Like yourself, Milton Friedman believes the concerns about excessive debt creation during the 1920s were misplaced. In the book, he wrote with Anna Friedman, he asserts the Great Depression could have been avoided if only debt levels and newly printed money had been expanded even more aggressively. This would have prevented M2 from declining. Thus the problems caused by excessive debt can always be solved with even more debt.
This is the sort of insanity which passes for wisdom in the world of Monetarist theory. The problem with this theory is that ever higher levels of debt, relative to incomes, cannot be supported without ever lower interest rates - subsidized by savers of course.
Modern day Japan has followed the Monetarist prescription meticulously. But they are now boxed in with interest rates essentially at zero and no way to further expand debt levels - apart from government spending. They did expand debt further with government spending. Japan's government debt is now triple that of other OECD nations and they're still in an economic depression. Modern day Japan is a Monetarist success story! So much for Monetarist theory.
Now I'm sure you can appreciate why economic forecasts made with a Leontieff closed model simulation of the economy are always wrongs.
Yes, Virginia, debt does matter. When total debt rises faster than income, it is unsustainable and presents a major problem.
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