[cx01]

If there is only $100 in the economy, I can still owe you $105. To pay it back, I could start working for you and be paid $1 per hour. Now everytime you pay me $1, I would pay you back this dollar until my debt is zero.

In the real-world, with more than two persons, it would look more like this: I pay you back some amount of the debt, you spend this money and it propagates through the economy, until some part of it reaches me (in the form of a wage), so that I can use it to pay back more of the debt.

[stonemetal]

So you are saying the money pool expands at the rate in which the Federal Reserve spends money, and contracts at the rate it loans money?

[cx01]

No, I wanted to point out that the total amount of debt can be larger than the total amount of (physical) money.

[stonemetal]

I realize that the amount of debt can be larger than the total amount of money. In fact given every dollar in existence is on loan from the federal reserve the total amount of debt will always be higher than the total number of dollars in the system by design. The question is, how does the system not implode under the massive amount of debt that is ever increasing?

[cx01]

I found the following article: http://hiwaay.net/~becraft/FRS-myth.htm#hd25

Apparently the Fed's revenue is not 'destroyed' but transferred to the Treasury.