Donald Trump in the White House, Ukraine in tatters, Russia ascendant, Greece in ruins, fascists in the parliaments of Europe. The world is in spasm, and has been for years; so long, in fact, that it appears to have been going on for ever. That’s why you need to read Crashed.

It’s hard to think back to before the financial crisis began in 2007, to the time we used to call the Great Moderation, when employment was high, inflation low and progress was certain. That was a time of relative plenty: European governments could afford generous social spending, and America could immerse itself in wars (and we, in the UK, could do both). But the prosperity was illusory. With hindsight, that era might have been better termed the Great Complacency; the Great Smugness; or, perhaps, the Great Debt.

We are already aware of the story of how the world economy was destroyed by the collision of bankers’ urge to lend money with home-owners’ desire to borrow it, but Tooze’s account is masterful. He takes us inside the fear and disbelief that accompanied the great freezing of the credit on which the banks depended. Washington had been preparing for a showdown with Beijing, and was totally blindsided by Wall Street imploding instead.

His narrative then swoops off around the world, focusing on the three great power blocs in the global economy: the US, the EU and China. It was the pre-crisis Chinese desire for Treasury bonds that drove down yields, and sent other money looking for more profitable investments like mortgage bonds. It was European banks, lacking a huge hinterland of their own, that most overextended themselves in satisfying that appetite. And it was the Federal Reserve that took the steps necessary to prevent the crisis from turning into a catastrophe. Into this tapestry Tooze also weaves the Ukrainian crisis of 2014, the ongoing Greek tragedy, the great Brexit blunder, the rise of nationalism, the Chinese infrastructure splurge, and of course the election of Trump.

The world’s politicians – with the possible exception of Gordon Brown, who comes out of this story quite well – spectacularly failed to rise to the challenge they were faced with. Tooze reserves particularly severe treatment for the Republican party, which put its own incoherent ideology and wealthy donors ahead of any desire to take responsibility for the US or the world, and Angela Merkel, who refused to put anything ahead of the prosperity of the burghers of Middle Germany.

European politicians initially responded to the sub-prime crisis by gloating. They realised too late that not only were their banks far more exposed to it than the Americans were, but their institutions lacked the mandate to do anything about it. Tooze forensically shows how the eurozone crisis grew out of the initial US crash and demonstrates how austerity failed, as well as how the maths on which it was based was flawed. When bailouts were finally wrung out of Berlin, they benefited the banks that made the loans, not the people forced to pay them.

Merkel’s rigidity doomed any attempt to transform the European Central Bank into an effective crisis-fighting machine, and she was only bumped into action when the damage had been done, and a generation of young people had had their prospects destroyed. If nothing else, this book will cure you of any hope that Merkel may ride to Britain’s rescue over Brexit: she simply doesn’t have it in her to take the initiative in that way.

Tooze’s history is a description, not a prescription: he doesn’t give us suggestions for how the world could be better managed, he just lays out the depth of the disaster. He does, however, regularly refer back to the postwar Bretton Woods settlement, which underpinned global prosperity and stability until the 1970s with its regime of capital controls and fixed exchange rates. Instead of a coherent, well-understood system for international cooperation such as that one, Crashed describes an ad hoc mishmash. Key institutions – such as the ECB, or the US House of Representatives – are unable or unwilling to do the right thing in a crisis.

It has been our failure to replace Bretton Woods with anything similarly coherent that has exposed us to the risk of ever greater flows of hot money, which are capable of swamping smaller countries, and rendering the democratic decisions of their people utterly meaningless.

As the new leftwing Greek government was told in 2015: “Elections cannot be allowed to change economic policy.” It was a message resisted by multiple countries on the eurozone periphery, but they all gave in eventually and implemented the cuts their bond-holders demanded. Since austerity was crushing their economies, the cuts were likely to persist for the foreseeable future, as the debts came no closer to being paid off. It is hardly surprising that their citizens have taken to electing parties that refuse to accept this dismal discipline – however awful many of those parties are.

And now there is someone in the White House who might be worse than them all. Trump’s rise to the presidency shows how we missed the chance to address the root causes of the crisis before it was too late. In fact, with China now far more embedded in the international financial system than it was a decade ago, the volume of money flowing around the world has increased enormously, and the risks have grown with it.

With luck, a new generation of politicians will emerge that is able to grasp the urgent need for both a fair settlement at home and a new structure internationally. They will have to reject the erroneous economics of the previous generation, and create theories as bold as those that underpinned Bretton Woods. This book provides the raw material for those theories; it is indispensable reading for anyone who wants to understand the past, in order to build a better future.

• Oliver Bullough’s Moneyland is published by Profile. Crashed is published by Allen Lane. To order a copy for £25.80 (RRP £30) go to guardianbookshop.com or call 0330 333 6846. Free UK p&p over £10, online orders only. Phone orders min p&p of £1.99.