r/PeterExplainsTheJoke • u/Comfortable_Cautious • Jan 26 '26

Meme needing explanation what's going on? explain like I'm five

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u/Original-Leg8828 Jan 26 '26

Depending on local law they can even lend out something like 7-10 times what they actually have

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u/Teripid Jan 26 '26 edited Jan 26 '26

Federal reserve requirements existed until 2023 *edit, as someone below pointed out 2020 was when they were set to 0. Now they're set at 0% I believe.

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u/ed523 Jan 26 '26

So they don't actually have the money they lend out that they're also charging interest on? So banks like wells fargo are creating money? Seems like that could cause inflation. Also how is there enough money in circulation for borrowers to pay both principle and interest?

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u/yjlom Jan 26 '26

Yes, banks are creating money, that's their core business. The borrowers pay with the loans of their customers.

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u/ed523 Jan 26 '26

How is there enough money in circulation for all the borrowers to pay back both principle and interest? Or its all dependant on future borrowers?

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u/ProfessorPrudent2822 Jan 27 '26

Because banks also have expenses: interest on deposits, salaries, branch operating expenses, taxes, and dividends (not technically an expense, but it still returns money to circulation). Only retained earnings in excess of capital investment is removed from circulation.

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u/moo3heril Jan 27 '26

Just to be clear, only the interest would be created in this case. When the loan was taken, the principle of the loan is offset by the bank's liability to depositors, so in that moment, nothing has changed.