Mnuchin Says He Takes the Debt Ceiling More Seriously Than Trump
Business + Economy

Mnuchin Says He Takes the Debt Ceiling More Seriously Than Trump

The Fiscal Times

President-elect Donald Trump raised plenty of eyebrows during the campaign by lightly dismissing the importance of the debt ceiling. He suggested that if push came to shove, he would negotiate down the debt with the country’s biggest creditors.

“I would borrow, knowing that if the economy crashed, you could make a deal” to pay bondholders less than the full value of the government’s obligations, the billionaire New York businessman and reality TV showman explained last spring.

Related: As the Debt Hits $20 Trillion, Has the US Reached a Tipping Point?

With the national debt fast approaching an historic $20 trillion, Trump’s cavalier attitude towards the Treasury debt management practices roiled the financial markets and Wall Street.

By mid-March, the incoming Republican administration will be faced with its first debt ceiling challenge. It will have to convince the GOP-controlled Congress to increase the Treasury’s borrowing authority beyond $20.1 trillion – to cover government expenses already incurred -- or face the first default in history.

On Thursday, former Goldman Sachs banker Steven Mnuchin, Trump’s nominee to be the next Treasury Secretary, was grilled on Trump’s position on U.S. debt during his confirmation hearing before the Senate Finance Committee.

The billionaire hedge fund manager quickly doused the concerns of lawmakers and his former Wall Street associates that the new president would essentially treat U.S. obligations to creditors like just another one of his real estate negotiations.

Related: Why All the Ethical Problems of Trump’s Cabinet Nominees Won’t Matter

When Democratic Sen. Mark Warner declared that Trump must “never again question America’s willingness to stand by its debt obligations,” Mnuchin replied: “Senator, I agree with that 100 percent.”

Warner, a Virginia Democrat and former telecommunications entrepreneur, said, “I have been very troubled, by even some folks in elected office who have somehow said we can ignore the debt ceiling without consequences.”

“There are even some that are going out and saying somehow we can prioritize those debt obligations and potentially pay bondholders – many of them foreign, many of them Chinese—and ignore our obligations” to others, he added.

“Absolutely,” Mnuchin said. ”I hope you all work with me so that we get that done. We already spent that money, we have the obligations, there should be no uncertainty that we are paying the bills.”

Related: Why the Debt Limit Is the Next Threat to the US Economy

Historically, raising the debt ceiling to cover U.S. obligations has been one of the most politically onerous but necessary chores for the party in power because it typically becomes a symbol of excessive or wasteful government spending.

Ironically, outgoing Treasury Secretary Jack Lew recently argued that it was long past time for Congress to jettison the statutory ceiling on the debt that has become a political weapon in the budget wars – and one that has brought the U.S. to the brink of default several times in recent decades.

In a new article to be published in the Harvard Journal on Legislation, Lew argues that the system originally set up to facilitate the Treasury’s borrowing has transformed into “a broken, outdated system that no longer meets our country’s needs.”