Reading List- Understanding the Economy

I’m a very bad reader, unless I set aside time to speed read through books, I never get to finish them and some I’ve only just started 10 Megathreats … I think they will make good reading (at the moment it’s only 3! but I will add more to the list as and when I find a book I think that’s worth sharing. 2022 has been a year dominated by the war in the Ukraine and the cost of living but 2023 is promised to be another turbulent year.

Books that I’m reading at the moment to help me understand how the Global Economy works.

1. Megathreats: The Ten Trends that Imperil Our Future, and How to Survive Them Amazon extract A Financial Times Economics Book of the Year
   A Times Business Book of the Year
   A Sunday Independent (Ireland) Book of the Year
   
   ‘People who like horror films will love this book’ Financial Times
   
   ‘Roubini has surpassed even his high standards . . . Forewarned is forearmed. Read and pay attention’ Martin Wolf
   
   ‘Not only will the reader be better off after reading this book, but the world will be a better place’ Nassim Nicholas Taleb
   
   We are heading towards the worst economic catastrophe of our lifetimes – unless we can defend against ten terrifying threats.
   
   Written by world renowned economist Nouriel Roubini was nicknamed Dr. Doom until his warnings of the 2008 housing crisis and Great Financial Crisis came true – when it was too late. Now he’s back with much scarier predictions, ones that we ignore at our peril. There are no fewer than ten overlapping, interconnected threats that are so serious Roubini describes them as megathreats – with each one potentially amplifying the others. From the worst debt crisis the world has ever seen, to governments pumping out too much money and causing inflation, to borders that are blocked to workers and many shipments of goods, to the rise of a new superpower competition between China and the US, to pandemics and climate change that strike directly at our most populated cities, to the threat to jobs coming from AI, we are facing not one, not two, but ten causes of disaster.

2. Principles for Dealing with the World Changing Order Amazon extract- From legendary investor Ray Dalio, author of the international bestseller Principles, who has spent half a century studying global economies and markets, Principles for Dealing with the Changing World Order examines history’s most turbulent economic and political periods to reveal why the times ahead will likely be radically different from those we’ve experienced in our lifetimes – but similar to those that have happened many times before.

A few years ago, Ray Dalio noticed a confluence of political and economic conditions he hadn’t encountered before. They included huge debts and zero or near-zero interest rates that led to massive printing of money in the world’s three major reserve currencies; big political and social conflicts within countries, especially the US, due to the largest wealth, political and values disparities in more than 100 years; and the rising of a world power (China) to challenge the existing world power (US) and the existing world order. The last time that this confluence occurred was between 1930 and 1945. This realisation sent Dalio on a search for the repeating patterns and cause/effect relationships underlying all major changes in wealth and power over the last 500 years.

In this remarkable and timely addition to his Principles series, Dalio brings readers along for his study of the major empires – including the Dutch, the British and the American – putting into perspective the ‘Big Cycle’ that has driven the successes and failures of all the world’s major countries throughout history.

3. China’s Asian Dream

It’s important to understand China’s history and why they aspirations to be challneger tot he US as dominant superpower.

Amazon extract

Understanding the philosophy behind China’s national aspirations will be a defining task of 21st-century diplomacy. In that vein, China’s Asian Dream will prove essential reading.
Wall Street Journal
A crisp, well-researched and well-written account. Miller has travelled extensively throughout Asia and across China’s maritime periphery. His is a uniquely well-informed view of the opportunities, and the huge risks, of China’s bold ambitions in the region.
Kerry Brown, author of China and the New Maoists
An indispensable guide to the vision, personalities, institutions, and methods that underpin the emergence of the next superpower. Brimming with telling insights and arresting stories, China’s Asian Dream really hits the ball out of the park.
James Kynge, Financial Times
This is a book about power, money, and sought-after love. A must-read for those interested in whether President Xi’s reincarnated silk road will succeed in restoring the grandeur of the middle kingdom.
Yukon Huang, former World Bank director for China
In this vividly observed account from the front lines, Miller charts the reality of China’s growing power through the eyes of its neighbors. One of the best accounts we have of what China’s rise really means for the world.
Hugh White, Australian National University, and author of The China Choice
Tom Miller tackles the central question of our time: whether China can translate its economic power into geopolitical clout, and execute its breathtaking plan to dominate its Asian neighbours. For Xi Jinping, this is nothing less than a return to the natural order which prevailed until the nineteenth century. For the rest of us, it threatens to turn the old world dominated by the West upside down.
Richard McGregor, author of The Party: The Secret World of China’s Communist Rulers
‘China’s Asian Dream is superbly organised, and Miller deftly combines the plethora of data points and statistics with vivid local colour.’ –The South China Morning Post

These books are heavy reading for those who don’t work in the world of finances or economics. It’s useful to understand some basics before you delve in.

What is a global economy?

The global economy refers to the interconnected worldwide economic activities that take place between multiple countries. These economic activities can have either a positive or negative impact on the countries involved.

US Dollar Reserve Currency

The United States dollar has been the world’s primary reserve currency for over 60 years. Under the Bretton Woods system, the dollar was pegged to gold and most other currencies were pegged to the dollar. As a result of this arrangement, dollars were used as the main intervention currency and, hence, reserve currency.

History of Financial Crash

Quantitative Easing

• Quantitative easing is a form of monetary policy used by central banks to increase the domestic money supply and spur economic activity.
• In QE, the central bank purchases government bonds and other financial instruments, such as mortgage-backed securities (MBS).
• Quantitive easing is typically implemented when interest rates are near zero and economic growth is stalled.
• In the United States, the Federal Reserve implements quantitative easing policies.

Monetary Tightening

• Tight monetary policy is an action undertaken by a central bank such as the Federal Reserve to slow down overheated economic growth.
• Central banks engage in tight monetary policy when an economy is accelerating too quickly or inflation—overall prices—is rising too fast.
• Hiking the federal funds rate–the rate at which banks lend to each other–increases borrowing rates and slows lending.

Bonds

What are government bonds?

A government bond is a type of debt-based investment, where you loan money to a government in return for an agreed rate of interest. Governments use them to raise funds that can be spent on new projects or infrastructure, and investors can use them to get a set return paid at regular intervals.

When you buy a government bond, you lend the government an agreed amount of money for an agreed period of time. In return, the government will pay you back a set level of interest at regular periods, known as the coupon. This makes bonds a fixed-income asset.

Once the bond expires, your original investment amount – called the principal – will be returned to you. The day on which you receive the principal is called the maturity date. Different bonds will come with different maturity dates – you could buy a bond that matures in less than a year, or one that matures in 30 years or more.

The Econonmy

The economy is a complex system that encompasses the production, distribution, and consumption of goods and services within a society. There are various models and theories to explain how economies work, but I’ll provide a simplified overview.

1. Supply and Demand: At the core of any economy is the interaction between supply and demand. Supply refers to the quantity of goods and services that producers are willing to provide, while demand represents the quantity of goods and services that consumers are willing to purchase. Prices are determined by the equilibrium between supply and demand.
2. Markets: The exchange of goods and services occurs in markets, which can be physical locations or virtual platforms. In a market, buyers and sellers negotiate prices and quantities. These interactions drive the allocation of resources and the production of goods and services.
3. Factors of Production: The production process requires inputs known as factors of production. These factors include land (natural resources), labor (human effort and skills), capital (physical and financial resources), and entrepreneurship (the ability to organize and manage resources effectively).
4. Types of Economies: Economies can be classified into different types, such as market economies, command economies, and mixed economies. In a market economy, most decisions are made by private individuals and businesses, guided by the forces of supply and demand. In a command economy, the government controls most economic activities and resource allocation. Mixed economies are a combination of market and command economies, with varying degrees of government intervention.
5. Macroeconomics and Microeconomics: Economics is broadly divided into macroeconomics and microeconomics. Macroeconomics studies the behavior of the economy as a whole, focusing on indicators such as gross domestic product (GDP), inflation, unemployment, and fiscal and monetary policies. Microeconomics, on the other hand, examines individual economic agents, such as households, firms, and markets, analyzing their decision-making processes and interactions.
6. Economic Policies: Governments often implement economic policies to manage and stabilize their economies. These policies can include fiscal measures (e.g., taxation, government spending) and monetary measures (e.g., interest rates, money supply) to influence economic growth, inflation, employment, and other macroeconomic indicators.
7. International Trade: Global economies are interconnected through international trade. Countries specialize in producing certain goods and services, based on factors such as resources, technology, and comparative advantage. Trade allows nations to exchange goods and benefit from specialization, leading to increased economic efficiency and growth.

It’s important to note that this overview is a simplified explanation of a complex field. Economics encompasses a wide range of theories, models, and concepts that economists study and analyze to understand and improve economic systems.