politics in washington could push america over a fiscal cliff and quite possibly into a recession if congress doesn't act. economists now say that the so-called fiscal cliff has now overtaken europe as the biggest threat to the u.s. economy. in other words, our homegrown storm has a bigger chance of causing a hurricane here than the actual hurricane that's blowing our way from europe. now i've been bee rat berating on this show to head off a series of tax increases and spending cuts mandated to take effect on january 1st. congress couldn't come up with a better deal to raise the nation's debt limit last year. i am not alone in my calls. the federal reserve chairman and the international monetary fund are warning congress to act before it's too late. if you get hit by another recession, you'll join me in pointing my finger directly at the political partisanship that is poisoned your path to economic stability and prosperity. now if i were a politician, i would not want to be party to anything that pushes the united states into a recession. but many of your elected politicians don't have the political will to compromise and to reach across party lines and agree on measures to reduce our debt. not this close to a national election, not a chance. that's not enough to persuade you, let's take the most recent snapshot of the economy. there is one thing i understand, i don't understand much. i understand the economy. 34,000 more people filed for unemployment claims last week. 12.6 million of you are out of work. housing prices are flat. and gas prices are up 11 cents in the last two weeks. we've got enough problems to worry about without going over a fiscal cliff. christine romans joins me now. tell our viewers what this fiscal cliff is. >> it is something that replaced europe as the biggest threat to the recovery. "the washington post" says the main threat to the u.s., shifting from what others may do to us to what we're doing to ourselves. what we're doing, huge automatic tax increases. on january 1st next year the bush tax cuts, those expire. those tax cuts expire. also, if do you nothing, that means if nothing changes your taxes will likely go up. at the same time, medicare doctor pay will also go down. on top of those tax increases, the very same moment massive cuts to federal spending. if current law stays in place, the government must slash $1 trillion over nine years from federal spending. half of them from defense, half from nondefense departments. the bipartisan policy center says it will cost about a million jobs over two years, one million jobs over two years. not just government jobs, jobs in the private sector mshgs from contractors working with the government and they are quite frankly right now trying to figure out how to prepare those layoff notices. the economy is barely growing right now. 1.7% if you average out the first half of 2012. what we've seen and what the forecast is. the second half of 2012, 2.5%. this is a ubs forecast and some say it might be too optimistic. take a look here. you warned of that recession, if the economy goes off the fiscal cliff, the congressional budget office says that gdp will shrink in the first half of the year. that is unless we back away from the fiscal cliff. that is a recession. it is uncharacteristic of the cbo to make a call like. that ben bernanke again warned congress again this week about this potential. what makes it scary, it's happening in an election year. no one expects congress to deal with any of these big issues until after november 6th. also approaching the debt ceiling limit again. we could hit that as early as december. all of this is on congress' to-do list in an election year. >> remember, whether people say they want smaller government, you brought out a good point, particular fli defense spending. smaller government -- it's not government employees. it's government contracts to private sector workers. christine, don't go far. this is a hot topic. what would that recession look like? will cane joins us now and bill gross is the founder and co-chief investment officer of pimco. bill, i'll get to you in a second. will, i've investigated the origins of your name. it turns out that will cane is gaelic for ostrich with head in sand. you think we should do nothing. >> i don't think we should do nothing. i think the obviousness of your call for action on the fiscal cliff is clear to everyone regardless of the political ideology. however, i don't want you to be nearsighted. i fear you're being nearsighted. right around the corner from the fiscal cliff is another problem. in fact, it's a problem exacerbated by avoiding the fiscal cliff. if i can. may i show what you'm talking about? >> go ahead. >> you have a graphic? >> that's right. >> this shows the united states debt to gdp ratio. right here this blue line extending from the green which is our current situation shows what happens to our debt to gdp ratio should we avoid the fiscal cliff that, is tax cuts are extended and spending cuts are avoided. within 30 years we sort go to 200% gdp. if we let the fiscal cliff, if we go over it, we keep it at 53% of gdp, you say look, those are numbers. that is debt to gdp that, is long term. frequent guests of this program have put out a study. >> he is a harvard economist. >> he said high levels of government debt to gdp has a depressing effect on the economy. 24% reducing gdp over a 20-year period. you're feeling. that you will feel that. all i'm saying is the conclusion is lord make me chaste just not yet. >> i don't want to discuss your chastity on television. big gross, let's bring bill into this conversation. a very compelling discussion about how you want to keep debt to gdp ratios at a -- in a tight relationship except that you can have low debt and low gdp as well. you look at this. you are investors in bonds. the u.s. is still got the advantage of borrowing money very inexpensively. give me your picture on this. >> well, i think will has a point. i think i'm on your side and christine's side in terms of the need to sort of go carefully. the american economy like a dug addict has become hooked on credit and debt and both public and private economies. but addicts can be cured cold turkey. that's dangerous as we know. and so you need to prescribe some method both from the standpoint of the federal reserve and from washington's fiscal policy which is what you speak to. and that, to me, means gradually reducing deficits from nine to eight to 7% of gdp every year with a focus, i think, on shifting from consumption to investment spending. >> i don't even see the incremental approach here. that's what's interesting to me. it's all or nothing. either the fiscal cliff or 200% debt to gdp ratio. we need policymakers who can signal to the world and signal to americans that they get it and they're going to try to fix it slowly and responsibly. i don't think anybody has heard that, right? >> no, of course not. and that is the call here. the call is to get out there as voters and look for and support those people who are running in your districts, not because they are democrats, not because they're republicans, not because they say get your hands off my entitlements but because they're prepared to come up with a middle ground which is the only solution. will cane accuses me of coming up with a new problem as i solved the most immediate problem. i wonder whether you played asteroids. whether that asteroid is coming at you, you have to shoot it. it is require he will that there are 86 more asteroids coming. i would love to not live in a world where we're playing economic asteroids but we are. >> i agree. i agree with all of you. but unfortunately for our ratings, that is. the issue here is what is that middle ground? how do i get from the long term solution to your short term emergency measures? >> and sort both of them out? >> that's right. what i suggest is we know the path. we just have to make politicians do it. bill gross, let me ask you this. if we have this middle ground this approach where we reduce debt over time or we have some indication that we're reducing debt over time and engage in measures that will increase economic growth which is code for creating jobs. that's ultimately what we need to do generally speaking to create jobs. how will the bond markets react? the fear that people have is that at some point everybody's attention is going to turn to the united states. it's been busy with europe. they're going to say you guys have unsustainable debt and the interest rates are going to go way up. >> i think that's a possibility. at the moment, treasures are being bought by the federal reserve and chinese and others with the confidence that as we call it, the united states is the cleanest dirty shirt in the world. you know, to a certain extent, you know, if we continue to run 8%, 9%, 10% deficits, then as will points out, you know, at some point our debt to gdp rises to levels in greece. >> hold that thought. we're going to pick up where we left off when we come back. plus i'm going to tell you about another part of the storm. the people that should be watching out for you are not. that holds you back from achieving all the economic prosperity you can. when i come back, i'll talk about how safety you aren't two years after the passage of the biggest financial regulation in 75 years. there are a lot of warning lights and sounds vying for your attention. so we invented a warning you can feel. introducing the all-new cadillac xts. available with a patented safety alert seat. when there's danger you might not see, you're warned by a pulse in the seat. it's technology you won't find in a mercedes e-class. the all-new cadillac xts has arrived, and it's bringing the future forward. gives you a 50% annual bonus. and who doesn't want 50% more cash? 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[ male announcer ] ocuvite. help protect your eye health. what ? customers didn't like it. so why do banks do it ? hello ? hello ?! if your bank doesn't let you talk to a real person 24/7, you need an ally. hello ? ally bank. no nonsense. just people sense. . it used to be there were three ways could find financial prosperitiment you could work your way up the ladder, get regular races and buy a home. 13 million people officially out of work in the united states, stability is uncertain, growing your income is a path to prosperity is even less certain. so scratch that from the list. option two, you get rich off of your home. the home, by the way, that used to go up in value year after year after year. that bubble burst when we overborrowed and gorged ourselves on cheap credit. when we learned the hard way that home prices don't always go up. when prices fell, they took a big pile of american wealth down with them. if can you afford a house today, if you have the down payment and credit score and a steady job, low mortgage rates make it a great time to buy. but you will not get rich off your house any time soon. so what's left? well, the only remaining legal way to change your economic situation for most people is investments, buying stocks, bonds, mutual funds, exchange traded funds or any other tradable security. anything other than keeping your money in cash which earns you nothing. investing in a smart way was a potential path to a better life even if you did it relatively passively through your 401(k) at work or pension plan or your ira. money invested was money you could generally count on to grow over time. until 2008. the financial crisis and the aftermath proved that the game was rigged. the deck was stacked. the house held all the cards. banks inflated profits, they made risky bets that blew up in our faces nearly taking down the global financial system. and the government bailed them out. and they went back to making billions of dollars for their investors and executives and surprise, surprise -- the banks are still behaving badly. just look at the $6 billion in trading losses at j.p. morgan chase. america's biggest and safest bank or the admission by british banking giant that it along with other banks manipulated libor, the base rate of which trillions of dollars of loans are set. hsbc,most respected bank says they're sorry for laundering money. most people that gamble with your money, they lose a little pay, employers get a fine they can probably pay with money that comes out of their vending machines. for every reason i give you to invest, you can give me nine more why you shouldn't. if i don't twhin argument, you don't prosper. remember elizabeth war snen she is best known as a financial advocate, an advocate for financial reform in america. her willingness to go head-to-head with wall street is why the obama administration brought her in two years ago to get the consumer financial protection bureau off the ground. she is now the democratic candidate for senate in massachusetts. i asked her what she sees as its strengths and the weaknesses of our financial system. >> the strength is the consumer financial protection bureau. and the reason it's the strength is it has a very clear mission that is to mow down the fine print in credit cards and to stop the cheating on mortgages and to level the playing field and make it easier for families to see what something costs and to make direct comparisons and to pick the one that is the cheapest. and it has political installation. it is set up so kit do its work in a professional manner on behalf of the american people. give them a real voice in washington. i think that's the strongest part of dodd/frank. i think the places where there are problems under dodd/frank are when dodd/frank quite reasonably said we're going to give it back to the agencies like the commodity futures trading commission. the problem was republicans started attacking the regulatory agencies. >> right. that's where your problem came in. they said they can't have you running this body that has this absolute ability to make decisions about -- you know, without congressional oversight. they did let someone else be confirmed. they did let richard codray be confirmed. it was a watered down version of what you wrote. it is helpful? >> well, now i do want to say about the consumer agency, as it is set up right now, it's pretty insulated from political influence. and so it's really getting out there right now. it's established a consumer hotline so that people who