[Toddsterpatriot]

Checks drawn against that account won't bounce because California really does have 1.5 billion dollars, albeit it is just digital checkbook money created from the initial debt.

When the check goes thru the clearing process, imaginary dollars won't make it clear. JP Morgan needs real dollars from real deposits or those checks will bounce.

[Fingolfin]

When the check goes thru the clearing process, imaginary dollars won't make it clear. JP Morgan needs real dollars from real deposits or those checks will bounce.

No. This 1.5 billion did not exist prior to JP Morgan making the loan, and it certainly wasn't taken from "reserves". It may have been based on reserves, but they are still there at JP Morgan. This isn't a unique situation - it is how all loans originate and how 95% of our money supply is created.