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Violent Protests Spreading Across Muslim World; Mitt Romney Under Fire; Fresh Protests in Cairo; Fed Act to Boost Economy, Stocks Soar; "This Isn't Really About America"; Romney Tones It Down; Poll: Voters Less Sour On Economy; Should U.S. Halt Aid To Libya, Egypt?

Aired September 13, 2012 - 16:00   ET

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

WOLF BLITZER, CNN ANCHOR: Happening now: violent protests spreading across the Muslim world.

More U.S. diplomatic posts are under siege right now after the killing of the United States ambassador in Libya. So how dangerous is it now for Americans abroad?

Also, as the U.S. moves to hunt down the killers, Libyan authorities make at least one arrest. But was it a mob attack or something much more ominous?

And Mitt Romney's taking heat even from some Republicans for his harsh criticism of President Obama's foreign policy. Is he ready to dial back or double down again?

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

U.S. warships are moving toward Libya today, as President Obama vows that no act of terror will go unpunished, his words. But in the grim aftermath of the U.S. Consulate attack in Libya which left the U.S. ambassador and three other Americans dead, there are still serious questions as to which group was responsible.

Meantime, violent protests sparked by an anti-Islamic film spreading across the Muslim world today. In Cairo, crowds have again gathered outside the U.S. Embassy right now. They have been throwing rocks and firebombs as police answer with tear gas.

In Yemen, police open fire to disperse rioters at the U.S. Embassy where a security wall was breached. Security officials report four deaths. And in Iraq, protesters stepped on and then burned a symbolic American flag as rival Sunni and Shiite Muslims marched together.

Libyan authorities have now made at least one arrest in connection with the attack on the U.S. Consulate in Benghazi.

Let's go live to our Pentagon correspondent Chris Lawrence, who is getting new details on what's going on.

Chris, what are you learning?

CHRIS LAWRENCE, CNN PENTAGON CORRESPONDENT: Yes, Wolf, just in the past few hours, Libya's own prime minister told CNN's own Christiane Amanpour that Libyan authorities have arrested at least one man in connection with that attack.

He is currently being interrogated. And Libyan authorities say they have several others under surveillance and more arrests may be on the way. Meantime, U.S. intelligence officials say they are digging deeper and getting more information about who may have been behind this attack. At this point, they say it does not appear to be a core al Qaeda group, Wolf.

BLITZER: What does that mean, a core al Qaeda group? Because we have heard al Qaeda affiliate groups, al Qaeda-inspired group. What does that mean, a core al Qaeda group?

LAWRENCE: They think it's very possible that this could have been an al Qaeda-inspired group, some group that is not directly affiliated with the hierarchy of al Qaeda, but does support the aims and ideals of al Qaeda.

BLITZER: And what about the U.S. warships, Chris, that are heading toward Libya right now? Where are they? And are those extra U.S. Marines already on the job? Or are they being deployed?

LAWRENCE: The extra Marines are on the job. One of those warships is now in position off the coast of Libya, and the other is in en route and should be there within the next day or two.

And now the attention is turning with another embassy breach in Yemen today to what happened in Benghazi and whether anything could have been done to prevent it.

(BEGIN VIDEOTAPE)

LAWRENCE (voice-over): Was the U.S. Consulate in Benghazi adequately protected? The State Department is defending its security plan.

VICTORIA NULAND, STATE DEPARTMENT SPOKESWOMAN: A robust American security presence inside the compound.

LAWRENCE: Libyan security guards man the outer perimeter. As you move further in, there are contract guards hired by the State Department. U.S. special agents are the last line of defense inside the hard line.

A congressional source says during the attack at least four State Department security guards and six Libyan government guards fired at the attackers. Another eight to 10 American security guards were at an annex building two miles away.

NULAND: We determined that the security at Benghazi was appropriate for what we knew.

LAWRENCE: And just last month, a security briefing provided to Congress found the number of security disruptions is smaller than might otherwise be expected in a post-conflict environment awash in weapons and dominated by dozens of armed groups.

A quick-reaction force of 50 Marines arrived Wednesday and are guarding the main U.S. Embassy in Tripoli. But a former diplomatic security service agent says temporary setups like Benghazi don't usually get Marine guards.

FRED BURTON, SECURITY EXPERT: It's not viewed the same. You don't have standards that are put into place which include setback from the roads and ballistic window film. So when you start looking at these temporary kind of arrangements, it's very, very difficult to kind of protect.

LAWRENCE: He says there were other factors in going with a smaller security footprint.

BURTON: There's a lot of politics that's going on behind the scenes with the various rebel groups, who's in charge of the country on any given day, the relationship that we have with the Libyan government, the perception of committing U.S. Marine Corps, regardless of the fact that they're there fulfilling a very specific duty. It becomes very, very political.

(END VIDEOTAPE)

LAWRENCE: We're told the investigation into what happened will ask the questions about the vetting that was done for the Libyan guards.

Always difficult in a situation like that, where you're postwar, but the country is still very unsettled. We also know that several U.S. troops and units around the world have been notified they may be moved to U.S. embassies around the world to beef up security if needed, Wolf.

BLITZER: Chris Lawrence watching this important part of the story, thank you.

Meanwhile, U.S. diplomatic missions around the world, they are potentially bracing for trouble. President Obama has ordered all U.S. embassies and diplomatic posts to review security and increase it if necessary.

CNN's foreign affairs reporter, Elise Labott, is here in THE SITUATION ROOM watching what's going on.

Sort of reminds me of what happened in 1979 in Iran, when there were protesters outside the U.S. Embassy and eventually as we all know they went in, took American diplomats hostage, held them for 444 days.

ELISE LABOTT, CNN FOREIGN AFFAIRS CORRESPONDENT: Well, Wolf, that's right. But things have changed a lot since '79.

As you know, now congressional regulations mandate that embassies overseas are much more fortified than they were in '79. And they have a lot more security measures, setbacks, things like that. But the U.S. is very concerned about these type of protests in Libya, Egypt, also hearing about possible protests in Sudan.

And we have seen what happened in Cairo. So what they're having now, they are having emergency action meetings. Every post is reassessing their security. White House has said, whatever you need, if that's additional personnel, Marines on the ready, and working with the host governments -- there could be more setbacks, more barbed wire or even more personnel from the local forces.

BLITZER: What have U.S. diplomatic personnel, embassy officials, been told to do?

LABOTT: Well, in a lot of cases, they have been told if you don't have to come, don't come to work. Work at home. Telecommute. Work from a cafe. Might not be so best to have all our personnel in the embassy right now and they have been sending out numerous messages to U.S. citizens overseas in areas where they know there's going to be some protests to say, listen, stay away from the embassy. If there's an emergency, we will come find you.

BLITZER: What are embassy personnel doing to try to calm down some of those protesters and tell them, you know, the U.S. is not the enemy? They have got other issues to deal with.

LABOTT: It's a real administration-wide effort, Wolf.

State Department diplomats are combing social media Web sites, online sites, trying to counter this negative information about this film about the Prophet Mohammed to say, listen, the U.S. is not responsible. We have seen the Muslim Brotherhood for instance on some of its Twitter feeds putting out messages of condolence on one and calling for protests on the other.

They're also working with host governments to say, listen, we have stood by you through these revolutions. You need to stand by us and make a stand. And, lastly, they're talking to imams. They're really concerned about Friday prayers tomorrow, looking to make sure that nothing gets out of hand.

BLITZER: Because in the coming hours, this could dramatically escalate as we get closer and closer to those Friday morning prayers. Elise, thanks very much.

Disgusting and reprehensible, that's how Secretary of State Hillary Clinton is labeling that anti-Muslim film. But can she convince the Islamic world that the U.S. can't really do anything about it?

And a major move to boost the U.S. economy, what it might mean for your money and your job.

(COMMERCIAL BREAK)

BLITZER: Look at this. This is happening right now.

These are live pictures from Cairo not far from the United States Embassy in Cairo near Tahrir Square. You see tear gas going of. Crowds have assembled. It's now after 10:00 p.m. local time in Cairo. They're getting ready for Friday morning prayers.

We expect thousands of people to show up. A little while ago, we saw firefights going on there, this escalation of violence in Cairo clearly getting bigger and bigger as we speak.

Right now , our own Ben Wedeman is standing by. We will go to him shortly.

But even as we look at these live pictures, let's check in with Jack Cafferty. He's following the attacks that are unfolding in the Middle East right now as well.

Jack, you're here with "The Cafferty File."

JACK CAFFERTY, CNN ANCHOR: Wolf, the violence in the Middle East renewing questions in Washington about which countries get U.S. foreign aid and whether they deserve it.

Some House conservatives wanted to strip out foreign aid to both Libya and Egypt from a six-month funding bill that was set for a vote today. That's not going to happen because it was simply too late to make any changes to that bill.

Nevertheless, some Republicans are questioning now if the U.S. should keep giving money to countries run by what they call radical Islamists, like the Muslim Brotherhood in Egypt. Others say before handing out aid the United States ought to make sure Libya's helping with the investigation into the attack and murder of our ambassador and three other Americans.

Apparently, they're doing that, if the reports today are true. Not everybody agrees, though. According to "The Hill" newspaper, senior House Republican David Dreier says it would be a big mistake to cut funding to Libya and Egypt. Dreier says it's essential now more than ever to strengthen these ties with these fledging democracies.

It's worth pointing out that as millions of Americans are suffering under a weak economy here, our government is sending a lot of money overseas that we don't have to other countries. U.S. foreign aid to Egypt alone totals about $1.5 billion a year, second only to Israel.

And the new Egyptian president, Mohammed Morsi, didn't even bother to apologize for the attacks on the embassy in Cairo until today, two days after they happened. That tells everybody quite a bit right there.

The U.S. had withheld aid to Egypt this past year when the government was cracking down on protesters. Now a decision's going to have to be made whether to do it again.

That's the question: Should the U.S. halt foreign aid to Libya and Egypt?

Go to CNN.com/caffertyfile. You can post a comment on my blog or go to our post on the THE SITUATION ROOM's Facebook page -- Wolf.

BLITZER: Thanks very much, Jack.

The protests in Cairo, they are heating up.

Ben Wedeman is on the scene for us right now. He's back in Cairo.

Ben, it looked an hour or so ago like it was really escalating, the violence, the firefights going on, police coming in with tear gas. We have got some live pictures now as well.

What's the latest near the United States Embassy in Cairo?

BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, until a little while ago, the protesters had moved forward fairly close to the street that leads to the American embassy. But since then with tear gas and rubber bullets it appears the Egyptian security forces have been able to push the protesters back.

But this is really been the case all day long, Wolf. It's been back and forth. According to the Egyptian authorities, more than 200 people wounded in these clashes. Clearly, the Egyptian government is walking a very fine line between the inflamed sentiment on the street and their desire not to cause a real rupture in relations with the United States.

So it does appear they are making an earnest effort to keep the protesters away from the embassy. But they simply are not succeeding in pushing them much further away from the area. And there's really maybe about 500 protesters out there. It's not a huge number. But it appears that this is going to be the case all night long -- Wolf.

BLITZER: But it looks like the Muslim Brotherhood is trying to organize protests for tomorrow morning, Friday morning prayers. And there could be thousands and thousands of protesters showing up and the potential for violence, obviously, is very real.

WEDEMAN: That's right, Wolf. But I've spoken with Muslim Brotherhood officials who stress that the protests they are organizing tomorrow are not going to be taken place in this area in Tahrir Square or anywhere near the American embassy. What they told me they want to do is to draw people away from this part of Cairo. They will be holding these protests in mosques around the city, across the country, but trying to keep them away from the embassy and therefore to prevent any sort of clashes in the area -- in this area, Wolf.

BLITZER: As you know, Ben, the United States has a major consulate in Alexandria as well. What, if anything, are you hearing about what's going on outside there?

WEDEMAN: Well, as far as we know there's not much going on outside of this very small part of Cairo. In fact, if you go just two blocks from here, you will see that life is actually going on fairly normally. And I've spoken to Egyptians who are not participating in these protests.

And although they are offended by this trailer that appeared on YouTube, they're also equally in condemnation of the violence that's taken place in or rather around the American embassy.

People are worried. It's worth noting that tourism of course is going to suffer from this. And a good 15 percent of the Egyptian population depends on tourism. At the same time, a very large American delegation, business delegation, wound up a visit here in Cairo on September 11th, the same day when these protests broke out. So there are many Egyptians who simply are mortified by this violence and would like to see at the most peaceful protests and not anywhere near the American embassy -- Wolf.

BLITZER: We've been listening to the demonstrations not far from where you are right now. Occasionally I hear some popping sounds, which sounds like gunfire. Is that what it is?

WEDEMAN: No, no. That is tear gas. Occasionally some rubber bullets. As far as I can tell, there's been no gunfire in this area. I think the Egyptian security forces are eager to prevent any deaths, which would certainly inflame an already inflamed situation.

BLITZER: And unlike the other day when they stormed the walls around the U.S. embassy in Cairo, I assume the Egyptian military, the police there surrounded that entire embassy compound now. And those protesters are not going to get anywhere near the actual embassy, is that right?

WEDEMAN: Well, that's certainly what obviously American diplomats are hoping. But what we've seen not only on this occasion but on other occasions that at the end of the day when these protests take place, it's a fairly small number of conscripts who are paid very little who are defending these installations.

Let's not forget it's not just attacks on the American embassy, there have been attacks on the Israeli embassy, as well as the Syrian embassy here. And many of those instances, the security forces either were incapable or were unwilling really to stop the protests.

I think now after this crisis has gone on and escalated to the extent it has, the Egyptian authorities are now well aware of the danger to U.S.-Egyptian relations if for some reason they are incapable of defending these diplomatic installations, Wolf.

BLITZER: All right. Ben, we're going to stay in close touch with you, obviously. Ben Wedeman back on the scene for us in Cairo.

Much more on this story coming up, obviously, over the next several hours.

But there's other important news we're following as well including news about the United States' economy today. Major action by the U.S. Federal Reserve to jumpstart the economy. It's already had a huge impact on Wall Street, probably your retirement savings as well.

(COMMERCIAL BREAK)

BLITZER: Once again we have a lot of coverage coming up on the anti- U.S. violence spreading across the Arab and Muslim world right now. What's going on in Cairo clearly very, very disturbing. We have live pictures we'll bring to you, demonstrations continuing there.

But there's another very important story involving your money that's unfolding right here in the United States.

The Federal Reserve today launched a new attempt to try to stimulate the U.S. economy. And the stock market took of like a rocket. The Dow Jones Industrial Average soared nearly 207 points closing at their highest level, get this, the highest level in almost five years. The Dow Jones has doubled over these years.

Our chief business correspondent Ali Velshi is joining us now.

Ali, first of all, take us through the fed's decision today and what it means.

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: All right. By the way, the Dow is made up of 30 stocks, every single one of them is in the green, in case you're invested.

All right. Let's talk about what the Fed did. This is a third round of quantitative easing. Short form for that QE-3 for so long. The Fed made a few decisions today. First one is that they decided to keep -- to buy $40 billion of what you call mortgage-backed securities every month. Just think of them as bonds. These are all of these mortgages that get packaged and resold.

But the Fed is going to go to the bank, you give us your bonds, we'll give you $40 billion every month. I'll tell you what that means in a moment. But they did also say there's no end date. They're going to keep doing this until they see an improvement in the economy and improvement in the unemployment situation.

They're also going to keep interest rates, which are at the Federal Reserve level zero percent to 0.25 percent, exceptionally low until mid-2015. The initial plan was for the end of 2014.

So that's what they announced. The key here though, Wolf, is not the rest of it, it's the quantitative easing.

BLITZER: And Ben Bernanke as you know, Ali, he also mentioned what we're calling that fiscal cliff that occurs at the end of the year.

VELSHI: Right.

BLITZER: Unless Congress and the president take dramatic action. So how concerned is the Federal Reserve chairman about that?

VELSHI: Very concerned. And we all should be by the way. That's where this becomes tricky.

And a lot of conservatives have criticized today's move because they basically say this is the government's job. The government should be handling these things. This should be a political decision in Washington about the fiscal cliff, about the budget. The Fed is doing what it can, but ultimately it's not clear what the end result will be. It is clear it will cost us a lot of money.

I've got a graphic I can show you to try and explain what this is. On the left side of your screen, that's the Federal Reserve. They're buying those bonds. They're giving the $40 billion in cash to the bank, which is in the middle of your screen. The bank then makes loans to either businesses, which open up plants and factories or stores or to individuals. Let's say to buy houses. And that creates economic activity, and that should create growth and jobs. It's just not clear that's going to work.

So, there's been a lot of criticism of Ben Bernanke. Some conservatives have said it's partisan. Ben Bernanke made a point of saying it's not partisan. You know, Wolf, he and Alan Greenspan before him are both Republicans, but Mitt Romney has been very clear that if he becomes president, he will not nominate -- re-nominate Ben Bernanke to head the Fed.

This has become even a political discussion.

BLITZER: At least on this day Wall Street loving what happened.

VELSHI: Yes.

BLITZER: Ali, thanks very much.

So is all the anti-American violence spreading in the Middle East really just part of an internal power struggle in the Arab world? You're looking at live pictures of Cairo right now.

Not far from the U.S. embassy, Tahrir Square. David Ignatius of "The Washington Post", he has some answers for us. He's joining us next.

(COMMERCIAL BREAK)

BLITZER: Americans killed in Libya embassies and consulates under attack throughout much of the Muslim and Arab world. Clearly that anti-Islamic film has sparked some violence, but is there more to the story?

Joining us now, someone with broad experience covering the Middle East and the intelligence community, David Ignatius, the columnist for "The Washington Post."

David, thanks very much for coming in and your column today was intriguing among other things you wrote this, I'll put it up on the screen.

"The Cairo uproar appears to be partly a case of radicals wanting to undermine a more moderate governing party. This isn't really about America. It's about factions battling for power in a fluid political situation."

What you're suggesting is the Muslim Brotherhood-led government, President Mohamed Morsi, may be more moderate than some of the elements that are trying to undermine him.

DAVID IGNATIUS, COLUMNIST, "WASHINGTON POST": At the end of my piece, Wolf, I said we should call them less extremists. The Muslim Brotherhood is still can be very militant. But I think when we look at these events, even though we see the tragic death of an American ambassador and three other Americans, attacks on U.S. embassies and consulates, we obviously think of this as being about America.

But we are in what I like to call the fog of revolution in these Middle East countries. And in these countries the ruling governments, the Muslim Brotherhood government of Mohamed Morsi now in Egypt are under challenge from people who are much more extreme.

Who have much more radical vision of Islam and who are opportunists trying to challenge the government and using the U.S. as a handy target. That doesn't mean we shouldn't be worried about the safety of our personnel.

It just means we should be careful and understand that this is really a power struggle in the midst of a revolution that's still going on.

BLITZER: Because when you see the U.S. Embassy attacked, the American flag torn down and burned in Cairo, that huge U.S. Embassy there -- you've been there many times, I've been there as well. And you see it all occurring on the 11th anniversary of 9/11, the immediate conclusion is these are simply people who hate America.

IGNATIUS: Part of it certainly is anti-Americanism, that's obvious to all of us and it troubles us deeply. We love our country. We hate to see our flag attacked, our embassies attacked.

But at the end of the day, what has to happen in each of these countries is that the local authorities, the Egyptian security service, the Libyan security service, the Yemeni security service, has to stand up and protect the integrity of diplomatic facilities.

Ours, everyone's, and that's the demand that we need to be making. The notion that the U.S. can send in the Marines and beat this back, unfortunately, the only reason we'd send in the Marines is to rescue our people and get them out of harm's way.

But in terms of protecting these places, it's up to the governments. They're now in power. That's the demand we should be making.

BLITZER: You write of an intriguing parallel to what's happening potentially now in Cairo to what happened at the U.S. Embassy in Tehran, in Iran back in 1979 in the aftermath when the Shaw was overthrown there, a long-time U.S. ally. Tell us what you meant.

IGNATIUS: Frankly, Wolf, this scares me. In 1979, you had an Islamic revolution in Iran. Ayatollah Komeni was in power, but there were many Iranians who were unhappy that it was moving too slowly.

And so the more militant faction calling themselves radical students decided to capture the revolution and they did it by seizing the American embassy. We all remember that if we were alive then.

This feeling of America held hostage. What really happened internally in terms of Iranian politics was that the radicals took over and grabbed revolution and still hold onto it this day. They seized control in '79 and never let go.

And that's what we have to be watching for is in these countries radicals moving to exploit what is to some extent a vacuum of power and push the situation to a much more extreme level.

BLITZER: Because if the U.S. fears that those American diplomats, embassy personnel are in danger, whether in Cairo or Tripoli or any place else of being held hostage, we know that four American diplomats were killed at the U.S. consulate in Benghazi, then the U.S. immediately has to withdraw, get out of there. Don't you agree?

IGNATIUS: Well, I think we have to be sure that our people are safe and not in a situation where they could be held hostage. I'll tell you something that your viewers may not know, Wolf. Our embassy in Egypt on this night, Tuesday night, violent chanting, crowd storming going over the fence, the demand that our embassy made to the Egyptian government was get the police in here now.

Get these people out of our compound. It took too long for the Egyptian government to respond, but it finally did. And the police were finally deployed and order was restored. But that's the demand that has to be made every day.

Get the police here. You're responsible for the safety of these people. Exercise authority and I think if we focus on that and not just getting furious, we'll probably do ourselves more good.

BLITZR: These are live pictures coming in from Cairo right now, disturbing pictures indeed. David, thanks very much for joining us.

IGNATIUS: Thanks, Wolf.

Mitt Romney's caught lots of flak for criticizing President Obama's international policies right in the midst of this crisis. We also noticed a significant change though in his tone today. It isn't an apology, but what's going on?

(COMMERCIAL BREAK)

BLITZER: As anti-U.S. demonstrations and violence spread across the Muslim world, Mitt Romney today toned down his criticism of President Obama's policies overseas.

Our national political correspondent Jim Acosta is in New York, he's on New York's Long Island I should say where Romney's hosting a private fundraiser. What's the latest reaction from the Republican nominee -- Jim?

JIM ACOSTA, CNN NATIONAL POLITICAL CORRESPONDENT: Wolf, Mitt Romney is in New York to do some fundraising. But earlier today, he was in Virginia where he continued with this theme that the president is showing weakness on foreign policy.

But he did soften some of that super heated rhetoric that got him in some hot water with members of his own party.

(BEGIN VIDEOTAPE)

ACOSTA (voice-over): Mitt Romney steered around the controversy he started earlier this week when he accused President Obama of sympathizing with the attackers on U.S. diplomats in the Middle East.

Instead at a rally in Virginia, Romney opted to grieve for the victims.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: What a tragedy, to lose such a wonderful, wonderful people.

ACOSTA: Within seconds, he was interrupted by a protester.

ROMNEY: I would offer a moment of silence, but one gentleman doesn't want to be silent. So we're going to keep ongoing.

ACOSTA: While Romney did go onto charge the president with seeking defense cuts that would weaken national security --

ROMNEY: As we watch the world today, sometimes it seems that we're at the mercy of events instead of shaping events.

ACOSTA: He stayed away from his harshest attack of the week, that Mr. Obama is an apologist.

ROMNEY: I think it's a terrible course for America to stand in apology for our values.

ACOSTA: But there are no apologies for Romney's comments. A senior campaign advisor told CNN it was wrong for President Obama to not immediately criticize the mob that ripped down an American flag at the U.S. Embassy in Cairo.

The Romney campaign also pointed to support it received from former members of the Bush administration. Former Defense Secretary Donald Rumsfeld tweeted, the attacks on our embassies and diplomats are a result of perceived American weakness. Mitt Romney is right to point that out.

And Liz Cheney, daughter of former Vice President Dick Cheney wrote in "The Wall Street Journal," apologizing for America, appeasing our enemies, abandoning our allies and slashing our military are hallmarks of Mr. Obama's foreign policy.

Other conservatives have disagreed. Columnist Peggy Noonan was critical of how Romney defended his initial remarks on the attacks at a news conference.

PEGGY NOONAN, COLUMNIST, "WALL STREET JOURNAL": At one point, he had a certain slight grimace on his face when he was taking tough questions from the reporters and I thought he looked like Richard Nixon.

ACOSTA: Arizona Senator John McCain sidestepped Romney's handling of the issue on CNN.

SENATOR JOHN MCCAIN (R), ARIZONA: The whole tic tac back and forth is not something I'm totally aware of or care too much about.

JOHN BERMAN, ANCHOR, CNN'S "EARLY START": Would you advise him to say that?

MCCAIN: Listen, the one thing I don't do because I'm the loser is advice people --

(END VIDEOTAPE)

ACOSTA: A senior Romney advisor told CNN the campaign is confident that this controversy will blow over. The question though is whether there will be blow back from voters.

But that strategist I talked to, Wolf, said to Romney's criticism of the president highlights as what he described as big differences in this campaign -- Wolf.

BLITZER: More muted though today. Jim Acosta, thanks very much.

This just coming in to CNN, new polls on the U.S. economy. Our chief national correspondent John King has a closer look at the numbers -- John.

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Wolf, let's start with the question that dominated both political conventions. That is a big factor on the campaign trail, are you better off than you were four years ago today?

Let's tap into the state of Ohio and pull out the numbers. Look, when you ask people are you better off than you were four years ago today? This is among all registered voters, 37 percent say, yes, they are better off, 44 percent say no, things are worse and about 20 percent, 19 percent say things are the same.

You would tend to think looking at these numbers that would benefit Governor Romney. A plurality say things are worse off in the country. What is striking though is like everything in our politics how polarized opinions are even about the economy.

Look at these numbers right here. Democrats tend to say we're better off. Tell it straight right here, 55 percent of Democrats say they're better off than they were four years ago.

Look at this, 70 percent of Republicans say they're worse off than they were four years ago. In the middle, the voters who might decide the election, it's a closer split, but 49 percent nearly half of independents say their economic situation is worse off now than it was four years ago.

Again, those are numbers that would tend to favor, you would think, Governor Romney. Now, that's the partisan breakdown. Let's look at this regionally. As you know, the president's coalition is heavily based in urban areas.

Urban voters tend to be more optimistic. They say they're better off, about half of them, say they're better off than four years ago. But go into the suburbs and rural areas, these are critical to Governor Romney, has to win in the suburbs, has to win big in rural America.

Voters there nearly half of both suburban and rural voters say, no, they're worse off than four years ago. That's how people feel personally about their economic situation. How though do they feel about the country's economy overall?

Let's move over to another battleground state of Virginia. We'll pull those numbers out. How do they feel overall about economic conditions in the country today? This is still a very pessimistic look and one, again, you would think would be damaging to an incumbent president.

Only 32 percent of Americans, just shy of one-third, say economic conditions today are good. Nearly seven in ten, 68 percent, more than two-thirds say economic conditions are poor.

And yet again when you break this out, you see, again, the polarization in the views even on the economy. A majority of Democrats say things are good. Look at this, 91 percent of Republicans, 91 percent of Republicans say things are poor.

Again, if this is the middle of the electorate, the group that will matter the most in a close election, that should be an advantage for Governor Romney, more than seven in ten independents say things are poor in the economy today.

So that's the look at four years ago. Are you better off or not and how you feel about the economy today. People are, I would be shy to use the term more optimistic, but when they're looking ahead a year, they're more pessimistic than they have been in some time.

Let's show you the numbers right here. When you ask voters, all registered voters what about the economy a year from now? How do you think things will be a year from now? This is a strikingly different number.

Nearly seven in ten, two-thirds of Americans, say things will be good a year from now. That's much more optimistic than the economy today. Only 30 percent say things will be poor.

And look at the turnaround from just a year ago, 60 percent a year ago said one year later would still be poor, so people are now, again, hate to use the term -- reluctant to use the term optimistic, but they are much less pessimistic.

This is something that could work in the president's favor. One last point on this plays out in the campaign, who's responsible for this? If people are in a funk about the economy, feel down about the economy at least at the moment. They don't feel better off than four years ago. Do they blame anybody?

We asked who is more respondent for economic conditions in the country today? Bush and the Republicans, George W. Bush and the Republicans, 57 percent, 35 percent blame President Obama and the Democrats.

Wolf, I'll end on this point, the president tends to win on this question. However, George W. Bush will not be on the ballot in November.

BLITZER: Good point. John King, thanks very much.

So does Mitt Romney need to fine tune his message right now since nearly half of the voters feel worse off than they were four years ago? Gloria Borger, Ryan Lizza, they're both standing by live. They'll join us next.

(COMMERCIAL BREAK)

BLITZER: Live pictures coming in from Cairo right now near the United States Embassy, Tahrir Square. We're going back there in a few moments.

But let's get to our "Strategy Session" right now. Joining us the "New Yorker" magazine, Washington correspondent, Ryan Lizza, and CNN's chief political analyst, Gloria Borger. Ryan is a CNN contributor.

Look at this, Gloria. A year ago we asked are economic conditions good or poor? A year ago 14 percent thought they were good. Now that's pretty pitiful. Now it's up to 32 percent. Not so good either. It's improvement from where it was a year ago. The question, was this good for Romney, good for Obama? What's going on?

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: Glass half full, glass half empty, look, it's a little better news for the president. It means that people are feeling a little bit better about their economic situation.

But clearly, wolf, they're not where they need to be and the question is, who's really better able to manage the economy? And you know, the good news for the president is that six months ago, he was down about six points on that.

Now he's in our latest poll it's a virtual tie. So maybe people are coming around to the fact, there you see it, 50 percent, 49 percent. So maybe people are coming around to the fact that maybe the president just needs more time. Maybe they're buying the Bill Clinton argument. You need to have some patience.

RYAN LIZZA, CNN CONTRIBUTOR: What's strange, maybe the public's expectations are just different? I mean, it's surprising that that many people say things are on the mend when you have these really mediocre jobs numbers.

And I think there's an argument that over the last not just the couple years but the last decade that the American public's expectations about what the government can do to fix the economy are lower.

So that question the way that Reagan asked it in 1980 doesn't have the same resonance.

BLITZER: Are you better off today than you were four years ago? Where's Romney's -- where does he have an opportunity right now because he is looking for something? BORGER: Yes, I think Romney's opportunity, as John King pointed out earlier is really with suburban voters and that's why you see that Romney is in Northern Virginia suburbs, the president was in the Denver suburbs, 47 percent of suburban voters think that the economy is worse than it was four years ago.

That's an opportunity for Romney particularly married suburban women. Suburban voters consider themselves generally more independent voters, more pragmatic voters. So if you're Mitt Romney, you're going to be spending a lot of time in the suburbs. And if you're Obama, you're going to be doing the same thing.

BLITZER: Republicans have said to me over the past few days as a result after the conventions, the latest polls, given the relatively poor state of the overall economy, the jobs, the unemployment numbers. Why isn't Romney crushing President Obama right now? Why is this so close?

LIZZA: Why is it so close? One favorability, people like Obama more in the favorability polls than Mitt Romney. I also go back to what I said. I think expectations about what government can do to improve the economy are lower.

So people vote on different issues. They don't necessarily believe that either of these guys can use the government to make things better. If they like Obama a little better, that gives him an edge.

BORGER: For some reason, and I can't quite figure it out and I've been talking to a bunch of people today asking this question, why isn't Mitt Romney sealing the deal? Why isn't he doing better given the fact people generally have a good sense about him and the economy?

I think it's due to the fact that people haven't bought into him yet as a leader. And maybe this whole Cairo issue could be a problem. And he hasn't, you know, when you want to fire somebody, you have to find someone to replace them with. I don't think they've decided that he's the person.

BLITZER: We have to leave it here. He's got an opportunity those three presidential debates coming up next month.

LIZZA: A coherent message for why he'd do a better job.

BLITZER: If he can do that, focus in like that, he still has an opportunity.

BORGER: He needs to be more detailed too, Wolf, really. I don't think people are seeing that.

BLITZER: Thanks very much.

So who's behind the killings at the United States Consulate in Libya? We have new information, new details on the investigation that's unfolding right now.

And I'll speak live with the chair of the Senate Intelligence Committee, Diane Finestein. She's just been briefed by General Petraeus and the CIA.

(COMMERCIAL BREAK)

BLITZER: Jack's back with the "Cafferty File," -- Jack.

JACK CAFFERTY, CNN ANCHOR: In light of recent events, Wolf, the question is should the United States halt foreign aid to Libya and Egypt?

James writes, "To Libya, no, but to Egypt, yes. Until they can prove to us that they're a worthy recipient of this aid. It ought to be scaled back. Libya's still trying to set up their government, get infrastructure established. Forty five years under Gadhafi was just as bad as what Saddam did in Iraq."

Gary in Arizona writes, "You bet your bippy we should and we should do so immediately. The billions we throw to these clowns ought to pay down our own impossible debt. If they don't like it, they can lump it. That's an American phrase they wouldn't understand."

Mia in Florida says, "Yes, we are no longer the uncle with the deep pockets. We have issues here to take care of. Interfering in another country's foreign affairs has not only depleted our own resources, but it's done nothing but caused ill-will abroad. It's one of the reasons I can't safely board an airplane with a pair of fingernail scissors."

Francine says, "Libya's government is in transition, this type of transition takes time. Therefore, the U.S. must continue to support Libya's foreign aid as Libya has offered their support in this attack. However, Egypt is a different story. And the U.S. ought to continue to closely monitor their progress and the actions of their leaders."

And Tom in Texas writes, "Pinching wallets usually gets one's attention. After countless years of pouring money into various governments, they begin to think they're entitled to the funds. I only wish I could get a few hundred million dollars allowance. Here's my address."

If you want to read more about this, go to the blog, CNN.com/CaffertyFile or through our post on the SITUATION ROOM's Facebook page -- Wolf.

BLITZER: Jack, thanks very much.