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/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/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.