How did the institutions that sold the Securities to the Fed, get the securities they sold? They obviously had to buy them first, before selling them to the Fed. What did the institutions that sold the securities to the Fed use in order to buy the securities from the Treasury and other government agencies? They either used their existing "loanable" capital, in which case, they did not need the Fed's OMO to supply them with "loanable funds". Or, they created a balance sheet entry as payment for the securities, in which case, they created a balance sheet liability, which was backed by the purchased security. This would mean that the institutions that sold the securities to the Fed would have to use the proceeds to clear the liability of their books. (From thin air, back to thin air.) Of course, this is all predicated upon the false assertion that banks lend from their reserves and as documented by both the Fed and the BoE, they do not. In any case, there is no factual basis supporting the theory that the Fed's Open Market Operations either increases or decreases the usable money supply.