>> schieffer: today on "face the nation," bad just got worse. now what? it is an embarrassment and that's just the half of it. u.s. securities are no longer the safest place to invest your money. that's the immediate result of the downgrade of u.s. credit by the leading rating agency standard and poors. how will world markets react? coming after an awful week on wall street, what does it mean for you and the millions of americans who are out of work. >> we are going to get through this. things will get better. >> schieffer: but what is the path to better now? we'll ask the president's trusted strategist david axelrod. and for context we'll check in with key players on the left and right, howard dean, the former chairman of the democratic national committee, and republican senator lindsey

graham of south carolina. it's all ahead on face the nation. captioning sponsored by cbs "face the nation" with cbs news chief washington correspondent bob schieffer. and now from cbs news in washington, bob schieffer. >> schieffer: and good morning again. david axelrod is in buchanan michigan this morning. mr. axelrod, welcome to the broadcast. >> thank you, bob. >> schieffer: for the first time in the long, proud history of america, u.s. securities are no longer considered the safest place to invest your money. i just want to ask you, what is the impact of that statement going to be on people who are turning on this broadcast this morning? >> first of all, let's see how the markets react because i think there's a broad consensus that this is still the safest place to put your money. you know, we can debate the

strength of the analysis that they did, the history of s&p and so on. they made an egregious analytical error here but theirs was largely a political analysis. that's what we should focus on because what they were saying is they want to see the political system work. they want to see a sense of compromise. they want to see the kind of solution that the president has been fighting for, a large solution that will team with the problem, that will be balance, that will include revenues, that will deal with some of our long- term issues. we still made some progress in the compromise that was struck on the debt. what we're saying is we have to make more progress. in fact we do. that's what the next few months is going to be all about. >> schieffer: well, the president said we had to reach this agreement. to get the debt limit raised to keep this from happening. well, we got the agreement and it happened. as i understand the standard and poor analyst analysis, it was the way the congress and the white house had to get together

to finally get this done that has caused the downgrade. so what happens now? >> bob, first of all, there's no doubt that the brinksmanship that we saw was atrocious and that contributed their analysis. but let's review exactly what happened. for months the president was saying let's get together. let's compromise. let's do a $4 trillion package that will really stabilize the debt and get us on the right path. let's do it in a way that is fair to everyone so that the wealthiest americans are kicking in as well as the middle class and everyone else in the country. we close these egregious loopholes. we deal with long-term structural issues, everybody giving up some of their sacred cows in order to achieve that result. we thought we had such an arrangement with the speaker of the house who showed interest in it, mr. boehner. then he went back to his caucus. he had to yield to the most

strident voices in his party. they played brinksmanship with the full faith and credit of the united states. this was the result of that. you know, there is a lesson in that. compromise cannot be a dirty word. we have to work together to solve this problem. we have to do it in a way that's fair and balanced and meaningful. >> schieffer: are you saying that the president bears no responsibility for this? that this was all the fault of the other side? >> listen, bob, what i'm saying is review the history of what happened here. i think, first of all, people are less concerned about that than where we go moving forward. but let's look at the history of this. the fact of the matter is that this is essentially a tea party downgrade. the tea party brought us to the brink of a default. by the way you said before the president said... if we had defaulted on our debt the consequences would have been dramatic and lasting.

it was the right thing to do to avoid that default. it was the wrong thing to do to push the country to that point. it's something that that should never have happened. that clearly is on the backs of those who were willing to see the country default. those very strident voices in the tea party. by the way, bob, let me say one other thing. not one of the republican presidential candidates stood up in opposition to that. not one of them said let's compromise. >> schieffer: i believe john huntsman.... >> all right. >> schieffer: i believe john huntsman did. >> let's talk about the rest of them including mr. romney the frontrunner who on the day that the compromise was reached that at least made some progress and set a process in motion to do the rest. he jumped in after ducking and dodging and evading and took a position against this.

without any solution. these are... presidential races are tests. this was a test of their presidential metal. in this case he failed in most of those candidates failed. >> schieffer: i want to show you something. this is an interview that the president had with matt lauer of the today program about a month after he took office. in 2009. i just want you to listen to this. >> look, i'm at the start of my administration. one nice thing about the situation i find myself in is that i will be held accountable. i've got four years. >> you know how quickly people can.... >> that's exactly right. a year from now i think people are going to see we're starting to make some progress but there still be pain out there. if i don't have this done in three years then there's going to be a one-term proposition. >> schieffer: there you are, mr. axelrod. that was the president at the start. we're getting right up to that three-year point. is this going to be a one-term presidency?

>> i think the question is... first of all let's certify that we have... we're in a different place than we were in the day he did.... >> schieffer: we are. worse. >> and we were losing 750,000 jobs a month. we've had job growth for 17 months. we have to do much much better. the president has proposed a series of steps that he thinks we should take including extending payroll tax cut, including extending unemployment insurance and infrastructure to get construction workers back rebuilding this country. trade treaties that will expand our exports. patent reform so that our entrepreneurs can bring their products to market. we have a three-year backlog for people to bring their inventions and their products to market because of the patent limit. there are things we can do to move this country forward. what we need is cooperation and action on the part of the congress. we're going to come out when

they get back from their vacation and ask them to take action and action swiftly to move this country forward. but in the end of the day, bob, this election isn't just going to be about the president. it's going to be about what direction we want to take as a country. this debate we've just had, bob, this debate we've just had is kind of a microcosm of that larger discussion we're about to have. do we want to invest in education and training, research and development, infrastructure, the kinds of things that will grow our economy, create good middle class jobs or do we want to spend that money on the tax cuts for the very wealthy, on tax cuts for the oil industry that's making money hand over fist already and really doesn't need the help. on other tax loopholes. are we going to have a country where hard work pays and responsibility is rewarded or is schemers are the ones who get rewarded?

>> schieffer: let me ask you this. >> that is what this election is going to be about. >> schieffer: let's stop talking about... if i say with respect stop talking about what the election will be about. >> you asked me. >> schieffer: i understand that. >> i'm just responding. >> schieffer: you made an extended response which i asked you the question. but let's talk about what happens before the election. what's going to happen between now and the election? do you see any indication that things are going to get any better? i mean, every forecast is that unemployment is going to be pretty close to 9% when we get to the election. i don't see any indication that anything very much is going to change here. you tell me i'm wrong. >> bob, well, we have an opportunity to impact on that. i think you are wrong. if we act i just laid out five things that we can do right away. that would have a positive impact on the economy. this committee that is meeting to deal with the long-term debt

issue can have an impact on the economy. there are things that we can do if we live up to our responsibility to work together to solve these problems and that is on all of us in public life to do. it's going to take all of us to do it. you know, we're mourning the loss of these 30 splendid young americans who died over the weekend in afghanistan. it struck me, these guys were probably democrats and republicans that came from all kinds of backgrounds but they were united this their love of their country, they were willing to give their life for their country. we should honor their memory by doing our duty as well and taking the steps that are necessary to move this country forward. >> schieffer: i guess the question i would have is, i don't disagree with what you're saying about what we could do. but we've been unable to do it. is there anything different that the president can do to get this thing back on track because frankly i don't see...

i agree with you about things that need to be done but how are you going to get them done? >> bob, bob, bob, as i said, there are specific steps that we can take to move this economy forward, to accelerate that. as part of this debt process, reforming our tax system which is complicated, unfair, burdensome, is something that we can do. and should do. so there are a series of things we can do. i don't think it's a question of whether there are things we can do. obviously there are things we can do. the question is whether we have the will to do and whether we can lay the politics aside and work together, republicans and democrats to do it. your next guest lindsey graham has been someone who has been very, very good at that. but he like most republicans are now having to respond to this very strident group that is pulling them away and believes that compromise is a dirty word. that is a prescription for failure.

>> schieffer: all right. mr. axelrod, i want to thank you. these are not easy problems. i think everybody would agree on that. we're going to see what lindsey graham and howard dean have to say about all of this when we come back. every day, all around the world, energy is being produced to power our lives. while energy developement comes with some risk, north america's natural gas producers are committed to safely and responsibly providing decades of cleaner burning energy for our country, drilling thousands of feet below fresh water sources within self contained well systems and using state of the art monitoring technologies, rigorous practices help ensure our operations are safe and clean for our communities and the environment we are america's natural gas. but when she got asthma, all i could do was worry ! specialists, lots of doctors, lots of advice... and my hands were full. i couldn't sort through it all. with unitedhealthcare, it's different.

we have access to great specialists, and our pediatrician gets all the information. everyone works as a team. and i only need to talk to one person about her care. we're more than 78,000 people looking out for 70 million americans. that's health in numbers. unitedhealthcare. >> schieffer: we're back now with two key players and their respective parties. senator lindsey graham joins us from hilton head and former vermont governor howard dean, he's in culpepper virginia this morning. i want to start with you, senator graham. you just heard david axelrod basically what he's saying is you can blaming it on the tea party. do you agree with that? >> well, if we listen to the tea party, we'd have $4 trillion reductions in debt over time and not been downgraded. no, the tea party has come to washington talking about reducing spending. thank god they're here. this is the first time we've ever raised the debt ceiling or tried to actually reduce

spending. that's a good thing. we're woefully short. the agreement fell well short of what the rating agencies were looking at. the tea party hasn't destroyed washington. washington was destroyed before the tea party got there. the hope that the tea party and the middle of the road people can find common ground to turn this country around. >> schieffer: howard dean, i want to ask you what your take on what david axelrod just said. >> look, i think the standard and poors downgrade is a good thing because i think it underlines the fact that you can't get out of this without raising revenues. 60% of the deficit is due to the bush tax cuts. that's c.b.o. saying that not me. you can't get out of this without raising revenues. the vast majority of the american people want us to raise revenues particularly on the millionaires. let's do the right thing. there's everybody put something into the pot. you can't put some things into the pot. if medicare eligibility goes up 67% you're going to see people running against democrats in primaries. we're not going to penalize old people.

we're not going to penalize middle class people anymore while we let all these billionaires get through and corporations. $53 billion going to oil companies. why can't we start fix.... >> schieffer: governor dean, let me ask you.... >> this is ridiculous what's going on here. >> schieffer: isn't the president going to have to share some of the responsibility for this? i mean, as i heard david axelrod this morning, the president has done everything he could do and it's all the fault of the other guy. isn't that a shared responsibility here? >> well, here's the deal here. i mean, i happen to agree with david. i think it is the tea party's problem. they're totally unreasonable. i think they've been smoking some of that not just drinking it. the fact of the matter is that the president is going to get the blame and the credit for what goes right whether he deserves it or not. that's what presidents do. is he going to get some of the blame for this? yes. this is a serious thing. if you look at the standard and

poors report they mentioned the fact that our unwillsness to raise revenues makes it impossible for us to regain our credit rating. the democrats are there. the american people are there. a lot of reasonable republicans are there but they're terrified of these right wing splinter groups and radical right because they're so powerful in the primaries. >> schieffer: about... what about that, senator graham? aren't republicans going to have to share responsibility just as the democrats are going to have to as governor dean can see. >> you can't be $14 trillion in debt unless both parties are working together to get you there. and the tea party is the result of what's wrong in washington. they didn't create all of this mess. it was an energy created by people seeing the country slipping away and wanting to do something about it. the tea party is for a balanced budget amendment in the constitution. so am i. i don't have any faith that either party is ever going to change things until they're made to do so. we need a balanced budget. the truth of the matter is if president obama were... if he were in the south eastern

conference he would be fired as a coach. he would not have his contract renewed. everything is worse. unemployment is up by 18%. gas prices are up by 93%. everything, housing prices are down by 12%. he's had a chance for three years. he's failing. it's not the tea party's fault. what was hope and change is despair and confusion. people are not creating jobs in this country because they think howard dean is going to raise their taxes. if you want to create jobs don't raise anybody's taxes. try to lower spending like the tea party and other people up here want. the tea party is not the problem. washington was broken before they got here. i hope they can help us fix it. >> schieffer: governor dean, do you think the president is in trouble politically? is it an uphill fight for him to be re-elected? >> i don't think so. the reason is there's a choice here in this election. the choice is between president obama and the people that got us into this mess in the first place. the fact is that these deficits were created by george bush's ridiculous tax cuts which some

democrats voted for i have to say. but i do believe everybody has a responsibility for this. we got into this together. we need to get out of this together. that means everybody has to sacrifice. i like lindsey graham. i think he's a positive force in the united states senate and a reasonable person but i could not disagree with him more on this issue of the tea party's contribution. the fact of the matter is and the american people believe this by an overwhelming margin is everybody has to put something into the pot to get us out of this. that includes all those wealthy bankers and corporations that the republican tax breaks went to ten years ago. we've got to all put something into the pot. it is unfair and unreasonable to ask middle class people and seniors on medicare to take a big hit when bankers and oil companies continue to take our tax payers' money. that is not right it's not fair. i don't care how vociferous the tea party is is. that's not a winning strategy for a elections or the country. >> schieffer: there's no question that the president has moved more to the center in an

effort to resolve this and find compromise. did he make a mistake doing that? i mean, if you were president right now, what would be your tack from here on, to try to get some of... (talking at the same time). >> everybody has to have bottom line. can we limit the outlay on social security? yes. but can we take away people's benefits? i don't think so. can we eliminate or limit the outflow on medicare? yes, by using a payment system that encourages wellness not sickness. but you cannot eliminate people from medicare. you can't raise the age of medicare to 67. that's unfair and outrageous. people wait to get on medicare because their private insurance is so lousy when they're under 65. you have to pick and choose what you can do. we can compromise with reasonable republicans without restricting entitlements. we are not interested in compromising unless everybody bears their share. that includes the wealthiest people in america who by the way led us into this mess with the outrageous behavior of the major banks.

>> schieffer: senator graham, are republicans interested in resolving this or would it be better politically if it didn't get resolved for republicans? >> well, it's one thing to talk on tv. it's another thing to produce a budget. paul ryan produced a budget. people don't like parts of it but he had the courage to do it. i respect that. democratic controlled senate never produced a budget in 830 days. the president of the united states produced a budget. it got zero votes in the united states senate. the president's biggest problem is he's not leading. he's a casual observer at a time when he needs to be fully engaged. speaker boehner tried to do a $4 trillion deal. they had a $800 billion of revenue on the table. speaker boehner put revenue on the table. when he went back to close the deal it was now $1.2 trillion they needed. at the end of the day this joint committee should look at what president obama and speaker boehner tried to do to cut $4 trillion in deficits and get their ideas and try to see if we can find a bipartisan way forward but obama health care wasn't passed by the tea party.

the stimulus package wasn't passed by the tea party. the tea party didn't increase the debts by 35%. the tea party is not the problem here. this president has failed to lead and any other private sector enterprise he would be fired. he was asking to run a football team they wouldn't hire them him. if he was trying to be a ceo for a second contract he wouldn't be hired. we've got a chance to win as republicans but howard dean is right. we have to be for things. i'm for a balanced budget amendment that would require both parties to do what we should have done a long time ago. i am for adjusting entitlements and closing loopholes in deductions, bringing the money back into the treasury, paying down debt. i'm not for raising taxes at a time when we have 9.2% unemployment. this president hasn't led. statistically this has been a lousy presidency only getting worse. >> i actually have a question for senator graham. where were you on paul ryan's medicare plan? do you want to privatize medicare like paul ryan does?

>> medicare would be saved under paul ryan's plan but if you've got a better idea put it down. >> it would be destroyed. medicare wouldn't exist. >> howard, have your party lead. put together a budget for the senate. have the senate democrats put together a budget and show us what they would do. >> we do that (talking at the same time). >> one vote. you haven't put your own budget together. (talking at the same time) >> the truth of the matter, howard, the reason.... >> schieffer: gentlemen.... >> is failing. >> schieffer: i'm very sorry. just when it's getting good here, we have to say the clock ran out. thanks to both of you for being with us this morning. back with final thoughts. finally, there's a choice for my patients with an irregular heartbeat called atrial fibrillation, or afib, that's not caused by a heart valve problem.

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nation's credit rating in the "new york times" i saw on a back page that elmer stats died last week. he was 97. elmer stats, what a perfect name for the comptroller general. the official who once headed the g.o.a., the government accountability office as it's now called. the independent agency that collects all the stats and analyzes how the government spends tax dollars. stats ran it for what seemed like forever from lyndon johnson's time through the nixon, ford and carter administrations. his name was as familiar as a washington landmark, like one of those places you hear on the radio traffic reports. as in traffic is backed up all the way to the whatever. it was years before i knew that it was actually a river. all i knew was it was somewhere out there that traffic backed up. the same with elmer stats. his name was on so many reports that people who didn't know what he did knew his name. and those who did know knew you could take what his agency

reported to the bank. its facts were seldom disputed. its neutrality never challenged. his political affiliation never known. the times noted that it could rest on a pillow that had a donkey on one side and an elephant on the other. stats came from a different washington in another and better time. somehow i'm glad he didn't know about the partisan bungling that brought the embarrassing downgrade of our credit rating. he might have found that hard to take. back in a minute. [ male announcer ] how can power consumption in china,

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so they can save more lives. bringing better health to more people. ♪ >> schieffer: that's it for us today. i'll be on vacation the next couple of weeks. our chief white house correspondent nora o'donnell will be sitting in. next week she'll take face the nation to aims iowa for the iowa republican straw poll. her guests will include presidential candidate michele bachmann. thanks for watching. we'll see you soon. captioning sponsored by cbs captioned by media access group at wgbh access.wgbh.org ,,,,,, ,,,,