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
This is really very simple. When a bank lends you money, it literally takes your bank account balance and increases it. You had $1,000 in the bank, and then the bank lent you $50,000? Now you have $51,000 in your bank account.
Where did that money come from? No where. The bank didn’t haul out currency, count out $50,000 of it, and then put in in a drawer with your name on it or something. The bank literally just increased your bank balance by 50 grand and now there’s 50 thousand more dollars in the world than there was before.
They do this, and count your loan as an asset on their end, because you’re going to pay them back with interest.
This is all explained in the further reading in the link OP posted: [https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-in-the-modern-economy-an-introduction.pdf?la=en&hash=E43CDFDBB5A23D672F4D09B13DF135E6715EEDAC](https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-in-the-modern-economy-an-introduction.pdf?la=en&hash=E43CDFDBB5A23D672F4D09B13DF135E6715EEDAC)
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