The bending of reality ranged from domestic oil issues to General Motors Company (NYSE: GM) to tire imports.

Here are just five instances in the State of the Union address in which President Obama didn't tell the whole story:

1. What the President Said About the Auto Industry:
   On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world's number one automaker. Chrysler has grown faster in the U.S. than any major car company. Ford is investing billions in U.S. plants and factories. And together, the entire industry added nearly 160,000 jobs.
   
   What the President Didn't Tell You:
   First of all, President Obama forgot to mention that the GM bailout process started under President George Bush. And Ford Motor Company 's (NYSE: F) success has nothing to do with the government; it never took any government help. Jobs were saved, but the auto industry lost 200,000 workers. Analysts say the industry won't get back to pre-recession job levels until 2015.
   
   President Obama also left out the cost of the bailout to the American taxpayer. Because the United States became a major shareholder in GM, the nation still holds 500 million shares of the stock. Given the nation's investment, the U.S. would need to sell those shares at $53 each to break even. GM currently trades at about $25 a share, putting U.S. taxpayers $14 billion in the hole.
   
   
2. What the President Said About Oil:
   Right now, American oil production is the highest that it's been in eight years. That's right - eight years. Not only that - last year, we relied less on foreign oil than in any of the past sixteen years.
   
   What the President Didn't Tell You:
   While U.S. oil production is at its highest levels in eight years, production is only incrementally higher than it was in 2003. And higher production is not, as the president implied, responsible for the nation's reduced reliance on foreign oil. That resulted from years of declining consumption - a trend that started in 2006, two years before President Obama was elected. He also forgot to mention that the price of gasoline has skyrocketed 83% during his term, from $1.79 in January 2009 to $3.28 in December.
   
   
3. What the President Said About Job Growth:
   In the last 22 months, businesses have created more than three million jobs. Last year, they created the most jobs since 2005. American manufacturers are hiring again, creating jobs for the first time since the late 1990s.
   
   What the President Didn't Tell You:
   The jobs picture is not quite as rosy as the president described. Total employment is still 1.7 million lower than it was in January 2009, and 6 million lower than the peak in January 2008. And of course, President Obama did not want to remind Americans that the unemployment rate, though it has dropped to 8.5%, was over 9% for most of his presidency.
   
   
4. What the President Said About Government Regulations:
   In fact, I've approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his.

What the President Didn't Tell You:
True enough, President Obama approved 613 regulations in his first 33 months in office - 30 fewer than President Bush. But what he didn't say was that the regulations he approved were generally more costly. President Obama approved 129 regulations that will cost more than $100 million, compared to just 90 for President Bush.


5. What the President Said About Chinese Tire Imports:
   Over a thousand Americans are working today because we stopped a surge in Chinese tires.
   

What the President Didn't Tell You:
The cause and effect for the increase in U.S. tire manufacturing jobs is unclear. Although a tariff enacted in 2009 did slow imports of Chinese tires, other nations -- such as Mexico, Thailand and Indonesia -- quickly filled the gap. "So far as saving American jobs, it just isn't working," Roy Littlefield of the 6,000 member Tire Industry Association, told The Wall Street Journal. "And it really hurt a lot of people in the industry-smaller businesses that geared up to bring these tires in from China."

News and Related Story Links:

• Money Morning:
  Restoring the Dream: State of the Union Pitches an Economy "Built to Last"
• Money Morning:
  State of the Union Focused on Income Inequality, Job Creation
• Money Morning:
  Obama's Rejection of the Keystone XL Oil Pipeline is Pure Politics
  The Washington Post:
  Fact-checking the 2012 State of the Union speech
  
• The Daily Caller:
  Taxpayers still own 500M underperforming GM shares, Obama says "investment was worth it'
• Seattle Post-Intelligencer:
  FACT CHECK: Obama pushes plans that flopped before
• FactCheck.Org:
  The State of Obama's Facts
• USA Today:
  Full Transcript of President Obama's State of the Union Address
  

President Obama has pushed for more U.S. free-trade agreement approvals this year to reach his goal of doubling U.S. exports by 2014. The initiative prompted U.S. talks with Colombia to discuss stronger labor rules and better protection for union leaders. Colombia has a lengthy history of violence against labor organizers.

Colombian President Juan Manual Santos said last week he agreed with U.S. requests.

"They have submitted a list of things they would like to see happen in Colombia and when I saw that list, that list is exactly what we want also," Santos told Bloomberg News. "There are no contradictions. We don't want to violate the rights of the workers, we don't want to violate human rights."

After meeting with U.S. trade officials, Colombia has an April 22 deadline to "dramatically expand the scope of existing protections for union leaders" and to provide protection for labor activists and workers "trying to organize or join a union," according to details viewed by The Wall Street Journal.

The Journal also reported that Colombia would be expected to revise its criminal code by June 15, to inflict harsher penalties for those who threaten workers' rights.

U.S. Trade Representative Ron Kirk said Tuesday an approved FTA was likely in the near future.

"We feel like we are pushing on an open door when it comes to Colombia," Kirk said at a hearing of a subcommittee of the House Appropriations Committee.

A U.S.-Colombia trade deal would lock in duty-free privileges for most of Colombia's exports to the United States. Colombia's preferential access to U.S. markets started in the early 1990s under the Andean Trade Preferences Act, but lapsed in February and hurt Colombian exporters like flower growers and textile makers.

A free-trade agreement would immediately eliminate duties on more than 80% of U.S. exports to Colombia, and the remaining duties would phase out over a ten-year period. Colombian import tariffs on U.S. goods range from 7.4% to 14.6%.

The United States and Colombia exchanged about $27.7 billion in traded goods last year, up from $21 billion in 2009.

U.S. exports to Colombia in 2010 totaled around $12 billion, led by fuel oil, plastics, drilling equipment, machinery and agricultural goods like wheat and corn. An agreement with Colombia would boost U.S. exports to the country by $1.1 billion a year, according to the U.S. Commerce Department.

Colombia last year exported about $15.6 billion in goods to the United States. Crude oil accounted for more than half of that total, with other top exports including gold, coal, coffee, cut flowers, clothing, fruit and sugar.

A Colombia FTA will prevent trade rivals in Europe and Asia from edging the United States out of the region.

If Colombia implements trade agreements with other countries before the United States, U.S. imports would face an average tariff of 9% and lose out to foreign goods entering Colombia duty-free.

"It's bullish for Colombia, but for the United States too, as they were in danger of losing out to the European Union, which has a FTA with Colombia," said Money Morning Contributing Editor Martin Hutchinson. "Colombia is close to a FTA with South Korea and will do Japan after that."

U.S. wheat growers issued a statement supporting the deal.

"This is a critical step toward being able to compete on a level playing field in one of the largest wheat markets in South America," said a statement from U.S. Wheat Associates and the National Association of Wheat Growers. "Without this FTA, U.S. wheat farmers face a potential loss of sales currently valued at about $100 million per year."

The deal would also help the strengthen U.S. economic ties with Latin America - a region the United States has long referred to as its "backyard," - at a time when China has been moving in.

"China's all over the place offering infrastructure deals because they want Colombia's oil and minerals," said Hutchinson.

China's trade with Latin American countries has surged over the past few years, weakening the region's economic relationship with the United States. Now some of those nations want to strengthen U.S. ties to reduce their dependence on the world's second-largest economy.

China announced in February it was planning to build a new trade route through Panama, connecting the country's Atlantic and Pacific coasts by rail. The alternative to the Panama Canal would import Chinese goods to Colombia for assembly and distribution to the Latin American region, and send Colombia-sourced raw materials back to China.

"This shows how aggressively China and other U.S. competitors are establishing markets in our backyard," Rep. Kevin Brady, R-TX, a member of the committee overseeing the passage of the FTA, told The Financial Times. "China is taking smart advantage of America's inexcusable delay of nearly five years in approving its free trade agreement with Colombia."

A U.S.-Colombia FTA will likely open the door for approval of other stalled U.S. FTAs with South Korea and Panama, also held over from the Bush administration. Republicans have said they wouldn't pass the South Korea FTA until deals were reached with Colombia and Panama, and all three could be pushed through Congress at once.

The South Korea deal was reworked in December to give more support to U.S. automakers. The Obama administration is pushing for its approval before a European Union-South Korea trade pact takes effect in July. U.S. officials are worried that delaying its approval will give EU businesses an edge.

Panama has already agreed to alter its labor and tax issues and legislation is pending in its parliament.

News and Related Story Links:

• Money Morning:
  Latin America Looks to Strengthen U.S. Trade Relations and Step Back From China
• Bloomberg:
  Colombia Said to Reach Labor Deal With U.S. on Trade Agreement
• The Wall Street Journal:
  Colombia to Change Labor Laws in Trade Pact
• Reuters:
  Factbox: Key details of U.S.-Colombia free trade pact
• Southeast Farm Press:
  Wheat industry praises U.S., Colombia FTA progress
• Money Morning:
  Beat the BRICS: The Three Latin America Markets You Can't Afford to Ignore
• Money Morning:
  When Investing in Latin America, Politics Point the Way to Profits
• The Financial Times:
  Call for push on US-Colombia trade deal

Impact of the "Obama Arms Bazaar"

Since U.S. President Barack Obama took office, there's been a major acceleration in the sales of frontline fighter jets, tanks and other U.S.-made hardware and weapons systems being sold overseas. According to the Defense Security Cooperation Agency (DSCA), worldwide sales zoomed from $18 billion in 2006 to $30.7 billion in 2009.

In 2009 and 2010, the U.S. Department of Defense notified Congress that weapons sales to foreign buyers could reach as much as $100 billion - almost an eightfold increase from the $13 billion that was the yearly norm from 1995 to 2005, Deutsche Bank AG (NYSE: DB) analyst Myles Walton told CNNMoney.com.

As a rule of thumb, those congressional notifications are more likely to translate into $50 billion to $70 billion in actual sales. About half of those deals are done with customer countries in the Middle East.

"There is an Obama arms bazaar going on," Arms Control Association Deputy Director Jeff Abramson told CNNMoney.



While the biggest buyers are countries such as the United Arab Emirates (UAE) and Saudi Arabia, Egypt accounted for about $2 billion worth of deals all by itself in 2009 - including one calling for the purchase of 24 F-16 "Fighting Falcon" fighter jets. This means that Egypt is second only to Israel in terms of equipment purchased and foreign "aid," which is how most of this stuff gets sold. Frequently, it's hard to separate the two, especially when the amounts of money are so large.

A case in point: The U.S. forked over $250 million in economic aid to Egypt, while sending 5.2 times that amount, or $1.3 billion, to that country's military in 2010 alone. Similar amounts are requested for this year and 2012.

Sticky Wicket

But here's where this big recent run-up in foreign military sales starts to get a bit sticky: Many of the Middle East countries now experiencing unrest - including Tunisia, Jordan, Bahrain and even the UAE, to name just a few - are apparently the same nations that the United States has been supplying.
This raises two questions - in my mind, anyway:

• What happens to all of that hardware if the customers (the regimes) who bought it are quite literally thrown out of office like Mubarak was recently?
• And what are the risks to such major U.S. defense contractors like Lockheed Martin Corp. (NYSE: LMT), The Boeing Co. (NYSE: BA), Raytheon Co. (NYSE: RTN), and others if a newly formed regime turns hostile?

The answers may surprise you: The fallout from an ousted regime is not what you might expect; and neither are the risks.

If a regime that's a U.S. defense-industry customer gets overthrown or ousted, the United States doesn't just get to take the hardware or weapons-systems back, says Pieter D. Wezeman, a senior researcher with the Stockholm International Peace Research Institute. Instead, "the new regime would just inherit them" - much like Iran inherited dozens of the then-frontline F-14 "Tomcat" fighter jets back in 1979, when the Shah was overthrown as part of the Iranian Revolution, which enabled the Ayatollah Ruhollah Khomeini to come to power.

Since then, our government has spent hundreds of millions of dollars rounding up repair parts and destroying them - just to make sure that the now-retired (but militarily still lethal) Tomcats can't keep flying.

Unfortunately, despots are as inventive as they are opportunistic, which is why Iran reportedly still fields some 20 to 30 F-14 Tomcats that are virtually identical to the "Top Gun" fighter that was flown until very recently by the best-of-the-best in the U.S. Navy.

Moreover, rumors persist that the remaining Iranian F-14s are now equipped with Russian engines and radar that can keep them flying for a while longer.

Worker, Budget and Earnings Worries?

Aside from the security concerns, there are also economic worries. There are roughly 3 million people who work in the U.S. defense sector, according to the U.S. Bureau of Labor Statistics (BLS), which means any regime change "over there" could put the squeeze on our work force right here at home.

As recently as 2007, four of the world's five top defense firms and seven of the Top 10 were U.S. companies, says Richard A. Bitzinger, author of "The Modern Defense Industry." What's more, U.S. defense firms regularly capture more than 50% to 60% of the worldwide off-the-shelf arms sales.

Many analysts argue that overseas contract risks are not all that significant because overseas arms sales typically represent less than 20% of revenue for such firms as Lockheed Martin and Boeing. But analysts who make such arguments are out of touch with looming major shifts.

In the 10 years since 2001, U.S. defense spending has more than doubled - to $725 billion for the current fiscal year. That's roughly what is spent by every other country on earth - if you add all of their defense budgets together.

Now, with the fiscal 2012 budget out on the table and up for debate - and with budget deficits, the burgeoning national debt and the federal-debt ceiling exacerbating existing fears about the nation's long-term viability - a new "need-to-cut" sentiment is going to take hold in Washington.

Lawmakers are loath to cut sensitive entitlement programs - such as Social Security and Medicare/Medicaid - even though they account for about 60% of annual federal spending. That doesn't exactly leave cut-happy legislators a "target-rich" environment. So they'll go after defense spending, which only accounts for roughly 19% of the budget (if we're talking about DoD spending only), since that's politically much easier to paint with a "bad-guy" brush (an odd irony, since many of those weapons systems actually arm the very "good guys" whose job it is to protect us).

This newfound thriftiness regarding U.S. defense spending means two things for U.S. defense contractors:

• First, the overseas sales the afore mentioned analysts dismiss as irrelevant will take on an even greater importance as these companies (most of them publicly traded), work to maintain sales-and-earnings growth in order to keep their shareholders happy.
• And these firms may have to work harder to control their costs, which in most cases is a euphemism for slashing headcount. With unemployment still well above 9%, a major cost-cutting push by a sector that employs 3 million people won't be good for the U.S. recovery.

What to Watch For

Indeed, as our government has been so rudely reminded during the ongoing financial crisis, unemployment and underemployment can create a vicious circle that stretches far beyond lost wages. So budget cuts at home, combined with regime overthrows that lead to lost sales and lost markets abroad, may have a material impact on the U.S. economic rebound - and on U.S. stock prices.

Not all these companies are U.S.-based, meaning that - in terms of those stock prices - some are more vulnerable than others. But they all have U.S. workers. And they will all clearly be watching the events in Egypt as they unfold - and looking for possible fallout in other Middle East markets.

Here are some companies that have existing contracts with that country, according to the Department of Defense contract database:

• Lockheed Martin Corp. (NYSE: LMT): This aerospace giant - which forged its reputation for building the red-hot P-38 "Lightning" twin-engine fighter back in World War II - just won a $213 million U.S. Air Force contract for Egypt's border- patrol program and a $46 million U.S. Army contract that provides night-vision technology for Egypt's Boeing-built AH-64 Apache helicopters.
• DRS C3 & Aviation Co.: A U.S. subsidiary of Italy's Finmeccanica SpA, DRS C3 & Aviation Co. is providing the Egyptian- border- patrol program with vehicles, equipment and logistic services - to the tune of $46.1 million - while also handling a separate $19.6 million Army contract for surveillance hardware.
• L3 Communication Holdings Inc. (NYSE: LLL) L3's Ocean Systems unit recently took on a $24.7 million Navy contract for sonar that's to be provided to the Egyptian Navy, and a $6.6 million Army contract for imaging equipment that's to be provided to Egypt's Army.
• Deloitte Consulting LLP: A consulting-industry heavyweight, the privately held Deloitte Consulting is involved in a $28.1 million Navy contract to provide planning and support for various Egyptian aircraft programs.
• The Boeing Co. (NYSE: BA): The dean of the U.S. aerospace industry, Boeing is working on a $22.5 million Army contract that provides Egypt's Army with 10 Apache helicopters, as well as a $5.8 million Navy contract providing logistical support to Egypt - and to other nations in the region.

News and Related Story Links:

• Money Morning Commentary:
  Washington's Debt-Ceiling Debate - A Political Sham.
• News Analysis:
  Obama Budget Proposal Kicks Off Battle Over Spending Cuts, Tax Increases.
• Fortune:
  Egypt uprisings, American weapons. Now what?
• Fortune:
  America's hottest export: Weapons.
• Congressional Research Service:
  Official Website.
• WhiteHouse.gov:
  Barack Obama.
• Lockheed Martin:
  F-16 "Fighting Falcon."
• BeInformed.com:
  Unrest Spreading Across Arab World:Can Democracy Bring EconomicProsperity?
• Arms Control Association:
  Official Website.
• Defense Security Cooperation Agency:
  Defense Security Cooperation Agency.
• Pieter D. Wezeman:
  Official Bio.
• Stockholm International Peace Research Institute:
  Official Website.
• U.S. Navy Fact File:
  The F-14 "Tomcat" Fighter
• Wikipedia:
  Iranian Revolution of 1979.
• Above Top Secret:
  Iran's F-14 Tomcats.
• All Movie Guide:
  Top Gun.
• Wikipedia:
  Ayatollah Ruhollah Khomeini.
• Bureau of Labor Statistics:
  Official Website.
• Amazon.com:
  "The Modern Defense Industry."
• P-38 National Association:
  Official Website.
• Wikipedia:
  Military Budget of the United States.
• The Boeing Co:
  AH-64 Apache.
• L-3 Communications:
  Official Website.
• Aljazeera.com:
  Hosni Mubarak Resigns as President.
• Investopedia:
  Protective Stops.

Obama's Reform Proposal

The White House on Friday took a tentative first step towards reforming Fannie Mae and Freddie Mac when it put forth a proposal to wind down theagencies, which are now controlled by the federal government.

The administration's "white paper" proposal for replacing the mortgage giants broadly outlines alternative possibilities to reduce the government's role in the mortgage market, including:

• Gradual increases that will eventually raise to 10% the minimum down payment for any loan Fannie and Freddie could buy. Currently, borrowers can make smaller down payments if they purchase mortgage insurance.
• Shrinking the size of the portfolio of mortgages held by government housing finance agencies by at least 10% a year.
• Removing all government loan guarantees beyond those already in place with the Federal Housing Administration, turning most of the market over to the private sector.

The paper also recommends gradually raising fees that Fannie and Freddie charge to lenders in order to make mortgages that aren't government-backed more competitive.

Any of the actions are likely to raise borrowing costs and limit access to affordable home loans for consumers. Administration officials said the transition to a new system could take five years or longer.

It's taken this long for Washington to take on the problems surrounding Fannie and Freddie because there are no simple solutions. Fannie and Freddie buy mortgages from banks and other originators, repackage them for sale as securities and make investors whole when borrowers default.

Shutting them down likely would just add to the $150 billion Fannie and Freddie have already taken from taxpayers' pockets to cover bad loans.

"Someone has to pay it," John Taylor, president and chief executive officer of theNational Community Reinvestment Coalition told msnbc.com. "It doesn't miraculously disappear. We sponsored these loans and now, with the companies going under, we have to make good on the loans."

A shutdown also would leave homebuyers with reduced access to affordable loans. So many private lenders shut down or stopped lending when the housing bubble burst that the two agencies guaranteed more than 90% of home loans written last year, The Wall Street Journal reported.

"We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market," U.S. Treasury Secretary Timothy Geithner said in a statement.

The proposal outlines a series of steps to shrink the government's participation in the mortgage market that could be taken without seeking congressional approval, although the administration would prefer legislative action.

Politicians in Washington have been fighting over how to reform the housing-finance system, with both parties reluctant to propose detailed legislation.

Most Republicans believe Fannie and Freddie were key players in the financial crisis and oppose any solution that would keep them in the business of backstopping most home loans. Democrats have said the government must play a prominent role in ensuring public access to homeownership.

By advancing multiple proposals, the administration could be trying to build consensus around one option, according to The Journal. Some analysts say it may help build the case for a continued government backstop that many administration officials are said to privately favor.

"Most people in Congress understand that this is a very political, contentious issue," said David Berson, a former Fannie Mae chief economist. "It's going to be a very volatile ride as we move toward what ultimately will be the future of Fannie and Freddie. It's hard to know what that's going to be."

More Homes Underwater

As the politicians continue the debate over how to stabilize the loan market, the number of U.S. homes worth less than their outstanding mortgage jumped to 27% in the fourth quarter of 2010, according to Zillow.

Roughly 15.7 million homeowners were saddled with negative equity in their homes at the end of the year, also known as being underwater. The figure was up from 13.9 million in the third quarter, the Seattle-based real estate information company said in a report last week.

Home prices will fall as much as 5% this year, putting even more homeowners underwater, as foreclosed properties sell at discounts and 9% unemployment curtails buyer demand, Stan Humphries, Zillow's chief economist told Bloomberg News.

"These seem like fairly grim numbers," Humphries told Bloomberg in a telephone interview. "We're still expecting a bottom in home values later this year. And this, if anything, makes me a bit more confident because I'm seeing very large corrections now, which means the market can start to repair itself."

Home seizures fell in the fourth quarter as Bank of America Corp. (NYSE: BAC) and other lenders imposed a moratorium after accusations they failed to process documents correctly and hurried the review of paperwork. All 50 states are investigating the banks and may sue to recover unpaid fees.

The sheer number of defaults is also slowing the time it takes for the banks to repossess properties after buyers stop payments. It took an average of 507 days for lenders to reclaim homes in foreclosure in December, 25% longer than in 2009, Lender Processing Services reported this week.

Las Vegas had more than 81% of its mortgages underwater, the highest percentage in the United States, Zillow said. Phoenix was second at 69.9%, followed by Reno, Nevada with 67.9%, and Orlando, Florida at 61.7%.

The median value for a U.S. single-family home was $175,200 in the fourth quarter, down 5.9% from a year earlier, according to Zillow. Values have fallen 27% from the June 2006 peak.

The company's figures exclude homes that are resold after foreclosure, which usually fetch at least 20% less than similar properties, Humphries said.

Mortgage Interest Rates Spike

Yet another challenge to the housing market recovery surfaced last week when 30-year mortgage rates pierced the psychologically-important 5% level for the first time since last spring.

The average rate on 30-year fixed-rate mortgages jumped to 5.05% in the week ended last Thursday, according to a closely-watched survey by Freddie Mac, up from 4.81% a week ago. It was the highest rate in the survey since April.

The spike in rates has been unusually swift. In just three months, the national average mortgage rate has jumped to more than 5% from a record low of 4.17%, according to Freddie Mac data.

The increase in borrowing costs is a direct reflection of a large jump in the yields of U.S. Treasury bonds in recent weeks. The yield on the 10-year Treasury note closed Thursday at 3.712%, up almost 140 basis points over its October low of 2.318%. The increase comes despite buying by the Federal Reserve, which has employed a second round of quantitative easing to keep rates down and sustain the economic recovery.

The higher cost of buying already is discouraging some buyers from entering the market. Mortgage applications have fallen 12% in two months as rates have surged, according to an index compiled by the Mortgage Bankers Association.

But some analysts say the increase may be healthy because it will motivate buyers to take the plunge before rates go even higher.

"The latest rate rise has kicked a few people off the fence; also, it's given a little bit of a wake-up call for real-estate agents to connect with clients who may have been sitting on the fence or arguing over small differences between the bid and ask" home prices, Stephen Calk, chairman and chief executive of Chicago Bancorp, which does mortgage business in 35 states, told The Journal.

But other analysts say another critical element of the market -- refinancing activity -- has already been hard-hit.

"Once mortgage rates reached the 4¾ level in December, refinance activity stopped altogether," said Lou Barnes, a mortgage banker at Premier Mortgage Group in Boulder, Colo. Mortgage applications for refinancing are down 59% from their peak in August, according to research firm Zelman & Associates.

Barnes told The Journal that many buyers think prices have farther to fall, keeping them from stepping up.

News & Related Story Links:

• Wall Street Journal:
  Views of Life After Fannie, Freddie
• Msnbc.com:
  White House wants Fannie, Freddie to go
• Bloomberg:
  Home-Price Drop Leaves 27% of U.S. Owners Underwater on Loans, Zillow Says
• Money Morning:
  What You Don't Know about "Mortgagegate" Could Crush the U.S. Banking System
• Wall Street Journal:
  Rise in Rates Is Headwind for Housing

In his spending plan, President Obama calls for an end to tax breaks for wealthier individuals, families and businesses, and the eradication of some programs that were designed to help financially strapped Americans. He also proposed billion-dollar cuts in education spending, housing programs and infrastructure projects.

But President Obama's proposed cuts aren't nearly as deep as critics have been calling for.



The White House's $3.7 trillion budget request far exceeds the Republicans' goal to spend only about $2.9 trillion. Now the president and Congress face the arduous task of finding compromise in that $800 billion difference.

Republicans have lashed out at President Obama's lack of aggressive spending cuts and are criticizing his billion-dollar "investments" - his newly adopted euphemism for "increased spending."

"This budget was an opportunity for the president to lead," U.S. Sen. Mitch McConnell, R-KY, told Bloomberg News. "He punted."

Critics have also ripped President Obama for his hands-off approach to the deficit-inducing entitlement programs of Social Security and Medicare/Medicaid. The programs eat up the biggest portion of the federal budget and will continue to rise as more of the "baby boomer" generation reaches retirement age.

Meanwhile, many Obama-budget backers have lauded the administration for successfully creating a "tough-love" budget - a spending plan that reduces the deficit without creating economic chaos. They also feel Republicans who have spoken out against the Obama administration's deficit-reduction commission should stop criticizing the president for not following the commission's recommendations.

"I think it's at least a little bit opportunistic for Republicans who opposed the formation of the bipartisan deficit-and-debt-reduction commission - and then when every Republican in the House voted against it - to be criticizing the president for not including more of the recommendations that they themselves voted against," U.S. Rep. Chris Van Hollen, D-MD, said yesterday (Tuesday).

President Obama's deficit commission in December said that U.S. budget deficits had to be reduced by an aggregate $3.9 trillion through 2020 to make significant changes in federal debt. The new budget proposal cuts about $1.1 trillion over the next decade, less than a third of what the commission suggested.

House Republicans plan to release an alternative budget plan - with broader cuts - but it remains unclear if they will be willing to cut any of the U.S. entitlement programs.

This brings us to next week's Money Morning "Question of the Week:" What do you think of President Obama's budget proposal? In terms of your own expectations, did his spending cuts and tax hikes meet, exceed, or fall short of what you predicted? In terms of what this country needs, did President Obama go far enough? Or does this plan fall short? If you think it fell short, is it at least a good starting point for negotiations?

Send your answers to mailbag@moneymappress.com. We want to hear from you!



News and Related Story Links:

• Bloomberg News:
  Obama Budget Sets Up Fight With Republicans Over Depth of Cuts
• Money Morning:
  Obama Budget Proposal Kicks Off Battle Over Spending Cuts, Tax Increases
• The Washington Post:
  Republicans ‘opportunistic' in criticizing Obama budget proposal
• Money Morning:
  Washington's Debt-Ceiling Debate - A Political Sham
• Money Morning News Archive:
  Question of the Week Feature