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December 8, 2015 | Commodities Depend on the Currency

Martin Armstrong

Martin Arthur Armstrong is the former chairman of Princeton Economics International Ltd. He is best known for his economic predictions based on the Economic Confidence Model, which he developed.

Russian Gold-2

QUESTION: Mr. Armstrong, you said the decline in commodity prices will not reduce production but can actually accelerate output. How can this be? It does not make sense.

ANSWER: Your perspective is too narrowly focused and solely dollar based. Because the commodities are declining in dollar terms with the dollar rising, in local currencies outside the USA the cost of production declines, and thus in local currency many commodity producers will make even more. Hence, they increase production. It all depends upon the base currency of a producer. Your reasoning applies to dollar-based producers.

In the case of OPEC, they simply need the money. They also have to compete with ISIS selling oil cheaply to fund their worldwide revolution. The budgets of most Middle Eastern countries increased sharply so not they need to exceed previous quotas to make ends meet.

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December 8th, 2015

Posted In: Armstrong Economics

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