This is the first post I've read from you that I agree with wholeheartedly. I will just add that debt needn't even be inflated away, it can simply be voided to avoid the negative effects of inflation. This is even more true of China's economy, where the government is the ultimate owner of both major lenders and major borrowers. Debt is ultimately a political question, not an economic one.Math is a tool.
And generally, the debt of one person is the wealth of another.
And more generally, the supply of dollars infinite, it is even not constrained by the available supply of paper. It is fully digital now, so the debt can be inflated away.
We don't live any more in the commodity money age, like the shell/gold/silver/bitcoin.
I think debt management should 'borrow' (nyuk, nyuk) an idea from forestry: controlled burning. Not very long ago it would have been considered insane to set fires to fight forest fires, now it's a common practice. Debt should be similar - regulators should proactively and periodically 'burn' bad debts so as not to have a dangerous buildup that could fuel an uncontrollable conflagration like what happened when Lehman collapsed.