White House Budget Director Says U.S. Won't Default on Debt Payments--Update

By Kate Davidson Features Dow Jones Newswires

White House budget director Mick Mulvaney said Friday the U.S. won't default on its debt payments even if Congress fails to raise the federal borrowing limit before the government runs out of money to pay its bills.

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His comments suggest the administration of President Donald Trump may be preparing to prioritize payments to bondholders to avoid a default of U.S. government securities while missing payments on other obligations, such as Social Security checks and veterans benefits, in the event Congress fails to raise the debt ceiling. That would represent a significant shift from the policy of President Barack Obama's administration.

Mr. Mulvaney warned lawmakers last week that the government may run out of room to pay its bills sooner than previously expected, and Treasury Secretary Steven Mnuchin urged Congress last week to lift the federal borrowing limit before the summer recess at the end of July.

The Treasury has been employing cash-conservation measures to keep paying its bills since mid-March, when government debt hit Congress's self-imposed limit. Analysts expect those measures will allow the Treasury to keep paying its bills until the fall.

Asked what would happen if the debt ceiling isn't increased, Mr. Mulvaney said the government would "have some difficulties."

If "you cannot meet all of your obligations as a nation, that's not a desirable outcome," he said, but added there is "absolutely no way" the U.S. would default on its debt payments.

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"We are not going to do that. You can take that off the table," he told the New York Times in a Facebook Live video chat.

During previous fights over lifting the debt ceiling, Republicans pressed the Obama Treasury Department to prioritize debt payments to avoid a default on U.S. government securities. But Treasury officials at the time said that strategy, if it was technically possible, was simply default by another name, and thus an unacceptable outcome

Mr. Mulvaney's comments suggest the administration of President Donald Trump is open to that strategy.

He also dismissed the suggestion that he and Mr. Mnuchin are in conflict over how Congress should deal with raising the ceiling. "Nothing could be further from the truth," he said.

Mr. Mnuchin told lawmakers on Capitol Hill last week that he would prefer they raise the debt ceiling as soon as possible without any conditions attached. Mr. Mulvaney reiterated Friday he would like any increase to be paired with "spending reforms," such as changes to the 1974 Budget Act.

"That is the appropriate position for any budget director to have," Mr. Mulvaney said.

He said the White House hasn't settled on a final position on the matter, but said he fully expects Mr. Mnuchin to "lead the messaging" on the preferred strategy once a decision is made.

Neither Mr. Mnuchin nor Mr. Mulvaney has said what approximate date the administration expects the government will ultimately run out of money to pay its bills.

Write to Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

June 02, 2017 13:39 ET (17:39 GMT)