This is a rush transcript of "Special Report With Brit Hume" from August 21, 2007. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

KARL ROVE, WHITE HOUSE DEPUTY CHIEF OF STAFF: Take a look at the very sharp decline in the popularity of the Democratic Congress, which was a very high levels seven months ago, and has plummeted way below where the president has. In fact, in June and July, I think there were eight public polls. The Democratic Congress lost ground in seven out of the eight.

(END VIDEO CLIP)

BRIT HUME, HOST: And since he spoke, there has been another one. A news one out today from Gallup, which shows that the Democratic congress's approval rating, or at least the Congress overall, is now at 18 percent. That is the same level it was back in 1992 when the Democrats were swept from Congress by the Republicans in the midst of all sorts of scandal and turmoil.

The Democrats are hurting the most over the last month with the Independents and Democrats themselves. You can see it has been steady among Republicans, they never have liked them.

But look at the Independents and Democrats. That is where it is declining, and one can only imagine what this is all about.

Thoughts on this now Fred Barnes, executive editor of The Weekly Standard, Juan Williams, senior correspondent of National Public Radio, and the syndicated columnist Charles Krauthammer, FOX News contributors all.

Juan, what are the components of this disapproval of the Congress in your judgment, and why are Independents and Democrats falling away at this point, in your view?

JUAN WILLIAMS, SENIOR CORRESPONDENT, NATIONAL PUBLIC RADIO: The war in Iraq, war in Iraq, war in Iraq.

This congress, when it came to power, there was a 21 percent approval rating for a Republican led congress. This is 18 percent.

HUME: That is what brought them in.

WILLIAMS: Right. So they are at about the same level, a little lower. But the big thing is that there were bought in specifically to take on the war in Iraq, end the war in Iraq. And they have not done it. They have been thwarted by President Bush and Republicans holding the line in the Congress.

So this is a condemnation of the Democratic leadership, but also, I think, of Republicans in the Congress. That is why I think Independents, in particular — the swing among Independents has been even more pronounced that the swing among Democrats.

HUME: Well, now you have the spectacle of Senator Levin saying, at least on the military side, there has been real progress in Iraq. One imagines, as we discussed last night, that that assessment will be echoed by General Petraeus when he comes back.

What effect does that then have on the Democrats, who are feeling it from Independents fellow Democrats who want to get out of Iraq?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: They are going to be in a hard position because they are going to have to argue that Petraeus is either wrong, or biased, or not reliable. And I think he actually is someone that you would believe, who has a track record.

And the Democrats will be in a position where they are going to have to essentially say the war is lost when a commander on the ground is saying that we can win.

The problem is not that the Democrats were thwarted by the president, it is that the Democrats over promised. They had promised after winning the election — it is interesting, because it was after the election. During the election, they did not promise withdrawal. They were a lot cagier about that.

But after unexpectedly sweeping the House and Senate, the leadership decided we now have a mandate to actually extricate without consequence. And they understand that that cannot happen.

If they had cut off the funds, that would have been extrication, but it would have been a disaster. That was their only option, so they changed it into changing the course. Well, the president changed course, he gave them an escalation, and they supported it.

HUME: At first, anyway.

So, Fred, what happens now from the Democrats point of view?

FRED BARNES, EXECUTIVE EDITOR, WEEKLY STANDARD: They have a couple of problems. One is Petraeus, as Charles was saying. The other is this big fight that is looming over spending and taxes, but particularly over spending.

It will come with, probably, one big spending bill that the president will veto, and then be threatened with a government shutdown. It is hard for Congress to win on that, presidents usually do.

But I think the Democrats are still in pretty good shape relative to Republicans, and relative to the election next year. I do not believe these numbers of Gallup saying that 13 percent of Independents, that they went from 30 to 17, the Democrats from 32 to 21 in one month. All of a sudden they had people willing to say they were Republicans, Democrats, or Independents—80 percent said that, but only 56 percent would say that was a month later. There something wrong with that poll.

HUME: So you think the poll is wrong.

BARNES: Yes, I think the poll is wrong.

HUME: The approval rating is actually higher?

BARNES: Yes, I think Democrats are in better shape than that. The party ID numbers consistently this year have shown, despite the disapproval of the way Congress is operating, it has show the Democrats about 10 or 20 points ahead of Republicans. And I think that is probably where they are now. They are more enthusiastic, the have more money, they are better organized than Republicans are right now.

HUME: Will Republicans continue to stand with the president on the war?

WILLIAMS: Yes they are going to continue to stand — they will stand with the president on the war — look, the dynamic here is so curious. The president, obviously, is not running for reelection, nobody around him is running for reelection. And, at some point, Republicans who are running for reelection are going to say we have a separate set of interests from this president.

And I think that is why you see people like Dennis Hastert and others who were deciding it is time to retire, time to get out of town. But those who remain, they are going to have to make a judgment. And my sense is along the ling of what Fred was saying, the landscape is so favorable for Democrats that it would take a tremendous revolution, an earthquake to shift the balance.

And I do not think it is a matter of saying that General Petraeus is biased or not trustworthy, it is saying that the military progress is not the whole picture. There is political progress to take into account, and that is why you see Carl Levin and others saying that it is time for the Maliki to go, and we have to look at the fact that there has been no political progress in Iraq.

KRAUTHAMMER: But it makes no sense for a Republican to run away from a war that he has supported all along, think it is going to save him in the election, because the Democrats can always field a candidate who will say I was against it before you, and more strongly.

Their only hope is success in Iraq, and that means sticking with the president.

HUME: Next up with the panel, we will look into the growing chatter that the U.S., Canada, and Mexico could form something like the European Union. Who's talking about it, and why? And do they think it is a possibility? Stick around.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BRET BAIER, FOX NEWS CORRESPONDENT: Can you say today that this is not a prelude to a North American Union, similar to a European union? Are there plans to build some kind of superhighway connecting all three countries?

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES OF AMERICA: If you have been in politics as long as I have, you get used to that kind of technique, where you lay out a conspiracy and then force people to try to prove it doesn't exist.

STEPHEN HARPER, CANADIAN PRIME MINISTER: And I guess I have read some things for my opposition in Canada — I am not sure these are generally expressed concerns. But a couple of my opposition leaders have speculated on massive water diversions and superhighways to the continent. maybe interplanetary — I'm not sure — as well.

(END VIDEO CLIP)

HUME: Well, the politicians laugh it off, and if you ask anybody in a position of authority in Washington about the idea that there is a plan well underway to create a North American Union along the lines of the European Union, which would be compose, among other things, of a great big superhighway system that would connect all three countries.

There you see a map extrapolating from some information that people who believe in this. It is a fairly widely believed theory, believe it or not, particularly on the American right, that President Bush and the leaders of the foreign policy establishment want to see these three countries, the United States, Canada, and Mexico, joined and governed, ultimately, by a super government that would be able to overrule the sovereign governments of each of those countries in certain key matters related to trade, and who knows what else.

The literature on it is fairly extensive. But is there any truth to it? Charles?

KRAUTHAMMER: I love this stuff, because if you ever doubt your own sanity, all you have to do is read this stuff and you know that you are OK.

Part of this great conspiracy is recent evidence that the governor of Texas, who is a Republican, who supports this highway from Laredo into Oklahoma, was recently at the Bilderberg conference, which is, supposedly, one of these trilateral conferences involving financiers who want to globalize the world and pull strings.

But let me tell you — I have spoken to the Bilderberg conference, as has George Will and Paul Gigot, and I can assure you that Gigot and Will and I are not three amigos who are going to order in black helicopters to force Americans to watch hockey on Monday night and soccer on Sundays.

The reason the Bilderberg Conference is secret is because its proceedings are so dull that if the transcripts were ever published, nobody would ever attend.

What's happening here is that the president organized a meeting a few years ago with the leaders of Mexico and Canada to work out stuff like how to regulate the borders in terms of terrorism, or pandemics, or how much pesticide you can have on a cabbage.

This is the piddling stuff that these committees are involved in. and anybody who believes it is about a great North American Union is in the league of people who believe that Elvis is still alive.

WILLIAMS: Well, there are a lot of those.

HUME: Juan, what do you think of this?

WILLIAMS: Elvis is alive, I think that.

HUME: Come on, help me out here.

WILLIAMS: No, it seems to me that it is in our interest to work with our neighbors. No question. And I think we should be doing more work with our neighbors in terms of protecting our borders if you're concerned about terrorism.

HUME: You get around town, and do you hear anybody proposing this idea?

WILLIAMS: No. In fact, that map that you showed, as Charles way saying, there is some reality to the highway from Mexico going up through Texas into Oklahoma. But there is no reality to those red veins at the northern part, there is just no reality to it yet.

HUME: Fred?

BARNES: Of course Charles would deny having been to be Bilderberg event, but there was nothing going on there. But they always deny it, right?

Brit, the only person that I have heard about this North American Union from so far is you and Bret Baier. How did Bret Baier not break into laughter when he was asking that?

HUME: He was trying to keep a straight fact, but you could tell that both the leaders…

BARNES: This charade has been in American politics for years and years. It used to be fear of one world government — our sovereignty was going to be handed over to a one world government. Then the U.N. turned out to be so pathetic that nobody would believe that. So now they've got the new bogeyman as this North American Union.

It is not going to happen. That is ludicrous. There is a particular reason for the origin of the European Union. Those were countries that were fighting wars against each other. And one of the reasons to have the EU was to have peace.

HUME: That is it for the panel, folks.

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