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When we borrow, banks create new money. They do not lend existing money. In fact, all bank accounts are just a promise to pay you dollars. They do not really have the dollars. Fractional reserve banking makes this possible.
This new money makes the economy feel good. This is how they put the entire population to sleep. When there is more and more money (or the illusion of it since it is just borrowed money), people spend more and inflate prices and salaries. People are happy to have a job and they happy to pay their debt to the bank with interest. Only problem is that, if banks did not create money out of thin air, we would not have to borrow, prices would be lower and we could afford things cash down. This is why rich gets richer and poor gets poorer. Have you seen it any other way?
This ponzi scheme lasts while borrowing expands. The moment borrowing stops, deflationary crash starts because entire money supply is borrowed from the banks. It has principal + interest to pay. Principal exists, but interest does not. Thus it is impossible to earn principal+interest and pay it back.
Within our monetary system, our problem is debt. Borrowed money does not make a recovery! As we see year after year, the government lacks the vision to put the country on a sustainable recovery path. The only thing they know is to pump more money into the economy and hope that somehow something good comes out of it. It is like a business that is trying to produce products that nobody wants. They can't sell. But they borrow money, pay the employees and keep production anyway. Meanwhile the debt accumulates.
Government has been doing this for many decades. The mistake was to inflate the bank credit (which is almost our entire money supply), non-stop for 50 years. While the debt inflated exponentially, the GDP grew linearly. This is not sustainable. People cannot borrow non-stop. But no government wanted a recession on their watch, so they encouraged people to borrow more to inflate the money supply. The root cause of our problem is excessive debt:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
The inflation and deflation are built into the monetary system. We are first robbed by inflation and then by deflation - as we foreclose and bank gets the house just because we fail to pay an impossible to pay mortgage.