*Depositor money should and can be loaned out*

Well Arjay, that is all that banks do, which still has not sunk
in with you.

So where does the new money come from Yabby to equal increases in GDP + inflation? You see to have a steady state view on economics.Does growth and inflation not happen in your world? Now no obsfucation this time.

Arjay, the very nature of lending money that was previously banked,
increases the money supply. The only ones who can create new money
from nothing are Reserve Banks and their profits go to Govt.

The reason why we keep Reserve Banks at arms length from Govt and
give them a mandate to make decisions which are to keep the economy
in a healthy state, is that it avoids politicians from doing a
Mugabe and running the Reserve Bank to win the next election.
If it were not so, every second politician would be cranking up
the printing presses for his electoral short term benefit

I think you need to look at the reality Yabby. http://en.wikipedia.org/wiki/Fractional-reserve_banking This shows the operation of Commercial Banks and the actual mechanism by which new money is created as debt by them.This is a 5:1 ratio with reserve deposits of 20%.

Arjay I know full well how fractional reserve banking works.
Banks cannot lend out all the money which they borrow, they need
to keep certain reserves on hand, some of it as Tier 1 capital.

The point remains, they cannot just create money out of nothing.
Otherwise there would be no good reason to fight for depositers
money, which they do. No need to go paying 6% Arjay. Have a look
at any banks financials. It will show you what was received in
interest and what was paid out in interest on deposits. It will
once and for all put your flawed understanding to bed, if nothing
else will.

Unfortunately I have been away so this debate may have ended.