Actually I think its better to look at it a different way.

As commodities get more expensive esp oil prices for goods required for daily living increase food gasoline etc. This causes the demand for income to be diverted from making payments on current debts and also drops demand for future debt.

The debt cannot be reduced simply because peoples cash flow situation changes as they spend more on simply staying alive they have less to spend on other goods which are going to be forced higher in price as energy prices increase.

The economy can no longer service its current debt load and has less earning to devote to future borrowing. Defaults increase and the demand for new debt declines.

Next rising defaults will no matter what you do force interest rates higher to cover the increasing default risk. And of course your pool of potential borrowers worsens dramatically. This is probably the most important and least mentioned part of the problem.

Prudent people capable of borrowing today find that their daily living costs are increasing and their future earnings are doubtful thus they choose to save cash instead of taking on debt. This leaves only people who have no financial skills whatever left desiring debt. I'm amazed given the housing bubble that we still have a pool of greater fools left but I guess its pretty deep.

In any case the government is attempting to halt the collapse by lending to people who are really not credit worthy. This simply does no good as eventually these people will default at high rates often today it will be because of job loss so first payment defaults may be lower but your talking in many cases a few payments at most then the loan is in default. A slower case is rising costs pushes the marginal debtor into negative cash flow but eventual default is certain.

You can print and loan as much money as you wish but its simply going to be destroyed via more debt defaults yet now these debts are honored by the government so the currency is weakened making the situation worse. This will cause imported goods like oil to increase in price against fiat currencies.

With this view you see that there is really no way out of this conundrum no financial game works. Given the nature of the problem any attempts to game the system to escape by avoiding the simple truth that we have no choice but to default on all our debt massively restrict future lending to well qualified buyers with low risk loans and going to a renewable and low energy society. Any other approach must fail.

You can see that what this really means financially is that you can do little borrowing from the future. For say cars and houses this suggests that you must pay say 70-80% down and then borrow over a much shorter period say 5 years on something like a house. Interest rates must be very low and the debt is short term.

If you look at this case the lender can recover not only his capitol but all of the interest payments if the loan defaults assuming he can always sell the collateral for say 40-50% of the original purchase price. The borrower has no reasonable reason to actually default since he can readily sell to pay off the remaining loan.

Borrowing money at all becomes uncommon. We can assume that rental properties are paid for with cash yet to get a better return vs lending with interest requires very low rents which allows renters themselves to build substantial savings.

What you realize is that money itself becomes one of the least profitable business's.

Instead if you take a multi-generational view it becomes obvious that such and approach results in a build up of retained wealth after only a few generations. Each generation inherits the real property of the proceeding generation and its savings.
Loans become so uncommon the word loan may be lost.

Certainly a person can always gamble away their wealth but this is readily solved by limiting the amount of money that can be spent on anything that does not have a well defined value everyone is a trust fund baby.

Thats a perfect world view but by only allowing growth to occur have the profits of proceeding growth have been realized in general after the preceding generation is dead then you have a rock solid banking system and society. Increasingly what your doing is borrowing ever less from the past for the future. And I think this society would increasingly focus on building very long lasting goods to reduce the need for spending in any given generation. More and more stuff will become ever more durable being handed down generation after generation. One can also assume that even the simplest article will become increasingly a work of art in and of itself. Furniture valuable antiques. New replacements face and ever uphill battle to be better than what exists.

This is the alternative to the debt curve and paradoxically it leads to true wealth sure it takes a few generations and obviously it requires a effectively stagnant population but one can see that without wars or other forms of wealth destruction within a few hundred years you have a very wealthy society.

In fact the ancient economies indeed amassed immense wealth. I'd argue that no one family alive today could afford to build a pyramid with a population similar to that of ancient Egypt yet one of our first civilizations managed to do so.

Sure they where not perfect society's and had many flaws with slaves common but this does not mean they could not fairly rapidly build wealth if you took the multi-generational route. In almost all cases any ancient civilization that lasted more than a few hundred years created a tremendous amount of wealth.

I think its instructive to read and alternative view point and consider the mistakes.

http://www.ruwart.com/Healing/chap2.html

Whats sad is this is the sort of strange Capitalism/Christianity preached in the US.
No mention of the deaths in Vietnam, Iraq and all the conflicts before this.
No mention of the long history of racism in the US.
No mention of the long and painful sacrifice the average Japanese made saving across generations to finally get wealthy only to see their currency devalued.

Obviously I could go on but hopefully my description of the alternative to debt i.e only spending money after the preceding generation has both earned it and passed away highlights the differences between true wealth which is borrowing from the past and debt which is borrowing from the future.

And one should see that oil itself was a form of true wealth we borrowed millions of years of concentrated energy and burned it up in a few centuries and not only that we created a impossible debt burden on future generations. We have ravenously stolen from both the past and the future just to support a very small precentage of the global population in a warped pseudo king like lifestyle.

In a lot of ways I feel like the actor in the Matrix waking up to the true reality of what we have done. The gulf between what we have really done to ourselves our planet and our children and untold future generations vs what is claimed is as large and as chilling as the differences presented in the Matrix.