Alarm bells over the possibility of a first-ever US debt default are still ringing, as Republicans insist on budget cuts in exchange for lifting the US debt ceiling, while the White House insists that the debt ceiling should be raised now, and spending-cutting talks should be held separately.
The two sides remain deadlocked despite weeks of warnings from government officials and bankers that a default could have dire consequences, including a recession and the potential for contagion to the global financial sector.
The brinkmanship has so far made little progress. If the impasse is not resolved by June 1, Washington will not be able to borrow more money to pay the spending bills Congress has passed, Treasury Secretary Janet Yellen has warned.
Huge expense
It remains unclear whether President Joe Biden's administration and Republican lawmakers will reach an agreement on the debt ceiling before the US defaults in June as warned, but Biden said on May 14 that he was optimistic about reaching such a deal.
The US Treasury has never been insolvent (except in 1812, when parts of Washington, including the US Treasury building, were burned during the war), so it is unclear exactly what the impact of this would be.
US President Joe Biden rides a bike in Rehoboth Beach, Delaware on May 14. Mr. Biden and US congressional leaders are likely to resume debt ceiling negotiations at the White House on May 16. Photo: SCMP
It depends on how the Treasury decides which bills to prioritize.
The US Department of Defense spends billions of dollars every day on military, civilian and contractor salaries, and on fuel to keep bases, ships at sea, nuclear plants, and manufacturing lines running.
They also need to ensure social security, health care and retirement payments for veterans, said Arnold Punaro, a retired Marine Corps general and former staff director of the Senate Armed Services Committee.
“The government can use whatever revenue it gets if the debt ceiling is not raised, but that amount will not be enough to support normal operations,” Mr. Punaro added.
Just for military salaries, the US will have to spend about $4 billion by June 15, according to an analysis recently released by the Bipartisan Policy Center.
On June 1, the country will need to spend $12 billion on military and civilian pension payments, and another $12 billion on veterans benefits.
Ruin reputation
Top US military leaders have spoken out about the potential impact it could have, both on the country's ability to pay for its troops, as well as its reputation abroad.
“It would not only be a huge stain on America’s credibility in a dangerous and uncertain world. It would be like a government shutdown of our national security,” Punaro said.
“China is portraying the United States as a declining power,” said Mark Milley, chairman of the Joint Chiefs of Staff. “Defaulting on debt will only reinforce that narrative and embolden China, while increasing the risk to the United States.”
It would also hinder work with allies and partners and raise questions about whether the Pentagon can carry out the programs, Austin said.
US Secretary of Defense Lloyd Austin at a press conference at the Pentagon in Arlington, Virginia, US in 2022. Photo: CNN
“But most importantly, it will affect the livelihood of our military and our people. That is something that China and other countries can exploit,” Mr. Austin feared.
This is not the first time Pentagon officials have warned about how default would affect the military.
In a letter released in October 2021, as Washington's debt neared its ceiling, US Defense Secretary Lloyd Austin warned that default would "undermine the economic strength on which our national security depends, and severely harm our service members and their families."
Mr. Austin noted that the benefits of 2.4 million military retirees and 400,000 survivors would be at risk, federal contractors could face payment delays, and America's international reputation and the role of the dollar would be diminished.
In late 2021, the US Congress then raised the debt ceiling to about $31.4 trillion .
Nguyen Tuyet (According to The Hill, Breaking Defense, SCMP)
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