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In my previous article, I explained how the laws of supply and demand, increasingly skilled workers and irrational fear had all combined to force up prices in the marketplace. In this article, I will look at a marketplace where these forces also conspire together, but the outcome of market forces on this marketplace is not always universally felt.

The Monetary Market
Whilst the majority of citizens are concerned more with how much food their GBP will buy, rather than how many INR it will buy, the monetary markets still play a surprisingly large part in the real economy. Indeed, if you get it right, the money market can be quite profitable. When things go bad, however, things can go very bad indeed. Effects on the money markets of inflation and a failing economy can put the last nail in the coffin of a nation whose economy goes bad. But it isnt just nations with bad economies that can fall prey to the money markets. In theory, at least, it could happen to any nation, at any time. It is happening to the eUK right now, on a small scale.

But before we look at why the money market holds so much sway, we have to look at what it actually does. The money market is, as its name suggests, a place where money is bought and sold for either other currencies or gold. There are great risks involved with trading on this market, but if you do it correctly, it can be hugely profitable. If you dont, you can lose everything. There is no safe bet, however, in terms of the money market. You are, in effect, gambling that the nation does not fall prey to inflation or bad economic policies. That gamble doesnt always pay off.

The money markets are a quite different market to the marketplace that sells gifts and food, however the money market is, in effect, bound by roughly the same laws. Supply and demand plays a large part in the money markets, a currency which is in demand will be more expensive, and thus worth more, than a currency which is not in demand. Irrationality is also there, however irrationality in the currency markets is much more common, and can be much more damaging to

The problem is that being irrational is almost routine to most traders, and all that it takes to destroy a currency is for a few traders to lose confidence. It is then that the floodgates open. Once one trader loses confidence in a currency, more and more will start to feel the same loss of confidence. If this loss of confidence transfers to the wider economy, it could have devastating effects. Indeed, without anymajor economic issues. The thing that makes the currency market a very powerful force is one simple fact. It is nigh on impossible to regulate. Once traders become very scared, there is no turning back. Whilst central banks can attempt to guide currency exchange rates to their desired leve, there is no 100% effective way of regulating the market, ideed the best way would probably be to talk up the currency.

The eUK has been facing roughly the same problems, caused by the money markets. Many traders lost some confidence in the eUK's economy when the war between the eUK and France started. This has caused a slight loss of confidence in the GBP, for almost no reason. Even at the height of deflation, the USD-GBP exchange rate hovered around 1.67, now it is 2.5, when there are any offers on the market. The GBP-Gold exhcnage rate has also been sliding, as traders attempt to sure up their investments, meanwhile many other traders have made huge losses from previously profitable trades. Gold now bought less GBP, inflation on the currency went up and GBP overall became wrth less.

It is important to remember, however, that the eUK has not experienced a very bad case of irrationality, and that irrational behaviour in other countries has been far worse. The effects on the economy have still been the same however. The sliding exchange rates haveforced up inflation, which was already contributing to the currency's slight demise. Whilst the BofE has attempted to set guide rates for the currency, the emphasis on this has been dropped since the start of the conflict with France. The large losses racked up doing this could no longer be sustained.

Whilst most citizens are more bothered about the effects of price rises in the food market, it is important not just for governments and central bankers, but for citizens to remember how the money market can not just make or break individuals, but countries too. Ignoring the money markets can seriously damage your wealth.

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In my final article of The Economy series, I will explain what the government is doing about the economic issues, and what it should be doing to ensure a safe economic future for the eUK.