Obama says U.S. will dig itself out of economic hole

U.S. President Barack Obama tours the Smith Electric Vehicles facility in Kansas City, Missouri July 8, 2010.

KANSAS CITY (Reuters) - President Barack Obama defended his handling of the U.S. economy and blasted Republicans on Thursday for "peddling snake oil" as he went on a two-day campaign swing for fellow Democrats before November's congressional elections.

Obama has come under fire for bank and auto bailouts and a $787 billion stimulus package whose effectiveness is a subject of debate. He is under election-year pressure to reduce a 9.5 percent unemployment rate but said he was confident Americans would "dig ourselves out of this hole".

"We've got a long way to go," Obama said at a Kansas City electric car factory. "But what is absolutely clear is we're moving in the right direction."

Obama was raising cash for the U.S. Senate campaigns of two Democrats -- Robin Carnahan of Missouri and Senate Majority Leader Harry Reid of Nevada.

Reid is in a tough fight despite being the most powerful Democrat in the Senate, a sign of an election year in which many incumbents are running for their political lives.

At a pair of Carnahan events, Obama was biting in his criticism of Republicans who look set to pick up seats from Democrats in November in an election that some see as a referendum on Obama's first two years in office.

Obama said Republicans promote a "you're on your own" philosophy and would bring back policies that he believes have been discredited, such as tax cuts for all including the richest Americans.

"They are peddling that same snake oil that they've been peddling for years and somehow they think that you will have forgotten that it didn't work," Obama said.

Of concern among Republicans about deficit spending, Obama said: "It is a little odd getting lectures on sobriety from folks that spent like drunken sailors for the last decade."

The president, who came to office promising to change the tone in Washington, has found compromise impossible in the hyper-partisan capital, a failure that each side blames on the other.

All 435 seats in the House of Representatives are up for grabs in the November 2 election as well as 36 Senate seats.

Democrats hold a clear edge in the 100-member Senate over Republicans, who need a near sweep of all of the competitive races to pick up the 10 seats they need to gain control.

A poll by a Democratic-leaning organization, Democracy Corps, said Americans plan to support Republican candidates over Democrats in the election by 46 percent to 43 percent.

ELECTRIC CARS

Obama, who will face a tougher audience for his agenda if Republicans make big gains in November, is trying to convince impatient Americans that his economic policies are working and that improvements will take time.

Obama pointed to the Kansas City electric car factory, Smith Electric, as an example of how his policies are paying off. It received $32 million in funding from his stimulus plan and recently hired a 50th worker.

"The surest way out of this storm is to go forward, not to go backwards," he said. "There are going to be some hard days ahead, That's the truth. It's going to take a while for us to dig ourselves out of this hole."

Missouri's unemployment rate was 9.3 percent in May, a touch lower than the national average, but Obama must still convince voters his policies to create jobs are working and overcome concerns over a record deficit and rising debts.

New U.S. claims for jobless benefits fell last week to their lowest level in two months but unemployment remains painfully high and other data on Thursday showed that consumers continue to struggle.

Public doubt over spending more taxpayer money on top of the $787 billion emergency spending plan Obama signed in 2009 has frustrated his administration's efforts to get congressional backing for additional stimulus measures.

This is despite concern that U.S. growth might flag as that stimulus fades, reinforced by a disappointing June jobs report that showed the economy lost 125,000 jobs last month.

The House voted last week to extend unemployment aid to millions of long-term unemployed Americans but similar measures have been thwarted by the Senate and there is no guarantee this legislation will fare better.

The latest Gallup tracking poll had Obama's job approval rating at 44 percent, compared with 48 percent who disapproved.

(Additional reporting by Caren Bohan and Matt Spetalnick; Writing by Alister Bull and Steve Holland; Editing by Simon Denyer and John O'Callaghan)