Quick question for you, if you deposit gold based money in the bank and I come to the bank and take out a loan, did the money supply increase?
Good example. Maybe you will understand this time.
If 10 oz of gold is all the gold in the world and you borrow 10 oz @ 5% interest, the total gold supply must increase by 1/2 oz or you cannot pay the gold loan plus interest one year later. Either I don't get all my gold back or the lender doesn't get his 1/2 oz of interest.
Get it now?