In the early 20th century, Venezuelan dictator Cipriano Castro liked to borrow money from foreign investors. But he didn’t like paying them back. Big mistake. In December 1902, Britain, Italy and Germany demanded repayment. To make the point clear, warships from all three nations shelled several Venezuelan forts and blockaded the country’s ports. Caracas paid up.
Should Washington fail to raise the debt ceiling by Aug. 2 and thus risk defaulting on its financial obligations, the White House and Congress thankfully would not have to worry about gunboats from Europe — or, given who buys U.S. Treasurys these days, from China — appearing off America’s shores. Defaults get more civilized treatment these days: Bond downgrades, panicked market sell-offs and emergency meetings of central bank officials have replaced naval bombardments and threats of war.
Nonetheless, a default could still inflict significant — and wholly unnecessary — harm to America’s ability to wield and project its power in the world. At a minimum, by driving up the government’s borrowing costs, it would intensify pressure to cut defense spending at a time when the U.S. military is engaged in major operations across the planet. Meanwhile, America’s adversaries would cheer Washington’s unforced error as proof of their narrative that the United States is a fading power.