In January 2017, CNBC published “These are the world’s most corrupt countries”. The Article is about Corruption Perceptions Index 2016 published by Transparency International the Berlin-based non-governmental organization.
Transparency International called for governments to step up on “deep-rooted systemic reforms” that target corruption. The continuous cycle of corruption fueling social inequality has led to disenchanted citizens across the globe, who then turn to populist politicians. But, populist leaders are likely to worsen the issue of corruption.
In March 2017 I expressed my views on the Corruption Perception Index 2016 and what might be wrong with the model for ranking used by Transparency International. But since then a lot of things have changed.
Therefore, in addition to what was known back in March 2017, events that took place within a period of March – November 2017 to test the ranking of Transparency International.
Donald Trump won 2016 elections just because of the corrupt system. Any society cannot be considered as democratic if it lacks one fundamental principle – right to vote directly (popular vote).
Moreover, when business pay for the election campaign and lobbying business is legal, it is unlikely that the elected politicians would represent the interest of people. In essence, the United States has legitimized corruption.
The unprecedented conflict of interest of Donald Trump is well documented. It is also unprecedented and well documented his ability to lie.
The 45th President of the United States and members of his staff are under investigation for collusion with the foreign power. And he has an access to WMD.
Donald Trump’s policies already started to have a negative impact around the world. His numerous attempts to implement travel ban is a clear violation of the US Constitution and international obligations of the US.
His tax and healthcare reforms are likely to benefit rich and make lives of regular citizens less comfortable.
But maybe politics does not affect the economy and financial market? At least it is constantly reported that indexes are a record high. Perhaps the economy is doing well.
Generally speaking, the stock market will reflect the economic conditions of an economy. If an economy is growing then the output will be increasing and most firms should be experiencing increased profitability.
However, in recent years stock markets started to look like casino rather than trading platforms. Astronomical profits are made without producing anything. The legality of it is also questionable as we learned that stock prices are frequently being manipulated.
According to Gurufocus, as of today, the Total Market Index is at $ 26903.9 billion, which is about 138% of the last reported GDP. As pointed by Warren Buffett, the percentage of total market cap (TMC) relative to the US GNP (Gross National Product) is “probably the best single measure of where valuations stand at any given moment.”
The total market valuation is measured by the ratio of total market cap (TMC) to GNP. As of 11/21/2017, this ratio is 138%.
GDP is “the total market value of goods and services produced within the borders of a country.” GNP is “is the total market value of goods and services produced by the residents of a country, even if they’re living abroad. So if a U.S. resident earns money from an investment overseas, that value would be included in GNP (but not GDP).
The lowest point was about 35% in the previous deep recession of 1982, while the highest point was 148% during the tech bubble in 2000. The market went from extremely undervalued in 1982 to extremely overvalued in 2000. Based on these historical valuations, Gurufocus divided market valuation into five zones:
The reports published by the Bureau of Economic Analysis, US Department of Commerce, shows the negative growth of the US net investment position and the widening gap between assets and liabilities.
The net investment position increased 2.1% in Q1, compared with a decrease of 3.5% in Q4 2016 and an average quarterly decrease of 5.7% from Q1 2011 through the Q3 2016.
U.S. assets increased $983.8 billion to $24,833.2 billion at the end of the first quarter.
- Assets excluding financial derivatives increased $1,246.1 billion to $22,886.5 billion, mostly reflecting increases in portfolio investment and direct investment assets. The $1,246.1 billion increase resulted from other changes in position of $951.9 billion and financial transactions of $294.1 billion (table A). Other changes in position mostly reflected price increases on portfolio investment and direct investment equity assets and the appreciation of major foreign currencies against the U.S. dollar that raised the value of assets in dollar terms.
- Financial derivatives decreased $262.3 billion to $1,946.7 billion, reflecting decreases in single-currency interest rate contracts and foreign exchange contracts.
Considering the above, Donald Trump’s “America First” doesn’t make sense. Foreign investors play a significant role in job creation in the US. Therefore, isolationism and populist agenda would only make thing worse.
CNBC highlights that the U.S. dollar has limped through most of 2017, but suddenly the greenback is surging. That could mean a day of reckoning is at hand for investors who piled into what’s been among the hottest market trades of the year: international stocks.
According to CNBC, confidence had eroded so much that the dollar fell to its lowest levels in nearly three years before the recent reversal.
The U.S. has exceeded $20 trillion in national debt. Fighting wars, big tax cuts and economic stimulus packages have all added to the burden over the years.
It is crystal clear that if expenses are higher than income, the collapse is inevitable. And yet, the U.S. government has done nothing substantial to fix the situation.
The question is whether the government was in a position to implement long overdue reforms? Considering the nature of the US elections mostly paid by corporate America, it is doubtful that the US government has real power to implement anything if it is not in line with corporate agenda.
But the collapse of the US economy will not be limited to domestic damages only.
A global currency is one that is accepted for trade throughout the world. Some of the world’s currencies are accepted for most international transactions. The U.S. dollar makes up 64% of all known central bank foreign exchange reserve.
It means that the corrupted system which resulted in unsustainable debt will eventually cause a severe impact on economies around the world. Not if but when it happens, it will be something we have never seen before.
Not millions, but billions of lives will be affected. Possibly tens of millions of people will be killed in military conflicts which will follow the collapse of the US economy. And in worse case scenario, the human race may cease to exist.
Therefore, it is impossible to agree with the assessment of Transparency International. Because the damage of U.S. corruption is much bigger than top 20 countries mentioned in the list combined.