Political online game and economic simulation

***Disclaimer: I am by no means an expert on the topic. I am 15 years old and I made this for fun. I appreciate if you still read it and give me criticism/suggestions/corrections.

Ever since the United States Panic of 1819, the first U.S.A. major peacetime financial crisis, bank crisis happened annually,about every decade, up until the Great Depression. However, after the Great Depression, these major bank crisis stopped completely until the United Kingdom's Secondary Banking Crisis of 1973-1975. Why is that?
Well, to answer that, I looked into the very first major banking crisis, the Crisis of 1763, a crisis that began after the collapse of the major bank called Leendert Pieter de Neufville. During the Seven Years War, he implemented a curious financial innovation called wisselruiterij. Supposedly, this financial innovation somehow led to his bank collapsing after peace broke out (sound familiar?) It(the bank) collapsed because it could no longer meet its obligations (hmmmm that also sounds familiar.) This, in short, created a domino effect that resulted in a confidence crisis, the banks didn't want to give each other credit anymore. This banking crisis spread from Amsterdam to Germany to the Scandinavian states. Then, that begs the question, what is this mysterious wisselruiterij, and how could it create that large of a domino effect after one bank has a crisis?
Strangely enough, there is no official translation for what the word means in English. I do not speak German nor have I studied it, so, here is Google translate's translation: "Drawing with dishonest intent and do accept bills which no real underlying transaction . This can occur between multiple parties on both sides of orders each." This is very interesting to me. From my understanding, the bank borrows money from other banks to give to the government to fund the war. However, the major bank has no real intent or ability to pay of what it borrowed and the government has no ability to pay of what it borrowed, creating a crisis. This seems to be the underlying cause of the American Revolution as well. The government had to pay off the bank to end the economic crisis. So, what better way to do so other than raising taxes and tariffs on expensive commodities like tea? Anyway, I'm getting off track here. So, was the cause the same during the next bank crisis?
The next crisis happened a decade later, the Credit Crisis of 1772. It all started when Alexander Fordyce, a man who fled to France to avoid paying off his debt. That sound fine, right? Well, it would be, if not for the fact he was a major partner for the banking house Neal James Fordyce and Down. Yet again, the same crisis happened. People lose confident in banks, want their money back, and the bank doesn't have it. Why? Because it gave money away that it did not have. In short, a modest 20 important banking houses went bankrupt because they all owed money that they could not pay (this seems to be a trend.) Well, surely there has to be more to this, twenty banks don't collapse on their own? Well, there is more to this. You see - the entire economy of Briton was based around Credit, give me money that I don't have right now and I will pay you off later. To put it simply, banks borrowed money from each other to make fake money that isn't supported by any kind of currency. The banks would exhaust the current capital, then factitiously create new capital with a series of bills. Too better explain how this is bad, let's say A, say in Edinburgh, drew a bill on his agent B in London, payable in two months. Before payment was due B redrew on A for the same sum plus interest and commission. Meantime A discounted his bill in Edinburgh and before the two months were up he drew another bill on B and so on. This, fake money is created. This method can support an economy, but only temporarily. Why? Because you have to pay someone back, wether it be the citizens, the government, or other banks. This exact same scenario happened during the Roaring Twenties. Over stocking happens, supply goes up, demand goes down, and people go to the bank to get money to pay off the credit, and the bank doesn't have enough money because of my example above, they made artificial money that has no value creating fake economic boom. Similar scenarios like these seem to repeat themselves up until after The Great Depression. Why is that?
Well, the answer to that is banking regulation. The regulations are numerous so I will summarize it for you:

They reduce the level of risk to which creditors are exposed (I.e. Banks can't make artificial money)
Reduce the risk of disruption resulting from adverse training conditions for banks causing multiple or major banking failures.(like the 1772 crash)
Reduce money laundering
Protect bank confidentially
Direct credit to favored sectors
Corporate Social Responsibility (self regulation)
In general, the point of banking regulation is to prevent the causes of previous crashes. This is fulfilled with all kinds of minimal requirements that restrict banking leeway, but with all these restrictions, why did annual decade crisis after the Secondary Banking Crisis?
Well, the failure of the Barber Boom. The Barber Boom, ironically, did the opposite of its intended purpose. It failed to decrease unemployment rates, it substantially increased interest rates on credit, and fixed rent prices, which created a housing bubble. When this housing bubble 'popped' housing prices saw a 50% decrease in London real estate. And then, as if the house got a full house of aces, the stock market crashes. How could this happen? How can an economy with 8% yearly growth collapse to -1% in less than a year? The answer is severe inflation, a severe loss of purchasing power with money snow balled with increased prices. Mix that with unemployment and worker's Union and you got yourself a mess. So, what does this got to do with banking? Mortgage, if housing prices go down, then the bank freaks out and raises interest to make up the losses. This is all fine and dandy until inflation goes into account as well. Now, the same problem, even with all those regulations, occurs - the small banks borrow money from the big banks; they don't pay the big banks off, interest rates are increased, and then it spirals out of control and causes the stock market to crash because the banks have artificial money and can't hand out loans to create temporary economic growth; likewise, the banks lose the people's money as well. That is my understanding of it. Then, there is the big question. How can major bank crisis be averted?
Here are my suggestions:
Banks cannot be allowed spend other people's money in investments. This will slow economic growth, but it will avert giant crisis, low risk low reward.
Banks may not charge an interest over 5% on mortgage loans.
Banks cannot borrow money from other banks.
Banks are no longer privatized.
Banks cannot invest more money then what they have (IE if they have and loan out 10000$ then they can't loan out 20000 then 40000)

All money is debt. All money is credit. It's endogenous money creation, dude. It happens regardless if you're under a fixed exchange rate, under a metal standard, or free floating fiat.
See here. The classical gold standard era was a myth:



Banks are not disciplined on the asset side.
First, you need to understand endogenous money creation, then you can look at how to regulate this process - which can never be completely stopped.


Loans create deposits is an operation in endogenous money which leads to the creation of no new net financial assets. The money supply grows when people acquire bank debt. The money supply shrinks when people pay off those debts or default on them. Banks produce bank credit, they don't produce net income. Bank lending is just leveraging off of HPM (high powered money). Government debt (i.e. nongovernment sector equity) + the government's present fiscal position + nongovernment sector spending patterns determines the private sector's credit structure.
Aggregate demand is income + the change in private debt. Private debt inflation adds to aggregate demand and thus means more economic activity. Private debt deflation (what we've been experiencing since the financial crisis onwards, i.e. private sector deleveraging) puts negative pressure on aggregate demand, and leads to depressed levels of economic activity.



Also, here's a list of asset side banking regulations (suggested by Warren Mosler) which are so sane that's insane to operate without them. Note, they can be applied to any country which operates its own sovereign currency under a free floating nonconvertible fiat regime.

1. The CB to provide unlimited guarantee for euro deposits.

2. The CB to lend unsecured to member banks, and in unlimited quantities at its target funds rate, by simply trading in the funds market.

3. Make a zero interest rate policy permanent. This minimizes cost pressures on output, including investment, and thereby helps to stabilize prices. It also minimizes rentier incomes, thereby encouraging higher labor force participation and increased real output. Additionally, because the non government sectors are net savers of financial assets, this policy hurts savers more than it aids borrowers, so a fiscal adjustment such as a tax cut or spending increase would be appropriate to sustain output and employment.

4. Banks should not be allowed to have subsidiaries of any kind. No public purpose is served by allowing banks to hold any assets ‘off balance sheet.’

5. Banks should not be allowed to accept financial assets as collateral for loans. No public purpose is served by financial leverage.

6. Banks should not be allowed to lend off shore. No public purpose is served by allowing banks to lend for foreign purposes.

7. Banks should not be allowed to engage in proprietary trading or any profit making ventures beyond basic lending. If the public sector wants to venture out of banking for some presumed public purpose it can be done through other outlets.

8. Use CB approved credit models for evaluation of bank assets. I would not allow mark to market of bank assets. In fact, if there is a valid argument to marking a particular bank asset to market prices, that likely means that asset should not be a permissible bank asset in the first place. The public purpose of banking is to facilitate loans based on credit analysis rather, than market valuation.

9. Banks should not be allowed to buy (or sell) credit default insurance. The public purpose of banking as a public/private partnership is to allow the private sector to price risk, rather than have the public sector pricing risk through publicly owned banks. If a bank instead relies on credit default insurance it is transferring that pricing of risk to a third party, which is counter to the public purpose of the current public/private banking system.

10. Banks should not be allowed to contract in an interest rate set in a foreign country, with a large, subjective component that is out of the hands of the national government.

11. Banks should only be allowed to lend directly to borrowers, and then service and keep those loans on their own balance sheets. There is no further public purpose served by selling loans or other financial assets to third parties, but there are substantial real costs to governments regarding the regulation and supervision of those activities.

So... The system crashes when people stop paying loans off because then the banks lose money and go bankrupt.

From the POV of a bank's balance sheet, loans are its assets, deposits are its liabilities. Deposits remained fixed in value (and are insured by the CB, that's not the case for the Eurozone - in which currency user governments have to guarantee euro bank deposits), while loans can perform or underperform.
In times of recession, which is triggered in itself by a higher saving desire of the nongovernment sector (which we note as (I-S)+(X-M)), people spend less. Since by accounting identity, Spending is Income - if shortfall in nongovernment sector spending is not covered by government sector spending, then output remains unsold and the result is always unemployment.
All monetary systems, in order to work, require debt to keep expanding. Spending from bank credit today (leveraging) means spending more today with the promise of spending less in the future. In order for the nongovernment sector to deleverage, the government sector needs to run the appropriate deficits against it.
For every dollar saved, someone else has to be in debt a dollar, if not, the result is unemployment due to unsold output. They are referred to as 'demand leakages'.
Aggregate demand is just another word for aggregate spending.
So yeah, as more income goes toward bank debt payments instead of purchasing actual output, that leads to poor economic activity and hence why banks see their loans underperform. Value of deposits (liabilities) gets higher than that of assets (loans) and trouble ensues - bankruptcy can occur.
See the sectoral balances here for the US in order to understand the flow of funds. Note, that net fiscal debits accrued over time represent the equity of the nongovernment sector.


Note that the Clinton good years were due to domestic private sector leveraging and the Clinton administration allowed the automatic fiscal stabilizers to turn the government's fiscal position into surplus (instead of taking active measures to maintain an adequate fiscal deficit) and soon after that, the recession came. Fiscal surpluses erode nongovernment sector savings.

Your mind turns me on.

Sometimes in turns me on too.

If I'm ever in Romania.............

If we ever do meet, don't let looks overwrite my sapiosexual-appeal

Eh, you look pretty damn hot IMO too

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But yeah, I like intelligent dudes