Some of the largest pension funds and investment firms have urged President Barack Obama and Congress to resolve the deficit impasse and avoid inflicting "pain and hardship" on the nation.

In an open letter to Obama and lawmakers dated July 25, top officials from ten pension funds and plan sponsors urged an increase in the debt ceiling, but more so of the need to reduce the massive federal budget deficit and avoid a potential downgrade of the U.S. by credit agencies.

Investment firms BlackRock Inc. and Legg Mason signed a similar letter July 25 as part of a coalition of 14 large public and private investors.

"The idea of America losing its AAA rating was once unthinkable, but now highly likely if our leaders fail to act," the letters said. "The consequences of such a downgrade are very real and very serious."

"Our country faces threats to its economic well-being that will inflict pain and hardship on all our citizens for many years if we fail to act -- and act now."

The U.S., as a debtor nation, must show that its word is its bond, the investment groups said."

"It is critical that the debt ceiling be raised to avoid a default. But raising the debt ceiling just addresses the immediate problem of default. The huge budget deficit, both current and long-range, is the real problem."

The letters did not take a position on how the U.S. should achieve deficit reduction: through spending cuts, tax increases or a combination of measures.

The ten state and local government pension funds represent more than 7.7 million active and retired workers -- teachers, firefighters and others with combined assets of over one trillion dollars.

The signatories included CALPERS, the huge California government pension system; the Florida State Board of Administration; and the New York City Retirement System.

Both groups warned of the risk of rising inflation and higher interest rates that would come with a U.S. ratings downgrade, especially if the U.S. dollar was no longer the primary reserve currency for investors around the world.

"Economic growth for our nation will slow for years to come, and diminish the quality of living across America."

The U.S. Treasury has said the government will start to run out of money to pay its bills by Aug. 2 unless Congress acts, but as of Tuesday there was no compromise in sight.