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Countdown to Shutdown in Washington; Teachers and Unions Being Unfairly Targeted By States Looking to Tighten Budgets; Crude Oil Prices Soar; Tensions in Middle East North Africa Continue to Weigh on Financial Markets; Why Isn't the Value of Your House Improving?
Aired February 26, 2011 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, HOST: The countdown to a possible government shutdown is on.
I'm Ali Velshi. Welcome to YOUR MONEY.
Friday, March 4th is the deadline for a compromise or else the federal government literally stops performing all nonessential services.
Stephen Moore is an editorial writer for the "Wall Street Journal," a friend of our show.
Stephen, Congress has gone down to the wire many times like this and averted a shutdown in most cases. What does a deal need to look like to keep the lights on in Washington beyond Friday?
STEPHEN MOORE, EDITORIAL WRITER, "THE WALL STREET JOURNAL": Well, Ali, you're right. In most cases the doomsday scenario is averted, but you remember 1995 and 1996 when we did have a government shutdown and that was that famous budget standoff between Bill Clinton and Newt Gingrich.
So it could happen, Ali, and nobody wants it to happen, although neither side is taking steps to avoid it from happening. If it happens, it means that virtually all the -- what we call the nonessential functions of government stop operating.
VELSHI: And the one thing a lot of people have been asking us about is Social Security. Those checks will still go out. But a lot of things won't happen. Most people don't think about how tied in they are to the federal government until something like this happens.
Harold Meyerson is an editor at large for the "American Prospect," his is an op-ed columnist with "The Washington Post," he also tends to disagree with pretty much anything Stephen Moore says. Harold, look at this. A USA Today/Gallup poll out this week shows that nearly two-thirds of Americans -- let's call it 60 percent of Americans want Democrats and Republicans in Congress to compromise to avoid a shutdown rather than stick to their guns. Thirty two percent say stick to your guns, wherever your guns happen to be.
HAROLD MEYERSON, EDITOR AT LARGE, "THE AMERICAN PROSPECT": Let's start right here, what would a budget deal look like, Harold, if you and Stephen Moore, because it's the left and the right, could meet in the middle, which is what 60 percent of Americans seem to think they'd like Congress to do.
Well, I think when the American people say they want the government to meet in the middle and reach a compromise, they don't have that clear an idea of what they want funded, what they don't want funded. I think this is very hard stuff because the Republicans in the house have said the condition for reaching a deal is you've got to agree to our $61 billion of cuts for the remainder of this fiscal year, all out of discretionary domestic spending. That's got to be very hard. And I agree with Stephen Moore, not to --
MEYERSON: Totally upset the cosmic balance here. I agree neither side is really reaching out and saying, you know, let's make a deal here. I think it's very hard. And I think the point to keep in mind is like the shutdown of '95, '96, this comes politically at a similar time. There's a new Republican Congress, the momentum in that Congress is all from the right, and they think they want to -- I think they want to go to war on this, and it's hard to -- it's got to be hard to make a deal.
MOORE: It's interesting because when I talk to the Republicans, I think they have a credible case that, look, they told the American people in these November elections what they wanted to do. They said they were going to cut $100 billion from the budget, they said they were going to take that spending baseline back to 2008 and they won one of the biggest elections in history. And just as Barack Obama said after 2008, I won the election, I get to do what I want, and I think that's what Republicans are saying now.
VELSHI: It's an interesting point. Let me bring in David Gergen on this thing, because what you're both talking about is whether somebody's got a mandate to fix things. What we're not talking about, none of those things are actually compromise.
David, the same poll I just talked about also showed the public is divided on who is doing a better job on the budget. This is a problem.
President Obama and the Democrats on one side at 39 percent. The Republicans in Congress on the other with 42 percent, 16 percent unsure. So I'm wondering whether this budget compromise is likely to be about compromise or it's likely to be about reducing the deficit so that we can reduce the debt, or it's about political gain.
DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: At this point it's mostly about political gain. In many ways it's a phony war. Because all the headlines are about whether we're going to cut 30, 40, 60, 10 million dollars out of the budget, but as everyone here knows that fight is only over a tiny proportion of the budget, it's only over a proportion of the budget that represents 12 percent of spending. Nobody is having the big debates; we've got to have the mega debates, about what we're going to do about entitlements, defense and taxes. Nobody wants to hit those big issues, and everybody knows and Washington knows, it's no secret that you can't get to a real balanced budget unless you take on entitlements, defense and taxes. So I have to say, this is more about political jockeying. And at this point, I agree with Stephen that the Republicans had momentum coming out of the election. But where they find themselves now I think is that neither side has traction with the public on this issue. Neither side has the high ground.
GERGEN: There is no solid majority right now.
VELSHI: Well, David, you've been in those offices. You've been an adviser to several presidents. Tell me why we're not dealing with the obvious stuff, the entitlements. Why is that not something that President Obama has done? Is it because he knows it has to be done and he's forcing the Republicans to be the ones to say deal with it? Why is that leadership not coming from the president?
GERGEN: Well, it's once again one of these questions, you know, the president's telling Republicans, you go first and the Republicans say, no, no, no, Mr. President, you want to go first. You're the president, you're the leader. And both of them are trying to avoid getting being the first ones over, get their heads above the trench line because they know how many shots they're going to take. But it is not leadership.
When you try to duck, as both sides are now doing, you cannot call it leadership. And the country's going to pay a big price for this, unless they get serious. Now, I have to say, Ali, if one side can come out of this victorious, if the Republicans were to come out of this victorious, it would give that side some momentum, heading into the bigger fights ahead, again, over entitlements, defense and taxes. So the jockeying is not unimportant, but it's phony in terms of what the real needs are of the deficit.
VELSHI: Well let me ask Harold.
Harold, I think one of the problems we've got in this country is like you said, our polls say that American say to Congress compromise, but don't do that, don't touch that, this that and the other thing. In particular on the president's side is the left not giving the president permission to do what he needs to do, including compromise and tackling these entitlement programs?
MEYERSON: Well, I think there's very little public sentiment, as you just noted Ali, for cuts to Social Security and Medicare. And so -- and particularly on the Democratic side. These are programs that the Democrats originated and have always been identified with, and many of us on the progressive part of the Democratic Party think it'd be hugely injurious to the economy and the people's purchasing power, things like that, if you made any serious cuts to things like Social Security.
And then on the immediate particulars of the cutbacks that the Republicans have proposed for the continuing resolution, it's a political agenda. It goes after the agencies that regulate Wall Street, things like that. This has no impact on the budget; it has real impact on Republican priorities to create a totally regulated economy.
VELSHI: Hold on, I'm going to let you get back to that. I'm going to take a break so we can pay some bills but I will pick up with you. David Gergen, Stephen Moore, Harold Meyerson stick around.
The countdown to the shutdown, it sounds ominous but what exactly what would a federal government shutdown mean to you? Stephen Moore is going to have his response right after this.
VELSHI: 11:59 p.m. next Friday, March 4th just before the stroke of midnight, that's zero hour for Republicans and Democrats to reach a compromise, or the government shuts down. Now, what does that actually mean for your daily life? Let's bring in my good friend Christine Romans. She hosts "YOUR BOTTOM LINE" every Saturday at 9:30 a.m. -- Christine.
CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: It means if you're going to need a passport in the next few months, you better get it renewed right now. It also means if your eighth grade class is planning a trip Ali to see the Lincoln Memorial well you might be shut out if the government is closed when you get there.
Here's what closes if there were a government shutdown, first of all, parks, monuments, museums, they all could close. They did in 1995 and 1996 the last time this happened. Toxic waste cleanup could be stopped. Federal employees without pay, hundreds of thousands of them, that means passport application offices, getting a gun permit, if you are in bankruptcy court, bankruptcy cases, all of those things grind to a halt.
The things that do stay open Ali, anything with national defense, law enforcement, the things that are the very essential bare bones of the government. The mail, for example, stays open. Social Security checks, those would still be delivered. There would be enough employees on deck to make sure that those go out but there would be thousands of other Social Security workers who would likely be furloughs. Law enforcement and lawmakers, Ali, lawmakers who make, you know, $174,000 a year, they would still get their paychecks. Generals, the president and lawmakers still get paid even though hundreds of thousands of federal employees would be furloughed.
VELSHI: I think we live in a safe civil society, we don't think about our connections to government until things like this happen. Christine, thank you so much.
Stephen Moore, I cut you off last time, so you've got half an answer to give us, let me just ask you another question. We talk theory all the time. But in real terms that any average American would understand, what scares you the most about a potential government shutdown? MOORE: Well, I don't want to see a government shutdown but it's not the end of the world, either. I mean if people can't go to the Washington Monument for a few days it's not the end of western civilization. Look my point is Ali we do have a crisis much bigger than a few-days government shutdown and that crisis is borrowing $1.6 trillion a year which I think is really destroying the economic fabric of our country.
What I was going to say before the break is I'm a little frustrated with Harold because if you listen to what he said, he said we can't cut Social Security, we can't cut Medicare, we can't cut education, we can't cut transportation, I mean, Harold, what do you want to cut? I agree with David Gergen, David, I think you're right, if there's going to be a deal, Republicans are going to have to agree to some cutbacks in defense programs. I think that should be on the table. But there's no deal if liberals say we can't cut anything.
MEYERSON: I think we can cut some things but I think the main problem -- where you and I disagree, Stephen, is on what the main problem with the economy is. What I see is a lack of private sector investment and I don't think they're being crowded out by the public sector. I just think most major American businesses have a growth strategy in other countries rather than here. That's where the growing markets are and that's where the cheaper production is and we're moving there. So my view which is classic Keynesian is that the public sector needs to step up its investment in things like transportation because that's where the investment is mainly going to come. And if it doesn't come from there, we are stuck in the worst recession since the 1930s and we're not going anywhere.
MOORE: Harold we did that for two years and it didn't work.
VELSHI: Let me ask you David. We had a government shutdown in 1995, similar political circumstances a Democratic president, Bill Clinton, Republicans coming off a big midterm victory, now that shut down did seem to kill some momentum for those congressional Republicans. Both parties today talking tough on the deficit. Which side has the most to lose this time?
GERGEN: Well, there's no question that Bill Clinton outfoxed the Republicans and reversed the momentum and went on to win reelection in part after the government shutdown. This time around I do think the Republicans go in with a stronger hand. Because going back to Stephen's point, they did go to the polls this last November and said we want to cut spending and they got a large -- they won a significant victory. So they have that behind them. They have the win behind them.
But I have to say, there are a couple things here. The danger for Republicans is overreaching. If they go too far they're going to turn off people. That -- we've seen that same kind of danger in Wisconsin with Governor Walker. I think most people would agree with him that public employees have got to belly up and take more of the load but to get rid of their collective bargaining rights, as you know from the polls, people are opposed to that. So they have to watch out for the overreaching.
But the other thing is Ali, there's so much uncertainty right now surrounding the Middle East. And with the spike in oil prices there's going to be a real reluctance I think to shut this government down for very long. We've had these reports from Goldman Sachs, this predictions from Goldman Sachs in the last few days saying you shut the government down for a week and it is going to take a dent of the.8 percent, that is almost one percent of growth in that quarter. You know we only had 2.8 percent growth last quarter. This economy cannot take too many jolts.
GERGEN: So it's going to be incumbent on both sides to try to reach an agreement given the volatility we see in the world.
VELSHI: And Harold, 30 seconds to you. Give me some sense of the handicap this for us. Do you think the government shuts down next Friday night?
MEYERSON: I think it may. Because even though I think both sides think it's more advantageous to reach a compromise, that's in theory. In practice, I don't know what it is they're going to agree on. If Republicans insist on cuts which the administration is not willing to make, this could be like the start of World War I. No one wants it to happen but it happens.
VELSHI: But if you don't do something to specifically avoid it, that's the important thing. Saying if you don't want it to happen isn't actually going to be enough to avoid the government shutdown. We have got to see stuff happen this week that actually positively avoids it. David, always a pleasure to see you.
GERGEN: Thank you.
VELSHI: Stephen Moore thank you for being with us. Stephen actually stick around because you are sticking around for our next discussion, Harold Meyerson great to see you, thanks gentlemen.
Well as states look to tighten budgets are unions being unfairly targeted? We are going to try to answer the question next.
VELSHI: I know if it were up to you, you wouldn't spend your weekends talking about budgets but it's important and it is not just the federal government budget that we are talking about. Remember states are facing budget crisis of their own.
Randi Weingarten is the president of The American Federation of Teachers. Randy the issues we are seeing in Ohio, in Wisconsin, in Indiana and other states have to do -- they're focusing on teachers right now and I think there are a lot of Americans who think that teachers and teachers unions might be being unfairly targeted by those states looking to tighten budgets. But let me ask you this, a conversation we've had before and it's going on across America. Is there something that these public service unions and these teachers unions can do to give some ground in what seems to be of some practices that people don't like? For instance, these issues of tenure, the last person in are always the first one to go when there are layoffs. Talk to me about that.
RANDI WEINGARTEN, PRESIDENT, AMERICAN FEDERATION OF TEACHERS: Well Ali, of course there are things that we can do and frankly we've spent the last couple of years talking about shared responsibility and we've laid out a lot of ideas about how we make schools better. How we increase teacher quality, how we make schools better. But let me just go back on one issue, which is the budget crisis was not of the public employees. Whether they're teachers or snowplow drivers, it's not of their making. This budget crisis started because of the worst recession since the great depression. Even though they don't get any credit for it, a lot of what happened with the stimulus actually held a lot of the crisis of states at bay.
So right now with the money ending from Washington, we see this kind of state crisis right now, and it's agonizing because it's asking people who want the services to have to decide, are they really going to get the services. Now, in Wisconsin, in Ohio, in other places, the public employees have stepped up. But the governor of Wisconsin won't take yes for an answer. He'd rather actually end collective bargaining, end their voice at work, than actually let them step up and do what they have said that they would do.
VELSHI: Let's bring Stephen Moore back into this discussion. Stephen it is strange, because while Americans do want to have reform of the public service and of some of these unions, take a look at this USA Today/Gallup poll, 53 percent of Americans would oppose a move to reduce the budget deficit by cutting the pay and benefits of state employees, that state employees get from their government. Forty four percent backed the idea. Stephen, what of this business of attacking unions and trying to do away with collective bargaining? Where does that get these troubled states? How does it earn them another dollar?
MOORE: Well, look. I think the reason you're starting to see the public get behind some of these reforms like you mentioned teacher tenure reform, bringing the pensions into line with what private sector workers get, I mean, there's a fundamental unfairness I think here that the American people are seeing. That private sector workers get pensions and health care benefits that are only about half as generous as public employees. That's simply not fair and it's not unaffordable. You've got these gigantic gaps in these state budgets --
VELSHI: But answer me this. We can discuss and argue and agree and disagree on the reforms, it does appear in Scott Walker's case in Wisconsin, the governor of Wisconsin, that it is union busting. That he's going about getting rid of rights that have really helped workers in this country. The ability to collectively bargain. Why are you so against that?
MOORE: Well, because what it's led to is these incredibly over inflated pensions and health care benefits. And I think the real problem here with these collective bargaining agreements is it means more and more education dollars are going to these pensions and health care benefits and less of the dollars are going into the classroom to help kids learn. And look we have an education crisis in this country. We've got to do something about it. That includes pension reform and by the way, I'd love to hear Randi's ideas about can we finally get rid of tenure so we can get rid of bad teachers.
VELSHI: OK we will get to that in a second. First let me bring Christine Romans in. Hang on a second Randi I want to bring Christine Romans in because Stephen is talking about some numbers here. Let's talk about numbers, not scary boring numbers but simple dollars and cents about unions and union workers.
ROMANS: OK. According to the U.S. Bureau of Labor statistics, in 2010 Ali a union worker earned about $917, a nonunion earned $200 less. Spread that out over all of last year, union earned $47,684 while nonunion workers earned $37,284. Bottom line, union workers earned 27 percent more than nonunion workers in 2010.
VELSHI: OK. So you and I have discussed this a lot. These numbers are examples of unions doing what they were originally designed to do. Increase worker protections, help their wages come up, where does this leave us now? Because that now is used as ammunition against the unions.
ROMANS: And here's the other issue. It's not just union representation that is at work in the economy, right in the labor market. There's also technology that's allowing for the outsourcing of jobs. There's also higher productivity that goes with technology, there's also big budgets. There's a lot of different things happening here. So when you compare union workers to nonunion workers, sometimes it's not a straight comparison.
When you're talking about teachers, I will tell you this week a lot of teachers told me that they felt like they were being personally attacked. They didn't like to be portrayed as someone who was sucking off the public dime, you know? I mean some teachers are saying, look I put in all of these hours. I don't just work nine months a year. I make $38,000 or $48,000 a year depending on where you are a what state, and I don't make a lot of money. When you try to tell me you want to take away some of my pension or my benefits, they don't like to hear that. And they say that you can't take a teacher and swap it out for an accountant or journalist for that matter, that their job is very different.
VELSHI: All right. Randi, let's talk about the tenure issue which does seem to be the sore point for a lot of issues when we're talking about teachers unions. The rest of us operated America democracy we're hired and/or kept on by virtue of how it is we perform. Why can't we do that in the world of teachers? I understand why we didn't set it up that way, and it was useful to not do that. Why can't we evolve into that?
WEINGARTEN: Let me just answer Stephen's point initially.
WEINGARTEN: Which is that there's about 30 states that allow collective bargaining for the public service. The other states that don't have just as bad, if not worse, budget deficits. In terms of compensation, if you just look at pensions and benefits, you're not looking at total compensation. Look what Christine just said. The average pension in Wisconsin for a public worker is $26,000. And ultimately what happened in terms of public workers is that there was a quid pro quo. There was a social contract that said they took less of a salary and had more benefits so that they had a plan for retirement.
Now on tenure, this is a false choice. No one wants bad teachers. Not teachers, not parents, not anyone. The real issue here is that we haven't had a good evaluation system. And my union and others have looked to how do we overhaul an evaluation system and how do we align due process with it. It's a false choice to say either no process or cumbersome process.
And ultimately if you look at what teachers do, we are responsible for everything in a child's life. Now, maybe that's not fair, I don't think it is. But ultimately that's what we try to do in instruction. And it's for all kids, not just some kids. And so ultimately we need to have a fairness process, not simply being told what to do and when to do it and that's what those teachers were telling Christine.
Teachers work their hearts out to help kids but they need to be supported and they need to be treated with respect and dignity. At the same time, our union has gone and focused on how do we improve quality hugely so that teachers are the best they can be but also have fairness attended to it.
VELSHI: Randi thanks we will leave it at that. Randi Weingarten is the president of the American Federation of Teachers; Stephen Moore is an editorial writer with "The Wall Street Journal." Christine stick around we are going to talk a little bit more.
All right. If you think the unrest in the Middle East and northern Africa is happening a world away, it's not going to feel that way when it comes to your money. Why you could soon pay more for just about everything, after the break.
VELSHI: Crude oil prices soared this week, rising as high as $103 a barrel. That's the first time in more than two years that prices crossed the $100 threshold. Take a look at this chart courtesy of our good friends at CNNMoney. This is just from the end of January on the left side of your screen until the end of February on the right side of your screen. Look at that increase in the price of a barrel of crude oil futures here in the United States.
Now that spike came as civil unrest mounted in Libya, and some foreign oil company's suspended production in that region. Richard Quest is host of CNN International "QUEST MEANS BUSINESS." Richard, we saw oil react as those tensions grew in Egypt and Bahrain, now Libya that is Africa's third largest oil producer. Talk to me about oil rising to levels that actually threaten our global economic recovery.
RICHARD QUEST, HOST, CNN INTERNATIONAL "QUEST MEANS BUSINESS": Well, that's of course the problem. No one really knows the risks that are out there, and how this thing is going to play out, Ali. You talk about the crude that you mentioned, west Texas; particularly rising in price has been even more dramatic for the one that the rest of the world looks at, great crude which is $115, $117 a barrel. There was a report from New Merrill Securities that suggested if there were greater risks it could go to $250 a barrel.
QUEST: And this report, this is fascinating.
VELSHI: Are you sure you're just not fear mongering now?
QUEST: Hey, hey, hey, you watch and wait. This is a report from HSBC which I've just read today which points out every time, or pretty much, the price of oil has doubled in the United States, a recession has followed.
VELSHI: Yes. We don't want that. OK. Richard hold on a second.
Stephen Leeb is author of "Game Over." I don't know have you haven't read it Richard, if you haven't you should. It is a great book.
Stephen, the last year at this time the average price for a gallon of gasoline, which mistakenly is where most people think they feel oil, we actually feel it in far more places than gasoline, the average price for a gallon of gasoline was $2.69 this week a year ago. Now it's up to $3.29 with all sorts of dire predictions of how high it will go.
At what point do we start to see real political and economic fallout as a result of rising oil and gas prices?
STEPHEN LEEB, AUTHOR, "GAME OVER": I would say around $4 would be the magic number for gasoline Ali. Richard makes a very good point about the 100 percent increase; it's really 80 to 100 percent. Every time with the exception of 87, and that is certainly an exception that stands out, when you saw oil double, you did have real economic damage, including the tech bubble, including the housing bubble. And in '87, the exception that kind of proves the rule, you had a market crash on the heels of about an 80 percent increase in oil.
So Richard is, I mean that's a good number to keep your eye on. And it tends to equate over the next three to six months with about the old highs in oil. In other words, right now oil under $100 I don't think is a major economic event. I don't think the market's even responding to it. But if you saw oil around $130, $140, $150 -- VELSHI: And trending that way.
LEEB: I would get very, very cautious. I mean, very cautious.
VELSHI: If I had hair I would pull it out, Christine, with the number of times people tell me the thing that matters is the price of gasoline. Even in America which consumes 10 percent of the world's oil every day just to drive, it is simply not the only place, and possibly not even the most important place that it hits us.
ROMANS: And Richard pulled out the HSBC report, I'll pull out another one from a guy named Bernard Bermole, who said that he has been talking to executives in the country who say they may be putting hiring plans on hold Ali while they try to assess what kind of impact the oil situation will have for their business because it means higher shipping costs, it means higher input cost, it's more expensive to run the factory in general, it's more expensive to buy products, packaging and everything. So that's something that it could mean trouble for the economy if you still continue to see oil prices rise.
VELSHI: Stephen, as you like to remind us, there is something good about oil over $100 or $150 a barrel, because it stimulates other investments in other types of oil. When oil goes back down and gas goes back down we stop thinking about alternative energy and hybrid energies, solar and wind and things like that.
LEEB: Yes. Unfortunately here we have oil flying up again for the nth time, I don't know how many times we've seen this, and yet people are suddenly talking about this, but we're also shutting down the government. I mean this is not a calculus that is really, you know, making me happy at night when I go to bed. I mean, yes, we really have to wake up. And sometimes it does work. One place where it is working incidentally, Ali, is in the non conventional oil sources. The oil shale's out in the Dakotas and also where you're from, in Canada.
LEEB: Those are all critical places right now. That's where all the marginal increases in oil production are coming from.
ROMANS: Gas prices are one thing, and I know Richard you're watching this too, gas prices are one thing but the thing about consumers and businesses frankly, they're not just feeling gas prices, they are feeling higher commodity prices for everything. If you're a manager of a business, you're trying to figure out what prices you can pass on to your consumer, and if you're a consumer you are trying to figure out what you are not going to buy because it's costing more to put gas in your gas tank. So, Richard there is a real push, all of the commodities are moving higher. It is not just one. We have food price inflation, we have gas prices going up, we have this new risk for businesses, and it's tough out there.
QUEST: And not only that, if you look at inflation rates, take here in the UK which is 4 percent at the moment, it's because commodity prices and oil and higher taxes, which you perhaps haven't quite experienced yet as a result of budget deficit cutting measures. I had to have a very wry smile when Stephen talked about $4 a gallon as being -- I was looking online here. The average price, bearing in mind, $117 a barrel, the average price of a gallon of gasoline in the UK would be about $9.
VELSHI: Ouch. Well, it's always good to have you here to give us that perspective. As you know, Brent is a different crude oil, which is actually more effective by the tension that are going on in the Middle East and north Africa, it's priced at this point significantly higher than the oil we're paying for right now, but it's always good for you to remind us about higher taxes and higher gas prices. Richard, great to see you as always. Thanks very much.
Stephen Leeb great to see you as well.
LEEB: Thanks Ali.
VELSHI: You know so much about this. Thanks for making our viewers a little bit smarter about it.
All right. Political tensions at home and around the world are weighing on financial markets, so how do you safely invest your money in this environment? I'm going to show you after the break.
VELSHI: Tensions in the Middle East and North Africa continue to weigh on financial markets. So if you want to safely invest your money, we're going to map out exactly how you do that. Let's bring in Jim Awad he is a good friend of ours, managing director at Zephyr Management. Jim good to see you, thank you for being with us.
JIM AWAD, MANAGING DIRECTOR, ZEPHYR MANAGEMENT: Always my pleasure.
VELSHI: It seems intuitive at times like this where there are all sorts of risk going on, there's real risk in the Middle East and North Africa. There's the risk of our dollar weakening and interest rates going on, there's the budget crisis that we're in here in the United States. We feel like we're in a risky environment. People seem to gravitate to gold.
AWAD: Yes. Gold is a storehouse of value during periods of disquiet and chaos and also during periods of inflation. And you can actually have economic chaos and inflation at the same time if it is the rising price of oil that is causing the disruption, which is exactly the situation we're in now. So you can always go with a bar of gold and exchange it for goods and services and that's where --
VELSHI: It's not going to lose all of its value. Now it could lose some of its value there is no question. But one of the ways in which you suggest investing in gold is through these Exchange Traded Funds, which trade like stocks. You buy them with your trading account. The gold exchange traded fund, the ticker symbol is GL, you look at the one-year change on that has been about 28 percent, and it has gained. Why do you think -- how does that fit into someone's portfolio?
AWAD: Well it directly tracks the price of gold. It tracks 1/10 of an ounce of gold. So if you believe that gold is going up or you want to participate in gold, this is a liquid, low cost way to do it. Now you've got to understand gold can fluctuate there is a lot of hot money in it. So it's not guaranteed to go up all the time, but if you believe you want to call on a store value, this is a cheap efficient way to do it.
VELSHI: All right. Let's take a look at another area that Christine talks about a lot. We've seen commodity prices increasing constantly. We saw this before the recession, and then it leveled off, now we're seeing it again. And there's a way to do this with an exchange-traded fund as well. The ticker symbol for that is MOO that is the Market Vectors Agribusiness ETF. Tell us about this one.
AWAD: And so the theory here is that people always need food, whether you have inflation, deflation, disinflation, you always need food. And as the emerging markets get more wealthy.
VELSHI: The India's, the China's and other markets like that.
AWAD: Exactly. You're creating more middle class, which creates more demand for food, which is why food commodities have gone up so much. So the theory here is rather than buying the commodities, buy the best run companies or the biggest companies because they can leverage the rise in commodities into prices. So this is an ETF that tracks the biggest companies in the world that have over half their business in agribusiness. Companies like Potash, Montana, Archer Daniels, so it is again a low cost efficient way to participate in food prices.
VELSHI: So with the gold you're actually buying something that tracks the price of gold. With commodities you're not tracking the price of corn or soybeans or wheat, you're tracking the companies that make their money off of that.
AWAD: Right. That benefit from rising prices.
VELSHI: All right. Another thing people can think about in tumultuous times are bonds. It's another one of those things that are generally easier to buy in some kind of a basket or a fund than to try and buy bonds on your own.
AWAD: Right. We've chosen the T. Rowe Price Strategic Fund because they have a lot of flexibility, they can buy short term bonds, long-term bonds, international bonds, U.S. bonds, high quality, and low quality, and so what happens in periods of uncertainty, they are rapidly changing perceptions about the world economies and credit worthiness. So it's a real opportunity for somebody who can be opportunistic to make money. So this fund has over a 5 percent-yield and it has a very good track record of making capital appreciation and it's not such a big fund so that managers can move it around very quickly. We've had a very good experience.
VELSHI: And when you say it has a 5 percent yield, in a mutual fund a bond mutual fund, how does that yield work? You get a check for it or does it get reinvested?
AWAD: It's your choice, you can either have a periodic check that whenever they declare it, or you can say I want a certain amount every month or you can say I want to reinvest it and have it appreciate with the fund over time.
VELSHI: Excellent advice for people who feel that this is a jittery environment to be in. Jim always a pleasure to see you. Jim Awad, a good friend of ours, managing director of Zephyr Management.
Well the recovery is moving forward, it is slow but it is moving forward. So why isn't the value of your house improving? We will take a look next.
VELSHI: Welcome back to YOUR MONEY. Christine Romans, Richard Quest are back with us. If you look at your 401(k), the recovery looks real. If you look at your home values, you might be wondering, what recovery? Take a look at this. Home prices are down 4.1 percent during the last three months in 2010 according to the Case Schiller Report and according to economist Robert Schiller things may get worse. He says quote, "There's a substantial risk of home prices falling another 15, 20 or 25 percent more." Schiller, very smart man, is not known for finding the silver lining on a cloud. So could another housing collapse be on the way? First I'm going to tell you why it's not happening. Then Christine can tell you why I am wrong, and finally Richard can take a turn at correcting us both.
Number one, interest rates on a 30-year fixed mortgage are 5 percent right now. That's way up from where they were. They were in the low fours. You are not in your lifetime going to see interest rates like this again. If you are like most people, you put a certain amount of money down, you hold your house for 15 or 30 years or longer, the bottom line is you will never get a deal like this again. That's not to say that home prices don't go down. I think Schiller is overstating the case but even if they did go down, if you lock into a mortgage at these kinds of interest rates, it may end up being the best thing you ever did. But before Christine jumps at me, I'm not saying it's a good investment, I'm not saying it's a better investment than going into the stock market or investing in commodities or oil or silver or anything like that. I'm just saying you have to live in a house and this is a good time to buy one.
ROMANS: No I do agree with you on that, but I'm saying and yes, you should take advantage of these mortgage rates, but guess what you have to 22 percent down and you have to have a 750 or higher credit score, and you have to have six months of all of your expenses in the bank and two good jobs, good jobs that you've been in for a very long time before the bank will even give you a loan. What that means, is that there are a lot of people who are not going to be able to take afford of these very low interest rates and very low home prices, good home affordability for the first time in our life time. That's why I'm worried it could take ten years to get back to where we were.
VELSHI: We don't need to get back to where we were, it could be a good investment, a good thing for you to do. Richard, what are you guffawing about over there?
QUEST: First of all, you are the lucky ones to have 20, 25-year fixed mortgages. Imagine over here where it's two years if you're lucky before you go on to some standard variable rate. Secondly, you both completely discounted the amount of, glut of unsold property out there, of people waiting to move. And thirdly, you still, neither of you, have factored into the equation the deleveraging that still has to take place on both sides of the Atlantic. Factor that in, Ali, and suddenly Schiller looks more right than you.
VELSHI: OK. That's what I'm going to do, as soon as this show is over; I'm going to factor in my deleveraging. You guys are such nerds.
ROMANS: Listen, if you're trying to sell a house, bottom line, if you are trying to sell a house you have to price it right, you have to have fantastic curb appeal. There are people who are buying houses, if you're trying to buy house, you've got to have a lot of money.
VELSHI: Hold on! Let's see if we can do this again. Let's rewind. Over the last decade, the income of 90 percent of the American public has remained stagnant. Take a look at this. The story changes dramatically for the other 10 percent. That bottom red line is 90 percent. That yellow line is the wealthiest 10 percent. The folks, the super wealthy, they've gotten richer; a whole lot richer while everybody else has stayed the same. Those superrich, by the way, account for one-half of America's wealth. Top 10 percent, half of the American wealth. This does not sound like the America we knew. Christine, how do the rich become the superrich?
ROMANS: The rich always come out on top when there's an economic debacle. We've had the biggest economic debacle since the great depression. I never count out the rich for being able to figure out how to become richer. I think you can talk about how business has done, technology has allowed out sourcing --
VELSHI: And mostly, working stiffs, Richard depend on their paycheck. Other people, the rich make money in other ways. They can invest in the stock market, they can invest in property like we're talking about, and they buy the services of other people.
QUEST: Look, look, it's fundamental. If you are one of those people who was making money when you are asleep because some business is making it on your behalf, or you are one of those people who makes money because their money makes money, you're going to be all right. But if you're like most of us, which literally, and I challenge you, Christina, and myself, how many paychecks would it take before you are in trouble if you suddenly started losing them? Then, inevitably, it's going to be that way. The rich have always sailed majestically on the good ship dollar big bucks.
ROMANS: And you know, the rich take risks. And not all of us are big risk takers. And this has been a good world to take risks in, big risks, because you get bailed out if you fail, and if you win you win big, right? VELSHI: That's exactly right. All right, guys, we'll leave it at that. Great to talk to you all. Richard a pleasure to see you as always, Christine Romans.
And you can watch Christine Saturday mornings at 9:30 a.m. on "YOUR BOTTOM LINE."
Listen, it's an age-old battle, union bosses versus the employer, but change is needed and it's needed now. I'll tell you why in my "XYZ" next.
VELSHI: Time now for "The XYZ of It."
Governor Scott Walker has taken on Wisconsin's public unions in the most dramatic fashion we've seen in decades. Back in 1978, Jimmy Carter fired postal workers who were involved in wildcat strikes. In 1981, Ronald Reagan fired 15,000 air traffic controllers for walking off the job and striking. But those were federal public service workers, and whether you agree or not with how they were treated, those were strikes.
Wisconsin is a different story. Walker's actions are ostensibly driven by the state's budget crisis and what he thinks are unfair and outdated privileges that Wisconsin public service workers enjoy. Is he right?
Well, unions were crucial to the building of America's middle class back in 1945, for instance, 36 percent of American workers held membership in a union. And through ensuing decades, they were a force that helped protect America's workers. Unions battled employers who would pay low wages and demand punishing hours under poor conditions. They pushed for workplace safety laws.
Now, there's no question that they were crucial and in some cases they may still be, but in the wake of this recession, change for unions has to be on the table. Things like seniority, the idea that the last person hired is the first person to be laid off really has little place in an economy that is based on one's ability. The longest serving workers may be the most qualified, but then again, they may not be.
Teachers are at the heart of the Wisconsin issue. We've got to treat teachers in this country with greater respect. But shouldn't they have to pay something toward their pension and more than 6 percent of the cost of their health care? Because what they don't contribute, the taxpayers of Wisconsin do.
Look, I think teachers should earn more money than they do across the nation. So maybe we should just pay them more, rather than have a system where they pay so little into their health care and pensions.
And let me be clear, workers in this country need protection, still. History shows that some employers will continue to take advantage of them without rules. And if Governor Scott Walker is indeed union busting for the sake of it, that's not fair. But he and many other governors have legitimate budget concerns that need to be addressed.
Union leaders should acknowledge the need for some changes. The best compromises often leave those on both sides unhappy. This may be one of those cases, but compromise is necessary.
That's my "XYZ."
Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday at 1:00 p.m. and Sundays at 3:00 p.m. Eastern.
You can also catch Christine Romans on "Your Bottom Line" Saturday mornings at 9:30 a.m. Eastern.
And stay connected with me 24/7 on Twitter. My handle is @Alivelshi.
Have a great weekend.