This is a rush transcript from "On the Record," October 22, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Republican senator Judd Gregg says the United States is moving towards a banana republic. Now, what does that mean? And why does Senator Gregg think that? Earlier, he went "On the Record."

(BEGIN VIDEOTAPE)

VAN SUSTEREN: Senator, nice to see you, sir.

SEN. JUDD GREGG, R-NH: Thank you, Greta. Thanks for having me on.

VAN SUSTEREN: And it's always beautiful. I love the U.S. Capitol behind you.

GREGG: Spectacular spot. Great place.

VAN SUSTEREN: Indeed, it is. All right, now, you have been quoted as saying that we are headed towards a "banana republic." Are those your words?

GREGG: Well, they are in the sense that I said we were headed towards a financial situation like a banana republic because, basically, if we continue to run up this debt and we continue to run these deficits at their present rate, they are what's known as unsustainable. In other words, you can't ever pay them off in an effective way without going down the road of massive inflation or tax rates which destroy productivity, which therefore destroys jobs -- job creation. And that's a term that's commonly referred to as moving towards a banana republic-type fiscal situation.

VAN SUSTEREN: I've heard you say this before. Is there something that has -- not that particular term, but that how we're fiscally headed in the wrong direction. Has something happened in the last week that has sort of, you know, piqued your interest, I mean, made it even more of a crisis in your mind?

GREGG: Well, I think if you look at this health care bill and the fact that it's going to put $1 trillion to $2 trillion of new government on top of a government that's already too large and is already too much in debt, that's what concerns me. It concerns me that we have too much debt, that were going to be running deficits of a trillion dollars a year for the next 10 years, that we're taking our public debt from 40 percent of GDP up to 80 percent of GDP, which is unsustainable.

But then you put on top of that this massive new health care program, this massive new entitlement, which is going to cost another $1 trillion to $2 trillion, and it's going to break the back of our kids, basically. We're going to pass on to our country -- on to our kids a country they can't afford.

VAN SUSTEREN: Well, what's caught my attention is that we have this - - this threshold. The president says that we're not going to go over a certain amount adding in terms of this bill, this health care reform bill. And then was an effort to sort of carve out another bill to pay doctors. And I certainly don't want to cheat doctors. I mean, they're the ones who provide us medical care. I want them to get every dime. But it's almost as though is that you slice off part of the bill so you say that it's not going to -- it's not going to reach this threshold.

GREGG: Well, there's a lot of Bernie Madoff accounting going on around here to try to make this health care bill look palatable from a financial standpoint, and that was one of the most egregious examples. They essentially took $300 billion of what should be health care reform, which is to pay the doctors a fair wage, a fair salary, and moved it off budget and said, Oh, we don't have to worry about that. That's not going to be part of the health care bill. Therefore...

VAN SUSTEREN: That's another bill!

GREGG: That's another bill! It has nothing to do with this. And therefore, we're in balance, even though they aren't in balance, even under their own numbers. Plus they got this $300 billion hole over here because they haven't figured out how they're going to pay for it.

VAN SUSTEREN: I think most people do want health care, and I don't -- I don't know anyone who wants to cheat a doctor out of a dime because, you know, we really want them to enjoy their jobs (INAUDIBLE) deliver the best for us. But there's something that is a -- you know, we also want -- I want -- we want our Congress, our senators, our president to be candid with us. How much will this cost? And don't play this game where you carve out certain bills and tell us that it's not part of the health care. Give it to us straight.

GREGG: Well, and we should. I mean, why not have the integrity to say to the American people, OK, we're going to create in this bill -- these bills -- the bills that have been passed so far are going to create this massive entitlement and it's going to cost, when fully implemented, between $1 trillion and $2 trillion a year to pay for it. And we intend to pay for it by taking -- not we, but the Democratic side of the aisle -- intends to pay for it by taking $400 billion of Medicare -- reducing $400 billion of Medicare payments so that, basically, Medicare Advantage is eliminated, and raising fees by about $500 billion. Well, they're -- they're literally going to be short about a trillion dollars. I mean, that's the simple fact.

VAN SUSTEREN: If that's true, if five or seven or eight years down the road, we are -- we are, as you predict and your colleagues predict in the Republican Party -- if that's true, are your opponents concerned everyone's going to say, Well, you told us it wasn't going to cost this money (ph) -- does anybody sort of have that long vision, or is it, like, That day will never come, so don't worry about it, or, We'll cross that bridge when we come to it? I mean, what's the attitude?

GREGG: I think the attitude is Congress works for the next election. It doesn't work for the next generation. And they want to get to the next election with a win on health care, and they know that most of their costs aren't going to be kicking in for three, four, five, six years, and so there will be no accounting, even during this administration's first term, maybe not even during their second term, for all intents and purposes, because the real big costs that are going to come are going to come in year four, five and six of this bill.

VAN SUSTEREN: Is that honest?

GREGG: Of course it's not! But it's -- it's political, and that, unfortunately, is the way this bill is being constructed, in my opinion. And we should be honest. We should say to people, Listen, you can't get something for nothing. The ends don't meet.

If you're going to create a massive new entitlement that costs between $1 trillion and $2 trillion over a 10-year period fully implemented and you're only going to raise revenues by $500 billion, which is a lot, and you're going to cut Medicare by $400 billion, the ends miss. They don't meet. And we're going to end up with passing a massive debt increase on to our kids. And already, we're putting on our kids a debt increase that they can't afford, a country that won't be sustainable.

VAN SUSTEREN: Senator, thank you, sir.

GREGG: Thank you, Greta. Appreciate the time.

(END VIDEOTAPE)

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