Clinton-era Treasury Secretary Robert Rubin says the United States absolutely must cut its deficits but should put off the hardest steps for two to three years or risk killing the nascent recovery.

He warned, however, that inaction would inevitably result in a dramatic increase in interest rates, crushing any chance for the United States to slowly grow out of its predicament.

“Recovery will not be sustained and strong until measures for a sound fiscal regime are enacted, because of the adverse effects on business confidence and the market risks of our current fiscal trajectory,” Rubin wrote in the Financial Times newspaper.

“However, we should still take highly targeted actions now that could be especially strong growth catalysts for shorter-term recovery or provide essential hardship relief,” he wrote.

Rubin’s sentiments are in line with the expected message from President Barack Obama during his State of the Union speech Tuesday.

Early reports on the speech suggest Obama will highlight spending he feels is crucial to protect, such as education.

Rubin nevertheless warns that setting a serious deadline for major budget cuts is absolutely vital or the United States runs the risk of a run on its bonds, which would push up financing costs and break the economy.

“Most dangerously, there is a risk of disruption to our bond and currency markets from the fear of much higher interest rates due to future imbalances or from fear of inflation because of efforts to monetize our debt,” Rubin warns.

“The result could be significant deficit premiums on bond market interest rates, seriously impeding private investment and growth or, worse, acute bond market declines that cause an economic crisis,” wrote Rubin, a former Goldman Sachs banker who later served as an adviser to Citigroup.

“This could also start in the currency markets,” he warned.
Rubin went on to say that expecting U.S. growth to make up the lost ground was simply impossible, calling that level of growth needed “inconceivable.”

Meanwhile, the root cause of the U.S. economic crisis, falling home prices, grinds on.

Residential real-estate fell in November by 1.6 percent compared to a year ago, according to new S&P/Case-Shiller data. That was the biggest 12-month decline since December 2009.