I authored this 17 page research paper while investigating the role of Treasury finance in the U.S. financial system:
There are 12 references in the paper and some basic assumptions such as Congress sets the tax, spend, and credit policies and delegates monetary policy authority to the Federal Reserve. Congress also imposes a debt ceiling which at times may impair the ability of Treasury to adjust the float of Treasuries upward to cover the deficit. Usually Congress raises the debt ceiling otherwise it would disable Treasury from carrying out all of its spending policies.
Mechanically Congress sets the tax, spend, and credit enhancement policies. Credit enhancements are loan guarantees, backstop of FDIC deposit insurance scheme, and other off-balance sheet promises of the federal government to make payments in the event of contingent future events.
Tax collections go up and down with the state of the economy. Spending and credit enhancements go up and down with the state of the economy. Some spending programs are funded by tax programs. But other spending programs are not tied to any tax programs.
Congress is a rolling body of hundreds of elected officials making policy on a rolling basis. This political body cannot match outlays to collections of funds based on the complexity of government activities.
During an accounting period the various government agencies make federal outlays and collections of federal funds. When outlays exceed collections the Treasury issues net new Treasury securities to cover the deficit. The increase of the federal debt equals the deficit for the period, and the federal debt adds up as the sum of deficits over the history of the nation. These are secure savings instruments which are the asset component of the federal liabilities.
During an accounting period when collections exceed outlays the Treasury retires some outstanding securities to dispose of the surplus.
Mechanically the float of Treasury securities goes up and down via debt management and this debt management effort reduces the otherwise large impact that the federal government cash management would have on the aggregate bank balance sheet. The federal debt has gone up on average over the history of the nation without default. Episodes of inflation or deflation have had to be managed by the institutions organized to do this Congress, Treasury, and Federal Reserve System.
Before 2008 the data show that the Federal Reserve would hold about as much Treasury securities as assets equal to the Federal Reserve Notes in circulation which it issues as liabilities. This policy meant the public had the option to hold either Federal Reserve Notes, which pay zero interest, or Treasury securities, which pay interest, in its portfolio of risk-free financial assets issued by the Fed and Treasury as liabilities. When Fed stuffed the aggregate banking system with excess reserve balances the currency drain would no longer deprive the banking system of necessary reserves so Fed did not buy Treasuries to offset the currency drain after 2008.
Good and bad things happen to individuals in society based on the mix of federal policies, the conditions in private credit markets, the conditions in the real economy, and other sources of cause of outcomes for individuals. The federal deficit spending in combination with the other factors operating as joint causes could produce good or bad outcomes on a wide scale or macroeconomic basis such as listed by Brian Romanchuk.
Because the debt is a public effort to cause good outcomes and avoid bad outcomes, and because individuals experience different costs and benefits based on government policy, the debates over the size of the federal debt are always going to be a political football.