From theoildrum.com

From some discussion about something by someone...

We are living in 'The Bad Loan Universe'.

In the good loan universe, loans are repaid and the 'money supply component'
of lending disappears as a part of the process of repayment. In a well-
managed fiat system there is never more credit issued than is demanded by
productivity. Productivity in the good loan universe as measured in a
transparent and equitable way. The rate of return or earnings on money lent is
productive only as it produces value to the original borrower.

In the Bad Loan Universe, laundered credit is considered capital and the
resulting inflation is considered productivity. Here, currency exchange is
imbalanced and surpluses are loaned against creating even greater money supply
and allowing even more bad loans, since there is always more currency than
there are good investment opportunities. The flood of cheap money encourages
consumption over investment. Loans eventually fall into arrears, consequently,
they never disappear from the creditors' books. The money supply component
created with each original loan remains. At the same time, the additional
money supply component created to rescue the lenders from bankruptcy or to
service the currency imbalances are added to the swelling total of unpayable
loans. It's the worst of all possible universes; the money supply expands
exponentially while the created credit always remains attached like a leach to
the original lenders' balance sheets ... and their foolish successors'.

At the center of The Bad Loan Universe this successor dwells, that bloated,
feverish black hole of zombie credit, 'The Federal Reserve Bank'. It swells
with bad loans that never disappear, but requiring nevertheless more and more
interest from the surrounding productive universes. The more bad loans it
swallows, the more bad loans it propagates, since all loans that fall into its
ambit become tainted by the ralationship and considered 'bad'. 'Sound' planets
and nebulae become insolvent in a matter of days, weeks or ... hours, ss their
borrowed collateral is rendered equally suspect as that actually within The
Bad Loan Universe.

The story has an unhappy ending, I'm afraid ... so I won't tell it. You have
to use your imagination.

A new universe of good loans will soon arise from the radioactive plasma left
behind by the vaporization of The Bad Loan Universe. If its inhabitants are
clever, it may have several different money supplies, that accurately measure
and service the different social functions that will require finance. There
should be a 'basis' money that values resources and rewards husbandry. A good
loan universe would have a free exchange of different currencies while keeping
enough separation between them so that problems with one don't infect the
others. In the Niewe Good Loan Universe, currency imbalances are quickly
rectified by entities buying and selling reserves and monitoring exchange
rates, rather than lending against accumulated foreign currency reserves.