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PROVIDENCE, R.I. | The economy could be hurt if Congress and the White House fail to come up with a plan to curb the nation’s huge budget deficits in the coming years, Federal Reserve Chairman Ben S. Bernanke warned Monday.

Mr. Bernanke, in a speech prepared for delivery, reiterated his belief that the government shouldn’t raise taxes or slash spending now because the economic recovery is still too fragile.

But failing to bring the deficits under control could endanger the economy later on, he said. Exploding budget deficits can lead to higher interest rates for people buying homes and cars, and for businesses buying equipment or expanding operations. That could crimp Americans’ spending and slow economic growth.

“The threat to our economy is real and growing,” Mr. Bernanke said. “The sooner a plan is established, the longer affected individuals will have to prepare for the necessary changes.”

The federal government is on track to produce its second-highest deficit ever - $1.3 trillion - for the budget year that ended Sept. 30. That would be slightly below last year’s record $1.4 trillion in red ink.


High court OKs line-item vetoes

SACRAMENTO | The California Supreme Court says Gov. Arnold Schwarzenegger had the authority to use his line-item veto power to cut $489 million from last year’s state budget.

In a unanimous decision Monday, the court tossed out a lawsuit filed by several charities and joined by Democratic state Senate President Pro Tem Darrell Steinberg.

They had contended that Mr. Schwarzenegger overstepped his authority when he cut additional funding to several social programs that the Legislature already had targeted for budget reductions. It occurred when Mr. Schwarzenegger acted on a spending-reduction bill.

The court said all spending, regardless of how it’s described by the Legislature, is subject to the line-item veto.


Challenger slams Perry over donors

HOUSTON | Democratic gubernatorial candidate Bill White is hammering Texas Gov. Rick Perry for what his campaign calls a “public corruption scandal” involving state grants to the Republican incumbent’s campaign donors.

Mr. White is using a mocking reference to a Perry campaign ad that declares Texas “open for business.” The Democrat says it’s only open for business with Mr. Perry’s political supporters.

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