This is a rush transcript from "On the Record ," March 23, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Senator Judd Gregg says President Obama's budget is going to bankrupt our country. Now, that's particularly stinging criticism because Senator Gregg was nominated by the president to Commerce secretary. Senator Gregg later withdrew his name from consideration for that cabinet post.

And moments ago, Senator Judd Gregg went "On the Record."

(BEGIN VIDEOTAPE)

VAN SUSTEREN: Are we going bankrupt?

SEN. JUDD GREGG (R), NEW HAMPSHIRE: Well, if we stay on the path that's been proposed by this presidency relative to spending, taxing and borrowing, we'll get there pretty quickly, unfortunately, because the debt that we are running up -- we're going to double the debt under his plan in five years, tripling it in 10 years -- can't be afforded. We'll have to either monetarize that debt -- that means inflate it -- or we'll have to figure out some way not to pay it.

VAN SUSTEREN: All right, if we go bankrupt, what does that mean for us? I mean, what does it mean for the average American...

GREGG: Well...

VAN SUSTEREN: ... because we've seen all these incredible numbers and -- I mean, it's extraordinary. It's hard to sort of realize what it means to -- actually means to someone.

GREGG: Well, what it means is that we as a nation basically borrow from other nations in order to finance our ability to do what we want to do as a government and as a people. And people will simply say, Oh, I'm not so sure I'm going to buy your debt any longer, or if I am going to buy your debt, I'm going to charge you such a premium that it's going to be very expensive for you.

And in the end, it means that the quality of the lifestyle in this country reduces because you end up with such a huge debt and you have to -- you spend so much of the profitability of our nation, of the product of our people, on paying down the debt that you simply can't spend it on things like sending your kids to college and buying a house and doing the things that make the country stronger.

VAN SUSTEREN: Well, I see that China holds the most -- as a foreign country, holds the most debt, American debt. If there comes a time, I mean, can China just call the debt in and say, I want the money? I mean, how does that works? That's how it works, like, on your -- your Visa card or when the -- when someone -- the department store wants you to pay your debt. What -- what about...

GREGG: Well, hopefully, we'll never get to that point. And it would be alarmist to say we would get there except for the fact that under our present glide path, if we don't do something, the Chinese may say they're not going to buy our debt any longer. And in fact, the premier of China did say just a couple weeks ago that he was very worried about -- or he was concerned about the investments that they have in the United States.

And we need them to buy our debt in order to finance the deficits. So in order to correct that, we need to get the deficits down, and that brings the debt down. And the way you get the deficits down is you don't spend as much money as they're planning to spend in this government.

VAN SUSTEREN: If someone doesn't buy our debt, if a foreign country is unwilling to buy our debt, and we have exploding amount of deficit, we print more money, right? Is that how it's done?

GREGG: We buy our own debt.

VAN SUSTEREN: We buy our own debt, and then essentially, inflation gets very high, so that a loaf of bread is very expensive. Is that in theory how -- is that how we (INAUDIBLE)

GREGG: In a worst-case scenario, that's what would happen. You basically what's known as monetarize your own debt, where you come in and the Federal Reserve prints money in order to buy up our debt, and that creates inflation.

VAN SUSTEREN: Isn't the time, though, now -- and it seems like the sort of -- we see what the budget proposal is by the current administration -- I mean, you would think that now would be a time to either change tacks, if we're going to.

GREGG: What we should do now is this. Granted, we're in a recession, so that we've got to spend money we don't have, basically, to try to get us out of this recession. And I accept that and I accept the administration's initiatives in this area and I support their initiatives in most of the areas here.

But two or three years from now, what we should be saying to the world community and to our people is we're going to start disciplining ourselves financially. We're going to look at the accounts that are going to drive this debt and drive our spending most aggressively, which are mostly entitlement accounts, and we're going to figure out some way to make them more affordable.

You start with Social Security, for example, and do something aggressive there, something that's positive, and then follow that with Medicare. If we did that and we put that in place, then people would have confidence in our fiscal resilience because we are a resilient nation.

VAN SUSTEREN: So right now, you support the administration's effort to restimulate -- to sort of stimulate the economy and -- with a stimulus bill of some sort...

GREGG: I didn't support the stimulus.

VAN SUSTEREN: Well, not -- maybe not with the package inside in, but the whole concept that we need to stimulate the economy now because we're in a recession -- is there anything different that you would do right now?

GREGG: Absolutely. Right now, I would -- if I'd sent this budget up here, I would have put in instructions to bring under control the rate of growth of spending in the out years. What they've done is they've taken spending as a percent of gross national product up to 23 percent. Historically, the last 40 years, it's been 20 percent of GDP. That 3 percent is a huge amount of money on an economy our size. We've got to get it back down to 21, 22 percent, at the most. And the way you do that is you limit the rate of growth of entitlement spending.

VAN SUSTEREN: And is that something we do next budget? I mean, it can be...

GREGG: No, we should do it right now.

VAN SUSTEREN: Do it right now. If we don't do it right now, and it doesn't look like we're going to do it right now, what's the practical effect on us?

GREGG: Well, in the short...

VAN SUSTEREN: And by us, I mean the American people, you know...

GREGG: In the short term, we'll survive this, but in the long term, we're going to end up with debt accelerating at a rate that we can't afford to pay it off in a way that's going to continue our productivity as a nation. Basically, if you triple it -- double the debt in five years and triple it in ten, years, you're basically putting yourself in a position where just supporting that debt, the cost of supporting that debt's going to eat up huge amounts of resources that should otherwise be going to making you more productive.

VAN SUSTEREN: Do you know of any Democratic U.S. senators that are pushing back on this budget that's being proposed by the president?

GREGG: Well, there are a lot of Senators -- there are a lot of people here in the Senate, a lot of Democratic members who are very concerned about this issue. And there are a number of proposals that are very bipartisan to try to address this issue. For example, Conrad/Gregg, which is a proposal which basically puts in place a process to force us as a government to face up to some of these policy issues and make some tough decisions. That's got very broad bipartisan support. All it needs is a little push from the White House, and we probably could put it across the goal line.

VAN SUSTEREN: Have you ever had this discussion with the president?

GREGG: I have. I've had it with the president, as have many of my colleagues. This is not a unique discussion. And the president is -- understands the issue. His staff understands the issue. The problem that they have, I guess, or the concerns that they have is they've got a very big and robust agenda. They intend to expand the size of government significantly, and I think they're not wanting to step back yet and say what's the long-term implications of this.

VAN SUSTEREN: Is their sort of agenda for the government independent of the way that they are looking at the economy -- I mean, have they decided that, This is what we want to do with the government, so we're going to -- we're going to go this direction, and we think it's going to help the economy, but that's more important than sort of trying to micromanage the economy right now?

GREGG: Well, obviously, in the short term, they've got to spend a lot of money. I accept that fact. And they've decided to do that, and I support, for example, the initiatives by Secretary Geithner. But at the same time, this is a two-track exercise. In the short term, we may have to spend some money, but in the long term, we have discipline our spending. And they haven't put in place the process for disciplining the spending long term. In fact, they've done just the opposite. Their proposal as they sent it up radically expands the size of government in the area of health care, in the area of student loans, in the area -- in a variety of areas, energy, and in just discretionary spending.

VAN SUSTEREN: Secretary Geithner -- going to go, stay? Should he go? Should he stay?

GREGG: He should stay. And the proposal he came out with out today is a reasonable proposal, and let's hope it works because we need it.

VAN SUSTEREN: Who's the smartest person you know on the economy? And I take you out of the equation, but who's the -- who's -- who do you think...

GREGG: That's easy to do, if you're asking that question.

VAN SUSTEREN: But I mean, who do you sort of look to? Who do you think is the smartest person in politics, academia, anything? Who's the smartest person?

GREGG: Well, there are a lot of very capable people out there, and I don't try to limit myself to one person.

VAN SUSTEREN: But who -- who sort of comes to mind? I mean, who...

GREGG: Well, I would -- Chairman Volcker. I mean, he's probably as smart and capable guy as there is, and I'm glad he's on the White House team. I hope he's being listened to down there.

VAN SUSTEREN: Thanks, Senator. Nice to see you.

GREGG: Thank you.

(END VIDEOTAPE)


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