By Liz Sidoti — Associated Press Writer

WASHINGTON (AP) — Urging future restraint even as current spending soars, President Barack Obama pledged on Monday to dramatically slash the skyrocketing annual budget deficit as he started to dole out the record $787 billion economic stimulus package he signed last week.

"If we confront this crisis without also confronting the deficits that helped cause it we risk sinking into another crisis down the road," the president warned. "We cannot simply spend as we please and defer the consequences to the next budget, the next administration or the next generation."

Obama summoned allies, adversaries and outside experts to a special White House meeting on the nation's future financial health one week after triumphantly putting his signature on the gargantuan spending-and-tax-cut measure designed to stop the country's economic free fall and, ultimately, reverse the recession now months into its second year.

At the same time, federal regulators announced a revamped program to shore up the nation's banks that could give the government increasing ownership. It was the administration's latest attempt to bolster the severely weakened banking system without nationalizing any institutions, which the White House has said it does not intend to do.

Wall Street showed it was unimpressed by all the activity. The Dow Jones industrials were down more than 200 points just before the close of trading.

Obama goes before Congress and the nation Tuesday night to make the case for his budget plans, which the White House is to release in more detail on Thursday.

By the president's account, the administration inherited a $1.3 trillion deficit for the current fiscal year from the Bush administration — that's the figure Obama says he'll cut in half — and the stimulus law, coupled with rescue efforts for ailing automakers, the financial industry and beleaguered homeowners will raise this year's red ink to $1.5 trillion.

The administration hopes to trim the deficit by scaling back Iraq war spending, raising taxes on the wealthiest and streamlining government.

The president also said he would reinstitute a rule that the government pay as it goes, rather than racking up debt, and he sought to prepare people for "tough choices" in years to come. He called the long-term solvency of Social Security "the single most pressing fiscal challenge we face by far" and said reforming health care, including burgeoning entitlement programs, is a huge priority.

"We are paying the price for these deficits right now," Obama said, estimating the country spends $250 billion — one in every ten dollars of taxpayer money — in interest on the national debt. "I refuse to leave our children with a debt that they cannot repay. And that means taking responsibility right now, in this administration, for getting our spending under control," he said.

Earlier, Obama met with Republican and Democratic governors who are poised to benefit from his unprecedented emergency economic package. He told the chief executives, attending a three-day National Governors Association meeting in Washington, that he would begin distributing $15 billion to their states within two days to help them with Medicaid payments to the poor.

The recession has strapped state budgets, in particular in regard to the Medicaid program that is jointly underwritten by states and the federal government.

Obama also responded to criticism from some Republican governors who have called the plan too big and too wasteful. He said such griping sounds political, and "that's what right now we don't have time to do."

One month into office as the economy continues its downward spiral, Obama is seeking to balance twin priorities: turning around dismal conditions with a huge injection of spending while lowering huge budget deficits. With his re-election race just a few years away, he also has an interest in avoiding being labeled as a big-government, big-spending Democrat.

The White House meetings opened a jam-packed White House week that includes a State-of-the-Union-style address to Congress Tuesday night and the president's first budget proposal on Thursday. A common thread: addressing current economic turmoil while controlling the country's long-term costs.

"This will not be easy. It will require us to make difficult decisions, and face challenges that we have long neglected," Obama told his White House audience, which included congressional leaders, 2008 GOP presidential nominee John McCain, and Republican Sen. Judd Gregg of New Hampshire, who recently backed out as Obama's commerce secretary.

Obama launched the summit with addresses from two economists: Mark Zandi of Moody's and Robert Greenstein of the Center on Budget and Policy Priorities.

Zandi, who advised McCain's presidential campaign, said policymakers need to respond promptly and aggressively to the struggling economy and the disarray in the financial system. Greenstein described the nation's long-term fiscal picture as "unsustainable," driven by ever-rising medical costs. He called for health care reforms as well as spending and revenue policy changes.

After Obama spoke, attendees broke into five groups to brainstorm how to address costly areas including military weapons, Social Security, health care and tax reform.

Rep. Henry Waxman, D-Calif., said, "Our deficit really cannot be controlled until we figure out how to deal with health care costs."

House Republican leader John Boehner of Ohio proposed raising the Social Security retirement age to 70 over a number of years, while Sen. Lindsey Graham, R-S.C., volunteered to stand between critics and the administration to fix the program if officials will work across party lines.


Associated Press writers Jim Kuhnhenn, Jennifer Loven, Darlene Superville, Philip Elliott, Brett Blackledge and Erica Werner contributed to this report.

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