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THE SITUATION ROOM

Envelope Ignites at D.C.'s Postal Building; Urgent Drive to Kill Health Reform; Two Thousand Apply for Two Hundred Fifty Jobs; Sisters Released From Mississippi Prison; D.C. Metro Police Chief Press Conference on Mail Package Incidents in D.C. and Maryland; Interview With Austan Goolsbee; China's New Stealth Fighter Jet; 'Strategy Session'

Aired January 7, 2011 - 17:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


WOLF BLITZER, HOST: Brooke, thanks very much.

We're staying on top of this story. Also happening now, an urgent drive to repeal health care reform and make good on a promise by House Republicans. This hour, the vote and an intense debate over killing jobs and potentially hurting people.

Also, President Obama sees new evidence that America is creating more jobs right now.

But is he ignoring the down side of a new unemployment report?

I'll ask one of his chief advisers, the economist, Austan Goolsbee.

And a rare glimpse of a Stealth fighter jet that could challenge the U.S. military superiority in the skies.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

ANNOUNCER: This is CNN breaking news.

BLITZER: Let's follow the breaking news right now. You're looking at live pictures from what is expected to be a news conference momentarily. The police chief here in the District of Columbia, Cathy Lanier, she's going to be speaking with reporters, telling us about what's going on. An envelope igniting at a postal facility here in the nation's capital. This coming after apparently similar incidents at two state government buildings in nearby Maryland only yesterday.

Our national security contributor, Fran Townsend, is joining us on the phone -- and, I know, Frank, you've been working your sources. You've been trying to find out what's going on.

What do you think about this?

It looks ominous.

FRANCES FRAGOS TOWNSEND, CNN NATIONAL SECURITY CONTRIBUTOR: It does look ominous, Wolf. And -- and, obviously, what investigators will presume at the start is that these are, in fact, related and then look at all the similarities. They'll work through that, then, to see if they can discern any reason why these would be independent. You worry about a copycat, somebody who's copycatting.

But because this is so close in time and because these were probably mailed prior to the events in Maryland, they will presume that these packages are, in fact, related -- that is, by the same individual or group.

BLITZER: And it looks like one of these envelopes, we just heard, was actually addressed to Janet Napolitano, the Homeland Security secretary. Yesterday, one of the packages that ignited was addressed to the governor of Maryland. So somebody is sending these packages to specific individuals -- high level government employees.

TOWNSEND: That's right, Wolf. I mean the question -- you know, the next question becomes, what's the motive?

Is it -- you know, we've heard that these Maryland packages were over the signs -- signs along the highway.

Could that really also generate the threat against a federal official?

It's hard to imagine. But, you know, these people sometimes have an agenda, sometimes don't. And so, you know, we should point out, Wolf, that the facility in Washington worked as it was meant to work. You know, that facility was stood up after the anthrax attacks, meant to screen mail to federal facilities to reduce the threat to senior government officials.

And in that sense, the facility did exactly the job it was supposed to do.

BLITZER: Stand by for a moment, Fran.

Brian Todd is over at the scene here in Northeastern Washington, D.C. -- Brian, set the scene for us.

And I -- I take it Cathy Lanier, the police chief in Washington, is about to start speaking and answering some reporters' questions?

BRIAN TODD, CNN CORRESPONDENT: We are told that, Wolf. We're told that we're about to hear from the D.C. police chief and/or some fire officials here.

Let me set the scene for you. You've got emergency response vehicles, police vehicles, back behind me. They're testing out this facility, scouring it to make sure nothing else is -- is amiss here. They have kind of isolated the scene and are going over every piece of evidence that they have right now. And we are waiting to hear more information from officials here at the scene.

Here's what we do know at this point. We did find out a short time ago from a U.S. government official that the package in question was addressed to Homeland Security Secretary Janet Napolitano. We were told that Secretary Napolitano is in Washington right now. She just returned from a trip to the Middle East and Europe.

Now, a law enforcement source -- again, to go over some details -- has said to us that the envelope that ignited was not opened. It did not go off in an employee's hands. A person tossed it into a sorting bin and then smelled some smoke. The source on the scene here says they don't really -- they don't have a clue at this point whether this is linked to the packages that ignited yesterday in Maryland.

But a significant piece of information here. Initial reporting, according to a -- a DHS official, is that the incident bears characteristics similar to those incidents in Maryland, Wolf.

Hopefully, we'll get some more information very soon.

BLITZER: We'll stand by and wait to hear from the police chief and maybe some fire department officials, as well.

Brian, we'll get back to this story. It's important story. We'll try to get answers.

Brian Todd reporting for us.

Fran Townsend also helping us.

Elsewhere here in Washington, on Capitol Hill right now, the new Republican majority in the House is in a big hurry to try to make this signature moment of the Obama presidency simply go away. We're talking about a bill to repeal health care reform. It has now cleared a key hurdle on this day. It was a very partisan vote. Both sides played it to the hilt politically, even though the measure's prospects beyond the House are slim to none.

Our senior political correspondent, Dana Bash, is working the story for us -- all right, Dana, tell us what happened today on the Hill.

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: Well, you mentioned that it's not likely to go far. This is light -- largely symbolic. But, Wolf, symbolism counts for a lot in politics.

So what Republicans in the House are doing is flexing the muscle of their new majority pretty fast.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: -- recognized for one minute.

BASH (voice-over): For newly elected Republicans, an early chance to keep a campaign promise.

REP. VICKY HARTZLER (R), MISSOURI: We have got to the repeal this so that we can create more jobs. I'm a small business owner myself. And I can tell you, since this has passed, that health insurance premiums have skyrocketed.

REP. NAN HAYWORTH (R), NEW YORK: The bill we will be considering is in no way merely symbolic. It represents the true will of the American people, the majority of whom have stated time after time, to this day, that they reject this law.

UNIDENTIFIED MALE: The only commitment --

BASH: Democrats accused Republicans of trying to take away new health benefits for the young and old and staging political theater.

REP. PETER WELCH (D), VERMONT: You beat us good. You ran on the agenda of defeating health care and repealing it. Now you're doing it. Own it. Admit what it is you are doing. This is not a campaign. We're playing with fire. We're taking away health care benefits that make a real difference to our families.

REP. JOHN GARAMENDI (D), CALIFORNIA: The repeal of it is actually a killer of human beings. Some 40,000 Americans die every year for lack of health insurance. That's the reality. Repeal this bill and you're going to find more Americans dying.

BASH: During the campaign, many Democratic lawmakers were reluctant to defend the health care law. Now top Democrats are relishing a repeal fight, sending out talking points and fundraising e-mails, aides calling it a good way to activate a demoralized Democratic base.

Not all Democrats agree. Oklahoma's Dan Boren voted no on health care last year and plans to vote yes on repeal, even though he calls it an exercise in futility.

REP. DAN BOREN (D), OKLAHOMA: And I think it's not going to go anywhere.

BASH (on camera): So why vote for?

BOREN: Well, I mean, my constituents need to know, if I voted against it, why don't you vote for the repeal?

You know, we -- you know, even though it's not going to go anywhere, symbolically, I think they need to know where I stand. And I stand with my constituents. The reason why we lost so many seats were because people didn't listen to the people back home.

(END VIDEOTAPE)

BASH: Now, Boren is one of only four Democrats who voted with Republicans today. And let's be clear, actually thir -- 13 of the Democrats in the House who voted against the health care law last year are still in Congress. And they did campaign against it. But most of them -- most of them, Wolf, say that they are not going to vote for a repeal because they say it's not the right thing to do right now.

Now, we should say that there is a final vote set for this coming Wednesday. And just like today's procedural vote, it is expected to pass overwhelmingly in the House.

But as we mentioned at the beginning, it's not likely to go much further at all, because the votes are not there in the Senate -- Wolf.

BLITZER: Yes.

All right, Dana, thanks very much.

Meanwhile, another attempt to undo health care overhaul is in the works, in Oklahoma this time. The state's incoming attorney general says he'll file a lawsuit in the next few weeks challenging the law's constitutionality. This lawsuit, like those filed by a number of other states, would target the provision requiring most Americans to have health insurance by the year 2014. The issue is widely expected to wind up before the United States Supreme Court at some point.

We're standing by after the breaking news that's unfolding here in Washington -- another envelope ignites. Two yesterday in nearby Maryland, one in Washington, D.C. today. The police chief in Washington is expected to go to the microphones there -- Cathy Lanier. We'll go there when she shows up. Hopefully, she has answers to what is going on -- the envelope that ignited today addressed to the secretary of Homeland Security, Janet Napolitano.

Also, one of America's most powerful military rivals wants to make sure the world sees one of its newest, stealthiest aircraft. Now the Pentagon may be feeling a bit threatened. Stand by.

And two sisters walk free from prison today and start preparing for life-saving surgery -- their joy and the controversy surrounding their release in Mississippi.

(COMMERCIAL BREAK)

BLITZER: President Obama is seizing on a new unemployment report, touting it as proof that America is digging itself out of its big economic hole. The jobless rate fell from 9.8 percent to 9 .4 percent last month. The president was upbeat about that and about the number of jobs created in December, even though it was less than expected.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The economy added more than 100,000 jobs last month and the unemployment rate fell sharply. Now, we know these numbers can bounce around from month to month. But the trend is clear. We saw 12 straight months of private sector job growth. That's the first time that's been true since 2006.

(END VIDEO CLIP)

BLITZER: The president today announced several new members of his economic team, including Gene Sperling as the new director of the National Economic Council. That's a job he held during the Clinton administration, as well.

Coming up in a little bit, I'll speak with one of the president's top economic advisers, Austan Goolsbee.

He's over at the White House.

We'll talk about jobs, the economy and much more.

Let's get to some people now behind the jobless numbers -- people who are out there searching for work, desperate to try to bring a paycheck home.

Mary Snow has been with some job hunters on the front lines and she's joining us now with more -- Mary.

MARY SNOW, CNN CORRESPONDENT: Wolf, here in New York, thousands of people turned out to apply for jobs at a new hotel getting ready to open. That meant waiting for hours in freezing temperatures with no guarantees that any of it will make a difference.

(BEGIN VIDEOTAPE)

SNOW (voice-over): It's hard to find signs the economy is improving by looking at this line that goes on and on and on. Some 2,000 people waited in the cold to apply for 250 jobs at a new hotel opening in New York.

EARL NEWKIRK, JOB SEEKER: It made me think of what it must have been like during the Depression, people standing out there waiting for soup.

SNOW: Thirty-eight-year-old Earl Newkirk waited 4-and-a-half hours to get inside, with more than 600 people ahead of him.

UNIDENTIFIED MALE: One, two, three, four. Slow down. Five.

SNOW: Once inside --

UNIDENTIFIED FEMALE: If anyone has an application filled out, you can step over here.

SNOW: The Morgans Hotel Group held this job fair for its new hotel, the Mondrian Soho, that's opening in March.

Newkirk is hoping to land an event planning position similar to his part-time job in catering, but much different from the full-time job he lost last April, working for New York City's Social Services Department.

UNIDENTIFIED MALE: We're going to call you in a moment.

SNOW: After hours ever waiting, Newkirk's moment of truth.

UNIDENTIFIED MALE: What steps do you take to ensure that the work that you've done has been done correctly?

NEWKIRK: I guess I'm very detail oriented.

SNOW: Newkirk says this group interview is the most contact he's had with employers since starting his job search.

(on camera): How many resumes would you say you've sent out?

NEWKIRK: A thousand.

SNOW: A thousand resumes?

NEWKIRK: Oh, easily.

SNOW (voice-over): Because Newkirk works part-time, he doesn't collect unemployment. And economists point out that counting part- time workers changes the jobless picture.

WILLIAM RODGERS, FORMER CHIEF ECONOMIST, LABOR DEPARTMENT: People focused on the 15 million Americans who are unemployed, actively searching. But we have another nine million Americans who are working part-time but want to work full-time.

UNIDENTIFIED FEMALE: Thank you, all for being here.

SNOW: And that hope for full-time work is keeping Newkirk trying what he can to land a job. He says emotions are a luxury, that he must focus on getting a job. But he couldn't hold back tears talking about the impact this has had on his younger sisters.

NEWKIRK: They felt so bad. So for Christmas, they gave me money. I mean this is the -- I mean it's, you know, I'm not going to cry on camera. Really bad. But, yes, not good. Not good. But anyway --

SNOW: Have you gone through savings?

NEWKIRK: Ah, pretty much.

(END VIDEOTAPE)

SNOW: Now, Newkirk says that the first time he got emotional since he was laid off last April, saying he's just trying to stay focused.

There is a sign of hope, though in December's jobless report. It shows the hospitality industry actually gained jobs last month -- Wolf.

BLITZER: Mary Snow, thanks very, very much.

Speaking of emotional, two Mississippi sisters are free today after serving 16 years of their life sentences for armed robbery. Now they're preparing for one sister to donate a kidney to the other, the conditions set for their release.

Stand by, cause Soledad O'Brien has one of the first interviews with these two women. The first time we're hearing from them about their remarkable story.

But let's go to CNN Martin Savidge right now, he's in Mississippi. MARTIN SAVIDGE, CNN CORRESPONDENT: Wolf, it was a remarkable news conference. In fact, as the two sisters came in, there was tremendous cheering in the crowd in which you heard, "free at last, free at last, thank god all mighty, free at last," of course, hearkening back to the days of the Civil Rights Movement.

But the news conference itself was full of cheers and tears and laughter and celebration and determination. When the two sisters actually got up to speak, you could hear a pin drop and you could tell there was so much emotion wrapped up inside of them. They were speaking in halting voices, tears in their eyes and occasionally hanging on to one another.

And at one point, I asked the sisters, when exactly and how were they informed of the news that the governor had decided to release them from prison. Remarkably, both of them said they heard it on television.

Here's how they described it.

(BEGIN VIDEO CLIP)

GLADYS SCOTT, FORMER PRISONER: I saw it on TV. And when I seen it on TV, I started screaming and hollering, screaming and hollering, running all over the unit.

JAMIE SCOTT, FORMER PRISONER: I had went to the kitchen, and a girl ran into the kitchen and bust open the kitchen door. She say, Jamie, you on the news. You free.

(END VIDEO CLIP)

SAVIDGE: There were things that they would not talk about. They wouldn't talk about the night that the crime actually occurred. They would not talk about health care while in prison. And they wouldn't also talk about how the governor had named the kidney transplant part of the conditions for their release. That, they say, are conversations that will come at another time.

Instead, they say this was their opportunity to thank so many people, including the Governor Barbour, and to prepare themselves for the jubilant reunion with their families that is about to begin -- Wolf.

BLITZER: Marty Savidge, thanks very much.

Remember, Soledad O'Brien speaking to these two women. We'll have part of that interview, that's coming up later right here in THE SITUATION ROOM.

Meanwhile, new details on Michael Jackson's last moments, including what his personal doctor did and did not tell emergency workers about the drugs he'd taken. We're going to the court hearing in Los Angeles, stand by.

And fire tears through a marina in North Carolina. We're looking at the damage, we'll tell you about the investigation, how is started, what's going on, stand by.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

ANNOUNCER: This is CNN Breaking News.

BLITZER: All right, Cathy Lanier, the D.C. Police chief, is about to speak.

Let's listen in.

(JOINED IN PROGRESS)

CHIEF CATHY LANIER, D.C. METROPOLITAN POLICE DEPARTMENT: -- I have the Post's Inspector's Office and Washington Field Office Joint Terrorism Task Force, D.C. Fire. I'll give the initial statement, we'll take a couple questions.

I'll tell you right of the bat, we're limit in what we can say in terms of answering questions and there's still a lot of work to do. So try and be a little bit patience with us. We just wanted to give you something, so you'll have something, all right?

All right, between 2:00 and 3:00 -- shortly after 2:00 today, a Metropolitan police officer was traveling in the 3300 hundred block of V Street Northeast. The police officer was flagged down by a postal employee that works in this block at a United States postal facility.

The employee indicated that they had a package that is described as similar in nature to the packages recovered yesterday in Maryland. The package was not opened by the employee, however, the package had been described as popping, smoking and with a brief flash of fire and then it went out, it extinguished itself.

There is no injuries to any employees of the postal facility. No injuries at all related to this incident, and at this time there is an ongoing a joint investigation involving the Metropolitan Police Department, the Joint Terrorism Task Force, both Washington Field Office and Baltimore Field Office, and a Postal Inspector's Office.

So that's our kind of opening statement and we'll try and answer as many questions as we possibly can.

QUESTION: Was there a note with this particular package or letter?

LANIER: Well, we're not going to comment on those details yet.

QUESTION: Are there any more out there?

LANIER: I'm sorry?

QUESTION: Do you believe there are more packages like this out there? LANIER: As with yesterday, we're taking every possible precaution. Both of the -- I know the Postal Inspector's Office, as well as other protective measures. So right now we don't have any other packages, but we're not taking anything for granted.

QUESTION: How large a pack was it?

LANIER: I will say the package is describe as similar in nature to the packages found yesterday.

QUESTION: What about the postal marks? Any indication where it came from?

LANIER: Not going to comment on postmarks at this point.

QUESTION: This might about postal inspection question, but are the other post offices, what kind of stance are they taking at this point? Are there things that you're doing in terms of (INAUDIBLE)?

UNIDENTIFIED MALE: Sure. The United States Postal Inspection Service is here to protect its postal employees, its customers and the nation's mail system. So due to -- in light of the activities that happened yesterday, we did some stand-up talks with our postal employees, especially here in the Capitol Metro area. Postal inspectors are out at various facilities screening mail to ensure that the mail is safe.

QUESTION: Well mail be delayed then, because of this?

UNIDENTIFIED MALE: No. Mail will not be delayed.

QUESTION: Sir, do you already have increased security today after what happened yesterday in Maryland?

UNIDENTIFIED MALE: Yes, we did. We had postal inspectors that are, again, screening mail that is coming through our processing facilities and we've also talked to our postal employees about suspicious characteristics to look for.

QUESTION: These same workers had to deal with the anthrax packs, a lot of them, and they were pretty shaken up by that. How would you describe morale among your people at this point?

UNIDENTIFIED MALE: Postal employees receive a lot of training regarding suspicious substances, items, devices throughout the mail. They know how to recognize it. They know to report it to postal inspectors. They know to report it to state, local, federal law enforcement to handle those suspicious items, all right?

So, anyway, they feel very safe and confident in dealing with the mail on a regular basis.

QUESTION: Inspector is this a special facility for the mail? I mean, does particular mail goes through this one? What's the -- ?

UNIDENTIFIED MALE: It's a processing facility for the -- the D.C. area.

QUESTION: Tomorrow, is this facility going to be open tomorrow?

UNIDENTIFIED MALE: I'm sorry? Ma'am?

QUESTION: Tomorrow, is this facility going to be open?

UNIDENTIFIED MALE: Again. I'm a U.S. Postal inspector, I'm a federal law enforcement agent and that is a business decision that the postal service will have to look into.

QUESTION: Did you have a message -- do you have a message, Chief, that would you like to send out to this individual who was sending these packages?

LANIER: No, I don't have any messages to send out to individual. Not at all.

QUESTION: Can you address the fact that someone flagged down an officer? Did anyone call 911? What exactly happened here?

LANIER: I don't know that answer to that question at this point.

The question is, was there a call to 911 or just a flag down. We know that an officer was initially flagged down by the postal employee as they traveled through the block, and that was the first contact to law enforcement.

QUESTION: Talk about evacuation. Has anyone been taken out and when?

LANIER: Immediately upon the officers arriving on the scene, there was a pretty quick decision to make evacuations of the immediate area. The postal inspectors were here very quickly and they made further decisions based on their assessment of the scene.

But yes, there was some immediate evacuations.

QUESTION: Are any of the return addresses on the package going to actual locations?

LANIER: We're not commenting at this point on any addresses or specific details on the packages for obvious reasons.

QUESTION: What do you think --

QUESTION: What's the status of the package right now and what's the status of your investigation?

LANIER: Since this is a joint investigation is, the package will be handled by the FBI's Joint Terrorism Task Force and it will be transported to Quantico for analysis.

QUESTION: What do you make of this? First Maryland gets two and now here in the District, what do you think is happening? LANIER: You know, as of early yesterday, there has been a multitude of protective measures that have been put in place throughout the national Capitol region. I think all of us in this region understand that incidents that occur in one jurisdiction are not necessarily tied to that one jurisdiction.

So all of those productive measures that went into place yesterday will continue, I think, throughout the national Capitol region until we determine exactly what we have here.

QUESTION: (INAUDIBLE) evidence was in there?

QUESTION: (INAUDIBLE) addressed to Janet Napolitano?

LANIER: I'm not going to comment on that at this point.

BLITZER: All right, so there she is, Cathy Lanier, she is the police chief of Washington, D.C. You just heard her say she's not going to comment on reports that one of these letters, the letter today that ignited here in Washington, D.C., was actually addressed to the secretary of Homeland Security, Janet Napolitano.

Yesterday, there were two similar letters, similar in nature according to the police chief, Cathy Lanier, two letters that ignited in nearby Maryland. One of the letters addressed to the governor of Maryland, Martin O'Malley.

So this is -- this is something that's mysterious. We don't know what's going on. We didn't get a whole lot of answers from Cathy Lanier, but we'll stay on top of this story. Obviously, it's a source of concern given the history of letters here in Washington, D.C.

Other news we're following, the Chinese military is tipping its hand showing the world its new stealth fighter jet, an aircraft that could have the U.S. military flying scared at bit at least.

And what was so important two new members of Congress didn't show up for their official swearing-in ceremony? Democrats are pouncing on this one, stand by.

(COMMERCIAL BREAK)

BLITZER: Take a look at this trend line, it's a month-to-month look at jobs lost seen in red and jobs created, that's seen in green. And there's a lot more red than green over the past several years, as you know.

The 103,000 jobs added last month will only go so far in making a dent in unemployment, even though the jobless rate did take a dip from 9.8 percent to 9.4 percent.

And joining us now from the White House, the chairman of the president's Council of Economic Advisers, Austan Goolsbee.

Austan, thanks very much for coming in.

AUSTAN GOOLSBEE, CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS: Great to see you again, Wolf.

BLITZER: I know creating in December 103,000 jobs is better than losing 103,000 jobs, but a lot of the experts were expecting maybe 150,000 or 200,000 jobs.

Were you disappointed when that number came in?

GOOLSBEE: Look, I'm not disappointed. A hundred thousand is a bit below what was a expected, but then they revised up pretty substantially last month and the previous months jobs, and the then the unemployment rate came in well better than expected.

Any one month, as we always say, you shouldn't make too much out of, because there's a lot of variability. Far less variable is to look at the trend. And if you look at the last three months of the year in 2010, that's the best quarter we've had in almost four years.

And so I think we're clearly on the right path. We added 1.3 million jobs in the private sector in 2010. We had growth every single month in the private sector in 2010. And the president's the first to say that's got to be faster, and we've got to grow faster, but I think that's pretty solid foundation.

BLITZER: Here's what John Boehner, the new House Speaker, said in reacting to these latest numbers. He said, "Any signs of job growth are encouraging, but 9.4 percent unemployment and a $14 trillion debt are by no means adequate to get our economy growing. It isn't new faces Americans are looking for, it's new policies that will cut spending and grow our economy."

Are you with the Speaker on that?

GOOLSBEE: Well, part of his statement, 9.4 percent, as long as I live I'm not going to describe that as good number. What I'm saying is it's encouraging that if fell almost half a percentage point in one month, and we've got to do more.

There are a lot of people out of work that would like to have work. There's a lot of people working part time who wish they were full time, and we've got to get those things going.

Now, I think it's worth noting, these jobs numbers are for December, 2010, the impact in a positive direction of the tax deal that the president got enacted. The business incentives, the payroll tax cut for millions of workers in the country, the tax incentives for clean energy investments, none of those things have appeared in these data, and those are now coming down the pike.

You saw the president today, out at a window manufacturing company in Maryland, where he announced his new economic team picks, and that company said that the investment incentives were enabling them to expand their capital investment and they were going to start hiring people.

BLITZER: Well, Ben Bernanke, the chairman of the Federal Reserve, he was testifying on Capitol Hill, and he said it could be maybe even another two years before unemployment gets below 8 percent. It could be stuck above 8 percent for another two years, and then he went one step further and said this. Listen to this.

(BEGIN VIDEO CLIP)

BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: At this rate of improvement, it could take four to five more years for the job market to normalize fully.

(END VIDEO CLIP)

BLITZER: Four to five more years of this kind of pain? Is that what he's saying?

GOOLSBEE: I don't know -- look, you played what he was saying. I didn't say it.

BLITZER: Do you disagree?

GOOLSBEE: I stay out of the forecasting business. You know that.

BLITZER: I know, but do you disagree with the chairman of the Federal Reserve?

GOOLSBEE: We have an official forecast -- look, I'm not getting into the forecasting business. There is an official government forecast we will release in a few weeks with the budget. It will lay out all our assumptions of here's what kind of job growth we expect, here's what we expect for the unemployment rate.

What I will say is what we know is that in 2010, we added 1.3 million jobs in the private sector. That's clearly the right way to be headed. The unemployment rate fell significantly this month.

There are going to be fluctuations from month to month, but the overall trend is clearly positive, and our task is to get the growth rate higher and get that hiring rate up. And if we do that, if we're adding millions of jobs to the economy, that's exactly the way we want to be going.

BLITZER: There were a million-plus jobs that were created in 2010, but you know that the unemployment rate at the start of 2010 was above 9 percent. At the end of 2010, it was above 9 percent as well, because more people are coming into the job market, so that unemployment rate remains high.

GOOLSBEE: As I say, look, Wolf, I'm not disputing you. What I'm saying is, you must have sustained job creation to get the unemployment rate down.

What you're pointing out is quite true. There are a lot of people out of the labor force that come back in. So you're going to see some fluctuations month to month. But sustained job creation in the millions is going to get the unemployment rate down, is going to get us on the path that the president knows we need to be on, which is growing our way out of these problems.

We start from the deepest hole in almost all of our lifetimes, and that is with the recession that started in 2007.

BLITZER: All right.

GOOLSBEE: But this is the best year in four years. So let's not poo-poo it.

BLITZER: We're not poo-pooing it.

GOOLSBEE: Let's get it going more.

BLITZER: We're not poo-pooing it, but you've got a huge issue that's going to be coming up at the end of March, early April --

GOOLSBEE: I agree.

BLITZER: -- when you have to raise the debt ceiling. I spoke with Lindsey Graham, the Republican senator from South Carolina, this week. He said he will vote to increase the debt ceiling if -- if you go back to 2008 spending levels and if you do this. Listen.

(BEGIN VIDEO CLIP)

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: I'd like to see a serious effort, bipartisan in nature, led by the White House where we look at extending the age of Social Security retirement. We all know we have to do that. And when it comes to means-testing benefits, that should be on the table.

(END VIDEO CLIP)

BLITZER: Extending the age of Social Security benefits and having means testing. Are you open to those two proposals?

GOOLSBEE: Well, Wolf, let me separate two things. And I really wish that Republicans in Congress could separate them.

The debt limit discussion is about the full faith and credit of the United States. We should not be -- nobody should be playing chicken with that or playing games with that.

We should have an honest discussion about the budget. The president is not against that. He knows we must deal with our long- run fiscal challenges. And when he releases his budget in the a few weeks, I think it is going to be clear that he takes that responsibility seriously, and he's not averse to making tough choices.

Let us have an honest and open discussion about the budget and what we should do, what cuts ought to be made, in what areas. Do not tie the discussion about the budget to a thing that is fundamentally about the trustworthiness of the U.S. fiscal system and the government, which is what the debate about the debt limit is.

BLITZER: And what about the issue of Social Security? Are you ready to discuss that?

GOOLSBEE: Well, the president formed the fiscal commission. He was the one who authorized it over the objections of some of the opponents, and that body put out a report which I think highlights how important the longer-run fiscal circumstances are. And the president has always said, let's not automatically rule everything out before we even begin.

Let's see what plans and various people put forward, and let's deal with that as adults. Let's not try to turn this into a game of chicken where we say, unless you agree to our own specific partisan policy moves, we're going to threaten to default the U.S. government. And I would say, I hope that everyone in Congress can avoid resorting to policies that make the deficit worse while, at the same time, discussing the need for responsibility.

BLITZER: Austan Goolsbee, thanks very much for joining us. Good luck.

GOOLSBEE: Thank you, Wolf.

BLITZER: Outrage in Arizona. Budget cuts may be a death sentence for seriously ill patients in need of transplants. Stand by.

And reports of an imposter living on a U.S. military base with a stash of smuggled weapons.

(COMMERCIAL BREAK)

BLITZER: Images now on YouTube are believed to show China's first stealth fighter jet. U.S. officials say it doesn't represent a threat to America's air superiority. Some experts though say there could be an impact.

Our Pentagon correspondent, Barbara Starr, is joining us now with more.

Barbara, I take it the Pentagon has known about this plane for some time.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Oh, absolutely, Wolf.

The Pentagon, the intelligence community, they have been keeping their eyes peeled on this project. But these photographs are emerging at an extremely interesting time, because tomorrow, Defense Secretary Robert Gates takes off for a series of meetings in Beijing with Chinese military leaders just as China's military is ramping up once again.

(BEGIN VIDEOTAPE)

STARR (voice-over): Shaky cell phone video of China's new stealth fighter known as the J-20, a rare glimpse of the future of China's air force, video and pictures taken by people standing outside the Chinese airfield, images the heavily-controlled government wanted the world to see, and a potential challenge to the U.S. military's long-standing superiority in the skies.

Believed to be on a test run, China watchers say this is the jet that could some day match the U.S.' most advanced fighters, the F-22 and F-35, with its range radar-evading capability and fire power.

RICHARD FISHER, ASIAN MILITARY AFFAIRS EXPERT: Once the Chinese have completed the engine for this aircraft, which is still in development, it will be competitive with the American F-22 and it will be superior in many respects to the American F-35.

STARR: The Pentagon contends China already has problems with its current fighter fleet, and Defense Secretary Robert Gates has long said the U.S. will maintain its advantage through sheer numbers of the most advanced fighters, even by the time the Chinese are ready to field their plane in 2025.

ROBERT GATES, DEFENSE SECRETARY: The U.S. will have approximately 1,700 of the most advanced fifth-generation fighters, versus a handful of comparable aircraft for the Chinese. Nonetheless, some portray this scenario as a dire threat to America's national security.

STARR: But Fisher says the larger problem may be China's overall military strategy to challenge the U.S.

FISHER: Our allies are going to have less confidence in our ability to deter China, so they're going to seek alternatives, perhaps their own nuclear deterrent, perhaps missile forces, long-range missile forces.

(END VIDEOTAPE)

STARR: And that may be the real strategic implication here, Wolf, if China continues down this road, will it pull Asia and the United States into a new arms race? -- Wolf.

BLITZER: Good question, with serious consequences. Barbara, thank you.

We're following the breaking news here in the nation's capital. A package ignites at a postal facility. New information is coming in to THE SITUATION ROOM. We'll share it with you. Stand by.

And President Obama comments on what he calls the "modest pay" of his press secretary. So how much do you think he makes? We're going to tell you.

(COMMERCIAL BREAK)

BLITZER: The girlfriend of the doctor who was with Michael Jackson in the hours leading up to his death is now testifying in a preliminary hearing.

Lisa Sylvester is monitoring that and some of the other top stories in THE SITUATION ROOM right now.

What are you learning, Lisa?

SYLVESTER: Hi there, Wolf.

Well, it is the fourth day of testimony before a Los Angeles judge deciding whether or not Dr. Conrad Murray should be tried on involuntary manslaughter charges. Emergency room doctors testified that Murray did not fully share information about the drugs that he had given Jackson, including sedatives and a powerful anesthetic normally used for surgery.

And take a look at this. A fire tore through a marina in North Carolina late last night. The blaze broke out around midnight at the facility around the Pamlico River in the eastern part of that state. One person injured and at least 25 boats were destroyed. Investigators say they have not determined the cause of that fire.

And this is a story that should interest all the men out there who get maybe just a little uncomfortable when the woman in their life begins crying. A new study suggests women's tears may actually cause chemical changes in men.

A team of Israeli researchers found lower testosterone and reduced levels of sexual arousal in men when presented with a woman's tears. The guys, in other words, they basically just become a little bit mushier -- Wolf.

BLITZER: What happens when a man starts tearing up? Did they study that as well?

SYLVESTER: You know, that's an interesting question, because they did not really look at men, but also children. You know, is that the same affect? But that's going to be, I guess, phase two of this study -- Wolf.

BLITZER: We'll watch. We'll see what happens. Thanks very much.

So what do you consider a "modest yearly salary"? We're going to tell you about a recent comment made by President Obama that's now raising some eyebrows. That's coming up in our "Strategy Session."

And the terror threat level is boosted to the highest level at train stations and airports across London. British authorities are playing it close to the vest right now.

We're going there for details. Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Let's get right to our "Strategy Session."

Joining us, the Democratic strategist and CNN political contributor, Paul Begala, and the Republican strategist, also a CNN political contributor, Mary Matalin. Both of you guys know Gene Sperling. He's the latest Clinton administration official to get a major job in the White House right now.

This Clintonization of the Obama administration, Paul, is it a good idea?

PAUL BEGALA, CNN CONTRIBUTOR: No. It's a great idea.

Now, in fairness, Gene has been serving President Obama for the entirety of his presidency, so he's an Obama guy as well. But what's not to like?

Gene, he's a personal friend of mine, as you know, Wolf. You covered us both when we worked together in the White House. But he's the hardest working man in show business. He's the James Brown of your national government.

And he helped preside over an economic team under President Clinton that created 22 million private sector jobs. Now, today, I heard Austan Goolsbee I think rightly saying it's good news to create 100,000 jobs. Gene and President Clinton helped create 22,000 private sector jobs, which, by the way, we were also shrinking the federal workforce by 400,000.

Contrast that with the Bush record of eight years, and losing 673,000 private sector jobs, but creating about 1.5 million government jobs. It's a pretty good record.

BLITZER: Mary, do you think Gene Sperling can do that now?

MARY MATALIN, CNN CONTRIBUTOR: Well, the president sets the policy, and, of course, Gene was lucky to be serving in an administration that was bearing the fruits of Reaganomics. So that's why Clinton was able to do what he did.

But I think a canard and a bogus attack by both the left and the right is the inadvisability of seasoned hands coming in. These are hard jobs. You can only learn by doing them. And Gene one of those rare types that knows politics and policy, and he can communicate. He knows the Hill, and let's hope he has some influence on this president, who tends not to be as free-trading and more regulatory than the Clinton administration was.

But it is the president's policy to set. And I think it was a good choice, for the president to pick a seasoned hand.

BLITZER: And switching gears, in an interview the other day with "The New York Times," the president said this about the departure of his press secretary, Robert Gibbs.

And Paul, let me read it to you.

He said, "We've been on this ride together since I won my Senate primary in 2004. He's had a six-year stretch now where, basically, he has been going 24/7 with relatively modest pay." Now, "relatively modest pay," that's caused a bit of a stir out there. We checked. He's getting $172,200 a year. The president suggesting that's relatively modest. The Bureau of Labor Statistics says the mean annual salary in the United States is $43,000.

So the question is this: Is the president out of touch, is he giving the impression that he's out of touch when he says someone making $172,000 is getting a relative modest salary?

BEGALA: Well, it's that adverb. It's modifier, "relatively."

The president is exactly right and I'm going to defend him on this. Robert Gibbs is astonishingly talented man who's been serving our country. And, you know, that's a good paycheck, it really is, $172,000. But just to put it into context, the chief (INAUDIBLE) for Goldman Sachs -- I saw a report -- makes over $1 million just for being a spokesman for an investment banker, a PR guy for an investment bank.

Sarah Palin, who is some obscure pundit on some other channel, makes, like, $10 million to $15 million a year. That, and if you add in the coloring books that she publishes.

So, Gibbs should be in that range. I mean, I think he's an invaluable asset, and so relatively small pay compared to what he could or should be making in the private sector.

BLITZER: What do you think, Mary?

MATALIN: I think the president is out of touch, but not for that statement. These jobs, if you take them apart, that salary is a little more than three times, maybe four times more than the average salary. But he is not working an average job, he's not working an average government job.

He really is working -- and Paul did this, too -- in the White House. You do work three shifts a day.

You work 24 hours a day. You work seven days a week. You eat lunch at your desk. There's many days where you're lucky if you can get to the bathroom.

And when you do that for a sustained period, your brain starts to bubble away. So I think it is a little unfair to attack the president on this. I do.

BLITZER: But does the impression -- I guess when folks out there take a look at nearly 10 percent unemployment right now, and the president is saying, you know what, somebody making $172,000 a year, relatively modest, the impression you get is that the president could be out of touch with average folks out there around the country, Paul.

BEGALA: Well, but, you know, I do think again it's that word, "relatively."

You know, back during the campaign, in what was otherwise a really terrific interview with Pastor Rick Warren at Saddleback Church, John McCain, Senator McCain, was asked by Pastor Warren, "What constitutes rich?" And McCain said $5 million a year.

Now, he was kind of joking, to tell you the truth. That doesn't mean John McCain -- I guess he was a little bit out of touch, but he was trying to make a point that he didn't want to tax anybody.

The president is trying to make a point that he's not saying $172,000 a year is not a good paycheck, but compared to what the guy could be making, I mean -- and as Mary points out, if it's an hourly wage, then Gibbs is probably making about 50 cents an hour.

BLITZER: And we know he's working hard, and he deserves to take some time off because he has been working hard all these -- but Mary, I'll just let you have the final thought. Was the president correct when he says this is a relatively modest paycheck?

MATALIN: I'll go to your other question which is --

BLITZER: No, no, no. Answer that one. Was the president right when he said this is a relatively modest paycheck?

MATALIN: To the average American, it's a good paycheck. For those kinds of jobs and those hours, it is minimum wage. That's how hard those jobs are.

BLITZER: We'll leave it on than note, guys. Thanks very, very much.

BEGALA: Thanks, Wolf.

BLITZER: We wish Robert Gibbs good luck, obviously, in the next chapter of his life, as well. He's worked very, very hard.

We're following all the breaking news here in Washington. A package igniting at a postal building. What's going on? New information coming in.

And what if your TV could be as thin as a quarter?

(COMMERCIAL BREAK)

BLITZER: When it comes to high-tech gadgets, many of us are eager to get our hands on the next big thing. What if tomorrow's innovations could be ours today?

CNN's Dan Simon is finding out.

(BEGIN VIDEOTAPE)

DAN SIMON, CNN CORRESPONDENT: The Consumer Electronics Show is the largest gadget show in the world. Here, companies show off what they hope will be the next big thing, but big does not necessarily mean big.

(voice-over): A television as thin as a quarter, 3-D, no less. People were looking at this LG screen, the world's thinnest, as if it were the Mona Lisa.

Mitsubishi though is going big -- 92 inches.

(on camera): Did you ever think that having a high definition, 3-D, 92-inch television would be possible?

DAVID NARANJO, MITSUBISHI: No, I did not. Technology has really advanced us to the point where we can do this at a very affordable price point.

SIMON (voice-over): That is if you consider just under $6,000 affordable.

As the Consumer Electronics Show kicked off to what convention organizers believe is one of the largest CES shows ever in Las Vegas, company executives seemed convinced that consumers are ready to start buying.

Hollywood executive Jeffrey Katzenberg of DreamWorks fame dismissed those who say 3-D television is not going to catch on.

JEFFREY KATZENBERG, DREAMWORKS ANIMATION: If you look at the introduction of color 70 years ago, it started in the movie theaters, moved to television, moved to print, moved throughout the world in which today, everything is in color. And so I think 3-D, it's how we see.

SIMON: The 3-D universe is extending to consumer camcorders. This attachment turns regular video images into 3-D.

(on camera): This is a normal HD camera, but if you take this accessory, suddenly, you have a 3-D camera, right?

PAUL REYNOLDS, CONSUMER REPORTS: Right. I mean, I think these are camcorders that are designed to work with this 3-D converter, and this is Panasonic's approach.

UNIDENTIFIED MALE: Incredibly easy to read.

SIMON (voice-over): Nike making headlines with a watch for serious runners. It uses GDP technology to monitor runners' locations and help map routes. It connects directly to your computer.

UNIDENTIFIED MALE: In the wristband is built in the USB connector. So, as opposed to any other watch, you need to have a separate cable to plug it in, this thing goes straight into your macro (ph) PC.

SIMON: But some of the most impressive products here don't even have a display. Take this memory chip that holds 64 gigabytes, or more than 14,000 songs, and it's only the size of a dime. And the tablets are dominating the show with 50 different versions taking the floor.

Every technology company in the world is here except one, Apple. It does not at the end trade shows, but as one analyst said, they are here anyway, because everyone is trying to chase them.

(END VIDEOTAPE)

BLITZER: Thank you, Dan Simon.