Joining us now from Vermont, the former governor of Vermont, Howard Dean, joining us live. Governor Dean, thanks very much for joining us.

And I want to immediately get your reaction to both of these developing stories. First, the decision by the federal government, the Department of Homeland Security, to increase the threat level here in Washington, D.C., from yellow to orange, from elevated to high. What do you make of this?

HOWARD DEAN, FORMER GOVERNOR OF VERMONT: It's hard to know what to make. None of us outside the administration have access to the intelligence, which led to this determination.

I am concerned that every time something happens that's not good for President Bush he plays this trump card, which is terrorism. His whole campaign is based on the notion that "I can keep you safe, therefore at times of difficulty for America stick with me," and then out comes Tom Ridge.

It's just impossible to know how much of this is real and how much of this is politics, and I suspect there's some of both in it...

BLITZER: Well, when you say that, that's a very serious allegation, that the federal government, Tom Ridge, the president of the United States, may be playing politics with the whole issue of fear and terror threat levels. And I want you to explain specifically, so there's no confusion, what you mean by that.

DEAN: What I mean by that is the president himself has played politics with it. The president is basing his political campaign for re-election on the notion that he ought to be re-elected because terrorism is a danger, and his case to the American people is, "I'm the only person who can get us through this." So of course this is politics.

The question is, do I believe this is being fabricated? No, of course I don't believe that. But I do think that there is politics in this, and the question is, how much is politics and how much is a real threat?

I have no doubt there's a real threat here, but I also -- this is a long history of orange to yellow, yellow to orange, orange to yellow without a lot of explanation.

I find that the warnings -- watch out for somebody walking into buildings, watch out for somebody driving cars, watch out for somebody driving a truck -- that's not very helpful in New York City. It would be very helpful if the federal government would be much more specific about exactly what they'd like to us watch out for as they're raising all these levels.

BLITZER: But isn't it important that if there are serious indicators of a threat out there, that the federal government at least notify those who may be in harm's way to be a little bit more vigilant?

DEAN: Yes, it is very important. And one of the things about this warning, which is different than the previous many, many, many that the Bush administration has given us is they've given us specific cities and specific targets.

The usual pattern of the Bush administration is just come out and tell everybody, "We have chatter, we have chatter, watch out, watch out," and that is totally unhelpful. This at least confines it to a geographic area, and I think that's an improvement.

I think, frankly, that this is an area which I think John Kerry would handle much differently. I think John Kerry would probably wait until he knew exactly what the situation was.

He's also said that he would hire more special forces people, and that's going to be the key to stopping this. We need to stop these people in their own lands, not when they get to ours.

BLITZER: Governor Dean, you were governor of Vermont when Tom Ridge was governor of Pennsylvania. You clearly know him. Is he the kind of man who would play politics with this kind of sensitive subject?

DEAN: Look, I like Tom Ridge. And I knew George Bush, and I like George Bush.

The president himself has said he is playing politics with this. The president himself has said that he ought to be re-elected because of the terrible terrorist danger. I don't see what's the big deal about this. I mean, it's obvious politics has something to do with this.

BLITZER: Well, as I said before, that's a very serious charge that you're making against the president.

DEAN: I don't think it's a serious charge. It's something the president himself has acknowledged.

BLITZER: Well, when you say he's acknowledged, he says this is not...

DEAN: The president's campaign is based on...

BLITZER: Well, let me just say, he says that what he's doing is trying to protect the American people when he and his intelligence community, law enforcement community sense there are threats out there.

DEAN: I have no doubt that the president is trying to protect the American people. That's his job. And I think that's a good thing. I think that's good. That's what he should be doing.

However, when you're going to run on inspiring fear in American people, that's politics.

And there's no way you can get out of accusations and discussions about the relationship between politics and protecting us against terrorism in an election year when the president of the United States is avowedly running his political re-election campaign on the notion that he can protect us better from terrorism than John Kerry can.

BLITZER: Let's move on.

DEAN: I happen to disagree with that. But the president himself made the choice to inject politics into the campaign on terrorism. That was his choice. He's now going to have to live with the consequences.

BLITZER: All right. Let's go on and talk about Iraq, where you see there were more deadly car bombings today. Many, many more casualties, specifically going after some Christian churches in Iraq today.

When you take a look at this situation in Iraq, I don't know if you agree or disagree with John Kerry and John Edwards, who both maintain you have to finish this, get the job done, and then leave. They don't want to cut and run.

DEAN: I've always said that. What I believe is what John Kerry believes, that we ought to bring different troops, foreign troops, into the situation.

I was very pleased to see that NATO is now going to send 30 or 40 trainers to Iraq to begin to train Iraqis to police their own nation. I think that's very important.

I was pleased to see the new prime minister of Iraq say that he would impose martial law in order to deal with the terrorist threat. I think those are both appropriate things to do.

BLITZER: Do you think that the president, who's now going on the offensive in this political season after John Kerry, has a point when he makes this statement? And I want to play this excerpt from what he's been saying on the campaign trail since the Democratic Convention.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: He spent nearly 20 years in the federal government, and it appears he's concluded that it's just not big enough.

(LAUGHTER)

He's proposed more than $2 trillion of additional federal spending. And he's just getting started.

The problem is, he hasn't told us how he's going to pay for it.

(END VIDEO CLIP)

BLITZER: All right. Does the president, Governor, have a point?

DEAN: Actually, he doesn't. I think this is why so many Americans don't trust the president anymore and don't believe him, either in the Iraq matter or in this matter.

The truth is, the president has presided over an increase in spending that is twice the rate of his predecessor, Bill Clinton. The president has presided over, as we just saw in the papers this past week, over the creation of the largest deficit in the history of America.

The two previous presidents with large deficits were his father and Ronald Reagan. The truth is you can't trust Republicans with your money anymore. The American people know it.

John Kerry is the person who's running in this race that supported Bill Clinton's deficit-reduction package. John Kerry was responsible for voting for a balanced budget. George Bush has never balanced a budget in his life, because in Texas, the lieutenant governor is in charge of the budget, not the governor.

So I think the president not only does not have a point, this is the Republican noise machine. It's blather. It's exactly the opposite of what's going on. The Republicans are big-spending. You can't trust them with taxpayers' money.

BLITZER: The latest CNN/USA Today/Gallup poll, only released at the top of this program an hour ago, showed that among registered voters right now it's Kerry at 50 percent, Bush at 47 percent, but among likely voters, exactly reversed, Bush at 50 percent, Kerry at 47.

The bottom line -- and this poll was taken completely after John Kerry's acceptance speech Thursday night -- it doesn't look like John Kerry got much of a bounce, if anything, out of the convention.

DEAN: I think he probably did get a bounce out of the convention. The most important thing for John Kerry is to become well-known among the American people.

The public has to make two decisions in an election like this, in the middle after the first term of a president. 2000 was only one decision, which guy do you want?

In 2004, the decision is first do you rehire the guy that's there? And the majority of Americans have decided they're not going to do that, at this point. They're leaning against that. That's why the president's numbers are not ever above 50, in terms of his re- elect. Now they've got to decide whether they're going to hire John Kerry, and that's John Kerry's job for the next three and a half months.

I think he did get to know the American people. I think they liked what they saw. We know we're going to have a close race. It's going to be close all the way to November 2nd.

BLITZER: Governor Howard Dean, the former governor of Vermont, the former Democratic presidential candidate, thanks for spending a few moments with us.

DEAN: Thanks, Wolf.

See the followup interview on Hardball.