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Since we agree that the claim that a single bank can create the money it lends out of thin air is nonsense and also that the textbook model of multiple loans is unrealistic (see this article from 1971), this is the crux of the matter, as Alan has just pointed out. Does the state of the economy depend on bank lending or does bank lending depend on the state of the economy?Your theory offers a purely monetary explanation for the boom/slump cycle — and a purely monetary way of avoiding it. No attention is paid to what happens in the "real economy" where wealth is actually produced, for profit. No notice is taken of the competitive struggle for profits leading to overproduction.A boom is a situation in which markets are expanding. Businesses assume that this will go on for ever and plan to expand their productive capacity to meet this. They are eager to get finance to do this and turn to the banks to borrow money to invest in increasing production. Bank lending increases. The demand for finance drives up the rate of interest. This is one of the factors bringing the boom to an end, but the main one is overproduction (in relation to the market) in a key sector which results when all the planned-for increased productive capacity comes on stream.In the ensuing slump, the demand for bank loans falls off and interest rates fall. As long as it remains unprofitable to invest as much as before, the government can encourage banks to make loans as much as it likes but this won't have any effect. Nor is there any way that the banks can force businesses to take out loans they don't want. The initiative for a recovery has to come from profitability being restored by events in the real economy (such as the clearance of unsold stocks, the decline in real wages due to increased unemployment, the weeding-out of unprofitable firms which their assets passing cheaply to their rivals).We are seeing this right now. The government has offered all sorts of incentives for the banks to lend, but they are not doing so. The fact is that the government can no more force banks to lend in a slump than it can stop them lending in a boom. How much banks lend depends on the state of the economy, on whether it is in the boom or the slump stage of the business cycle.There is no monetary policy or monetary or banking reform way of avoiding the boom/slump cycle. This cycle is built-in to capitalism and is caused by events in the real production-for-profit economy. The only way to avoid it is to end capitalism by converting the means of production into common ownership under democratic contro,l so that they can be used to produce to satisfy people's needs instead of for sale on a market with a view to profit. Then there will be no need for money or banks.