1. Read ASAP! · Book Review Actions · Book Reviews · Money

BR 150: How an Economy Grows and Why it Crashes by Peter D Schiff and Andrew J Schiff

Category: 1 – Read ASAP! (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments: First, let me get the obvious out of the way – yes, this book isn’t perfect. It can be very simplistic at times and the writer does have a clear political agenda against the US government’s financial policy.

Now that I’ve said that, this book is a must read for everyone. I say everyone because we all deserve to understand how an economy works. The authors lay out the principles of economics and call bullshit on the idea that micro economics is essentially different from macro economics. They do it by taking us through the growth and crash of an island’s economy (and do this with lots of digs at the US-China relationship. The islands are called Usonia and Sinopia :))

Fantastic book. It points to a scary conclusion – the whole idea of a paper currency anchored in nothing but trust is a massive experiment and one that could result in mass default and failure.

Top 3 Learnings:

1. Why should a country be treated differently from a household? Why should a country be allowed to spend more than it makes (via taxes)?

The reason governments take on so much debt is because the economic policy is driven by political agenda. As a result, instead of taking the hard decisions and cutting public spending, the government always attempts to take the easy way out by printing more money.

2. Deflation is not a bad thing. Deflation means productivity is increasing and things are getting cheaper. This means it is time to allocate resources to new investments – the technology industry is a good example of this. The American economy was deflationary until the 1930s when Keynesian economists came along and said inflation is the way to go. This has resulted in economists insisting that inflation needs to be maintained. When you hear that, ask why.

3. American consumption has been lauded as a strength. Well, it is not. Production is a strength. Consumption is not. An economy’s strength is built on savings. It is because of savings that interest rates fall and allow for cheaper credit and cheaper investments. America is surviving on the fact that China is hugely invested in it and the fact that it’s currency is global reserve currency. Things could fall very quickly (ominous, I know)

 My summary of the full book is on The Bookbytes Project.

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