That is also true! However, in a hypothetical world where loans didn’t exist, then the effects of demand would still exist. There would be a lot of other problems in that hypothetical would though; loans are a very important tool for economic growth because in their purest form they allow someone with money to put it to good use while sharing the profits with the person they loaned it to. I think the real problem isn’t the loans but rather the government putting their thumb on the scales.

What you describe would be a healthy form of lending (lending out money you otherwise have sitting around, so it can be put to good use). Unfortunately, this is not actually how our global financial systems work.

I think most people would be shocked to learn that when a bank lends out money, they are actually “cloning” their money many times over: each dollar from their reserves actually gets loaned out multiple times over, to multiple people (such that e.g. 100 people all have claim to the same 1 “real” dollar that exists, although it’s not actually tracked that way). But because almost nobody uses physical cash any more in large quantities, no actual cash needs to be printed to cover this. Then, if/when the loan is later repaid (which again is not a physical transaction, but occurs as numbers being updated in balance sheets), the repaid “clones” get “erased” from circulation, and only the real original reserves remain [1]. The banks keep the (greatly multiplied) interest paid though as profit.

You (as a mere peasant) are not allowed to clone your money and lend/invest it out, but banks are (in fact, this is essentially what makes a bank a bank), and it’s called “fractional reserve banking”. Some argue that this is very unfair, and argue that this is actually the root cause of a lot of financial problems and wealth inequality in the world.

For example, this system inflates prices (usually starting with investment assets like land, stocks, etc. but can later trickle down and in very delayed way start to inflate food prices etc. too), due to this expansion of the money supply (commonly called “money printing” even though no actual printing needs to occur) being funneled through financial institutions and into various investment assets and derivatives.

[1] Note that in practice, the total amount of outstanding debt tends to increase over time, because old debt just ends up getting replaced/refinanced with newer debt of even larger size (e.g. due to decreasing interest rates). This creates a system where the global economy is essentially “addicted” to perpetually increasing amounts of debt. The official stance though is that central banks should be able to unwind this debt when we are in good economic health, but this is debated; for example, I don’t know of any case in modern history where overall money supply has actually been decreased without markets immediately panicking and starting to crash (after which the central banks always quickly give in and reverse course, usually re-inflating the money supply far more than even before).