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Lou Dobbs Tonight

Large Earthquake Strikes California; Terrorism Alert High; Will Economy Help President Bush?

Aired December 22, 2003 - 18:00   ET

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

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


JOHN KING, CNN ANCHOR: Tonight: A large earthquake strikes California, killing several people. Others may be tracked in the wreckage. The large metropolitan areas escape serious damage. Charles Feldman will report from Los Angeles.
The nation is on high alert after the government raises the terror threat level. Lisa Sylvester will report on the cost of the extra security. Former New York Police Commissioner Bernard Kerik will be my guest.

President Bush prepares to fight for reelection, helped by economic numbers that are moving in his direction. White House economic adviser Greg Mankiw will join me.

And supporting our troops -- tonight, a special report about a town in Oregon that is taking some unusual steps to help its National Guardsmen deployed overseas and the families they have left behind.

ANNOUNCER: This is LOU DOBBS TONIGHT for Monday, December 22. Sitting in for Lou Dobbs, John King.

KING: Good evening.

A powerful earthquake struck the coast of central California today, shaking buildings from San Francisco to Los Angeles and killing at least three people. It is unclear tonight how many people were injured. The quake was one of the strongest to strike California in years. The U.S. Geological Survey said the quake registered a preliminary magnitude of 6.5.

Charles Feldman now reports on the latest from Los Angeles.

CHARLES FELDMAN, CNN CORRESPONDENT: John, yes, the earthquake occurred about 11:15 Pacific time. And it happened -- its epicenter was about six miles northeast of the town of San Simeon.

And that's about 240 miles due north of the city of Los Angeles. It was felt from San Francisco all the way down here to L.A. You're looking at pictures of Paso Robles. And, in that town, as you can see, there was some structural damage to some buildings. A historic clock tower collapsed. CNN has been told that the three fatalities occurred with people who were inside that clock tower.

Also at issue earlier in the day was the fate of the El Diablo nuclear power plant, which is in nearby San Luis Obispo. The control room of the nuclear plant said that it very much felt that 6.5 quake, as well as some significant aftershocks, some 40 in all that occurred after the main event. But the nuclear power plant was apparently not damaged in any significant way and continued, we are told, to operate safely.

Also, park rangers are to evacuate Hearst Castle, a main tourist attraction in central California and the home to the former newspaper magnate William Randolph Hearst. By any measure, by any means, this was a significant geological event.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: This is a magnitude 6.5 quake. It is a moderate sized earthquake that caused modest damage in the local area. It is an earthquake that is rare, but not particularly rare for the area. We had similar sized earthquakes in 1952 and 1853 and 1906, all in this area.

It is on a fault system we don't know as well as we would like. And this earthquake will help us to get know it wet better.

(END VIDEO CLIP)

FELDMAN: Now, the bad and the good of this earthquake, the bad was that it was a shallow earthquake. It happened about 4.7 miles beneath the surface of the earth. Shallow earthquakes tend to cause the most damage.

The good news, though, is that the earthquake occurred in a relatively sparsely populated section of California. In all of San Luis Obispo County, there is about 250,000 permanent residents -- John.

KING: Charles Feldman, the latest live in Los Angeles -- Charles, We may come back you to later if there's any update. Thank you very much.

Now, one of the worst affected communities is Paso Robles on the Californian coast. That is where a building collapsed, killing at least three people.

I'm joined on the phone by Richard Jackoway. He's city editor of "The San Luis Obispo Tribune" in California.

Richard, what can you tell us the latest on the casualty numbers, still three dead, and any progress in the rescue effort?

RICHARD JACKOWAY, "THE SAN LUIS OBISPO TRIBUNE": Still three dead. And they're still there trying to dig out. We don't know of any other people who are missing at this point. But, obviously, they'll want to check it as thoroughly as they can.

KING: And 40,000 without power was the number I heard a short time ago. Is that still the case? And is there any sense at all as to how long that could be a situation?

JACKOWAY: I heard that number earlier as well. But I haven't gotten an update recently. And that is all over the county. Some places are going up and some places I think will be out for some time.

KING: And, Richard, as you report this story, is there a sense of surprise that three is the number dead right now, given the magnitude of this quake?

JACKOWAY: Yes and no. The area where the epicenter was is fairly rural. Paso Robles would 15 miles or so away, at least. I think that is right. And so it didn't hit it in the heart of town, but it is obviously a very big earthquake. And we have a lot of buildings that are older buildings, since we haven't had many serious earthquakes here.

KING: And we're looking at pictures here from KGO, one of our affiliates on the building collapse, I assume the building where we had the fatalities. Any sense, beyond these buildings collapsing, any major damage to any major infrastructure, whether it e electricity lines or roads or bridges?

JACKOWAY: We have had cracks in highways and roads, rock slides. Water is out in some parts of the county.

And I'm not sure actually -- there may be two separate buildings that you're looking at. One, the clock tower, which is on the heart -- the -- on the park in the heart of Paso, was the area where the deaths occurred. And I think a number of the pictures have been a different building, but I'm not certain about that.

KING: And, Richard Jackoway, obviously, one concern from officials is aftershocks. Have you felt anything since the major quake this afternoon?

JACKOWAY: A few that were in the four range, particularly felt on the coastline. There's been a number of aftershocks, but nothing large.

KING: It may seem an odd question, but given the fact the government has increased the terrorism alert level, any concerns that perhaps emergency personnel, police officers may have been deployed in ways that took -- increased the response time for something like this?

JACKOWAY: No, I don't think so.

The only thing we had locally, actually, at the same time as the earthquake, there was a memorial service for the death of an officer down in Arroyo Grande, which is a ways away from where this earthquake happened. The officer was from Paso Robles. So a number of people, just coincidentally, might have been down at that memorial service.

KING: And, lastly, Richard, you say you don't know of any more missing. Is there a fear that some are missing? And help us understand here on the East Coast how much more daylight would they have in California if that is the case, people missing?

JACKOWAY: Obviously,the shortest day of the year or second shortest, whatever it is. We probably have an hour and a half of daylight left. And like I said, we don't -- we have not heard of other people missing. But when you have collapsed buildings that are hard to move that you don't know how structurally safe they are, I think they'll continue looking until they're satisfied.

KING: Richard Jackoway, thank you for your time on a very busy afternoon in your community. Thank you, sir.

And turning now to new fears of terrorism and the government's decision to raise the national alert level to orange, or high. President Bush today met with his top homeland security officials to review the latest intelligence and the nation's anti-terrorism strategy. Mr. Bush says the government is doing everything possible to prevent an attack. And he told Americans to -- quote -- "go about their lives."

White House correspondent Suzanne Malveaux reports.

(BEGIN VIDEOTAPE)

SUZANNE MALVEAUX, CNN CORRESPONDENT (voice-over): President Bush, celebrating the holidays, urged Americans, despite the threat level, to do the same.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: American citizens need to go about their lives. But, as they do so, they need to know that governments at all levels are working as hard as we possibly can to protect the American citizens.

MALVEAUX: But, earlier in the day, Mr. Bush was hunkered down at the White House with his Homeland Security Council, getting briefed on the security plan for the country's heightened state of alert.

Homeland Security Secretary Tom Ridge emerged from the meeting to explain how this warning is unlike any before.

TOM RIDGE, HOMELAND SECURITY SECRETARY: There's general consensus within that community that all the strategic indicators suggest, from the volume, really the level and the amount of reporting has increased. We have never quite seen it at this level before.

MALVEAUX: The reporting is also considered to be more credible than when the administration raised the threat level to orange back in May.

RIDGE: Our ability to corroborate some of this information, the strategic indicators suggest that it is the most significant threat reporting since 9/11.

(END VIDEOTAPE)

MALVEAUX: Administration officials are calling this information specific, reliable and credible, a senior Pentagon official saying that this is a true orange alert, not like some of those in the past that were regarded with skepticism -- John.

KING: Suzanne Malveaux at the White House -- thank you very much, Suzanne. Now, the government raised the terror alert level after intelligence analysts detected an increase in -- quote -- "chatter" among suspected terrorists. Officials say the threat of an attack is the greatest since the September 11 hijackings a little more than two years ago.

Homeland security correspondent Jeanne Meserve is tracking this and has some of the latest for us -- Jeanne.

JEANNE MESERVE, CNN HOMELAND SECURITY CORRESPONDENT: John, homeland security officials at every level of government are telling me this move to orange seems more serious than the four previous. And, as a result, some are putting new, additional security measures into effect.

A homeland security official says there is credible and specific threat information, some of it relating to aviation and the possible use of flights originating outside the United States as weapons for suicide attacks. Sources say there is some geographically specific information and there is particular concern about New York, Washington, Los Angeles and a handful of other metropolitan areas.

Governors have been given specific security recommendations by the Department of Homeland Security; included, lists of critical infrastructure which intelligence indicates could be targeted by aircraft and which risk and vulnerability assessments judged to pose the greatest potential danger. Those would include chemical and nuclear plants, as well as bridges.

Because the intelligence mentions the danger from flights originating overseas, the U.S. also is urging airlines and foreign governments to increase passenger, luggage and cargo screening and enhance perimeter security. At present, there are no international security standards. At domestic airports, you're seeing more vehicle inspections, more restrictive parking rules, more canine patrols, and more random inspection of bags.

At borders, there is more scrutiny. At ports, cargo is now being inspected alongside vessels. And some federal agencies and law enforcement organizations are canceling leave and increasing overtime. According to one estimate, it costs the nation about $1 billion a week to go to orange. That is one reason the threat level has not been elevated for six months. But now that it is at orange, there is no guessing how long it will last past the holiday season -- John, back to you.

KING: And, Jeanne, a sensitive decision for the government to do this on the eve of the Christmas holidays. This announcement came yesterday from the homeland security secretary. Was it one new piece of information that made them decide to go up or was it just an accumulative assessment of the intelligence over a period of days and weeks?

MESERVE: I'm told that it was more of a accumulative assessment.

As you know, this has been building for some time. We have been doing reporting on this for last several weeks. In addition, there was that tape released Friday allegedly from al Qaeda's No. 2 man which threatened more attacks. They thought that might be a go to a sleeper cell in the U.S. They put it together, took another look at stuff yet again over the weekend, decided this was the time to move it up.

One state official did say to me, they did it at the right time. Because the peak of holiday shopping has passed, it's not going to have, he felt, the same kind of economic impact it would have had just a couple of days ago -- John.

KING: Jeanne Meserve in Washington, thank you very much.

Now, each time the government raises the national threat level, local foot soldiers in the war on terror spring into action. But who pays for the overtime for police, the fire departments and other agencies?

Lisa Sylvester reports on how federal and state governments often pass the bills onto local taxpayers.

(BEGIN VIDEOTAPE)

LISA SYLVESTER, CNN CORRESPONDENT (voice-over): Baltimore's police officers are working 12-hour shifts. Patrols have been increased around the city's landmarks. And vacations for some officers will be cut short.

KEVIN CLARK, BALTIMORE POLICE COMMISSIONER: For these particular homeland security issues, it will be our criminal intelligence division, special operations section and some other elements of patrol that will be given extended tours to cover some of what we feel are vulnerable locations.

SYLVESTER: Every time the federal government raises the alert system from yellow to orange, it costs Baltimore $300,000 a week. The Department of Homeland Security has offered $2 billion in grants to states and cities for first-responders, such as police and firefighters, but the money has been slow to trickle down.

MARTIN O'MALLEY, MAYOR OF BALTIMORE: The lack of dollars kind of rolls down to the state level and to the local level. And, yes, all of us are suffering, because the reality is, you cannot protect America, not in the war on two fronts, if you're not also willing to invest in America.

SYLVESTER: As of September, only 64 percent of the nation's counties had received funding from the federal government. A third of the counties had yet to receive any money.

Of those receiving grants, only 15 percent received all of the funding requested. One problem four counties and cities is that terror alerts are vague, so it's not easy to decide where the best place is to spend the money.

JAMES CARAFANO, HERITAGE FOUNDATION: And we still kind of have a one-size fits all system as far as the public is concerned. I'm not sure it is really appropriate. Our country is too big. There's too many vulnerabilities, too much infrastructure. And I really do think we need a better system.

SYLVESTER: So cities like Baltimore do what they can, increase police presence and hope that the threat passes without incident.

(END VIDEOTAPE)

SYLVESTER: Since 9/11, 2001, Baltimore has spent $18 million in operating costs specifically for homeland security. But the city has received only $1 million in reimbursement from the federal government -- John.

KING: Still waiting for more. Lisa Sylvester in Washington, thank you very much.

Now, coming up, former New York City Police Commissioner Bernard Kerik says the heightened state of alert should serve as a reminder that Americans must remain vigilant. Bernard Kerik will join us.

Then: the United States' ongoing search for weapons of mass destruction in Iraq and around the world. Former U.N. weapons inspector David Albright will join us.

And tonight, we begin a series of special reports on the "Holiday Home Front," some inspiring stories of Americans who are going to great lengths to show their support for the troops this holiday season.

(COMMERCIAL BREAK)

KING: The national threat alert warning is raised to its second highest level on the eve of the Christmas holidays. What exactly does that mean to law enforcement agents around the country and what does it mean for you?

Let's turn to the man who was New York City police commissioner during 9/11, helped reassure this country with a steady leadership at a time of crisis. Bernard Kerik, the former commissioner, joins us in the studio.

Thank you, sir.

BERNARD KERIK, FORMER NEW YORK CITY POLICE COMMISSIONER: Thanks.

KING: One of the things police commissioners have complained about frequency about this level system is the lack of specificity in the intelligence. Cities all across the country are told to go on a higher alert, but not told what might be hit or how. How frustrating is that if you're the commissioner in New York or the police chief in Chicago?

KERIK: Well, it is a little frustrating.

But we have to keep in mind and we have to remind ourselves, intelligence is not a perfect science. Sometimes, it comes in volume. Sometimes, it comes in different manners. They could be picking things up on -- over satellites, intercepts, telephone conversations, out of Guantanamo Bay, out of Iraq. It comes through different methods.

And sometimes, it is varied. But I think the secretary released yesterday that there are volumes out of the norm, out of the -- what we're used to. And that's really raised suspicion in the mind-set in the president, in him and the others that work on our homeland security.

KING: Secretary Ridge is said to be a strong believer in deterrent, that being that, if someone were planning an attack on an airport in this city, and they saw the National Guard, saw an increased police presence, they would back down. Do you believe that?

KERIK: Yes, I think so. It doesn't only work in terrorism. It works in law enforcement, crime enforcement in general.

When the cops are out there and the police are out there, the bad guys, they deter. They run away. I think we'll see the same things in this capacity as well. But we have to keep in mind, on September 10 of 2001, they didn't tell us they were coming. We can't prevent every attack. It is never going happen. But we have to do the best we can. And I think that's what is being done at this point.

KING: A great deal has been done since 9/11, the lessons learned. But there are also some glaring holes, all would agree, in the system. One of the concerns of late has been cargo planes coming in from international destinations.

Is there anything a police commissioner in a major city in the United States can do if someone hijacks a plane, no crew, no passengers with cell phones to warn anybody, if you get a cargo plane?

KERIK: Well, there's two areas of concern. One are the cargo planes. Two are the ports.

But we are working with the international authorities. We're working with other government agencies. The maritime industry, for example, is really working on procedures and things that we can do internationally, abroad, to prevent things like this from happening, mandates in their laws, in their registrations before they come into this country. And we'll be doing the same thing within the cargo in the airline industry as well.

So, right now, this is an educational process. We have been learning as we go along, since September 11. And we're doing the best we can. And, as I said, can you prevent everything? No. But I think we're in much, much better shape today than we were on September 10 of 2001.

KING: You were the police commissioner of New York then. You recently spent a few months in Iraq helping President Bush try to train a police force there, get a new security situation up and running in Iraq. As you know too well, one of the frequent horrors of the Middle East are suicide bombers. Many have said that they are surprised, in fact, that that tactic has not been used here in the United States. There was a rumor perhaps of a threat in New York recently. Are you surprised that al Qaeda or other terrorist groups have not tried that tactic here?

KERIK: Well, I don't think they haven't tried. I think they have thought about it. But you have to realize, it is much easier to get explosives abroad than it is here.

And our intelligence capabilities -- and that is going to be the success in fighting terrorism in the future, not only here, but abroad as well, internationally, Iraq, Afghanistan, in other countries -- intelligence is going to be the key to our success. And that is much better today than it was prior. So I think that is what is really helping prevent things like suicide bombers and other localized attacks that we haven't seen.

KING: Just, we have the privilege of having you here. I want your thoughts not only on the situation here at home, but Saddam Hussein was captured recently. You spent a great deal of time on the ground in Iraq. That was obviously one of the top priorities.

What is your sense now, based on your experience then, about the intelligence benefits to be gained from not only having Saddam Hussein in custody, but the documents that were seized with him? Do you believe that that is the key to shutting down the insurgency?

KERIK: I think that's a substantial part of it. And we're also seeing that, hundreds of arrests, several people killed in the last week since he's been -- since he's been captured. And I think that will continue, because for every one of those arrests and everybody that is captured, they give up a little information as well.

So between what he had and what we're getting, the fruits of the tree, so to speak, from what we're getting from him, I think that is going to be a major -- have a major impact on fighting the terrorists there.

KING: Let me give you the final word on this. Many Americans came to know your face and your voice in the days after 9/11. If they're watching today, wondering what should they do based on this higher alert level, what would you tell them?

KERIK: I'm leaving here and going to a Christmas party. So I would say, they enjoy the holiday. Be alert. Stay vigilant. But go about your business and prove to the terrorists that they're not going to have a negative impact on us.

KING: Hope you enjoy the party and the holidays. And we thank you for your time.

KERIK: Thank you.

KING: Take care, sir. Turning now to tonight's poll question: How useful do you find the national terror threat levels, very useful, somewhat, or completely useless? Cast your at CNN.com/Lou. We'll bring you the results a bit later in the show.

And tonight's thought is on security and the ability of military forces to react to any situation -- quote -- "Our military plans should be based on the assumption of unpredictability, rather than on a carefully drawn, static model of the world" -- that from author and editor James Fallows.

And coming up: two more American troops killed in Baghdad today. Pentagon correspondent Barbara Starr will have the latest on that attack.

And a mission aimed at building a peaceful Middle East ends in violence. Chris Burns will have that report from Jerusalem.

(COMMERCIAL BREAK)

KING: Russian President Vladimir Putin today said his government is ready to write off more than half of the $8 billion that Baghdad owes Moscow. The debt is about just a small slice of Iraq's roughly $120 billion in international debt. But Russia is one of Iraq's biggest creditors and its decision could impact decisions in other key capitals.

In Iraq today, insurgents killed two soldiers and U.S. troops arrested a former Iraqi intelligence officer.

Pentagon correspondent Barbara Starr reports -- Barbara.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: John, indeed, two soldiers from the 1st Armored Division killed in Baghdad today when they encountered a roadside bomb in that attack, an Iraqi interpreter also killed, two additional U.S. soldiers wounded.

And, indeed, the U.S. has captured a man they now believe is quite important. His name is Major General Mumtaz al-Taji. He's an intelligence officer, the U.S. now believes, who was involved in recruiting insurgents and directing attacks, all of this in the town of Baquba, about 40 miles north of Baghdad, where, as you see, additional raids have been conducted in recent hours against insurgents in that town.

The chairman of the Joint Chiefs of Staff, General Richard Myers, now saying that the U.S. continues to get payoff from those documents captured when they got Saddam Hussein, those documents now leading to intelligence that have allowed U.S. forces to capture several hundred additional insurgents in recent days.

But officials, John, still trying to determine finally just how involved Saddam Hussein was in the insurgency. Was he directing it or was he simply receiving reports from the field? No final conclusion yet on that key question -- John. KING: Barbara, want to turn your attention now to an intriguing case making its way through the court, a judge today ordering the Pentagon to stop forcing service men and women to have anthrax shots, against their will. Why did the judge make that ruling and what is the Pentagon and the Bush administration saying about it?

STARR: Well, indeed, this judge now, quite unexpectedly ruling that the anthrax vaccine was essentially an experimental drug and that people could not be forced in the military to partake in this vaccination program if indeed it was experimental.

This ruling just coming to the Pentagon now on this holiday week, when very few people are around to look at it. We are told that both the Department of Defense and the Department of Justice are looking at the ruling and trying to decide how they will appeal it.

The impact not clear yet, because forces going over to Iraq in the upcoming troop rotation certainly are expected to get the anthrax vaccine. Some of them are in the middle of that entire medical protocol. So it is not clear yet whether it will actually be stopped, whether the Pentagon will appeal the ruling, how all of this will go forward.

KING: Barbara Starr at the Pentagon, thank you very much.

And more now on today's top story, that powerful earthquake in central California that killed at least two people, one other person reported missing tonight. The U.S. Geological Survey has just started a news conference in Menlo Park, California.

Let's listen in.

(JOINED IN PROGRESS)

BILL ELLSWORTH, U.S. GEOLOGICAL SURVEY: In Paso Robles associated with the earthquake and substantial structural damage to older buildings.

At the present time, U.S. Geological Survey has dispatched geologists and seismologists to the field area. We're going to be looking for evidence of ground breakage, which would help us identify the fault zone. We'll also be installing additional seismographic recorders that are going to allow us to capture some of the vital, time-sensitive information about the aftershock process that is now under way.

So we expect that we will be several days before we have more definitive information about the earthquake. At the present time, we have been recording a large number of earthquakes in the magnitude three to four range. This indicates to us that there is a continuing possibility of strong aftershocks in the region. So the residents in the immediate vicinity are encouraged not to go into structures that may have been damaged by the earthquake.

We understand that there a number of road closures in the area. So it is a very hazardous and difficult area to work within. And our crews will be arriving either later this evening or first light tomorrow morning.

To date, we have recorded aftershocks over a broad region, primarily extending to the south and east of the epicenter. And modeling by our colleagues Doug Dreger and others at University of California, Berkeley, indicate that the rupture was primarily to the south and east. This may, in fact, have been responsible for concentrating the damage in this direction.

Until we have more direct reports from the field, it is going to be difficult for us to say more about the earthquake at this time, although this is an area that has experienced many small earthquakes over the years and is an area that I think none of us are terribly surprised an earthquake of this size would occur in.

We did not see any immediate warning of the earthquake. It apparently occurred without any significant foreshocks. But this is not unusual for earthquakes of this type.

With that, I would be happy to answer any questions that you might have about our response to the earthquake or what we have learned about it.

KING: That Bill Ellsworth of the U.S. Geological Survey, Bill Ellsworth in Menlo Park, California, briefing reporters on the earthquake today, saying it could be several days before they have enough information, also saying that the U.S. Geological Survey received no immediate warnings that that earthquake in central California was coming today. We'll return to that if any important information comes to light.

Now, in Jerusalem today, what was expected to be a peacemaking mission turned quite violent. Egyptian Foreign Minister Ahmed Maher was attacked by Muslim extremists as he visited a mosque.

Chris Burns is in Jerusalem and has the latest -- Chris.

CHRIS BURNS, CNN CORRESPONDENT: John, it happened at the very epicenter, really, of the Israeli-Palestinian conflict, this being on Temple Mount, as the Jews call it. As the Muslims call it, it is the Haram al-Sharif, or the dome of the rock.

And as Mr. Maher was entering the Al-Aqsa mosque on that grounds to make his prayers, he was confronted and attacked by a group of people who said that he was a traitor, a collaborator with the Israelis for talking with the Israelis. Some shoes were thrown, which is a big insult in the Arab and Muslim world. And his group was eventually forced to leave the mosque very quickly.

They were also escorted off the grounds by Israeli police. He was -- Mr. Maher was taken to a hospital for observation after he complained of a shortness of breath and tightness in his chest. But he's back in Egypt now. The incident is over. It did overshadow what had been a very important visit. He had spent two years without seeing the Israeli -- this was the first time he had been to Israel in two years. So a very significant diplomatic development today, despite that incident -- John. KING: And, Chris, is just meeting the development or -- we watch these pictures and we assume, from looking at them, that the mission was a failure. Is there any proof of progress from the foreign minister in those talks with the Israelis, or the Palestinians, for that matter?

BURNS: Well, John, according to Mr. Maher, he did say that he got assurances from the Israelis that they will show restraint in response to restraint by the Palestinian militants.

Now, up until now, we had more than 2 1/2 months without a suicide attack inside Israel proper, relative calm, underlining relative. But that calm is, in part, being engineered by the Egyptians, who are trying to get the militants to completely stop their attacks against the Israelis and asking for a response by the Israelis to show full restraint on their side as perhaps a step toward the U.S.-led road map for peace.

And that is what he was pushing ahead with. On the other -- another point that he made was that he got assurances from Ariel Sharon, the Israeli prime minister, that Sharon will wait to see what happens, give more time for the peace process to happen before he would push ahead with his so-called unilateral plan or disengagement plan, in which he would, on his own, continue to build this barrier around Israeli -- Jewish settlements in the West Bank and carve his own border there, regardless of whether there is any peace process.

And here, he got assurances that Mr. Sharon will show restraint on that side and give more time for the peace process to take shape -- John.

KING: Chris Burns in Jerusalem, thank you very much.

Now, coming up: hunting weapons of mass destruction from Iraq to Libya and North Korea. David Albright, former United Nations weapons inspector, will be our guest.

(COMMERCIAL BREAK)

KING: Fears of nuclear weapons falling into the wrong hands.

We're focusing tonight on Pakistan. Its government denies sending crucial uranium technology to Iran, North Korea, and Libya, but concedes, some of its top scientists may have transferred some of that technology on their own.

My next guest has often warned of the dangers of Pakistan's nuclear program. Former U.N. weapons inspector David Albright joins us from Washington.

David Albright, let us start with these reports today that Pakistan's top nuclear scientists may have been sharing the wealth, if you will, of their knowledge. How worried should we be from a proliferation standpoint?

DAVID ALBRIGHT, PRESIDENT, INST. FOR SCIENCE & INTERNATIONAL SECURITY: Well, we should be very worried.

And it is very important that we find out exactly what these scientists have done. The suspicions have been on these scientists -- in fact, many of them are known -- for years. And there has been a great deal of suspicion they helped Iran. They were willing to help Iraq. They even made offers right at the height of the first Persian Gulf War to help the Iraqi nuclear weapons program.

You have to ask yourself whether they're now linked to Libya. And so I think that it is very important that Pakistan do a very honest investigation of these people, find out what they have done, and hold them accountable. And we need that information. And we also have to gain assurance that it is not going to happen again, because, finally if your motive is money, then, if someone offers you money, you may very well do it again.

KING: Help me understand. Is it plausible to you that the government of Pakistan could know nothing about this and its top nuclear scientist, or is scientists, plural, could be meeting with people around the world and sharing information and technology? Is that plausible?

ALBRIGHT: No, it is not.

And some of these episodes have been pretty public. And so it is not credible that the Pakistani intelligence service, that parts of the leadership did not know about these activities. It is possible Musharraf didn't know. It is possible not much has happened in the last couple of years under Musharraf's rule.

But it was known in the West. I've written articles about it. Other governments have complained to the Pakistani government about this for a long time. So it is just not credible when Pakistan says: We knew nothing about this.

KING: As we watch these reports over the weekend of Moammar Gadhafi and Libya promising to give up his weapons of mass destruction, U.S. -- very senior U.S. officials conceding, they were surprised to the degree to which Libya had moved forward with its nuclear program.

Take that revelation on top of the fact that, at least so far, the hunt in Iraq for weapons of mass destruction has turned up very little, how confident can we be about the quality of U.S. intelligence, when you see things like this?

ALBRIGHT: Well, you certainly have to be worried.

But the underlying problem with intelligence is that it is typically information gathered from a distance. The most important thing is to really get inspections regimes into countries like Iran, Libya, even Pakistan, to find out what is going on, that -- it is just a simple truth. If you can get people on the ground active, armed with the ability to ask questions, you can learn a lot more.

Intelligence is always going to be weak. Sometimes it is weaker than it should be. And I think that's the case of Iraq. On Libya, a small gas centrifuge program, which Libya may have -- or has admitted to having -- is very difficult to detect. And you will see these kind of surprises, particularly, if I can add, when it is scientists with great knowledge about gas centrifuges, like in Pakistan, short- circuiting and helping, or potentially helping, countries like Libya.

KING: If we look back on this last year, proliferation a major issue, the negotiations with North Korea, the search for weapons of mass destruction in Iraq, the revelations about Iran's nuclear program, now this disclosure from Libya and this word from Pakistan.

Is that it or would there be a country or two out there that you think the world needs to look to next that might have the resources, the financial resources and other resources, to perhaps be trying to develop such a program?

ALBRIGHT: Well, I think, right now, I think we have identified the countries -- or you've identified the countries -- that we worry most about. North Korea is probably the biggest imminent threat that we face now.

Iran is a tough one. And we need to make sure that we woo them away from nuclear weapons or otherwise convince them not to go down that path. I'm not talking about military options, but it could be the need for sanctions. But if things don't go well in North Asia, particularly, or with Iran, then there may be others that we have to worry about.

And then it could be countries like Saudi Arabia rethinking their commitment. And, God forbid, it could be Japan. If Japan feels directly threatened by North Korea and we're not there to provide critical support to Japanese security, they may go down that path.

And so I think, the long-run prognosis really depends on how well we manage these current situations. And I would add, we need to stop the flow of this technology from places like Pakistan. It is really inflaming situations and making countries like North Korea, Iran more of a threat to us. And this is from our -- an ally, Pakistan.

KING: David Albright, thank you for your time tonight, sir, on a very critical issue at the end of this year and certainly one we'll carry into the next year.

ALBRIGHT: Thank you.

KING: Thank you, sir.

And coming up: Jobs and the economy will feature prominently in the upcoming presidential election. And so far, things are looking up for President Bush when it comes to the economy. Greg Mankiw is chairman of the White House Council of Economic Advisers. And he will join us.

(COMMERCIAL BREAK)

KING: We are a week and a half away from the year of the presidential election. The Democratic candidates remain active, campaigning in Iowa and New Hampshire. For President Bush, one critical factor in the election, of course, is the state of the economy. And recent economic numbers are looking up, very encouraging to the president.

(BEGIN VIDEOTAPE)

KING (voice-over): For a president seeking reelection, the numbers that tend to matter most are looking up.

BILL MCINTURFF, GOP POLLSTER: American presidents are reelected when the economy is strong. When economy is weak, we toss them out of office.

BURNS: So the unemployment rate is a leading indicator of both economic and political strength. It was 3.9 percent when Mr. Bush took office, hit a high of 6.4 percent this past June, but fell to 5.9 percent last month.

GREGORY MANKIW, CHAIRMAN, WHITE HOUSE COUNCIL OF ECONOMIC ADVISERS: We would like to see unemployment falling farther. We would like to see more job gains. I think we'll see that over the next year.

BURNS: Still, the economy has lost roughly three million jobs during the Bush presidency, 2.5 million of those in the manufacturing sector.

JOHN PODESTA, FORMER CLINTON CHIEF OF STAFF: The greatest job losses is in critical states for the president, in the Upper Midwest, in Missouri, in places that are truly the swing states in this country. And the president really has no program to deal with it.

BURNS: But the trend line of late favors the president. The economy has added more than 300,000 jobs since July. And Wall Street is closing the year on an upswing.

The Dow Industrial average was 10578 when Mr. Bush took office. It fell to a low of 7286 in early October 2002 but is now back above 10000. Mr. Bush says his big tax cuts are a big reason for the turnaround.

BUSH: We have laid the foundation for greater prosperity and more jobs across America.

BURNS: Democrats says the price was too high. The government was running a surplus when Mr. Bush took office, but has a record deficit now. Yet Democrats also concede, the economy is looking up at an opportune time for the president.

PETER HART, DEMOCRATIC POLLSTER: The one thing you have to say about President Bush is, he's not going to face the same negative feelings about the economy that his father faced 12 years ago.

(END VIDEOTAPE) KING: Our guest now is watching those economic numbers perhaps more closely than most. As chairman of the White House Council of Economic Advisers, Greg Mankiw makes it his job to keep the president briefed on economic conditions.

Greg Mankiw joins us now live from Boston.

Greg Mankiw, you heard at the end of the piece there Peter Hart, a Democratic pollster, saying this president enters the campaign in much better shape than his father did back in 1992 on the issue of the economy. As you crunch the numbers and advise this president, what is the biggest danger sign? What do you worry about the most?

MANKIW: Well, we're still very worried about the labor market. We have gotten good news for the past four months of seeing employment gains. We've seen the unemployment rate fall from 6.4 to 5.9. That's good news. But we still have a ways to go. There's still too many Americans looking for work.

And the president has said to me many times that putting America back to work is his first economic priority. And we're looking forward to more Americans working in the coming months.

KING: We had a conversation the other day. And you mentioned that one of the things economists like the least is uncertainty.

What is the impact, in your view, when the government does what it has done over the weekend, increasing the terror alert, telling Americans that there is intelligence suggesting the possibility of imminent terrorist attacks on the United States? What do you see as both the short-term and long-term economic impacts of something like that?

MANKIW: Well, uncertainty, as you mentioned, is never good for the economy.

The president obviously wants people to be aware of the uncertainties they face. We don't want to stick our head in the sand. But uncertainty is an economic negative. That's one of facts that this economy had to deal with and one of the shocks that this president has to deal with since coming to office. He inherited a series of shocks, the end of a high-tech bubble, corporate governance scandals, and terrorist attacks. All were sort of negatives, contractionary shocks in the economy.

KING: One of the things you obviously watch this time of year is the holiday retail sales, the Christmas season and the impact that can have on the economy going forward into next year, which is an election year.

In the newspaper this morning, word KB Toys is delaying some payments to its supplier because it says sales are not as robust as anticipated. Give us your broader view, the broad sense of how the economy is doing in terms of retail sales and how that projects forward.

MANKIW: Well, I think it is a little too early to judge what the retail sale season is going to look like.

But I think, by and large, the economy is doing pretty well. We saw 8 percent growth in the third quarter. That will continue. We'll get growth well in excess of the historical average. Most private sector forecasters are saying, going forward, that we'll growth of about 4 percent. That's enough to get American living standards up and Americans back to work.

KING: And, lastly, Greg Mankiw, this president will ask the Congress next year to make his tax cuts permanent. Most would expire now over the next decade. Democrats say this country has a record $500 billion deficit. What would the impact be of making the tax cuts permanent on the government's red ink?

MANKIW: Well, the president is very committed to making those tax cuts permanent. He doesn't want to raise taxes on the American people.

At the same time, he wants to get the deficit down. The deficit is this year -- fiscal year 2004 is going to be something like 4 to 4.5 percent of GDP. He wants to shrink that in half in the next five years. He's going to do that in two ways. One is to get the economy growing. And a growing economy means more revenue. And he wants spending restraint. He wants to make sure the federal government keeps its spending under control. And spending restraint and the growing economy will bring the budget deficit down.

KING: Greg Mankiw, with the White House Council of Economic Advisers, thanks for joining us tonight from Boston.

MANKIW: Thank you very much.

KING: Thank you.

And coming up, more trouble ahead for two of the most well-known figures to be embroiled in Wall Street scandals. Christine Romans will have a look what the 2004 could hold for them and many more in the corporate cleanup effort.

(COMMERCIAL BREAK)

KING: On Wall Street, stocks continued to climb above the 10000 level, hitting yet another 19 month high. The Dow rose 59 points to 10338. The Nasdaq up almost five points. The S&P gained four.

Christine Romans is here with more on the rally, plus a look at the continued outrage over Dick Grasso's pay -- Christine.

CHRISTINE ROMANS, CNN CORRESPONDENT: Well, John, slowly but surely this month, the Dow has added 600 points. And UBS today said that investor sentiment is at a 21-month high, best in nearly to years.

And that's despite the almost daily reminders of the wave of corporate scandals we have seen. Now, the New York Stock Exchange is weighing its options in the Dick Grasso pay flap. NYSE directors will spend the holidays poring over a report and how and why Grasso was paid more than $140 million. NYSE John Reed has called the report'S findings embarrassing. And Reed told "The New York Times" he was considering suing Grasso or the board for the return of some of that money.

meanwhile, Martha Stewart's trial on obstruction and securities fraud charges begins next month. She recently sat down with Larry King.

(BEGIN VIDEO CLIP, "LARRY KING LIVE")

LARRY KING, HOST: What is the hardest part of this ordeal?

MARTHA STEWART, MARTHA STEWART LIVING: Well, sort of coming to a screeching halt and having to deal with something extremely unpleasant, something that saddens and disheartens me, and something that is very, very difficult, not only for me, but for everyone I work with, my family, my friends. That's the hard part.

(END VIDEO CLIP)

ROMANS: Jury selection begins January 8. She is just the first of several corporate figures to go on trial next year. So watch this space.

KING: Watch this space.

Christine, thank you very much.

And you can catch the full interview with Martha Stewart tonight. That's 9:00 p.m. Eastern on "LARRY KING LIVE." It will be Stewart's final interview before her trial begins next month.

Now a look at some of your thoughts.

From Rindge, New Hampshire: "Congress is completely missing the point about the exporting of American jobs. Who will pay their ever- increasing wages? I have been out of work for almost a year. Last year's contribution to the U.S. Treasury? Greater than $50,000. This year, zero" -- that from Jim C.

And from Fort Bliss, Texas: "In regards to exporting America, we always like to point the finger at CEOs and executives. But all of us quickly forget when we're in the checkout at Wal-Mart that we, as consumers, are responsible as well" -- that from Matt.

And from Missouri: "'TIME' magazine has finally done something good with their person of the year. I could think of no one better than our soldiers. Outstanding" -- that from Edward.

We appreciate hearing from you. Send us an e-mail at LouDobbs@CNN.com.

And turning now to our continuing theme, "Exporting America," this is the list of companies that our staff has confirmed to be exporting American jobs or creating new jobs in cheaper overseas labor markets. Today's additions to that list are telecommunications company Ciena, DirecTV, The Hartford Financial Services Group, Newell Rubbermaid, Orbitz, and TriQuint Semiconductor.

We will continue to update this list each and every night on this broadcast. Please continue to send us e-mails with the names of companies you know to be "Exporting America." The address, LouDobbs@CNN.com.

And coming up, on the home front this holiday season, many Americans are showing their support for the troops. This week, we'll feature just a few of the most remarkable stories in our series "Holiday Home Front." Kitty Pilgrim will have the story next.

(COMMERCIAL BREAK)

KING: This week, we begin a series of special reports, "Holiday Home Front." These reports will show how Americans are supporting U.S. troops around the world.

Tonight's story takes us to Keizer, Oregon, where all 30 of the town's National Guard members were called to serve overseas. This holiday season, the Guard families found an unlikely source of support, the local high school band.

Kitty Pilgrim has the story.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): For the past four years, National Guard Echo Company in Keizer, Oregon, has voluntarily provided transportation for the McNary High School band, a connection that started after a former band member joined the National Guard.

MARITHERESA DIEHL, MCNARY HIGH SCHOOL BAND FUND RAISER: They just kept doing it every year. They enjoyed it. They had fun.

UNIDENTIFIED FEMALE: Echo Company has done so much for us. They've charted supported us to band competitions. They've really supported us.

PILGRIM: That support also saved the band thousands of dollars. But, with the U.S. military operations continuing in the Middle East, all 30 of the town's Guardsmen were called up, leaving their families during the holidays. The band members saw a way to give back to the National Guard.

RICHARD FREY, BAND DIRECTOR, MCNARY HIGH SCHOOL: We saw that need with families that were having a hard time making ends meet now that some of their families and some of their relatives are overseas. And now that we're in that tough time, Christmastime, for families to be broken apart, we thought that we really need to do something.

PILGRIM: The planned played a special performance, organizing a food drive and silent auction, raising $2,500.

DIEHL: The money will be given to the Echo Company. And they're going to be using it to -- they're distributing it throughout the battalion. It will used for Christmas parties. It will used for family emergencies.

DONNA HERR, NATIONAL GUARD FAMILY MEMBER: The cost to get in was canned food for us to keep in our pantry for family emergencies. And so the band not only raised a lot of money for us. They also filled our pantries.

PILGRIM: For the students, it means the new tubas they need won't be coming soon. But they don't seem concerned.

BEN CARROLL, MCNARY HIGH SCHOOL: We have all year and stuff to really do the tubas and help that. But the National Guard, their families are over there right now. And it was just a -- the larger priority at that moment. And so -- and we were happy to do it.

PILGRIM: And it repays a favor when their friends need it most.

Kitty Pilgrim, CNN.

(END VIDEOTAPE)

KING: Tomorrow in "Holiday Home Front," baseball fans and companies are pitching in to brighten the spirits of U.S. troops abroad. We'll tell you how they're bringing America's pastime to servicemen and servicewomen deployed overseas.

Tonight's quote is from Baghdad, where one of the soldiers pictured on the cover of "TIME" magazine's person of the year issue talked about what it means to the men and women of the U.S. military.

We quote: "It was great, because all of the soldiers that had been over here and the ones coming over are doing a real good job, doing good deeds for our country and helping out the people of Iraq. It's a real big honor for all of us, in my opinion." That is from Sergeant Marquette Whiteside of the U.S. Army.

And that's our show tonight. Thanks for being with us.

Tomorrow, we'll be talking politics with Ron Brownstein of "The L.A. Times" and Karen Tumulty of "TIME." We'll take a look ahead at the presidential election year, from New Hampshire to November. And we'll talk about the strains facing U.S. military forces around the world with General David Grange.

For all of us here, good night from New York.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com





Will Economy Help President Bush?>


Aired December 22, 2003 - 18:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JOHN KING, CNN ANCHOR: Tonight: A large earthquake strikes California, killing several people. Others may be tracked in the wreckage. The large metropolitan areas escape serious damage. Charles Feldman will report from Los Angeles.
The nation is on high alert after the government raises the terror threat level. Lisa Sylvester will report on the cost of the extra security. Former New York Police Commissioner Bernard Kerik will be my guest.

President Bush prepares to fight for reelection, helped by economic numbers that are moving in his direction. White House economic adviser Greg Mankiw will join me.

And supporting our troops -- tonight, a special report about a town in Oregon that is taking some unusual steps to help its National Guardsmen deployed overseas and the families they have left behind.

ANNOUNCER: This is LOU DOBBS TONIGHT for Monday, December 22. Sitting in for Lou Dobbs, John King.

KING: Good evening.

A powerful earthquake struck the coast of central California today, shaking buildings from San Francisco to Los Angeles and killing at least three people. It is unclear tonight how many people were injured. The quake was one of the strongest to strike California in years. The U.S. Geological Survey said the quake registered a preliminary magnitude of 6.5.

Charles Feldman now reports on the latest from Los Angeles.

CHARLES FELDMAN, CNN CORRESPONDENT: John, yes, the earthquake occurred about 11:15 Pacific time. And it happened -- its epicenter was about six miles northeast of the town of San Simeon.

And that's about 240 miles due north of the city of Los Angeles. It was felt from San Francisco all the way down here to L.A. You're looking at pictures of Paso Robles. And, in that town, as you can see, there was some structural damage to some buildings. A historic clock tower collapsed. CNN has been told that the three fatalities occurred with people who were inside that clock tower.

Also at issue earlier in the day was the fate of the El Diablo nuclear power plant, which is in nearby San Luis Obispo. The control room of the nuclear plant said that it very much felt that 6.5 quake, as well as some significant aftershocks, some 40 in all that occurred after the main event. But the nuclear power plant was apparently not damaged in any significant way and continued, we are told, to operate safely.

Also, park rangers are to evacuate Hearst Castle, a main tourist attraction in central California and the home to the former newspaper magnate William Randolph Hearst. By any measure, by any means, this was a significant geological event.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: This is a magnitude 6.5 quake. It is a moderate sized earthquake that caused modest damage in the local area. It is an earthquake that is rare, but not particularly rare for the area. We had similar sized earthquakes in 1952 and 1853 and 1906, all in this area.

It is on a fault system we don't know as well as we would like. And this earthquake will help us to get know it wet better.

(END VIDEO CLIP)

FELDMAN: Now, the bad and the good of this earthquake, the bad was that it was a shallow earthquake. It happened about 4.7 miles beneath the surface of the earth. Shallow earthquakes tend to cause the most damage.

The good news, though, is that the earthquake occurred in a relatively sparsely populated section of California. In all of San Luis Obispo County, there is about 250,000 permanent residents -- John.

KING: Charles Feldman, the latest live in Los Angeles -- Charles, We may come back you to later if there's any update. Thank you very much.

Now, one of the worst affected communities is Paso Robles on the Californian coast. That is where a building collapsed, killing at least three people.

I'm joined on the phone by Richard Jackoway. He's city editor of "The San Luis Obispo Tribune" in California.

Richard, what can you tell us the latest on the casualty numbers, still three dead, and any progress in the rescue effort?

RICHARD JACKOWAY, "THE SAN LUIS OBISPO TRIBUNE": Still three dead. And they're still there trying to dig out. We don't know of any other people who are missing at this point. But, obviously, they'll want to check it as thoroughly as they can.

KING: And 40,000 without power was the number I heard a short time ago. Is that still the case? And is there any sense at all as to how long that could be a situation?

JACKOWAY: I heard that number earlier as well. But I haven't gotten an update recently. And that is all over the county. Some places are going up and some places I think will be out for some time.

KING: And, Richard, as you report this story, is there a sense of surprise that three is the number dead right now, given the magnitude of this quake?

JACKOWAY: Yes and no. The area where the epicenter was is fairly rural. Paso Robles would 15 miles or so away, at least. I think that is right. And so it didn't hit it in the heart of town, but it is obviously a very big earthquake. And we have a lot of buildings that are older buildings, since we haven't had many serious earthquakes here.

KING: And we're looking at pictures here from KGO, one of our affiliates on the building collapse, I assume the building where we had the fatalities. Any sense, beyond these buildings collapsing, any major damage to any major infrastructure, whether it e electricity lines or roads or bridges?

JACKOWAY: We have had cracks in highways and roads, rock slides. Water is out in some parts of the county.

And I'm not sure actually -- there may be two separate buildings that you're looking at. One, the clock tower, which is on the heart -- the -- on the park in the heart of Paso, was the area where the deaths occurred. And I think a number of the pictures have been a different building, but I'm not certain about that.

KING: And, Richard Jackoway, obviously, one concern from officials is aftershocks. Have you felt anything since the major quake this afternoon?

JACKOWAY: A few that were in the four range, particularly felt on the coastline. There's been a number of aftershocks, but nothing large.

KING: It may seem an odd question, but given the fact the government has increased the terrorism alert level, any concerns that perhaps emergency personnel, police officers may have been deployed in ways that took -- increased the response time for something like this?

JACKOWAY: No, I don't think so.

The only thing we had locally, actually, at the same time as the earthquake, there was a memorial service for the death of an officer down in Arroyo Grande, which is a ways away from where this earthquake happened. The officer was from Paso Robles. So a number of people, just coincidentally, might have been down at that memorial service.

KING: And, lastly, Richard, you say you don't know of any more missing. Is there a fear that some are missing? And help us understand here on the East Coast how much more daylight would they have in California if that is the case, people missing?

JACKOWAY: Obviously,the shortest day of the year or second shortest, whatever it is. We probably have an hour and a half of daylight left. And like I said, we don't -- we have not heard of other people missing. But when you have collapsed buildings that are hard to move that you don't know how structurally safe they are, I think they'll continue looking until they're satisfied.

KING: Richard Jackoway, thank you for your time on a very busy afternoon in your community. Thank you, sir.

And turning now to new fears of terrorism and the government's decision to raise the national alert level to orange, or high. President Bush today met with his top homeland security officials to review the latest intelligence and the nation's anti-terrorism strategy. Mr. Bush says the government is doing everything possible to prevent an attack. And he told Americans to -- quote -- "go about their lives."

White House correspondent Suzanne Malveaux reports.

(BEGIN VIDEOTAPE)

SUZANNE MALVEAUX, CNN CORRESPONDENT (voice-over): President Bush, celebrating the holidays, urged Americans, despite the threat level, to do the same.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: American citizens need to go about their lives. But, as they do so, they need to know that governments at all levels are working as hard as we possibly can to protect the American citizens.

MALVEAUX: But, earlier in the day, Mr. Bush was hunkered down at the White House with his Homeland Security Council, getting briefed on the security plan for the country's heightened state of alert.

Homeland Security Secretary Tom Ridge emerged from the meeting to explain how this warning is unlike any before.

TOM RIDGE, HOMELAND SECURITY SECRETARY: There's general consensus within that community that all the strategic indicators suggest, from the volume, really the level and the amount of reporting has increased. We have never quite seen it at this level before.

MALVEAUX: The reporting is also considered to be more credible than when the administration raised the threat level to orange back in May.

RIDGE: Our ability to corroborate some of this information, the strategic indicators suggest that it is the most significant threat reporting since 9/11.

(END VIDEOTAPE)

MALVEAUX: Administration officials are calling this information specific, reliable and credible, a senior Pentagon official saying that this is a true orange alert, not like some of those in the past that were regarded with skepticism -- John.

KING: Suzanne Malveaux at the White House -- thank you very much, Suzanne. Now, the government raised the terror alert level after intelligence analysts detected an increase in -- quote -- "chatter" among suspected terrorists. Officials say the threat of an attack is the greatest since the September 11 hijackings a little more than two years ago.

Homeland security correspondent Jeanne Meserve is tracking this and has some of the latest for us -- Jeanne.

JEANNE MESERVE, CNN HOMELAND SECURITY CORRESPONDENT: John, homeland security officials at every level of government are telling me this move to orange seems more serious than the four previous. And, as a result, some are putting new, additional security measures into effect.

A homeland security official says there is credible and specific threat information, some of it relating to aviation and the possible use of flights originating outside the United States as weapons for suicide attacks. Sources say there is some geographically specific information and there is particular concern about New York, Washington, Los Angeles and a handful of other metropolitan areas.

Governors have been given specific security recommendations by the Department of Homeland Security; included, lists of critical infrastructure which intelligence indicates could be targeted by aircraft and which risk and vulnerability assessments judged to pose the greatest potential danger. Those would include chemical and nuclear plants, as well as bridges.

Because the intelligence mentions the danger from flights originating overseas, the U.S. also is urging airlines and foreign governments to increase passenger, luggage and cargo screening and enhance perimeter security. At present, there are no international security standards. At domestic airports, you're seeing more vehicle inspections, more restrictive parking rules, more canine patrols, and more random inspection of bags.

At borders, there is more scrutiny. At ports, cargo is now being inspected alongside vessels. And some federal agencies and law enforcement organizations are canceling leave and increasing overtime. According to one estimate, it costs the nation about $1 billion a week to go to orange. That is one reason the threat level has not been elevated for six months. But now that it is at orange, there is no guessing how long it will last past the holiday season -- John, back to you.

KING: And, Jeanne, a sensitive decision for the government to do this on the eve of the Christmas holidays. This announcement came yesterday from the homeland security secretary. Was it one new piece of information that made them decide to go up or was it just an accumulative assessment of the intelligence over a period of days and weeks?

MESERVE: I'm told that it was more of a accumulative assessment.

As you know, this has been building for some time. We have been doing reporting on this for last several weeks. In addition, there was that tape released Friday allegedly from al Qaeda's No. 2 man which threatened more attacks. They thought that might be a go to a sleeper cell in the U.S. They put it together, took another look at stuff yet again over the weekend, decided this was the time to move it up.

One state official did say to me, they did it at the right time. Because the peak of holiday shopping has passed, it's not going to have, he felt, the same kind of economic impact it would have had just a couple of days ago -- John.

KING: Jeanne Meserve in Washington, thank you very much.

Now, each time the government raises the national threat level, local foot soldiers in the war on terror spring into action. But who pays for the overtime for police, the fire departments and other agencies?

Lisa Sylvester reports on how federal and state governments often pass the bills onto local taxpayers.

(BEGIN VIDEOTAPE)

LISA SYLVESTER, CNN CORRESPONDENT (voice-over): Baltimore's police officers are working 12-hour shifts. Patrols have been increased around the city's landmarks. And vacations for some officers will be cut short.

KEVIN CLARK, BALTIMORE POLICE COMMISSIONER: For these particular homeland security issues, it will be our criminal intelligence division, special operations section and some other elements of patrol that will be given extended tours to cover some of what we feel are vulnerable locations.

SYLVESTER: Every time the federal government raises the alert system from yellow to orange, it costs Baltimore $300,000 a week. The Department of Homeland Security has offered $2 billion in grants to states and cities for first-responders, such as police and firefighters, but the money has been slow to trickle down.

MARTIN O'MALLEY, MAYOR OF BALTIMORE: The lack of dollars kind of rolls down to the state level and to the local level. And, yes, all of us are suffering, because the reality is, you cannot protect America, not in the war on two fronts, if you're not also willing to invest in America.

SYLVESTER: As of September, only 64 percent of the nation's counties had received funding from the federal government. A third of the counties had yet to receive any money.

Of those receiving grants, only 15 percent received all of the funding requested. One problem four counties and cities is that terror alerts are vague, so it's not easy to decide where the best place is to spend the money.

JAMES CARAFANO, HERITAGE FOUNDATION: And we still kind of have a one-size fits all system as far as the public is concerned. I'm not sure it is really appropriate. Our country is too big. There's too many vulnerabilities, too much infrastructure. And I really do think we need a better system.

SYLVESTER: So cities like Baltimore do what they can, increase police presence and hope that the threat passes without incident.

(END VIDEOTAPE)

SYLVESTER: Since 9/11, 2001, Baltimore has spent $18 million in operating costs specifically for homeland security. But the city has received only $1 million in reimbursement from the federal government -- John.

KING: Still waiting for more. Lisa Sylvester in Washington, thank you very much.

Now, coming up, former New York City Police Commissioner Bernard Kerik says the heightened state of alert should serve as a reminder that Americans must remain vigilant. Bernard Kerik will join us.

Then: the United States' ongoing search for weapons of mass destruction in Iraq and around the world. Former U.N. weapons inspector David Albright will join us.

And tonight, we begin a series of special reports on the "Holiday Home Front," some inspiring stories of Americans who are going to great lengths to show their support for the troops this holiday season.

(COMMERCIAL BREAK)

KING: The national threat alert warning is raised to its second highest level on the eve of the Christmas holidays. What exactly does that mean to law enforcement agents around the country and what does it mean for you?

Let's turn to the man who was New York City police commissioner during 9/11, helped reassure this country with a steady leadership at a time of crisis. Bernard Kerik, the former commissioner, joins us in the studio.

Thank you, sir.

BERNARD KERIK, FORMER NEW YORK CITY POLICE COMMISSIONER: Thanks.

KING: One of the things police commissioners have complained about frequency about this level system is the lack of specificity in the intelligence. Cities all across the country are told to go on a higher alert, but not told what might be hit or how. How frustrating is that if you're the commissioner in New York or the police chief in Chicago?

KERIK: Well, it is a little frustrating.

But we have to keep in mind and we have to remind ourselves, intelligence is not a perfect science. Sometimes, it comes in volume. Sometimes, it comes in different manners. They could be picking things up on -- over satellites, intercepts, telephone conversations, out of Guantanamo Bay, out of Iraq. It comes through different methods.

And sometimes, it is varied. But I think the secretary released yesterday that there are volumes out of the norm, out of the -- what we're used to. And that's really raised suspicion in the mind-set in the president, in him and the others that work on our homeland security.

KING: Secretary Ridge is said to be a strong believer in deterrent, that being that, if someone were planning an attack on an airport in this city, and they saw the National Guard, saw an increased police presence, they would back down. Do you believe that?

KERIK: Yes, I think so. It doesn't only work in terrorism. It works in law enforcement, crime enforcement in general.

When the cops are out there and the police are out there, the bad guys, they deter. They run away. I think we'll see the same things in this capacity as well. But we have to keep in mind, on September 10 of 2001, they didn't tell us they were coming. We can't prevent every attack. It is never going happen. But we have to do the best we can. And I think that's what is being done at this point.

KING: A great deal has been done since 9/11, the lessons learned. But there are also some glaring holes, all would agree, in the system. One of the concerns of late has been cargo planes coming in from international destinations.

Is there anything a police commissioner in a major city in the United States can do if someone hijacks a plane, no crew, no passengers with cell phones to warn anybody, if you get a cargo plane?

KERIK: Well, there's two areas of concern. One are the cargo planes. Two are the ports.

But we are working with the international authorities. We're working with other government agencies. The maritime industry, for example, is really working on procedures and things that we can do internationally, abroad, to prevent things like this from happening, mandates in their laws, in their registrations before they come into this country. And we'll be doing the same thing within the cargo in the airline industry as well.

So, right now, this is an educational process. We have been learning as we go along, since September 11. And we're doing the best we can. And, as I said, can you prevent everything? No. But I think we're in much, much better shape today than we were on September 10 of 2001.

KING: You were the police commissioner of New York then. You recently spent a few months in Iraq helping President Bush try to train a police force there, get a new security situation up and running in Iraq. As you know too well, one of the frequent horrors of the Middle East are suicide bombers. Many have said that they are surprised, in fact, that that tactic has not been used here in the United States. There was a rumor perhaps of a threat in New York recently. Are you surprised that al Qaeda or other terrorist groups have not tried that tactic here?

KERIK: Well, I don't think they haven't tried. I think they have thought about it. But you have to realize, it is much easier to get explosives abroad than it is here.

And our intelligence capabilities -- and that is going to be the success in fighting terrorism in the future, not only here, but abroad as well, internationally, Iraq, Afghanistan, in other countries -- intelligence is going to be the key to our success. And that is much better today than it was prior. So I think that is what is really helping prevent things like suicide bombers and other localized attacks that we haven't seen.

KING: Just, we have the privilege of having you here. I want your thoughts not only on the situation here at home, but Saddam Hussein was captured recently. You spent a great deal of time on the ground in Iraq. That was obviously one of the top priorities.

What is your sense now, based on your experience then, about the intelligence benefits to be gained from not only having Saddam Hussein in custody, but the documents that were seized with him? Do you believe that that is the key to shutting down the insurgency?

KERIK: I think that's a substantial part of it. And we're also seeing that, hundreds of arrests, several people killed in the last week since he's been -- since he's been captured. And I think that will continue, because for every one of those arrests and everybody that is captured, they give up a little information as well.

So between what he had and what we're getting, the fruits of the tree, so to speak, from what we're getting from him, I think that is going to be a major -- have a major impact on fighting the terrorists there.

KING: Let me give you the final word on this. Many Americans came to know your face and your voice in the days after 9/11. If they're watching today, wondering what should they do based on this higher alert level, what would you tell them?

KERIK: I'm leaving here and going to a Christmas party. So I would say, they enjoy the holiday. Be alert. Stay vigilant. But go about your business and prove to the terrorists that they're not going to have a negative impact on us.

KING: Hope you enjoy the party and the holidays. And we thank you for your time.

KERIK: Thank you.

KING: Take care, sir. Turning now to tonight's poll question: How useful do you find the national terror threat levels, very useful, somewhat, or completely useless? Cast your at CNN.com/Lou. We'll bring you the results a bit later in the show.

And tonight's thought is on security and the ability of military forces to react to any situation -- quote -- "Our military plans should be based on the assumption of unpredictability, rather than on a carefully drawn, static model of the world" -- that from author and editor James Fallows.

And coming up: two more American troops killed in Baghdad today. Pentagon correspondent Barbara Starr will have the latest on that attack.

And a mission aimed at building a peaceful Middle East ends in violence. Chris Burns will have that report from Jerusalem.

(COMMERCIAL BREAK)

KING: Russian President Vladimir Putin today said his government is ready to write off more than half of the $8 billion that Baghdad owes Moscow. The debt is about just a small slice of Iraq's roughly $120 billion in international debt. But Russia is one of Iraq's biggest creditors and its decision could impact decisions in other key capitals.

In Iraq today, insurgents killed two soldiers and U.S. troops arrested a former Iraqi intelligence officer.

Pentagon correspondent Barbara Starr reports -- Barbara.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: John, indeed, two soldiers from the 1st Armored Division killed in Baghdad today when they encountered a roadside bomb in that attack, an Iraqi interpreter also killed, two additional U.S. soldiers wounded.

And, indeed, the U.S. has captured a man they now believe is quite important. His name is Major General Mumtaz al-Taji. He's an intelligence officer, the U.S. now believes, who was involved in recruiting insurgents and directing attacks, all of this in the town of Baquba, about 40 miles north of Baghdad, where, as you see, additional raids have been conducted in recent hours against insurgents in that town.

The chairman of the Joint Chiefs of Staff, General Richard Myers, now saying that the U.S. continues to get payoff from those documents captured when they got Saddam Hussein, those documents now leading to intelligence that have allowed U.S. forces to capture several hundred additional insurgents in recent days.

But officials, John, still trying to determine finally just how involved Saddam Hussein was in the insurgency. Was he directing it or was he simply receiving reports from the field? No final conclusion yet on that key question -- John. KING: Barbara, want to turn your attention now to an intriguing case making its way through the court, a judge today ordering the Pentagon to stop forcing service men and women to have anthrax shots, against their will. Why did the judge make that ruling and what is the Pentagon and the Bush administration saying about it?

STARR: Well, indeed, this judge now, quite unexpectedly ruling that the anthrax vaccine was essentially an experimental drug and that people could not be forced in the military to partake in this vaccination program if indeed it was experimental.

This ruling just coming to the Pentagon now on this holiday week, when very few people are around to look at it. We are told that both the Department of Defense and the Department of Justice are looking at the ruling and trying to decide how they will appeal it.

The impact not clear yet, because forces going over to Iraq in the upcoming troop rotation certainly are expected to get the anthrax vaccine. Some of them are in the middle of that entire medical protocol. So it is not clear yet whether it will actually be stopped, whether the Pentagon will appeal the ruling, how all of this will go forward.

KING: Barbara Starr at the Pentagon, thank you very much.

And more now on today's top story, that powerful earthquake in central California that killed at least two people, one other person reported missing tonight. The U.S. Geological Survey has just started a news conference in Menlo Park, California.

Let's listen in.

(JOINED IN PROGRESS)

BILL ELLSWORTH, U.S. GEOLOGICAL SURVEY: In Paso Robles associated with the earthquake and substantial structural damage to older buildings.

At the present time, U.S. Geological Survey has dispatched geologists and seismologists to the field area. We're going to be looking for evidence of ground breakage, which would help us identify the fault zone. We'll also be installing additional seismographic recorders that are going to allow us to capture some of the vital, time-sensitive information about the aftershock process that is now under way.

So we expect that we will be several days before we have more definitive information about the earthquake. At the present time, we have been recording a large number of earthquakes in the magnitude three to four range. This indicates to us that there is a continuing possibility of strong aftershocks in the region. So the residents in the immediate vicinity are encouraged not to go into structures that may have been damaged by the earthquake.

We understand that there a number of road closures in the area. So it is a very hazardous and difficult area to work within. And our crews will be arriving either later this evening or first light tomorrow morning.

To date, we have recorded aftershocks over a broad region, primarily extending to the south and east of the epicenter. And modeling by our colleagues Doug Dreger and others at University of California, Berkeley, indicate that the rupture was primarily to the south and east. This may, in fact, have been responsible for concentrating the damage in this direction.

Until we have more direct reports from the field, it is going to be difficult for us to say more about the earthquake at this time, although this is an area that has experienced many small earthquakes over the years and is an area that I think none of us are terribly surprised an earthquake of this size would occur in.

We did not see any immediate warning of the earthquake. It apparently occurred without any significant foreshocks. But this is not unusual for earthquakes of this type.

With that, I would be happy to answer any questions that you might have about our response to the earthquake or what we have learned about it.

KING: That Bill Ellsworth of the U.S. Geological Survey, Bill Ellsworth in Menlo Park, California, briefing reporters on the earthquake today, saying it could be several days before they have enough information, also saying that the U.S. Geological Survey received no immediate warnings that that earthquake in central California was coming today. We'll return to that if any important information comes to light.

Now, in Jerusalem today, what was expected to be a peacemaking mission turned quite violent. Egyptian Foreign Minister Ahmed Maher was attacked by Muslim extremists as he visited a mosque.

Chris Burns is in Jerusalem and has the latest -- Chris.

CHRIS BURNS, CNN CORRESPONDENT: John, it happened at the very epicenter, really, of the Israeli-Palestinian conflict, this being on Temple Mount, as the Jews call it. As the Muslims call it, it is the Haram al-Sharif, or the dome of the rock.

And as Mr. Maher was entering the Al-Aqsa mosque on that grounds to make his prayers, he was confronted and attacked by a group of people who said that he was a traitor, a collaborator with the Israelis for talking with the Israelis. Some shoes were thrown, which is a big insult in the Arab and Muslim world. And his group was eventually forced to leave the mosque very quickly.

They were also escorted off the grounds by Israeli police. He was -- Mr. Maher was taken to a hospital for observation after he complained of a shortness of breath and tightness in his chest. But he's back in Egypt now. The incident is over. It did overshadow what had been a very important visit. He had spent two years without seeing the Israeli -- this was the first time he had been to Israel in two years. So a very significant diplomatic development today, despite that incident -- John. KING: And, Chris, is just meeting the development or -- we watch these pictures and we assume, from looking at them, that the mission was a failure. Is there any proof of progress from the foreign minister in those talks with the Israelis, or the Palestinians, for that matter?

BURNS: Well, John, according to Mr. Maher, he did say that he got assurances from the Israelis that they will show restraint in response to restraint by the Palestinian militants.

Now, up until now, we had more than 2 1/2 months without a suicide attack inside Israel proper, relative calm, underlining relative. But that calm is, in part, being engineered by the Egyptians, who are trying to get the militants to completely stop their attacks against the Israelis and asking for a response by the Israelis to show full restraint on their side as perhaps a step toward the U.S.-led road map for peace.

And that is what he was pushing ahead with. On the other -- another point that he made was that he got assurances from Ariel Sharon, the Israeli prime minister, that Sharon will wait to see what happens, give more time for the peace process to happen before he would push ahead with his so-called unilateral plan or disengagement plan, in which he would, on his own, continue to build this barrier around Israeli -- Jewish settlements in the West Bank and carve his own border there, regardless of whether there is any peace process.

And here, he got assurances that Mr. Sharon will show restraint on that side and give more time for the peace process to take shape -- John.

KING: Chris Burns in Jerusalem, thank you very much.

Now, coming up: hunting weapons of mass destruction from Iraq to Libya and North Korea. David Albright, former United Nations weapons inspector, will be our guest.

(COMMERCIAL BREAK)

KING: Fears of nuclear weapons falling into the wrong hands.

We're focusing tonight on Pakistan. Its government denies sending crucial uranium technology to Iran, North Korea, and Libya, but concedes, some of its top scientists may have transferred some of that technology on their own.

My next guest has often warned of the dangers of Pakistan's nuclear program. Former U.N. weapons inspector David Albright joins us from Washington.

David Albright, let us start with these reports today that Pakistan's top nuclear scientists may have been sharing the wealth, if you will, of their knowledge. How worried should we be from a proliferation standpoint?

DAVID ALBRIGHT, PRESIDENT, INST. FOR SCIENCE & INTERNATIONAL SECURITY: Well, we should be very worried.

And it is very important that we find out exactly what these scientists have done. The suspicions have been on these scientists -- in fact, many of them are known -- for years. And there has been a great deal of suspicion they helped Iran. They were willing to help Iraq. They even made offers right at the height of the first Persian Gulf War to help the Iraqi nuclear weapons program.

You have to ask yourself whether they're now linked to Libya. And so I think that it is very important that Pakistan do a very honest investigation of these people, find out what they have done, and hold them accountable. And we need that information. And we also have to gain assurance that it is not going to happen again, because, finally if your motive is money, then, if someone offers you money, you may very well do it again.

KING: Help me understand. Is it plausible to you that the government of Pakistan could know nothing about this and its top nuclear scientist, or is scientists, plural, could be meeting with people around the world and sharing information and technology? Is that plausible?

ALBRIGHT: No, it is not.

And some of these episodes have been pretty public. And so it is not credible that the Pakistani intelligence service, that parts of the leadership did not know about these activities. It is possible Musharraf didn't know. It is possible not much has happened in the last couple of years under Musharraf's rule.

But it was known in the West. I've written articles about it. Other governments have complained to the Pakistani government about this for a long time. So it is just not credible when Pakistan says: We knew nothing about this.

KING: As we watch these reports over the weekend of Moammar Gadhafi and Libya promising to give up his weapons of mass destruction, U.S. -- very senior U.S. officials conceding, they were surprised to the degree to which Libya had moved forward with its nuclear program.

Take that revelation on top of the fact that, at least so far, the hunt in Iraq for weapons of mass destruction has turned up very little, how confident can we be about the quality of U.S. intelligence, when you see things like this?

ALBRIGHT: Well, you certainly have to be worried.

But the underlying problem with intelligence is that it is typically information gathered from a distance. The most important thing is to really get inspections regimes into countries like Iran, Libya, even Pakistan, to find out what is going on, that -- it is just a simple truth. If you can get people on the ground active, armed with the ability to ask questions, you can learn a lot more.

Intelligence is always going to be weak. Sometimes it is weaker than it should be. And I think that's the case of Iraq. On Libya, a small gas centrifuge program, which Libya may have -- or has admitted to having -- is very difficult to detect. And you will see these kind of surprises, particularly, if I can add, when it is scientists with great knowledge about gas centrifuges, like in Pakistan, short- circuiting and helping, or potentially helping, countries like Libya.

KING: If we look back on this last year, proliferation a major issue, the negotiations with North Korea, the search for weapons of mass destruction in Iraq, the revelations about Iran's nuclear program, now this disclosure from Libya and this word from Pakistan.

Is that it or would there be a country or two out there that you think the world needs to look to next that might have the resources, the financial resources and other resources, to perhaps be trying to develop such a program?

ALBRIGHT: Well, I think, right now, I think we have identified the countries -- or you've identified the countries -- that we worry most about. North Korea is probably the biggest imminent threat that we face now.

Iran is a tough one. And we need to make sure that we woo them away from nuclear weapons or otherwise convince them not to go down that path. I'm not talking about military options, but it could be the need for sanctions. But if things don't go well in North Asia, particularly, or with Iran, then there may be others that we have to worry about.

And then it could be countries like Saudi Arabia rethinking their commitment. And, God forbid, it could be Japan. If Japan feels directly threatened by North Korea and we're not there to provide critical support to Japanese security, they may go down that path.

And so I think, the long-run prognosis really depends on how well we manage these current situations. And I would add, we need to stop the flow of this technology from places like Pakistan. It is really inflaming situations and making countries like North Korea, Iran more of a threat to us. And this is from our -- an ally, Pakistan.

KING: David Albright, thank you for your time tonight, sir, on a very critical issue at the end of this year and certainly one we'll carry into the next year.

ALBRIGHT: Thank you.

KING: Thank you, sir.

And coming up: Jobs and the economy will feature prominently in the upcoming presidential election. And so far, things are looking up for President Bush when it comes to the economy. Greg Mankiw is chairman of the White House Council of Economic Advisers. And he will join us.

(COMMERCIAL BREAK)

KING: We are a week and a half away from the year of the presidential election. The Democratic candidates remain active, campaigning in Iowa and New Hampshire. For President Bush, one critical factor in the election, of course, is the state of the economy. And recent economic numbers are looking up, very encouraging to the president.

(BEGIN VIDEOTAPE)

KING (voice-over): For a president seeking reelection, the numbers that tend to matter most are looking up.

BILL MCINTURFF, GOP POLLSTER: American presidents are reelected when the economy is strong. When economy is weak, we toss them out of office.

BURNS: So the unemployment rate is a leading indicator of both economic and political strength. It was 3.9 percent when Mr. Bush took office, hit a high of 6.4 percent this past June, but fell to 5.9 percent last month.

GREGORY MANKIW, CHAIRMAN, WHITE HOUSE COUNCIL OF ECONOMIC ADVISERS: We would like to see unemployment falling farther. We would like to see more job gains. I think we'll see that over the next year.

BURNS: Still, the economy has lost roughly three million jobs during the Bush presidency, 2.5 million of those in the manufacturing sector.

JOHN PODESTA, FORMER CLINTON CHIEF OF STAFF: The greatest job losses is in critical states for the president, in the Upper Midwest, in Missouri, in places that are truly the swing states in this country. And the president really has no program to deal with it.

BURNS: But the trend line of late favors the president. The economy has added more than 300,000 jobs since July. And Wall Street is closing the year on an upswing.

The Dow Industrial average was 10578 when Mr. Bush took office. It fell to a low of 7286 in early October 2002 but is now back above 10000. Mr. Bush says his big tax cuts are a big reason for the turnaround.

BUSH: We have laid the foundation for greater prosperity and more jobs across America.

BURNS: Democrats says the price was too high. The government was running a surplus when Mr. Bush took office, but has a record deficit now. Yet Democrats also concede, the economy is looking up at an opportune time for the president.

PETER HART, DEMOCRATIC POLLSTER: The one thing you have to say about President Bush is, he's not going to face the same negative feelings about the economy that his father faced 12 years ago.

(END VIDEOTAPE) KING: Our guest now is watching those economic numbers perhaps more closely than most. As chairman of the White House Council of Economic Advisers, Greg Mankiw makes it his job to keep the president briefed on economic conditions.

Greg Mankiw joins us now live from Boston.

Greg Mankiw, you heard at the end of the piece there Peter Hart, a Democratic pollster, saying this president enters the campaign in much better shape than his father did back in 1992 on the issue of the economy. As you crunch the numbers and advise this president, what is the biggest danger sign? What do you worry about the most?

MANKIW: Well, we're still very worried about the labor market. We have gotten good news for the past four months of seeing employment gains. We've seen the unemployment rate fall from 6.4 to 5.9. That's good news. But we still have a ways to go. There's still too many Americans looking for work.

And the president has said to me many times that putting America back to work is his first economic priority. And we're looking forward to more Americans working in the coming months.

KING: We had a conversation the other day. And you mentioned that one of the things economists like the least is uncertainty.

What is the impact, in your view, when the government does what it has done over the weekend, increasing the terror alert, telling Americans that there is intelligence suggesting the possibility of imminent terrorist attacks on the United States? What do you see as both the short-term and long-term economic impacts of something like that?

MANKIW: Well, uncertainty, as you mentioned, is never good for the economy.

The president obviously wants people to be aware of the uncertainties they face. We don't want to stick our head in the sand. But uncertainty is an economic negative. That's one of facts that this economy had to deal with and one of the shocks that this president has to deal with since coming to office. He inherited a series of shocks, the end of a high-tech bubble, corporate governance scandals, and terrorist attacks. All were sort of negatives, contractionary shocks in the economy.

KING: One of the things you obviously watch this time of year is the holiday retail sales, the Christmas season and the impact that can have on the economy going forward into next year, which is an election year.

In the newspaper this morning, word KB Toys is delaying some payments to its supplier because it says sales are not as robust as anticipated. Give us your broader view, the broad sense of how the economy is doing in terms of retail sales and how that projects forward.

MANKIW: Well, I think it is a little too early to judge what the retail sale season is going to look like.

But I think, by and large, the economy is doing pretty well. We saw 8 percent growth in the third quarter. That will continue. We'll get growth well in excess of the historical average. Most private sector forecasters are saying, going forward, that we'll growth of about 4 percent. That's enough to get American living standards up and Americans back to work.

KING: And, lastly, Greg Mankiw, this president will ask the Congress next year to make his tax cuts permanent. Most would expire now over the next decade. Democrats say this country has a record $500 billion deficit. What would the impact be of making the tax cuts permanent on the government's red ink?

MANKIW: Well, the president is very committed to making those tax cuts permanent. He doesn't want to raise taxes on the American people.

At the same time, he wants to get the deficit down. The deficit is this year -- fiscal year 2004 is going to be something like 4 to 4.5 percent of GDP. He wants to shrink that in half in the next five years. He's going to do that in two ways. One is to get the economy growing. And a growing economy means more revenue. And he wants spending restraint. He wants to make sure the federal government keeps its spending under control. And spending restraint and the growing economy will bring the budget deficit down.

KING: Greg Mankiw, with the White House Council of Economic Advisers, thanks for joining us tonight from Boston.

MANKIW: Thank you very much.

KING: Thank you.

And coming up, more trouble ahead for two of the most well-known figures to be embroiled in Wall Street scandals. Christine Romans will have a look what the 2004 could hold for them and many more in the corporate cleanup effort.

(COMMERCIAL BREAK)

KING: On Wall Street, stocks continued to climb above the 10000 level, hitting yet another 19 month high. The Dow rose 59 points to 10338. The Nasdaq up almost five points. The S&P gained four.

Christine Romans is here with more on the rally, plus a look at the continued outrage over Dick Grasso's pay -- Christine.

CHRISTINE ROMANS, CNN CORRESPONDENT: Well, John, slowly but surely this month, the Dow has added 600 points. And UBS today said that investor sentiment is at a 21-month high, best in nearly to years.

And that's despite the almost daily reminders of the wave of corporate scandals we have seen. Now, the New York Stock Exchange is weighing its options in the Dick Grasso pay flap. NYSE directors will spend the holidays poring over a report and how and why Grasso was paid more than $140 million. NYSE John Reed has called the report'S findings embarrassing. And Reed told "The New York Times" he was considering suing Grasso or the board for the return of some of that money.

meanwhile, Martha Stewart's trial on obstruction and securities fraud charges begins next month. She recently sat down with Larry King.

(BEGIN VIDEO CLIP, "LARRY KING LIVE")

LARRY KING, HOST: What is the hardest part of this ordeal?

MARTHA STEWART, MARTHA STEWART LIVING: Well, sort of coming to a screeching halt and having to deal with something extremely unpleasant, something that saddens and disheartens me, and something that is very, very difficult, not only for me, but for everyone I work with, my family, my friends. That's the hard part.

(END VIDEO CLIP)

ROMANS: Jury selection begins January 8. She is just the first of several corporate figures to go on trial next year. So watch this space.

KING: Watch this space.

Christine, thank you very much.

And you can catch the full interview with Martha Stewart tonight. That's 9:00 p.m. Eastern on "LARRY KING LIVE." It will be Stewart's final interview before her trial begins next month.

Now a look at some of your thoughts.

From Rindge, New Hampshire: "Congress is completely missing the point about the exporting of American jobs. Who will pay their ever- increasing wages? I have been out of work for almost a year. Last year's contribution to the U.S. Treasury? Greater than $50,000. This year, zero" -- that from Jim C.

And from Fort Bliss, Texas: "In regards to exporting America, we always like to point the finger at CEOs and executives. But all of us quickly forget when we're in the checkout at Wal-Mart that we, as consumers, are responsible as well" -- that from Matt.

And from Missouri: "'TIME' magazine has finally done something good with their person of the year. I could think of no one better than our soldiers. Outstanding" -- that from Edward.

We appreciate hearing from you. Send us an e-mail at LouDobbs@CNN.com.

And turning now to our continuing theme, "Exporting America," this is the list of companies that our staff has confirmed to be exporting American jobs or creating new jobs in cheaper overseas labor markets. Today's additions to that list are telecommunications company Ciena, DirecTV, The Hartford Financial Services Group, Newell Rubbermaid, Orbitz, and TriQuint Semiconductor.

We will continue to update this list each and every night on this broadcast. Please continue to send us e-mails with the names of companies you know to be "Exporting America." The address, LouDobbs@CNN.com.

And coming up, on the home front this holiday season, many Americans are showing their support for the troops. This week, we'll feature just a few of the most remarkable stories in our series "Holiday Home Front." Kitty Pilgrim will have the story next.

(COMMERCIAL BREAK)

KING: This week, we begin a series of special reports, "Holiday Home Front." These reports will show how Americans are supporting U.S. troops around the world.

Tonight's story takes us to Keizer, Oregon, where all 30 of the town's National Guard members were called to serve overseas. This holiday season, the Guard families found an unlikely source of support, the local high school band.

Kitty Pilgrim has the story.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): For the past four years, National Guard Echo Company in Keizer, Oregon, has voluntarily provided transportation for the McNary High School band, a connection that started after a former band member joined the National Guard.

MARITHERESA DIEHL, MCNARY HIGH SCHOOL BAND FUND RAISER: They just kept doing it every year. They enjoyed it. They had fun.

UNIDENTIFIED FEMALE: Echo Company has done so much for us. They've charted supported us to band competitions. They've really supported us.

PILGRIM: That support also saved the band thousands of dollars. But, with the U.S. military operations continuing in the Middle East, all 30 of the town's Guardsmen were called up, leaving their families during the holidays. The band members saw a way to give back to the National Guard.

RICHARD FREY, BAND DIRECTOR, MCNARY HIGH SCHOOL: We saw that need with families that were having a hard time making ends meet now that some of their families and some of their relatives are overseas. And now that we're in that tough time, Christmastime, for families to be broken apart, we thought that we really need to do something.

PILGRIM: The planned played a special performance, organizing a food drive and silent auction, raising $2,500.

DIEHL: The money will be given to the Echo Company. And they're going to be using it to -- they're distributing it throughout the battalion. It will used for Christmas parties. It will used for family emergencies.

DONNA HERR, NATIONAL GUARD FAMILY MEMBER: The cost to get in was canned food for us to keep in our pantry for family emergencies. And so the band not only raised a lot of money for us. They also filled our pantries.

PILGRIM: For the students, it means the new tubas they need won't be coming soon. But they don't seem concerned.

BEN CARROLL, MCNARY HIGH SCHOOL: We have all year and stuff to really do the tubas and help that. But the National Guard, their families are over there right now. And it was just a -- the larger priority at that moment. And so -- and we were happy to do it.

PILGRIM: And it repays a favor when their friends need it most.

Kitty Pilgrim, CNN.

(END VIDEOTAPE)

KING: Tomorrow in "Holiday Home Front," baseball fans and companies are pitching in to brighten the spirits of U.S. troops abroad. We'll tell you how they're bringing America's pastime to servicemen and servicewomen deployed overseas.

Tonight's quote is from Baghdad, where one of the soldiers pictured on the cover of "TIME" magazine's person of the year issue talked about what it means to the men and women of the U.S. military.

We quote: "It was great, because all of the soldiers that had been over here and the ones coming over are doing a real good job, doing good deeds for our country and helping out the people of Iraq. It's a real big honor for all of us, in my opinion." That is from Sergeant Marquette Whiteside of the U.S. Army.

And that's our show tonight. Thanks for being with us.

Tomorrow, we'll be talking politics with Ron Brownstein of "The L.A. Times" and Karen Tumulty of "TIME." We'll take a look ahead at the presidential election year, from New Hampshire to November. And we'll talk about the strains facing U.S. military forces around the world with General David Grange.

For all of us here, good night from New York.

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Will Economy Help President Bush?>