Why does Bush say we are in good shape economically if it is all borrowed money??

You are confused.

Most Corporations borrow a lot of money. And debt itself is not a bad thing.

For example, if you borrow a Billion Dollars to build a Building and you fill the entire building with tennants and the money they pay each year is more than the interest you pay each year then it's a good business for you and you can ask for more and more billions as long are you can fill them with enough tenants.

On the other hand, if you borrow $400,000.00 to buy a Porsche and you have to pay each year $40,000.00 on interest and every year your car is worth less and less and you have to buy tires, insurance, parts and a lot of gasoline then this is a bad business for you. There is nothing wrong with buying a Porsche as long as you are using your own money.

The shape of the economy is good or bad based on several factors:
1) Growth (The United States of America is growing)
2) Inflation (The United States of America estimated inflation for 2006 is 3.5% which is high if you compare it to England's 1% but low if you compared against a 35% inflation in a Third World Country)
3) Unemployment (Less than 5% as opposed to Colombia where 20% of the population is unemployed)

As long as the Economy keeps growing unemployment would keep going lower because new businesses means new employees.

Inflation is controlled by raising interest rates (Currently at 5%)

In Theory, the United States of America could raise taxes to twice what you are paying now and use that money as usual and borrow less money.

However, that would force a lot of companies to fire millions of people and profits would go down and the economy would grow slower.

In theory, the United States of America could reduce their budget and spend less money on thing we don't really need or want.
For example, Welfare could be deleted, School could go Private, Firefighters could go private and if that is not enough you the Government could sell the entire Police Department to a Private Corporation, Close all museums and even sell every piece of art from every museum. They could also sell the Entire State of Arizona to Mexico.

There are many ways to cut the budget. However, most of these ways are not popular and that is why they we'll never be implemented.

So in reality, you cannot cut the budget without erasing that cloud that the United States of America is the most powerful nation on the World and the richest nation of the world and that means the United States of America will keep borrowing more and more money until the day they rest of the World decides not to borrow them more money and that is when the United States of America will be forced to sell 5 States to Japan because they no longer can afford to pay for the interest of the japanese, chinese, germans and mexicans.