Aug. 16 (Bloomberg) -- President Barack Obama told an audience in rural Iowa that the U.S. economy will come back “stronger than before” after the worst recession in decades, driven by small businesses and entrepreneurs.

“That comeback isn’t going to be driven by Washington, it is going to be driven by folks here in Iowa,” Obama said in opening a forum on the rural economy at Northeast Iowa Community College in Peosta.

The federal government can help if lawmakers “put aside the politics of the short-term” and spend on programs such as education and expanded Internet access that will pay dividends down the road, he said.

On the second of three days traveling through rural areas of the Midwest, Obama is outlining initiatives that the administration says will bolster the economy in the farming regions outside the nation’s big cities.

Among them are expanded loan programs run by the Small Business Administration through a $1 billion investment fund aimed at luring private capital, job search and training services, and increased access to health care and technology. Money will come from existing programs and funding, according to a White House fact sheet.

The administration also is announcing that the Navy and the Departments of Agriculture and Energy will invest as much as $510 million in a program aimed at producing biofuels for aircraft and ships. The plan, part of the administration’s broader energy strategy, will benefit rural areas, according to Agriculture Secretary Tom Vilsack.

Rural Boost

Vilsack said unemployment is historically higher in rural communities. The administration commitment “isn’t necessarily at the expense of other parts of the country, but this is a renewed interest in making sure all parts of the country become prosperous,” Vilsack said yesterday on a conference call.

As he did yesterday, Obama blamed Congress for failing to act on measures intended to boost growth and job creation.

“We could do even more if Congress is willing to get into the game,” he said. Without directly criticizing Republicans who control the House of Representatives, Obama said economic initiatives have been stalled by the “refusal of a faction of Congress to put country ahead of party.”

After spending most of the summer in Washington fighting with congressional Republicans over raising the nation’s debt ceiling, Obama is in the Midwest on a trip that the administration has billed as a chance to listen to the public’s concerns about jobs and the direction of the country.

Limited Options

As Obama seeks to regain the political initiative with the mood of voters soured by the debt fight and concern about the potential for a double-dip recession, his options to prop up the economy are limited. While some Democrats are pushing for bolder action to lower the nation’s 9.1 percent unemployment rate, Republicans are showing no appetite for more stimulus spending that would add to the deficit.

During stops yesterday in Minnesota and Iowa, Obama repeated his call for action on free-trade agreements, an infrastructure bank to fund construction projects and extending a temporary two-percentage-point cut in the payroll tax for workers.

He told his audiences that “partisan brinksmanship” has poisoned the dialogue in the nation’s capital.

“You guys didn’t send us there to be thinking about our jobs,” Obama said at a town-hall meeting in Decorah, Iowa. “You sent us there to be thinking about your jobs and your future.”

Republican Candidates

Although Obama said it wasn’t “election season yet,” he took aim at the Republican presidential candidates for rejecting, during their Iowa debate on Aug. 11, any increase in taxes to trim the deficit even if they were offered $10 in spending cuts for each $1 in new government revenue.

“None of them would take it,” he said yesterday. “That’s just not common sense.”

Obama also criticized House Speaker John Boehner for rejecting a $4 trillion deficit-cutting deal “because his belief was we can’t ask anything of millionaires and billionaires and big corporations.”

The Republican National Committee responded to Obama’s trip by releasing an ad, “Obama’s Debt-End Bus Tour,” that lists the jobs lost in Minnesota, Iowa and Illinois since he took office.

Before Obama arrived in Decorah, Texas Governor Rick Perry, who announced Aug. 13 that he is running for the Republican presidential nomination, criticized Obama’s handling of the economy.

Perry’s Criticism

“The president of the United States has conducted an experiment on the American economy for almost the last three years, and it has gone tragically wrong,” Perry said at a Republican fundraiser in Cedar Rapids, Iowa. Perry also said any move by Federal Reserve Chairman Ben S. Bernanke to act on stimulus measures before the 2012 election would be “treasonous.”

White House press secretary Jay Carney told reports that the administration takes the Fed’s independence “quite seriously” and criticized Perry’s “threatening” language.

While Obama is in Peosta today, Perry is scheduled to be about 13 miles east in Dubuque.

The president traveled about 160 miles, rolling through rural parts of Minnesota and Iowa rarely visited by presidential motorcades, meeting with local residents along the way. In Guttenberg, Iowa, this morning, Obama met with five owners of small businesses and greeted local residents at Rausch’s Cafe.

Among the residents was Betty McVicker, 90, who said she is a registered Republican and didn’t vote for Obama in 2008. Still, she went to Rausch’s for a chance to meet him.

‘Our President’

“He’s our president,” she said. “I’m thrilled to pieces.”

Iowa helped spark Obama’s successful bid for the 2008 Democratic presidential nomination and the town-hall events were reminiscent of his campaign swings then, including the same music soundtrack.

Now, as an incumbent, Obama faces one of the most challenging moments of his presidency. A worsening economic outlook, Standard & Poor’s first-ever downgrade of the U.S. credit rating, risks of a spillover effect from Europe’s debt crisis and volatility in global markets are drawing comparisons to the beginning of the 2008 financial crisis and confronting Obama with forces over which he has little control.

Fitch Ratings today affirmed its top AAA rating on U.S. Treasuries. Standard & Poor’s, another of the three major ratings companies, on Aug. 5 cut its rating on federal debt to AA+ from AAA. The yield on the benchmark 10-year note dropped 0.06 percentage point to 2.25 percent at 12:52 p.m. in New York, according to Bloomberg Bond Trader prices.

--With assistance from Michelle Jamrisko in Washington. Editors: Joe Sobczyk, Bob Drummond

To contact the reporter on this story: Julianna Goldman in Peosta, Iowa, at [email protected]

To contact the editor responsible for this story: Mark Silva at [email protected]