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 money exists because banks say it does. At the moment you draw against the money the bank says you have, if you can use that money to satisfy a (any) debt, then the bank retains its reputation.
A loan is simply an agreement to repay money the bank ‘made available’ to you. Where that money comes from, or even whether it exists or not, is the bank’s business, (ideally) subject to law. In the meatime, the bank holds title to whatever collateral is specified in the loan agreement.
Yeah. Banks make bank.
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