The deposit that the primary dealer (commercial) bank typed into the government's TT&L account, is the "money" that the US government "deficit spends". The bank "created", "issued", "originated" the money that the bank paid to buy the government's debt. That is what banks do. Banks create money to "monetize" the government's and the economy's debts. The Fed is prohibited from directly monetizing US government debt. The Fed cannot purchase new issues of Treasury debt. The Fed buys from primary dealers in the secondary market.
{During QE, primary dealers held new Treasury securities for very short periods (2 weeks or less) before selling them to the Fed. Some people call this an indirect Fed monetization of government debt, with a brief time lag. Adair Turner argues that this indirect approach to central bank monetization of government debt may be the only politically feasible approach to what amounts to government money issuance. You have to do it, and you do it, but you don't say you are doing it.}
The primary dealers (PDs) hold some of the Treasury debt as interest-earning assets on their own balance sheets, and sell the rest into the secondary markets where non-PD banks, and you and I, and the Fed, can buy Treasury debt. When the Fed buys an "asset" from a commercial bank, the Fed pays by typing a deposit into the bank's reserve account at the central bank, at the Federal Reserve Bank. Those typed in numbers "are money".
The Fed is a "bank" that issues money to purchase debt. The Fed issues the US$ system's bank reserves and its banknotes. Just as you can convert your commercial bank-issued bank deposits to cash money by making a cash withdrawal from your bank account, so commercial banks can convert their central bank-issued reserves into cash money by making a cash withdrawal from their reserve account at the Fed. The Fed debits the bank's reserve balance $1 million, and sends an armored truck with $1 million of cash to the bank. The commercial bank then has cash money in its vault, that your bank can make available to you and the bank's other deposit customers.
A commercial bank's vault cash and a commercial bank's reserve account balance at the Fed, are the bank's "money". The bank deposits that commercial banks issue to buy our debts -- and to buy the money that we deposit in banks -- are "claims on money". As long as your bank is a going concern, its bank deposits function as a very convenient form of money. Modern complex economies cannot function without a functioning banking system.
Bank reserves, and cash held within the banking system, are "banking system money". Reserves and vault cash do not count as part of the economy's money supply, because banks cannot lend or spend their reserves; and banks only provide their vault cash to customers who already have bank deposits at the bank, and converting deposits to cash does not "add" to the economy's money supply.
Banks lend "bank deposits", which is the credit/debt money that commercial banks create every time they make loans or purchase securities (government debts). All (except coins) of the money supply is originally created as bank deposits, but typically about 3% of total bank deposits has been converted to cash money. Bank deposits are overwhelmingly the "money" the world uses to buy and sell stuff among each other. Numerous small transactions are done with cash. But almost all large transactions are done with bank deposits.
When a customer of one bank writes a check or authorizes a debit that is payable to a customer of a different bank, bank deposits move from the payer's deposit account to the payee's deposit account; and bank reserves move from the payer bank's reserve account to the payee bank's reserve account. This is how the central bank-anchored banking system operates the money payments system.
No money actually "moves", because the money only "exists" as $numbers in bank computers. A payer's deposit account is debited, and a payee's deposit account is credited. A payer bank's reserve account is debited, and a payee bank's reserve account is credited. Money is spent and received by subtracting $numbers from payers' accounts, and adding $numbers to payees' accounts.
If a bank's customers are spending more money out of the bank, than its customers are receiving in payment from customers of other banks, the paying bank's reserve account is draining. If its reserve balance falls below a minimum of "required" reserves, the bank has to borrow reserves from other banks or from the Fed's discount window. It is usually cheaper for a bank to gain reserves by attracting deposits from customers of other banks: when they move their deposits into your bank, their bank move reserves into your bank's reserve account.
If a bank runs out of vault cash and reserves, and can't borrow more, and can't sell assets to get more reserves, and can't attract enough deposits, the bank has failed. The bank can no longer transfer deposits to payees at other banks because it has no reserves to transfer to the payee bank's reserve account. And with no cash in its vault, and no reserves it can convert to cash, the bank can no longer convert its depositors' account balances into cash. The failed bank's deposits no longer function as "money". The failed bank "owes" money to its depositors. But it doesn't have and can't get money to "pay" the money it owes. The bank is bankrupt.
The Fed issues, originates, both the reserves and the cash money, so unlike commercial banks that can fail, the Fed cannot "run out of cash" to convert banks' reserve balances into cash deliveries. So the reserves that the Fed issues are equivalent to cash money. Cash money is the system's final form of money, the "real money", legal currency, good for payment of all debts public and private. Any form of money, such as bank deposits, that cannot be converted into cash, are no longer "money".
Cash and reserves are "money". Bank deposits are "claims on money". If your bank has no money in its vault or reserve account, it cannot honor the bank deposits it issued as "claims" on money.
The banking system's money is created by the Fed as bank reserves. Commercial banks then convert some of their bank reserve balance into cash deliveries. Cash enters the economy via the commercial banking system. Before a bank will give you cash, you have to have a positive balance in your bank deposit account (or an overdraft or other line of credit with your bank). The economy's money supply is created as bank deposits, then customers "convert" some of their bank deposit money into cash money.
The government and the Fed do not "spend" cash into circulation, like Ben Franklin (colonial scrip) and Abe Lincoln (United States Notes -- "greenbacks") did. Nor does the government or the Fed spend electronic money into circulation. All of the economy's money supply is "loaned" into existence by commercial banks, and spent into circulation by the borrowers of bank-issued credit/debt money.
Contrary to the widely held false belief, we do not use government-issued fiat money like scrip or greenbacks. Governments do not print cash and create electronic money and spend their own money into the economy. Governments get spending money by taxing their economy; and by selling bonds to banks (that create the money they lend) and to people who have money savings to invest by purchasing interest-bearing government debt.
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