The US president has pledged to improve the lives of Native Americans. But he faces huge challenges, such as those on Pine Ridge Indian reservation where unemployment is more than 80%, the average wage is £4,400 – and life expectancy is 50

Indian country begins where the serene prairie of Custer county gives way to the formidable rock spires marking out South Dakota's rugged Badlands. The road runs straight until the indistinguishable, clapboard American homesteads fade from view and the path climbs into a landscape sharpened by an eternity of wind and water. At this time of year, the temperature slides to tens of degrees below freezing and a relentless gale sets the snow dancing on the road, a whirligig of white blotting out the black of the asphalt.

The first marker that this may be a part of the United States but is also apart from it, virtually invisible to most Americans, comes as the road descends on to the plains of the Pine Ridge Indian reservation. Here, an abandoned, half-wrecked mobile home, daubed with the name of a Sioux rebel who led the last armed showdown between the tribe and US authorities nearly four decades ago, stands as a monument to defiance and despair.

The signal from South Dakota's Christian radio fades as an agitated caller elaborates on her belief that God created global warming as a taste of the fires of hell awaiting humanity. After a time the reservation's own station struggles through.

The tribe's president, Theresa Two Bulls, is on air lamenting the death of a schoolboy, Joshua Kills Enemy, who hanged himself the day before. His funeral will be the second of the week, coming days after a 14-year-old girl took her own life in the same way. They are not the first.

Two Bulls wonders how it can be that the Oglala Sioux tribe's children are killing themselves. "We must hug our children, we must tell them we love them. A lot of these youth do not get a hug a day. They are never told that they're loved. We need to start being parents and grandparents to them," she says.

Two days later, Two Bulls declares a "suicide state of emergency" in response to the deaths of the children and a spate of attempts by others to kill themselves, such as Delia Big Boy, who was 15 when she put a rope around her neck and came close to taking her own life. "It had a lot to do with my parents and alcohol abuse and what they say to you. The things they say make you think they don't love you," says the high school student, who is now 17. "I hear the same thing from my friends. There's a sense of hopelessness on the reservation. There's just not a sense of belonging. There's not a sense of a future. There's alcoholism. The parents drink. A lot of the children drink."

In declaring the state of emergency, Two Bulls says that the deaths of the children are a symptom of a wider crisis that has taken hold of generations of Oglala Sioux, and this is certainly true. More than 100 people, mostly adults, tried or succeeded in taking their own lives on Pine Ridge reservation last year.

"This is about how defeated our people feel. There's hopelessness out there," Two Bulls tells me later. "People across the United States don't realise we could be identified as the third world. Our living conditions, what we have to live with, what we have to make do with. People think we are living high off the hog on welfare and casinos. I've asked them – US congressional people, US secretaries of these departments who deal with us – come out to our reservation, see firsthand how we live, why we live that way. Find out why our children are killing themselves. Learn who we are."

Pine Ridge is among the US's largest Indian reservations – much smaller than the vast plains of the midwest that the Sioux once roamed but still bigger than England's largest county – and also among its poorest. No one is sure how many people live on its 2.2m acres, but the tribe estimates about 45,000.

Conditions on the reservation are tough. More than 80% unemployment. A desperate shortage of housing – on average, more than 15 people live in each home and others get by in cars and trailers. More than one-third of homes lacking running water or electricity. An infant mortality rate at three times the US national average. And a dependency on alcohol and a diet so poor that half the population over the age of 40 is diabetic.

The Oglala Sioux's per capita income is around $7,000 (£4,400) a year, less than one-sixth of the national average and on a par with Bulgaria. The residents of Wounded Knee, scene of the notorious 1890 massacre of Sioux women and children and of the 1973 standoff with the FBI, are typically living on less than half of that. Young people have almost no hope of work unless they sign up to fight in Afghanistan. The few with jobs are almost all employed by the tribal authorities or the federal government. It is not uncommon to hear people quietly speak of the guilt they feel for having a job. Those who don't survive on pitifully small welfare cheques. It all adds up to a life expectancy on Pine Ridge of about only 50 years.

The myth of prosperity

This is not how most Americans see the reservations. The Great Sioux Nation and the region it once ranged across are fixed in the popular imagination by the legends of Sitting Bull and Crazy Horse, of Custer's last stand at the Battle of Little Bighorn, and Wounded Knee. It's a history the Oglala Sioux constantly assert to remind themselves of past greatness and what they believe they are owed.

But the modern perception among many Americans is also of tribes growing rich on casinos and Native Americans living well from treaties that require the US government to provide subsidised housing, free healthcare and regular welfare cheques.

Close to a million people live on the US's 310 Native American reservations (exact figures are hard to pin down because the census is considered widely inaccurate on many of them). Some tribes have done well from a boom in casinos on the reservations, such as the Seminoles in Florida who made enough money from high-stakes bingo to pay close to $1bn to buy the Hard Rock Cafe and hotel empire. Other tribes have made a more modest but comfortable income from gambling, but the key for almost all of them was to be close enough to major cities to keep the slot machines busy and the card tables full. Others pull in an income from tourism and minerals. Affirmative action programmes have opened university doors and jobs in the cities to the Navajo, Cherokee and other tribes. But the leaders of many of the country's 564 recognised tribes speak of communities in crisis and they are pressing President Obama to make good on promises to turn their lives around.

Obama faces a challenge meeting that commitment, in the midst of a deep economic crisis. But he has responded by appointing Native Americans to some key positions, assigning billions of dollars of additional spending to health, education and policing and, recently, by calling the first of what he promises will be an annual White House summit with Indian tribal leaders. At it he acknowledged that the reservations face a struggle born of a history of broken treaties, neglect and discrimination.

"Few have been more marginalised and ignored by Washington for as long as Native Americans, our first Americans. You were told your lands, your religion, your cultures, your languages were not yours to keep," he said. "I know what it means to feel ignored and forgotten, and what it means to struggle."

The Sioux's treaties with the US government in the second half of the 19th century were similar to those of other tribes in that they were frequently broken as an expanding America sought more land for railways, mining and farming, and battered Native Americans into ceding ever more territory in return for promises of financial support. Defeated and dispossessed, the Sioux signed treaties that committed Washington to providing housing, education and health care.

But the tribe's leaders today view the treaties as a trap – promising much but providing just enough to create a culture of dependency and despair. "The government wanted us to feel defeated and we played right in to their hands," says Two Bulls. "We were taught to feel defeated. Look how they brought welfare and our people lived on welfare and some of our people don't even know how to work. They're used to just staying at home all day, watching TV and drinking and taking drugs. That's the state the government wanted us to be in and we're in it."

Poverty and overcrowding

It is a state Adelle Brown Bull has spent her life resisting, not always with success. The 69-year-old great-grandmother is still in the same tribal-owned house she raised her eight children in, and some of them never moved out. Today the two-bedroomed home is stuffed with grandchildren and great-grandchildren. She sits at her kitchen table, the green wall behind her dotted with photographs of the generations of babies. Some of the pictures are so old they are in black and white.

Among those living with Brown Bull are a daughter and her three children who are all in their 20s. Two of the granddaughters have several children of their own, one of them a baby. There's another grandchild, nine-year-old Michael, who Brown Bull is raising after his mother in effect abandoned him when he was 10 months old. The numbers fluctuate but there is anywhere between eight and 15 people sleeping in the house at any one time.

None of the occupants has a job. Brown Bull gets a pension of $538 (£337) a month, plus $323 (£202) for caring for Michael. The other mothers in the house get welfare cheques of a few hundred dollars a month. "We just manage," Brown Bull says, laughing.

The house shows its age and the wear and tear of so many residents. The tribal housing authority has just replaced the window frames because they were letting so much wind in. But it is almost impossible to heat the house, a common problem on the reservation where residents typically nail plastic over the outside of their windows in the winter as insulation.

Brown Bull's house was built in the wake of President John F Kennedy's pledge to include Native American reservations in the US public housing programme. That led to a boom in construction through the 60s and 70s, when many of Pine Ridge's homes were put up. But in the 80s, Ronald Reagan shifted public housing policy dramatically away from new construction.

These days, Pine Ridge relies on a $10m-a-year housing grant from Congress that is only enough to pay for the most basic maintenance – such as combating the poisonous black mould that infects many of the houses – and the construction of about 40 new homes each year. Which is far from enough.

"When you get two or three families living in a house, it affects the whole way of life here – education, health," says Paul Iron Cloud, a former Pine Ridge president and now head of its housing authority. "Our people have a tendency to take people in, maybe their relatives who don't have no place to go. So they all share that house."

Last year, the federal government offered to fulfil part of its treaty obligations by selling the tribe old houses from an airforce base, no longer considered fit for service personnel, at a dollar each. The Pine Ridge authorities agreed but when the houses arrived they were charged $25,000 for the removal costs of each one – and then discovered the buildings were badly battered, with walls torn off and windows smashed in. The houses sit in a yard to this day, giving the impression of having been torn up by their roots.

Two Bulls regards overcrowded, bad housing as an important part of the explanation for the loss of self-worth. Brown Bull sees it in her own family. Among the baby pictures on the wall are photographs of two grandchildren serving in the military. "That one's signed on for a few more years," says Brown Bull, pointing to a young woman in a smart army uniform. "She's in Afghanistan now. She says she might as well stay in the military because there's nothing for her here. No job. The only place she can live is with me. I have another grandson in the army in Afghanistan. He says the same thing."

Most of this goes unnoticed in the rest of America. "Some of them still think we live in teepees," says Alison Yellow Hair, a former shipyard worker wrapped up in a thick coat inside her freezing caravan. "Since we own the land they think we're rich and we shouldn't have to be working. We should be living high off the hog. I got a lot of that down there at the shipyards. You're Indian, aren't you? Yeah. Don't you get a cheque every week? Jeez, if I got a cheque every week I wouldn't be down here busting my ass for a pay cheque or trying to keep up with my health insurance payments."

Now she is back in Pine Ridge, Yellow Hair and her husband, Walter, do get a cheque from the tribe's general assistance fund – $117 (£73) between them each week. They live in a small caravan cocooned behind a pile of cardboard boxes and plastic trunks stuffed with clothes and furniture that cannot fit in to the cramped home, plastic sheeting protecting it all against the snow. Inside, there is little more than a few cooking utensils, a tiny heater that stays off most of the time and a large pile of blankets and duvets that they wrap themselves in to keep warm after the sun goes down and the temperature sinks to -35C (-30F) with the wind chill. There's no running water and no electricity. "The heater runs on kerosene," says Walter. "Two gallons costs $25. We can use that in two days if we leave it on."

Walter used to work as a janitor until the tribal authorities laid off staff five years ago. He hasn't found a job since. Alison built ships in Oregon. "I did 10 years in the shipyards before I came home and I've been home about 10 years. Haven't really been able to get a steady job since I moved back. Can't make my money like I used to. Got hurt on the job while I was at the shipyards. I was leaning back on a catwalk because a boilermaker went off to get some more welding rods and the safety guy that was supposed to take care of us stepped on me and pinned my arm. His weight was 250lb and he pushed my arm down on that metal catwalk and it messed up my arm and shoulder ever since."

There are jobs to be had but they are mostly working for the tribe in one form or another. One of the largest employers is the tribal-owned Prairie Wind Casino alongside the road between Pine Ridge town and the huge tourist draw of Mount Rushmore. The casino was built in an attempt to replicate the small fortunes made by other tribes but it is a sad affair, too isolated to make real money. On a cold winter night there is no one at the card tables and most of those playing the slots come from the reservation.

The curse of alcohol

The streets of Pine Ridge, the town that carries the same name as the reservation, are dead at night. Aside from a Pizza Hut and a recently opened Subway sandwich bar, there is not much open as dusk falls.

What street life there is occurs in Whiteclay, a few steps across the reservation's border with neighbouring Nebraska. Whiteclay has a couple of dozen registered residents but no school, church or community centre. There's only one street, the main road due south. And there is only one type of business along the 50 metres that makes up the town: alcohol.

A bar and three liquor stores, all rotting, dilapidated buildings, sell more than 4m cans and bottles of cheap beer and rough, powerful malt liquor each year. Almost all of it is to people from Pine Ridge, where alcohol has long been banned.

A woman stands almost motionless a few steps from the door to State Line Liquor, rocking back and forth as if straining to make that last lunge toward the store. She is badly underdressed for the biting cold and snow, yet seemingly impervious. Her face is bloated, her eyes unfocused. A few metres away two men have passed out in the street. Other Sioux step past to load their pick-up trucks with Hurricane, a powerful malt liquor glorified in gangsta rap songs that alcohol-dependence groups in major American cities have tried to curb because of the social devastation it has caused among minority communities.

Heading back across the state border, a large round sign greets arrivals: "Alcohol is not allowed on the Pine Ridge Indian Reservation." Possession is an arrestable office, as is intoxication. But the Pine Ridge police captain, Ron Duke, concedes the law has done little to deter the problem. "At one point we thought about putting up a border there, making people stop at that border to check 'em. But we have all these outlying roads and trails that people use and we'd probably be defeating our own purpose. We don't want to be like the Mexican border where we have to put a fence up all around," he says.

Duke is bitter at what he sees as the cynicism of the store owners. "See how rundown that place is? But the people who own those bars are millionaires. We made them millionaires, the people here. Yet they treat us that way," he says. "I've been in law enforcement for 25 years. People I used to take to jail, their kids and now their grandkids, I'm dealing with them. I'd say a majority of the problems we're having right now, 90% of it is because of alcohol. We don't really have an economy where people have the opportunity to get a job. People have to live off a welfare grant or whatever's available for them. That really makes it tough on our people. Then they turn to alcohol, they turn to violence."

Brown Bull sees the effects in her street. "Every other house is a bootlegger. You can watch them and see who goes to where. One day I was opening my curtain in the bedroom and I heard some boys laughing. There was three boys, 10 to 12 years old, standing right next door. They had a big old bottle going around. I thought, my goodness, these little boys shouldn't be drinking. They shouldn't be selling to these boys. I didn't like that at all. If you go down the road, in the back between the houses, there's so much broken bottles back there," she says.

In theory, possession of alcohol is severely punished. The law allows prison sentences of six months to a year for keeping or selling beer. But it's more common for those arrested to be held overnight and fined $25 court costs – a fraction of the money they make from selling beer.

That might be about to change. Like much of the rest of America, the Oglala Sioux have decided that the way to deal with crime is to spend scarce resources on bigger prisons. The reservation authorities have built a new 280-cell jail to replace the old prison that crammed up to 200 inmates in to 25 cells. It's likely that many of the young will end up there. Rampant alcoholism has created a raft of problems, but none more serious than the alienation of the tribe's young people. Hundreds have retreated in to gangs modelled on the black and Latino ones of Los Angeles and Chicago, with names such as the Nomads and Indian Mafia. The gangs are part of a surge in violent crime.

"Parents and grandparents are afraid of their own kids," says Duke. "They're taking their money for drugs and alcohol. Parents can't control their own children. They attack their own relatives for money."

Others, of course, find release by taking their own lives. Delia Big Boy only survived because she was discovered in time. "They found me and I got sent to the hospital," she says, her voice breaking. "When I did that, my Auntie, she came and talked to me and she invited me in to her home. I've been living with her since. That changed a lot." These days Big Boy counsels other young people as part of the Sweetgrass network which encourages children in despair to call or send text messages. "I get calls all the time from friends and others. Usually it's because of the way their parents treat them. They don't feel loved. Our parents are not always good parents on this reservation," she says. "I tell them to focus on their big dreams about college and the military. I want to go to university to study chemistry."

Rash of suicides

The 14 year-old girl, Mariah Montileaux, who was buried – in her traditional dance dress – just days before 16-year-old Joshua Kills Enemy, had made no secret of her plans to kill herself. "The mother knew this girl was attempting to commit suicide," says Duke. "Everybody knew yet nobody knew what to do with her, how to help her. Whether or not anybody could have helped her, that's what she wanted to do. She made it known: I'm going to kill myself."

After Kills Enemy's death, the Pine Ridge high school principal, Robert Cook, surveyed students and concluded that one in five of the 370 pupils were at risk. Nine were immediately taken to the Indian Health Service because of what Cook described as "impending suicide".

Duke's men are frequently the ones to cut the victims down. "The hardest ones are the kids. The deaths are disturbing but so are the funerals," he says. "At the funerals you see the glamorised attention they get. They've got their names written all over the windows in honour of this kid because he took his life. Kids see that. Kids want attention. This is how they're going to get attention. I've heard them say: when I go, I hope that's how they honour me."

In fact, Native Americans teenagers are more likely to kill themselves than any other minority group. Some statistics show the rate at three times the national average. But those figures shield the fact that self-harm is most likely to occur on poorer reservations, such as Pine Ridge and neighbouring Rosebud; here rates are far higher.

The tribal government is attempting to entice businesses to the reservation, including a wind farm. One local entrepreneur is building an increasingly successful business shipping buffalo and cranberry health bars around the country. But Two Bulls and other Oglala Sioux leaders know that it will take the kind of money that only the federal government can provide to begin to turn the situation around: their hopes are pinned on Obama, who has told them: "You will not be forgotten as long as I'm in this White House."

Two Bulls believes him. "It's just like we're being held down and my message every time I go to Washington DC is we are a government, a nation, right in your backyard, and you should be treating us like that but you're not," she says. "But this administration is different. They're listening. I got the sense of understanding from these people."

Iron Cloud, the former reservation president, says he too believes Obama but intends to ensure he doesn't forget his promise. "What I feel is kinda like a light at the end of the tunnel where the Obama administration is looking at some new beginnings for the minorities and the poor people to have some jobs and give more money to education. Just taking care of our people in a better way than they have been.

"Obama understands, but then there's Congress. If we can get enough of our tribal leaders – and I'm talking 500 tribes coming together and flooding the halls of Congress – and just say to them that it's time to take a good look at Indian tribes. We were the first Americans – and I know it'd have an impact."

Chris McGreal is the Guardian's Washington correspondent.