for big trouble because we haven't dealt with the problem. you know, i'm surprised it took them so long to downgrade. i didn't think, you know, it should have had that rating for a long long time. people are coming to the realities that you know, you wonder about s&p because they are usually pretty slow. so i think it's very, very bad. and it's interesting that when we were working on raising the

debt limit over my objection, they kept saying well, if you don't raise the debt limit, we're going to downgrade you. so we raised the debt limit so they downgrade. which means that the spending is not under control. the other thing that bothered me is i read where s&p said that one of the things they downgraded was that we weren't accepting, you know, tax increases. so, there is a lot of confused economic ideas out there. i think we are in for a lot of trouble which is what i have been saying for a long time. >> neil: you know, the administration is already kind of pointing fingers at s&p that their math is a little speecious. and could be a case of accusing the accused. what are you make of that? that it's the s&p's fault? >> the congress is making even bigger mistakes because they keep talking about slashing and cutting and all of this but there have been no suggestions of cutting anything.

it's always. >> it's interesting. they are still buying our bonds and -- >> for now. >> you are right for now. >> neil: we have got to be careful. i guess what i'm asking is we are concerned about the downgrade and whether it's going to cost us more just for people to buy our debt and our notes and our bonds. and you are quite right to point out. people have still been pouncing on our securities as good havens. but how long do you believe that will be the case? are we really more benefiting the rest of the world stinks more than we do. >> yeah, i think the market is more powerful than the agencies who grade the bonds. economic laws are powerful. which means that if you follow free market economics, interest

rates will go up regardless of bond ratings. and this might be just the incentive to start the rates going up again. there is no way in the world that you can print money endlessly and bail out everybody and spend endlessly and not expect the dollar to be devalued as it is and it's a worldwide currency and that's why this is so serious. under those conditions, you depreciate the currency, interest rates are destined to go up. it's just a matter of time. >> neil: when i was in your final city this past week and you guys cobbled a deal which you were very critical as was your son senator rand paul. the issue came up that if you guys were to cut too much. not you and your son if you were to cut too much it would be own nor russ for the economy at this iffy stage is there even going to be an appetite for cutting more spending in this environment? >> no. there isn't. there is always a special interest that comes up. budget that is crdz a cut. freezing the budget is a cut.

anybody who has their budget frozen yells and screams. you can imagine what the military industrial complex would say if you suggested freezing the system entirely. the definition of entitlements versus rights. our foreign policy country we want in the future and what economic policies we are going to follow. >> neil: it's interesting. i guess it's hard to gauge right now, congressman. but downgrade could lead to a lot of messier things. we have to watch extremely closely. congressman, thank you very much. >> thank you. >> neil: outlining the deal that was the source of some of this concern and maybe s&p jumping here. this 2.1 trillion-dollar debt deal you hear so much about is

$2.1 trillion over 10 years. 70% of those kits come after the year 2017. $28 billion over the next year. hence this criticism by the part of s&p that it really wasn't much better than the paper it was printed on. anyway, the stun everywhere from the white house this morning is no word from the white house this morning. to fox business network's charlie gasparino. weekly address not a word about s&p. >> why dwell on the negative here? i will say. >> neil: kind of like the big old elephant in the room. >> missing the lead, burying the lead. in my view this is the most telegraphed history in downgrades. i covered municipal bond market early in my career. i have seen how s&p and moody's deal with issuers of debt. they signaled they were going to downgrade two or three weeks ago. they basically put a market on. $4 trillion in cuts or else. >> neil: moody's said the same thing but then backed away.

>> moody's did not say the same thing. when these guys go out publicly and actually say it with a press guy on the record, then you know they mean business. now, whether this has a market impact, you know, that is the big question. >> neil: here is the difference, when moody's looked at this and then they tried to walk it back. dial it back. >> nobody was more adamant than s&p. >> neil: you think because they made it 4 trillion-dollar s&p would not have done this? >> yes there is a little bit of politics in this. i think they boxed themselves in. they really don't -- didn't want to do this but the fact that they came out so heavily and said $4 trillion. >> neil: you are right. talked to s&p about this on this very show two weeks ago. here is what he said then when pushed on this very subject. >> everyone points to s&p, look at they toledo financial armageddon. does ever that come into play the potential for that? >> well, we have lowered sovereign governments with

triple ratings before. >> neil: it's the united states of america. >> we rate 126 other governments. japan's ratings. >> neil: this is the united states. >> i got it it's the u.s. we are a global agency. we take a global view. >> all >> neil: so your point the united states is no different than japan. >> it is almost scary that bureaucrats have so much power. the general public could step back and realize it's an opinion of corporate bureaucrats like mr. beers who may be a very nice guy but that's what he is it's the opinion of an agency that missed the biggest financial. >> neil: biggest game in town. >> there is moody's and fitch. another game in town called the market. i think this is going to have political ramifications. we have a president who is the first president in my lifetime since 70 years of bond ratings who lost the u.s.a.'s a.a.a. rating. political ramification. bigger question is the market on monday. is the stock market, particularly the bond market, because, remember.

>> neil: bond market much more important right now. >> i will tell you i don't think so. and. >> neil: you don't think what? >> yesterday, you know, i -- last night i smelled this thing coming. i knew that the. >> neil: i know you don't think what? what's going to not happen. >> i don't think the bond market is going to implode. >> neil: you don't think interest rates back up a lot. >> no why would it. the issuers that usually get the press release, you know, they were telling us that this might happen, right? when i'm doing that i'm calling the wall street firms is this baked into the market? yes, it is. >> neil: will we have to to pony up more to get the chinese and japanese to buy our debt. >> only have to pony up more if there is a better alternative. that's what the market will tell you. and i don't think there is. where are you going to put your money if you want a complete safe haven? put it in the fin initialed treasury bond or the chinese treasury bond? >> neil: the markets might be

confused. right to say there are a couple of others out there fitch and moody's have not downgraded. moody's has us on a negative outlook. what do you make of that. >> i don't think so. the markets, people who buy bonds are pretty sophisticated. big institutions. they have their own ratings systems in house. this might have an impact on the stock market. i think stock traders trade off the headline. they hit the button, maybe. i think s&p did us a favor by doing it over the weekend. we have two days now of the treasury talking down the significance of this and talking about split ratings and look at moody's and look at fitch. so, i think. >> neil: that was by design as you first reported. do it after friday's markets. >> people thought it was crazy to do it on friday when everybody is home having a cocktail. but i thought that was the time they would do it. >> neil: you and i aren't home having a cocktail. actually you have a cocktail right here. >> actually cold coffee will. >> neil: thank you, charlie. breaking news. gasparino. furious they couldn't stop it white house officials are scrambling to down play the

downgrade. ed henry on what's happening behind the scenes right now. already got one downgrade. is senator harry reid sort of asking for another while ronald reagan's top money man art laugher, is he worried, very, very worried and he is next. [ male announcer ] to the 5:00 a.m. scholar.

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>> neil: white house correspondent on the phone with the latest. what are you hearing. >> you are right. there was a behind the scenes struggle yesterday afternoon and evening where the treasury department was as charlie was alluding to trying to point out to s&p you have a matt error here and overcounted $2 trillion in debt that the white house believes was overstating the problem but at the end of the night, obviously, s&p still moved forward with the downgrade anyway. i think, you know, the first impact for the president is the fact that when you look at the morning papers, that, you know, decent jobs report yesterday wasn't a great jobs report but

there was job growth. certainly a lot better than wall street was expecting. that's the second or third story on most front pages. first store, of course, much bigger type is the downgrade. and so president can't catch a break. even when he gets a decent jobs report, that's overshadowed. i think, look, the reason why the administration was fighting so furiously to push back on s&p yesterday afternoon and evening is they know it's going to be a stain on his presidency. follow him to the history books, first had the to have this happen on his watch. follow him into november of 2012 and be a part of the lot of the republican campaign ads. come up in the debate. you were the guy who had our debt downgraded. first one ever. but, and certainly there is plenty of blame to go around. the president waited at least 2.5 years to get serious about deficit reduction. he didn't follow up quickly on the simpson bowls commission which he had set up in the first place to try to tackle. this on the other side of the ledger it has to be pointed out that not all this debt was --

while the default -- not the default but the downgrade happened on the president's watch. not all the debt was piled up on his watch. when he took office, he had things handed off from a republican president as you know who fought two wars cut paying for it medicare prescription drug benefit that wasn't paid for. both parties on capitol hill have been piling up the spending for several years. this has led to this point. but the commander and chief is the one who is largely going to get the focus of this. and i think that's why they are going to be watching the markets on monday morning very, very closely. >> neil: you know, ed, you mentioned this has occurred under both parties' watch. you also pointed out under this president that it technically happens and that's unfortunate enough for him. he has got every -- there is growing callings now for tim geithner as economic coach. the team is not doing that great. it's sort of like starting off the season o-8. you go for the easy target. that would appear to be geithner. is he gone? >> you know, i think they want to keep him.

what's interesting is that, you know, tim geithner might be the kind of guy who is cheering on the republicans, i'm joking, of course, but cheering on the republicans to get him out because he has been trying to leave. as you know, he is kind of tired. he has been going at this for a long time. and he would like to move on. there is some indications from people inside the administration. but it's the president, his chief of staff bill daily who have been urging him to stay on fon for continuity sake. you have to wonder while they were expecting this could happen, do they think maybe there needs to be a change? my sense of this president in covering him for almost three years now is that he is not someone who likes to do change for change's sake, just to throw somebody a bone and say okay, you fine, i'm going to push him out. i think he personally likes tim geithner. and i think he is going to want to stick with him, frankly. i think the other issue moving forward is going to be the pressure not just roberting up on this president but reacting up on super committee on capitol hill. if you look at it, the fine prohibit of what s&p said, they

also, you know, cited concerns not just about the debt piling up but about washington being deadlocked, not being able to govern. they cited concerns that in their word new rove knews have dropped down on the menu of policy options. remember, it's congressional republicans taken taxes off the table. the president was talking about adding tax revenues to this debate. super committee supposedly going to look at those tax revenues. is interest going to be a balance and mix of things? spending cuts as well as potential tax revenues even if they don't raise tax rates, do they try cut some deductions, et cetera? bottom line is that part of the reasonable why s&p moved is that there was only a trillion dollars up front in cuts in this debt deal. >> neil: most of that was postponed. >> postponed years down the road. they are promising 1.5 trillion more by the end of the year. that's if the super committee can get its work done. that's far from a certainty. >> neil: all i know is we have a crisis. and it started with you coming to fox. >> i had nothing to do with it.

>> neil: seriously buddy, so glad to have you here. ed henry in washington. all right. now, if this is the sell off we get this week without a downgrade, without a downgrade, what happens come monday ♪ [ female announcer ] sweet honey taste. 80 calories per serving. 40% daily value of fiber. i'm here in the downtown area where the crowd is growing. [ female announcer ] watching calories at breakfast never tasted this sweet... i'll go get my bowl. [ female announcer ] ...or this huge. new fiber one 80 calories. yes, you can actually love breakfast. at exxon and mobil, we newengineer smart gasoline that works at the molecular level to help your engine run more smoothly by helping remove deposits and cleaning up intake valves.

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>> neil: all right. so a big ratings agency says it wants a bigger whack at this didn't. so does congress go back, redo it to put tax hikes to get that whack in this debt? would have art laugher on that. what if tax hikes are in a new mix to satisfy our ratings agency. then what art? >> i don't think it makes since for them to have a tax increase with this type of economy as you know, neil. when you look at all this debt

stuff and i have watched your show and a number of others. >> neil: why are you watching any others? >> i don't watch any others. it's just because fox has other people on there besides you. >> neil: that's okay. >> is that okay? >> neil: go right ahead. >> ask yourself the question when should we borrow? we are borrowing huge amounts now. we are not using it to build prosperity. there is nothing wrong with borrowing money to create prosperity. every growth company in the world bowers money to create growth. growth countries should be the same way. we are borrowing money to basically pay people who are unemployed who should be working. we are borrowing money to subis subsidize losing companies who should be allowed to sink. borrowing money to fight wars in countries we don't -- this is the wrong time -- running up deficits and destroying our ability to borrow in the future if we need to. and, neil, this is just -- i mean, i don't know whether s&p was right to downgrade us or

not, but we are borrowing at the wrong time use only when it can use the proceeds to create greater prosperity. that's not what's happening. >> neil: you are right about that. that's not happening. when i talked to mitch mcconnell the republican senate leader in washington. he had told me neil, we could have gone to this 4 trillion-dollar figure. but it would have meant having to agree with the president with revenue hikes, tax hikes. >> mitch mcconnell was right. we should not do tax increases now. we have a spending problem and it's an entitlement problem. we have a huge entitlement problem that is getting worse and worse every day because the entitlements themselves are causing the disastrous economy. government spending has caused this deep recession. government spending is the problem and unless we solve that, we can't get our prosperity back. >> neil: good stuff, art. always good hearing you my friend. thank you very much. >> thank you, neil. i love your show by the way.

this is really interesting. >> neil: don't be flipping around watching other people. me and this network, fine. but leave it at that. seriously, thank you very much. chocolate and kiwis steep economists blon we deserve to be lumped in with the likes of be jump and new zealand more known for those products. mark zandi joins me on the phone. mark, your agency passed on a downgrade. s&p did not. i know that's not your bailey wig. it's their rating and their opinion. >> do you agree with it? >> i think moody's and fitch disagree and i think there is reasonable grounds for disagreement here. the impact of this though, the most important point is the impact of this should be small. i was listening to charlie gasparino's point that this has already been pretty well tell graphed. i think that's a correct assessment. i think markets are anticipating or were anticipating s&p

downgrade. i don't think it's going to have a significant impact on financial markets. at least not long lasting impact. >> i worry about that then. i know this sounds perverse, but normally when you get corrected or slapped up side the head, it's supposed to be a wake up call. if we don't suffer that much for the consequences of our spending and overspending and we merrily go on our way, where is the resolve going to come or what would incentivise us to change our ways? >> i think we got the wakeup call. i think we are all very concerned about our fiscal situation. i think we have actually have made a lot of progress. i think the debt ceiling deal was a substantive deal. doesn't get us to fiscal. 10 year deficit reduction we need to get there but it got a long way there. the 2 trillion in cuts are substantive. and i think they will occur and i think that's. >> neil: you think they are substantive? >> i do. i do. i really do. >> neil: 70% of them are after the year 2017. >> that's the way it should be

because the economy is still very soft. and can't digest significant spending cuts at this time. they get phased phased in over d that's exactly the way it should be done. >> neil: all right thank you very much. mark zandy. coming up: >> is there a risk that the united states could lose its a.a.a. credit rating yes or no? >> no risk of that. >> no risk? >> no risk. >> so standard and poor's is wrong. the united states will keep its a.a.a. credit rating? >> absolutely. >> neil: that was then. tim geithner step down? michele bachmann, herman cain who says that guy has just got to go. the "mystery spot".

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