Money is created through debt.It means that the smaller the interest rates, the more liquidity into the system.The government also borrow money from the fed, and this is possible through the creation of fiat.Basically the fed borrow money to the government, who creates bonds in order to pay back the fed.For example, from 2008 the fed created a lot more money from scratch(giving it as a loan with almost zero interest rate) and in the same time it bought a lot of government bonds to stimulate the economy growth.Money is created through the connection between the fed and the government.It was all backed up by gold thanks to the Bretton Woods Agreement(1944).The states had most of the gold, so countries pegged their currency to the dollar(which could be converted into gold).From 1971 everything changed, and every country can print whatever they want.So Governments can borrow money emitting bonds at the same time just to be more competitive in the market.The problem now is that there is a lot more money than goods, it means they printed too much.In a system based on debt, you print money that doesn't exist because you hope that economy grows enough to pay the money back(with the interest).The problem now is that economy is not growing so much, but there is still a lot more money in circulation than it should be(it was printed a lot after 2008 crisis).In order to normalize the economy, the fed should rise interest from a 1% to a 3% in the next years..But the Gov is in huge debt(20trillions)..If the fed raise the interest is gonna accelerate the collapse.The question is seeing if they manage to reabsorb enough liquidity before the next crisis...If this doesn't happen(very probable) we are going to see a huge inflation.Fiat currency usually last 30years..This time we manage to use some strategies like quantitative easing to get over 2008 crisis..But we will not be able to play the same card again, and we are probably gonna witness the biggest economic crisis ever in the next years..If you are interested in some analysis about it check the last article i wrote..If you are curious about how fiat works i really think is going to help you..
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This is all nice and sweet, but does not answer the question of how a bank gets the funds it creates via loans.