to be severe. welcome to "your money." i'm ali velshi. august 2nd is the day the treasury department says it will no longer be able to pay all of our nation's bills. and the united states will default on its debt. republicans are going to vote on their own plan this week, complete with spending cuts. but president obama says he won't support deep cuts without increases in taxes. >> if you're trying to get to $2.4 trillion without any revenue, then you are effectively gutting a whole bunch of domestic spending that is going to be too burdensome and is not going to be something that i would support. >> david gergen is cnn's senior political analyst. david, there was a time when republican house speaker john boehner and president obama both talked of doing something big to change america's unsustainable economic path. what do you think? do you think that opportunity's lost? >> well, a week is a long time in politics. it can be a lifetime. i think what's now clear is that the big deal, the grand deal, the grand bargain of $4 trillion over ten years is dead, it's gone. i think the chances of getting a deal at $2.5 trillion or the middle-level deal, very unlikely because the president does not want to go that high without tax increases and republicans are not going to do it. here's the hard question i think that's coming up. the house republicans are now pushing a very, very tough deal through the house. over in the senate side, the republicans and democratic leaders are working together on a version of the mcconnell plan. and the president will accept that, as he said in his news conference friday. but whether the house republicans would accept that or not is a big, big question. it seems to me that's the lead horse, that's the lead solution right now, is a version of the mcconnell plan throwing in the spending, which i think would be a good idea of at least $1.5 trillion worth of spending cuts. whether the house republicans -- they've been sending some signals they won't accept that. in this case, we're really at loggerheads. >> diane swonk joins us. ben bernanke called it calamitous not to raise the debt ceiling. moody's said it would downgrade the u.s. aaa credit rating. let's talk about consequences from an economist perspective. if the u.s. fails to raise its debt ceiling on august 2nd, what does it mean for our already struggling economic recovery? >> well, it's incredibly bad news. it could be enough to push us into another recession, depending on how far. immediately they'd have to do 40% to 45% cuts in spending right off the top of the board. how long that would last? i would first stop paying congress for not doing their job. but i think the real issue is this is broad-based. you can't escape these. i know the american pick doesn't like the fearmongering going on around this issue. the thought that we would all have to pay higher interest rates, that we would allow the freedom of choice in this country to choose our future and leave to it the rest of the world to determine our future with higher interest rates and changes in spending cuts that are forced upon us and thrust upon us is just unimaginable to me. but, unfortunately, it's getting to be more worrisome as each day ticks on. >> when you and ben bernanke are saying these things in the same week, we have something to worry about. how might a u.s. default affect you and your family? tom foreman is here to break it down for us. >> breakdown is the right phrase. we're talking about a shock wave that would go through houses all across this country. it would start with the value of your house itself if the cost of borrowing money for the government gets higher, that would mean probably the cost of borrowing money for all of us would get higher. interest rates would rise. that could mean many, many thousands more on mortgages for many people out there. things like your car, the rates could rise there. gas prices could rise as a result of that. and your roads might be in poor quality if the government can't afford to take care of them. what about the people who earn the money for the house? let's say you have a small business father. if he works for a small business, he could wind up unemployed because the business can't afford to operate anymore. he could lose moneying in his savings account and he could have a difficult time getting a loan if he's trying to run his own business because money would tighten up all over. let's say that mom works for the government, immediate impact. she could wind up furloughed. she could also see credit card rates rise. one of the keys to this is the way the interest would ripple throughout this country. here's a son, he wants to go to college. student loans could become hard tore obtain for the same reason, interest rates, restrictions on financial aid could be put into place. what about the daughter over here? her salary could be limited or delayed. she could possibly get ious. and private contractors, really important here, the people who supply everything for the government and the military and all these people, they could be left hanging out on a limb simply because the money was not there. and of course what we heard this week, what about grandma? social security could be delayed, retirement benefits could be reduced. it's not just a concern for capitol hill. it could be a concern for real homes across the country. >> tom, there's a lot of would have, should have. there's a lot of sheer ri there. but the bottom is, we don't know. we were all together after lehman brothers collapsed and a lot of smart people thought markets would take that in stride and they didn't. this is a lot bigger than lehman brothers collapsing. david, you have been in the white house. you understand how people think. why are some people so concerned, particularly those who are concerned with scoring political points, why is it going to have a broader and more devastating effect to not raise this credit limit? >> i think ultimately the republicans -- at least i hope -- will agree to go and lift the debt ceiling. certainly speaker boehner has agreed to that. mitch mcconnell has over on the senate side. but there is a strong sentiment among republicans that the cuts that are on the table now are -- we had great, big budget cuts. when you broke it down, it didn't turn out to be much. there's a strong feeling that what they're being asked to do is to agree to cuts that are actually quite modest. and then increase taxes. and in effect to pay for the welfare state, a bloated welfare state. they would like to shrink the size of the welfare state. this is ultimately a conversation, a debate, a food fight over how big the american government should be. that's why they're not doing it. but the question becomes -- i cannot believe at the end of the day house republicans will be so recalcitrant that they'll take us into default. that would be so much beyond what i think we've ever experienced, ali, knowing we're on the edge of niagara falls, on the edge of a precipice, i can't believe they will take us over. >> let's talk to one of the most powerful voices in the debt ceiling debate. he's not an elected official. he's not a government employee. grover norquist joins us. your lobbying group has gotten more than 230 house republicans and nearly 40 gop senators to sign a pledge never to support an increase in taxes. and you warn those who break your pledge will pay a political price. are you the reason that we don't have a debt ceiling increase right now? >> well, as you know, the pledge, the taxpayer protection pledge, is a pledge that candidates for office and house and senate members and presidents signed to the voters of their state and to the nation. the pledge isn't to americans for tax reform. it isn't to me. the american taxpayers have asked and elected a majority in the house of representatives and 41 members of the senate who ran, committing not to raise taxes. >> right. >> our friends, president obama, has said he won't try and solve the problem he created with his spending -- >> wait, wait, wait. what do you mean he created with his spend? you didn't just suggest our budget problem is because of president obama, did you, grover? >> well, see, on august 2nd, which is the new date that geithner gave us, he gave us a may date. now there's a new absolute date that he wasn't -- >> grover, let's have a true conversation here. you know better than that. you know we hit the debt limit on may 16th and you know the treasury secretary said, i can move things around until august 2nd. >> why are we hitting august 2nd? >> moving things around. let's get back to the point -- >> because obama spent -- >> are we in this debt situation because of the obama administration, grover? >> yes. >> we're going to pass by that question. that's an unreasonable position. >> the stimulus -- >> our debt problem is far beyond $800 billion, grover. we're electing people as we do to represent us in government and get to washington and say, this conversation is a whole lot more nuanced and complex than it was when i was running for office in iowa or in arkansas or in new york. and i might have to compromise. why is preserving the inability to increase taxes more important than the overall health of the economy and the danger that it's putting us into right now? >> because not raising taxes is important to the health of the economy because the president wants to spend the money, he wants to raise taxes and spend more moneyment and the answer to that is, no. the most important thing to turn the economy around -- we've been losing more jobs since obama's been spending more money. obama's spending is $1 trillion more this year than when bush left office. $1 trillion in one year. he's going to add another $10 trillion to the debt during his presidency. that's what we need to pull back. he wants to raise taxes. the american people and the people they elected say, don't raise taxes, cut spending. that's the argument. obama wants to spend msh and raise taxes. the republicans don't want them to raise taxes. why would you say, because obama wants to spend more money, you have to pay for it? >> grover, hold on. i want to ask you whether or not there are any taxes in this country that you need to see increased to make things a little more fair. grover norquist is standing by. i don't even know anymore. 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[ male announcer ] should've used roundup. america's number one weed killer. it kills weeds to the root, so they don't come back. guaranteed. weeds won't play dead, they'll stay dead. roundup. no root. no weed. no problem. weeds won't play dead, they'll stay dead. luck? i don't trade on luck. i trade on fundamentals. analysis. information. i trade on tradearchitect. this is web-based trading, re-visualized. streaming, real-time quotes. earnings analysis. probability analysis. that's what opportunity looks like. it's all visual. intuitive. and its available free, wherever the web is. this is how trade strategies are built. tradearchitect. only from td ameritrade. welcome to better. try new tradearchitect and trade commission free for 60 days. we're back with grover norquist, he's the president of americans for tax reform. grover, you've gotten so many republicans in congress to sign a pledge to never raise taxes. a lot of people are wondering if it's appropriate that you hold so much power in the republican party. you've never been elected to public office. but you certainly are influential. what's the consequence, if somebody who has signed one of those pledges of remarkable inflexibility that you forced them to sign goes against you? >> well, people take the pledge because they speak to their voters. the pledge is not to me. can we make this clear? the pledge is to the voters of oklahoma if your name is tom coburn. it's to the people of your state who elected you. >> you write the pledge. you get everybody to sign it. it's your pledge. let's not mince words, grover. tell the truth. you want to make sure people don't increase taxes. this isn't -- the voter in iowa didn't write that pledge. >> we offer that pledge to all candidates for office. some choose to say to their constituents, vote for me, i won't raise taxes. obama said, vote for me, i will raise taxes. different people take different approaches. that vote, that pledge is put to the voters of their state and then they get elected. it's important that people can trust their elected officials not to lie their way into office. >> is it more important that people can trust their elected officials to make the right decisions in their interest than to be loyal to grover norquist so that they get reelected again? >> okay, are you not listening? the pledge is not to me. the pledge is to their constituents. raising taxes does not make the economy stronger. it makes it weaker. spending money you don't have does not make us stronger. it makes us weaker. we ought to spend less and not raise taxes. that's what people take the pledge to do. obama wants to spend more. >> i'll give you this, grover. you were into this long before it was majority opinion. but you've seen the polls that say most republicans -- not most americans -- most republicans agree with the fact that there need to be spending cuts and some corresponding tax increases. do you think there is not a tax in america on the wealthy or on corporations that needs to be increased? there's just no tax anywhere that you think needs to be increased? >> well, the taxpayer protection pledge, which any of your viewers can read on atr.org, makes it very clear. tax reform, if there's a credit or a deduction that's inappropriate, just reduce rates so it's not a hidden tax increase. we're americans for tax reform. we were founded to pass tax reform in '86. we want lower rates and a broader base. we want tax reform but not hidden tax increases. >> the pledge reads this -- i, the undersigned, pledge to the taxpayers of the state f undersigned and all the people of this state that i will oppose and vote against all efforts to increase taxes. that's accurate, grover? >> pretty simple. no net tax increase. >> and you continue -- no net tax increase. you continue to counsel those who sign this pledge not to negotiate at all with anything that will increase the debt limit if it involves increasing taxes? >> and take a look at what's happened across the country and the states this year, governors who signed the pledge have won that fight. they're not raising taxes. they are reducing spending. the healthy states are not raising taxes. they've elected people who have taken the pledge. the unhealthy states like illinois and connecticut are raising taxes and damaging their economies. the pledge has saved the americans hundreds of billions of dollars. >> are you okay that the pledge may cost americans when this debt ceiling is not increased? it will cost americans a lot of money when it's not increased? >> i hope that president obama will not stick to his ideological left wing guns and demand more spending and tax increases, that he will come to the table and actually put something in writing, which he hasn't done yet. there is no obama plan in writing. >> grover, it is remarkable to hear you suggesting that president obama does not stick to his ideological guns. grover norquist, thanks for coming on the show, the president of americans for tax reform. grover norquist is remarkably committed to what he's talking about. but there is a problem here. there's an underlying problem that politicians in america cannot do something that risks their seat because their voters won't let them. pledges like this contribute to a great deal of inflexibility in washington. >> well, ali, listen, let me put my cards on the table. grover know this is. i have supported the simps simpson-bowles plan all along. i believe taxes need to go up as part of an overall effort to get the deficits under control. but in fairness, grover does have a point. and simpson-bowles itself said it wasn't one-to-one, it was two-to-one in spenting cuts versus tax increases. the simpson-bowles commission recognizes that more central than taxes is the question of how much we're now spending. we've taken the level of spending in this country from about 20% of gdp at the federal level up to 24 hearse to 25% over the last two years, another year in sight for 25%. and what republicans are saying is you have to sweat that down. i believe that taxes ought to go up as part of this taxes. but i think it's unfair to villainize the republicans when, in fact, there is a very real possibility that the senate will present a plan which will have $1 trillion to $1.5 trillion dollars in cuts and no tax increases. and that's what the president will accept and that may be where we come out at the end of the day. >> the issue is more political, david. >> default versus tax increases misstates the problem somewhat. >> i'm not sure why the two are in the same discussion. i would have really preferred they deal with the debt ceiling and they deal with spending and taxing entirely separately. but we're not in that position. the reality is in part because of people like grover nor quishgs we're not in that position. a lot of people who would otherwise vote fn an increase in the debt ceiling can't do so because they're not in a position to compromise. >> yes and no. it comes back to what people fundamentally believe is the problem. and republicans fundamentally believe that this underlying problem is we've allowed spending to go higher and higher and they don't want to raise taxes to pay for that. they would rather see it shrink down. the democrats -- i'm not trying to villainize democrats either. i think they come from a very sincere place of wanting to provide a stronger social safety net. they want to provide far more services to the country. and they believe the rich ought to pay a lot more to get there. >> diane swonk, is there any way to reduce our debt, to get into a situation where our deficits are not as big in a meaningful way to the tune of $2.4 trillion that we're talking about without increasing some taxes? >> there's a way to do it. it's whether or not that's really going to be politically acceptable to the american public. the kind of pain that that would induce. and i agree completely with david on this one. the kind of pain that would induce is not something we're really ready to swallow. there is a balance in this country between spending and tax cuts. and it is more. we do need to cut spending more than raise taxes. >> david gergen, thanks very much, cnn's senior political analyst. diane swonk is a chief economist. we're going to tell you exactly what would happen if the president and congress do not raise the debt ceiling in time. ordinary rubs don't always work on my arthritis. try capzasin-hp. it penetrates deep to block pain signals for hours of relief. capzasin-hp. take the pain out of arthritis. on august 3rd, there is a chance that america will wake up without enough cash to pay its bills. that means our senior citizens or our military may not be getting the checks they depend on. jay powell is a visiting scholar for the bipartisan policy center. he served as the undersecretary for finance at the treasury under president bush, sr. what are the consequences if the debt ceiling isn't raised in time? the prevailing wisdom is that those that hold u.s. debt, bond investors, would get paid first. but what about everybody else? jay, you and others at the bipartisan policy