No it cannot because there are accounting rules as to how many assets the bank is allowed to hold. Furthermore, the money is not fake. When I sold my house, I didn't get any old piece of paper. The other guy's bank put cash into the escrow account that got paid to me on closing. When I take out a car loan, the other guys car dealer got a check for cash moeny. That money eventually gets recyled into another real estate loan is the whole point of fractional reserve banking and how the banking system multiplies injected money.
Yes the entire derivatives world has created a set of off FED balance sheet IOU's that could be considered to constitute a private monetary arrangement. The whole system comes tumbling down every time simeone tries to turn any significant fraction of this mountain of IOUs into real cash, as has just been happening. In order to save the banking system the FED has actaully been monetizing some of this junk, expanding the money supply, but that is a voluntary act of the FED, not the banks that created the IOUs. If you read Volker's speach carefully you would have seen that he excoriated Bernanke for this.
My cat's pedigree is not money either though it has some value if it is a valuable cat. There is nothing that stops us from trading pedigrees as money. That does not expand the money supply. The day the FED purchases pedigrees in open market operations it would monetize the pedigrees.
False, on its face. Also, I said "any institution", and it is true even of non-banks. But take a bank. There is no limit whatsoever in any law, limiting how many assets a bank can hold. Their can be capital requirements to hold assets of a certain type, but any bank can meet those by issuing more IOUs (debt and preferred stock) if anyone will take them. Which is exactly the subordinate clause of my statement.
"the money is not fake."
Didn't say it was, you are the one so confused you think anything someone can create at will, if another agrees to accept it, is "fake". When Joe gives the bank his IOU, that IOU is a real asset. If Joe can perform what he promises, it is as sound an asset as exists anywhere in the universe.
And it is created and supported the same way all value is, of any form whatsoever. No one brings anything into existence out of nothing. We merely rearrange things into more useful forms. That rearrangement can come from physically moving an object to where it is more urgently needed, on a truck, and that is "production of value". Real value. Or it can come just from arranging that this much of X and that much of Y should be mixed to produce Z, if Z is valued higher than its inputs. It can come from just seeing that it would be better to do so and betting on it, even.
Promises that men can actually perform are real assets in intertemporal trade. Nothing fake about them, at all. Try pretending you own $1 million face value of bonds of JP Morgan Chase because they are "fake" and see how far it gets you. They simply are not fake.
"I didn't get any old piece of paper."
A bank, did. And accepted it. If it hadn't, you wouldn't have sold your house, and certainly not for as much as you got for it. A bank got a buyer's IOU on a scrap of paper. That's what a mortgage is. And believed enough in it, to hand over a bank deposit for it. You got a bank deposit, and the builder got a bank deposit, because you both preferred them to having the end buyer's IOU. The bank prefers the end buyer's IOU - it pays more, if he stays current anyway.
"When I take out a car loan, the other guys car dealer got a check for cash moeny."
From a bank, which holds only your IOU, and treats that IOU as being as valuable as the money it handed over to acquire it. Because, in fact, it is. At least as valuable.
"the whole point of fractional reserve banking"
False. The point of fractional reserving is merely to limit how much there is in checking accounts plus printed bank notes. But the point of *banking* is to sell things that you think are "more real" but aren't, and buy things that you think "aren't real" but are, and to earn on your benighted confusion in the matter. Or, less colorfully, to take the other side of everyone's pressing liquidity preference by being less liquid but more profitable, by holding future claims rather than present ones.
"the entire derivatives world has created a set of off FED balance sheet IOU's"
An inaccurate statement. Perhaps you are trying to be poetic about it. But no, the Fed's IOUs aren't any more real than anyone else's IOUs. They are of exactly the same kind, and their value is just as subject to revision by everyone else's faith in them or preference for them, as your IOUs or mine, or Citicorp's or Ford's. Also, those aren't "derivatives". Also, they are on people's balance sheets, just not on the Fed's.
"that could be considered to constitute a private monetary arrangement."
Actually, every form of money is such a private and voluntary arrangement. Even the government and all authorities can only participate finance by using such free, mutual, voluntary means.
"The whole system comes tumbling down every time simeone tries to turn any significant fraction of this mountain of IOUs into real cash"
Sorry, no, it doesn't come tumbling down, it stands, it supports tens of trillions in real capital value. And the reason for your confusion in the matter is obvious - you don't see the reality of future claims, and you can only imagine their "reality" as some physical mcguffin in your possession. Everyone who buys a stock knows better. All the mcguffins currently in existence aren't a twentieth part of the real value being regularly produced, let alone of the greater value that will be produced, like clockwork, out into an endless future of rising human prosperity.
"the banking system the FED has actaully (sic) been monetizing some of this junk, expanding the money supply"
Except, the money supply controlled by the Fed is not in fact expanding. What is actually happening is the banks, free to destroy monetary claims as well as to produce them, by paying down debt or extinguishing assets by writing them off as uncollectable, are first forcing a cash flow in their favor and then using it to reduce their outstanding obligations. Lowering narrow money supply. And the Fed is merely keeping it level as they do so.
"If you read Volker's speach carefully you would have seen that he excoriated Bernanke for this."
I read it far more carefully than you, and he does not criticize Bernanke for it or for anything else. He does say he thinks Fannie and Freddie could be parking places for more mortgage paper instead of the Fed - but it is a comment that shows little appreciation of their present weakness, compared to their government enterprise role in his own day. They might be returned to that role, and taken charitably that is what he was advocating. (Along with an Obama presidency).
"There is nothing that stops us from trading pedigrees as money. That does not expand the money supply."
Savings deposits at commercial banks are not cat pedigrees. They are US dollars, just like checking accounts at commercial banks. And they trade into checking accounts at the will of the depositer. But their creation is not controlled by the Federal Reserve.
The broad money supply is endogenous, and your special controlled already existing mcguffins view of money and its role in modern finance, is just hopelessly wrong.