What are the causes of high third world debt?

Billions of dollars in foreign aid is sent off to third world countries every year. Poor countries in Asia and Africa are the major recipients of these funds that are aimed at development in the public infrastructure and welfare programs. Despite receiving such massive mounts, third world countries have shown little progress. Majority of their population lives in severe poverty, hundred of thousands if not millions die of starvation while widespread corruption makes the rich richer and is nearly killing the poor. Above all, third world countries have hundred of billions of dollars in debt that developed countries and world powers exploit to hold such nations at ransom. Being indebted to a powerful nation often forces a country to form policies that are more beneficial to the creditor nation than its own people. But what are the causes of this massive debt? Here is a look at some of the factors increasing third world debts:

 

1.       A history of continued colonialism: Most third world countries have gained their independence from colonial powers. However, the legacy of stealing precious resources from the people of the nation in the place of foreign funds that are not used for their benefit continues.

2.       Thieving Leadership: The levels of corruption in third world countries is unimaginable and beyond the concept of humanity. Ruling parties illegally utilize foreign aid for personal progress. It suits them better that the nation’s populace remains poor so that the leaders can keep asking the international community for fresh funds.

3.       Fund to influence politics: World powers often provide huge amounts of aid to nations known to harbor terrorists and have a history of violence against neighboring countries. These funds are actually aimed at helping the world powers suppress nations they cannot act openly against.

4.       Mismanaged spending: There is no audit on how foreign aid is spent and when a nation can’t repay debt it passes the problem on to its poorest people.

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Effective Aid for Third World Countries

Modern day economic news is filled with talks about foreign aid, food aid and development programs being imparted by world powers towards third world or developing countries. The leader of the pack when it comes to sending ‘humanitarian aid’ to third world nations is the United States. The US spends billions of dollars every year in free food distribution to countries whose people it believes are on the verge of starvation. It also sends out foreign or development aid to help developing nation’s progress faster, especially in Asia and Africa.

 

Humanitarian aid in times of crisis and disaster can be really helpful. Sending food to a famine ravaged Somalia or Dhafur or sending medicinal aid and rescue teams during natural disasters would be a good idea. However, sending tons of food grains to a country like India, whose economic mainstay is agricultural products, does not make a lot of sense. At the same time, pumping in millions of dollars to countries with known histories of corruption and violence could disturb the political balance in regions. Such humanitarian aid provided without proper direction leads to steep rises in corruption and exploitation of the poor masses.

 

Humanitarian or foreign aid should be given to countries after thoroughly evaluating their present state as well as conducting a thorough audit on how previously issued funds have been utilized. The audit should be conducted by an international, unbiased authority to maintain transparency. Development aid should be targeted towards developing private sectors instead of being herded towards corrupt government wolves. A fine example of how foreign aid can be misused by ruling parties is the use of foreign aid by Zaire president Sese Seko to partly fund the construction of 10 presidential palaces. World powers also use foreign aid as a kind of bribe to third world governments so that they form trade policies that benefit the developed world. Whether free food or free money, aid should be given responsibly.

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What Is International Economics?

ContentWhen you hear the term “international economics”, it basically describes international trade, investment, and production interactions between countries. To be more precise, international economics is a field of study that deals with trading between countries. Some examples of international economics includes money flow between countries, trade disputes and free trade, migration and immigration between countries, and what influences a company’s decision to operate in a country.

The Institute for International Economics
The Peterson Institute for International Economics is a nonprofit, private, nonpartisan research facility that is devoted to the study of international economic policy. The institute started in 1981 and since then has provided objective analysis of and solutions to a wide variety of international economic situations in a timely manner. This staff of 50 is one of the most highly respected institutes in the field of international economics. They deal with the more controversial topics in economics, such as trade and labor standards, exchange rates, US steel policy, outsourcing, and more.

An Author’s Perspective on International Economics
There is a great book available that provides information on international economics, called “International Economics: Global Markets and International Competition”. The author of this book describes international economics as the prediction of investing, trading, and production between countries. In some countries, international economics is a life or death situation, especially smaller countries that are not as stable as larger, richer, countries. As international economics ebb and flow, it causes income and wages of the citizens in that country to rise and fall also.

The field of economics started in the 1700s in England. The government debated over issues of free international commerce, which still continues to this day. Currently, domestic industries and companies pay politicians to protect them from foreign competition. Government policies have been put into place to influence investment and trade for favored industries and governments are always negotiating investment and free trade agreements.

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What is Econometrics?

A term that is not heard of as often as other economic terms is ecometrics. Since it is not a widely used term, many people probably have no idea what it is. Just like many other things in the world, there are several opinions that vary just a bit, and just as many definitions that are different. Some describe ecometrics as the statistical methods used by economists. Other experts would say ecometrics are the statistical tools that provide a means for economists to test hypotheses using real world data. Monash University describes ecometrics as a set of quantitative techniques that are useful in making economic decisions.

Economists that utilize econometrics set up mathematical models that describe economic relationships, test the validity of the hypothesis, and estimate the parameters to obtain a measure of how much strength a specific influence has over different independent variables. An example of this would be a look at how often a product is in demand based on positive income and how the product is negatively impacted on pricing.

Just like most other scientific fields of study, there are special tools used to complete the group’s required tasks. An economist’s tools of the trade are econometrics and econometrical modeling. An econometric model is formulated so that the parameters can be estimated if a person makes the assumption that the model is correct.

Questions that an economists would utilize econometrics to determine the answers, include, “Does Fiscal stimulus really boost the economy?”, “Is the value of the Canadian Dollar impacted by the price of oil?”, Has the gap between rich people and poor people grown over the past 50 years?”.

Learning about economics is beneficial because it will help you to understand more about how the world works. You will see how international trade impacts decisions on an individual, industry, and national level. You will also notice how government policies effect the economy and unemployment, both in a positive and negative way.

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How Does Tariffs Affect The Economy?

A tariff is a duty or tax placed on an imported product by a government, similar to a sales tax. Tariff rates are different for every imported product. The main reasons a government will impose tariffs include the protection of aging domestic industries from competition in other countries, to protect new domestic industries from competition in other countries, and to protect foreign companies or governments from dumping domestic producers and causing them to lose money.

Foreign tariffs can hurt the economy of a country because it raises the cost of domestic producers, causing them to sell fewer products in those foreign markets. The reduction of sales causes the country to loose money, and then jobs have to be cut because producers aren’t making as much product. Like a ripple, the job losses will then affect other businesses. A reduced employment level causes a reduction in consumer product demands. When people do not have jobs, they do not have money to spend, and many different industries can suffer. These tariffs, coupled with other types of market restrictions, can cause a nation’s entire economy to decline.

A tariff will reduce the competition in a producer’s home market, causing prices to rise. Sales will also rise, causing producers to hire more workers and enticing consumer spending. As the supply of that product starts to grow larger than the demand, productivity slows, people are laid off, and consumers stop spending. Ultimately, tariffs cause a decline in the economy.

All signs point to tariffs being harmful to those involved. So why do countries bother to tax goods? Well, the gains received from imposing a tariff is a lot more visible than the losses are. There is no face to go with a slow economy, but the link between works and tariffs in a specific industry is noticeable and will create attention.

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What Is Experimental Economics?

Article ContentEconomics is a very detailed field that often confuses many people. If you are one of these people, it is best to learn about various economic terms and conditions slowly, to fully understand each concept. On area of economics that always generates questions is experimental economics.

When you hear about economics, you are hearing about how financial decisions impact the world. Experts collect real world data to provide theories as to why a specific economical condition is occurring. An example of this is when we look at a change to the minimum wage and then look at the unemployment rate. If the unemployment rate changed after the minimum wage adjustment, experts would assume that a change in minimum wage affects the rate of unemployment. Yet, there are so many outside factors also taking place which really could be the cause of the change in unemployment, other than a change in the minimum wage, such as a spike in oil prices of a cut in interest rates.

The field of experimental economics tries to eliminate the outside factors by conducting controlled experiments in a secure laboratory setting. Yes, it is impossible to conduct a controlled experiment on a million workers earning wages in one country, but experimental economics can provide people with a better idea of how firms and consumers respond to incentives.

One economical group that conducts experiments is E-Economics. They conduct online experiments to make economic decisions and they confront reality by observing real subjects. This group will invite people to an online auction with real money to see how they behave. If they want to know how the general population finds bargains, they will watch real people making bargains.

Traditional economics and experimental economics study similar phenomena, yet they do it in a very different way. Traditional economics looks to the past to predict the future while experimental economics take a laboratory approach.

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4 Tips to Start a Relationship With Your Banker to Obtain a Small Business Loan

ContentOwning a small business can be a dream come true for many people, but it can also be a financial burden. Obtaining a small business loan can be a stressful process, but can also be an important source of funding to propel your business to success.

All small business owners should form a relationship with their banker and their banking institution. This can help a business owner obtain a loan, and also provides the perfect setting for an experienced banker to provide the small business owner with practical advice on financial matters.

With a few easy to follow tips, a smile, and a positive attitude, you will be well on your way to establishing a good relationship with your banker.

1. Open a new bank account.
Choose a bank that deals with other businesses with similar sizes as the one you would like to create. May also want to try and find a bank that has customers with the same type of business you have. This will assure you that this bank will understand your needs and be able to provide you with sound advice.

2. Effectively manage your bank account.
Use your account for a while to build up a positive reputation. Make regular deposits and withdrawals, avoid bouncing checks and overdraws. Make sure to keep your balance well above the minimum.

3. Get to know your banker.
As you visit your bank, get to know your banker. Small talk is great to open a conversation, and then start talking about your business. The more your banker knows about your business, they better he will be able to help you. Keep your banker informed of any missed payments, missed projections, like high sales periods and growth.

4. Borrow a small loan.
Prove to your banker that you are responsible by borrowing a small amount of money, for a short period of time. Pay the loan back quickly to establish good business credit.

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4 Financial New Year’s Resolutions for Small Businesses

ContentAs we reach the end of December, people are looking ahead to the new year; an opportunity to start fresh, set goals, and reach for the stars. Small business owners are no different. If you are looking for some ideas on financial goals for next here, here are some suggestions.

1. Prepare a budget.
Every business owner should have a budget, no matter how small or large the business is. The budget is your plan of action and should reflect money coming in and out, even potential expenses that are not currently being incurred.

2. Better manage cash flow.
Cash flow is the most important financial figure for a business. Not only do you need to pay attention to the money coming into your business, but you also have to keep a watchful eye on the money going out. It doesn’t matter how much money your business is bringing in if you can’t afford to pay the expenses, and your business will fail. Take some time each month to prepare a monthly budget and a Statement of Cash Flow, as it will make it much easier to run your business and maximize your profit.

3. Increase sales revenue.
There are many things that you can to do increase your sales. Create a website to market online customers. You can create them yourself, or hire a web designer to build a website for you. Broaden your customer base by accepting credit cards if you do not already do so. Anything that you can do to increase your customer base will increase your profit.

4. Keep great tax records.
Now is the time to invest in a computerized accounting program. As long as you enter your receipts on a daily basis, the computer program will do the rest of the work for you. When you have great tax records, it will be very easy to file your taxes at the end of the year.

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Canada & Europe Free Trade Agreement 2011

ContentCanada and the European Union (EU) have been discussing a free trade agreement since June 2009. As of December 15, 2010, trade representatives confirmed that the group is on track to signing the agreement by the end of 2011. Both parties are satisfied with the progress of the negotiations, which will resume in January in Brussels.

This is mostly about money, as most international agreements are, and it is reported that just the removal of tariff and non-tariff barriers would save at least 20-billion Euros, which is the equivalent of 26 billion US dollars. Canadian unions, farmers, and auto workers are not very happy about this pending agreement, regardless of the savings.

An economist, Jim Stanford, conducted a study that shows that a free trade pact between Canada and the EU will lead to a huge Canadian job loss and a trade deficit; Stanford estimates that anywhere from 28,000 to 150,000 Canadian jobs will be lost.

One other sticking point on this proposed trade agreement is that the EU wants to protect its geographical indications, which are trademark names for products that are named after a town, country, or region, which are viewed as intellectual property rights.

Canada is excited about the new Free Trade Agreement and compares it to the 1994 North American Free Trade Agreement (NAFTA), which eliminated tariffs on goods that circulate between Mexico, Canada, and the US. It only makes sense that Canada’s second-largest trading partner, The European Union, also have a free trade agreement, making Canada the first nation to have free trading with both the US and Europe.

For the long term, the seed has already been planted to create a deal that will combine the EU and NAFTA, which are the world’s two largest trading blocs. Though depending on who you talk to, this is or is not something that is currently being discussed.

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Interest Rates Explained – The Basics

ContentEconomics is not one of the most popular discussions at the dinner table, but it is important to know the basics of various economical terms and conditions. Many people hear about interest rates on a daily basis, it is talked about on TV and in the newspapers. But, how much do you really know about interest rates?

What is an interest rate?
The price a lender charges a borrower to obtain a loan is an interest rate. The interest rate is expressed as a percentage of the total loan amount.” Some people will use the term “the interest rate”, but there are actually hundreds of different interest rates that a bank charges a borrower. An interest rate is most commonly determined by how risky it is for a bank to loan money to a specific borrower. Someone with a great credit rating means that they are more likely to repay the loan, making them lesser of a risk to default on the loan. These people typically receive a lower interest rate than someone with bad credit that is a higher risk of not repaying the loan according to terms.

How low can an interest rate fall?
Theoretically speaking, an interest rate can be a negative figure, which would mean that lenders would pay borrowers for taking a loan out with them. But, in real life, this is very unlikely to happen as lenders are businesses that need to earn a profit, which the revenue earned from interest rate payments on load is one way lenders earn profits.

Real Interest Rates vs. Nominal Interest Rates
When people talk about interest rates, they are usually talking about nominal interest rates, which is an interest rate that has not accounted for the effects of inflation. A nominal interest rate will go up and down, as the rate of inflation rises and falls. However, interest rates are accounted for in real interest rates.

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