Technically the FED is the only one who creates new money. I'll call this real money. Banks however do create money through the low reserve requirements by the FED.
Say you take out a loan at your friends bank and buy a house for say 200k, this money is newly created by the FED. I'll call this real money. You pay the builder, the builder deposits the money back into the bank.
The bank can now loan out 180k of that deposit by the builder while still maintaining its FED reserve requirements. The bank have for all pratical purposes just created 180k because the only limit on how many times that same real money can be loaned out is the FED reserve requirement. I'll call this bank created by DEBT, fake money.
Now this is where the problem with interest comes in. Do you see anywhere where the extra money need to repay this debt interest has been created? Remember that over time this interest expense will compound. Say it is a 30 year loan. The interest expense will exceed the money created for this loan in 30 years.
This concentrates wealth into the banking system through the interest charged on the fake money. But that wealth that has been concentrated is not real, because the money needed to pay back the loans with interest was never created.
This creates a cycle of boom and bust. The boom comes as real new money is created and then magified by a factor of about 10 into the economy through the banking system creation of fake money
The bust comes when that debt load can not be paid back because the interest money needed to pay it back was never created. The debt must be forgiven because of the interest effect. There are only two ways under this system debt is forgiven. Bankruptcy and inflation.
This is a link from Idaho State economics class that explaines in detail how banks magnify/create money.
News 
Market Data 
Discover 
AI
