How a commercial bank creates money when it makes a loan.

Question

I don’t get it. I don’t get it. I don’t get it. I don’t get it.

When a bank makes a $1,000 loan, that creates $1,000 in the recipient’s account, but I don’t get how the loan, the absence of money, is an asset on the lending bank’s books. If it’s because the money will be paid back, then isn’t it’s value based on a corresponding debit of the recipients account thus nullifying the created money?

Edit: I am not asking how banks make a profit. I get that. I am asking how NEW DOLLARS are created. There are more dollars in existence now than there were say 100 years ago. I want to understand how they came to be. The answer I’ve found so far is that NEW DOLLARS are created when a commercial bank makes a loan.

Second Edit: For those saying commercial loans don’t create new dollars, apparently they do, but I don’t get it. For reference:

https://positivemoney.org/how-money-works/proof-that-banks-create-money/

In: 23

Answer 1

Let’s look at a country with only a single small bank to make it easier to see what’s happening. They have one depositor who deposited $100,000. The total deposits of the nation are $100,000 in deposits. If the next day the bank gets a loan application, they might be ready to make a $90,000 loan to the borrower.

Now the loan is made. What’s the borrower going to do with the money? It’s going to be deposited back in the bank (either by the borrower or when the borrower spends the money buy the guy who owns the business where the borrower spent the money). Now there are deposits of $190,000 in the only bank. No more currency exists, so the bank created the extra $90,000 with their loan.

Now because they have additional deposits. They can make another loan creating more money (the cycle is the same).

Obviously, in a nation with many banks, this pattern will be much harder to follow (the people paid by the borrower might bank in many different banks) but from the perspective of the system it’s almost exactly the same.