The common narrative that America's post-WWII economic boom paid off its debt is a myth. IMF research reveals that growth accounted for less than 25% of the debt reduction. The majority was achieved through decades of financial repression, where artificially low interest rates let inflation erode the debt's real value.

A core function of money is to be the 'final extinguisher of debt.' However, fiat currency is created as debt, meaning every dollar is both an asset and a liability. This inherent contradiction makes the entire financial system fundamentally fragile.

Only the Fed and commercial banks can create new, spendable money out of thin air. In contrast, credit creation, like in shadow banking, simply reallocates existing money from a saver to a spender. This distinction is crucial for understanding economic stimulus and risk.

All money is created as debt (credit) from private banks, but the interest required to repay that debt is never created. This forces a systemic need for perpetual growth through new debt to cover old interest payments. If the system stops growing, it collapses, creating a structural incentive for war and expansion.

Economist Steve Keen's model suggests GDP is a function of money supply and its velocity. Since banks create money through private loans, the rise and fall of private debt directly dictates GDP growth and employment levels, a factor mainstream economics largely ignores.

While Steve Keen's proposed "debt jubilees" could reset a debt-laden economy, implementing them on a predictable schedule would create a moral hazard. Knowing their debts will be forgiven, people would take on excessive debt, leading to asset bubbles and unhinged economic behavior.

Investor Ray Dalio explains that national debt reaches a crisis point not because of its size, but when two things happen: debt payments squeeze out essential spending, and low demand for new debt forces central banks to print money to buy it, thus devaluing the currency.

A recent behavioral shift shows households are using extra cash, like tax refunds, to pay down debt rather than increase spending. This deleveraging due to affordability concerns means that any new government stimulus would likely have a much smaller effect on economic growth than historical models would predict.

While U.S. households and corporations have deleveraged, government debt has exploded, making private credit more attractive. This creates a hidden risk: the deleveraged private sector has immense capacity to borrow once inflation returns, which could trigger a massive, uncontrollable demand-pull inflation shock.