Watch the latest video at FoxNews.com This is a rush transcript from Your World," July 8, 2013. This copy may not be in its final form and may be updated. NEIL CAVUTO, HOST: Let's just say you're the Muslim Brotherhood and you figure you gave the political process a chance, and you were booted out; in fact, you were forced out. Time to go back to the violence for which you used to be known and just have it out? Let's ask former top diplomat KT McFarland. KT, what now? KT MCFARLAND, FORMER DEPUTY ASSISTANT SECRETARY OF DEFENSE: Good to see you. Well, I think now is the critical time. I don't think these threats of, oh, we're going to launch a civil war, we're going to fight, we're going to fight the Egyptian military, I wouldn't give that too much credibility, because the Egyptian military is pretty good. They have got advanced weapons. The Muslim Brotherhood won't. What I worry about though is that some in the Muslim Brotherhood are going to say, let's go use violence, let's go hook up with Al Qaeda. We know they have established a beachhead in the Sinai Peninsula and they could use that as an area from which they go forth to do terrorist attacks in the Egyptian proper. They could use that as a launch pad to do terrorist attacks and try to stop shipping in the Suez Canal. That's what I'm worried about. CAVUTO: Do you worry though that they could argue, look, we were democratically elected? You might not love us in the United States, a lot of folks might not love us. Apparently, a lot of folks in Egypt don't love us, but we were duly elected. And now we are being forced out. So, we have given elections and democracy, whatever you want to call it, a fair shot, and we are getting shot. MCFARLAND: Yes, but, look, these guys -- Hitler was elected too. And what did Hitler do the minute he was elected? He started dismantling democracy. (CROSSTALK) CAVUTO: Was that what was going on here? MCFARLAND: You bet. (CROSSTALK) MCFARLAND: What Morsi did initially, he tried to crush parliament. Then he tried to back the court. He went after the court. CAVUTO: Very good point. MCFARLAND: He persecuted Christians. CAVUTO: Well, they must know that then, right? (CROSSTALK) MCFARLAND: They -- and but, most importantly, it is the economy, stupid, in Egypt and America. CAVUTO: So, if the economy had been going well, they would have tolerated this? MCFARLAND: I think maybe. But the economy has just cratered. Violent crime is up something like 500 percent. The poverty rate in Egypt in just one year has increased 100 percent. CAVUTO: Wow. MCFARLAND: Half of the Egyptians, the only thing they have to eat is the subsidized bread they get from their government. The government is running out of money because, guess what, no foreign investment in Egypt. Wealthy Egyptians are getting themselves and their money out of Egypt. Egyptians abroad, who normally would send back remittances home, they are not doing that. CAVUTO: How do we play this, KT? Do we just stand aside or... (CROSSTALK) MCFARLAND: No. That's the worst thing we could do. I think we played it wrong at every step of the way. But at this point, we should have pulled aid from Morsi when he was starting to trample on democracy. We didn't. We stood silently by. Now that we have a second chance, there's a do-over of this revolution, the United States should not pull aid. We should realize that that aid... CAVUTO: We have got to know who we're giving the aid to. MCFARLAND: You have got to know who you're giving the aid to. But you bought a seat at that table with that aid. That's not a gift. It is a tool. And I'm always interested in giving aid if it advances my country's best interests. I think in this case, if the United States... (CROSSTALK) CAVUTO: But do we ever get our interests advanced? I mean, for all the money we spend, all the riots and all... MCFARLAND: Well, we don't use the lever. CAVUTO: Really? MCFARLAND: We have that lever and we just don't use it. CAVUTO: Do we have a history of giving money to the wrong people or just too much, too little? (CROSSTALK) MCFARLAND: We don't have a history -- what we don't do is use it like you and I would use allowance with our kids. It is a reward if you do well and if you don't do well, we are taking it away. We have never... CAVUTO: Yes, I don't buy that, because my kids have already formed a union and they demand it immediately. MCFARLAND: I thought your kids were perfect. Yes, well... (LAUGHTER) CAVUTO: For no work. But you are saying that we -- at the very least we better be more -- more scrutiny towards every penny we give out here, because we tend to have a bad track record with the pennies we have. MCFARLAND: Look at what we did with Morsi when he was squishing democracy. We didn't cut aid. In fact we gave him additional military equipment. CAVUTO: We wanted to him like us, right? MCFARLAND: Well, I don't care if anybody likes us. I think that the most important thing the United States can do is do stuff that it advances our own interests. It is in our interest to have a stable Egypt. It is in our interest to have a trade in the Suez Canal continue. CAVUTO: So, let's say we didn't help out. Who steps in? MCFARLAND: Well, then maybe nobody steps in. Hopefully, if we help out, the Gulf -- wealthy Gulf states step in as well with food assistance, because guess what? If nobody steps in, and this economy continues to spiral down, by the end of the year you will have food riots Egypt because they are going run out of food. It's the world's largest importer of wheat and without currency to buy that wheat on the world market they don't have enough to feed their people. And once you have that, then you undo what Henry Kissinger did 40 years ago, which was to take Egypt out of the equation. Content and Programming Copyright 2013 Fox News Network, LLC. ALL RIGHTS RESERVED. Copyright 2013 CQ-Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.