1 Forex Trading Fundamental Factor that Clearly Affect the Price

In forex trading, inflation is one of the fundamental factors that we must consider. It has a significant impact on the direction of prices.

“In the absence of a gold standard, there would be no way to protect the savings of the population from inflation and there will be no safe habitat for wealth.” – Greenspan

We’ve all heard our grandparents and parents talk about how much cars, houses and various household items used to sell for.

Your grandparents couldn’t believe how much goods sell for these days, and you’d be hard-pressed to believe that your grandparents paid less for their first house than you did for your first car. But no matter what generation you are, we all have to accept the fact that the price of goods will continue to rise and there is nothing we can do about it. We all have to accept inflation.

Fundamental Factors, Inflation

Inflation is the general rise in price levels. Prices seem to be forever on the rise these days. It is normal for prices to rise, but why are they always rising?

Inflation is the product of two factors, one being the supply of money and the other the demand for goods.

When the supply of money increases, there is more money in circulation available for people to use. And when there is more money in circulation, of course, people are more willing to spend it. But the problem is that there are only so many goods available for us to buy.

There are a certain number of goods and services produced globally. If these goods and services are sold out, there are none left. So we all try to buy these goods and services before someone else does, and we are willing to pay a higher price for them. And so, prices go up.

Some people say that inflation is a natural part of the economic cycle and that it is good to have inflation because it is a feature of a well-functioning economy. Others say that inflation at any level shouldn’t be and that prices should stay the same because as long as prices go up, the value of the money you have in your hand is lower than it was before prices went up. Both of these arguments have merit.

Inflation usually occurs in times of economic prosperity.

The better the economy is, the better the businesses and employees are. The better the businesses and employees are, the more money they earn and spend. So when you look at it from this perspective, inflation is just a normal by-product of a strong, healthy economy and there is no need to be afraid. That said, does inflation have to be all good? Wouldn’t so much money circulate in the market cause any trouble?

The French found the answers to these questions in the 18th century. John Law, an English fugitive, fled to the continent and eventually gained the trust of the French king. As they discussed the French economy, Law told the king that there was a simple way to revive the economy by printing more money.

This sounded like it made some sense. If you want to buy something, you need money. If you need money, you just need to print money. That way you can get the goods and services you want, and those who provide them can get the money they want. The King was so impressed that he decided to put this idea into practice. Thus, France began to print money.

To understand this better, we need to go back and look at how money has evolved. We have all heard of the history of shells and other precious objects that were once used as currency. However, as society progressed and developed, they gradually transformed into a standardised form of money – precious metal coins.

These coins are valued according to their actual weight and the value of the raw metal. This means that the coins themselves have a value. However, the problem with precious metal coins is that there are only a limited number of precious metals on earth and the task of detecting, mining and refining them is a daunting one. By contrast, paper money is easy to print, print and reprint.

Paper money is also known as legal tender. Legal tender is an official regulation or decree. Legal tender is so named because it is officially prescribed as money. In a sense, it’s like taking a piece of paper, printing a number on it and saying that it’s worth hundreds of times more than the value of those regular-sized pieces of paper, which may sound a bit funny. But it’s much more complicated than that.

Paper money is actually promissory notes backed by gold and other precious metals stored in a vault somewhere. These notes are simply easy to carry. Imagine what it would be like to carry your paycheck home if you were paid in gold bricks.

Unfortunately, most legal tender is not tied to gold stored in a vault somewhere, because paper money is too easy to print. If you needed more banknotes, all you had to do was fire up the printing machine for a minute or two and you had them.

That’s how France operated in the 18th century. When they discovered how easy it was to print banknotes, they started printing more and more banknotes all the time. But as more and more banknotes poured into the economy, the price started to rise and rise again.

Eventually, some of the more discerning French realised the situation and began to store up gold and silver coins. They spent their banknotes as quickly as possible, saving items of value.

These crazy French speculators and crooked merchants blew the bubble bigger and bigger and eventuall it burst. Prices plummeted and the French economy collapsed. Inflationary policies that were allowed to be implemented without rigorous scrutiny ultimately destroyed the economy.

If this is surprisingly familiar to you, then you will remember that in the old days when the gold standard was in place, the dollar was backed by gold. But in the early 1970s, Nixon announced that the dollar was off the gold standard, to the extent that it is now backed entirely by the credit of the US government.

The money printing presses of the United States are running non-stop and we are seeing the “irrational exuberance” that we have fairly enjoyed.

We are not to predict a major collapse of the US economy here, just to point out that rising inflation is a sign of a healthy economy, but that needs to be monitored closely. You will also note that the Fed does monitor, like a falcon.

The Fed monitors inflation because it understands that rising inflation erodes the value of the dollar. To better understand the erosive power of inflation on wealth, you need only look at the change in the price of German stamps after World War I.

After the First World War, the Allied Powers demanded that Germany take responsibility for its own acts of war and make reparations to the Allied Powers. The Allies set the total amount of reparations at 132 billion German gold marks.

Prior to the war, the value of one gold mark was less than US$0.29, so Germany owed the Allies a total of approximately US$31,428,571,428. Germany had no way of repaying this huge debt.

While Germany defaulted on its reparations, France and Belgium sent troops to occupy some of Germany’s richest regions. This threw the German economy into extreme disarray and finally, the German mark began to depreciate in value.