Obama: We Will Rebuild and Emerge Stronger

Barack Obama will attempt to lift confidence battered by the collapsing economy in an address to Congress tonight in which he promises the US will "emerge stronger than before".

The speech, live on prime-time television, offers his most upbeat assessment of recovery yet, after months of warning how America was caught in the worst recession since the 1930s.

He also will set out one of the most left-of-center programs in recent US history, offering up the prospect of a national health service, better education opportunity and cutbacks in defence spending, including on what he called redundant Cold War weaponry, wasteful agricultural subsidies and tax breaks for corporations.

In what was effectively his first State of the Union address, Obama is to hint that the scale of the economic crisis means he might have to shed some of the pledges he had made on the campaign trail, without saying which ones. Although US stocks recovered today from Monday's 10-year-low, the White House is under siege from daily bad news: more job losses, homes repossessed and banks and car giants asking for billions more in aid.

Obama told Congress he had inherited a $1.2 trillion deficit from George Bush, a financial crisis and a costly recession. "Given these realities, everyone in this chamber – Democrats and Republicans – will have to sacrifice some worthy priorities for which there are no dollars. And that includes me."

Nonetheless, he will signal an intention to make a start on two of his most contentious campaign pledges: to try to introduce a national health service and to spend as lavishly as possible on education, both opposed by the Republicans.

The economic portion of his speech overshadows the foreign affairs element, though Obama officials briefed that his administration is planning on having most combat troops out by August next year.

A brigade, numbering between 3,000-5,000, is to be withdrawn at the rate of about one a month. There are 145,000 US soldiers in Iraq, and even after the withdrawal of most combat troops, a sizeable contingent will be left to help with security and training.

Withdrawal from Iraq is key to Obama trying to balance the US budget. In the most upbeat part of his speech, he says: "While our economy may be weakened and our confidence shaken; though we are living through difficult and uncertain times, tonight I want every American to know this: we will rebuild, we will recover and the United States of America will emerge stronger than before."

He puts much of the blame for America's troubles on the greed and deregulation that dominated the Bush years. "We have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election."

The day of reckoning had arrived, he says, both in terms of reviving the economy and beginning to try to reduce the debt he had inherited. "Now is the time to jump-start job creation, re-start lending and invest in areas like energy, healthcare, and education that will grow our economy, even as we make hard choices to bring our deficit down."

Obama says that his administration, going line by line through the federal budget, has already identified $2tn in savings over the next decade.

"We'll eliminate the no-bid contracts that have wasted billions in Iraq, and reform our defence budget so that we're not paying for Cold War-era weapons systems we don't use. We will root out the waste, fraud and abuse in our Medicare program that doesn't make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas."

The Republicans' response to Obama will be led by their rising star, Louisiana governor, Bobby Jindal, who is set to describe the president's handling of the economy as irresponsible and wrongheaded. "The way to lead is not to raise taxes and put more money and power in hands of Washington politicians," he said. The plan will "grow the government, increase our taxes down the line, and saddle future generations with debt."