This has been tried in the past by users that were attempting to grow sock puppet accounts by 'seeding' a few with some 'organic' reputation from a real account. It's usually done in an attempt to get a few new accounts enough reputation to be 'useful' sock puppets. Using the bounty system like this just shuffles reputation around, the initial 'deposit' if you will is never really grown.
It's also the most completely asinine way someone who has studied the system in an attempt to do this could possibly go about it, and is always detected. If the thousands of eyes watching the site at any given time don't pick up on it, irregular voting patterns and (as others have mentioned) recently awarded bounty reports quickly show the circular activity.
The somewhat more clever, yet still asinine way is to abuse the association bonus by growing accounts on other sites and using bounties to try and transfer the 'free' rep to other accounts. And yes, this is detected in exactly the same way, and quite easily reversed.
In short, yes, there are very short term loopholes where someone might 'win' by managing to shuffle rep around, or continue to transfer 'free' rep from associated accounts, but the amount of time that anyone would enjoy this net gain is typically measured in hours.
To give you an idea of how easy this is to spot, most instances of it are spotted by users that don't have access to diamond moderator tools. It's something I really don't recommend anyone try :)