The two people President Donald Trump has chosen to manage thefederal budget appear to be at odds over how to tackle their firstassignment: handling the debt limit.

Treasury Secretary nominee Steven Mnuchin and Trump's choice tohead the Office of Management and Budget, Rep. Mick Mulvaney(R-S.C.), face their first joint test in the run-up to March 16,when a debt limit suspension period expires. Failure to agree meansinvestors in the world's deepest debt market may grow uneasyabout the potential of a U.S. default.

The debt limit is a favorite bargaining chip of Republicans whoare concerned about the nation's finances, which could worsen asTrump breaks with the party's fiscal hawks in pushing tax cuts andmore spending.

A co-founder of the conservative House Freedom Caucus, Mulvaneyused his vote on the debt ceiling to push President Barack Obama'sadministration for spending cuts, and the incoming OMB directorrecently downplayed the dangers of defaulting. That puts him out ofsync with Mnuchin, who has cautioned against playing politics withthe country's debt.

“Honoring the full faith and credit of our outstanding debt is acritical commitment,” Mnuchin said in written replies to senators'questions for his nomination process. “My responsibility assecretary would be to pursue all means available to the Treasury tomeet this commitment, including historic extraordinary measuresthat have been employed by necessity in the past.”

A crisis isn't imminent. The Treasury Department can useextraordinary accounting measures to stay below the ceiling,possibly until the second half of this year.

For bond investors, Mnuchin's words are an emollient amid theuncertainty of a new administration. He has also noted theimportance of paying all debtors instead of prioritizing debt, assome have suggested, which entails honoring only some financialcommitments on time. During the campaign, Trump said that if theeconomy were in a prolonged slump, he might push creditors toaccept write downs on their government holdings. Trump later saidthe U.S. would never default.

If Mulvaney is confirmed as OMB director, the next debt-limitdebate could include a fight over whether future spending should becut to shrink the budget deficit, which the Congressional BudgetOffice forecasts will exceed $1 trillion in 2024. Mulvaney'sconcerns over spending could conflict with Trump's promise for a$500 billion bump in infrastructure investment and a boost to themilitary.

Handled incorrectly and the administration could see a repeat of2011, when bond yields surged and S&P Global Ratings downgradedthe nation's credit rating after Republican lawmakers initiallyresisted the urging of Obama's government to raise the debtceiling. Republican control of Congress and the White Housesuggests lawmakers could be more cooperative this year.

Former Treasury Secretary Jacob J. Lew cautioned against usingthe debt limit as a tool to change fiscal policy, writing in anarticle published this month that Congress's threat to force thegovernment into default is dangerous.

“The responsible course for the new Congress would be to raisethe debt limit without drama” or brinkmanship, he wrote in theHarvard Journal on Legislation.

Spokesmen for Mulvaney and Mnuchin didn't immediately respond torequests for comment on the debt limit.

While Mulvaney said during his Senate confirmation hearing thatdebt-ceiling debates have been used to spur legislation to reducethe deficit, he added that he wouldn't recommend Trump govern “bycrisis.” Still, he played down the threat of a failure to raise thedebt limit and did not back off previous support forprioritizing payments once the debt ceiling is reached. Mulvaneytold the committee Tuesday that he is not privy to Trump's budgetplanning documents yet.

“I do believe that defaulting on America's debts would havegrave worldwide economic consequences,” Mulvaney said in a writtenresponse to senators. “I do not believe that breaching the debtceiling will automatically or inevitably lead to that result.”

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