Constantly analogizing the financial position of a government to that of an individual or a household is of limited value. Macroeconomics is not like household economics. On the personal scale, reaching zero debt is a nice goal. For a government, which is immortal, achieving zero debt is unnecessary and actually unwise. Yes, it's best to keep debt down to a low percentage of GDP, but the reality of economic cycles is such that in a down economy, debt will -- and should -- go up, in order to ensure economic continuity, protect society, and lay the foundation for future growth.
That doesn't mean that all debt is good, but in an extraordinary crisis like the one we've just been thru -- the kind of thing that happens maybe twice in a century -- a lot of deficit spending by government will be needed. Sometimes previous administrations have foolishly run up unnecessary debts even before the crisis hits. That still doesn't mean that government austerity is the right answer.
The real question is: How will a high level of deficit spending right now affect you, positively and negatively? The doomsayers have trouble explaining what the precise problem is. They yell "Greece!" But we are not even remotely close to being in the kind of trouble that Greece is in. High debt is bothersome and can be a drag on GDP. But we are not going to get into a Greece-like situation as long as we control our own currency. And we are not going to default, as long as stupid politicians do not intentionally choose to do so.
Another thing: Contrary to the way it's often described, no one is going to present your child or grandchild with a personal bill for hundreds of thousands of dollars in federal debts to be repaid. Our debt is rolling; people are constantly buying newly issued Treasury bills, and the government is continually paying old ones off as they come due. Yet another thing: contra Mitt Romney, most of it is NOT "borrowed from China". Only about 8% of federal debt is held by China. Most of it is held by -- guess who? -- Americans. Yes, mostly the federal debt is money we owe to ourselves.
And right now, Treasury bills are considered by the market to be one of the safest and most favored investment vehicles on the planet. Even with incredibly low rates of return, people are pouring money into US debt. Given inflation, long-term US bonds right now are actually a money-losing proposition -- and yet they are still a wildly popular investment. People are literally paying us for the privilege of buying our debt.
So relax... the sky is not falling. The mistake would be to choke off credit and plunge ourselves into self-inflicted austerity. That's the true danger, and it's playing out right now in Greece, Spain, Portugal, and Ireland.