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
Wait til someone points out that, to the bank, a loan is an asset (the commercial paper) while cash deposits are a liability (owed to the account owner)…
After your brain wraps around that, then I’m sure someone else has pointed out that “dollars” aren’t a “thing” like a gold coin, or an asset like commercial paper, but a “sovereign” promissory note.
TL,DR: a system designed to keep you turning that crank, in exchange for green pieces of paper, needs more paper because, more people. Therefore – quick, look over there, not here – hey, whaddya know, more paper here.
Latest Answers