Foreign Aid & The Problem with China

China: America’s Private United Nations

Foreign aid is the act of bringing in money that may be intended to be repaid or not, but more generally is recognized as meant to stabilize or build a nation. Globally, foreign aid is used as a method similar to the treatment of a critical patient in the ICU– to stabilize the nation when it cannot stabilize itself. As it works, however, is to pay for a cycle of fund allocation within the nations

As African nations well know, often-underdeveloped nations will have very specific national industries that are highly competitive. In the form of cashew plantations, coffee plantations, timber, aluminum, or diamonds these industries are national resources. In the forms of car manufacturing, steel mills, or textiles the industries are secondary or intermediary business profiles. In either case the industries are generally the best paid, most stable, and highest in revenues for the undeveloped nations; these are seen as wise investments with the largest payouts to tax and rebuild infrastructure or maintain stable employment. These industries are also the most corrupt – run by government – nationalized – and used to market the smaller countries to the world.

Those nationalized industries become the poster child of the countries, and are protected from competition through policies that provide incentives and non-competition pacts. Expensive export tariffs are placed upon the products of these smaller nations, and the funds redistributed from those tariffs to the other programs. However, if the tariffs are so great as to make those industries uncompetitive they will falter and the entire nation falters. The delivered aid is that catalyst promoting redirection of funds; it only makes things worse.

As the international aid rolls in, the tariffs increase because the money allocations necessary for running the country are lower. The government hurts the industry of the nation, and investment does not occur – it only lining the pockets of the leaders – not reinvested into the nation as it should. The foreign aid goes into programs that are normally used to run the nation and there is no benefit; no social surplus. Most importantly however, the foreign aid is not meant to be repaid.

American Aid?

The American home is now seeing this same trend but instead of aid we receive loans – still, I argue,  that will never be repaid. As the industries began to fail, the US government nationalized them – much like we see in underdeveloped nations. The financial industry failed through poor government policy – two of the largest lenders were nationalized. The auto-industry failed and yet was bailed out by the government – those that failed are now owned and operated by the national government. The money that is being used to bail out those industries is paid for, not by taxpayers, but by China. We cannot pay for them, the US budget is in a multi-trillion dollar deficit. What we see are the same phenomenon that appear in those African nations – foreign aid comes in, industries used to employ and sustain the nation are nationalized as they begin to fail because they are not internationally competitive, and the aid can’t be repaid – as no social surplus is increased, inefficiencies largely remain, and the industry is left in the red. The nation suffers.

Dilemma

So, what do we do with our debt to China – our outstanding bonds especially? Well, we don’t repay it. We can’t repay it. This is the danger. What happens when the Chinese finally understand that we cannot repay our debt to them? Will loans dry up when our bonds are forfeited on or we will just print more money? Will there be war? I’m not so sure… all I can say is that the United States is taking aid from an aggressive and antagonistic country that is beginning to look more like a knee-cap breaking Mafioso than a neutral nation nurturing our nepitism; currently the policies are the same – in the future our debt becomes our failures. Don’t believe me? Well look at the rhetoric coming from the People’s Army in China in response to our sale of military technology to Taiwan: They want to SELL our debt! Economic warfare at its finest everyone. The Chinese leaders are now threatening to sell our bonds back in order to help “increase defense spending.” Our dollars, loaned from their Yuan, will pay for those new age fighters the US can’t pay for in order to threaten our antiquated air force in Taiwan – Oh how the tables are turning. Oh, and with what money do we repay that debt? With the dollars that don’t even need to be printed – the dollars that can simply be digitally created with those beautiful 1s and 0s.

A Voice of Reason

Now, I’ve been listening to Peter Schiff for a little while thanks to my roommate’s suggestion, and I must encourage any and all people to check him out. From either sides of the aisle, this guy makes sense. He draws attention to the fiscal policies of the US and the ramifications for the future. Schiff identified the coming housing-bubble, identified correctly the massive currency crisis we now face, and has some insights for the future that may shed insight to America’s long-term situation. His speeches at the Mises Institute are fascinating, funny, and expansive.

I encourage everyone to follow the link provided. Please, if you disagree with my statements above reply, and let’s discuss!

HGMW

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