The banks are continually making new loans and retiring old ones as they are repaid. In the aggregate, the debts owed to banks are increasing with the mere passage of time, because interest accrues over time. The money available to repay those debts, however, can be created only by the banks as they make additional loans.

The net requirement, then, is that banks must make new loans faster than they retire old loans, that is, there must be a continual expansion of bank credit money. If there is not, the result is depression—increasing numbers of defaulted loans, greater numbers of bankruptcies, expanding unemployment—and all the human misery that comes with it.

The prevailing monetary policies of the Fed determine whether money is easy or tight, that is, whether the monetization of government debt will be sufficient to provide private borrowers with the amounts of money needed to pay what they owe to the banks, or whether it will fall short. These actions by the Fed are largely responsible for the business cycle and periodic rounds of inflation and recession. Through the various mechanisms under its control—interest rates on loans it makes to banks, purchase or sale of government securities, and setting bank reserve requirements—the Fed has the power to decide whose interests will be favored and whose will be harmed.