The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Monday, share values fluctuated wildly as Wall Street recovered from Friday's stock plunge, Pres. Bush said he was not worried about the situation, the President prepared to order deep cuts in federal programs under Gramm-Rudman mandates. We'll have details in our News Summary in a moment. Judy Woodruff is in Washington tonight. Judy.

MS. WOODRUFF: After the News Summary, we get three different perspectives on today's Wall Street developments from financial analysts David Jones and Robert Brusca and mutual fund manager Monte Gordon. Next the Gramm-Rudman-Hollings deficit reduction law. After a Roger Mudd background report, two of the original authors, Senators Phil Gramm and Ernest Hollings, will be here to discuss whether it's been a success or a failure. Finally an interview with South African anti-apartheid leader Helen Suzman on the new leadership in her country and what it means for South African blacks.NEWS SUMMARY

MR. MacNeil: Wall Street's stock prices seesawed wildly today but the Dow Jones Industrial Average rebounded from Friday's 200 point mini crash. After falling another 63 points this morning, the market recovered and the average of Blue Chip Industrials closed up more than 88 points. It was the fourth heaviest trading day in history, with 416 million shares changing hands. The Federal Reserve Board had moved to prevent a cash crisis if there was heavy selling today by pumping some $2 billion into the money supply. There were reassuring words from Pres. Bush who said he was not worried and from Fed Chairman Alan Greenspan who spoke in Washington this morning.

ALAN GREENSPAN, Chairman, Federal Reserve Board: We at the Federal Reserve are watching developments in the financial markets rather closely. We maintained particular surveillance overnight of Asian and European markets and have kept in productive contact with our counterparts abroad. Coordination exists at a detailed level here in the United States among the Federal Reserve, the SEC, the CFTC, and the Treasury Department.

MR. MacNeil: There was continued turmoil in airline stocks. American Airlines fell nearly $22 a share after Donald Trump withdrew his takeover bid. United Airlines fell more than $56. News that the financing for United's takeover was in trouble triggered Friday's selling. We'll have detailed analysis of the market today after the News Summary. Judy.

MS. WOODRUFF: The White House today prepared a piece of paper for Pres. Bush's signature that would impose an automatic $16 billion cut in federal spending. The action is mandated by the Gramm- Rudman-Hollings deficit reduction law if the Congress fails to agree on a low enough budget total. Budget Director Richard Darman said today the cuts should be felt sooner than the cuts imposed two years ago were. Other spokesmen said they might not be felt by average citizens for at least 2 weeks. On Capitol Hill, the Democratic chairman of the Senate Budget Committee reacted to the impending development which has the formal name sequestration.

SEN. JAMES SASSER, [D] Tennessee: I don't think we do the American people any good whatsoever by standing by and allowing these automatic spending cuts to go into effect. What we need to do now is to have both the House and Senate move very rapidly on a stripped down budget reconciliation instrument similar or identical to the one passed by the United States Senate last Friday, attach that to a leadership resolution, do that rapidly and unwind this sequester just as fast as we can before any substantial damage is done to the American public.

MS. WOODRUFF: Budget Director Darman said over the weekend that it might be better once the automatic cuts are imposed that they be left in place. But Democrats have said they would prefer to try to restore the cuts as soon as a compromise budget cutting bill is agreed to. One of the major holdups to such a bill has been a disagreement between the White House and many Democrats over a lowering of the capital gains tax rate.

MR. MacNeil: The White House said today that Pres. Bush was fully satisfied with CIA Chief William Webster and rumors of displeasure were false. That followed a Washington Post story saying senior officials were frustrated with Webster's so-called low profile performance and had begun talk of replacing him. In New York, E. Robert Wallach was sentenced to six years in prison for taking hundreds of thousands of dollars to get his friend, former Attorney Gen. Edwin Meese, to help a Bronx contractor called Wedtech. District Judge Richard Owen told Wallach, "You lied and committed perjury." He said Wallach was paid almost $1/2 million for influencing the back stairs at the White House. During the trial Meese said Wallach never sought special treatment for Wedtech, but he had asked his staff to look into its attempt to get an army contract.

MS. WOODRUFF: Galveston, Texas, is still reeling from the hurricane that hit the gulf city yesterday, spawning tornadoes, cutting electricity to thousands of homes, and killing a man and his young daughter. Many residents apparently did not take warnings of Hurricane Jerry seriously as they stayed in the area through the 80 mile an hour winds. Trees were uprooted, windows were smashed, and balconies were ripped from apartment buildings. But overall damage was said to be less than $2 million. The two victims were apparently in a car on Galveston Island's protected sea wall when their car was swept away by the high tides.

MR. MacNeil: There was another bombing in Colombia today. The bomb hidden in a car exploded outside a pro government newspaper that has been critical of drug traffickers. Four employees were killed and seven others wounded. It's the second bombing of a pro government newspaper since the government crackdown on drug traffickers in August.

MS. WOODRUFF: Leaders of the Palestine Liberation Organization today rejected proposals from Secretary of State James Baker for talks with the Israelis over the occupied territories. A PLO spokesman said its chairman, Yasser Arafat, asked the PLO's policy making central council meeting in Baghdad, the capital of Iraq, to endorse the rejection. Yesterday Israeli Prime Minister Yitzhak Shamir also appeared to reject the ideas which originated with Sec. Baker and Egyptian Pres. Hosne Mubarak. That's it for our summary of the day's news. Just ahead on the Newshour, the stock market readjusts, Gramm and Hollings on their budget cutting law and South Africa's Helen Suzman. FOCUS - WALL STREET - BOUNCING BACK

MR. MacNeil: First up tonight the Black Monday that didn't happen. As we reported the New York Stock Exchange opened this morning to a heavy round of selling. After a sharp plunge the Dow Jones Industrial's bounced back and closed up 88 points. Overseas, stocks in London lost about 3 percent of their value and in Tokyo just under 2 percent. Here to shed some light on these events are Robert Brusca, Chief Economist at the New York Office of Nikko Securities a Japanese investment firm. Monty Gordon, Director of Research for the Dryfuss Corporation, A New York Mutual Fund Managment Company that over sees 48 billion dollars. And David Jones, Chief Economist of Aubrey G. Lanston a Wall Street firm specializing in securities. David Jones why no black Monday? What prevented it?

DAVID JONES, Economist, Aubrey G. Lanston: One major factor was the fact that we did not see the same kind of overall market collapse that we saw in 1987. It was confined to a particular area that you noted earlier, the airline area and most importantly the take over and heavily leveraged buy out area. What it said, in effect, was there were some excesses in the market. But in general the rest of the market was not up in price relative to fundamentals like earning like we've seen before. And one other factor that was very important, we also saw that earlier on the show, Chairman Greenspan, who said he would provide the liquidity necessary to keep the economy functioning smoothly. That was a very important confidence builder for market today.

MR. MacNeil: What do you think prevented another black Monday?

MONTE GORDON, Research Director, Dreyfus Corp.: We have to go back to Friday to understand what is happening there. The market exploded when presumably UAL was not going to get the deal that they suggested the takeover was not going to go through. Now we're dealing with secondly the frustration that the market is feeling over the fact the Federal Reserve doesn't follow its scenario which calls for a significant reduction in interest rates over a short period of time. The third thing that happened is you haven't had a correction in the market since the 1000 points that you have been up since October 19th. So you were vulnerable on all counts. The market was just frustrated and threw a temper tantrum and threw itself down on Friday. Come Monday, you had Alan Greenspan lined you, you had the stock exchange lined up, you had conversations going on and the market also sensed that nothing of significance as far as the economy is concerned didn't become negative.

MR. MacNeil: Mr. Brusca, what do you think?

ROBERT BRUSCA, Economist, Nikko Securities: We have I think three things. We have P/E's, we have precedents and we have the Fed.

MR. MacNeil: P/E's.

MR. BRUSCA: Price/Earnings Ratios. And the price earnings ratios didn't have the market any where as over valued as it had been. In terms of precedents we had seen this once before and in 1987 there was such a nice bounce back that really at the time it was gittery but looking back it was fairly smooth. There was a good precedent to come in and buy it seemed to be the sensible thing. And I and not quite what the Fed said. I am still kind of confused about that having read a lot and listened to a lot today. But what the Fed did was to provide liquidity and that is what the market likes. Saw the lower Fed funds rate. Those are the three factors I think were principally responsible.

MR. MacNeil: You work for Nikko Securities. On Friday, the analysts we had said it would be crucial today what foreign investors, particularly the big investors in Japan, and germany did. They decided not to sell apparently?

MR. BRUSCA: Yes, I think that is true. In Tokyo itself there wasn't much impact on the local market.

MR. MacNeil: I mean they decided not to sell here.

MR. BRUSCA: In New York this morning we did see some buying orders. Not a lot. Everybody was cautious in the early morning. When we found out, as David said, that things were very well contained, it was just a few sectors, the market was able to find its footing and to get going again. I don't think it was principally foreign buying that did it. I think it was principally the fact that things were domestically isolated.

MR. MacNeil: David Jones, you're an expert on the Fed. What did the Fed say? Mr. Brusca is wonder what they actually did say. What did they say?

MR. JONES: Maybe the criteria for success, Robin, is that we don't know exactly what they said except that they were willing if they had to flood the system with liquidity push rates down and protect the economy from the market. Remember in 1987. I have to give a lot of credit to the Fed at time. This time I don't think they had to act quite as openly with respect to providing that liquidity because I don't think the problem in the market was quite as great. But what they wanted to say was you can be sure that we're there if you need us.

MR. MacNeil: Did they indicate that they were really worried at the Fed? I mean, they don't often talk that clearly in public. Although this was done through an unnamed official and everything else. Those kind of leaks aren't frequent.

MR. JONES: Your question is very perceptive. What they would have done wrongly in my view would have been to make an official announcement that if the market panics we are there to help. Well that might have caused the Friday market to continue into today going down. What they said was very quietly and leaked in various ways through the press we're there if you need us but we are not going to stand on the highest roof top and shout panic because if we do it might make things worse rather than better.

MR. MacNeil: What does it mean, they're there if you need us? What have theyactually done? Does making to 2 billion dollars in extra liquidity available through the New York Branch of the Federal Reserve. Does that signal that they're actually lowering interest rates, easing up on credit and abandoning their fight for inflation?

MR. GORDON: No. They are not doing that. They are simply providing a background which means we are not going to have a credit crunch. No one is going to have to sell securities or be under pressure to sell because they can't get money as the experience was on October 19th. The difference was as Dave was pointing out, what they did there, they came in after the fact. Once that crack happened then they came in and said it. This time they did sort of before hand. But the Fed is not supposed to make specific statements. They are not supposed to illude to the fact they even think there is going to be a panic. So they just quietly let it be known that the money is there.

MR. MacNeil: All right. All these agencies talked to each other over the weekend and to foreign markets and there was this general atmosphere of responsibility and every body is looking after things. Is the volatility over, Mr. Brusca? Could another incident like the collapse of the UAL deal trigger another panic wave of selling?

MR. BRUSCA, Nikko Securities: I certainly hope it's over but I think that we can not know yet. There are a lot of important economic numbers coming up this week and now the market is somewhat fragile from having gone through this difficult situation Friday and today. I would be somewhat concerned. I don't think we can tell.

MR. MacNeil: Can you tell? Is the volatility over? You talked about a sort of nice healthy correction?

MR. GORDON: The main thing is point of it, you know in 1987, or in that period of 1985 through 1987, they said 1929 could not repeated we had all these safeguard. Lo and behold came the crash of October 19th. Then they said that couldn't happen again in another 50 years. Here it is two years later we just had another la la pa losza. So the volatility is there and it is going to stay there. I would venture to say that JP Morgan predicted it years ago when he said, when he was asked about the market. He said that it would fluctuate. That's what markets do. What's happened is we've intensified that fluctuation, primarily because we're a global economy now and money flows in and out with enormous ease around here. We call it foreign money as opposed to domestic money and it really isn't.

MR. MacNeil: Could another incident trigger the kind of huge selling that we saw on Friday?

MR. JONES: What we have is an economy that is much weaker this time than it was back in 1987. Actually we had an economy in 1987 that was in anything becoming too inflationary. So one we had the crash we still had the economic cushion.

MR. MacNeil: You mean it was growing so fast that it was using up good and services and prices were in danger of going up.

MR. JONES: Exactly, putting pressure on resources and pushing prices higher. Now we've got a much more subdued economy. So my view here is that the Fed will have to do some more easing in the future and that we still may have a credit crisis of sorts because that takeover area is still over extended. The so-called high risk junk bonds still are having difficulty in terms of volatility and so there is kind of a credit over hang that may serve to keep the economy growing at a very slow pace for the rest of this year and perhaps through most of not all of next.

MR. MacNeil: But I understood you to say, was I right, that what happened on Friday really wasn't a sign of anxiety about the economy.

MR. GORDON: No, it wasn't, not as far as the economy was concerned. It was a response to the undertaking that was happening in the UAL situation and in the whole area of junk bonds about which the market was very unhappy because as David said that was an area where speculative excess was beginning to grow.

MR. MacNeil: You think Friday was a sign of anxiety?

MR. JONES: It was a signal and I certainly agree that we might not get another signal for a while but I think some day down the road another signal will come that the credit situation in this economy is over extended.

MR. MacNeil: Do you think the large investors you deal with are looking at the underlying state of the U.S. economy fearing a recession or if not a recession continued slow growth or not growth?

MR. BRUSCA: Yes that is a concern. But I have to say the principal concern of the large investors that we talk to, a lot of the investors in Japan has been the exchange rates. The stability of the dollar is really a wonderful thing as far as they are concerned. One might argue in fact that the decline that we have seen in the market is the healthy snap back will actually cause them to say this is a real resilient market. I like this market because it can go down and come back up and they might feel even safer about being here. The small investors in the U.S. might feel quite the opposite, that it looks to dangerous. They may decide to diversify out of it. Through all of it though I think the junk bond things is the thing that worries me the most because I think this market has had a lottery effect. People have played the fundamentals, yes, but there is always chance that you held a stock that would be taken over and you could double, tipple and quadruple your money. If bank aren't willing to play the game, if the junk bond market will not raise the money then there is going to be an important element out of this market that has supported its rise up to this point.

MR. MacNeil: Do you agree with that?

MR. GORDON: I would agree with it, except then the market will turn back to the normal historical measure of values as far as the securities are concerned.

MR. MacNeil: Does that mean it will go down further to turn back?

MR. GORDON: Not necessarily. My perception is if you concentrate and focus on the market or think that the market is going to necessarily focus on simply what is here in terms of the risk of recession that is out there in terms of the slow down and the deterioration of corporate value. All of which is there and not think in terms of what is out on the other side then you have made a mistake.

MR. MacNeil: What's the other side?

MR. GORDON: After you get through with that recession.

MR. MacNeil: Oh.

MR. GORDON: after you get through with that difficulty. You know the old sayings the street has have very great meaning. The street says markets climb on a wall of worry. You've got a thousand point move here in face of great skepticism.. We've been threatened with recession just about every couple of years. We are constantly having it and we are threatened with it now. And I am not saying it is not a risk out there. I suggest it is. It will certainly curb the ability of the market to develop any kind of a sustained rally at this particular point. All you've demonstrated is you a latent buying power in here. There is a lot of money on the side lines. There is a hidden strength.

MR. MacNeil: Do you see any way from what happened Friday and today to takeover shares and the airline stocksto predict what stocks, what does it say about which stocks will. prosper and which won't. Are we going to see sectors that are still going to volatile while other sectors are healthy?

MR. JONES: The first thing, I must disqualify myself. In no sense an I going to be a stock market expert but as any good economist Robin, I'll go ahead and answer your question. The only thing That I can say is this that I think the market told us Friday the speculative stocks. The takeover stocks are in trouble. It may be a two tiered market. There are good stocks and bad stocks. The bad stocks are those that were involved in any kind of takeover. The good stocks are those that have not been tarnished by takeover. Monte can tell you their names, I mean maybe a Coca Cola.

MR. MacNeil: Today's recovery of the Dow Jones, which is only 30 Blue Chips a lot a great majority of other stocks were down today. Is that right?

MR. GORDON: That's right. There was an excess of declines over advances by about 9 to 7 ratio. Part of that was the fact that you were off so far at the beginning that you couldn't recover the whole thing back. The other part was that you saw a flight to quality in this market. So you still see a note of cowardice in here. The Over the Counter Market was down in terms of the Composite Index. So you weren't about to see people rushing out to buy anything in sight. What they we going to stay with was the quality, the better known names. The company as Dave said was not involved in the takeovers and mergers. So you still have a note of fear in here.The market is moving very cautiously. Where are you going to go? Companies that have good management, good products relatively stable earning power. It would like Utilities, tobacco, beverages, retail specialties.

MR. MacNeil: In 1987, all those went down too didn't they.

MR. GORDON: When the time goes out, you know, that is it.

MR. MacNeil: Do you see some sectors benefiting from this and some really suffering now?

MR. BRUSCA: I think there is going to really be a difference. I really feel some of the International oriented companies might hold up better. We've already some of that. There is still themes relating to Europe in 1992. I think it's a good time to tell individual investors to know your broker. It is an analyst market. You want to pick stocks, you want to buy them for fundamentals and these kind of takeover story stocks are. I think are better left to faire tales of the past.

MR. MacNeil: So people were talking recently, had them on this program, and I heard at least one quoted on the radio today of a Dow going to 3000 or higher. Some still are still saying that today. With in the next year?

MR. GORDON: We won't have to live very long, Robin, to see that happen. I don't think that it will happen this year but if I haven't seen the integrity of the U.S. economy violated to the degree other than in the relatively near term to suggest that it won't regenerate itself significantly in the 1990. That's the last decade of the 20th century and I think that we had a big savage ravaging of the economy in the 80s and we've come out it.

MR. MacNeil: So investors, in particularly, big investors will be voting their confidence in the future of the U.S. economy and you see a run up to 3000 not improbable?

MR. GORDON: I didn't say a run-up. I said you would get to that level. Not this year. I think that will occur sometime in 1990.

MR. MacNeil: Does that seem really improbable to you?

MR. BRUSCA: Not really improbable but as they always tell you forecast a date or a time as an economist and they are never both at the same time.

MR. MacNeil: 3000 but not saying when?

MR. JONES: And the valley it may be difficult. The question is over the next year or two years or may be three years how much difficulty do we have in earning and other fundamentals. And in the economy in general to make it to that promised land. We'll get there some day.

MR. MacNeil: You all make it sound like a very rational process gentleman. Thank you very much Mr. Brusca, David Jones Monte Gordon. Judy.

MS. WOODRUFF: Still ahead on the Newshour Gramm and Hollings on the Gramm Ruddman Hollings budget cutting law and South African Apartheid foe Helen Suzman. FOCUS - BUDGET CUTS

MS. WOODRUFF: Next we look at the budget slashing that starts tonight at midnight and the wisdom of the law that requires it. Congress today missed its own deadline to hold Federal spending down to next years deficit target of a 110 billion dollars. The target was set by the Gramm/Rudman/Hollings Law which imposes across the board budget cuts when the deficit deadline is missed. Does the law enforce fiscal discipline or encourage Congressional accounting tricks? We will debate that with that with Senators Gramm and Hollings after Congressional Correspondent Roger Mudd takes a look budget cutting laws impact.

MR. MUDD: About all anybody can agree on anymore is that Gramm is Phil Gramm of Texas, Rudman is Warren Rudman of New Hampshire and Hollings is Ernest Hollings of South Carolina. And that those three Senators taken together make up the Gramm/Rudman/Hollings deficit reduction action and that it was signed in to law almost four years ago by Ronald Reagan amid widespread prediction that America finally was going to get its fiscal house in order. Well, nothing of the sort happened and America's fiscal house seems even messier than before. The Wall Street Journal recently called Gramm- Rudman-Hollings a flop which was producing fiscal follies. Hollings says he would just as soon have his name removed. Rudman is no longer am advocate. Only Gramm seems to be keeping that faith.

SEN. PHIL GRAMM, [R] Texas: But I have heard in the last several days a lot of people trying to pin this failure on that law we adopted in 1985.

MR. MUDD: In 1985, after a year of frustration on bigger and bigger deficits the Bill cleared the Congress in a worldwind. No hearings, no mark up very little debate. Its provisions were straightforward if draconian. The deficit would be eliminated by setting targets for the next five years. In fiscal 1986, the deficit could not exceed 172 billion dollars. In 87, 144 billion, in 88 108 billion, in 89 72 billion, in '90, 36 billion, in '91, zero. On October 15th of each year, the government had to decide whether it would make the target. If it could not the law automatically kicked in across the Board spending cuts divided equally between defense and non defense. The cuts, however, were not across the whole board. To get Democratic votes on final passage, Gramm-Rudman exempted, Veterans Benefits, Medicaid, Aid to Dependent Children, Food Stamps and the two biggest exemptions Social Security and the National Debt interest. That meant that the Gramm-Rudman cuts could bite only into about half of the budget. And Pres. Reagan, despite his early embrace of the concept began to feel trapped by the Democrats in having to choose between an increase in taxes or a decrease in defense. Two things he pledged his sacred honor to oppose. The first year, the Gramm-Rudman cuts got the 220 billion dollar deficit down to 208 billion dollars. During the 2nd year, aided by an $11 billion uptick, as it's called, from the new tax cut the White House and the Congress got the deficit down to 150 billion dollars so that there were no gramm Rudman cuts. But by 1987, enthusiasm for Gramm-Rudman was fading. Democrats feared Reagan would continue blocking the tax increase in order to trigger the automatic cuts so that he could blame Congress for the Harm. So in September, the Congress practically rewrote Gramm/Rudman making the deficit targets easier to hit and giving itself two more years to reach ground zero.

PRES. REAGAN: Yes, I'll sign this bill. As I do so from this moment on, the big spenders in Congress will have a fight on their hands.

MR. MUDD: But on October 19th the stock market collapsed whether Congress's lack of deficit discipline brought it on is not firmly established, but the October collapse turned Washington's fiscal knuckles white. Under mammoth pressure to get serious Congress and the White House agreed in late December on a two year plan. For fiscal '88, a 33 billion reduction including just over 9 million dollars in new tax revenues. For fiscal 89 a 43 billion dollar reduction including 14 million in new tax revenues. But few of the politicians were happy with what they had to go through to avoid bringing down the Gramm/Rudman guillotine. The Republican right thought Reagan had sold them down the river on the tax increase. The Democratic left thought the cuts to easy on the Pentagon to harsh on social welfare. Furthermore, both the Congress and the White House found out how to use subtrifuges and deceit to side step Gramm/ Rudman. For instance deliberately underestimate the coming deficit. Move the postal service out of the budget. Pay the Pentagon a day early so it won't be counted in fiscal 1990, have the telephone companies deposit their taxes with the Treasury Department a week earlier, speed up some farm price support payments. Sen. Sasser of Tennessee says everybody has learned how to rig it. So the question may not be whether Gramm/ Rudman is a failure which it seems to be but more whether the White House and the Congress are interest in or even capable of reducing the deficit.

MS. WOODRUFF: We turn now to the deficit and Gramm-Rudman- Hollings with 2/3 of its authors. Texas Republican Phil Gramm and South Carolina Democrat Ernest Hollings. Both serve on the Senate Appropriations Committee. Sen. Gramm we said that these budget cuts were going to go in to effect tonight at midnight. Is that your understanding?

SEN. PHIL GRAMM, [R] Texas: That's right. We are not going to reach the target by midnight.

MS. WOODRUFF: What will that mean, I mean, exactly who is going to be hurt? How much does it effect citizens in this country.

SEN. GRAMM: Well, for the first couple of weeks its not going to make any difference because all the agencies can pretty well shift around their budgets. Delay travel, delay conferences. Put off making decisions. If, in fact, Congress does not act, if we don't achieve budget deficit reduction,in order to get us back down to the projected 110 billion with the way that we are doing the accounting then we are going to have the across the board cuts become permanent and then I think that we will feel it. Now we are talking about 16 billion dollars out of a 1 trillion 80 billion dollar deficit. So it is not armageddon.

MS. WOODRUFF: How serious is it?

SEN. GRAMM: I think that we are understating how serious it would be as part of political gamesmanship. The bottom line is we are going to do what has to be done to avoid the cuts.

MS. WOODRUFF: It's not armageddon. Senator Hollings would you agree with that.

SEN. ERNEST HOLLINGS, [D] South Carolina: No, it's not armageddon but Judy it is still the fall. There is no question about it. getting it down 16 billion does not really comply with Gramm/Rudman/Hollings. The fact of the matter is that we really need to cut instead of 16 about 50 billion. On October the 10th the Congressional Budget Office estimated the deficit to be a 141, then we have to add 5 billion from FSLIC on budget funds that carried over 89 to this 90 from September until October and already we've repealed catastrophic sur tax. So you have 151 billion and what we should be looking for if we were going to play the game honestly. That is why I asked for our divorce. There is not any thing wrong with the law. It is the way we use the law. It was intended really as sort of a sword to spur us to fiscal responsibility. We use it as a shield and talking very seriously now if we can get it down 16 billion we've done our job. That is hooey. It is up now to a 151 and then if you take the 14 billion that is off budget in the year 1990 for FSLIC bonds that is a 165. Add the 135. We're spending 300 billion more than we are taking in right this minute.

MS. WOODRUFF: Sen. Gramm, if the budget deficit it as high as Senator Hollings is saying 16 billion dollars really isn't going to make that much difference.

SEN. GRAMM: Let me say, Fritz, I'm going to give you a divorce, but you are going to have pay some child support. First of all Gramm/Rudman/Hollings did not invent cheating. I am opposed to all of this accounting gimmickry. I think the Congress has not done its job. I think that the White House has conspired with the Congress in the best spirit of bi partisan ship to avoid hard decisions. But the bottom line is the is that the law is both a success and a failure. We've cheated, we've cut corners but there are certain facts that can't be refuted. One is federal spending grew by 11 percent a year for the 20 years prior to the law. Its grown less than 5 since the law went in to effect. And secondly, government has gotten smaller relative to the private sector? Should we do more? Yes. I want to do more. I am willing to do more but would be better of if we didn't have any binding constraints? No.

MS. WOODRUFF: Let's turn now to Sen. Hollings. Doesn't he have a point?

SEN. ERNEST HOLLINGS, [D] South Carolina: You know Phil. I admire him but when he goes to the percentage arguments that is like a pool of water is a mean 3 foot dept but you drown in it because on the deep end it is 20 feet deep. Look, don't give me the percentage. We adhered to the discipline the first two years as Roger Mudd just recounted but then in the last three years when we got together in Christmas time of 87 it was Ronald Reagan and came out and said a deal is a deal.I broke ranks because the discipline broke ranks and since that time just a couple of months ago we put FSLIC bonds 360 billion off budget

MS. WOODRUFF: THis is the Savings and Loan?

SEN. HOLLINGS: That is the savings and loan. When you say we have to have truth in budgeting and then leading the way to put 360 billion off budget. You don't have any discipline left.

MS. WOODRUFF: What about that Senator Gramm. Isn't that the kind of subtrifuge that the critics are saying?

SEN. GRAMM: No I don't think so. First of all let me just give you two examples of how the law still has had a positive impact and Fritz and I don't agree Congress has been totally irresponsible in part because Gramm/Rudman/Hollings was not a marriage of love or convince. It was a marriage of necessity. Congress hates the law; they'd like to repeal it. This year we had a crisis with drugs. So Congress came in and raised spending without Gramm/Rudman/Hollings we would have sent the deficit up. We didn't we cut across the board to pay for it. Second, catastrophic, we would have repealed the sur charge but we would have left the benefits in place with gramm/Rudman/Hollings but we went back and cut the Bill.

MS. WOODRUFF: You say Congress doesn't like Gramm/Rudman it want to repeal it but isn't the question whether Congress takes this law seriously or not.

SEN. GRAMM: Congress does everything it can to get around it but the point is that with all of the failings with all of then cheating the deficit has been cut in half. Now you can say what about Social Security but Social Security was not counted outside the budget when we started. You can talk about the savings and loan bailout but would there have been a savings and loan bailout with Gramm Rudman you bet your life there would be.

MS. WOODRUFF: Let's ask Senator Hollings about that?

SEN. HOLLINGS: What's your question?

MS. WOODRUFF: Would there have been a bailout?

SEN. HOLLINGS: No I think Phil and I agree on that. He usually gives the example about the wrench and he says the drunk who is trying to fix the faucet you are blaming the wrench instead of the drunk and I rather agree with him on that. Nothing wrong with the wrench. If we'd use that law as it was originally intended we'd be on target but once again, if we are the ones who are leaders and not going to do anything about it and we go along with these deficits. Alright we pass one in May and we got upon the floor, and my good colleague here supported it. And he said this does the work it draws it down to a 100 billion bucks. I said its a 150 billion. I said that in May. I'm not genius. We knew we were going to cheat and everything else on it and we knew we were using the wrong assumptions with respect to inflation and interest rates and growth of the economy. And so I said what we've got to do is get back to truth in budget.

SEN. GRAMM: Can I respond to that very briefly? Fritz what you forget is that I got up and said this is not my budget deal I was not part of it.

SEN. HOLLINGS: I know but you voted for it.

SEN. GRAMM: THis is absolutely minimal and I said let me predict that when it comes time to enforce that everybody that saying it is not enough won't be enforcing it and in fact we are not which is why we are here with a sequester order.

MS. WOODRUFF: Isn't what we're talking about though, gentlemen, at one level is whether we take the budget deficit seriously or not and whether we think we ought to do something about it or not.

SEN. HOLLINGS: That's right And I listened to our chairman say Fenetal on the House side saying it was a lack of leadership. He doesn't understand where the leadership. The leadership is with the President and he is leading in the other direction. He is leading for increases in the deficit with this blooming capital gains tax cut. I mean how in the world can you really take the deficit seriously when the President is leading to increase it.

MS. WOODRUFF: Sen. Gramm.

SEN. GRAMM: First of all, we never cut the capital gains tax rate since we started reducing it 1922 that we didn't raise revenues. But if Fritz is saying that we need to take the deficit more seriously that we need binding constraints I am for that. But let me tell you, where Fritz and I disagree is the people who never wanted our law who never wanted to enforce it who worked to kill it every step of the way are now saying its not working we ought to repeal it. What would happen if we repealed it? The deficit would be back up at two or three hundred billion counting Social Security four or 500 billion not counting it.

MS. WOODRUFF: Isn't that just a matter of accounting, and where you put the numbers, I mean, isn't than what you are saying.

SEN. GRAMM: When you're talking about the growth in capital spending there isn't any accounting differences involved in budget. It was growing at 11 percent on average for the 20 years we started. It is down below 5 percent. That is a tremendous change in policy. Is it everything that I wanted? No.

MS. WOODRUFF: Sen. Hollings what should we have if we shouldn't have Gramm/Rudman.

SEN. HOLLINGS: Oh no. I think we ought to have Gramm/Rudman. We ought to obey it. We ought to adhere to it. We ought not to break the discipline around here. And we understand when we come around with all these particular programs,like I have to have a war on drugs, I have to go Mars, I've got to clean up the environment. I've got to do all these particular programs that I favor. That is going to cost money. And right now, for example, this reconciliation they're talking about, just cutting right straight across the board.

MS. WOODRUFF: This is the budget reconciliation bill.

SEN. HOLLINGS: Budget reconciliation doesn't adhere to it with the 16 billion and the cuts, tonight at midnight will by cracky cut the drug program we will have less for drug war in DEA for example under the sequester right across the that we had last year. It'll cut education a billion dollars. People don't understand. Rostenkowski and everyone else is saying well let the ax fall. That we will save more money but it falls on the programs of the infrastructure. We are trying to build up education. We're trying to get to get research going. and they are going to suffer inordinately.

MS. WOODRUFF: But a lot of people are saying those cuts aren't really going to be big enough to really make any difference and that any way that Congress is going to come back in a few weeks and restore the cuts or in a few months or whatever. That it is not going to have much of an impact?

SEN. GRAMM: Well, Fritz and I totally agree on one thing. First that we did not do enough to reduce the deficit. Secondly that across the board cuts as a policy not as threat make no sense. When I was growing up when we ran down of money at the end of the month, we didn't go to the movie house a little less and drink a little less milk, we just didn't go to the movie house. So wee ought to be making these decisions. Now Fritz and I differ on how we ought to be making them but we think that we ought to be making them. My view is that we need to go back and strengthen the law. It has helped us, it has helped us make progress but Congress has found ways to get around and cheat. We're better off with it than without it. But it's time to go back and rebuild the walls put some more bricks in.

MS. WOODRUFF: Sen. Hollings is that the solution then?

SEN. HOLLINGS: Yeah, but the real solution is what you are doing bring the truth up on top of the table as to what we've been doing. Let's get on the President and say you take the deficit seriously. Cut out this campaign pledge nonsense and read my lips and don't lead for an increase in the deficit of some 67 billion bucks with a capital gains tax cut.

SEN. GRAMM: You're hearing Fritz's argument now that we ought to raise taxes

SEN. HOLLINGS: You're hearing the facts.

SEN. GRAMM: That's his greatest.

SEN. HOLLINGS: Oh, no. I think we ought to cut spending and raise taxes. I am willing to pay for education and research and these other things. I am willing to pay for. Yes I recommended a value added tax plus a cut in spending.

MS. WOODRUFF: Gentlemen, we thank you so much. Senator Hollings and Senator Gramm. CONVERSATION

MR. MacNeil: We turn now to South Africa and a conversation with one of that country's most outspoken white critics of apartheid, Helen Suzman. First, some recent changes in South Africa under its new President, F.W. DeKlerk. His biggest move came yesterday with the release of eight black leaders who have been serving life sentences for trying to end apartheid. 77 year old Walter Sisulu spent the past 26 years in prison for his leadership role in the African National Congress, a group banned by South Africa in 1960 for advocating violence to end apartheid.

WALTER SISULU, African National Congress: It was not possible to despair because the spirit of the people outside was too great.

MR. MacNeil: His comments marked the first time an ANC member was allowed to speak in public in 30 years. DeKlerk's critics on the right say Sisulu's release is evidence that the new president is buckling under to foreign pressure.

KOOS VAN DER MERWE MP, Conservative Party: It's clearly a victory for the West and it's clearly a victory for the radicals because the urgency in which the state president has released them immediately after assuming office, and the fact that he even phoned his bosses overseas proves that he was under tremendous pressure to release them.

MR. MacNeil: DeKlerk has also moved quickly to begin a dialogue with anti-apartheid leaders. He met last week with Archbishop Desmond Tutu and two other clergymen. Tutu said he would call for a suspension of economic sanctions against South Africa if DeKlerk agreed to several demands. They include the lifting of a state of emergency that's been in effect for more than three years. No agreements were reached.

FW DE KLERK, South African President: I strongly emphasize the fact that this meeting will be one of a series, that there are many other constituents in the South African community which also have viewpoints, which also have leaders, and that the government is not prepared to consult and to negotiate with only one or two particular instances or organizations.

MR. MacNeil: DeKlerk has also allowed some huge anti-government demonstrations to go on without police interference, like this one over the weekend celebrating Sisulu's release, although one peaceful demonstration last week was still broken up by force. One woman who has spent her life fighting for a dialogue is Helen Suzman. As leader of the liberal party for more than 30 years, she was often the only voice in parliament speaking out against apartheid. But she's been criticized recently by some people in the anti-apartheid movement for her opposition to sanctions. Ms. Suzman retired from parliament this year at the age of 71. I spoke with her on Friday in New York. Mrs. Suzman, thank you for joining us. How important, do you think, how significant are the changes Pres. DeKlerk has instituted so far?

MS. SUZMAN: I think they're quite significant in I think they mean to show a real change of direction, away from police, a toughness, to an understanding that people want to protest and protest peacefully, particularly if they don't have the vote. The important thing too is that he has allowed the Johannesburg City Council which is National Party controlled to desegregate all public facilities. I'm sure they couldn't have done that without asking his permission. And then too he has signified that he's prepared to speak to the leaders that the people, themselves, have chosen, rather than the leaders that have been elected through the system. And I think therefore his talks with Archbishop Tutu and the Rev. Chicani and the Rev. Boesak are quite significant as well.

MR. MacNeil: Do you regard these as sort of tactical maneuvers or as demonstrating the first steps in a real change of strategy and direction?

HELEN SUZMAN, South African Opposition Leader: I think he's trying to win confidence. He's trying to win the confidence of black people in South Africa who feel they have been frustrated, they have been ignored in the party, political and parliamentary political system. And that's one thing he's trying to do is create a climate for negotiation. I think the fact that he's released Walter Sisulu and several other leading African National Congress people who were sentenced to imprisonment, together with Nelson Mandela, I think that's important as well.

MR. MacNeil: Why not Mandela at this stage, what do you read into that?

MS. SUZMAN: Well, I would think the release of Walter Sisulu and the others is a try out to see just what the result will be, what the effect will be, what the reaction will be among the mass of the people. There is a very large mass democratic movement in South Africa and I have no doubt they will organize huge rallies to welcome the people who've been released, and no doubt they want to see if they can control that, that there be no violence, because Nelson Mandela is of course the folk hero who will I'm sure result in much more of a public demonstration even than Walter Sisulu and the other members of the ANC.

MR. MacNeil: Some observers of the South African scene are suggesting that DeKlerk may be making some of these moves now in order to head off the pressure for tougher sanctions against South Africa which some countries want to raise at the British commonwealth prime ministers meeting in Qualalumpor later this month. Do you believe DeKlerk is doing that?

MS. SUZMAN: Well, I think he probably realizes Mrs. Thatcher, who has been a lone voice against sanctions at commonwealth conferences, needed something to take with her to Qualalumpor when she goes later this month. And this is probably something that he is at least providing. It's not enormously significant, but it certainly is, as I say, shows a change of direction. And it is something which Mrs. Thatcher can say, look, this man is different, it's a new policy, a new direction, give him a chance, let's wait and see, let's not impose further sanctions.

MR. MacNeil: You have for all your years in parliament been an opponent of apartheid, the system of segregating the races. Do you believe this new man, DeKlerk, is serious about dismantling it?

MS. SUZMAN: Well, he is a nationalist. He's a politician. He's a pragmatist. He's not a starry-eyed liberal, as some people have called me. But he I think realizes change has got to come. I think he also, however, has got his own particular bottom line, and he does represent a party which is intent on maintaining group identity. So I don't think he's going to go as far as my party, for instance, would like him to go or as far as the mass democratic movement would like him to go. But he's going to go further than his predecessor and he's going to try and create a climate for negotiation.

MR. MacNeil: So when he says that he wants to create a new constitutional democracy in which no race can dominate the other, that is still qualified by having each separate group governing itself separately, but the whites fundamentally governing the country?

MS. SUZMAN: I think he will stick to the present system whereby there are separate group identities protected by law by these separate voters' roles, and probably some different mechanism whereby he can see that the three groups that are not white are not able to vote together in order to outvote the wishes of the white minority.

MR. MacNeil: People of mixed blood and the people of Indian origin.

MS. SUZMAN: Yes. The Indian, there are a million Indians, and about 3 million people of mixed blood, and about 27 million blacks.

MR. MacNeil: With the removal starting now and in the past year or so of so much of what was called petty apartheid, the things that restricted blacks moving and eating in restaurants and an agreement recently to negotiate an end to the housing rent boycott and all those things, is that going to take some of the steam out of the black movement, of the ANC movement?

MS. SUZMAN: I think that's the intention.

MR. MacNeil: Is it going to do it?

MS. SUZMAN: To try and defuse it, the anger and the frustration. I think it will to a certain extent among people who in any case are not really politically active. I don't think it's going to make any difference to the activists and it's certainly not going to make a difference to the radical left among the black people.

MR. MacNeil: Can Mr. DeKlerk, given the political realities around him, can he meet the conditions that Archbishop Tutu and the others have set for entering real negotiations with the government?

MS. SUZMAN: Yes, I think he could do that immediately.

MR. MacNeil: He can release all the leaders, lift the state of emergency? You think he can do that?

MS. SUZMAN: Yes, he could. He could do that immediately and I think he's going to probably consider doing it.

MR. MacNeil: So you think it's within political possibility for DeKlerk to do it and that therefore there will be real negotiations between Tutu and the other leaders and DeKlerk and his government?

MS. SUZMAN: It would have to be between a wider circle than just what people you've mentioned. I think the ANC would have to be unbanned and allowed to come into the negotiations, the African National Congress, who do really represent the politically active blacks in South Africa, I have no doubt. But then you also have to bring in people like chief minister Butalazi, whose nation of Zulus consist of over 6 million people. You certainly can't leave him out of negotiations. There are the other leaders of the other non- independent homeland states. And there are the trade unionists, the members of the urban community. All of these people I think would have to send representatives to the negotiating table to thrash out a new constitution for South Africa. And it will take some time. It's not going to be done overnight.

MR. MacNeil: You've been criticized by some of the more militant South African Nationalists and by some people in this country for your opposition to sanctions. Just tell me briefly why you have opposed sanctions.

MS. SUZMAN: For economic reasons. I don't believe that reducing the economy to a wasteland and causing massive unemployment in South Africa is a positive step. I think it is counterproductive. First of all, it undermines the strongest weapon that black people presently anyway can use in South Africa to overcome the differences in privilege and power and wealth in South Africa, and that is strong trade unionism, where the demands will go well beyond the workplace. But only if the trade unions are strong, if people are employed, and indeed if the majority of skilled workers in South Africa are black people. Now any undermining of that I believe is counterproductive.

MR. MacNeil: But hasn't it been the sanctions that have already been voted by the United States and other Western countries, and the threat of further or more extreme sanctions which has brought the Nationalists and DeKlerk to making the concessions which they've just made?

MS. SUZMAN: It's been an ongoing process. I mean there have been many changes in South Africa over the last 10 years, long before sanctions were applied. There's no doubt international pressures certainly play their part. And no country likes to be considered a pariah by the rest of the Western world.

MR. MacNeil: That's just a moral question.

MS. SUZMAN: Well, it is a moral question.

MR. MacNeil: On the economic grounds, are you saying the sanctions have had no effect and they've only had a negative effect?

MS. SUZMAN: I think that the effect that they've had is negative because it's created more unemployment. And that's a serious matter in a country like South Africa which has a minimal safety net of social security. There's no -- there are no food stamps. So it's a pretty dire experience for a man to lose his job. And I believe to try and render one of the few countries on the continent of Africa that is economically viable into a non-viable state is counterproductive.

MR. MacNeil: What was your reaction personally when you found that position this week when you spoke at Westland University in Middletown, Connecticut, you found yourself being booed by some of the students?

MS. SUZMAN: Booing is going a bit far.

MR. MacNeil: Heckled.

MS. SUZMAN: Not even heckled. They gave me an absolutely silent and courteous hearing. Nobody booed. Nobody interjected. Undoubtedly when the questions were put by the members of the audience, those members who were part of the picket, they were hostile questions, there's no question about that. But I take that as it comes, you know. I'm pretty used to being in the minority as far as certain opinions are --

MR. MacNeil: Do you think they have misunderstood your role and your position?

MS. SUZMAN: No. I think they were aware of the fact that I have been anti-apartheid all these years. But they're very angry with me for taking a stand against sanctions and against disinvestment, and also divestment, which they feel are major weapons against the government of South Africa, and as you know, I disagree. I think it's counterproductive. But also they want to take this moral stand. They feel it's a moral statement and they don't want anybody to in any way undermine the influence which they feel that moral stand would have. To me, I know the government perhaps better than they do, the government of South Africa, they are influenced by outside pressures. But they are certainly not going to change their policy fundamentally simply because people outside the United States and elsewhere are pressurizing them to do so. There is, in fact, a reverse reaction very often. You'll find the whites becoming extremely irritated by this and I think it's quite significant that the government which lost 30 seats in the last election in September lost 17 of those 30 seats to the far right party, the conservative party, and 13 seats to the liberal democratic party.

MR. MacNeil: After all those years in parliament as a voice, sometimes a lone voice, often a lone voice against apartheid, are you a bit sorry now that you resigned last spring and aren't there as the battle begins to turn at least in tone a little bit your way?

MS. SUZMAN: In a way, yes. I haven't yet had proper withdrawal symptoms. I think those will come when parliament starts again at the end of January. Then I will probably miss it. I shall certainly miss the challenge of debate. And I'll miss I think studying bills and participating in the very interesting period which is coming up in South Africa. But I've always felt it's a good thing to leave when people still think you should stay and not wait until they say, how are we going to get rid of the old girl. And I think that time had come. I had 36 years, and there are other people now who can carry on.

MR. MacNeil: Well, Mrs. Suzman, thank you very much for joining us.

MS. SUZMAN: Thank you. RECAP

MS. WOODRUFF: Once again, the main stories of this Monday, the stock market recovered from Friday's tumble. The Dow Jones Industrial Average closed up more than 88 points, closing at 2657.38, and Pres. Bush prepared to sign an order tonight making cuts in federal spending. The cuts are mandated by the Gramm-Rudman-Hollings deficit reduction law. Good night, Robin.

MR. MacNeil: Good night, Judy. That's the Newshour tonight. We'll be back tomorrow night. I'm Robert MacNeil. Good night.