The more money the banks print, the richer they get, with the side-effect that prices rise (they make the monetary units less scarce and worth less). 2-3% just happens to be the most they can get away with in the long term without the population getting concerned. What the general population don't realise is that the value of goods and services are going down over time, due to efficiency increases, at a rate of aroun…
The banks are not just in the business of lending out money. They also take deposits and pay interest on those deposits. It's a fraction of what they make on loan interest payments, but it's still a significant expense.
Borrowers can go bankrupt and default on debt. That's also effectively a huge expense.
Banks are competing to offer the best interest rates to their customers. If a bank could still make a lot of money while offering a lower interest rate than their competitors, they would.
> The more money the banks print
The only way they can print more money, is to issue more debt. But issuing debt is an expense for a bank. Either you do due diligence, which takes a lot of work. Or you accept the risk of issuing risky loans that may be defaulted on, which again, will be an expense. And then there's a mountain of regulations on top of that to try to prevent the banks from taking the second option, which also takes work.
It's not the free money machine you make it out to be. (Edit: Not that I'm saying it's not at all lucrative. But it's a risky and difficult high-skill job, which is extremely important to every aspect of society so that in itself isn't remotely surprising)
> they printed them out of thin air as loans and have to destroy them when the loans are repaid, but total debt only increases every year...
Sure.. that's how the economy has worked since the dawn of time.
Money is just an abstraction over credit in general, and credit is always how most of the economy has worked, even before money was invented.
You need a barn built? You ask your neighbors to help you build it, and promise them some grains or something in return. Boom. Credit (i.e. money) created from thin air. And the more the economy grows, the more this kind of debt is created.
Some of the earliest texts we've discovered was records of this kind of debt. That's exactly what paper (and digital) money is.. a record of debt distilled to its purest essence and made easily tradable.
The difference now is that instead of credit being created through these informal arrangements, you go to the bank, which does the work of ensuring that you're good for the debt. You get some numbers in an account which then lets you go to the neighbors and pay them to help. Whether you repay them by doing work for them directly, or work for someone else in the community, doesn't matter anymore. Which makes the whole system much more efficient.