[criley2]

>If the government (by US theory, this is: "the people")

You're talking about the Federal Government, which yes can monetize debt through the Treasury and Federal Reserve by act of Congress.

However, I'm talking about State and Local governments which are unable to run deficits and unable to create treasuries to sell to the Reserve for new cash.

For all American governments EXCEPT for the Federal level, they must, like any large corporation or entity, find a lender and pay interest.