What rate of return do you think you can realistically generate, and for how long? The S&P500 inflation adjusted Compound Annual Growth Rate (CAGR) from 1980 to 2015, including dividends, was 8.13%. If you invested $10 in a passive index fund in 1980, then you would have $166.60 by now. Maybe you are a rockstar and can double that rate of return, every single year. Then you end up with just under $2000. Feeling rich yet? But if you invested $10,000 in a passive index fund in 1980, then you would have over $166,000 by now. Much better. That is why the rich get richer. The poor do too, just no where near as fast.
A lot of research shows that active funds under-perform the market average. And when you think about it, most funds cannot do any better than market average at best in the long run. Exactly the same as funds composed of random samples of stocks. And then the active funds charge transaction costs and management fees. Your market beating returns (if any) just went into the pockets of the fund manager. And how can most active funds consistently beat the market anyway? Any insider knowledge will become common knowledge in time. The best asset allocation will be copied in time. Rockstar fund managers take jobs elsewhere over time. Any market timing strategy will fail over time. You might as well pick a representative random sample of stocks and hold, saving transaction and management costs.
...to loan someone money, you have to have money...
Kind of. Fractional-reserve banking means banks can lend out more money than they receive in deposits. You are right about borrowers paying approximately twice the value of their house on a 30 year mortgage due to interest. Most people don't mind because they expect the value of their house to double over that period too. Due to the fractional-reserve thing, not all the money goes to the depositors either. The banks use the difference between interest received and interest paid to pay wages, rent, electricity, suppliers, tax etc. What remains is profit. The 1% make their wealth in many other ways, not just interest on loans.
Hotels are tired of getting ripped off. I checked into a hotel and they had towels from my house. -- Mark Guido