Corruption, Inflation and Politics

People don't see that all politicians came into politics for corrupt money, connections, and impunity. People don't know where inflation comes from. People do not understand that corruption and inflation are the consequences of the short-sighted and ultimately anti-national activities of national elites.


Corruption.

Transparency International defines corruption as the “abuse of entrusted power for private gain”. Nice, short and clear definition.

Pandora Papers scandal in October 2021 showed one more time that elites of almost all (both capitalistic and socialistic) countries are corrupted, equally hypocritical and do not live by the rules they have set for their people.

Corruption is virtually unstoppable, even though almost all countries claim to be actively fighting it. In mid-December 2022, a scandal erupted in EU – Eva Kaili, the member of European Parliament from Greece is suspected of accepting large sums of money to lobby in favour of Qatar. On the one hand, of course, this is bad. On the other hand, it is good - corruption appeared in humanity with the emergence of the first public office, so the fact that the EU immediately reacted sharply is commendable.


The meaning of any politician’s life is not to work for the good of a country as many voters mistakenly think, but to distribute the common wealth into their own pockets, which is just the “abuse of entrusted power for private gain”. The purpose of any politician is to stay as long as it is possible in the political process. It is very profitable, prestigious and it does not impose any responsibility because the product of any politician’s activity is as a rule just the political struggle.

Corruption exists wherever there is big money which creates big opportunities to create more money, and big opportunities which create big money to create bigger opportunities to create more money, etc. There are two connected vessels of such kind in any democratic or authoritarian country - politics and big business. Retired politicians often work as consultants for big business (in reality, they sell their acquired connections, which is also a kind of corruption), and many businessmen go into politics to make useful connections and/or expand their business. Almost nothing can be done about that.

The economy of a country (people) creates material goods, and politics (politicians) distributes them by writing and implementing the laws. Big business deliberately influences the politics to pass and implement the laws it wants to earn more money. The politicians are open for the propositions and accept them, especially before elections. Then politicians, as people of their word, have to refund their sponsors with money they spent, otherwise why do rich citizens and big businesses contribute to the presidential, etc., campaigns of various political forces? This is a vicious circle of corruption which is a natural by-product of life activities of national elites in any country. The US elites are the tops of Democratic Party, Republican Party and their big donors.


Off-shore companies (that’s what next in turn Pandora Papers scandal of 2021 was about) are a must-have tool for politicians and businessmen to hide money they "earned" with a help of each other (corruption) to avoid taxation. Thus, it is quite amusing to read statements of different political forces about their fight against corruption or tax havens. “It's always funny to watch the bees fighting honey.”

Corruption and off-shore business are relatively invincible. That’s why every investigation like the Pandora Papers is always a “lone voice crying out in wilderness”. The elite consciously hears nothing, and the opinion of the people does not change anything. “Dogs bark, but the caravan moves on.”

Almost every state official or politician more (in Russia) or less (in the US) sells his/her official status power for money which goes in off-shores after. Why do you think people run for public offices and in politics? They receive a good salary, various benefits, payoffs, sometimes bribes, fame, and no any responsibility for the work done, because the result of the work of politician is unclear and unmeasurable. In addition, any failure can be explained in democratic countries by the intrigues of the opposition which is constantly used by Democrats and Republicans in the US. It is a little more difficult in authoritarian states, but also possible – their leaders blame other countries, international conspiracy, global warming, terrorism or coronavirus for their misfortunes. Just listen to Mr. Putin.


President Biden makes the impression of an honest and decent person, but all politicians wear “white hats”. Mr. Biden has been fighting corruption during all his long life in the US politics, but apparently didn’t win since he had again declared corruption “a national security threat”. He told at UN General Assembly in New York on September 21, 2021:

“Corruption fuels inequality, siphons off a nation’s resources, spreads across borders, and generates human suffering. It is nothing less than a national security threat in the twenty-first century. Around the world, we’re increasingly seeing citizens demonstrate their discontent seeing the wealthy and well-connected grow richer and richer, taking payoffs and bribes, operating above the law while the vast majority of the people struggle to find a job or put food on the table or to get their business off the ground or simply send their children to school.”


Well said, but that's a deliberate lie or blindness because:
- Mr. President’s home state of Delaware functions as a host for hundreds of thousands of shell companies during all his nearly 50 years-long political career. Shell companies are used for tax evasion, money laundering and anonymity.
- There were powerful donors behind Mr. Biden's election to the presidency 2020, too, as it was always done in the US. They are the ones who “call the tune”, that’s why any president of the US is not “the most powerful person in the world”.


Fighting corruption is a very useful thing to do for any politician. It allows to please voters, to take the voter’s attention away from the problems at hand, and it makes an impression of useful activity. However, if the leaders of a country have been fighting corruption (or inflation) for many years and cannot win, they are either incompetent, or they don't need that, or both.

So, I don’t think that the bees will really fight honey and can easily predict what will happen to corruption in the US, in particular. Despite the violent efforts of all (!!) American politicians, corruption wins a ruthless fight against corruption. The tendency is seen well by looking at Corruption Perceptions Index which puts the US in 2021 at 27th place out of 180 countries with a score of 67. In 2017, the US had a score of 75 (100 means “very clean”, 0 is “highly corrupt”). Mr. Biden will keep fighting corruption as he has certainly been doing for the last 50 years, and his successor (Republican or Democrat in 2024 or 2028) will continue this hard work after him with the same result.

All governments of all countries fight corruption and no one has yet won. Some of them (Denmark, New Zealand, Finland, Singapore) are quite close to victory, but no country has reached Index of 100 (very clean) so far. And no country ever will, because corruption is created by politicians.


Inflation.

Investopedia defines inflation as “… decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.” From my point of view, this is about depreciation of money, not about inflation.

Wikipedia states that inflation is “… an increase in the general price level of goods and services in an economy”, which is, as for me, a consequence of the inflation.

I think that inflation is an increase in money supply in an economy. The money supply is the total amount of money—cash, coins, and balances in bank accounts—in circulation. Many central banks conduct an inflation targeting policy by putting into circulation superfluous money mostly as loans. This money is created from a thin air and have no intrinsic value, I called it earlier a “surrogate money”. Putting such money into circulation leads to bulging of money supply, literally “inflating” the economy with a thin air, devalues all money in a country and thus really “decreases the purchasing power of money” (depreciation) and “increases the general price level of goods and services”.

It’s funny to think that national “mighty” economies (as well as our global economy) are really “inflatable” like rubber toys.


Ok. Let's talk about this in more detail.

Inflation slowed a little in the US in November 2022, keeping its gradual decline since prices peaked in the US in summer. The Consumer Price Index, a key inflation barometer, rose 7.1% over the last 12 months, which was a little less than expected.
“Overall, prices are moving in the right direction although annual rates of change remain elevated, well above the 2% target," a chief US economist of High Frequency Economics, said in a report.

People do not know what to do with this information. Everything is unclear, there are a lot of confusing figures and no time and desire to sort all that out. This is understandable. As always, economists give many details, which makes it difficult to see the whole picture, and yet: they always point at apparent inflation, without saying a word about hidden one.


The current spike in inflation (like all the previous ones) has been artificially created by the flawed inflation targeting policy of the Fed, which is now heroically fighting the consequences of its actions. The Fed creates hidden inflation by deliberate issuing tons of superfluous dollars into circulation mostly in the form of loans.

Money supply is measured by M2 indicator. From March 2020 (M2=16 trillion) to March 2022 (M2=21.7 trillion), the Fed has issued a total of nearly $6 trillion, which devalued all existing in 2020 USD in the world by 37.5%! So inflation (and devaluation) of the national currency is rising, it cannot be otherwise.

The cost of loans in the US is regulated by federal funds rate. The lower the federal funds rate is, the cheaper the loans are for households and businesses and the more active (theoretically) economic activity should be in the country. Since April 2020, the Fed has kept federal funds rate very low – around 0.1%, trying to spur economic activity in the midst of the coronavirus pandemic. The US government at the same time was actively "dropping money from a helicopter". And people were happy to take cheap loans and free money, but not for buying food, medicine or invest it in businesses to develop the economy. They brought $569 billion to the stock market and began actively buying cryptocurrency instead. Bitcoin, in particular, rose in price from $7K in April 2020 to $60K in April 2021 due to the boom in demand. Now the value of bitcoin has fallen to about $17K.

In March 2022, the Fed began raising the federal funds rate, making loans more expensive. In November 2022, the rate was already 3.78%. It slows down the economy a little (like releasing the gas pedal while driving a car) and reduces inflation to some extent, because people are less likely to take loans, so they buy less and the prices of goods/services don't go up.


Inflation in general is a very tricky and secretive thing.

All politicians fight loudly with corruption, while only central banks fight quietly with inflation. So quietly that an average person (as well as many economists) does not truly understand who wins in this fight. Everyone literally perceives inflation as capricious weather, but it is the phenomenon made by central banks all over the world.

If to replace the word "corruption" with the word "inflation" in Mr. Biden's quote above (that inflation, not just corruption “… is nothing less than a national security threat in the twenty-first century”) - everything would be correct, too.


There is an interesting connection between inflation and corruption. Inflation creates superfluous money for national elites to live on, invest, corrupt and be re-elected. Corruption creates the opportunities for national elites to make more money with the help of artificially made inflation. It is one more vicious circle.

Corruption exists wherever there is big money which creates big opportunities, and big opportunities which create big money. Money is means (and goal) of corruption. However, to corrupt somebody you need to have money first, i.e. money here is the cause (and your “bad will”, of course) and the corruption is the effect. National elites easily produce a powerful flow of superfluous money with the help of inflation targeting policy which is realized via their central “independent” banks in many countries.

Why do national elites need the issuing superfluous money? In short, to get a financial gain at the expense of the citizens. Almost all governments in almost all countries incur debts. Artificially created inflation is a very convenient tool for constantly borrowing money from the population now and pay back much less and much later because of depreciation of money.


This idea is well implemented in the US by Social Security Administration. $100 in November 1972 had the same buying power as $702 in November 2022 according to CPI inflation calculator. This means that the government gets from a 20-year-old future retiree $100 and pays off back $100 : 7.02=$14.24 fifty years later. Social Security is nearly universal, with 94 percent of individuals in paid employment in the US working in covered employment. Thus, Americans are burdened with one more tax they are not aware of, and hidden inflation is a tool of the US elites for impoverishing their fellow citizens.

And then it turns out, for example, that the US spent around $8 trillion on a useless war and support of "friendly regimes" in the Middle East (Afghanistan, Iraq, Syria, Pakistan) during last 20 years. Yes, anyone begins to waste money because of abundance and lack of control.

P.S. Actually, it is easier to prevent inflation than corruption. At least, it is clear what to do with inflation - Americans just need to force the Fed to stop issuing superfluous dollars. How to implement that is another question. The Americans have not thought of the first one yet.


P.P.S. Dear Reader! I am very much interested in your opinion on the subject of this article. Please, write a comment or ask a question if you want to clarify something.
Yours,
Igor Chykalov