Pocketbook issues are displacing the Iraq war as a central issue on the campaign trail and in Washington. The heightened economic risks were dramatically underscored Thursday when the Dow Jones industrial average plunged more than 300 points on poor economic news, even as President Bush and Federal Reserve Chairman Ben Bernanke endorsed a "stimulus" bill of proposed tax cuts and new spending to ward off a possible recession. Bush will lay out more details of his plan Friday.

The sharpening focus on pocketbook issues has echoes of then-candidate Bill Clinton's 1992 winning catchphrase, "It's the economy, stupid." But politicians are finding today's problems potentially more extensive than at any time in decades, not amenable to a quick or conventional fix. Some Americans confess fear that the current situation is more than a temporary economic mishap and that it indicates a fundamental decline in U.S. economic prestige.

The housing market is in the steepest slump in decades. Oil prices have hit $100 a barrel, while food inflation in 2007 jumped at the fastest pace since 1990. Stock prices have plunged. Banks are writing off hundreds of billions of dollars in bad loans — and U.S. lenders are being bailed out by foreign governments. Unemployment is up, and wages are stagnant.

"I do worry about a recession. On the world market, the dollar is falling," says Jacob Holmes, 28, a pizza delivery man in St. Louis who is seeing slower business and smaller tips from pinched consumers. "People come to America now to do their shopping sprees because things are so much cheaper here than in other places. That seems sort of crazy."

Exit polls after the New Hampshire primary earlier this month found 97% of Democrats and 80% of Republicans worried about the economy. Congressional Democrats and Republicans are worried enough to try to work in a bipartisan way. Republicans appear willing to set aside their insistence on extending Bush's 2001 tax cuts, which begin expiring in the next few years, to get a targeted stimulus measure through. Democrats may accept business tax cuts.

It's unclear whether the burgeoning bipartisanship will hold: House Republican Leader John Boehner, R-Ohio, cautioned that any bill could not become a "Christmas tree" with tax increases. Senate Majority Leader Harry Reid, D-Nev., and other Democrats said Thursday that Bush was moving too fast to push tax cuts without Democratic agreement. Also uncertain is whether the efforts could eventually embrace long-term issues. But for now, the focus is short-term.

Presidential candidate Sen. Hillary Rodham Clinton, D-N.Y., has proposed a stimulus plan of up to $110 billion, including a moratorium on home foreclosures and help with energy bills. Republican candidate Mitt Romney hammered on economic concerns to win the Jan. 15 primary in Michigan, which has the highest unemployment rate.

Presidential hopeful Sen. Barack Obama, D-Ill., has a stimulus list including tax cuts and higher Social Security payments. Former Democratic senator John Edwards was first off the block last month, suggesting investing in clean energy and job training.

"If we move quickly, we will be able to shorten and, hopefully, limit the consequences of a recession," Clinton said in an interview. While acknowledging that a stimulus plan could increase the budget deficit, she called that a risk she was willing to take to "start turning the economy around … giving consumers some confidence again."

Sen. John McCain of Arizona, a Republican presidential candidate, Thursday unveiled a longer-term plan, including a cut in corporate tax rates. Fellow GOP hopeful Fred Thompson, campaigning in South Carolina, said he wasn't ready to embrace a stimulus package, though added: "We're all concerned about the direction of the economy."

Bernanke threaded the political needle Thursday, declining to endorse specific proposals while saying a stimulus bill could complement Fed interest-rate cuts, so long as it was temporary, quick and targeted. One concern is that a package could kick in as the economy is recovering, making it harder to blunt inflation.

"A fiscal stimulus package should be implemented quickly and structured so that its effects … are felt as much as possible within the next 12 months or so," Bernanke told the House Budget Committee. Stimulus that is too late "could be actively destabilizing."

Bernanke said $100 billion of well-designed stimulus "would not be window dressing" but could have a measurable effect. Bernanke has made it a policy not to comment on specific tax or spending proposals. In 2001, former Fed chairman Alan Greenspan alienated Democrats by endorsing big tax cuts.

What kind of stimulus?

A stimulus bill could blunt some of the pain of a downturn, but similar past efforts have usually been too slow to avert a recession, says Lyle Gramley, a former Fed official now with the Stanford Group. Fed interest rate policy will still shoulder most of the burden.

Options under discussion on Capitol Hill include personal tax rebates, increased food stamp benefits and extended unemployment assistance. Another possibility is aid to states being battered by rising home foreclosures and lower tax revenues. Also on the table are corporate tax breaks, such as allowing firms to write off investments faster or invest in development. The non-partisan Congressional Budget Office says research shows initiatives aimed at lower-income consumers are likely to be more effective than business tax breaks.

Lawmakers are bandying about numbers up to $150 billion, the latter number about 1% of annual U.S. economic output. David Rosenberg, North American economist at Merrill Lynch, suggests it might take a $250 billion package to have any impact.

Noted Harvard economist Martin Feldstein has suggested Congress could write the bill in a way that the money would be released only if economic conditions declined. "Every time you sniff the probability of recession, you don't want to spend $100 billion," Feldstein told a recent Brookings Institution forum. But he said there is the potential for a long downturn.

Goldman Sachs analyst Andrew Tilton says a $75 billion stimulus package would barely compensate for the fact that rising energy prices siphoned off about 1% of income last year.

The chances that Washington will move quickly improve every day the stock market falters. But even if the White House and Congress agree, things could bog down. Debate can stretch out in the closely divided Senate, especially on complex amendments.

One example: The Senate Banking Committee, as part of a possible stimulus bill, wants to help consumers who owe more on their mortgage than their house is now worth. The idea is to let borrowers, with the help of lenders, move into loans with a smaller balance and fixed payment.

Where is the economy?

Bernanke said Thursday that the Fed isn't predicting a recession. Hiring is slowing, but unemployment is just 5%. Exports are rising, thanks partly to the falling dollar. The farm belt is being lifted by strong prices for commodities. The huge services sector, including health care, is expanding.

Richard Anderson is chief operating office of V.I.O., a small Michigan-based firm that makes a wearable video camera used by people from mountain bikers to soldiers. The company has done well as the lower dollar boosts foreign sales.

Some economists, such as Richard Berner, Morgan Stanley chief economist, have predicted that if there is a downturn, it will be mild and short.

But Bernanke also emphasized that economic conditions have changed rapidly in recent months.

Credit markets seized up last summer in response to rising defaults on higher-cost subprime mortgages. Those mortgages had been repackaged into bonds that were parceled into a variety of investment vehicles. Initial market concerns about the value of mortgage bonds morphed into broader worries about a variety of products, constricting the market for such things as commercial paper and many mortgage products.

Conditions have improved somewhat, but aren't back to normal. The Fed fears a negative feedback loop. The concern: Falling home prices lead to more credit market losses, making investors skittish and forcing banks to pull back even more on lending. That, in turn, makes it harder for the housing market to recover or businesses to expand, hurting the job market and consumer spending.

Bernanke reiterated that the Fed would cut interest rates aggressively if needed. As the central bank develops policy, it will watch markets and these areas:

• Food and energy. Food and energy prices have risen, pushed largely by international factors outside the Fed's control. Despite a drop in recent weeks, oil prices are still about $40 a barrel higher than a year ago. Food inflation was 4.9% in 2007, up from 2.1% in 2006.

Food prices have been pushed up by strong world demand and poor crops. A federal law mandating use of ethanol, which is typically made from corn, contributed to tight grain stocks. That leaves Congress debating how to provide relief from high prices that it helped create.

Cherie Jamason, CEO of the Food Bank of Northern Nevada, says her institution has faced a 50% price increase in the staples it stocks in the past 18 to 24 months. Rural consumers also face rising gas prices. "It's staggering," Jamason says.

• Housing. New-home sales and construction are off more than 50% from their peaks. Boston Fed President Eric Rosengren said recently that if prices fall through midyear as predicted, it will be the longest such correction in 50 years. Falling prices hurt consumer spending as homeowners see their wealth decrease and have less ability to tap home equity.

"We're starting to see a lot more of the lenders and servicers agree to put people into loan modifications," says Mahria Harris, a counselor for Neighborhood Housing Services of Greater Cleveland. The group is part of NeighborWorks, which helps borrowers. But she cautions that improvement is relative, and worries that interest-rate freezes aren't a solution. "It's just prolonging the inevitable."

• Employment. The strong job market has buoyed consumer spending. But the unemployment rate jumped from 4.7% to 5% in December, and wages lagged behind inflation. Factories are bleeding jobs, even though exports are up.

Still, it's not all bleak.

Mark Bryden is president of SmartWool, maker of high-end products for the outdoor industry. "We're increasing, we're adding jobs," Bryden says.

Contributing: Barbara Hagenbaugh and Susan Page