This is a rush transcript from "Special Report," November 25, 2011. This copy may not be in its final form and may be updated.


MICHAEL VIVIO, COX TARGET MEDIA: People are worried about the economy, 95 percent of folks said they were worried about it. But you know what, four out of five, about 80 percent said they're not going to let this ruin the holiday for them.


SHANNON BREAM, ANCHOR: It is Black Friday. We have to talk about the economy. Let's do it with our panel, Fred Barnes, executive editor of The Weekly Standard, Charles Lane, editorial writer for The Washington Post, and syndicated columnist Charles Krauthammer. Gentlemen welcome to all of you.

I want to start off by looking at another poll just about how Americans are feeling about what is going on with the economy right now, 53 percent of Americans believe there is more bad economic news ahead while 41 percent report the worst is behind us, five percent are unsure. Fred, do you think they're right?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: Yes, of course they're right. Or at least there is no reason to believe the economy is going to improve. I mean we have slow growth, high unemployment. And the American people are pessimistic and they look ahead, at least what President Obama is promising, higher taxes, more regulations, more favoritism for unions, which means the more unions you have, the fewer jobs you have. And they see all of that ahead and think the country is headed in the wrong direction, overwhelmingly.

BREAM: Alright you mentioned the politics of that, which gets us to our next poll. Who do Americans trust more to create jobs? 46 percent have more faith in President Obama, 42 percent trust the Republicans in Congress to create more jobs.

You know, over on the House side, Charles, they are the ones who have passed 20-plus jobs bills which have gone to the Senate and they languish there. The president has not yet been able to get a jobs plan going. But the polls say people have more trust in him.

CHARLES LANE, EDITORIAL WRITER, WASHINGTON POST: Well, I'd say that is within the margin of error. I look at that number and I say it's about a tie, which frankly I think is about the right estimation between these two. There is essentially a stalemate in Congress. And in a way, at least with some of the proposals that are out there, I think that is kind of a positive because at least it's preventing them from making things any worse than they already are.

I think the picture for next year, on the first poll number, the 53 percent say it's gonna get worse. I don't agree with that. I think the forecasts are for more of the same blah. And the idea that there would be a double deep, a steep recession next year I think is kind of unlikely. But that is still not good. We're still going to be stuck around 8.9, 9 percent unemployment according to all the surveys and forecasts. And so I think what people are in a way reflecting there is they don't see things getting a whole lot better. And so they may as well be getting worse.

BREAM: Charles, how do the numbers play for the president?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well I think it's remarkable with unemployment at nine percent and growth essentially stalled at two percent, his numbers are so relatively high. They ought to be in the 30's. They are in the mid-40's that speaks well for him.

And I think any Republican who assumes that because we have high unemployment they are going to win the election hands down is mistaken. It's true there has been a rule since 1936 no president has been re-elected with unemployment above I think it's 7.8 percent. I don't think that rule applies anymore. We sort of have gotten used to perhaps not nine percent, but it isn't as shocking as it would have been had we been at four percent last year. It's becoming a chronic condition.

And I think it speaks for the weakness of the Republicans that in these really dire economic times the president isn't -- he ought to running way behind against the generic Republican or against a Romney or Gingrich or the others in the two-man heats. Any he is essentially even, which I think is remarkable.

BREAM: So Fred what --

BARNES: It's not inconsistent with polling, presidents like Jimmy Carter, who was in similar trouble in 1979, which would be the comparable year to 2011. He looked good against the Republican candidates. And yet what ultimately did him in was not only Republicans had a good candidate but the economy was terrible.

One of the -- and when you compare the president to anything to do with Congress, a president always comes out ahead because the public --

BREAM: They're 12 percent approval.

BARNES: They never like Congress. The number that matters on Obama and the economy is how, what is your rating do you approve or disapprove of the handling of the economy? Charles there he is in the 30's, the mid to low 30's.

LANE: But the Jimmy Carter analogy is weak because you are forgetting Iran and you're forgetting all the foreign policy catastrophes that compounded his situation. Obama is running very strong on foreign policy right now. His rating on foreign policy is something up in the upper 40's. And on terrorism it's in the low 60's. So he's got that whole set of issues to neutralize the Republicans.

BREAM: Even though Russia is threatening to point missiles at our missile defense shield in Europe and Iran may have a nuclear weapon within a very short matter of time.

KRAUTHAMMER: His rating on international affairs ought to be very low. However, on the spectacular events like the killing bin Laden or the -- what looks like the relative success of Libya, although who knows how it will end up, the Russia thing, I think, is a disaster. Iran is a disaster.

But it isn't explosive. It isn't out there on the news. It doesn't have a video component. And I think in the absence of that, people have this impression he has done well.

Now, that would be up to a Republican candidate to actually make the case of how the policy with China is a disaster, with Russia is a disaster, Iran, et cetera. But it requires argument and it's not going to be easy. It's not gonna be a give-me. And you're right, the current polls on his handling of international affairs is relatively high.

BREAM: Alright let's talk about the GOP contenders, Fred. Where are they with their economic plans, because some of them have rolled out pretty detailed plans? But do voters know about them, do they care about them? It's gonna be the number one issue.

BORGER: Well, I admit, of Romney's 59-point economic plan, I can't remember one of the points. Maybe Chuck or Charles can.

LANE: I can remember one.

BARNES: You're one ahead of me.

Look, I think there's one important trend that's happening and that is that slow gradually, Gingrich, Romney and several others have embraced serious entitlement reform of which we've heard nothing from President Obama, by the way, but reform where you will have to restructure Medicare along the lines that Paul Ryan and other Republicans have endorsed. You really change it and put a lid on the spending. So I think that is what's important.

The number of them you had with new tax plans and so on, but entitlement reform, Republicans are embracing. And I think that's a good sign for them.

LANE: I don't know what the connection is between entitlement reform job creation in the short run. And that's the problem for Republicans in a way. And it's illustrated now with the payroll tax cut. There Obama is in a great position, I'm not saying in terms of economics, but politically you can say hey, I'm the guy who wants to put $1,000 in your pocket right now. And these Republicans over here, they say they are for tax cut but ha, ha, ha, they won't do it.

And of course the reason not to do it is that it would blow up an entitlement program. And that's a risk you might not want to run. So, the attractiveness politically of Keynesian policies of the kind the president is articulating is that they sort of promise something quick in the short run, and I don't think the Republicans have an effective counter to that.

KRAUTHAMMER: The problem is that you don't have to have a counter because a Keynesian stimulus has already been attempted. It isn't a theoretical argument. If it were, you are right. The Keynesian is always giving away candy, so why not receive it? And it's always a promise on I'll give you candy and it actually will stimulate the economy.

Well, we've actually had a trial of that for three years and we had, we're at higher unemployment and stagnant growth. So I'm not sure the argument will matter. It will be conditions.

And in the end what might sink Obama is not arguments, but it's going to be Europe. If Europe has collapse and it's quite possible it will send us into a second recession. Today, Italy has to sell six months bonds -- six months notes at six percent interest rates. Here it's zero. And it sold two-year notes at eight percent. Anything over seven percent is a catastrophe. It means you're not gonna be able to sustain yourself.

And when Greece went over seven and Ireland did, and Portugal did, all were headed for insolvency. Italy is the eighth largest economy in world and the third largest in EU. If it goes down it takes down all the banks and it will affect ours as well. So I think this election could ironically hinge on nothing but whether Europe escapes its problems before November of next year.

BARNES: But Charles, don't you think that President Obama can blame George W. Bush and Republicans for the collapse of Europe? No doubt he'll try.

KRAUTHAMMER: If our unemployment is 11 percent he can say anything he wants. He loses.

BARNES: The argument that -- the real test of how bad the economy is, Obama doesn't want to talk about it. He wants to talk about raising taxes on the rich because that polls well. We will know the economy is seriously doing better when Obama wants to talk about it. And I don't see that happening anytime soon.

BREAM: Well he is going to have to talk about it next week when leaders from the EU come over. And they are meeting with him at the White House. They are also going to meet with -- Secretary Geithner is going to be in part of these meetings also, so is Secretary Clinton, some of these other meetings with these leaders to come here and talk about coordinating our global efforts and ya know, bolstering what's happening in Europe because of what could happen here. What do you think those conver

LANE: I do think the Republicans need a better strategy for winning this next election than hoping Europe collapses, because I'm not sure that that -- let me answer Shannon's question.


KRAUTHAMMER: Do not accuse us of hoping. It is pure analysis.

LANE: I think luckily for President Obama, his political interests and the self-interest of the Europeans converge here. And ya know, the Germans have resisted the money printing solution of the European Central Bank for months and months, insisting that these countries get their debts under control first.

But the fact of the matter is, that is ultimately where the situation is headed unless Germany really does just want to allow the whole thing to collapse. So I guess I would say that I find it less than a 50/50 shot that the Europeans would let their whole economy collapse if they could prevent it at all. Now it may be impossible to prevent. But I do think that Obama can count on them in the extreme moment to try to prevent it from collapsing.

KRAUTHAMMER: That assumes that Europe has a solution. I'm not sure it does. With all these southern countries going under and the banks dependent on them, it could be it's out of their control.

BREAM: And Germany didn't have much luck with its bond auction on Wednesday either.

That is it for the panel. But we're back in 30 seconds with a turkey who used some fancy footwork to keep himself off the Thanksgiving table.

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