ANNOUNCER: Tonight on NOW WITH BILL MOYERS.

JARAMILLO: Heavenly father, we just thank you for this day, Lord.

ANNOUNCER: Religious groups are getting your tax dollars to run government programs for the needy.

JARAMILLO: We don't want to drag them to church. We don't want to win them to Christ. We just want them to have the tools they need.

ANNOUNCER: But do vulnerable people who need help the most feel pressured to join in?

And a lifelong Republican, the chairman of the Federal Reserve Bank of New York, says it's his grandchildren who will end up footing the bill for the giant federal deficit.

PETERSON: You and I are going to be getting tax cuts so that my six-year-old, nine-year-old, five-year-old, et cetera, grandchild, can pay bigger taxes in the future.

ANNOUNCER: Pete Peterson, a Bill Moyers interview.

And a new look at our ally in the war on terror, Pakistan's President Musharraf.

LEVY: Pakistan was the very shelter, the very center, the very core of international terrorism.

ANNOUNCER: Is the next terrorist plot being hatched in Pakistan? All that tonight on NOW WITH BILL MOYERS, the weekly newsmagazine from PBS.

ANNOUNCER: From our studios in New York, Bill Moyers.

MOYERS: Welcome to NOW.

It wasn't a big show as Washington counts these things. The press paid little attention. But what happened earlier this week reveals the seismic shift President Bush is making in how government and religion do business together.

He told his cabinet to make it easier for religious groups to get federal money to run programs that help the needy.

They'll be able to use tax money to hire employees of the same faith, to the exclusion of others.

Even perhaps to provide religious inspiration to people they help find jobs or get off welfare.

That same day the Health and Human Services Department announced $8 million in grants to organizations with names like the Holy Redeemer Institutional Church of God in Christ, the Emmanuel Gospel Center, and the Christ Lutheran Church, among others.

Said a very pleased advocate at the conservative Heritage Foundation, "we've got probably the most faith-friendly government we've had in a long time." This revolution in church and state is a big story, and we are going to take a look at it in this and our next broadcast.

It started before President Bush arrived in Washington, as you'll see in our report by NPR correspondent Daniel Zwerdling and producer William Brangham.

ZWERDLING: This is the county welfare office, in Colorado Springs. The waiting room looks familiar. But if you listen carefully, you'll hear the sounds of a new era in government social service.

JARAMILLO: Heavenly father, we just come to you in the name of Jesus. Father we just pray for your protection and your guidance over Faith Partners and the work that we do…

ZWERDLING: Until recently, you would have never seen a group of welfare workers praying out loud in the middle of a government office. The courts said God and government should be more separate.

But President Bush wants groups like this one to take over more and more of the government's role of helping people in trouble.

JARAMILLO: Officially we call Faith Partners a family mentoring program. And we are a welfare to work church based mentoring program.

ZWERDLING: Jackie Jaramillo's program is called Faith Partners. It tries to help welfare families around Colorado Springs become self-sufficient. To do this work, Faith Partners gets a $118,000 a year in taxpayers' money. And they'll tell you upfront they're a Christian organization.

JARAMILLO: We are Christ centered. We are based in the church. But this isn't about an evangelical effort. That's the part that people, I think get confused. We're not going out to help these families so that in return for them coming to church. This is a vehicle for the church to get people outside the four walls of the church into the community where they could use their faith to produce hope and purpose in the lives of the people we wanted to serve.

ZWERDLING: For decades, the government has paid faith-based groups to run welfare programs, but the courts said they had to keep religion out of it. They couldn't talk about Jesus or Allah or any part of their faith with the welfare clients they were trying to help… separation of church and state.

But Congress overhauled the welfare system back in 1996. Activists on the evangelical right got their allies in Congress to change those rules. So now, faith-based groups can get taxpayers money and be up-front about their religion, as long as they don't proselytize.

David Berns runs the county's social service programs in Colorado Springs. He asked local churches how they could help.

BERNS: I threw down a challenge. At least, they viewed it that way. I said, "There's got to be something that churches can do better than government." People started scratching their heads and thinking, "Well, what would that be?"

JARAMILLO: What he was saying was government did give families a check and a monthly income but they didn't give them any of the spiritual support they needed. So what he was saying is there is a role for the churches to play and we can become partners in jointly helping these families break the cycle of poverty.

ZWERDLING: Under the old welfare system, poor families could get government checks for decades. The new rules say you can get welfare for two years in a row and then you get cut off. David Berns told church leaders that some poor people might get stranded.

BERNS: A lot of the people in our community, because we're such a rapidly-growing community, don't have relatives in the area, don't have anybody there to be their extended family. And people sometimes need other folks to truly care about them and to be with them on a long-term basis.

ZWERDLING: That's where groups like faith partners come in. Here's how it works: first, a welfare client comes into the office, and meets with a government caseworker.

SHEILA: I'm a single mother. I live with my mom. My mom is older and she's elderly. She doesn't get out much. And I feel isolated with no car and no job. And the dad ran off, so it's really hard as far as income goes, trying to survive.

ZWERDLING: The government caseworker can recommend dozens of different programs that she thinks could help. There's job training, or daycare, or counseling for domestic violence. Or you can sign up for Faith Partners, which offers its own version of all these services and more.

CASEWORKER: I think that we have a really good program that would assist you and give you the support that's needed. It's a program that's called Faith Partners and it's a faith-based mentoring program…

ZWERDLING: And if the welfare client agrees, Faith Partners will hook her up with a team of unpaid volunteers from a local church. They'll try to teach her basic survival skills.

CASEWORKER: Some of the issues that you brought up, financial, they can assist you with that. You mentioned something about transportation, your mom not being able to get out of the house. They can help you with transportation.

JARAMILLO: What Faith Partners wants to do is come along side of those families and coach them how to put the puzzle pieces together. That's all we want to do. We don't want to drag them to church we don't want to win them to Christ we just want them to have the tools they need that so that they can compete and that they can become self-sufficient.

ZWERDLING: Faith Partners signs up new groups of volunteers every couple of weeks. They call them "mentors."

JARAMILLO: I just really want to tell you how much I appreciate your presence and your willingness to work with our families and to serve in this ministry…

ZWERDLING: Most of the mentors have never trained to do social service. So before they ever meet a client, they take a couple of workshops.

At this recent session, Jackie Jaramillo asked one volunteer family to tell why they joined Faith Partners.

RACHEL MACHINA: Well, I'm Rachel Machina. This is my husband, Jon, and my daughter, Juliana, my son, Thomas. Actually this started about a year ago, I began home schooling and wanting to take advantage of the freedom that that offered and what I could teach my children, I started looking for a place that we could serve in the community.

ZWERDLING: The Machinas and the other volunteers have promised to work with their welfare families for at least one year. They don't get paid anything for their work. They say faith moves them to do it.

JON MACHINA: I believe that the sovereign God of the universe has chosen to work through the creative power and belief that He gave us when He created us. And what Faith Partners is trying to do is that we want to help people break the cycle of poverty. And if we can do that, than we can change a family for generations to come. We can change a family's destiny for generations to come.

ZWERDLING: The Machinas have just started working with a mother and her three kids. Dawn Chipperfield says she left her partner last year because he kept beating her up. Then she went on welfare and moved into this government-subsidized house. When Chipperfield heard about Faith Partners, she signed up. Soon she met her mentors.

CHIPPERFIELD: I was really happy when I got matched up with them, because I'm out here by myself with just my kids, and I don't have, you know, my mom or anybody.

RACHEL MACHINA: Well, I would say what happened immediately when we met Dawn was that there was a like… we dove into each other as the mentors and Dawn.

CHIPPERFIELD: When they first came to my house they had brought me a birthday cake, and flowers, and a birthday card, and a birthday present. So, I thought that was wonderful.

ZWERDLING: And you told me until they brought that to you, you had basically ignored your birthday?

CHIPPERFIELD: Yeah, I hadn't gotten anything from anybody, so I just thought that was great. So, it made me feel really special.

ZWERDLING: Dawn Chipperfield came to the Machina's house, one afternoon, to check in with her mentors. Faith Partners has teamed her up with six volunteers, including the Machinas. This is the third time they've come together.

JARAMILLO: This is our time to hear from you. What your dreams are. Things that you've buried because you didn't want to think about them. But maybe if just help you begin start working towards it.

CHIPPERFIELD: Well, my goal is to get back in school. The other goal of mine is to work on my daughter, my oldest daughter. She's gonna be 11 and she's in special ed and she's reading at a 1st grade level.

MENTOR: How would you feel about maybe the team coming in and help tutoring your daughter, to get her to the level, you know, help her move forward?

JARAMILLO: There are grants available from private foundations. In fact, I have a grant application at the office specifically for women who are single parents who want to go to school. And maybe the team could really help you fill out the applications.

ZWERDLING: Dawn Chipperfield says these are the first people who've cared about her in years.

JARAMILLO: We really are here to support you.

CHIPPERFIELD: I just feel so overwhelmed, because I just feel so good that I have belonging. It's just me and my kids. And you know my kids have, you know, people around them. And I just think this is just good for us.

JARAMILLO: The welfare families are looking for that source that will give them strength. So far they've found the strength in themselves and they're burned out. They're in a, they're in a faith deficit.

ZWERDLING: It's Sunday morning. The Machinas are getting ready for church. Chipperfield has said she might go with them.

JON MACHINA: We're going to pick up Dawn and her family.

ZWERDLING: She hasn't been to church since she was a kid.

JON MACHINA: This is not something that by any stretch of the imagination is forced on anybody. We offer it if somebody wants to come to church with us, great. But by virtue of being in this program they've already indicated that, "hey, I want to make some changes. And I'm willing to do whatever it takes." So we're heading on down. Stepping out in faith that she's gonna be there. And I'm claiming it. I'm saying that she will come with us to church today.

ZWERDLING: But when the Machinas get to Dawn Chipperfield's house, she cancels.

JON MACHINA: She said today just was not gonna work out. So she said definitely wants to come tomorrow, Sunday. She said she'll do whatever it takes to make it happen.

ZWERDLING: Chipperfield has agreed they can take her kids.

JON MACHINA: She's excited for the kids to be able to come and get a chance to meet the other people at the church. And she's looking forward to coming next week. Was… Colleen did not… Dawn, she committed to coming next week? Was very, very adamant that she would be there, right?

MENTOR: Yeah.

ZWERDLING: This Sunday's trip to church gets to the heart of one of the biggest controversies about faith-based programs: when religious groups get taxpayers' money to provide social services, will they also try to push their religion on the vulnerable people they're trying to help?

Remember federal law says they cannot use taxpayers' money to proselytize. It also says that they can't use it for sectarian worship or religious instruction. And people at Faith Partners say they obey the law. But they say they do believe that their welfare clients need Christian faith.

JARAMILLO: In one of my conversations with God, one time I said, "God, you are so great. You are so powerful. Why can't you meet the need? Why are there hungry children? Why are there abused children? Why, Lord, as powerful as you are, can't you stop the pain?" And he spoke back to my heart and said, "Because I don't respond to need. I respond to faith." And unless we have the faith to ask him for help in our lives, he can't respond to what's wrong.

JON MACHINA: Thank you guys for coming. You guys it was awesome having you're here. And it's so nice to have you part of our family. And I know it was a bit scary coming to a new place, especially without your mom. I give you major snaps for coming.

Your mommy says she'll be with us next time. I know she really wanted to come.

JON MACHINA: Our goal here is to help Dawn help herself, to give her the tools to equip her and encourage her, but to basically take charge of her life again.

RACHEL MACHINA: And ultimately, God willing, come into saving relationships with Christ.

ZWERDLING: And over the next few weeks, Dawn Chipperfield did join the Machinas in church.

ZWERDLING: Who first suggested, "Hey, let's go to church together?" Did you suggest it first, or did they, or…

CHIPPERFIELD: I suggested it, and I've gone a couple of times to church. And the past couple of weeks since, you know, a few things happened, I haven't gone. And now, you know, it, I kind of wished I wouldn't have done that because I feel like, you know, they told me, "Oh, we're not gonna push church," and this and that, but now it's been that issue, you know, of kind of pushing. And I feel like it should be at my own free will.

ZWERDLING: The head of Faith Partners' board of directors says the volunteers never try to coerce their welfare clients. But Barry Farrah says the group does have a religious goal for the families it helps.

FARRAH: The first step is to love them and to care for them. And not to attempt to share with them necessarily any of the concepts surrounding the Christian faith. But just to be the faith, love them and accept them. And that takes a few months of the program and that's phase one. And then the next phase is inviting them to explore the contents of the faith in God through Jesus Christ, which is the Christian faith.

I think it's somewhere in the 85 percent range that come to some relationship with God through Christ as a consequence of our participation with them.

ZWERDLING: Faith Partners has just made a video to promote its program…and the climax shows a fictitious welfare client finally going to church.

JARAMILLO: There are people in our program, I believe that they're searching for something that they can hang on to that can help them over turn the negative circumstances in their life that they're facing. And I believe that the families actually have a desire in their heart to go to church and the experience that.

ZWERDLING: You said to me that in a sense Faith Partners does have a covert mission, you've used the word covert. Why is it covert?

JARAMILLO: I think it's covert because… I think I used the term covert because 95 percent of the Christian world is uncomfortable sharing their faith with people.

ZWERDLING: You want your welfare clients, as I understand it, to embrace Jesus Christ.

JARAMILLO: We want them to embra… we let them articulate what it is that they want to embrace, and then we support them in that. We hope that our witness to Jesus Christ is strong enough that it is Jesus Christ.

ZWERDLING: And why do you have to tiptoe around the… Why do you need to be you know covert, in your word, about that goal in the community?

JARAMILLO: Because we are funded with government money.

ZWERDLING: Local officials at the welfare department say they're happy with the Faith Partners program. They haven't done rigorous studies, but they say surveys suggest that the program helps a lot of welfare clients find jobs and get back on their feet.

And the governor of Colorado likes the program so much that he's declared a Faith Partners Day.

Before we left Colorado Springs, we dropped by Jon and Rachel Machina's house one more time. And Rachel said she had just had an interesting talk with an old friend.

RACHEL MACHINA: My friend from California comes out to visit me and we have this little chat. And I let him know, you know, kind of what we're doing with Faith Partners. And asked him what his take was on the church, state issue. And he felt uncomfortable with the proselytizing aspect. So if a program like Faith Partners has access to government funding to help people get out of poverty. And the people that are doing the helping are proselytizing then that's like the government funding that particular type of proselytization. And that in his opinion, making people convert to Christianity is too high a price for the benefit received.

ZWERDLING: But how do you feel about this, hearing what he was saying?

RACHEL MACHINA: I didn't feel hurt or offended. I felt a little bit maybe saddened that he didn't see things the way I see them. You know, hey, I'm spending money in taxes on a program that works. It's fine with me if it's administered by Christian people or other believers.

JARAMILLO: In Jesus name we pray, Amen. All right.

MOYERS: A footnote to that report.

The government will decide any day now whether to give Faith Partners $3 million to train other groups to run programs like theirs.

Faith-based initiatives are sprouting up everywhere, as we'll report two weeks from now.

ANNOUNCER: There's more to come on NOW. Pakistan is America's closest ally in the Muslim world.

President Musharraf says he'll do everything he can to fight terrorism. But is Musharraf looking the other way while Jihadists in Pakistan plot attacks against us?

MOYERS: Those of you who are faithful to NOW will recognize this clock, the deficit clock, just a few blocks from our office here in New York silently measuring how fast the United States government is spending money it doesn't have. Standing there you get the impression you're looking at the digital Doomsday deficit clock and you have the urge to talk to Peter Peterson.

So here he is. Mr. Peterson is chairman of the Federal Reserve Bank of New York as well as of his own investment firm, the Blackstone Group. He's a lifelong Republican who served as Secretary of Commerce in Richard Nixon's cabinet.

A dozen years ago when the deficit clock was also going haywire he helped to found the non-partisan Concord Coalition whose members, like the minutemen of old, set out to alert their fellow citizens to a crisis in the making. Now he's back, déjà vu, all over again. Welcome to NOW.

PETERSON: Thank you, Bill.

MOYERS: What do you see when you look at that clock?

PETERSON: Well, I see both a fiscal economic crisis in the making. I also see a moral crisis. And maybe that doesn't come very convincingly from an investment banker. But let me explain that to you. The fiscal crisis is both domestic and foreign. We are now facing a situation during a decade when we should have been saving for the Boomer revolution that's coming and the retirement costs. Instead of saving during that decade we're squandering it. The Concord Coalition, Goldman Sachs, the Committee for Economic Development predict that over the next ten years we're going to be adding $5 trillion of deficits. So we have a domestic fiscal crisis. Much less understood, Bill, is the foreign deficit, what we call the Current Account Deficit, that's caused by the biggest trade deficit we've ever had.

MOYERS: We're buying a lot more overseas than they're buying from us.

PETERSON: Precisely. And we have a lousy savings rate, the lowest in the world. And we are now going to be importing something like 5 to 6 hundred billion dollars in foreign capital. We've become hooked, we've become addicted to foreign capital.

MOYERS: You mean they are paying for our deficit?

PETERSON: They're paying for our deficits, our various deficits.

MOYERS: Somebody watching says, "But why don't we want them to pay our debt? The foreigners, why don't we want them?"

PETERSON: Well, because at some point we're going to have to pay it back. And in the meantime they end up owning a great deal of America. And the interest costs get to be very terrific.

One of the crisis scenarios, of course, is we have this mammoth debt. The foreigners lose confidence in us. The dollar fall, the stock markets fall, the bond markets fall, the interest rates go way up. Then the debt burden goes up astronomically.

And the foreign deficit, Bill, is at five percent of the GDP heading towards six. And the previous record during the Reagan Years was only 3 1/2. So we have this fiscally speaking, we have this dual crisis in the making.

MOYERS: The deficit and the foreign deficit.

PETERSON: And the foreign deficit. Now the moral crisis. There's a German philosopher named Bonhoeffer who said the ultimate test of a moral society is the kind of world it leaves to its children.

When we sit around here and talk about all these tax cuts and we say it's our money, your money and mine, I think we ought to be honest with the American people. In the first place, it's also our debt and it's our children's debt.

But secondly, a tax cut isn't really a tax cut long-term unless you reduce spending. Because then it becomes a tax increase on your children. So we're inflicting this awful bill not simply on ourselves but most importantly on our kids. And it is that phenomenon that is very troublesome when we have to consider that ten years from now 77 million Boomers are retiring.

All of those liabilities are not funded. The Trust Fund is one of the ultimate fiscal oxymorons of our time. There's nothing in it that's not funded and you shouldn't trust it. And whether you had it or didn't have it, you'd still have to go out and do the same thing. Increase payroll taxes to pay for Social Security and Medicare.

You realize, Bill, at the present time, the Social Security Administration believes that my children and grandchildren will have to pay between 25 and 35 percent of payroll to fund these programs. So when we say you and I, fat cats that we are, are getting tax cuts, I prefer to think of it as a tax increase on my own kids and grandkids. And I find that a fundamentally unacceptable immoral proposition.

MOYERS: The national debt could increase by the Year 2013 to $14 trillion. That's a tripling of the debt today. What does that mean in practical terms?

PETERSON: That number is roughly correct for the so-called official debt. But we have not told the American people is there's $25 trillion of unfunded liabilities for Social Security and Medicare. $25 trillion--

MOYERS: That we don't know about.

PETERSON: And it's off the books. We don't even talk about it. So that's a gross understatement of the amount of liabilities that we now have.

MOYERS: You know, these are breathtaking numbers Pete Peterson. Help us to translate them into their impact on my team here in the studio, on the people watching, on our individual lives.

PETERSON: I want to present a picture to you. There's 77 million Boomers we're talking about. A doubling of the elderly. Half of the people getting Social Security make less than $20,000 and they depend enormously on Social Security as part of that. It's over half of it. Unfortunately, our country has staggering amounts of elderly that have no savings at all, about 20 percent.

Imagine politically 77 million Boomers. They don't have savings. They depend on Social Security and somebody's saying to them, "Sorry, folks, we're out of money. You're not going to get your benefits."

And they've been told — they've been misled by politicians all their lives — that this Trust Fund is going to take care of them. My father went to his deathbed thinking that there was real money there. And he said, "My son, I don't know what you're talking about because it's like a savings account."

And I kept saying, "Dad, there's nothing in there. It's just liabilities." So I think that political implications would be devastating. But more than that, the social implications. It's the richest nation in the world. And you're going to sit there and tell me we're going to throw tens of millions of Americans into a destitute situation without advanced notice? I don't think so.

MOYERS: And what about tax increases? I mean don't we have to cancel President Bush's tax cuts to the wealthy?

PETERSON: I think we ought to look at an entire package, Bill, that includes spending and...

MOYERS: Oh, I agree with that. I agree...

PETERSON: You see in private...

MOYERS: I thought George W. Bush I felt the first President Bush did a brave thing when he unzipped his lips and called for taxes.

PETERSON: Yeah, but at that time, they put in spending caps. You see, the dirty little secret is neither party is not talking. They're all talking about tax cuts. What they're not talking about is they have permitted a major increase in spending during this period of time.

MOYERS: And these tax cuts are not pulling the economy out of this recession.

PETERSON: Well, you see, I don't wanna sound as though I didn't think under certain circumstances a tax could be a good idea. But why don't we do the following:

#1) Don't make it long-term. We should not add to the long-term problem. It's already serious. #2) Give the money to the people who are going to spend it.

MOYERS: Middle class, working class.

PETERSON: And now look at what's happened here. They're now advocating, not only these tax cuts, a lot of which does not go to the people who spend it, but they're greatly adding to the long-term problem, and they further insist, they further insist that they be made permanent, you see.

MOYERS: So that if you make tax cuts permanent when this big baby-boomer crisis hits...

PETERSON: You're making it much worse.

MOYERS: You'll not be able to pay for it.

PETERSON: You're making... it was already unsustainable. You're making it worse.

Now, the other thing that bothers me about the tax cut business is the following: We are told we have a war in Iraq. We're told that the transcendent threat to America, and I agree with this, is the terrorism threats at home, the possibility that people could bring in to our ports, you know, or our tunnels or wherever weapons of mass destruction.

Every time we state a priority, it seems to me the tax cuts win out. For example, Warren Rudman chaired a great taskforce at the Council on Foreign Relation. It showed we're $100 billion short at least on what we're doing to prepare the first responders. We've done...

MOYERS: Here in this country. Homeland Security.

PETERSON: And we've done very little on ports. And they're highly, highly vulnerable. Well, if that is a national threat, and I believe it is a serious national threat and we are at war, why then shouldn't we be willing to sacrifice to meet those threats?

PETERSON: The President does not ask and me to sacrifice.

MOYERS: No. Hardly. The main sacrifice is accepting another tax cut at the moment. Did you need the big tax cut President Bush gave you?

PETERSON: I think this is... I'm really almost embarrassed by the idea. I've got nine grandchildren and five children. That some guy... I'll include you in the category.

MOYERS: I've got...

PETERSON: You and I are going to be getting tax cuts, so that my six-year-old, nine-year-old, five-year-old, etcetera, grandchild can pay bigger taxes in the future. I just find it unthinkable a proposition.

What is morality about it after all, if it doesn't include fairness to the future and fairness to our own children and grandchildren? And I think we're being unfair. You know, I hear these people say that Social Security is a social contract. And therefore, we must pay everything to everybody, including you and me. We can't consider any changes.

The Democrats in particular are do-nothing guys. I only had one course, Bill, in commercial law, and the assumption was that you didn't have a contract until you have a meeting of the minds of the parties.

I'd like to say to these people, have you talked to my six-year-old grand daughter, Chloe? And does she understand how much debt you're passing on to her? And does she understand how much her taxes are and has she agreed to do it, so that her relatively well-off grandfather and father can be sure they get all their benefits? I don't think so.

MOYERS: So, what do we do, Pete Peterson?

PETERSON: Well, we're going to have to reform these programs.

MOYERS: You mean Social Security...

PETERSON: The entitlement Godzilla. It's the Godzilla. And the fascinating thing about this, Bill, is Bill Clinton formed a commission on entitlement. Twenty Democrats... I mean, 20 Senators and Congressmen and ten of us from the private sector. None of these people have not really looked at the numbers. We had a bi-partisan staff.

By the time they looked at the numbers, these entitlements for the senior citizens consumed the entire budget. So everybody said it's unsustainable. Well, Herb Stein, who's a Nixon humorist... you probably find that an oxymoron.

MOYERS: No, no, I like Herb Stein. He was the chairman of the Council of Economic advisors.

PETERSON: Now I chaired with, I was in the White House with Herb. He's a great guy. Used to say, "If something's unsustainable, it tends to stop." So they signed a unanimous report, all of those 20 guys, that said, "It's unsustainable."

Now, I asked Lady Thatcher who is the only person of the big country leaders who made major reforms in the 1980s and faced the music and now Great Britain in this respect is in much better shape than anybody. And I said, "Lady Thatcher, what do you guys talk about at these G-7 meetings? Do those leaders know that this problem is unsustainable," because your Europe's bill is in far worse shape than we are, because they had many fewer babies than we did.

MOYERS: France is in crisis today over their health and unemployment.

PETERSON: And Italy has the lowest birth rate in the world. So, she said, "Oh my yes, Mr. Peterson, they all understand this." Well, I said, "Why don't they do something about it?" And she says, "Well, their theory is it isn't going to hit on my watch, and why should I take pain for somebody else's gain?" So make no mistake about it, the changes are going to involve giving up something.

MOYERS: So, let's hear specifically. You would reform entitlement. That is--

PETERSON: I'll give you several possible suggestions. A menu. Very gradually increasing the retirement age, because we're living much longer. If we had indexed retirement to the way life spans have gone up, we'd be getting Social Security now at 73, not at 65.

A second thing is what I call an affluence test. I don't like the word "means test," because it sounds mean. And Bill Moyers and Pete Peterson would lose some of their benefits, because we don't need them.

A thing Lady Thatcher did that I find very promising, she said, "How do we be fair to the current retirees and to our children? How do we do that?" And she came up with the idea of indexing benefits only to inflation. And that meant that my kids would get the same benefits in dollar, real dollar terms, but they wouldn't grow.

Now those are the kinds of things we're going to have to seriously look at.

PETERSON: It's going to take Presidential leadership. It's not going to happen in an election year. It's going to take some bi-partisan commitment of some sort. It may take some leading citizens to step up to the plate and tell the American people the truth.

You see the problem I have with this lack of truth-telling is that the American people keep getting told the trust fund is going to keep this thing solvent till 2037. Why should we expect them to get worried about this problem or concerned about it? So, somebody has to stand up and explain to them the magnitude of this fiscal crisis that's about to hit us. That's all.

MOYERS: Peter Peterson, thank you very much.

PETERSON: My pleasure, sir.

ANNOUNCER: In two weeks on NOW, more about your tax dollars flowing to religious groups who help the needy.

Does the White House have a secret political agenda?

MAN: We're literally talking about the potential of billions of dollars of federal taxpayers' funds going into the political networks and institutions of the religious right.

ANNOUNCER: Who's getting the money, and how are they using it? That's two weeks from tonight on NOW.

ANNOUNCER: And connect to NOW WITH BILL MOYERS Online at pbs.org.

Faith-based initiatives: where do you stand? Take a freedom of religion quiz. Find out how your state's budget deficit compares to others. Learn more about terrorism in Pakistan.

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MOYERS: President Bush came to New York this week to ask the U.N. for money and troops to help out in Iraq.

The U.N. turned a cold shoulder.

While here, Mr. Bush met with the president of Pakistan, Pervez Musharraf, supposedly a close ally.

But there are complaints in Washington that Musharraf is not doing enough to round up the terrorists in his own country, with its huge population of radical Muslims.

Our next guest knows Pakistan well, from many trips there over the years.

Bernard-Henri Levy is a diplomat, journalist, and philosopher, the author of 30 books.

His latest is about the ghastly murder of Daniel Pearl, the WALL STREET JOURNAL reporter whose throat was slit by terrorists in Karachi.

As Levy investigated the killing, he learned some surprising things.

Earlier today, Bernard-Henri Levy talked with NOW's David Brancaccio.

BRANCACCIO: Mr. Levy, thank you for joining us on NOW.

LEVY: Thank you.

BRANCACCIO: You've been following the visit to North America of the Pakistani President Musharraf. Before the UN he had this quotation, "Pakistan will remain in the forefront in the war against terrorism." Any comments when you hear him say that?

LEVY: My comment is that it is big news because until now, Pakistan was the core of terrorism.

BRANCACCIO: The core of…

LEVY: The core, of course. It gives… Pakistan gave shelter to the biggest terrorists in the world.

I know Pakistan. I spent… I know it since a long time, since 30 years. And I spent one year in this country on the footsteps of Daniel Pearl. I went in Karachi when I visited the seminary on Binori Town where you have some terrorists who are trained and who are spiritually built in order to hate Western world and Muslim democracy.

I went in Peshawar where you have a real big place of terrorism also. We know and I know, I have very strong evidence that Osama bin Laden, for instance, took medical care in Binori Town where I was and in a military hospital in Islamabad. So Pakistan was until this day maybe, until the day before yesterday, Pakistan was the very shelter, the very center, the very core of international terrorism. So maybe this is a big news we have to follow up.

BRANCACCIO: This is why I want to talk to you. Thirty years going back and forth to that region of the world. You're a card-carrying French philosopher yet you're proud to say that you're a journalist. You're a Frenchman who says that America in many ways is correct when it talks about its war on terrorism. And you conclude that Pakistan is where the next tragedies will hatch. What do you mean by that?

LEVY: I mean that the risk of nuclear proliferation exists in Pakistan. I mean, that Pakistan, that's what I show in my book. It is not just ideas.

I made the very accurate, precise, modest investigation of this point. The point, for instance, on which Daniel Pearl also that you have two big scientists in Pakistan who are great scientists linked to al-Qaeda and who have been convicted of being on the point to trade some nuclear knowledge, nuclear know-how to groups linked to al-Qaeda.

So this is Pakistan today.

BRANCACCIO: In fact, you contrast the full bloom of extremism, the fresh extremism that you found in Pakistan with something very different in Iraq. Something almost from the last century.

LEVY: That is the reason why it I was so strongly opposed to the war in Iraq. Saddam Hussein was a dictator, no doubt about this. But he was a dictator in his autumn. In his old age. But it was an exhausted dictatorship.

In Pakistan it is a blooming one. I saw that and I tell it in the book again.

What I discovered during this long investigation is that the real, the sole clash of civilization is inside Islam, inside the Islamic world between the moderate Islam and the radical Islam.

I was in some demonstration in the streets where you had 100,000 of people shouting their hate not only of North America, not only of the Western world, not of moderacy in general and shouting also, for instance, that the nuclear bomb of Pakistan should belong not only to Pakistan but to the entire community of believers which means in their mind Osama bin Laden. You have huge demonstrations of people demanding that.

It's very difficult for you to have operated at all in Pakistan.

It was less difficult than it would have been for an American journalist. By chance, for my fortune I was French. And I was a writer which meant that I was a little more protected than if I had been an American journalist.

But what is true is that when I spent, for instance, this night in the very hotel where Daniel Pearl first met his executioner and which I happened to discover it was a sort of basis, a sort of informal headquarters of ISI.

BRANCACCIO: The I.S.I., which is the Pakistan Intelligence Service.

LEVY: I was nervous. It was not the best night I spent in my life. When I came inside the Binori Town Seminary where I think no journalists went before, no Western journalists went before, where I knew that Osama bin Laden had been a few weeks before had received medical care and so on, it was a strange moment also. It was like if you were in the very room of the belly of the demon. I don't like these words, of course. But…

BRANCACCIO: But on the key topic, if, indeed, the clash of civilizations is within Islam itself, within the people of Pakistan, how can an American expect to get involved in that debate? The Bush Administration is dealing with Musharraf. It has no choice.

LEVY: I think we have choice. We made the bad choice since 20 years. We chose the radical against the moderate.

We chose… we, you, American, us French, both of us, Bush and Chirac in the same basket. We chose the Taliban against Massoud. We chose Saudi Arabia against the democrats of the Arab world. We chose that because we wanted peace. Because we thought that we had to make alliance with the most powerful. Because we thought that our main enemy was the Soviet Union.

Because we are lazy. Because the Americans and the French diplomats often are intellectually lazy. They continue to work on old schemes. They have to change their minds today.

BRANCACCIO: And what should they do going forward then? We screwed up.

LEVY: To arrange force to support much more than we do the moderate Muslims all over the world. There are a lot even in Pakistan. I met so many intellectuals, democrats, women who don't understand why we support so much without any tie, without any condition the regime of Musharraf which is on the one side military, on the other side Jihadist. Which is on the one side the regime of repression, dictatorship as Saddam Hussein in a way.

And in another side a fanatic one. You have the local people inside Pakistan who pray us, who urge us, who admonished us to put some conditions on our aid to Musharraf.

BRANCACCIO: But not to pull back, for instance?

LEVY: Not to pull back the alliance. Of course not. You have morale and you have politics. Maybe we have to give money to Musharraf. But please when Musharraf comes in New York and when he says in the New York Times in an interview when he's asked, "Have you… do you… are you sure to have control on your atomic assets?"

And when he says, "Oh, I don't know. I have no evidence. I have no proof that there can be any risk of proliferation." What is this language? I have no evidence? I have no proof? If this the chief of state responsible with whom we can have this serious alliance. Mr. Musharraf is not in control of his country.

He's a king without a throne. He's a sovereign without territory.

BRANCACCIO: So you argue conditional aid.

LEVY: Right. Yes.

BRANCACCIO: Put conditions on it. But if we get this wrong, Musharraf could get toppled, and Pakistan would be run be extremists, possibly.

LEVY: Pakistanis already half run by extremists. We must know and the people who hear us must know that one of the man convicted to have channeled the money to Mohammed Atta was no other than the number one of Pakistani Secret Service, Mr. Mahmoud Ahmad (PH). And he was fired. He was dismissed a few days before the attacks.

BRANCACCIO: Listen, you have to explain this because I was reading this book and this is one of the points that just stops me in my tracks.

You're saying that the head of Pakistani intelligence around the time of 9/11 funneled $100,000 through an intermediary to Mohammed Atta, perhaps the most famous of the 9/11 hijackers?

LEVY: Yes, of course. Of course. This is one of the thing which might surprise myself the most when I made this investigation.

I was in Dubai. In Dubai, I discovered that one of the financial man of the September 11th was the Chief of the secret services of the country allied to America.

BRANCACCIO: Mr. Levy, I want to ask you something else.

LEVY: Please.

BRANCACCIO: You're a…

LEVY: I'm sorry to get a little angry. But you cannot have spent, as I did, all this time, all this year, making this investigation, walking in the footsteps of such a great man, and support to see this comedy. It is comedy.

The visit of Musharraf in New York was just a comedy. It was a mockery. And even if I am a moderate, and a calm man, it put me out of my temper.

BRANCACCIO: No, having read your book, I understand your passion. But you talk about being a moderate. I want to ask you this. You are a leading French intellectual. I thought you were supposed to, as a Frenchman, despise America.

LEVY: Despise America?

BRANCACCIO: Yeah. Aren't you supposed to?

LEVY: Are you joking?

There is a very long, long history of friendship and of love between France and America. This will not be broken because of childish dispute between our presidents. This is crazy.

BRANCACCIO: So you would support the Bush administration's war on terror?

LEVY: I was against the Bush administration when was decided the war in Iraq. I thought it was a mistake, and a strong political and historical mistake.

But today, we are in it. We are in Iraq. And I think about just the average Iraqi people, just the raped women, the orphans, children, the poor men ruined in this country. And we have now to finish the work.

We should be there. We should…

BRANCACCIO: Should send troops to Iraq.

LEVY: We should send some people in Iraq. I don't know if it is properly troops. Because each of us has his own knowledge and know-how.

You American know how to win a war. We France know how to make nation-building.

Maybe you are good cops. Maybe we are good nurses. Maybe we should put together cops and nurses in Iraq.

BRANCACCIO: The book is called WHO KILLED DANIEL PEARL? Bernard Henri-Levy, thank you very much.

LEVY: Thank you.

BRANCACCIO: It's hard to forget that "special" feeling in the recesses of the stomach when you had to suck it up and ask the parents for a little more money.

Multiply that feeling by an exponent or two and you get a sense of what members of the Bush Administration may have been feeling this week as they pushed Congress for more money to secure the peace in Iraq.

Even by federal government standards the supplemental budget request is a lot of money, eighty-seven billion dollars. The word supplemental means just that…money on top of the 79 billion dollars already earmarked for Iraq and Afghanistan. Typically, federal budget figures are priced over ten years. Not this one. The eight-seven billion extra is for this year and odds are the administration will have to ask for more in 2004.

The money is earmarked for vital things like training guards for government offices and replacing power plants. We apparently want Iraq to have zip codes — there's money there for that as well — but it's also to pay for the continued presence of American troops… both in Iraq and Afghanistan.

After all, We promised stability and democracy, and few serious critics of U.S. policy would argue that America should renege on that promise, save the 87 billion, and come home.

Still, eighty-seven billion dollars.

The sheer size of the supplemental request for Iraq is prompting many of us to take a moment to reflect on what each of us might have done with a chunk of change like that. You know, if history had been different. Had the sanctions worked, had the inspectors stayed, had the U.S. had built a coalition that would have shared the costs of occupation as well the invasion.

What else could we have done with 87 billion dollars? I have some modest experience in this area. A couple of years ago I wrote a book about what Americans are inclined to do with lump sums. I figured you could learn a lot about someone's values by hearing what they'd do if a pile of cash came their way. Buy a house? Start a business? Help someone in need? In general, I found Americans a fairly giving bunch.

So perhaps using the 87 billion to pay off the budget deficits of the 41 states that came up short this year…Even the massive shortfall that tormented California this year would have easily fit.

Or if you woke up today in a "We Are the World" kind of mood there are plenty of global humanitarian things you could do like…$87 billion worth of clean water systems for tens of millions of children around the world, instead of just Iraq's…

A think tank called the Center for American Progress has also been playing with these figures.

The group notes that "87 Large" could pay for about two years of unemployment benefits for over 20 million Americans.

Or…double what we're currently paying for homeland security.

Or… increase by 87 times what the federal government currently pays for after-school programs. Three years of the proposed Medicare prescription drug program also fits.

It could be used to fix up America's infrastructure. Right now the city of Atlanta is fighting to get federal money for a big overhaul of its sewers. The President's request would spend nearly 10 times more for sewers and drinking water projects in Iraq than in the U.S. That's calculated per capita of population, but you get the point.

Pondering the potential of 87 billion dollars is like the return on investment of a lottery ticket. You pay a dollar for the chance to fantasize about what you would do with the jackpot in the nearly impossible event that you did win. But unlike a lottery, which is supposed to have the money on hand to pay its winners, there is no 87 billion dollars lying around in the U.S. Treasury ripe for the spending.

So we'll borrow and those who lend will charge us interest which will rack up impressively over the decades it will take to pay it back. Think of it like a house. An $87 billion house with a mortgage. Payments just half-a-billion dollars a month, every month for the next 30 years.

That's it for NOW. We're off next week. Bill Moyers and I will be back two weeks from now.

I'm David Brancaccio. Good night.