[finasteridonline]

Honest question.

Where is all the money? I hear nothing but bad news about financial crisis all over the world, and it seems that there is a shortage of cash - like it is some sort of natural resource.

People haven't stopped buying stuff. They still need food, clothing, medicine, shelter. Taxes are still collected. Fines are still levied.

So where is all the money? I mean, labor has been produced to make things and wages paid to the laborers. The things are purchased by other laborers, who were paid for producing goods or services, etc. It's a closed loop, right?

Can someone explain it like I'm five or something?


It's hard to explain this to a five-year-old, because there are some fairly abstract concepts involved, but here goes...

Originally posted by otherwiseyep:

All actual "money" is debt. All of it, including monetary gold, etc. (Don't argue with me yet, I'll get to that.)

Imagine a pretend world with no money, some kind of primitive villiage or something. Now let's invent paper money. You can't just print a bunch of paper that says people have to give you stuff, because nobody would honor it. But you could print IOUs. Let's walk through this...


Let's say you're an apple-farmer and I'm a hunter. You want some meat but haven't harvested your crops yet. You say to me, "hey, go hunt me some meat and I'll give you 1/10th of my apple harvest in the fall". Fair enough, I give you meat, you owe me apples. There's probably a lot of this kind of stuff going on, in addition to normal barter. In time, standard "prices" start to emerge: a deer haunch is worth a bushel of apples, or whatever.


Now, let's say a week later, I realize that my kid needs a new pair of shoes more than I need a bushel of apples. I come back to you and say, "Hey remember that bushel of apples you owe me? Could you write a marker, redeemable for one bushel of apples, that I can give to the shoemaker in trade for a pair of shoes?" You say okay, and we have invented a transferable note, something a lot like money.


In time, our little villiage starts to figure out that a note redeemable for a bushel of apples can be swapped for all kinds of things. The fisherman who doesn't even like apples will accept apple-certificates in trade for fish, because he knows he can trade them to boat-builder who loves apples. In time, you can even start to hire farm-workers without giving them anything except a note promising a cut of the future harvest.

Now, you are issuing debt: a promise to provide apples. The "money" is a transferable IOU-- your workers get a promise to provide value equal to a day of farm-work, or whatever, and it's transferrable, so they can use it to buy whatever they want. The worker gets fish from the fisherman, not in exchange for doing any work or giving him anything he can use, but in exchange for an IOU that the fisherman can redeem anywhere.

So far so good. But there are a couple of forks in the road here, on the way to a realistic monetary system, that we'll address separately:


What happens if your apple orchard is destroyed in a wildfire? Suddenly all the notes that everyone has been trading are basically wiped out. It didn't "go" anywhere, it's just gone, it doesn't exist. Real value was genuinely destroyed. There is no thermodynamic law of the conservation of monetary value-- just as you and I created it by creating transferable debt, it can also be genuinely destroyed. (We'll get back to this in a minute, it gets interesting).


The second issue is that, in all probability, the whole town is not just trading apple-certificates. I could also issue promises to catch deer, the fisherman could issue promises of fish, and so on. This could get pretty messy, especially if you got the notion to issue more apple-certificates than you can grow: you could buy all kinds of stuff with self-issued debt that you could never repay, and the town wouldn't find out until harvest-time comes. Once again, value has been "destroyed" people worked and made stuff and gave you stuff in exchange for something that doesn't exist, and will never exist. All that stuff they made is gone, you consumed it, and there is nothing to show for it.

The above two concerns are likely to become manifest in our village sooner or later, and probably sooner. This leads to the question of credit, which is, at its most basic, a measure of credibility. Every time you issue an apple-certificate, you are borrowing, with a promise to repay from future apple-harvests.

After the first couple of town scandals, people will start taking a closer look at the credibility of the issuer. Let's say the town potato-farmer comes up with a scheme where his potato-certificates are actually issued by some credible third-party, say the town priest or whatever, who starts every growing season with a book of numbered certificates equal to the typical crop-yield and no more, and keeps half of the certificate on file, issuing the other half. Now there is an audit trail and a very credible system that is likely to earn the potato-grower a lot of credit, compared to other farmers in town. That means that the potato-grower can probably issue more notes at a better exchange rate than some murkier system. Similarly, the town drunk probably won't get much value for his certificates promising a ship of gold.

Now we have something like a credit market emerging, and the potato-farmer is issuing something closer to what we might call a modern "bond"...

So some time goes by and people start catching onto this system of credit-worthiness, and farmers and fishermen and so on start to realize that they can get better value for their IOUs by demonstrating credibility. People with shakier reputations or dubious prospects may not be able to "issue money", or might only be able to do so at very high "interest". E.g., a new farmer with no track-record might have to promise me twice as many potatoes in exchange for a deer haunch, due to the risk that I might never see any potatoes at all.


This obviously gets very messy fast, as different apple- and potato-certificates have different values depending on whether they were issued by Bob or Jane, and everyone has to keep track of and evaluate whose future apples are worth what.


Some enterprising person, maybe the merchant who runs the trading-post, comes up with the idea to just issue one note for all the farms in town. He calls a meeting with all the farmers, and proposes to have the town priest keep a book of certificates and so on, and the farmers will get notes just like everyone else in exchange for the crops they contribute to the pool, and the merchant will keep a cut of the crops with which to hire some accountants and farm-surveyors to estimate the total crop yields across town and so on.


Everyone agrees (or at least, enough farmers agree to kind of force the other ones to get on-board if they want to participate meaningfully in the town economy), and we now have something like a central bank issuing something like fiat currency: that is, currency whose value is "decided" by some central authority, as opposed to the kind of straight-up exchange certificates that can be traded for an actual apple from the issuer, for example.


Now we have something that looks a lot like a modern monetary system. The town can set up audit committees or whatever, but the idea is that there is some central authority basically tasked with issuing money, and regulating the supply of that money according to the estimated size of ongoing and future economic activity (future crop yields).


If they issue too much money, we get inflation, where more apple-certificates are issued than apples grown, and each apple-note ends up being worth only three-quarters of an apple come harvest-time. If they issue too little currency, economic activity is needlessly restricted: the farmers are not able to hire enough workers to maximize crop yields and so on, the hunter starts hunting less because his deer meat is going bad since nobody has money to buy it, and so on.

At this point, you may be asking, "Why the hell go through all this complexity just to trade apples for deer and shoes? Isn't this more trouble than it's worth?"

The answer is because this is a vastly more efficient system than pure barter. I, as a hunter, no longer need to trade a physical deer haunch for a bushel of apples to carry over to the shoemaker in order to get shoes. You, as an apple-farmer, can hire workers before the crop is harvested, and therefore can grow more, and your workers can eat year-round instead of just getting a huge pile of apples at harvest-time to try and trade for for whatever they will need for the rest of the year.

So back to money...

The thing to remember is that all throughout, from the initial trade to this central-banking system, all of this money is debt. It is IOUs, except instead of being an IOU that says "Kancho_Ninja will give one bushel of apples to the bearer of this bond in October", it says "Anyone in town will give you anything worth one bushel of apples in trade."

The money is not an actual thing that you can eat or wear or build a house with, it's an IOU that is redeemable anywhere, for anything, from anyone. It is a promise to pay equivalent value at some time in the future, except the holder of the money can call on anybody at all to fulfill that promise-- they don't have to go back to the original promiser.

This is where it starts getting interesting, and where we can start to answer your question...

(for the sake of simplicity, let's stop calling these notes "apple certificates", and pretend that the village has decided to call them "Loddars").


So now you're still growing apples, but instead of trading them for deer-haunches and shoes, you trade them for Loddars. So far, so good.


Once again, you want some meat, except harvest time hasn't come yet so you don't have any Loddars to buy meat with. You call me up (cellphones have been invented in this newly-efficient economy), "Hey otherwiseyep, any chance you could kill me a deer and I'll give you ten Loddars for it at harvest-time?"


I say, "Jeez, I'd love to, but I really need all the cash I can get for every deer right now: my kid is out-growing shoes like crazy. Tell you what: if you can write me a promise to pay twelve Loddars in October, I can give that to the shoe-maker." You groan about the "interest rate" but agree.

Did a lightbulb just go off? You and I have once again created Money. Twelve loddars now exist in the town economy that have not been printed by the central bank. Counting all the money trading hands in the village, there are now (a) all the loddars that have ever been printed, plus (b) twelve more that you have promised to produce.

This is important to understand: I just spent money on shoes, which you spent on deer meat, that has never been printed. It's obviously not any of the banknotes that have already been issued, but it's definitely real money, because I traded it for new shoes, and you traded it for a dead deer.


Once you and I and others start to catch on that this is possible, that we can spend money that we don't have and that hasn't even been printed yet, it is entirely possible for a situation to arise where the total amount of money changing hand in the village vastly exceeds the number of loddars that have actually been printed. And this can happen without fraud or inflation or anything like that, and can be perfectly legitimate.


Now, what happens if another wildfire hits your orchard? Those twelve loddars are destroyed, they are gone, the shoe-maker is twelve loddars poorer, without spending it and without anyone else getting twelve loddars richer.

The money that bought your deer and my shoes has simply vanished from the economy, as though it never existed, despite the fact that it bought stuff with genuine economic utility and value.

[finasteridonline]

Sidebar on gold and gold-backed currency and stuff like that:

Because I said I would get to it...

The above pretend history of the pretend village is not how modern money actually came to be. In reality, things are much less sequential and happen much more contemporaneously without the "eureka!" moments. The above was a parable to illustrate how money works to a 5-year-old, not an actual history of how money emerged.

Until fairly recent times, paper money was not really very useful or practical for most purposes, especially if you wanted to spend money in a different village than where it was printed.

If we go back in time a period before ATMs, wire-transfers, widespread literacy, etc, then a piece of paper written in Timbuktu is not likely to get you very far in Kathmandu. You could take your apples and deer-haunches and shoes around with you to trade, but the earliest naturally-emerging currencies tend to be hard things that were rare and easily-identifiable (jewels, colored shells, etc), and they frequently coincided with the personal decorations of the rich, in a self-reinforcing feedback loop (people with a surplus of time and food could decorate themselves with pretty things, which became valuable as status symbols, which made them more valuable as decorations, which made them more valuable as barter objects, which made them more prestigious shows of wealth, etc).

Gold emerged as a sort of inevitable global currency, before people even thought of it as currency. It is rare, portable, easy to identify, can easily be made into jewelry, and can be easily quantified (unlike, say, jewels or seashells, which are harder to treat as a "substance"). Once word got around that rich people like it, it became easy to barter with anyone, anywhere, for anything.

In the early stages, it was not really the same thing as "money", it was just an easy thing to barter. But it had money-like characteristics:


If someone walked into your apple-orchard offering to trade a yellow rock for apples, you might look at them a little funny. What use does an apple-grower have for a yellow rock?


But if you know that rich people in town covet this soft yellow metal as something they can make jewelry out of, then you might be happy to trade apples for it.


Once everyone knows that rich people will trade for this stuff, it becomes something like actual currency: neither the hunter, the shoemaker, nor the fisherman in town has much use for it, but because they know they can redeem it for the stuff they do want and need, it becomes a sort of transferable IOU that can be redeemed anywhere, i.e., money.

The early history of paper money did not evolve the way I described in the earlier posts (although it could have, and would have got to the same place). Instead, the early history of paper money was certificates issued by storage-vaults of precious metals (i.e., early "banks"). Instead of carrying around yellow and silver rocks, you could deposit them somewhere and get a piece of paper entitling the holder to withdraw a certain quantity of gold or silver or whatever.

Pre-1934 dollars, like virtually all paper currency until fairly recently, could be redeemed for physical gold or silver at a Federal Reserve Bank, and dollars were only printed if the treasury had enough physical gold and silver to "pay off" the bearer with precious metals.

For a whole lot of reasons that are topics for another discussion, decisions were made that eventually led to the abandonment of the "gold standard" and now the dollar, like most modern currencies, is pure fiat paper: it's only "worth" whatever everyone agrees it is worth, and can only be "redeemed" by trading it to someone else for whatever they will give you for it. There are long, loud, and ongoing feuds over whether that was a good idea, and I'm not going to get into that here.
[haha I wish you would get into it.]

[finasteridonline]

"Gold" is not debt, "money" is debt (whatever it is made of).

In the example above, everything could have been exactly the same, except using certificates written on sharks instead of on paper.

Now, sharks have value, paper has value, and gold has value. When you print money, the stuff you make it out of has some utility separate from its use as currency. But when you are using it as currency (regardless of what it is made from), it is a marker for debt.

You go to work for an hour, your boss gives you a marker that you can trade for a cheeseburger or some gasoline or a ferret or cantaloupes, or whatever you want. That marker is an IOU for the work you did. You give it to the cantaloupe store, and it becomes an IOU for the value of one cantaloupe. They give it to the store employees or the cantaloupe-grower or whatever, and so on.

It doesn't matter what that marker is made out of, its function is the same. If it were gold, you could melt it down and make a ring out of it. If it's paper, you could use it as a bookmark or a shopping list or to blow your nose, if it's a shark you scare people with it in the pool.

N.B., this is totally separate from the question of whether we should be using gold as a currency, which has to do with the fact that the gold supply is a lot more stable than the paper supply, and whether being able to easily print more money on demand is a good thing or a bad thing.

[mynaflzak]

So to sum this up:

• Money is an IOU which is redeemable for something, which is credit
• Such money (credit) can disappear when the thing it represents can no longer feasibly provide the material goods which were originally promised.
• Charging interest provides near-term consumption at the expense of long-term obligations

[GfBTWMmV]

Money is interesting. Societal Calamity always occurs when something you have mentioned, "Credibility" gets a pummeling. Like the question of Gold Money, I'll elaborate in a moment.

I've been watching old episodes of M.A.S.H. I noticed a lot of things. 2 in particular stand out. 1 of those things was Money. In the Army you used to get Army Scrip. Army Money. You had to have this scrip to buy items on base. Local villages would accept Army Scrip, even if they weren't supposed to, because it was tradable with the GI Joes and with Hung Long Fo at the local bar.

In one episode the Army had decreed a new Scrip. I think it was Red Scrip to replace Blue Scrip or vice versa. There were counterfieters. Anyway Charlie decided he could offer $0.10 on the $1.00 to the villagers and then exchange those at 100cents on the $1.00 before the cut off.

Way way back in time, Americans worked on railway construction. They worked in big coal mines. These workers were paid Company Scrip. This Scrip could only be spent at Company Stores at Company Prices. It was at these places that we saw some of the worst violence against the average Joe in American History. Same thing happened in the UK, Australia, India, South Africa. People rioted because the Companies were stealing from the workers by manipulating the weights and measures of everything including the purchasing power of the comapny scrip.

We've seen this before. Women being "shipped" to new countries and then being forced to raise $30,000.00 in 4 weeks to pay the person who smuggled them to this new country. Then you have the slave trader, pimp setting the value of the prostitues labour at well below market rate, so they get more work, more money than that prostitute would be paying elsewhere.

The biggest problem with all of this is a thing called Fair Weights and Measures. The Government is responsible to ensure Fair Weights and Measures for everything. A short list might include:
The purchasing power of the currency
The amount of food in a can of food.
The amount of gasoline in a gallon or litre.
The scale used by a butcher or grocer.
The distance in a Mile or Kilometre

This goes back Credibility. This is why people get tangled up in the Government and Banking and Licencing. The reason is because if it is Government sanctioned, it is seen to be credible. The measure is going to be correct if it is Government sanctioned. The person with the licence can drive because it's Government sanctioned, even if not necessary.

This can ONLY be the case while the Government has credibility. We know from history that corporations, Government or otherwise will lie and cheat on everything they can, including Fair Weights and Measures. They can do this for many many years because they can fool enough of the people all of the time. In some cases, eventually the realisation occurs to the mass of Joes that they are being gipped and the Government starts to lose credibility.

The practise of issuing bills of exchange goes way back and usually occured mano a mano, however that changed as credibility was sought by each party in relation to the other. The Government lends the credibility and confidence to the parties to an exchange of bills. People always created their own debt but to give it credibility (and proifit) they shifted that task to Banks. Now people think banks lend money when they actually don't.

We know that Gold Money is succeptible to the scruplles of those who would cheat you by manipulating the fair weights and measures. We see the Government do that day in day out. Even the measure of criminality is abused in this way.

[comprar-espana]

http://www.nacrs.org/main.php?id=free_materials

Suggest Coin's Financial School e-book download at the above site.

[Nemerov]

http://www.nacrs.org/main.php?id=free_materials

Suggest Coin's Financial School e-book download at the above site.

Nice little book.

http://www.nacrs.org/docs/WilliamHarveyNACRS.pdf

[S.T.D.]

http://www.nacrs.org/main.php?id=free_materials

Suggest Coin's Financial School e-book download at the above site.

Thanks palani, good little book.

[tropicana]

Screech! Wait a sec.

Going back to the OP's story intro. Why is it presumed that the apple farmer borrowed against his future harvest?
If the farmer wanted something, why did he not just wait till the apples or grain or whatever were busheled up and then taken
into town to be converted into scrip or money that could be traded for other stuff.

In that case, money would not be credit/debt based at all, but represent the actual value of a quantity of apples,
although I'm not sure how that value would be determined.

[mynaflzak]

Screech! Wait a sec.

Going back to the OP's story intro. Why is it presumed that the apple farmer borrowed against his future harvest?
If the farmer wanted something, why did he not just wait till the apples or grain or whatever were busheled up and then taken
into town to be converted into scrip or money that could be traded for other stuff.

In that case, money would not be credit/debt based at all, but represent the actual value of a quantity of apples,
although I'm not sure how that value would be determined.

Two things. First of all, apples are only available at harvest. In that system he could only buy things once a year, because his apples have a limited shelf life.

Second, even if he did have the apples on hand, it's still credit. If you take the note to him, how do you know the apples will still be there? How do you know they will be as advertised? How do you know he will honor the note even if he's got the apples?

[pupyississido]

Where is all the money? The short answer is, in the computer memory chips. It's digital for the most part.

This quote from the linked book is interesting. It could almost apply today.

Hard times are with us ;
the country is distracted ;
very few things are marketable at a price above the costof production ;
tens of thousands are out of employment ;
the jails, penitentiaries, workhouses and insane asylums are full ;
the gold reserve at Washington is sinking ;
the government is running at a loss with a deficit in everydepartment ;
a huge debt hangs like an appalling cloud over the country ;
taxes have assumed the importance of a mortgage, and 50 per cent of the public revenues are likely to go delinquent ;
hungered and half-starved men are banding into armies and marching toward Washington ;
the cry of distress is heard on every hand ;
business is paralyzed ; commerce is at a standstill ;
riots and strikes prevail throughout the land ;
schemes to remedy our ills when put into execution are smashed like box-cars in a railroad wreck, and Wall street looks in vain for an excuse to account for the failure of prosperityto return since the repeal of the silver purchase act.

[comprar-espana]

As to where the money has gone ... creation of money is based upon borrowing. You create the money for your $200,000 home by signing a document stating you are planning on repaying the loan. What you don't create is the interest required to service the loan. The money for the interest must come from some outside source and everyone with loans compete for an ever dwindling supply of money guarantees that the surplus money will vanish.

[Nemerov]

As to where the money has gone ... creation of money is based upon borrowing. You create the money for your $200,000 home by signing a document stating you are planning on repaying the loan. What you don't create is the interest required to service the loan. The money for the interest must come from some outside source and everyone with loans compete for an ever dwindling supply of money guarantees that the surplus money will vanish.

The money to pay the interest is INCLUDED in the original loan amount, because the bankster spends that money back into the economy.

The interest money is recycled more than once.

[comprar-espana]

The money to pay the interest is INCLUDED in the original loan amount, because the bankster spends that money back into the economy.

The interest money is recycled more than once.

That is not the way the 1099OID people have the system figured out. Bankers may handle money but they don't create it and (other than salaries and bricks and mortar) they really don't spend a lot.

If what you are suggesting is true then there is no defect by design and everything is proceeding as intended.

[Nemerov]

That is not the way the 1099OID people have the system figured out. Bankers may handle money but they don't create it and (other than salaries and bricks and mortar) they really don't spend a lot.

If what you are suggesting is true then there is no defect by design and everything is proceeding as intended.

There is no law requiting bankers to spend the interest money they collect. They do withhold spending to create deflation when that is what they want.

What I'm saying is the system works perfectly well, but there are people who can't understand that money is a thing and spending is an action done using money.

You may be confusing that part of every payment goes towards paying a portion of the principal and in the case of expanded checkbook money that portion is erased off of the bankers ledger (goes back to money heaven). However the interest portion stays in the system because the banker spends it.

As far as your note that bankers don't spend much, you must not have looked at the figures for their donations to O'Bomney.

[tropicana]

Two things. First of all, apples are only available at harvest. In that system he could only buy things once a year, because his apples have a limited shelf life.

Second, even if he did have the apples on hand, it's still credit. If you take the note to him, how do you know the apples will still be there? How do you know they will be as advertised? How do you know he will honor the note even if he's got the apples?

Ok, good points, but in the first instance, apples can be stored easily. Hell, even tomato's can be stored. They do have a limited shelf life though, like all perishables, so that would require that the money being used to represent the perishables also have a limited time/value attached. Each money unit would have to be spent within a given period of time.

Second, the apple farmer would take his produce, fresh, cold stored or dried to the store and exchange it for money, just as the hunter would take his venison to the store to be converted to money as well. No debt. No credit. Just fair exchange.

Anyway, I'm just imagining how money "might" be used without it inevitably becoming a debt instrument.

It seems to me that money disappears as a consequence of a peoples inability to produce goods to exchange with one another.

That apple orchard that my Grandfather planted 100 years ago got turned into a Highway and a County Landfill.
My father got a deduction on his property taxes and I got this T-shirt that says, "made in Taiwan."

[mynaflzak]

Second, the apple farmer would take his produce, fresh, cold stored or dried to the store and exchange it for money, just as the hunter would take his venison to the store to be converted to money as well. No debt. No credit. Just fair exchange.

In this case the money is based off of the credit of the government instead of the individuals. "If you don't hold it, you don't own it"....if you trade it for paper then you are entrusting someone else to hold it and the note is trusted to be redeemable for the object.

[tropicana]

In this case the money is based off of the credit of the government instead of the individuals. "If you don't hold it, you don't own it"....if you trade it for paper then you are entrusting someone else to hold it and the note is trusted to be redeemable for the object.

Maybe, though I'm not sure that the words credit and credible can be used interchangeably to mean the same thing like that.

But anyway, gold as opposed to paper has a perceived value as well, doesn't it? It's value being determined by the elite aristocracy or government, as is always the case.

Unless, the store is free to compete with the official coin of the realm.

Ah, WTF... I'm yammering out my ass. Sorry. Over my head.

[strollerssfsfs]

There is no law requiting bankers to spend the interest money they collect. They do withhold spending to create deflation when that is what they want.

What I'm saying is the system works perfectly well, but there are people who can't understand that money is a thing and spending is an action done using money.

You may be confusing that every part of a payment goes towards paying a portion of the principal and in the case of expanded checkbook money that portion is erased off of the bankers ledger (goes back to money heaven). However the interest portion stays in the system because the banker spends it.

As far as your note that bankers don't spend much, you must not have looked at the figures for their donations to O'Bomney.

BigJohn--you might want to check out this simple little story:

http://whatreallyhappened.com/WRHART...11thmarble.php

What Palani is referring to is that the bankers never create the money that is paid to them as interest. They only 'create' the principal. The amount of money in circulation is the unrepaid principal. The money owed as debt is the unrepaid principal plus the interest, Total debt therefore exceeds the money supply by the amount of interest owed. That excess is 'unpayable debt'. It cannot shrink. It can only grow. The system therefore prescribes and predicts its own doom. The only question is when that doom will be apparent to everyone. Get a leg up and be one of the early comprehenders of this 'slippery' bit of logic. The bankers know this, and they are trying to put the collapse of the whole system off for just a little while longer with 'bailouts'.


Hatha

[Nemerov]

BigJohn--you might want to check out this simple little story

http://whatreallyhappened.com/WRHART...11thmarble.php

What Palani is referring to is that the bankers never create the money that is paid to them as interest. They only 'create' the principal. The amount of money in circulation is the unrepaid principal. The money owed as debt is the unrepaid principal plus the interest, Total debt therefore exceeds the money supply by the amount of interest owed. That excess is 'unpayable debt'. It cannot shrink. It can only grow. The system therefore prescribes and predicts its own doom. The only question is when that doom will be apparent to everyone. Get a leg up and be one of the early comprehenders of this 'slippery' bit of logic. The bankers know this, and they are trying to put the collapse of the whole system off for just a little while longer.


Hatha

WRONG, WRONG, WRONG ARRRGGGHHH!!!

You just don't get it, do you.

There is no need to create any money besides the money for the loan.

When the banker spends the interest where does it go?


People can and do use false explanations that don't model how the repayment process works in our banking system.

For instance it is impossible to pay off a 100 dollar loan at 10 percent interest with only one payment and only 100 dollars in the system

but it is quite easy to structure the loan repayment into 11 payments of 10 dollars each with the banker spending his 1 dollar interest after each payment.