Lawrence analyzes the latest developments in the ongoing debt ceiling negotiations and explains why Obama has the upper hand.

Lawrence explains why the normally disciplined Congressional Republicans are now in all-out panic in the most difficult negotiation they have faced to date with President Obama.

Another warning shot was fired today against the U.S. over its failure to raise the debt ceiling. Moody's Investors Service threatened to lower America's credit rating  due to the rising risk the government will default on its debt.

The credit rating agency said it plans to review the fed’s top triple-A bond rating because lawmakers haven’t been able to reach a deal over increasing the nation's $14.3 trillion borrowing limit to avoid a default. (Hate to mention it, but it's not turning out so well for Greece, Ireland and Portugal).

We technically hit this magic debt marker back in May. The Treasury says the government will default on its loans — for real — if nothing is done by August 2.

In response to Moody’s announcement, House Speaker John Boehner lashed out at Obama.

"As Speaker Boehner has warned for months, if the White House does not take action soon to address our nation's debt crisis by reining in spending, the markets may do it for us. This action by Moody's today reinforces the speaker's warning,'' said Boehner’s spokesperson.

We'll be discussing this more in the show tonight at 8pm ET.

In an exclusive interview with Chris Hayes on The Last Word, Minority Whip Steny Hoyer rejected the 85:15 spending cuts/revenue increases ratio reportedly on the table.

"I believe the Bowles-Simpson commission gave an excellent report — that doesn't mean that I agree with everything they had in there, nor did they expect everybody to agree to it. But they had about a 2.5 to 1 spending cuts to revenues ratio," said Hoyer on the show. "They believed, in a bipartisan fashion, that was a reasonable ratio; 15 to 85 is not a reasonable ratio because what it means is the wealthiest people in America are getting a big tax break and the most vulnerable people in America are being asked to pay the bill. That is not an American value, that is not the values we share, and it's not a program we would support."

Hoyer met with President Obama and a small group of negotiators at the White House today. Watch the video for more on his insider update.

Chip Somodevilla/Getty Images

Rep. Tim Scott (file)

We've tossed around the idea ourselves here at The Last Word. Is there any emergency way out for President Obama if no compromise has been reached over the debt ceiling? Treasury Secretary Tim Geithner himself recently noted a clause in the 14th Amendment that states U.S. public debt "shall not be questioned."

One Republican congressman floated the "I" word in response the potential loophole Obama could use to side-step Congress on the debt ceiling.

"This president is looking to usurp congressional oversight to find a way to get it done without us. My position is that is an impeachable act from my perspective," Congressman Tim Scott of South Carolina said at a tea party meeting yesterday (H/T Huffpo).

Obama seem doesn’t want to go there either. When asked about it in today’s Twitter town hall Obama re-iterated the need for compromise saying, "we shouldn't even get to" that level. "The debt ceiling should not be something used as a gun against the head of the American people," said Obama. He urged Congress not to toy with the debt ceiling.

Editor of Frum Forum, David Frum, and Washington Post columnist Eugene Robinson join The Last Word to break down today's developments in the debt ceiling negotiations.

Republicans in Congress may push the economy over a cliff to protect corporate jet tax breaks. Jared Bernstein, the former chief economist to Vice President Biden and Sally Kohn, the founder of the Movement Vision lab join The Last Word to discuss.

Let's be honest, the Paul Ryan budget plan is not something to brag about if you’re a Republican and want to get re-elected in 2012. A new Bloomberg National Poll reconfirmed its toxicity with 57 percent of Americans saying they would be worse off under the Medicare-killing plan. With Independent voters, 58 percent think the Ryan plan is a baaaaaaad idea. Dick Cheney gushed over the plan, saying he worships the ground Paul Ryan walks on — again, yet another reason to stay clear of it for the sake of winning voters.

Senator George Allen is staying hush hush on his view of the GOP-backed plan. The longtime politician is seeking the Republican nomination in the 2012 election for the Senate seat. He’s up again against Virginia tea party leader Jamie Radtke and businessman Tim Donner, and both support Ryan's plan.

NBC's central Virginia affiliate pressed Allen for his stance on the issue. For nearly nine minutes, he masterfully bobbed and weaved around the topic without actually answering anything. That's some stamina. Allen called attempts to get his position on the Ryan plan a "political stunt."

A terrifying daunting new report from the nonpartisan Congressional Budget Office is raising a very, very large red flag over Capitol Hill. The report states that America's public debt could exceed the size of our entire economy in just one decade.

The biggest items on the nation's price tag can be found on page 10 of the report:

The health care programs are the main drivers of that growth; they are responsible for 80 percent of the total projected rise in spending on those mandatory programs over the next 25 years.

Two factors underlie the projected increase in federal spending on the government’s major mandatory health care programs and Social Security: the aging of the U.S. population, which increases the number of beneficiaries in those programs, and rapid growth in health care spending per beneficiary.

Certain politicians One could read this report as a condemnation of programs like Social Security, Medicare, Medicaid, and the President's new health care law (which of course seeks to lower health care costs). But it's also worth looking at the report's details on tax revenue.

The CBO used two different scenarios represented in the graph, below. The solid line shows what the CBO calls the Extended-Baseline Scenario (aka, the better option). As explained by the report's summary, in that scenario Congress would let the Bush-era tax rates expire next year and expand the Alternative Minimum Tax to millions of additional households. You can clearly see from the graph that under that scenario, the percentage of federal debt held by the public would stay relatively stagnant.

In the other scenario, the Alternative Fiscal Scenario (aka, the not better option) represented by the light blue dotted line, "the budget outlook," to quote the CBO, "is much bleaker." That calculation presupposes that the Bush-era tax rates will again be extended next year. It also presupposes that the Alternative Minimum Tax's reach will not be expanded and that tax law will follow historical trends. Under this scenario, federal debt held by the American public will equal our nation's Gross Domestic Product by 2021. Right... within a decade. By 2035 that number approaches 200%.

Congressional Budget Office

CBO report paints an ugly picture of our economy if the status quo remains

Should you want to read the entire CBO report for yourself, a PDF version is available here. You can find the summary here.

MSNBC

House Minority Leader Nancy Pelosi and Lawrence O'Donnell on set in Washington, D.C.

Lawrence sat down with House Minority Leader Nancy Pelosi for a lengthy chat this afternoon.

We’re very glad it took place — Lawrence and our crew initially had trouble getting down to Washington, D.C. from New York City. All Northeast Corridor train lines were down due to a power outage (of course, today of all days). In a last-minute change of plans, they hopped on a plane to make it in time.

The mad dash paid off. Pelosi, fresh off a meeting with President Obama, had a lot to say about debt ceiling talks and Cantor’s decision to leave them.

The interview will air tonight at 8pm ET on MSNBC. You won’t want to miss it.

The days Grover Norquist's sway over Republican Party tax policy — and by default, American tax policy — may be over.

A bill, introduced by Republican Senator Tom Coburn today, proposes to end $6 billion in ethanol tax subsidies. If passed, this would end corporate tax breaks for companies in the ethanol business.

This proposal naturally outraged Grover Norquist. Over the years, he’s obtained signatures from most Congressional Republicans, making them pledge to never raise taxes under any circumstances.

As a guest on The Last Word, Coburn said this tax pledge would not stop government officials from doing the right thing, even under pressure.

“Between now and the next year, as we go to solve this problem, everybody knows there’s going to have to be a compromise on some sort of revenue increases," said Coburn. "Grover’s old news. It doesn’t matter what he says, it doesn’t matter what he wants."

Coburn seemed optimistic, adding "We’re going to fix the country, and some of that is going to be revenue increases, that’s the only way you’re going to build a compromise and get it signed by this president."

Senate Republicans, who had signed the tax pledge, voted against Norquist and for repealing the ethanol tax credit. In total, 34 Republicans voted for the bill, though it ultimately failed 40 to 59.

Republicans may need to pick sides between the Ayn Rand model of capitalism and evangelical Christian values. One Wisconsin congressman learned you can’t always have it both ways.

Shortly after his appearance at the 2011 Faith and Freedom Conference in D.C. on Friday, a Bible-waving protester accosted Chairman of the House Budget Committee Paul Ryan. The man, who is member of the religious group Faithful America, questioned Ryan for modeling his proposed budget after “the extreme ideology of Ayn Rand rather than the basic economic justice values of the bible.” He then offers Ryan a Bible and advises him to “bone up on what it says about how we should treat the poor and vulnerable” with a specific “focus on the Gospel of Luke.” 

Ryan politely turned down the Bible, noting that he already has some at home.

Rand, an atheist and author of Atlas Shrugged and The Fountainhead, is known for illustrating the morality of free-market capitalism and rational self-interest through her fiction. 

— By Harry Grabow