Gyroscopic Investing

Im still a bit confused on a few details about how money creation and debt are connected. I'm going to just have a series of disjointed questions here regarding some areas of confusion for me.

All money in our system must originate from the government that spends money into existence (only later can the private banking system get money and engage in money creation) In order to get this money, the government must issue debt which they exchange for federal reserve notes. So the first step is for the federal reserve to just agree to create a certain amount of money in exchange for a promise from the government to repay that money with interest? If this is the case, how does the government get more money to repay the principal and interest without conjuring more money into existence? Once money is created as debt in this way, doesn't it need to be constantly growing in order for the system to work at all?

What if the government then decided it had created enough money and after it paid the interest and principal (from tax receipts) it could immediately retire the debt. In other words, the government today could just retire the debt by giving everyone cash for their bonds and stop all further debt issuance. At that point the national debt would be zeroed out overnight.

90% correct.

The only area of your summary where I entirely disagree is that of the "first step."  The first step is for the gov't to issue the debt.  The federal reserve system (not just the fed itself) is obligated to buy that debt in exchange for a credit to the gov'ts account.

Yes, the gov't could retire or zero out the debt over time or even overnight by many means.

Yes, "transactional" money has to be continually growing.  However the growth only has to be sufficient to pay the interest and the growth does not have to be by issuing new interest paying debt.  I called it "transactional" because the growth does not need to be in absolute dollar amount of supply (M1) since the economy is not static and as such we do not need to balance the books to $0 at any given time.  Instead of growth of supply, the velocity of money could increase to grow the use of the existing supply by doing more transactions.  As the debt interest and debt was paid off, supply would shrink so velocity would likely need to be maintained or even increased unless the supply were supplemented.  (Example, the gov't receives $1 in revenue, uses it to pay down the debt, recipient uses it to pay taxes/fees to gov't, repeated.)

As far as growing the supply, currently the executive branch has the authority to issue silver and/or gold backed currency, coins of various materials and denominations, and can issue non-interest paying debt (IOUs) directly to the public as payment for goods and services.  In addition Congress can change the law at any time, and under various active war powers the executive branch can act in advance of Congress should it be necessary (for various definitions of necessary).

And finally you left out a large portion of the money supply.  Most money is created by commercial banks lending it into existence either directly or as other security derivatives.  In theory the federal gov't has created only about $17 Trillion. (Which exceeds M1 and M2, so obviously those measures are incomplete, http://www.federalreserve.gov/releases/h6/current/ unless you believe the money which purchased that debt no longer exists.)  There is a lot of disagreement on metrics for the total money supply, but most claim it to be many multiples of $17 Trillion.