People are getting worried about the U.S. debt to China. Don't worry about it.

The United States Government operates the printing presses for the reserve currency of the world. The US government debt to China is denominated not in Renminbi, which we would have to earn from them, but in US dollars, which are backed by "the full faith and credit of the United States Government,"... in other words, nothing substantial.

The US Government can always at any time pay off any debt that comes due in the following manner:

1. The US Treasury issues new treasury debt (say, for instance, 3 year notes)
2. If China or Japan or other investors aren't buying it, then the Federal Reserve buys that treasury debt. Where do they get the money? They print it. Actually, they just change some numbers on their balance sheet.... this is called Quantitative Easing (QE) and is not usually necessary because usually there are plenty of investors willing to buy US government debt at some price, and that price is determined by auction.
3. The US Treasury then uses that money to pay off China, or whomever else may be holding the debt that is currently coming due.

You may think that the Fed printing money is immoral. If you consider them as a separate legal entity, it is, because it breaks equal treatment under the law ("why can't I print money?"). And it cheats all of the rest of us holding money, because we have to work for it, they don't. But if you think of them as a branch of the government operating on the behalf of everybody, it doesn't appear immoral, it is just a technical mechanism.

You might think that releasing new money into the economy would cause inflation due to monetary pressures (supply of money increases relative to supply of goods). It does, and will. Expect it (generally, but maybe not in the short term).

You might notice that the treasury issuing 3 year notes means that they have to pay that new debt back in 3 years. This is like borrowing from one credit card to pay off the other! True. All they have to do is again roll over the debt onto new notes. But there is no credit limit, so the game can go on forever.

The total level of debt in a fiat system can go down (debt deflation), but it can never be fully paid off. There is no mechanism to fully repay it. All fiat money is borrowed. None of it exists outside of it's twin debt instrument. That's just how fiat money works. Fiat money is fundamentally a Ponzi (pyramid) scheme. The total money to be repaid is always more than the total money borrowed, because interest accumulates on debt. The total money supply is always less than the total debt, so even all the money in the world can never pay off the total debt.

However, unlike most Ponzi schemes which are limited by something, the Ponzi scheme of fiat money has no limit because the Federal Reserve balance sheet has no limit. They can always add digits.

So don't worry about government debt, or total debt. It does not need to be paid off, and it is not even possible for all debt to be paid off.

The reason deflation is so much more dangerous than inflation is because this "impossible to pay off without further borrowing" interest on prior debt becomes a larger and larger percentage of the economy. That can lead to bankruptcies as the debt burden of companies (and households) remains the same, but the total amount of money floating around with which to pay that debt off has shrunk. Bankruptcies lead to other bankruptcies like domino knock-downs.

Because of the gold standard, the great depression couldn't be countered by government spending. This time around, the federal reserve is rapidly expanding it's balance sheet, and intends to "not make the same mistake twice".

However, even though the Federal Reserve has the will, it is questionable whether the US government has the political capital and will to spend the amount required to offset debt deflation. Debt deflation is massive and pernicious. The amount required is very substantial, and congressmen are already in the doghouse. So it may turn out that another great depression happens for this reason. This is what happened in Japan's increasingly inaccurately named "lost decade." They also had a printing press, and used it, but didn't use enough of it to "pop out."

If the US government spends enough new money into the economy to pop out of the "liquidity trap," the after effect will be massive inflation. Economists hope this can be contained, but have many reasons to try to contain it later, not earlier, and so it will run for a while. If they succeed, they will have done something that has never happened before. Economists have theories, but nobody knows for sure if popping an economy out of a deflation through Keynesian spending will work, or what the side effects will be.

It is extremely difficult to predict what will happen. Things will go strongly one way, or strongly the other.... we will not see a middle ground. Which way it goes is as of yet still unclear. A long term deflation is still the most likely scenario.

I wish everyone the best during these volatile times.