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Bhutto Death, Economy Shake Up '08 White House Race

The assassination of Benazir Bhutto in Pakistan immediately echoed through the U.S. presidential campaign, allowing various candidates to emphasize their national security credentials. If that tragedy destabilizes the government of Pervez Musharraf, it could place an even higher premium on those credentials.

But for now, the issue that has risen most rapidly in the 2008 debate is the economy -- and what to do about its weakening condition. From their distinct ideological vantage points, candidates in both parties are reacting with new rhetoric and proposals.

The populist voice in the Democratic race, John Edwards, has proposed a $25 billion stimulus plan. Among Hillary Clinton’s closing ads in Iowa is a spot promising stronger action on ameliorating the housing meltdown, including her $1 billion proposed fund to prevent foreclosures.

Republicans have largely stuck to familiar calls for tax cuts, on individuals and corporations. But they aren’t ignoring the mounting toll of the housing crisis, with hundreds of thousands of potential foreclosures looming over the 2008 campaign.

The Bush administration has taken flak from the free-market economic right over its role in the voluntary agreement by lenders to freeze interest rates for some distressed mortgage-holders. And even while promoting that agreement, the White House and Treasury have emphasized that it’s not a bailout for borrowers or lenders who made bad bets.

But when I interviewed Republican candidates Mitt Romney and Rudy Giuliani on CNBC this week, both praised the Bush administration’s mortgage plan. And both declined to shut the door to further steps, including direct cash assistance to homeowners facing foreclosure.

“That’s not the option I think is essential at this point, but I don’t think you rule out various options that might be available,” Romney told me. “I don’t think you ever flatly rule it out,” Giuliani said.

For both of these Republican candidates to hold that option open -- even while courting a GOP base displaying new enthusiasm for spending restraint -- is a sign of the pressure presidential contenders are already feeling from Americans’ economic worries.

Questions? Comments? Write to politicalcapital@cnbc.com.