gwen: the republican presidential campaign got a jumpstart here in iowa, but the state fair roller coaster had nothing on the stock market. the story from here and there, tonight on "washington week." it must be getting serious. >> i have a very consistent record of fighting very hard against barack obama and his unconstitutional measures in congress. i'm very proud of that record. >> she said she's got a titanium spine. it's not her spine we're worried about. it's her record of results. gwen: the candidates are sharpening their attacks. >> i predict in this place on this day that in november of 2012, president obama will not carry the state of iowa. gwen: leading up to the iowa straw poll, the jockeying has begun to see who will struggle and who will survive.

>> if you want to know what i'm going do, i'm going to do exactly what i did as governor. it's called leadership. gwen: the common target, president obama, who spent the week pushing back against a tidal wave of bad economic news, a credit rating downgrade -- >> the political brinkmanship we saw over raising the debt ceiling was something that was really beyond our expectations. gwen: and a wild stock market. >> in the aftermath of this whole debt ceiling debacle, with the markets going up and down like they are, there's been a lot of talk in washington right now that i should call congress back early. the last thing we need is congress spending more time arguing in d.c. gwen: a week when arguments mattered. covering the story, dan balz of the "washington post," jackie calmes of the "new york times," and john harwood of cnbc and the "new york times." >> award-winning reporting and analysis. covering history as it happens.

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machines have a voice. medical history follows you. it's the at&t network, a network of possibilities, committed to delivering the most advanced mobile broadband experience to help your business forward. >> corporate funding is also provided by -- prudential financial. additional funding for washington west virginia 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, reporting from iowa this week, gwen ifill. gwen: hello from iowa. the summer kickoff to voting in the first caucus state next january. tomorrow there's a straw poll. last night there was a debate. in between we're here at the iowa state fair with dan balz of the "washington post," who's

been with me here all week. what's been the most amazing thing you've seen? >> the debate on thursday night was such a contrast to what we saw two months ago in new hampshire. if that was a sleepy debate, this was an eruppings. we've been waiting for this race to heath up to get people engaged and we saw that thursday night. almost everyone in the group had something to prove. gwen: was there someone who came in with more to prove? >> governor pawlenty from minnesota clearly needs all the help he can get. his campaign has been struggling. the straw poll will be a big moment for him and i think he needed to take on congresswoman bachman because she's got more momentum. but governor huntsman wanted to make an impression. newt gingrich wanted to erase the idea that his campaign was floundering and governor romney

was able to float mostly above the fray. gwen: so did anybody who really wanted to do it pull it off? >> i'm not sure there were any clear winners other than perhaps governor romney because everyone else was focused on somebody else. gwen: didn't hurt himself? >> not in the least, i don't think but he's sitting there worrying about rick perry, the governor of texas. gwen: it's not like we didn't know he was seriously considering this but his timing seems suspicious. >> well, his timing is exquisite, if you will. he made it clear on the day of the debate that he was going to announce on saturday just as the speakers begin to give their spee, in ames on saturday, he'll be drawing all the attention away and then here for a couple of days of campaigning. gwen: we're right across from the soapbox at the state fair where all the candidates show up and talk to voters and we've

seen sarah palin here today. michele bachmann is across the street. who has been change -- getting to the core of iowa voters? >> i think you have to say it's michele bachmann. she got into this race late and immediately zoomed to either the top or near the top of the polls. she's done very well here. this is a re-- rene electorate that likes fiscal con ver advance si. she's played that card hard and that's one of the reasons governor pawlenty is worried. both of them need a victory from the iowa caucuses and one is going to be disappointed tomorrow. gwen: a lot of iowans say that we pay too much attention to the social conservatives. who wins the day, besides the band, who wins the day in

contests like this? >> well, in the past, the social conservatives have been a critical element. mike huckabee won the caucus us four years ago on the strength of his support from the social conservative part of the party but a lot of those folks today are just as worried about economic issues as some of the social issues. gwen: especially after the week we just had. >> right. we have a different environment this time than we've had in the past. gwen: let's talk about expectations for the straw poll and whether the straw poll matters. there's a lot of mixed debate about that, whether it's really that important or a showcase for the most committed and engaged voters. >> well, you can argue that the straw poll has passed its prime. the frontrunner, mitt romney, is not actively competing. rick perry, who is high in the polls, even though he's not an

official candidate, will be elsewhere and you have some of the people who are well down in the polls actually exeething. so what comes out of this? the other reality is that somebody who doesn't do as well as they are expected to do could find themselves threatened to be driven out of the race. and it's unclear whether an event like this should have that kind of power. gwen: and there are people like herman cain and ron paul, who have a lot of compassionate supporters in a state like iowa who could turn things around. >> certainly ron palm. hiss followers are very passionate. he has a great record in straw polls because it's a small group of people who turn out. in ames, the numbers who turn out are significantly larger than some elsewhere. herman cain has support in this

state and rick san toumple. we can't overlook him. >> gwen: he's been to 6 counties i think he said. >> he's been all over the state in the last few weeks. gwen: how many of these have you been to, have you covered? >> i think the first straw poll i attended was probably -- may have been 1988 or 19 7. i have been to ames for a number of these. gwen: does this feel different? >> it does. i think the combination of the debate on thursday night and the straw poll and the state fair obviously opening right in the middle of that, has drawn a bigger crowd of all of us and so the attention to this event is somewhat or significantly higher than we've seen in the past. gwen: dan, as always, thank you very much. that's it from here. i'll be back at the end of the program with a few of my final thoughts. until then, my friend and colleague, judy woodruff of the

pbs news hour will take it in washington. judy: thank you, gwynn. we have seen a roller coaster in the markets. first sparked by the downgrading to have u.s. credit rating by standard & poors, which provoked a harsh response from the president -- >> on friday, we learned that the united states received a downgrade by one of the credit rating agencies. not so much because they doubt our ability to pay our debt if we make good decisions but because after witnessing a month of wrangling over raising the debt ceiling, they doubted our political system's ability to act. this is the united states of america. no matter what some agency may say, we've always been and always will be a triple-a country. judy: what followed was an up-and-down stock market driven by deficit concerns, anxiety over europes economy, and some mixed economic news here at

home. welcome, jackie, welcome john. but john, let's start with this s&p announcement. with a week of hindsight, any better sense of why they did it? >> fundamentally it was political. standard & poor's early in the spring looked at the amount of deficit reduction that major players were talking about, the simpson commission, the paul ryan budget in the house, what president obama put out. it was about $4 trillion over 10 years. they said ok, that's the benchmark. if they achieve the $4 billion over 10 years, then we'll preserve the triple-a. they were alone in setting that standard. the two other major industries, moody's and fitch did not set that standard. then everyone else seemed to blow with the political winds. people assumed a somewhat more optimistic view, at least they

got a deal, we didn't default. standard & poor's said no, look how messy that process was. the interesting thing is the administration was critical of their decision but president obama has been repeating many of those same criticisms in the political process trying to turn them against republicans. judy: because he wanted a bigger deal too in the first place. >> exactly. he wants to pin that on the republicans. to some degree standard & poor's did too. they pointed in their report to the intrang -- intransigence of the republicans to be able to get a deal in. some ways the administration was affronted and outraged. tim geithner attacked them and so did the president but they also eakingoed some of the arguments. jim: why was the president so upset? >> when the news first came out

monday night, by saturday, the white house was say staying fairly quiet. they didn't want to pile on. now, when you're looking for a $4 trillion end result, a $2 trillion mistake is not minor. so then the rationale became a political one. but by monday the president and the others were far more critical. like john said, they picked up on the argument that standard & poor's was mistaking about political dysfunction. judy: but they ended up looking, as i heard some say, defensive in all of that. that wasn't their intention was it? >> i wouldn't think so but it's hard not to be defensive when, for the first time in history a ratings agency downgrades the united states credit on your watch. to pick up on what john said,

you saw in ames, iowa in the debate last night that a lot of the republicans have continued to hit on this as being barack obama's downgrade. but one of the things in standard & poor's report that hasn't gotten much attention is the fact that they said in addition to their downgrading, there's a negative outlook for the future credit rating for america. the big part of this was the fact that they assumed that the bush era tax credits for the high earners would continue because republicans wouldn't let them expire on schedule. they said if they did expire on schedule, at the end of 2012, they might raise the outlook from negative to even. jim: but the stock market reaction has been crazy this week. end of the week a little bit up but is that all due to the

downgrade -- >> no. no. a lot of it is hard for any of to us explain. it's the most volatile stock market that i've seen. alan greenspan said last weekend fundamentally this is not a credit event but a blow to the american psyche. i think the market was processing that on monday. at the same time we've seen declining consumer and business confidence, weakness in europe, in the european banking system. they have their own full blown crisis there. so the market goes down, then it recovers. the fed acts in the middle of the week and ben bernanke said we're going to keep rates low for two years. initially as they were releasing that announcement, first the market went down then it went way up. then the next day, down again. judy: and behind the fed's decision, jackie, it's interesting because they essentially projected two years

of a weak economy. they said we're going to keep interest rates low. what cemented that view? it wasn't so long ago the fed was saying we're not sure. >> it's become pretty clear that you're going to have continued high unemployment. we've all known from the beginning pretty much that this was a downturn driven by a financial crisis. they're always slow -- it's slow getting out of them and employment lags. but in the course of the recovery, there have been other head winds that keep coming at us in. 2010 it was the greek debt crisis and other things. the japanese tsunami, the new -- the latest euro crisis. so it's become, with the passage of time, it's clear that this is going to continue to be a downturn. both the fed's monetary policy and congress's fiscal policy,

there's lifts to what they can do. judy: and john, that leaves the president in a box. the republicans are screaming that he's not doing what they want him to do. the democrats are saying he's given in too much. where does that lead? >> he's in a terrible bind politically because the unemployment rate, which previously the administration said would get down to 8% by election day. now few think it's going to get that low. instead of looking at 3%, 3.5% growth for the next year and a half, much lower growth. the president has to say what can i do to stimulate the economy and what can i do that reference will expect? one thing is expanded payroll tax cuts. republicans are cool to it now. new higher tax celts. an infrastructure bank, $50 billion. a lot of bipartisan support for that but republicans right now aren't interested in anything

that involves direct spending by the government. so i think hopes within washington for some kind of a stimulus package are pretty low. something will probably pass but it will be much smaller. judy: and the president said he's not going to call congress back. he said that's the last thing the american people want right now is for congress to be here squabbling. did they even consider doing that? >> i don't think so. they know it's just going to look worse if congress comes back. there is no quick fix. we know about the steps that cleared the way for the debt limit to rise, we have a select committee, 12 people, supposed to come up with recommendations for an additional $1.2 to 1.5 trillion in savings and by november 23.

it's going to be hard enough and hopes are fairly low, if nonexistent for this committee. so the idea that congress could do anything constructive in the month of august is beyond far fetched. >> i think the practical reality inside the white house was as heart stopping as it was for investors to look at the dow going up and down, it was the same inside the white house. market goes down, high anxiety. market goes up, glass of wine, everyone is more relaxed. to the extent that the market had kept going down, i think there might have been more of a sense of urgency to call them back. but at the end of the week, things seemed to stabilize. judy: it does seem that any hopes that there are a -- are pinned on this so-called supercommittee. what are we to make of the

people who were chosen? >> they're all party loyalists, fairly high ranking. committee chairmen or leadership figures. several have been on these types of committees before. the boll-simpson commission last year are the copies committees that vice president biden headed. it begs the question.