After warning earlier this week that the Hurricane Harvey cleanup effort would drain the government’s coffers more quickly than expected – meaning that Congress would need to pass a bill to raise the debt ceiling ASAP – Treasury Secretary Steve Mnuchin flopped on his previous position and joined Trump in urging lawmakers to combine funding for Harvey relief with the debt-ceiling bill, arguing that appropriating the money would be “useless” unless he had the power to spend it. His remarks followed a formal request from the White House for $8 billion in Harvey relief funding, which Budget Director Mick Mulvaney said should be combined with a debt-ceiling bill.
When asked about the administration’s plans – including Trump’s decision to back off on his demand that $1.6 billion in border wall funds – Mnuchin refused to comment beyond saying that he agreed with the president.
“…the president and I believe that it should be tied to the Harvey funding. Our first priority is to make sure the state gets money, and to do that we need to make sure we can raise the debt limit. If Congress approves money but I can’t pay for it….we need to get that money to the state.”
Mnuchin also called on lawmakers to put politics aside…
“We need to put politics aside we need to make sure that we can get to Texas the amount of money needed to rebuild the state.”
… before reiterating that the government could reach the debt limit before the end of the month.
“Prior to Harvey I said we have enough money to go through end of Sept but with Harvey it’s moved the situation up earlier and without raising the debt limit I am not comfortable that we will get the money that we need this month to Texas to help them rebuild. We need to help the people in Texas. We need to get that done.”
“We want to make sure that we get money for that but the president and my first objective right now is for the people of Texas to get the money they need. That’s what we’re focused on this week.”
Mnuchin may have gotten the idea to link the two from his former employer: according to a Friday analysis by Goldman Sachs, combining hurricane relief with the debt-ceiling raise would dramatically lower the odds of a government shutdown, to 15% from 35%, giving Trump a “free pass” on what was poised to be a debt-ceiling crisis. Indicatively just two weeks ago, Goldman saw odds of a government shutdown as high as 50%. The Goldman analysts elaborate below:
“1. In light of the fast pace of FEMA spending at the moment, Congress looks likely to approve this funding in the next couple of weeks, well ahead of the Sept. 29 debt limit deadline and Sept. 30 appropriations deadline. It is not yet clear if this first installment of hurricane funding will include a debt limit increase or continuing resolution (CR) to keep the federal government open past September 30.
2. However, even if the upcoming bill omits both issues,we believe that the need to address hurricane relief has substantially reduced the odds of late-September fiscal showdown, for two reasons. First, there is likely to be less public sympathy for a shutdown than there would have been prior to the hurricane, given the important government role in relief efforts.
3. Second, the initial funding request expected later today is likely to be the first of several hurricane-related legislative items considered over coming weeks. Another larger installment of hurricane-related funding is likely to pass, potentially ahead of the fiscal deadlines noted above. In addition, Congress needs to vote to reauthorize the National Flood Insurance Program (NFIP) by September 30. This was already on the congressional agenda prior to the hurricane, but has become much more important in light of the substantial amount of claims the program is likely to receive from affected areas. If the debt limit increase and CR are not included in the initial hurricane relief package, they are likely to be combined with subsequent hurricane-related items that are likely to enjoy substantial political support.
4. In light of this outlook, we believe the probability of a government shutdown has declined further from our prior assessment of 35% and now put it at around 15%.”
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Separately in Mnuchin's interview, Chris Wallace had asked Mnuchin about Trump’s response to North Korea’s latest nuclear-missile test. The Treasury Secretary said that he’d spoken with the president, and that – contrary to Trump’s belligerent rhetoric in a series of tweets this morning – the US would instead focus on sanctions, with Mnuchin saying the US can do more to punish its isolated enemy.
“I did speak with the president and it’s clear that this behavior is completely unacceptable. We’ve already started with sanctions against North Korea, but I am going to draft a sanctions package to send to the president for his strong consideration that anybody who is doing business with them can’t be doing business with us.”
“People need to cut off North Korea economically,” Mnuchin said. When asked if sanctions would target more Chinese companies, Mnuchin said the administration is exploring all options, presumably including targeting Chinese companies and entities – “we’re going to consider everything at this point.” The Treasury announced this summer its first-ever unilateral sanctions against Chinese firms accused of supporting the North Korean nuclear program via trade, to the consternation of Chinese leaders.
Asked about reports that the North now has a hydrogen bomb, Mnuchin demurred…
“Chris, I can only say that our intelligence community has been doing an amazing job on this and on other issues but I can’t discuss some of the classified things that you’ve asked me.”
…before repeating the administration’s line that “all options” – presumably including military options – remain on the table.
“The president has made it clear this isn’t just time for talk this is time for action that this type of behavior isn’t acceptable and our objective is to denuclearize the peninsula.”
“China has a lot of trade with them there’s a lot we can do to cut them off economically much more than we’ve done already.”
When questioned about reports that Trump had decided to nullify a trade deal between the US and South Korea, a decision that would strain relations between the two countries at a crucial time, Mnuchin pushed back, claiming that no final decision had been made.
“We want a better economic deal but there’s been no decisions made other than renegotiating that trade agreement at this point.”
Despite Mnuchin’s focus on sanctions, confirmation that the North did indeed successfully test a hydrogen bomb would likely change the dynamics for the US military. Japan, China and South Korea unanimously threatened to punish the North with more sanctions through the UN Security Council after its latest aggression. But after months of Trump’s “fire and fury,” every observer must be asking: where is the red line that Trump said he wouldn’t allow the North to cross? If there is a breaking point, one can imagine the North has crossed it repeatedly by now.
Finally, the worst case outcome for Trump - who is caught in a Catch 22 - is that if nothing is done, then the bellicose language coming out of Washington will soon be exposed as nothing but empty rhetoric and hollow jawboning. On the other hand, should Trump give the order for military action, N.Korea's retaliation (which may well be nuclear) could lead to the death of millions of South Koreans. It appears that, indeed, Bannon was right that the North Korea diplomatic fiasco is a lose-lose for the president.