Mostly agreed.

> I don't think anyone is under the illusion that credit expansion itself creates wealth in the sense of more dollars moving around means more wealth.

Alas, lots of people have very weird, and very wrong ideas.

> I think the relavent point here is that this form of credit expansion does expand the numerical value of deposits ("create money") which has asymmetric advantages to the bank. Due to having a central bank, the banks are basically acting as arms of the federal government when they do this.

Yes and No. From the bank's point of view fractional reserve banking works pretty much the same way you have described it here under eg a gold standard as well.

> The payoff the banks get from this is capturing the interest differential on these expanded credits as well as benefitting from the Cantillon Effect whereby they usually have prioritized access to new money entering the economy.

I rather doubt the Cantillon effect in an economy made up of smart actors who anticipate that new money entering the economy. (Though experiment to illustrate: if the Fed announced today that they are going to double the amount of money in the economy in exactly 12 months, you would see prices going up today in anticipation. The Cantillon effect would require prices to slowly go up one by one starting at the earliest in 12 months as the money makes it way through the economy like some kind of hydraulic fluid.)

Btw, there are also plenty of shadow banks that provide similar services to the economy but are not regulated as banks. They serve as a release valve for the economy.

In a very loose sense my stock broker (IBKR) is a shadow bank: lots of people have uninvested cash in their brokerage accounts and IBKR lends some of it to me as a margin loan so I can buy more stocks. Money market funds are another sort-of shadow bank.