I’ll try to make it as simple as possible.

National debt is just a holdover from the gold standard era (or a fixed exchange rate currency i.e. your currency is pegged to another currency).

You see, during the gold standard era, your currency is tied to the amount of gold you have (which has a stable price). Let’s say your economy has $100 billion in circulation, you need $100 billion worth of gold in reserve to back your currency.

Now, let’s say we want to build a hospital - it will cost $1 billion. If you “print” $1 billion to spend on the hospital (hiring labor, buying raw materials etc.), then your economy would have $101 billion, but you only have $100 billion worth of gold. That means your exchange rate will be driven down by the excess spending.

How do you spend that extra $1 billion to build a hospital without breaking the constraint of your gold reserve? You either have to take money out of the circulation - exactly $1 billion, or you have to increase the amount of your gold reserve.

First, let’s explore how you can take money out of the circulation: one way is through taxation. You increase taxes of the citizens by $1 billion so you can spend $1 billion to finance a hospital construction in return. This is where the common notion of taxation funds government spending comes from. But in reality, this doesn’t make sense: the government prints its own money, why would it need to earn tax revenues from the citizens? Well, the reason is simply that the government wants to take that money out of the circulation before it can spend the new money, because it needed to defend the currency exchange rate against the gold reserve it has.

Another way to take money out of the circulation is through issuing government bonds. Here, instead of destroying the money it collected (taxation), private citizens lend their money to the government to be safe-kept in a special account, for 1/5/10 years, which then pays interests at maturity. This enables the government to effectively take the money out of the circulation but the private sector/citizens don’t have to lose their money. It is being “safe-kept” and the government “promises” to give you interests in return after a few years of not using your money. This is where the common notion of government borrowing finances government spending comes from. But really, it’s function is to take money out of the circulation.

Next, instead of taking money out of circulation, the government can also increase the amount of their gold reserve. There are three basic ways to do that: dig (find gold in your own backyard), buy (export goods made using your resources and labor in exchange for gold) or steal (colonize and steal another country’s gold/resources and then sell for gold).

As you can see, the gold standard imposes a lot of fiscal constraints on government spending. The same applies to a fixed currency (e.g. pegging your currency to US dollar, for example, as was under the Bretton Woods era). If you want to spend too much, you risk devaluing your currency, which causes import to become more expensive, then inflation. This was the case for the British empire and the pound sterling. During warfare, they had to borrow excessively to finance their spending, which resulted in heavy financial burden after the war.

Clearly this system was unsustainable (either gold or Bretton Woods), so it finally crumbled in 1971 when the French, having received so much US dollars remitted from French Indochina banks during Vietnam War that the US clearly did not have the gold reserve for, demanded that Nixon pay them in gold instead of paper dollars. Nixon shocked everyone by abandoning the Bretton Woods, and thus we have entered (by accident) the fiat era, where currency is not backed by gold or any commodity, but simply backed by the state (or, its ability to coerce taxation on its citizens).

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The government debt is as such a holdover from the gold standard/Bretton Woods era, but it takes on a new role that has very little to do with financing public spending.

Now, lets’ see what happens during government spending in a fiat currency system.

You see, when a government spends (in a fiat currency system), what happens is really that Congress (let’s say the US) approves a $1 billion spending bill to build a hospital, the Treasury then goes into overdraft with a $1 billion spending, and the Federal Reserve (central bank) creates $1 billion reserves, which then goes into the reserve account of the private bank (let’s say Chase), which then allows the private bank to create $1 billion deposit in the account of the company the US government has contracted to build a hospital.

Note: understanding the following details is optional. It’s really just accounting and operational mechanics of central banks and little to do with what the government can actually spend.

Reserve accounts are special accounts used by private banks (and also foreign banks) within the Federal Reserve (central bank) to transfer the reserves for daily operations. The reserves are what allowed the banks to clear your checks - when you take a check worth $1000 to deposit in your bank (Bank A), what happens is that $1000 from the reserve account of bank B (the payer’s bank) is transferred into the reserve account of Bank A (the depositor’s bank). This then allows Bank A to create a $1000 deposit in your account, that you can then withdraw as cash.

[In other words, $1000 is debited from the payer deposit/checking account in Bank B, and $1000 is debited from the reserve account of Bank B in the central bank. At the same time, $1000 is credited to the reserve account of Bank A in the central bank, and an equivalent $1000 is credited to the deposit/checking account of the depositor (you) ]

At the end of each day, the banks will have to make sure that they have the sufficient amount of reserve as required by the law (say 10% of their total deposits). The most important point here is that banks don’t really want to keep more reserve than are required, because those are dead money that doesn’t earn any interest, so they’d want to lend them out (within the central bank that is inaccessible to the public). Because of interbank transactions, on each day, there will be banks with less reserve than the required threshold (maybe because a lot of money is transferred from their bank to another), and there will be banks with more reserves than needed (because maybe more money is transferred to their bank on this particular day). So, the banks with less reserves will borrow from banks with more reserves to make sure they meet the legal requirement of maintaining a sufficient amount of reserves.

However, one problem here is that because banks will compete to lend out their excess reserves, this will drives interest rate down eventually to near 0% (because nobody wants that dead money, even a very small yield is still worth lending), which would be below the target interest rate set by the Federal Reserve (Fed fund rate), say 2%.

This is where government borrowing comes in. To ensure that the interest rate can be targeted at 2%, the Treasury issues bonds at 2% interest. Now, banks with excess reserves are faced with two choices: lend their reserve out to the government and earn 2%, or compete with one another to lend to other private banks and drive down the interest to 0%. Obviously banks will want that 2% interest, so, simply by issuing government bonds, the government has effectively set the minimum lending interest at 2%.

But what does this has to do with government/national debt? You see, it’s actually very simple and stupid at the same time. When the government spends $1 billion, the Treasury goes into $1 billion overdraft, creating $1 billion excess in the interbank reserves (within the central bank). These extra $1 billion are practically free money for the banks, and they will want to lend out as soon as they can, which will eventually - once again - drive the interest rate down to 0%. Now, to target a 2% interest rate, the Treasury simply issues “government bond” (debt) to soak up all those $1 billion excess reserves and at the same time “balancing out” the $1 billion overdraft in its account.

That’s it - there is nothing special about the government debt in a fiat currency system. Every time a government spends $1 billion to build a hospital, the Treasury issues a $1 billion debt to balance out its books which has nothing to do with the actual capacity of the government to spend. It’s pure accounting and central bank operations - the government debt serves as a drain of excess reserve liquidity in the central banking system.

Note that all these took place in the reserve accounts within the central bank. It has nothing to do with the money you can access in your bank accounts.

For the US as the global reserve currency issuer, there is an extra function for the government debt as well: when the US recklessly spends billions of dollars overseas, foreign central banks earned those dollars and after spending some of those dollars to import stuff (because they are net exporters and the US is net importer, the net exporting countries will always end up holding more dollars than they can spend), because they are not allowed to purchase critical US assets, the only way to use the money is by buying US Treasury debt promising a few % of interests.

Thus, the US treasuries effectively serve as a drain that absorbs the excess dollar spending overseas, allowing it to regulate how much dollars are being circulated in the world. So, it is not correct to say that foreign banks lend their dollars to the US government to finance US deficit spending, it is simply that the excess dollars had nowhere else to go and are “recycled” back to the US shores in the form of treasury bonds (national debt).

But if you admit that, you’re too close to admitting it’s a global hegemonic empire. And also, if you say it often enough, eventually you’ll get a nice batch of morons in power who actually believe it. See: the Euro becoming a suicide pact for all.