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Former Obama budget chief says he fears Washington will wait for crisis to act on deficit and debt

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Peter Orszag, President Obama’s former White House budget chief, issued a dire warning to the nation Friday about the inability of Democrats and Republicans to overcome political motivations and act to prevent a fiscal crisis.

“I hope it does not ultimately require a crisis to restore fiscal sustainability at the federal level, but I fear it will,” Orszag said inpublished in the Financial Times.

Orszag’s essay comes a few days before Obama’s second annual State of the Union address on Tuesday, and will increase pressure on the president to outline specific measures addressing the budget deficits and national debt.

In the op-ed, Orszag, who is now vice chairman of global banking at Citigroup, said that in the short term, the federal government should refrain from making spending cuts that are too deep, for fear of harming the economic recovery.

He also downplayed the risk of default by state governments in the coming year. He allowed that cities may go bankrupt, but said that the impacts across the country and on Wall Street from such a development “are unlikely to be substantial.”

Without giving any specifics himself, however, Orszag said that lawmakers in Washington needed to act to lay out a plan for bring long term spending and debt down significantly.

“The bottom line is that there may well be US public debt tremors this year, both during federal debate over raising the debt ceiling and with at least a limited number of crises in local and city governments. The bigger problem, though, lies beyond 2011, as the unsustainability of the federal government’s fiscal trajectory becomes increasingly clear,” he said.

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