Of course tax receipts were much higher as we were in a bull market and had very low unemployment. Since then, a tech bubble burst, we hopped in to numerous endless wars, and Wall St. sent half the world tumbling in to recession or depression and the housing market collapsed.

But it's not that far fetched that it could happen again.

[0] http://www.factcheck.org/2008/02/the-budget-and-deficit-unde...

Edit: this is speaking to zero deficit, not zero debt.

"Back" was a long, long time ago. Nevertheless it is probable the deficit will be subsumed by growth nin the immediate future.

> . I bet the most likely endgame will be some kind of future war against The Bad Guys (which they'll make sure to do sufficient propaganda demonization against for the low-brow general public) and then they could use that situation to justify "retiring" (not honoring) the debt.

There doesn't need to be any "endgame" or debt retirement: this is a fundamental misunderstanding. The government is continually paying off old debt and issuing new debt as the US economy grows and government revenues increase. There is no big pile of debt which is continually accumulating and never paid off: the debt is paid off every single time a bond is redeemed. (Nevermind the fact that inflation reduces the amount of debt in the first place! The national debt as a percentage of GDP exceeded its modern numbers in 1945, but it was inflated away.) People often speak of the debt being "called in": this fundamental truth also happens to explain why that can't happen. A bond comes due when it is due, not when you want your money back.

The situation is, indeed, entirely sustainable, unless you disbelieve the evidence of history and mainstream economics. Furthermore, the US government actually owes much of its debt it itself. The government owes itself 5 trillion dollars. This is pretty much just a silly accounting trick: the government could poof all that debt away and nobody would be the wiser so long as the government still funded the programs (such as Social Security) that bought those bonds. And since the government is the sole producer of US dollars, it should not find that too difficult.

There's also the present reality that not borrowing money at the present interest rates would be insane. Real interest rates on federal debt are near-zero and have actually gone negative at some points. People are literally paying the government to hold their money. [1]

You can go even more extreme and consider MMT. There is logic to it, though I suspect human psychology and the general terror of fiat currencies (especially of treating fiat currencies as if they were truly fiat currencies) would hamper any baldfaced implementation of MMT policies. Essentially, fiat currencies can be viewed as being created via government spending and destroyed via government taxation. The only worry the government need consider is the possibility of inflation, which is not (this is predicted by economics and demonstrated repeatedly, including by present experience, in which the Fed has increased the monetary base by 5x[3] while seeing inflation tick between 0-2%[4]) directly correlated only to the money supply and is relatively easily controlled. Governments issuing their own sovereign fiat currencies are working in this system whether they realize it or not.

tl;dr There is nothing to worry about, people don't understand how debt owed in a country's sovereign currency works; there will never be any "reset excuse" necessary unless a future Congress goes absolutely mad and decides to accumulate truly absurd levels of debt (100x GDP) during economic booms or something.

Sidenote: Government bonds provide a secondary, extremely valuable service. They are a safe, stable place to park your money. If the government stopped issuing bonds and only paid them off, there would be a tremendous outcry and people would start either keeping the money in bank accounts or under their mattress (where it does little good) or investing it into the stock market (riskier and probably increases the chances of a bubble.)

References: [1] http://www.treasury.gov/resource-center/data-chart-center/in...

[2] Debt owed to foreign countries, by amount. Japan will soon overtake China: http://www.treasury.gov/ticdata/Publish/mfh.txt

[3] http://research.stlouisfed.org/fred2/series/BASE

[4] http://www.usinflationcalculator.com/inflation/current-infla...

It's fairly typical during wartime for countries to adopt out of control fiscal policies. We're somewhat unusual in that we've dumped trillions into other spending (ie Medicare Part D), while simultaneously having to spend federal budget dollars to pay for redeemed bonds held by Social Security.

However, the point of the Federal Reserve Bank is primarily to create money, or destroy it, to affect inflation, deflation, or unemployment.

Money is created whenever someone provides a good or service that someone else wants to consume. The money value of the currency is the total value of money created by the productive sector of the economy, divided by the number of currency units, with some variation resulting from imperfect knowledge of the market.

The central bank attempts to increase the number of units of the currency faster than money is created, so that the value of an individual unit of currency will remain stable or decrease. If the value of a currency unit were to start increasing, people might be tempted to stop spending it, which would destroy some of the money value of the economy by discouraging trades.

This also has the insidious benefit of allowing the central bank to take some money value from the economy without trading for it, just by creating new currency out of thin air. When they spend the new currency, or loan it to a government that spends it, a fraction of the money value produced by other people suddenly teleports to their own pockets, and they can pretend to be generous and benevolent.

The interest issue is a big problem. Depending on the size and number of outstanding loans, if they were to be paid off, currency would be removed from circulation and the money price of the remaining currency would increase, making it harder to pay off the remaining loans. In order to ease the crunch, the currency-issuing bank would have to actually spend back into the economy without making loans, buying goods and services outright instead of just renting out paper.