Great explanation. I would add that a written-off defaulted loan does destroy money. Hence the need for the fed to create money when the private banks destroy it.
MZM from St. Louis FRED: research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=MZMNS&log_scales=Left
Actually, I would say it's the other way around. A bank loan is like "anti-money": it is created at the same time as the new money, and when the money and the loan a.k.a. "anti-money" meet again, both are destroyed.
When a loan is written off, the loan is destroyed without money being destroyed at the same time. That is, writing off a loan leads to what is effectively (in hindsight) net money creation.
That actually makes a lot of sense when you think about it: Writing off a loan means that the bank gives out money without the money being paid back. Of course there's going to be a net plus of money in circulation afterwards, because the "paying back" part is missing.
MZM from St. Louis FRED: research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=MZMNS&log_scales=Left