Suppose that a consumer has access to a credit card having the following properties:
- The credit card agreement includes a "cash back" rewards program. The consumer receives 1% cash back with every purchase.
- Additionally, the credit card company does not charge any interest on credit-card-loan so long as as the consumer pays their full balance each month. Interest is charged if the consumer fails to pay the full balance.
What prevents people from buying things, selling those things, and re-buying, in a kind of endless loop?
For example, suppose that:
- The consumer uses a credit card to buy $1,000 worth of gold bars.
- The credit card company then pays the consumer $10 as part of the 1% cash back program.
- The consumer then sells the gold bars for $1,000.
- The consumer pays the full-balance owed to the credit card company.
- The consumer first lost $1,000, then gained $1,000, but received a $10 profit as part of the 1% cash back program.
- The consumer repeats this process until they earn a nice annual salary built entirely from 1% cash back rewards.