How Would A US Default On Its Debts Affect National Security?

As President Joe Biden and members of Congress continue to wrangle for a deal to keep the U.S. government away from default, the nation’s military leaders warn failure means putting national security at risk.

In a statement Wednesday from the Pentagon, Secretary of Defense Lloyd Austin urged lawmakers to reach a solution to ensure the “economic strength on which our national security rests.”

Austin, who previously served as a four-star general in Iraq, detailed how exactly a default would hurt payments for military service members, retirees, and their families. He cautioned that a default would strip him of any "authority or ability" to ensure that members of the military community, including federal contractors who it depends on for support, would be paid on time or at all.

There are currently 2.91 million employees working at the Department of Defense, and this number does not include the number of military family members who receive support. On top of this, Austin said there are 2.4 million retirees and 400,000 survivors who receive pay or benefits from the Pentagon.

These figures also leave out the number of federal contractors who do work to support the DoD. A report from the Government Accountability Office for the 2020 fiscal year found that the Defense Department alone was responsible for $421.8 billion out of $665.1 billion in overall federal contracting. Payments for existing contracts would be jeopardized by a government default.

“Our service members and Department of Defense civilians live up to their commitments. My hope is that, as a nation, we will come together to ensure we meet our obligations to them, without delay or disruption,” read Austin’s statement.

Austin also received added support from his predecessors to impart the urgency of avoiding a default. In a letter to leaders in both houses of Congress signed by six living former defense secretaries, they echoed Austin’s warnings and pushed them to overcome partisanship to raise the debt ceiling.

"As former Secretaries of Defense, we were always proud that Republicans and Democrats consistently came together to provide strong bipartisan support for the bills that authorize and provide expenditures to maintain the strongest military force in the world,” read the one-page letter.

"It would be tragic to allow partisanship to now deny those critical resources essential to protecting our national security," the letter read.

Austin and his predecessors added that the damage of a default would go beyond fiscal terms because of the way it would undermine U.S. global credibility. The U.S. dollar is the global reserve currency because of the confidence investors and other governments place in the belief Washington will always meet its debt payments.

If the U.S. was to fall into default, it would add ammunition to American rivals that have been advocating for an end to the dollar’s dominance. For years, rivals China and Russia have supported a “de-dollarization” in global transactions, partly to blunt the impact of future American sanctions.

Like her Pentagon counterpart, Treasury Secretary Janet Yellen warned that if forced into default, global markets will be roiled as American credibility comes into doubt.

She also cautioned that the government has been relying on "extraordinary measures" to pay off debt receipts, but this would be put at risk if no agreement is secured by Congress to raise or eliminate the debt ceiling.