This is a rush transcript from "Hannity," May 27, 2011. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: Welcome back to this special edition of "Hannity." Now we have just heard from former Pennsylvania Senator Rick Santorum. Now it's former New Mexico Governor Gary Johnson's turn to tell us why he is the best person to take on President Obama in 2012.

(BEGIN VIDEOTAPE)

HANNITY: How are you? Good to see you.

GARY JOHNSON (R), FORMER NEW MEXICO GOVERNOR: I'm great, Sean. Thanks for having me in.

HANNITY: You are running for president?

JOHNSON: I'm running for president, running for the Republican nomination for president.

HANNITY: Well, you have the stamina. You are a tri-athlete, right?

JOHNSON: Right, endurance athlete.

HANNITY: An endurance athlete -- I ran three miles and like -- you know, an hour on the tennis court, I'm ready to pass out. You are going to need it for this battle.

JOHNSON: You know, I've been at this now for 16 months with our America initiatives. So I've been out on the road talking to people. I wouldn't be here if I didn't think I could do the job. I wouldn't be here if I didn't think I could do a good job. You have to have a resume to get involved in the contest.

HANNITY: What are the things that -- we want give everybody that is running access to people so they can hear you. Right now, I don't think you would disagree with me that you are one of the lesser known candidates.

JOHNSON: Absolutely.

HANNITY: And so a big underdog. What do you do to breakthrough?

JOHNSON: Well, so New Hampshire ends up to be key in this whole equation. The early primary states end up to be key in this. But New Hampshire, I'm going to spend a lot of time in New Hampshire and New Hampshire, they vet the candidates. I think they set the stage for the rest of the country.

HANNITY: You have a really excellent track record as governor.

JOHNSON: And I do, I really believe that. You got to have a resume to do that.

HANNITY: I mean, you balanced the budget, you cut a number of thousands of jobs without firing anybody --

JOHNSON: You know, not one single opinion any of tax went up in an eight year period. Reformed Medicaid in New Mexico to save 25 percent over what we were spending for Medicaid, built 500 miles of a four lane highway without raising taxes.

You started off by saying 1,200 fewer state employees over an eight year period. That had never happened before and I think that was really --

HANNITY: Attrition then -

JOHNSON: You know, attrition, managing. Not that we didn't try and get rid of deadwood also, but for the most part, it was just managing attrition.

HANNITY: Where I think you run into difficulty, like every candidate they have some difficulties. OK, I think your difficulty is you are on the more libertarian side of the Republican Party, but you are a Republican.

JOHNSON: Yes, I'm a Republican. I would argue that perhaps some of these issues are really conservative and that it is conservative. And for me, as governor of New Mexico, everything was a cost been fit analysis, everything.

What are we spending our money on and what are we getting for the money we are spending? Included in my tenure as governor it might be an embellishment, Sean, I might have vetoed more legislation than the other 49 governors in the country combined. And New Mexico -- thousands of times I used the line-item veto. Given the New Mexico is a state that is 2-1 Democrat. I think the fact that I get reelected really speaks volumes to the fact that people appreciate good stewardship of tax dollars. I'm going to argue I did that.

HANNITY: There's no doubt that I think for national security reasons and for obvious economic reasons the defining issue of our time is the economy and the debt and the deficits and out of control spending and this power grab in Washington. How do you stop it?

JOHNSON: I'm under the belief that we are on the verge of a financial collapse. Unless we -- and that's in lieu of the fact that we have 14 trillion in debt.

And we have no ability to repay $14 trillion in debt if we're racking up $1.6 trillion in deficit spending in deficit spending this year, the year prior, two years prior and the years looking ahead. Look, we're not going to pay back $14 trillion in debt. We have to embark on balancing the federal budget tomorrow.

HANNITY: How?

JOHNSON: Well, cutting $1.675 trillion from the federal government. You got to start out by talking about Medicare and Medicaid. I'll just throw out some suggestions here. There are other, but let me just throw the fact that the federal government could cut Medicaid and Medicare by 43 percent.

They could block grant the states. I'm going to say this throughout my campaign, 50 laboratories of innovation, the notion of best practices. Give it to the states to deliver health care to the poor and those over 65 and do away with the strings. Do away with that regulations - Let states handle it. There would be best practices emerge. Other states would emulate the best practices. They're be failure. States would avoid the failure. In New Mexico, Medicaid, now it came with all the strings attached. It came with all the regulation attached. It came with a mandate that here are the services that you had to deliver, but Medicaid in the State of Mexico, I shifted that from a fee for service model to a managed care model and saved 25 percent. If I were to have been given Medicare, I could have done the same thing with Medicare and saved 25 percent. By the way, I used 25 percent. I could have saved more money. I still could have delivered health care to those truly in need by cutting it 43 percent, I could have done that. But I was governor of the state. I had a legislature that was 2/3 Democrat and, you know, I wasn't the benevolent dictator.

HANNITY: What about Social Security? Means test, raise the retirement age or?

JOHNSON: A third item would be to change the escalator that is built into Social Security. Cost of living increases from the wage index to the inflation rate. That in and of itself would make Social Security solvent.

So it is important to point out that it's not cutting Social Security. It is about making it solvent into the future. That means making it a system that takes in more than what it pays out.

HANNITY: So irritating to me had any corporation misappropriated the retirement fund that is supposed to be put in a lock box, if we recall, was put in the general fund, it was all spent. The CEO, CFO would all be in jail right now and of course, the government is not held accountable or to the same standards.

JOHNSON: And then talking about monetary policy in the country. The fact that the dollars that we have in our bank accounts today, are worth less than they were yesterday or worth less than they were a week ago, a month ago, a year ago. That's the fact we are printing money to cover all these obligations.

The Federal Reserve has devalued the dollar significantly from a monetary policy standpoint, abolishing the Federal Reserve would bring about this discipline of spending within our means. Now, I have said that if the congress were to pass a bill an billion the Federal Reserve, I would sign on to that legislation. But in the meantime, we went to the moon. We can balance the federal budget, but we need to do that tomorrow. So I don't have a plan for doing this -- I don't have a plan for getting a quarter of a way there in eight years. I have a plan here or a desire that we do this in 2013.

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HANNITY: And still ahead, we'll have much more with presidential candidate Gary Johnson. Now the former New Mexico governor talks about his sweeping proposal to cut the size of the government to avert an economic disaster. That and much more as the Hannity primaries continue right here on Fox.