White House Budget Director Says U.S. Won't Default on Debt Payments--2nd Update

White House budget director Mick Mulvaney said Friday the U.S. would "have some difficulties" if Congress failed to raise the federal borrowing limit, known as the debt ceiling, but said the government would never default on its debt payments.

Asked what would happen if the debt ceiling isn't increased, Mr. Mulvaney said, "You cannot meet all of your obligations as a nation; that's not a desirable outcome." But he said there is "absolutely no way" the U.S. would default on its debt payments.

"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.

Treasury secretary Steven Mnuchin last week urged Congress to raise the ceiling -- with no conditions attached -- before lawmakers leave for their summer recess.

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

White House officials on Friday said they were confident Congress would raise the limit before then.

"At the end of the day, Congress is going to raise the debt ceiling because they have no other choice," said National Economic Council Director Gary Cohn on CNBC.

"There is bipartisan recognition that we need to get that done," White House press secretary Sean Spicer said, adding that the administration is working with Congress on a solution. He stopped short of saying whether the president favors a clean debt ceiling increase, without any spending cuts or other conditions attached.

Mr. Mulvaney's remarks raised questions about whether he was suggesting the government would make payments on its debt to avoid defaulting on U.S. government securities, but delay payments on other obligations, such as Social Security checks or veterans benefits, if the debt ceiling isn't raised. Some Republicans -- including Mr. Mulvaney, when he was a House lawmaker -- advocated such a strategy during previous fights over raising the debt limit, but the Obama administration objected, calling it "default by another name."

An Office of Management and Budget spokesman said Friday that Mr. Mulvaney is confident Congress will raise the borrowing limit.

"Mick was pretty clear, as was Gary Cohn and Secretary Mnuchin also, that the debt ceiling needs to be raised, and that the government is not going to default," spokesman John Czwartacki said.

Mr. Mulvaney also defended his position that a debt ceiling increase should be paired with spending reforms and dismissed suggestions that he is in conflict with Treasury secretary Steven Mnuchin, who has called on Congress to raise the limit with no conditions attached.

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

The White House hasn't settled on a final position on the matter, but Mr. Mulvaney 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 run out of money to pay its bills.

Republican leaders in Congress have had to rely on Democrats for the votes to raise the debt limit in recent years because so many Republicans are averse to increasing borrowing.

House Minority Leader Nancy Pelosi (D., Calif.) on Friday stopped short of giving her unconditional support to an increase in the U.S. borrowing limit, suggesting that her party might not be the reliable partner it was during the presidency of Barack Obama.

In remarks to reporters, Mrs. Pelosi didn't outright oppose increasing the debt ceiling. But she linked an increase in the borrowing limit to Republicans' plans to overhaul the tax code. Mrs. Pelosi suggested she was worried that Republicans would use a debt-ceiling increase as a way to make room for deficits produced by tax cuts.

"I don't have any intention of supporting a lifting of the debt ceiling to enable the Republicans to give another tax break to the wealthy in our country," Mrs. Pelosi told reporters when asked if she would support an increase in the borrowing limit with no strings attached.

--Siobhan Hughes contributed to this article.

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

(END) Dow Jones Newswires

June 02, 2017 18:04 ET (22:04 GMT)