Quantitative Easing Suggestion

Quantitative Easing should suppress interest rates. Not sure If It’s a possibility to change that on the next update but It’d make it more realistic if when QE was enforced interest rates fell but also keeping the inflationary triggers also. Otherwise the game is great. If QE actually artificially lowered rates as It should it would make debt more manageable in the game during a debt crisis.

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Hmmm. Interesting. I get the argument that more money available in the economy should mean more available for loans and thus lower interest, but the point about the debt interest is very specific to the risk profile associated with government debt.

Theoretically, if QE (which is money printing by another name) reduced the interest on debt, then you could ramp out QE as an easy fix for debt, which is definitely not the case.

The interest that people want to compensate them for holding government debt is mostly based on the perceived risk of that debt, which QE makes worse because it lowers the internationally-traded value of the underlying loan.

I definitely think QE should lower real-economy interest rates (and we have seen that recently) but is there any proven link between QE and lower rates on government debt?

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Hi Cliff,

I am no expert (but did study economics). QE is essentially the Central Bank buying (mostly) Gov debt from private institutions and directly from the gov so it does have a direct effect on Gov debt interest rates. There will be fewer gov debts on the market so the market will accept a lower interest. And yes, the additional money in the market forces investors to riskier options which results in the downward pressure on commercial loans and increase in GDP.

The reason QE is not seen as a quick fix is the concern that will it cause inflationary pressures on the economy (which in a downturn is not a problem) and confidence in the Gov ability to repay debt would be negatively affected.

So in the game it would be great to have QE with a direct effect on interest rates but it should cause more inflation than it currently does and inflation should have more consequences to everyone’s real earnings which in turn has an effect on how those people vote. It’s the economy stupid comes to mind. This means in the good times the taps need to be turned off or players will find they have a inflation crisis.

Hope this helps, let me know if I have not explained this well.

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So maybe QE should cost higher political capital so it encourages use in a debt crisis which results in the emergency powers (though should last longer) you have introduced. But also, inflation needs to be impacted by GDP. High GDP = inflationary pressure and this would be a good time to introduce interest rates policy. which gain, low interest rates cause an economic boost but higher inflation.

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I think a mod adds a central bank to the game. I think that the base game having a central bank would be most beneficial.

Cliff, what do you think?