Why the Massive U.S. Debt Is a National Security Risk

This is a rush transcript from "On the Record," April 19, 2011. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: It's no secret. It's all over the Internet. We're broke. And our nation's creditors, including China, are all onto us. So ask yourself, do you think the gross mismanagement of our nation's finances creates any national security risk?

Former U.S. ambassador to the U.N. John Bolton joins us live. Good evening, sir. And tell me -- we're in a financial mess. We owe an awful lot of money to China and Japan and even the U.K. But is this a risk for us in national security terms? I realize the economic problems, but is it a national security risk?

JOHN BOLTON, FORMER U.S. AMBASSADOR TO THE U.N./FOX CONTRIBUTOR: Yes, I think it is a national security risk for two reasons. First, this dead weight of the debt inhibits economic growth. And you can't have real national security, you can't spend the kind of money you must spend on defense unless the economy can sustain it, number one.

And number two, the perception that grows around the world is of a declining United States, a United States that will not be able to meet security burdens for itself or its friends or allies. So there's both a real effect and a perceptual effect, and they're both very, very damaging.

VAN SUSTEREN: Well, I thought it was intriguing that China today, at least it was reported in The Wall Street Journal, called on Washington to adopt, quote, "responsible measures to protect its bond holders," meaning China's bond holders, and also China telling us we need to reduce our trade deficit, which would be -- actually be much easier to reduce our trade deficit if they'd do something about their currency so that we weren't constantly buying their stuff vis-a-vis ours because our currency in this situation. But anyway, China is watching this very closely.

BOLTON: Well, we're in bad shape when the communists in Beijing are lecturing our administration on sound economic policy. And it's even worse when the communists are right. You know, it's not just the Chinese that are manipulating their currency. We're doing it, as well, under the mistaken idea that holding down the value of the dollar will promote exports and jobs, when, in fact, the correlation there is very weak.

What we are doing by fostering a weak dollar is endangering its status as the world reserve currency and risking the power, both economic and political, that the dollar status has given us for several decades now.

VAN SUSTEREN: I don't mean to be so flip, but I -- and I don't -- I want to be careful not to misquote one of the co-chairmen of the president's debt commission, but one of them made a statement something to the effect that we have a treaty to protect Taiwan from China, and yet we have to borrow from China in order to do it, the irony of that. I mean, obviously, he's being flip, but it just shows how bizarre these relationships have gotten because we've become indebted to these countries.

BOLTON: Well, you know, in a sense, China is protecting us from the Obama administration. If nobody buys the debt, it's not sustainable in domestic terms here. But I just think it just underlines why it's absolutely critical not just as a domestic policy matter, but for the national security implications to stop this insane level of government spending, the deficits on an annual basis adding to a national debt that takes us well beyond anything we've ever seen before.

VAN SUSTEREN: I -- I -- you know, we could -- I can sit and sort of imagine all the potential problems, national security problems, with having these huge debt problems and deficit problems. But tell me, are there any specific instances right now where we're experiencing a national security issue or a potential one as a result of our money?

BOLTON: Well, I think the ability of the United States to influence economic policy around the world is severely undercut when other countries look at our fiscal policy and our inability to discipline what the federal government is doing and say to themselves, Why should we listen to these people? It's no wonder the president's favorite economic policy group, the G-20, has so little influence because the United States itself can't get its own economic house in order.

And I think that can have implications not just in the current economic circumstances but when we do face other challenges around the world. I think it leads to the United States losing the leadership position it has had basically since 1945.

VAN SUSTEREN: OK, this is a two-part question. Number one, are you running for president? And number two, if you were to run for president, what would you do -- and actually become president, what would you do about this problem?

BOLTON: Well, I'm still thinking about running for president, and what I would do would be to turn very sharply against the domestic spending levels that we have. I think the Republicans in the House have started but only started to turn back to where we should be, not just at 2008 domestic spending levels, but much below that. And I think we've got to have an adult conversation with the American people about not just Medicare and Medicaid, but Social Security, too.

I reject the idea that many Democrats believe in that the American people are not smart enough to understand that we cannot continue to fun Social Security, Medicare, and Medicaid the way we have. I think precisely they understand it, and they're waiting for somebody to demonstrate some leadership.

VAN SUSTEREN: How about the hot button item of taxes? The Republicans say, you know, you raise taxes, you're going to end any sort of job creation. It's a job killer. On the other hand, we are just bleeding in terms of -- we need money so desperately into our government. What's your position on raising taxes in some form, or some amount?

BOLTON: I think the purpose of taxation ought to be simply to raise revenue for the government. I don't think it should be involved in setting kinds of policy, deductions and credits and the like. So I think, particularly for income tax, I would go for a low, flat, simple tax system. That should be the objective, to keep the rate for everybody as low as possible.

VAN SUSTEREN: Ambassador, thank you, sir.

BOLTON: Thank you.