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More Evidence Of Peak Spending In America At Government & Individual Levels

2 March 2011 5 Comments

Fort Knox

Daniel Gross of Yahoo makes a suggestion that the government of America should pursue the option that millions of broke people across our great country have pursued – and that is to cash in their gold to continue to fund an unsustainable lifestyle.  Ah yes, that’s just a fantastic idea.

I’ve talked before about how the popping up of cash 4 gold like outlets is not a sign of a peak in gold prices, but instead, a further sign of a peak in consumption and spending.  Selling your gold is essentially your last ditch effort to get cash to fund your unsustainable lifestyle.

I have XM radio and listen to CNBC frequently when I’m driving around.  There are a ton of commercials trying to get listeners to BUY gold.  It’s very interesting to see the targeted demographics of the companies that try to sell gold and those of the companies that try to buy gold.

Drive through a crappy neighborhood in your town and you will find stores that advertise “We buy gold.”  Turn on CNBC on satellite radio and you get the opposite – I imagine there aren’t too many broke people listening to CNBC on satellite radio, no?

One group – the broke group – is marketed to as a group that will sell their gold to companies.  It’s a pretty simple picture really.

This same principle can be extended to governments and countries as a whole.  For example, countries like China and India are using reserves to buy gold.  Countries like America that face massive debts need to now sell gold – if they do in fact own gold – to get cash and fund unsustainable spending levels.  Ridiculous.

Look, this stuff is simpler than one would think.  Who gets wealthy?  The person who sells assets to fund consumption, or the one who foregoes consumption to invest in assets?  Yeah, easy answer.  The same concept can be applied to groups of people, corporations, state governments, countries, etc.

Now, if you’re expecting the peak spending in America to be a fast process and to “top out” quickly, you’re probably going to be disappointed.  The economy of America is enormous, and any changes are going to be multi-year processes.  With that said, make no mistake, you are seeing the peak spending in real terms here in America.  Sure, the nominal numbers might increase, but this will only occur with a debased currency.

Stay focused on long-term trends, don’t stress over short term movements in assets, trends, and data.  This trend is firmly in place.  Consumption and spending is peaking.

The peak will either be driven by political will (yeah, right) or forced by the market.  Since our politicians are spineless, it’ll likely be market driven, but nonetheless, it is happening.

Make sure your financial strategy takes this into account.

5 Comments »

  • Arthur Garcia said:

    Great post! It is funny you bring this up…I've been noticing the same things, but I couldn't put what I was seeing into words.

    BTW – I talked to someone from Mike Maloney's company (rich dad's advisor for precious metals) and they think silver will hit $50 an ounce by Sept. Are you investing in silver? If so, what is your strategy?

  • Mark said:

    I also think it's crazy that the leadership of this country cannot recognize that China has the right game plan here financially. Are we completely blind? I do agree that many of the financially disadvantaged are turning to these gold places to unload their gold right now. I do know of others though who have sold their gold simply because the price is so good even though they don't need the money.

  • Bowmanave said:

    AJ Sull makes an important point that has not gotten much notice since it first emerged at the end of 2009 (e.g., Steve Leisman at CNBC) … only 464,000 net jobs gain in the US since December 1999. Mind you, there was an early warning in this newspaper last summer, by Alia McMullen:

    That said, the people who are still working have been saving but they have also been spending … just not at the unrealistic, debt-fueled craze levels of yore.

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  • Elizar said:

    I've been reading the US news lately (Im from Asia) and this story has never been in perfect timing with the US stocks plummeting and all. This post is like a prophecy or something.. the debts is expected i guess.