Hey There, Stock Market Gambler!

Hello, financial adventurer. Welcome to this week's glorious agenda.

Stock market, huh? So you got an amazing tip about a stock that's supposed to go up 800x, is that right?

Bravo to you. Before you send your money off into the void, just stop and wait. You need to keep learning—you shouldn't be so willing to hand over the money you earned through blood, sweat, and tears to others so easily. Seriously, do you enjoy being poor?

Don't worry, we'll get to investment topics eventually, but we're not there yet. Before we get to investments, we need to understand how economic systems work globally and learn the depths of money flows and taxes. Without this knowledge, you're just another sheep waiting to be sheared.

As always, if you haven't read the previous issues, you should definitely start from the first one and work your way here. So I'm leaving a link to the previous issue, from which you can go backward. Reading randomly is like trying to understand a movie by watching only the middle scenes—pointless and confusing.

John Maynard Keynes once said: "To cure economic depression, the government should, if necessary, first dig a hole and then fill it."

Although Keynes' "statist" economic policy has lost much of its popularity in today's world with the rise of private enterprise, developing countries thought they found two absolutely brilliant ideas (build-operate-transfer and government contract subcontracting) to keep their economies alive while bypassing the statist approach. Spoiler alert: they didn't.

In the "build-operate-transfer" and "subcontracting" systems, while the investment is still essentially made by the state (surprise, surprise), money is distributed "relatively healthier" to lower layers and the way for private enterprises is paved, allowing companies to "grow."

Roads, bridges, and hospitals are built; the state is still developing the country with its own hands. The public becomes happier as they see the rising landmarks before their eyes, and the vicious cycle continues at full speed. Isn't it amazing how easily we're fooled by shiny things?

While the American government funded all this "growth" through Marshall Aid after the World War II, it essentially intended to create customers for itself in the new world and expand its sphere of influence—and it succeeded. Did you think America was being generous? How adorable.

Okay now you’re ready to dive the bottomless pit of…

The World Economy

To better understand the current system, we need to shrink the world a bit. Why? Because your brain can only handle so much complexity at once. No offense.

Let's imagine the world as the city you live in. Let this city have a total of 193 neighborhoods. (According to the United Nations, there are 193 recognized independent states in the world—though some of them you couldn't find on a map even if your life depended on it.)

Let each neighborhood represent a state. Some neighborhoods may have been established earlier, while others are newly built or still being built. There may still be disputes over some plots in the city, but these are not important. Unless you live there, in which case it's VERY important. Funny how that works.

Think of the neighborhood where the richest and most influential live as the United States. You know, that house with the unnecessarily large SUV in the driveway and security cameras everywhere.

Some neighborhoods may have agreed among themselves to combine their gardens, remove their walls, and share some expenses to become richer. You can think of these as the European Union or (perhaps in the future) BRICS.

Let's say that despite their other partnerships, some neighborhoods have formed an alliance with the richest neighborhood against external threats. (See: NATO) "You protect us, we'll pretend to like you at block parties."

Most neighborhoods have an "administrator" elected by their residents through voting. (Some neighborhoods are ruled by monarchy—because nothing says "modern governance" like hereditary rule, right?) The administrator is authorized and responsible for improving the neighborhood, ensuring security, and providing residents with a better quality of life in a broad framework.

Of course, the powers of the administrator vary from neighborhood to neighborhood. Some are monitored a little, some a lot, and some not at all. Wonder which type runs the more successful neighborhoods? Hint: it's not the "not at all" ones.

Since we established that, let’s jump into the fun part…

Taxes

To be a resident of a neighborhood, just like in real life, you need to pay periodic dues (taxes). Oh yes, the thing everyone loves to complain about but without which society would collapse. Fun.

The neighborhood's needs are met with the dues collected from residents: protection from thieves and attackers; improving and beautifying the neighborhood; development; building schools, new homes, hospitals, new roads, etc. for its residents. In theory, anyway. In practice? Well... let's just say results may vary.

There are production facilities within each neighborhood. Some produce furniture (heavy industrial materials) and sell it, some bread (agricultural products), some make and sell weapons in blacksmith shops. Because nothing says "welcome to the neighborhood" like a freshly forged battle axe, right?

Those that developed earlier and strengthened by meeting certain conditions also make and sell complex technological devices. Sometimes, they even have their production done in another neighborhood just because it's cheaper or easier to manufacture there. "Hey, can you make this iPhone for me? I'll pay you $2 an hour and take all the credit!" —Developed neighborhoods to developing ones.

Okay, okay. Now It’s time for the real fun (this time for sure, I promise)

Trade and Money

So, like your neighborhood, every neighborhood has producers meeting certain needs. Of course, trade can be done between neighborhoods. But since each neighborhood has its own medium of exchange (money), the exchange medium (dollar) of the richest neighborhood (America) is used in city trade as valid on an inter-neighborhood (international) platform. Convenient for America, isn't it? What a coincidence!

Your neighborhood has a specific income-expenditure schedule (budget), and this budget is common. So when you sell products you produce to the outside (export) or when you buy a product you need from outside (import), this situation is reflected in the general budget of the neighborhood.

At the end of each year, the difference between the income you earn from the goods you sell and the money you pay for the goods you buy is calculated. This difference is called a current account deficit or surplus. Fancy terms for "are you bleeding money or not?"

So, if you constantly pay more for the products you buy than the money you earn from the products you sell—that is, if you continue to go into debt year after year—this is a current account deficit; the opposite is a current account surplus. You know, like your personal finances, but on steroids and with worse consequences.

The total monetary value of all products and services produced in your neighborhood, contributed by local and foreign investors, and used by people within a one-year period is called the gross domestic product. However, if you ask for the total monetary value of products and services produced only by the residents of your neighborhood, this is called the gross national product. Are your eyes glazing over yet? Mine would be.

The prices of products you buy to continue your life in the neighborhood vary according to your economy. This situation sometimes arises from production difficulties, sometimes from increased production costs, occasionally from stockpiling, and from other reasons. This price increase/decrease is called inflation (increase) or deflation (decrease). And when inflation hits, suddenly that $5 coffee becomes $7 and everyone loses their minds.

Neighborhoods sometimes put up obstructive barriers to products coming from outside neighborhoods to encourage their own citizens to prefer products produced within the neighborhood. This way, they both promote production and employment in their own neighborhoods and prevent money from flowing out. These obstructive barriers are called Tariffs. "Hey, you can't bring that here without paying me first!" —Every country at every border

Tariffs are a bit troublesome because the residents of the neighborhoods you're facing aren't fools either. Shocking, I know. If you make it difficult for the products they produce to enter your country, it is highly likely that they will do the same to you, which can severely affect your producers. And if most of your producers prefer to produce in other neighborhoods in the city rather than in your neighborhood and have moved their operations there, woe to you! Hello, American manufacturing, are you there? Oh wait, you moved to China. Awkward.

Your production will decrease, unemployment will increase, consumption will fall, and recession will come right to your doorstep. Knock knock! Who's there? Economic collapse. Economic collapse who? The one YOU caused with your brilliant tariff ideas!

So, no matter where you live, you start your life with an economic power measure equal to the power of your own neighborhood. Born in Switzerland? Lucky you! Born in Zimbabwe? Well... tough break. Of course, you can later raise your economic power above the economic power average of your own neighborhood, or you can leave this life as an ordinary person.

Ultimately, in this period when you think the wheels of the economy will run smoothly, a neighborhood leader might say "I have a great idea" and sacrifice the world to a comic commercial circus fight. Any resemblance to real world leaders is purely... oh who am I kidding, we all know who we're talking about.

This Week's Economic Developments

Trump puts a 90-day waiting period on tariffs—except for China.

Trump, who turned the stock and bond markets into a roller coaster, is probably having the best days of his life. Nothing like watching the world economy burn while you roast marshmallows, right? As markets desperately look for a branch to hold onto, we can say that the world, especially the EU, has begun to see the US as an unreliable ally. Shocking development that absolutely no one predicted. No one.

China is throwing counter-punches in the Trade Wars

Although China, which has lost its undisputed biggest customer, appears to be maintaining its bravery by continuing to increase the customs duties it applies to the US, the long-term effects of the trade wars remain uncertain. It's impossible for China's production-based economy to emerge unscathed from this war. But hey, at least they'll go down swinging. That counts for something... right?

The EU's annual inflation fell to 2.5%.

While the old continent, which doesn't seem to have fallen for Trump's tariff pause (because, surprise, they're not idiots), continues its new tax preparations and increases its unification efforts, although it seems to show signs of economic improvement, the decrease in economic confidence causes question marks to remain in place. In other words: "Things might be getting better... or not. We're not sure. Nobody is. Welcome to economics!"

According to the UN Trade Agency, global economic growth could fall to 2.3%.

Since global growth below 2% would mean the world has officially entered a recession, it wouldn't be an exaggeration to say that the tax wars have brought us all very close to recession. We're talking teetering-on-the-edge close. Peek-over-the-cliff close. Is recession certain? We can't know that yet. It depends on whether Trump decides to get off the roller coaster. And we all know how much he loves his rides.

Did this newsletter make you feel slightly less financially illiterate? Good. That's the point.

Look, the economic circus isn't going to stop anytime soon. While everyone else is panicking about tariffs they don't understand and recessions they can't predict, you could be the one person at the dinner table who actually knows what the hell is happening.

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Next week: Why your "safe" investments probably aren't. Stay tuned, stay skeptical.

P.S. Share this with that friend who thinks they understand the stock market because they bought one Bitcoin in 2017. They need this more than you do.