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Special Report

All-Star Panel: Will government slimdown actually impact economy?

This is a rush transcript from "Special Report," October 2, 2013. This copy may not be in its final form and may be updated.

BRET BAIER, ANCHOR: Interesting response. Let's bring in a special expanded panel tonight, Jonah Goldberg, at large editor of National Review online, Fox News media analyst Howard Kurtz, syndicated columnist Charles Krauthammer, and from the White House tonight, Julie Pace, White House correspondent for the Associated Press. Charles, it was unique to hear the president saying the markets aren't reacting enough.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: And he said it's different now, there is a faction that wants to default. As I recall, when he was Senator Obama he opposed the raising of the debt ceiling as well and he had a whole set of arguments on the other side. So I don't take that very seriously.

I think what he is trying to do is to begin to scare the markets. They will get scared enough in two weeks because he knows that's the threat. The shutdown of the government will have a negligible effect on the overall economy. Remember, most of the government is running on automatic spending, Social Security, Medicare, Medicaid. This is a slice of a slice of the government, it only involves the nonessentials.  It will have practically zero affect if you look at all the shutdowns in the past. But the debt ceiling is a threat even though the blame will go to the Republicans. It will have a profound effect on the economy, and that will stay with him long after people have forgotten the event. And he can't afford an economy that continues as anemically as it is right now.

BAIER: Julie, the meeting is going on right now, and there is a lot of tea leaf reading about the longer the meeting is, is that a good thing.  Are they talking? Is the consensus at the White House that this is going to roll into one big deal, that the CR, the continuing resolution, and the debt ceiling could just become one big deal?

JULIE PACE, WHITE HOUSE CORRESPONDENT, ASSOCIATED PRESS: It is certainly starting to look that way when you have no real sign the government shutdown is going to end anytime soon, barring any news coming out of this meeting over here. You can really see these two deadlines merging.

Now you also see some signs that the White House is actually preparing and laying the groundwork for the discussions on the debt ceiling. The Wall Street CEO's that were over here today, the focus was not really the government shutdown. It was the debt ceiling. And you also have Jack Lew, the treasury secretary, in this meeting today with congressional lawmakers. The main purpose for him being there is to tell his lawmakers about the risks of going over the nation's debt ceiling. So already you're seeing some of  these wheels starting to turn as the White House prepares for the debt ceiling fight.

BAIER: Boy, I tell you, Jonah, though, you listen to the White House briefing today, and it just didn't seem like anything was coming out of the meeting because Jay Carney said the president is not negotiating on any of this.

JONAH GOLDBERG, AT LARGE EDITOR, NATIONAL REVIEW ONLINE: It's a very strange thing to announce that we are going to have a meeting to talk but announce in advance there will be no negotiating, so maybe they'll play canasta or something. I don't quite get what the point of something like that is, except insofar it's about optics. You listen to Barack Obama and his interview just now, and it's all about projecting this voice of I am the calm, reasonable person, not like those crazy person.

On the merits, the idea that he bent over backwards to deal with Republicans, I'm sure he feels that way. But this is a guy who didn't even call Mitch McConnell for the first 18 months of his presidency, which is sort of unusual. My guess is that there's isn't a lot actually going on in this meeting, but they want to telegraph this idea that they are trying to seem like they are being reasonable to make Republicans look all the more unreasonable.

BAIER: Howie?

HOWARD KURTZ, FOX NEWS MEDIA ANALSYT: I am really struck by the way that government by crisis has become the new normal. So that now even we have substantial chunks of the federal government having shut down, but that's not enough to force action, so the talking is about rolling this into the next deadline couple of weeks where we actually could default on the U.S. debt, and then that becomes perhaps something that finally gets the actors to come together.

And you know, it's interesting, there is a growing debate now about the shutdown itself, and with some people asking, well, is it really that bad? Is it a good way of trimming government? I would quibble a little bit with Charles in saying it has a negligible effect. Maybe on the macro-economy, but certainly not on people who are affected, including the 800,000 furloughed workers, including the people who are shut out of clinics and things like that. And I think although certainly government spending could be trimmed, this is an insane way to govern, and yet it all seems like we have all become more used to it.

BAIER: You want to respond?

KRAUTHAMMER: My point it, of course it affects individuals, but it is the general economy that is not going to be affected by the shutdown, but will be profoundly affected, the growth rate, if you have a default. The president is the one who carries the burden and the blame for the overall economy, which is why he enjoys the shutdown politically because it hurts the Republicans. And everything he has done is to play to it and to show himself as the one who rides above these crazies on the other side. But he is scared to death about the debt ceiling, so that's the leverage that the Republicans have on this issue. It's not on the CR. That's why, I think, it's a tactical mistake.

GOLDBERG: There's the irony that these guys came into office and got ObamaCare passed in the first place under the proposition that a crisis is a terrible thing to waste. That was their mantra when they came to office.

BAIER: Julie, on the politics of this, it is interesting to watch Democrats, because, you know, it seems like they have the upper hand, at least you look at polls across the country. So what is the impetus to really make this come to an end, to give Speaker Boehner an exit ramp, a "w"?

PACE: Look, the White House and Democrats on the Hill know that they have the upper hand at this point. But the longer that this shutdown continues, and if it runs up against the debt ceiling, the fear for them is overreach. Does the public start to look at Washington and not decide that there is any difference between Republicans, Democrats, Capitol Hill, and the White House – and so that's the fear. They do have an incentive to get this wrapped up at some point. That being said, I think they wouldn't mind having this go on for another day or two to try to boost their political capital.

BAIER: Speaking of the rhetoric up on Capitol Hill, I want you to take a listen to Representative George Miller, Democrat from California, just moments ago on the House floor.


REP. GEORGE MILLER, D - CA: He was prepared to sacrifice the towns around Yosemite when he was on a jihad against American citizens getting access to health care. He was fully prepared to sacrifice the parks and the economy and fire recovery. So when you were on the jihad --


UNIDENTIFIED MALE: The time for the gentleman has expired.


MILLER: Shutting down the parks wasn't a problem.


BAIER: He must have said "jihad" about nine times, Howie, about Republicans. The rhetoric has gone to a level is that just pretty amazing.

KURTZ: It really is a case of politicians, I think, feeling the heat from constituents who look at what is going on here and just don't understand why people can't get together and do their jobs. And at the same time Charles talked about the president perhaps benefiting political from this because it looks like the Republicans are going to bear the burden.

At the same time I think the Republicans who are most aggressive in forcing this confrontation feel like they have made a point and gotten airtime for their crusade against ObamaCare.

BAIER: More on the shutdown and an update from the White House. We're still waiting and the reporters are still around those microphones and there is still nobody there, but we will keep watching. Keep it here.

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Special Report, hosted by Bret Baier, airs on Weekdays at 6PM ET on Fox News Channel.