Americans Will Shop Till Their
Dollars Drop
Peter Schiff
Dec 1, 2006
It never ceases to amaze how
televised media reports on the U.S. economy are almost exclusively
about shopping. Such reports almost always feature images of
sales clerks frantically stocking shelves and long lines of consumers
swiping their credit cards. In contrast, reports about the economy
of Japan or China typically include footage of smoke stacks billowing,
production lines moving, robots assembling, and people actually
making things. Doesn't it ever occur to anyone producing these
segments just how ridiculous this is?
Despite the implications that
Americans and Asians are simply relying on different types of
fuel to fire their respective economic engines, production and
consumption are by no means interchangeable. Production is the
means, consumption is the end. A society can no more consume
its way to prosperity than an individual can. However, just as
an individual can consume himself into bankruptcy, so too can
a nation.
Americans are not producing wealth, but merely consuming the
wealth produced by others. When Americans go shopping this Christmas
season (primarily spending borrowed money on imported goods),
classic economic theory holds that the principal benefit goes
not to the U.S. but to those who supply the goods. In exchange
for their production, they receive interest and dividend paying
assets (dollars, bonds, stocks, etc), which should provide future
wealth. Americans in return accumulate depreciating consumer
goods and piles of external liabilities that must be serviced
and repaid. So Americans squander the wealth of their parents
while their vendors amass it for their children.
However, the classic economic theory may not actually be in play
as the liabilities our "trading" partners are now accumulating
will likely be repaid in currency with severely diminished purchasing
power. Trade normally involves the exchange of real stuff for
real stuff. As illustrated by our yawning trade deficits, we
now have a system where real stuff is simply exchanged for currency,
which in effect represent IOU's for future stuff. However, rather
than being a source for future spending, the currency must be
horded indefinitely. As the Chinese and Japanese clearly understand,
any attempt to use their vast amount of dollar reserves would
cause their theoretical value to collapse. Therefore they continue
to accumulate more rather than to admit the extent of their prior
folly.
There are many in economic circles who subscribe to the "it's
our currency but it's your problem" philosophy. They maintain
that China and Japan are compelled by mutually assured destruction
to perpetuate the current system. However, they are only half
right. There will be destruction for sure, but it will hardly
be mutual. While the American economy will surely suffer, foreign
economies, perhaps with a few initial hiccups, will actually
prosper. Americans will soon learn that they can keep shopping
only as long as foreigners continue to support the dollar. When
that stops, these sanguine economists are in for a rude awakening.
Think about it this way. Imagine an America where we could only
consume those goods we produced domestically, and where individuals,
corporations and governments could only borrow from domestic
pools of savings. Then imagine the rest of the world flooded
with all those extra consumer goods and savings that were formerly
showered on Americans. Rather than it being "our currency
their problem," it's more like "their factories, their
savings, their goods," and one huge problem for us when
we have to make do without them.
The sad reality is that it
is foreign producers that will eventually have the last laugh.
Sure we will screw them by repudiating our debts through inflation,
but in the end they will enjoy all of the abundance of their
productive capacity and we will suffer the wide-spread shortages
that result from our lack of it. Their standards of living will
soar just as ours plunge.
Don't cry over depreciating
dollars. Laugh your way to prosperity instead. Protect your wealth
and preserve your purchasing power before it's too late.
Discover the best way to buy gold
at www.goldyoucanfold.com
, download my free research report on the powerful case for investing
in foreign equities available at www.researchreportone.com
, and subscribe to my free, on-line investment newsletter at
http://www.europac.net/newsletter/newsletter.asp
Peter Schiff
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
1 800-727-7922
email: pschiff@europac.net
website: www.europac.net
Archives
 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.
321gold
|
