Dire state of the nation revealed, but Obama vows to halve deficit

Amid foreboding about the scale of America’s economic problems, Barack Obama will address a joint session of Congress tonight, laying much of the blame for the worsening crisis at the feet of his predecessor, George Bush.

Barely a month into his presidency, Mr Obama faces a tricky public relations challenge of explaining the economic situation while trying to inspire confidence in his plan to borrow and spend heavily in order to stimulate the economy.

He told a White House summit on “Fiscal Responsibility” yesterday that “if we confront this crisis without also confronting the deficits that helped cause it, we risk sinking into another crisis down the road.”

Mr Obama outlined a $1.3 trillion (£890bn) budget deficit, which – at 6 per cent of GDP – amounts to the biggest slice of the country’s economy since the Second World War.

He pinned the blame for runaway spending on poor leadership in Washington and wars in Iraq and Afghanistan which continue to drain the country’s wealth. The massive stimulus package Mr Obama signed into law last week accounts for a quarter of the deficit.

The US leader promised to chop the shortfall in half before his term ended in four years and said he was instituting a new, transparent budget process. He would not try to hide government spending from the public, he said, lacerating his predecessor’s practice of keeping the spending on Iraq and Afghanistan out of the budget.

“For too long our budget was an exercise in deception,” he said.

That exercise featured accounting tricks designed to hide spending while “hoping the American people won’t notice”.

By including the cost of the wars – as well as the cost of dealing with natural disasters such as floods, fires and earthquakes – and providing a true picture of taxes being collected, Mr Obama’s budget will paint a worst-case scenario.

In his address to Congress, Mr Obama will seek to balance his optimism for the future with the reality of America’s dire financial straits and the rampant fear of unemployment coursing through the country.

Despite blundering in important cabinet appointments, the president’s “no-drama Obama” image remains intact. An opinion poll by Gallup released yesterday put his approval rating at 63 per cent, high given the crisis which many fear is yet to hit its lowest point.

Tonight’s speech is being treated as though it was a State of the Union address as Mr Obama attempts to build on his early successes that range from new legislation and emergency economic packages to renewed diplomatic efforts.

The high-stakes public relations task he faces is finding a way of convincing sceptical Americans that he has the solution to their economic woes while promising to cut the deficit in half before his term is up. He intends to do this by slapping taxes on the very wealthy, pulling troops out of Iraq and cutting domestic government spending.

On the other hand, he has embarked on the biggest spending spree since the Great Depression. His address today will attempt to explain away that surge as a brief but necessary burst of spending that was needed to get the country’s economic engines turning again and to start the process of health-care, education and energy policy reform that would save money in the long term.

In a rebuke to carping Republicans, Mr Obama said yesterday: “We are addressing the greatest economic crisis we have seen in decades by investing unprecedented amounts of the American people’s hard-earned money. With that comes an unprecedented obligation to do so wisely, free from politics and personal agendas.”