If your left hand borrows $1 billion from your right hand, would you, as a whole, be bankrupt?
Of course not.
You might wonder where your right hand got the money to loan your left hand. Assume that your left hand is able to create money, more or less like our central bank, the Federal Reserve. Your left hand, over time, gave the money to your right hand, which then lent it back to your left hand.
In this closed-system scenario, no matter how much your left hand borrows, no matter what the interest rate, you, as a whole, will never be bankrupt. Your left hand could choose to default on its debt, but it would never have to default.
Large debt and continued borrowing can potentially cause accelerating inflation. However, there is no inherent hard limit at which that occurs because the demand for consumption and investment in the private sector are equally important factors. Those factors will be the subject of another post.
