The financial system is made intentionally complicated to obscure the simple fact that businesses use new loan money to pay for their old loans. The critical p

The financial system is made intentionally complicated to obscure the simple fact that businesses use new loan money to pay for their old loans. The critical piece of information which is omitted is that the activities of the businesses through which money flows doesn't actually matter. This becomes obvious when you consider that: - All new money enters the economy as bank loans. - The total amount of money in circulation in the economy always goes up every year as inflation (only some years it goes up faster than other years). - The inflation rate is higher than the interest rate. Clearly, the inflation rate is sufficient to cover the interest rate. Think about it: 2% inflation rate means that the total money supply in existence increased by AT LEAST 2% over the cost of a year. If there was $1000 in the economy at the beginning, it means that at the end of the year, there would be $1020 in the economy. Now imagine that you are a bank and at the beginning of the year, there is $1000 in total in the economy and you print $100 out of thin air and loan it out to people at 1% interest rate. After you do that, the economy will have $1100 in circulation. $100 of this amount, people will have to pay back to you PLUS 1% interest rate per year. Throughout the year, you make more loans into the economy such that the inflation ends u being 2%. So for that year, it means that you injected AT LEAST $20 of new money in the economy as loans. OK o at the end of the year, your borrowers need to pay you back $10 in interest (for simplicity, we will assume that the minimum repayment is interest only). But remember, you (as the bank) injected $20 of new money into the economy that year... So if your borrowers managed to extract just half of that new money from the economy, they will be able to meet their loan repayment for that year and still make $10 profit on top! Note that the borrowers don't need to work or deliver any real economic value in order to get their hands on that newly created money, they just need to setup some intermediaries to take out new loans each year then forward the money to them through any make-believe business activity. It does not matter if the intermediaries go bankrupt later; new intermediaries can constantly be created. From the perspective of the borrower, intermediaries don't even have to be directly controlled by you. If they can be fooled or coerced into taking out loans from the bank and paying you at least $10 of what they borrowed - In an expansionary monetary environment, that's all you need to be profitable.