TEXT OF INTERVIEW

SCOTT JAGOW: We're less than two weeks from the end of the government's fiscal year and it looks like the federal budget deficit will come in about 20 percent smaller than last year, around $260 billion. Or it could be twice that amount if you do the math the way Newsweek's Allan Sloan does it.

ALLAN SLOAN: $558 billion dollars, give or take a few buck for rounding errors.

JAGOW: Well that's about a $300 billion difference. How do we come up with that?

SLOAN: I'm sort of an old-fashioned person and I have this idea that when the government issues an IOU to somebody it's the same thing as paying cash because at some point somebody will have to pay the IOU. So by my rough math the government will have issued $298 billion of IOUs to the Social Security trust fund and a batch of other trust funds. And I expect the IOUs to be paid.

JAGOW: Why isn't that included in the federal deficit number that the government comes out with?

SLOAN: Because it just isn't. OK? Social Security is theoretically part of the government and there's something called the unified budget where it's included but nobody pays attention except a handful of cranks like me. But it doesn't count as an expense. Just look at it that way.

JAGOW: Well why does it matter if the government uses the $260 billion figure or your figure, it's still less than it was last year so?

SLOAN: I come from a world in which numbers matter. Putting bad numbers in the world produces bad results. And maybe $558 billion would get your attention and maybe somebody would actually possibly do something about this or care. You know, it's my job to tell people what's going on and that's what I'm doing.

JAGOW: We're talking about all these numbers but I guess getting lost in the shuffle is the fact that we are borrowing all this money.

SLOAN: Right, we're borrowing, just for the sake of discussion, $260 billion from regular people, and again then $298 billion from taxpayers yet unborn with IOUs. The bulk of the $260 billion that we're borrowing from investors comes from foreign lenders. The idea of borrowing all this money from central banks, largely Asian central banks, that are run by countries whose interests in the end are not going to be the same as ours. This really makes the country vulnerable, it really weakens us. It would be one thing if we were borrowing this money to build up infrastructure in the United States or make ourselves more competitive. We're borrowing it for consumption and we're just giving an increasing part of our future to the rest of the world because we won't face up to the problems here by either raising taxes or cutting expenses or preferably a combination of the two and we're not going to do it until some event forces us to do it and it's not going to be fun.

JAGOW: Allan Sloan is the Wall Street editor for Newsweek magazine. In Los Angeles, I'm Scott Jagow. Thanks for listening.