gwen: turns out the debt deal didn't stop the economic roller coaster. we look at why and what it means for you. tonight on "washington week." >> we are going to get through this. things will get better and we're going to get there together. gwen: perhaps, but nothing about this week suggested confidence in the economy or in the nation's leadership. >> the bill is passed without objection. gwen: the debt ceiling was finally raised. >> i think the big deal for us and for the american people is the fact that there are no tax hikes in this package. >> this is the wrong approach for our economy at the wrong time. gwen: and there will be some painin >mimiake to make, wee wilil

face some very tough challenges as we try to meet those numbers. gwen: but 74,000 aviation workers were temporarily sidelined by another washington disagreement. >> it's a tragedy about ego, about bullying, about an attempt to prove one side would cave. gwen: the unemployment rate ticks slightly downward, but the stock market took a jarring plunge. as the nation's capital catches its breath in august, what happens now? covering the week, charles babington of the associated press. michael duffy of "time" magazine, and deborah solomon of "the wall street journal." >> award-winning reporting and analysis, covering history as it happens. live from our nation's capital, this is "washington week" with

gwen ifill, produced in association with "national journal." corporate funding for "washington week" is provided by -- >> this rock has never stood still. since 1875 we've been there for our clients through good times and bad. when they needs changed we were there to meet them. through the years from insurance, to nelvet management from real estate to retirement solutions, we've developed new ideas for the financial challenges ahead. this rock has never stood still. and that's one thing that will never change. prudential. >> corporate funding is also provided by -- boeing, at&t, rethink possible. additional funding for "washington week" is provided by the annenberg foundation, the corporation for public broadcasting and by contributions to your pbs station from viewers like you. thank you. once again, live from

washington, moderator gwen ifill. gwen: good evening. it's been a dizzying week. good news followed by bad news followed by mystifying news, starting with today's new jobless numbers. the good news? better than expected job creation. for those who have been unemployed have been out of work much longer. >> the unemployment rate went down, not up. but while this marks the 17th month in a row of job growth in the private sector, nearly two and a half million new private sector jobs in all, we have to create more jobs than that each month to make up for the more than eight million jobs that the recession claimed. gwen: by the end of the day the dow jones industrial average was up 61 points after a 500 poiment develop yesterday.

is the economy just recovering slowly or is it headed back into recession? >> if you asked six different economists, you'd probably get six different answers. we just don't know. this recovery has been unlike any we've seen in the past. the word mystifying is pretty accurate. for the economy and even the federal reserve. many economists put the recession risks higher than a few weeks ago. the jobless claims did calm the markets somewhat and ease some fears. unless something spooks the markets. europe has all these debt problems and we are somewhat exposed so there is a risk. the good news is that we are adding jobs, the economy is growing but the fundamentals are so week. yes, the unemployment rate went down to 9.1% but the reason is

so many people quit looking for jobs. 193,000 vanished from the labor market. gwen: i can't help but imagine if the unemployment has ticked up even a 10th of a 5th of a percent, people's hair would have been on fire today. is that balance even -- >> a lot of this has to do with people being completely scared. it used to be the unemployment rate go back up to 9.2%, you're going to see people courting cash more than they are. the 9.1% is good news in terms of perception. you want to see your unemployment rate go down and your labor participation rate go up and that's not happening. we're at a low at a point we

haven't been in since the 1980's. >> over the last two and a half years the big question in washington we were talking about week after week after week is what government can do to stimulate the economy, fiscal and monetary policy. and the argument politically is what it should do. are we now at the point where the government has no cards left to play? >> they don't have cards left to play in two respects. one, they did this massive still laws program and you can -- stimulus program and you can argue it made things worse. what we got for that amount of money is a very sluggish recovery. there is no appetite for additional spending. you saw in the debt debate they couldn't even extend the payroll tax cut or the unemployment tax. at the same time interest rates

are near zero. the fed has very little left it can do. it can stop its program in june. i think it's going to take a lot more than a wild ride on wall street and a couple of months of bad numbers to do any more. the tools are not there so much anymore. >> you mentioned europe. we tend not to think much about the economy of greece and portugal having anything to do with our big economy is. that right? >> no, we were linked together. the 2008 financial crisis showed us that everybody is in this together and u.s. institutions are exposed to european assets and in participate money market mutual funds. about half of their holdings are in european assets so we do face composure there and sort of in the -- exposure from and in the broader sense, the worries help fuel this worry about the overall economy but also, we want europe to buy our

stuff. and if they're not spending money, not borrowing, our exports are not going to go to those countries. gwen: you mentioned the word "confidence." which seems to be a theme throughout our program. a lot of the nervousness, are the ratings agencies going to downgrade the government's rating again? makes you wonder whether everyone should brace for this double-dip recession we keep hearing about? >> in some ways it might be a self-fulfilling prof sip. after the wild ride on wall street yesterday, i heard people stopped going out for dinner. restaurants got canceled reservations. people are nervous and it's not going to take much more for them to just stop and say whoa, i'm worried about my 401 k and sending my kids to college.

i'm going to hold back. gwen: and that's something which business theoretically could spark if they got ahold of some of the cash they're sitting on. >> they're worried about the debt downgrade but also what's going to happen in this post-debt ceiling debate, taxes. there's all this uncertainty and they say i'm not going to spend money on trucks or plants or equipment if i don't know what my savings are going to be. this is true. gwen: you talk about the post-debt deal environment. last week that was supposed to solve everything, calm the markets, calm the economy, but oddly enough, the market began to shake only after congress passed and the president signed the agreement to raise the debt limit that has tripled congress for the last several weeks. in the end the deal made a lot of people on both sides unhappy.

one democrat called it a sugar coated satin sandwich. here's what senate leaders said. >> the detective was long. it wasn't easy. for weeks the american people have watched and wondered whether congress could get its job done. well, we got it done and brought our economy back from the brink of disaster. >> i'm often asked what would you do to get the economy going? my answer is always the same. we need to quit borrowing, quit spending, quit trying to raise taxes, quit overregulating and let the private sector flourish. gwen: in the end we thought we'd ask chuck to explain how it -- it all came together. >> in the end the two most important people that mattered here were john boehner, the speaker of the republican-controlled house and mitch mcconnell, who we just saw, the minority leader in the democratically controlled senate and both of them did not

want default. they knew it would be bad for the economy and disastrous for the republican party. not everyone in the republican party agreed with that so right off the bat they had that problem. boehner did not completely control his caucus as we saw. and of course in the senate, the minority party has filibuster power so that gave both of them enough power to have some negotiating ability. at the end it came to two big issues -- would thereby tax increases? president obama repeatedly said there had to be new revenues. those in the end were not in it. the other thing was there going to be a two-part debt increase? president obama was adamant that this not happen and he won on that point. those were the two big

concessions. once those two things got settled, the last minute was a minor haggle about the pentagon and they were done. gwen: there were several moments where they felt like they had a deal. at one point, senator reid and congressman boehner seemed to have figured it out. at one point the president seemed to have figured it out. what happened between the next to almost final deal and the final deal because the details didn't change that much? >> you're right. the details didn't change that much. really, it was a matter of the republicans having to convince the democrats and frankly, this probably happened a good number of days before. we cannot get new revenues through. and then the president pushing back and saying ok, if that's the deal, you not get this two-step increase. once they all realized that was the deal and again, the deal had to come out of the senate

because that's where the norpte party has control. once it came back to the house there was no way the house could vote it down. if the republicans voted it down it would be disastrous for their party. >> they kicked the can down the road on the bigger deal. gwen: the thing they swore, by the way, they were not going to do. >> exactly. that's how you knew it was not going to happen. the idea of doing a grand bargaining, more than just another round of cuts or another round of attempts to get at the deficit and debt problem. what are the prospects for doing the kind of big thing that baneer and obama talked about in one of the early incarnations? any better? >> there are some people who think it's possible. the garbin is -- bargain is one of the most interesting parts of this. a lot of it was done in secret and boehner was seriously considering a deal that would have $4 trillion in deficit

reduction. twice he walked up to the edge of that and pulled back. he probably would have had a very hard time selling that to his constituents and president obama might have also. now this super committee equally divided by the two parties that by november has to come up with some plan. it's possible that could engage in the grand bargain. i wouldn't look forward to that. >> the tea party seemed to have some input on this. what happens going forward with this super committee? how is boehner going to get his caucus to vote for anything that the supercommittee wind up doing? >> the republican party over the years has become increasing liad minute about no new taxes and the tea party put more muscle into that position and we saw that played out in all

these negotiations over the last few weeks and a lot of people feel that because of that, this super committee, which will be even leadership divided between the parties, it will be extremely difficult for them to come up with a tax increase approach. at the same time the tea party, which ask here to stay and a very influential organization within the republican party, about half of their members in the house did vote for the compromise in the end. so they're not completely unyielding. gwen: participate of the discussion that developed after this was everyone was disgusted with democrats and republicans. but somebody sent them there. is this what voters sent to washington? the question of whether it was dysfunction or divided government? >> sometimes american voters seed -- seem to be their own worst enemies. they'll say they want bipartisan and for congress to

work this out. by -- but they vote in ways that almost assure that will not happen and a big reason is because of gerrymandering and because of low participation in primaries that liberals dominate the democratic primaries, conservatives dominate the republican primaries, by the time people realize there's a general election in november, the ballgame is over. gwen: let's try to make sense of it all. deals get cut, market go up and down and the net results appears to be this -- americans are losing confidence in almost everything. the latest "new york times"-cbs poll offers this gloomy picture. on president obama, 48% approve. for congress, 14% approve. 82% disapprove and 7 5% say members of congress do not deserve re-election next year.

it goes on like that. americas -- americans think we're on the wrong track. what are twow take from all this gloomy number stuff? >> we would be having a vote of no-confidence. the lack of consumer confidence in the economy is sort of matched with a lack of voter confidence in our political leaders' ant to solve the economic problems, which creates a double whammy of gloom. when pollsters look at the data they say we haven't seen these kinds of metrics, numbers, in 25, 35, 45 years and that sets up and this is where it gets really kind of hairy. a very unpredictable political environment and we were living in an already volatile political environment when this started. 14%, the number of americans

who approve of congress? that's the lowest since 1974 when richard nixon resigned and that's lower than when we had the 2010 landslide, the 2006 landslide and the 1994 election which changed the house of congress. so we're close to having another wave of toss out the bums result next fall. and president obama isn't immune to this, the average weekly gallup poll shows he's at the lowest point he's been since he's been president and among independents, that number is now 37% approval, and that's 15 points below where he was before. gwen: is this attempting to compare this to the jimmy carter years? and we know what happened to him after his first term. is this comparable? >> you actually hear people talking about whether the president needed to reset a much bigger part of his presidency than he has.

maybe cabinet switches. unlikely, i think. i think in the white house there's head scratching about what to do about the job crisis. they're going to hit the bus in a week or two and try to talk about it. i think they're quite confounded by how to deal with this resurgent we energized republican party that the republican party has its own challenge with. i think what they're talking about and they probably only have one card left politically and that is to get tougher. to make their politics edgier. i think barack obama is going to find that that's about the only -- name names in people's districts. the kind of things he's been reluctant to do. >> is the door open for a presidential candidate for the republican party to talk about jobs, jobs, or are they going to start running into some

problems? >> yes. both are happening. they're already talking about jobs though they're not being any more specific on how to create them than the white house has done. and they have their own challenge because this party is somewhat under the thrall, maybe under the control that a group of voters that didn't exist two years ago that have come on very strong that ran the table in the 2010 election and are even more powerful than six months ago. the tea party has already set their sights on a balanced bunt amendment. most say that's not going to happen. but i would have said six months ago they would never take $800 million as a result of the debt ceiling. i don't think they're at their high watermark. >> there seems to be an incredible stalemate in washington.

it usually takes a crisis to act and they couldn't even do the grand bargain. what happens over the next year, year and a half? and what does it mean for the presidential election? >> what you said about confidence was really interesting. the deal they ended up cooking was a giant way of saying no, we can't. we'll have to have a special machine to do this other problem, which adds to the lack of confidence. the most interesting number i saw in the polls this week that worries me about where we're going is that in the independent voter -- now nearly a third of the country thinks of itself as independent voters and nearly a half says they don't like either party, which opens up the prospect for a third party. gwen: what does the president do? >> this is one of the complicated things going on in washington. no one knows what the president is going to do next. you can see that, in addition to the other things he

inherited has encountered a mood and a political tone in washington that is much more poisonous than perhaps he expected. gwen: thank you all very much. very good night. thanks, everyone. we have to leave you a few minutes early tonight to give you the opportunity to support your local pbs station. they in turn support us. but the conversation continues online in the "washington week" webcast extra. you can find us at pbs.org. next week i'll be in iowa for the big republican debate and straw poll. see you from there next week on "washington week." good night. download our weekly podcast and take us with you. it's the "washington week" podcast at "washington week" onlinehan pbs.org.

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