Who owes all this money? And to whom do they owe it? I',m thinking this is never getting paid back?
Most of the economy would grind to a halt. Our current economy runs on debt fundamentally.
For instance when interest is charged on a loan, the money needed to pay the interest fee is not created by the bank.
Say that you're playing Monopoly (with house rules that allow personal debts), and the total supply of cash on the board is $300, divided up evenly among 3 players. Through previous transactions, Alice owes Bob $400, Bob owes Charlie $600, and Charlie owes Alice $200. Total debt on the board is $1200, 4x the supply of total cash.
Now imagine that Charlie pays Alice $100 to cancel half his debt. Alice now has $200 cash, and gives it to Bob to cancel half her debt. Bob now has $300 cash, and gives it to Charlie to cancel half his debt. Total cash on the board is still $300, all in the hands of Charlie, but total debt has been reduced to $600, only 2x the total money supply. (Note also that Charlie now has all the cash on the board and he can pay off his total debt with just 1/3 of his cash, which puts him in a very good negotiating position relative to the other players. This is how deflation - caused here by a decrease in total debt levels - tends to be very bad for debtors.)
Remember that everyone's debt is someone else's asset. If you own T-bills, that means the government owes a debt to you; part of the governments $13T national debt is your savings. If you have money deposited in the bank, then your neighbor's mortgage debt is indirectly your savings (going through the bank's balance sheet first). If you have both rewards points and a credit card balance, the rewards points are a debt from the credit card to you and the balance is a debt from you to the credit card company, and they get netted out when you redeem the points.
Debt really is a measure of two things:
1. The complexity of the financial system, for debts that are netted out between participants.
2. Wealth inequality, for debts that are not.
Both of those are increasing rapidly throughout the global financial system.
Yes, because money spent (to pay off a debt or otherwise) doesn't vanish in a puff of smoke, someone has it, and they can then use it to either pay off debt or buy goods, and the person who gets it then can use it to pay off debts or buy goods, and so on, ad infinitum.
If I loan you $1 at 1000% interest daily, then after a short time, you are just going to default on the loan, period. There's no way you'll pay it back. So, yeah… at some point, even if you got another loan to pay the loan and etc etc. the whole house of cards will crash at some point if it's too much credit based on nothing. That house of cards could be just me never getting paid back, oh well. But if I convinced tons of other people to give me products and services that I then had debt for based on the idea that I have this expectation of your payback… then the house of cards could reach through the whole economy eventually.
This is very evident when you think of how banks used to work: they would actually issue paper notes denominated in the desired unit of account (the national currency). To pay back your debts (or else suffer the consequences), you had to acquire and return the notes to the bank. That generated demand for the notes. People who were not banks would start accepting the notes because of the demand.
Then banks decided they could make money by accepting notes from other banks as payment (for a fee). At the end of the day, banks would exchange and retire notes collected this way.
At the same time, though, the ratio of debt-to-gross domestic product fell for the fourth consecutive quarter as economic growth accelerated.
So, not all doom and gloom.