Fallacy of Consumption
Dec 2, 2005
During the Christmas Shopping
season all eyes are on the American consumer. If he spends lavishly,
all is well; if he does not, disaster looms. In fact, Wall Street
economists are so obsessed with consumption that they have hopelessly
confused the tail with the dog.
Consumption, over the long term, is only possible to the extent
that there is production. It is not through financial courage
and resiliency that Americans consume. The desire to do so is
infinite and omnipresent. It exists equally from the wealthiest
of kings to the poorest of beggars. Hunger itself will not put
food on the table. Only production can transform abstract demand
into genuine purchasing power.
Shopping is possible only to the extent that goods are available
for sale. Therefore an accurate assessment of economic performance
or wealth creation would be confined to a measure of the production
of such goods. The fact that they are consumed is irrelevant.
Consumption itself adds no economic value; it simply defines
the ends of the production means.
As more of what Americans consume is produced abroad, a strong
American holiday shopping season is not indicative of the strength
of the American economy, but of those of our trading partners.
It is foreign production that enables American consumption, not
the reverse. Without it, Christmas in America would resemble
Christmas in Whoville (just before the Grinch returned the stolen
The fact that American consumers irresponsibly go deeper into
debt each year to purchase imported products is hardly a situation
worth celebrating. Larger trade deficits are not an indication
of our prosperity, but of our profligacy. Rising profits for
foreign manufactures, and the external accumulation of American
interest-bearing IOUs, is an economic failure of colossal
In fact, the more we borrow to consume today, the less we will
be able to consume tomorrow. Before this Christmas season began,
American consumers were already in pretty deep holes. If it turns
out to be a "good" season, those holes will be a lot
deeper. Wall Street, which in this respect acts as if it were
in the shovel selling business, will certainly cheer, as its
greatest fear is that Americans will look up, comprehend the
reality of their situation, and quit digging.
Before they do, protect your
wealth and preserve your purchasing power through global diversification.
Start by downloading my free research report "The Collapsing
Dollar: The powerful Case for Investing in Foreign Equities"
Dec 2, 2005
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C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange
Mr. Schiff began his investment career as a financial consultant
with Shearson Lehman Brothers, after having earned a degree in
finance and accounting from U.C. Berkley in 1987. A financial
professional for seventeen years he joined Euro Pacific
in 1996 and has served as its President since January 2000. An
expert on money, economic theory, and international investing,
he is a highly recommended broker by many of the nation's financial
newsletters and advisory services.
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