simplest solution would.be to cancel de t periodically, or force it's redemption without issuance of new debt. while economists fret about deflation and lack of cash to maintain the liquidity, all you do is cut short the forced funneling of wealth to the banks and allow the consumers and producers to accumulate wealth. the reason why the market seizes up when that happens is because as you said, the current system is not a closed loop, but expects cash injections through the mechanism of banking, as opposed to natural emissions of currency. the issue is made worse because too many funds and banks end up hoarding the money they eventually get and never let go of, instead depending on the fed money hose to lubricate the system.
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