If the United States doesn't get its finances in order, the coming years will make the current recession "look like a child's birthday party," said former Treasury secretary and Alcoa chairman Paul O'Neill.

"We're headed for the wall at lightning speed. And every day that we don't deal with that set of problems is another day closer to absolutely vaporizing our economy," he said.

"Not to overstate the problem."

Mr. O'Neill, in his typically pointed and outspoken manner, assessed the state of America's economy at length yesterday in an interview with the Post-Gazette. Regarding the "vaporizing" of our economy, he was referring to the country's estimated $53 trillion in unfunded liabilities, coming due over several decades. But he didn't paint a much rosier picture for the short term, outlining the series of mistakes that have left the American finance, auto and housing industries in shambles, and have poisoned the markets from Europe to Asia, from South America to Russia.

"We've been building the problem for a very long time," he said, and much of the problem can be traced to an overall loosening of American standards when it comes to debt. It used to be that home mortgages were limited to people who could afford a 20 percent down payment; it used to be that a company would as a matter of principle, not to mention financial health, minimize its debt.

Now, over-leveraging is the norm, from Wall Street companies to homeowners to Americans subsisting on credit spun out of their home equity or, worse, borrowed outright from the credit card companies.

It all happens to have come to a head in 2008, and the system-wide philosophy of favoring debt over savings is manifesting itself in many ways. "What was initially one kind of a problem has turned into 20 different types of problems," he said.

The financial industry turmoil has led to locked-up consumer credit, which has led to a sinking demand for automobiles.

Detroit's "troubled" Big Three automakers are no longer merely troubled; they are teetering on the edge of insolvency, and the falling demand has exacerbated labor-cost and legacy-cost issues that have been handicapping Ford, GM and Chrysler for decades against Toyota and Honda.

The Detroit automakers now say they need $34 billion in loans in order to survive.

Mr. O'Neill examined the problems, but offered no easy answers. Take General Motors' labor costs -- forcing GM to, say, reduce its pay scale to resemble Toyota's in order to qualify for the federal loans might seem to make sense on the first pass, until you consider how the pay cuts would ripple through the economy.

"That sounds pretty simple," said Mr. O'Neill, who sat on GM's board of directors for two years in the 1990s.

But "think about the implications for the people on the other end of that bargain. They have a lifestyle that's consistent with what they've been getting paid for a long time. They own a home that's more home than they could afford" after a big pay cut.

"Their kids go to schools that are more pricey than they could afford at $90,000. Their credit cards are supported by a much higher" level of income. Pay cuts for all of those workers would lead to credit card defaults for some, or mortgage defaults, or car payment defaults -- or all of the above.

Still, Mr. O'Neill said he'd want some assurances that the Big Three were serious about fixing problems that "have been building for 40 years" before extending billions in loans.

On the subject of President-elect Obama's plan to create or preserve 2.5 million new American jobs by January 2011, Mr. O'Neill, a Republican, said those new jobs won't even be enough to employ the estimated 3.2 million new people who will enter the U.S. work force in 2009 and 2010.

The mechanism by which Mr. Obama hopes to create those jobs, a $500 billion infrastructure stimulus package, is folly as well, Mr. O'Neill said, when you consider that the math works out to $200,000 spent per each job created.

The money could be better spent, he said, by sending part of it to places like Pittsburgh to create labor-intensive, low-overhead, public works programs -- tearing down derelict buildings, for example, helping cities clean up neighborhoods and return properties to the tax rolls.

"I don't think it would cost very much money to facilitate a major community improvement project," he said.

Mr. O'Neill was the secretary of the Treasury from 2001 to 2002, when he resigned following public and private disagreements with the Bush administration. He was Alcoa's chairman from 1987 to 1999.