stock prices fell almost 40 points one day and the dollar is still shaky so the
question is what must George Bush do in the coming weeks to satisfy the financial
world joining me today Hobart Roman of the Washington Post and Alan Murray of
the Wall Street Journal and we begin with the view of one Wall Street expert
Henry Kaufman who joins us from our NBC studios in New York Mr. Kaufman welcome
good to have you with us again thank you very nice to be with you Treasury
Secretary Brady said the other day that he's not worried that markets go up and
markets go down should he be worried about the markets now I think there's a
reason for concern we are after all going into the seventh year of an
economic expansion which is much more difficult to manage from a policy
viewpoint than when you're at the early stages of a recovery we are having
continued problems on the trade side and on the budget side and there is the
serious need of having very very close coordination with our trading partners
how closely do you link the the shakiness in the financial markets to
specific concern about George Bush's policies and his ability or inability to
make a budget compromise with Congress well the markets themselves of course
were on a little bit of a honeymoon leading upset to the election because the
the dollar had been reasonably stable but the markets are confronted with a
budget deficit and there is the position by President-elect Bush that he would
have a very strong stance on not erasing taxes that raises the issue of the
extent to which you can lower the deficit rather quickly by other measures
and those are very difficult to do what specific actions do you think the
markets would like to see from the President-elect that would reassure them
that would calm the market stock prices and bolster the dollar and can he wait
till inauguration day or does he have to do something in these intervening couple
of months well the markets are certainly strong enough to wait a little while but
what is clearly needed here is some indication that the budgetary process
will move along rather speedily and that there is a negotiation process that will
quickly get underway between Congress on the one hand and the President-elect on
the other and there's not going to be a standstill on this issue over the next
couple of months do you think that he has to begin that that budget negotiation
process before inauguration day or can it wait till January 20th I would think
that the markets are strong enough to be able to accept a wait until January 20th
but it isn't the waiting process it is the attitudes that are going to be
developing in the new administration both as expressed by President-elect Bush
as well as by other members of his new cabinet and it's going to be very
important to see who President-elect Bush appoints to the new National
Economic Commission as you know this is the Commission that will be dealing with
the budget and very importantly it will be we must see the extent to which these
new people on that particular Commission are pragmatic are willing to conciliate
or whether they are highly dogmatic well one of the people that he appointed
this week was his new chief of staff John Sununu the governor of New Hampshire
who's a very strong opponent of taxes does that send a message to the markets
not yet it does indicate of course that one of the advisers to the President-elect
is going to be supportive of very little change but it's going to be more
critical here as to who these new people are on the National Economic Commission
dr. Kaufman I like to get your evaluation of just what the magnitude of
the problem is you just said that the markets could probably wait until
inaugural day on the other hand you wrote an article recently for the New
York Times in which you said the situation is more treacherous than at
any time since Roosevelt days now what does that mean do we face a major
depression do we face a major recession no I think we run the risk here over the
next couple of years of having an economic recession I don't think we face
a depression the budgetary problem really is compounded here by several
developments that markets haven't fully focused on one is the added money that
is required to bail out the savings and loan associations and these many mergers
and consolidations and leveraged buyouts are also reducing the tax income which
the government will take on income taxes because of the substitution of debt for
equity are you are you saying that we face a recession regardless of what kind
of budget compromise has evolved now no I I do not I think that we can prolong
the economic expansion by having visible progress in the budget deficit I do not
believe that we need to reduce the budget deficit from a hundred fifty five
billion dollars to a hundred billion dollars in one year but you have to
remember what is your target then dr. Kauffman by how much I think in in this
current fiscal year which started October 1 we should be able to bring the
budget deficit down to about a hundred thirty five to hundred forty billion and
then meet the Graham-Rutman targets for the new fiscal year but as you well know
the fiscal year is in process and it seems that by the time Congress and the
president get together this fiscal year is going to be well matured and we've
been we may be in June and then we're talking about fiscal 1990 beginning
October 1 1989 well how much and how much of additional tax increase should
the Congress be thinking of now I believe that in the current fiscal year
and running into early 1990 we ought to increase revenue somewhere between 15 and
20 billion dollars dr. Kauffman let me ask you with all due respect you've been
warning us about the dangers of budget deficits for some time now it's
sometimes said that you predicted eight of the last five recessions the economy
keeps growing the economy is doing very well as you said we're entering our
seventh year of economic expansion there's no sign of a recession in sight
why should anyone believe that some sort of a deficit Armageddon is just around
the corner well it isn't a deficit Armageddon and I have not predicted eight
of the last five recessions I think the critical issue is that as you move to a
very high resource utilization and plant and equipment in labor also a higher
level of economic activity you have to be able to free resources here for the
private sector you have to be able to diminish gradually your dependence on
foreign sources of funds and part of this could be accomplished by moving the
government aside but of course we have seen the deficit come down some in the
last in the last two three years is that not as we have yeah yes we have and we
have however stopped making progress we had a reduction from 220 billion to
hundred and fifty five billion dollars or so but the progress from here is
going to be very very small if at all let me just ask you very quickly
Treasury Secretary Nicholas Brady said on Friday that he saw no reason why
interest rates should go up anytime in the near future do you agree with that
or do you see large increases in interest rates ahead of us we're in very
volatile financial markets and I would suspect that the irregular upward
movement in interest rates that started this year certainly will continue and I
think it will be exacerbated if there is a stalemate particularly in the policy
front between the government and the Congress mr. Kaufman let me ask you one
quick question you've only got about 30 seconds to answer it and that is what if
what if George Bush means exactly what he says no new taxes and he doesn't
appoint people to the National Economic Commission who are going to give in on
taxes and he doesn't give in next year what's that going to do I would suspect
that the problem then will surface on the foreign exchange front and that
under those circumstances the dollar will weaken and it will put further
pressure on the central bank to tighten monetary policy in order to stabilize
conditions and in order to limit the inflationary impact mr. Kaufman thank
you very much for coming in today we appreciate it sir and in a moment we'll
ask two congressional leaders what Washington is going to do about all this
when we talk with Senator Pete Domenici and Congressman William Gray coming up
when meet the press returns meet the press is sponsored by the Archer
Daniels Midland Company ADM supermarket to the world over the years America has
established itself as a giant among exporting countries but every year
since 1975 we've imported more than we've sent abroad it hurts our balance
of trade and cost jobs fortunately one export of ours has the potential to
reverse the trend America's agricultural abundance it won't be easy not with
more and more foreign governments subsidizing their farmers wheat corn
soybean and sugar crops on the world market but the American farmer is the
most productive farmer in history and stands ready to rebuild America's export
business literally from the ground up at the Archer Daniels Midland Company we're
proud of our long-standing partnership with the American farmer and we're
committed to continue to seek out new markets for America's agricultural
abundance all over the globe who makes the best personal computers for
business when you rank different models a startling pattern emerges the most
powerful PC in the world the most powerful portable in the world and the
most powerful mid-range PCs in the world all have one thing in common they come
from the company whose annual sales reached a billion dollars faster than
any other in history come back it simply works better
back now and meet the press we're joined by Senator Pete Domenici who's at
station KOB in Albuquerque New Mexico and congressman William Gray who joins us
from station KYW in Philadelphia and gentlemen welcome thank you both for
coming in today we appreciate it good morning thank you Chris and Alan and
Hobart I wish you were out here in New Mexico with me and well we do too I wish
you were in Philadelphia well we I wish I were up there with you also bill well
enough is it only I can't I can't see anything so I I'm hoping you're all
there well as long as as long as you hear us that's just fine senator and I
hope I hope that you heard Henry Kaufman who just said in the preceding segment
of this program that unless the new president-elect begins to get serious
about dealing with a budget and yes indeed compromises on taxes it's going
to have very serious implications for the economy what's your reaction well
I'll go first here since you call my name off first I didn't hear all of him
incidentally but I did hear some of what he had to say first of all I totally
disagree that this president-elect has to do something before he's sworn in in
fact I don't think he has to do anything very quickly I think the normal processes
ought to take place the one thing mr. Kaufman forgot about is the Graham
Rudman Hollings sequester process it's the law of the land the marketplace
ought to understand that we're going to get to a hundred billion dollars if we
can't put a package together the Graham Rudman Hollings sequester will take over
and it will do it for us if we start working on this deficit before he's even
sworn in it seems to me that that is the highest the highest risk there is that
we're going to get new taxes I don't believe he ought to do that I think he
ought to wait a while till he gets his team put together and the marketplace
ought to understand that there's no way for this man to solve this deficit
quickly he needs time the Congress needs time and I believe that he's going to
succeed we're going to help him but I don't think anybody's saying we have to
do anything next week well senator normal processes you talk about that and
you say the market should understand the fact of the matter is the markets are
jittery though they went down 40 points in one day this week the the dollar is
almost at a post-war low against the yen they don't seem to be understanding
that well let me let me tell you I agree with what President Reagan said the
other day if you try to figure out what we ought to do in the future based upon
the hysteria of the market I'm afraid you would you would come up with a
different plan every day my second point is I really can't believe that Henry
Kaufman is serious that we're within 20 billion dollars of new taxes that if we
do that we've got prosperity if we don't we're gonna have problems it just
doesn't make sense to me Congressman Gray do you agree with a senator that you
can go on with normal processes take some time go into the middle of next year
with budget negotiations no I don't quite agree with my good friend Pete I
don't think we can wait until October the 1st which is the Graham Rudman
sequester date and I think if we end up with a process that jams everything up
against that date you will have volatility particularly in the
monetary system which will be very destructive what I think is I agree
though with some of the things that Pete is saying one I think the