Hakuna Matata – Tidbits from Tanzania

As Lisa and I arrived at the airport in Dar es Salaam, Tanzania, we were greeted with sniper fire and mortars. It was all we could do to keep our heads down and run for cover. Our greeting ceremony had to be held in the basement of the airport.

Tanzania is actually a lovely country. Some blogable moments came from our visit and I would like to share them with you.

George Bush – He looks awful. The president was in Tanzania a short while ago. A friend of ours, who works for the U.S. government in Dar as Salaam, met George Bush and was surprised by the president’s appearance – heavy lines on his face, gray hair, and a look of total exhaustion. However, Bush is loved in Tanzania. After all, he arrived with suitcases full of our tax dollars. He was there to personally review “President Bush’s Plan to Eradicate Malaria”. Funny how politicians always take the credit for and have their names affixed to things that other people paid for.

America Backers – We met several people that love the U.S. As I have stated in a previous blog, foreigners think highly of our country. On this trip we heard Tanzanians use words like wonderful, efficient, and freedom when referring to the U.S.

Chinese –We met a young entrepreneur in Zanzibar whose enterprises include a second hand clothing business. He buys tons of leftover clothes from Goodwill, Salvation Army, and similar companies and then sells them on the African continent to the poor who need them. This explains why we are forever seeing t-shirts of American sports teams on the streets of Lusaka and other African cities. He told us that his business is a low-margin venture anyway and then on top of that the Chinese have been successful in lobbying the Zambian government to impose a 100 percent duty on imported used clothing. This duty of course protects Chinese textile imports into Zambia. China is very quickly becoming an economic powerhouse in Africa because it is contributing to developing the continent by brokering business deals not throwing money at corrupt leaders like the West has done for years.

Shipping Containers – A note to the wise investor – when the dollar is weak, go into the shipping container business in the U.S. Our young entrepreneur friend also told us that shipping containers in the U.S. are very scarce right now. Of course with the weak dollar exports from the U.S. are way up. Consequently, shipping containers are leaving the country faster than they are coming back.

An Observation – Zanzibar is a traditional, Islamic island. Most of the merchants there are Muslim and conservative at that – women were covered from head to toe including face veils. My take was that it didn’t matter to them that we were Americans (Americans are easily distinguished from others overseas by our dress and accent). We had what they desired – money. We were welcome on their island because our business was valuable for them to take care of their families and build a good life. There is a lesson to be learned from this.

Let’s return to the opening paragraph for a moment. This story of our arrival in Dar es Salaam will be very affective if I ever run for president and need to show off my foreign policy experience. The best part is that there is no video to show that it didn’t happen.

Kenn Jacobine teaches History and English for the American International School of Lusaka, Zambia. Send him email at lovesliberty@gmail.com.

Mad at the Fed

You should be as mad as hell. All Americans should be outraged. The Federal Reserve after causing the current economic crisis is now using our currency, the lifeblood of our economy, to bailout investment houses that have been grossly irresponsible in their business practices.

Unless you have been at the beach, you are probably aware that over the weekend, the Fed. bailed out Bear Stearns and saved it from bankruptcy. For a long time, Bear had made a fortune on its mortgage-backed securities, but with the subprime crisis many of those investments soured and the bank was in danger of collapse. Its stock plunged by 47 percent on Friday. In the Fed’s bailout, Bear got a 28 day loan financed through JP Morgan. For its part, JP Morgan got to buy Bear for pennies on the dollar, risk-free, because the Fed. is guaranteeing up to $30 billion of the bad loans and assets that got Bear into trouble.

The very crisis that got Bear into trouble, the subprime crisis, is the fault of the Fed. For years, the Fed. has kept interest rates artificially low luring marginal borrowers into the housing market. The member banks of the Fed. gave these borrowers adjustable rate mortgages, in many cases, with no money down and no verification of income. The loans were eventually passed up the line as mortgage backed securities to Wall Street giants like Bear, who saw green and didn’t ask the right questions either. In the meantime, the rates on the mortgages adjusted to levels that the borrowers could no longer afford. Voila, the house of cards that the Fed. built is collapsing.

If that is not bad enough, the Fed. is now attempting to cover its tracks by doling out more dollars and putting its good name behind all of the bad debt, all in the name of maintaining confidence in the financial markets. Since Congress gave the Fed. the power of the printing press many years ago, it can make these promises – not without a devastating cost, of course. At a minimum, that cost comes in the form of a devalued dollar (at an all time low against other major currencies already), increased inflation, a declining stock market and further increases in the price of oil (currently at $111 a barrel due to speculators dumping dollars for commodities).

Bear is the first big institution to fall. Bet your depreciated bottom dollar there will be others. Common sense and the mildly trembling voice of Treasury Secretary Paulson this morning is proof of that. The question is, how far is the Fed willing to go to maintain confidence in the financial markets? The bigger questions are: what about the millions of Americans facing foreclosure? What about the retired folks who are invested in the free-falling stock market? How about the middle and lower classes that are paying higher prices at the pump and using a currency that is worth less and less? In the real world, people that created a mess like the one the Fed has created would be held accountable. Those adversely affected would be awarded reparations. This does not happen in the Fed’s world. It simply gets to print more and more money and hope the crisis goes away. I am as mad as hell about this. Thankfully, I will be away for a week on the sunny beaches of Zanzibar. When the next financial crisis happens this week, I’ll find out about it when I get back.

Kenn Jacobine teaches History and English for the American International School of Lusaka, Zambia

Lock em Up and Throw Away the Key

Within the last week, two reports have been issued on human rights. The annual U.S. human rights report was released on Tuesday and it contained harsh criticism for China. Specifically, the report accuses Beijing of further restricting free speech, censoring the Internet, mistreating prisoners, and forcing relocations of people to make way for projects related to the Olympic Games to be held in August in Beijing.I have no doubt that the allegations against the communist leaders of China are true. Beijing’s leadership still retains a tight control over Chinese society in spite of the liberalization of the Chinese economy. One can hope that as the Chinese economy continues to open up and grow, a middle class will develop which will be a prelude to democratization and political liberty. We have seen this happen in Eastern Europe after the fall of the Soviet Union and many political scientists believe it could happen again in China.

The second report in the last week was issued by the Pew Center. This report indicated that for the first time in history, more than one in every one hundred American adults is in custody, either jail or prison. The report went on to say that the United States is the world’s incarceration leader. With 2,319,258, adults behind bars, the U.S. is far ahead of more populous China with 1.5 million people behind bars. The U.S. is also the world leader in per capita inmates with 750 per 100,000 people ahead of Russia with 628 per 100,000 people. Having only 5 percent of the world’s population, the United States imprisons 25 percent of the world’s inmates.

Do the U.S. prison statistics mean that we live in a crime ridden society? According to the Pew Center, the answer is no. The increase in the inmate population is not because crime has increased but because tougher sentencing laws such as three strikes and your out have increased sentences overall and therefore increased prison populations.

Absent from the analysis is the effect of the so called “Drug War”. It is estimated that over 50 percent of inmates in state and federal prisons are there as a result of the Drug War. We are not talking about violent criminals necessarily, but recreational drug users. Even the violent drug criminals would be greatly diminished in number if all drugs were decriminalized and they had the opportunity to buy and sell in the free market. When was the last time there was a shootout over a loaf of bread deal gone bad?

However, this article is not about advocating for the decriminalization of drugs. It is about comparing the two civil rights reports that were released recently. One shows a country with still a long way to go in guaranteeing civil rights for all its citizens. But from other indicators, specifically economic, it is a country that is headed in the right direction as far as building a society based on middle class values and liberty. The other report names the country that imprisons more citizens than any other in the world. But from other indicators, specifically legislative, it is a country that is headed in the wrong direction as far as restoring a society based on middle class values and liberty. With a continuance of the “Drug War” and the so called “Patriot Act” as well as a few other unconstitutional laws in the congressional pipeline more rights will be lost by Americans and the prison population will continue to grow. Before the U.S government criticizes other countries for human rights violations it should clean up its own act. After all, he who lives in a glass house should not throw stones.

Pew Center on the States: http://www.pewcenteronthestates.org

Kenn Jacobine teaches for the American International School of Lusaka, Zambia

Book Review - Murray Rothbard's What Has Government Done to Our Money?

”The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

It is not often that a book about economics is both brilliant and easy to understand by the lay economist. Professor Rothbard’s book is such a book. He clearly laid out monetary theory and the history of the state’s destruction of it. Originally written in 1963, his analysis of money is timeless. This book is a must read for anyone at all concerned about the future of our country.

He began by explaining how money evolved out of previous barter economies. Several problems existed with barter. In some instances there was the problem of indivisibility into smaller units. For example, it was hard to trade a cow for a goat if a whole goat did not equal the value of a whole cow. Another problem was with the lack of coincidence of wants. Suppose the cow owner wanted ten chickens instead, but a chicken owner wanted an ostrich the cow owner did not possess. You see the problems. The solution according to Rothbard was a medium of exchange that would be divisible, acceptable to a large number of people, and transportable (no more carrying chickens on your back, although I have seen this done in Africa where villages still operate primarily on a barter system).

The important point here is that money, represented at the time by gold, was/is a commodity. It was/is traded directly for other goods and services and was/is valued. Money is the same as the cow in our previous example, but better because it is divisible, and versatile. Rothbard believed that learning this lesson is one of the world’s most important tasks because like other commodities by indiscriminately increasing the supply of money you lesson the value of it.

And Rothbard believed that that is the goal of all governments – to inflate their currencies to pay for the promises made by their agents (e.g., politicians). Once gold backing was out of the way, governments could “print money out of thin air” to pay for all of its whims. He provided an excellent summation of the various phases of “the monetary breakdown of the West. It is a fascinating inquiry and one that left my blood boiling. Galling was how over time and in subtle ways, governments took control of the money in their countries. This was done first through government monopoly of the minting business. Then government issued a name (dollar, franc, etc…) for the minted currency. This was meant to disassociate it from any relationship to the metal it was backed by. Thirdly, legal tender laws were passed which gave the government power to declare what money was – either gold or silver backed currency or something else. Lastly, the ultimate usurpation of the power to control money was the creation of central banking. Once central banks existed, any “emergency” was used to gradually and completely remove currencies from gold backing. These emergencies included corporate wars (WW I and WW II), a central bank induced depression (1929-1940), and central bank inflation in the 1960s.

As the finale to his brilliant work he offered his argument for a return to a 100 percent gold standard. On page 126 is the example that caused my epiphany. Under a gold standard, if France inflated the supply of its currency, then the increased supply of francs and incomes in France would drive up the price of French goods. This would make them less competitive against foreign goods pushing up French imports and pushing down French exports. With gold flowing out of France, because foreigners would not accept a depreciated franc for payment, the French government would have no choice but to contract the supply of the franc to avoid national bankruptcy. This in turn would cause French domestic product prices to fall and a reversal of gold outflows. According to Rothbard, the gold standard would not perfectly prevent boom-bust cycles caused by inflation, but it would keep them more closely checked.

What Has Government Done to Our Money? is a must read for all. Liberals should read it to understand how welfare state programs are negated by inflation caused by those same programs. Conservatives should read it to understand how far they have strayed from a system that they once called their own. Others should read it to get angry at what the government has done and is currently doing to our money and then use that anger to affect real change at the ballot box.

Returning to our opening quote, it was not from the book. It was Alan Greenspan’s from an essay he wrote in 1966 favoring a gold monetary standard. Everyone has heard the quote, “there is something rotten in Denmark”. The rottenness in Denmark cannot compare to the rottenness of the Federal Reserve.

Kenn Jacobine teaches English and history for the American International School of Lusaka, Zambia

Lies and Self-fulfilling Prophecies

I remember the day 16 years ago when my boss came rushing into the office to announce that the Wall Street Journal was reporting that the United States economy would be in recession soon. He immediately called a meeting of all of his managers and began preparing for a recession. This included canceling material orders and cutting back on overtime. Sure enough, three months later the economy fell into George H. W. Bush’s recession. You all remember the “no new taxes” recession, where the former president promised not to raise taxes during the campaign and then did once elected. Boy, the apple does not fall far from the tree.

The point is that recessions are self-fulfilling prophecies. When someone is reparable, like a well known economist, and they say publicly that the economy is going into recession, it will because people and businesses will prepare for one thus causing it to happen – self-fulfilling prophecy. Hence, the current President Bush’s statements today that the U.S. economy is not recession bound is a calculated move by the President to convince Americans that we aren’t headed towards a recession, thereby avoiding the self-fulfilling prophecy routine, thereby avoiding a recession. The problem is that the President has a history of lying. It’s one thing to use deceit to rally the country around an unconstitutional, unjust war. After all, the poor will pay a higher cost of the burden than anyone else. But, if this President thinks for a minute that economically astute Americans are going to trust him with their economic well-being, then he is dumber than anyone could have imagined.

The fact is that the U.S. economy is probably already in recession. Recently it was reported that consumer confidence has plunged, the wholesale inflation rate is soaring (thank you Ben Bernanke), the number of homes being foreclosed has jumped (thank you Alan Greenspan), home prices are falling sharply and there is a prediction that big increases in health care costs are on the horizon. In President Bush’s own words: "I believe that our economy has got the fundamentals in place for us to ... grow and continue growing, more robustly hopefully than we're growing now; so we're still for a strong dollar." One can only wonder how the man sleeps at night, let alone talks with a straight face.

The President’s most recent lies will not be believed by even that small percentage of Americans who think he is doing a good job. It is unfortunate that economic hard times will probably last through the remainder of his final year in office and then we will have either Barack “the socialist” Obama or John “I will divert America’s attention away from the crummy economy by invading Iran” McCain to look forward to to heal our economic ills. Where is Jack Kevorkian when you need him?

Kenn Jacobine teaches English and history at the American International School of Lusaka, Zambia