This is a rush transcript from "The Journal Editorial Report," January 26, 2008.

PAUL GIGOT, FOX HOST: Up next on the "Journal Editorial Report," with South Carolina in the rear view mirror the Democrats look ahead to Super Tuesday states. Will their war of words get nastier as February 5 approaches?

Plus, the showdown in the Sunshine State: Is Tuesday's Florida primary a must-win for Rudy Giuliani?

The White House and Congress hammer out a deal on an economic stimulus package. Will it work? Our panel debates after these headlines.

(NEWSBREAK)

GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

With South Carolina behind them the Democratic presidential candidate can now turn their full attention to the Super Tuesday states where the war of words between Hillary Clinton and Barack Obama is sure to continue. Tensions between the two campaigns erupted anew this week with bill Clinton reprising his role as attacker in chief in a performance some Democratic officials are calling down right unpresidential.

Joining the panel this week, "Wall Street Journal" columnist and deputy editor Dan Henninger, columnist Mary Anastasia O'Grady, Washington columnist Kim Strassel and editorial board member Steve Moore.

Let's go to a tape shot of an exchange this week at the Democratic debate.

(BEGIN VIDEO CLIP)

HILLARY CLINTON, (D), PRESIDENTIAL CANDIDATE: You said two different things because I have read the transcript. You talked about Ronald Reagan being a transformative political leader. I did not mention his name.

BARACK OBAMA, (D), PRESIDENTIAL CANDIDATE: Your husband did.

CLINTON: Well, I'm here. He's not.

OBAMA: I can't tell who I am running against sometimes.

(END VIDEO CLIP)

GIGOT: All right, Kim, whom is getting the better of that exchange between Barack balance and, let's face it, team Clinton?

KIM STRASSEL, WASHINGTON COLUMNIST: You know, a lot of people out there seem to think this is bad for the Clintons and you have had a lot of political leaders on the Democratic side come out and chastise him for doing this, but you know, I argue yet again this is planned by Clintons, a tactic by the Clintons. They present themselves present themselves as under siege and go out and say everyone is against us.

The idea is to motivate Hillary supporters and they are going after him and when he fights back they say look we are getting attack. I think this is helpful to them and I think it was proven.

GIGOT: This is helping the Clintons?

On that point, Dan, I want to read a quote from James Carville, a long time Clinton strategist. He said, "Obama runs the risk of being 'woosified', quote, unquote, with his attacks, whining so much and complaining about the attacks."

DAN HENNINGER, COLUMNIST AND DEPUTY EDITOR: Well, I think that's a fairly nasty remark and it is certainly directed at the persona that Barack Obama is trying to project. Barack comes across as an extremely bright, intelligent, serious candidate.

And their biggest problem is that they thought the first woman was going to be running for president. Suddenly they have a very capable black American running for president.

Now, the people of Massachusetts just elected the first black governor there, Duvall Patrick, who ran essentially as Barack Obama is. You have the new mayor of Newark, young guy named Corey Booker, who is cut from the same model. These are all very sort of — they try to be extremely forthcoming, intelligent, not the kind of rabble-rousing....

GIGOT: It is a strategy of the Clintons to make him look weak. That's what Carville is getting at.

HENNINGER: But sort of saying like someone like Barack Obama cannot present the sort of figure he is that he has to get down in the dirt and fight like a traditional Democrat politician with Hillary Clinton.

I think the reason is, they under Hillary has her own problem with atmospherics. When she gets down on dirty, she comes across as shrill and unattractive. They want him to do the same thing.

GIGOT: Who is getting the better of it?

HENNINGER: Personally, I disagree with him. I think Barack is getting the better of it. In the Democrat primary, this is new territory for the Democrats. The bigger question is whether Barack can drive home the fact that the Democrats are signing up for another eight years of Bill and Hillary Clinton. Do they want to go there?

MARY ANASTASIA O'GRADY, COLUMNIST: I don't think the Clintons dodged this problem of Hillary Clinton personality in this debate. She came off as an angry person who wants revenge and I don't think, if like ability matters, I don't think this helps her at all. You know she already has high negatives in the broader general election. And I think this is very damaging to her.

GIGOT: I want to put up for viewers quotes from some other Democrats criticizing the Clinton. You have former majority leader of the Senate Tom Daschle, who said, "I think it is not presidential. It is not in keeping with the image of a former president and I'm frankly surprised he is taking this approach." A quote from Pat Leahy saying, "This isn't helping the Democrat party." And then you have the former Clinton supporter, the former head, Dick Harpootlian and the former head of the South Carolina Democratic Party saying, "You are not supposed to pull back the hammer harder."

Steve Moore, is this the vast left-wing conspiracy going after the Clintons.

STEVE MOORE, EDITORIAL BOARD MEMBER: First of all, what an apostasy to praise Ronald Reagan. My god, a horrible thing to say. What happened with Hillary this week we should men's is she lurched to the left on economic policy, she said we have to regulate the economy. Have a government play a more active role in financial markets and the government has to regulate CEO pay. You have seen this over the course of the last few weeks as Obama has really made a charge at her. She has moved more aggressively to the left. I think that's certainly going to hurt her a lot in the general election.

GIGOT: The other thing with Obama is, if wants to win this he has to take a case going back to the 90's, Dan. I agree with you. He has to say, look, we lost Congress, didn't get health care, we didn't get the kinds of reforms Democrats want. Do you want to trust another four or eight years to going back to has legacy? He is refused to make that case so directly. Instead, he sort of doing is it by miss direction.

STRASSEL: You know what?

GIGOT: If he doesn't make that direct strategic indication, Kim, I don't think he will win.

STRASSEL: The problem is he sort of created a little bit of a box for himself. To do that is to go full frontal attack on Hillary Clinton. He has been spending his time in this gain saying we don't want politics of destruction. We want to get beyond this, all hold hands, have a new era of Washington.

How do you do that, answer her attacks she has been throwing at hi go on the attack against her without ruing that image. That's a difficulty for him. You have seen that restrain him somewhat in the debate.

MOORE: Don't forget, Kim...

GIGOT: Sorry, Steve, we have to go.

When we come back, showdown in the Sunshine State. Polls show a tight race ahead of Tuesday. Is Rudy Giuliani's Florida strategy crumbling and can John McCain appeal to conservatives? Our panel distance when the "Journal Editorial Report" continues.

(COMMERCIAL BREAK)

GIGOT: Well, he staked his claim in the Sunshine State but a win for Giuliani in Tuesday's Florida primary seems far from certain with John McCain and Mitt Romney giving him a run for miss money. Giuliani put $3 million in advertising and spent most of his time there, counting on a win to give him need momentum going into Super Tuesday.

Dan, Giuliani's decision to wait until Florida to contest his first primary is either the most brilliant strategy ever or the dumbest. Which is it?

HENNINGER: Call me Tuesday. Well, I think probably in 20-20 hindsight it will turn out to be a mistake. One thing we should say is, you know, they have a write-in vote in Florida and they are already voting. I am not sure polls are capturing the results of write in votes half of which should be completed by the time of the vote. Once again, we have an unpredictable outcome.

But that's part of Rudy's problem. The primary so far have been unpredictable for Republicans. It has been a rollercoaster. First Huckabee in Iowa, then McCain and then Romney. Now it looks like Romney and McCain and, I think, Florida voters are saying do we want to contribute more to the problem by making Rudy the winner here, which will just incredibly complicate the GOP side.

My guess is Republican voters are tired of this and would like to resolve it and are probably looking harder at McCain and Romney at this point. They've got to make a choice.

GIGOT: It is interesting, Steve. Rudy seems to have fallen as McCain has risen. And they seem to be going after the same kind of voters, moderate Republicans maybe on social issues and some other issues, who are nonetheless national security hawks. What explains Rudy's trouble?

MOORE: I think that Rudy made a huge mistake. You cannot sit out the first two primaries and let the other stars emerge in the party and then expect to rise from the ashes. I think it was — and future candidates will learn that lesson.

But I do think this race is starting to take some focus now. If you look at what happened in the debate the other night, what happened was there was clear Romney tried to identify himself as the conservative and the outsider who will come in and change Washington. McCain has the centrist, moderate support of the party and he is basically making the case look folks, I will the one who can beat Hillary Clinton. I can bring the independents together.

The question is whether he can get enough conservatives in the Super Tuesday races to beat Romney who has so much more money.

GIGOT: Steve, you dropped the ball on Rudy because I would like to talk about Rudy. He is fighting on taxes hard. He says I have the best tax cut in the field. You think it is a darn good tax cut. Can he use the tax issue and this Florida disaster hurricane fund issue he is using to make a come back in Florida?

MOORE: I don't think he can. Although it is hard to rule out after what happened the last couple of weeks. I think the problem with Rudy Giuliani, despite the fact I think he has the best economic tax plan, is people just feel that if you open up the closet the skeletons fall all over the place. That's his biggest liability.

GIGOT: Kim, let talk about this issue of McCain and the conservatives. That seems to be crucial here. John McCain has always done better Monday independents and even some Democrats, but in South Carolina he finally did get most of the Republicans enough to win.

But now you see the radio talk show hosts who can't stand John McCain. Tom DeLay coming out saying I will do anything to beat John McCain. I am not sure that's bad for McCain with DeLay. But nonetheless, can he prevail among the grass roots Republican voters?

STRASSEL: This was his problem in 2000. There were too many Republicans that didn't like him. And he is trying much harder this time to preempt that from happening again. His entire campaign right now has shifted. It is focused on getting the conservative vote. He has new ads out call himself the true conservative on the stump. He talks about pro- life issues judges. This is what his focus is.

The question is, can he pull it off? The McCain campaign talked about Louisiana, which had a caucus this week. They actually once again did well among conservative voters.

GIGOT: Kim, what issues is he using to appeal to conservatives? This is the first time I saw him come out with a tax cut. In 2000, he didn't have a tax cut. He is competing on that tougher. He brought in other supporters. John Kemp is supporting John McCain.

O'GRADY: McCain has one edge here, since 2002. That is that he was very good on the war. He has been very good on the war. A lot of people who consider national security the number one issue in the next four years are going to look twice at John McCain even though he has a weak economic.

GIGOT: That's an advantage over Mitt Romney, the national security position.

HENNINGER: Paul, one thing they are talking about in from there is that also on the ballot Tuesday is a statewide referendum to restrict property tax assessments. A human issue down there. Seniors own their own houses. it is felt that referendum will bring more Republicans out to vote for that. It relates to the tax issue.

So you have both seniors voting on the issue of taxes and the question is, will that fall for McCain, who has been doing well among seniors in South Carolina, or Rudy with the best tax plan.

GIGOT: We'll be watching. Interesting.

Next, the Fed slashes interest rates and the president and Congress agree on $150 billion stimulus package. Will either move jump start the economy? Our panel debates after the break.

(COMMERCIAL BREAK)

GIGOT: Congressional leaders in the White House announced an agreement on an economic stimulus package this week. The $150 billion plan would give rebate checks of from $300 to $1200 to 117 million families and provide tax incentives to businesses to encouraging spending.

Mary, the punch bowl is back. Big rate cuts by the Fed. And tax rebates all around. Do you feel stimulated?

O'GRADY: Well, we are not even in a recess yet. That's what I find amazing here. There is a lot of routing for a recession from some people in Washington, but I think one of the problems is that, if you start handing out cash like this, when you don't have a crisis, what is the government going to do if there is a problem?

The second thing is we have to think about how we got here — as you refer to the punch bowl. You know, if we are just reflating with easy money, that's what got us into this problem and it doesn't address the root of the problem, which is there is still a lot of instabilities in the credit market.

GIGOT: Steve, here is what the White House says. The White House says look, this is insurance. We don't know if we are in a recession, but this will put money in people's pockets consumers. We'll spend it give the economy a boost as we pride out this housing storm. I thought you liked tax cuts.

MOORE: Ha-ha, you know this is a jobs program, Paul. But it is the jobs they are saving are their own.

(LAUGHTER)

MOORE: And the president — it is no accident this package is aimed towards the middle class, the economically anxious folks.

It will have a political impact, but I don't think it will have any impact on the economy whatsoever. For one thing, I think the tabs rebate checks will come too late. They may not come until this summer. We have already got inflation in the system. To add more money, as Mary said, is a mistake.

The question then becomes, Paul, if these two plans, the Fed rate cuts and this fiscal stimulus plan of dropping $100 bills out of helicopters, if this doesn't work, what is Plan B?

GIGOT: Is there a Plan B.

HENNINGER: No. In Washington there absolutely is no Plan B. Let's pick up Steve's point. Consider what they do. During the 90's and early part of the Bush presidency, when the economy was booming, tax revenue was flowing into Washington, right? What did they do with the tax revenue? They spent it.

Now it looks like we are going toward recession what are they going to do? Push more money into the country. This is virtually a scam on the part of Congress. There is a reason their approval rating is below 20 percent. You got to ask, are the American people going to buy it when they show up to vote for them in November?

GIGOT: Mary, what about the spectacle he have the Federal Reserve act being in the face of a market panic? You have a huge sell off, a global sell off and that's when the Fed decided to cut rates.

Now I have a little sympathy for the Fed because it is in a tough spot. Don't they look like they were bending to Wall Street?

O'GRADY: Face it, that was already a 50 basis points cut baked in the cake already. Really what they gave was an extra surprise 25...

GIGOT: But at their meeting, which was — the regular meeting supposed to be next week — they did it in an emergency session. Don't you give the impression to the markets that every day is Federal Reserve day?

O'GRADY: They are talking about another 50. One thing that's very dangerous here is that if you keep reflating, you see the price of gold going up, you are going to have...

GIGOT: Oil at $90.

O'GRADY: They know well that's a looming problem. But one thing I think the market is worried about is, they look at this and they think, if this was an injection of liquidity because of a short-term problem like you had in 1987. That would be okay. But this idea the Fed is just cutting, cutting, cutting, because it wants to avoid a recession, which a business cycle, is not the job of the Fed. The job of the Fed is (inaudible).

MOORE: Mary, there is something else that's...

GIGOT: Mary, Kim...

MOORE: I just want to ask one question.

GIGOT: Sure.

MOORE: One point. There is something else that's really bothering the economy that the politicians aren't paying attention to. That is the threat of in 2009 or 2010, one of the biggest tax increases in American history, with the expiration of the capital gains tax.

Paul, I believe if they wanted to stimulate the economy, is Nancy Pelosi would go to the House floor and say we would make the Bush tax cuts permanent, that would put burst confidence into the economy.

GIGOT: Kim, very briefly, a lot of Republican candidates were upset with the White House going along with it this week. Tell us why.

STRASSEL: This was a huge missed opportunity. The president has the ability, still has a perch to frame the debates. This has been an administration that's ably and capably talked about supply-side economics and their tax cuts. They should have used this opportunity to say here is your choice come November. You can have more Republicans who believe in this and have created economic growth or a Democrat, in a time of economic insecurity that wants to raise your taxes. They didn't do into.

GIGOT: 30 percent approval ratings will concentrate the political mind.

STRASSEL: That's right.

GIGOT: We have to take one more break. When we come back our "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Winners and losers, picks and pans, "Hits and Misses," it's our way of calling attention to the best and the worst of the week.

Item one, preserving Iraq's historical records — Dan?

HENNINGER: Saddam Hussein's paper trail found a home. The Hoover Institution in California announced this week it will take possession of over two million documents from the Hussein era. These documents have been collected by an organization called the Iraq Memory Foundation based in Baghdad and has been working hard to assemble all of this documentary material.

It is a process similar to what the East Germans did with the secret police in East Germany when East Germany was a kingdom of spies. So a big hit to the Hoover Institution in the Iraq Memory Foundation for ensuring the legacy of Saddam Hussein is not going to disappear down the memory hole.

GIGOT: Thank, Dan.

Compassionate capitalist Bill Gates — Mary?

O'GRADY: Bill Gates went to Davos, Switzerland, this week. He gets a miss. He gave pa speech saying that we need more compassionate capitalism and criticizing the capitalist model.

What I found amazing about this is Bill Gates concern is the poor, but Bill Gates, because he is a hard-nosed competitor in a capitalist system, not only made himself a fortune but made all of the rest of us better off. In fact, I would say he created more wealth for the world than anything the World Bank or any of the aid agencies have done.

The other thing is he's criticizing capitalism in places like Africa, where there is no rule of law, there are no property rights. There is no sound money. There is no fair competition. And those are the things that make up capitalism. He can't well criticize it where if doesn't exist.

GIGOT: Mary, thank you.

Finally, Oscar nominations were announced this week what happens if they have an award show and nobody comes — Kim?

STRASSEL: All this got me thinking yet again wondering why do Americans put themselves through a thing called the as Oscars every year. It isn't just that this has about become a forum for everything that's politically correct in Hollywood. It isn't that we have to listen to winners sob through their acceptance speeches or this is a place for them to take political punches. It is really boring to watch.

You know, so my hit goes to writers on strike. Word is, that if they stay on strike we may not have a show at all and, if we do, the A-list actors are saying they won't cross the picket lines. Maybe this gives Americans an excuse, for the first time, to do something pleasant Oscar night — turn off their TV.

GIGOT: OK, Kim.

That's it for this week's edition. Send your e-mails to jer@foxnews.com and visit us on the web at www.foxnews.com/journal.

Thanks to my panel and to all of you for watching. I'm Paul Gigot. Tune in next week for our Super Tuesday preview.

Content and Programming Copyright 2008 FOX News Network, Inc. ALL RIGHTS RESERVED. Transcription Copyright 2008 Voxant, Inc. (www.voxant.com), which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon FOX News Network, Inc.'s and Voxant Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.