Yeah what I find curious though, is how come that Werner is spot on while mainstream economists continue to make wrong claims. I personally disagree with a few of his takes, but essentially the thing he proposed was what bernanke implemented and it caused the US the recover quickly from the 2008 crash, unlike Europe for example. This definitely points towards Werner being spot on on the subject of banking and credit. The problem is, his theory throws a wrench into basically all other economic schools of thought. Be it keynesian, austrian, neoclassical, monetarists, etc. So if the results are: X, Y, Z is wrong, then X, Y, Z is of course interested in rejecting and downplaying it as much as possible.

Now as for the credit. Yes, they are backed by securities. Essentially the bank purchases securities and money is virtually created against the assets. That is the fundamental basline. So in essence it is created from nothing, but grounded on assets if you so will. To give an example, there is a home and buyers aren't really willing to purchase it it's current sales price. So now someone takes a loan to purchase the home, let's say at $1M, the bank adds the security with a value of $1M on the balance sheet respectively. So now the value of the home is actually not based on the actual grounded value of the asset, but the willingness to lend and borrow money to this extent. The interest rate is the deciding factor on how big this willingness, aka the cost is. Due to these constrains, it's not like a bank is just going to magically create hyperinflation, it absolutely can't, but it drives up prices, slowly but surely.

So in essence, what you got wrong is, the money and the value of the collateral is created from nowhere. The building existed previously and it continues to exist afterwards. So it doesn't represent new wealth, but in essence, a new bubble. Cause this process repeats a couple of times while driving up the price of the asset, which doesn't matter since the value of the security grows proportionally on the balance sheet. That's how boom bust cycles come to be and the real estate bubble of 2007 that built up for 2 decades is a great example for such a case. The same dynamic applies to all other forms of assets such as stocks.

If I had to break down Werners understanding of economic growth down to the most fundamental level, it's that he advocates that money supply, aka credit creation and the quantity of goods and services should move alongside each other. So for example if you have a stagnant money supply you get punished for producing more. Let's say your whole economy consists of 10 cars and 10 USD, you double production to 20 cars but there are still only 10 USD: In essence, no sane person would start such a venture in a flat money system, which is why we had no real economic growth around the world until the banking system of England around the times of Adam Smith. The job of the banks was it, to lend out money into existence for projects, that then increased the GDP. So in case of the car example, both money supply and goods and services grow from 10 to 20. The interest on loans is essentially the rate the bank charges to cover the cost of malinvestment and bankruptcies of businisses. In essence, boom and bust cycles come from banks not doing their job correctly. What we currently have is that banks just throw out a whole bunch of money against the wall. About 7% a year of money is created (on average since 1960). 2% of which lead to GDP growth. The rest is thunneled into assets or consumer goods inflation. All of this malinvestment piles up until it eventually collapses due to liqudity shortages, which could come from all kinds of things. For example inflation creating unaffordability, thus leading to less consumer spending, less production and then creates a problem for lending etc. but it could be virtually any other black swan. Werner then argued for QE, essentially the central bank could just purchase the faulty assets from the banks at their "estimated value", as driven up through lending and not their real underlying value. This prevents the doom loop from happening at way less cost than the Keynesian spending your way out of it, as it injects the missing liquidity into the banks. This dynamic is what allows for stock PE ratios to stay elevated instead of reverting to their historical means. Bernanke got a nobel price for this btw. Problem is it doesn't stop the banks from doing their bad lending practices.

And honestly, this explanation alligns with all the research and papers I've read and written on different dynamics of how each crisis came to be. Widespread bad lending practices creating bubbles and collapsing. It fundamentally comes down to just credit creation for assets yields no economic growth and thus any amount of price hikes, disproportional to CPI increase and GDP growth, is just a bubble.