Shadowed by deficits, Obama pitches economic plan

President Obama waves during a town hall meeting to outline his new Small Business Lending Fund at Nashua High School North in New Hampshire, February 2, 2010.

NASHUA, New Hampshire (Reuters) - President Barack Obama warned on Tuesday that high budget deficits could hurt U.S. economic recovery as he sought to reassure Americans that his latest budget would help create jobs and trim debt levels.

A day after unveiling a $3.8 trillion spending plan for the 2011 fiscal year beginning on October 1, Obama took his policy agenda on the road, highlighting his program to create jobs and calling for stalled healthcare reform legislation to be passed this year.

In remarks tinged with criticism of opposition Republicans, Obama, a Democrat, said both political parties should join forces to bring down the deficit.

"We should all be able to agree that we've got to do something about our long-term deficits," he told a town hall-style meeting at a school gymnasium in New Hampshire.

"These deficits won't just burden our kids and our grandkids decades from now. They could damage our markets now, they could drive up our interest rates now, they could jeopardize our recovery right now," he said.

Obama proposed using $30 billion in funds from the TARP bank bailout scheme for use as a small business lending fund to spur job growth in a critical sector of the U.S. economy.

The trip comes as Obama seeks to rebound from political setbacks and a drop in his popularity among middle-class voters anxious over the economy and wary of parts of his agenda, such as the push for a healthcare overhaul.

POLITICAL RISKS

Obama said it would take time for his $787 billion package of tax cuts and spending to be fully felt, although it had already saved or created several million jobs.

"I've got to be honest with you, there's no magic wand that will make economic problems that were years in the making disappear overnight," he said.

Obama received a standing ovation from the estimated 1,600 people in the audience when he insisted he was not giving up his efforts to overhaul the healthcare system, despite the legislation being stalled in Congress.

"I do not quit. We are going to get that done," he said.

New Hampshire, a northeastern state known for fiscal conservatism, is next to Massachusetts, where a Republican handed Obama's Democrats an embarrassing defeat last month in a pivotal Senate race.

Obama's budget proposal painted a bleak fiscal picture, prompting Republicans to accuse him of pursuing big-spending, fiscally reckless policies.

The White House counters that Obama inherited enormous deficits and a deep recession from the Bush administration and had to try to revive the economy with a large stimulus package when he took office in January 2009.

The budget forecasts a record $1.56 trillion deficit for the 2010 fiscal year. The shortfall is expected to ease slightly to $1.3 trillion in 2011 and Obama has set a goal of halving it by the end of 2012.

With U.S. unemployment stuck at a nearly 26-year high of 10 percent, Obama has made jobs growth his most pressing near-term priority.

Obama is seeking $100 billion in the current 2010 fiscal year for a package of business tax credits and other steps to create jobs and assist struggling middle-class families.

His proposal to use $30 billion from the unpopular TARP bank bailout fund is aimed at rapidly increasing lending to credit-worthy small businesses.

(Writing by Caren Bohan and Ross Colvin; Editing by David Storey)