Fed Chairman Game

Today, I will share the Fed Chairman game where you will assume the role of the US Fed Chairman. Interest rates are a lever in the hands of the central bank as they strike a balance between inflation and growth (which has an impact on unemployment). Here you will get to handle interest rates and see the effect on the economy. It is a fun way to understand these dynamics.

You must be aware that there is a big debate going on in India with industry groups and the finance minister, Chidambaram, putting pressure on the RBI governor to reduce interest rates. What they forget is that inflation shows no signs of abating and is badly hurting the common man. What you will see in the  Fed Chairman game is mostly the same all over the world for any central banker. It is a tough job satisfying politicians and looking after the economy.

Here is the link to the Fed Chairman Game. Click here.

You might have missed reading some interesting articles at Capital Orbit which explained government finances and fiscal deficit in India.

Fiscal deficit explained in plain English.

Government borrowing explained in plain English

What do the RBI and the Batman movie have in common?

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Comments

    • says

      Jason, since we have talked earlier I am aware of your views. Well, there are a lot of problems the Fed is creating. I agree with you on that. My intention of sharing this game was only for people to understand the tug of war the central bank faces. In an ideal world there would be no fractional reserve banking and no abuse of money by governments. Yes, I too would love to see a different reality. For now, we have to live with the way things are and adapt!

  1. says

    I got dismissed pretty quickly (reason cited: tight-fisted policies causing huge job loss) :)

    I don’t know if this is educational or just entertainment but I found this interesting and humorous video (or parody) called “Fight of the Century: Keynes vs. Hayek”.

    http://econstories.tv/2011/04/28/fight-of-the-century-music-video/

    After playing the game, I’m having trouble understanding why high interest rates = unemployment. If that is true, won’t bitcoin (with a fixed limit) become deflationary and therefore cause high unemployment? What is the solution then? Maybe, a cryptocurrency similar to bitcoin but one which can be expanded by private “miners” only at a fixed rate but outside the hands of governments?

    Am I correct in my understanding that Austrian-school economists do not believe in ‘deflation=unemployment’? Perhaps, you should do a post on Keynesians and Austrians?

  2. says

    Ganesh, I too quite like the link that you have shared. I had seen the video earlier and was thoroughly impressed with the mashup of music and economics. I had paid attention to every single line and I can only marvel at the creativity of the creators of this video because it nicely summarizes the respective schools.

    I continue to read Austrian economics with a lot of interest. A lot of what they write makes sense. Frankly, a post on Keynesians and Austrians will be arcane for most readers. For me I have multiple goals. One is investing for gains. The second is academic interest. The first is what Capital Orbit aims to cover. I do not mean to belittle anyone’s interest in economics reading. I myself spend quite some time on it. All I am saying is that, most people are better of reading on investing for investing sake. Get comfortable with investing concepts and then come to economics.

    The series of articles that I did on government finances, RBI’s Quantitative easing and gold are all inspired by my readings of Austrian economics. I try to simplify as much as I can. I will keep your suggestion in mind. I will try to pick the most relevant points from an investing perspective that flow from Keynesian vs. Austrian debates for a future article. It will be challenging!

    Coming to your question, interest rates that are too high reduce investment growth. Owners who need debt for expansion think twice. This has a ripple effect through the economy. As a result, with growth slowdown, you have higher unemployment. Do send me an email on kunal@caporbit.com. I will share a good ebook with you.

    I am not completely familiar with bitcoin concepts. You are right to the extent that if the money supply (of which currency is a small part) increase is less than increase in real and financial assets you will have a deflationary situation. Gold supplies have historically grown at rates close to the population growth if I am not mistaken. But M3 (money supply indicator) in most economies around the world is way higher than real GDP growth. In India it is easily greater than 2 times the real GDP growth.

    Austrian economists do not deny that deflation will cause unemployment. They only say that its a necessary purging or cleansing. Let there be unemployment and re-allocation of resources (both capital and labour). Away from mal-investments to productive and useful investments. That’s what they would say.

    • says

      Thank you for the detailed explanation. And thank you for those links too.

      Also, about that ebook, can you email it to me? I believe my email address would be visible to you (in the wordpress comment section..)

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