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
I’m going to make it way simpler than others here.
Banks create new money by double-counting the existing money. It’s basically a cheap magic trick.
You deposit money to a bank, and they loan it out, but they don’t reduce your balance when they create a loan. So the bank reports your money as separate money from what they loaned out, double-counting the same money. It’s just like a magician who gives the illusion of having two cards, when he’s really just passing one card back and forth between his hands when you aren’t looking.
But the economy falls victim to the illusion and reports that the money supply has increased.
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