Your question is directed at Paul, but I don't think he gets on here all that often so I'll have a go. Neither of us are too snappy around here I'm afraid
If you are lent 10 dollars and you pay back said monies, doesn't that actually create 10 more dollars into the total wealth if the economy? That is something I have been confused about. If the transaction has no default, then it seems like there are 10 more real dollars in the world.
So a bank lends you $10? If so and presuming you refer to the methods modern banks use, then yes $10 lent is new bank credit (not technically money but treated as such) pumped into the economy. If you leave the credit on deposit or deposit it into another bank that can create a multiplier effect allowing more bank credit to be issued (it's not as simple as that, but hypothetically possible). Generally loans made in such a pyramid system cause an expansion of the economy. Such expansion creates jobs and uses more energy and natural resources.
Because of this expansion inflation's effects aren't so easily detected by all people equally. Nevertheless there is some inflation, until there is a shortage of energy or raw material inputs needed to keep the pyramid's base expanding out Or (what usually happens) when the central banks increase interest rates too rapidly which causes subordinate banks to contract their lending. This contraction of lending causes a problem because people are always repaying their debts to the banks and they are repaying not just the loaned principle, but also the unloaned interest.
In an expanding economy the pyramid is growing and the amount of new principle being issued is greater than the combined principle plus interest being repaid. When the banks contract lending too much, this equation goes out of balance -if minor, it's called a recession, if severe enough to cause an economic retraction, it is called a depression. - Note that the central banks will have some very good idea about what will happen to the economy BEFORE it happens - such foreknowledge if put to use would be utterly criminal. But I digress. . .
Actually I think I've digressed way too much. . .lemme see. Yes there is some inflation from the loan of ten dollars, however it's not as much as you might think because the economy is expanding too and the supply of goods services and energy is thus expanded, so more money but also more stuff, hence actual inflation is moderated.
As to the effects on inflation when the loan is repaid, it depends on the overall expansion/contraction rate of bank credit and the supply of goods services and energy. - It's just not very simple! As you can see there are many complicating factors.
I think the real issue for the average person may be the global nature of the economy and the restrictions in energy that may lie immediately ahead (peak oil has been likely happened and we will shortly be going down the other side of the curve). While the economy has expanded greatly over the last century, the available supply of goods and services has expanded with it. So even as the money supply has grown dramatically, the average person can still buy some of what they once were able to buy. Mind you, not all goods can grow at equal rates. As energy scarcity takes hold - assuming those polywell fusion reactors don't come online soon
- then the supply of goods and services will necessarily dry up even if the money supply grows. This will then necessarily lead to hyperinflation. If the banks curtail new loans and the money supply contracts, it will make little ultimate difference, only slowing the decline.
Bad times are likely on the horizon.
Okay I'm digressing again. Hopefully I've answered at least some of your question. . .if not, feel free to ask again
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