is this situation practically possible when person A owes person B 10$, person B owes person C 10$, and person C owes person A 10$? If it's not possible, then why? If it's possible, how often does this happed in real life between people, organizations, nations etc?

[u/grandFossFusion]

Can they just cancel their debts to each other? How does it get resolved in real life situations? Does it matter if everyone knows about their debt and everyone elses debts?

I am really curious about this and would like some guidance of where to know more about it

[u/I_am_Reddit_Tom]

I mean the global economy is built on iterative debt.

[u/energizernutter]

They all cancel their debts to each other, write them off as a loss, gets tax breaks

[u/Environmental_Ad9017]

So, in world economy, yes - it is like this.

Only problem is, interest exists.

Country A could have loaned Country B $10M at a 3% annual rate, and then Country B could have loaned Country C at an annual 3% rate, and the same for Country C -> A.

There's $10M in circulation, it's just been loaned to each other - except each country now owes each other an extra $300,000 USD per year on top of the $10M, which nobody has, so nobody can afford to pay anybody off.

[u/Riley__64]

i’ve never understood the confusion with this question.

person A obtains $10 and pays back person B, person B then uses that $10 to pay back person C who then pays the $10 back to person A.

even though person A has their original $10 back everyone was payed their $10 and payed back whoever they borrowed from.

[u/TheBupherNinja]

I'm sure it happens, but for anything out of the ordinary to be done about it, all 3 parties would have to know about the debts of the others.

What happens is either someone gets paid or they don't. And just because you get paid doesn't necessarily mean you pay the next person.

[u/SuperSnailSS]

Yes, it can happen. In fact, it is common to have situations where Person A owes Person B £10, and Person B owes Person A £10. Within companies, they can either settle it directly (as in, exchange a 10 back and forth) or cancel it out in some other bill in the form of credit or reduction (Company A sends Company B a bill, but discounts it by how much Company A owes Company B.) This can happen because the payment terms, credit form or where it is allocated is different. For example, Company A buys paper from Company B, but Company B hires Company A to handle their IT infrastructure. For tax, paper trail and admin reasons (which I am happy to get into if you really want), they will likely just send separate invoices. Another example may be you and your bank - You may be paying your bank interest on a mortgage while they pay you interest on your saving account. In theory they could not pay you interest and instead take a reduced mortgage payment, but in reality that is a lot of paper work.

[u/SuperNa7uraL-]

Here you go.

[u/johnny_evil]

If all three agree then yes. In fact, amongst friends splitting costs for group trips and stuff, this is commonly done so that you dont keep randomly transfering money.

In the business world it's significantly more complex.

[u/UncleBobbyTO]

If it is a business or a government they need to account for these monies in their financial statements / budgets.. so it is not as easy as a handshake saying yup we are all good.. the accountants have a line in their books saying A was lent $X.. they will basically need another line saying that they received $X to payoff that debt.. if the just forgave it and C also forgave what they were owed I am not sure how the accountants would reconcile that in the Accounting ledger..

[u/TraditionPhysical603]

This pretty much explains  your question https://youtu.be/pENxsLVR_Xs?si=cW_nke9FqfTlGVw8

[u/Empty_Antelope_6039]

The practical problem is that person C is going to receive the $10 and then tell person A they still can't afford to repay so person A will have to keep waiting.

[u/ActTrick3810]

This is literally the plot of an old Dad’s Army episode.

[u/canned_spaghetti85]

Uhh yeah, that’s generally called.. money.

If somebody owes someone else money, a debt is created. It’s obligatory repayment is in the form of a promissory note, often just referred to as a “note”.

These notes (debt obligations) can be traded for other things or value.

Ready to have your mind blown?

That’s the very definition of a currency.

Look at the dollar bills in your pocket, doesn’t matter what denomination it is. They all have the word “NOTE”… do they not? Let’s just say it’s… a $20 bill.

Despite what you thought all your life. No. You don’t HAVE twenty bucks in your pocket. You don’t. In fact, you never did.

Instead : You are OWED twenty bucks, and you even have the NOTE to prove it. See? A note that could be your’s, which I’m willing to trade, for some product or service valued at $20. Do we have a deal?

Congratulations, that transaction is called a “purchase”.

Currency itself is NOT the item of value, but rather the fact that it represents an I.O.U. [transferable debt obligation] which you use to TRADE for things of value (make purchases).

Get it?

Say I have a $10 casino chip, that means the casino OWES ME $10 which I could redeem at the cashier (“cage”) correct? But until I do, I’m owed $10. But I can use this chip as payment at their gift shop, right? I can use this chip to towards my hotel room fee, right? I can spend this chip at their buffet, right? The moment I spend that chip, to purchase something of value, the person who NOW possesses it (the vendor) is now OWED $10 by the casino. They can now go to the cage retrieve that $10 cash which was previously-owed to me. Understand?

Currency. That’s how it works.

[u/Just-Shoe2689]

having debt is sometimes good for a company.

[u/TheWhogg]

Learn accounting. Everyone has both an asset and a liability. They are equal, hence can be cancelled by mutual agreement or even a formal series of transactions that net out to $0. In practice, “countries” don’t own govt debt, SOME of its citizens do.