Yeah they're massively flawed, we were 3rd this time last year, lose 1 game in 15, beat Italy, Brazil & Spain in that run, draw with Italy & Brazil, draw with France, beat Poland & Ukraine, avoid defeat in the Euros... Drop from 3rd to 17th (now in 8th after the new rankings were released). Spain win World Cup... Drop from 1st to 2nd. It's a bollocks system. And of course Brazil were never a 23rd placed team, they got that low because they weren't playing much. Back up now cos of the Confederations Cup.
Teams like USA & Mexico play loads of teams who aren't anywhere near the quality teams in the European & South American confederations, so they pick up loads of easy wins (hence why they're so high in the rankings usually).
South American teams get more opportunities to get points due to the number of games they play for qualification. 16 games vs the 10 that European teams play.
Also, there are a lot of teams that were qualifying with ease in their groups over the last two years which enabled them to climb and maintain high positions in the rankings: Spain, Germany, Argentina, Belgium and Switzerland. Colombia weren't poor at all in their qualifying also.
& Belgium who were beating Croatia and Serbia away, aren't going to have England rise above them who were drawing to Ukraine and Montenegro away.
With a bit of planning England could have been seeded ahead of the Swiss | Football | The Guardian
That is an excellent article explaining why we have dropped so heavily. Also FIFA don't take into consideration the quality of opponent, just the level of competition. So all friendlies, qualifiers and tournament games will have the same rankings points at stake, whether you're playing Brazil or Belize.