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
Let’s say a bank has ten depositors who each have $1000 in their accounts – a total of $10,000. And let’s assume there’s a 20% reserve requirement, so the bank has to keep 2 grand in the vault in case any of the depositors wants their money.
That means the bank can now make eight $1000 loans. Total money is now $18,000: ten savings accounts worth $1K each, plus eight people who have $1K in hand.
The collective balance sheets won’t show any new money (each borrower has the asset of $1K and an offsetting liability of $1K), so the banks didn’t “make” new money. But there are now 18 people who could spend $1000, so there’s “more money in the system”.
If all 18 actually did spend the money there would be a problem – and that’s called a [run on the bank.](https://www.econlib.org/library/Enc/BankRuns.html)
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