The initial currency does not come from lending, it came from deposits of specie. These deposits are circulated, causing neither inflation nor deflation. Without lending, the monetary supply would be fixed. With lending, the supply expands with the principle of all outstanding loans. As the principle is repaid, the supply deflates back to the level of the original specie on deposit. Interest is earned by the debtor from the economy, then paid to the bank to pay both the intereet and principle portion of his loan. The principle portion goes to pay down the debtor's balance, and the interest portion goes to pay thw bank's operating expenses. This is their "profit" on the loan. The bank spends this profit into the economy, and this is neither inflationary nor deflationary. The interest is the "honest" part of the repayment transaction, and is handled by the bank completely separate from the loan principle. It's when loans are defaulted that the principle is never repaid and this causes irrevokable inflation (all other variables held constant)
