going to happen in 2012. tell me where you sit right now is 2012 going to be a better year economically than 2011? is there going to be economic growth? are we possibly headed into further stagnation? >> well, you know, the political strategist side of things i've never had to look so much at politics to figure out where the economy was going. i tell you, it's like watching the keystone cops. it's ridiculous. going forward we do have momentum carrying us into 2012. we hope we don't lose it because of political ineptitude. that's what would kill it. we have a lot of icebergs ahead. we hope politicians are better at navigating turbulent water than the titanic. a glimmer of hope in the labor market. looks like the situation bottomed out after things fell apart last spring and the summer. we're seeing momentum return to job hiring. some momentum but some is better than none. new business burst, that's important to the backbone of the u.s. economy. that's looking nor strength going forward-looking for new business creation to begin picking up again. not enough to take down unemployment to the point where it gets to long-term employed, which is what we really worry about but taking down unemployment nonetheless. we have a chance of reaccelerating in 2012 and doing a little better. >> to be fair, even the best projections, 5% unemployment where we were before the recession started, 2017. not talking about a big burst in 2012 but anything makes a difference. harvard university professor, author of "civilization the west and the rest." you bring something here, a deficit reduction plan, 2011 was undeniably a year of political gridlock or what diane calls keystone cops in washington. leadership deficits have held us back. how do you see this playing out in 2012? >> well, it's hard to be too optimistic. one of the thins that gave us signs of life in the last quarter was a plunge in the savings rate. i'm not sure americans can really postpone deleveraging for more than a quarter before balance sheets hurt them again. my scene is the republican nomination race could end very badly, indeed, with an unelectable candidate getting the nomination. in other words, not mitt romney. then the possibility of a third candidate entering the race. that's going to increase the uncertainty hugely. if americans elect can get somebody like mike bloomberg to enter the list, it's going to be very, very hard, indeed, to predict the outcome of the presidential election. while that's going on, don't expect any insanity to prevail between republicans and democrats in congress. i think total fiscal mayhem seems an almost guaranteed feature of next year. certainly nothing is going to help the economy. it's quite possible we'll get things that will hurt it. we'll end up heading towards this across the board sequestration, budget because the all around. >> that's the thing that could hurt the economy more. co-investment officer of pemco, we spent a great deal of time together in 2011, bill, in a market this uncertain, there have been some opportunities. what is your prediction for what happens to global economies in 2012 particularly from your perspective being a key bond investor. >> 2012 will resemble 2011 in that 2011 was dominated by delevering. niall mentioned some on the verge of default in greece, for instance, banks forced to shed capital, key investments, individuals fleeing risk markets like stocks for bonds and safer havens, delevering risk reduction, long-term but destructive short-term because it reduces growth and lowers asset prices. does that continue in 2012? to our way of thinking it does. what does that mean in terms of what you should buy and what you should sell. you should prepare for euroland instability that speaks to greece and other countries dropping out. prepare for currency instability. that speaks to a stronger dollar. i think you should speak in the bond market for a bottom in yields in those what we call clean dirty shirt countries, united states, united kingdom and germany. they can only go so low. >> analogy of clean shirts, your traveling, trip gets extended, you try to find the cleanest dirty shirt in the pile. in this case united states tends to be the cleanest dirty shirt. to what is this stuff happening, some degree of ineptitude in washington. to what degree does this actual threaten the rest of the world and america as a great economic power? >> you know, i think right now the biggest threat threat to western economies is coming from the other side of the atlantic. if it weren't for the fact europeans were in such disarray, things might be looking rosier in the united states. there are signs of recovery, there's no question of that, whether you look at unemployment or housing. if you cross the atlantic there's a far bigger mess there. it's almost important to sort out the eurozone without a shift of what amounts to the united states of europe. in other words, some system of federalism. the political obstacles to that are enormous of the headwind from europe is probably the strongest head win for everybody right now. it's after all appropriate from my point of view as somebody chronicling the crisis of western civilization the epicenter of crisis have been athens and rome. i don't think this crisis in europe is in any way over and i anticipate further blood shed as europeans struggle to overcome a profound german resistance to long-term transfers to a less productive periphery and profound german resistance for easy money to the bank. the ecb would like to be the fed. i'm sure itching to do some qe quantitative easing but brakes applied by berlin that means we're certainly going into a u.n. or eurozone recession which can't be good for the united states. >> we're close now. rome and athens haven't been this important in two years. diane, niall, bill, stick around. let's talk about the economic future of the united states and whether our obsession of what's going on in washington is actually founded. maybe they can only tinker around the edges. we'll talk about your economic future and how it's going to look in 2012 next on "your $$$$$." need some help, ma'am? 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[ male announcer ] the same 117 elements do the fundamental work of chemistry. ♪ the difference, the one element that is the catalyst for innovation, the one element that changes everything is the human element. ♪ picking up where we just left off. niall ferguson said the threat coming from places like rome and athens, europe. europe's debt crisis puts the entire global economy at risk and could drag america, which is showing some signs of recovery, back into a recession. diane swonk joins us again. you say it's possible we've only seen the tip of the iceberg when it comes to europe and the political leadership in the united states needs to steer this country in the right direction not only to protect itself but try and veer off any trouble, further trouble europe can get into. that begs the question what role, if any, should the united states play in dealing with eurozone crisis. >> it's a very difficult question and has a very difficulty answer. the most notable is what the federal reserve has done. we saw a coordinated effort by banks around the world, notably in the eurozone but canada, switzerland joining in, all these baerngs around the world doing a coordinated effort to provide liquidity to european banks. we're all interconnected. nobody is an island in global economy. through the financial system is where we're most at risk for contagion. should europe go down, as we already know from 2008, we need to have our oars in the water to get through this time. that's an important role the central bank makes. listen, the ecb would like to be the fed but they can't, law prohibited and berlin making a huge wall of that. puts the on us on the fed. not because they are trying to rescue european out of al truism but protect from repercussions should it worsen, which is a real probability and one far too high at this stage of the game. >> bill, what do the numbers say? you look at what the world is saying about these countries and their futures based on the yields, on their bonds. how serious does it look for you? >> the global markets, ali, say stagnation and in some cases recession in euroland is going to continue for sometime, certainly for 2012 and maybe beyond because bond markets are basically anticipating no change in what we call policy rates, feds fund rate, 25 basis points for the next two, three, four, perhaps even five years because unemployment is still high and inflation remains contained. global bond markets say things aren't going to improve any time soon. there's another point to consider here. i agree with what diane said in terms of interconnectedness. to the extent that yields are to low, it reaches a point where there are disincentives to invest. we're seeing money market funds, for instance, close down because they can't properly offer a return to their asset holders. we're seeing banks close branches because there's no longer the profit that was assumed at higher yields. >> sure. >> as we move lower and lower to what we call zero bound in terms of interest rates, it might have a deflationary interest rate in that of in flation area. >> growth in the united states do depend on savings rate dipping. while we're trying to get people to build up savings rates, there's no incentive to do that. federal reserve have sent out a message there will be no ensint i was for savers for years to come. we keep money cheap to invest, then they don't use money to invest, then we don't do anything for folks who are saving. >> i agree with bill gross. i think you begin to see diminution returns from near 0 interest rate policy just as we've seen diminish from fiscal stimulus. the u.s. has run a huge deficit, 10% of gross domestic product in an attempt to pay off the crisis. the payoffs have been meager. we're learning some things about economics including the fact economists don't understand the way the world works as well as they thought they did. massive monetary stimulus, massive fiscal stimulus and a very, very anemic recovery. the good news is the u.s. is not in a situation of a country like italy, which despite being an extremely depressed condition is seeing an uptick, more than that, a huge spike because of fears of default or possible breakdown of the eurozone. my worry has always been at some point -- i don't know when it will be, at some point people asking the same kind of questions about u.s. fiscal policies that they started to ask about italian fiscal policy this year. is this credible in the medium term. the answer is it's not credible. >> a very good question. the day that starts to happen, bill, how quickly will we know? what is the tipping point when the cleanest dirty shirt in the bond pile isn't that clean? >> i'm with niall there. it ultimately will happen to the extent the fed has to at some point raise interest rates in order to support a declining dollar. i don't see that in the next few years but it can happen. to the extent the fed is limited in terms of buying through quantitative easing, treasuries are at risk. a downgrade here, a downgrade there. all of a sudden the cleanest dirty shirt is a little dirtier. that's something two, three, four years down the road. the u.s. is certainly not the cleanest shirt in all this mess. >> so diane we've maybe got a little bit of a window in that two or three years to try to get the things that matter to americans to make them feel more prosperous going. we've seen a relatively unproductive stock market. a tepid but okay housing market. we've seen a little bit of a move to the upside on jobs. what's the thing you're looking for to tell you we're going in the right direction here in the u.s.? >> unfortunately i wish i could say it was just the economy, because the economy we're getting to that point where really there is only so low you can go, pent up demand, auto market up as well, lending in that market which is important. i do agree deleveraging is still a problem. frankly the political unern adding to weak economy. 6 to 8%, it would be noise. these issues can make a difference. i don't want to be a doomsdayer here. i agree colleagues, two or three years down the road, if we don't make tough decision, even if we're not out of this entirely. that's not -- it's completely avoidable. it's an iceberg we can avoid but we don't have leadership to do so. >> i wish the three of you were involved in coming up with solutions, future might look brighter. diane pleasure to see you. thank you for greenwood friendship and advice. diane swonk chief economist with mesirow, niall author and professor of harvard university. we are talking about the survival of civilizations niall. thank you for that. bill gross, you have been very helpful to us as well. bill gross the founder and co-chief investment officer of pemco. happy new year to all of you. >> you, too. more than a million americans out of work. what needs to be done in the new year to get them back to work and solve the unemployment crisis for good in the country. that's next on "your $$$$$." hey, welcome back to "your $$$$$." lots of things go on in the economy. a few things make you feel more prosperous, the value of your home, your retirement investments going up and the fact you have a job. jobs are the most important leg of the economy. let's take a look at the jobs situation in 2011. how did it look? i would say choppy, to say the least. looks like we got off to a good start and got set back in may and june. then we started to pick things up. that's a hard map to make a trend out of. the bottom line, of those legs of the economy that make you feel prosperous, jobs are not looking as bad as they were six months ago when someone was talking about a double dip recession. we all want to know whether the job market in the united states is likely to improve in 2012. stephen moore editorial writer, chrystia freeland and christine romans, my co-author. chrystia, let's start with you. job growth was somewhat uninspired and inconsistent in 2011 but it's been a little bit steadier. are we likely to see more job growth in 2012? what are your thoughts? >> look, i do think that the trend although slow and unsatisfying is positive. it's now going into 2012. three years since the real depth of the economic contraction in two. we've learned subsequently that was a huge contraction. the economy really ground to a halt. it is healing. i think the november numbers are encouraging. what's interesting about that chart you showed us ali, it also shows the economy is so fragile external shocks can knock it off course. you see the impact of the japanese tsunami slowing things down in the spring. in the summer both the debt ceiling debate and also real anxiety about europe causing problems. so i would say could be a better year but american politicians must avoid, which they are good at and everyone must hope the europeans keep it together. >> a big distinction between newly unemployed and long-term unemployment. >> we talked about this a lot. in you're newly unemployed, it's a little easier to get a job. it will be a little easier in 2012 than 2011. if you've been out of work six months or longer, the situation is basically the same for you. now you're talking about retraining, refocusing, moving, doing something very drastic to try to get back in the labor market and you run the risk of not being able to get back in the labor market. it's not monolithic when jobs come back. they are coming back so slowly it's not benefiting everyone. it's benefiting people newly unemployed they are having an easier time. when i talk to ceos, al issuing, especially in insurance, commercial real estate, some other parts of the economy, trucking, for example, i know stephen moore has been talking to trucking people. they say we're ready to hire. we are stretched so thin. we are ready to hire. we just need one little bit of demand to tip us over the edge. hopefully that will be 2012. >> i have to say, steve, if unemployment hangs around 9% like it did for sometime, president obama is going to be worried about his own job. >> no question about it. i think chrystia said the operative work on the u.s. economy right now on the economy and it's fragile. it is fragile. when you look at the jobs picture over the last three years, we lost about 8 million jobs in that horrible recession of 2008, 2009. we've only recovered about 2 million of them. this has been by far the most anemic recovery. hopefully under a normal kind of recovery pattern, we'd see big job growth next year. that would be the normal course of events. the worry i have, we were in the economy of 1970s you have periods of false prosperity where the economy would lift up and fall and lift up and fall. that seems to be the pattern right now. i don't think you'll see a real resolution. you're not going to see those employers really go out and hire, i think, until the election is held in november 2012. i really think people are in a holding pattern right now. >> chrystia, what's the best solution? what is the fix? we know the blame. we know we're why we are where we are largely. we know a lot of people share responsibility for this. what's the logical fix? it doesn't seem to be the thing we're talking about. >> i think there are short-term fixes and long-term fixes. on the short-term i tend to -- you're going to hear a scream lean to a keynesian approach right now. i think the economy could use a jump-start. >> he hasn't scream. >> getting ready to scream. >> a primal scream. >> at least the thing that does bring me in the short-term, something that has a huge impact on the jobs numbers is the government firing people. at a time when unemployment is such a concern it seems important for important government workers like school teachers can be laid off. hang on just a second. a quick long-term point. okay, stephen? in the longer term it's more complicated, a nobel prize winning economist wrote a brilliant piece published in "vanity fair" arguing we're in a period of economic transition i guess analogous from urban to rural economy which resulted in the great depression. it was very painful and deformity i think that's what's happening now. i don't think there are short-term fixes. i think it's a generational change. >> stephen. >> let me say something about this fiscal stimulus issue. one prediction i can make with pretty solid assurance, we're going to have another trillion dollar deficit in 2012. whether we have that increase in fiscal stimulus chrystia is talking about or not. if you add up the totals here, that's $5 trillion of debt in four years. that's a lot of debt. when we talk about the economy racing ahead, which we all hope happens, one of the things to think about is interest rates. you talked about this in a previous segment, interest rates as as low as they have been in 40, 50 years. if you start to see those creep up again that has negative effects on ability to -- mortgage