Obama urges bipartisan effort on soaring deficits

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Reuters – U.S. President Barack Obama addresses the Presidential Summit on Entrepreneurship at the Ronald Reagan …

WASHINGTON – President Barack Obama said Tuesday Washington must urgently confront unpleasant truths about deficits, while theFederal Reserve chairman said failure to mop up red-ink spending would "ultimately do great damage" to the country.

Obama refused to rule out measures that would fight "exploding deficits." This signaled that politically toxic tax increases were options that could be under consideration by members of a panel he tasked with reducing federal deficits that threaten to erode Americans' standard of living.

Obama explicitly told reporters in the White House's Rose Garden that neither he nor his commission members would say what options remain viable.

"We're not playing that game. I'm not going to say what's in. I'm not going to say what's out. I want this commission to be free to do its work," said the president, flanked by Erskine Bowles and Alan Simpson, the two men he asked to lead efforts to reach a consensus plan for the deficit.

It's a task, though, that even members of the bipartisan fiscal commission admit is an almost impossible chore: produce a deficit no bigger than $550 billion by 2015, an amount equal to about 3 percent of the total U.S. economy. That would require deficit savings in the range of $250 billion or more.

Federal Reserve Chairman Ben Bernanke used the commission's first meeting as a forum to make his most urgent call yet to get the government's fiscal house in order. He warned that failing to curbfederal budget deficits would damage the U.S. economy in the long run.

Bernanke again urged the White House and Congress to come up with a credible plan to reduce the nation's red ink, which hit a record $1.4 trillion last year.

Failing to do so would push interest rates higher — not only for Americans buying cars, homes and other things — but also for Uncle Sam to service its debt payments, he said.

"The path forward contains many difficult trade-offs and choices, but postponing those choices and failing to put the nation's finances on a sustainable long-run trajectory would ultimately do great damage to our economy," Bernanke said.

Budget director Peter Orszag told the panel that Democrats and Republicans must work together to tame deficit-spending habits.

"If we allow the policy positions that divide us to prevent us from taking action, the projected medium- and long-term deficits will threaten the health of our economy and the living standards our people enjoy," Orszag said. "Sustained, growing long-term deficits will increase our reliance on creditors from abroad, reduce investment in our labs, factories, and businesses, and weaken confidence in the federal government's creditworthiness."