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Special Report

'Special Report' Panel Discusses India-Pakistan Relations; Market Forecast for Holiday Season

This is a rush transcript of "Special Report With Brit Hume" from November 28, 2008. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: We will take up strongly with our neighbors that the use of their territory for launching attacks on us will not be tolerated and that there will be a cost if suitable measures are not taken by them.

YOUSAF RAZA GILANI, PAKISTANI PRIME MINISTERS: Pakistan has nothing to do with this incident. Pakistan has no link with this act. We condemn it, and we condemned it. The whole nation condemns it. We are already the victim of terrorism and extremism.

(END VIDEO CLIP)

BRET BAIER, HOST: There you see a statement from India's Prime Minister Singh and then a response from Pakistan's prime minister about the ongoing terrorist situation in Mumbai. So far, more than 150 people have been killed and the situation is continuing as there is still a standoff at the Taj Mahal hotel.

Today commandos stormed the Mumbai headquarters of an ultraorthodox Jewish group and found the bodies of five hostages inside, including a New York rabbi and his wife. So far, at least three Americans have been killed, but this continues at this hour.

We can tell you that Indian officials believe that Pakistani terrorists are behind this, possibly a group long focused on the conflict in Kashmir.

So what about this, and, also, the back and forth between India and Pakistan, two nuclear powers? Some analytical observations from Fred Barnes, executive editor of The Weekly Standard, Jeff Birnbaum, managing editor digital of The Washington Times, and syndicated columnist Charles Krauthammer, FOX News contributors all.

Charles, we're well aware from last year of all of the tensions between India and Pakistan and how quickly they can erupt. With this terrorist attack, a very coordinated attack, and now India pointing fingers at Pakistan, does that raise this tension again?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: It does, and it makes it an American issue as well, because part of our objective in the region is to get India and Pakistan to stop facing off against each other as they have for 60 years.

They have had three wars, a lot of terror activity coming out of Pakistan over the Kashmir issue—and to try to get India and Pakistan, who are each our allies, to face the real issue, which is Islamic radicalism, especially in Afghanistan and in the wilder territories of Pakistan.

And we have had some success there in bringing them together. In fact, the foreign minister of Pakistan was in India at the time on a visit.

The fact that Pakistan sent over the head of the ISI-

BAIER: The intelligence service.

KRAUTHAMMER: Exactly, the secret police, essentially — is a gesture, a way of saying look, there obviously are Pakistanis involved here. I'm sure something as sophisticated as this attack is not home grown in India. Only the terrorists trained in Pakistan and elsewhere would have the wherewithal to pull it off.

However, by sending their official head of ISI, and by the statement that we saw of the elected officials of Pakistan, it's a way of saying that it perhaps is a wrong element, but it's not our government, and we hope it doesn't create a crisis between them, because it would hurt each of those countries and hurt the United States in the war on terror, which was the objective of the terror attack.

BAIER: Jeff, the U.S. is sending a team of FBI agents to help in the investigation. Obviously, a situation that was very coordinated with these terrorist attacking ten different sites in Mumbai.

JEFF BIRNBAUM, MANAGING EDITOR DIGITAL, THE WASHINGTON TIMES: Well, I think the U.S. is going to be sending its investigators, so will the British and other western allies.

I think there is actually the chance here that once the smoke clears initially, that India and Pakistan will work together along with the west to understand that the enemy here is Al Qaeda or its elaborated cells around the world. That's clearly where this came from.

Even if we learn that the actual terrorists were based in Pakistan, which is perfectly possible here, it's clear that they were inspired not by the Pakistan government or the Pakistanis so much as a worldwide system of terror that is come next through the Internet and directed against western countries.

Remember that the terrorists went after westerners, looked for them, combed through all ten places to find them — and Jews, meaning that there was an anti- anti-western, anti-Israeli component here, which is the modus operandi of Al Qaeda.

And so this may just be an elaboration of what we have seen start on 9/11 here. And in that way, this may tend to unite us against this one terrorist group that we've been against ever since 9/11.

BAIER: You heard, Fred, the Pakistani prime minister saying we have been targets of this terrorism and extremism, too.

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: That's true, but in the short run — and I don't know what the short run is, but probably several years — Indian and Pakistani relations will get worse.

You notice the Indian prime minister wasn't accusing the Pakistani government, but he was saying you have these safe havens. And you haven't wiped them out. That's where these people probably came from, and maybe they did.

Look, it is bound to get worse. And Charles suggested, and I agree with it, that in that sense, worsening relations between India and Pakistan means that the terrorists achieve one of their aims.

Another one was to stir more hatred between Muslims in India, 140 million of them, and, and Hindus in India. What will probably happen next year as a result will be there will be a Hindu nationalist government elected there that will be less likely to have good relations with Pakistan.

And as far as the U.S. is concerned, our aim has been to ease relations between the two countries so the new Pakistani government can focus on these safe havens in northern Pakistan and rout the terrorists from out of there. And they were beginning to do a little of that, but I don't think we're going to see much more of that now.

BAIER: A challenge for the incoming administration.

BARNES: Yes. This could be a tough problem for President Obama.

BAIER: Last word.

BIRNBAUM: I think this means that Obama will have to devote more money not just to Afghanistan, as we know, but also towards Pakistan to rout out these terrorists.

BAIER: All right. Will struggling retailers have the blues this year after black Friday? The panel weighs in on that after the break.

(COMMERCIAL BREAK)

BAIER: Well, anecdotally it looked pretty busy out at the malls according to reporters who were out there all day today. It is the annual American ritual of consumerism known as Black Friday, so named because many retailers believe this is where they start hitting the black, getting out of the red, start to make a profit.

It was so busy at one Long Island, New York, Wal-Mart that an employee was actually trampled to death this morning. Sad story there in Long Island as some 2,000 people tried to get in at 5:00 in the morning.

But so far, it looks like it's a pretty good season, at least from the stories you hear. The National Retail Federation reports the sales results Sunday night, so we'll see the numbers behind some of the pictures that we have seen.

What about this? How important is this day this time? Let's start with you, Jeff.

BIRNBAUM: This is the start of the Christmas season, and the fourth quarter, which this is part of, is the time when retailers make most of their profit for the year.

I know that's hard to imagine, but the rest is sort of just there. But the fourth quarter and this period between Thanksgiving and Christmas day is when they make most of their profit.

And the problem for them is that they are marking down merchandise tremendously in order to keep people coming into the stores. And there are a lot of complaints that even though there are a lot of people wandering around the malls, they are not really buying as much.

They're holding off a lot of their purchases because of deflation. This is the real problem with deflation. They know that prices are low now, but they suspect that the prices will be lower tomorrow and the next day or maybe even after Christmas.

And so that delayed sort of purchase has a ripple effect through the economy. It reduces actual sales, which reduces the amount of production of new material, which continues to spiral, and that's one of the reasons why the U.S. economic growth is slowing.

So I know there are a lot of people there, but the real question that we will find out Sunday is whether they were really buying on Black Friday.

BAIER: Fred?

BARNES: Will you tell Jeff that the news was actually pretty good, surprisingly good. We thought nobody would show up to shop, and Jeff certainly found the dark side of it, that it's going to be bad.

I was kind of surprised. I didn't go shopping, I hate shopping. But Barack Obama said he is going to go shopping, taking his daughters. I guess he did. I don't know. Remember, he was asked that at his press conference on Wednesday, and I'm sure he will keep his word.

Look, we have had these Christmas sales for a while. Stores have been doing that. They may be bigger sales this time, but that's what you do. That's what economies do.

If the stock market — that's what retailers do. If the stock market continues to rise five straight days, and I'm not predicting this, but if it does that, people will feel a little wealthier and probably spend more.

But, look, we're in a downturn in the economy and things aren't going to be as good, but at least the news today was better than I thought it would be.

BAIER: Charles, you wrote about how things now hinge not on the market but on the politics in this city. It's a different time, a different environment as we head into this holiday season.

KRAUTHAMMER: We once had a market economy and now it's a political economy. You used to go to New York if you wanted money. New York is broke. It is out here in Washington asking for a bailout for everything — banks, insurance, of course, Detroit as well.

So the economy will be driven to the extent it responds to the political instincts of Washington. And that's why we're having this huge stimulus as a way to create demand, as we've heard from Jeff. If you don't have it, production declines. You can go into a spiral.

But the irony is that, in the end, we want a reduction in spending, ultimately, and an increase in savings. The reason our crisis is here now is because we have no savings. We have become addicted to consumer spending. And in the long run, it's only saving, less borrowing and lending, which will save us.

So what we want is to do a finesse here — a lot of spending right now in our recession, and as soon as it starts relieving itself, frugality and prudence. I'm not sure it can be pulled out.

BAIER: Last word here, Jeff. The prediction Sunday night, good, bad, OK?

BIRNBAUM: I think it will be OK, but not what was expected or what the retailers wanted.

I think that unemployment is up and consumer confidence is down the lowest in 25 years. It is not going to be such good news.

BARNES: OK is good enough for me.

BAIER: That's it for the panel — optimistic Fred — but stay tuned to see one adjustment that has been made to an annual television event that apparently is not going over too well.

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