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
The dollars that are created are the dollars that show on your account balance when you open your banking app.
That $2000 that got paid into your account by your employer is long gone, loaned out to someone else with interest added on.
But you’re sitting there on your coach happy cause you’ve got $2000 when in fact it doesn’t exist. The bank is betting that most people don’t withdraw their $2000 at the same time and they can keep enough cash sitting around that if you withdraw $50 from an atm they can cover it.
But of everyone does try to withdraw their $2000 then they’re screwed. This is what’s called a ‘run’ on the bank.
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