Imposed in the summer of 2011 was intended to sharpern the governments focus on the fat debt. President obama pushed for a last minute compromise to lessen the economic damage. These impacts will not all be felt on day one. But rest assured the uncertainty is already having an effect. Companies are preparing layoff notices. Families are preparing to cut back on expenses. And the longer these cuts are in place, the bigger the impact will become. These cut does not have to happen. Congress can turn them off any time with just a little bit of compromise. Rose Steve Rattner has had a distinguished career in journalism, business and government, instrumental in turning around the Automobile Industry, and currently chairman of advisors and the economic analyst for msnbcs morning joses and a regular contributer to the New York Times and financial times. So im pleased to have him here to talk about an important issue. And what i want this to be, in this conversation, because steve knows this subject well is a kind of prime never terms of answering some of the questions that you might have because theres so much information out there. And even to the question of whos idea was the sequester in the beginning. So we will talk about that but first the big question, is there likely to be an agreement . No. I think the probability of there being an agreement between now and friday, i think all side was agree is virtually nil there are no discussions under way. There are no theres no interchange. Theres no real proposals even for the post part so yeah, ats going to happen. Rose does that Say Something bad about both sides. I think everything youve seen happen in the last two and a half years on budget policy says something bad about both sides. I think its appalling that we run this country from deadline to deadline from cliff to precipice, from incline to decline, making it hard for business to plan, creating a level of uncertainty and also as im sure well get into, cutting all the wrong things and doing it as badly as you could possibly do it. Rose and a level of distrust. Nobody wants to state exactly where they want to go, intend to go, willing to go because they think the other side will take advantage of it. And i have been a professional negotiator for 30 years. I understand that to some degree. You dont put your best proposal on the table or even necessarily your most serious proposal on the table right at the outset but you have to Start Talking and these sides are not even talking at the and who due blame for that because the republicans say he hasnt called. And the president says there is no need to call. I think there is enough blame to go around for both sides. I think the republicans are not at all united. I think theres an element of the Republican Party that is very hard right so to speak, that does not want to even talk about revenue increases. The president has made clear without some component of revenue increases hes to the going to talk. So i think this is a symbol of the greater polarization that we have in our society and in washington in particular that both sides are being pulled further and further apart. Rose someone said i think secretary geithner said its to the about economic, its about politics. Its definitely about politics. I think the economics, ive said this to many people am im a democrat but i think hopely a rational one, i have many friends on the republican side. Bob and i have said this if the two of us sat down at this table we could do a deal very quickly. But there are more extreme elements in both parties pulling those centrist leaders fort and further apart. Rose isnt it an act of leadership to be able to overcome that, isnt that what Political Leadership is about. That is what Political Leadership is about will and we have a shortage of it right now. Rose yeah. Whose idea was this sequester and what was their intend . I think first of all the president has accepted paternity for this unwanted child. Rose yeah. And he accepted the idea that it was the white houses notion. Rose but for a while there they were saying exactly the opposite. There was look this is not the most important point. Rose but its a worthy point. Somebody says it is not our idea, and when they knew it was their idea, it does not say great things about them. Oddly enough it was a good idea, in a sense. It was a good idea to create a forcing mechanism to bring people together to actually come up with a significant, substantive solution for a problem that has so far eluded us. The notion of it was not crazy. Whats crazy is that we are here four days before the dead lynn, nobody is talking to each other and were going to go over this edge. Rose forcing mechanism, a good idea, even though it was a consequence idea that would wreak havoc with the economy, perhaps, you know, and do a whole lot of damage to peoples the whole idea of it was that it had to be robust enough, it had to be scary enough that it you would force people to do a deal. I dont think the people who agreed to this back. Rose ever thought. Ever thought that the system with be so dysfunctional that everyone would agree or allow this to happen rather than actually sitting down and doing something more rational. Rose so they both misjudged each other. I think they misjudged the situation n a way. They misjudged how untractable these budget politics are. They are ugly, the budget politics. Rose and have the republicans changed . I mean was it six months ago they probably would not have said, okay, were prepped to go over the cliff, and now they say okay, were prepared to go over the cliff. The republicans were not thought to be likely to go over the cliff. Its not really a cliff, its more of a gentle incline, because of the defense cuts. It was thought that the defense cuts were sufficiently harsh, that the republicans would say uncle. And would be willing to do some kind of a deal. Now the republicans are saying, like my friend george will are saying these cuts are to big deal, 2. 3 of the entire federal budget, that is not exactly the right number. We can come to that. Rose it comes out of discretionally spending not the huge impact where the big items there. Jack welch is saying any business can cut 2. 3 of its expensesment so now there is an attitude of bravado be on the part of conservatives, yeah, we like this, we want to get some cuts, here is a trillion one of cuts, lets take them. Rose there is also this, they say the president is, and is trying to scare everybody when he says these will be the consequences of these cuts when these others are saying well, maybe its not. Certainly theres a fair amount of political jockeying going on. The president would very much like, as any sensible politician would, that if these cuts come and if they are painful, that the American People blame his opponents rather than him. We dont know how bad these cuts are going to be felt. Weve theres no real precedent for this, exactly. My view is that the cuts will be felt, not immediately, 30 day, 60 day, 90 days. I dont think it will probably be as bad as the white house says but i dont know. Rose if you and bob corker from tennessee were sitting here at this table, and he said to you, mr. Rattner you represented the president. Here is the problem. The problem is the president refuses to say what cuts hes prepped to make in entitlements and we all know thats where the issue ends. I wouldnt disputement that he has not said it in great detail. Hes offered up a few small cuts in entitlements but we now more has to be done am but again it comes back to being a professional negotiator, if you will. You have the republicans on the one hand say nothing revenues, no way, no how, period. Rose weve done revenues, they say. We have done a whole 650 billion out of what we need of 4 trillion of deficit re reduction so, they are say nothing more revenues so, why would the president start bidding against himself, throwing out things he might do if you get close to a deal and you needed to do this to make a deal when the people on the other side are saying we dont even want to talk about what you need. Rose can he not do it because of his own con city. Ee. Hes under a lot of pressure from the democratic wing of the democratic pert. Rose and how strong is the democratic wing of the democratic part and why does he care at this stage of the game. He cares because he has an agenda to do. These are his constituents. They helped elect him. He has to be responsive to them. He did float the idea of raising the retirement age from 65 to 67 for medicaid. We dont really know if that could happen again if the negotiations got serious. Im not even sure that si a good idea. Rose that is the interesting thing about t you pointed this out in a Weekend Television appearance. Sometimes they say they will do this and then they change. We are no longer willing to do that. So its hard to get your finger in terms of exactly where we are talking about, at what stage was this promise made. And is it still viable. But in fairness to batt sides, life moves on. And whatever you said you might have done in the summer of 2011 its now february of 2013. Youre entitled to do Something Different or Say Something different if that is the case. We dont know. I would hope that the president would be prepared to make significant changes in entitlements if there was a reasonable response from the republicans on revenues. Because heres the basic fact, charlie. Without more revenues, and without making changes in entitlements, the math doesnt work. I have been doing math for a long time. Math is pie business. The math doesnt work. Theres no way that you can cut, you know, cut waste, fraud and abuse out of the federal government, cut defense and get this problem to go away. Rose you cant get there without dealing with medicare and with entitlements. You cannot get there without dealing with entity and you cant get there without dealing with revenue. Rose everybody in the room knows that. I dont know if everybody in the room knows that. I think all the people leak bob corker and barack obama and myself and anyone. Rose john boehner, eric cantor. I think john boehner you should ask them, i think john boehner probably knows that because hes a sensible guy, eric cantor may well know that but he has the republican wing of the Republican Party he has to deal with. Rose october,so what does this is a about who we are. Everybody knows the arithmetic has to work, Everybody Knows its not workingment you cant grow your way out of this . It would be great if we grew our way out of it but you have to operate on a most likely scenario, in the a gee, great if everything went ferr effectly we would grow out of it. What it is as about it are a couple things. One is i said our politics are pretty dysfunctional. Washington is more and more polarized. The second thing it is as is were living in an era of scarce resource. If you go back to the period after world war 2 when we incurred massive debt, we got that debt down by economic growth, by the gis coming home, by the baby boomers like myself. We now have an aging society. Productivity growth is slower. Were living in an age of scarcer resources. So this is really at its heart, this is a fight about the allocation of resource. How much should go to the elderly. How much to my kids, how much to you and me, how much should go to the rich. How much should go to the middle class. Thats what this fight is about. And its an important fight. I just wish it were being waged in a more intelligent way. Rose its why we have different Political Parties because different political fill os fees and also crucial to getting elected because unless you get elected you cant be a statesman. True, but remember in the past we have managed to come together. 1983 allen greene Greenspan GreenspanSocial Security mission made major changes, 1986 under reagan, tax reform and major changes. President bush 41 raised taxes at a time when he needed to. President clinton did. Deals between president clinton and speaker gingrich in the 95, 96, 97 time frame. We have come together a lot of times in our past we just cant seem to do it now. Rose whats changed. I think what has changed are these two things. One that it is tougher because resources are scarcer. And the numbers are so much bigger. And secondly, i do think were living in a more polarized era. I there in one more thing. I think sadly we are living in a more selfish era. I think nobody really wants to pay the costs. For example, an average person at 65, about to enter medicare has paid 122,000 into the medicare system. Rose 122,000. Thousand, they will get back inflation adjusted, they will get back 377,000 dollars over their ellerly years. You dont have to have study a lot of math to know those numbers dont work. And so all this debt were piling up, these 800, 900 billion dollar deficits, all these promises, were sticking on our children. And that to me is very depressing. Rose everybody believes the way out of this is to do two things. One is to have a gradual process that will put us on a trend that will make significant inroads into the debt, right . And part of that is growth of the economy but also it is Something Like the kind of deal youre talking about, a grand bargain, or whatever it is, that has to do with revenues and having to do with spending cuts. And there was a proposal of that called Simpson Bowles. There was, indeed. But that is not, not everybody agrees on that. If they did we wouldnt be here. You do have a group, for example, paul krugman who basically says the deficit and the debt really arent a problem now. Lets just let this sit. Well come back to it later. Rose the president doesnt even say that and that is a Nobel Prize Winner but also a minority opinion. Its a minority opinion but a vocal minority and not 9 only one. You have a group on the other end which basically says we need to cut deficit now it doesnt really matter what it does to the economy or theyll even argue its good for the economy, essentially they want to go down the austerity route right now. I think most of us think thats a bad idea. I think what Simpson Bowles advocates and a lot of us do, is this balanced approach. But unfortunately it does not command a majority support at the moment. Rose so whats going to change . I dont know that anything is going to change. I have to say i joined the Steering Committee of something called the campaign to fix the debt because we thought last december, a six month process, we would have a big deal. We would be done. We people would make sacrifices and we would have a solution. Now its very hard to see that. I think unfortunately what we are looking at is a whole series of these kinds of crises, deadlines, as i said inclines, declines, and we just work our way through it painfully, bit by bit. Rose heres what i dont understand. The president has four years in office. He wants to do things. He wants to be part of history. You know, as long as we have this, its going to be in a sense, hes hostage to this. And therefore why doesnt he take the risk and use the bully pulpit. I totally agree with you about that. I think his second term could well be defined for the worst if we do not solve this problem. I think he would argue he is using the bully pulpit. You showed a clip from earlier today. Hes been out around the country, all over the place. And heres the funny part. The republicans when he was just in the white house said well, why dont you get out. Why dont you talk about this, why dont you tell your story. Well now hes doing and they are saying why arent you in the white house worrying about this problem. Exactly right. It takes two to tango and im not telling you he has done everything perfectly. Im not saying he shouldnt have played more golf with john boehner, i get all that. But i just think these two sides are so far apart, im not sure that if you dug up Lyndon Johnson today that he could solve this problem. Rose the president , i believe, believes that all the schmoozing in the world wouldnt have made a difference. On the other hand people say we will never know until he tries it. I think unfortunately, a well never know. Its probably too late for that. Were. Rose was it too late when this crisis first arose. Well, as i said, i think well never note. I wish the president had done a little bit more of the schmoozing, a little more of the golf. Look im more sympathetic to him. I wouldnt want to do it if i were in his shoes either. I think he tends to approach this analytically, heres my position, whats their position. Rose but im adding there is a relationship aspect. Rose im adding the extra dimension, he doesnt believe 2 would work, i think if he thought it would work without, we do telephone. I dont think its because of his well noted disdain for certain politics and for washington. If he thought this would work, he would do it now. So presumably thinks it wouldnt work. Hes basically looking at the facts and saying if we cant do this in the roosevelt room of the white house were not going to do it on the golf course. Obviously lynn gone lyndon john on and bill clinton would have a different view. Rose or abraham lincoln. You watch lincoln, you cant go out and hire two bagmen from albany in the modern world to go out and give exiting congressmans brotherinlaws jobs as postmaster general in ohio it doesnt work that way any more. Its a different world. And when bill clinton sat down with Newt Gingrich, Newt Gingrich could deliver his caucus, there is no evidence that john we know john boehner cant deliver his caw discuss caucus so, again i just think every political scientist who has studied this has found by all the statistical measures much greater polarization, not just something the press says or whatever. It exists. Rose this is the question, my sense is that the president is given more leeway by his caucus than Speaker Boehner is given by his caucus. And that in fact speaker the majority leaders pelosi was prepared in a sense to give him some flexibility in terms of making the negotiations it during the first term at the end. An even now. Thats my view. If i said that some people would say youre just a partisan democrat saying it but that is my view. You had, Speaker Boehner had these 87 or whatever repub