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The Fallacy of Consumption

Peter Schiff
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 gifts).

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 proportion.

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" at

Dec 2, 2005

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In addition, as the dollar's value is likely to sink far faster than those of other fiat currencies, investors can learn strategies to protect wealth and preserve purchasing power by downloading my free research report on the coming collapse of the U.S. dollar at and subscribing to my free, on-line investment newsletter at

Peter Schiff
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
1 800-727-7922


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 County Register.

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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