459: Debt, Democracies, Corruption and Women in the Workplace - Pointers for Property Investors
Corrupted Democracies:In the west the rhetoric over the last few decades has been to uphold and promote democracies – we’ve been bought up to think democracy is best. The true western virtue and all countries in the world should be like our own – democracies. This special report is dedicated to analysing this – with its impact on economics, investment and property investment moving forwards.
What is a democracy: If a government is voted into power in a law abiding fair process, then the country is normally deemed a democracy rather than an autocratic country or one that is run by a dictator. But there are different types of democracy and this needs to be considered by all investors, since it affects security of investment, potential returns and investment outlook.
Other measures of a democracy are countries with fair elections, freedom of speech, free press, councils elected and a constitution that is not bias towards different religious, ethnic groups or working against minority groups.
Over time, democracies can become corrupted – where politicians take a cut of business and public spending – and use this for their own means or those of their family and/or friends and supporters. They may even rig elections, break laws or put pressure on authorities so they can remain in power, seek more influence and monetary gain via corrupt means.
The very best and most honest democracies are of course where politicians and civil servants work in transparent ways, being paid only a fixed disclosed salary and certainly do not take a cut of payment for any proceeds or work they do. They do not siphon off income or public sector revenues and taxes into their own accounts. They are not influenced by so called “lobbyists” and are independently elected individuals that work for the betterment of the nation and its society. They do not break laws, rules and regulations and remain honest, hard working with the highest codes of conduct.
It may surprize some, but the following countries are democracies – Venezuela, Iran, India, Uganda, Nigeria, Bangladesh, Pakistan, South Africa along with the UK, USA.
Bad Borrowing In Democracies: Democracies used to borrow money in times of national threat (e.g. threat of invasion by an aggressor) to boost defences and military – to maintain the national boundaries and fight for justice. This happened with the USA and Great Britain during World War II – against threats from Germany, Russia and Japan. But now, in times of general peace, the UK and USA along with Europe and Japan are increasing their debts and using future generation’s money to boost living standards in the present day, when there is no real threat to their country boundaries against aggressors. Something has gone very wrong it seems – as these democracies have grown fat, old, inefficient and tired.
It’s almost as if politicians in many western developed nations know the dire state of things – but refuse to take the difficult decisions to do something about it because their vested interest is in keeping the status quo going – namely remaining in power and making sure their own personal and/or family interests come first. Their often seems to be a lack of honesty and integrity in these democracies that leads to high borrowing, high deficits, printing of money and general reduction in productivity and efficiency within the public sectors that then affects private sector efficiency, innovation and productivity improvements.
The phrase “kicking the can down the road” sums it up pretty well. We can expect this to continue. Japan has recently elected a new prime minister that has promised to create inflation through monetary printing and currency debasement. In such a large economy, the competition between central bankers to debase currencies and print more money will start to hot up by Q2 1013. We expect the USA to be hot on the heels of the Japanese with their own money printing – trying to inflate asset prices, prevent deflation and keep their currency from rising too high. In doing so, claiming this is good for exports and helping the deficit. But of course, they are very wrong, it can lead to a currency crash, massive inflation and increasing deficits from more costly imported goods. This is our central prediction for both the USA and Japan.
Europe Wins in 2013: The big winner will be Europe in 2013 – because at least they are trying to do something about their deficits with austerity measures and spending cuts. Markets know this, it’s a tough pill to swallow, but deficits should drop in Europe over the next few years and with it the Euro currency should strengthen. There are likely to be further problems for Europe, but we think the attention will swing to Japan and the USA in the next six months as their colossal money printing binge starts to debased their currencies leading to higher inflation and interest rates – as international investors start to desert the US and Japanese bond markets. If their bond market bubbles pops – a financial meltdown and panic will ensue. The risk of US and Japanese debt and currency meltdown has risen dramatically in the last year. Whilst Europe has delivered limited money printing to create liquidity to prop up the financial system, the USA has gone all out to create inflation and attempt to reduce unemployment by printing giant quantities of money whilst debasing their currency – attempting to created demand when there should not be demand because of a broken economy. Japan is shortly to embark on a similar strategy with its newly elected premier.
Integrity: In such an economic environment, one has to look at the overall integrity of these democratic governments. The governments with the best integrity will experience the most successful and stable economic performance. The most honest and least corrupted governments with the highest ethical standards will do the best. They are most likely to control their deficits, control their spending, hold the lowest interest rates, experience the most robust growth and least at risk of financial meltdown. If they are independent of other countries, and set their own interest rates – control their own finances, with least exposure to other nation’s liabilities, they will also do the best. Countries with their own oil, gas, coal, nuclear power, forestry, farmland and/or hydro-electric will also do better than those that have water shortages, no energy (high energy imports), unproductive farmland and exposure to climate change. So for property investors, you should be looking for countries that are independent, islands, rich in resources and have the least corrupt governments. Top of the list is probably Norway. Canada is close behind. Australia is not far behind. UK is probably just ahead of Spain, Greece and Italy in its desire to reduce deficits and spending in the last few years - these are hard choices that will see benefits in 2013 – it’s been reasonably tough so far. The USA has made no hard choices at all - it really has lost control of its monetary wellbeing - like a drug addict addicted to money - it needs ever increasing injections of money to survive. The political establishment and central bank have almost no desire to change, reform or reduce expenditure or balance the books.
Health, Wealth, Freedom - and Women In Workplace: The countries with the greatest integrity and transparency are generally the most successful countries or societies – measured in freedom, wealth, health, education, quality of life, life expectancy and living standards – these correlate very closely with the countries with the highest proportion of women in senior positions in both the public and private sectors. Why might this be? It could be a combination of the following:
* Having double the amount of people contributing to society and wealth generation is positive for the economy and society (conversely, only having half the population to select from and contribute to business and public sectors is detrimental to economic growth)
* Women and men have complimentary and often different skills, interests and passions – hence make for more rounded teams
* Women can keep businesses and public sectors honest and reduce incidence of bad behaviour
* Having women working hard in jobs whilst their kids are at school adds to GDP – as women earn more, they spend more and create more – they represent half the population so this adds to growth or sustains higher levels of GDP and wealth
* It is probably no coincidence that Norway, Sweden and Denmark – all with very high levels of women’s involvement in the workplace - are also very wealthy countries. Many of these are senior positions as well. Most of the poorest countries have very little involvement of women outside agricultural labour and childcare or rearing, particularly in senior government and business roles.
* Women are less likely to mount expensive and damaging wars and military excursions – their decisions are often more balanced.
Sweden is an interesting example of a progressive country – in part because the country has no benefits from indigenous oil, gas, coal or metals – it has a cold climate not particularly attractive for agriculture. It is dark and very cold during for 4 months of the year and cool in the summer and not in the EU economic block. Despite all these set-backs, it’s one of the wealthiest countries in the world and one of the countries with the highest proportion of women in senior positions – and women contributing strongly to the economy. It proves you do not need hydrocarbons and mining resources to achieve high living standards. Finland is another example. The maturity and integrity of the government and its well educated citizens is high. In 1990 Sweden experienced a financial crisis when debt and social spending levels rose – the citizens then came together to cut costs, improve public sector efficiency and boost the private sector – culminating in robust GDP growth and employment in 2013 when most other countries are loaded down with debt, fat public sectors and inefficiencies – held back by often immature populations expecting hand-outs – citizens expecting hand-outs otherwise they choose not to vote for a political party.
Let The Banks Fail: In general terms - wealth, education and health all go together – but some democracies have been corrupted so no progress is made, whilst others have high integrity and will go from strength to strength. Bailing out banks is a sign of corrupted democracy – where failed institutions are propped up with tax payer’s money. Letting banks fail – like Iceland did in 2009 – is a sign of a government with high integrity that makes tough decisions for the long term benefit of the nation.
Corrupting: If you see a government doing the following – it will probably be a democracy that is slowly being corrupted:
* Set ultra-low interest rates - damaging savers and investors, benefiting failed banks
* Bail out bankers with public sector – tax payer’s money
* Bankers achieve high bonuses despite failing to perform
* Increase in debt
* Decrease in the value of currency
* Boost the public sector – or do not cut back on spending
* Regulate commodities prices
* Give subsidies that are not economic or capital efficient
* Increase tax on businesses
* Add more regulation and big government
* Give hand-outs to voters in return for votes – food stamps, tax cheques
* Increase income tax, capital gains tax, land and property tax
* Rig votes and elections
* Deem it acceptable to lobby and give political donations for favours
* Do not promote women into senior roles
Conversely the least corrupted (e.g. Norway, Sweden)
* Set interest rates at acceptable level for savers and investors
* Do not bail out banks – allowing poorly run banks to fail
* Reduce debt and deficit levels
* Keep currency values robust or rising
* Reduce public sector spending – making cuts to improve efficiency
* Let the market set commodities prices
* Do not give subsidies for anything
* Reduce tax on business
* Give no hand-outs to voter before elections
* Decrease income tax, decrease capital gains, land and property tax
* Have free, fair and properly controlled elections
* Ban large donations to political parties, ban lobbying
* Promote women into senior roles in government and business
Boom and Bust: As more corrupted democracies continue to print more and more money, eventually this bubble will pop and these countries will suffer severe economic hardship. The money junkie will go cold turkey. So for international property investors, the best places to invest in property are in the capitals and major cities of the list of countries listed below with the highest scores. It’s really that simple. If you focus on the ones with the most oil, gas and resources, you will probably do even better - hence Australia, Norway and Canada are the top picks for this decade as the commodities bull run continues as currencies are debased and inflation rages onwards.
We hope you have found this Newsletter of interest and a good pointer into where to invest safely in property in the years ahead. If you have any comments or questions, please contact us on firstname.lastname@example.org
Enclose below is the Transparency International Scoring for 2012 - of perceived corruption (highest number is least perceived corruption)
|27||United Arab Emirates||68|
|36||Saint Vincent and the Grenadines||62|
|72||Bosnia and Herzegovina||42|
|72||Sao Tome and Principe||42|
|80||Trinidad and Tobago||39|
|144||Central African Republic||26|
|150||Papua New Guinea||25|
|160||Democratic Republic of the Congo||21|