You're right that most of the money we owe, we owe to ourselves. We still owe it. There's a problem with that because the debt is mainly owed to the entitlement programs we created for social security and medicaid. Those programs have serious financial problems because when they were created life expectancy was 62 years and now it's 85. As baby boomers retire there won't be enough of you to pay for them. That's the problem with owing money to ourselves.
We aren't indentured servants to a foreign country. We are indentured to Washington. We have slipped from the worlds leader in economic liberty to number ten behind countries like Chile, Denmark and Canada. As government grows, liberty shrinks.
Europe is a good example of the expanding social contract. Standard unemployment in Germany is 10 percent. Ours used to be between four and five. There is a reason that people in Great Britain have poor dental care. Dentists can't make money there so there is a shortage. I wouldn't look to Europe as a model culture.
There is no utopia. The best system for humans is maximum liberty, freedom, respect for the rights of others and personal responsibility.