Obama, McCain Clash on Budget Austerity

President Obama kicked off an offensive today defending his strategy to pull the economy out of its tailspin, assuring large banks he won't let them fail and promising taxpayers he will cut the deficit and reform government spending.

But he quickly ran into criticism of his spending from Sen. John McCain, R-Ariz., who noted that Obama's new helicopter will cost as much as Air Force One.

The Pentagon has ordered a fleet of 28 presidential helicopters priced at $400 million -- each.

Obama, who called on his former presidential rival to ask the first question at a Fiscal Responsibility Summit, agreed with McCain and drew laughs when he said he has already ordered Pentagon chief Robert Gates to review the contract for the new presidential helicopter.

Jake TapperPlay

"The helicopter I have seems perfectly adequate to me," Obama said to laughs from a roomful of members of Congress and fiscal experts. "Course I've never had a helicopter before and maybe I've been deprived and didn't know it."

Earlier, the president wasn't laughing as he made official what he leaked over the weekend, that he intends to cut the nation's massive budget deficit in half by the end of his first term.

That promise came with a blistering criticism of the Bush administration, although he never mentioned any names.

"The casual dishonesty of hiding irresponsible spending with clever accounting tricks, the costly overruns, the fraud and abuse, the endless excuses -- this is exactly what the American people rejected when they went to the polls," he said.

"We'll eliminate the no-bid contract that have wasted billions in Iraq. We'll end the tax breaks for companies shipping jobs overseas, and we'll stop the fraud and abuse in our Medicare program. And we will reinstate the pay-as-you-go rule that we followed during the 1990s, the rules that helped us start this new century with a $236 billion surplus," he said.

Obama talked budget this morning when he met with governors on the stimulus plan and later when he opened his summit. He will address both house of Congress Tuesday night, and on Thursday will present his first budget.

The offensive began with a Treasury Department statement assuring the banking system that it would not allow "systemically important financial institutions" to fail.

The statement from the Treasury Department and four other federal banking regulators came as Citigroup officials were back in talks with the administration for yet more bailout aid and investors worried that the government might nationalize certain banks to prevent their collapse. The prospect of nationalization has had bankers and investors holding their breath.

The Treasury statement appears to be an attempt to reassure investors that the big banks won't be allowed to collapse and suggests that nationalization is not the administration's plan.

"The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth," the statement said. "Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments."

The statement does not mention Citigroup, but the government's willingness to ensure the survival of major banks has eased fears that the administration would nationalize them. Those fears drove bank stocks down in trading Friday.

The statement also said that the "stress tests" for the country's 20 major banks would begin Wednesday. Those tests are intended to make sure the banks can survive another economic downturn, one that is "more challenging than is currently anticipated."

What to do about the information from the stress tests may create another dilemma for the Obama administration if the tests indicate weakness in certain banks.

This week may also be a stress test for Obama's powers of persuasion as he makes the case to spend hundreds of billions of dollars to stimulate the economy while preaching austerity and vowing to slash the deficit.

The president's action plan on the battered economy will be in the glare of political klieg lights during a series of high-profile events this week.

Obama met with the nation's governors today on the stimulus plan, and hosted thefiscal responsibility summit at which he will announce the appointment of a federal watchdog to keep an eye on the hundreds of billions of stimulus dollars being spent by the administration.

The president told the governors he wanted to "make sure that we're having an honest debate" on his economic measures, and he took a dig at Republican governors who have expressed reluctance to accept the stimulus money.

His comments appeared to be a particular dig at Louisiana Gov. Bobby Jindal who is seen as a GOP presidential candidate four years from now.

"There will be ample time for campaigns down the road," Obama said.

During the summit, Obamal elaborated on his plan to cut the nation's massive deficit in half by 2013, the end of his term. The latest ABC News/Washington Post poll indicates that 87 percent of Americans are concerned about the deficit that the massive bailout and stimulus plans will create.

Obama will address a joint session of Congress Tuesday, giving him a national TV audience to explain his fiscal policies.

And later in the week, the president will present his first budget to Congress where he is expected to discuss some further proposals for changes in the tax system, including possibly taxing hedge fund earners at the 35 percent tax rate, instead of the lower 15 percent capital gains tax rate.

It is a delicate moment politically and economically. How Obama performs could give the president and his economic policies momentum, or spook Wall Street and send the markets into another tailspin.

While trying to galvanize the country around his still evolving economic strategy, Obama will also try to build momentum for efforts to reform health care, boost spending on education and draw down troops in Iraq.

Confronted with such massive issues, Obama has been trying to keep in touch with the problems of average families by reading and answering 10 letters each day from Americans.

Obama Reads 10 Letters Each Day From Average Americans

The letters are picked by the White House Correspondence Office director because they're particularly compelling or particularly representative. The president reads these letters, aides say, every day and two or three times a day he takes the time to write back.

Aides say the president's greatest concern is becoming isolated from the concerns of the average American while in the White House, and reading these letters helps him avoid that.

Among recent letters is one from a businessman who owns a manufacturing plant. He wrote that he finds it difficult to lay off employees when they haven't done anything wrong, but may have to lay off 10 percent of his work force.

Another letter came from a divorced senior citizen raising a grandchild on a fixed income, and she confessed to becoming depressed and scared.