Some good responses on this thread.I think the OP was asking more specifically what would happen if everybody paid off their personal debts, CC and mortgage and what not. Not the event that every debt owed in the entire economy be paid off.
I think this scenario is more interesting to think about. Obviously there would be a negative demand shock, but the whole thing wouldn't come grinding halt if there was still commercial debt.
I think this scenario is more interesting to think about. Obviously there would be a negative demand shock, but the whole thing wouldn't come grinding halt if there was still commercial debt.