This is a rush transcript of "Special Report With Bret Baier" from March 6, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: We inherited a big mess.

That's why my administration is also moving quickly and aggressively to restart lending for families and businesses, to help responsible homeowners pay their mortgages and refinance their homes, to address the major economic challenges of our time: the cost of health care, our dependence on foreign oil, the state of our schools.

(END VIDEO CLIP)

BRET BAIER, HOST: President Obama in Columbus, Ohio [Friday] talking about the state of the economy on a day when new unemployment figures show that the unemployment rate is now at 8.1 percent. It hasn't been that high since 1983, when it reached 8.3 percent before jumping to 10.8 percent under President Reagan.

So what about the economy and what this administration is doing? Let's bring in our panel: Jeff Birnbaum, managing editor digital of The Washington Times, Judith Miller of the Manhattan Institute, and syndicated columnist Charles Krauthammer.

Jeff, we get a lot of e-mail on this show and a lot of people ask is what the administration doing helping or hurting? It's a tough question to answer now, but let's talk about the economy overall.

JEFF BIRNBAUM, MANAGING EDITOR DIGITAL, THE WASHINGTON TIMES: Well, I think that we're, without question, in the Obama bear market, literally. Since he was inaugurated there has been a 20 percent decline in the Dow Jones Industrial Average. That's the definition of a bear market and in fact is that the DOW is down 30 percent since his election.

So we're not better off, at least so far, by that measure, and any other economic indicator. They're all down, basically.

I think that, also, the stimulus package that was enacted under Obama was mislabeled. Part of it is stimulus. Part of it is investment. And so it won't, in its specifics, give a jolt to the economy.

But I think Obama is lucky in that he is pushing to spend so much and deficit spend. Keynes told us — and it's Economics 101 — that if you have deficit spending, you have a lot of government intervention, that will give a jolt to the economy.

And so whether he has picked the right details or not, eventually, there will be some movement upward in the economy. The question is when, and I'm afraid I don't have that answer. No one does.

BAIER: Judith?

JUDITH MILLER, MANHATTAN INSTITUTE: I think what strikes me is despite this cascade of appalling economic news, the president's personal popularity remains very, very high.

We have seen the figures of before and after the inauguration of Barack Obama, when before his inauguration, 26 percent of the country said that the country was moving on the wrong track and 59 percent said it's terrible.

And then when he gets elected, all of a sudden you move to 44 percent of the country thinking things are going to get better. His personals are 67 percent, and after the state of the non-State of the Union speech, they went up to 80.

BAIER: But his negatives have also gone up in recent weeks, especially with these stumbling with nominees and also the stimulus stall on Capitol Hill.

MILLER: Yes, but when Ronald Reagan said "Are you better off today than you were four years ago?" he was talking about four years of a disastrous rule by Jimmy Carter. Now we're talking about 46 days, Bret.

And most Americans say, yes, he did inherit this mess and we're willing to give him another shot. We're willing to go with him a little bit longer.

I think that the problem for him is going to be that the gap between his personal popularity and the policies, which has always been about a 50 percent approval rating, that gap is going to begin to narrow and then the president will have to make some really tough decisions.

BAIER: But is it fair to say it's President Obama's economy now?

MILLER: Now it is. But you don't invent an economy overnight. He did inherit this mass, the lax regulation of the Bush administration and all the problems that have accumulated under President Bush.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: He has inherited a mess, but the markets are scared to death because the major issue right now is the banks and he hasn't lifted a finger on the banking issue.

You get even Paul Krugman, the liberal columnist for The New York Times, who loved the budget, saying the administration is dithering and scaring the people because that is the essence of our crisis. Obama speaks about education and health care and energy and all that is fine, but our problem now is a sick banking system.

And the fact is that in the past the markets would react to economic news and to some of the political decisions in Washington, as, for example, the decisions of the Fed.

But in the last year, the markets are exquisitely sensitive to what's happening in Washington because all the money is gone from New York and all the money is here. All the great decisions in finance are no longer in New York, which is broke. The decisions are being made here.

And the non-decisions, the fact that the administration has not had a plan — it promised a plan on banks and produced nothing — is what is scaring the markets and making them tank.

BAIER: Jeff, one of the stories that we covered is the fact that all of these folks are not in the lower-level positions in the Treasury Department under Secretary Geithner. How big a factor is that for somebody on Wall Street looking at how this administration is handling this economy?

BIRNBAUM: Well, these aren't lower level. These are the top level, top 17 or so — the undersecretaries, the assistant secretaries. These are the policymakers. These are the most important people.

The persona of the Treasury is the Treasury Secretary, but the worker bees are these top people. And there are some holdovers — people, in other words, people that may have different points of view. This is not helping Wall Street at all.

The combination that there is not a credible bailout plan to them already in place, and that there aren't the people who can put together such a bailout plan, is a major factor in spooking the markets right now.

KRAUTHAMMER: People have this image of dozens of economists, young MBAs wandering around the Treasury, working on the problems all night long and divided plans. Geithner is essentially alone.

I have an image of him wandering the halls Treasury at night like Nixon in the final days speaking with the portraits of the old treasury secretaries. That is not an image that will inspire confidence in the market.

BAIER: You can always paint a picture. Thank you, Charles.

Hillary Clinton had some interesting moments today in Europe, including this piece of advice.

(BEGIN VIDEO CLIP)

SECRETARY OF STATE HILLARY CLINTON: When it comes to the economic crisis, don't waste it when it can have a very positive impact on climate change and energy security.

(END VIDEO CLIP)

BAIER: The Friday lightning round is next.

(COMMERCIAL BREAK)

CLINTON: We worked hard to get the right Russian word. Do you think we got it?

RUSSIAN FOREIGN MINISTER SERGEI LAVROV: You got it wrong.

CLINTON: I got it wrong.

UNIDENTIFIED MALE: It should be perezagruzka. And this says peregruzka, which means "overcharged".

CLINTON: We won't let you do that to us, I promise!

(END VIDEO CLIP)

BAIER: Secretary of State Hillary Clinton with Sergei Lavrov, the Russian foreign minister. It was supposed to be a button that said "reset" to reset the relationship. It said "overcharged." Lost in translation.

It's the Friday lightening round. We'll start there with Hillary Clinton's trips recently — Jeff?

BIRNBAUM: I think instead of reset, maybe she should have handed out buttons saying "Do over," because I think she had a few gaffes. She mispronounced the names of a couple of European foreign ministers, as we said earlier in this show.

She made some overtures that maybe she shouldn't have — for example, inviting Iran to an international conclave. Simply extending an open hand may not — may lead to her hand being slapped, as it was in the case of Iran.

BAIER: Judy?

MILLER: No, I think despite her lack of proficiency in Russian, and perhaps even English, she recovered well from it. And more importantly, she really had that wonderful combination of carrots and sticks for the Iranians.

Two days ago, she said, you know, there is a threat out there, and its name is Iran. And today she gave them an opportunity to turn around and be part of the solution rather than the problem by helping out in Afghanistan. She's got the balance right.

KRAUTHAMMER: I see a field of carrots with nary a stick. I think her trip in which she goes to China and says human rights is not going to be an issue, in which she leaves the Poles and Czechs hanging out on a limb over missile defense, in which in Jerusalem she has the slight slap over the Israelis over demolitions in Jerusalem.

The big winners, Syria, Iran, and Russia — change you can believe in.

BAIER: Gifts. It appears there might be an issue with gift giving with the Obama administration. Prime Minister Gordon Brown coming in gave a host of gifts to the president and the first family.

President Obama and the administration gave a box set of 25 American films, DVDs, and toy helicopters for the Brown children.

What about that, Charles?

KRAUTHAMMER: There was a serious aspect here, even though it was ceremonial. The British expect a major press conference with the flags and two leaders standing there for almost an hour.

And, in fact, what they got, what the prime minister of Britain got was a small session in the Oval Office, as we're seeing here. No pomp, no circumstance. But for our best ally in the world, not a good thing.

BAIER: Judith?

MILLER: Well, I think I'd have to ask, what have they done for us lately? We want more troops in Afghanistan. I think the president is trying to put even subtle pressure on the best of our allies.

And, come on, Charles, we're not exactly throwing earl grey into the Boston harbor.

KRAUTHAMMER: They fought and died in Iraq as almost no other country did.

MILLER: That is true.

KRAUTHAMMER: And that's a major thing.

MILLER: But Brown also gave a major speech to the Congress. I think he was very well received here.

BAIER: Jeff?

BIRNBAUM: Yes, but he probably should have gotten some gifts that they might have picked up in someplace other than the White House gift shop, which I think they probably got some of those gifts from, including the helicopters, the model helicopters. I'm sure Michelle Obama just went down and picked a couple.

BAIER: Speaking of Michelle Obama, there has been a decision made sometime in April. The Portuguese water dog is the dog of choice from what we hear. What's the take?

KRAUTHAMMER: I got only one question — what is wrong with an American dog?

BIRNBAUM: Oh.

KRAUTHAMMER: I know — don't write. I know it is not important thing. It is the lightning round and it's Friday.

MILLER: I'm disappointed because I wanted this president to select a "cockapoo," and I have the perfect dog for the president. His name is Hamlet. And if the president can train my dog, that's going to be change I can believe in!

BAIER: OK.

BIRNBAUM: I don't think the Obama children want a used dog, really —

MILLER: He's hypoallergenic!

BIRNBAUM: — that's all that really matters, but it would have been better if it were an American-named dog anyway. I agree with Charles.

KRAUTHAMMER: American made.

BIRNBAUM: American-made dog.

BAIER: Charles, thick and tough.

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