Excellent post-- thanks for pointing out the overlap with money creation and fractional reserves that's been muddying things up. We'll stay together by (hypothetically) saying we're under the gold standard and reserve requirements are 100%. Then we can agree that money supply is independent of the amount of gold.
I see our key point is the role of collateral, and how it can do what reserves do. I suggested that it's OK if the First National Bank of Gold loans $100 to the guy down the street because he lives in a solid gold eight story 4,000sf.house with a gold mine in the basement -- the terms of the loan require bank to hold complete title to the place until the loan is paid in full (this is what is meant by "equity up the yingyang"). The bank figures that they don't have any place to store the guy's house --and why not take the guy's deed; after all, they're just giving the clown a bank draft in return anyway. Next, I said that the bank could also loan me my $100 using my account as collateral. You said "The banks is now earning interest on $200 when they only had "title" to $100. That is what I consider immoral." So it's moral for the bank to accept my five $20 gold pieces as 100% reserves, but it's not moral to accept the deed to a multi-billion dollar solid gold house that the banker can watch from his office window because that's somehow fractional.
Perhaps a 'live and let live' view of the rest of us could be in order-- I'm hoping you could possibly see your way to maybe retracting your condemnation of my hapless banker to the eternal flames. Also, maybe we can even go back to post 200 that started this whole thing with the chaos/order comparison that showed how a Fed adjusted money supply gave us a better chance of knowing what the hell is going on from day to day. I honestly see the switch from chaos to order that occurred simultaneously with dropping the gold standard as not having been caused by all the bankers suddenly getting religion.
It does not matter what your collateral is. What matters is where that additional $100 came from. If the bank has already loaned out the only $100 in town, where does it get the second $100 to loan? Collateral is not money.