what happens when everyone in the forum distributes all of their Smerits? Because, as a result of this process, the Smerits will one day be exhausted by everyone. But the merit distribution system continues to function; how is this possible?
The forum has more than 3.5M users, from which more than 100.000 are active. Even without taking merit sources into consideration, the chance for all the forum users to run out of sMerits is extremely low. You'd probably have more chances to win the lottery than to see all forum users remaining without sMerits. Each time you will post a quality material, be sure you will receive merits. So if you will keep being a good forum contributor, don't worry, your sMerits stash will not get to 0 or, even if it gets to 0, it won't keep that value for a long time.
At same time, the current 100+ merit sources have a distribution of 30.000 merits each month. This means from start a creation of at least 15.000 sMerits each month. And this amount, combined with all the other existent sMerits makes the situation asked by OP to be highly unrealistic.