<p>Lending is a complicated process and it is far easier to buy treasuries secured by the government than to do it directly. Also the Bank has to request a loan. The government cannot easily force them.</p>

CC BY-SA 4.0
2018-10-17T20:11:06.503Z
what do you mean by "it is far easier to buy treasuries secured by the government than to do it directly"? Buying treasuries would be buying debt from the government. I'm talking about selling debt to the government.
Jonah
CC BY-SA 4.0
2018-10-17T19:44:26.053Z
2018-10-17T19:44:26.053Z
user19856
<p>There are several reasons why the Federal Reserve would never make loans to individual people:  (a) it does not have the resources needed to assess creditworthiness (that's what private banks do) (b) they consider themselves in the business of managing broad economic variables such as interest rates and the level of reserves, and not in the business of allocating credit.  (c) only in exceptional circumstances do they take direct exposure to the credit of the private sector (eg following the 2008 credit crisis), and would not want to do this as a matter of course. </p>

<p>The CreditCoin idea seems open to abuse (you'll have a hard time tracking down delinquent borrowers). The types of people that like crypto don't like giving their identity and all the other info you'll need to make an accurate credit assessment.  </p>

CC BY-SA 4.0
2018-10-20T17:54:17.300Z
Makes sense, they really only give loans to banks. I agree, a user would probably have to get approved for a CreditCoin account similar to a credit card or bank account. Just a built-in credit score might not be enough.
Jonah
CC BY-SA 4.0
2018-10-20T12:22:03.300Z
2018-10-20T12:22:03.300Z
dm63
<p>I've been thinking about the credit theory of money lately and how it creates money. Since Banks look for sufficient reserves <em>after</em> extending a loan, and since the central bank always loans out money to banks that need more reserves, money seems to be created by banks extending loans to people/organizations. With this in mind, why do banks mess around with leveraging deposits to "multiply" the monetary base into M1, is it beneficial to minimize the amount of MB in circulation?</p>

<p>Maybe instead of having private banks (that require heavy government regulation anyway), the central bank could extend loans by printing more MB. The CB could lend at a risk-free rate of 0%, and any interest would be just to cover the risk. This way a 1:1 ratio could be maintained between total outstanding private debt and total dollars in circulation, which could be done by paying for old delinquent loans with interest revenues from paid-for loans.</p>

<p>The wikipedia page on money creation states that "The amount of money that is created [...] when a loan is issued is equal to the principal of the loan, but the money needed for paying the compound interest of the loan has not been created. As a consequence of this process, the amount of debt in the world exceeds the total money supply. Critics of the current banking system are calling for monetary reform for this reason." Maybe having an unlimited money supply (well, limited to the combined credit-worthiness of the population) in the way I described could be a solution to this problem?</p>

<p>I'm a blockchain software developer and I'm thinking of making a CreditCoin cryptocurrency that works in this way, with new coins being minted in exchange for a promise of monthly repayment (in the same coin) and with a built-in credit score system to determine individuals borrowing limits and interest rates. Of course the actual identity of the individual will have to be known as well to track credit score. To me, this seems like a cryptocurrency that has the potential to be much more stable than BTC or ETC or the others. BTC has proven to be very volatile even with high liquidity and a market cap of over 100 Billion dollars.</p>

<p>Why isn't this the way, say, the US government does things? Is it a viable alternative to the existing system? If not, why? Is it beneficial to minimize the MB?</p>

<p>If you don't have all the answers, a partial answer is fine. I'm no economist, just someone interested in macroeconomics, so take what I say with a grain of salt!</p>

<p>Edit: This seems to be an existing idea. The wikipedia page <a href="https://en.wikipedia.org/wiki/List_of_monetary_reformers" rel="nofollow noreferrer">List of monetary reformers</a> lists a group who are "Supporters of publicly issued money who oppose charging interest on issuance of money, formerly called 'Greenbackers' in late 19th century United States." There's also an organization called <a href="https://en.wikipedia.org/wiki/Positive_Money" rel="nofollow noreferrer">Positive Money</a> advocating a system where "private banks would be deprived from their ability to create money." "Although Positive Money's proposal is similar to full-reserve banking or narrow banking, it differs in the sense that it would merge bank deposits and central bank money."</p>

CC BY-SA 4.0
2018-10-19T05:26:11.557Z
This would seem to be the same question as your previous, badly composed, badly received question. Please don't do that.
410 gone
CC BY-SA 4.0
2018-10-19T15:34:42.167Z
No that one is the same as this one. Any suggestions on how to improve composition and quality?
Jonah
CC BY-SA 4.0
2018-10-19T15:54:32.050Z
We have lots of questions already on the money supply, on this system. I strongly recommend working your way through the best-voted answers. Money supply is complicated. Don't expect to understand it straight away. Many people have half an understanding, and confuse themselves. Bear in mind that the loanable funds explanation is just as true as the "banks create money" explanation.
410 gone
CC BY-SA 4.0
2018-10-19T15:55:07.510Z
And if you just want to make money from cryptocurrency, all you need is a good story and some gullible rich people. Forget about macroeconomics.
410 gone
CC BY-SA 4.0
2018-10-19T16:59:06.310Z
Haha true but cryptocurrency ICOs are not really legal anymore in the US (Nor have they ever really been. SEC is now coming down on people). I just want to make something free that gets popular. Yes I'm probably confused about something and was hoping that someone could explain my confusion at the very least. I have found similar questions like you said so maybe I'll link them as an answer or duplicate.
Jonah
CC BY-SA 4.0
2018-10-19T18:44:15.733Z
Interestingly, the current money multiplier in the US is about 1 (due to QE I think) so almost all M1 is actually MB. Does this mean the US if effectively not a fractional reserve system at the moment?
Jonah
CC BY-SA 4.0
2018-10-23T03:08:40.983Z
@Jonah I think that last comment at 18:44 can be a question of its own if it hasn't been answered already.
Halfway Dillitante
<money-supply><banking><central-banking><federal-reserve><cryptocurrency>
Why doesn't the central bank extend loans directly?
Jonah
# Why doesn't the central bank extend loans directly?

(Asked by: username_0 on 2018-10-17)

I've been thinking about the credit theory of money lately and how it creates money. Since Banks look for sufficient reserves *after* extending a loan, and since the central bank always loans out money to banks that need more reserves, money seems to be created by banks extending loans to people/organizations. With this in mind, why do banks mess around with leveraging deposits to "multiply" the monetary base into M1, is it beneficial to minimize the amount of MB in circulation?

Maybe instead of having private banks (that require heavy government regulation anyway), the central bank could extend loans by printing more MB. The CB could lend at a risk-free rate of 0%, and any interest would be just to cover the risk. This way a 1:1 ratio could be maintained between total outstanding private debt and total dollars in circulation, which could be done by paying for old delinquent loans with interest revenues from paid-for loans.

The wikipedia page on money creation states that "The amount of money that is created [...] when a loan is issued is equal to the principal of the loan, but the money needed for paying the compound interest of the loan has not been created. As a consequence of this process, the amount of debt in the world exceeds the total money supply. Critics of the current banking system are calling for monetary reform for this reason." Maybe having an unlimited money supply (well, limited to the combined credit-worthiness of the population) in the way I described could be a solution to this problem?

I'm a blockchain software developer and I'm thinking of making a CreditCoin cryptocurrency that works in this way, with new coins being minted in exchange for a promise of monthly repayment (in the same coin) and with a built-in credit score system to determine individuals borrowing limits and interest rates. Of course the actual identity of the individual will have to be known as well to track credit score. To me, this seems like a cryptocurrency that has the potential to be much more stable than BTC or ETC or the others. BTC has proven to be very volatile even with high liquidity and a market cap of over 100 Billion dollars.

Why isn't this the way, say, the US government does things? Is it a viable alternative to the existing system? If not, why? Is it beneficial to minimize the MB?

If you don't have all the answers, a partial answer is fine. I'm no economist, just someone interested in macroeconomics, so take what I say with a grain of salt!

Edit: This seems to be an existing idea. The wikipedia page [List of monetary reformers](https://en.wikipedia.org/wiki/List_of_monetary_reformers) lists a group who are "Supporters of publicly issued money who oppose charging interest on issuance of money, formerly called 'Greenbackers' in late 19th century United States." There's also an organization called [Positive Money](https://en.wikipedia.org/wiki/Positive_Money) advocating a system where "private banks would be deprived from their ability to create money." "Although Positive Money's proposal is similar to full-reserve banking or narrow banking, it differs in the sense that it would merge bank deposits and central bank money."

**Tags:** money-supply, banking, central-banking, federal-reserve, cryptocurrency

> **Comments:**
> **username_1**: This would seem to be the same question as your previous, badly composed, badly received question. Please don't do that.  
> **username_0**: No that one is the same as this one. Any suggestions on how to improve composition and quality?  
> **username_1**: We have lots of questions already on the money supply, on this system. I strongly recommend working your way through the best-voted answers. Money supply is complicated. Don't expect to understand it straight away. Many people have half an understanding, and confuse themselves. Bear in mind that the loanable funds explanation is just as true as the "banks create money" explanation.  
> **username_1**: And if you just want to make money from cryptocurrency, all you need is a good story and some gullible rich people. Forget about macroeconomics.  
> **username_0**: Haha true but cryptocurrency ICOs are not really legal anymore in the US (Nor have they ever really been. SEC is now coming down on people). I just want to make something free that gets popular. Yes I'm probably confused about something and was hoping that someone could explain my confusion at the very least. I have found similar questions like you said so maybe I'll link them as an answer or duplicate.  
> **username_0**: Interestingly, the current money multiplier in the US is about 1 (due to QE I think) so almost all M1 is actually MB. Does this mean the US if effectively not a fractional reserve system at the moment?  
> **username_2**: @username_0 I think that last comment at 18:44 can be a question of its own if it hasn't been answered already.  

---

## 2 answers

### Answer by username_3 on 2018-10-17. Score: 1

Lending is a complicated process and it is far easier to buy treasuries secured by the government than to do it directly. Also the Bank has to request a loan. The government cannot easily force them.

> **Comments:**
> **username_0**: what do you mean by "it is far easier to buy treasuries secured by the government than to do it directly"? Buying treasuries would be buying debt from the government. I'm talking about selling debt to the government.  

---

### Answer by username_4 on 2018-10-20. Score: 0

There are several reasons why the Federal Reserve would never make loans to individual people: (a) it does not have the resources needed to assess creditworthiness (that's what private banks do) (b) they consider themselves in the business of managing broad economic variables such as interest rates and the level of reserves, and not in the business of allocating credit. (c) only in exceptional circumstances do they take direct exposure to the credit of the private sector (eg following the 2008 credit crisis), and would not want to do this as a matter of course.

The CreditCoin idea seems open to abuse (you'll have a hard time tracking down delinquent borrowers). The types of people that like crypto don't like giving their identity and all the other info you'll need to make an accurate credit assessment.

> **Comments:**
> **username_0**: Makes sense, they really only give loans to banks. I agree, a user would probably have to get approved for a CreditCoin account similar to a credit card or bank account. Just a built-in credit score might not be enough.  

---

