“Here is a simple explanation using short sentences:

“Here is a simple explanation using short sentences:

Government needs money. Sells bonds. Banks buy bonds. Banks get money. Banks make loans. Put money in accounts. More money exists now. Money is debt. Debt grows bigger.

Banks lend more than cash. Banks create new money. Money made from thin air. Money is just numbers. Numbers in accounts. More debt too is made. Debt matches new money amount. Debt pays for new money.

People use new account money. Spend in the economy. Money keeps moving around. Debt stays owed to banks. Banks stay safe while debt paid. If debt not paid, banks hurt.

Governments borrow from banks too. Government debt not money made. Government promises pay back bonds. Bonds use tax money, not new money printing. Bank debt makes money. More debt creates more money circulating.

Two main types of debt exist. Private debt made by bank lending. Creates accounts money supply. Public debt from government borrowing. Does not directly make new money supply. Different but connected both grow economy.”

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