Washington ? Federal Reserve Chairman Alan Greenspan said Wednesday that Congress had lost the ability to manage crucial long-term budget issues and new mechanisms were needed to keep future costs from ballooning beyond the nation’s ability to pay.

Greenspan defended President Bush’s three rounds of tax cuts, saying they had helped ensure that the 2001 recession was mild and brief and have provided critical stimulus to keep the current rebound on track.

But he warned that rising deficits could become a problem during the next decade as Social Security and Medicare costs escalate with the retirement of baby boomers.

“Looking forward, fiscal policy is going to become a very critical issue on the agenda for macroeconomic policy,” Greenspan told the House Financial Services Committee.

Greenspan again supported a return to pay-as-you go policies that would require Congress to offset future increases in government spending or new tax cuts with cuts in other government programs or tax increases.

The administration supports reinstituting the pay-as-you-go mechanism for spending but not for tax cuts, because it would complicate Bush’s goal of making permanent the 2001 tax cuts. The cuts are due to expire in 2011.

A decade-long requirement for pay-as-you-go budgeting expired in 2002.

Greenspan suggested that Congress should go beyond pay-as-you-go provisions to provide ways to rein in government spending or tax decisions if the costs of those actions balloon above the original estimates.

“You need a mechanism which adjusts programs as you move forward,” Greenspan told the panel. “We also have to begin to think of how we nudge programs back to where we thought we were pushing them in legislation, either through triggers or sunset legislation.”

Greenspan said this was crucial because so many of Congress’ spending and tax decisions go well beyond the timeframe of an annual budget.