I first give you back 50 pennies.  I now owe you still 51 pennies.  You spend those 50 pennies back in my place against GOODS AND SERVICES.  Now I have again 100 pennies, I owe you 51 pennies.  I pay them to you.  I still have 49 pennies, and my debt to you has been resolved.

The point is that one shouldn't confuse money quantity and money flux.  A debt implies a money FLUX.  That flux can be paid for with a smaller amount of existing money, on the idea that the money is spend more than once (the velocity of money is greater than 1).

This is what makes interest no more a problem than the production of goods and services.

What actually happened was that you obtained goods and services in return for a money flux.

Indeed, you could turn the false problem in an equivalent story where the idiocy is evident:

Suppose that there are only 100 pennies in circulation, and that there are goods and services sold for more than 100 pennies.  How could these goods and services ever be bought then ?  Won't the limited amount of money stall the economy ?

The answer is in fact the same: the amount of goods and services sold, is sold against money FLUXES.  The total amount of integrated money flux can be larger than the total amount of money in circulation.  The ratio is exactly the "velocity of money".

If there are only 2 pennies in circulation, we can nevertheless exchange 100 eggs (a penny each) against 50 apples (2 pennies each).

Indeed, I have 2 pennies.  I buy an apple from you.  Now you have 2 pennies.  You buy two eggs from me.  Now I have again 2 pennies and an apple, and you have 2 eggs.
Repeat: I buy again an apple from you.  You buy two eggs from me.  I buy an apple from you.  You buy two eggs from me.
Repeat still 47 times.

We have in total sold 100 eggs and 50 apples (worth 200 pennies) with only 2 pennies in circulation.  The velocity of money was 100.

Interest on a loan is paid in exactly the same way.



(the funny thing is that part of Keynesianism is based upon that same idiocy).