Finance, Forex and Investments

What's the meaning of economy over heating and how it affects the common man?

Specially I am intrested in it's effects on the currency exchange rate and what happens to the stock market. I am from India and wants to take some prventive steps to sfaegaurd my money. Thanks

Public Comments

1. Overheating is generally preceded by lower than average economic growth. Inflation occurs as suppliers try to capitalize on the excess demand which cannot be met. Higher prices tend to reduce demand and exports (since goods and services become relatively more expensive abroad) leading to reduced consumption. Central banks often simultaneously tighten monetary policy in response to increased inflationary pressures, reducing investment expenditure, which in tandem with decreased consumption, can lead to economic recession. In general, inflation takes away available money supply to invest in the market as the populace uses this money for higher living expenses. To safeguard this from happening, and being caught in the downslide of the market, it's best to keep a watchful eye on your investments and be ready to move them into more conservative types of inflation proof commodities, like Silver, and the everyday stuff that we need like, food, medicals, etc. ///
2. It means the economy is accelerating at a pace that is too fast for comfort. Usually the authorities will react by tightening monetary policy to curb lendings and inflation. Inflation is caused by demand exceeding supply and this will inevitably push up prices. In this scenario, it would be risky to invest in anything, as once the sentiment start to turn sour, nothing is spared. Personally I would watch the forex market as now almost all major currencies are at an all time high against the US dollar and so are the carry trades. Thats my humble opinion anyway.