> The thing is, "cash" in one's account is not cash at all and is not being hoarded. It gets loaned out. It's put to use such that it generates interest income.
No, it doesn't. Banks don't loan out deposits; banks originating loans create deposits. It's basic double entry bookkeeping. Your deposit asset is the bank's liability.
Here is a basic, simplified, but essentially correct model:
1) Credit worthy borrower Alice approaches a bank to borrow $1,000,000 to buy some real asset worth $1,000,000 from Bob. Maybe a house, maybe a business, whatever, doesn't really matter.
2) Bank performs underwriting and determines that Alice is in deed credit worthy. Now bank performs the following four operations simultaneously (This is where we simplify, we're assuming Alice and Bob use the same bank to avoid bringing interbank payments in, and other possible complications like an escrow party, but all those extra steps sum out to equivalent to the simple model).
3) Create a deposit in Bob's account with the bank for $1,000,000.
4) Create a corresponding liability on bank's account for $1,000,000, corresponding to Bob's deposit.
5) Create a liability on Alice's account with the bank for $1,000,000.
6) Create a corresponding asset on the bank's account for $1,000,000. This is the asset that banks sell when they sell a loan.
7) Bob transfers the real asset to Alice.
At this point the bank has created $1,000,000 that Bob is going to spend as he pleases, but the bank's total net worth is unchanged, since the bank's new liability is equaled by its new asset. And the bank then expects to earn a return on that asset based on the terms of whatever the loan agreement are. Alice and Bob's respective net worth are also nominally unchanged, because Bob has the new deposit to offset his old real asset, and Alice has the new liability to offset her new real asset.
Now at this point you're going to object about fractional reserve requirements. As it happens they actually never constrained loan origination because the Fed had to supply the exact amount of reserves after the fact, in aggregate, that the banking system required for the loans it originated, because if it didn't the interbank payment system would seize up. However that's quite complicated to demonstrate and I'm not up for it[1].
But fortunately we can ignore that, because there are no reserve requirements anymore[2]:
As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
> You argued before that they were hoarding most of their wealth. Now it's a tiny percentage.
Tiny percentage of notes and coins. Not M1 cash. And you still haven't answered, who is holding that $20 trillion in M1 cash? If the ultra high net worth individuals are all divesting themselves of all their M1 cash, someone has to be their counterparty. Who?
[1] It is worth understanding though if you're interested. The shocking thing is that reserves and deposits (and coins too, but they're a tiny percentage of outstanding cash money) are entirely different "data types"! They just both happen to be denominated in the same unit of account. Naturally that's not a coincidence but a property of how the modern banking system has been constructed. Reserves mainly come into play for interbank payments and federal government spending. Incidentally coins are also a different type from paper money. That's not particularly relevant to the topic at hand, but the existence of that rabbit hole serves to show just how interesting and complex the money system actually is.
[2] https://www.federalreserve.gov/monetarypolicy/reservereq.htm