I wanted to inaugurate a mini-course on macro-economics because even if we are passionate about crypto, it is also important to know the dynamics of fiat-currencies. Macroeconomics studies all those factors that influence the performance of an economic system: firms, businesses, workers and relations with the rest of the world. How do these forces interact with each other? Economic activity aims at the production of goods and services, an increase in employment and a decrease in unemployment (the unemployment rate is given by the percentage of unemployed divided by the labor force), price stability (determined by supply/demand and the inflation which measures the annual change in the prices of goods and services).

ECONOMIC STRENGTH: GDP
GDP measures the economic strength of a country over a certain period of time: income produced by a nation, production, demand/expenditure on goods and services. GDP can be nominal (does not take inflation into account) or real. Ratio between the two GDP multiplied by 100 generates the "deflator", i.e. the annual inflation rate. It depends on the relationship between aggregate demand (including household and business expenditure) and aggregate supply (private and public production). A state's strength is measured by its fiatcurrency: the higher its purchasing power, the better its economy. A fiat can strengthen when that country's exports are greater than its imports and vice versa (weakening relative to the competitors from which it imports). The reserve currency worldwide is the US dollar, therefore the US central bank (Federal Reserve) can influence the macroeconomy by changing interest rates and inflation (introduction of new money) leading to variations in demand for goods and services, employment/unemployment , industrial production, tax revenues, etc. If the dollar strengthens, other assets usually weaken because interest rates rise, discouraging lending and buying. If, on the other hand, investment is encouraged, the dollar weakens. Another parameter that influences the production of a country is the workforce. Employment means "more spending" in theory, high unemployment means "less spending and less production".

PSYCHOLOGY
Behavioral errors both in investments and in trading often derive from human psychology: we speak of "Bias" (systematic errors, for example after buying an asset one tends to notice only the positive or only the negative aspects) and "Heuristics" (our brain tends to oversimplify a problem by relying on emotion and not on reason/statistics/mathematics, at the trading level it can be simplified with concepts such as FOMO which leads to exaggerated risk, early/late entries, exits early/late, sudden change of strategies during Trading/investing, etc).

HOW COMMODITIES AFFECT THE PRODUCTION OF A COUNTRY
Commodities are depletable/limited goods that affect a country's production. Basically, these are natural raw materials (gas, coal, oil, precious metals such as gold, silver and minerals) and agricultural raw materials (wheat, fruit, vegetables, coffee, etc). The price of raw materials is positively correlated with inflation (ie if goods increase in price, so will raw materials because production will be more expensive) and usually anticipate increases in the prices of other goods.

REAL ESTATE MARKET
Related to raw materials is the real estate market (which represents about half of world wealth), as it depends on the production of iron, wood, steel, copper, etc. When the latter increase, the price of the property also increases (this reduces the demand which affects the wealth of the country). The main engine of this market are mortgages that allow you to buy the property (they depend on the wealth of a country, inflation and interest rates). If a country is doing well economically with rising wages, people can apply for mortgages more easily, while an uncertain situation leads to an increase in the cost of credit for loans (greater difficulty in paying the installments and related interest).

BOND
Another factor to consider is the Bond market: lending investor funds to a state (or public body), in exchange for interest. Bonds have a maturity of between 2 and 30 years: if the price of a bond goes up, its yield goes down (and viceversa).
Long-term bonds have higher returns because there is more risk. If rates are raised in the short term, rates on short-term yields are also increased, leading to a collapse in prices. On the other hand, in the long term, Bonds are affected by inflation, a country's growth/wealth rate, etc. When the Bond matures, the issuer buys it back for its face value. The ratio between short-term and long-term yields provides the yield curve which can be:

-growing (market growth and limited inflation)
-flat (uncertain market situation with short-term bonds growing faster than long-term ones)
-descending (economic slowdown and probable recession. Investors require higher rates for short-term investments)

In the next articles I will talk about:
-cycles (expansion/contraction)
-major crises (1929, 1987, 2001-2002, 2008)
-correlations
-economic variables
-indicators
-federal reserve and its operations

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