"The presumption that we're going to have a painless solution to this, I think, is fantasy," Greenspan said during an interview on Bloomberg TV's "Bloomberg Surveillance." "There are a lot of risks out there, but the one thing I can be reasonably certain of is we won't get through this whole issue without some pain."
The U.S. faces twin fiscal challenges with more than $600 billion of spending cuts and tax increases scheduled to hit at the beginning of next year, threatening to send the economy into an austerity-induced recession, even as rising long-run deficits may prove unsustainable.
Greenspan, 86, who preceded Ben S. Bernanke as head of the central bank, blamed U.S. deficits on growth in spending and blamed both political parties, saying, "Strangely enough, and ironically, the spending surge which is creating the problem here is fundamentally both Republicans and Democrats."
Bernanke also has spoken of the need to control U.S. deficits. In a Nov. 20 speech in New York, he said Congress and the president should reach a plan to close deficits in the long term without harming the economy in the near term.
"A credible framework to set federal fiscal policy on a stable path -- for example, one on which the ratio of federal debt to GDP eventually stabilizes or declines -- is thus urgently needed to ensure longer-term economic growth and stability," Bernanke said last month in New York.
While Bernanke has refrained from identifying the mix of fiscal changes that are needed to stabilize fiscal policy, Greenspan said the "key part" of the deficit is "government social benefits to persons."
He added that the economy is poised for 2 percent growth, without specifying a time frame.
"Two percent is going to be our normal" for now, Greenspan said. "What is going to be the key factor in the long-term productivity outlook is innovation."