This is a partial transcript from Your World with Neil Cavuto, May 14, 2002, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.

Watch Your World w/Cavuto weekdays at 4 p.m. and 1 a.m. ET.

NEIL CAVUTO, HOST: When you don't have a budget that outlines your spending, chances are you'll overspend. That is what is happening right now in Washington. And while both Republicans and Democrats agree that there is an excess being spent, they do not agree on where that money should be spent.

Joining me today to talk about all of this, the man behind the White House budget, the White House Office of Management and Budget Director Mitch Daniels. Mr. Director, good to have you.

MITCH DANIELS, WHITE HOUSE BUDGET DIRECTOR: Hi, Neil.

CAVUTO: First of all, on the budget right now and this concern that we're going to be revisiting deficits maybe for quite some time, quantify how many years we're likely looking at that.

DANIELS: Well, we hope it is just two or three. And we ought to note that historically, these are very small deficits, if we can keep them from getting worse. They are the product of the recession, first of all, and the war secondly.

And the real trick will be to make sure we don't recommit the guns and butter mistake of trying to fight a war and treat the rest of the budget as business as usual fashion. If we don't do that and the economy comes back as it appears it is, we'll be back in the black in a couple, three years.

CAVUTO: Director, the one thing that worries me is the fact that everyone seems to have a penchant for spending, from House appropriations. They are already over their at least goal of a $29.35 billion supplemental bill by $2 billion. The president, with his own farm bill, is looking at tens of billions of dollars, more than we thought would be the case a little more than a year ago, and on and on we go. Is this out of hand?

DANIELS: No, Neil, not yet. Your concern is well placed. Let's take note of some positive developments. The House appropriations chairman, Chairman Bill Young, went back to the drawing boards last week and brought back a supplemental that is at a net $27 billion just as the president asked for. Now that's a lot of money, wouldn't have asked for it at all if we weren't in a war, didn't have to rebuild New York City and so forth.

But the game is just on here. And it's way too soon to surrender to the notion that we cannot contain spending. You know, we did it last year, despite many predictions that spending would explode and the supplemental bills would explode. Did not happen. Everything came in right where the president said the line ought to be. We need to do it again.

CAVUTO: Would he go ahead and veto if that got out of hand? One question that comes up is this $27 billion emergency bill for the fight against terrorism. That's a perfect Christmas ornament. By that, something that, I mean, they can add a lot of pet projects to. If they did, is the president prepared to veto that?

DANIELS: The president is prepared to be the stopper all year long, if need be. You mentioned earlier, it's most important to note doesn't look like the Senate is going to do its duty and pass a budget this year. The House did. Looks like the Senate will fail to do that.

If that's the case, the president's signing authority may have to come into play. Last year, more than once, he said beyond a certain line I'll have to veto the bill. He never had to do it. Congress did respond. Let's hope that happens again.

CAVUTO: Director, the one thing that worries me is when we get to this point, and you're looking at raising the debt ceiling and Democrats try to embarrass you and all of that. I wonder with this swapping game back and forth, and just how you pay your bills in the meantime, what message that sends to people abroad, that we don't have our house in order? Do we?

DANIELS: It is unfortunate. Secretary O'Neill and the president both made the point early on, let's treat this debt ceiling as the housekeeping measure that it is. That has not proven possible and that is regrettable. But we have about another month. And if we can get organized on the Hill, presumably this supplemental or some other vehicle will take care of that bit of necessary business.

CAVUTO: Here's what worries me, Director. When we look at shifting billions of dollars from civil service retirement funds to non-interest bearing accounts just to essentially keep under that ceiling and pay our bills, are we sending a message that we're back to some dangerous days?

DANIELS: I think we are and I think it's too bad that the politics of Capitol Hill don't seem to permit in a standoff between the parties the debt ceiling simply to be passed. You know, it doesn't change anything. It only reflects past decisions, and should not probably be quite as symbolic an event as it seems to be. But I hope it won't be misunderstood either. It is going to happen. Of course, the government is going to pay its bills. What is really most important is our earlier discussion, what do we do from now on about spending and make sure that we accumulate as little debt as possible.

CAVUTO: All right. Mr. Daniels. It's always a pleasure. Thank you very much.

DANIELS: Yes, sir.

CAVUTO: Mitch Daniels, the White House budget director from the White House.

Content and Programming Copyright 2002 Fox News Network, Inc. ALL RIGHTS RESERVED. Transcription Copyright 2002 eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.), which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Fox News Network, Inc.'s and eMediaMillWorks, Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.