Saturday, June 29, 2019

Robot Dominated Factories And The Future Of Production

Factories Are Now Full Of Robot Workers
The rise in populism and Trump's trade war has brought front and center how globalization has often put America's self-interest behind that of corporate profits. In an article written in April of 2013, I claimed that if factories filled with mostly robot workers are the future then we should do all that we can to see that they are located in America. While they would not necessarily be a massive creator of jobs they would at least allow us to have control of our own manufacturing and reduce America's trade deficit. Fortunately, several events that have taken place since then have fed into an awareness of the vulnerabilities created by allowing control of production to flow into foreign hands.

It can be argued the changes made in how we tax American companies has been a gift to the rich and added to inequality it also paves the way for companies to build new facilities here in America rather than abroad. This was not the chief goal of the legislation but we should celebrate this small victory. In truth, the structural issues that haunt America's competitiveness far outweigh the benefits of lower taxes. The ugly truth is American companies have little reason to bring jobs home, the logic that lowering corporate income tax will create a massive flow of jobs to our shore is flawed. The tax bill does little to level the playing field when it comes to issues such as healthcare cost and over-regulation. This means these factors continue to act as barriers to doing business in America.

Over the last three decades, robots have become far more common in factories. In many manufacturing facilities, robots do most of the work. A typical factory may contain hundreds of robots working on fully automated production lines, often as it rolls by on a conveyor a product can be welded, glued, painted and finally assembled at a sequence of robot stations. Robots have replaced humans in the assistance of performing those repetitive and dangerous tasks which humans prefer not to do or are unable to do due to size limitations. This includes working in places such as in outer space or at the bottom of the sea where humans cannot survive the extreme environments.  Industrial robots are also used extensively for placing products on pallets and packaging of manufactured goods, for example for rapidly taking drink cartons from the end of a conveyor belt and placing them into boxes, or for loading and unloading machining centers.

Capital Buys Machines To Reduce Labor
Many people blame the decline of manufacturing jobs in America and other rich countries on outsourcing and the movement of factories to countries where labor is cheaper. That has indeed been the case but with new less expensive robots entering the game even this "cheap labor" is being replaced by machines. The US like almost every other rich country on the planet manufactures more stuff than it ever has. The fact is by manufacturers replacing workers with machines they are now replacing labor with capital. This means the manufacturing workers who remain are many times more productive than their fore-bearers 50 years ago.

Robert Lawrence of Harvard and Lawrence Edwards of the University of Cape Town argue in "Rising Tide", that factories have gotten spectacularly more efficient.  They produce more goods with fewer people, their "productivity" is rising.  Manufacturing employment is shrinking not mainly because jobs are moving "offshore", but because fewer workers are needed.  In most advanced countries, even those with strong export sectors, manufacturing's share of jobs has plummeted.  From 1973 to 2010, manufacturing's proportion of employment fell from 22 percent to 10 percent in Canada.

As software and robots improve they will be able to expand the number of functions that they can perform.  It suggests that sooner rather than later, the only people working in factories in rich countries will be those who had the time and money to get college degrees.  In the past a large slice of America's middle class used to consist of people who started out working in factories, having only a high school degree and would learn on the job.  There are concerns about the increasing use of robots and their role in society.  Robots are blamed for rising unemployment as they replace workers in some functions.

What has happened in the manufacturing is part of a larger paradox at the heart of America's economy, says Erik Brynjolfsson, director of MIT's Center for Digital Business.  "More wealth was created in the past 10 years than ever before in history," he says, "Yet at the same time, millions of people are being left behind.  The median worker in the US is poorer now than in the mid-1990s."  Not everyone is suffering, skilled workers, for example, are earning more than ever.  So are the very rich, those who own the capital that can be put to work in the world's increasingly person-free farms, mines, and factories.  But those who used to make middle-class wages are increasingly slipping into lower-paying, service-sector jobs.

Automation Is Replacing Off-shoring!
China's largest private employer, Foxconn, which manufactures the iPhone and many other consumer electronics and is busy installing over a million manufacturing robots. This new wave of technology is leading to more and more automation. It is rapidly replacing off-shoring as the least expensive way to produce products.  Already, China is losing jobs to countries with even lower wages.  But eventually, "you run out of places to" chase the (cheap) labor," says Rodney Brooks, chief technology officer of Rethink Robotics. Years ago, thanks to some very clever engineering, a robot named Baxter ran about $22,000. Today the price is falling and Baxter is getting better.

In the US, a person working full-time at a minimum wage makes $15,080 a year. The biggest difference is that Baxter will work 24/7 where its human counterpart does not. Brooks argues that, in its current incarnation, Baxter isn’t capable enough to replace a human worker. “The robot is not a one-to-one replacement,” says Brooks. “We see it as a tool for ordinary workers to do better.” The goal of Rethink, says Brooks, is to bring manufacturing back to the US by replacing with automation some of the repetitive tasks that are currently shipped to China and other emerging markets. It’s not a bad thing when we get more stuff for less work, the issue is, can we reinvent and redesign our economic institutions to keep pace with this change so not all of the benefits accrue to a very small number of people?”

As robots have become more advanced and sophisticated, experts and academics have increasingly explored the questions of what ethics might govern robots' behavior, and whether robots might be able to claim any kind of social, cultural, ethical or legal rights. It is possible that a robot brain will soon exist, others predict robot intelligence breakthroughs by 2050. We must also question the use of robots for military combat, especially when such robots are given some degree of autonomous functions. There are also concerns about technology which might allow some armed robots to be controlled mainly by other robots. The use of robots in military combat raises ethical concerns, the US Navy has funded a report looking into this.

The possibility of robot autonomy and potential repercussions has been addressed in fiction and may be a real concern in the future. One thing is certain, robots are taking our jobs and learning new tricks far faster than us humans. Automation and improvements in robots is a job killer, when you add in the dropping cost of replacing often unreliable human workers one must take a dim view of the employment picture going forward. Still as a matter of policy, if robot factories are the future then let us be wise enough to try everything we can to encourage they be located in America.

Footnote;  Your comments are welcome and encouraged. If you have time check out the archives for another post that may be of interest to you.

Saturday, June 22, 2019

Manipulating Valve Of US Dollar A Very Dangerous Policy

The Fed Has Allowed This To Happen
The dollar's role as a reserve currency includes acting as a benchmark by which other currencies and commodities can be valued. The goal of having a stable dominate currency results in other currencies being forced to toe the line or pay a stiff price. Ignoring this economic reality translates into pain for those holding the currency of any country that abuses this economic law. This plays out in the account balances of any country that watches its currency fall as it imports far more than it brings in. Wealth tends to flow towards where it will be safe and protected.

To be perfectly blunt, none of the rapid expansion of debt and credit during the last decade could have occurred without the Fed being totally complicit and in agreement. It has been the Fed that decided to allow the dollar to be used as a global prop. This exploded following the 2008 financial crisis when then-Fed Chairman Ben Bernanke adopted policies of massive quantitative easing (QE) to stimulate the economy when standard monetary policy began to become ineffective. Today this policy has become the lifeblood of a sick financial system rather than the jolt needed to restore its health.

Across the world, central banks jumped in and allowed governments to abdicate their role in creating an environment where sustainable economies can exist. This could not have been done without the collusion of America's Federal Reserve. As central banks literally "took turns" stepping up to the plate and announcing round after round of easing and lower interest rates the Fed stood idly by. Following each announcement stocks and asset prices across the world soared. In many ways, the growing popularity of cryptocurrency is rooted in central banks decision to go down this destructive path. This is especially true today when wealth is able to rapidly move across borders. The inflow or outflow of capital is a big deal.

Stock Buybacks Drive Markets Higher (click to enlarge)
Low-interest rates coupled with easy money pouring into the economy through the expansion of credit tend to create an illusion of prosperity. This false economy can rapidly vanish. Proof of just how much this economy relies on the continued flow of cheap money was highlighted when the stock market started to wobble two months ago. This caused President Trump to ratchet up his attacks on Fed Chairman Jerome Powell for "ruining the party". Trump constantly points to the soaring stock market as confirmation of his skill in growing the economy and leading us forward. In truth, it is his flawed tax reform package that benefited the rich by fostering massive stock buybacks coupled with massive deficit spending has allowed the false illusion of prosperity to continue.

Circling back to the dollar, the Fed, as the dollar's protector had the power to halted this global creation of stimulus and credit by raising interest rates in America. Instead, it chose to join in and seemed to almost encourage the trend to continue. This central bank experiment calls into question the use of currencies as an economic tool going forward. It has also increased the risk that more currencies will fail as their capability to safely store wealth, is examined. As currencies morph into a tool of government they are being weaponized which takes them further away from their original role as a medium of exchange in commerce.

A recent Semiannual Report to Congress, published by the Treasury cited research by the International Monetary Fund which pointed out that the 4.5% dollar appreciation over 2018 is concerning and noted that sustained dollar strength is likely to exacerbate persistent trade and current account imbalances. According to the IMF, the dollar is overvalued by 8-16%. Still, this is not necessarily out of line with fundamentals since the US is growing faster than many other countries. Also, in these times of heightened uncertainty, the dollar is underpinned by safe-haven flows.

Click Here To Enlarge
Time and time again Trump has voiced his desire for a weaker dollar and each time it has had less of an effect on the market. Trump envisions it would help to boost exports and support the US manufacturing sector. It would be wise for the President to understand the dollar is not a pawn to be manipulated around for his pleasure. Other countries would most likely react by undertaking a similar program which could result in a dangerous race "to the bottom."

The G20 countries have agreed not to target exchange rates for the purpose of competitive devaluation but does allow for temporary intervention for the purpose of stabilizing a currency. If risk-off conditions would cause a disorderly rise in USD a paper BofA recently stated, "the probability of intervention by the Trump Administration increases significantly." The history of currency intervention shows it is a useful tool for emerging market countries which need to stabilize exchange rates but little evidence exists that it is effective for advanced economies wishing to target long-term FX competitiveness.

The US Treasury also plays a huge role in international financial policy. This is because it is responsible for managing the USD. Simply put it could intervene and guide the NY Fed's market desk to weaken the dollar by selling dollars and buying other currencies. The currencies that are used for intervention come from the Fed's holdings and the Exchange Stabilization Fund of the Treasury it is comprised mainly of the euro and Japanese yen. The two types of interventions are possible, sterilized and unsterilized. In a sterilized intervention the NY Fed will buy or sell other securities (e.g. sovereign bonds) through open market operations which prevents the intervention from changing the monetary base and interfering with monetary policy. In an unsterilized intervention, it has the ability to influence the money supply and also can impact interest rates.

Again it must be stated, the dollar's role as a reserve currency gives it oversized importance in world markets. It is indeed the benchmark by which other currencies and commodities can be valued. When all things are considered, fiat currencies are in general a rather weak lot. This means it is best not to look too closely or the system glued together by faith and a prayer could come crashing down. Overall the dollar remains a far better currency to hold than its weak sisters, the euro and the yen. It should be noted that currency manipulation is a slippery slope bringing into question the real value of a currency further distorting true price discovery. In our current global financial environment, this would be a very dangerous path to start down.

Thursday, June 20, 2019

Reflecting On How We Reached This Economic Reality

For a refresher on how we created our current "insane economy" just look back at mid-2018. Wisdom is a valuable commodity and tends to be in short supply in Washington thus when Congress passed and President Trump signed the omnibus spending bill little thought was given to exactly how the spending would play out. As a result of the omnibus being passed, over the final seven weeks of fiscal 2018, the government embarked on a spending spree of historic proportions. Federal agencies were forced to spend $140 billion more than they ever expected to receive. 

I contend we should not underestimate the influence of this spending on the economy over the last eight months. For many agencies, this translated into spending as much as 40% of their annual budget in just the final two months of the fiscal year. Faced with seeing these funds returned to the Treasury if not spent analysts claimed the federal market would unleash a monumental effort among procurement officials to rapidly spend as much on contracts as possible. The effect of omnibus spending is now diminishing, now what? More on how Washington's "stupid spending" delayed our economic collapse in the article below. It was published here on August 14, 2018.

    How Stupidity Might Delay Our Economic Collapse

The illusion of a robust economy has been propelled forward by the sheer quantity of economic growth rather than its quality. Two recent articles caught my attention in part because of how they highlight this issue. The first had to do with how the poorly crafted and shockingly large omnibus spending bill. This created a situation encouraging government agencies to spend like drunken sailors. It seems that Federal agencies, now flush with cash, must obligate that money before the fiscal year ends on Sept. 30 or lose it to the Treasury Department.  The second Authored by WirePoints' Mark Glennon, op-ed via The Wall Street Journal, concerned the planned construction Chicago’s South Side of what has been deemed "The Obama Center." When announced this project was herald as a victory for government because it was to be funded entirely with private money.

Wisdom is a valuable commodity and tends to be in short supply in Washington thus when Congress passed and President Trump signed the omnibus spending bill little thought was given to exactly how the spending would play out. I'm referring to the fact that over the final seven weeks of fiscal 2018, the government is slated to embark on a spending spree of historic proportions as federal agencies look to spend $140 billion more than they expected to receive prior to the bill being passed. For many agencies, this translates into spending as much as 40% of their annual budget in the final two months of the fiscal year. Faced with seeing these funds returned to the Treasury if not spent analysts believe the federal market will see a monumental effort among procurement officials to rapidly spend as much on contracts as possible.

Omnibus Bill Has Resulted In "Must Spend Money"
According to the article in Nextgov, without a budget agreement in place, the agencies spent cautiously through the first two quarters of fiscal 2018 before the omnibus bill was signed. This adds up to an additional $80 billion for defense and $63 billion for civilian agencies. This certainly is not the way I like to see business conducted because it tends to create waste. In my opinion, this is where the two articles come together at the intersection of "Stupidity and Wasteful Government Spending." 

Circling back to the Obama Center Article that stated, "When Barack Obama announced he would forgo a presidential library, the news was trumpeted as a win for good government." That was because instead, Mr. Obama would open an official center funded entirely with private money. One author at Politico, who called presidential libraries a “scam,” wrote that Mr. Obama “will rip off the band-aid, removing government from what it has no business paying for.” Sadly, as with many of these projects, the devil is in the details. It has now been revealed that the financially battered taxpayers of Illinois will put up at least $174 million for roadway and transit reconfiguration needed to accommodate the Obama Center. With eighty percent of such spending is generally reimbursed by the federal government, Illinois officials expect to receive $139 million of this money from Washington.

Proposed Obama Center Sucks In Taxpayer Money
To be very clear, this is a private foundation and unlike a presidential library, the Obama Center won’t be run by the National Archives and Records Administration. The center won’t even house Mr. Obama’s records, artifacts, and papers, which will be digitized and available online. Instead, the center will be owned and operated by the Obama Foundation with a mission of training and preparing young people to become the next generation of leaders.” No doubt, Obama's definition of “leaders” will be political and that raises the question of why the state and city are giving the Obama Center official support. Under a deal approved by the City Council in May, the Obama Foundation will lease 19.3 acres in perpetuity for $1.

As for the road and transit money a Chicago public television station questioned if Illinois could afford to cough up $100 million to “assist” the Obama Center: “How could a public financing proposal fly in a state that is bleeding red ink, especially when the Obamas have promised 100 percent private funding?” In response, a spokeswoman for the Obama Foundation insisted that “construction and maintenance will be funded by private donations, and no taxpayer money will go to the foundation.” It seems that Illinois’s machine politicians dropped the spending appropriation for this into a 1,246-page budget bill, which was then presented to rank-and-file legislators only hours before the vote. When a few Republicans objected to spending state money for the Obama Center, they were told not to fret: Federal reimbursements were on the way.

It is my fear that the rush to spend by government agencies this "windfall of funding" that is ballooning the national budget and deficit will flow into funding a slew of questionable projects such as the one above. In the past, I have attempted to dispel and chip away at the myth "Public-Private Partnerships" have a great deal of merit. While they are often used to propel forward projects by adding an incentive for the private sector to undertake projects they might choose not to do alone it is often because the numbers often simply don't work. These collaborations between government and a private-sector company touted as our salvation tend to create boondoggles and white elephants. For a number of reasons, these projects are often haunted by problems that go from one extreme to another ranging from over-engineering to shoddy work with little oversight.

Needless to say, following our recent jump in the GDP the federal government going on a spending spree should become a driver of the American economy in coming months adding to the illusion our economy is on sound footing. As a bear, I look forward to the coming months with a bit of trepidation. When coupled with a huge number of stock buyback programs triggered by the Trump Tax Bill the forthcoming wave of spending and a huge number of misconceived public-private projects currently in the pipeline could carry the economy forward for a quarter or so. This is by no means an endorsement of the economy or enough to make me reconsider how this will end, it would be wise to recognize that markets are vastly overvalued and this positive scenario could rapidly be derailed by a tsunami of bad news from a number of sources.

Monday, June 17, 2019

The Mike Pence Factor And His Influence On Trump

 I Choose Him!  How Will Supporters React?
Back in mid-July of 2016, following the revelation that Donald Trump had picked Mike Pence for his Vice Presidential running mate, I penned a piece detailing why this could be considered a bad omen. The article requested someone "Tell me it isn't so!" This was because many of us familiar with Pence viewed him as one of the most divisive and polarizing politicians in America. I explained that when the announcement was made a cheer rang out in the state of Indiana but that cheer did not signal approval but was rather a joyous celebration that Indiana would soon be rid of the unpopular Republican Governor who was running an uphill campaign to be re-elected.  

The subject of Mike Pence and his influence on American politics and the Trump administration resurfaced recently when I read an article published on Viable Opposition concerning a recent speech given to graduates at the United States Military Academy at West Point by the Vice President. Mike Pence gives us a very, very clear idea of where Washington believes America and the world is headed. Remember Pence is part of a Washington-based leadership team that served no time in the United States military. Part of the speech that may of be most alarming was what could be considered his banging the "drums of war." Below are a few passages or should I say, bullet points from that speech;
  • "Men and women of West Point, no matter where you’re deployed, you will be the vanguard of freedom, and you know that the “soldier does not bear the sword in vain.”  The work you do has never been more important. America will always seek peace, but peace comes through strength.  And you are now that strength. 
  • It is a virtual certainty that you will fight on a battlefield for America at some point in your life.  You will lead soldiers in combat.  It will happen. In the last two years, we’ve taken decisive action to rebuild our military and restore the arsenal of democracy. This President has actually signed into law the largest investment in our national defense since the days of Ronald Reagan. And as you accept the mantle of leadership, I promise you: Your Commander-in-Chief will always have your back.  President Donald Trump is the best friend the men and women of our armed forces will ever have!
  • Proving that, just a few months ago, your Commander-in-Chief proposed the largest defense budget in American history: $750 billion to ensure the strongest fighting force in the history of the world becomes stronger still.  We fund an end strength of more than 2 million active and reserved military personnel.  We’ll modernize w armored brigade combat teams, and we’ll also provide resources for 12 battle force ships, 2 large unmanned surface ships, and 110 fighter aircraft.
  • And with that renewed American strength, the United States is once again embracing our role as leader of the free world.  We’re standing with our allies and standing up to our enemies."

Sadly, this is not what many Americans voted for when America put Trump in office, we did not vote for a warmonger, many of us were seeking a world where the leadership in Washington would focus on bringing both jobs and money home rather than squandering it on foreign wars. What has been happening in Washington since he was elected and his selection of Pence with his "born again Christian" peace-waging instincts might be considered proof that the power of the swamp is very resilient and may not be able to be drained. Two things are certain, the first, this delights America's defense contractors, and second, while exploding the deficit it creates jobs.

Pence Reelection Was Far From Guaranteed
Circling back to Indiana we find many voters viewed Pence as a shallow stuffed shirt and an opportunist with a history of seeking power. Pence had worked his way up the political food chain and by selecting Pence, these voters felt Trump was selling out to the establishment in an effort to silence the Stop Trump movement at the convention. This only helped legitimize the claims by his detractors that Trump is a divider that will further polarize the country. Other than an unwavering ability to stay on message Pence brings little good to the table.

I suspect that Hillary Clinton and her supporters were downright giddy in 2016 that Trump vacated the middle ground and lessened his appeal to millions of independent voters by giving into the will of the hard-right conservative base of the Republican party. This left Clinton far more room to garner voters as a moderate and banishes Trump to the socially backward agenda that has split Republicans for years. The Republican tent remains closed and small, oblivious to the reality many Americans are fiscally conservative but socially liberal. Republicans must wake up to the fact today fewer Americans see themselves as unbending bible touting hardliners hell bent on making others adopt their rigid social values.

Any sane person might consider it a reach when one media spokesperson stated that Mike Pence is everything that Donald Trump isn't and by taking Pence on board Trump showed he can work with others and does listen. In some ways the two-party system has evolved into the "haves against the have-nots." It often pits those seeking more government and transfers of wealth against those wanting less intervention in our lives. Several years ago a book was written questioning why voters would ever vote Republican. It touted the idea that people were actually voting against their own interest because deep in their minds they held the misguided belief they were higher on the economic food chain than they really are or might someday be wealthy.

Even during the election, most Trump supporters recognized the Donald was flawed, inarticulate, and somewhat lacking, still, the hope existed that his ego would not allow him to fail us or at least give a go at changing our current path. Trump in many ways became the candidate considered as a rejection of mainstream politics, a rejection of Washington as well as the new face of the Republican party, a party accountable to the middle class. A catchphrase made popular from an old radio and television comedy, The Life of Riley, to describe events that turned sour, he would say, "what a revolting development,"  These few words in many ways summarized the feelings of many voters disappointed by the Pence selection.

To the voters that thought Trump represented an effort to take back the party from the hard right which had held it hostage for years and hopefully open the tent to moderate voters the Pence selection was a disaster. The "Make America Great Again" theme extended beyond debates about whether we are still great and cuts into taking back power from the Washington establishment that many Americans feel sold us out. While questions still exist as to just how important the Vice Presidential slot is to the average voter simply explaining away conflicts between the Trump we wanted and the Pence we knew on issues like free trade are a challenge.

Since both Trump and Clinton suffered high unfavorable ratings with voters, a wise choice might have been to choose a likable running mate to neutralize this issue. In an election where many voters held their nose as they entered the voting booth Pence had the potential to exacerbate this problem. His contentious relationship with women over reproduction rights, young people angered by his stand on marijuana, and recent uproars with the gay community galvanized liberals and motivated them to vote Democrat. As a resident of Indiana who remembers Pence campaigning for and endorsing Ted Cruz, this only appeared a good choice if Trump was actually seeking a mate with higher unfavorable ratings than his.

Trump's choice and how he arrived at it highlights the fact our flawed two-party election system is a big part of the problem that creates the gridlock polarizing our nation. In the general election, any third party candidate hell-bent on making a point can easily derail either party by drawing even a few votes thus having a major influence on who is elected. America’s presidential primary system is far from perfect and its flaws are magnified by the defective and obsolete Electoral College that takes over after the general election. Time will show if Trump has negotiated or cut a good deal by making Pence part of his team. After being forced to pick the “lesser of two evils” the ugly choice between a deceitful and dishonest Hillary or a candidate that I will simply refer to as him, we have elevated an undeserving Michael Richard Pence to within a heartbeat of the Presidency. Seriously, how appalling ironic is that?

Footnote; The links to other post related to the 2016 election can be found below.

Sunday, June 16, 2019

Buying And Selling A Home Should Be A Very Big Deal

A Home May Be The Largest Purchase You Make
Because it is most likely the largest purchase most consumers will ever undertake, buying a home should be a big deal. As homes in the US have become increasingly unaffordable many of those who can afford to buy have pointed to what they view as insanely high commissions paid to agents and brokers as a big problem. These fees can amount to 6% of the sales price. The U.S. residential real estate industry has long faced criticism that it stifles competition among brokerages, protecting agent commissions. This is viewed as the main reason these commissions remain higher than those paid by sellers in many other countries. In 2008, the Justice Department reached a settlement with the National Association of Realtors designed to lower commissions paid by consumers by opening the industry to internet-based brokers.

The growth in the internet and consumers seeking easy and fast answers has resulted in the growth of several online concerns such as 'iBuyers,'  Open Door, and Zillow. My most recent research into the changing face of American home-ownership has left me feeling nothing has really changed much from the For Sale By Owner (FSBO) days which has been around forever. If a seller is inclined to lower their price enough they can get a fast sell but it often is not in their best interest. I have an aversion to house "flippers" that I often see as bottom feeders putting lipstick on a pig then vanishing into the night. A quick coat of paint often covers a multitude of sins but quickly fades.

Expect To Pay Much More For "Move In Ready"
It seems that one trend for the often lazy consumer that wants everything done for them is contacting a company such as iBuyer. An iBuyer is a company that uses technology to make an offer on your home instantly. iBuyers claims to offer in many cases, a simpler, more convenient alternative to a traditional home sale. How they operate varies, but the underlying idea is they estimate the value of your home and make an offer. Then, if you accept, they take on the burden of owning, marketing, and reselling the home. whether the convenience of selling a house this way is worth taking less, maybe far less, depends on the sellers situation and attitude.

As I understand it, Opendoor is a start-up out of San Francisco that will buy your home themselves, take ownership of the house, fix it and flip it. Whether you are really dealing with that company or a copycat version they send you an offer online to buy your house sight unseen based on their algorithm. The offer is only subject to an inspection of the physical condition of the house. They don’t do an appraisal but trust their algorithm to determine the value of the house. I assume Opendoor will lower their offer price if the condition of the home turns out to be below average. Since Opendoor has to make money the do charge the seller a fee. Opendoor has 3 different fees, some flat, some variable. In metro Phoenix, in total the fees are 8% to 10.5% of the price of the home.

Hiring a real estate agent to sell your house means that you are likely to pay 6% so Opendoor is more expensive by 2% to 4.5% of the home’s value but it does have several advantages. The bottom-line is that Opendoor is fast, it is certain, and super convenient. Also you do not have to worry about whether the an appraisal or the sale being contingent on the buyer being able to obtain financing. All these advantages gain a great deal of merit in certain situations such as when you inherit a house and the proceeds will be split between the heirs. Other circumstances that might justify the cost is that your time is very valuable, you have other priorities, or simply cannot cope with the stress of taking the more traditional route.

A couple tips or notes;
  • Buying a house that has been made "move in ready" often means you will be paying a hefty premium. 
  • Appraisals matter, never pay over appraised value. 
  • Don't fall in love with someones furniture, it is best to view a house when it is empty.
  • Location is important, there is a reason they say, location, location, location!
  • Try to position yourself so as not to be in a hurry.
  • Negotiation skills are important, know what is important. 
  • Remember that because someone is a realtor does not make them an expert or your best friend
  • Buying in a city that you are just moving into is extremely treacherous, learn the area before buying!
  • It is always far easier to buy than to sell.
  • Remember buying a house is a long-term investment, it seldom pays to constantly move.
  • Ask yourself, how much house do you really need? Over-sizing can be very expensive.
Any way you look at it, buying and selling real estate carries with it some cost but also in the transaction lurks the potential to add a lot of dollars to your net worth. That is why I seriously urge anyone about to start down this path to treat it as a money making proposition. This means study, study, study, and be ready to exploit the lackluster efforts or lack of knowledge others bring to the table. The willingness to roll up your sleeves and do a little work and accept a property that needs a little work not only allows you to customize it to your own unique taste but yields big financial dividends. As stated at the beginning of this article, because it is most likely the largest purchase most consumers will ever undertake, buying a home should be a big deal. Sadly many spoiled self-centered Americans have lowered the true economic impact purchasing a home plays in their life because easy financing is often available.

Friday, June 14, 2019

Putting The Chronic Homelessness In Expensive Housing

On Tuesday the Fort Wayne Housing Authority broke ground for a new housing development geared to help those struggling from chronic homelessness. The 56-unit apartment complex will be complete with both one- and two-bedroom apartments. The River’s Edge Apartments project, to be located on Spy Run Extended has been in the developmental stage for about four years. Now that it is underway they hope to have construction of the building done in 12-18 months. The complex will also include laundry services, bike racks, a library, and more.

Zillow Price On This 3 bd 2 ba 1,652 sq ft $225,000

And it should include all these things and more because this $13.9 million project is all about inclusion in the community. This all has been sold to the public as housing needed to provide s stable place to live for individuals or families experiencing chronic homelessness or disability. The complex is being built on an inexpensive small parcel of land located adjacent to a slew of high power electrical towers. The land sold at auction around three years ago for about $35,000. This should be enough to make someone question why the cost of these units is slated to come in at a whopping $248,214 each.

This is far more expensive than the median home value in Fort Wayne which Zillow claims is $133,500. Still, Executive Director of the Fort Wayne Housing Authority calls this "expensive boondoggle" vital to the well-being of the state. “It’s all about inclusion, when you’re including everybody on the mission and the vision of the state and they’re able to assimilate and be thriving citizens. I think that’s vital, it’s vital to our community in terms of how it works from a human level, also to our economy and so many other things,” George Guy said.

Click On this List to Enlarge!
It is important to note this new housing facility is being built in a city with some of the lowest rents in America. Also, most houses sell for far less than these units and if a housing crisis does exist it is not because of a shortage of houses available. Adding more units will add even more competition causing older less expensive units to be demolished. As older units are replaced by newer more expensive units rents in the area will rapidly increase causing even more people to have problems finding housing.

Again, I'm forced to ask why this project cost so much and why working people should not be resentful? One of the partners on the project is UPholdings. Their Principal Jessica Hoff Berzac said this group is the people the community should be working to help. “To take some of the most vulnerable, high-risk folks in the community and give them a place to call home, and give them the services they need. That they can live by their lease and have pride in their homes, that’s a step forward in how the community responds to what is a community crisis. We can do a lot of temporary solutions but permanent housing actually ends homelessness,” Berzac said.

The financial news website 24/7 Wall St.,  recently used tax assessor data from ATTOM Data Solutions to examine the number of single-family homes and condos that are empty in 15,957 ZIP codes. This allowed them to determine which American cities had the most vacancies. Twenty-nine cities were found to have at least 5,000 single-family homes and condos abandoned. Gary, Indiana; Detroit, Michigan; and Baltimore, Maryland, were identified as a few of the cities suffering the highest vacancy rates in the country with most vacancies concentrated in neighborhoods with low incomes.

Many of the cities with high vacancy rates are situated in areas in the Midwest and Rust Belt regions that have lost industrial jobs. This highlights that a "lack of housing crisis" does not exist everywhere. Logic also dictates better ways exist to spend this money that would help a lot more people and communities. Only politicians and those gaining from these kinds of projects would be silly enough to think that landlords who have to compete against subsidized housing would be eager to remain in the game or that someone working for a living enjoys paying more for an older apartment than someone on the dole who moves into a brand new unit for a fraction of the cost.

America has built a lot of housing units over the years, now we must face the fact that they need to be maintained. We should be focusing on creating policies to rebuild our cities by encouraging homeowners to invest more in upgrading windows, adding insulation and improving the existing housing stock. More livable housing is good for everyone by it cannot be achieved through expensive wasteful projects like River's Edge. By not rewarding those who do the right thing our current housing policies have become a corrosive effect on both housing and society.

For those unfamiliar with government housing policy, society creates much of the homelessness problem by trying to deny that many people go through life making their own problems. The government often sidesteps this issue by pawning the problem off on the private sector. An eviction on someone's record usually means they become ineligible for government housing programs. By making them "ineligible" for certain programs the government shrewdly and cleverly sidesteps having to deal with these people. The brutal truth is that government housing cherry-picks the best of the low-income renters providing them with very low rents and nice apartments while dumping the rest on the private sector.

This is not the first time we have seen this type of project built in Fort Wayne and most likely will not be the last. The fact such scams are occurring all across America screams the system is broken. Putting the chronically homeless in new expensive housing is one of the things many middle-class Americans find a bit over the top. It brings in the question of whether other options and alternatives exist to aid those who constantly and often contribute to their own demise. The bottom-line is that many hard working people that do the right thing live in older less expensive housing that is need of repair also should make us question the fairness of such programs. Consider this more proof that it is far easier to be compassionate and generous when you are doling out someone else's money.

Tuesday, June 11, 2019

Immigration System And Laws Remain A Costly Mess

Comprehensive Immigration reform has become a political football. It is often used by those wanting to swing policies in the direction they desire. Do not underestimate the ability of politicians and mainstream media to confuse the issue by claiming it is also a litmus test to measure whether a person is compassionate or cares about their fellow human beings. The immigration system is badly broken and will remain a problem until it is fixed. This is easier said than done when most people can not agree on exactly what kind of immigration system we should have. To many Americans, a big issue is how open the borders should be and who should be allowed to enter.

The debate of what people "deserve" and whether those who have it should share is not new. To some people, it comes down to basic human rights. This turns into a wish of how things could be rather than how they are. Remember, borders are a creation of man and men set the rules as to who crosses them and on what terms. While it may seem unfair to exclude or deny individuals this right we must remember that life is unfair and this is a reality of life. Many countries have "controlled" borders that limit those who wish to enter a world of plenty. This means, whether a person has landed in a place of plenty by luck or worked their way in by cunning or toil it is something to be valued.

Trump's Border Wall Is Politically Divisive 
Immigration is the crux of the issue - not "Trump's Wall." One of the reasons countries wish to keep immigrates out stems from the types of people that wish to enter. Sticking in my mind is the line, "they opened the borders so workers would come in but they got people instead." This keys onto the fact that many citizens resent people being allowed to enter the country and joining the group of people receiving government aid. To make matters worse many of these people do not follow or honor the mores and customs that allow a society to function are important in how we govern our day to day affairs.

Since December 21, 2018, the DHS has with their "catch-and-release' system" allowed at least 190,500 border crossers and illegal aliens into the interior of the United States. These people are often given work permits which allow migrants to take jobs in the United States while awaiting their asylum claims. One federal immigration official noted that of these, only around 12% of border crossers actually end up qualifying for asylum, this underscores that wholesale fraud committed by illegals. ICE officials told Congress last month that around 87% of illegal aliens fail to show up to their court dates. This forces the agency to undertake the expensive task of attempting to locate each offender for deportation which is nearly impossible. If you are against immigration, this truly is a crisis.

Those we have sent to Washington should get back to work solving real problems instead of just grandstanding and playing to their base. It is little wonder much of the world appears to have lost faith in America's ability to lead when we have allowed the country to be held hostage over such the mundane issue of a wall aimed at reducing illegal immigration. The fact is walls are a barrier and barriers impede easy access. While such a barrier is not the answer or solution to immigration it is a tool that can help limit and direct how people illegally enter the country. It is ironic that American citizens stand in long lines with passports in hand while long parts of our borders go unprotected. The fact is anyone who has traveled knows you can't just walk into any country without any questions asked.

America's Immigration System Is Broken
A lot more of our political attention should be focused on the broken bureaucratic apparatus that comprises our current immigration system. Immigration has been an issue for decades and not properly addressing it will not make it go away. A reasonable solution to solving our immigration problems has eluded both Republicans and Democrats time and time again and reduced those caught within the system into political pawns. The debate over immigration, processing new arrivals and addressing millions of undocumented immigrants, receives plenty of press but most of our immigration problems lurk below the radar.

Tens of billions of dollars are wasted each year on this costly inefficient system according to an article published by the American Action Forum way back in April of 2015. The article explored the cost of a broken immigration system on American business. The fact is that when the American Action Forum (AAF) analyzed the total costs of the immigration system, they found close to $30 billion in annual regulatory compliance costs. It hardly takes a rocket scientist to determine that reducing the number of people "illegally" entering the country would save billions of dollars and allow the system to function better even in its current poorly crafted form.

Examining paperwork requirements by way of the Office of Information and Regulatory Affairs (OIRA) the AAF found there are 20 requirements dealing specifically with the labor implications of hiring an immigrant worker. Of this, there were seven paperwork burdens that specifically applied to employers. AAF used agency estimates on the amount of time for each requirement, the number of forms, the length of applications, and the number of applicants. When an agency failed to provide a cost for the paperwork burden, AAF used the Department of Labor’s estimate of “Real GDP Per Hour Worked:” $60.59 and assumed $180 per hour as a reasonable cost for an immigration attorney.

Immigration also takes a toll on American employers, these burdens increase the cost of doing business and place a barrier to firms wishing to hire qualified workers. AAF found that a hypothetical firm hiring an immigrant would have to manage up to six federal forms, totaling 118 pages, and at a cost of approximately $2,200 per firm, per hire. Even small businesses in my state, far from the border, is required to confirm a worker is legal to work, this is a bit ridiculous for small firms with only a few workers, all from their own family, and these are people they have known since birth, but that's the law. 

Another article in The New York Times from September of 2016, titled; “The Economic and Fiscal Consequences of Immigration” cites a 509-page National Academy of Sciences Study that reinforces the fact this is a very controversial issue. The report allowed interest groups on both the left and the right to claim it vindicated their positions. America’s Voice, a liberal advocacy group, declared from the pro-immigration side it "confirmed immigrants benefit America." while conservatives calling for more restrictions on immigration read the same report but had a very different interpretation saying it showed "workers and taxpayers lose, businesses benefit.”

The last Presidential election showed that many Americans are opposed to releasing border crossers and illegal aliens into the interior of the country. GOP voters indicated building a border wall and reducing both illegal and legal immigration is a priority. According to a Harvard-Harris poll, around 2-in-3 American voters are opposed to catch-and-release, and according to GOP voters, conservatives and Trump supporters, reducing overall immigration remains a priority. At current rates of illegal immigration, border apprehensions for the calendar year 2019 are expected to outpace every fiscal year of former President Obama. Meanwhile, DHS officials have said only about 42 miles of mostly replacement border wall barriers have been constructed since President Trump’s inauguration.

By assigning Trump's modest request for funding to build a wall or barriers on the border as a "non-starter" immigration supporters are shooting themselves in the foot. This is tantamount to someone supporting the "America first" agenda denying any type of foreign aid in a situation where it will obviously have big benefits for America. In theory, those opposed to Trump should be ecstatic about the offer Trump made to extend DACA and protection to some 300,000 immigrants for three years in return for some minor funding. If immigration advocates are confident their numbers will grow and Trump will not win a second term, this gives them the opportunity to knock the ball out of the park and resolve the whole immigration issue strongly in their favor when he's gone.

Of course, none of this is a solution to the Deferred Action For Childhood Arrivals (DACA) situation. Loading millions of people on buses and deporting them will never happen. At the same time, those wanting more open borders should realize the current situation does not work either. Washington should step away from the "emotional" aspects of immigration such as flowery debates about the rights of people and what they "deserve" and focus on the key issues of restoring a functioning government and getting on with real immigration reform. In the overall scheme of things considering America's multi-trillion dollar budget the 5.7 billion dollars requested for the wall is peanuts. In truth, it is easy to see how America will get a good economic return on money spent on a barrier that works 24/7 year after year. Most taxpayers, if asked, would see this as a far better investment than paying government workers to stay home, as we did during the last government shutdown.

Sunday, June 9, 2019

Fed Lowering Interest Rates Will Do Little To Fix Our Ills

Years ago before the "Bernanke has all the answers" era, many of us criticized Japan for failing to own its problems. In many ways, the Fed has put America and the global economy on a path that mirrors the same unsuccessful path taken by Japan. This path avoided real reform and bailed out the very people that caused many of Japan's problems leading to "lost decades" of growth. It is difficult to reconcile the two points of view where we have people calling for more rate cuts while others claim the economy is strong and healthy. It should be noted that much of the rising GDP comes from government generated spending whether from direct purchases or fueled by money people receive from entitlement programs or government assistance. We should question how much a couple of quarter-point drops in interest rates will really make when many consumers are completely disconnected from fed rates and paying 18% APR or more on charge-cards.

When I look about my area I find a fair amount of construction but sadly it is the wrong kind. Little of it is being done by small business or independent local investors. When peeking behind the curtain we find most construction is being driven by government spending or cheap Wall Street money. The new restaurants and other commercial concerns are generally reaching into low-interest rate loans that are unavailable to the average local business. In fact, this puts small local firms at a huge disadvantage to their bigger brethren and often moves them towards closing their doors as in "going out of business." It does not help that government, by way of the United States Postal service, is busy stabbing businesses in the back by delivering Amazon packages below cost and even on Sunday as well as delivering packaged from China at a huge discount to what American companies must pay. 

This is also true in housing where few of the new apartment construction funds are generated locally and the building is no-longer based on real need but centered around the whims of huge real estate companies. Roughly 80% of new apartment construction is now for the high-end luxury market. The government holds huge responsibility for a rising share of our housing problems in low-income situations because its policies avoid dealing with the problems causing shortages such as the growing number of tenants that are irresponsible. Again the government and Wall Street money is driving this train. While retailers close and large buildings go empty across the land new buildings are being put up on speculation and bogus public-private partnerships are plowing vast sums of money into the economy on projects geared to compete with those we are already putting out of business.  

This means we are at the point where at best we should expect slow economic growth for as far as the eye can see. The mal-investment flowing from these forces tends to push out and destroy sustainable and profitable private investment. How can the independent small businessperson or concern compete against such a stacked deck? Still, this sort of false economy generally lacks staying power and dies of its own accord. Pushing on a string is a term that describes the resistance that builds up against a poorly crafted plan. The Fed simply lowering rates falls into this category and will only fuel the asset bubble we have witnessed in stocks.

It is important to remember the recent slowdown is coming at the end of a historically long bull market. The latest job numbers showed that the U.S. created 75,000 jobs in May, much weaker than estimates. In addition, the new numbers reduced some of the gains from April. To many investors, this new data confirms the economy is slowing and signals the Federal Reserve is more likely to consider reducing rates. The big question is how effective such a cut would be to the real economy which lives outside government and Wall Street.

I continue to contend that it might be wise to throw out all the current ideas on what generates inflation. A great deal is going on in the global economy and it will have a major effect on currency values going forward. The relationship of a currency's values directly tied to inflation as we know it. Years ago changes were made in the formula used to measure inflation that resulted in reducing the number. This was done in order to avoid cost-of-living adjustments for Social Security recipients and the payment of COLA adjustments in contracts. Since the measures of inflation have been skewed it is difficult to gauge just how much buying power we have lost over the years.

Those in power over the years have also tinkered with the producer price index which is used to deflate nominal GDP in order to measure real economic growth.  In order to obtain a valid estimate of how much real output has increased, it is necessary to deflate the nominal measure of GDP by removing price increases.  When inflation is underestimated, then real GDP becomes overestimated. When John Williams of Shadowstats adjusts the real GDP measure for what he calculates is a two-percentage-point understatement of annual inflation, he shows that truth that there has been very little economic growth since 2009 and the economy remains far below its pre-recession level in 2008. 

The GDP is a very poor indicator of growth. It is bloated by factors such as soaring healthcare cost, a ballooning military budget, and wasteful government spending. At some point, both investors and the public will realize that central banks can only do so much through printing money and lowering interest rates. America continues to spend nearly $3,333 more than it takes in each year per man woman and child. Such deficits were unheard of in the past and are unsustainable. Most of this money finds its way into the economy as "poorly crafted subsidies" that push data higher and create the false illusion all is well. The bottom-line is much of the world may well be looking at a version of the "Japan Syndrome" with stagflation. This translates into years of slow growth coupled with inflation or a protracted period of stagflation.

Wednesday, June 5, 2019

Society's Inability To Get People To Obey Its Rules

Society's inability to get people to obey its rules and laws has dire consequences. The time when minor infractions might cause the offender to be whipped in public or lose a hand has largely passed leaving a gap in how we might enforce such indiscretions. This does not bode well for society because honoring the mores and customs that allow a society to function are important in how we govern our day to day affairs. The lack of enforcing any type of negative consequences sends the message that a person does not need to be responsible and their actions can exist without ramification. This problem contains within its core the seeds of chaos.

As the cost of enforcing minor offenses has grown society has failed to come up with real solutions that encourage voluntary compliance. An example of how some areas are dealing with this issue surfaced a few months ago in an article that delved into how Dallas criminals have just been given a license to steal. Following his November 2018 election win, Dallas County Criminal District Attorney John Creuzot, a Democrat, announced that he will no longer prosecute certain low-level crimes. This included thefts of personal items worth less than $750 as long as it isn't for economic gain, according to CBS DFW.

Creuzot Plans Not To Prosecute Low-level Crimes
Creuzot embarked upon this course of being "lenient" shortly after he was elected. He announced, "On my agenda is to not ask judges to send people to the penitentiary for technical violations of their probation – for instance not doing community service, not paying fines and fees." This raises the question of whether even adhering to the terms of one's probation in Dallas County now optional. In a letter, Creuzot expanded on his policies stating that first-time marijuana offenses or any drug possession cases involving less than .01 grams of a drug will not be prosecuted.
Creuzot said he’ll dismiss many criminal trespass cases as well, charges he says are most often brought against the mentally ill and homeless.
He also said his office will no longer prosecute theft cases involving personal items worth less than $750 unless evidence shows it was for economic gain. -CBS DFW
Not enforcing laws to deter minor acts of stealing and such have huge consequences. Needless to say, Dallas shop owners are not happy and very concerned as to the implication of such policies. Expressing a similar sentiment, the President of the National Black Police Association, Sgt. Sheldon Smith said he worries it will lead to more crime. “It opens the door for some people to think they can commit crimes,” Sgt. Smith said. Others in law enforcement voice similar concerns. Dallas County Sheriff Marian Brown said her office will continue to enforce the laws as mandated by state legislation. "I absolutely think it's sending the wrong message," said Dallas Police Association President Mike Mata. When viewing this trend, two things that rapidly become apparent. The shop owner cannot just let $600 worth of merchandise walk out of his store and it is not the job of police to step into the role of judge and jury.

Middle-class Shoplifting is On The Rise
Sadly this is not a problem just in Dallas or even just in America. Due to a crumbling justice system which has forced courts to prioritize crimes by seriousness, Canadian prosecutors are now letting petty criminals walk free for crimes such as shoplifting, minor assault, and fraud. Because of a 2016 Canadian Supreme Court ruling known as the Jordan decision that protects offenders from unreasonable delays through the legal system, prosecutors are now being forced to focus on major crimes such as homicides and sexual assaults. Cases involving less serious crimes are either being dropped outright or shunted into restorative justice programs in order to move justice along.  

Canadian courts have more or less adopted a "triage system" which means they manage cases by the seriousness of the alleged offense. The Retail Council of Canada which represents over 45,000 merchants has expressed grave concerns over this development. Last year, the retail council estimated that shoplifting cost Canadian retailers up to $5 billion a year in losses. "It's really concerning for retailers, retailers of all sizes," said the council's Atlantic director, Jim Cormier. In order to recoup their losses from shoplifting, some retailers are skipping criminal court completely and instead opting to take offenders to civil court. Still, anyone in business will tell you this is not their job or what they signed up for. Asking businesses and individuals to police society is indeed a lousy alternative to law enforcement doing its job.

Vandalism Often Considered A Low-Priority Crime
In a well-functioning society, it is expected that people will simply respect private property and the rights of others. It is the fear of people coming into our space and not honoring and respecting our customs and laws that cause many people to have a problem with immigration. As proof their concerns are valid we need only note that officials from Immigration and Customs Enforcement (ICE) told Congress last month that around 87% of illegal aliens detained and then released into the United States while they await their asylum hearings fail to show up to their court dates. This then forces the agency to attempt the expensive task of locating and deporting each offender.

The idea that today many immigrants do not aspire to assimilate into our culture and protect our best values is key to understanding why many Americans wish to see borders closed. The rejection of traditional values hits communities hard and damages our way of life. All of us want to be able to go for a walk and feel safe as we go about our day. When individuals are selfish, rude, arrogant, boastful, proud, disrespectful, ungrateful, undisciplined, slothful and completely obsessed with themselves life becomes very difficult for those around them.  People that feel entitled to everything, but they don’t want to work for it often don’t see a problem with treating others like dirt. Unfortunately, this tends to generate a great deal of discontent that has real consequences for society.

Many conservatives blame these problems on institutions going to easy on crime while many progressives claim we must show more compassion, however, the fact is most people simply do not wish to deal with the problems wrongdoers bring with them. For years I have advocated police be able to issue a citation or ticket for these low-level crimes. after someone receiving several of these, it would at least serve as notice to the fact they were a "multiple offender of society's rules" so that we can focus on ways to bring more pressure upon them. It has long been my contention that you cannot legislate decency. Too many laws poorly enforced does little to curb the ills of our culture which translates into the idea that we must try harder. 

In our modern world where people move more often than in the past, the restraints that caused people to behave have been lifted and ties to communities are often weak. This topic flows back into how to get people to comply and has resulted in people embracing more surveillance and cameras in order to discourage crime. Still, a lack of enforcement that results in a catch and release scheme usually deters nothing. The idea of granting people a "social score" like the program being put in play in China and other parts of the world stinks of Orwellian totalitarianism. Taking away the freedom of people is not the answer. This means a good place to start would be redoubling our efforts to teach the values we hold dear and allow society to function. We must do better at elevating the importance of these qualities and make a greater effort to teach young people that our values are key to a healthy society.

Monday, June 3, 2019

Italy And Spain Have Potential To Topple Struggling EU

Italy's Debt Has Soared Since 2016
If we want to be dramatic it could be said the Euro-zone teeters on the brink. The recent elections in the Euro-zone should bring little comfort to those supporting a stronger Europe. Huge gains were made by forces seeking more power for the populist agenda. In short, this is a boost for the rights of their individual nations to have more say in how they are governed. It could also eventually lead to the creation of a pathway to leave the Euro-zone without triggering a crisis. Heather Conley, director of the Europe Program at the Center for Strategic and International Studies appeared as a guest on the NPR News Hour recently and tried to put a positive spin on the elections that may be far too optimistic.

Conley's claim this might force the Pro-Europe parties on the left and right to come together is a bit of a reach. I contend this will only increase polarization and cause gridlock. Until now the body that governs the Euro-zone has busied itself with kicking the can down the road and increasing its own power. Do not expect this to change for the better. It seems the people of Europe can only hope for a "do nothing" group in Brussels that does not add to their woes. Two of the biggest problems facing the Euro-zone is that Italy has the potential to collapse the region into a Greek-style financial crisis and Spain is in political chaos. The first of these problems is by far the most critical.

Economists in Milan and London fear that because Italy is so much bigger than Greece and one of the "Big Three" economies underpinning the Euro-zone the scale of such a crisis would be difficult to contain. This highlights the un-resolvable contradiction at the heart of the European Central Bank that governs the 19 countries using the euro as a currency. When a country gets reaches the point where it has too much debt, European Union austerity rules that limit government spending. This is viewed by many economists as absolutely the wrong economic medicine because it tends to reduce that country's economic growth. To make matters worse, the ECB's rules make it impossible for a country to exit the euro without plunging itself into the financial crisis it is seeking to avoid.

Italy, in particular, has a huge problem with this mandate from Brussels. As of now, the prospects for the Italian economy remain poor. Italy suffers under the burden of several cultural and historical factors such as inflexible labor market rules, and widespread corruption. These are huge drags on productivity growth which is a big factor in staying competitive in our modern global economy. Italy is in recession and it does not look like it will rebound in the near future. Italy's GDP shrank in Q1 2019 by -0.1% after declining by the same amount in Q4 2018. The European Union's fiscal responsibility rules prevent Italy from expanding its government spending deficit beyond 2.04% of GDP. Many economists think that extra government spending now might be the medicine the economy needs in order to boost growth.

Italy's debt load currently stands at about €2 trillion ($2.25 trillion) and is rising. Italian government debt started soaring in 2016 and is now growing at an alarming rate. Debt to GDP has reached 130% and is expected to continue moving higher until it brings about a crisis. Because of the sheer size, Italy's debt constitutes a far bigger problem than what the Euro-zone faced during the crisis in 2015 when Greece failed. Not only would an Italy debt crisis be much harder to contain but it could endanger the very existence of the euro if it triggers another euro-zone sovereign debt crisis.

Flipping attention back towards Spain, we find that immigrants continue to flow in from Northern Africa. The national government is in disarray and continues to struggle, It does not help that the Spanish General election in Catalonia was a stunning victory for the Catalan Separatists.  According to Craig Murray, this election result was achieved despite their leadership being exiled or held as political prisoners. It also came despite an avalanche of mainstream media propaganda against them. Four of those elected are currently in jail. The Spanish state has reacted by declaring the two major separatist candidates, Clara Ponsati and Carles Puigdemont, ineligible for the European Parliament elections.

In addition to the problems in Italy and Spain, the yellow vest protest continue in France. Also, recently Germany reported that unemployment unexpectedly surged for the first time in almost two years. In May the number of people out of work climbed by 60,000 and the jobless rate increased to 5% from a record-low 4.9%. While Germany's Federal Labor Agency claimed about two-thirds of the increase was due to a reclassification of some people in the statistics it also blamed a slowdown in Europe’s largest economy. All this provided further impetus to buy German bunds, pushing the yield on the benchmark paper further below zero, to a near-record -0.167%. Again, I say to those who feel the systematic risk is trending lower for this battered region of the world, I beg to differ.