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Obama vows to halve US debt in four years

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President Obama and his wife Michelle arriving at the the East Room to hear Earth Wind and Fire perform at the Governors' dinner at
the White House in Washington

President Obama and his wife Michelle arriving at the the East Room to hear Earth Wind and Fire perform at the Governors' dinner at the White House in Washington

President Obama and his wife Michelle arriving at the the East Room to hear Earth Wind and Fire perform at the Governors' dinner at the White House in Washington

US President Barack Obama has made a dramatic pledge to cut the US deficit in half within four years.

Mr Obama said that expanding federal debt was a burden on the economy and he insisted that the nation must deal simultaneously with the recession and the budget shortfalls. If not, "we risk sinking into another crisis down the road," he said.

"As our interest payments rise, our obligations come due, confidence in our economy erodes and our children and our grandchildren are unable to pursue their dreams because they are saddled with our debts," he said last night.

"That's why today, I'm pledging to cut the deficit we inherited by half by the end of my first term in office."

Shortfall

The White House forecasts the deficit for this fiscal year will be at least $1.3 trillion. The shortfall has ballooned as the recession shrinks tax revenue while increasing demands on government services.

Given the current circumstances, Mr Obama said trimming the deficit will require facing up to "challenges we've long neglected."

He promised to re-institute "pay-as-you-go" rules for the budget which would require any spending increases be matched by higher taxes or cuts elsewhere in the budget.

"The pay-go approach is based on a very simple concept: You don't spend what you don't have," he added. "So if we want to spend, we'll need to find somewhere else to cut."

The federal budget process long has been an "exercise in deception," Mr Obama said.

He cited spending on the Iraq War that was dealt with in emergency spending legislation rather than the budget and failing to account for the likelihood of natural disasters requiring government spending. He promised that his first budget will give a "full and honest accounting" of what the US government intends to spend and realistic projections of future outlays.

After last October's $700bn rescue package for Wall Street, and Mr Obama's $787bn economic stimulus package that he signed into law last week, many predicted that the president would be forced to shelve much of his domestic agenda.

Yet Mr Obama in a key prime-time speech tomorrow -- which will have all the trappings of a State of the Union address -- will call for even more spending: a big expansion of healthcare coverage, education reform and the development of alternative energy sources.

At the same time, in a White House "fiscal responsibility summit" tomorrow, he will lay out plans to cut back the deficit to $533bn by 2013.

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That prediction comes despite the hundreds of billions of dollars already borrowed to stimulate the economy, stabilise the banks, tackle the home repossession crisis and rescue the car industry from collapse.

The scale and ambition of the overall agenda is so enormous that some economists said yesterday that it was simply unrealistic, while Republicans decried it as fanciful.

Tim Pawlenty, the Republican Governor of Minnesota and a possible presidential candidate in 2012, said he found it hard to believe that the White House "is serious about cutting the deficit while exploding spending".

Mr Obama and his economic team insist that it can be done.


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