They create liabilities; IOUs. Just like you can. And there's no limit to how many you are allowed to create, beyond your creditworthiness in the eyes of the party to the exchange.
Suppose I give you an IOU for $100. Can you go and buy groceries with it? Or even more to the point, can you pay your taxes with it?
There's nothing special about dollars, except that they are widely accepted in exchange and accepted by the government by mandate.
Correct. They have a choice about whether to accept your IOU or not (and, as you say, they will most likely choose not to). You have no way to force them to.
(In the case of paying taxes, the other party is the government, and they definitely won't accept your IOU; you have to pay your taxes in the government's fiat currency.)
> they would accept the IOUs of the FRB
Because they don't have a choice; by law everyone has to accept Federal Reserve Notes (I use that term because I don't agree with using the term "IOU" to refer to them, for reasons which I have argued in other subthreads and don't want to rehash here) as legal tender. And the government can back up that law with legitimate force, because it's the government. That's why having a system where the government prints money is different from a system where private entities print money.
Really? Normal people can lend money they don't actually have? How does that work?
If you mean that normal people can create wealth, of course they can. But that's not what we're talking about here.