We keep hearing that the economy is strong: The GDP (Gross Domestic Product) is up, that’s the total monetary value of goods and services produced. Which should be up considering prices are up. Jobs numbers look good. Markets seem calm.Yet for a lot of people, everyday life feels harder: Groceries cost more. Rent costs more. Insurance costs more. Even when you’re working, it can feel like you’re not getting ahead. I want to slow this down and ask a very simple question:
If the economy is “strong,” why does everyday life feel so strained?
The first thing to understand is, the economy people talk about on television is not the same thing as everyday life. GDP measures activity, not comfort. Job numbers don’t measure purchasing power and wages. You can have a growing economy on paper, while daily life becomes more expensive and more stressful. That disconnect is real. And it matters.
Where Money Comes From
To understand why this happened, we need to talk about where money actually comes from. Most people imagine money as something that already exists, like gold sitting in a vault somewhere. That’s not how modern money works. In today’s system, money is created through borrowing. When a loan is issued, new money enters the system. When a loan is paid back, money disappears. (Something that seems counter-intuitive until you understand how that money as created.) Money expands and contracts with debt.
This is one of the most misunderstood parts of the system. When most people hear the word “loan,” they picture a bank taking money that already exists, maybe someone else’s savings, and handing it to you. That’s not what happens. Rather, when a commercial bank issues a loan, it does not move existing money from somewhere else. It creates new money. Here’s how this works, step by step.
How Money is Created, Step by Step
Step 1: You walk into a bank and take out a loan, let’s say a $300,000 mortgage. The bank does not go into a vault and pull out $300,000. It does something much simpler.
Step 2: It types numbers into a computer, and your bank account is credited with $300,000. Those dollars did not exist the moment before the loan was approved. They exist because the loan was created. That deposit is new money.
Step 3: At the same time, the bank records something on its balance sheet. On your side: You owe the bank $300,000. On the bank’s side: It now owns a $300,000 loan — your promise to repay (and the property deed.)
That’s it. Money came into existence because a promise was made. No printing press. No pile of savings. Just accounting. The key idea is loans create deposits. Deposits do not create loans.
Deposits are not used as money to loan. Most of the money you use every day was created this way: Mortgages, car loans., business loans. Every time a loan is issued, the money supply increases. When those loans are paid back, that money disappears. Money is not permanent in this system; It expands and contracts with debt.
Power and Equality
Saying “we don’t have enough money” is misleading. What that means is, “We don’t want to create more debt,” or, “We don’t want to extend more credit.” These are different decisions. This becomes important for understanding power and inequality.
When a bank creates money, it decides WHO gets access to money. If a bank issues a million-dollar loan to a corporation, that corporation suddenly has a million dollars to spend. If the bank issues a $1,000 loan to someone else, a person, that person has $1,000 to spend. Both amounts were created out of thin air. The scale is different.
Timing and scale matter more than many realize. This doesn’t mean the borrower is “rich.” The loan comes with an obligation. The purchasing power arrives instantly. Assets (tangible, real goods) can be bought. Prices can be influenced. Opportunities can be captured.
Those effects happen before the loan is paid back, even if it’s never paid back. This is why modern money isn’t a real thing. It’s a process. It’s a system for deciding whose promises are allowed to become purchasing power. And banks sit at the gate.
Clarity
Once you understand how money is created, and the process of who gets how much, a lot of things stop feeling mysterious. It’s easier to understand why prices rise faster than wages, large players benefit early, and inflation doesn’t hit everyone equally. You start seeing money not as cash. You see it as permission to act, granted through credit.
How We Got Here
Now let’s connect how money is created to COVID. During COVID, something unusual happened: Governments paused normal economic activity. Businesses shut down. People stopped working or worked far less.
Spending continued as usual. Stimulus checks went out. Businesses were supported. Bills were paid. How was that possible? Debt filled the gap. Here’s the simplest way to think about it. Imagine you didn’t work for two years, and you kept paying your bills with credit cards: rent, groceries, utilities. When you go back to work, life did’t snap back to normal. You have to pay for today AND make up for the last two years. AND do so at your old job which paid the same wage.
That’s what the economy is doing. When a lot of money enters the system quickly without a matching increase in real production, prices rise. It’s just math. Inflation is the bill coming in the mail that’s due. Once that money has been created and spent - you can’t just take it back. It circulates. It becomes someone else’s income. It becomes embedded in prices. That’s why inflation lingers. The system is still digesting what happened.
Why don’t wages rise at the same pace? Prices adjust fast. Paychecks adjust slowly, as your employer doesn’t have to adjust them as fast, or adjust them at all. Businesses raise prices quickly when costs increase. Wages move later, based on worker supply and demand. That delay is where stress lives. You’re paying higher prices today with yesterday’s income. You owe money, while your job, what you do, has not risen in value.
Who Knew?
Why isn’t this explained in the news plainly? It’s politics. Optimism is easier to sell than the truth. Instead of telling you the reality of a situation, a politician will blame someone else for the problem and promise to fix it. They can’t. Part of it is institutions. Economic language is technical and saturated with jargon that makes it difficult to discern truth from misinformation. Part of it is the financial markets. Wall Street runs on confidence. It’s not that people are lying. Simple explanations about debt and delayed cost are uncomfortable to talk about.
Moving Forward
If you feel behind, frustrated, or stretched thin, it doesn’t mean you’re failing. It means you’re living through the consequences of a system-wide pause and restart. You don’t control monetary policy. You don’t control interest rates. You don’t control political incentives. You can control how clearly you see what’s happening. Clarity matters. It helps prevents making bad decisions out of fear.
The money we used during COVID wasn’t found — it was borrowed into existence, and inflation is the bill coming due.
In future episodes, I talk about how credit could work differently, incentives be realigned, and how a fairer money and credit system might be designed. This episode and article are about understanding the terrain we’re standing on. Understanding a problem is the first step to finding solutions that work,This episode is about …
This episode helps you think clearly in a noisy world, cut through misinformation, and find the solutions as applied to thinking clearly.
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About the Host
Daniel Stih (danielstih.com) is an aerospace engineer, software engineer, indoor environmental consultant, and author of 12 books. For more than 30 years, he has investigated complex problems spanning engineering, technology, the built environment, and human decision-making. His work explores how evidence, assumptions, and systems shape the conclusions we draw—and whether we're solving the right problem. Learn more about his approach in Why I Think This Way.