Reply #189: In confusing and conflating 'currency' (a physical entity), 'money' (an

[coalition_unwilling]

abstract concept represented numerically) and 'assets' (another abstract concept represented numerically), you make a mistake in thinking. The three are of necessity best thought of separately.

It is true in my scenario that bank lending does not result in new assets, but it DOES result in an increase in the money supply, hence the oft mis-used metaphor that the Treasury Dept or the Fed can 'print money'. Not the currency supply and not the actual physical assets, but the money supply. (Economists used to refer to this as the 'M1' money supply figure back in the day. I'm not certain if they still do.)

Lending by banks is most assuredly not constrained only by demand and capital. It is also constrained by the government, among other things, raising the reserve ratio banks are required to maintain (a harsh measure) or by the Fed raising the interbank lending rates it charges banks to borrow from it to maintain reserves (a milder measure), or a host of other regulatory devices in between that are too numerous to enumerate.