The very close, historical connection between America's financial policy and outlook -- especially its creditworthiness -- and its national security often receives little attention. Yet this close connection was well understood from the time of our Founding Fathers until quite recently.
During the American Revolution, large sums were borrowed by the Continental Congress from Americans and from foreigners, mainly the French and Dutch. Our first treasury secretary, Alexander Hamilton, wrote that this debt was the "Price of liberty. The faith of America has been repeatedly pledged for it, and with solemnities that give particular force to the obligation." Hamilton went on to write, "Loans in times of public danger, especially from foreign war, are found an indispensable resource, even to the wealthiest" of nations. To be able to secure loans when needed, however, Hamilton recognized that a nation had to be creditworthy -- which meant that it must have faithfully serviced and repaid earlier debt obligations. To emphasize the importance, President George Washington, Hamilton, and other Founding Fathers included a provision in the Constitution stipulating this -- Article 6. It reads: "All Debts contracted and Engagements entered into, before the Adoption of this Constitution, shall be as valid against the United States under this Constitution, as under the Confederation."
Following the Civil War, in which the federal government had also accumulated an enormous amount of debt, voices were heard arguing for repudiation of some of that debt -- or at least considerable delays in repayment. Many suggested that repayment be made not in gold, as originally contracted, but in depreciated greenbacks (recently created paper money). In 1866, the government's interest payments alone were twice the size of the entire budget in the year before the war, so these arguments had significant numbers of supporters.
To dispel all doubts about the government's intention to service and repay its (the Union's) debts, an extraordinary clause was incorporated into the 14th Amendment to the Constitution -- one much discussed of late. It read: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
Another president who understood the linkage between good national credit and national security was Dwight D. Eisenhower. In a conversation with advisors early in his administration, Eisenhower underscored that "the relationship between military and economic strength is intimate and indivisible." His premise was that the maintenance of sound government finances was basic to a sound economy, which was in turn vital to national security. His concern was that overspending (especially on the military) combined with insufficient revenues could literally "bankrupt" the United States and dramatically weaken its ability to prevail in the Cold War.
While the political leaders at these historic moments lived in different times and circumstances, they all understood and emphasized the links between sound American finances, a strong foreign policy, and the national security of the United States.
Those who see default as an option -- or the threat of a default as a useful lever to extract concessions or produce policy changes they favor -- fail to recognize that it reverses nearly two and a half centuries of American history and undermines the creditworthiness of the country so painstakingly established over that period. And in so doing, it also does serious damage to America's reputation as a reliable financial leader and trustworthy foreign policy and national security partner. During periods when American debt was a much larger portion of GDP than it is today -- such as after major wars -- the country has rallied and political parties have come together to agree on the need to service that debt and, over time, to pay it back, and on policies to do so. Fortunately, such an agreement was just reached, but this kind of last-minute frenzy itself is harmful to foreign perceptions of the United States, and a series of them would be highly damaging.
As President Eisenhower noted, sound long-term national finances are critical to national security and a strong foreign policy. So simply agreeing on a series of temporary measures from time to time to get through a few weeks or months without a default merely prolongs the uncertainty, unless one of these periods is used to produce a long-term solution. If not, lurching from near crisis to near crisis is almost as bad as no solution at all.