MS. SUSAN PAGEThanks for joining us. I'm Susan Page of USA Today, sitting in for Diane Rehm. Diane is on vacation. As the impasse in Washington over raising the debt ceiling continues, Republicans and Democrats find themselves the target of Americans' anger and frustration.

MS. SUSAN PAGEJoining me in the studio to talk about the latest proposals and the chances for an agreement or a default, Norman Ornstein of the American Enterprise Institute, Alice Rivlin of the Brookings Institution and Sudeep Reddy of The Wall Street Journal. Welcome to all of you. Thanks for joining us on "The Diane Rehm Show."

MR. NORMAN ORNSTEINGreat to be with you.

MR. SUDEEP REDDYThank you, Susan.

PAGEYou know, first, we're going to take just a couple of minutes to talk by phone with Stephanie Cutter. She's assistant to the president and deputy senior adviser in the Obama administration. She joins us by phone from her office at the White House. Stephanie, thank you for being with us.

MS. STEPHANIE CUTTERThanks, Susan. Thanks for having me.

PAGEYou know, this morning, it is hard to see any signs of progress toward a deal that could get through Congress, be signed by the president. As we look at just today, are there negotiations going on between the White House and the Hill?

CUTTERWell, Susan, there are always discussions between the White House and Capitol Hill at many different levels. But, you know, I think that the House and Senate aren't as far apart as some might think. Sen. Reid's proposal identifies $2.7 trillion in cuts. And those cuts have already been agreed to in the bipartisan negotiations that the vice president was running.

CUTTERSo if we could find some compromise, I think that that forms a good basis of compromise. It extends the debt limit through 2012. It's cuts that have already been agreed to, and we can get that done right now.

PAGESo do you think that proposal by Sen. Reid, which was scored by the Congressional Budget Office just this morning, do you think that's a likely vehicle to a plan that avoids default next week?

CUTTERWell, I think it could be. I think it's -- you know, we're not sitting inside the House Republican caucuses. But from what I'm reading, it doesn't sound like there is consensus on the Boehner bill. And if the Boehner bill can't get through the House, then Sen. Reid's bill is the only option that could move fairly quickly. It's pretty clear, even if Speaker Boehner gets his bill through the House, it's not going to get through the Senate.

CUTTERAnd we already issued a statement, that the president won't support it. So, you know, I guess our message today is that we are running out of time. We shouldn't be wasting time on things that we know aren't going to pass. Let's find some areas of compromise and get this done.

PAGEYou know what? The veto statement that the White House put out yesterday did not say that the president would veto the Boehner plan if it came to his desk. It said that his senior advisers would advise him to veto it if it came there. Was that language intentional? Was that designed to leave him with a little wiggle room?

CUTTERNo. Susan, he has made it very clear that he doesn't support a short-term extension. And let me tell you why. You know, all you need to do is look at what S&P, Standard & Poor, said this morning, that a short-term extension is not good for the economy and is likely going to lead to a downgrade. Now, most people don't know what a downgrade in America's credit rating means. But what it means is it's a likely increase in interest rates.

CUTTERAnd for middle-class Americans, an increase in their interest rates on their credit card, their mortgages, their car loan, their student loans, that's equivalent to a tax increase. And they -- people can't afford that right now, not in -- we're just beginning to recover from the recession. So the president is against the short-term extension. We put out a statement yesterday expressing that.

CUTTERThe fact that the language said the president's senior advisers would recommend a veto, that's just process. That's the first step in laying the groundwork for a veto. There's not even a scheduled vote yet on the House bill.

PAGEI know that President Obama has made it very clear he doesn't want a short-term raising of the debt ceiling. He wants something that goes through next year. But as we get down to the deadline here just next Tuesday, would he accept, do you think, a 30-day extension or a 60-day extension, just to give people a little more time to work out the details of a plan that would look -- that would last longer?

CUTTERWell, I don't think I can engage in hypotheticals. But I would also say this, that it -- there's no reason why it would have to come to that. The House is wasting time today and tomorrow on a bill that they know isn't going to go anywhere. So rather than wasting the next 48 hours, when we don't have any time to waste, I think that the House and Senate need to come together and find a compromise that will pass.

CUTTERAt the end of the day, this is a vote that Congress has to take. They have an obligation here to deal with the debt and the extension of the deficit. And I think that they're beginning to realize the seriousness of it. And it's very serious. They're hearing from their constituents. Yesterday, the phone lines were nearly shut down by people calling and telling them to do their work and get this done.

CUTTERPeople are just starting to realize up there that they can't be fooling around with the full faith and credit of the United States. This is serious stuff.

PAGEYou know, we know that time is short. But there was a story in The New York Times this morning that said that the administration might have a cushion of another eight days or so because revenues are coming in slightly higher rate than expected. Do you think there is, in fact, a little bit of a cushion there, could go past next Tuesday to maybe Aug. 10 before there's a real problem with default?

CUTTERI don't. And, certainly, that's not what Secretary Geithner is saying. And I trust the man who is collecting those revenues more than I trust something that I'm going to read in the papers. Secretary Geithner has said that we cannot go past Aug. 2. You know, the truth is we've already hit the debt limit. We hit it several months ago. And we've been working through contingencies to keep the payments going. Aug. 2 is the deadline.

CUTTERYou know, a couple of weeks ago, the president said something about his daughters doing their homework. They don't wait until the last minute to get it done. There's no reason, you know, with five days to go, that Congress has to wait till the very last minute to get it done. We know where the areas of agreement are, and we just need to get there.

PAGEStephanie Cutter, just one last question. You've worked in national politics for a long time. What do you think American voters are seeing or thinking about Washington when they see what's going on here now?

CUTTERWell, I think that they are seeing what they have felt for a very long time, that there is dysfunction, that both parties have a hard time finding areas of agreement and getting things done. You know, that's precisely the reason the president set up a bipartisan bicameral process several months ago, so we wouldn't have to come to this, that we could show America that we can get our work done, we can find areas of agreement and do some big things.

CUTTERSo, I think, you know, whether you're talking to somebody in Massachusetts or California or somewhere in between, they're probably all thinking the same thing. You know, we're getting our work done. We're, you know, getting up every morning, going to work, doing what we need to do. Why can't Washington do the same thing?

PAGEStephanie Cutter, thank you so much for joining us on "The Diane Rehm Show."

CUTTERThank you, Susan.

PAGEStephanie Cutter, she's assistant to the president and deputy senior adviser at the Obama White House. Well, Norman Ornstein, you've observed Capitol Hill for a long time. Do you see a path out of the stalemate that we seem to have now?

ORNSTEINI see lots of passes and -- if we had rational actors here. I actually think when the president, a week ago, complained that the congressional Republicans couldn't take yes for an answer, that there was a lot truth to that. There's an easy way to take the Reid plan and marry it to the Boehner plan.

ORNSTEINAnd that is basically to take the Reid numbers, throw in a guarantee of a vote on a balanced budget constitutional amendment, which is part of the Boehner plan, add a little more teeth if the numbers don't actually work out in terms of automatic cuts, and then create a process which both of them have for a committee that can take it to the next step to get to the goal, which is $4 trillion dollars.

ORNSTEINAlready, because these plans don't have any revenues in it, you could argue that this is an enormous victory for Republicans. They can't find a way to declare victory. And what concerns me also, I would say, is if we do get some kind of a deal or even get it pushed off, because this is right at the 11th hour and the 59th minute, I fear that in the Senate you're not going to be able to get that quick extension because Jim DeMint and Mike Lee and a few other very conservative senators will filibuster it. So we're into a farcical territory now.

PAGESo you -- the plan that you outlined, that didn't sound so hard. Will they do that?

ORNSTEINI suspect they will in the end. What concerns me at this point is the timing. In the House, it may be that we have to go all the way through a vote on Boehner's plan and have it go down -- and I think it will go down -- and then we can pick up the pieces. But you're going to have to have John Boehner reach a point where he's willing to bring up and accept what will come with it.

ORNSTEINThe obliquely from his own party was something that may get as many Democratic votes as Republican votes, and it means he loses 100 Republicans.

PAGEAlice Rivlin, I know that you, in previous interviews, have expressed some confidence that a plan will be passed in time. Today, this morning, do you still have that confidence?

MS. ALICE RIVLINI have a lot less confidence than I had a week ago or two weeks ago. But, yes, I agree with Norm. I do not think they will let the U.S. government default. And there is a clear way to square the Boehner plan with the Reid plan, and I suspect people are looking at this, even as we speak. It's -- none of it's optimal. We should have done this months ago.

MS. ALICE RIVLINThe president had an opportunity, in my opinion, to pick up Simpson-Bowles commission and run with it or -- and to force a decision sooner. But we are where we are, and I think the way out, that Norm describes, is likely.

PAGESo, Sudeep Reddy, they talk -- both our other panelists talk with some optimism, that there's a rational way out, and members of Congress and the White House will choose to take it. Do you share that optimism? To me, it looks like it's at least possible that the -- what usually happens does not happen this time.

REDDYThere certainly is a risk of a breakdown as each day passes. One of the problems is that all of the discussion so far has been political. There hasn't been market pressure that significant. The Dow this week is off a couple hundred points, and it's probably going to take something more for markets to wake up and force a deal before you actually get both sides in the room deciding that they have to do something because it's really urgent.

REDDYAll of the warnings haven't really come to pass yet, but they will. And everybody knows that they will, but it's just going to take that extra push before it happens.

PAGEAlice.

RIVLINI think that's right. Markets have been remarkably tolerant. I think that's because they can't believe what's going on. I can't believe it. It's aberrational, and investors around the world think this can't be happening. The United States will come to its senses.

PAGENorm.

ORNSTEINSusan, first of all I think I would offer the caveat. It's an optimistic approach because the deal is there to be had, but I'm not sure that we'll do it. And the business community has been absent without leave for most of the last couple of months, which is one of the reasons why we're at the 11th hour.

PAGEWe're going to take a short break. And when come back, we'll talk with our panel. We'll go to the phones. 1-800-433-8850 is our toll-free number, or you can always send us an email at drshow@wamu.org. Stay with us.

PAGEWelcome back. I'm Susan Page of USA Today, sitting in for Diane Rehm. Joining me in the studio, Alice Rivlin, she's a senior fellow at the Brookings Institution. She's the former vice chair of the Board of Governors of the Federal Reserve System. She was director of the White House Office of Management and Budget and founding director of the Congressional Budget Office.

PAGEWe're also joined by Sudeep Reddy. He's an economics reporter for The Wall Street Journal, and Norman Ornstein, a resident scholar at the American Enterprise Institute. So Stephanie Cutter, the White House official we talked with just a few minutes ago, said that Aug. 2, next Tuesday, is, indeed, a kind of drop-dead date for raising the debt ceiling. Not everybody thinks that is true, Sudeep Reddy. Is it?

REDDYIt is true, in a technical sense, that this is what the White House and the Treasury had actually planned would be the date. But this all depends, of course, on revenues coming in to the government. And it is much looser, but it's not looser by that much. You might have a few more days on the other end before you get to that point. The trouble is the government has actually set this artificial deadline.

REDDYAnd if there isn't a response by then from Congress, then markets will actually start reacting and reacting in a disorderly fashion. And that's going to cause some real damage.

PAGEAlice Rivlin, what do you think happens if we get to Aug. 2 or right up till we get next Monday and Tuesday and there's not a deal that is really poised to pass? What would be the consequences of that?

RIVLINWell, the important thing is we've never been here before, so we don't really know. And we could get a run-up in interest rates on Treasury bonds. I think we can certainly get a drop in the dollar. We've already seen some of that. And we could get a big response in equity markets, sort of giving up on the U.S., both ours and others. So -- but we really don't know.

PAGENorm.

ORNSTEINActually, we have been here sort of before -- not in this farcical way -- twice. In 1953, Congress hadn't quite made it. And Dwight Eisenhower, the president, actually issued gold certificates from the Treasury over to the Fed, which they credited to the account, $500 million worth that kind of got us through it. But in 1979, because computers crashed, we had a day or two, inadvertently, where you had a bunch of Treasury papers set to roll over.

ORNSTEINAnd even with that inadvertent action, we have a study that suggested that interest rates rose about six-tenth of a percent, as a consequence, adding about $10 billion or more to the debt. So if you take that and extrapolate it, it suggests that, if this does happen and it's not technical, you get an even bigger impact.

PAGEYou know, we talk about this as such a catastrophe, but, in some ways, this is a crisis of politicians' choosing. There is, in fact, no reason why we couldn't raise the debt ceiling without doing any of these things, cutting spending, raising taxes or whatever.

REDDYSusan, that's why this is so bizarre. Every other financial crisis we've had is something that people had discounted as a possibility. They always downplayed the chance of a financial crisis. This is one that is 100 percent predicted. If you don't do something at some point by early August, then we will actually see a large part of the international financial system fall apart.

REDDYAnd so that's why this is kind of unthinkable, that anyone looking at this, whether it's in the U.S. or around the world, is looking at this, and they're all wondering how is it possible that the political system is so fractured that you've gotten to this point?

PAGESo, Alice Rivlin, how is this possible?

RIVLINBeats me. It is a very difficult thing to figure out. It has happened because the political parties have gotten very polarized. And, particularly, extreme anti-tax Republicans have gotten a lot of seats in the House of Representatives, so it's a different political situation. It's also a different economic situation. It's true that the debt ceiling is an artificial crisis. But the problem of rising American debt is true, is a real problem.

RIVLINWe have to face it, and our political system has not proved equal to facing it. We've had lots of chances. We didn't just discover that we were on an unsustainable track because of the baby boom generation and rising medical costs. We've known that for a long time. We didn't do anything about it. So we, in some senses, needed an artificial reason for coming to grips with the big problem.

PAGEAnd yet, Norm, as you say, we are now really debating this on the terms that the Tea Party would have set. It's really extraordinary. The deal that you outlined, as a possibility, wouldn't include taxes on the wealthy, which is something that President Obama talked about. It would include some significant spending cuts only.

ORNSTEINAnd, you know, this is a faux crisis. It's insane that we have a debt limit as a separate vote anyhow. All of these decisions about the debt were made, including in the Ryan budget that passed the House, which adds trillions to the debt over the next 10 years anyhow. You know, we've had these faux dramas before, where members, including Barack Obama, voted against the debt limit, and it got close.

ORNSTEINBut every time the leaders had votes in reserve and knew that you could let them play it out and show how they were being tough, but you'd always get it passed. This was deliberately triggered by House Republicans to gain leverage, to get more. They've gotten more, and they won't take yes for an answer.

PAGEWell -- and we -- the sense that I get from Capitol Hill is that leaders would like to make a deal, that Mitch McConnell wants to make a deal in the Senate, that John Boehner, in fact, wants to make a deal in the House. But this has emerged as a real test of his ability to deliver his own troops, not the other side.

REDDYIt really is. It's a test of both the Republican Party and the entire functioning of the House in this way. This entire -- the setup here is for the Tea Party members to be able to make their point and move on. And, usually, in a case like this, you have the leadership stepping up and saying, we will not allow a catastrophe to occur. And that's been the case. That was the case in 2008 during the crisis.

REDDYBut we actually had to see a vote of people, who were upset with this, passing this big bill, the bailout bill, before we could move on. And that, of course, led to an 800-point drop in the Dow and some significant ramifications for the market. So that's -- they realized they have leverage now because it's a test of the financial system, of markets. And it's a pretty good leverage, actually.

ORNSTEINYou know, Susan, it's -- in 2008, when we were at the edge of the abyss with the financial crisis and you had a Republican president, Treasury secretary, all the leaders, presidential candidates all supporting the Troubled Assets Relief Program, two-thirds of the House Republicans voted against it. It had to go down, and we saw a market shock before they supported it. Those were the moderates.

ORNSTEINYou have now a group of new members. Stu Rothenberg, who's one of our best election analysts, said that he interviewed one of the new members before he came in, said the difference that these people felt from the class of 1994 -- they shared the same values, the Newt Gingrich class -- was that they had sold out and listened to their leaders. And this group would not do that. So that's Boehner's problem.

ORNSTEINBasically, instead of the Republican Party co-opting the Tea Party types -- they got this majority -- the Tea Party's co-opted the leaders, and it's a real problem.

PAGEAlice?

RIVLINThat's right, but there is unwillingness to compromise on both sides. And that's one of the reasons we're here and in this artificial catastrophe when we've had opportunity after opportunity to solve the basic long-run problem of rising debt. And neither side wanted to compromise.

PAGEAnd, Alice, where are -- what was the point where the White House and Democrats have refused to compromise in a way that might have averted the situation we find ourselves in today?

RIVLINWell, I think in recent weeks, the president has gone the extra mile. He has certainly presented a balanced plan that included entitlement cuts, which many of his own Democratic members are not happy with. But this all should have started sooner. There certainly was a chance -- say, the last State of the Union -- when the president had a plan from the Simpson-Bowles commission that -- of which I was a member -- that was on the table.

RIVLINHe could have picked that up and said, I don't agree with everything here, but we need a balanced plan and get to work on putting this in legislative language and debating it because we must have that. Now, it doesn't mean Republicans wouldn't have opposed it. They would have. They're certainly against anything that has revenues in it. We are going to need revenues, and that's what a balanced plan means.

RIVLINBut I think there has been insufficient effort to prepare the public for the fact that we must have some compromise here.

PAGEMany people were disappointed when President Obama failed to embrace the Simpson-Bowles plan. I mean, it was a surprise to many of us that the Simpson-Bowles plan managed -- that the Simpson-Bowles commission managed to come up with a plan that had bipartisan support. You did -- the president then didn't endorse it. He presented a budget at the beginning of this year that is now irrelevant to this debate.

PAGEWhy do you think the president didn't embrace it? And was it, with the benefit of a little bit of hindsight, a fundamental misjudgment on his part?

RIVLINI think it was a fundamental misjudgment. And, in fact, the misjudgment goes back even further. I think it would have been the right thing for the Obama administration from the very beginning to say we've got two problems -- a short-run need for stimulus to get out of the recession and a long-run budget problem -- and made some proposals on the long run. But I think this was a huge opportunity missed.

RIVLINWhy? Two reasons, I think. One was the belief that Americans can't keep two ideas in their head at once, and it was important to emphasize stimulus and jobs. And the other was the genuine fear on the part of the White House that anything they were for, the Republicans would be against.

PAGESudeep Reddy, are we seeing actions by companies, by corporations already that reflect some nervousness or uncertainty about what's going to happen on the debt ceiling?

REDDYI think we are. We're actually seeing this in some of the survey data. Consumers are initially raising this as a problem. That's why consumer confidence has been dropping. It's at least one of the reasons why.

REDDY'Cause they see this discord in government, and if you're a business that's on the fence right now about hiring, you're not going to go and take that step to add people to your payroll while something like this is going on, when people are warning of Armageddon and seeing this problem on the horizon.

REDDYThe economy has already been weakening for the last few months, and the job market has been in the early stages of falling apart. So all of these, really, can't be good for the economy if they don't solve this very, very quickly.

PAGEAll right. Let's go to the phones and invite some of our listeners to join our conversation. You can reach us at 1-800-433-8850. We'll go first to St. Louis and talk to Hortense. (sp?) Hortense, hi, you're on the air.

HORTENSEThank you. I just want to say that our lives are being impacted by people who are only worried about being re-elected. I think they should check their egos at the door and think about the people of the country.

PAGEAll right, Hortense. Thanks very much for your call. Norm.

ORNSTEINWell, there's a lot of truth to what Hortense says, but it's actually, in some ways, even worse because you get a double whammy. You've got a lot of people coming in, including many of these Tea Party members, who aren't worried about being re-elected. They believe what they believe, and it's black and white. And it is we cut spending. We don't raise taxes. We don't care about the debt limit.

ORNSTEINIf we lose our elections, it's because we need a revolution right now. And what you would normally get is not just a concern about re-election but also about how you're going to solve problems. That's going out the window. And the other problem is the need for re-election now is the need to win a primary. And so we have a dilemma, which is that a majority of Republicans in the country believe that we need a balanced approach, just like Alice said.

ORNSTEINBut those people who vote in the primaries don't. And so what we're getting -- and, you know, you have a problem that's not at all the same volume on the other side, liberal Democrats who believe that you can't touch entitlement programs. But in both cases, much more on the Republican side, though, you've got powerful electoral magnets pulling people away from the center and away from being able to solve a problem.

ORNSTEINAnd even for some of the Tea Party types, who would like to win re-election but are discovering, since being here, that it's a little more complicated than they thought, they're being told by the people who elected them last time, you deviate from that pure position, and you're out of here. So it's a real problem across the board.

PAGEI'm Susan Page. And you're listening to "The Diane Rehm Show." We're taking your calls and reading your emails. You can send us an email at drshow@wamu.org. Well, Sudeep, who do you think -- politically speaking, who's going to get blamed? And does anybody do -- politically benefit from the crisis we're in now?

REDDYI certainly think people across America will initially blame both parties, and they're seeing that right now. The approval ratings, of course, have gone down for both parties. One of the things that's frightening about this battle is the number of members in Congress who actually say that this is good for the economy, that this is almost like a cleansing process, and something like this is never good.

REDDYEveryone who's out there, who understands how markets react and how the economy reacts to this, understands that this is not going to be good for the economy. But the short-term benefit is actually going to be -- the short-term damage will be broad. But we saw on the 2008 financial crisis, Republicans took the blame for the crisis. But, of course, President Obama is now being blamed for the economy.

REDDYAnd so you might see the same dynamic occur again, where the Republicans could be blamed this time for pushing the economy and pushing the country to the brink like this. But, over time, this is Obama's economy, and that could be his problem to deal with by the end of 2012.

PAGESo even if President Obama succeeds in blaming Republican intransigents for a failure to raise the debt ceiling, Norm Ornstein, he could pay the price if there's an economic consequence next year.

ORNSTEINHe certainly could. And you don't want to go out and run for re-election on the theme, it's not my fault. It's -- you're going to suffer significantly. And you'll suffer even more if the U.S., for the first time in its history, loses its AAA rating.

PAGELet's talk to Matt. He's calling us from Dallas, Texas. Matt, hi, you're on the air.

MATTWell, hi. I just wanted to get your panel's feedback on the question about, you know, that, really, we have several different issues going on, namely that the default everyone talks about is really somewhat separate from the other issues in that the amount of money necessary to pay for Treasury bill interests, at least over the short term, is relatively small.

MATTAnd so the government could choose to pay that interest and not default even if a debt ceiling increase does not pass. Just your comments, please.

PAGEAll right, Matt. Thanks for your call. Alice.

RIVLINIt's correct that there will certainly be enough money to pay the interest, but that's not very reassuring. A government that isn't paying its other bills -- Social Security, defense contractors, whatever -- is not going to look like a government that you really want to invest in. So we could get -- even if we were not technically in default 'cause we're paying the interest, we could get big market reaction.

PAGEDo you think, Alice, as someone who's been in charge of the Office of Management and Budget, that the Obama administration is now making contingency plans about what bills they'd pay and what bills they wouldn't if we end up without having the debt ceiling raised?

RIVLINYes. But they don't have a lot of choices, and they sometimes don't have a lot of control. For example, there are two big Social Security payments due in August, as there are every month, the third and the 10th. And those will probably exceed the amount of money coming in. So...

PAGESo what do you do then?

RIVLINYou don't send out all the Social Security checks because you can't.

PAGEDo you send out some of them and not others?

RIVLINOh, I don't know how they would handle that. Probably.

PAGEWell, that's a situation I know that people listening to this program who are receiving Social Security hope we don't end up facing. Well, we're going to take a short break. When we come back, we'll continue our conversation. We'll go back to the phones. Join us. We're talking with Norm Ornstein of the American Enterprise Institute, Alice Rivlin of the Brookings Institution and Sudeep Reddy of The Wall Street Journal. Stay with us.

PAGENorm Ornstein, you said that when the nation faced a similar kind of crisis, I think, in 1953, the -- President Eisenhower issued gold certificates to address it. Is that an option that might be available to President Obama?

ORNSTEINI have a colleague who was a investment -- or actually, a banker in Chicago, Alex Pollock, who suggested that we could issue gold certificates, send them to the Fed. If you use it at market value today, you'd have a lot of money, but it's still a subterfuge. It doesn't mean that you haven't crossed this deadline. It means you can pay your bills in theory for a significant period of time.

ORNSTEINIt's not something you want to do, but, you know, there appear to be emergency options out there that would have their own unintended consequences.

PAGEWell, here's another option that Nelson, writing us an email from Little Rock, suggests. He quotes the 14th Amendment of the Constitution, which says, "The validity of the public debt of the United States shall not be questioned," and he's arguing that this gives President Obama a way to just act. Is that a possibility, Sudeep?

REDDYIt certainly is a possibility in a crisis. The president has said that he's not -- his legal advisors are not persuaded by the argument, which, of course, gives him some wiggle room to force that. It's not clear, if he were to use that line of thinking, who would actually oppose this. They would require, I suppose, the House Republicans to somehow sue and take the case to the Supreme Court.

REDDYOnce you're at that point, though, you're going to have such a discordance, and markets, people are going to be questioning whether the debt that's issued by the Treasury is actually valid. It's going to cause some other type of risk. But there are a lot of ways to actually prevent a legal technical default on the debt that are still not going to be good for the economy.

PAGEThe -- and do not go to the fundamental question about whether we have a functional government able to address these things. Alice.

RIVLINI can't believe we're having this conversation, rational people sitting around these microphones and many other places talking about gimmicks in this totally unnecessary crisis. We need to face the real problem. But to be talking about gold certificates or abstract and abstruse interpretations of the Constitution, that's just ridiculous.

PAGEWe have gotten a stream of emails along this line. I'll just read two of them. One is from Junee (sp?) in San Antonio. She says, "I don't even know what the debate is about. The tax revenue is completely off the table. The Republicans have won. Obama is too weak to show to the people that he can live up to his promises." And here's another one who comes from David.

PAGEHe writes, "If there are no revenue increases, only spending cuts, how exactly is this a compromise? It sure looks as if the president has caved completely." He writes from Fremont, N.H. Fair, Norm?

ORNSTEINI think there's no doubt that he's made a lot concessions, and having revenue completely off the table is a major, major, major one. You know, it was interesting. John Boehner admitted that he had $800 billion in revenue on the table. And now, when the president called back and said, well, let's just go back to that plan, he refused. So, for now, revenues are off the table.

ORNSTEINBut I actually think if you do something like the Reid plan, which is -- now, it's $850 billion. Maybe they can get it up to $1 trillion of budget cuts that everybody, including liberal Democrats in the House, have agreed are doable. It doesn't touch the big problem of entitlements.

ORNSTEINGet to the savings from the war and other things that may be gimmicky but that everybody has agreed to, but also agree that you will then address what will be entitlements and revenues down the road, down the road being soon with action-forcing votes. That's not a bad deal, even from Obama's perspective. It takes us to where everybody knows we need to go.

ORNSTEINAnd it wasn't just Alice's plan, which was better than the Simpson-Bowles one, even though she was a part of both of them with the Bipartisan Policy Center, and the Gang of Six plan, which when the president endorsed to the senior, Republican said, well, that kills it because we can't be for it. But everybody knows that it's basically one part revenues to three part budget cutbacks, that it has to include the entitlements.

ORNSTEINAnd if you can get that on the table and get a vote, that's not so bad, even from the president's perspective.

RIVLINI would say it's a little misleading to say that revenues are not on the table at all. In the short run, that's right. The only thing that is really agreed to in any of these plans, including the thing that Vice President Biden was working with, was a set of spending cuts over the next 10 years and just mostly in discretionary spending.

RIVLINBut, as Norm says, everybody knows that we're going to have to have entitlement reform and tax reform, and even the Boehner bill does not take that off the table. It creates a new commission, yet another commission to look at deficit reduction. It doesn't say spending reduction. And that, in my opinion, would have to include revenues.

PAGEThe producer sent me a note saying that the Dow Jones is down 128 points at this point. Sudeep, put that in some perspective for us.

REDDYThis is -- that seems like a fairly typical movement in the Dow. It's down, I believe, about -- that makes it around 300 points in the last three days. That's happened before for single-day events. We've seen over the past six months with events in Europe and that -- their debt crisis, the Dow has moved a lot. This is probably the early sign of people pulling out of their existing positions in the stock market, trying to prepare for something like this.

REDDYThere has been some speculation that Wednesday is the day for some people to start selling so that they're out before the weekend because we're going to actually start seeing some larger drops in the stock market before we actually see much action. And overseas, we're actually seeing in the dollar. The dollar is weakening compared to other markets.

REDDYAnd we're seeing signs of a longer term problem with the dollar. Other finance ministers around the world are saying that they are starting to re-evaluate their reliance. They're going to try to find some way to rely less on the dollar. The problem is that it's, for much of the past century, been the reserve currency for the world. But this is straining the credibility of the United States and leading people to try to look elsewhere for options.

PAGESo if you're not a hedge fund manager but just a working stiff, listening in to "The Diane Rehm Show," is there anything you ought to be doing yourself with your investments or your savings or the way you proceed because we're in this period of uncertainty?

REDDYThe assumption is that lawmakers are going to come together and resolve this. And I actually don't think we're going to see the dire scenarios, and the market would probably respond and move up. If you are a hedge fund manager, if you're involved in the market, you're usually trading on a daily basis and monitoring movements based on the news.

REDDYAnd so those mutual fund managers, those hedge fund managers have a different responsibility here. But if this isn't resolved by the end of the week, then you are going to see people, unfortunately, starting to panic and pull out like they did in 2008.

RIVLINI agree with that. I don't think there's anything the average person should be doing with their own investments. But they certainly should be telling their congressman and anybody who will listen, get this done and be willing to compromise because the worst thing that can happen is that we don't face up to our debt crisis.

ORNSTEINLet me come back to the business community, which, you know, sent a letter. It was a tough letter about a week ago, a large number of people. But before that, you had -- virtually, no member of Congress that I talked to said that a business leader came in to his or her office with the purpose of saying, you better do this or the entire economy is going to crater, including my company.

ORNSTEINSome of them came in with other things they were lobbying for and mentioned it. Now, we've had a curious silence from the Chamber of Commerce, the National Association of Manufacturers at this particular moment when there is a real intangible danger of disaster occurring. Where is the business community? Get out there saying, if you don't do this, we're going to pull the plug on any money we give you.

ORNSTEINWe're going to treat you as if you're pariahs. This is too serious. It's amazing to me that we haven't had people step up to the plate.

PAGEWell, why is that, Sudeep?

REDDYI think one of the reasons is that a lot of the big business leaders are focused elsewhere right now. Some of them -- I've talked to several in the past two weeks who say that their focus right now is in markets where they can expand, where the economy is actually improving. And their response to a lot of this discord in Washington is to look at China.

REDDYAnd they say, look at China passing -- succeeding in going through its latest five-year plan. And they're doing what they say what they will do in the Chinese communist government, and that's a place where our market is expanding. And that's -- the frightening message of what's coming out of Washington is that our political system can't handle something so simple, which has generally been a procedural vote.

REDDYAnd so it probably, for a lot of big business leaders, shifts the attention to where they've already been focusing and leads them to look at that. Once we see some more problems in U.S. markets, I think you'll have a lot more small businesses and a lot more medium-sized businesses in the U.S. starting to force the hand of their own lawmakers.

RIVLINI think that's part of it, but it's also -- again, they can't believe it's really happening. They think that this will get solved, and they haven't weighed in. I did have a conversation with a freshman Republican who told me that financial institutions had been lobbying him to get this done. And he said, but they just want to save their own profits. And so the credibility of the financial community is not high at the moment.

PAGEYou know, in the USA Today/Gallup poll about three weeks ago, we asked Americans if this -- the leadership they're seeing in Washington, better or worse than usual? And an overwhelming majority said worse. And then we asked a follow-up question of the people who said it was worse, is it the worst in your lifetime? And four out of 10 Americans said they're seeing the worst leadership in Washington of their lifetimes.

PAGEAnd the older the respondent, the more likely they were to say it was the worst leadership they've ever seen. Let me ask you that question, Norm. Is this the worst leadership you've seen in Washington?

ORNSTEINI just wrote a piece last week in Foreign Policy, Susan, which they titled "Worst Congress Ever." Now, you know, I would have said worst in my lifetime, but I have not seen a level of dysfunction in congressional leadership that comes close to what we're seeing now. Leaders in the past always knew that you had to deal with your wings and you had to deal with your idiots, but you would come together.

ORNSTEINAnd you understood that there was a higher priority here, which is solving problems. Now, you have people for whom the priority is not solving problems. It's destroying the other side. And Alan Simpson, you know, a great leader who's got a fiery personality, part of this commission said the other day, when I asked if he would come back, are you kidding?

ORNSTEINWhen I was here before, we'd go into the caucus, and it was, what problem for the nation can we solve today? Now, it's, how can we screw the other side? If that isn't dysfunctional, I don't know what is.

PAGEAlice, is this -- what would you -- how would you answer that question?

RIVLINOh, I'm older than Norm, and I would say it's the worst in my lifetime, the most dysfunctional Congress. That doesn't mean there aren't good people there who are trying to solve the problem. There are quite a lot of them, but they don't seem to be in control.

RIVLINThe extremes, especially in the Republican Party and especially in the House, are much more extreme than they've ever been and much less likely to listen to anybody except their own view of what the voters wanted them to do.

PAGEThat's pretty disquieting words. Let's go to Elkhart, Ind., and talk to Jackie. Jackie, you've been patient. Thanks for holding on.

JACKIEAre you talking to me?

PAGEI am talking to you. You're on the air.

JACKIEOkay. I wanted to note a couple of things. One is the first three things that come out of your Social Security check are your Medicare parts A and B, your drug plan and your Medigap insurance. So if the checks don't come, a lot of people are not going to have any medical care. And the second thing is they were talking about the business community.

JACKIEThere are a lot of people that wouldn't mind seeing the interest rates rise dramatically because it's a safer place to invest their monies in the stock market. And people, especially with big money, have been furious about these very low interest rates. They're actually losing money and what they want to invest in the, say, you know, for interest-bearing...

PAGEOkay, Jackie. Thanks for your call. Sudeep, is that right?

REDDYThere are certainly a lot of people, individuals, who have been sitting on cash for a long time and are not getting returns because interest rates have been so low coming out of the last financial crisis. We're probably not going to see a change in that any time soon. The problem is that if you were to see a crisis like this and interest rates rising, it's going to lead to all sorts of other problems for people who are looking for that increase.

PAGEI'm Susan Page, and you're listening to the "The Diane Rehm Show." You know, here we've got an email from Kate, who writes, "Please ask your panel if this isn't part of a larger strategy by the GOP to keep the economy from growing and keep unemployment high, allowing them to maintain their argument that this administration is failing on the economy." Boy, that's a high level of cynicism. Norm, do you think that's possible?

ORNSTEINI think that probably is a little bit too high a level of cynicism. But you have to come back to something that Mitch McConnell, the Senate Republican leader, has said repeatedly, which is that his number one goal is to make Barack Obama a one-term president. He didn't say my number one goal is to get the economy moving to get jobs, and to do that we need to have a different president. He started with that.

ORNSTEINAnd if you have people with the premise that anything that works will work to Obama's benefit and we don't want it to happen, then you go down a very bad path.

PAGELet's talk to David. He's calling us from Berlin, joining us from Europe. David, thank you for being with us.

DAVIDHi, happy -- good show. I'm more happy over here. Germany seems to be booming away. And we went through some budget, federal budget stuff, but got that solved. And now, the main thing is get the wages up so we'd get our demand up and can stabilize a real economy. But my question, or what I'm upset about, is we just went through in the U.S., one of the hugest problem inside the economy.

DAVIDAnd it seems to me there's a lot of economic education needed to solve -- number one, we got to do something about the budget. But to get the huge debt and problems in the real economy faced up to and get investments, jobs going. And I just don't see that the focus on Washington is going to solve that. The things that get me upset is that we're not investing inside the U.S. and that other countries are. And it's real pleasant over here, and I wish you all luck.

PAGEAll right, David. Thanks for your call. Alice.

RIVLINI agree. We're not investing enough, and we have a situation that most people don't understand. And there are a lot of things they don't understand about it, but we've convinced ourselves that we have to choose between jobs and investment and being fiscally responsible in the long run. We don't have to choose. We can do both. And it is a terribly distressing dysfunctional situation.

PAGESudeep, the thing Americans care most about now, we know, is jobs and unemployment. Is there an impact on jobs and unemployment for this current crisis over the debt ceiling?

REDDYThere absolutely is because it's an effect on confidence for businesses and for consumers. And even if we solve the debt ceiling problem, there's this -- still this looming issue of a debt downgrade. And that's what -- the hope is that the White House and Congress will be able to solve this in the coming days. It's certainly less of a problem. It's kind of the difference between breaking an arm and losing an arm if you were to see a downgrade.

REDDYIt's not that bad. It's not catastrophic. But it's still something that we need to resolve very quickly to keep the economy from falling apart right now.

PAGESudeep Reddy, he's an economics reporter with The Wall Street Journal. And I've also been joined in the studio this hour by Norman Ornstein, resident scholar at the American Enterprise Institute, and Alice Rivlin, she's a senior fellow at the Brookings Institution. Thank you all for being with us this hour on "The Diane Rehm Show."

REDDYThanks.

ORNSTEINThank you, Susan.

RIVLINThank you, Susan.

PAGEI'm Susan Page of USA Today, sitting in for Diane Rehm. She's on vacation. Thanks for listening.

ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture and Monique Nazareth, Sarah Ashworth, Lisa Dunn and Nikki Jecks. The engineer is Tobey Schreiner. A.C. Valdez answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our email address is drshow@wamu.org. And we're on Facebook and Twitter. This program comes to you from American University in Washington. This is NPR.