i'm erin burnett. i'm erin burnett. "out front" tonight, romney on a roll. mitt romney squeaking out a win in iowa and immediately hitting the new hampshire air waves. >> it's time for this pessimistic president to step aside and let american optimism that built this greatest nation on earth build a great future for our children. >> but are people buying what mitt's selling? conventional wisdom says the former ceo will be the republican nominee and that the quote/unquote establishment is behind him. well, we wanted to know if that is really true. so we reached out to the "out front" strike team, our exclusive group of the best and brightest minds in the business world in this country and asked them which gop candidate is best for the economy. here are the results. it turns out most do support romney. 12 of 15. two preferred gingrich over all other candidates and one person said ron paul and i'll get to that. that's really important. here's another thing. in a head-to-head matchup the strike team matchup said they would support rick santorum over obama, that's right. this is important because a lot of pundits and washington insiders maybe surprised to hear what they consider long shot contenders, santorum and paul. not being dismissed by mainstream and major entrepreneurs, business leaders and ceos and donors in this country. but in fact, one of the most influential of them all, a man who manages the largest bond fund in the world, says the man with the best economic vision for america is ron paul. bill gross is the founder and co-chief investment officer of p mco. ron paul is coming off a third place finish, very strong in iowa, and before i ask you why you like ron paul, let me just one through a couple of things here that people may know him for. wants to cut $1 trillion from the budget in the first year, wants to get rid of the federal reserve. what do you think about those policies? >> well, i responded to you and said that ron paul was the best republican. i didn't say he was the best candidate and we can talk about that later. i think it wasn't necessarily ron paul's economic policies which garnered 21% of the vote, erin. it was really a case of what i would call anti-disestablishmentarianism, remember that worder? it used to be longest word in the english language. >> right. >> no idea what it means and a good sound bite and maybe ron paul should use it. in other words, ron paul represents the disenchanted vote, the anti-business as usual vote, and his idea to bring the troops home from south korea and germany and japan and a host of other countries would certainly help balance the budget if you consider that we spent $1 trillion or so on iraq alone. so that's really why i like him. i think those policies in terms of the gold standard and -- and, you know, eliminating the fed, i think those are overboard and certainly nothing that i would advocate. >> so you're saying in terms of the focus on the deficit in particular, but one of the things you're talking about is troops from, well, you know, not talking about the wars here, iraq and afghanistan. you're talking about more established bases, the broader ron paul point of cutting back in some of our military commitments? >> right. i think that's what he talks about frequently. he talks about south korea. he talks about japan. he talks about germany and why for 50 years we've had bases there and 30,000 troops, for instance in, south korea. you know, to the extent that they alone come back, they would provide a source of lowering the deficit, so that's, i think, very much of a positive. he has other things going for him, too. i mean, he does have the strongest sense, i think, of all republican candidates in terms of monetary policy. yes, he goes too far in terms of the gold standard. yes, he goes too far in saying we should eliminate the fed, but he does know how the monetary system works and that's something, i think romney and santorum and others don't have a clue on. >> this is interesting because i know you're saying all right, he goes too facts and circumstances but, you know, a lot of people on the strike team, it won't surprise you, bill, they said ron paul, he's crazy because he wants to get rid of the fed and i dismiss that out of hand. you're the guy who deals with the fed more, relies on the fed more and american monetary policy more than anybody in our country, our mutual funds, our 401(k)s, a lot of them are in your hands. so what would happen in a ron paul presidency? why would you be all right with it it given those ideas? how do you think he would temper them? would you become comfortable with that if he did? >> well, back again, i think obama is the man, though i'm not satisfied with what obama's done from the economic standpoint, but in terms of the republicans, you know, i think ron paul has a sense, again, of monetary policy. he does know that it's important to have a stable currency and a stable sense of value going forward, that inflation basically is not the clue going forward to our economic problems. you know, i have a sense that romney and santorum basically, you know, suggest that the policy for job growth should be one in which regulation is cut and in which obamacare is eliminated and taxes are perpetually kept low. i don't think that's the way to create jobs. i think we need to focus, to bullet, you know, basically policy on job creation as opposed to permitting and encouraging the private sector to do it. they haven't done it for the last, you know, five years. >> all right. bill gross, thank you very much. we appreciate it it. bill gross, as we said, biggest manager of bonds in this country. obviously that means he buys all that debt that this country is issuing. ron paul has energized and excited people all across the country this year. 40% of first-time caucus-goers vote for the texas congressman and if bill gross has any indication, he may have more staying power than we thought. let's bring in dave frum and james carville. let me start with you, david frum, important to note bill gross is saying he would be an obama man, but when it comes to looking that the republican field, he does not dismiss someone like ron paul out of hand, which it did seem like the establishment was doing and similarly, in our results from our strike team with rick santorum. so what do you make? do you think that these guys have the capability to become more mainstream candidate? >> ron paul has no capability of becoming a more mainstream candidate. he's a man of the margin, and i think if you are a democrat and you want to do a little mischief in the republican field, you might well favor him because he is a man -- ron paul is a man who couldn't be elected mayor of a town, let alone president of the united states. here's how the ron paul message worked. i was in one of the precincts in eye and i saw the speech given by an effective and intel again ron paul supporter. he presented ron paul as pro-life, anti-gay marriage, a veteran, in favor of strong american military, and by the way a supporter of the mission to kill osama bin laden. now that is a different ron paul, because ron paul in fact was not in favor of the mission to kill bin laden. he said shortly afterwards that he wished that it had all been done in conformity with international law and bin laden had been arrested with the cooperation of pakistan, a total fantasy. if the republicans had known, that i don't think the republicans would have done that well in that room. ron paul is inherently marginal, a boutique candidate. he may raise a lot of money out of this race, but he's not going anywhere. >> i've got to say, you know, 21% doesn't sthunds marginal. but hold that thought for a second. james carville, i want to bring you in here and put up a screen asking the strike team here. we went through and asked them who they would vote for, obama verseus, okay. versus romney, 12 of them for romney and two for obama. santorum, nine for santorum, purely on economic policy, nine for santorum and 6 for obama and gingrich, 11, 4, obama. ron paul 8 obama, 7 paul. i mean, that wasn't even a sweep. now, these people generally are going to trend republican. there's no question about that, but i would have thought on the economy some of this surprised me. what does this make you think about president obama? >> well, look, first of all, i think he's a slight, slight favorite to win re-election. it's going to be a tough fight. there's no question about this. this is, you know, not a particularly great economy, and he's -- he's in a tough fight. i wouldn't deny that. a pretty small sample. look, bill gross, i have nothing but admiration for him and the guy that he works with, mohammed el iran is his name. >> yes. >> pimco is heck of an organization. he's a bright guy. i agree with david frum, ron paul is not going to be the president of anything, and if you go and it's -- a couple of ideas he has that there's enough that somebody with like, but if you go anything deeper, some of the stuff is really disturbing and real out there. i -- i'd declare -- i wouldn't declare him out of the mainstream. i'd declare him way out of the mainstream. nice affable guy. >> does it make you think twice that people will say, all right, well if mitt romney doesn't have what it takes, you get a lot that have establishment money and support would be willing to back someone like a rick santorum, obviously more so than they would a ron paul, but willing to do that, david frum? does that surprise you at all? >> i don't believe it's true. i think that ron paul -- that ron paul is going to dwindle. i think mitt romney is going to go here from strength to strength. have you to understand that ron paul's economic views are -- he's essentially a monetary policy crank, and ron paul's views are what the united states needs is to abolish banking. we need to abolish the currency system. we need to go back not before the fed -- the great depression, not before the creation of the federal reserve. he wants to go all the way back to before the civil war when the federal government was real out of business of money creation all together. he's against fractional reserve banking. he doesn't believe that there should be such a thing as commercial credit, that there should be chits against gold deposits. a formula for perpetual depression, if you take it seriously, which i don't and neither does bill gross. >> let me ask you one question here about rick perry because the tweet today was pretty amazing. last night giving his concession speech and tweeting out today a picture of himself in what looked like quickly a wet suit running in the middle of -- yeah, in texas, see, doesn't that look like a wet suit, saying that the next leg of the marathon is the palmetto state. here we come, south carolina. have you ever heard anybody, james carville, get out of the race and decide the next morning, wait, i'm back in? >> no. last night the weirdest thing as i've ever been, maybe one of most fun things i've ever done and it just continued this morning. it was a very strange thing. all right. he's going to take his shot, i guess. i don't know. i have no idea what goes through rick perry's mind, if anything go through rick perry's mind. i'm not even certain of that. but he's entitled to take his shot, and i don't think he's going to do very well, but why not try. >> literally five seconds, david if ru muchlt if rick perry gets out, michele bachmann already out, where do those votes go? >> they end up going to romney. just a matter of time. it may take all the time to florida. >> with the caveat, it's just a matter of time i hear you. >> let us know what you think about rick santorum and ron paul and how some in the economic establishment think they would be okay. still out front, a royal murder mystery, a young woman found murdered on one of the queen's estates. we're on that case. and the u.s. defense secretary leon panetta has to make major cuts to the defense spending at the time china is building up its military in a massive way. what are they doing tonight? 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[ male announcer ] if you can't afford your medication, astrazeneca may be able to help. all right. so get ready for who might be a seismic change to america's military and the consequences in cost and physical might will be extraordinary. tomorrow defense secretary leon panetta will be addressing the pentagon's budget. it's going to be cut by half a billion dollars in cuts, at least 47,000 fewer marines and troops are expected in the next year. now while america is downsizing, and of course as you all know, the super commity automatic cuts, half them, $600 billion come from defense, china is doing the opposite, massive buildup. the "wall street journal" today doing a story we found fascinating about china's naval strength. dozens of submarines and arsenal ballistic missiles that can reach u.s. warships thousands of miles away. the "wall street journal" says these missiles are going to be delivered by 2015. one of them hits one of our carriers you could take out 5,000 troops with one missile. now we are slashing and china's growing. a frightening scenario we've been talking a lot about here on this program. peter brooks is a military expert with the heritage foundation, a conservative think tank, and i appreciate you joining us. >> thanks for having me. >> let me ask you this question. it seems that part of problem is when you have conversations with former defense secretaries, for example, they are honest with us in their point of view, right. they see china as a threat. they see china as not a friend of the united states and a real -- a real enemy is not the right word at all but a real contender and competitor but when you ask people in the government they categorically refuse to acknowledge that. >> they have to be careful. the people doing the policy and diplomacy, the people sitting down across the table from the chinese, so that sort of of stuff coming out of government is always very much watered down, you're right. people who are out of government, people in think tanks can speak quite frankly about this issue. >> now china's been increasing its defense budget for the past 20 years. fastest growing peacetime military budget. should this alarm the united states? i think as a caveat we need to acknowledge that this country pays multiples what have they do on an annual budget? >> right, but china -- you're right -- china has the fastest peacetime defense budget in the world. they have been increasing their defense spending by 10% or more, erin, for more than 20 years and has the world's second largest defense budget. those are just numbers. those are budget numbers. things are cheaper to make in china. the chinese military is cheaper than the united states military in terms of maintaining it, but they are developing an aircraft carrier program. they have the j-20 stealth fighter which was unveiled just about a year ago and then secretary of defense bob gates was in beijing. they are spending a lot of time and effort on cyberwarfare and counterspace. they have the world's largest navy in asia, the world's most pred dijous submarine program they are really developing significant capabilities that we need to be paying attention to. while we're building down, china is building up. >> particularly on the navy side. i mean, as journal pointed out, it's something -- i think it's always worth pointing out, but it's really all about the sea even now. 95% of the world trade goes by sea, where the u.s. will take a lot -- the bulk of the budget cuts that are coming, just as china is building up. i mean, how does this end, peter? i guess it's the way nations are, right? they want to build up their military, but how does this end? >> it's not quite clear. the problem is we can see china developing capabilities, but we don't know what china's strategic intent is, and we need to be cautious of that. is china a fire-breathing dragon or cute, cuddly panda? it takes -- intentions can change overnight. china is claiming large parts of the pacific ocean. you need a large navy for -- to be able to patrol the pacific. they talk about the tyranny of distance. you need a capable air force. i mean, these are things we really need to think about as we look at our defense budget. erin, it may not surprise you that if i told you that if these cuts come into play. >> right. >> we may build down to 220 and 240 naval ships which would be the smallest navy we've had since 1916, world war i. >> that is pretty amazing, almost back to the time where, as bill gross was saying, ron paul wants to take us when it comes to monetary policy. thanks very much. appreciate it. >> thanks for having me. >> santorum missed winning in iowa by eight votes and how will he fare in the more liberal new england state of new hampshire? 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