Tuesday, December 20, 2016

Is Trump Going to Put Defaulting on U.S. Debt Back on the Table?

An interesting observation from Catherine Rampell of The Washinton Post:
[Mick Mulvaney, Trump's choiceto be] his director of the Office of Management, and the president-elect have at least one major thing in common: an alarming openness to defaulting on the federal debt.

As you may recall, during the campaign Trump repeatedly flirted with the idea of defaulting on U.S. debt obligations. In a CNBC interview in May, he suggested that his experience in offloading private debt would translate nicely to federal obligations. That is, he’d simply persuade the country’s creditors to accept less than full payment.

“I would borrow knowing that if the economy crashed you could make a deal,” he said.

When the financial press freaked out, he walked back the language — only to revive it a month later.

Mulvaney has also questioned the need to preserve the country’s sterling reputation as a borrower.

He ran for Congress promising to never raise the country’s debt ceiling, and he has mostly kept to that pledge. Since taking office in January 2011, he has voted against (ultimately successful) legislation to raise this ceiling four times. He also publicly questioned whether failing to raise the ceiling would be such a bad thing, and whether it would necessitate defaulting on our debt.
The likelihood of a default in the near future, though, appears unlikley. This brings up the additional question of how will Trump and Mulvaney works together, given that Trump wants to spend and cut taxes, while Mulvaney is obsessed with balancing the budget.

Is Mulvaney just cover for mad spending by Trump?

 Rampell again:
He has repeatedly voted against his own party’s budget proposals because they were insufficiently conservative.

All this will presumably put him at odds with Trump’s plans to balloon federal deficits through a $7 trillion cut in individual and corporate income taxes, another half-trillion in infrastructure subsidies and other major spending expansions.

It’s unclear how Trump’s fiscally profligate platform meshes with Mulvaney’s preference for penny-pinching. He might push back on Trump’s most expensive ideas. Maybe he’ll employ accounting gimmicks and magic asterisks to force Trump’s numbers to add up. Trump’s campaign advisers have already been doing this, disingenuously claiming that his policies will pay for themselves through unrealistic economic growth.

Or maybe Mulvaney’s job will simply be to convince the rest of the Freedom Caucus to stay mum when deficits explode.

Stay tuned. This is going to be quite the high wire act.


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