Re: I just created 100 pennies.. and loaned them out, you owe me 101 pennies…..
Change the 100 pennies to 100 trillion pennies, same principle applies
Velocity of money has nothing to do with money creation. You move a dollar one million times between your left pocket and your right pocket, and voila you are now a millionaire
You are missing the point which is that money doesn't have to be held permanently to pay debts. In the same year, I can borrow $100 to buy food, and the company that I bought the food from can put that money in the bank to fund more loans. The borrower of that money can in turn buy a product from my employer, the employer can pay me with the profit and I can use that money to pay my debt.
The amount of debt, income and expenditure in an economy is not limited to the amount of currency in circulation. If there are only 100 pennies in circulation, that doesn't necessarily mean that a debt of $10 is going to default.
Let's make some real calculation: Each month, you borrow $100 to buy food, and those $100 goes to the food company as income, and food company put $100 to bank, and bank loan out $90 (10% reserve requirement) to another borrower, he spend all $90 to buy products from your employer, your employer have $90 income, and he is so generous and gives you all $90 as salary. So, how could you payback your $100 loan with $90 salary at the end of the month?
This is an ideal situation that there is no friction and cost during the cycle, and it has not involved interest yet, just a simple trace of your $100 loan. You can see that you will never be able to make the ends meet. Similarly, the society as a whole can not earn more money than it spent, unless the money supply increases constantly, and money supply can only be increased by adding more debt nowadays