Government on Pace for Record Spending

This is a rush transcript from "On the Record," July 20, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: And congratulations to you! You are about to break another record. Well, on second thought, you might not like this. It might even be a bit of a headache to you, but here it is. In the face of an unprecedented debt and deficit, Congress is on pace to spend $4 trillion this fiscal year, shattering the previous record of $3 trillion of your dollars spent in 2008.

Joining us live is Adam Shapiro, reporter for the FOX Business Network. Adam, we're breaking a record, $4 trillion! It's -- though it's hard to -- usually, I like to break records. Not this one, though.

ADAM SHAPIRO, FOX BUSINESS: Well, let's be accurate. It's not quite $4 trillion. It's $3.998 trillion. So let's...

VAN SUSTEREN: Oh, well. I got that one wrong.

(CROSSTALK)

SHAPIRO: ... over $4 trillion.

VAN SUSTEREN: So what -- what do we get for this? And should we be (INAUDIBLE) you know, now we're just so busy, like, with these big numbers and printing money, and you know, billions, trillions, it's sort of meaningless to us. I mean, what does this really mean to us?

SHAPIRO: That's a great question because the numbers are so huge, does anyone really get it? Think of it in terms of the entire U.S. GDP, the economy. Our economy is roughly $14 trillion, so we're going to spend, the U.S. government is going to spend roughly $4 trillion as part of its budget, and almost half of that is going to be borrowed. We have to borrow $1.8 trillion, almost $1.9 trillion to meet our budget. So if we have an economy of $14 trillion, we're going to be borrowing $1.8 trillion, $1.9 trillion, that tells you where we stand.

A lot of people are saying that the U.S. is broke. Others say, No, we're not broke at all, that we have the world's largest economy and we can afford this kind of borrowing. But we can't afford it forever. And the question they're asking is, When do those numbers start to come down?

VAN SUSTEREN: All right, now, in preparing for this, I noted that you refer to this as sort of a deflationary spiral, which is also words, regrettably, that were used during the Depression in the '30s. Are we in a -- first of all, what is a deflationary spiral? And is that truly where we are? Are there any guideposts or indicators that we could even be headed in that direction? Or is there something uplifting, that we're on the way out?

SHAPIRO: OK, a deflationary spiral is what the federal government and what the Federal Reserve are trying to avoid. That's essentially, very simply, when the price of everything, including your wages, falls and they can't stop the fall. That's the spiral. Most of the experts, most of the economists tell you we're not there. That's not happening.

But look at the real world implications of this. Has the value of your house gone down? Have the value of your other assets, perhaps your stock holdings, done down? What about your wages? Most people say their wages haven't declined, but what about all the people who are taking those furloughs, those unpaid days off? That, in essence, is a decline in wages.

So there are some people who are saying that deflation is a threat. That's the threat right there. One of them happens to be Janet Yellen from the Federal Reserve. She's the president of the Federal Reserve bank in California. So this is pretty serious business. But they use all these fancy terms, Greta, and the bottom line on all of this is, right now, the so-called experts say, No, we're not in that deflationary spiral.

VAN SUSTEREN: All right. Is there -- I mean, this is the way at least I think a lot of people -- either we're going up, we're going down, or we're holding water. And you look at the various indicators, whether it's jobs or whether it's inflation or -- or you know -- which way are we - - what are the guideposts? Is the stimulus from the $800 billion from February -- are there any flags that show we're on the upswing?

SHAPIRO: Not yet. They keep saying that you're not going to see the real effects of the stimulus, which the administration and the Fed, everybody's hoping will be employment, but we won't see that, they say, until 2010, perhaps even 2011.

One thing that they get worried about is you hear economists use this term, "liquidity trap." What's a liquidity trap? Think of it this way. If you drink too much and you know you got to sober up but you're afraid of being sober and you keep drinking, you're in a trap.

Economically, a liquidity trap is when you have money but you don't spend it because you're afraid you're going to lose your job. Then the guy down the street loses his job because you're not spending money at his store, so he goes out of business. And then you say, See? He lost his job. Therefore, I'm not going to spend money, and that perpetuates this problem. That's what they're trying to keep from happening.

In both cases, whether it's the person who drinks too much or the person who's not spending, the only end result is you got to give in to it at some point and realize it's beyond your control.

VAN SUSTEREN: And that's why the president doesn't want to scare us too much because he doesn't want us to hold on too tight our money, but -- he's got to be upbeat. Anyway, Adam, thank you.

SHAPIRO: Yes.

Content and Programming Copyright 2009 FOX News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2009 CQ Transcriptions, LLC, 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, LLC'S and CQ Transcriptions, LLC's copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.