'This Week' Transcript: David Plouffe and Lindsey Graham

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Mr. El-Erian, thank you very much for joining me. You have been...

EL-ERIAN: Thank you.

AMANPOUR: You've been hearing perhaps that the Senate minority leader, Mitch McConnell, feels quite optimistic that something is going to get worked out. There's a framework of a deal. How do you expect the markets to react come open time today and also tomorrow here?

EL-ERIAN: Two issue, Christiane. First, there will likely be relief, because I think this compromise will lead to an increase in the debt ceiling, and therefore avoid default. But this relief will be short. And it will be short because markets look at all the discussion not as an end in itself, but as a means to an end.

And when they look at it as a means to an end, it will not remove the threat of a downgrade. It does nothing to restore household and corporate confidence. So unemployment will be higher than it would have been otherwise. Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise.

And, thirdly, like you said at the top of the show, the rest of the world is watching, and this will do very little to reduce the concern that the rest of the world has about the role of the U.S. in the global economy. So I expect the relief to be short-dated.

AMANPOUR: Let me ask you about the downgrade. There's obviously quite a lot of debate about not only will it happen, but if it does happen, how dramatically bad would that be for the United States? What, from your perspective, would be the effect of a downgrade from AAA?

EL-ERIAN: It will make us worse off. It's unambiguous in my mind that we have constructed both a global system and a national system based on the U.S. being a AAA. If the U.S. loses that AAA status, it will be much more difficult for the U.S. to restore growth. So it's unambiguously bad.

AMANPOUR: And how likely do you think it is to happen, the downgrade?

EL-ERIAN: We have one rating agency out there that said it would downgrade unless certain things happen, and these things are not happening fast enough. So if this rating agency, S&P, sticks to what it said, it will downgrade. Of course it's under tremendous pressure not to do so, but it has said that it would downgrade.

AMANPOUR: And in terms of U.S. economic growth, this first half has been very weak, the first quarter, even downgraded, if you like, from the estimates. What will substantial spending cuts do? Will it materially improve the outlook for U.S. economic growth?

EL-ERIAN: No, here I'm with Paul, because we have a very weak economy, so withdrawing more spending at this stage will make it even weaker, especially that this is not packaged in the context of medium-term viability. Remember, Christiane, public finance is only one of the headwinds facing this economy. We have a banking system that's not operating properly. We have a labor market that's not operating properly. And we have a housing market that's not operating properly.

AMANPOUR: All right. Thank you so much indeed, Mohamed El-Erian.

Sobering words, as you all heard. Let's bring all of you back for the roundtable discussion. The big, overarching theme here, obviously, is also to get the economy back on track and to improve this really drastically weak recovery. Paul, how is that going to happen?

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