You second question isn't theoretical. It is happening right now. There is no way the American, Japanese and British governments can ever pay back the debt they owe. None. By printing currency the USA and GB have effectively defaulted on thier debts. The Western world will at some point be forced into a severe recession of the type Greece and Portugal are currently experiencing. At this point the governments will be forced to cut spending back to a sustainable level. It is this brutal recession that fixes the problems that have been building up during the "great moderation" which is a term used to describe the period between the 90's and 2008 when interest rates where low and the economy was booming.
It will not fix anything. Greece is preparing to ask for third money injectino and definitelly not last.
Even us, if we'll have no deficit starting next year, we will pay out the debt no sooner than 2030, probably later because the almost-zero interest rates will have to grow in future so also our debt interest rates will grow.
Now, look at Greece and other countires (Portugal, Slovenia, Italy etc). They are not anywhere close to no-deficite budget and they are also much higher on the exponcencial curve. That means they won't be able to pay that. They may be by the end of this century if they tried to manage their national budgets wisely. But are not at all. Just a few countries will ask for another help and sooner rather than later the whole EU will collapse like house from cards. US is the same or even worse. What spending cuts are you talkign about? They printed dollars the way it never happened before during the recession and pumped hundres of bilion into the economy, there were no cuts at all. Each time it will only get worse and it will never be payed of. The debt is too large now. Most of the western-type countries have already crossed zero line.
I'm now convinced that everything you say is true -- all of the civilized western countries, doomed from the moment they have adopted fiat, are racing each other towards a grizzly economic apocalypse. I'm a huge fan of post-Armageddon/black futurist/dysphoric imagery, and i want more. Could one of you write an Economy fanfic for me, hopefully featuring BTC/LTC shipping, pl0x?