People need to understand how loans work

[Recursion]

9. GREAT question: Federal debt works the opposite way

With Federal debt, the government writes a treasury bond and sells it. When someone buys a bond with cash, that cash is taken out of the money supply. Treasury bonds are not counted in the money supply, so the money supply has gone down by the face value of the bond. (It can be tempting to look at it as if the Treasury hangs on to the cash and uses it to pay for government programs, but that actually doesn't make any sense: it's silly to say the government "holds" something it can create an infinite amount of at any time -- to put it another way, since the government can destroy all the dollars it receives and newly create all the dollars it spends, and the result would be exactly the same, that is exactly what is happening in terms of how we count the money supply ).

The short version: bank loans increase the money supply; treasury bonds decrease the money supply.