Also why, exactly, are they buying the exact assets that they are buying (govt. debt, high-yield bonds, etc..) and why not others (e.g. stocks or put money into startups)? And then, what happens if a debtor pays back its debt? Is that money consequently getting "erased" again (just like it's been created)? What happens if a debtor defaults on its debt? Does that money then just stay in the economy, impossible to drain out? What is the general expectation of the central banks? What percentage of the debt is expected to default and how much is expected to be paid back?
And specifically in the case of central banks buying govt. debt: Are central banks considered "easier" creditors than the public? What would happen if a country defaults on a loan given by a central bank? Would the central bank then go ahead and seize and liquidate assets of the country under a bankruptcy procedure to pay off the debt (like it would be standard procedure for individuals and companies)?
I'd love to see this properly explained, because it definitely has a counter intuitive ring to me.
Now our Bank loans out 50,000 of those hackerbucks to Customer B. It does this by crediting her account with 50,000 hackerbucks, but notice that Customer A still has 1 million in his account - so now there's 1,050,000 hackerbucks in apparent existence - we've created 50,000 hackerbucks from thin air. If Customer B withdraws the loan money to go spend it, the Bank will have 950,000 in reserves and an asset worth 50,000 (the loan). Customer B will have 50,000 in cash.
What we've actually done is increase the "M2", one of the measures of how much money is in the economy.
If Customer B either repays the loan or defaults on it, that new money disappears. In the loan repayment case, the Bank goes back to having 1,000,000 in reserves, and in the loan default case the loan asset becomes worthless and it is left with only 950,000 in reserves (the other 50,000 is out there with wherever Customer B spent it).