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
You are asking multiple questions. Your notion of debits and credits is the simple one – Bank loses $1000 and gains an account receivable of $1000 + interest.
Your broader question of ‘how do banks *create* money’ is the more complicated and important one. When the bank loans you $1000 you go ahead and spend it. Now the company you gave $1000 for a product has more money and they in turn spend that money. And so on and so on. That $1000 has now injected several thousand dollars into the economy in terms of consumption, and new jobs to meet that demand.
This whole time, the money supply has not changed (this is a completely different topic), but the initial loan has created economic growth.
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