"Under existing tax rates and reasonable assumptions about other spending ... projections make clear that the federal budget is on an unsustainable path, in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years," Greenspan said in testimony prepared for a Senate Budget Committee hearing.

He said the danger was that deficits would keep rising as a percentage of total national output.

"Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse."

Much of Greenspan's testimony echoed prior cautions he has made to Capitol Hill lawmakers and he stressed that steps to fix the problem were essential.

"As the latest projections from the (Bush) administration and the Congressional Budget Office suggest, our budget position is unlikely to improve substantially in the coming years unless major deficit-reducing actions are taken," the Fed chief said.