This is a rush transcript from "Special Report," January 12, 2012. This copy may not be in its final form and may be updated.

BRET BAIER, ANCHOR: Late this afternoon, the White House sent out a terse o ne- sentence letter. President Obama to House Speaker Boehner saying essentially this -- that the nation is within $100 billion of the debt ceiling limit, "in 31USC 3101B," a whole bunch of jargon. Basically we need another increase and we need it now.

The response from the House Speaker's office, one statement. "Washington's mounting debt is a drag on our economic recovery. This request is another reminder that the president has consistently punted on the tough choices needed to reign rein in the deficit and protect important programs for American seniors from going bankrupt."

Now, this is all part of the process that was set up last August and that whole back and forth that took the country to the precipice once again. This is the last and final request for the debt ceiling increase. We're back with the panel. But it's just four-and-a-half months, Charles, and here we are knocking on the door once again.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: But it's also, it seems like an eon ago when the debt and deficit and overspending was the overhanging issue. It was, of course, in the midterm election, it was all through last year. And then Obama and the Democrats devised a counter-narrative about inequality, the one percent, the Republicans as defenders of the plutocrats raping the working class.

Well right now that is the story because it's become the story inside the Republican campaign. So the old story, the Republican story of debt, overspending, overreaching is now way in the background.

And the Republicans are gonna act on this next week. They are going to vote against the raising of the debt ceiling. But everybody will be in South Carolina. Nobody is gonna be covering that. It will be an event that I think will go almost unnoticed. And what is going to happen in South Carolina is gonna be a debate over the one percent exploitation, the Democratic story. I think it's interesting how everything has changed in six months largely as a result of what Republicans have done to themselves right now in this campaign.

BAIER: Two things. We will bring it up and cover it. And we will also bring up the issue of the debt and the deficit in the debate on Monday. I can guarantee you. I'm not giving anything away. Mara, the Republicans will bring it up in pro forma session tomorrow. This bill, the vote on it, as Charles mentions, next week. And they'll disapprove it, which is how this whole process has been set up.

LIASSON: But it's a charade because --


BAIER: But it will get raised, the debt ceiling will be increased.

MARA LIASSON, NATIONAL PUBLIC RADIO: Yes, because they have already agreed to do that. This is just -- this is kabuki theater. This is exactly what people mean by kabuki theater. They already made a deal to increase the debt ceiling, but part of the deal was that they get to pretend that they are against it. They get to rail and rant and say we are not going to approve it. So it was the most convoluted, Rube Goldberg process, thought up by Mitch McConnell who actually is a smart guy, found a way for people to have their cake and eat it too. But it is meaningless --


BAIER: But the bottom line is the debt is increasing.

LIASSON: And both parties have not come together to solve it even though one commission after another has laid out what they have to do. And to tell you the truth, all of the plans to fix it are pretty similar. One is a little more progressive, one is conservative, but everybody knows what they have to do and no one has the political will to do it.

BAIER: Fred?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: Mara, can you be the Rube Goldberg process and also Kabuki Theater at the same time?


BAIER: It's Rube Goldberg theater.


BARNES: Okay, there you go. I mean, the fix is in. No question about that. But the Republicans and Obama both get something they want. Republicans get to vote against raising the debt limit. It doesn't make any difference. You're right. And Obama gets his money. He wants the dough. No doubt he will spread it around in ways that will help him get re-elected.

There is an opportunity here that President Obama is probably going to miss. Now why wouldn't he come forward with some substantial spending cuts? Non-military. Look he knows where they are. He just doesn't want to do it. But it would be great politics for him. Announce that he is approving the Keystone pipeline or something like that, which is going to raise an enormous amount of revenue when it's built. I mean things like that would help his re-election. They wouldn't necessarily fall into the class warfare line that he has been using.

KRAUTHAMMER: You may think so and I might, but I'm sure he doesn't. He has set his sail. He has decided the way he's going to win this is to ignore the debt issue. We saw in the clip earlier in the show. He is against all cuts. All he wants is for the rich to pay extra taxes. That's the theme, it is all about the class war. The Republicans are enabling him, helping him, are playing exactly into it. And why would he want to change course?

BAIER: In some ways does this hurt Mitt Romney? Because he is not swinging for the fences in his economic plan in that the perception is, whether right or wrong, is that it is timid. The Wall Street Journal editorial page characterized it as such. Does it hurt him that this issue is now front and center this week? Even though you say we won't cover it, but we will.

KRAUTHAMMER: I think it hurts him in a serious way. He imagines in a bad economy, he coasts, on a bad economy saying I'm a businessman. I will fix it. Well, now the businessman issue could be a liability. If you take it away he's got nothing.

So if he had introduced bold steps -- if he had been a Reagan in 1980 who said supply side economics, a strong defense, three or four elements, strong, easy to understand, and clear, it would be different. But he is not a Reagan and he hasn't acted like a Reagan.

BAIER: Do you agree with that?

LIASSON: I agree with that. He still has time, I think he's gonna wrap up the nomination very early, and that gives him this honeymoon period. I suppose he could metamorphosize into a Chris Christie and Mitch Daniels reformer, but we haven't seen it yet.

BARNES: But, well it is never too late for him to do that, and he needs to. You need something bigger than yourself. He said me, my business career, I can save the country. But you need a big program. That is what people are looking for.

BAIER: That is it panel. But stay tuned for a new effort to court conservatives in South Carolina.

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