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459: Debt, Democracies, Corruption and Women in the Workplace - Pointers for Property Investors


02-09-2013

PropertyInvesting.net team

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 enquiries@propertyinvesting.net          

 

Enclose below is the Transparency International Scoring for 2012 - of perceived corruption (highest number is least perceived corruption)

Rank Country Score
1
Denmark 90
1 Finland 90
1 New Zealand 90
4 Sweden 88
5 Singapore 87
6 Switzerland 86
7 Australia 85
7 Norway 85
9 Canada 84
9 Netherlands 84
11 Iceland 82
12 Luxembourg 80
13 Germany 79
14 Hong Kong 77
15 Barbados 76
16 Belgium 75
17 Japan 74
17 United Kingdom 74
19 United States 73
20 Chile 72
20 Uruguay 72
22 Bahamas 71
22 France 71
22 Saint Lucia 71
25 Austria 69
25 Ireland 69
27 Qatar 68
27 United Arab Emirates 68
29 Cyprus 66
30 Botswana 65
30 Spain 65
32 Estonia 64
33 Bhutan 63
33 Portugal 63
33 Puerto Rico 63
36 Saint Vincent and the Grenadines 62
37 Slovenia 61
37 Taiwan 61
39 Cape Verde 60
39 Israel 60
41 Dominica 58
41 Poland 58
43 Malta 57
43 Mauritius 57
45 Korea (South) 56
46 Brunei 55
46 Hungary 55
48 Costa Rica 54
48 Lithuania 54
50 Rwanda 53
51 Georgia 52
51 Seychelles 52
53 Bahrain 51
54 Czech Republic 49
54 Latvia 49
54 Malaysia 49
54 Turkey 49
58 Cuba 48
58 Jordan 48
58 Namibia 48
61 Oman 47
62 Croatia 46
62 Slovakia 46
64 Ghana 45
64 Lesotho 45
66 Kuwait 44
66 Romania 44
66 Saudi Arabia 44
69 Brazil 43
69 FYR Macedonia 43
69 South Africa 43
72 Bosnia and Herzegovina 42
72 Italy 42
72 Sao Tome and Principe 42
75 Bulgaria 41
75 Liberia 41
75 Montenegro 41
75 Tunisia 41
79 Sri Lanka 40
80 China 39
80 Serbia 39
80 Trinidad and Tobago 39
83 Burkina Faso 38
83 El Salvador 38
83 Jamaica 38
83 Panama 38
83 Peru 38
88 Malawi 37
88 Morocco 37
88 Suriname 37
88 Swaziland 37
88 Thailand 37
88 Zambia 37
94 Benin 36
94 Colombia 36
94 Djibouti 36
94 Greece 36
94 India 36
94 Moldova 36
94 Mongolia 36
94 Senegal 36
102 Argentina 35
102 Gabon 35
102 Tanzania 35
105 Algeria 34
105 Armenia 34
105 Bolivia 34
105 Gambia 34
105 Kosovo 34
105 Mali 34
105 Mexico 34
105 Philippines 34
113 Albania 33
113 Ethiopia 33
113 Guatemala 33
113 Niger 33
113 Timor-Leste 33
118 Dominican Republic 32
118 Ecuador 32
118 Egypt 32
118 Indonesia 32
118 Madagascar 32
123 Belarus 31
123 Mauritania 31
123 Mozambique 31
123 Sierra Leone 31
123 Vietnam 31
128 Lebanon 30
128 Togo 30
130 Côte d´Ivoire 29
130 Nicaragua 29
130 Uganda 29
133 Comoros 28
133 Guyana 28
133 Honduras 28
133 Iran 28
133 Kazakhstan 28
133 Russia 28
139 Azerbaijan 27
139 Kenya 27
139 Nepal 27
139 Nigeria 27
139 Pakistan 27
144 Bangladesh 26
144 Cameroon 26
144 Central African Republic 26
144 Congo Republic 26
144 Syria 26
144 Ukraine 26
150 Eritrea 25
150 Guinea-Bissau 25
150 Papua New Guinea 25
150 Paraguay 25
154 Guinea 24
154 Kyrgyzstan 24
156 Yemen 23
157 Angola 22
157 Cambodia 22
157 Tajikistan 22
160 Democratic Republic of the Congo 21
160 Laos 21
160 Libya 21
163 Equatorial Guinea 20
163 Zimbabwe 20
165 Burundi 19
165 Chad 19
165 Haiti 19
165 Venezuela 19
169 Iraq 18
170 Turkmenistan 17
170 Uzbekistan 17
172 Myanmar 15
173 Sudan 13
174 Afghanistan 8
174 Korea (North) 8
174 Somalia 8

 

 

 

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