Ignoring the federal deficit puts the global economy at risk

Leftist politicians have embraced “Modern Monetary Theory,” an alluring but dangerous new concept.

Of the over 50 Sherlock Holmes mystery stories written by Sir Arthur Conan Doyle, only one centers on something that didn’t happen. In “The Adventure of Silver Blaze,” a famous racehorse has been stolen and his trainer murdered. After carefully sifting through the evidence, Holmes focuses on one “curious incident” — the watchdog did not bark. Therefore, Holmes reasoned, the culprit had to be someone the dog knew.

Our current economic and political mysteries are not worthy of a Sherlock Holmes plot, but it is curious that of all the proposals made by the 20 presidential candidates who made the cut for the televised debates, there is no plan or scheme to control the deficit or reduce the federal debt.

The missing debt issue is curious, certainly, but understandable. The federal debt and deficit are a politically lethal combination of boring and frightening. Most people prefer not to think about it, let alone talk about it. For an office-seeker, then, raising it as an issue would be foolish at best, risky at second-best and game-ending the most likely.

When discussing our fiscal policy, many people use the terms “debt” and “deficit” as if they were interchangeable, but they are not the same thing. Together, they are more like the government’s financial statement; an income statement and a balance sheet. One, the deficit, shows the results for the current year or quarter. If the government spends more than it takes in, that’s called the deficit.

The other element, the debt, includes the accumulated deficits from past years that we still haven’t paid off. It is like a household. If you spent more than you earned in, say, 2018, that is a deficit. And it just sits there as debt — perhaps as your credit card balance — until you pay it off.

This year both the debt limit and the federal spending limits are converging in a financial and political annus horribilis. If Congress does not act promptly, the Treasury Department will be unable to issue bonds to fund the deficit spending. It has already been forced to suspend its investments to the Civil Service and Postal Service benefits funds — and a similar situation is developing in Social Security.

This precarious financial position didn’t sneak up on Congress or on us. The situation in Social Security was known and reported to Congress dutifully by the trustees, with hope for prompt and effective Congressional action, Even columnists have written about it.

The federal debt limit needs no introduction, either. The Treasury Department and the Congressional Budget Office have been writing reports and letters to Congress on these subjects for months.

Since these are Congress’s own laws and regulations, and the consequences of inaction are so dire, we might think that the senators and representatives would move quickly. But here we are again, facing a two-month Congressional recess in July and August, and the topic is not even on the agenda — unless you believe that issuing threats and demands are the same as doing something.

The economics behind the deficit and the federal debt has become more complicated by two events: the “Quantitative Easing” policy of the Federal Reserve, which made good sense from an economics standpoint but appeared to Congress as a way to make deficit spending disappear; and the emergence of “Modern Monetary Theory” (MMT), which has as a central tenet that it doesn’t matter how much money you print up to cover deficit spending and debt — as long as the debt is held by your own citizens and inflation is kept at bay.

Many economists are skeptical of MMT, but leftist politicians have bought into it fully. It is at the financial core of the Green New Deal, for example.

Politics aside, taken on its own merit, MMT takes advantage of conventional monetary theory’s weaknesses, especially in the area of its integration with the real economy. Nevertheless, though, it looks, feels, and smells like a rationalization of existing or desired financial behavior rather than an economic theory. The two “as long as” conditions, for example, are interesting, but there is no way for either one to be met by our economy. The value of U.S. debt is heavily dependent on its credibility in global markets, for example, and the U.S. dollar is the world’s reserve currency. These two factors transform MMT into an exploding cigar for countries adopting it.

The Federal Reserve’s actions and the emergence of MMT are just side issues to the real problem. Congress needs to wake up and take action to straighten out our financial position right now, no more excuses. They are inviting a global financial meltdown when they play politics with our country’s good name and good credit.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

The livery on a Boeing plane. (Christopher Pike / Bloomberg)
Former Lockheed Martin CFO joins Boeing as top financial officer

Boeing’s Chief Financial Officer is being replaced by a former CFO at… Continue reading

Izaac Escalante-Alvarez unpacks a new milling machine at the new Boeing machinists union’s apprentice training center on Friday, June 6, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
Boeing Machinists union training center opens in Everett

The new center aims to give workers an inside track at Boeing jobs.

Some SnoCo stores see shortages after cyberattack on grocery supplier

Some stores, such as Whole Foods and US Foods CHEF’STORE, informed customers that some items may be temporarily unavailable.

People take photos and videos as the first Frontier Arlines flight arrives at Paine Field Airport under a water cannon salute on Monday, June 2, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
Water cannons salute Frontier on its first day at Paine Field

Frontier Airlines joins Alaska Airlines in offering service Snohomish County passengers.

Amit B. Singh, president of Edmonds Community College. 201008
Edmonds College and schools continue diversity programs

Educational diversity programs are alive and well in Snohomish County.

A standard jet fuel, left, burns with extensive smoke output while a 50 percent SAF drop-in jet fuel, right, puts off less smoke during a demonstration of the difference in fuel emissions on Tuesday, March 28, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
Sustainable aviation fuel center gets funding boost

A planned research and development center focused on sustainable aviation… Continue reading

Helion's 6th fusion prototype, Trenta, on display on Tuesday, July 9, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
Helion celebrates smoother path to fusion energy site approval

Helion CEO applauds legislation signed by Gov. Bob Ferguson expected to streamline site selection process.

Pharmacist John Sontra and other employees work on calling customers to get their prescriptions transferred to other stores from the Bartell Drugs Pharmacy on Hoyt Avenue on Wednesday, July 2, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
Bartell Drugs location shutters doors in Everett

John Sontra, a pharmacist at the Hoyt Avenue address for 46 years, said Monday’s closure was emotional.

Wine is illuminated on a large win rack at the center of the main room at Long Shadows Woodinville Tasting Room & Key Club Lounge on Friday, Feb. 28, 2025 in Woodinville, Washington. (Olivia Vanni / The Herald)
Two winery restaurants in Woodinville stand out

You wouldn’t expect to get world-class pizza at a winery,… Continue reading

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.