WASHINGTON, Jan 26 – President Barack Obama will address the United States\’ debt woes in his first State of the Union address Wednesday, with experts warning the country\’s superpower-status depends on his actions.
Obama will appear before Congress after a tempestuous first year in office, which saw the economy teeter on the brink and the budget deficit rise to 1.4 trillion dollars — a sum worth more than India\’s gross domestic product.
The wars in Iraq and Afghanistan, as well as a massive injection of cash to keep the wheels of the US economy rolling, have exploded government\’s spending while revenues have shrunk with the economy.
The president, facing anger that politicians are saddling future generations with a crippling legacy, "will talk about ensuring that we begin to get our fiscal house in order," White House spokesman Robert Gibbs said Monday.
Many experts hope Obama will do more than talk.
"(It is) the worst economic future that we have ever had," said Pete Domenici, former head of the Senate\’s powerful budget committee. "The United States of America could end up a second-rate world power."
Such is the level of fear that there are dark murmurings that the US credit rating — a gold standard that underpins the world\’s bond markets — may be downgraded.
Domenici worries that creditors like China may be so concerned about Washington\’s ability to pay back loans that they bump lending costs, leaving the United States unable to pay for its social programs or the military.
That prospect, however remote, is acute enough that the White House is being forced to act.
Ahead of Obama\’s address the administration announced it would freeze all discretionary spending not linked to security, for savings worth 250 billion over the next decade.
Obama may also announce the appointment of a bipartisan committee to come up with ways to balance the books — a feat the country has not achieved since Bill Clinton was president.
But that plan faces a partisan logjam that afflicts Washington as both parties eye crucial mid-term elections later this year.
Republicans have criticized plans for a similar panel as a ruse to provide political cover for raising taxes, and have threatened not to appoint members to the panels in protest.
Democrats are suspicious deficit reduction will be used as a pretext to slash government projects the Republicans have long-opposed on political grounds.
Indeed, some prominent Democrats are calling for further short-term spending in the hope that unemployment might abate.
John Podesta, president Bill Clinton\’s last White House chief of staff, recently warned lawmakers against "over-correcting," by cutting government spending programs that have kept the US economy afloat.
"Pursuing drastic and immediate deficit reduction when the economy has only recently returned to growth and unemployment is still at 10 percent would be an enormous mistake," he said.
"Deficit spending in the near term will help produce a return to robust economic and employment growth, yielding significant dividends in terms of future deficit reduction."
But the hope that the deficit will correct itself when the US economy picks up and tax revenues rebound was roundly dismissed by Domenici, a Republican, who on Monday launched a bipartisan panel that will produce concrete debt reduction plans by the end of the year.
William Cline, a senior fellow at the Peterson Institute for International Economics said whatever the politics, Obama may have to wait for a rosier economic picture before making drastic cuts.
"You have to somehow lay the foundations for controlling the fiscal deficit while allowing the economy to get back to recovery," he said.
The test of whether Obama can thread that needle will come on Wednesday.