By Vicki Needham - 04/04/11 02:48 PM EDT
Lawmakers are currently battling over spending cuts to this year's federal budget, with a shutdown of the government looming if an accord can't be reached by Friday, when the latest funding bill expires.
Proposed cuts are aiming to gradually reduce the estimated $1.6 trillion deficit projected for this year.
"The public sector in the United States must stabilize its finances and reverse the accumulation of debt that has accelerated in recent years," Lockhart said. "This process of public sector deleveraging — an element of fiscal rebalancing — is mostly ahead of us."
House Budget Chairman Paul Ryan (R-Wis.) is expected to release his fiscal 2012 budget plan on Tuesday that would trim $4 trillion in spending during the next 10 years, slightly more than what President Obama's fiscal commission suggested in a December report.
"Spending cuts have begun at all government levels, and some improvement in revenues is now being reported," Lockhart said. "The extent of cuts is being discussed, quite literally, as we speak."
In the past 25 years the nation's economy has gone through three distinct periods: the Great Moderation, the Great Recession, and what Lockhart is calling the Great Rebalancing, which is under way.
Also, as regulatory rebalancing continues, Lockhart said maximizing the economy's potential during the implementation of the Dodd-Frank financial reform law requires striking "the right balance in all regulated sectors."
The banking industry and other others have expressed concern that the new regulations could be "overreaching and potentially destructive" if the cost of compliance drives out investment and hiring, he said.
Meanwhile, consumers are saving more and tempering their spending, making the economy less dependent on consumption, which is expected to help "rebalance the country's external accounts," Lockhart said.
"Consumer spending has been growing more slowly relative to income than it did before the recession," he said. "I expect that this more measured consumption behavior is likely to persist."
During the economic downturn, households opted to reduce debt and rebuild savings, pushing the savings rate up to about 6 percent — three times higher than before the recession started in December 2007 and at the end of what Lockhart calls the "Great Moderation."