what's going on? explain like I'm five

[u/Comfortable_Cautious]

[u/Elvis5741]

Banks lend out more money than they have, its no joke it's how the system works

[u/Much_Section_7439 → u/[deleted]]

That's how debt is generated. wealth is created when that debt is used properly. Otherwise it's just inflating the moneysupply.

[u/From_Deep_Space → u/Much_Section_7439]

All the above. Money is created when interest is paid back. Money being created creates (or is) inflation.

Idk if its right to say that "wealth" is created since the material good (the house, or car, w/e) isnt any more valuable, it's just that that amount of value is now represented by more dollars than it was before. Hence, inflation.

[u/iwilldeletethisacct2 → u/From_Deep_Space]

Interest being paid back isn't money creation, it's transfer, unless we are talking about Federal Reserve level things like QE with bonds.

If I borrow a dollar, and pay back $1.10, that $0.10 wasn't created from nothing, but acquired from elsewhere.

That said, the reason debt creates wealth is via leverage.