[davidverhasselt]

To stay in your simplified universe, consider just two entities, A and B. A has all $100K, B has $0.

- A loans $100K to B at 10%.

- B buys raw materials from A for $100K and creates products X and Y.

- A buys product X from B for $60K.

- B returns $60K to A.

- A buys product Y from B for $60K.

- B returns $50K to B.

A ends up with $90K and product X and Y. B ends up with $10K. At no step was money created out of thin air. Total supply still $100K.

You could simplify it some more by allowing B to pay back A using product X and Y instead of moving $60K around back and forth.

[craigsmansion]

But A is in the money business, they should have no interest in X and Y.

- A loans $100K to both B and C at 10%.

- B makes X and Y, C make Q and R.

- B and C can produce and sell X,Y,Q, and R to one another to their mutual hearts content, creating a lot of value, but in the end A can only be satisfied by $220K. Either B or C is going to end up short.

Why would A accept X or Y when it's detrimental to their business interests to do so?

[triviatise]

this isnt really right.

Lets assume the product that B makes has a value which allows a 50% gross margin

A loans $100K cash to B at 10% markup (total value of system= 100K)

B buys raw material from A for 100K cash (total value of system now 200K as a magic 100K of raw materials were just added)

B creates product X and Y, now worth 200K (system is now at 300K)

A buys 60K of product X with cash (doesnt change value of system)

A cannot buy 60K of product Y with cash, though the total value of the system has increased.

There isnt enough cash in the system to settle all debts, but the total value of the system has increased. Cash would need to be printed to cover debts.

Fiat currency to some extent is balanced against the total GDP of the US.