You’re confusing stocks (such as the stock of debt) and flows (including payments), a common mistake. Every expenditure is another person’s income. Money is spent multiple times around the economy, and some agencies try to measure how quickly it happens, which is what the velocity of money is, and the concept of the fiscal multiplier comes into this.
If the economy is growing, it is true that continual money creation is required to stop deflation, but a lot of people don’t realise to what extent because it isn’t commonly known that not only can the Government create money, but that in fact all bank lending does and is expansionary .
The “fractional reserve” model implies incorrect ideas of how banks work - either as intermediaries between depositors and borrowers, or implying the “money multiplier” model of credit creation. Those are not the case in the real world. The actual model is often called “endogenous money”.
As I said, the confusion many people have is that it is correct that bank reserves are a fraction of the bank’s assets, so the name “fractional reserve” would intuitively seem correct.
This is a good description of how they actually work from the UK’s central bank: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
>> "...a global currency that was untethered from government corruption (printing)..."
This is your friendly weekly reminder that the government does not print money in almost all countries, with a very few interesting exceptions.
Money is instead created by ordinary privately-owned commercial banks, or by consortiums of privately-owned commercial banks aka the owners of central banks .
The spirit of the parent's point stands, which is of course that somebody is ripping you off. But that somebody is manifestly not a government.
See the key quote in bold on the first page: "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money."
OK, so if each individual retail bank only lends out pre-existing, deposited funds, where does the increase in the money supply come from? Bear in mind that money created as a by-product of bank lending makes up the vast majority of the total money supply in various modern economies (97% in the UK ).
>> "They're still loaning out deposits, though."
I'm not the GP here but his point is that actually the bank in general does not loan out deposits.
Instead, the bank creates money at the moment a counterparty agrees to borrow it (in countries with a certain type of financial system, aka most countries today, with some interesting exceptions).
The name for an institution that loans out deposits is "credit union," but most people think that's what a bank does.
Most people are very surprised by this claim that ordinary banks create money, and deny it when you tell them. But really there's no coverup of this fact, it's written e.g. literally on the websites of most central banks such as e.g. , wherein the critical passage (in boldface on the first page) is:
"Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money."
This seems unjust to most people, since in our daily experience, money is not a thing which is very commonly created. I take no position on that alleged injustice here, and instead leave it as an exercise for the reader to reason out the consequences of a private-bankers-printing-money themed financial system (of which consequences there are many) and to ponder the identities of the people doing most of the printing.
 Sometimes it actually does turn out that a bank loans out a deposit, as the GP mentions, but this is by construction a small fraction of bank business.
> If a bank has insufficient deposits, it can't lend any more money.
That's not actually true, banks effectively create money when making a loan, and the only constraints on this are the interest rate set by the central bank, which affects both demand for credit and the cost of providing it, and liquidity requirements set by legislation.
If you want a good overview of how money works overall this PDF from the Bank of England is pretty approachable:
There are a lot of misconceptions about money around, many based on older ideas of physical or commodity-backed currencies.
> you’d get no sympathy if you buried yourself in debt to buy a Tesla and then didn’t pay off the principle for years.
Banks get to create the principal that they loan out of thin air, lend it at ridiculous interest rates to students and have it guaranteed by tax money...they do not have my sympathy!
Risk usually dictates interest rates. Meaning that there must be a chance for you to lose the money, but that is not the case with most student loans. Yet they still charge high interest rates.
It is criminal that zero-interest (or near zero) loans are not available for students from the government. I am fine with hounding them for life the principal and even not letting them discharge it with bankruptcy, but the interest is practically evil considering the banks take no risk at all.
There is literally nothing we can invest our tax money in that will return bigger gains than education and healthcare.
It’s worth noting that ‘fractional reserve’ isn’t really how banks work anymore. That model implies that banks require reserves to lend money, but they actually don’t (except in the countries that have a reserve requirement, for compliance reasons). The central bank does need to ensure that enough reserves exist in the system to have enough liquidity for banks to transfer money between them, but the banks tend to hold as little as possible, as in most places they don’t get any return on them, so they lend them to other banks (banks cannot lend reserves to individuals) or exchange them for bonds. If they need more to fulfil transfer requirements, they can just borrow them from other banks or the ‘lender of last resort’ - the central bank itself.
The interesting implication of this is that the central bank doesn’t really have direct control of the size of the money supply (as is implied by the ‘money multiplier’ myth). That is determined endogenously by the amount of lending the banks do (plus other sector’s - Government spending and current account surplus/deficit - contributions).
This Bank of England (UK central bank) paper explains how the banks originate money - https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...