Picture a simple image: a country works just like a game of Monopoly — money, people, places to buy and sell, customers, and the game's bank.

Where does money come from?

Every country has a main central bank: USA: Federal Reserve (FED), Europe: European Central Bank (ECB), UK: Bank of England (BOE). These banks have the power to print money and control the market.

How does inflation happen?

Imagine 10 people each holding $100, and the market is calm. The government prints another $1,000 and hands it out. Now everyone has more money and starts buying more. Demand rises, but the number of goods stays the same — so sellers raise prices. That is inflation: everything gets more expensive.

Example: yesterday $100 bought you 10 pizzas; today it buys only 5. The pizza didn't get stronger — your money got weaker.

Interest rates

When inflation climbs too high, the central bank raises interest rates. Borrowing becomes expensive, people spend less, money in the market shrinks, and prices fall. This calms inflation back down.

Effect on markets

  • Dollar: if the FED raises rates, investors move money into the US and buy dollars → the dollar strengthens.
  • Gold: gold pays no interest. When the dollar offers good yield, people sell gold → gold falls.

The most important indicators

  • CPI: the cost of living (inflation). Lower than expected → dollar weakens, gold rises.
  • PPI: factory costs — a preview of future CPI.
  • PMI: above 50 = growth, below 50 = contraction.
  • NFP: new US jobs. High = strong economy.
  • GDP: the country's total output.

Summary for your mind

Inflation up → rates up → dollar strong → gold, Bitcoin, stocks fall. Inflation down → rates down → dollar weak → gold, Bitcoin, stocks rise.

Next up, Lesson 2: how central banks move the world.