Not every loan is a consumer loan, but every unit of currency in circulation is from a loan (which ultimately traces back to the central bank).

Copy-paste from a post I made a couple of weeks back on exactly this topic:

Value is not the same thing as money.

People confusing the two is why this scheme is so insidious, I think.

Value can be created independently, yes. Every time you do any kind of productive work, you are creating value. In fact, that's the only way to create real value; every other form derives from that.

But that is not true for money. Money - physical or electronic currency - is created (put into circulation) only by means of taking out a loan. That is the only way, to the best of my knowledge. This wasn't always the case, but it is now in all but a handful of countries (which we tend to keep going to war against, incidentally... In order to spread the blessing of democracy, naturally. We just happen to also set up central banks while we're there cause we're nice like that... but I digress).

Consider this analogy/model, and let me know if you see any flaws or I am overlooking something:

Imagine you are the central bank. In front of you is a bowl. It represents "the economy" of a country. You have a magic marble pouch which never becomes empty, no matter how many marbles you take out. A marble is a unit of currency.

There are certain rules that govern when and how many marbles you can take out. But we won't bother with the details here because they don't have an effect on the point of this model. Regardless, under the right conditions, you can always pull more marbles out on demand.

When you place marbles into the bowl, you are giving out a loan. This adds currency into circulation. Being a loan, you'll want all the marbles back. Plus interest. For simplicity, let's say loans are always 5 marbles and interest is always 1 marble. So, for every 5 marbles you add to the bowl, you'll want to take 6 out eventually. Again, the details don't change anything as long as you want more back than you put in.

We track four numbers:

• Circulation: How many marbles are in the bowl
• Owed: How many marbles you want back eventually
• Deficit: Flat difference between Owed and in Circulation
• Pressure: Difficulty of repaying a loan, quantified as the percentage by which Owed exceeds Circulation (P = D/C)

Let's kick it off by giving out 3 loans (so 5 marbles each, where you'll want 6 each back):

C = 15; O = 18; D = 3; P = 20.0%

You can stir the bowl, if you like, to simulate people working and currency moving around... but you'll soon realize that doesn't change anything. You can imagine the stirring as adding "value" to each marble, thanks to the work being done. But no matter how much you stir, there's still 15 marbles in the bowl. And you still want 18 back, 3 of which don't exist.

Let's say someone worked hard and one of the loans gets paid back (5 + 1 marbles return to you, C and O go down by 6):

C = 9; O = 12; D = 3; P = 33.3%

The Deficit hasn't changed. But it has gotten much larger compared to Circulation, so Pressure has increased. It will be much harder for someone to make enough to pay back 6.

Let's give out another loan to help them out:

C = 14; O = 18; D = 4; P = 28.6%

Oops, the Deficit went up. They Owe you as much as when we started, but there's less in Circulation so Pressure is still higher than before.

Let's try helping them again:

C = 19; O = 24; D = 5; P = 26.3%

Well, the Deficit is higher than ever... there's also more than ever in Circulation (inflation), but the Pressure still hasn't returned to the starting point. (It never can, by the way. Mathematically, you can only ever approach 20% now... never actually get there)

Still, someone managed to pay back their loan now:

C = 13; O = 18; D = 5; P = 38.5%

Oh dear. Maybe they shouldn't have.

Well, you can play around with this and see if you can ever decrease Deficit. Or even just keep Pressure from perpetually rising every time a loan is paid back. Spoilers: You cannot.

This is, of course, a simplified model. There are a lot of details in the real world system. They make it complicated and easy to lose track of what is going on. But they don't change anything about the core mechanisms that cause the effect you see here:

• All money in circulation is the principle of a loan
• The principle must be paid back in full
• Plus interest
• The interest is missing from the system because it never existed in it
• Principle from other loans must be used to cover the interest
• This causes a deficit that can only ever grow

The bottom line is that you cannot get more out of a closed system than you put into it.

If you try, something will have to give. And so people go broke. And banks "acquire" land, property, goods, valuables. To make up for their "loss"... of something that they have in infinite supply... and can't be gotten anywhere else... and has no inherent value until value is "assigned" to it.

If you're aware of a real-world mechanism that I didn't account for, and that reduces what I call Deficit or Pressure here, without anyone defaulting on loans, I'd love to know.