"And let the Fed sell bonds to bring bank reserves back down to required reserve levels, so we have restraint on bank lending and bank issuances of liability"

This quote by Arthur Laffer is describing the Federal Reserve's capability to manage the money supply in the economy. By selling bonds, the Fed can minimize the quantity of bank reserves, which are the funds that banks have available to provide out. This lowers the amount of cash that banks can lend out, which in turn lowers the amount of liabilities that banks can issue. This assists to keep the money supply in check and avoid inflation. In other words, the Fed can utilize the sale of bonds to manage the amount of money in flow and keep the economy stable.