...Debt does not exist, except as a measure of credit in use.
Debt is an accounting of the use of credit. If you borrow a dollar, you put credit to use. If you borrow a dollar and spend it, the credit remains in use until you repay what you borrowed. Debt is just a measure of money borrowed. The only way to reduce debt is to reduce credit-in-use.
Nothing else need be said. But here, read it again:
Debt is the measure of credit in use. If you borrow a dollar and spend it, the dollar is gone. But the credit stays in use. The credit stays in use until you pay back what you borrowed.
It's pretty simple, and pretty obvious. But it is ignored by policy-makers.
When the economy is growing and things are going well, people are borrowing money and accumulating debt. The quantity of credit-in-use is growing. The "quantity of money" is growing.
And the Federal Reserve starts to get concerned that the growing quantity of money will cause inflation. So the Fed raises interest rates to discourage borrowing. And the Fed takes money out of circulation by selling assets. And, sometimes, the Fed causes a recession. All in the name of fighting inflation.
And then after a while the economy is growing again and things are going well, and people are borrowing money again. Debt is accumulating again. The quantity of credit-in-use is growing again. And before you know it, inflation becomes a concern again. The cycle repeats.
What's wrong with this picture? One step is missing. Where is the part when we pay back what we've borrowed? We don't. We just accumulate debt, to the bitter end.
Here's what should happen: When inflation becomes a concern, tax incentives should kick in. Tax incentives that encourage people to pay off more debt. This would take money out of circulation as surely as the use of credit puts money in to circulation. This would fight inflation. It would also reduce the level of debt. That would be good.