We all know commercial banks receive a deposit of say 100 USD. Under the US, according to the Federal Reserve, 10% must be placed in reserve, thus 90 USD can be loaned out in a form of credit. We can still access our deposits, so there is actually 190 USD in existence. If there is less reserve cash than the requested withdraw then the bank shuts down, and that's called run on the bank.
Why do banks not work? Well if I ask for a loan of $100 with 10% interest over 5 years. Coming to $50 USD interest. The problem is, this interest is not in existence. Because if say the money supply is a pie, the interest may be another slice of pie with the full pie. This extra slice is not in existence and must be baked or in our case "print". Thus causing inflation.
Under this system, there is more debt than actual money. If we pay it off with the money now, then there will be no money. We will become a barter economy. Or we can print off this debt which will make the dollar completely worthless. Because (look at paragraph #1) every dollar deposited will become more than NINE dollars. If I ask for a loan for 100$, 90$ then can be loaned out and deposited, 81$ then can be loaned out and deposited.
This problem is present in every nation. The source of our global economic problems. My question is, how would you solve it?