Banks do not lend from their reserves. Rather, they create new money (new demand deposits for the borrower's account) which on their books is a liability. That liability is wiped out when the borrower repays the principal on the loan (thereby destroying the money). In the meantime the interest on the loan is a revenue source for the bank. Bank lending is not limited in scope by the size of a bank's reserves. It's only limited by the number of profitable lending opportunities available to the bank.
In the same way the federal government spends (creates new money) when the Treasury directs the Fed to mark up the bank accounts of people and firms who sell services to the government. That new money is ultimately destroyed when people pay their taxes with it. The scope of federal spending is not limited by tax revenues but by the scope of real resources available for purchase with the currency issued by the federal government.
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https://substack.com/home/post/p-151375042?r=4d7sow&utm_campaign=post&utm_medium=web
Banks do not lend from their reserves. Rather, they create new money (new demand deposits for the borrower's account) which on their books is a liability. That liability is wiped out when the borrower repays the principal on the loan (thereby destroying the money). In the meantime the interest on the loan is a revenue source for the bank. Bank lending is not limited in scope by the size of a bank's reserves. It's only limited by the number of profitable lending opportunities available to the bank.
In the same way the federal government spends (creates new money) when the Treasury directs the Fed to mark up the bank accounts of people and firms who sell services to the government. That new money is ultimately destroyed when people pay their taxes with it. The scope of federal spending is not limited by tax revenues but by the scope of real resources available for purchase with the currency issued by the federal government.