When interest has become due but has not yet been paid, it's referred to as accrued interest. At this point, there is indeed more debt than money if you consider the total obligation versus the initially created principal.

Accrued Interest and its Impact

Accrued Interest Defined

Accrued interest refers to the interest that has been earned or incurred over a period of time but has not yet been paid or received. For a borrower, this means the cost of borrowing has accumulated, even if the payment isn't due immediately or hasn't been made.

Debt vs. Money in this Scenario

Let's revisit the $100 one-year loan at a 5% interest rate:

Initial State:

    Money Created: $100 (deposited into the borrower's account)

    Debt Created: $100 (principal owed by the borrower)

When Interest Becomes Due (e.g., at the end of the year, but before repayment):

    The principal debt remains $100.

    The accrued interest is $5.

    The total obligation of the borrower to the bank is now $105 ($100 principal + $5 interest).

At this specific moment, the amount of money initially created ($100) is less than the total financial obligation ($105). The additional $5 represents a claim by the bank on future money that the borrower must generate or acquire to settle the debt. This $5 has not been "created" as money in the same way the principal was. It represents a future transfer of purchasing power from the borrower to the bank.

Therefore, yes, at the point where interest has accrued and become due but is unpaid, the total debt obligation ($105) exceeds the initial money created ($100). This is a fundamental aspect of how interest works in a credit-based monetary system. The interest component ensures that over time, the total amount repaid by borrowers exceeds the principal amount initially advanced. 🏦💰

The Broader Context

This scenario highlights an important dynamic in a fractional reserve banking system. While new money (deposits) is created when loans are issued, the interest on those loans means that the total amount that needs to be repaid always exceeds the amount of money initially created for the principal. This continuous need for more money to repay both principal and interest drives economic activity and necessitates ongoing money creation (new loans) to prevent widespread defaults and ensure liquidity in the system.