FEBRUARY 4, 2010, 5:00 P.M. ET

Fears about the global economy and sovereign credit hammered stocks Thursday, causing the Dow Jones Industrial Average to briefly cross below 10000, though it settled slightly above the mark.

Other markets gyrated as well, with commodities reeling while Treasury prices and the dollar rose as investors sought safety.

The Dow fell 268.37 points, its worst one-day point slide since April 20, 2009. The measure was off 2.6% for the day to end at 10002.18, a three-month low.

Throughout the day, investor fretted over signs that Europe’s governments are struggling to finance their debts and that America’s employment picture may not be improving as much as expected.

“We may be in a run-for-the-hills scenario,” in the sovereign-debt markets, said Ben Inker, director of asset allocation at the portfolio-management firm GMO. “You really do have to ask the question, what is the purpose of government bonds in my portfolio? If their purpose is to be the low-risk asset, what do we do if we don’t see them as low-risk and there aren’t yields to compensate us for that?”

In the credit markets, the cost of insuring the debt of eurozone members with large budget deficits against default rose, dashing hopes that the European Commission’s qualified endorsement of Greece’s budget plan would calm investor fears.

The moves followed news that the European Commission had put Greece under more pressure to cut its deficit; that the Portuguese government sold only €300 million ($417 million) of treasury bills at an auction, compared with an indicative offer of €500 million; and that the Spanish government had raised its budget deficit forecasts for 2010 through 2012.

Worries about Europe caused the euro to hit an eight-month low against the dollar. That helped to propel the broad U.S. Dollar Index to trade 0.7% higher.

“Anyone who thought the euro was going to be the next reserve currency has got to be questioning that this week,” said Duncan Richardson, executive vice president at Eaton Vance Management in Boston. “It’s not ready for prime time yet.”

In U.S. economic news, initial claims for jobless benefits unexpectedly rose last week. The four-week moving average, which aims to smooth volatility in the data, also increased, sending a troublesome signal ahead of monthly payrolls data due Friday morning.

Twenty-nine of the Dow’s 30 components fell, with Bank of America suffering the most, off 5% after New York Attorney General Andrew Cuomo filed civil securities fraud charges against former bank executives Kenneth Lewis and Joseph Price over their handling of the Merrill Lynch acquisition.

The only Dow stock to post gains was Cisco Systems, up 0.4% as investors responded to a better-than-expected profit report.

The Nasdaq Composite Index was off 2.9%. The S&P 500 fell 3.1%, hurt by declines in every sector. Financials were the weakest, off 4.2% as a group.

MasterCard slid 10.3% after the credit-card issuer reported a smaller than expected rise in quarterly earnings. Visa, which reported results after the close on Wednesday, gained 0.6% as its results bested analysts’ forecasts.

The Chicago Board Options Exchange’s Volatility Index, which measures investors’ nervousness about upcoming market swings, leapt 20.9%.

The dollar’s bounce hurt the prices of commodities traded globally in terms of the U.S. currency. Oil futures slid fell $3.84 a barrel, or 4.99% to $73.14 in New York, the lowest settlement since Jan. 29 and the biggest one-day loss in crude since July 29. Gold contracts fell almost $47 to $1,065.50 per ounce. The Dow Jones-UBS Commodity Index was off 2.2%.

Treasury prices climbed, with the 10-year note up 26/32 to yield 3.606%.

—Donna Kardos Yesalavich and Kristina Peterson contributed to this article.

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Feb. 4 (Bloomberg) — Stocks plunged around the globe, with the MSCI World Index dropping the most in four months, and commodities tumbled on concern an unexpected increase in U.S. jobless claims and growing sovereign debt will derail the economic recovery. The euro slid to the lowest level since May.

The MSCI World Index of 23 developed markets sank 2.4 percent, the most since Oct. 1, while the Standard & Poor’s 500 Index fell 2.4 percent at 2:31 p.m. in New York and benchmark equity indexes for Brazil, Portugal and Spain plummeted the most in at least 11 months. Oil lost 5 percent, the biggest drop in six months, and gold tumbled the most since 2008 as a stronger dollar curbed demand for commodities as alternative investments. The euro sank 1 percent to $1.3759, the lowest since May 21.

U.S. equities added to the global slide as initial applications for unemployment insurance unexpectedly increased to 480,000 last week and companies from MasterCard Inc. to Monster Worldwide Inc. reported earnings that trailed analyst estimates. European shares extended earlier declines triggered when a disappointing Spanish bond auction added to concern some European nations will struggle to finance their budget deficits.

“Look at those initial claims,” said Diane Garnick, a New York-based investment strategist at Invesco Ltd., which manages $400 billion. “Unemployed people don’t spend money. That means the growth we’ve seen is not sustainable until people get jobs. Also, there are lots of uncertainties on a global basis. That’s certainly negative news for the market. I wouldn’t be surprised if we started to see dramatic increases in volatility again.”

Stocks Sink

Retreating shares in the MSCI World outnumbered rising stocks by almost six to one and by 16 to one on the New York Stock Exchange. Only 17 companies in the S&P 500 advanced and all but one of the 30 stocks in the Dow Jones Industrial Average declined. Monster Worldwide Inc., which offers help-wanted advertisements on the Internet, plunged 16 percent in its biggest decline since 2002. MasterCard lost 8.6 percent, the most since May 2009.

Brazil’s Bovespa index slumped as much as 5 percent as every company in the 63-stock gauge retreated.

Treasuries gained as investors fled to assets perceived as being the most safe, sending the yield on the benchmark 10-year note down 10 basis points to 3.61 percent.

The rally in U.S. government debt came even as Nassim Nicholas Taleb, author of “The Black Swan,” said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.

‘No Brainer’

It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

Warren Buffett’s Berkshire Hathaway Inc. was stripped of its last AAA credit rating by Standard & Poor’s after the billionaire investor agreed to buy railroad Burlington Northern Santa Fe Corp. Berkshire, which is taking on debt to fund the $26 billion takeover, was cut to AA+ from S&P’s highest grade, the ratings firm said today in a statement. The downgrade concludes a review that S&P announced on Nov. 4, the day after Berkshire disclosed the deal for Burlington Northern. The company’s Class B shares slid 2.3 percent.

Europe’s Dow Jones Stoxx 600 Index sank 2.7 percent, the most since November, as national benchmarks from Britain to Germany tumbled more than 2 percent. Portugal’s PSI-20 Index slumped 5 percent and Spain’s IBEX 35 slid 5.9, the biggest plunges in 15 months for both.

Deficit Concerns

Greece’s ASE Index lost 3.3 percent on concern plans for a strike by the country’s biggest union show Prime Minister George Papandreou may not win enough support in parliament for spending reductions.

The European Union’s pledge yesterday to back Greece’s plan to cut the region’s biggest budget deficit prompted investors to shun securities of countries with the worst shortfalls.

Portugal led declines in government bonds, with the premium investors demand to hold the nation’s two-year securities instead of benchmark German bunds widening to 156 basis points, the biggest difference since 1997. Spain sold 2.5 billion euros ($3.5 billion) of three-year securities today to yield 2.63 percent, compared with 2.14 percent the last time the notes were issued Dec. 3.

Banco Santander SA, the biggest Spanish bank, slumped 9.4 percent.

Credit-default swaps on Portugal’s government debt soared 27 basis points to a record 223, according to CMA DataVision prices. Contracts on Greece jumped 14 basis points to 411.5, Spain increased 13 basis points to 165, Italy was up 7 at 138 and Ireland climbed 6.5 basis points to 169.5.

‘Focus Is Shifting’

“The focus is shifting toward Spain and Portugal, where the deficit-reduction plans have been far less ambitious than Greece,” said Kornelius Purps, a fixed-income strategist in Munich at UniCredit Markets & Investment Banking.

European Central Bank President Jean-Claude Trichet said he is “confident” that Greece is moving in the right direction to cut its deficit. He spoke at a press briefing after the ECB left its benchmark interest rate unchanged at a record 1 percent.

The MSCI Emerging Markets Index dropped 2.8 percent, snapping a three-day rally. Poland’s WIG 20 Index fell 3.9 percent after the European Commission said the government’s budget gap may widen to a 15-year high of 7.5 percent of gross domestic product in 2010, from 6.4 percent last year, without “sizeable” measures.

The dollar gained against 15 of 16 major counterparts, adding at least 1.5 percent versus the Brazilian real, New Zealand dollar and South African rand. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, climbed 0.6 percent to 79.876, the highest since July.

Gold fell the most since 2008, with April futures losing 4.1 percent to $1,066.60 an ounce in New York.

Crude oil for March delivery fell 5.6 percent to $72.68 a barrel, headed for the biggest daily drop since July 29.

Copper lost 3.2 percent to $2.8775 a pound in New York, while aluminum, nickel and lead slumped at least 1.9 percent in London.

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By Rob Delaney

Feb. 4 (Bloomberg) — Eric Sprott, whose Sprott Hedge Fund increased more than fivefold in nine years, said gold may rise to $1,500 an ounce this year and $2,000 within two years as the U.S. government takes measures to counter the credit crunch.

“With quantitative easing and the financial problems we have, I suspect that the gold price goes up from here,” Sprott said today in an interview in Toronto, where he announced financial support for Canadian athletes.

“If you tell me how much quantitative easing there is, I’ll tell you where the gold price will go, but I have no trouble imagining we get to $1,500 this year and to $2,000 in two years.”

Sprott said in a Dec. 18 interview that the Standard & Poor’s 500 Index will collapse below its March lows as an expected rebound in economic growth fails to materialize. Gold rose 22 percent in New York in the two years ended yesterday as investors bought the precious metal as a safe haven during the global economic recession.

Gold futures for April delivery fell $44.30, or 4 percent, to $1,067.70 an ounce at 12:01 p.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest decline since Dec. 4.

Sprott’s C$1.39 billion ($1.3 billion) Sprott Canadian Equity Fund, which has gained about 18 percent in the past six months through yesterday, has 34 percent of its portfolio in mining stocks and another 39 percent in bullion as of Nov. 30.

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by Allan Sloan
Thursday, February 4, 2010provided by

Don’t look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system.

A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits.

Instead of helping to finance the rest of the government, as it has done for decades, our nation’s biggest social program needs help from the Treasury to keep benefit checks from bouncing — in other words, a taxpayer bailout.

No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week.

The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116).

This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30.

Why disregard the interest? Because as people like me have said repeatedly over the years, the interest, which consists of Treasury IOUs that the Social Security trust fund gets on its holdings of government securities, doesn’t provide Social Security with any cash that it can use to pay its bills. The interest is merely an accounting entry with no economic significance.

Social Security hasn’t been cash-negative since the early 1980s, when it came so close to running out of money that it was making plans to stop sending out benefit checks. That led to the famous Greenspan Commission report, which recommended trimming benefits and raising taxes, which Congress did. Those actions produced hefty cash surpluses, which until this year have helped finance the rest of the government.

But even then, it was clear the surpluses would be temporary. Now, years earlier than projected, Social Security is adding to the government’s borrowing needs, even though the program still shows a surplus on paper.

If you go to the aforementioned pages in the CBO update and consult the tables on them, you see that the budget office projects smaller cash deficits (about $19 billion annually) for fiscal 2011 and 2012. Then the program approaches break-even for a while before the deficits resume.

Social Security currently provides more than half the income for a majority of retirees. Given the declines in stock prices and home values that have whacked millions of people, the program seems likely to become more important in the future as a source of retirement income, rather than less important.

It would have been a lot simpler to fix the system years ago, when we could have used Social Security’s cash surpluses to buy non-Treasury securities, such as government-backed mortgage bonds or high-grade corporates that would have helped cover future cash shortfalls. Now it’s too late.

Even though an economic recovery might produce some small, fleeting cash surpluses, Social Security’s days of being flush are over.

To be sure — three of the most dangerous words in journalism — the current Social Security cash deficits aren’t all that big, given that Social Security is a $700 billion program this year, and that the government expects to borrow about $1.5 trillion in fiscal 2010 to cover its other obligations, about the same as it borrowed in fiscal 2009.

But this year’s Social Security cash shortfall is a watershed event. Until this year, Social Security was a problem for the future. Now it’s a problem for the present.

Copyrighted, Fortune.

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“We are on an unsustainable march toward a fiscal Armageddon.”
- Rep John Tanner, D-Tennessee

By ANDREW TAYLOR, Associated Press Writer
Thu Feb 4, 9:41 am ET

WASHINGTON – Facing a politically excruciating vote, House Democratic leaders are counting on new budget deficit curbs to help smooth the way for a bill allowing the government to go $1.9 trillion deeper into debt over the next year — or about $6,000 more for every U.S. resident.

The debt measure set for a House vote Thursday would raise the cap on federal borrowing to $14.3 trillion. That’s enough to keep Congress from having to vote again before the November elections on an issue that is feeding a sense among voters that the government is spending too much and putting future generations under a mountain of debt to do it.

Already, the accumulated debt amounts to $40,000 per person. And the debt is increasingly held by foreign nations such as China.

Passage of the bill would send it to President Barack Obama, who will sign it to avoid a first-ever, market-rattling default on U.S. obligations. Democrats barely passed it through the Senate last week over a unanimous “no” vote from GOP members present.

To ease its passage, Democrats attached tougher budget rules designed to curb a spiraling upward annual deficit — projected by Obama to hit a record $1.56 trillion for the budget year ending Sept. 30. The new rules would require future spending increases or tax cuts to be paid for with either cuts to other programs or equivalent tax increases.

If the rules are broken, the White House budget office would force automatic cuts to programs like Medicare, farm subsidies and veterans’ pensions. Current rules lack such teeth and have commonly been waived over the past few years at a cost of almost $1 trillion.

Skeptics say lawmakers also will find ways around the new rules fairly easily. Congress, for example, can declare some spending an “emergency” — a likely scenario for votes later this month to extend jobless benefits for the long-term unemployed.

And, indeed, there already are exceptions to the new rules, such as for extending former President George W. Bush’s middle-class tax cuts past their expiration a year from now. That would add $1.4 trillion to the federal debt over the next decade.

In agreement with Obama’s budget earlier this week, there is no exception for taxpayers in the two highest tax brackets whose marginal rates are due to rise by 3 percent or 4.6 percent to a pre-Bush maximum 39.6 percent next January.

But some new White House initiatives, such as doubling the child care tax credit for families earning less than $85,000, also would have to live within the rules, as would continuing subsidies for laid-off workers to buy health insurance — unless lawmakers make another exception.

The so-called pay-as-you-go rules have been a mantra with conservative “Blue Dog” Democrats in the House, who insisted they wouldn’t vote to raise the debt ceiling without them.

“We don’t have a choice,” said Rep. John Tanner, D-Tenn. “We are on an unsustainable march toward a fiscal Armageddon.”

Obama’s budget projects the government’s debt doubling to $26 trillion over the next decade. It offers few solutions for seriously closing the gap other than promising to appoint a bipartisan commission to come up with a plan to address the problem.

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Peter Koven, Financial Post Published: Thursday, February 04, 2010

There are certain drivers to the gold price that everyone talks about: U.S. dollar weakness, rising investment demand, producer de-hedging, and reduced central bank selling. Citigroup Global Markets analyst Alan Heap focuses on a different one: China.

In a note to clients, he called China the “most important source” of future demand growth in gold. And it is not just from the central bank–he noted that in 2009, retail investment demand in China was “particularly” strong as overall Chinese demand rose 10%.

The focus on Chinese gold demand comes amid renewed concerns about asset price inflation in the country. Recently, the Chinese government has taken steps to curb bank lending after letting it run completely out of control in 2009. That stoked inflation fears and strengthened the case for citizens to own gold.

Of course, Asian central banks are not expected to ignore gold, either. Mr. Heap noted that Chinese and Indian central banks remain extremely underweight gold, with only 1.5% and 4.1% of their total reserves in the precious metal. That compares to the European average of 54%.

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By Kim Kyoungwha

Feb. 4 (Bloomberg) — Gold will climb to $1,500 an ounce and silver will top $25 this year as the dollar loses its haven status, according to Jeffrey Nichols, managing director of American Precious Metals Advisors.

“Fear of sovereign debt defaults by one or another European country could benefit the dollar and temporarily hurt gold,” New York-based Nichols said in an e-mail to Bloomberg yesterday. “But gold is the ultimate safe haven and the dollar, without the support of sound monetary and fiscal policies, is a depreciating asset.”

Gold surged to a record $1,226.56 an ounce on Dec. 3 and has slipped 9.5 percent since then as the Dollar Index, a six- currency gauge of the greenback’s strength, rallied amid concern that sovereign debt problems in the 16-nation euro zone would spread.

The cost of insuring against losses on Portuguese government debt surged to a record yesterday and central bank Governor Vitor Constancio said cutting the budget deficit will require “difficult” measures.

Gold for immediate delivery was little changed at $1,110.10 an ounce at 10:43 a.m. in Singapore after declining as much as 0.3 percent earlier. Spot silver was little changed at $16.3875 an ounce.

“As in the past year, these occasional reversals will lead some to believe the party is over for precious metals,” said Nichols, a precious metals analyst for more than 25 years. “But I believe periods of weakness will be opportunities for those underweighted in gold and silver to augment their holdings of physical metal.”

Chinese Interest

Gold advanced 24 percent last year as the Federal Reserve held interest rates near zero to spur growth, pushing the Dollar Index 4.2 percent lower. The U.S. government has boosted spending to combat the global recession, pushing the nation’s marketable debt to an unprecedented $7.27 trillion.

“It baffles me that so many foreign exchange traders and institutional investors around the world think of the dollar as a safe haven at a time of currency market turmoil and continued U.S. economic and financial market crisis,” he said.

“It is only a matter of time before the dollar’s safe- haven appeal diminishes and gold regains its status as the ultimate safe haven,” Nichols said.

Growing Chinese interest in gold, increased central bank bullion purchases and a worsening outlook for production should all boost the metal, he added.

Nichols estimated China’s private-sector investment gold purchases totaled as much as 100 tons, or 3.2 million ounces, last year and said it could rise by more than 50 percent in 2010 as growing incomes and inflationary expectations give “more people both the means and the motivation to invest in the metal.”

Jewelry sales in China, which is bought both for adornment and as a store of wealth, totaled 350 tons last year and could increase by 100 tons or more this year, he said.

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by Alix Steel, 02/02/10 – 11:01 AM EST

NEW YORK  –  Gold prices were rising Tuesday as the U.S. dollar continued to struggle.

Gold for April delivery was rallying $7.60 to $1,112.60 an ounce at the Comex division of the New York Mercantile Exchange. Prices have traded as high as $1,117.40 and as low as $1,099.50. The U.S. dollar index was slipping 0.14% to $79.08.

Adding to dollar weakness was the news that the Reserve Bank of Australia held interest rates steady at 3.75% after most analysts predicted the central bank would raise rates. Lower global interest rates increase the likelihood of inflation which is bullish for gold prices as investors buy the precious metal as an alternative asset.

“I think gold in the next week or so will trade between $1,100 and $1,145 [an ounce],” says Jeffrey Nichols, Managing Director of American Precious Metals Advisors. “Near $1,100 we’ve seen in the last week more buying coming from the Asian markets … ahead of the Chinese New Year … [which] triggers buying not just of investment products but also jewelry.”

Silver prices were rising 4 cents to $16.70 while copper was up 1 cent to $3.09. Platinum and palladium were conservatively stronger at $1,561 and $439, respectively. Many analysts speculate if investment enthusiasm has tired out after the initial excitement over the first two U.S. physically backed platinum and palladium ETFs, ETFS Physical Platinum and ETFS Physical Palladium.

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Published: 11:39AM GMT 02 Feb 2010

The World Gold Council said that suggestions of a gold price ‘bubble’ do not take account of gold’s market fundamentals, which remain robust.

The World Gold Council said that investor flows, specifically from western markets, have provided a key means of support during the course of the credit crisis as investors sought to diversify their exposures to other assets and protect their wealth against market shocks.

It said that these western investor flows have remained resilient even as the global economy has shown signs of recovery. Furthermore it said, evidence suggests that even the more tactical elements active in the gold market are being firmly driven by positive sentiment toward gold’s fundamentals. Further price support was provided by a progressive recovery in jewellery demand after a pressured first quarter.

Aram Shishmanian, chief executive officer, World Gold Council on gold’s trading range: “The sustained break above the key $1000/oz level came in early September, with record highs being tested repeatedly over the remainder of 2009. The current trading range should not be regarded as an overnight spike, but the result of a measured rise, supported by favourable and robust gold fundamentals.”

“Robust demand should also be viewed in the context of constrained supply. Significant drivers of the gold price were also apparent on the supply side in 2009. Traditionally, central banks have been suppliers of gold, but this is starting to change.

“Over the course of 2009, the market saw a structural shift in central bank reserve management as western central banks slowed gold sales and developing nations added to their gold reserves. Other factors contributing on the supply side were sizeable pockets of de-hedging activity, although most major producer hedge books have now been unwound, and a reduction in the supply of recycled gold to market from the extremely high levels seen in the first quarter of 2009.”

Gold prices softened a touch but still hovered near $1,105 per ounce on Tuesday after posting their biggest daily gain in three months in the previous session boosted by an oil rally, dollar weakness and strong US data.

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Obama’s $3.8 Trillion Budget Forecasts a $1.6 Trillion Shortfall for 2010 Before It Drops

By Jonathan Weisman,

JANUARY 31, 2010

WASHINGTON—President Barack Obama will propose on Monday a $3.8 trillion budget for fiscal 2011 that projects the deficit will shoot up to a record $1.6 trillion this year, but would push the red ink down to about $700 billion, or 4% of the gross domestic product, by 2013, according to congressional aides.

The deficit for the current fiscal year, which ends on Sept. 30, would eclipse last year’s $1.4 trillion deficit, in part due to new spending on a proposed jobs package. The president also wants $25 billion for cash-strapped state governments, mainly to offset their funding of the Medicaid health program for the poor.

To get the deficit down by the middle of the decade, Mr. Obama will be relying on some cuts that have previously been proposed without success, on cooperation from a wary Congress and on a yet-to-be set up debt commission to suggest politically difficult choices.

At the same time, Mr. Obama is under pressure to address the country’s continued high unemployment rate. And he will propose increases in spending for priorities such as education and domestic scientific research. All of this raises questions about how much progress the president is likely to make in trying to fulfill his pledge to halve by 2013 the $1.3 trillion deficit he inherited.

The budget embodies Mr. Obama’s larger predicament of needing to contain the deficit without harming the economy, which remains fragile. The deficit has become a major political issue, as antigovernment activists swing independents against what they describe as Mr. Obama’s big-government policies and Republicans try to regain the mantle of fiscal responsibility after the Bush years saw surpluses swing to deficits.

Republicans have said they aren’t likely to cooperate with Mr. Obama on his deficit-reduction approach, opposing tax increases even as they attack Democrats for proposing cuts to Medicare. Meanwhile, senior Democrats in Congress have shown themselves reluctant to cut spending with unemployment hovering at 10%.

Under the Obama budget, this year’s $1.6 trillion deficit would fall to $1.3 trillion in the fiscal year that begins Oct. 1. It would drop to $700 billion in 2013 and 2014, the budget projects, on the assumption that the economy recovers, tax receipts start rising again with incomes, and stimulus spending drops off.

The deficit would drop to the equivalent of 5% of GDP in 2013 through expected economic improvement alone. Policy changes proposed by the president, such as a proposed freeze in nonsecurity domestic spending, would shave an additional percentage point.

Mr. Obama plans to rely on a new debt commission to come up with recommendations on how to meet his promise to bring the figure down to the equivalent of 3% of GDP by 2015, according to budget analysts briefed on the proposal.

The deficit is forecast to stabilize at $800 billion between fiscal years 2015 and 2018 before beginning to rise again, according to the White House projections. The projected rise is due to the retirement of the baby boomers, which is expected to result in increased spending on Medicare and Social Security.

With unemployment still at 10%, the president is finding it difficult to meet his promise to halve the $1.3 trillion deficit he inherited by January 2013. Job creation has become his top priority, and he is showing no sign of skimping on tax cuts and spending measures in the short term.

A bipartisan 18-member debt commission would forward any deficit-reduction proposals they come up with to Congress after this year’s midterm elections. Issues it would face would include how to cut the deficit further in the short term and how to rein in long-term growth of entitlement programs, such as Medicare, Medicaid and Social Security. Commission members would have to come up with between $180 billion and $190 billion in cuts to meet the president’s target.

Congressional leaders have promised the president that they would submit the panel’s recommendations to an up-or-down vote in the lame-duck session of Congress, after the elections but before the newly elected House and Senate take office.

White House officials say they are ready to make some tough choices to get the deficit under control. White House communications director Dan Pfeiffer wrote on the White House Web site this weekend that the president’s budget would propose to terminate or cut back more than 120 programs, saving about $20 billion in the fiscal year beginning in October.

The proposals include consolidating 38 education programs into 11, cutting the National Park Service’s Save America’s Treasures and Preserve America grant program, and eliminating the Advanced Earned Income Tax Credit, which allows low-wage workers to get tax-credit checks in advance but which is rife with abuse, White House officials say. The Brownfields Economic Development Initiative, which converts decayed former industrial sites to new uses, would be cut, and payments ended to states to restore abandoned mines, many of which have been long cleaned up.

But some of those efforts, such as the abandoned mines and Advanced Earned Income Tax Credit cuts, were proposed last year in Mr. Obama’s first budget. They were ignored by Congress. Other planned cuts are presidential perennials, attempted without success by Presidents Bill Clinton and George W. Bush before Mr. Obama, such as eliminating whaling partnerships and implementing deep cuts to the Army Corps of Engineers.

The president is also expected to call for halting the National Aeronautics and Space Administration’s plan to return astronauts to the moon, a tough sell in vote-rich Florida.

“There’s no question there’s a range of domestic discretionary that can be scaled back,” said one Democratic budget analyst. “Politically, they will never get through.”

Meantime, the president will ask for large increases in spending on education and civilian scientific research, according to analysts who have been briefed on the budget plans.

Mainly, the president plans to rely on the budget commission and budget rules in an effort to try to force Congress’s hand, budget analysts say. The budget assumes the enactment of pay-as-you-go rules that would force any tax cut or spending increase to be offset by tax hikes or spending cuts.

Isabel Sawhill, a budget expert at the Brookings Institution, criticized the president’s goal— a deficit of 3% of GDP long after the recession has ended—saying it amounted to “defining deficits down.”

“The pay-go rules will make it more difficult for Congress to dig the hole deeper but won’t affect currently projected red ink; and the commission will likely be a paper tiger,” she wrote on Friday. “In short, these proposals will still leave us with unsustainable deficits as far as the eye can see. It is depressing to discover that we can no longer even aspire to balance the budget once the recession is over.”

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