Keynes' (GT 1936, 81, 83) alleged "optical illusion" of intermediation appears to be an elementary but fundamental error: "It is supposed that a depositor and his bank can somehow contrive between them to perform an operation by which savings can dissapear into the banking system so that they are lost to investment ..." One counter example to Keynes' assertion is excess reserves. 

Keynes also asserted that if banks use the deposit to buy a second hand bond the bond seller would be "dis-saving ... he must be spending it on current consumption in excess of current income ... It follows that the agregate saving of the first individual and of others taken together must necessarily be equal to the amount of current new investment."  

Yet no new net investment would take place (in the relevant time period) if the bond seller used the proceeds to 

1. hold money for speculative purposes (and the bank held this money demand as excess reserves) or 

2. buy another second hand bond, and the seller of that second hand bond used the proceeds to buy another second hand bond and so on throughout the relevant time period. 

I would be grateful to be directed to the secondary literature on this topic.

RL