(Adds Orszag comments from question-and-answer session)

By Maya Jackson Randall Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- Without providing many specifics, White House Budget Director Peter Orszag Tuesday said the Obama administration is currently mulling several measures to put the economy on a sustainable fiscal path.

Orszag, who leads the Office of Budget Management, warned the deficit issue is a pressing one because at some point, there could be a rise in interest rates or a boost in borrowing from abroad that puts the health of the U.S. economy in jeopardy.

"Deficits of this size are serious--and ultimately unsustainable," he said in a speech entitled "Rescue, Recovery, and Reining in the Deficit."

"We are currently considering a number of proposals to put our country back on firm fiscal footing, and to cut the deficit we inherited in half by the end of the president's first term."

Improvements in the economy have made way for the administration to consider tough, new budget decisions, Orszag said. But he added: None of this will be easy."

Speaking at New York University, Orszag said attention is shifting in Congress toward bringing down the U.S. government's potentially massive long-run fiscal deficits.

"There is a significant coalition within the Congress to turn to this issue after we get through health-care reform," said Orszag.

Orszag said the economy seems to be recovering, but he expects the labor market to remain weak in the coming months. Even after the unemployment rate starts to fall, workers will likely need support given that recessions tend to have long-lasting impacts on workers, he added.

Meanwhile, Orszag defended the Obama administration's sweeping, $787 billion fiscal-stimulus package as the right approach to the financial crisis and largely blamed the Bush administration and the recession for the current deficit.

"The bottom line is that the administration and Congress did the right thing in forcefully responding to the current downturn: Mitigating the depth and duration of the recession will help to lessen the extent to which its effects reverberate in the years ahead," he said.

Orszag spoke as the budget deficit grows as a political issue, with Republicans and Democrats blaming each other for the ugly fiscal picture that has emerged. Just weeks ago, the administration announced the deficit for the last fiscal year was $1.4 trillion--the biggest U.S. deficit since World War II. Orszag noted next year's deficit is expected to be about the same size. Also, current projections show $9 trillion in deficits over the next 10 years, averaging about 5% of gross domestic product.

Orszag blamed past policies for the country's fiscal woes. Nearly $5 trillion of the $9 trillion in deficits projected over the coming decade are the result of failing to pay for the 2001 and 2003 tax cuts and the creation of a Medicare prescription drug benefit, he said. Additionally, he said "roughly $3.5 trillion can be attributed to automatic economic stabilizers," or spending programs such as unemployment insurance and food stamps, that automatically increase.

The fiscal stimulus program, known as the Recovery Act, accounts for just 10% of the entire deficit over the next decade, he said.

"All told, the entire $9 trillion deficit reflects the failure to pay for policies in the past and the cost of the worst economic downturn since the Great Depression and the steps we had to take to combat it," he said. "It was the result of decisions--conscious, but unfortunate--and it will take deliberate action for us to work our way out of this situation."

-By Maya Jackson Randall, Dow Jones Newswires; 202-862-9256; maya.jackson-randall@dowjones.com

(Michael Casey contributed to this article.)

(END) Dow Jones Newswires

11-03-09 1454ET