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 missing the concept of interest. When you take out a loan from a bank, you are not only promising to pay them back, but also to pay them more than what you originally borrowed in the first place. The longer it takes you to pay them back, the more you generally have to pay in addition to the original amount.
So many banks are able to make lots of money by giving people loans, and then those people pay back the money and more. And even if some people aren’t able to pay back their loans, enough are that banks make lots and lots of money this way.
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