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Obama, Calling Economic Situation 'Dire,' Names Fiscal Overseer

President-elect Barack Obama said Wednesday he plans to spend a proposed stimulus package to create or save 3 million jobs and lay the foundation for long-term economic growth, and he warned that the recovery plan will add to the deficit in the short term.

The president-elect, calling the nation's economic situation "dire," refused to put a final number on the economic package, which is expected to cost about $775 billion. Some economists, however, have called on more than $1 trillion in aid.

"We are still in consultation with members of Congress about the final size of the package," Obama said. "We expect that it will be on the high end of our estimates, but it will not be as high as some economists have recommended because of the constraints and concerns we have about the existing deficit."

Obama made his remarks as he appointed Nancy Killefer as the nation's first chief performance officer, tapped to cut waste and improve efficiency in government.

Killefer, a 30-year veteran of the management consulting firm McKinsey & Company, Inc., will  focus on bringing back long-term fiscal discipline to the nation by looking for ways to increase efficiency across bureaucratic lines.

"Most of the operational issues that the government faces today have developed over decades and will take time to address, but there is an urgency to begin now," said Killefer, who has worked as a senior director in the public sector practice of McKinsey, specializing in improving organizational effectiveness for governmental clients.

Her appointment encouraged many lawmakers.

"The fact that [Obama] is making these comments publicly about fiscal responsibility gives me encouragement that we will see something," said Rep. Charlie Melancon of Louisiana, one of the leaders of the Blue Dog Coalition of conservative and moderate Democrats.

Obama said his stimulus package would focus on long-term investment in health care, energy and education; provide tax relief to middle-income families and some private-sector businesses as well as shoring up states "to prevent them from laying off more workers in vital services like teaching."

He said his team is creating a stimulus that will be "able to use this money wisely, effectively in a two-year time span so that we're not creating long-term obligations that would add to the structural deficit that exists, but would provide an immediate boost to the economy."

Budget-conscious lawmakers have pressed Obama to embrace deficit-reduction goals even as he promotes a spending and tax-cutting plan to jolt the economy out of its downward spiral.

"Part of the discussion that needs to happen right now is not what we do just right now, but what we look to in the future -- about how we get back to a balanced budget and then start to deal with this horrible, horrible national debt that we have," said Rep. Dennis Moore of Kansas, another Blue Dog.

This year's budget deficit is expected to be $1.2 trillion.

With Democrats in control of both chambers in Congress, Obama's reassurances to budget hawks from both parties already appear to be making a stimulus package more palatable. Obama said this week he would like Congress to complete action on a recovery plan by the end of the month or the first week of February.

House Speaker Nancy Pelosi, D-Calif., was expected to press fellow Democrats on Wednesday to pass the legislation by mid-February. She, too, has reassurances for cost-conscious lawmakers.

"Many will focus on the upfront cost of this legislation," she was to tell a House Democratic Policy and Steering Committee forum, according to an excerpt of her prepared remarks. "While we are not discussing small sums, focusing on the price tag alone ignores the cost of inaction and the real payoff in terms of job creation and increased revenues to our Treasury."

While promising to fight waste and to make tough budgetary decisions, however, Obama warned that the nation could face trillion-dollar deficits for years to come. Eight years ago, the federal budget ran a surplus; the deficit on Sept. 30 was about $455 billion. That was before the government began spending nearly half of a $700 billion bailout fund for the financial sector.

Obama said Americans will accept his proposed stimulus plan only if they believe the money is being used wisely to boost the troubled economy and to make smart long-term investments in public projects.

Lawmakers and budget watchdog groups want Obama to promptly spell out a process for addressing long-term deficits.

"Short-term stimulus does need to be combined with long-term discipline," said Robert Bixby, the executive director of the Concord Coalition, a nonpartisan group that advocates fiscal restraint. "The deficit numbers are going to be astronomical for the next couple of years. People need to know that there is some end game to this."

Senate Budget Committee Chairman Kent Conrad, D-N.D., agreed that trillion-dollar deficits are likely for a few years and must be tolerated as the government pumps money into the badly weakened economy. But the nation must confront long-term problems facing Social Security and Medicare, he said, which will be "very, very tough."

"It would send a very healthy message to the markets and the American people if President-elect Obama were to simultaneously announce an economic recovery package and the beginning of a bipartisan process to deal with our long-term imbalances," Conrad said.

Obama has not detailed solutions for vexing problems such as growing demands on Social Security and Medicare. His prescriptions to make government accountable could easily run aground, much like those of predecessors who vowed to tackle government waste, fraud and abuse.

But lawmakers are not short on ideas. Conrad and the Budget Committee's top Republican, New Hampshire Sen. Judd Gregg, have proposed a bipartisan fiscal task force of lawmakers and administration officials that would create a plan to reduce budget deficits and lower the national debt.

Blue Dog Democrats would like to see legislation that would force Congress to pay for spending proposals with equal spending cuts or with new revenue. House Democrats this week plan to consider legislation that would require all federal agencies to undergo new audits and would call for congressional hearings when agency inspectors general find evidence of waste or fraud.

The Associated Press contributed to this report.