Except for coins, all of the money in the U.S. money supply now gets into circulation as a debt to a bank (including the Federal Reserve, the central bank). But private loans zero out when they are repaid. In order to keep the money supply fairly constant, some major player has to incur debt that never gets paid back; and this role is played by the federal government. That explains the need for a federal debt, but what about the “deficit” (the amount the debt has to increase to meet the federal budget)? Under the current monetary scheme, deficits are also necessary to avoid recessions. Here is why. Private banks always lend at interest, so more money is always owed back than was created in the first place. In fact investors of all sorts expect more money back than they paid. That means the debt needs to be not only maintained but expanded to keep the economy functioning. When the Fed “takes away the punch bowl” by tightening credit, there is insufficient money to pay off debts; people and businesses go into default; and the economy spins into a recession or depression. Maintaining a deficit is particularly important when the private lending market collapses, as it did in 2008 and 2009. Then debt drops off and so does the money supply. Too little money is available to buy the goods on the market, so businesses shut down and workers get laid off, further reducing demand, precipitating a recession. To reverse this deflationary cycle, the government needs to step in with additional public debt to fill the breach - www.webofdebt.com