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Deficit worries hound vacationing Obama

AFP, Oak Bluffs. Massachusetts
Once again, gaping budget deficits and mass unemployment are threatening to place a chokehold around President Barack Obama's ambitious plans to reshape American life.
In a forecast sufficient to cast gloom over any presidential vacation, new economic figures Tuesday sketched a decade of gaping government debt and the staggering depths from which the US economy must climb to recovery.
The data also underscored a fundamental tension undercutting Obama's seven-month old presidency -- the extent to which he is attempting rare political change at a moment of deep national financial peril.
In an apparent bid to detract attention from the jolting news, Obama interrupted his vacation on millionaires playground Martha's Vineyard to announce he would name Ben Bernanke to a second term as Federal Reserve chief.
Focusing on the future, rather than current worries, he evoked a "worst is over” narrative, and promised a "new foundation for growth and prosperity" though admitted full recovery was still a "long way" away.
Obama was headed for the golf course minutes later when the White House projected a huge 9.05-trillion-doUar deficit for 2010-2019.
The Office of Management and Budget did revise its previous estimate for the 2009 budget deficit to 1.58 trillion dollars from 1.84 trillion dollars but even that figure represents a stunning 11.2 percent ofGDP.
The office admitted the deficit picture was "daunting" and unsustainable as the figures cast more doubt on ambitious Obama plans on health care reform and cutting global warming.
The Congressional Budget Office offered a 1.6 trillion dollar 2009 budget deficit, but warned the figure "will be the highest since World War II."
"Putting the nation on a sus-
tainable fiscal course will require some combination of lower spending and higher revenues than the amounts now projected, " the CBO said.
Many economists say high deficits during economic crises are acceptable to fuel government spending to stimulate growth.
But long-term deficits can result in high interest rates, thereby dampening demand by making it harder for people finance outlays like new homes
and cars.
Politically, the fiscal gap is damaging for Obama as it allows Republicans to paint him as a profligate, big government liberal oblivious to debt being dumped on future Americans.
With Americans souring on Obama s economic management, the deficit figures could also hamper his attempts to sell his top domestic priorities.
Long term, absent a stunning economic turnaround, he could face a choice between cutting spending or raising taxes - - both of which involve unpalatable political calculations.
The CBO also projected the unemployment rate would continue rising, from 9.3 percent this year to an average of 10.2 percent next year, peaking at 10.4 percent around the middle of 2010 before falling to 9.1 percent in 2011.
That means Obama and Democratic allies will face midterm congressional elections next year with millions of Americans still jobless -- many in key battleground states like Ohio.
Republicans, seeking to rebuild a political brand tarnished by years of their own deficit busting spending during the George W. Bush years, pounced on the new deficit figures.
"The alarm bells on our nation's fiscal condition have now become a siren," said Senate Republican minority leader Mitch McConnell.
"Spending, borrowing and debt arc out of control."
John Boehner, the top Republican in the House ol Representatives came out with rhetorical guns blazing.
'The costly government-run health care plan put forth by President Obama and Speaker (Nancy) Pelosi is just the latest in a long line of expensive Democratic experiments, said Boehner.
Die administration, however, is arguing that rising health care costs are the primary driver of huge budget deficits - making a fiscal as well as a moral case for expanding coverage to all Americans.