Regarding your Assets minus liabilities that's not strictly true. Its my understanding that bond assets are considered statically valued and not at market value when they have elected to hold it to maturity, I'm sure those aren't the only asset classes with alternate valuations/reporting.
See my edit in my last post addressing double-entry accounting, and how its not relevant to the discussion since the fraud and counterparty risk I'm talking about occurs outside the boundaries of double-entry accounting.
You seem to have mistaken the context.
Issued debt is not counted as reserve, its considered leverage and a liability, as a result you cannot issue more debt to increase your reserve. The ratio of reserve to issued debt must be below or equal to the set rate.
When you count debt as reserve unintentionally you have exponential debt being issued exceeding the ratio which ultimately collapses in the form of a Ponzi as environment and conditions change. Any ponzi eventually has a deleveraging, this often occurs when clearing any company whose assets have been collateralized potentially multiple times. The payout has already been made at origination, the value of the loan asset with backed secured collateral suddenly becomes 1/X depending on the number of X times it was loaned against; in reality it always was but the bankers didn't know it. The same asset is claimed in its entirety among X number of loan originators in clearing bankruptcy/receivership.
At the individual level people who invest in a Ponzi take losses. Risk of investing.
At the primary bank level, this is a systemic risk, bailout provided by FDIC/Fed is unwound as all aggregate fraud is unwound over time as inflation for troubled assets. Creating these plausible unforeseeable situations is incentivized.
It creates perverse incentives which is why bailout has been a recurring issue at least once every decade since the 70s. Concentrated banking means so big it will certainly fail.
When that inevitably happens, everyone holding USD or working for USD pays without their consent or knowledge via inflation. That is upsetting especially when it is easily foreseeable.
I'm not upset that it isn't gold backed. I simply do not believe it is a good idea to enable foreseeable fraud that will go undetected until its too late and encourage it to keep happening.
The risk by far outweighs any potential benefit. I'm all to aware what happens when hyper-inflation occurs. Ray Dalio wrote some nice case studies on those if you haven't already reviewed ("Bridegwater/Ray Dalio - Big Debt Crises").
In my opinion, most modern finance and economics training which I've seen is absolute garbage and encourages you to look at everything in isolation, or a very narrow context without providing fundamentals or limitations of the models they encourage. I've studied them, they just aren't very useful.
How can both parties be right while being completely wrong pretty much sums up isolation in complex interconnected systems. Many of the basic assumptions that are held true fail under some pretty simple situations involving corruption, control, coercion, and deceit.
If you can find vintage books on the subject they are much better and absolute gold mines (circa 1950s-1967) in comparison.