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THE MCLAUGHLIN GROUP HOST: JOHN MCLAUGHLIN PANEL: PATRICK BUCHANAN, MSNBC; ELEANOR CLIFT, NEWSWEEK; MONICA CROWLEY, SYNDICATED RADIO COMMENTATOR; MARTIN WALKER, UNITED PRESS INTERNATIONAL TAPED: FRIDAY, MAY 8, 2009 BROADCAST: WEEKEND OF MAY 9-10, 2009

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DR. MCLAUGHLIN: Issue One: Republicans' 100 Days.

MITT ROMNEY (former Republican presidential candidate and former Massachusetts governor): (From videotape.) There's no question but the last couple of election cycles were not good to us.

DR. MCLAUGHLIN: Not good? Not good? Try lethal, Mitt. And now Republicans are reeling, and the defection of a GOP eminence grise, Senator Arlen Specter, has turned a floodlight on the Republicans and their misery.

What percentage of voters is Republican? Eight years ago, it was 37 percent. Now it's 31 percent -- a drop of almost 1 percent per year. When voters are asked whether they are liberal or conservative, 35 percent say conservative. But of that 35 percent, two out of five will not let you call them Republican. They are conservative, and that's it.

How serious is this? Are the Republicans in danger of extinction? Well, it wouldn't be the first time. In 1787, the year the Constitution was ratified, the Federalists were a powerhouse. Within four decades they were gone. The Whigs -- the Whigs were founded as a party in 1833, about 30 years before the Civil War. The party lasted for about 25 years and disappeared altogether by the Civil War. Other parties have come and gone -- the Populists; the Progressives; the Anti-Masons; the Liberty Party; the Democratic- Republican Party; the Know-Nothings, et cetera.

But the Republicans? Republicans say they aren't going anywhere.

Question: Are Republicans toast for good, or will they stage a comeback? Pat Buchanan.

MR. BUCHANAN: John, demographically the Republicans are in very, very difficult shape because their constituencies -- Christians, white folks -- are diminishing as a share of the population and of the electorate.

Secondly, far, far more folks are basically getting benefits from the government and far fewer are paying taxes. So they're in very bad shape in the long run.

In the short run, I'm a lot more sanguine about 2010 for the simple reason that Republicans are united against Obama. There's a lot of energy and fire there. And a lot of what Obama is doing, I think, is very radical and very far out. And I think he could really implode this economy by 2010. Notice, John, in '66 Johnson got wiped out. Reagan got wiped out in 1982. Clinton got wiped out in 1994. The same thing could happen to the Democrats, who right now, I think, are gloating a little bit too much.

DR. MCLAUGHLIN: Eleanor Clift.

MS. CLIFT: I don't think Democrats are gloating. They're just looking at the reality of what's happening to a Republican Party which, in the Washington Post/ABC poll, people who self-identify as Republicans is 21 percent. It's a really small slice of the electorate. And you have the party fighting within itself as to whether you want to purge all the people who don't want to follow every one of the planks of the Republican Party, or you want a big tent.

And I do want to take this moment to comment on the passing of Jack Kemp last weekend, who was the ultimate happy warrior, big-tent conservative. Nobody could outdo him when it came to tax-cutting or conservative ideas, but there was room in his Republican Party for other people. And he had a magnetic personality and put a happy face on conservative politics.

The conservative party -- the Republican Party of today, they're just a bunch of scolds. And they're betting on Obama failing, which is like betting on the country failing. You've got to come up with an alternative vision that is an optimistic vision. And until they do that, they are toast.

DR. MCLAUGHLIN: We join Eleanor in that salute to Jack Kemp.

MS. CROWLEY: Absolutely. Right on.

DR. MCLAUGHLIN: He was one of nature's noblemen.

MS. CROWLEY: Right on.

DR. MCLAUGHLIN: He had a soul naturaliter Christiana. He was naturally Christian. He didn't really need the religion.

MS. CROWLEY: Okay, then.

DR. MCLAUGHLIN: I mean, if you understand me.

MS. CROWLEY: Yeah. No, I get you.

So, anyway, getting back to the current Republican Party, they are in a very precarious position. The good news for the Republicans is that the United States does remain a center-right country. You do have 35 percent calling themselves conservative; a much lower number calling themselves Republicans and going with that party affiliation.

But when you look on the issues, whether they're economic issues, issues of taxation, and even now some of the social issues, guns and abortion, there does seem to be a much more conservative trend happening.

I think there are elements of the Democratic Party having a problem coming up here that the Republicans, if they're smart and put together enough, might be able to capitalize, John. There's a providential opportunity for the Republicans to use their extreme minority status now to get their acts together and get back to first principles of limited government, controlling the size of government, and cutting taxes.

And if they're able to seize that, John, because of the overreach by the Democrat in the White House and the Democrats in the Congress with this incredible spending happening, if the Republicans can really get their theme together, they might be able to maximize their message the next time around.

DR. MCLAUGHLIN: Martin, what do you think? MR. WALKER: Well, all parties -- in a two-party system, all parties are coalition. And you can see certain signs of tension within the Democrats already. A lot of gays are becoming unhappy with Obama. Some of the left have been unhappy with his policies on Iraq and Afghanistan.

But for the Republicans, this has been building up a long time. The Republicans have been very good at shooting themselves in the foot. They managed to destroy their hopes of winning a large portion of the Hispanic vote by their stance on immigration. They threw away their reputation for fiscal responsibility with earmarks and spending like drunken sailors under Tom DeLay and Congress.

And the Republicans no longer seem to know what they really stand for. Are they the party of social conservatism? Are they the party of fiscal conservatism? And they've been, I think -- Pat's absolutely right; they've been put on the defensive by the ability of Obama to build a broader-based Democratic Party.

DR. MCLAUGHLIN: It seems to me here at the Group we're putting the onus on the Republicans to perform.

What about Obama stumbling? Are there signs of stumbling already? Look at the national debt. What is the national debt now, about $13 trillion, $14 trillion?

MR. BUCHANAN: Not quite there, but it's headed in that direction, yeah.

DR. MCLAUGHLIN: What is the --

MR. BUCHANAN: The deficit is $2 trillion, I believe, this year.

DR. MCLAUGHLIN: Do you think Americans are comfortable with that prospect?

MR. BUCHANAN: It depends, John. They'll take anything -- in terms of the deficit, if the economy is rolling and it's going well, they won't worry about the deficit. But if things are going badly, this will scare the daylights out of them.

DR. MCLAUGHLIN: Do they want less spending today?

MR. BUCHANAN: I think Martin believes, and I agree with him, that we're going to hit a really bad patch of inflation because of all this money that's been put out --

DR. MCLAUGHLIN: Well, that means there will be no economic resurrection in the year 2012 -- 2012 --

MR. BUCHANAN: There could be stagflation.

DR. MCLAUGHLIN: Unless he's on the road to recovery, he becomes vulnerable, does he not?

MR. WALKER: There's a big moment to wait for this year when Congress is going to have to vote to raise the debt limit above the current $12.5 trillion. When that moment comes, when that vote takes place, that is when this fear of debt, the scale of the debt -- almost 100 percent of GDP -- that is when it's going to become a really hot political issue.

DR. MCLAUGHLIN: Is that already mounting, that scale of the GDP? MR. WALKER: Yes, it's already -- it's going to be -- by next year it'll be 100 percent of GDP.

MS. CLIFT: Look --

DR. MCLAUGHLIN: So all of that's going to happen. The election probably turns on whether or not we're in a state of recovery, real recovery --

MR. WALKER: Sustained recovery.

DR. MCLAUGHLIN: -- sustained recovery --

MR. WALKER: Listen, we're going to get a recovery, because the amount of deficit spending taking place, a corpse would sit up.

DR. MCLAUGHLIN: Okay. Enter Huntsman.

SEN. JOHN MCCAIN (R-AZ): (From videotape.) I think we've got some very good candidates; Jon Huntsman.

DR. MCLAUGHLIN: Obama's campaign manager was David Plouffe. This week Plouffe said, quote, "I think the person, the one person in that party who might be a potential presidential candidate is Governor Jon Huntsman of Utah," unquote.

Huntsman is the 2012 Republican presidential buzz du jour. Here he is in Kalazamoo this week.

UTAH GOVERNOR JON HUNTSMAN (R): (From videotape.) We've got to get beyond just the gratuitous political carping and get on to real bold solutions and real ideas like health care, like energy, like the environment, like economic development, like housing.

DR. MCLAUGHLIN: Jon Huntsman, Republican governor of Utah, 49 years of age; wife, Mary Kay; seven children; two adopted daughters, one from China, one from India; religion, Mormon, Church of Jesus Christ of Latter-Day Saints.

Father, Jon Huntsman Sr., nine children; special assistant to President Richard Nixon; founder, Huntsman Petrochemical Corporation, a billionaire.

Jon Huntsman Jr., Wharton, B.A.; executive, Huntsman Chemical Corporation, '83 to '89; President Ronald Reagan's staff assistant, '82 to '83; U.S. ambassador to Singapore, G.H.W. Bush appointee, '92 to '93 -- youngest U.S. ambassador in a century; U.S. trade representative, deputy to George W. Bush, '01 to '03; state of Utah, governor, five years and currently; term ends 2012. He will not opt for a third term.

No Child Left Behind Act; he opposed it. Prescription drugs from Canada, okay. Civil unions for gays, okay. Generally, cut taxes, cut spending, cut government. That's his philosophy. The 2012 presidential bid -- what do you say to that, governor? I ask you, Pat.

MR. BUCHANAN: Well, he's very well-respected there as a governor. I don't look on him as one of the top-tier candidates, John, because you start off in Iowa and New Hampshire and places like that. Iowa, if you're not socially conservative, you're writing off a third of the electorate out there. Secondly, he's a Mormon. But the Mormon who's really going to have drive and energy in there is going to be Mitt Romney.

I don't see him and I don't see -- frankly, I look at a political athlete. I mean, it's like Obama is, Jack Kennedy was, Ronald Reagan was. I haven't seen that in him, someone who's got the charisma, the personality, energy and fire to break out of the pack. I haven't seen it yet.

DR. MCLAUGHLIN: Have you seen him closely?

MR. BUCHANAN: No. I don't think anybody knows who he is.

MS. CLIFT: No. In fact, Pat had to put on his glasses to watch him on the screen here to get a good look at him. He's a mystery to --

DR. MCLAUGHLIN: Why did Plouffe mention his name? Was that a red herring --

MS. CLIFT: No, no --

DR. MCLAUGHLIN: -- to get the Republicans after the herring?

MR. BUCHANAN: (Laughs.)

MS. CLIFT: No, he's getting attention, because he is an unconventional Republican. He was early out of the box chiding his party after the election. He's talking about being more inclusive. He's supporting civil unions. And Pat may be right that he may not be able to navigate conservative social policies of the Republican primary electorate.

DR. MCLAUGHLIN: We can take a look at him in a bite that I'm going to call up in a minute, which I could have played earlier.

Go ahead.

MS. CROWLEY: You'll recall -- maybe David Plouffe was watching our end-of-the-year show, because the end-of-the-year show last year, I identified Governor Huntsman as the rising start --

DR. MCLAUGHLIN: Was he -- MS. CROWLEY: -- in the Republican Party.

DR. MCLAUGHLIN: Was he your only designee in that category?

MS. CROWLEY: I think he was, if memory serves.

DR. MCLAUGHLIN: I think he was.

MS. CROWLEY: Yeah, because, listen, I think he's actually playing his cards right --

DR. MCLAUGHLIN: How do you know him?

MS. CROWLEY: -- by not wanting to burn the candle at both ends so early before the presidential race. He's stepping back. He's letting Sarah Palin, Bobby Jindal take some of the early incoming fire here, and he's establishing himself as a real solid conservative.

And Pat, I think that maybe in 2012 -- 2011, as the race really gets started -- that maybe some of the traditional dynamics that have gone on in Iowa and New Hampshire, they may not necessarily come into play this time around. And when you look at Huntsman, he's got all of the conservative credentials, good-looking guy, personal money.

DR. MCLAUGHLIN: Right.

MS. CROWLEY: And I think -- and on the social issues, might be more progressive. And that might actually play a little bit --

DR. MCLAUGHLIN: Governor Huntsman, we ask you, sir, what will you do in 2012? Will you run for president?

GOV. HUNTSMAN: (From videotape.) It would be presumptuous for anybody to leap to any conclusions like that, in my case as well.

DR. MCLAUGHLIN: Question -- (sound of ring tone) -- that's the governor calling me now. He wants to correct the record. (Laughter.)

On a probability scale, zero to 10, zero meaning zero probability, 10 meaning metaphysical certitude, what's the probably of Jon Huntsman winning the Republican nomination in 2012? Pat.

MR. BUCHANAN: Right now I wouldn't even give him a one. I'd give him half of 1 percent.

DR. MCLAUGHLIN: Eleanor.

MS. CLIFT: Oh, I'd give him a three or a four, simply because he's something new. And, you know, whether Mitt Romney is in there again, we've seen him before, and I think he might have the advantage of freshness.

DR. MCLAUGHLIN: Did you see what Krugman wrote in The New York Times about how long this is going to last?

MR. WALKER: Yeah, and I agree with it.

DR. MCLAUGHLIN: If it lasts that long, this might be a set-up for the governor.

MR. BUCHANAN: What lasts that long?

MS. CLIFT: The recession.

MR. WALKER: The thing about Huntsman, this is the most internationalist candidate the Republicans could have. He knows the world. He knows global economy. He really understands world trade. Because of that, I think he could be somebody with a different kind of agenda for the Republicans. I'll give him a four.

MS. CROWLEY: Yeah, I agree with that. I think he's very clever to fly under the radar this early. He does have the foreign policy credentials; former ambassador. He does know the world. Watch him. Watch him carefully. He might not get the Republican presidential nomination, but he might be the vice presidential pick.

MR. WALKER: And he's got a lot of friends --

MR. BUCHANAN: (Inaudible.)

MS. CLIFT: No way.

DR. MCLAUGHLIN: Who would lead the ticket? Who would lead the ticket?

MS. CROWLEY: That's unclear.

DR. MCLAUGHLIN: Didn't he introduce Sarah Palin at the convention?

MR. BUCHANAN: No, someone else introduced Sarah Palin.

DR. MCLAUGHLIN: Did he make a speech in her regard?

MR. BUCHANAN: Nobody needed to make a speech in her regard, John.

Look, I think it's -- right now it is Huckabee, Palin, Romney and, frankly, Newt, although Newt obviously carries a lot of baggage with him. They're very, very big figures, and you've got to have some way to break through and knock them off. And I don't see that.

MS. CLIFT: And right now --

DR. MCLAUGHLIN: Do you think he's got the fire in the belly?

MS. CLIFT: And right now --

MR. BUCHANAN: He --

DR. MCLAUGHLIN: Who's got the most fire in the belly, Newt Gingrich?

MS. CLIFT: Yeah.

MS. CROWLEY: Mitt Romney certainly does.

DR. MCLAUGHLIN: Mitt Romney, definitely. MR. WALKER: Huckabee's got a divine fire in his belly. (Laughter.)

MS. CROWLEY: When you talk about the Republicans recrafting their brand and recrafting their image, it's got to be sold by a charismatic --

MS. CLIFT: And right now, aside from this small group, I don't think people are focused on who's going to be the Republican candidate in 2012.

DR. MCLAUGHLIN: Tell that to Plouffe, your friend Plouffe.

MS. CLIFT: It's Plouffe, John, David Plouffe. (Corrects pronunciation.) I couldn't resist. (Laughs.)

MR. WALKER: And don't forget McCain. He's very close to McCain. McCain still carries a lot of weight in the Republican Party.

DR. MCLAUGHLIN: I don't know about that diphthong, O-U. I mean, what's the justification of transferring that into a short "U" -- "up," you know.

MS. CROWLEY: (Laughs.)

DR. MCLAUGHLIN: Issue Two: Quantum of Solace.

BEN BERNANKE (chairman, Federal Reserve Board): (From videotape.) We are hopeful that the very sharp decline we saw will moderate considerably in the near term and that we'll see positive growth by the end of the year.

DR. MCLAUGHLIN: Indicators look better. So says the nation's foremost authority on the national economy, Chairman of the Federal Reserve Board Ben Bernanke.

The biggest positive indicator is consumer spending, a whopping 70 percent of our $14 trillion gross domestic product. Here's Ben on that.

MR. BERNANKE: (From videotape.) Consumer spending, which dropped sharply in the second half of last year, grew in the first quarter.

DR. MCLAUGHLIN: Another big indicator -- the housing market; it's turning. Home sales are up, mortgage rates down.

MR. BERNANKE: (From videotape.) The housing market, which has been in decline for three years, has also shown some signs of bottoming.

DR. MCLAUGHLIN: A third diagnostic -- credit. Banks are lending to each other again. Mutual trust among banks is coming back, though consumer lending remains tight. Not all the financial news is upbeat; unemployment, now 8.5 percent, and will go up before it goes down, says Bernanke. But he adds it won't hit double digits. Business investment is, quote, "extremely weak"; commercial real estate, not residential, still poor.

So, to recap the good news, consumer spending up, home sales up, bank-to-bank lending up.

The ungood: Job losses still mounting; business investment weak; consumer lending weak; commercial real state weak.

Update: The Treasury Department distributed bank stress tests to 19 U.S. banks. The tests show -- they've been returned -- whether banks have enough money to withstand a future sudden downdraft in the economy. These bank stress tests came back mostly good.

Update number two: The unemployment rate climbed four-tenths of a percent. It's now at 8.9. Bernanke said it would not hit the double digits.

Question: Ben Bernanke, this nation's foremost authority on the economy, radiates knowledge, radiates integrity. He says the end is on the horizon. Is he right, or is this merely the calm before another storm? I ask you, Eleanor.

MS. CLIFT: Well, he is talking about little green shoots and the glimmers of hope, and I think he's on the same message as the administration in sort of focusing on some of the little moments of optimism that we see. I don't think --

DR. MCLAUGHLIN: We're downplaying the optimism, aren't we?

MS. CLIFT: I don't think anybody really knows.

But I think we're beginning to find the bottom. The number of new claims for unemployment was the lowest it's been in several months, but there's still a record number of people drawing unemployment insurance. But we're not in the same free fall that we were earlier this year, so we may be stabilizing.

DR. MCLAUGHLIN: That's a big statistic, because if you're unemployed, you're not buying. If you're not buying, which is -- 70 percent is consumer demand related to GDP per capita --

MR. BUCHANAN: John, unemployment is a lag indicator. I mean, in other words, it follows the economy. But the stock market --

DR. MCLAUGHLIN: Is that bad news or good news?

MR. BUCHANAN: No, it's good news in this sense, because the stock market is a lead indicator and it's had a boom in March and April -- a very big boom. However, my view is, obviously, with all this money out there, all this spending, I think the economy is going to start going up and everybody's going to feel good. We're going to get the adrenaline. We're going to get a big push.

DR. MCLAUGHLIN: But? But?

MR. BUCHANAN: Then, I think, there's so much money, I think inflation is going to ignite. People abroad are going to want --

DR. MCLAUGHLIN: When? When?

MR. BUCHANAN: -- higher interest rates for our bonds, which are going to be --

DR. MCLAUGHLIN: When, before 2012?

MR. BUCHANAN: Yeah, I think before 2010.

DR. MCLAUGHLIN: That'll kill Obama. That'll kill Obama.

MS. CLIFT: You know, you are so --

MR. WALKER: The whole question -- DR. MCLAUGHLIN: What? What?

MR. WALKER: The whole question here is whether the boom we're going to get or the recovery we're going to get, with all the deficit spending, whether it's sustainable. Look, we've got two and a half trillion dollars being put in by the U.S. government, the Europeans, the Chinese government, to get this global economy moving again. That would make a corpse sit up.

But it's not going to last, and the reason it's (not) going to last is three. First of all, we haven't fixed the banks. Secondly, you can't trust the Chinese numbers. They're not growing nearly as much as they say they are. Thirdly, you've got 60 percent of the global economy -- Europe, the U.S., Japan -- all of them in sharp decline this year. So this is not going to be a sustainable economy.

MS. CLIFT: Well, first of all --

DR. MCLAUGHLIN: Do you think this is going to have political payoff? I ask you, Monica. Let Monica in here. Do you think it's going to have political payoff in the midterm elections next year in the Congress?

MS. CROWLEY: It depends where we are in this recovery. And this might just be a short-term burst, and again, not a sustainable one. You mentioned the unemployment rate. Listen, that does have a cascading effect. You're going to have a second wave of credit card defaults, auto loan defaults that are going to come home to roost.

As you mentioned, the commercial real estate market -- there's $400 billion in outstanding commercial real estate loans coming due before the end of the year. You're going to see that crater as well. Look, and I also think --

MS. CLIFT: You guys are in overdrive --

MS. CROWLEY: Excuse me --

MS. CLIFT: -- in overdrive trying to find --

MS. CROWLEY: Excuse me --

DR. MCLAUGHLIN: You're going to shift the gears now.

MS. CLIFT: Right -- overdrive trying to find the bad news for Obama and the good news for Republicans.

MR. WALKER: Trying to find it? (Laughter.)

MS. CLIFT: I'm not making a political point.

MR. BUCHANAN: As I said, the stock market is up. The stock market is up. MS. CLIFT: First of all, inflation -- inflation --

DR. MCLAUGHLIN: Hey, Eleanor, there's bad news around here someplace. Where is it? (Laughter.) We're looking for it.

MS. CLIFT: I know you are. And inflation -- there is no inflation.

DR. MCLAUGHLIN: I know it. The stock market is up. I agree with you.

MS. CLIFT: Yeah, but you're all worried about --

MR. WALKER: You just wait for the inflation, Eleanor.

DR. MCLAUGHLIN: Okay, exit question, one word.

MS. CLIFT: The seniors aren't even getting their cost-of-living adjustment because there's no inflation.

DR. MCLAUGHLIN: Is the economy going to be up or down in next year's election in November?

MR. BUCHANAN: Well, the economy will be up, but I think you'll see inflation by next November.

MS. CLIFT: We'll be in recovery, but the party in power typically loses seats, but the Democrats will gain in the Senate.

MS. CROWLEY: You're seeing the same type of thing that got us into this mess -- massive borrowing, massive spending. And it's going to recycle itself.

MR. WALKER: It'll be a (false ?) -- (inaudible) -- before we get a double-digit recession.

DR. MCLAUGHLIN: I'll go along with that. I think the economy will be in neutral. It'll be idling.

Issue Three: Obama's Foreign Policy.

PRESIDENT BARACK OBAMA: (From videotape.) We meet today as three sovereign nations joined by a common goal: To disrupt, dismantle and defeat al Qaeda and its extremist allies in Pakistan and Afghanistan.

DR. MCLAUGHLIN: President Obama did what he does best this week -- mediate, deal, compromise shrewdly, reconcile. Three heads of state involved this week were himself, Hamid Karzai, president of Afghanistan, and Asif Ali Zardari, president of Pakistan and widower of the assassinated Benazir Bhutto. Zardari and Karzai are long-standing rivals of each other. They blame each other for violence in the territory where Afghanistan joins Pakistan. Obama himself has been publicly critical of Karzai. He's particularly frustrated with Karzai's inability to stop the Afghanistan heroin trade that has funded the Taliban.

Karzai's view of their relationship, however, remains upbeat.

AFGHANISTAN PRESIDENT HAMID KARZAI: (From videotape.) We've had ups and downs, especially in the past year and a half, in our relations with America. But the fundamentals of this relationship are very, very strong.

DR. MCLAUGHLIN: As bad as Afghanistan has become, Pakistan is believed to be the greater concern of the free world. The Taliban is continuing to seize Pakistani territory.

RICHARD HOLBROOKE (U.S. special envoy to Pakistan/Afghanistan): (From videotape.) They're fighting for it either because they misunderstand the nature of the American presence or they have grievances against the government or they just want to carry an AK-47 around with them.

DR. MCLAUGHLIN: But a Taliban takeover is unlikely, says Pakistan's president.

PAKISTAN PRESIDENT ASIF ALI ZARDARI: (From videotape.

) We have a 700,000 army. How could they take over?

DR. MCLAUGHLIN: Question: Can Obama succeed in stabilizing Afghanistan without destabilizing Pakistan? Martin.

MR. WALKER: Well, first of all, he won't succeed in stabilizing Afghanistan. No empire has since Alexander the Great. Secondly --

DR. MCLAUGHLIN: Stabilizing doesn't mean winning. Stabilizing means stabilizing.

MR. WALKER: They weren't even stabilized.

DR. MCLAUGHLIN: We've got 30,000 troops there.

MR. WALKER: Not enough. And secondly, Afghanistan -- secondly, Pakistan already is destabilized. Pakistan is an amalgam of Baluchis, Punjabis, Sindhis and Pashtuns. There's a kind of an incipient civil war on underway. Just last week, something like 30 Pashtuns were gunned down in an ethnic battle in Karachi, the main port city.

The real problem is that, for all of the promises and all of the claims that Obama made after this meeting in Washington, the big thing he wanted from the Pakistanis, he didn't get. They refused to shift any of their troops, the 700,000-man army, from the Indian border into where it really matters, the Swat Valley.

DR. MCLAUGHLIN: The center of gravity over there has shifted to Pakistan, not --

MR. WALKER: It's right on the border, yeah.

DR. MCLAUGHLIN: Yeah, but the center of gravity is the nuclear -- this is a nuclear state, 100 warheads.

MR. WALKER: Yeah.

DR. MCLAUGHLIN: Now, do you have any knowledge of whether or not the security of that is impregnable?

MR. WALKER: Well, I know that the Pakistanis called in the British, the Americans, some other military attaches about 10 days ago, to give them some assurances about the warheads being placed well away from Taliban areas, about the warheads being secure. Certainly they've got some American technology on safety and security of those warheads. Nobody really knows where they are. And one thing I think we can guarantee is that at least three nuclear-armed countries -- India, the USA and Israel -- have got pretty robust contingency plans --

DR. MCLAUGHLIN: Many years ago --

MR. WALKER: -- should those bombs fall into danger.

DR. MCLAUGHLIN: Many years ago, Zia told me that those nuclear bombs and where they are housed is impregnable -- impregnable.

MS. CLIFT: Nothing is impregnable.

MR. BUCHANAN: John, the components of the nuclear weapons are kept separate. Look, there's 66,000 Americans in Afghanistan or headed there, but the Taliban are still resurgent. It's a real problem.

There's a reason why the Pakistani army does not want to fight the Taliban -- two reasons. One is they still see India as the main threat. Secondly, the privates and lower enlistees in the Pakistani army come out of the same madrassas as those kids out there who are with the Taliban. They don't want to kill their own people.

DR. MCLAUGHLIN: You're almost squeezed out. You are too. Can you give me five seconds?

MS. CLIFT: Well, Pakistan is potentially the biggest threat to this country since --

DR. MCLAUGHLIN: Biggest threat to --

MS. CLIFT: -- biggest nuclear threat --

DR. MCLAUGHLIN: Biggest challenge to Obama.

MS. CLIFT: -- since the Cold War.

MS. CROWLEY: And it's very close to be an absolute cataclysm. The Pakistani military is shot through with Islamist sympathizers, as is the ISI.

DR. MCLAUGHLIN: Forced prediction: Tzipi Livni will be prime minister of Israel by Easter of next year. Yes or no?

MR. BUCHANAN: No, no -- not a snowball's chance.

MS. CLIFT: (Laughs.) Why not? MS. CROWLEY: No.

MR. WALKER: Fifty-fifty.

DR. MCLAUGHLIN: Answer: Yes.

Bye-bye.



END.

t, I think he could be somebody with a different kind of agenda for the Republicans. I'll give him a four.

MS. CROWLEY: Yeah, I agree with that. I think he's very clever to fly under the radar this early. He does have the foreign policy credentials; former ambassador. He does know the world. Watch him. Watch him carefully. He might not get the Republican presidential nomination, but he might be the vice presidential pick.

MR. WALKER: And he's got a lot of friends --

MR. BUCHANAN: (Inaudible.)

MS. CLIFT: No way.

DR. MCLAUGHLIN: Who would lead the ticket? Who would lead the ticket?

MS. CROWLEY: That's unclear.

DR. MCLAUGHLIN: Didn't he introduce Sarah Palin at the convention?

MR. BUCHANAN: No, someone else introduced Sarah Palin.

DR. MCLAUGHLIN: Did he make a speech in her regard?

MR. BUCHANAN: Nobody needed to make a speech in her regard, John.

Look, I think it's -- right now it is Huckabee, Palin, Romney and, frankly, Newt, although Newt obviously carries a lot of baggage with him. They're very, very big figures, and you've got to have some way to break through and knock them off. And I don't see that.

MS. CLIFT: And right now --

DR. MCLAUGHLIN: Do you think he's got the fire in the belly?

MS. CLIFT: And right now --

MR. BUCHANAN: He --

DR. MCLAUGHLIN: Who's got the most fire in the belly, Newt Gingrich?

MS. CLIFT: Yeah.

MS. CROWLEY: Mitt Romney certainly does.

DR. MCLAUGHLIN: Mitt Romney, definitely. MR. WALKER: Huckabee's got a divine fire in his belly. (Laughter.)

MS. CROWLEY: When you talk about the Republicans recrafting their brand and recrafting their image, it's got to be sold by a charismatic --

MS. CLIFT: And right now, aside from this small group, I don't think people are focused on who's going to be the Republican candidate in 2012.

DR. MCLAUGHLIN: Tell that to Plouffe, your friend Plouffe.

MS. CLIFT: It's Plouffe, John, David Plouffe. (Corrects pronunciation.) I couldn't resist. (Laughs.)

MR. WALKER: And don't forget McCain. He's very close to McCain. McCain still carries a lot of weight in the Republican Party.

DR. MCLAUGHLIN: I don't know about that diphthong, O-U. I mean, what's the justification of transferring that into a short "U" -- "up," you know.

MS. CROWLEY: (Laughs.)

DR. MCLAUGHLIN: Issue Two: Quantum of Solace.

BEN BERNANKE (chairman, Federal Reserve Board): (From videotape.) We are hopeful that the very sharp decline we saw will moderate considerably in the near term and that we'll see positive growth by the end of the year.

DR. MCLAUGHLIN: Indicators look better. So says the nation's foremost authority on the national economy, Chairman of the Federal Reserve Board Ben Bernanke.

The biggest positive indicator is consumer spending, a whopping 70 percent of our $14 trillion gross domestic product. Here's Ben on that.

MR. BERNANKE: (From videotape.) Consumer spending, which dropped sharply in the second half of last year, grew in the first quarter.

DR. MCLAUGHLIN: Another big indicator -- the housing market; it's turning. Home sales are up, mortgage rates down.

MR. BERNANKE: (From videotape.) The housing market, which has been in decline for three years, has also shown some signs of bottoming.

DR. MCLAUGHLIN: A third diagnostic -- credit. Banks are lending to each other again. Mutual trust among banks is coming back, though consumer lending remains tight. Not all the financial news is upbeat; unemployment, now 8.5 percent, and will go up before it goes down, says Bernanke. But he adds it won't hit double digits. Business investment is, quote, "extremely weak"; commercial real estate, not residential, still poor.

So, to recap the good news, consumer spending up, home sales up, bank-to-bank lending up.

The ungood: Job losses still mounting; business investment weak; consumer lending weak; commercial real state weak.

Update: The Treasury Department distributed bank stress tests to 19 U.S. banks. The tests show -- they've been returned -- whether banks have enough money to withstand a future sudden downdraft in the economy. These bank stress tests came back mostly good.

Update number two: The unemployment rate climbed four-tenths of a percent. It's now at 8.9. Bernanke said it would not hit the double digits.

Question: Ben Bernanke, this nation's foremost authority on the economy, radiates knowledge, radiates integrity. He says the end is on the horizon. Is he right, or is this merely the calm before another storm? I ask you, Eleanor.

MS. CLIFT: Well, he is talking about little green shoots and the glimmers of hope, and I think he's on the same message as the administration in sort of focusing on some of the little moments of optimism that we see. I don't think --

DR. MCLAUGHLIN: We're downplaying the optimism, aren't we?

MS. CLIFT: I don't think anybody really knows.

But I think we're beginning to find the bottom. The number of new claims for unemployment was the lowest it's been in several months, but there's still a record number of people drawing unemployment insurance. But we're not in the same free fall that we were earlier this year, so we may be stabilizing.

DR. MCLAUGHLIN: That's a big statistic, because if you're unemployed, you're not buying. If you're not buying, which is -- 70 percent is consumer demand related to GDP per capita --

MR. BUCHANAN: John, unemployment is a lag indicator. I mean, in other words, it follows the economy. But the stock market --

DR. MCLAUGHLIN: Is that bad news or good news?

MR. BUCHANAN: No, it's good news in this sense, because the stock market is a lead indicator and it's had a boom in March and April -- a very big boom. However, my view is, obviously, with all this money out there, all this spending, I think the economy is going to start going up and everybody's going to feel good. We're going to get the adrenaline. We're going to get a big push.

DR. MCLAUGHLIN: But? But?

MR. BUCHANAN: Then, I think, there's so much money, I think inflation is going to ignite. People abroad are going to want --

DR. MCLAUGHLIN: When? When?

MR. BUCHANAN: -- higher interest rates for our bonds, which are going to be --

DR. MCLAUGHLIN: When, before 2012?

MR. BUCHANAN: Yeah, I think before 2010.

DR. MCLAUGHLIN: That'll kill Obama. That'll kill Obama.

MS. CLIFT: You know, you are so --

MR. WALKER: The whole question -- DR. MCLAUGHLIN: What? What?

MR. WALKER: The whole question here is whether the boom we're going to get or the recovery we're going to get, with all the deficit spending, whether it's sustainable. Look, we've got two and a half trillion dollars being put in by the U.S. government, the Europeans, the Chinese government, to get this global economy moving again. That would make a corpse sit up.

But it's not going to last, and the reason it's (not) going to last is three. First of all, we haven't fixed the banks. Secondly, you can't trust the Chinese numbers. They're not growing nearly as much as they say they are. Thirdly, you've got 60 percent of the global economy -- Europe, the U.S., Japan -- all of them in sharp decline this year. So this is not going to be a sustainable economy.

MS. CLIFT: Well, first of all --

DR. MCLAUGHLIN: Do you think this is going to have political payoff? I ask you, Monica. Let Monica in here. Do you think it's going to have political payoff in the midterm elections next year in the Congress?

MS. CROWLEY: It depends where we are in this recovery. And this might just be a short-term burst, and again, not a sustainable one. You mentioned the unemployment rate. Listen, that does have a cascading effect. You're going to have a second wave of credit card defaults, auto loan defaults that are going to come home to roost.

As you mentioned, the commercial real estate market -- there's $400 billion in outstanding commercial real estate loans coming due before the end of the year. You're going to see that crater as well. Look, and I also think --

MS. CLIFT: You guys are in overdrive --

MS. CROWLEY: Excuse me --

MS. CLIFT: -- in overdrive trying to find --

MS. CROWLEY: Excuse me --

DR. MCLAUGHLIN: You're going to shift the gears now.

MS. CLIFT: Right -- overdrive trying to find the bad news for Obama and the good news for Republicans.

MR. WALKER: Trying to find it? (Laughter.)

MS. CLIFT: I'm not making a political point.

MR. BUCHANAN: As I said, the stock market is up. The stock market is up. MS. CLIFT: First of all, inflation -- inflation --

DR. MCLAUGHLIN: Hey, Eleanor, there's bad news around here someplace. Where is it? (Laughter.) We're looking for it.

MS. CLIFT: I know you are. And inflation -- there is no inflation.

DR. MCLAUGHLIN: I know it. The stock market is up. I agree with you.

MS. CLIFT: Yeah, but you're all worried about --

MR. WALKER: You just wait for the inflation, Eleanor.

DR. MCLAUGHLIN: Okay, exit question, one word.

MS. CLIFT: The seniors aren't even getting their cost-of-living adjustment because there's no inflation.

DR. MCLAUGHLIN: Is the economy going to be up or down in next year's election in November?

MR. BUCHANAN: Well, the economy will be up, but I think you'll see inflation by next November.

MS. CLIFT: We'll be in recovery, but the party in power typically loses seats, but the Democrats will gain in the Senate.

MS. CROWLEY: You're seeing the same type of thing that got us into this mess -- massive borrowing, massive spending. And it's going to recycle itself.

MR. WALKER: It'll be a (false ?) -- (inaudible) -- before we get a double-digit recession.

DR. MCLAUGHLIN: I'll go along with that. I think the economy will be in neutral. It'll be idling.

Issue Three: Obama's Foreign Policy.

PRESIDENT BARACK OBAMA: (From videotape.) We meet today as three sovereign nations joined by a common goal: To disrupt, dismantle and defeat al Qaeda and its extremist allies in Pakistan and Afghanistan.

DR. MCLAUGHLIN: President Obama did what he does best this week -- mediate, deal, compromise shrewdly, reconcile. Three heads of state involved this week were himself, Hamid Karzai, president of Afghanistan, and Asif Ali Zardari, president of Pakistan and widower of the assassinated Benazir Bhutto. Zardari and Karzai are long-standing rivals of each other. They blame each other for violence in the territory where Afghanistan joins Pakistan. Obama himself has been publicly critical of Karzai. He's particularly frustrated with Karzai's inability to stop the Afghanistan heroin trade that has funded the Taliban.

Karzai's view of their relationship, however, remains upbeat.

AFGHANISTAN PRESIDENT HAMID KARZAI: (From videotape.) We've had ups and downs, especially in the past year and a half, in our relations with America. But the fundamentals of this relationship are very, very strong.

DR. MCLAUGHLIN: As bad as Afghanistan has become, Pakistan is believed to be the greater concern of the free world. The Taliban is continuing to seize Pakistani territory.

RICHARD HOLBROOKE (U.S. special envoy to Pakistan/Afghanistan): (From videotape.) They're fighting for it either because they misunderstand the nature of the American presence or they have grievances against the government or they just want to carry an AK-47 around with them.

DR. MCLAUGHLIN: But a Taliban takeover is unlikely, says Pakistan's president.

PAKISTAN PRESIDENT ASIF ALI ZARDARI: (From videotape.

) We have a 700,000 army. How could they take over?

DR. MCLAUGHLIN: Question: Can Obama succeed in stabilizing Afghanistan without destabilizing Pakistan? Martin.

MR. WALKER: Well, first of all, he won't succeed in stabilizing Afghanistan. No empire has since Alexander the Great. Secondly --

DR. MCLAUGHLIN: Stabilizing doesn't mean winning. Stabilizing means stabilizing.

MR. WALKER: They weren't even stabilized.

DR. MCLAUGHLIN: We've got 30,000 troops there.

MR. WALKER: Not enough. And secondly, Afghanistan -- secondly, Pakistan already is destabilized. Pakistan is an amalgam of Baluchis, Punjabis, Sindhis and Pashtuns. There's a kind of an incipient civil war on underway. Just last week, something like 30 Pashtuns were gunned down in an ethnic battle in Karachi, the main port city.

The real problem is that, for all of the promises and all of the claims that Obama made after this meeting in Washington, the big thing he wanted from the Pakistanis, he didn't get. They refused to shift any of their troops, the 700,000-man army, from the Indian border into where it really matters, the Swat Valley.

DR. MCLAUGHLIN: The center of gravity over there has shifted to Pakistan, not --

MR. WALKER: It's right on the border, yeah.

DR. MCLAUGHLIN: Yeah, but the center of gravity is the nuclear -- this is a nuclear state, 100 warheads.

MR. WALKER: Yeah.

DR. MCLAUGHLIN: Now, do you have any knowledge of whether or not the security of that is impregnable?

MR. WALKER: Well, I know that the Pakistanis called in the British, the Americans, some other military attaches about 10 days ago, to give them some assurances about the warheads being placed well away from Taliban areas, about the warheads being secure. Certainly they've got some American technology on safety and security of those warheads. Nobody really knows where they are. And one thing I think we can guarantee is that at least three nuclear-armed countries -- India, the USA and Israel -- have got pretty robust contingency plans --

DR. MCLAUGHLIN: Many years ago --

MR. WALKER: -- should those bombs fall into danger.

DR. MCLAUGHLIN: Many years ago, Zia told me that those nuclear bombs and where they are housed is impregnable -- impregnable.

MS. CLIFT: Nothing is impregnable.

MR. BUCHANAN: John, the components of the nuclear weapons are kept separate. Look, there's 66,000 Americans in Afghanistan or headed there, but the Taliban are still resurgent. It's a real problem.

There's a reason why the Pakistani army does not want to fight the Taliban -- two reasons. One is they still see India as the main threat. Secondly, the privates and lower enlistees in the Pakistani army come out of the same madrassas as those kids out there who are with the Taliban. They don't want to kill their own people.

DR. MCLAUGHLIN: You're almost squeezed out. You are too. Can you give me five seconds?

MS. CLIFT: Well, Pakistan is potentially the biggest threat to this country since --

DR. MCLAUGHLIN: Biggest threat to --

MS. CLIFT: -- biggest nuclear threat --

DR. MCLAUGHLIN: Biggest challenge to Obama.

MS. CLIFT: -- since the Cold War.

MS. CROWLEY: And it's very close to be an absolute cataclysm. The Pakistani military is shot through with Islamist sympathizers, as is the ISI.

DR. MCLAUGHLIN: Forced prediction: Tzipi Livni will be prime minister of Israel by Easter of next year. Yes or no?

MR. BUCHANAN: No, no -- not a snowball's chance.

MS. CLIFT: (Laughs.) Why not? MS. CROWLEY: No.

MR. WALKER: Fifty-fifty.

DR. MCLAUGHLIN: Answer: Yes.

Bye-bye.



END.