After having a debt at the start of a scenario, where you pay intrest in your budget I find it strange that for a surplus there is no intrestyield. A surplus will be invested by the government, for instance in other government bonds. My suggestion is to create a yield of about 50% the intrest costs. Who agrees
There was a discussion of this in the old games forums, but I think the consensus was that nobody really knows what should happen because the real world situation is so rare! but presumably, the government can effectively lend money at the prevailing interest rate? ANy economists know what happens? and in practice HOW the money gets lent?
My father (who’s an important economist) said that Australia actually encountered problems when they had a surplus because banks didn’t have an ultra-reliable source to lend to anymore.
Oohhh, that’s a very interesting point. I hadn’t considered that banks would do lending to the government, I tend to think of government bonds and national savings.
I’m an economist and this problem isn’t that uncommon. What a government might typically do is maintain a small amount of debt for the purposes of the banking system, etc., but invest the surplus in other things. These might be foreign government’s debt, equities (think of the Sovereign Investment Funds currently in the news) or gold. In general it would be expected to earn a good return on this.
Interesting, I guess I may have to think about that kind of thing for when you have a government surplus.
It annoys me that I can´t test Democracy 2. So I really don´t know how complex it is. But,
Lending money to other countries (or giving money gifts for that matter) could increase relationships and make the pressure from other countries about your import taxes etc decrease. Also reduce the chances of war (if there are any in the first place) or/and make the global economy more optimistic, seeing as you help invest/give money to help out needing countries. Deciding to lend out money to a poor country that later cant pay you the debt can also result in conflicts and anger both from a international viewpoint and from socialists who think you should rather “give” money aid instead of “lending”.
Interests on surplus would totally be a must I was disapointed when after 3 years of saving a lot of billion dollars so that I could afford better services just before election time, that in the end… it would be worthless. The idea that you can lend money to other contries is totally true… in fact that’s what the IMF is for.
I think this is a very important feature. Nations pretty much never maintain a large pool of loose capital. It is either internally invested in projects or invested in the debt of foreign countries. Much like how the Chinese and Japanese government spend large portions of their savings on US Treasury securities.
I have found a great website on overseas sovereign wealth funds,that gives a good explaination on what they do and profiles all the existing ones.
Not about interest, but one thing I’ve always wanted to be able to do is to have a policy that returns the excess to the people on a per-capita basis–a citizen’s dividend. In other words, you never build up a surplus, because if you happen to have anything left over after expenses, it is returned to the populace.