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Published: May 14, 2009

RIO RANCHO, New Mexico (Reuters) – President Barack Obama raised the prospect on Thursday that China and other nations could stop buying U.S. debt and said the United States needed to tackle its deficit to avoid long-term economic damage.

“The long-term deficit and debt that we have accumulated is unsustainable. We can’t keep on just borrowing from China or borrowing from other countries,” Obama told a town hall meeting event in New Mexico.

“We have to pay interest on that debt and that means that we’re mortgaging our children’s future with more and more debt,” he said.

China is the single largest holder of U.S. debt and owned $744 billion worth of U.S. government securities at the end of February, the latest month for which data is available, according to the U.S. Treasury.

Obama said the debt situation would create greater economic problems if foreign countries like China lost their appetite for U.S. treasuries.

“What’s also true is at some point they’re just going to get tired of buying our debt,” he said.

“And when that happens, we will really have to raise interest rates to be able to borrow and that will raise interest rates for everybody.”

The White House estimated earlier this week the U.S. budget deficit will be $1.84 trillion for the fiscal year that ends September 30.

Obama has pledged to halve the U.S. deficit within four years despite implementing economic stimulus measures that will make it larger in the short term.

(Reporting by Jeff Mason, editing by Vicki Allen)

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