country's coveted aaa credit rating could be compromised. the unpresence dented consequences for all of us. and why some lawmakers argue the looming august 2 deadline isn't the armageddon the president says it is. i'm wolf blitzer. you're in "the situation room." we're only five days away from what could lead to unprecedented default in the united states if the political sparring between our elected officials here in washington doesn't stop. and we can't emphasize enough how devastating the repercussions could be, not only here, but indeed around the world. interest rates could go up, mortgages, car loan, student loans could become more expensive. meanwhile, the country could lose its prized aaa credit rating for the first time in recent history, a move many analysts think could plunge the u.s. into global economic distaster. our congressional skorz kate baldwin is up on capitol hill. the political battle there is brewing not only between democrats and republicans, but among republicans, kate, themselves. >> fascinating day, wolf. house speaker john boehner is still working to rewrite his bill right now after cost estimates showed he was falling short. at the same time, he is still working to build support for his plan ahead of tomorrow's expected vote. working hard to secure the votes for their debt plan, house republican leaders met with their rank and file behind closed doors again tuesday. and speaker john boehner was blunt. according to republican sources, h etold conservatives unhappy with his plan to quote, get your ass in line. as members left, there were signs boehner's tough message was getting through. >> shifted to leaning yes if leaning no. and that really is, you don't let the perfect get in the way of the doable. >> i was originally opposed to it until i realized the odds of getting anything better at this point in time are probably very, very slim. so i think this is probably the best thing that we're going to get. >> i know the hearts of the republicans i'm serving with -- >> but outside the capital, a very different message from tea party supporters. >> it's time to stop and stop now and these republicans need to hold the line. >> reporter: and further evidence oof a party divided in a debt ceiling crisis, a blow-up wednesday among house conservatives over a staffer's e-mail to outside groups, asking them to step up pressure on fellow gop members to oppose the boehner plan. >> we just had a family discussion, everybody loves everybody. >> reporter: there were perhaps glimmers of compromise as congressional leaders hinted the way out is in their hands. >> magic things can happen here in congress in a very shaort period of time under the right circumstances. . >> now, in terms of what happens next, there's a definite sense that all eyes remain on the house. the senate seeps to want to wait to act until after the house taking up the boehner bill. >> we're going to debate between two of those republicans, one who have supports boehner's plan and one who opposes. the democrats are having struggles of their own, having to rewrite their own plan after cost estimates reveal that it fell about $5 you recollect 00 billion of the $2.7 trillion they promised in savings. joining us no uh from the white house, white house press secretary, jay carney. thanks for coming in. >> tell us what the president has done today to try to resolve this debt ceiling crisis. >> well, wolf, the president -- the vice president, his senior members of his team continue to have a conversation, negotiations, discussions, whatever it takes to find a path forward. we're obviously not able to act on our own. in order to raise the debt ceiling to ensure that we have the borrowing authority that we don't lose it for the first time in our history. congress has to act. it has to pass legislation to do that. we're obviously watching what's happening in the house where the house is spending a lot of time for the second week now. trying to pass a bill that we know from, as a foregone conclusion will not become law because it cannot pass the senate and will not be signed by the president. that's unfortunate simply because we're running out of time. you know, sort of the period like we had last week with cup, cap and balance or cup, cap and paste or whatever it's called, the ritual the house republicans went through to pass something they knew wouldn't become law. we spent a whole week doing that. >> the dow jones closed a little while ago dropped significantly today. pressure is clearly mounting. is the president picking up the phone talking with the speaker of the house? >> well wolf, what i'm not doing, what i haven't done is read out individual or specific conversations. even those we've tried to be circumspect about. conversations continue at all levels including the highest level. but unfortunately there's a lot of time being occupied on the hill by going through the motions of passing legislation that is not the solution, is not the vehicle for a compromise. but we are continuing, because there's no time to waste, continuing to have the kinds of discussions you need to have to find a path forward. >> are we any closer to a deal today than we were, let's say monday night when the president addressed the nation? >> well, wolf, i would say only in the sense that because of this hard deadline that we face, and the acceptance by all the leaders in washington of both parties in both houses, as well as the president, that we have to act to ensure that we do not default on our obligations for the first time, we are one step closer to the ultimate deadline when we have to do that. so we never wanted, and i spent a lot of time from this room stating the president's position that we shouldn't wait till the last moment here. this is too serious and there will be a negative reaction if we wait too long because it will begin to cast doubt on whether or not, in fact, we will raise the debt ceiling. i think we're beginning to see that impact which is unfortunate. but i assure you the president beliefs, we still believe here, in the end, congress will act, saner heads will prevail and we will find a compromise to move this forward and get it done. of. >> is there any wiggle room at all, even a few days that more money for example is coming into the treasury, that you can delay it for at least a few days? >> well, let me disspell a couple of myths. first of all, receipts, tax receipts, incoming cash for june or july were as expected. there's no extra money coming in. secondly, august 2 is a hard sded li deadline by the career analysts based on their crunching of the numbers. we cease to have borrowing authority. beyond that, we essentially have 60 cents for every dollar we owe going forward. and we're in the situation, position of risking default for the first time in our history as a country. it's a hard deadline. and also let me make clear, the treasury secretary has been very forthright and direct about this with congress since january when he first sent a letter, establishing the time line by which this would unfold. he predicted then that by mid may, we would hit the debt kreel, we did, on may 16. since then he's been able to take extraordinary measure, the kinds that other treasury secretaries have been able to take to prolong our provide our borrowing authority. but his capacity to do that is august 2. there's no jaump ramp, no way around that reality. we need to get this done by then. >> if it's not done by then and congress were to pass a stop-gap measure for an extra week, two weeks or even a month, i assume the president under those circumstances to avoid default would accept such a short-term resolution? >> if we have a deal and need to cross the a's and dot the i's and just process things to get legislation through congress, then he would, obviously as he did during the cr negotiations, sign a very short-term extension of the debt ceiling. that is different from what the current legislation in the house would have us do which is relive this whole experience around christmas time. which is a terrible idea. if you think about the impact of doing this whole idea again casting into doubt whether or not the united states will default on its obligation and do that around the christmas season? incredibly vital shopping season for retailers in this country? terrible, terrible idea. we need to get this done for a sustained period of time so the cloud hanging over our economy caused by this debate is lifted. and we can get about the business and growing jobs. >> former president bill clinton said in an emergency, the current president should invoke that clause in the 14th emt and just simply do it without congressional authorization. bill clinton saying, i think the constitution is clear and i think this idea that the congress gets to vote twice on whether to pay for expenditures it has appropriated is crazy. force the courts to stop me. that's the former president. does he have a point that this president might accept? >> no. we have made clear the president addressed this last friday in a press conference that we have looked into what the 14th amendment does and doesn't say. it clearly establishes that congress and congress alone has the authority to increase the debt ceiling. and that's just -- that's an esoteric exercise to talk about what's constitutional and what's not. the fact is august 2 is a hard deadline. we have to act by then, congress has to act by then. there are no escape hatches or offramps. >> i know you want to deal and august 2 is approaching. do you believe there will be a deal by august 2 to avoid what could be financial disaster? >> in the end, every leader in the house and senate has said we absolutely have no alternative, the risk is too grate. we must ensure that the united states of america can pay its bills. to pay the bills that have already been wrung up by previous congresses. i think in the end, the members of the house and senate will take actions to make that happen. >> as i mentioned, let's take a look at the big drop on wall street today. the dow closing down 198 points. about 1.5%. the nasdaq slipped 2.6%. the s&p 2%. another drop on wall street. mounting debt crisis could end up lowering the country's signature credit rating for the first time in decades. ahead, we'll lay out the severe consequences of such a move and why some say politicians here in washington are right now playing with fire. and not everyone thinks the country is approaching armageddon. why some lawmakers in congress are taking a hard line on raising the debt ceiling. stay with us. a vacation on a budget with expedia. make it work. booking a flight by itself is an uh-oh. see if we can "stitch" together a better deal. that's a hint, antoine. ooh! see what anandra did? booking your flight and hotel at the same time gets you prices hotels and airlines won't let expedia show separately. book it. major wow factor! where you book matters. expedia. ♪ you are my sunshine ♪ my only sunshine ♪ you makes me happy ♪ when skies are grey ♪ you'll never know, dear ♪ how much i love you ♪ please don't take my sunshine away ♪ [ male announcer ] as long as there are babies, they'll be chevy's to bring them home. ♪ >> jack cafferty is here with the cafferty file. jack? >> the american people have had enough. but their feelings on the debt ceiling crisis continue to fall on deaf ears. monday night, president obama called on the american people to, quote, make your voices heard. and boy, did they. the e-mails and calls to congress almost shut down the phones an computers in roy what, which might not be a bad idea. but here, default five days away and still nothing. americans want compromise. they made that very clear. the polls, they've all been reflecting this for week nous. the american people do not want the government to default on its debt obligations. they know the rest of the world is watching. they want leadership, they want the mess fixed. washington remains clueless. they don't seem to hear us or care much what we think. they've got their own agendas there and as a result are playing games with the financial well being of millions of people. according to two recent polls, 2/3 of americans think that a failure to raise the debt ceiling will have a negative impact on their own financial situation. meanwhi meanwhile, reid has a plan that won't pass. boehner has a plan that won't pass, obama doesn't have any plan at all. maybe the voters can come up with a plan for these dysfunctional clowns in 2012. here's a question. when it comes to the debt ceiling crisis, why won't the government listen to the american people? there's a concept. go to cnn.com/caffertyfile. post a comment on my blog. wolf? >> it's a good question, jack. thank you. with the majority of americans saying they want lawmakers to compromise, you're going to hear why some close to the house speaker john boehner say he's the best man for that job. and the obama administration scores a major court victory surrounding a rather controversial issue. we'll explain. there's a major ruling on stem cell research. we're monitoring some of the top stories. >> supporters of stem cell research are applauding a decision today by a federal judge in washington. the judge dismissed a lawsuit that tried to block federal funding of embryonic stem cell research. the ruling backed a decision earlier this year from a federal appeals court. that court ruled no embryos are destroyed with federal funds and research should go on, a position the obama administration supported. texas governor rick perry is likely to kip a traditional step to a i nounsing a presidential bid. the governor will probably not form an exploratory committee and instead jump head first into the primary fight. the reason? perry's adviser says there's no enough time to test the waters before launching a full-blown campaign. perry is expected to make a decision on a bid next month. and schools in memphis, tennessee, may now start on time. the city's school board threatened to delay the start date until it received $55 million, a portion of the money it says the city owes the system. but the school board has now voteded to start school as scheduled on august 8 if several criteria are met. that includes a $12 million payment from the city and a detailed schedule. and wall street investors have a big appetite for dunkin donuts. interest for its io was strong. shares of the parent company started trading at $25 each, up more than 30% from the list price. the stock offering raised $423 million for the company, which it will use to pay down debt. wolf? >> thanks very much. a aaa credit rating is the best a country can have. so what happens if the united states of america loses that rating and how could that affect you? and some conservatiatives accus the obama administration of being fast and loose with the fact whence it comes to the debt crisis. why they say they're not all that concerned about the looming august 2 deadline. naturals from purina cat chow. delicious, real ingredients with no artificial flavors or preservatives. naturals from purina cat chow. share a better life. i don't know. the usual? 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[ blower whirring ] [blower stops] the safety was off. out there with a better way. now, that's progressive. just five days away from that looming deadline to raise the nation's debt ceiling, there are growing fears the united states will lose its prized aaa credit rating, even if a deal is reached. and joining us now from london, our own richard quest. richard, explains what it means if the u.s. were to lose its aaa rating? >> if it were to lose its rating, the fundamental effect will be that borrowing costs would go up. now, it depends on the circumstances under which it happened, but basically, it would no longer have this top level, gold plated, rolls royce aaa that enables the u.s. to borrow money in the markets at the lowest possible price. it wouldn't be a catastrophe. the world wouldn't stop turning on its axis. i think it would have a deep psychological access on the american psyche. when you consider the u.s. aaa has been there since 1917 and it has the deepest and the most important markets in the world, not to enjoy the highest level of value would certainly be a down side. >> it survived all those years, including a great depression. a lot of recessions, world wars. and it still has that aaa rating. when could this happen, richard, that the u.s. might -- and it's still a big might. when could it snap. >> you have two things to bear in mind. the first is obviously if there is a default. if there is a default or anything even approaching a structural default then, you know, kiss goodbye to the aaa. that is just a -- you can take that one to the bank basically. if they do cobble together a deal and they do raise the debt ceiling, it becomes far more difficult because s&p, moody's fitch, they look at the totality of debt, what the country is doing about it, the monetary policy, the taxation policy, the economic agenda. and they determine, is there a credible plan and a realistic plan to bring down the debt and stabilize the finances. if they believe that that isn't the case, then again the aaa goes. one of the reasons, wolf, britain has embarked on this draconian austerity, they believed the market was going to blow up uk bonds. it was warned it was on a negative. the u.s. has been warned it's on a negative watch. and it hasn't managed to put together this deal yet to actually avoid default. so you've got to ask yourself, maybe the rating agencies are doing their job in actually warning that something is smelly under the hood. >> richard, how does the rest of the world see what's happening in the united states right now. you're in london. >> which word would you like many eto use? flabber gasterred, bewildered, horrified, alarmed, concerned? any one of them will do. what people are saying at the very top level, and they will not say it publicly yet, but if you talk to policymakers, they will say what the heck are they playing at over there in the u.s.? don't they realize they're playing with fire. wolf, remember back many lehman brother, what was so damaging was not just lehman brothers, it was the uncertainty, the dislocation in the markets. if the u.s. defaults or loses its aaa, then you've got to say there will be volatility and that volatility will have consequences. the dollar will suffer and that will have consequences. and it is that that could take a shade or two, and it only takes a bit of shaving off economic growth in this country, your country, every other country, and pretty soon, we're in trouble. >> i want to know how worried you are -- how worried should we be? my major concern is uncertainty. it is that uncertainty that creates damage in the global economy. we know the imf and the oecd, we know all of these have warned that the recovery is fragile. it's unbalanced between asia and the emerging markets. europe and the u.s. which is sclerotically slow. it's playing with fire to actually continue with this uncertainty. >> richard quest, thanks very much. not everyone here in washington says a failure to meet the august 2 deadline necessarily means armageddon. some lawmakers are being urged to stand firm in the debate. brian todd has some details. what's going on here? >> there's more talk among the president's staunchest opponents that the tea party deadline is a manufactured crisis. they say they're fear mongering over political leverage. we talk a look at what the deadline really means. a deadline looms on the debt ceiling. but these folks don't want conservative republicans to back down. they want law makers to toe the line and not raise the debt ceiling just to meet the august 2 deadline. hard liners like those who spoke at this rally say the august 2 dead lean is not the armageddon that the president and some kmiss say it is. republican congressman steve king is among those who pushed the white house to go way beyond the spending cuts the president has wanted and they're okay with letting that deadline paz without lifting the debt ceiling. >> why is it not a crisis beyond that day? >> because they've defined the word default now in the minds of the american people. default means if the united states of america fails to service its debt -- that would be default -- it's not when a bill comes in to buy a package of nails or screws somewhere, that bill being paid two days late. >> reporter: he's not alone in feeling an immediate lift of the debt ceiling isn't doomsday. more than a third of those surveyed said no, the debt ceiling shouldn't be raised even if a debt reduction deal is madmade is that offbase? this analyst says if the debt kreeling is not lifted by august 2, the government would still have the money 20 pay interest, at least for several days. >> the united states government has adequate sources to pay the interest on its debt and to avoid a default. that would turn this into more like a government shutdown. >> reporter: and that's manageable, he says. the government has had shut downs before. but other economists and others say that would force the government to prioritize what to pay. >> they're going to have to stop playing government contractors and possibly they may not have enough money to pay social security checks that go out on august 3. at the minimum, they may have to delay them. >> and that may lead the u.s. credit rating to be downgraded. we just heard richard quest talk about that. it may cause the dollar to fall in value. send the stock markets down further than they've already plummeted in recent days. that is what would continue if the debt kreeling is raised, wolf. we've seen the markets go down drastically. >> yeah, today, the duj went down about 200 points. but let's talk to clarify this allout default. that's different. >> economists do say that there's a parsing here, and you can make the argument that it is very different. an allout default would come if the u.s. couldn't make the interest payments. you know, a lot of banks hold u.s. debt. those banks might become insolvent. if the treasury securities become unstable, that's really when you've got a problem. it's not necessarily what's going to happen right away if the debt ceiling isn't raised by august 2. >> thank you. the impasse on the debt could dramatically affect military veterans. thousands are staging a march on washington without taking one step. we're going to explain what's going on. and a new ad attacks president obama by making a doomsday prediction about the country's futu future. we're going to show you what's going on. >> announcer: this past year alone there's been a 67% spike in companies embracing the cloud-- big clouds, small ones, public, private, even hybrid. your data and apps must move easily and securely to reach many clouds, not just one. that's why the network that connects, protects, and lets your data move fearlessly through the clouds means more than ever. [ jelani ] neither of my parents went to college. something that was drilled in me early on, you know, college is the place for you. it's my number one goal. ♪ students like me, who take these ap math and science classes and have these opportunities, this is where the american dream lies. when i write that book, you know, i plan to dedicate it to my school. ♪ those hopes and dreams that you have, you know, they're within reach. and i'm living proof. many military veterans are voicing their concerns about the debt ceiling crisis. they're demanding their benefits be protected in the event august 2 comes and goes without a deal in place. let's go to our pentagon correspondent barbara starr. she's following this story for us. barbara, explain. >> well, wolf, millions of veterans are increasingly concerned about what might happen to their benefits if the government defaults. they say the big problem is no one in washington is telling them what's going on. 3 million american veterans receive government disability checks. the advocacy group disabled american veterans is now using soeshlg media in what they call a virtual march on washington. gathering messages from veterans worried those checks may disappear if washington can't agree on raising the debt ceiling and the government defaults. more than 15,000 people have logged on to the facebook site. >> mr. president, congress, veterans come to you today, this virtual march to let you know we stand arm and arm with each other, asking you and the politicians to throw away that "r" and that "d" and help the people, not your party. >> we heard from people concerned nationwide they're not going to get their checks. disability checks, gi checks, retirement checks, even paychecks. we're hearing from people overseas on checkpoints in iraq and afghanistan who don't know what's going to happen if our country defaults. reesht he says white house officials stopped short of assures vets groups that va checks and military pay won't be interrupted. officials at the feng and the department of veterans affair will only say that they hope it won't come to that. online marie wyatt offers her solution saying wake up washington. if you need money for the budget, try cutting your own pay. joe hempleman is 70% disabled after three tours in the war zone. he worries about his september disability check. >> that's a big concern to my wife and i who rely on our va disability check as a portion of our income that we use for everyday expenses like a portion of the moor gaj payment, child care expenses for our son. >> i would ask mr. president, the same thing i would ask every senator or congressman. would you do the same thing that you're doing right now if you were in my shoes? >> and wolf, these veteran groups tell us, they just want some answers. they want a solution, like so many americans, and they don't want to become a football in this increasingly acrimonious debate. wolf? >> yep, it's clearly huge for a lot of americans. a new political ad attacking president obama looks ahead to the last days of his presidency and paints a nightmare economic scene. we're going to show you the ad after the break in our straty session. and on the offensive, sarah palin. what she said about president obama that has fact checkers raising red flags. right to our strategy session. joining us, our republican strategist mary matlin and roland martin. guys, thanks very much for coming in. let me start with this new republican party ad, this rnc ad that just came up. i want to discuss it, but i'll play a little clip from it. >> good morning. january 20, 2017. the last day of barack obama's eight years as president. >> eight tough years for many as unemployment continues climbing. >> with debt to china reaching record levels, some analysts believe the chinese have overtaken the united states. >> eight years ago, we were promised hope. today many believe their american dream has been lost. >> you see that little girl there, it's sort of like that daisy ad that the democrats used against gold water back as a lot of you remember back in 1964. but go ahead, roland and react to that. >> first of all, that kou been an ad the dnc put out january 17, 2009 after, of course, the last couple of years of president george w. bush's years in office. look, who cares about their ad. the most fundamental problem we're fats facing right now is that we have republicans and democrats who seem to don't understand the issue of compromise when it comes to debt ceiling. hopefully both of them will understand the reality of spending, but also know how to put together a jobs plan that benefits all folks, not just the top 2% of the wage earns here in the united states. >> why is the rnc putting out an ad like this right now? >> because it's a reflection of how people feel right now. sadly, wolf, i do remember that 1964 ad. i also remember the 1980 question, are you better off today? that was at an all-time high when reagan asked that same question that people think they are not better off today, 20 points higher. there's a 75% wrong track. they don't think we're going to leave the country as good for our kids as it was left to us. it's a reflection of how people feel and have felt essentially since june 2009. and they've been in opposition of the obama policies, which are creating more debt and fewer jobs. that's the reflection. . ed gochd the government is shut down in the clinton administration administration. they used this effectively when they were emboldened with republicans and newt gingrich. some democrats are saying this president could use the current stalemate with house republicans effectively. but the big difference between then and now is the economy. in '95-'96 millions of jobs were being created. the economy was robust and that doesn't look very promising right now. >> first of all, the issue is not necessarily how the president uses a crisis. the question is how will the american people determine who is working on behalf of them. and so if you have republicans right now, especially in the house, you have the catholic priests coming out right now against boehner's plan. you have a study of committee of peel getting yelled out for sending out e-mails to oppose it. they were doing more to harm us. >> let me play a clip. you m sarah palin complaining about the dooms dday scenarios and then she said this. >> scaring the american people is exactly what president obama is doing in that bizarre speech that he gave last night. it reminded me of when he insisted that t.a.r.p. had to be passed. it was life or death at that time also. we had to increase spending and the federal government or people would be starve on the streets. i mean, look at what t.a.r.p. resulted in. >> i could be wrong, but she seems to be confusing president obama with president bush because it was president bush back in october 2008 that was pushing t.a.r.p. who was pushin tarp. $350 billion is chump change in obama world. 700,000 and the housing and unsustainable deficit and debt and no jobs. she did it and people love, love, love when sarah gets syllable that is incorrect. the hair is on fire. they don't like republicans and democrats, but they don't want more spending. they want less spending and don't care how they come together. they want to stop in washington. >> we're talk about with president obama, i'm sure the people with the chain and have those jobs in ohio and michigan. she has no skin in the game and frankly i hope people compromise like president bush and howard baker and james baker. they would step in and make comments about pulling the country together and not just how the crazy folks make comments. we can not afford to have this country go into the fall. i don't care what sarah palin has to say. >> a couple of weeks ago you were here and seemed to be concluding she is likely to run for the republican nomination. >> i thought and i still think while she hasn't 100% made up her mind, she is sending more signals. the country cannot afford the silliness. roland is correct, but it sends a signal that the essence will be she will have an impact. it's not just stop spending, but reform the entitlements or going to have the kind of future that is envisioned in the commercial. >> a reminder of $3.3 trillion. the tax cuts contributed over 10 years and frankly both sides have to own up and they have both contributed to the problem. >> roland and mary, thanks for coming in. he is the republican leader going head to head with the debt crisis. i have a closer look of the house speaker john boehner and jack cafferty is asking, why won't the government listen to the american people. next. 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mike in texas said our elected officials never listen to the people. republicans think the number one jb is to make president obama a one-term president. the tea party want to get rid of all the associate safety nets and the democrats think they were sent to cave in to stiff opposition without a fight. they are all clueless. because americans don't vote in enough numbers to make a difference. if every citizen who griped about our government showed up at the polls, we would have leader who is responded to our needs. carlos from pasadena, california, whether you are for or against obama and the democrats doesn't matter. what matters is if you are like me who paid his way to save for retirement, you should be very concerned and default will jeopardize in my case my iras, teacher's pension, my wife's pension and her social security. the middle class is on the verge of extinction. victoria said why don't they listen? they are too involved in fining ways to enrich themselves to understand, much less care about the rest of us. all the pontificating, i haven't heard they suggest they cut their sal rories or staff. it wouldn't make a difference, but they are willing to do some of what they impose on the rest of us. just a thought. because the number one priority is to assure that president obama is a-term president. the loss of a aaa rating in bonds would mean a great achievement for the republicans running the country, ruining the country is a necessary casualty. when a third party intervenes between an argument, it becomes the common enemy. we the american people are like the only child yelling at the dysfunctional parent. you will find more on my blog. cnn.com/cafferty file. wolf? >> thanks very much. here in "the situation room" happening at the white house with congressional leaders lurching towards a deadline. the tea party movement may be a winner, but the economy may turn out to be a loser. going to toe with the president, you better watch his back. does john boehner have what it takes to handle a revolt in the republican ranks? even if there is a last minute deal, the united states may see their credit rating downgraded? what does it mean for you? we want to welcome our viewers around the world. headlines and jeannie moos all straight ahead. i'm wolf blitzer and you are in "the situation room". >> as the debt crisis deepens, he was supposed to put his plan to a vote, but went back to the drawing board and it would save less money. also back at the drawing board, harry reid. his plan two could save less than stated. when votes are taken, both could come up short. reid's plan is a grab bag and calls it a big wet kiss to the right wing and he is not getting kisses from conservatives. behind closed doors, the speaker used a term in telling the gop to get attacked together. the country risks default. a downgrade of debt and potentially catastrophic fallout. the country may turn out to be the big loser if the crisis worsens, but the big winner is the tea party movement. they were enjoying the moment today. what happened. >> the tea party wanted the power and got power in the last mid-term elections, but now standing in the way of a deal to raise the debt ceiling, the world may get to see what they do with the power. >> the rally was small, but implications can be usage if leaders who now boast powerful positions in the senate and big numbers in the house -- insist it's their way or the highway. >> we have to hold the line and stand strong. we can't let down the people who elected us last november. >> tea party-backed republicans are hinting they may not go along with the debt deal that doesn't include a balanced budget and they don't buy into defaulting on obligations if the debt seely is not raised. >> this is artificial the president create and concocted a crisis. >> i don't believe the debt ceiling should be raised. i don't believe the ceiling has to be raised. secondly -- >> wouldn't we go into default? >> those of scare tactics. >> the republican candidate told cnn the country can pick and choose which bills to pay. >> we have enough money in the treasury to pay the interest on the debt, pay our soldiers and families and pay the social security recipients and pay medicare and medicaid. >> what happens to the rest of the programs. they go on ice? >> you put everything else on the table. >> that's fine with tea party activists. >> you do that by cutting things you don't need. like the environmental protection agency. >> get rid of that? >> think of how much money we save. it doesn't do anything. >> they warn there consequences to that. contractors could be stiffed like those providing ammunition. >> choices that have to be made. right? who do you say? who do you pick? >> president obama fountain ally that blasted tea party leaders. >> to hold out and say we won't agree to raising the debt limit until we pass a balanced budget to the constitution. it's unfair, bizarre. >> whether the country will face a virtual shut down on august 3rd, rand paul described it this way. he called it a transition. transition to what is anybody's guess. >> i saw the pictures here in washington. you said it was a small number of people. any idea of how many? >> roughly 50 people and the tea party movement, they don't need rallies anymore. they have real power. >> thanks for that. the calendar shows august 2nd for raising the ceiling. can the deadline be stretch and can the government keep sputtering on? let's bring in the white house correspondent for us. what are they saying over there about keeping it going for a few extra days. they are disputing at the white house. this is not really a hard and fast deadline. also experts question if there is not more wiggle room, days beyond that would allow the treasury to continue using these extraordinary measures as you heard the white house call them to make sure the u.s. does not lose its ability to borrow money. i pressed the secretary on this about how hard and fast this deadline is. he said that if the debt ceiling is not raised and august 2nd comes and goes, you wouldn't see the economy falloff a cliff. here's what he said at the briefing today. >> i invite people and don't count on me. i talked to economists and business leaders. if they are so convinced that this is all made up, buy and sao see what happens. tell your members of congress. don't worry about it. honestly. it's just a false argument. this is real and dangerous. there is a reason why it never happened before. because it's dangerous territory. the largest economy in the world. 80 million to social security recipients and veterans and disabled americans. those could be in jeopardy in the case of borrowing ability. also payments to venter who is provide services to the u.s., including those who provide services for troops overseas fighting wars. in the absence of a deal, expect the white house to do something that it has not so far. really to say what will get paid and what will not. we are hearing that the president is confident the debt ceiling will be increased. the white house will illustrate what happens if it is not. >> thank you. let's get a closer look at this important debt crisis. the drama unfolding and joining us now is senior political analyst david gurnlgin. any reason at all for optimism that this will be resolved by tuesday? >> i wouldn't say optimism, but there things going on. you have the outside track that lots of people believe pass the house. he hasn't introduced it yet, but that was an entering track. both sides of the aisle that talks are continuing. they don't want to vote on raising the debt ceiling and they are worried about this debt commission and they're all looking to senator mitch connell who is a republican leader and it will be a refrain that you will hear from democrats a lot later. one said we need connell to step up and give the big boy talk. >> senator mccain did that a little. you watched the dramas unfold in washington for many years. have you seen anything like this? >> no. it's the biggest act of collective irresponsibility i think we have seen. i don't know if you can remember anything, but it's already been a huge embarrassment for the united states. the stock market went down 200 points and think that's a clear welcome signal that we are not playing games. this is serious and guaranteed that we will have some kind of downgrade of the credit rating. this is the first generation in history to skwapder the aaa credit rating. all of that is different i agree with lori. i think there is hope a deal can be pulled out. the boehner and the reid deal, even the ceo score them and they are not far apart and determine the spending cuts. what is need side a mechanism that is a lous the debt ceiling to go to january 13th and comes down like a meat cleaver and reduces spending next year. it will be automatic. what would separate out from the debt ceiling. automatic cuts and without going to the edge. don't you think something like that is possible? >> i do. the problem the democrats had is it could be a trap. you are not going to get anything out of it that calls for revenues and they will be back in the same situation they are in now. there has to be a way to try to avoid this. they are kind of hopeful, but you need grown ups around the table. >> they have done remarkably well. they should say yes for the answer. >> a lot of truth to that. the irony here is the tea party has done well in terms of substance. both parties agreed to over $1 trillion in cuts. it's a big change. politically, i don't agree that they are the winners. the first pieces, maybe they are winning big. this could be devastating from the tea party if they are seen taking this close and if they go over the drink. >> it will be a disaster. thanks very much. the house tea party freshman versus their own leader, john boehner. bear with us. one supports john boehner's plan and the other does not. they will debate. stand by. home mortgages and other laws in the line of fire right now if the credit rating of the united states is downgraded. we are looking at real world consequences to this looming debt disaster. ♪ ♪ ♪ ♪ look at that car, well, it goes fast ♪ ♪ givin' my dad a heart attack ♪ [ friend ] that is so awesome. ♪ i love my car [ engine revving ] [ male announcer ] that first chevy, yea, it gets under your skin. ♪ here is more evident of the suicide mission this country is on. general electric is announcing the 115-year-old x-ray business from waukesha to beijing, china. the extra business on ge health care and a move is part of a broader plan to invest $2 billion in china. this will become the first ge business to be headquartered there. it will be transferred to china. the company said none of the staffers in the area will lose their jobs or be transferred. ge plans to hire more than 65 engineers at the new facility in china. this is the kind of news that makes you want to reach for something sharp and jab it in your eye. jeffrey is one of president obama's advisers on, ready? u.s. job creation. in january president obama asked the self-described republican to read off the counsel on jobs and competitiveness, tabbing him was supposed to provide the administration with the perspective on job creation. mot in china, here. the administration also hoped it would give the president a leg up negotiating with the republicans on deficit reduction and jobs programs. do you think that's working out? two months after he was named to the counsel, the "new york times" reported that general electric paid no income taxes last year thanks to fancy accounting footwork. even though the company earned $14.2 billion in profits last year, more than 5 billion of it in the usa. here's the question. general electric is moving x-ray business to china. what message does that send to americans? go to cnn.com/cafferty file. you cannot make this kind of stuff up. this is twilight zone material. >> $14 billion in year, $5 billion in the united states and jack cafferty paid more federal income tax. all of our viewers paid more federal next tax than ge did. how do you explain that? >> the of the arguments in washington is we can't close the control. that will never go. we have to subsidize big oil and the tax breaks. we will have to leave that in place. let's cut medicare and social security. it's just -- >> these are job creators and creating jobs in china. >> yes, they are. two billion they are going to invest in beijing and that will be the beginning. it's a wonderful market for american business, but what about the jobs here? the jobs are not here. they are all over there. >> someone inviting to come into the situation room. that would be a good interview. >> that are would be delightful and it will be front row center. >> the united states has been seen as a safe bet for investors and depenning on how things go in the days ahead, the country may look like a deadbeat. mary snow is looking at this part of the story. mary? >> you have been pointing out, never before has the u.s. had a credit rating downgraded. the immediate effect would be higher borrowing costs and average americans would not be spared the cost. >> officials feel the questions and they have no direct answers. at the same time a senior government bank examiner told lawmakers there is reason to worry. >> am i right to worry that this could be bad? >> it's hard to measure, but i think you are right to worry. it could happen. >> the down great on the rating would be costing the u.s. government $100 billion a year in borrowing costs over the long-term. consumers would pay. interest rates that would mean higher borrowing costs on home mortgages and car loans and student loans. by how much is inn clear, but to give know awe example of impact, let's say interest rates were to go up by 1%. on a $200,000 mortgage, that would mean $124 in payments. 401(k) could lose ground triggered by a credit downgrade. businesses would feel the effects. >> they are talking about how uncertainty is prohibiting them from making investments and hiring more people. this is not going it help that if the united states is downgraded. it wouldn't be catastrophic. >> they make noises about let's put the money somewhere else. where would they put it? they can buy and sell billions in securities every week or month if you need to. >> even if there is a last minute deal on raising the debt ceiling, the u.s.'s credit rating my suffer. they are looking to see if plans to cut the debt are sufficient. someone on wall street believe a downgrade is inevitable at this point. >> the debt crisis could cause pain for states. the agency moody's placed marilyn in new mexico, south carolina, tennessee and virginia under watch for downgrades. >> mary: land is a blue stayed voting mainly for democratic parties. red states are voting republican. new mexico and virginia are purple states, reflecting the battle ground status. he is battling president obama. fellow republicans on the other side. we will have a closer look at john boehner who is caught in the middle of a debt battle right now. 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[ female announcer ] ask the doctor about your loved one trying the exelon patch. visit exelonpatch.com to learn more. congressional kor respondents with important information on the debt struggle that is under way right now. what's the latest? >> hey there, wolf. john boehner has been stram belling to rewrite his bill because the cost estimate that came out showed he had fallen short of his target number. he finished rewriting and the budget office which is the gold standard of making the cost estimates. they released the analysis and they revised from the boehner bill. the long and the short of them beat the test. they said according to the congressional budget office, it reduces the deficit by $917 billion. falling short of the target, this is the key, it is greater than the $900 billion, the amount of raising the debt ceiling. this is important as you know and we talked about it many times. key point and the principal he set for himself is that the cuts be greater than the amount they raised the debt ceiling. it's a victory and he needs the test that is a signal that they could be moving forward tomorrow with the vote. >> even if it pass says in the house, the democrats in the senate released the letter saying they have 53 signatures on this letter saying they won't vote for the boehner legislation. it comes to the senate. where does that leave us? >> where we thought it was going to leave us. boehner was fighting to get enough votes to pass and looks like he could be moving in that direction. it still does not likely as you pointed out. as you have been talking about, it wants to wait to act until they see what happens. they will be looking for a compromise, but it doesn't seem like they reached the point yet. >> while he has been face-to-face with the president and the debt crisis, the speaker has to watch his back. does he have what it takes to handle a revolt. >> we have been taking a closer look and he is known for a lot of things and his love of golf. she known for it is a skill that he learned growing up. this is the john boehner we have seen this week going to toe with the president at dueling conferences on monday. >> the republicans my like deeper cuts -- >> we have done our best to convince the president to partner with us. john boehner grew up in this modest house in ohio. the second oldest of 12 kids, he helped keep order around the home. they were barking orders by cleaning this or that up. he has been friends since junior high. boehner mopped floors in his family's tavern and still operating today. he put himself through university working odd jobs. boehner was raised in a household of democrats. his first big paycheck changed that. >> he became a manufacturer's rep and making good money. he saw how much money the government was taking out of his pay. i don't think he was happy with it. ever since then, i would say that kind of changed his mind to be a republican. >> from neighborhood association to running a small business to stay politics to speaker of the house of representatives. >> i spent my life chasing the american dream. >> one aid said he seems like a laid back guy, but has laser beam folk ug and figures out a way to win. it means raising the debt ceiling that can pass muster with senate democrats and win enough votes with the conservative members in congress. hard needles to thread. one of bapy's greatest gifts is his ability to check his ego at the door and get along with others and have others go along with him. >> do you envy the job? >> you wouldn't pay me enough to do his job. for a guy from a big family and his dad owning a bar, he learned how to deal with people. >> i asked the representative, how does boehner get members of his party to sign on. he said that baner is going around by and showing the art of the possible. it gets a lot better than the status quo. >> good report. we will take a quick break and a major debate between two republicans and two tea party activists and who supports the plan and the other does not. we will hear from them and what they are saying when we come back. bl is changing the way that i look at things." sparking that interest and showing them that math and science are exciting... it's why i teach. ♪ i know they can, even when they think they can't. excuse me? my grandfather was born in this village. 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>> absolutely, but this is a start and gives what i satisfy with my support. it does cap and we will have a balanced budget for the first of october. we will have the budget amendment after we have this vote. i am pleased that i can stand to support this because we don't have the tax hikes that i don't want to see happen. they have 3.4 million. the raising of the debt limit with spending cuts. >> what's wrong with that thinking? >> and again, full and total respect for my colleague. >> our speaker has done a wonderful job negotiating and trying to get the best he can get. i do believe he is dealing with the president who has not even been involved. that having been said, the only difference i have with my friend a unique moment in time where they would like us to get -- i don't believe we can change the cult nur this town, the spending culture unless we force politicians to balance the books. it's why i believe in a balanced budget and amendment and i need to see a passage of that amendment before i can sign to raise the debt ceiling. >> we are going to change that proposal and will be new members thrown in. we want to find a good hard look at it and a valiant effort by our speaker. to me it's not enough and i want us to try to get more. if it takes a couple of days, that's what we need to try. >> go ahead. >> one of the things i'm looking at is a moral obligation to the american people. i want to alleviate fear and anxiety and don't want to see the interest rates go up because the skiddish nature coming out of our markets. that's one of the key things i want to take care of and we make sure we passed this plan. i think also we have to have the long-term vision about how we start getting serious and getting control in place. i have been here for seven months and the least we have tried to do is chip it away. it is clear and simple. we have changed the lexicon and the conversation. we have no considerations of cuts and spendings. no one else put forth any type of plan except for the house and i will continue to stay with the speaker. >> it sounds reasonable and you say you are not worried about august 2nd. i don't know if you saw what the stock markets, what happened today, the dow jones are going down. the nasdaq going down. they are getting jittery while you guys go up on capitol hill. you have to do something. you tried to get that legislation passed last week and it didn't go anywhere. you have to be realistic. nobody up here is. the administration was having private conversations saying don't worry. there is goin to be no default. we will get this taken care of. this is the same administration that has been doing nothing but scare the american people to do something by august 2nd. there reports that -- >> they don't believe that bad things won't happen. the country can sustain whatever happens if there is no increase in the nation's debt ceiling? >> the notion of default is a myth. we will have about $171 billion in revenues in the month of august. that will only eat up half of that. this president knows that. again, i know he is with me. we want to make sure we get this right. if there is no deal, whatever the date might be, the american people will suffer and interest rates go up and the value of a dollar will go down. there would be inflation and a real economic disaster. how worried will they be about this? >> i have to you something, wolf. my nature is that i do not worry. in 22 years, the u.s. army taught me this and the trips i had to comment on. you prepare for the most likely and dangerous course of action. as i go forth, i prepare for the most dangerous and i don't want to see catastrophic events. i am going to support the plan and i have to tell you, the onerous is on harry reid and a senate that hasn't bass passed a budget in 1818 days. the cap and balance would have raised the debt limit. harry reid and the president need to stand with the speaker and the plan that we will send forth after weigh vote on it tomorrow. >> what do you say to eric kantor that told you and those who opposed the speaker of the house, stop whining. >> look, leadership, eric and john boehner are doing a wonderful job. i understand frustration. they are dealing with a president who doesn't get it. we have a debt crisis. this country is falling off a financial cliff. we heard from the credit agencies they are likely to downgrade us even if we raise the debt ceiling. what we know for sure is if we raise this ceiling and don't get spending reform, they are likely to downgrade us. we have to make sure we do this right. >> let's leave it on that note. i want to ask you, we got into a big fight you called her the most violent professional in the house of representatives. stop being a howard and say it to my face or shut the heck up. you remember that last week. she was on my show last week. i asked her about that. i will play the clip of how she responded to you. if you can't handle that on an issue as important as medicare, you probably need to reconsider his really ill-advised position on medicare. this is not an isolated incident. he has been attacking me and last year when i was a candidate. the fact that she ordered for a protest outside of my campaign headquarters, that is the i didn't think that had been happening. i have been turning the other cheek so much, from what i understand, i'm not apologizing. dealing with the issues that are important. >> she made a point of suggesting you are one of her constituents. you lived in her district and not in the district you represent. is that true? >> when i returned from the military in 2004, i didn't retire looking for a district to live in. i told my wife who was drug around all over america wherever you decide to live is where we will. when i'm successful in winning that i will move. that was one of the com patriots. >> congressman, thanks for coming in. joe walsh, thanks to you as well. a good debate as i like to say, the stakes are obviously enormous. thank you very much. >> we'll consequences if a debt deal is not reached. for some, their livelihood is on the line. agreeing concern about the real world consequences of the federal government defaulting unless congress and the white house reaches a deal on raising the debt limit. higher interest rating are certain and that means a devastating blow to businesses including car dealers. sandra has more. >> if it's a battle being played out, but businesses like this car dealership in california that are caught in a crossfire. >> we have certainly seen a lot of ups and downs in the automotive industry. nothing near what we are seeing today. >> a sagging economy and gas prices and a tighter supply of parts and paints from japan. now a stalemate in washington over raising the debt ceiling. that could lead to higher interest rates and fewer car loans. >> the pace is off and we need to catch up. >> los angeles auto sales mean he is closely following the political fight. knowing an impasse would affect his bottom line. >> what would you say to those who are duking it out and standing their ground and not coming together on a deal? >> i am saying let's get it and realize the impact that it's having on the american people. get out of your vacuum and off your butt. make a decision. make the tough decision. make the hard decision. it's affecting everything that we knew the american people at the ground level. >> you described this fight as what type of feud? >> as a civil war. as a financial civil war. it's a battle over we are supposed to be one here. we violet of sacrificial lambs. >> like car shoppers if rates do go up. >> we will have to lower expectations or delay until they settle down again after the implosion in washington. >> able to working to and it's punishing the whole country and it's frightening what might happen in the next couple of weeks. whether or not lawmakers come together, they are leaving a strong impression in voter's minds especially if the public ends up paying the price. >> america's unprecedented crisis, the whole world is watching. we talk to our own john king on john king usa coming up for the viewers at the top of the hour. the debt crisis follies. there is a lighter side to just about everything. jeannie moos will have it. blap i love that my daughter's part fish. but when she got asthma, all i could do was worry ! specialists, lots of doctors, lots of advice... and my hands were full. i couldn't sort through it all. with unitedhealthcare, it's different. we have access to great specialists, and our pediatrician gets all the information. everyone works as a team. and i only need to talk to one person about her care. we're more than 78,000 people looking out for 70 million americans. that's health in numbers. unitedhealthcare. let's get back to jack for "the cafferty file," jack? >> the question this hour, wolf, general electric is moving its x-ray business to china, what message does this send to us silly americans? olga writes we can give corporate perks to those that ship jobs overseas. the ge situation is a perfect example. how do you expect corporate obama to create jobs if the corporate bigwigs are unemploying our own people? we should take the perks away until they bring the jobs back from overseas. ava in tennessee, wait, isn't the ceo of ge supposed to be obama's top jobs guy? why, yes, he is. first they pay no income tax and now this, it's official, no one in power cares about getting people back to work, all they care about is keeping their profits and offices and status quo. the real question is how long will it take the rest of america to realize this and then do something about it. brad in oregon writes, it tells the u.s. that free trade is a scam and we have to have fair trade instead. it's too easy for companies to outsource to china and bring the goods and services back to the u.s. with few restrictions. we need to have tariffs on imports to account for the difference in labor costs between the two countries. then china could compete with american manufacturers on the basis of quality instead of cheap labor. frank in mill valley, california, writes, the message is eloquent and wonderfully concise. it consists of only two words. it starts with the letter "f" and ends with the letter "u." donna writes, does anybody see a conflict of interest here? why would a corporate chief executive move an arm of his business to china when he's responsible for jobs in america? i find it outrageous. laurie in pennsylvania, it says the u.s. company executives and stockholders are greedy and want to share as little of the profits as possible. i guess the national debt crisis hasn't opened their eyes as to what happens when millions of average citizens don't have a paying job. and d.w. in st. louis, missouri, writes, thanks for all the tax breaks, suckers! you want to read more on the subject go to my blog, cnn.com/caffertyfile. >> thank you. a rapper finds unusual inspiration in the debt ceiling debate. ♪ it was clearly too late for me to do anything as my mercedes collision system automatically kicked in. the next thing i know, the mercedes stopped itself. ♪ watching what mercedes has done in bringing together these sensors in a car with software that has the ability to save your life. that's magical software. [ male announcer ] the innovation, the engineering of mercedes-benz. the best or nothing. so i want to major in biology. miss gopie is the best teacher i ever had. she's amazing, i love her. [ jade ] i'm teaching jasmine ap biology. i knew she had the talent... i always pushed her. [ jasmine ] her class you literally have to think, like it takes so long to do her homework. [ jade ] she's gained the confidence that she can achieve anything. [ jasmine ] i'm going to be a pediatrician... and i'm going to make this dream come true. a 100 percent. ♪ woman: saving for our child's college fund was getting man: yes it was. so to save some money, we taught our 5 year old how to dunk. woman: scholarship! woman: honey go get him. anncr: there's an easier way to save. get online. go to geico.com. get a quote. 15 minutes could save you 15% or more on car insurance. i've tried it. but nothing's helped me beat my back pain. then i tried this. it's salonpas. this is the relief i've been looking for. salonpas has 2 powerful pain fighting ingredients that work for up to 12 hours. and my pharmacist told me it's the only otc pain patch approved for sale using the same rigorous clinical testing that's required for prescription pain medications. proven. powerful. safe. salonpas. [♪...] >> male announcer: now, for a limited time, your companion flies free, plus save up to 65%. call 1-800-sandals. conditions apply. u.s. debt limit is inspiring some folks. here's cnn's jeanne moos. >> reporter: a rap video, a cops and robbers movie, and amy winehouse? ♪ no no no >> reporter: what do they have to do with the debt ceiling fiasco? ♪ raise the debt ceiling >> reporter: he's a comedian from virginia who likes s doin political videos. >> all the spending fits in well with a bad rap. i just happen on be a bad rapper. ♪ but we county got no money >> reporter: speaking of bombs was it the a-bomb dropped by house speaker john boehner as he tried to get his fellow republicans to get in line. >> is it true that you told some of the republican members this morning that you need to get your "a" word in line behind this debt ceiling bill? >> i sure did. listen, this is time to do what is doable. >> reporter: "the washington post" reported that the house majority whip played a movie clip to motivate republicans to pull together, the clip featured ben affleck as a bank robber planning revenge in "the town." >> i need your help. i can't tell you what it is. you could never ask me about it later, and we're going to hurt some people. >> which car are we going to take? >> reporter: but democrats turned the car against the republicans. >> they chose to inspire their house freshmen, one of the crooks gives a pep talk to the other. right before they both put on hockey masks, bludgeon two men with sticks and shoot a man in the leg. ladies and gentlemen, this is your house republican majority. >> reporter: asked about republicans playing his clip, ben affleck said, i don't know if this is a compliment or the ultimate repudiation, but if they're going to be watching movies, i think the "company man" is more appropriate, a film about corporate layoffs. >> you're firing me? >> reporter: now, here's a head scratcher. what possible connection could there be between the debt and the death of singer amy winehouse? ♪ going to make me go to rehab ♪ >> reporter: republican congressman billy long from missouri tweeted no one could reach amy

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