''The budget deficit is the symptom of a more deep-seated problem - the breaking down of the fiscal process in this country,'' says economist Alan Greenspan.
Thus the longtime presidential adviser and chairman of the recent social security reform commission defines what he calls the ''oddly difficult'' situation in which the United States economy finds itself.
The recovery is solid.
Continued economic growth at a 3.5 to 4 percent pace well into 1984 is foreseeable, accompanied by relatively low inflation and a slowly declining jobless rate, Mr. Greenspan says.
The latest good news is a government report that consumer prices so far this year - January throuth September - rose at a 3.7 percent annual rate, compared with 3.9 percent for all of 1982.
In September, the US Labor Department said, consumer prices rose 0.5 percent - the fastest increase in five months - paced by price hikes for new cars and housing.
This pattern fits the projection of most analysts that the nation's underlying inflation rate, taking into account all price movements, will be about 5 percent this year.
All this sounds good. In fact, Greenspan told reporters at breakfast, ''Growth rates in the United States are higher than anywhere else in the industrialized world except in Canada.''
But he warns that the recovery is concentrated in the production of short-term goods at the expense of the ''long-lived assets'' - steel, construction, and heavy equipment - on which the long-term health of the US economy depends.
Industries producing such long-lived assets, he says, ''are not playing a full role in this recovery.''
This ''gradual erosion of smokestack America,'' says Greenspan, stems ultimately from the financial community's perception that the ''fiscal processes of the government are out of control.''
In his view, this uncertainty ''imposes a high inflation premium on long-term investment, which translates into high long-term interest rates.''
Lenders, anticipating inflation down the road, charge high rates on their loans.
Firms with rapid turnover of goods borrow for the short term and, as profits rise, finance more of their production internally.
But the smokestack industries - steel and others allied with construction and heavy machinery - are ''credit intensive,'' says Greenspan. They require long-term borrowing to finance production.
Already he says he sees a ''crowding out'' of such industries in credit markets, as managers of smokestack industries hesitate to commit their firms to paying high interest rates over a long period of time.
''This suppression of long-lived asset expansion springs from the concern of the financial community that there is a built-in growth in the ratio of government spending to GNP,'' says Greenspan.
The GNP, or gross national product, represents the total output of the US economy. In fiscal 1981, when President Reagan took office, the federal budget consumed 21.1 percent of GNP.
In fiscal 1984, says former Congressional Budget Office (CBO) director Alice M. Rivlin, fiscal spending will total more than 24 percent of the GNP - the highest percentage since World War II.
Mr. Reagan's original goal was to reduce federal outlays to 19.3 percent of GNP by fiscal 1984, which began Oct. 1. Instead, the average for Reagan's four budget years is likely to be 24.4 percent, compared with 21.9 percent for President Carter, Dr. Rivlin says.
This buttresses Greenspan's view that ''basically what is needed is to halt the continuous rise of federal outlays as a percent of GNP.''
Huge budget deficits and calls for an ''industrial policy'' to revive smokestack America are subordinate to the fact that government spending is out of control, says Greenspan.
Higher taxes alone, he says, will not solve the problem. He shares Reagan's conviction that higher government revenues tend to trigger higher spending.
''Let us assume a $100 billion tax increase,'' Greenspan says. ''Within 18 months, spending projections for nondefense programs in future years would significantly rise.''
How to make a dent in the problem?
One step, says Greenspan, would be to reduce benefit increases in all entitlement programs to the consumer price index, minus 3 percent. Currently, benefits rise in tandem with the index.
This, he says, would result in a 3 percent benefit reduction in real terms for social security and federal pension recipients, compared with the present system.
Many experts agree with Greenspan that eventually a tighter lasso will have to be thrown over burgeoning entitlement program costs, if federal spending is to be controlled.