candidates aren't telling you about what is and what is not within their power to change. but first, i'll tell you about a storm that's raging in the distance. it's headed to our shores. it's an economic storm. it hasn't hit yet. we're starting to feel the outer bands of it. those who watch me every week know, i'm generally an optimist. but i understand the u.s. economy. the u.s. economy is driven about it confidence of its citizens. the customer in this case is the american consumer and is always right. they think things are slowing down, it will welcome self-fulfilling because they'll stop spending. businesses stop hiring. and the economy could grind to a halt. let me tell what you i'm talking about. here's the good news. we had 20 straight months of job growth in the united states. the pace of that growth is slowing. the last five months, there have been fewer jobs created each month than were created than in the month before. but jobs are being created, not lost. so that should make people feel better, not worse. let's talk about your homes. a lot of your equity is there. the home prices in the united states are probably at or near their bottom. the so-called shadow inventory of homes is lower. foreclosures are up. but those are a new wave of foreclosures from the signing scald, robo. we're probably near the end of this thing. fewer homes, less inventory makes it a good time to buy. if you're buying a home, at 4% mortgage interest rate or lower on a 30-year fixed mortgage, the rate you pay has much more impact on the total price of that house over the course of owning it. mortgage rates are at record lows right now. and how about gas prices? when they are up, they're like a tax. it causes you to pay more money f for exactly the same thing you paid something else for before. but those prices are down. the national average for a gallon of gas, $3.52, not cheap, a lot lower than they were a couple months ago. speaking of energy, by the way, we hardly had winter. americans saved a lot of money on home eating bills. the problem is that none of this is pushing consumers to spend. and without consumer confidence, another recession looms. already we've got a jittery stock market. the s&p 500, the broadest representation of stocks that you probably own if you have a 401(k) or an i.r.a., down more than 5% over the last three months. we're seeing record lows in treasury yields. that's because the smart money doesn't want to take risks right now. it's parking itself in u.s. government bonds. why is that smart money so nervous? because of europe. the potential collapse of european buying power if the euro breaks up. europe is an economy the size of the united states. the worst things get there, the fewer american goods and services europeans buy. that costs us jobs. let's not forget about the fiscal cliff that lies ahead in washington. some tax cuts are expiring. some benefits are going away at midnight on december 31st if congress does nothing. happy new year. congress may be the one body, by the way, which you have some influence over which can avert the disaster. but i probably have a better chance of growing an afro by december 31st than congress has of getting its act together. while i grow my hair, i have one piece of advice, deficit hawks, leave the room for a while. this is not the time to be discussing spending cuts. you democrats, this is not the time to be raising taxes. all right. we put together the best minds in business and politics for you this hour. christine romans, the host of "your bottom line" is here with me. she'll tell why you this is an important moment for america and why it's europe and china, not the u.s. presidential election that will decide the outcome here at home. jessica yellin is cnn's chief white house correspondent. she says neither president obama nor republican rival mitt romney are being honest with you about the depth of the problem and their ability to arrive at a solution. john king is cnn's chief national correspondent, anchor of "jkusa." he can read the political tea leaves like no one else can. i'm going to ask him if americans are better off today than they were four years ago and more importantly if they feel better off. will cane is a cnn contributor and a conservative who i think agrees cutting spending or raising taxes now are both the wrong thing to do. and harvard economist ken rogoff is the former imf chief economist, the world's leading authority on financial crisis. we're going to start with you, ken. you're the expert. you made a career out of studying economic crisis around the world. i just laid out how i see this gathering storm. where am i wrong? >> well, you said you're normally an optimist. i'm normally pretty calm. i'm nervous right now. you look at what is happening in europe, if that blows up, there's nowhere to hide. we have to hope it doesn't. there is not a certainty by any means. it is not just the greek election. there is instability in spain. there is instability in italy. and we're looking really at a nation in the making here. are they going to pull it together or won't they? and china also is having problems. that's another engine of growth. i think we have our own self-made problems fundamentally the u.s. is still a great franchise. we're not an island. and there are some just huge risks out here. you're right, it's making everybody nervous. >> and ultimately, what it makes the consumer nervous, it starts to cost us all. president obama and governor romney had a showdown in the critical battleground state of ohio on thursday. both laid out why not to vote for the other guy. but neither has a clear plan for getting us out of the mess. >> it's usually the president's right when he said the private sector is doing fine. he's the guy to vote for. >> if they win the election, their agenda will be simple and straight forward. they spelled it out. they promise to roll back regulations on banks and polluters, on insurance companies and oil companies. they'll roll back regulations designed to protect consumers and workers. >> want to bring in our chief white house correspondent. jessica yellin, you have heard those words many times over and you think both candidates are running on their ability to turn this economy around or at least that's what they'd like us to think. but neither candidate is leveling with americans about the depth of the problem that we could be facing. >> i think that's right, ali. i think part of it is natural politics. neither one of them wants to sound like a pessimist. that's not appealing. but there is an appeal to authenticity and honesty. and neither one of these candidates is saying to the american people that this could be a long and protracted hole that we're in or a long, slow slog. and neither -- we're not offering you a policy that's going to get us out of it terribly quickly. but stick with me because i'm being honest and telling you the truth. what they're saying is president obama is saying i have seen progress. it might be not happening as quickly as you'd like. but if you stick with me, we'll get more progress down the road. and the other guy, he's going to serve you snag is really rotten. and romney is saying he hasn't turned it around fast enough. so let's change horses. you know, neither of them is really telling you this could be bad for a while. >> that's not how you win elections around here. one question that often gets asked of americans -- are you better off than you were four years ago? it is a question that often times ultimately decides many presidential elections. now a recent cnn/orc poll asked americans that very question. today we have a hung jury. 44% say they're doing better. 43% say they are doing worse. the final verdict comes in november. john king, cnn's chief national correspondent, john, i'm telling you that there is zero question that america generally is substantially better off with a trend toward being not better off. you follow the politics of this. can the president or mitt romney convince voters that they will be better off with one of them? >> well, the confidence question, which candidate wins going forward. ask you the question, are you better off? you elect presidents state by state, those are national poll numbers you just showed. go to the state of ohio where the two candidates duked it out this week, the unemployment there is actually down a little bit from when president obama took office. you go to nevada, the unemployment rate up is a little bit. michigan it's down a little bit. so we go state by state with that question. but when you have a hung jury, are you better off today, people ask a second question then if they aren't quite sure on that one, and they look at their children -- say would they be better off? when people look around, they think about their children. their legs are tired. they have been treading water for two or three years. they had to make very tough choices in their own lives. they don't see any tougher choices being made or bold new proposals being made by the candidates. we have a hung jury at the moment. this election as we speak today is as close as they get. if one of the candidates can change the confidence question about what's around the corner and what's over the hill, they'll win the election. >> how does that happen? how do you engender the confidence that you need to turn things around, get businesses to hire, get people to feel good about the economy if you do what you suggest that these candidates should do? be honest this is going to be a tough slog. it's going to take a long time and not feel a whole lot better for a while? >> i'm arguing that the authenticity allows them to say that's why we need to make certain kinds of choices. and that's a frame to outline an agenda. for example, president obama could have said at the very beginning of his administration, look, this is -- could be a longer turn-around than we would like, and so i'm asking for everybody's patience so we should be able to spend and stimulate for a while, for example, because that is the philosophy he clearly believes in, but we're going to have a plan to save in the long term, to cut down our debt in the long term, and here's how i'll lay it out. and so you understand a framework then why he stimulating and also why he believes in debt reduction. and that could have made sense of his entire agenda. instead, he kept saying we're going to stimulate. now i support debt reduction. now we're going to be for jobs bill. but, no, i also support debt reduction. he kept telling us we're in this recovery. we're in the moment of regrowth. and it was whiplash for the american people. there was no framework. a framework now would be helpful. >> and, sean, you've got mitt romney saying under him unemployment will go down to 6%. he didn't invent that number. the congressional budget office also has that kind of thing. but that's the kind of specificity that mitt romney gets hammered for not having when he talks about tax cuts and he talks about spending cuts. so the minute you bring specificity into it, it makes guys like me say -- you can't control the unemployment rate. the world is controlling the unemployment rate right now, not washington. >> of course they can't control it. us a said, that's not a very bold prediction. if the economy starts to come back, get 2.5%, 3% growth. that is the unemployment rate you would get, if you get that consistently. but that's not terribly bold. look, again to the confidence crisis. no american voter trusts any big institution anymore. they see what happened to j.p. morgan chase. they watch what happening in europe. they don't see any politicians making bold decisions. they have had to do all these things themselves. so what can mitt romney do? in part, it's a very different challenge. one of the reasons his campaign will tell you he's not changing his plan despite the changing circumstances is we have a incumbent president. if the american people reach the threshold decision you've had 3 1/2 years, mr. president, sorry. you're a nice guy. we don't think you've done enough. you haven't tried hard enough. you haven't been bold enough. things are not that much better. sometimes the challenger can win just on that. so you have a fear on the obama side of doing something big and bold. he can say okay, i'll extend the bush tax cuts for two years and i'll do it before the election, but only if you give me construction spending. only if you give me the teachers, police, firefighter money so i can give that to governors and mayors. let's try and cut that deal before the election. the president doesn't want to do that because extending the tax cuts infuriates his base. he could put pressure on governor romney. congressional republicans if such a deal were offered would say what should we do, mr. nominee? that would be an interesting question. >> that becomes a key question. when you arrive at that grand compromise, which candidate is more likely to embrace it. that may get them the votes. john king, always a pleasure to see you. jessica yellin, our chief white house correspondent. thank you both. ken, stay where you are. christine and will are here as well. we know the problems and the politics. what do we do about it? how do we avert that storm heading to our shores? the conversation continues on "your money" next. [ male announcer ] now you can swipe... scroll... tap... pinch... and zoom... in your car. introducing the all-new cadillac xts with cue. ♪ don't worry. we haven't forgotten. you still like things to push. [ engine revs ] the all-new cadillac xts has arrived, and it's bringing the future forward. who have used androgel 1%, there's big news. presenting androgel 1.62%. both are used to treat men with low testosterone. androgel 1.62% is from the makers of the number one prescribed testosterone replacement therapy. it raises your testosterone levels, and... is concentrated, so you could use less gel. and with androgel 1.62%, you can save on your monthly prescription. [ male announcer ] dosing and application sites between these products differ. women and children should avoid contact with application sites. discontinue androgel and call your doctor if you see unexpected signs of early puberty in a child, or, signs in a woman which may include changes in body hair or a large increase in acne, possibly due to accidental exposure. men with breast cancer or who have or might have prostate cancer, and women who are, or may become pregnant or are breast feeding should not use androgel. serious side effects include worsening of an enlarged prostate, possible increased risk of prostate cancer, lower sperm count, swelling of ankles, feet, or body, enlarged or painful breasts, problems breathing during sleep, and blood clots in the legs. tell your doctor about your medical conditions and medications, especially insulin, corticosteroids, or medicines to decrease blood clotting. talk to your doctor today about androgel 1.62% so you can use less gel. log on now to androgeloffer.com and you could pay as little as ten dollars a month for androgel 1.62%. what are you waiting for? this is big news. i said that storm clouds are gathering over the u.s. economy. the question is what, if anything, can be done about it? we have a former imf chief economist with us. he is one of the world's leading authorities on financial kree seize. you've seen him on the show a lot. but he really does understand this. ken, study this for us. help our viewers who don't study crises to say, this is not just a slow recovery. there is something alarming you, alarming me and alarming other people about a shift in sentiment of the american consumer that suggests something -- this may not be just a slowdown. something else may happen. >> the basic problem is we're not growing that fast. we're still fairly weak from the deep financial crisis recession when he which unfortunately is typical. and now we might be hit by another hammer blow coming from europe, coming from china and already from europe there's a lot of uncertainty. so even if you don't know that the meteor is going to hit, you're hiding worrying about it. so it's a very, very tense state where i think the only move in this situation, the only move is really to have the central banks flood the economy with liquidity to try to support the short term confidence. i mean that's not a good thing in the long run. but europe has to lead. they've still been timid because nobody's in charge. they don't have a central government in europe. >> that's right. and we're going to address this later on about why china is able to make the decisions. they're so centralized. but to your point about the only thing that can happen that can really have an effect on this is the federal reserve putting more money into the economy. will cane, why is that a problem? >> i wouldn't suggest it is a problem. i would emphasize the word can. that is the only thing that can happen. the central bank has the authority and power and political will. it doesn't have to respond to political will to put any short term solution. we're talking about short term solutions to batten down the hatches for an economic storm. there is no political solution to this. the central bank is the only one that can put something together. it is surely not the prettiest picture in the world as ken suggested. again, it's the only thing that can be done. >> christine romans. here's the problem we have. what ken is suggesting is something that would create liquidity. it would make banks able to lend more. people could borrow more. you think that fundamentally we've got a problem now. we're fueling this economic fire with stuff we shouldn't be using as fuel. >> we're talking about -- look, my concern is we keep talking about the consumer slowing. oh, know the consumer is slowing. didn't we learn from the financial crisis, the consumer is in the middle of a very long deleveraging. they have too much debt. maybe the consumer doesn't have borrowed money, savings and money in the house they can spend. the consumer is in a weak position. so thinking that we can rescue ourselves with the consumer after we rescued ourselves with the fed and with central banks, i mean there are going to be -- the economy is going to grow faster. ken is absolutely right. there need to be fundamental drivers of growth that aren't just necessarily consumers on borrowed money which is what drove so much of the economic activity. >> let me show you, ken. let's look at consumer confidence and what we're talking about, where this alarm comes from. consumer confidence is a measure of how consumers feel about the economy and how it's going. it's been going up in the last year or so but the last three months you've seen a little bit of a drop. it's not drastic. it's not crisis, ken. but why is all of this stuff that we're talking about a potential slowdown in china, the european crisis and whether greek leaves the euro zone, greece leaves the euro zone. why is all of this somehow playing out for consumer? why would that happen? what would the american consumer be saying to themselves, i want to keep that wallet in my pocket. >> for one thing, they know that obscure risk can all of a sudden blow up, hurt their jobs, make the price of their home go down even more potentially. they're in a very weak position. ali, the government -- the census bureau recently reported that wealth of the average american had fallen by 40% in the last three years. their home prices have gone down. they've been running down their savings to keep up consumption. a lot of unemployment. i mean people are already nervous. and they know that something else could hit. the other shoe could drop. i do think we have to work on the long term fundamentals. i completely agree with christine. there isn't a quick fix to this. we have to improve our