[diordiderot]

Your thinking is too fine grained. Missing forest through the trees.

For a nation state with it's own currency, money is the sum of the production capacity / natural resources of that nation state.

You don't need Joe and Sue to pay you back.

[than3]

This line of thinking is just flat out wrong, and uneducated.

Price discovery is critical to any system, and money is the shared store of value of those that hold it so long as it retains that store of value.

Producers set prices to make a profit, if they can't do that they stop producing. Factor markets, same things happen, as an employee you don't do $1000 of work in exchange for $1 in purchasing power by the time you get paid.

When government debases currency, unproductive efforts unwind into losses at the individual level, and inflation at the macro level. You can't print money out of air and use it to pay for things without issues that result in cascade collapses over time. The more you do it, the bigger the bubble, deflation, and crash/collapse from a combination of interest rates (that need to raise to fight inflation) and bubble pressure.

If it continues, eventually credibility is lost, and the currency is abandoned. This usually happens sometime after a 3:1 debt to GDP ratio, though it can be much higher, anything after 3:1 is where the smaller effects become noticeable.

I'd suggest you educate yourself a bit more on this. I'd recommend Debt, the first 5,000 years by David Graeber as a starting point, and then Big Debt Crises by Bridgewater/Ray Dalio for case studies of how these things actually play out.

If pricing becomes irrational, you run into economic calculation problem, breakdown, shortages ensue, then death (its been tried in non-market socialist systems).

There's a good reason central banks were not allowed during our countries early years. Quite simply, its well known in a historic context that money printing can end civilizations.

[fowtowmowcow]

Okay Joe and Sue don't pay back their loan.

Either Beth now has to borrow for her house or business at a higher rate of interest OR we deflate the value of the currency (by increasing the money supply) to make up for the loss on the balance sheet.

Congratulations your civilization just discovered run away inflation.

[diordiderot]

The house is still there, it is repriced and sold.

The bank cannot lose money because money is a representation of all production and resources in the economy. (Edit: balance sheet is always zero)

There is no deflation because you are the bank and you can print money.

There isnt inflation because you can tax assets or reduce velocity of money (i.e. inflation) through transaction tax.

[slashdev]

What marvelous central bank and government work together so perfectly as to have neither inflation nor deflation? Have you seen the central bank and government in the US? They’re both highly incompetent and ridiculed domestically and internationally.

[pessimizer]

Joe and Sue also don't pay back their loans to private banks, and those banks get bailed out.

[fowtowmowcow]

Depends on the size of the bank. Obviously the government prints money when it needs to buy ideally it ain't just freely printing willy nilly every day.