However much the Bush administration wants to say that America’s economic “fundamentals” are “sound,” for the long run, they definitely are not. [IMGCAP(1)]

It’s true that the latest federal budget deficit projection is down, the second-quarter gross domestic product growth rate was bigger than expected and poverty rates fell in 2006.

It may or may not be the case that “the panic of 2007,” induced by the collapse of the sub-prime lending market, was successfully contained by the swift action of the Federal Reserve.

Regardless of the short-term condition of the U.S. economy, the long-term condition has to be considered perilous — and both the current Congress and 2008 candidates should be required to address it.

Specifically, this summer’s collapse of the sub-prime mortgage market and the attendant plunge in credit availability and the stock market ought to serve as a double wake-up call about unregulated hedge funds and the extent to which the whole of the American economy is over-leveraged — that is, in debt.

Also, the latest Census Bureau report on incomes and poverty showed modest improvements, but also warnings — dramatic increases in the number of Americans lacking health insurance and continued stagnant wages.

And the Congressional Budget Office’s downward revision in the current year’s federal budget estimate diverts attention from the fact that the long-term fiscal situation is, as the experts say, “unsustainable.”

The four principals of the bipartisan Concord Coalition declared in a paper last month that the U.S. economy is “headed for crisis,” warning that “the next president will inherit a fiscally lethal combination of changing demographics, rising health care costs and falling national savings.”

Former Sens. Warren Rudman (R-N.H.) and Bob Kerrey (D-Neb.), investment banker Peter Peterson and Concord president Robert Bixby observed that “no reasonable person would argue that the government should tax at 18 percent of GDP and spend at 30 percent. “The resulting annual deficits and accumulated debt would shatter the economy. Yet, this is the future we will get if we try to fund the spending required by current law with today’s level of taxation.”

And, they pointed out, Democrats competing for their party’s nomination are promising increased spending with only modest tax increases and Republicans are promising no new taxes and limited spending restraint.

“Higher saving levels today would contribute to a larger economy tomorrow and that would make the looming fiscal burden more affordable.

“Unfortunately, Americans’ personal savings rate as a percentage of disposable income has steadily declined — from more than 7 percent in the early 1990s to negative one percent in 2006.

“Net national saving, public and private combined, has plummeted from 8.5 percent of gross national income 25 years ago to less than 2 percent today.”

Another way of saying this is that the whole country is over-borrowing, over-consuming and putting itself into debt.

Individuals and families are spending more than they earn. They have been borrowing the difference from the buildup in home equity. But the “housing bubble” that permitted that has now burst. Consumer buying — the prime fuel of U.S. economic growth — is bound to stall.

GDP growth in the second quarter of 2007 was 4 percent, but it almost certainly will be much lower in the current quarter. A recession can’t be ruled out.

Not only individuals are over-leveraged. So are private equity funds, the U.S. government and the whole U.S. economy, which is buying so much more from abroad than it sells that the trade deficit is soaring, requiring the U.S. to go into debt to foreigners.

No one knows precisely what is happening in private equity because it’s private. But we do know that there has been an explosion in the number and size of the private funds buying up and reselling companies and creating ever-more-complicated forms of investment instruments.

There’s a huge debate under way over whether private equity earnings should be taxed at the capital gains rate, 15 percent, or the corporate rate, 30 percent. But there should be a serious debate about regulating private equity the way mutual funds are — at least to the extent of requiring disclosure of their practices.

Regulation probably wasn’t needed when private equity and hedge funds were strictly the preserve of the very rich, who could afford the risk of loss, but the funds now attract wider investments — from pension funds, for example — putting a greater share of the public at risk.

This summer’s “panic of ’07” resulted from the spread — through private equity — of the collapse of a narrow segment of the economy, risky mortgage loans, to the wider economy. No one can be sure how damaging the effects will be, but the dangers deserve Congressional attention.

Meantime, both the U.S. government and the private economy as a whole have become increasingly dependent on the willingness of foreigners to lend money. If they stop, the U.S. is in dire straits.

And, the Census Bureau report suggests that ordinary Americans are increasingly at risk, too. A record 47 million — nearly 16 percent of the population — lacks health insurance. And while median income is rising, it’s because more people are working longer hours, not because they are earning more at their jobs.

If over-leveraging causes the economy to slow down, all those trends will get worse. And, as the Concord group warned, as the baby boom generation retires, the long-term situation is even more dire.

As Concord’s paper concluded, “No one can say when all this might end up in a crisis or what the crisis might look like. Indeed, there might be no crisis at all — just a long, slow erosion in our nation’s standard of living.

“In either case, it’s a dismal future, and doing nothing now to avoid it would be an act of fiscal and generational irresponsibility.”