This is a variation of the "national debt isn't a problem because we just owe the money to ourselves" argument. It is generational theft. Successive generations give up more and more of their earnings to service debt incurred before they were born, debt that was used to bribe voters with gimmes and benefits that the later generation will never see for itself.
The idea that government expenditure drives an economy makes about as much sense as plugging a power strip into itself and demanding your lamp turn on.
And that is how you respond- "We owe ourselves, eh? So its okay if we don't get paid right? So if Social Security isn't paid, that is alight, because its money we owe ourselves? Oh, but we can always borrow more, which increases the money supply and therefore, after a lag, results in inflation, and while you get paid your full SS check, it will actually buy less. He is right that the dollar is just a stake or a share in the economy- but printing and loaning more dollars is share dilution. The overall effect of these new shares is to REDUCE the growth rate of the economy (
http://politicalcalculations.blogspot.com/2012/05/economic-growth-and-chains-of-debt.html) - so not only is your stake smaller, but the company that produces them is making less "profit"
But there are other shareholders in the American economy - that is why its called the World reserve currency - other people use and hold dollars. We don't just "owe ourselves" - we owe China, Japan and many other countries who bought treasuries ( which is how the National debt is financed) as well as all of the people just using paper cash worldwide - and the longer and more we borrow, and the less our tax revenue is able to service that debt, and the less interested the countries are in buying more of our debt or keeping what they have. The less interested individuals are in keeping their savings in dollars. (Were China to try and sell its treasuries, it would crash the US Dollar overnight.. a point I am sure is not lost on them in negotiations with the US.) What would happen if the people holding these assets suddenly traded them in for real products ( houses, gold, oil, beans, guns)?
In Greece, where they can't print their own currency, Govt bond yields have risen to deal with the risk that Greece won't pay - and they would be rising in the US as well, except the Fed, because it has a printing press, is buying over 60% of each debt issue - and artificially keeping bond rates low. As we borrow more and more ( over 1 Trillion a year now thanks to Dems and Obama) - other countries have responded by buying less of our debt and even beginning to sell it.
Raising taxes on the "wealthy" will NOT balance the budget. You can confiscate 100% of every dollar made over $100K and you still don't have enough to balance even the yearly budget. And if we did tax 100% of every dollar over $100K how many people do you know will bother to work and earn that dollar? The current level of Government spending is unsustainable given the size of the economy. We have run out of other people's money, the Nations of the World are looking for alternative currencies to trade in, and the reserve status of the dollar is in jeopardy. A currency is a product. Just because Apple "Controls" the smart phone market, doesn't mean they will "control it" forever, because their "control" is based on individual consumer decisions. Likewise, the dollar is only as valuable as its customer perceive it to be, and it becomes less valuable for every additional dollar we print into existence, and even less valuable when you realize the debt that allowed its printing cannot be repaid. Greece is our future - be it hyperinflation, stagflation, or outright default on our obligations. That which cannot continue, won't.
Of course, maybe we shouldn't educate your friend. Its ignorant people like him that are keeping the system afloat by not being smart enough to get out. As a result we get a long slow decline instead of a sudden collapse as a dollar panic spreads ( which is essentially what happened in 2008 when someone or some group started to withdraw huge sums from money markets)