The health of an economy is related to the speed at which money moves through it. Everyone does fractional reserve banking because it makes better use of money, causing more activity, which creates wealth. A catastrophy could cause the whole system to collapse, but as he writes, if that happens there is no escape. The fed's job is to prevent that from happening.
The great depression was the result of concentration of wealth. Money stopped moving through the system and became concentrated in gold held by a small number of rich people who weren't spending it. The problem was solved first by taking the money from them by force, and then by decoupling the value of money from the value of gold. It won't happen again. A collapse could happen, but not that way.
* Contraction is permanent if money is withdrawn from the system and sent out of country.
That would only be true if no one outside of the country ever bought American goods or services.
* He uses the word "foreigners" to mean people living in other countries receiving the money from the US but spending it in their own country. That money does not recirculate in our economy. Not sure if this was meant to be derogative but I didn't pick up that implication.
It was a rather transparent reference to immigrants sending money to relatives at home I think. There is no difference, in this analysis, between a situation in which someone comes to the US, gets money, and sends it to relatives abroad, and a situation in which an American buys a product made overseas, like everything at Walmart. The money goes to someone outside the country. It comes back when someone in that country spends money on US goods and services. This can be as abstract as a Chinese person buying a Japanese car made by a company that pays a dividend to an American stock holder. Its a global economy. Money flows in both directions.
RE: Subprime lending not main trigger of real estate bubble