US President Barack Obama warned Thursday that America could not keep spending as though deficits did not matter, as he signed a new law cutting waste and fraud and targeted 50 billion dollars in savings.

Obama warned that wasteful red-tape, bureaucratic overlap and errors were throwing precious taxpayer dollars away, and said the government should emulate hardworking Americans by trimming its budget.

"When we continue to spend as if deficits don't matter, that means our kids and our grandkids may wind up saddled with debts that they'll never be able to repay," Obama said before signing the legislation at the White House.

"The challenge I'm making to my team today is to reduce improper payments by 50 billion dollars between now and 2012 -- And this goal is fully achievable."

The US budget deficit, which the White House warned earlier this year could reach 1.555 trillion dollars this year, has emerged as a huge political issue and threatens to crimp Obama's ambitious reform plans.

At a recent summit of the Group of 20 leading economies in Toronto, Obama vowed to halve the deficit within three years.

Republicans accuse Obama of running up the deficit with massive spending plans and a government takeover of vast sectors of the economy.

But Obama counters that former president George W. Bush blew open the fiscal gap with tax cuts that were not paid for and says his deficit spending was necessary to jumpstart the crisis-mired economy.

Improper payments by the government last year reached nearly 110 billion dollars, the highest total ever, according to the White House.

Inefficiencies in government over the past three years have seen the government pay out more than 180 million dollars in benefits to Americans who had died and more than 230 million to ineligible fugitives or convicts.