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Inflation, GDP, interest rates, the Fed and the whole economy.
13 entries
1770sโ1920s
Thinkers explain prices, trade and competition, while the telegraph and the ticker speed markets up.
In the Panic of 1907, bank runs spread until financier J. P. Morgan organized a rescue. To avoid depending on one man again, Congress passed the Federal Reserve Act in December 1913.
The Fed could lend to banks in a crisis and influence how much money and credit flowed through the economy.
๐ก Why it made sense then
Panics kept recurring, and the country had no lender of last resort.
Ideas it gave us
Monetary policy is how a central bank manages interest rates and the money supply to keep inflation low and employment high. Raising rates cools the economy; cutting them stimulates it.
๐ฎ The game's bank rates follow the real Fed, so real monetary policy changes game savings and loan costs.
Open the full entry โPrices rose sharply during World War I. In 1919 the Bureau of Labor Statistics began publishing a cost-of-living index for US cities, the start of today's Consumer Price Index.
๐ก Why it made sense then
Workers and employers needed a fair way to adjust wages as prices rose.
Ideas it gave us
The consumer price index tracks the price of a fixed basket of goods and services that households buy. Its percentage change over a year is the most quoted measure of inflation.
๐ฎ The game takes the real US CPI inflation rate and applies it daily to uninvested cash.
Open the full entry โInflation is the rate at which prices across the economy rise over time, so each dollar buys less. The US Federal Reserve targets 2% a year.
๐ฎ Once a day, uninvested cash in the game loses value at the real US inflation rate (CPI). Invested money isn't affected.
Open the full entry โ1929โ1950s
The Great Depression leads to deposit insurance, securities law, margin rules and modern economic statistics.
From 1929 to 1933, US output collapsed and prices fell by roughly a quarter. Waves of bank runs closed thousands of banks, and unemployment reached about 25% in 1933.
Falling prices made debts harder to repay, which led to more defaults and more failures.
๐ก Why it made sense then
It showed how panics, falling prices and bank failures can feed on each other, and it shaped the rules that followed.
Ideas it gave us
Deflation is a sustained fall in the general price level. It sounds good, but it can make people delay spending and make debts harder to pay, which deepens downturns.
๐ฎ Game prices never deflate automatically; only falling demand pushes listings down.
Open the full entry โA bank run happens when many depositors withdraw their money at once because they fear the bank will fail, which can make it fail even if it was sound.
๐ฎ The game's bank can fail if losses on its loans wipe out its capital. Savings are insured only up to $25,000, so large savers have reason to worry when losses grow.
Open the full entry โA recession is a significant, widespread fall in economic activity that lasts more than a few months. A common rule of thumb is two quarters in a row of falling real GDP.
๐ฎ The game has no recessions, but a long slide in most listings, or a bank failure, feels much the same: prices fall and loans are called in.
Open the full entry โThe unemployment rate is the share of people in the labour force who don't have a job but are looking for one. People not looking aren't counted.
๐ฎ The game has no jobs, but the bot agency lets you hire a bot you've beaten to trade for you for a week.
Open the full entry โIn 1934 economist Simon Kuznets presented estimates of US national income to Congress, the basis of what became gross domestic product.
๐ก Why it made sense then
In the Depression, lawmakers had no reliable number for how much the economy had shrunk.
Ideas it gave us
GDP is the total market value of all final goods and services produced in a country in a period. It is the main measure of the size of an economy and how fast it's growing.
๐ฎ The game has no GDP. Its closest measure of activity is trading volume, shown on the stats page.
Open the full entry โThe Banking Act of 1935 set up the Federal Open Market Committee, which decides how the Fed buys and sells securities. In time it came to steer the overnight rate banks charge each other: the federal funds rate.
๐ก Why it made sense then
Monetary policy needed one body making decisions for the whole country.
Ideas it gave us
The federal funds rate is the interest rate at which US banks lend reserves to each other overnight. The Federal Reserve sets a target range for it, and it drives borrowing costs across the economy.
๐ฎ The game's savings and margin rates follow the Fed's interest rate on reserve balances, which moves with the federal funds rate.
Open the full entry โMonetary policy is how a central bank manages interest rates and the money supply to keep inflation low and employment high. Raising rates cools the economy; cutting them stimulates it.
๐ฎ The game's bank rates follow the real Fed, so real monetary policy changes game savings and loan costs.
Open the full entry โIn The General Theory (1936), Keynes argued that economies can get stuck with high unemployment and that government spending can lift demand. He also explained why people prefer to hold cash in uncertain times.
๐ก Why it made sense then
Years of depression had shaken the belief that markets always recover quickly on their own.
Ideas it gave us
Fiscal policy is the government's use of spending and taxes to influence the economy. Spending more or taxing less stimulates growth; the reverse cools it.
๐ฎ Game taxes go to a public treasury that pays for bank bailouts before any new money is printed.
Open the full entry โLiquidity is how easily something can be bought or sold quickly without moving its price much.
๐ฎ Every listing is liquid in the sense that the curve always trades, but a quiet listing moves more per dollar. Market cap and depth on the quote tell you how much a trade will shift the price.
Open the full entry โStarting in 1940, a monthly survey of households asked who was working and who was looking for work. It became the source of the official US unemployment rate.
๐ก Why it made sense then
During the Depression, estimates of joblessness varied wildly, and policy needed a reliable figure.
Ideas it gave us
The unemployment rate is the share of people in the labour force who don't have a job but are looking for one. People not looking aren't counted.
๐ฎ The game has no jobs, but the bot agency lets you hire a bot you've beaten to trade for you for a week.
Open the full entry โMeasuring Business Cycles (1946), from the National Bureau of Economic Research, dated the ups and downs of the US economy. The NBER still dates official US recessions.
๐ก Why it made sense then
Understanding booms and busts required first agreeing when they started and ended.
Ideas it gave us
The market cycle is the repeating pattern of expansion, peak, contraction and recovery in prices and in the wider economy.
๐ฎ Listings go through their own cycles: a rush of buying when someone is in the news, a peak, a slide as holders sell, and sometimes a recovery.
Open the full entry โA recession is a significant, widespread fall in economic activity that lasts more than a few months. A common rule of thumb is two quarters in a row of falling real GDP.
๐ฎ The game has no recessions, but a long slide in most listings, or a bank failure, feels much the same: prices fall and loans are called in.
Open the full entry โ1950sโ1990s
Risk gets measured, options get a formula, and index funds and ETFs bring the whole market to everyone.
A Monetary History of the United States (1963) argued that a collapse in the money supply turned the downturn of 1929 into the Great Depression.
๐ก Why it made sense then
It changed how central banks think about their job in a crisis.
Ideas it gave us
The money supply is the total amount of money in an economy. M1 counts cash and checking deposits; M2 adds savings and other near-money.
๐ฎ New play money enters the game through signup and daily bonuses, rewards and bailouts. The treasury page shows how much has been printed for bailouts.
Open the full entry โOn 15 August 1971, President Nixon stopped converting dollars into gold for foreign governments and ordered a 90-day freeze on wages and prices.
Price controls brought shortages over the next few years, and the dollar became a currency backed by trust rather than gold.
๐ก Why it made sense then
The US was running low on gold and inflation was rising, and the government wanted quick action.
Ideas it gave us
A price ceiling is a legal maximum price, like rent control; a price floor is a legal minimum, like a minimum wage. A binding ceiling causes shortages and a binding floor causes surpluses.
๐ฎ The game has no price controls: every price floats freely on its curve.
Open the full entry โThe money supply is the total amount of money in an economy. M1 counts cash and checking deposits; M2 adds savings and other near-money.
๐ฎ New play money enters the game through signup and daily bonuses, rewards and bailouts. The treasury page shows how much has been printed for bailouts.
Open the full entry โThe 1973 oil embargo and later shocks pushed US inflation above 13% by 1980 while unemployment rose. Fed chair Paul Volcker raised the federal funds rate to about 20% in 1981, causing a recession that brought inflation down.
๐ก Why it made sense then
Inflation had become expected and built into wages and prices, and only very high rates broke the cycle.
Ideas it gave us
Stagflation is high inflation combined with slow growth and high unemployment. It's hard to fix because raising rates to cut inflation also slows the economy further.
๐ฎ The game can't have stagflation in the real sense, but inflation still eats your cash when trading is quiet, which is a small taste of it.
Open the full entry โAn interest rate is the price of borrowing money, stated as a percentage of the loan per year. For savers it is the reward for lending their money to a bank.
๐ฎ Game savings earn a little under the Federal Reserve's published rate on reserve balances; margin loans cost more than it.
Open the full entry โ2000โtoday
Trading moves online, costs fall to zero, and crises bring bailouts, quantitative easing and new rules.
Online brokers and the internet boom drew millions into trading, and many bought and sold within the same day. The Nasdaq peaked on 10 March 2000, then lost about three quarters of its value by late 2002.
In 2001 US regulators set the pattern day trader rule, requiring $25,000 in accounts that day trade often.
๐ก Why it made sense then
Excitement about a real new technology ran far ahead of what the companies would earn.
Ideas it gave us
A market bubble is when prices rise far above any reasonable measure of value because buyers expect to sell to someone else at a higher price, until confidence breaks and prices crash.
๐ฎ Listings can bubble: a rush of buying after news pushes a price far above where it settles once the excitement fades.
Open the full entry โThe market cycle is the repeating pattern of expansion, peak, contraction and recovery in prices and in the wider economy.
๐ฎ Listings go through their own cycles: a rush of buying when someone is in the news, a peak, a slide as holders sell, and sometimes a recovery.
Open the full entry โDay trading is buying and selling within the same day to profit from short price moves, closing every position before the market closes.
๐ฎ You can buy and sell as often as you like, but short-term gains are taxed at 22% versus 15% after a week, and quick round trips lose the spread and slippage.
Open the full entry โIn March 2001 the Bank of Japan, with interest rates already near zero and prices falling, began buying large amounts of government bonds to push money into the economy.
๐ก Why it made sense then
When rates can't go lower, a central bank needs another tool.
Ideas it gave us
Quantitative easing is when a central bank creates money to buy large amounts of bonds, pushing long-term interest rates down to support the economy when short-term rates are already near zero.
๐ฎ The city's ๐จ๏ธ money printer event is a joke about it; the real effect in the game comes from bailouts, which create new money when the treasury runs dry.
Open the full entry โBanks had borrowed heavily against mortgage investments. When US house prices fell, losses spread, and Lehman Brothers failed on 15 September 2008.
In October, Congress approved the $700 billion TARP rescue, and in November the Fed began buying huge amounts of bonds. The rescues stopped the panic but raised worries about rewarding risk-taking.
๐ก Why it made sense then
Letting big banks collapse risked freezing credit for everyone, so governments chose to rescue them.
Ideas it gave us
A bailout is when a government or central bank gives money to a failing company or bank to keep it from collapsing, usually because its failure would hurt the wider economy.
๐ฎ If losses wipe out the game bank's capital it fails, calls in its loans and is bailed out at the start of the next weekly season, paid first from tax revenue.
Open the full entry โMoral hazard is the tendency to take more risk when someone else bears the cost if things go wrong, such as a bank expecting a bailout or a driver who is fully insured.
๐ฎ The game's bank is bailed out when it fails, which shows the moral hazard: every rescue adds new money and leaves the same rules in place.
Open the full entry โLeverage is using borrowed money to increase the size of an investment, which magnifies both gains and losses.
๐ฎ Borrowing on margin at the bank is leverage: with half borrowed, a 10% move in your shares is about a 20% move in your own money, up or down.
Open the full entry โQuantitative easing is when a central bank creates money to buy large amounts of bonds, pushing long-term interest rates down to support the economy when short-term rates are already near zero.
๐ฎ The city's ๐จ๏ธ money printer event is a joke about it; the real effect in the game comes from bailouts, which create new money when the treasury runs dry.
Open the full entry โA 2006 law allowed the Fed to pay interest on banks' reserves from 2011. The financial crisis brought it forward to October 2008, as the Fed flooded banks with reserves and needed a way to keep control of short-term rates.
๐ก Why it made sense then
Paying interest on reserves let the Fed set a floor under interest rates even with trillions of dollars of reserves in the system.
๐ฎ In Journey Shares
The game's bank earns this rate on its spare cash, updated daily, which is where savers' interest comes from.
Ideas it gave us
Interest on reserve balances is the rate the Federal Reserve pays banks on money they keep at the Fed. It sets a floor under the rates banks lend at.
๐ฎ The game's bank earns the Fed's published rate on reserve balances on its spare cash, updated daily. Savers get a little under it and margin borrowers pay more.
Open the full entry โThe federal funds rate is the interest rate at which US banks lend reserves to each other overnight. The Federal Reserve sets a target range for it, and it drives borrowing costs across the economy.
๐ฎ The game's savings and margin rates follow the Fed's interest rate on reserve balances, which moves with the federal funds rate.
Open the full entry โIn March 2020, as the pandemic hit, the Federal Reserve cut rates to near zero, began buying bonds on a vast scale and set banks' reserve requirement to zero.
๐ก Why it made sense then
The economy was shutting down almost overnight, and the Fed moved to keep credit flowing.
Ideas it gave us
Quantitative easing is when a central bank creates money to buy large amounts of bonds, pushing long-term interest rates down to support the economy when short-term rates are already near zero.
๐ฎ The city's ๐จ๏ธ money printer event is a joke about it; the real effect in the game comes from bailouts, which create new money when the treasury runs dry.
Open the full entry โFractional reserve banking is the system in which banks keep only part of their deposits as cash reserves and lend out the rest, which creates new money in the economy.
๐ฎ The game's bank lends out part of what savers deposit, like a real bank, and keeps the rest at the Federal Reserve.
Open the full entry โ๐ฎ Practise with $10,000 in play money
Try it in a live 3D city with play money: trade shares in real public figures, get margin-called, pay your taxes and rob a bot or two. Free, and nothing real is at stake.
For learning only. This isn't financial advice.
