Obama sees soaring deficits, pushes big goals

WASHINGTON, (Reuters) – President Barack Obama  forecast the biggest US deficit since World War Two in a  budget yesterday that urges a costly overhaul of the  healthcare system and would spend billions to arrest the  economy’s freefall.

An eye-popping $1.75 trillion deficit for the 2009 fiscal  year dominated attention as the Democratic president unveiled  his first budget. That amounts to a 12.3 percent share of the  economy — the largest since 1945. In 2010, the deficit would  dip to a still-huge $1.17 trillion.

Barack Obama
Barack Obama

Obama promised to get the red ink under control but showed  no sign the staggering deficits would deter him from veering  sharply away from the policies of his Republican predecessor  President George W. Bush.

The Republican opposition in Congress was quick to condemn  a budget plan that underlines Obama’s intention to make good on  campaign pledges to expand health coverage for the uninsured  and roll back tax cuts for the wealthy.

“I don’t think that we can continue on our current course.  I work for the American people, and I’m determined to bring the  change that the people voted for last November,” he said.

Republicans condemned the plan as showing a dedication to  “tax-and-spend” policies, presaging major political fights  getting the budget passed,.
“The American people know we cannot tax, spend and borrow  our way back to a healthy economy,” said Representative Mike  Pence, a member of the Republican leadership in the House of  Representatives.

The soaring deficit figure sent U.S. Treasury bond prices  lower and yields up to three week highs yesterday.
Gold prices slid to their lowest level in more than a week,  after testing all time highs over $1,000 an ounce earlier this  month. Stock prices rose.
Some analysts questioned whether Obama’s goals were  realistic at a time when the economy is still in crisis and the  surging deficits threaten to burden the economy for years to  come.

“There are some good things in this budget but a lot still  seems very wasteful. The market is crumbling around us and  economies are in the tank,” said Dan Cook, senior market  analyst with IG Markets in Chicago.

Although tax cuts and social-service spending are a main  part of Obama’s remedies for lifting the faltering economy, the  budget also pencils in $250 billion to help stem the  turmoil in the banking sector.
Obama has not decided whether to seek that money.

But if he does, that would add to the existing $700 billion  financial bailout program, which was passed under Bush and has  been highly unpopular with many Americans who see it rewarding  Wall Street bankers seen as having made reckless bets on  subprime mortgages.

The proposed $3.55 trillion spending plan for the 2010  fiscal year that begins Oct. 1 provides the broad outlines of a  more detailed one to be released in April.

The budget requires passage by Congress to take effect.  While Obama has broad support with both chambers controlled by  Democrats, he could face a fight as the sticker shock of huge  deficits lead to wariness — including among fiscal  conservatives in his own party — about expensive goals such as  the healthcare overhaul.

The deficit number reinforced concerns the government will  need to sell record amounts of debt to pay for programs aimed  at pulling the economy out of a deep recession.

Obama set a goal of slashing the deficit to $533 billion,  or 3 percent of GDP by 2013. A rollback of the Bush tax cuts  for wealthy Americans and a planned drawdown of U.S. troops  from Iraq are expected to help rein in the shortfall.

War Spending
Obama is seeking an additional $75.5 billion for wars in  Iraq and Afghanistan for the rest of the current fiscal year.  He is requesting $130 billion for military operations in the  two wars for 2010, which would be down from the roughly $140  billion he expects will be needed this year.

Washington spent about $190 billion on the wars in 2008.  Obama looks likely to order U.S. combat troops to withdraw from  Iraq over about 18 months, according to U.S. officials. At the  same time, he is ramping up the U.S. military effort in  Afghanistan.
Obama’s budget proposal lays out spending cuts in farm  subsidies and other areas to meet the deficit-reduction goal.
But such programs are popular with lawmakers from states  with big agricultural sectors who may be loath to allow cuts.

The budget includes billions in revenues, starting in 2012,  from a greenhouse gas emissions trading system. That is central  to Obama’s proposals to fight global warming which are a major  departure from the policies of Bush, who was widely criticized  by environmentalists for resisting action.

The $1.75 trillion budget deficit forecast for this year  reflects shortfalls accumulated under Bush as well as new  spending proposals under the $787 billion economic stimulus  package the Democratic president signed earlier this month.
While Obama remains highly popular with Americans, his  stimulus package and other efforts to revitalize the economy  have done little to win over Wall Street.
U.S. stocks prices hit 12-year lows this week.

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