this week we learned that the measure of consumer confidence fell for the fourth month in a row to its lowest levels since january. you may disagree with why it's down. but, again, the customer who in this case is the american consumer is always right when it comes to the economy. why? because if americans are worried about the economy, they delay making important purchases and a perceived economic slowdown can easily become a reality. okay. so it's happening. but why? well, probably the biggest reason is this -- jobs. 20 straight months of job growth. yes. but over the last five months, look at that trend. roughly corresponding to the drop in consumer confidence, hiring in america has slowed. a week from now we'll have the job creation numbers for june to see where this trend is going. but until we have a strong jobs recovery, americans are going to hold back. and that is going to hamper a wider recovery. frankly, there is good and real reason to be nervous. it's that economic storm i warned you about. a crisis in europe that's causing its citizens to seek shelter. you don't buy things, particularly expensive imported things from america when you're seeking economic shelter. in china and india, the fastest growing economies in the world, fewer people are making their way into prosperity and into this global economy because the west is buying fewer of their goods and services. that's the storm out there that's headed to our shores. there's one brewing right here at home. i don't want to mix metaphors. the u.s. storm is actually a cliff, a fiscal cliff. that is the expiration of some tax cuts, some of which you'll know as the bush tax cuts, and some other benefits on midnight on december 31st if congress does nothing. i don't know about you, but i am pretty concerned about what this all adds up to. if you're not, that's good for america. you'll keep spending and if i'm wrong, then i'm wrong. i'll wear that. but i'm not running for office. my job is to arm you with the truth about what is happening in this economy. people's futures are at stake and now more than ever you need to be informed. joining me to discuss our best line of defense against this storm is stephen moore, editorial writer for "the wall street journal." diane swunk, mohammed alarian, ceo of pimco, the world's largest investor in bonds. romney-obama, romney-obama. who cares? it truly doesn't matter who is going to become the president of the united states. because if they win, the things that have to be done to fend off this storm have got to be done in congress and nobody seems to get anything done in congress. >> with all due respect, you are wrong on this. i actually think this is one of the most economically consequence elections we've had in 30 years because they very big different visions that mitt romney and barack obama va. >> are they that big and different? >> they are. what are we going to do on taxes? what are we going to do on health care? we have the big health care decision. i do think this is an extraordinarily important election. i'm not saying this because i'm a republican. but i do think if you got a change in leadership, i think you talked about consumer and voter confidence. i think maybe a change right now would bring that kind of confidence and bring policies that would grow the economy. >> ultimately, gridlock is more of a problem. >> yeah, but you know what? if mitt romney becomes president, he almost certainly is going to have a republican house and senate. you're not going to have the gridlock. even if barack obama wins, some of the gridlock will go away because the voters have said we want what president obama wants. if romney wins, i think the voters give the president a mandate to do the right thing. >> what about congress? where these bills have to pass and they don't get done? that's the point i'm trying to make. don't -- maybe we don't throw out interest in the presidential election. but can we at least put a lot of it on the people in congress, republican and democrat, liberal and conservative who might get something done versus those who simply will not and who refuse to. >> i agree with you on that. the partisan divide right now in washington and the gridlock is as bad as i've seen it in 30 years. and that's going to be a real challenge to overcome that. when barack obama won, he was able to get a lot of big things through congress. >> diane, you said we never escaped the storm clouds. i want to continue my vision of this. we never really been fully in the clear. >> we haven't. what we're seeing is many of the problems that we faced over the last through years which seem to come around summer, so summer vacations become a bit of an oxymoron is europe. the fiscal situation in the u.s. and we've kicked the can down the road in dealing with them and only compounded them. also i want to expand on something you said about consumer sentiment. consumer confidence measures came out this last week. so did consumer sentiment which is a broader measure by the university of michigan and thompson reuters index which shows buying patterns in a breakdown by income level. what was really startling about the decline is it happened in high-income households, more than $75,000 a year. that's where your support in consumer spending is, of course. they said they're going to cut back on their purchases of big ticket items like vehicles and that's very important because we've already seen the vehicle sector suffer by a slowdown abroad. and a failure of pent-up demand to really produce the kind of self-feeding recovery we like to see in the u.s. >> and we got a warning from ford. they've been firing on all cylinders for a couple years now. at least a couple of years. they're warning partially because of activity overseas. but there is a concern here in the united states. we also have a new report out this week, diane, that says personal incomes in the united states as they're measured monthly are up and yet personal consumption is down. this is all working into this idea that it may not be as bad, but people are worried that it might get worse. >> well, actually, you know, part of the increase in consumer incomes, ironically enough, came from increased retirees. social security payments, transfer payments went up in the most recent income numbers. all the 1947 babies born in the baby boom, the first big year of the baby boom are turning 65 this year. we saw an increase in income. people took retirement income that is not exactly the thing you want to bet your money on because they are not your biggest spenders out there. that is important as well. so we do have this issue. want to also add on to something steve said. i think it's important that we have bipartisan movement forward. steve talked about there was some movement under president obama when he first came in. it was largely democratic based. the kinds of decisions were made and need to be bipartisan. if they're not, they can ruled out down the road. we cannot afford to have deficit reduction without bipartisan and durability and credibility going forward, something mohammed talked about. if we have a medium term deficit reduction plan, we got to know it is a credible path that can't just be thrown out by whoever's in office. >> this is key to this whole discussion of why congress is so important. mohammed, you have said this before. when you have distrust of congress, when bond investors have distrust they will do the right thing, you don't get a settled economy going forward. >> that's right. listening to you and to others, this image flash in my mind. a car which is the economy, going forward very slowly, the drivers are arguing, the administration and congress. the engine needs a revamp. >> and texting. >> and there's very little gas left. why? because cash cushions have been driven down. unemployment remains very high. now it's bad enough that this car is moving slowly. we have two really big headwinds. we have europe and we have the fiscal cliff. so translate all this into numbers, we think the probability of a recession is about 30%. now, that may be good news because it's less than 50%. but i'll tell you, 30% recess n recession -- >> a lot higher than it was. >> -- at this stage of a weak recovery is really worrisome. >> i can make the case for optimism, ali? i want to paint not such a gloomy picture. >> i'm going to hold on to that. stay there. we have to pay the bills unlike the american government. and when we come back, we're going to look at what stands between you and a recession. maybe as early this year. that 30%, it can be fought off. let's see how we do it. i told you, it is cowardly and dangerous for congress to wait until after the election to act. i'm going to show you exactly what congress can do right now to help avert that recession. 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[ engine revs ] boat protection people love. now, that's progressive. call or click today. rejoined by stephen moore and diane swonk and mohammed el-erian, ceo of pimco. stephen is going to make the argument for why you out there should not feel as pessimistic about the economy as you do. stephen? >> i think there is too much doom and gloom here. corporate balance sheets are so much better today than they were three or four years ago. that problems that corporations had, they're sitting on a lot of money, trill dollars of money, that's ready to be re-injected into the economy. second of all, i do think you're going to see a bipartisan agreement in 2013 to really fix the tax system on the personal and corporate side. >> really? >> i really do. consensus is coming that the tax system is now -- >> do you think that people in congress -- do you think they see things differently? they've said we don't compromise, we don't go to the other side -- >> i think that's going to change. i think we're going to see a reduction in the loopholes. we'll get the rates down. one last thing, the energy future is so positive for the u.s. in the next 10 or 15 years, we could actually be exporting energy, oil and gas. so all of these things, i think, just point to a more optimistic view. don't forget one other thing. it's always darkest before the dawn. >> wow! >> it's also always brightest before the hurricane hits. diane swonk, the issue is i am trying to put over here -- i could be wrong. we cover hurricanes. >> we hope you're wrong. >> we tell you, your only choice is to board up your house and leave. if it doesn't come, i'm happy to have that egg on my face. here we have 30% chance of a recession. the argument i'm trying to make, some people will say that's a business cycle. can't do anything about it. i'm saying that maybe congressional action early could do something to create a shelter for that. is that wrong? should i just forget that whole argument? >> no. i think it's absolutely right. i'm encouraged. if steve really believes there is a bipartisan compromise out there, that might avert a debt downgrade even if we just kick the can down the road and temporarily deal with the extension of tax cuts and cut off the sequestration which is retroactive into this year, the cutbacks and mandatory cutbacks in spending about it government. i'm optimistic if he believes that. great. i would love to see that. i'd like to see it sooner rather than later. i also think it's important to note, steve talked about corporate balance sheets being in such good shape. you know, i was really excited about that, too, until we saw revisions. and unfortunately, the amount of cash we thought corporations had on their balance sheet is now $500 billion less than we originally thought. they miscounted. guess what? it was $2.2 trillion and then revised down to $1.7 trillion that's up $700 billion from 2000 at a time when you didn't need any cash on your balance sheet. we were all throwing caution to the wind. so the fact that corporations have less cash than i thought, makes me a little less optimistic about how much can be deployed in the u.s. economy and pulled from the sidelines. i'm concerned about that. >> that's a lot, diane. >> it is still a lot. but it's not $500 billion. that's a big miss. >> we also started to see -- >> it helps to explain the less than stellar investment numbers that we've seen. we're still seeing investment we're still moving forward. but i agree with mohammed. i'm actually looking at 1.5% growth on the second quarter now. that is really tepid and barely significant in terms of positive. >> bring in the u.n. again here, mohammed. you can negotiate. >> come on, mohammed. >> mohammed, the other concern -- you just come back from europe. we got a deal. i have to tell you, i woke up on friday morning thinking not to expect the deal of the magnitude that they seem to have arrived at in europe which we're going to talk about later in the show. as far as my storm metaphor goes, did the storm over europe just weaken a little bit? >> it did weaken but it's still there. we got a deal and they made important decisions. they didn't make the breakthrough. why is that important to us? totally agree with steve. you can put the positives clearly for the u.s. first as an engineering solution to our problems. unlike europe where the engineering is really difficult. second, yes, cash balances are lower but they're still high. but thirdly, we have a massive technological shock positive in terms of shale gas. all this is important. but it will not be triggered to a full extent unless we get the political side right. i hope he's right. i hope we can remove this political dysfunction. because if we don't, then the storm over europe is going to start having an even bigger impact on us. >> you have often used the expression and bill gross used the expression that the u.s. interest rates are so low because they are the cleanest dirty shirt. if you're on a trip and you have to stay an extra day, didn't bring enough shirts, you pick the cleanest one to wear again and that happens to be the u.s. shirt at the moment. one to wear again. will we be the cleanest dirty shirt if we wait until december 31st to deal with the fiscal cliff and wait until whatever date in early 2013 that the next debt ceiling limit gets -- you know, we get hit? would there be some advantage to keeping our shirt clean if we acted on this before the elections or earlier than the end of the year? >> there's a huge advantage of keeping our shirt clean. let's not forget it's the well-being of people. the unemployment numbers are scary. the long term unemployment numbers are really worrisome. so suabsolutely. in the short term, we benefit from the fact that we are relatively good when compared to europe. but, remember, you cannot be a good house in a bad neighborhood. so there is a limit to how long we can be the cleanest dirty shirt. >> all right. great conversation. go ahead, diane. >> oh, just adding on. mohammed knows this. in switzerland, they have negative interest rates because people are so willing to buy swiss franks to get the safety there and paying the government a premium of principal to keep their money safe there. we're not the only cleanest dirty shirt out there. >> all right. thanks to all of you, mohammed and steve stick around. coming up, i told you by doing nothing congress is make things worse. i've told you how the partisan bickering is driving our economy back to the brink. when we come back, i'll tell you exactly whether congress can do now to protect you and the economy. 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[ male announcer ] there's more barbeque time in every bag of kingsford charcoal. kingsford. slow down and grill. i tell mike what i can spend. i do my best to make that work. we're driving safely. and sue saved money on brakes. now that's personal pricing. ♪ in a world where ♪ there is so much to see ♪ there's still no other place ♪ that i would rather, rather ♪ rather, rather be ♪ [ male announcer ] dip into sabra hummus and discover a little taste of the world. enjoy sabra dips. adventure awaits. i have been telling you about the economic storm that has been making its way to our shores. from europe where the debt crisis blow-back could hit america at hurricane strength, from asia where growth engines like china and india are stalling in the wake of fewer exports to the west, and from washington where scorched earth partisan politics could push america over a fiscal cliff if congress doesn't act. legislation needs to be passed now. to head off a series of tax increases and spending cuts that are mandated to take effect on january 1st because congress couldn't come up with a proper deal to raise the nation's debt limit last year. so that's the ridiculous compromise they came up with. if congress doesn't act before the elections, it may be too late to fight off the economic storm. you heard it from mohammed. a 30% chance of a recession he says. frankly, after listening to me saying this endlessly, even i'm starting to think i'm full of hot air. i'm going to give you specific things that congress can do and must do now to address the come economic storm. first, head off that so-called sequester, the $1 trillion of automatic across the board spending cuts that are mandated by congress. the ridiculously named sequester legislation was passed as part of last august debt ceiling extension which followed, as you recall, but would like to forget, intense partisan blackmail by both sides that nearly shut the government down and led to a downgrade of the united states credit rating. a stupid name for a stupid thing that could hurl the u.s. head long back into recession. so solve it, congress. second, all right, we have grown to look another debt ceiling extension next year. let's all get together ahead of time and act on it before the election, before washington gets tempted to take america back to the brink a second time. and finally, third, negotiate another agreement on whether to extend the bush bush era tax cuts and avoid slapping americans with a higher tax bill next year. these are three simple things that congress can do now, three things washington needs to do before the elections to avoid falling over that fiscal cliff in january. if politicians in congress put off the work that needs to be done, let them be held accountable for the next recession. joining me now, a resident scholar at the conservative american enterprise institute. he describes himself as a centrist and his book "it's even worse than it looks: how the american constitutional system collided with the new politics of extremism." plus, cnn's political director mark preston and cnn's conservative contributor will cane. do they actually call you that? i keep adding that. >> i let you describe me. >> he describes himself as a conservative. he says that two parties working together to achieve a solution has created today's problems. >> that's true. >> i don't understand what you're talking about. >> that's true. >> you heard mohammed el-erian say first do no harm. doing nothing before the elections in an environment where we have a 30% chance of recession if you believe him, is doing harm. >> when you say that i think bipartisanship created our problems, what i'm talking about is a historical pers