How money in America works, neglecting the <1% or so of real currency:
Step 1: there is no money.
You take out a $100 loan from a bank. Now there's $100 and a $100 debt. I call this virtual currency, for reasons that will become obvious if they aren't already.
Bank charges $5 in interest.
That means there is $100 total, in the entire world, and you owe the bank $105.
To pay this back, someone else has to take out another $100 loan, and pay you $5 of it. This means they owe the bank $105, have $95. When you pay back your loan, the $100 vanishes, and the bank keeps the other $5. There is $100 in the entire world, the dude owes $105, and the bank already has $5 of it.
Fiat banking is pure economic rent. Inherently a Ponzi scheme. On average the bank accumulates all the money. Or Goldman Sachs, who very cleverly somehow runs the same kind of scam, in turn, on the banks.
To pay the bank back for the privilege of being allowed to have money to spend, you have to sell something to the bank. Banks accumulate all the goods.
This continues until someone defaults on their loan. Some of the money remains in circulation when the debt vanishes.
Fiat banks don't much care if someone defaults. The loan poofs out of existence again and they still keep whatever interest you paid. They only care in that they want to extract as much interest from you as possible before you default. Hence credit cards & other deadbeat-positive initiatives.
The Fed has to lower interest rates to stave off the loan-defaults, because the defaults cause deflation, which triggers the potential recession that accumulates under price-controlled interest rates. When you have to pay back as much of the loan as possible, that part poofs out of existence, and the defaultee isn't allowed to take out a new loan to replace the vanished cash supply.
On the minor plus side, since defaulting does leave that residual, the system isn't inherently headed to a crash. This causes real currency inflation, however. When the reified cash is re-deposited with the bank to pay off interest, I believe the banks deposit this money with the Fed, in case the 1:100 fractional reserve is somehow not enough to supply every demanded loan.
Under a real-money regime, money is also a debt. If you hold a gold coin worth $100, it means society at large owes you a debt of $100. You can call in this debt at any time, from a variety of vendors offering to do exactly that, in exchange for giving the vendor the debt you held.
Under a fiat regime, society owes you a debt, but you in turn owe that debt to the bank - either directly or via a debtor. Who charges you for the privilege of being indebted to it.