system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: My 12 year old brother wants to know why the debt between all the countries in the world cannot simply "cancel each other out."
gpt
The debts that most governments have are bonds not loans, governments have two ways of raising large amounts of money, taxes or bonds. This won't be very ELI5 as it's quite hard to do since governments operate very differently financially than normal people and it's a damn mess of mutual indebtedness.

A friend Bob wants to borrow $100 (a bond) off you he says he will pay you back in a month with an extra $10 (interest) as thanks. You trust him, Bob has a good reputation (AAA S&P rating) for paying off his personal debts with interest and on time (the bond matures), it's an easy and safe way to make an extra $10, you'd be pretty stupid to not lend Bob the money as it's 100% guaranteed he will pay you off with extra $10 or risks his good reputation next time he asks for money.

Lets say you are so confident that Bob will give you the money on time plus the extra $10 that you borrow $100 from another friend Fred, this way you have the cash in your pocket to spend now, you say you will pay Fred the $100 and an extra $5 when the times comes to pay him off for the trouble of lending the money. This isn't a bad deal you have $100 in your pocket still and even with the extra $5 you offer you to pay Fred you will still be $5 better off when Bob pays you back. Fred does the same thing with a friend of his called John, he borrows say $95 and will pay an extra $5 to John when the time comes to pay off the money.

Now here's the problem you are relying on that $100 + $10 from Bob to pay off Fred, if Bob doesn't pay up or can't pay the whole amount you won't be able to pay off Fred, and Fred won't be able to pay off John who might not be able to pay off someone else, it's a huge chain of mutual indebtedness that relies on Bob's excellent reputation for paying off his debts on time.

In the past Bob had a machine that let him print money if he couldn't pay you off, say Bob only had $90 at the end of the month, he would print off an extra $20 so he could pay you and protect his excellent reputation, you didn't mind this as you and all your friends do it and it guarantees you get all the money you were promised originally and you didn't do it very often, only as a last resort. Bob borrowed money from lots of people and most of the time he paid off the debts fine, sometimes printing money to pay the debts but only as a last resort.

Recently Bob and everyone else lost the ability to print money as a last resort, when the time comes to pay off debts he doesn't have a last resort any more, so he starts borrowing more and more money from friends to pay off other friends as he can't do it himself any more (for whatever reason, pay cut at work or something). He has a good reputation so people keep lending to him (multiple chains of debt), they are all relying on Bob to keep his word so they can can keep their word when it comes to paying debts.

Can you see the problem? It's a house of cards that will collapse if one person can't pay up since no one can print their own money any more, they are all relying on one debt to be paid so they can pay off another debt.

Bob comes clean and tells everyone he was lying all along about his income and that he can't afford to pay off debts any more, he was using the money he borrowed poorly, spending well beyond his income. His friends all say that if he doesn't find a way to pay his debts they won't lend him money again for a long time but because they all really need Bob to pay the debt so they can pay theirs they agree to help Bob get the money to pay off the debts and save his reputation. Now all the friends get together as a group and agree to borrow money from someone else (they will issue bonds to raise money) to pay off Bob so he can pay them off, before they do this they make Bob agree to a contract that limits his spending and he has to cut back his spending (Austerity measures), bob and his family don't really like this but have no real choice other than to lose their reputation.

Now if this all sounds like a real clusterfuck it's because it is, replace Bob with Greece in that and his friends as other European countries, the group they all belong to near the end is the European Central Bank which is the only place allowed to print money any more, individual countries can still issue bonds as can the bank itself. Essentially the Euro Central Bank ends up selling bonds to China and the money for those bonds will go to Greece to pay off its debts, but that money came with a lot of conditions which the Greek people don't like.

As for cancelling the debts, well anyone can buy bonds, governments, businesses, anyone even you and me. You might be able to cancel some mutual parts of the debts between countries but that won't work with multiple non-government parties involved. A country can write off the debts but that destroys their reputation as a trustworthy investment and no one will invest in them again, they'd have to rely solely on taxes for income.

That's pretty long and i don't know if it answered the question, i was more curious if i could write a simpler version of a current debt crisis.