EDIT: It would also be nice if the game paused around major events to give you more time to think & adjust. I found that the economy went off the rails if you don't react right away.
Sounds pretty realistic to me!
It is far from a fringe viewpoint in the finance world that central banks have contributed more to volatility than to stability over the last 20 years.
Wow - this is insanely inaccurate. Before the active central bank era (call it post-WW2), recessions lasted up to twice as long as they do during the modern era. Unemployment also peaked at much higher numbers: 25% during the Great Depression, for example. The pre-central bank localized agrarian and early industrial economic model leant itself to boom and bust cycles eg massive instability.
Glad to see we put those patterns behind us /s
The only decision the Fed could (and eventually did) take to allow the money supply to expand was removing the US from the gold standard.
Those issues were real and went o longer than they needed to but also weren't as deeply structural as the issues today. Our issues are different but not better.
Given the consequences of the Great Depression (WW2) it seems unlikely active central banks have been a net good.
The economy was in a permanent boom and bust cycle e.g. the Long Depression (or the first Great Depression) lasted close to a quarter of a century.
For example: the GFC. Central banks bail out bad actors which perpetuates the incentives that caused these actors to make bad decisions in the first place ("bad" meaning not optimal globally, e.g. selling bonds you know are worthless). If a gold standard was in use, this would simply be impossible. The government would need to increase taxes to bail out the banks, which would be rejected by citizens who are busy hoarding gold and cursing the banks, which means the banks that replaced the bad actors would be incentivized to avoid the mistakes their predecessors made. Alternatively, the GFC may simply not have occurred, because under a gold-standard the banks cannot assume they would be bailed out and this knowledge would cause them to be more risk-averse. "Every Battle Is Won Before It Is Ever Fought"
The use of fiat currency provides control over the economy, but we shouldn't assume that that control is always used in the best interests of the many. The reason a gold standard is so popular among libertarians is that no institution can have arbitrary monetary control over individuals via printing money.
Mortgage backed securities caused the GFC, but only a small part of the bank dealt with mortgage backed securities. It doesn't make sense to let that drag the rest of the bank and the economy down along with it, which is why the bailouts were necessary. It's not the job of central banks to punish bad actors. Their job is to prevent the next Great Depression. You don't blame the ER doctor who delivers a frightening dose of blood thinners to a heart attack patient. You blame the patient's bad habit of eating barrels of pork, which in this case would be Congress. If Congress did not force the treasury to issue so much debt, the Federal Reserve wouldn't have to buy so much of the debt back in order to lower interest rates.
I'm not saying that the GFC and huge Government debt are the fault of the Central Banks, but they are much more likely to occur because the Central Bank uses a fiat currency. If we had a gold-standard and the Government issued huge amounts of debt, eventually they would run out of creditors who trusted them, and they would be forced to change spending habits.
And if the C suit have such little control that their employees can collapse their company, they are simply incompetent and their losses should not be socialised.
It is really quite strange that one would consider the gold standard a source of liberty. Humans aren't made out of gold. They die at some point, creating an obligation that outlasts a human life is honestly sickening and perhaps worse than slavery.
Also, I don't understand why a gold standard would produce an obligation that outlasts a human life? A gold standard is seen as a source of liberty because the alternative, fiat money, gives huge amounts of power to the Government / Fed in ways that may not be good for society overall.
The real problem is a fall in nominal GDP. And that's a problem no matter whether prices are rising or falling.
Think about it this way. Germany keeps saving more euros. Greece and Spain are trading with each other. At some point all the money is in Germany, making it impossible for Spain and Greece to trade with each other even though they would have maintained balanced trade between each other. Greeks can't buy the latest gadgets produced in Spain even if they wanted to.
The value of currency fluctuated much more during most of the 19th century than it did between 1990 and 2020. It’s just that the periods of inflation were followed by years of deflation. I think for most people and businesses stable and predictable inflation os generally preferable to a permanent boom and bust cycle.
Relative value usually matters more than absolute value: if money is depreciating at 1% but you can invest in stocks for a 1% return then you would invest in stocks (ignoring risk). Google: alpha vs beta returns.
Risk/volatility and diversification also matter: putting all your wealth into a single asset class is probably a bad idea.
> bare minimum of apples needed for survival
Edit: People are not ideally rational spenders. Also depending on your age, you may value spending now more than saving for an uncertain future. At 70 your death probability hits 2% per annum[1], so saving 1% for next year might not make sense. At any age you may look at history and you might not trust that your money will useful next year (plenty of examples where stable governments have screwed the pooch).
Wait, that's really interesting! Where did you read that?
Apparently this has been the case for long enough that there's even an old Chinese proverb
> Wealth does not pass three generations
———
[0]: https://www.fa-mag.com/news/how-to-stay-rich-in-europe--inhe...
>> Maintaining inherited wealth has worked for generations of Frescobaldis over 700 years
The article gives a counter example (wealth passed 700 years is way over 3 generations), and tries to argue that this example is more than just an outlier?
>> heirs and heiresses make up about half of Western Europe’s billionaires.
You can save cash which does not result in additional investment. When banks refuse to lend money, saving does not result in additional investment, in fact that is the cause of QE. The government feeling compelled to invest because people in the private economy refused to invest.
Stuffing cash under your mattress takes it out of circulation. An inflation targeting central bank will 'print' more money to make up for the missing cash.
That new cash will be spend. (Or, if people keep stuffing it under mattresses, the central bank can just keep 'printing' money.)
In a few years, when you take the money from under your mattress and buy yourself a nice ice cream, the central bank will notice that total spending has gone up, and decrease the amount of money in the economy to keep inflation on target.
It's exactly as if you had lend out the money from under your mattress to the central bank.
(And by 'print money', I mean that they will buy assets with newly created money. Typically they buy government debt, but they can also buy stocks or gold or foreign exchange or rare Lego sets.)
In any case, it looks like we don't actually disagree on what's happening, only on how to interpret it.
I hold that stuffing money under your mattress isn't the problem here. Central bank monopoly on printing money is.
If you stuff privately issued money under your mattress, it's the private issuer that can increase its balance sheet. No government-run central bank required for this.
The Austrians are famous for committing extreme austerity before world war two.
First hand experience with tough deflation probably caused Hitler to leave Austria and move to Germany where he promised a quick fix through worker programs. His goal to conquer Europe was basically equivalent to trying to rebuild the Roman empire which was dependent on conquering more land to grow its economy.
The gold standard has no history of success, it lead to the rise of feudalism and countless of wars, revolutions and conflicts.
The only logical answer is to stop the articial price controls on the interest rate and let it fall negative when the economy declines.
The fall of empires in history can quite literally be traced in the % of gold in their coinage Eg. Byzantine, Rome. The problem with history is that one can claim fiat led to the Iphone and that users of gold in the 1500s had bubonic plague, but these links are very tenuous. Humans continue to make progress in science and tech. Revolutions were a result of crumbling economies that lost accountability to their own people. The 2 world wars were fought on debt and broke the gold standard[1]. All wars since have been debt wars [2]. Comparing gold to fiat is in my opinion similar to capitalism vs communism. Do people live on communism - yes. Does the system free up the market to chase efficiency - no. Similarly, making the Govt accountable and free market-y (ie not allowing them to dilute everybody's money via printing which is a hidden tax) will in my opinion bring about a step change in human progress
I am glad you bring up the interest rate price control part. I agree. That's one piece of the free market that is missing. The other is the gold standard making the Govt responsible in its spending instead of passing relief acts that package a ton of $ to unrelated expenditures under the name of helping families with children.
1: https://www.britannica.com/topic/money/The-decline-of-gold 2: https://bitcoinmagazine.com/culture/how-the-fed-hides-costs-...
Well you would be right if upu only averaged out yearly inflation over large periods of time. However this stability you’re talking about is just an illusion.
Year to year it was much worse e.g. during the 19th century yearly inflation in excess of 10% was much more common than after WW2 however it was usually followed by similarly high deflation when the current bubble burst.
https://www.in2013dollars.com/uk/inflation/1800?endYear=1914...
Which times and which economies are you talking about? There were different regimes that are often lumped together as the gold standard.
(Eg the 19th century Canadian monetary arrangement was very different to mid-20th century US arrangements.)
The problem with gold is that it's finite. It might be stable, but it's stable for a very small amount of money. The existing system allows us to create a huge supply of money that is used to drive the creation of these monster companies that end up doing things like inventing new microchip fabrication processes and iPhones. If you suck up all the money supply the economy might be stable in terms of inflation but it can't grow.
However, when we use money we don’t consume it. It simply changes owner. Sort of moving through the economy unchanged in form.
> If you suck up all the money supply the economy might be stable in terms of inflation but it can't grow.
How do you explain the solid economic growth in the 40-year period 1870-1910, which happened during the international gold standard?
Let's say you own 1% of the gold of the economy. Notice that you also end up owning 1% of the savings in the economy. If an enterprising individual increases productivity and his company produces more, the value of gold will go up, leading to unearned gains in the value of your savings. Since you own 1% of the economy and the gold standard artificially enforces this against the will of other participants, you will gain a 1% share in the improvements of the company even though you have contributed nothing and taken away potential income from the entrepreneur. If the invention caused the economy to grow by 1% then the entrepreneur would expect to receive a 0.9% in the economy. That share would require everyone to give up 0.9% of their savings. Meaning your savings must go down to 0.91% of the economy. Of course, this doesn't happen in a gold standard which massively hurts the productive economy and that is exactly why there is a constant need to mine out more gold, to let new entrants into the economy as the old ones don't want to give up their gold and let it circulate in the economy. The gold standard is effectively a tool for violence and extortion.
We don't all carry our savings in fiat cash (or central bank reserves) today, either.
You can save in bank deposits (denominated in gold, or fiat money, or whatever your bank offers), you can save by buying stocks, you can save by buying a house, etc.
This has worked really well in the past in eg Scotland and Canada.
Also, the price level can adjust.
You can have both, neither or either one.