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Message:: [QUOTE="Cloudsweeper99, post: 1248779, member: 3011"]There is no doubt that the act of lending by banks increases the money supply, and the repayment of loans and interest reduces the money supply.  But your scenario doesn't identify a problem.  Interest on loans existed under the gold standard also, and someone could have just as easily asked "where will the gold come from to pay the interest?"  And the answer then and now is that it comes from the increase in production of goods and services.  In a completely stagnant economy where only 10 coconuts exist and nothing else, the interest would be a problem.  But an economy where there is a fixed amount of wealth with not possibility of ever increasing it would not have an active capital market anyway.[/QUOTE]