This is a rush transcript of "Special Report With Bret Baier" from October 8, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

JOHN BOEHNER, (R-OH) HOUSE MINORITY LEADER: Since the stimulus was signed, we have lost roughly 3 million jobs and our unemployment rate is nearing 10 percent. Now Democrats are doubling down on their flawed economic policies seeking more stimulus and more government spending when it's clear that their first bill hasn't worked.

REP. NANCY PELOSI, (D-CA) HOUSE SPEAKER: The president's budget, though I remind you, in addition to the recovery package, which has saved many jobs in our country and created some, the president's budget is a job creator, too.

(END VIDEO CLIP)

BAIER: There is the back and forth. And here is the latest poll. This is from Quinnipiac. There you see what's most important — not surprising, but the economy at 42 percent, above health care at 18 percent, and of course you see the others.

This comes on a day when layoffs eased, the number of people filing jobless benefits fell to the lowest level in nine months, but the total number of Americans unemployed still continues to rise. More than 15 million people are without work now.

What about the economy and where we're headed? Let's bring in our panel, Peter Morici, economist and University of Maryland Business Professor, Nina Easton, Washington Bureau Chief of "Fortune" magazine, and the syndicated columnist Charles Krauthammer.

Peter, let's start you with. What about this jobs number today and the fact that the unemployment rate continues to go up?

PETER MORICI, ECONOMIST, UNIVERSITY OF MARYLAND: Well, 521,000 new claimants for unemployment insurance — sure, it's a small number, but that's still a recession level. The economy continues to bleed lots of jobs. Unemployment is near 10 percent.

But you know if you count in all the part-time workers who would like to be full-time and all the folks who have just given up, their unemployment insurance has run out, the real unemployment rate is up near 17 percent. The economy may be recovering, but it is a slow recovery and it sure is a jobless recovery.

BAIER: And when you hear Nancy Pelosi and others say the stimulus package has worked and has created, the White House said today, created or saved a million jobs and possibly two or three percent of the economy's growth, are you buying that?

MORICI: No. Most of the tax relief has been saved, that's what the statistics show. And the spending, they've gotten $90 billion out. If you look at trends in construction spending, they're not there. We continue to lose employment. We continue to have unemployment grow among construction workers on commercial sites and in government construction.

And in addition, the rate of job loss at all levels of government except the Post Office continues to climb.

BAIER: Nina?

NINA EASTON, WASHINGTON BUREAU CHIEF, FORTUNE MAGAZINE: This job loss issue will be a continuing problem for this administration.

Very interesting today, Bret, there was an economist affiliated with a liberal think tank who said there is a distinct possibility that Americans will fare just as poorly under this administration as under the Bush administration that he critiqued.

The reason is, and Peter touched on this, jobless recovery. This administration, and in this way it's really neither administration fault. There are global competitive structural issues that are facing this economy, and it's really hard to mount — to get those jobs back.

Larry Summers just said to me a couple weeks ago we are facing head winds when it comes to unemployment. Unemployment will probably stay in the 10 percent range leading up into next year. What does that mean politically? You've got the midterms coming up.

This administration knows and they remember 1982 when the Republicans lost 26 seats when the unemployment rate hit 10 percent. So they're going to look for ways to at least stem the bleeding. But they are — it's very possible that they are going to have the same kind of jobless recovery that they criticized George Bush for.

BAIER: Charles, Nina mentions the poll politics going into next year. The politics now for people like the vice president and Robert Gibbs today to be talking about this stimulus package is a lot tougher sell in an unemployment environment like this.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: When you hear the speaker of the house say that we have saved or created many jobs, you notice she said "many," because she didn't have a clue what that number is. And the number is entirely unknown. It's angels on the head of a pin.

We have lost jobs. You can always imagine. But the reality is the one city in the country that is increasing employment is Washington, where they're hiring bureaucrats who are going to decide how other Americans are going to be running their lives.

But otherwise, what we're getting is an increase in unemployment. The pace of increase of unemployment is decelerating, so we are going to hit a plateau. But it will likely only occur next year or late next year. It will surely be over 10 percent and that will hurt the Democrats in the elections.

However, I think for Obama personally, the calendar here actually helps him. I think if you're a president and you want a second term, you want to have your recession early. Reagan did. It was a severe one. He got hurt in the midterm in 1982, but of course there was a recovery, and he was reelected.

Now, we are not going to have the spring back that we had in the '80's because of the global issues and competition abroad. We're going to have a much slower recovery. But still I think Obama will be in reasonably good shape.

Our unlucky presidents are ones that had recessions late, Carter and Bush one, and you don't get reelected when that happens.

BAIER: We know that the jobs, Peter, are the lagging indicator here, and we could be possibly already in be recovery from this recession, looking back once we get there.

But what about moving forward? The White House says they're looking at options to create more jobs. Obviously there is not a political environment here for more spending, but what could they do?

MORICI: Well, some of them are looking at investment tax credits to encourage people to — if they increase their hiring they will get some of the payroll taxes rebated and things like that. Those have proven historically to work in the short term. You can pick up a couple hundred thousand jobs.

But the bottom line is there is an absence of demand for what Americans make. American companies need customers if they're going to hire people and invest.

And because of global competitive pressures and the fact that China is growing so rapidly and enjoying such a competitive advantage because it continues to undervalue its currency vis-a-vis the dollar even though it falls against everything else, it is becoming the number one jobs issue.

There are really only so many manufacturing jobs in the globe. There may be about 150 million. And as a consequence, how that sorts out is going to be an important function of international macro-policy, these global imbalances.

EASTON: We also have to learn how to become an exporting country and not just an importing country, because what's happening is our savings rate is going up, and so people are buying less here. We've got to learn how to compete with China and export more, and that also gets down to all these trade policies.

BAIER: But what about, really quickly, the U.S. dollar. Is it under attack, the stories this week about Middle East countries having secret meetings that have possibly taken oil, the trade off of the U.S. dollar? Is the U.S. dollar under attack?

KRAUTHAMMER: Absolutely. And conspiracies or not, the fact is that if we keep increasing our deficits by these huge amounts in order to combat unemployment, the threat to the dollar is real.

Anybody who is holding the dollars abroad and holding bonds abroad is going to be thinking with the debt increasing, those are going to be in jeopardy, and if there ever is a sell-off, it is going to be catastrophic, which means we are in jeopardy of losing our status as a reserve currency in the world.

That is the cost of these huge stimulus packages and the huge deficits which accompany them.

BAIER: The president says he will give the counterterrorism community all the tools necessary to do their job, but are some in his own party undermining that effort? The FOX all-stars give us their take when they return.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP) DICK DURBIN, (D-IL) SENATE JUDICIARY COMMITTEE: Now that we know about these abuses, clear abuses of the rights of innocent Americans, we should place appropriate limits on this authority.

JEFF SESSIONS, (R-AL) SENATE JUDICIARY COMMITTEE: The last place in our government that we ought to put burdens on administrators, on investigators, would be in a national security case where people we know people are out there desiring to kill us.

(END VIDEO CLIP)

BAIER: The Senate Judiciary Committee today voted pretty much along party lines today to insert some language into the USA Patriot Act. You remember that law that was passed 45 days after 9/11. Democrats say they tried to protect civil liberties with the changes that they made. Republicans tried to minimize the changes with the help, quietly, of the Obama administration.

We're back with the panel — Charles?

KRAUTHAMMER: I think the big story here is how little the Patriot Act has changed given the fact that we have a large majority of Democrats in the house and the Senate and how liberal the leadership is.

We're retaining the roving wiretaps. We're retaining the telecom immunity, the fact that the telecom industry is not going to be subject to prosecution for helping the Bush administration. We are retaining the lone wolf provision, which means you don't have to show that a guy is a member of a group, a terror group, in order to wiretap him.

All the major provisions are retained. And as you said, the Obama administration behind the scenes is supporting the minimal — it's supporting the idea of no changes.

And that's a tribute to the Bush administration. Remember, this was passed a month-and-a-half after 9/11 in the heat and the fury of that time. It totally restructured the way we go after terrorism domestically, and it got it right.

Eight years afterwards, in retrospect, with liberals in the House and Senate, it is remaining almost intact. We have not had a second attack in the eight years and we have not had any significant scandals of abuse of these powers in debating the liberties of Americans. It is really quite a remarkable achievement.

BAIER: Nina?

EASTON: Charles doesn't want to do this but he should give some credit to the Obama White House. I actually think this is a good moment for them. They stood up to more serious watering down of the Patriot Act. They did it behind the scenes. They stood up to the liberal wing of their party.

They added more oversight, which I think is fine, adding more oversight capability to the laws as they extended it.

You said it was largely along party lines, but in fact Senator Jon Kyl of Arizona and senator from Texas — I'm sorry, Senator John Cornyn of Texas, were very serious Republican senators on this matter. They both supported it. So I think you can call it a bipartisan bill at this point.

And I think the White House did stand down the liberal wing of its party.

BAIER: Peter?

MORICI: Yes, this is a second renewal. It isn't much changed. And it recognizes that in dealing with terrorism you need a level of surveillance that you don't have when dealing with ordinary crime. With ordinary crime, you need some sort of indication that something has happened to get a court order for a wiretap.

But if we're going to keep bad things from happening, we have to be watching the general public, unfortunately. We have to be looking for indications that somebody, someplace is thinking about doing something.

They aren't necessarily associated with a terrorist state or a terrorist group, because frankly, just two, three people, even one person acting alone. Look at Oklahoma City. Just a couple of guys blew up a federal structure.

So in that kind of environment you do need to have a level of surveillance. The key here is to keep them from using the data that they gather for other purposes, sending it to the IRS or what have you.

Now, the inspector general has criticized them for not keeping great records. You know something, I'm glad they're not keeping track of all this stuff, because I don't want them compiling it and putting it into piles and categories so they develop profiles on people and things of that nature.

BAIER: Charles, is this the latest example of campaigning versus governing?

KRAUTHAMMER: Exactly. The Obama administration, Democrats and liberals in these eight years have attacked the Bush administration as raping the constitution over this and that, over rendition, over detention without the trial, and over the Patriot Act.

And all of a sudden the Democrats are in power; they actually have to run the government and they encounter reality, and they discover the wisdom of what the Bush administration had done.

It is a silent tribute, but what I think is unfortunate is that it is a silent tribute. The attacks on the Bush administration retroactively continue, and yet what the Obama administration is doing in this instance and with the terror suspects is almost exactly what the Bush administration had done, which is a way of saying a well done job.

BAIER: This was not a focus of the briefing today.

That's it for the panel, but stay tuned for some interesting math on the war front.

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