End Foreign Aid. Now!

Another issue that is being largely ignored by the media favored presidential candidates is foreign aid. I suppose the topic is not very sexy, but at a time when we are experiencing a credit crisis and Americans are losing their homes and will soon be wondering where their next paycheck is coming from, foreign aid seems like an important topic to discuss. It is also no small matter – since 1960, the rich countries of the world have transferred, sorry, I mean, provided 2.6 trillion dollars in aid to developing countries.

A wise man once said that “foreign aid amounts to taking money from poor people in rich countries to give it to rich people in poor countries”. Former Nigerian President Olusegun Obasanjo has been quoted as saying, "Corrupt African leaders have stolen at least $140 billion from their people in the 4 decades since independence." Corruption is the biggest, but not the only problem with foreign aid. There is also the problem of giving money to countries that do not have the infrastructure or educated work force to use it towards development. Since independence in the 1960s and 1970s the countries of Sub-Saharan Africa, have seen their food production fall by roughly 20 percent and per capita GDP fall at a rate of half of one percent annually. If foreign aid is successful, than what accounts for these statistics? I realize that a portion of aid money has always gone to education. As a teacher currently living in a recipient country, I can tell you first hand it has not worked in this area either. In Zambia, after 43 years of independence, schools are still woefully resourced, in many instances staffed by teachers who do not have college degrees and crammed with up to 50 students per class and Zambia currently is a success story both economically and politically on the continent.

The opposite extreme from Zambia is her neighbor to the south, Zimbabwe. Once the breadbasket of Africa, Zimbabwe has fallen on hard times in the last decade due to the wrongheaded policies of its dictator, Robert Mugabe. It has the highest rate of inflation in the world, currently at 100,000 percent. Unemployment is at around 80 percent of the work force. Shelves are empty and the people are facing starvation. Yet Zimbabwe currently receives about $700 million a year in international aid (source: all Africa.com- “Zimbabwe: Mugabe's Last Stand”). Where does the hard international currency go? As recently as the 1990s Zambians would drive down to Harare to do their shopping. Now Zimbabweans come to Lusaka to live.

The fact is that foreign aid does not work and is a waste of money. While there have been some success stories in the developing world since independence movements swept across the globe in the 1960s and 1970s, those countries probably would have become successful without foreign aid anyway. Many developing countries in the world are one coup or fraudulent election away from dictatorship. As we have seen in Zimbabwe, years of foreign aid have been wasted and permanent development has become an elusive pipedream. The British government estimates that Zimbabwe will now need three times the $700 million a year in international aid it currently receives to help it back on its feet. If granted, what is the guarantee that we won’t be having this same conversation about Zimbabwe in 20 years?

At a time when the United States is 10 trillion dollars in debt, it is preposterous to continue giving aid to developing countries. We are throwing money we do not have down an open sewer and financing the opulent retirement of dictators around the world. Additionally, this is one more program that allows the Federal Reserve to print more dollars and further debase our currency.

Instead of foreign aid, our policy should be one of free trade and business deals. Lowering trade barriers would benefit all - American workers and companies and developing countries. Africa is mineral rich. In Zambia recent geological findings point to oil and uranium reserves underground. The focus should be on American companies cutting business deals in countries like Zambia to extract oil, uranium and other resources from the ground. U.S. companies would benefit from such deals, but the bigger beneficiaries would be the developing countries which gain tax revenues, jobs, and infrastructure. The biggest winner of all may be the U.S. taxpayers who will no longer see their hard earned money go down the drain.

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

Easy Money, Fraud, and Stupidity

CNN recently aired a program entitled “Mortgage Meltdown”. The show featured panelists sitting at a card table in a casino discussing the subprime crisis. As they talked about the various culprits responsible for the current financial mess, three recurring themes were evident – easy money, fraud, and stupidity.

Stupidity – This was possessed by the millions of borrowers who signed their names to loans they should have known they could not pay back. These include people who bought more house than they needed. In the show they featured a truck driver struggling to pay a mortgage on a six bedroom house she purchased even though she was single. Then there are the stories of borrowers who after getting into their homes face major repair expenses and begin to fall behind on their mortgages. Folks who live paycheck to paycheck should know better than to get involved in a huge obligation like a mortgage. Generally speaking, the ultimate underlying problem here is stupidity. Instead of watching TV or shopping at the mall, Americans need to use their brains more. I just bought a home last summer and I admit that I did not read all of the fine print, but I know what I signed, how much my closing costs were, how much my initial payments and escrow were and how much I will pay when my rate adjusts in two years. This is just not hard and with laws on the books, public libraries, and the internet, consumers have more than enough material to read to educate themselves on probably the biggest thing they will buy in their lifetimes.

Fraud - According to the CNN Special Report, loan officers of many primary mortgage lenders used fraud and deception to secure large loans for their clients. This included fudging the numbers and outright falsification of incomes and other important information on loan applications. You see, these first tier lenders were only concerned with consummating the deal and not whether the loan made sound financial sense. After all, most of these loans got bundled into packages and sold to such market stalwarts like Bear Stearns. These savvy financiers are smart enough to know that enough bad loans will eventually trickle down to hurt the whole market. Of course, they got their commissions first and so everything is right with the world.

Easy Money – If you’ve read my previous blogs then you know, without question, I place the biggest blame for the current crisis and several others, including the great Depression, on the Federal Reserve. According to the CNN Special Report, Alan Greenspan as chairman of the Fed. for close to twenty years embarked on a policy of easy money – low interest rates and expanding money supply. According to one panelist, Greenspan was like the parent who just could not say no to their child. Americans wanted continuous growth without pain and Greenspan determined to make it happen at all cost. The dot com bubble of 2000 foreshadowed what is happening today in the housing market. Did the Fed. pay heed then? The answer is an emphatic no!

So, what should be done to remedy the current circumstance? The President and the Treasury secretary want to give even more power over the economy to the Fed. Our government is always willing to put more gasoline on the fires it starts. I want the Fed. to have more power to fix the mess it caused about as much as I would want the stupid borrowers or fraudulent financiers to have that power. Sorry, but I care more about those of us that are innocent in causing this fiasco. Those of us that neither through our actions or brain lock had anything to do with the crisis. First of all, the FBI should investigate those cases of fraud perpetrated by both lenders and borrowers. Those found guilty should be prosecuted to the fullest extent of the law. Second, whether there was fraud or not, those borrowers that have lost their homes or will lose their homes should suffer that fate as a consequence of their stupidity. The government should provide no aid to them and should make it clear that the days when bad decisions are rewarded are over. Lastly, and most importantly, the Fed. should be forced to sell the gold it originally confiscated from the public when we went off the gold standard to compensate for damages caused by its member banks in making the bad subprime loans. Beyond this, the Fed. should be abolished and a one hundred percent gold standard should be instituted to prevent the manipulation and depreciation of our currency in the future.

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