Correction: An earlier version of this column stated that Rep. Mick Mulvaney did not serve on the House Budget Committee. He is not on that committee now, but he served on it in the 112th Congress. This version has been updated.
It’s not the sexiest White House job. But it might soon be among the most dangerous.
Over the weekend, President-elect Donald Trump tapped Rep. Mick Mulvaney (R-S.C.) to be his director of the Office of Management and Budget. This Cabinet-level post is responsible for producing the federal budget, overseeing and evaluating executive branch agencies and otherwise advising the president on fiscal matters. It’s a position with tremendous, far-reaching power, even if the public doesn’t pay much attention to it.
Which is why it’s so concerning that Trump chose Mulvaney, who seems poised to help Trump ignite another worldwide financial crisis.
Mulvaney was first elected to Congress in 2010 as part of the anti-government, tea party wave. A founding member of the right-wing House Freedom Caucus, he is among Congress’s most committed fiscal hawks. 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.
Whatever their differences on line-item details, though, Mulvaney 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.
To be clear: It would, and it would.
Raising the debt ceiling is about enabling the federal government to make payments that have already been promised, not new spending. Refusing to increase this limit would call into question the country’s creditworthiness.
Set aside the fact that this flippancy about making full and timely payments on our debt would likely violate Section 4 of the 14th Amendment. That’s the part of the Constitution that says that the “validity of the public debt of the United States . . . shall not be questioned.”
From a purely financial perspective, it would be ruinous.
U.S. Treasurys, currently considered risk-free, are the benchmark of the global financial system. They enjoy safest-of-safe status precisely because creditors believe they’ll be paid back in full. Rattling the public’s faith in our creditworthiness would set off a crisis throughout the world.
And of course this would also make it more expensive for the United States to borrow, causing our debt to swell further.
One might hope that once Mulvaney adopts his new role, he’ll become more cautious about encouraging default. That seems optimistic, though, given that, as budget expert Stan Collender put it, Mulvaney will probably be the most ideological and least-qualified OMB director in decades.
Our best bet is that the two Goldman Sachs alumni taking White House roles (including Treasury secretary, the post directly responsible for managing the public debt) can explain to Trump why these kinds of actions would blow up the world.
Let’s just hope they’re the ones he listens to when the time comes.
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