The Infinite Debt Trap

Suppose now that pebble beach does not contain 1,000 pebbles only, but an unlimited amount of pebbles, and, yes: those 99 people are going to scrape together those additional 99 pebbles by borrowing them from that very pebble beach owner. Who will be more than happy to loan them. At interest: 10%.

So the 99 people have borrowed 990 pebbles, then have returned 1,089 pebbles, and still owe 9.9 pebbles that, again, do not exist: even if they exist in pebble beach, they do not exist in their hands. How are they going to scrape them together in order to return them?

Welcome to the trap of the infinite debt mechanism. But this is just its first and most primitive form. The best is definitely yet to come.

Suppose the pebble beach owner is not going to ask his 990 pebbles back: he will content himself with the interest, for now. How kind of him: those 990 pebbles remain into the hands of the 99 people so they can go on using them for their deals; they only have to return him 99 pebbles every unit of time that goes by. Sort of rent.

This means that after ten units of time they find themselves in the following situation: they have returned him 990 pebbles of interest/rent, they are left without any more pebbles, but they still owe him 990 pebbles.

But they need those pebbles to deal with one another, so let’s see… they borrow 990 pebbles, after the first unit of time they have to return 99 pebbles of interest, and they want to keep on having 990 pebbles in their hands… they have to borrow those additional 99 pebbles to return, at 10% interest. So after the second unit of time this is the situation: they still have 990 pebbles in their hands but they have borrowed 1,089 pebbles, and now they owe a 10% interest on 1,089 pebbles: 108.9 pebbles. So to pay that interest while keeping the 990 pebbles now they borrow 108.9 more pebbles at 10% interest. So after the third unit of time this is the situation: they still have 990 pebbles in their hands but they have borrowed 1,197.9 pebbles, and now they owe a 10% interest on 1,197.9 pebbles: 119.79 pebbles. I know these are stark figures but… do I need to say more?