Senate Majority Leader Harry Reid of Nevada has calculated the costs of the two wars down to the second – an attention getter in a chamber where billions become blurred in debate.

The big bipartisan push on Capitol Hill is for the Baghdad regime of oil-rich Iraq to be pushed to spend the “financial windfall” of some $60 billion from soaring oil revenues on the country’s “reconstruction.” In a letter to Defense Secretary Robert M. Gates, a group of 10 senators – six Democrats and four Republicans – declared: “The time has come to end this blank-check policy and require the Iraqis to invest in their own future.”

“The President has not been honest about the costs of the war from the beginning,” said Senator Reid.
Many Republican lawmakers face tough re-election fights and are reacting strongly to grassroots dissatisfaction with the war and its human and financial costs. The U.S. is defending an Iraqi government content to let the U.S. fight the war for its country’s future and pay for it as well.

During the past two years, Senator Carl Levin (D-MI), head of the Permanent Investigations Subcommittee, and his large staff have assembled a vast amount of information on Iraq-related fraud, waste and abuse in U.S. military payments to favored contractors, who paid bribes and kickbacks. Hundreds of millions of dollars in cash poured into Iraq in 2003 and 2004 in the form of brick-shaped bound $100 bills, and circulated with little accountability. Levin plans to hold a series of hearings during the early summer, highlighting the Bush Administration’s mismanagement of the Iraq war. Senators are furious to learn that, after five years of fighting, GIs still lack body armor and armored humvees.

Senator John McCain of Arizona, who has won the GOP nomination, is taking a super-hawkish stance on the war in Iraq, which he says it is close to success. McCain echoes Bush and goes beyond him in calling for a confrontational U.S. strategy toward Russia and China, and the creation of a global “League of Democracies,” a permanent coalition that would have U.S. guarantees of protection.

In our conversations, McCain has identified himself as “something of a neoconservative.” Indeed, his recent speeches bear out that label.

But Republicans in the House and Senate, anxious about re-election, will be cool to McCain’s grandiose, incoherent global strategizing. The temper of Congress is to do less and press allies to do more. McCain is out of step.

But General Electric, arguably the best managed company in the world, never fudged its numbers and always hit its forecasted quarterly numbers under legendary (now retired) Chairman Jack Welch.

Now, under his successor, Jeff Immelt, GE, on April 11th gave the Street a nasty surprise. Immelt missed his first-quarter earnings forecast after having given bullish guidance to financial analysts. Between his telephone calls and the end of March, the bottom fell out of financial markets and GE’s financial services operations. Hot tempered Welch forgot he was retired, went ballistic and publicly bawled out Immelt, saying he had “a credibility problem.” Immelt ignored Welch’s tantrum, and he soon shut up.

GE is important because it is the most diversified model of U.S. corporate globalism. GE makes everything from jet engines to toasters. It makes more than half its sales and three-quarters of its profits outside the U.S. but it is still tied to its American base. GE’s disappointing surprise “tells us a lot about how goes the economy,” wrote Alan Abelson in Barron’s this week. “That GE, for all its obvious advantages, is feeling the drag, and is much more eloquent testimony to the true state of the economy and the growing force of the recessionary undertow….”

After a record 64 quarters of rising consumer spending, Barron’s reports, the long debt-driven boom ended abruptly in the first quarter. Now comes the potentially long painful process of consumer deleveraging, the struggle to reduce debt. It will be accompanied by the continuing wealth-destroying depression in residential real estate markets across the country. Merrill Lynch’s senior analyst David Rosenberg, among others, sees “a major risk of another 20 percent drop in house prices.”

Stagflation, as we learned in the 1970s, consists of stagnation and rising inflation, which is much worse now, according to private economists, than the government’s devious numbers managers would have us believe. As the daily blood-letting at the gasoline pump tells us, the government’s 3.4-4 percent “official” inflation range in March is a fantasy. Using the same techniques the government used in the 1970s and until 1980, John Williams, who publishes the newsletter Shadow Government Statistics, http://www.shadowstats.com/ calculates that the actual consumer price inflation rate in March was between 11.6 percent and 7.3 percent.

As inflation is deliberately increased, the Federal Reserve hopes and intends that the background danger of deflation, which last gripped the U.S. in the 1930s, will recede. Deflation caused Japan’s “lost decade” in the 1990s. We are now seeing the effects of deflation – the massive, forced liquidation of debt – grinding prices lower in the housing markets.

Our economy’s managers had hoped to contain deflation in the real estate sector. But the contagion is spilling over into other forms of consumer credit excess and debts. A recent Brookings Institution study found an unprecedented number of Americans falling behind on their mortgage payments, auto leases, and utility bills. That’s where much of the $120 billion in Federal stimulus checks will go in May – for repayment of old debts, not to buy new goods and services in the slumping economy. We’ve seen this movie before. The government tried aggressive stimulus tactics in 2001-2, but was unable to head off the recession or start the recovery. “We’re not believers that the government is bigger than the business cycle,” says Rosenberg. Surging exports, the bright spot in the gloom, are good news but not nearly enough to rescue our economy.

Housing, which peaked in 2006, holds the key to eventual recovery. But the process is agonizingly slow, as witness the devastated Florida market, where experienced real estate observers say the worst is yet to come. That assessment would push likely national recovery into the 2009-10 time frame, a grim prospect for the next president.

His chief economic adviser, former Princeton University professor Douglas Holtz-Eakin, who once headed the Congressional Budget Office (CBO), is intelligent and articulate but, in my opinion, totally uninspired. Judging from interviews (New York Times) and an article written by Laura Meckler in Tuesday’s Wall Street Journal about McCain’s economic proposals unveiled last week in a speech in Pittsburgh, the presumptive Republican nominee simply does not get the challenge posed by potentially the most far-reaching U.S. economic crisis since World War II.

Meckler writes: “Senator John McCain is proposing tax cuts that would either cause the federal deficit to explode or would require unprecedented spending cuts equal to one-third of Federal spending on domestic programs…. he proposes more than $650 billion in tax cuts a year, much of it benefiting corporations and upper income families. That includes the cost of extending tax cuts implemented under President Bush that he voted against twice.”

Now here’s the good part – got your calculators ready? McCain’s proposes a cut of $160 billion a year from a federal discretionary budget that totals a little more than $1 trillion. Most if not all of these cuts would have to come from domestic programs, Meckler points out. But at the same time, with the military spending about half the $160 billion total -- he also wants to increase the size of the military! Remember after a questioner told McCain that President Bush had talked about staying in Iraq for 50 years, McCain responded: "Make it a hundred!"

But that’s just the tip of the iceberg. McCain’s $160 billion figure is equal to the total budget in 2007 for the Departments of Education, Energy, Homeland Security, Justice and State. The chances of cuts of this magnitude are “nonexistent” says Robert Bixby, executive director of the Concord Coalition. “Those are very, very deep cuts.”

But hold on, now Holtz-Eakin is talking fast and saying that it is a mistake that people are making McCain’s speech a finished piece of work when it is only April and McCain has until November to unveil his total economic program. I just can’t wait for those numbers.

But I am thinking about Hillary Clinton asking everyone to think and I am thinking that when you add up McCain’s present numbers, you have got to be thinking that this guy doesn’t have a clue what he would do to our nation’s financial system. Whatever, John McCain has never had to spend a day worrying about his pay days – he has never been off the U.S. government’s payroll. How’s that for experience to lead our country out of a recession?

And for those voters out there who may be becoming rather negative to both Clinton and Obama and are talking about perhaps voting for McCain, I would caution them to think again.

But at the end of the day, Pennsylvania ran true to form and gave Senator Hillary Clinton the substantial victory she desperately needed, running up big margins in rural areas across the state, capturing the votes of women, lower-income white workers and anxious seniors.

“I might stumble and I might get knocked down, but as long as you stand with me, I’ll always get right back up,” Clinton told her supporters in Philadelphia last evening. “Some people counted me out and said to drop out, but the American people don’t quit and they deserve a president who doesn’t quit either.”

Yeah, this lady is a fighter. “Whatever else you can say about the lady,” one blue-collar worker told another in the Keystone State, “she’s got balls.” After the Monica Lewinsky affair, every woman in America waited for the AP photo of Clinton leaving the office of a divorce attorney but it never happened. She has proved again and again that she is resilient and determined and fiercely ambitious. And her political plans required that she stay married to Bill – the script required his presence, plain and simple.

Although there is general agreement that both Clinton and Obama are two very strong candidates, Obama’s campaign has been brilliantly organized – he has the money, the delegates and an image of integrity and authenticity.

And the superdelegates? Charles Hurt asks in his New York Post column today: “What does Clinton expect of those who haven’t yet taken sides? She has been queen of this party for 15 years – if club members haven’t gone with her by now, they’re not going to. The vast majority of superdelegates who have endorsed since early February have gone with Obama and the vast majority of those remaining will, too.”

And so, it is quite clear that her “win” will allow her to continue her death march through the remaining nine states that finally ends June 3 but at what price? Many Democrats are fearful that this slugfest will produce a nominee totally damaged. And Republican candidate John McCain, who is quietly uniting his party and preparing for the general election in November, will win the presidency.

“Barack Obama responded by casting his Democratic presidential rival as a game-player who uses "slash and burn" tactics and will say whatever people want to hear, a sharp jab at her character in the final chapter of the pivotal Pennsylvania primary campaign.

By relentless negative campaigning, Clinton, striving for an unlikely blowout victory in the April 22 Pennsylvania primary, has seriously damaged herself and has also hurt Obama in the general election. Another AP-Yahoo poll last week showed Senator John McCain pulling even with Obama and Clinton, despite the fact that several months earlier, Democrats were favored by 13 points to win the presidency.

“There is a lot of Clinton fatigue in the party and in the country today, and many people are reacting to that,” said Tom Daschle, a former Democratic leader in the Senate, who is supporting Obama.

The Clintons are suffering a high frustration level as their former administration aides are now endorsing Obama: Greg Craig, who served as special counsel to President Clinton during his impeachment saga; Anthony Lake, a former national security adviser and former Labor Secretary Robert Reich, who even before his formal endorsement Friday, had spoken approvingly of Obama and critically of Clinton’s campaign. Other newer Obama endorses include Senators Amy Klobuchar of Minnesota and Bob Casey of Pennsylvania and older colleagues like Senator John D. Rockefeller IV of West Virginia.

As of this writing, Barack Obama predicted Monday, April 21, that Democratic presidential rival Hillary Rodham Clinton would get the critical victory she needs in Tuesday's Pennsylvania primary, but said his goal is to keep it close.

“I'm not predicting a win,” he told Pittsburgh radio station KDKA. “I'm predicting it's going to be close and that we are going to do a lot better than people expect.” Clinton aides also tried to downplay expectations, insisting they would be grateful for a single-digit win. While the New York Senator began the race with a hefty 20-point lead in several polls in the state, Obama's extensive campaigning and heavy ad buying have significantly cut into Clinton's lead.

The final stretch to the Pennsylvania finish line is going to be just that – a stretch. Clinton needs more than a win in Pennsylvania. She cannot even think of a “victory” among elected delegates. She needs a big win – a double-digit win to impress the uncommitted superdelegates who may be persuaded by her popular vote numbers and who are sitting it out waiting for the Keystone state’s verdict.

Yesterday, Senator Barack Obama dismissively talked about his debate with Senator Hillary Rodham Clinton and the line of questioning from ABC News' camera-hogging moderators, arguing that it focused on political trivia at the expense of the problems facing average voters.

Fighting for her political life – only six days before the Pennsylvania primary that could end her candidacy – Clinton verbally kick-boxed Obama onto the defensive in their April 16th debate, his weakest debate performance so far. She landed blows but fell far short of a knockout.

Warned again in a Washington Post poll this week that there are risks to going on the attack as she has over the past six weeks, Clinton ignored this advice by bringing up Obama’s connection to Bill Ayers, a Chicago supporter who was a member of the Weatherman Underground.

Obama responded by noting that Bill Clinton had, as President, pardoned two other members of the Weather Underground. “By Senator Clinton’s own vetting standards, I don’t think she would make it, since President Clinton pardoned or commuted the sentences of two members of the Weather Underground, which I think is a slightly more significant act than me serving on a board with somebody for actions he did 40 years ago.”

The debate became a disgraceful 3-ring circus when the “discussion” got down to whether or not Obama was a patriot because he was not wearing a flag pin in his lapel leading me to hope that this is their last debate. People may or may not be “bitter” if they are broke or out of a job but I am going to predict that when the polls come in on this debate, there are going to be many angry and bitter people out there who are tired of Clinton’s attacks on Obama and her avoidance of straight answers to policy questions. Her one exception: during the April 16th debate, she issued a first-ever public apology for having claimed erroneously that she landed in Bosnia under sniper fire in 1996.

On issue after issue, Clinton raised stern questions about Obama’s electability. When Stephanopoulous asked Clinton if she believed Obama could win, she replied: “Yes, yes, yes,” adding “I think I am better able and better prepared.” This was in direct contradiction to news reports that Clinton had privately told New Mexico’s Governor Bill Richardson, who endorsed Obama after he dropped out of the race, that Obama could not win in November.

A new AP-Yahoo poll shows McCain winning back unhappy Republicans. And since November, the poll shows McCain’s appeal has grown while the Democrats’ has dwindled – suggesting he may be aided by the continued scuffling between Obama and Clinton during their prolonged nomination battle.

This is the reason there has been such a mounting Democratic campaign for Clinton to quit. The superdelegates fear that there is going to be a big price for all of Clinton’s mudslinging and McCain will be the beneficiary.

The Bureau of Labor Statistics reported that 80,000 jobs had disappeared in March. The news inspired Speaker of the House Nancy Pelosi to propose a second economic stimulus package that would include the mailing of tax rebates to millions of Americans beginning next month. But the real numbers are scary. The Bureau says that the March decline was the largest job loss since March 2003 when the economy was still shaking off the lingering effect of the 2001 recession.

Now here’s the real headline: SINCE THE START OF THE YEAR, 232,000 JOBS HAVE DISAPPEARED. And incredibly enough, we still have economic journalists and TV commentators who are wondering if we are in a recession? As I have said in previous blogs, we have been in a recession for at least a year, perhaps longer. The real question is whether the “R” word is turning into the dreaded “D” word?

Going back to the Great Depression, the reason why unemployment soared close to 25 percent was that the Federal Reserve cut the money supply as the downturn deepened. Big companies faced credit squeezes. People who had invested in stocks were suddenly broke or jobless. Or their bank failed on them, so they could not draw all their savings from the bank. So like a classic case of dominoes, this caused the upper class to be unable to pay the middle class, which made the middle class unable to pay the lower class etc. Simple, right?

“Many economists restated their forecast that the Federal Reserve’s policymakers will drop their benchmark short-term interest rate when they meet on April 30 – perhaps by as much as half a percentage point in an effort to lower the cost of credit and thus stimulate spending,” reports the New York Times. To date, I do not see past or prospective interest rate cuts doing much, if anything to get our economy going. As in the 1930s, the Fed is pushing on a string.

I think Bush’s “stimulus” plan is just plain bogus – a sad joke that certainly is not making the American people or the international community interested in investing in the U.S. market.

And so what’s next? My friend, John Crudele, who in my opinion is one of the smartest business writers around, offered the following solution in his New York Post column on April 8. He writes: “… My belief [is] that the only stimulus package we can afford right now is one that allows people to spend their own money. In other words, what we need is a simple law change that will permit Americans to use their own retirement money – without being killed by taxes….”

Is this a radical idea? No, it is a brilliantly simple suggestion – a law change that is long overdue.

John continues: “Americans have socked away more than $10 trillion in various kinds of retirement plans. And if you give them a good excuse – like attractive home prices and relief from onerous tax penalties – many might be happy to give the housing industry a lift…. But no matter what percentage we decide to free up, it’ll make [Bush”s] $150 billion economic stimulus package – which we can’t afford anyway – look like small change.”

Cheers for John Crudele -- I hope all the CQ Politics readers will help get his recommendation into the right hands on Congressional tax-writing committees.

On April 9th, Bacevich testified before the Senate Armed Services Committee and the ranking member, Senator John McCain, was openly sarcastic to the traditional conservative who opposes the Bush-McCain war in Iraq. Bacevich, a decorated Vietnam veteran like McCain, believes Iraq is a national tragedy. He hit the hectoring McCain between the eyes with this sentence: “The United States today finds itself with too much war and too few warriors. We face a large and growing gap between our military commitments and our military capabilities. Something has to give.”

Bacevich noted the success of “the surge” in Iraq and asked why not sustain it? Why not send another 30 or 60 or 90 thousand troops as reinforcements? Answering his own question, Bacevich said: “Because the necessary troops don’t exist. The cupboard is bare.”

Politicians like McCain know they need a draft to create an adequate army for their geopolitical fantasies, but they do not dare propose it.

Bacevich reminded the senators that “the purpose of the surge was not to win the war in a military sense…. The object was to facilitate political reconciliation among Iraqis… (but) signs of genuine reconciliation are few…. The Iraq war has revealed the limits of American power and called into question American competence….

“Continuing on our present course in which soldiers head back to Iraq for their third and fourth combat tours while the rest of the country heads for the mall will break the Army before it produces policy success,” said Bacevich. “Worse, our present course – in which a few give their all while most give nothing – is morally indefensible.”

Bacevich, a gold-star father whose son and namesake, a Marine Captain, was killed in Iraq last spring, challenged the senators. Using a nasty tone, McCain faced the real maverick in the witness chair and tried to question Bacevich’s patriotism and “loyalty” to conservative principles. McCain’s clumsy attack failed. The anti-war traditionalist stood his ground and silenced the war-loving neocon. An awkward silence fell over the hearing room. “I was surprised,” Andy Bacevich said to me afterward, “how little strategic perspective and awareness these Senators have. They are all completely absorbed in today, now, – and not interested in the next generation.

The next generation will turn to honest historians like Bacevich to understand why we invaded Iraq. That said, our opposition to this stupid, unnecessary and ruinously expensive war cannot wait for history’s verdict. Conservatives of every persuasion should stand up now and follow the late Bill Buckley’s example by declaring the Iraq misadventure Bush’s tragic folly.

As a lifelong Robert A. Taft Republican, I say: respect America’s honor and serve our clear national interests by negotiating our withdrawal from Iraq with the neighboring states, especially Iran.

But the news was quickly overshadowed by politics. The Post said the next day that State Assembly Speaker Sheldon, who had a role in defeating Bloomberg’s traffic congestion-pricing plan, says: “I don’t believe that Mike Bloomberg is interested in a third term…. It is his spinner’s way of trying to keep him from lame-duck status as long as possible.”

If there is one individual who can sell the public on an extra term for himself, it’s definitely Bloomberg. Voters approved ballot referendums setting term limits in 1993 and 1996, but Council Speaker Christine Quinn says the council has legislative authority to overturn them without another vote by the public. And it is hardly a surprise to either New Yorkers or observers nationally that a Quinnipiac University poll released on March 12 showed that New Yorkers, by a 57-34 percent margin, think the mayor should stay in public service. In fact, his approval rating then was at an all time high of 75 percent. And there are many reasons for his popularity.

“The billionaire founder of Bloomberg L.P., who spent $74 million of his own money in 2001 to gain an office few thought he could win and $85 million more in 2005 to keep it, Bloomberg was a novice politician who took office just four months after the 2001 terror attack and oversaw an economic recovery that has included a boom in jobs, tourism and construction, The New York Times said last year. “In his second term, he has led a high profile national campaign to stem the flow of illegal guns and a local effort to reduce the stubbornly high rate of poverty, which affects one in five residents of a city of vast wealth.”

“When Mr. Bloomberg took office, he inherited a budget punch-drunk from the aftereffects of 9/11 on an already slowing economy, facing a $5 billion deficit in what was then, in 2002 dollars, a $41 billion budget, including $14 billion from Albany and Washington. The mayor spent his first months in office looking for ways to reduce spending through cutting staff and modestly trimming services, but he increased revenue through borrowing and eventually raising taxes, fines and fees.

Mark Page, director of the Office of Management and Budget, was quoted in the article, saying: “He very deliberately, early on, made the choice that rather than really jamming down services, he was going to hold the service level and raise taxes.”

“Bloomberg has also personally contributed tens of millions of dollars to the city, forgoing his salary, paying his own travel expenses, donating to social service and cultural groups whose city grants he trimmed, and supporting projects and experimental programs,” the article said.

While many including former House Speaker Newt Gingrich believe Bloomberg’s fiscal talents would be better used in a McCain administration – perhaps even creating a special post of finance czar to get our national economic excesses under control - we New Yorkers know that we will never find another mayor who loves our city so much that he doesn’t mind taking the subway to work, changing the lunch menu of public schools to make sure that students are served wheat and salad and cut apples in plastic bags, outlawing smoking in all bars and restaurants and pushing through a plan to plant a million new trees in the next 10 years.

Mike Bloomberg is the best thing that’s happened to New York City since the legendary Mayor Fiorello H. LaGuardia (“The Little Flower”) steered the city through the depression. Hard times are here again; scores of thousands of jobs are being lost in Wall Street, which provides some 25 percent of the City’s budget through taxes and fees.

Under Bloomberg, since 9/11, New York has become the safest, best policed and most intelligently led large city in the world – and the proof is the steady stream of foreign municipal officials who come to study the miracle-in-operation. New York needs Bloomberg to get through the ongoing recession and the tough times beyond.

“You go into these small towns in Pennsylvania and, like a lot of small towns in the Midwest, the jobs have been gone now for twenty-five years and nothing has replaced them. As they fell through the Clinton administration and the Bush administration, and each successful administration has said that somehow these communities are gonna regenerate and they have not. And it’s not surprising when they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations,” said Obama.

While Obama spoke sincerely, a hidden recorder was preparing a transcript that was published on Friday, April 11 on the Huffington Post website. The big media played up the seeming issue for the desperate Clinton – her Pennsylvania margins continue to shrink – and she eagerly grabbed it to beat Obama with.

Under pressure of approaching defeat and desperately trying to stop Obama, Clinton reached into her bag of tricks and brought out this gem: “Obama’s remarks are elitist and out of touch. They are not reflective of the values and the beliefs of Americans.”

Another similar attack came from Senator Evan Bayh, a Democrat from Indiana who inherited his father’s seat. He told the New York Times reporters “Mr. Obama’s remarks should serve as a warning to superdelegates that he would be a weak general election candidate. They’re [the Republicans] going to say that we are weak on national security, that we’re a bunch of high taxers and spenders and out here in the middle of the country we don’t understand people’s values. The question is, have we given them some hook they hang their hat on to make that argument.”

The subtlety of Bayh’s racism may escape the casual reader. But what I think he is saying in effect is that the superdelegates most urgent concern – protecting and re-electing their down ticket – incumbent Democratic officeholders including themselves – will be extremely risky behind Obama.

Governor Ed Rendell of Pennsylvania, who is Mrs. Clinton’s most prominent supporters in that state, criticized Obama for implying that rural voters were clinging to their guns as a way of dealing with their frustrations.

But, the Mayor of Lancaster, Pa., J. Richard Gray, an Obama supporter, said Obama did not mean that at all. Gray said “the Republicans take emotional issues like guns and religions and use them to divide people. He’s saying the use of those issues as wedge issues plays on the bitterness that people have and diverts attention from the real economic issues, like the disparity between the wage earner and the rich.”

The Bureau of Labor Statistics announced on April 9, 2008 that U.S. 80,000 jobs vanished in March. Does Hillary Clinton think the nation, in general, or Pennsylvanians, in particular, should not be bitter or frustrated?

Obama’s staff understands what the Clinton Democrats are trying to do. Hari Sevugn, a spokesman for Obama, replied to Clinton’s statement: “We won’t be lectured on being out of touch by Senator Clinton who believes lobbyists represent real people and [who is] awash in their money and who can’t tell a straight story about her lengthy record about supporting trade deals like NAFTA and China that have devastated communities in Pennsylvania and Indiana.”

The superdelegates were not born yesterday. Senator Bayh’s arguments against Obama are unconvincing and show the sweaty apprehension of the Clinton camp. She must score an unexpectedly large victory over Obama in Pennsylvania or she is done. If she barely squeaks through, it will be because of anti-Obama arguments by Bayh and others which will neither be forgiven or forgotten by black voters who are crucial to the Democrats’ national victory map.

He sounded a familiar warning: the U.S. has become “addicted to spending and consuming beyond its capacity to produce. The result has been a practical disappearance of savings, rapidly rising imports and a huge deficit in trade. The process has been extended by the willingness of other countries – foreign investors, businesses and governments – to close the gap by buying our Treasury securities, by directly or indirectly financing our home buyers as well as our banks and increasingly by buying into our businesses.”

That familiar list summarizes American failings and self-indulgences that at last reached “a breaking point” last August, says Volcker, “triggered by excesses in the subprime housing mortgage market.” Now says Volcker, “we face painful but necessary adjustments” to modernize the “official safety net” that preserves the U.S. financial and economic systems in time of stress.

Will we face up to this challenge or doze off again? Ever the optimist, Volcker, a feisty 80-year-old, told me yesterday that we will face up to these adjustments as soon as a new Congress hears from a new president in 2009. During our conversation, Volcker said that he thought Fed Chairman Ben Bernanke “is doing a pretty good job.”

During the potentially hyper-inflationary siege threatening the U.S. economy, soon after his appointment in 1979, I worked closely with him as the informal liaison with Ronald Reagan and watched him make brutally difficult decisions daily for months on end. Volcker raised interest rates to the highest level in almost a century – and kept them there despite a storm of protest from Congress, business and labor. But he broke the inflationary fever, rescued the dollar and made possible Reagan’s success in his first term. A conservative New York Democrat, Volcker is a centrist by instinct and always seeks to balance contending points of view.

Today, Volcker has in mind a financial reform agenda for the candidate he has endorsed – Barack Obama – but the calendar is not on his side. The fundamental reforms in Wall Street that Treasury Secretary Henry Paulson has proposed and that Volcker endorses will not be considered by Congress until sometime in 2009 or later. By then, the current recession and the credit crunch will have a two-year head start on any Congressional attempts to bring them under control.

Politically, Congress wants to make the connection between the day Bear Stearns – the fifth largest investment bank – that almost went belly up and got a Fed bailout and the harried homeowners facing mortgage foreclosure. There is no such connection. There are no villains in this complicated tale. What is at stake is the survival of an economic and financial systems that have become too complicated to understand, much less take apart and reform.

What I propose is that Congress concentrate on the housing financial crisis and the long-established loan guarantee agencies – Fannie Mae, Freddie Mac and the Federal Home Loan Banks – whose mandates can be extended to cover all aspects of the subprime and other sectoral credit problems. And leave the Federal Reserve System alone.

The recession is tied to the housing crisis and the credit crunch. The housing boom, in which house prices doubled and tripled in many regions in a few years peaked in 2006 and went into reverse in 2007. The price decline accelerated as the subprime mortgage sector imploded.

The excesses of that sector soon spilled into every other credit sector until even those with excellent credit could not borrow – the definition of a credit crunch. The credit machinery driving the U.S. economy has seized-up for lack of confidence that creditors will be repaid in full.

Consumer spending (and borrowing) accounts for 70 percent of the U.S. economy’s Gross Domestic Product (GDP). Manufacturing has shrunk to about 10 percent, compared with roughly half of GDP as recently as 1980. Since the Reagan years, we have “out-sourced” everything that China could make cheaper, which is just about everything. The many “Little Chinas” of prosperous Asia subcontract various production tasks, all focused on exporting to the U.S. – the global “importer of last resort.”

Now the Bush administration plans to “expand a government program that helps struggling borrowers keep their homes to respond to the housing crisis…. [It] is designed to help about 100,000 homeowners, including many who owe more than their houses are worth, reduce their monthly payments…. The expansion involves encouraging lenders to write down the value of the loans…. In return, the risk of default would be shifted to the government,” reports the Wall Street Journal. The expansion is intended to bring the total number of borrowers under a program called FHASecure to about 500,000 by the end of the year but the effort is expected to face opposition from Democratic lawmakers.

Bernanke is correct to lay the blame for the mortgage mess and the credit crunch at the doorstep of the Congress, which in the name of “fairness” greatly liberalized lending laws and practices over the past 15 years.

This means bankers who obeyed the law and made mortgage loans that should never have been made must now obey new laws and policies and assume financial responsibility for those bad loans on their banks’ balance sheets. It isn’t fair and the powerful bankers’ lobby is on the warpath on Capitol Hill.

By year end, the all-important deflating housing sector will have fallen 20 percent from the 2006 peak, representing the destruction of some $4 trillion in real estate wealth and more than one-fourth of all U.S. household assets. “… A 10 percent drop in house prices would make a discernible dent in consumption growth….consumer spending would slow by almost two percentage points, reports The Economist. The Economists’ studies, however, suggest that effect will be gradual; falling house prices will be an ongoing drag on consumer spending rather than a sudden brake.”

Ian Shepherdson, chief domestic economist for High Frequency Economics, gets paid for describing the economic situation as he sees it. He declares: “We are in for a much longer recession than Wall Street thinks. This particular downturn is driven by a rare contraction in consumer spending, and that is starting to hurt a broader range of people than those hurt by the mortgage crisis.”

A new factor in Petraeus’ high visibility is speculation from political strategists such as Steven Clemons of the New America Foundation who thinks the [national] “psyche is looking for a new Eisenhower.” He imagines a scenario where Petraeus, after he retires in two years, would recapture the White House for the Republicans from a failed Democratic administration.

William Kristol, the editor of the neoconservative Weekly Standard and a New York Times Op-Ed columnist, believes that military officers are the subject of endless political fascination because their jobs, by definition, involve leadership. Kristol joined the boomlet for Petraeus in a Times column last month saying the General would be an excellent, if unorthodox, choice as a vice presidential running mate for Senator John McCain. Others such as George Stephanopoulos have also raised the idea on ABC’s “This Week.” Petraeus’ reply, taken from a country song by Lorrie Morgan: “So tell me what part of ‘no’ don’t you understand.”

Despite his expressed disinterest now, Petraeus has many of the instincts of a successful politician. He courts the press and plays favorites among reporters with great skill. Petraeus knows how he wants his successes reported and his failures buried, and he rewards the accommodating.

One retired general who has closely observed his career says: “He’s the most ambitious man I’ve ever met.”

It’s much too early to speculate on Petraeus’ future. Late last month, Iraqi President Nouri al-Maliki, without forewarning Petraeus (or so we are told), launched an ill-fated offensive against ethnic gangs and religious militias in the oil-rich southern city of Basra. Iraqi government troops and police wound up surrendering en masse. So much for Petraeus’ inspiring new strategy. Eleven GIs died in recently “pacified” Baghdad.

Lawrence J. Korb, a defense official under President Reagan who is now a senior fellow at the Center for American Progress, calls Petraeus “the most political general since Douglas MacArthur.” But war critics have accused Petraeus of aligning himself too closely with Bush’s policies and liberal propagandist MoveOn.org suggested that he was dishonestly portraying the war’s realities in a newspaper ad – General Betray Us.

By 2010, Petraeus will have spent two years commanding NATO and polishing his bipartisan resume. In the meanwhile, he is simply a four-star Bush mouthpiece selling the end game in a lost war.

But there are exceptions. Former GOP presidential candidate Bob Dole came to McCain’s defense on CNN’s “Larry King Live” on March 5 2008 assuring King that McCain can control his temper as he has during the campaign so far. “It’s not a problem anymore,” Dole believes, adding that he cuts McCain some slack because of the torture and deprivations he endured as a prisoner of war during the Vietnam War.

One day in 2005, in Senator McCain’s outer office, I watched as a hapless new staffer gave him what he called the wrong briefing one-pager. McCain crumpled it in his right fist, shook it under the terrified aide’s nose and thrust out his left hand, all the while snarling oaths under his breath. The aide darted back to his desk and returned with the right paper. McCain grabbed it, wheeled around and walked away. As we walked outside together, McCain was all smiles as if nothing had occurred. Scary.

A Boston Globe report included a much-repeated quote from Senator Thad Cochran of Mississippi: “The thought of his being president sends a cold chill down my spine. He is erratic. He is hot-headed. He loses his temper and he worries me.” These concerns led Cochran to endorse former Massachusetts Governor Mitt Romney but after Romney dropped out, Cochran endorsed McCain.

McCain’s run-ins with other Republican Senators are legendary. In an interview, Senator Charles Grassley of Iowa said that he was so upset by a McCain tirade – “I’m calling you a f_ jerk” – that he didn’t speak to him for two years. ABC News reports that McCain told the former Budget Committee Chairman, Senator Pete Domenici in 1999: “Only an a_ would put together a budget like this.” This expression of political differences led Domenici to tell Newsweek in 2000: “I decided I didn’t want this guy anywhere near a trigger.”

And last year, he shouted at Texas Senator John Cornyn: “F_ you.” But according to Cornyn, McCain apologized almost immediately and he says “we’ve moved on down the road.”

Outside the Capitol, McCain has other problems. Grover Norquist, president of Americans for Tax Reform, who slammed McCain in 2005 as a “gun grabbing, tax increasing Bolshevik,” now perceives him as a Bush clone, according to U.S. News & World Report . Rush Limbaugh has been urging his radio listeners to prolong the nasty nomination fight on the Democratic side by crossing over to vote for Clinton in the primaries. And conservative old guard Richard Viguerie is disappointed by McCain’s address to the Council for National Policy in New Orleans in early March, saying he sidestepped a question on whether he would appoint conservatives to key positions in his administration.

All this has prompted many serious questions as to whether McCain is temperamentally or emotionally qualified to be Commander-in-Chief. Naturally, the Limbaughs and Vigueries as well as the Clinton and Obama camps will be delighted if he blows his cool during a presidential debate.

Well, that promise has not been forgotten. Asked at a town hall meeting in Wallingford, PA if he would tap Gore to handle global warming, Obama replied: “I would. Not only will I, but I will make a commitment that Al Gore will be at the table and play a central part in us figuring out how we solve this problem. He’s somebody I talk to on a regular basis. I’m already consulting with him in terms of these issues, but climate change is real. It is something we have to deal with now, not 10 years from now, not 20 years from now.” The real headline is that Obama talks to Gore “on a regular basis.” And why? Gore’s endorsement is the most sought after in the Democratic race for the nomination and Obama is well aware that a Gore endorsement would easily put him over the top.

Granted, Senator Ted Kennedy’s endorsement of Obama hit Hillary and Bill Clinton pretty hard. That blow was followed by New Mexico’s Governor Bill Richardson's endorsement of Obama – that by all accounts, has made the Clintons furious – especially Bill. During a private meeting with California Democrats (March 30-31), Clinton grew red-faced as he talked about how he expected Richardson, who was a member of Clinton's Cabinet, to back Hillary Rodham Clinton for the presidential nomination or at least stay neutral, according to several people who attended.

But Gore may wish to remain truly neutral in order to play the superdelegate broker card and prevent a Democratic Party bloodbath. By stepping in after all the voters have spoken, Gore could ask the Clintons to accept the will of the people. Gore knows all hell would break lose if the nomination goes to Hillary after the voters give Obama a lead among elected delegates.

Master politician Obama has made it clear that he wants the best minds – Democrats, Republicans and Independents -- in his administration. In his book – The Audacity of Hope – he writes: “What’s needed is a broad majority of Americans ….who are reengaged in the project of national renewal, and who see their own self-interest as inextricably linked to the interests of others.”

Also – not to be forgotten -- in an interview with Time Magazinelast November, Obama said that he would also offer Bill Clinton a job in his administration! “In a second,” Obama said, adding “there are few more talented people.” Such statements have given Obama the title of unifier, to say the least.