Call (866) 878-2881 to learn more about our investment strategies.

Commentaries & market updates.

The Fallacy of Consumption

The Fallacy of Consumption

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 IOU’s, 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.

Sign up for our Free Reports & Market Updates.

You are now leaving

We are providing a link to the third party's website solely as a convenience to you, because we believe that website may provide useful content. We do not control the content on the third-party website; we do not guarantee any claims made on it; nor do we endorse the website, its sponsor, or any of the content, policies, activities, products or services offered on the website or by any advertiser on the site. We disclaim any responsibility for the website’s performance or interaction with your computer, its security and privacy policies and practices, and any consequences that may result from visiting it. The link is not intended to create an offer to sell, or a solicitation of an offer to buy or hold, any securities.

You will be redirected to
in 3 seconds...

Click the link above to continue or CANCEL