The MacNeil/Lehrer NewsHour

MR. MUDD: Good evening. I'm Roger Mudd in New York.

MR. LEHRER: And I'm Jim Lehrer in Washington. After our summary of the news this Monday, we examine the new fighting in the Middle East. Then come a report on the siege of Sarajevo, a look at the economic cost of the floods in the Midwest, and an essay about cheeseburgers in the federal budget.NEWS SUMMARY

MR. LEHRER: The flooded Midwest prepared for more rain today. Levees grew weaker as the Mississippi and Missouri Rivers continued to rise. Residents in Perryville, Missouri, were evacuated yesterday after a levee gave way. Water from the Mississippi River flooded the town. Floodwaters from the Missouri River shut down water treatment plants in St. Joseph, Missouri, and Brownville, Nebraska. Officials in both towns say water could be restored by mid week. DeWitt, Nebraska, experienced heavy winds and rain today after tornadoes and floodwaters raced through the town over the weekend. We'll have more on the impact of the floods later in the program. More than 2,000 people are dead from flooding in southern Asia. An official said today thousands more could die from disease. The flooding has struck northern India, Nepal, and Bangladesh, where almost half the country is underwater. The water is from unusually fierce annual monsoons. Officials said the risk of cholera is high, because millions of people have been left homeless with no medical supplies and only contaminated water to drink. Roger.

MR. MUDD: President Clinton called on Congress today to get on with it, as he put it. He spoke as House and Senate budget conferees are negotiating over two versions of the President's budget plan. Both would cut about $500 billion from the deficit through a combination of spending cuts and tax increases. Mr. Clinton said prospects for the economic recovery hinge on the conferees working out their differences quickly. He spoke at a conference on business/worker relations in Chicago.

PRESIDENT CLINTON: The government needs to pass this budget and get on with the rest of business. Hanging out there, debating it, dragging it out for weeks and weeks will only make it worse. [applause] There comes a time when delay to get a slightly better decision is worse than action to get a pretty good decision. We have reached that time. We don't need to do that. We've got other things to do. And you need to know what the rules are going to be, what the deal is, and we need to go on with our lives.

MR. MUDD: Congressional leaders have given the conferees a Thursday deadline for finishing their negotiations.

MR. LEHRER: There was a second day of Israeli air and artillery attacks on south Lebanon today. The intended targets were Muslim guerrilla bases. The guerrillas responded by firing rockets back at northern Israel. More than 35 people have been killed in the cross border fighting. Israeli officials said the attacks were retaliation for guerrilla offenses that killed seven Israeli soldiers. We have a report narrated by Louise Bates of Worldwide Television News.

LOUISE BATES, WTN: Israel's thunder artillery battalion has fired thousands of shells into southernLebanon. The relentless barrage part of a multi-pronged bombardment. Guerrilla bases were targeted, but scores of civilians have been killed or injured, and there's no sign of an end to the conflict. The scale of the onslaught has caused outrage in the Muslim world. The Israeli government argues it was provoked into the attack. Israeli settlements have been repeatedly hit by rockets, inflicting civilian and military casualties. Caught under the Israeli firestorm, the Irish U.N. peacekeeping force. Several soldiers have been injured. Thousands of Lebanese have fled, the bombardment targeting Palestinian camps in the ports of Sidon and Tripoli, as well as mountain strongholds. In northern Israel, children are being evacuated, and the civilian population is spending a second night in shelters. The funeral for two Israelis killed on Sunday spilled over into anger. The Israeli military says it will continue to hit the guerrillas hard.

MR. LEHRER: We'll have more on this story right after the News Summary. United Nations peacekeepers in Bosnia blamed Serbs today for an attack on their base in Sarajevo. Officials said the Serbs Sunday fired nearly 70 shells that hit the base. No one was injured, but several vehicles were destroyed. The U.N. commander called the attack cowardly and said next time the Serbs would face immediate retaliation. Bosnia's Muslim president arrived in Geneva today for a new round of peace talks. The negotiations open tomorrow on a Serb-Croat proposal to split the republic into three ethnic states.

MR. MUDD: Despite new racial violence, politicians in South Africa pressed ahead today with their talks on sharing political power. Eleven people were killed and fifty-two injured when gunmen opened fire last night at a predominantly white church near Cape Town. We have a report from Jeremy Thompson of Independent Television News.

JEREMY THOMPSON, ITN: Carnage in church, the ultimate sacrilege, bodies lay among the shattered pews. The church of St. James's had been packed with over 1400 worshippers for the regular Sunday evening service. The five masked attackers had burst in, hurling grenades and spraying the congregation with automatic rifle fire. The horror felt in the local community translated into a sense of outrage across the country.

ARCHBISHOP DESMOND TUTU, Cape Town: It is an act that is clearly designed to undermine the negotiation process.

PRES. F.W. DeKLERK, South Africa: We are adamant that the overwhelming peaceful majority of South Africa should not allow the evil forces behind this, to disrail and de-rail the peace process with which we are pursuing.

JEREMY THOMPSON: The multi-party negotiators observed a minute's silence for the massacre victims before starting one of their most crucial debates, approving the new draft constitution that will pave the way for South Africa's first non-racial elections. Most politicians here suspected it was this democratic process that was the real target of the unknown forces bent on de-stabilizing the country.

MR. MUDD: The multi-party elections have been scheduled for next April. They will end white minority rule and give the nation's black majority voting rights for the first time in South Africa's history. Russian President Boris Yeltsin today relaxed a currency reform plan in hopes of averting a political crisis. On Saturday, Russia's central bank voided the old ruble notes and gave people two weeks to exchange their old notes for new ones but limiting all cash transactions to $35. Any excess would be locked in a savings account for six months. The move was intended to slow the rate of inflation by taking money out of circulation. What it did, instead, was prompt howls of protest from the public and hard-line lawmakers. So today, Yeltsin gave people three more weeks to exchange their old rubles and substantially increase the ceiling on cash transactions.

MR. LEHRER: An airliner crashed today in South Korea. Sixty-two of the one hundred and six people on board were killed. The Boeing 737 plowed into a wooded hillside during a storm, but the exact cause of the crash was not known. The plane was on a domestic flight from Seoul to a southern city. Witnesses said the plane made three attempts at landing before it went down.

MR. MUDD: Gen. Matthew Ridgway died in his sleep today at the age of 98. He was one of the 20th century's leading combat generals. Ridgway created the army's first airborne division, the 82nd, and led its assault into France on D-Day. Ridgway, who was a four-star general, replaced Gen. Douglas MacArthur during the Korean War and brought the 8th Army back from the edge of defeat. In 1952, he succeeded Gen. Eisenhower as supreme allied commander in Europe. Ridgway died at his home near Pittsburgh. That's it for the News Summary. Just ahead on the NewsHour, new fighting in the Middle East, the continuing war in Bosnia, the economic impact of the flood of '93, and a Jack Perkins essay. FOCUS - UNDER ATTACK

MR. LEHRER: We start tonight with a military confrontation in the Middle East. It is happening in Southern Lebanon between Israeli forces and Muslim guerrillas. It is described as the most intense since the Israeli invasion of Lebanon in 1982. We get two views of what caused it and its possible consequences. Ori Nir is Washington Bureau chief for the Israeli newspaper Ha'aretz. Hisham Melhem is Washington Bureau chief for the Lebanese newspaper As-Safir. What caused this new fighting?

MR. NIR: What caused this new fighting was a series of ongoing attacks by Hezbollah. The Muslim militia in Southern Lebanon against Israeli, and they're both against Israeli forces in the security zone, in the self-proclaimed security zone of Israel in Southern Lebanon, and against Israeli civilians in northern Israel.

MR. LEHRER: When did those attacks begin?

MR. NIR: Those attacks, well, they've been occurring on and off for years, but the latest wave has been taking place I'd say for about two months or so, and it intensified very severely in the last two or three weeks.

MR. LEHRER: And seven -- we said in the Newshour, reported in the News Summary that seven Israeli soldiers were killed in those various attacks, is that right?

MR. NIR: Yeah.

MR. LEHRER: Do you agree, Hisham Melhem, with that as to what's the initial cause of this?

MR. MELHEM: Well, you have a bad situation of occupation made worse by 21 months of fruitless negotiations between the Arabs and Israelis, including the Lebanese and Israelis. Those Israelis who were killed in South Lebanon, we should demand ourselves, were not innocently frolicking in South Lebanon. They were members of an occupation army. It's a euphemism. The Israelis call it the security zone. Certainly we and the Lebanese and everybody else call it an occupied territory. As long as there is no commitment from the Israelis and the Lebanese-Israeli peace talks for withdrawal from South Lebanon, as long as the Israelis refuse to accept Resolution 425 which was adopted in 1978, which called on them to withdraw from South Lebanon as part of the terms of reference of the negotiations, the Lebanese government cannot and will not, I think, try to prevent any Lebanese, Hezbollah or anybody else, from waging what the Lebanese believe as legitimate acts and resistance against an occupation.

MR. LEHRER: So the Lebanese government is not going to step in and stop these attacks on Israel, so that -- Israel's position is, nobody else will do it, they have to do it themselves?

MR. NIR: Absolutely, that's the situation. The Lebanese government is, unfortunately has not the power to stop those, those attacks, therefore, Israel has had to create this buffer, this badly needed buffer, in South Lebanon in order to keep the security of its, of its people in the North.

MR. LEHRER: What about that argument that -- do the Lebanese just reject the basic Israeli argument that if there is no buffer zone, then the people in the northern part of their country will be susceptible to random attacks?

MR. MELHEM: Well, the Israel logic stands on its head. I mean, you create a buffer to protect Northern Israel, then you have to create a buffer to protect the buffer which includes Israeli soldiers. Now, the attacks that were raised by Hezbollah occurred on Lebanese territory, on occupied Lebanese territories. These are not, and the Lebanese maintain and I think the international law would support them, that these are not acts of terror. I mean, the Israelis are very good in Orwellian language, but they have to stretch the definition "terrorism" incredibly to cover the acts that were taking place in Southern Lebanon as terrorist attacks. They were attacks against members of an occupation army and, and as long as the Israelis don't contemplate seriously the question of withdrawal, these acts will continue, and no Lebanese government can stop them.

MR. NIR: But Hisham, please let me intervene here. I mean, the world's latest, the Israeli action which was taken now was taken precisely as a result of, of Hezbollah attacks against civilians, against Israeli civilians in the north, more specifically Katushite acts, those rocket attacks across the border into Israeli territory, so the --

MR. LEHRER: Not against military targets?

MR. NIR: Not against military targets.

MR. MELHEM: So the soldiers died on Lebanese territory. They died in ambushes against Israeli army occupation forces.

MR. LEHRER: Sec. of State Christopher, who's on his way to the Middle East now, said today that he believes that the Hezbollah has launched these recent attacks because they want to stop the peace talks. Do you agree with that?

MR. MELHEM: It's no secret Hezbollah is opposed to the peace talks, obviously, just as there are people in Israel who are opposed to these peace talks. The problem now with focusing on Hezbollah, certainly I don't share Hezbollah's political philosophy. I don't share their view.

MR. LEHRER: What is their political philosophy?

MR. MELHEM: Well, I mean, Hezbollah is a Muslim-oriented political party. It was established, incidentally, interestingly enough in the wake of the Israeli occupation of Lebanon, invasion of Lebanon in 1982. Before 1982, we had no Hezbollah. Israeli actions contributed to the creation of groups such as Hezbollah. Hezbollah would like to --

MR. LEHRER: It's also identified with much of the terrorist activities in Lebanon since, including the, the kidnapping of Americans and others, right?

MR. MELHEM: That's true. Hezbollah's identified, Hezbollah has close relationship with Iran which is not necessarily shared by many Lebanese. But the point is, and one can make a distinction between Hezbollah's political philosophy, and certainly I would share that, and Hezbollah's members are right, Hezbollah as a Lebanese group, to engage in actions against the Israelis. If the Israelis are trying to stop Hezbollah, these actions I would argue would be counterproductive, because Hezbollah gains its legitimacy from acts of resistance against Israelis. If the Israelis focus on Hezbollah, attack Hezbollah, they will make Hezbollah ten feet tall.

MR. NIR: What the Israelis are trying to create here, in my opinion, and it's being done with, in military means, because diplomacy didn't help, is to put pressure both on the Lebanese government and more so on Syria, which is for all practical purposes, its patron, political patron now --

MR. LEHRER: There were some -- we should make the point -- there were some Syrian military targets involved in some of these attacks, as a matter of fact.

MR. NIR: Yeah. That's true. I will relate to that in just a second, but what I wanted to -- the point I wanted to make --

MR. LEHRER: Sorry.

MR. NIR: -- was that what Israel is trying to do is to, with military means because diplomacy didn't help, put pressure on Syria, specifically on Syria, to restrain Hezbollah, and, and the message being sent to Damascus is, if you want a peace process to succeed, if you want the peace process to carry on, you have to restrain those elements in Lebanon on which have enormous influence now, stop their activities, which is determined at, at the peace talks.

MR. LEHRER: Because if you do not and Hezbollah continues to attack Israeli targets, Israel's going to continue to retaliate. That's the message that is being delivered. Do you think that, that this is going to work, that if Hezbollah is, in fact, trying to sabotage the peace talks, could this lead to that?

MR. MELHEM: I think, I think the success of the peace talks, of course, will make Hezbollah's actions mute. If the Israelis commit themselves to withdrawal and then a timetable is established, then it will be the responsibility of the Lebanese government to, to maintain order on its side of the border.

MR. LEHRER: Those discussions, we should make clear to our viewers who don't follow these things that carefully, there are several parts to the Mideast peace talks, and one of the --

MR. MELHEM: Tracts.

MR. LEHRER: -- tracts is specifically between --

MR. MELHEM: Lebanese --

MR. LEHRER: -- Israel and Lebanon about that and other issues.

MR. MELHEM: Exactly.

MR. LEHRER: Right. Okay.

MR. MELHEM: These negotiations have produced nothing really so far. Now the problem --

MR. LEHRER: The specific ones on Lebanon.

MR. MELHEM: On Lebanon, exactly. Now the question of sending a message to Syria, okay, you send a message to Assad, Assad's not going to open the envelope. Assad is going to tell you -- and they are saying publicly that this is essentially a Lebanese issue. Syria's influence in Lebanon is very well known. But Syria -- it's very simplistic and it's wrong to maintain or to claim that Syria can dictate terms in Lebanon as it wishes all the time. Certainly Syria's influence in Lebanon is very well taken, but Syria does not, does not have any presence, military presence in South Lebanon, and Hezbollah still retains a degree of autonomy. And why should Assad, Assad would argue, I'm not the gen d'armory for Israel to protect Israeli occupation of South Lebanon. And I'll tell you, certainly the Syrians will not, will not be unhappy if the Israelis are paying the price for their occupation of South Lebanon. I mean, certainly --

MR. LEHRER: What does this do to the peace talks?

MR. MELHEM: Well, I think if the Israelis do not escalate and embark on a ground attack, which I think it will be the height of folly, the current round of fighting will sour.

MR. LEHRER: But they won't --

MR. MELHEM: The type of Sec. Christopher, but I don't think it will derail the talks.

MR. LEHRER: What do you think?

MR. NIR: Yeah. I agree with that. I think that Sec. Christopher's upcoming trip is, is almost destined to fail in that sense, because no matter what, I am almost certain about that, it will focus on the latest occurrences, the most current incidents.

MR. LEHRER: He can't avoid talking about it.

MR. NIR: Exactly. And since it is of such magnitude, I think one has to focus on it, and it will be at the price of actually trying to promote something between Israel and the Palestinians and Israel and the Syrians, which is badly needed in order to refuel the process.

MR. LEHRER: So if Christopher is right and that this was all started by the Hezbollah to foul up the Middle East peace talks, they will have succeeded?

MR. MELHEM: Yes, that's true.

MR. LEHRER: Do you think it's going to escalate? Do you think that we'll be here, we on the NewsHour will be here tomorrow night saying for the third day Israel did this, and there were, there were counterattacks with, with rockets the other way?

MR. NIR: We should define what escalation is. I mean, I don't think it's going to escalate into any kind of ground campaign, or anything of that sort. I think that it might carry on for a few more days if Hezbollah retaliates with, with rockets, as they did in the first two days of this campaign. I think that the moment Hezbollah will stop its rocketing, Israel will also stop its bombarding.

MR. LEHRER: How large a force does the Hezbollah have there?

MR. MELHEM: Well, not more than two thousand, twenty-five hundred --

MR. LEHRER: These are armed --

MR. MELHEM: -- full-time, armed militiamen, yes. They have, they have relatively large number of supporters.

MR. LEHRER: But if I read what you said earlier, they want to keep this thing going as long as they can, right?

MR. MELHEM: I think they will keep it going on as long as they can, as long as they have support.

MR. LEHRER: As long as they have rockets.

MR. MELHEM: As long as they have rockets, yes. And I think there is, the mood in Lebanon supports these acts against the Israelis. It doesn't mean that those who support these acts subscribe necessarily to Hezbollah's political philosophy or, or political program. Many of them don't. But at the same time, many of them are frustrated with the continuing Israeli occupation of South Lebanon.

MR. LEHRER: Okay. Gentlemen, thank you both very much for clarifying it for us.

MR. MUDD: Still ahead on the NewsHour, the siege of Sarajevo, the economic impact of the Midwest flood, and essayist Jack Perkins. FOCUS - UNDER SIEGE

MR. MUDD: We turn now to another war, this one in Bosnia. There were reports tonight that France has asked for air strikes against Serbian forces in the event there are any more attacks on French peacekeepers in Sarajevo. Today the U.N. commander in Sarajevo said his forces would fire back if attacked again. Perhaps the U.N. troops are not used to direct assaults on their positions, but this kind of shelling has become part of daily life of many Sarajevo's residents. Ian Williams of Independent Television News prepared this report from the Bosnian capital.

IAN WILLIAMS, ITN: Several military vehicles were hit during yesterday's assault. Sixty-eight rounds were fired at the U.N. forces. It was the most prolonged, direct attack on the U.N. since the conflict in Bosnia began. This morning, U.N. military observers assessed the damage. As they did so, the U.N. was stressing the role of existing ground forces in the city in any future retaliation, rather than calling on air strikes against Serb positions from the 60 NATO aircraft now in Italy. Critics among aid agencies here still don't think it's enough.

LIONEL ROSENBLATT, Executive Director, Refugees International: The Security Council acted on June 3rd to declare this a safe haven. The implementation date was June 22nd. We have 60 aircraft in Italy waiting to protect U.N. personnel. If this isn't a provocation that ought to be replied to, I don't know what is. What else is left if the U.N. is not going to defend its own bases and safe haven area?

MR. WILLIAMS: The French United Nations bases in Sarajevo are tense and on high alert. The battalion the U.N. says was attacked by Serb tanks had only been in the city for a few days. It is located virtually on the front line separating the Serb and Bosnian government forces. And today, the new commander of U.N. forces, so conciliatory on his arrival a fortnight ago, said he had had enough.

LT. GEN. FRANCIS BRIQUEMONT, U.N. Commander: What happened yesterday is totally unacceptable. The French unit was attacked by direct fire from Serb tanks or anti-tank weapons located just north of the stadium. I want you to know that is the last time that we restrain officers from exercising of the right to self- defense.

MR. WILLIAMS: Though the Serbs deny yesterday's attack, there is evidence that even before the assault the U.N. was being targeted. We were filming at their main aid warehouse here. As we did so, a shell exploded nearby. Shrapnel pounded the roof. This led to a formal protest by the U.N. to the Serbs who did not deny it was their shell. In spite of the attack on the U.N., President Izetbegovic this morning left Sarajevo for Geneva, having decided he will attend tomorrow's peace talks, even though the cease-fire has failed. The last three days have seen some of the heaviest and most sustained shelling of Sarajevo for several weeks. Thousands of shells and bullets have been fired indiscriminately into the city. Yet, remarkably, in the midst of all this life of sorts does go on. Before the war, this was always a grudge match. And at the weekend, in spite of the shelling, wrestlers from two of Sarajevo's leading sports clubs met in one of the city's bomb damaged but still functioning sports centers. Later they made way for young boxers from the two clubs, Jelis Nitcha and Bosna. Boxing, wrestling, and other contact sports were always popular before the siege, and these were the city's top clubs. Among those competing were ethnic Croats and Serbs who still live beside the Muslims in the government-controlled parts of the city. Game over, and both sides were given prizes. No medals though. Instead, something far more valuable to them, a bag of humanitarian aid, sugar, flour, and beans for each of the competitors.

[CHILDREN SINGING]

MR. WILLIAMS: In the nearby hall, the Bosnian children's choir were practicing. Before the siege, they spent much of their time touring Europe and other parts of the former Yugoslavia. Now, of course, there is no opportunity to tour, but still an enthusiasm to practice. We were asked not to film the outside of this hall or the sports center, the Bosnians fearing they would become targets for Serb artillery. As if to emphasize that point, this shell exploded in a street not far from the hall shortly after we had filmed the choir. There is hardly a building in the city which does not bear the scars of 16 months of bombardment, a bombardment that has killed or wounded hundreds of people. Yet, in the midst of this devastation the Bosnians are continuing to provide their children with basic education. Each local settlement has a war school. The children and their teacher live in the same or neighboring apartment blocks, and the small classrooms are in the safest parts of the blocks, in the basement or on the ground floor with a minimum number of windows. The idea is that the children do not have to dodge snipers by traveling long distances to school.

MERSA SALAKA, Teacher: [speaking through interpreter] The school is very important because the children were without any responsibilities for the last year. They were just listening to the shelling and listening to the news on the TV and radio. When the school started, the children's mood completely changed. They have very good friendships, and they tell me they feel great going to school, but it isn't important how much they learn, although they learn a lot. It's important that children continue to have friendships and they keep up their spirits.

MR. WILLIAMS: These 14 year olds are studying maps. They come to school six days a week. Among them is Mersa Sarenkapa who lives with his parents and elder brother, Jasim, in a neighboring apartment block. Inside his apartment, Mersa reckons he does more homework now than ever before. There's not much else to do. Since the Serbs cut the power two months ago, he's lost his favorite pastime, watching videos or playing computer games. Mersa's father, who was a power engineer before the war, is cultivating a small vegetable patch to supplement the family's meager aid ration. There has been no fresh aid here for three weeks.

FAHRUDIN SARENKAPA: [speaking through interpreter] The quantity of humanitarian aid isn't enough. So we have to spend our earnings from before the war to buy food on the black market, which is very expensive. One kilo of flour costs about ten Deutschemarks.

MR. WILLIAMS: Nobody has been untouched by the war. Jasmin was recently with his closest friend when a shell exploded beside them.

JASMIN SARENKAPA: [speaking through interpreter] We were sitting in the front of the shop in the neighborhood. The mortar fell and injured him in the leg. The shrapnel weighed about one kilogram. They say it was a miracle that they saved his life.

MR. WILLIAMS: In spite of the increasing hardships, the family still does not want to see their government compromised with the Serbs.

FAHRUDIN SARENKAPA: [speaking through interpreter] I'm not politician, but I think that President Izetbegovic should keep his principles and not divide Bosnia-Herzegovina. The country should remain united, because of all the nationalities who live here.

MR. WILLIAMS: Both boys are keen skiers. They have their own new equipment and before the siege would take advantage of the long skiing season in the local mountains. Their favorite slopes were on Mt. Igman, which is now the center of the fiercest fighting in the area. The family presents a remarkable picture of dignity against the most appalling odds. Yet, like everybody in this city, life for them has become much harder since power and water were cut, and they are increasingly impatient at the failure of the U.N. to persuade the Serbs to reconnect it. This is the man whose job it is to do just that. Major Nicholas Studer is the U.N. officer in charge of utilities. Some regard his job as one of the most frustrating and dangerous in the city. Today he's on his way to one of eleven electricity substations in the city. The station, at Vela Shishi, was shelled by the Serbs at the weekend and is now out of action. The U.N. thinks it was deliberately targeted. Now Studer and his colleagues must assess the damage. Major Studer works with a small team of U.N. engineers. Five of them have been injured by bullets or shrapnel from shells fired at them while trying to repair power lines.

MAJOR NICHOLAS STUDER, Head of Utilities, UNPROFOR: It is impossible to reach work location. For example, we want to repair the line, only one line which is supplying Sarajevo, and it's impossible to, to go there, because you heard that there is fierce fighting.

MR. WILLIAMS: By night, Sarajevo presents an eery picture. There is total darkness. Nobody dare walk or drive on the streets. The silence is only broken by the occasional thud of shelling or crack of gunfire as the pitch black is cut by lines of tracer. FOCUS - AFTER THE FLOOD

MR. MUDD: Next, assessing the economic impact of the Midwestern floods. As flooding continues in many places and the cleanup begins in others, estimates of the economic damage change almost daily. We know the numbers will be large, but we're not sure who will be hurt and why, and what effect there will be on the national economy. In a moment, we'll talk with two economists, but first this report from Correspondent Spencer Michels.

MR. MICHELS: Though the most dramatic images of the past two weeks have been of farmland overrun by swollen rivers and streams, the magnitude of this spring and summer's rains stretches far beyond the river banks. Steve Johnson lives and farms two miles from the Skunk River near Storey City, Iowa. He has a big operation, 2,000 acres planted in corn and soybeans, the same two staple crops his father cultivated for years before him. This year, Johnson is hurting.

MR. MICHELS: Is what's going on now at all usual? Are you used to this?

STEVE JOHNSON, Farmer: No. Never seen rain like this before, and probably ever, and --

MR. MICHELS: How bad has it been? How much rain has there been?

STEVE JOHNSON: For the month of July we had approximately 16 inches so far, and it looks like today we're getting a little bit more.

MR. MICHELS: And that's 16 inches in an area where the average rainfall is --

STEVE JOHNSON: For the total of the month of July it's approximately four and a half inches, I suppose, to five at the most.

MR. MICHELS: Johnson's lands are a soggy mess. The corn that's still standing isn't as tall as it should be. Row upon row of the rest of his corn has disappeared underwater.

MR. MICHELS: This was all corn?

STEVE JOHNSON: Yeah.

MR. MICHELS: Did you actually plant it?

STEVE JOHNSON: Yeah, it's all been planted, and all came up good, and then the water came and it drowned it all out. There's probably half of it that's gone out there out of eighty acres.

MR. MICHELS: I don't know about you, but looking at this to me, it's sort of depressing, isn't it?

STEVE JOHNSON: Oh, it is. But there's just a lot of things you can't help. I guess that's our weather, and you just have to take consequences like this and --

MR. MICHELS: There's not even a river near here, is there?

STEVE JOHNSON: No. This is just flat farm, good farm ground, productive farm ground, and with all this rain you just get that.

MR. MICHELS: Even though Johnson doesn't farm beside a river, the rain has saturated his land and caused large ponds to spread across his fields. All this excess groundwater will cause Johnson to lose as much as a third of his crops.

STEVE JOHNSON: I guess your projected income off an acre, you try to be somewheres around $300 an acre. And if you lose 30 percent of it or so, it runs ninety, a hundred dollars an acre.

MR. MICHELS: And if you get 2,000 acres, that sounds like there's $200,000 there that you're not making.

STEVE JOHNSON: Correct to a certain point there, of income that you won't have coming in. It isn't all lost, but it's income that you won't have coming in.

MR. MICHELS: Jim Penney, the agronomist for the grain elevator where Steve Johnson usually brings his crops to be sold, knows how economic hardship can spread.

JIM PENNEY, Agronomist: Well, along the way with the reduced crop size, you know, we'll be affected, we'll be handling less bushels. Consequently, we'll be paying for less bushels to the farmer, he'll have less money in his pocket this fall. He'll be less likely to trade cars, trade pick-ups, trade farm equipment or buy a new piece of equipment that he's been needing for a few years. He won't be remodeling his home. He won't be building a new machine shed. This will have a ripple effect into the entire nation's economy.

MR. MICHELS: But all is not bleak. Nine hundred farmers, who along with Steve Johnson, own this cooperative grain elevator, have known good years as well as bad. And last year was such a good year there's a chance that surplus soybean and corn which still remain in the elevator will offset this year's losses. Neil Harl is an agricultural analyst at Iowa State University.

NEIL HARL, Agricultural Analyst: Based upon our current damage, damage that we can see clearly to date, that the impact on food prices will be quite modest, and that's because of several things: No. 1, corn has been stored from the 1992 crop especially, which was a very good crop, and much of that has remained in storage, a significant part of it. A second factor is that while this is a highly visible part of the corn belt and one of the major corn producing and soybean producing areas, the corn belt is a huge part of the country, and there are good crops and particularly to the east of us. The third reason why the impact on food prices will be very modest is that the price that the farmer gets for the products is a modest percentage of the supermarket price in any event.

MR. MICHELS: No matter how much grain is still available, it has to get to market. Barge traffic on the Mississippi has come to a standstill. And miles of track have been washed out, causing railroads to busily rebuild. Disruptions such as this one throughout the Midwest forced shippers to reroute their goods. And while the coop and through the coop the individual farmers will lose money, the nation will not feel a substantial economic impact. In fact, despite the money Congress will allocate for disaster relief, the flooding may produce a silver lining for the U.S. Treasury, diminished payments in farm subsidies. Farm subsidies are normally given to augment low prices. But with crop prices higher due to the flooding, the government will probably have to pay farmers less.

NEIL HARL: This will mean that funds that otherwise would have been paid out for subsidies can be paid, if that is the desire of Congress or at least account for a portion of the disaster assistance.

MR. MICHELS: Prices will remain elevated long after the waters have receded, because investors and traders working out of the Chicago Board of Trade have bid up the prices of future deliveries of soybeans in anticipation of the smaller crop.

SPOKESMAN: We had corn rallying pretty good too. Now we're up a penny on the corn. I think it's looking pretty good.

MR. MICHELS: And some farmers have been speculating on these future prices as well, figuring it's one way to make the best of a bad situation. Sue Martin is a broker in Webster City, Iowa.

SUE MARTIN, Investment Broker: Farmers are a very optimistic group. So if it looks to them like the crop is not going to materialize out in their fields, they're certainly going to be trying to replace those bushels back on the board at the Chicago Board of Trade and try to catch the price fluctuation on paper. They never seen the actual bushels, but all they care about is the difference of where they got it and where they eventually sell that commodity that they're trading.

MR. MICHELS: So you're saying that these farmers who may not be making it in the field are calling you and speculating on the market?

SUE MARTIN: Yes, they are. We've been trading long in soybeans and corn for a good month and doing very well.

MR. MICHELS: Steve Johnson hopes he will do well in the futures market, but looking at his fields, he finds it hard to see any silver lining.

STEVE JOHNSON: Oh, it takes a long time to dry out, and our subsoil, or below it'll never get dried up probably till fall or late, because of all the surplus water and everything.

MR. MICHELS: For the rest of the summer, investors, farmers, and the rest of the nation will be checking the skies to see how this year's harvest turns out.

MR. MUDD: As the flooding, itself, continues without any end in sight, judging the economic impact becomes more and more iffy. The only certainty is that the numbers are going up, not down. We have two people to help us sort this out this evening. Laurence H. Meyer is president of Meyer & Associates, a national economic forecasting firm based in St. Louis, and Diane Swonk is the senior regional economist and vice president of the First National Bank of Chicago. Good evening to you both. Ms. Swonk, do you take the view that, that most economists share, that aside from the personal tragedies, the economic loss in the Midwest is going to be modest?

MS. SWONK: Unfortunately, I think that's true, and I say unfortunate, because often economic statistics really don't reflect what's going on at least in the near-term. Certainly the personal losses are tremendous and in some cases much greater than those of Hurricane Andrew. Many people, remember, did not have insurance, flood insurance, and they have to pay for all of the cleanup on their own. Now in a larger context though, I think it's important, part of the cleanup today is masking some of the longer-term costs here, and there's two issues that are important: One, the floods are only a symptom of something larger that's been going on in the Midwest for quite some time. Frankly, we've had lousy weather here since about January. It means that a lot of construction activity that was anticipated and, indeed, planned for this year has already been delayed. And that's an especially big problem here in the Midwest, unlike it was in Florida, where you could move on to the fourth quarter and pick up much of what you had lost due to reconstruction with it. Here in the Midwest we get snow in the fourth quarter, and so if we don't get some dry weather soon, some of the construction activity that was lost earlier in the year may not be made up until 1994, so some businesses will really suffer due to that. Of course, it is a mixed economic bag. Trucking in here in Illinois has picked up as a result of some rerouting around the Mississippi out there, but a longer-term consequence I think is also important to the state and local governments. It's how much is going to get covered from the federal government in terms of this cleanup. In many cases, these small and local communities have already spent close to their annual budget for the year just in the costs of dealing with the flood, not any of the cleanup, not any of the infrastructure losses, and that's very important to remember, because this is a time when state and local governments all through the 1980s and certainly today have already been very strapped for cash.

MR. MUDD: Let me ask Mr. Meyer, if I may, for a quick view of the impact of the Midwestern flooding on the rest of the nation.

MR. MEYER: Well, I think your report had it exactly right. The personal hardships in the effected areas are quite dramatic, but the impact for the national economy is really quite modest. There will be I think discernible impacts slowing growth in the third quarter as we recognize the crop damages and on account of loss of production elsewhere, people who can't go to work, less retail sales occurring because incomes are lower, and then in the fourth quarter, as the cleanup proceeds, and the rebuilding takes place, we'll see economic activity higher than it otherwise would have been. We'll see a higher growth rate in the fourth quarter.

MR. MUDD: How do you, Mr. Meyer, how do you measure, for instance, the crop damage on the grocery bill for the rest of the nation?

MR. MEYER: With great uncertainty to be sure. We do have historical precedents. You know, we can see the kind of crop damage that occurred, for example, with the drought and compare that. And this crop damage is really very much smaller than that. I think we're going to see a quite modest impact to the food component of the CPI and a very, very small impact, one which is almost not going to be observable to the consumer and the overall Consumer Price Index.

MR. MUDD: Ms. Swonk, a moment ago you mentioned the impact on the town. St. Louis, of course, the biggest city in the central valley, as big enough, I guess, and rich enough to take care of itself, but what about those little towns that you were talking about like St. Genevieve and up and down the river? I read the other day that Quincy, Illinois, had already spent nearly $1/2 million on a million and a half bags of sand.

MS. SWONK: Right. This is a much harder issue for some of these small towns, because unlike a larger city like St. Louis, they don't have anything to fall back on, and the larger issue, of course, is if people don't rebuild in the area after the flood is over, they lose much of their future test case as well, so not only are they depleting current funds, they're losing funds in the future here. So I think we have a risk, a very high risk, if much of the flooding is not covered by some of the federal outlays, which is also difficult at this point in time. We have a risk of some of these towns actually going bankrupt and unfortunately, drying up after the flood.

MR. MUDD: Just by chance, do you know where all that sand comes from?

MS. SWONK: Sorry about that. I don't know where the sand comes from.

MR. MUDD: You mentioned a moment ago that there was a danger of, of towns actually vanishing along the river?

MS. SWONK: Absolutely, especially some of the small towns. We're talking about even for the Midwest it's not as big an economic impact because most of the areas hit are not very highly populated areas. These are farm communities, some of them almost solely dependent on farming, and especially those communities, you have a real strong risk of them disappearing entirely, because they just don't have another economic base to fall back on. Now on a broader context, it doesn't mean we're going to lose all those farms. It means that there'll be some consolidation out there. We do make plenty, we do produce plenty of soybeans and corn. But as your article illustrated, we have corn and soybeans leftover from last year to fall back on this year. But it does mean some great personal tragedies that just don't show up in all the economic statistics. In a more long-term context for the Midwest, it could be more state and local government fiscal problems that we wouldn't have had otherwise.

MR. MUDD: Mr. Meyer, a moment ago you were talking about the loss of the economic damage from the structural loss. The other day Laura Tyson, the chairman of the Council of Economic Advisers, said, the lack of resources could limit the economic stimulus from rebuilding after the flood. What did she mean by that?

MR. MEYER: Well, I think one of the differences in this case say relative to recent hurricanes is there was much less private insurance, so we are much more dependent on federal assistance than the rebuilding effort, and we can see already in Congress that there are sort of debates going on as to whether or not this money for the relief effort should be appropriated on top of other elements in the budget or whether or not spending cuts should be found elsewhere. We're in a deficit constrained world which makes it very difficult for the federal government to do as much as it might like, and for that same reason, we have fiscal crises all around in terms of state and local governments. They're very hard pressed to carry out these efforts as well. So in this context, with lack of pride of insurance, and constraints on what the public sector can do, this can certainly be a factor that could restrain the normal kind of cleanup and rebuilding effort that would boost output in, in the subsequent quarters.

MR. MUDD: Does the inability of people in the Midwest to get to the stores and buy groceries, buy clothes, buy replacements, does that have a ripple effect on retail sales around the country?

MR. MEYER: Sure it does. As the report says, we call it sometimes a multiplier effect. It sort of multiplies the effect within the region, and it tends to spread it out over the rest of the country since these retail goods that would have been bought would have been produced all over the country. So everybody feels in a much attenuated way for sure some of the impacts that are going on here.

MR. MUDD: Some economists, I have read, Mr. Meyer, now say that the damage, the economic loss from the flooding will, now estimated at $12 billion, will surpass $25 billion, and this will go down as the most expensive natural disaster in the U.S. history. Do you foresee that?

MR. MEYER: I wouldn't even hazard a guess at this point. I'll tell you that I made a round of some calls today to some government agencies, and they were all wise enough not to want to put any numbers to this, to these losses right now. These are wild guesses at this point.

MR. MUDD: Ms. Swonk, on the July 19th issue of Businessweek, the editors wrote, "With luck, the effects of the disaster should be limited even in the Midwest." Is that your view?

MS. SWONK: I think that is my view, and certainly luck is the important component here. And that's the weather. If we were to get some drier weather between now and the end of September and October, we could complete some of the rebuilding and that would certainly mitigate some of the losses associated with the flood. Some of the crops are already gone, but the reconstruction effort certainly creates jobs that we've already lost in construction. If, however, the weather remains wet, and some forecasters are certainly calling through August now for many heavy rains, we've got a real problem, especially here in the Midwest where, of course, we're coming, backing up against snow in the fourth quarter, and so the luck is the important component. Another issue I think is important too, and that's the difference between the industrialized Midwest, and, of course, the more agricultural Midwest. The industrialized Midwest, luckily, because the flood occurred in July, so far it has not really disrupted much auto production. It's not disrupted much manufacturing activities here in the Midwest, which is also extremely important. We've seen it take its toll on things like auto sales where people can't just go out and buy their trucks or autos right now, but that was to pick up a little bit later. So I think that is true. With some luck, it can be somewhat consolidated on how much losses we're feeling here.

MR. MUDD: Are there any parts of the economy in the Midwest, Ms. Swonk, that are actually booming because of the flood?

MS. SWONK: That's a really good point. We are seeing some benefits. Booming I don't know necessarily, although you know even retail sales, which is interesting, the most recent surveys done on the retail sales data show that many of the areas that have been flooded people have already gone out to buy some refrigerators and appliances, replace flood-damaged items. That's very important because we're already getting some offset with some big ticket sales out there. Of course, hardware stores are doing very well in this kind of environment much like Hurricane Andrew and the preparation for Hurricane Andrew, we had people buying a lot of plywood to board up their windows. Similar kinds of things are happening here in the Midwest. I don't see any boom town out there. Of course, the issue that we've had lousy weather since January has already hurt construction. And that's been more of an overshadow that we've had to deal with, and we're already filling the pain from even before July statistics came out. We've seen June losses in housing starts largely because we've had a lot of rain here, and you can't --

MR. MUDD: One -- pardon me -- one final quick question and quick answer. What the Midwest strong enough before this happened to sustain the losses that it will take?

MS. SWONK: I hate to say this, but I guess it's true of all the places for all this flood to occur. The Midwest was probably the best positioned region to have it happen. We were and already are in a good economic position and the underlying economy is strong enough to sustain it, even though the pain of it is so bad.

MR. MUDD: Thank you very much for talking to us, Ms. Swonk and Mr. Meyer.

MS. SWONK: Thank you. ESSAY - HERE'S THE BEEF

MR. LEHRER: Finally tonight, essayist Jack Perkins with some advice for the members of Congress sorting out their budget differences.

JACK PERKINS: This is a deceiving time of year in our town, a seasonal seashore town in season. Sidewalks teem, stores bustle, Capt. Greg Curry is back at the helm taking a load of tourists out to watch whales. Cliff Vanden Bosch, who runs the kayak rentals, now has 100 boats. Busy fellow. Busy town. In shop windows and restaurants, you see a lot of "help wanted" signs, and pay isn't bad. A lot of places pay well over minimum for summer help. So all in all, looking around our town these days, the economy seems robust. But, as I said, this is a deceiving time of year. One of the problems with our national economy has always been the fact that we cannot see it, the deficit, be it malignant or benign, is invisible. The national debt, aside from being of an incomprehensible scale, is abstract, and we don't deal well with the abstract and the invisible. We're much better with what we can see and grasp. So let me take you one more place in our town. This is the local hangout, Jordan's Variety. There is no Jordan anymore. Dave Payne runs the place, and this year, locals have noticed that he has jacked up a few prices, like cheeseburgers are up 25 cents, up to $2.95. Dave is getting a little razzing. He has a winter place down in Florida and has been spending more time there recent years, so is that why he had to bump cheeseburgers a quarter? One of the regulars who wondered is Earl Brecklin, editor of the local weekly. He did a story about it. This is a small town, don't forget. But after talking with Dave, Earl decided that what we've got here is not just a few prices changed on a local menu but an abstraction made concrete. As his headline put it, "Economics and the Cheeseburger, Uncertainty Principle." He quoted Dave as saying that not only are costs going up but they are costs over which he has no control. For example, his workman's compensation insurance this year alone jumped $3500. So if we're talking 25 cents more per cheeseburger, it'll take the increase from 14,000 cheeseburgers just to catch up from workman's comp. His property tax, meanwhile, rose $1500. Add another 6,000 cheeseburgers. Unemployment, he has some 20 employees, is up $1600, that's another 6,400 cheeseburgers. Keep flippin' 'em, Dave. And those are just the increased costs he knows about. Where the real anxiety comes is from the ones he doesn't. What will the new energy tax cost him by the time his suppliers tack on energy increases? Maybe 10,000 cheeseburgers worth? If so, we're up to 36,400 cheeseburgers. It will take the extra quarter from that many just for him to stay even. Now Dave Payne already works seven days a week. He'd like to give employees raises, but can he? Maybe hire a few more, but dare he? Uncertain, he has decided to decide nothing, to make no major business changes, at least for now. Some people in Washington don't seem to understand why businesses aren't hiring people, why the economy isn't expanding as they would like. Well, maybe they need to leave Washington, come to Jordan's Variety and count cheeseburgers.

WAITRESS SHOUTING ORDER: Ordering please, four cheeseburgers, two medium, one well, one rare, the rare is a Deluxe.

JACK PERKINS: I'm Jack Perkins. RECAP

MR. LEHRER: Again, the major stories of this Monday, the Midwest braced for more flooding and more rain. Israel stepped up its attacks against Muslim targets in Southern Lebanon, and constitutional talks continued in South Africa despite a massacre at a mostly white church in Cape Town. Good night, Roger.

MR. MUDD: Good night, Jim. That's the NewsHour for tonight. We'll see you tomorrow night with some Midwestern governors who are taking their case for flood aid directly to President Clinton. I'm Roger Mudd. Good night.