US Economic Sanctions Against Russia Brings In Germany

The most recent US economic sanctions against Russia has angered our ally Germany. The planned new US sanctions are set to hit German and European companies which have business interests in Russia. The German Economy Minister Brigitte Zypries asked the European Commission to consider countermeasures against the United States for increasing sanctions against Russia that would potentially hit European companies.

Germany said something I told viewers yesterday. The US sanctions against Russia are illegal. The US Congress doesn’t care about legalities. It was illegal for John McCain, Lindsey Graham, and other globalist congressmen to use tax payers money to overthrow the elected government of Ukraine. You think Congress cares about legalities? Congress considers themselves the “law makers” and so the law is what they say it is. That’s why even the SEC can’t touch Congress members for illegal insider trading that private citizens would have gone to jail over.

German Economic Minister Brigitte Zypries told a German newspaper, “We consider this to be a violation of international law. The Americans cannot punish German companies because they operate economically in another country. There are (partnerships) for natural gas and petroleum pipelines (in the region).”

Germany and much of the EU are heavily dependent on Russian natural gas, and German companies working on gas pipelines fear they could be hit with US sanctions because of Congress’ latest move.

Economic Sanctions Against Russia

Sanctions against Russia for defending itself in Ukraine against US based NGOs is misguided policy that will ultimately push Russia into a tighter alliance with China, Syria, Iran, and North Korea.

On July 21, 2017, the White House announced that President Trump will sign into law a bill on the latest set of sanctions against Russia, Iran and North Korea. Congress forced Trump’s hand because of the overwhelming support of sanctions against Russia. Congress passed the Russian sanctions bill with a veto-proof majority of 419-3 in the House and 98-to-2 in the Senate. President Trump needs to delay signing this law and instead take his case to the American people that it’s Congress, and not his Administration, that is on the marching path towards war with Russia.

Did the President make a deal with the devil to get Establishment globalists to leave his family alone in exchange for signing these sanctions against Russia? The timing seems suspect that Democrats would end the Senate Russia investigation right as new sanctions against Russia are passed.

President Putin has not given up on President Trump entirely but the New York Times writes that the way this is playing out in Russia is that US sanctions against Russia are a gift to Mr. Putin.

President Trump has an awesome opening now to take a leadership role in bringing about better relations with Russia by rejecting the new sanctions imposed against Russia by Congress.

These increased sanctions are so dumb and were not really thought out carefully. The problem is that the US has only limited trade with Russia in the first place because of previous sanctions. So to have any meaningful effect on Russia, US sanctions can’t target Russia directly but instead must target Russia’s trading partners like Germany.

Targeting German energy importers is another stupid move by Congress that could be dangerous as the EU doesn’t have any good alternatives to trade with Russia. Obviously Germany will move to protect their trade interests, irrespective of America’s wishes.

Are Sanctions Hurting Russia?

In 2015, sanctions pushed Russia’s economy into a recession with a negative GDP growth of -2.2% for the first quarter of 2015, as compared to the first quarter of 2014. Sanctions on access to financing have forced Russia to use part of its foreign exchange reserves to prop up the economy.

How do you explain to the people of Russia why the US is targeting them and putting them out of work simply because Russia defended itself against US NGOs which toppled the government of Ukraine? The optics are horrible.

Sure the latest round of sanctions imposed by Congress will hurt Russia but they will also hurt many other countries and hence our relationship with many of our allies.

Dmitri Abzalov writes in his analytical article for Russia’s online newspaper Gazeta.ru:

“Their [EU] investment share varies from 30 percent to 70 percent depending on each particular project. A possible cut off in financing will mean a serious blow to European business.”

Map of the major existing and proposed Russian natural gas transportation pipelines to europe. By Samuel Bailey (sam.bailus@gmail.com) (Own work) [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

The Blue Stream natural gas pipeline is a target of the new sanctions by Congress. Blue Stream is a major Black Sea gas pipeline that carries natural gas from Turkey to Russia. The pipeline is being constructed by a joint venture between Russia’s Gazprom and Italy’s Eni.

The new sanctions also will impact the expansion of Sakhalin-2, Russia’s LNG plant which is operated in a partnership between Japan’s Mitsubishi and Mitsui, Gazprom, and Royal Dutch Shell. Another target could be the Baltic Liquefied Natural Gas project, which is also operated by Gazprom and Royal Dutch Shell.

The sanctions also will impact the Nord Stream-2 project expansion into Germany making Germany an energy hub. If the project stops because of new US sanctions, Germany will have to give up on its dream of becoming an energy superpower as it will not be allowed to sell natural gas to Eastern Europe.

Of course the US, who is imposing these sanctions, are telling the EU that we have natural gas they can purchase. However, if the EU opts for American gas, the cost of production in Europe will increase considerably, which will be passed on in the cost of manufactured products. Germans will then be at a competitive disadvantage to cheaper goods manufactured in the US.

What about Japan? Japan has already agreed to invest in Russia’s Kuril Islands, what will it do now?

An interesting side note about the effectiveness of sanctions against Russia. When sanctions were imposed on Russia in 2015, it crashed the country’s currency which gave Russian wheat a price advantage over US wheat. The weakening Ruble allowed Russia to become the world’s #1 exporter of wheat last year. US wheat farmers were not too happy about that.

Current Sanctions On Russia

US sanctions currently against Russia specifically target Russia’s energy sector, which makes up more than half of the country’s Gross Domestic Product. No U.S. oil company can do business with Russia, nor can any companies sell drilling technology needed to access oil and gas reserves.

U.S. banks cannot issue long-term loans to Russian businesses for energy-focused projects.

European banks are also prohibited from engaging in similar financing arrangements with Russia. The European Union has also sanctioned Moscow which has pushed Russian companies to borrow money from Beijing. Beijing has become the biggest lender to Russian companies.

All of this is designed to weaken a key sector of Russia’s economy in hopes the pressure will entice Putin, over time, to reverse his annexation of Crimea and to withdraw Russian troops and its support of rebels in eastern Ukraine.

The US State.gov website shows the current sanctions against Russia:

Executive Order 13660, signed on March 6, 2014, authorizes sanctions on individuals and entities responsible for violating the sovereignty and territorial integrity of Ukraine, or for stealing the assets of the Ukrainian people. These sanctions put in place restrictions on the travel of certain individuals and officials and showed our continued efforts to impose a cost on Russia and those responsible for the situation in Crimea.

Executive Order 13685 was also issued. Utilizing these Executive Orders, the United States has steadily increased the diplomatic and financial costs of Russia’s aggressive actions towards Ukraine. We have designated a number of Russian and Ukrainian entities, including 14 defense companies and individuals in Putin’s inner circle, as well as imposed targeted sanctions limiting certain financing to six of Russia’s largest banks and four energy companies.

These actions, in close coordination with our EU and international partners, send a strong message to the Russian government that there are consequences for their actions that threaten the sovereignty and territorial integrity of Ukraine. The United States, together with international partners, will continue to stand by the Ukrainian government until Russia abides by its international obligations. The United States is prepared to take additional steps to impose further political and economic costs. A secure Ukraine, integrated with Europe and enjoying good relations with all its neighbors, is in the interests of the United States, Europe, and Russia.

Conclusion

With Germany asking the EU to use countermeasure sanctions against the US for what it deems as illegal sanctions, a whole new level of potential conflicts and countries re-examining their relationships with the US is taking place.

The mess that we are currently in can be traced back to the Obama Administration, John McCain, and other Congress members working with George Soros to destabilize and overthrow the elected government of Ukraine.

Think of what is happening like a game of Chess. When you make a wrong move, your game slowly falls apart as every move after that initial wrong move cascades into a loss.

That’s what happens when you do something wrong. People take sides against you.

The only way out of this mess is for the US to admit it was wrong to overthrow the elected leader of Ukraine and to apologize to the people of Ukraine and Russia and to end all sanctions immediately.

What good is it that President Trump didn’t take lobbyists money in his run for the White House, if he’s constantly being manipulated by Congress who is controlled by lobbyists money? President Trump can take a leadership role in fighting against big oil and natural gas lobbyists in Congress by doing everything in his power to walk back sanctions against Russia and to improve relations with the country before it’s too late.

Putin has retaliated against the US by kicking out 755 US diplomats from Russia. Putin finally showed a crack in his maneuvering with is an opportunity for President Trump to push into that crack and take a leadership role in improving relations with Russia before it’s too late.

I was raised in the “nuclear family” as many of you were. I remember how life was under the Cold War and the constant threat of a nuclear war with Russia. Anybody actually living through that time should be fighting hard to prevent backsliding into another Cold War and nuclear arms race with Russia.

Do you have any thoughts on Germany asking the EU to use counter-sanctions against us? Leave your comments below.

Russia Expels US Diplomats As Congress Brings US Closer to War

Russia expels US diplomats in retaliation for Congress increasing sanctions against Russia last week. Let’s just get it out of the way. Congress is stupid. Congress can’t act to help Americans who are suffering under a collapsing ObamaCare. Congress can’t help out Americans who are paying too much in taxes. Congress can’t even act to help the failing infrastructure across this country.

But Congress sure can act fast to impose sanctions against Russia. Congress may be doing the bidding of big US energy corporations.

Folks I’m on the verge of exercising my constitutional right to take up arms against my government. Alright so maybe that’s not a constitutional right but it should be one! I’m thinking of Thomas Jefferson saying, “a little rebellion now and then is a good thing.”

Sanctions never should have been put against Russia for Ukraine. John “traitor” McCain and others in Congress worked with George Soros and the Obama Administration and used NGOs to destabilize Ukraine and oust an elected leader. It is illegal for the US government to use tax payers money to overthrow an elected leader.

Those inside the US government did it to gain control of the oil pipelines in Crimea and to move NATO missiles into the country to point at Russia.

Ukraine is right on the doorstep of Russia. How would we feel if China used NGOs to overthrow the government of Canada or Mexico so that they could control the flow of oil from Canada into the US and point missiles at us from across the border?

President Trump Is a Colossal Failure On Dealing With Russia

President Trump should have ended sanctions against Russia and apologized for what the former Administration and those in Congress like John McCain had done. Instead, Trump got manipulated by the Establishment like a school boy going to the restroom without a hall pass.

Trump won’t do the right thing with Russia because he has to make it look like he’s not in collusion or something with Russia. Stupid idiot. He’s more concerned about himself and looking tough against Russia than he is about causing a war.

Idiots Run Our Country Now

From the President, to the Congress, their all a bunch of idiots.

Why am I so angry?

Russia Expels US Diplomats

CNBC reports that Russia just expelled US diplomats from its country in retaliation for increased sanctions put on Russia by Congress.

In this video I explain in greater detail why I’m mad at Congress and the Trump Administration.

Here is how Russian news is reporting what is happening to the Russian people:

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Effects of Climate Change, Who Cares? Trump Pulls US Out

effects of climate changePresident Trump has honored his campaign promise to pull the US out of these globalist run bureaucracies that tax Americans in the name of bad effects of climate change (see Washington Post link above). You go honeybadger Trump! Trump supporters finally have something to be happy about again.

Effects of Climate Change, Who Cares?

We all want a clean environment for ourselves and future generations but Democrats under the Obama Administration destroyed our economy and middle class in an attempt to control the effects of climate change. With $20 trillion in debt and most Americans struggling just to keep a roof over their heads and food on the table, it’s criminal that US citizens are taxed and those tax dollars are sent to a non-elected globalist run bureaucracy of socialists whose goal is to create a one-world order.

The message is not that we don’t care about the environment. The message is that America has been run into the ground by decades worth of rule under Republican and Democrat administrations that milked the US tax payer for hundreds of billions of dollars while crony environmental capitalists like Elon Musk made a fortune. The message is that free handouts from America are over because we are on the verge of bankruptcy after decades of high taxes and jobs shipped offshore to places like Mexico and China.

Saturday Night Show: Janet Yellen Rate Hike While Pension Plans Going Broke

Help us spread the word about the growing conservative America first movement. We’re reaching thousands, help us reach millions by sharing this show with your family and friends.

A weekly Saturday financial show that attempts to predict market direction for the week ahead by looking at a variety of fundamental and technical charts. This week’s show features commentary on Janet Yellen and the Federal Reserve’s strange timing of a rate hike, how Obama Administration diverted FNMA money and investors dividends into Affordable Care Act to keep it solvent, and the collapsing pension funds across America.

WikiLeaks Releases Vault 7 That Exposes Dark Government Spying On Trump and Others

Folks, WikiLeaks just released a major “vault 7” release that proves that President Trump was correct in saying that his phones were tapped and that he was being spied on by the Obama Administration.

A massive release of thousands of documents by WikiLeaks shows a dark rogue government inside the US government that basically spies on who it wants to spy on. Vault 7 is the largest intelligence publication in history. You can search through the release yourself here: https://wikileaks.org/ciav7p1/cms/index.html

What concerns me is that these left-leaning globalists are very powerful and well connected, controlling vast amounts of wealth. As WikiLeaks and even President Trump exposes these folks, they will target President Trump for assassination or at the very least, target the stock market after Trump cited how the market has gone up by $3 trillion since he was elected. This dark rogue globalist government will stop at nothing to destroy Trump which is bad for the stock market.

Lone Wolf Activation

Left groups have activated mentally unstable “lone wolf” personality types across this country by making outrageous statements like President Trump hates black people and Mexicans, is a Russian puppet, is prejudice against Muslims and wants to ban all of them from this country, and so on. These are stupid comments for anyone with an above average IQ who is following closely what is going on. However, for lower IQ people, especially those who are mentally unstable, the purpose is to activate “lone wolfs” to take Trump out. Of course when it happens they will say how against violence they are and how bad an assassination attempt against Trump is. These powerful Washington elites will say that they never told anyone to assassinate President Trump and maybe they didn’t, but indirectly their claims that Trump is Hitler and wants to exterminate gays and Mexicans is the very thing that will be responsible for an assassination attempt against the President. The rogue dark government has even used famous Madonna types to suggest “blowing up the White House”.

Folks, I know when I see “lone wolf” activation in the mainstream media. They’ve already activated “lone wolfs” against police across this country which resulted in the murdering of innocent police officers.

I have little doubt that President Trump’s security detail has been on high alert for the last couple of months. Did you know that President Trump is under so much constant attack that he made the smart, precendent-breaking decision to retain a private security force rather than just to trust the security force provided by the Establishment? Of course that decision by President Trump was spun as being bad because “it raises troubling questions about transparency and accountability.”

Ask yourself this, why would a media publication that reports on the “news” care about that President Trump picked his own private security force that he can trust? Why would they care to spin in as something bad and negative? It’s because they don’t like that he picked his own private security force. The next question is, why do they not like that President Trump did this? That question should scare you to the core. Was there a plan by the shadow government to infiltrate President Trump’s security detail and allow a “lone wolf” to harm the President?

Vault 7

WikiLeaks released CIA documents today that shows unbelievable technology used to spy on everyone. Here is a small section from today’s WikiLeaks release.

The attack against Samsung smart TVs was developed in cooperation with the United Kingdom’s MI5/BTSS. After infestation, Weeping Angel places the target TV in a ‘Fake-Off’ mode, so that the owner falsely believes the TV is off when it is on. In ‘Fake-Off’ mode the TV operates as a bug, recording conversations in the room and sending them over the Internet to a covert CIA server.

As of October 2014 the CIA was also looking at infecting the vehicle control systems used by modern cars and trucks. The purpose of such control is not specified, but it would permit the CIA to engage in nearly undetectable assassinations.

The CIA’s Mobile Devices Branch (MDB) developed numerous attacks to remotely hack and control popular smart phones. Infected phones can be instructed to send the CIA the user’s geolocation, audio and text communications as well as covertly activate the phone’s camera and microphone.

Despite iPhone’s minority share (14.5%) of the global smart phone market in 2016, a specialized unit in the CIA’s Mobile Development Branch produces malware to infest, control and exfiltrate data from iPhones and other Apple products running iOS, such as iPads. CIA’s arsenal includes numerous local and remote “zero days” developed by CIA or obtained from GCHQ, NSA, FBI or purchased from cyber arms contractors such as Baitshop. The disproportionate focus on iOS may be explained by the popularity of the iPhone among social, political, diplomatic and business elites.

A similar unit targets Google’s Android which is used to run the majority of the world’s smart phones (~85%) including Samsung, HTC and Sony. 1.15 billion Android powered phones were sold last year. “Year Zero” shows that as of 2016 the CIA had 24 “weaponized” Android “zero days” which it has developed itself and obtained from GCHQ, NSA and cyber arms contractors.

These techniques permit the CIA to bypass the encryption of WhatsApp, Signal, Telegram, Wiebo, Confide and Cloackman by hacking the “smart” phones that they run on and collecting audio and message traffic before encryption is applied.

InfoWars talks about the massive Vault 7 release from WikiLeaks today:

Trump Claiming Victory For Stock Market Is Actually a Bad Thing

Folks as traders we know better than anyone else that President Trump’s election has been great for the stock market. The problem is that President Trump has cited how the stock market has gone up by $3 trillion in value since his election. This has put a great big target on the stock market.

Powerful elites and crony capitalist CEO’s like Elon Musk that control a lot of money, now have a blueprint for how to take-down President Trump: take down the stock market.

President Trump only has a handful of Trump appointed officials working in government agencies. Most of the people working in government positions in the FBI, NSA, Department of Justice, are President Obama leftovers. This has created a dangerous situation of people who are not loyal to President Trump attempting to discredit and overthrow his administration at every chance they get.

We’ve already have had Michael Flynn spied on by the government and then that information was leaked to the mainstream media to discredit Michael Flynn and force him to resign. We’ve had the Obama Administration using the government to wiretap and spy on its political enemies in an attempt to discredit them. Now it seems like Flynn was told by establishment implants inside the White House that President Trump wanted him to resign when it turns out that President Trump never asked Michael Flynn to resign and he didn’t even know about Flynn’s resignation until after it happened!

President Trump needs to get his people in and the Obama traitors that are trying to sabotage his government out.

Folks the election of President Trump is not the end. It’s only the beginning. We are in a war with the globalist elite who want open borders, illegal immigration, and NAFTA and TPP like agreements at the expense of US workers.

People inside of the government are attempting a soft-coup inside the US. At some point the globalists will be using their immense wealth to take down the stock market. Now that President Trump is touting stock market behavior as a success, they will target the stock market to snatch that success away from President Trump. I wouldn’t be surprised to see a company like Citadel “hacked” which results in a flash crash of the stock market to get the selling started.

President Trump has to get his people in government and Obama’s globalist folks out. This now should be Trump’s #1 priority. President Trump needs his people that he trusts in as many positions as possible.

What The Trump Win Means For Multinational Corporations

I predict that a Trump win means down for the economy at first, then upward as the US consumer strengthens from domestic job growth.

The down first move in the economy will come from inefficiencies caused by forcing multinational corporations to bring domestic production facilities back to the US or face steep tariffs.

Several traders have emailed me asking what stocks are good to short or go long in a Trump Administration.

Here is how a Trump win is likely to impact industries negatively.

IoT Industry

Tesla is the big driver of autonomous vehicles. Tesla is shipping all new Model 3 cars with the hardware for full autonomy. These autonomous cars are also electric cars. Tesla’s new Model 3, after tax credits, was priced for under $30,000. The Trump Administration is likely to be unfriendly towards companies like Tesla that benefited under the Democrats crony capitalism. The Trump Administration will likely offer few proposals for combating climate change. Trump will likely not pursue “green policies,” which means the discontinuation of “green” tax credits like the kind Tesla benefits from. Without these generous tax credits, Tesla automobiles will be more expensive which will slow purchases and slow the spread of the self-driving car.

Industrial IoT trends have been towards automation and replacing human workers with machines and robots. Trump has promised to renegotiate trade deals to bring manufacturing jobs back to the US. If IoT trends are taking away US jobs, it’s a pretty good bet that a Trump administration will advocate against industrial machines and robots that replace human labor.

Payments Industry

Trump has threatened to cut off remittance send from the US to Mexico until Mexico pays for a border wall. Trump is considering forcing Mexico to pay for the wall by invoking the US Patriot Act to cut off portions of the flow of money between the US and Mexico until Mexico makes a one-time $5 billion to $10 billion payment for the wall. Mexico is the largest receive destination for US remittances, cashing an estimated $25 billion in 2015. Western Union recently doubled the size of its retail network in the country, and MoneyGram unveiled a product in partnership with Walmart to make it easier and less expensive to send money from the US to Mexico. Cutting off the flow of money from the US to Mexico, even temporarily, would negatively impact Western Union and MoneyGram.

A Trump Administration will focus on bringing manufacturing back to America, specifically targeting firms like Ford and Apple to build products in the US rather than in Mexico or China. To implement a plan of bringing manufacturing back to the US, a Trump Administration will need to use tariffs and issue tougher manufacturing restrictions. This will likely cause a major decrease in international business spending as more businesses are either unable to make transactions due to restrictions or unwilling to pay the extra fees.

Technology Industry

Net neutrality is the concept that all data transmitted over the internet should be treated equally. Trump has not released official statements about the topic of net neutrality, but he has expressed distaste for President Obama’s approach. A Trump Administration could push to change the FCC’s net neutrality rules which would result in different price points for various data types and enable service providers to throttle data delivery.

In a Trump Administration, technology companies will likely be forced to change encryption policies to provide backdoor access to the US government. Trump supported the court order calling for Apple to facilitate access to an encrypted iPhone used by the San Bernardino shooter and asked consumers to boycott the company until it complied. Civil liberties groups are likely to take the Trump Administration to court. Requiring companies to provide backdoor access to the US government would violate consumers’ trust and likely lead to a decline in users of these companies’ products at first. Over time, though, consumers will likely not care.

Policy changes by a Trump Administration would harm tech companies that manufacture overseas, like IBM and Apple. Apple’s iPhone is likely going to become much more expensive for US consumers.

Apple and Google make more of their revenues overseas than within the US. Higher tariffs and protectionist policies could make it more expensive for tech companies to move and sell their products around the world. The broader use of trade tariffs would likely spur more countries to invest in domestic technology sectors within their own countries and to reduce their reliance on US technology providers, which would further hurt US tech multinational corporations.

Large mergers between service providers and digital content companies could face greater scrutiny. Trump said that the $85 billion AT&T and Time Warner merger would not be approved by a Trump administration because “it’s too much concentration of power in the hands of too few.” A Trump Administration could lead to a decrease in M&A activity.

The technology sector has been granting more H-1B immigration visas to highly skilled workers with STEM backgrounds.

A Trump Administration will likely include fees that will make it more expensive for companies to hire foreign workers through the H-1B visa program. If such fees are enacted, it would likely drive up wages for highly skilled IT talent even further across the technology sector.

E-Commerce

Protectionist policies and tariffs will increase the cost of goods. Trump wants to tax US companies that choose to manufacture goods overseas. Such a policy would harm retail companies that manufacture their goods overseas. Most retail companies will raise their prices to offset these tax penalties and the added cost of building manufacturing plants in the US.

E-commerce companies are pushing to deliver products to consumers as fast as possible. Think Amazon, and it’s Amazon Prime membership with free two-day delivery as well as its drones for remote area deliveries. This fast delivery involves automation within distribution centers. A Trump Administration will likely move to protect American workers from being displaced by machines thus forcing e-commerce companies to invest in traditional forms of labor over cheaper and faster new ones.

While a Trump Administration will be great for the US economy long term IMO, short term, I think we get a pullback in the economy while corporations adjust to higher costs and lower sales.

Microeconomics and Taxation

Most government revenue comes from the taxation of transactions and labor. Taxes impact both the supply and demand curves. Taxes cause a buyer to pay more for something and suppliers to receive less. The loss of value for both buyers and sellers is called the deadweight loss of taxation. Taxation has an enormous impact on the economy and thus stock market. Traders and investors need to understand the effects that taxation has on the economy and thus stock market. We will examine deadweight loss from a microeconomics perspective, ending with a macroeconomics viewpoint.

In a market without taxation, we will say that a package of socks will sell at a fair market price of $14. This $14 equilibrium price is set where the supply and demand curves cross.

When taxes hit the package of socks, the buyer pays a higher price of $15.40, and the seller receives a lower price of $11. Taxation lowers demand to d1 because buyers have to pay a higher price for socks. The seller is also taxed, and so he receives less profit for his package of socks. If there’s less profit, the supplier will supply fewer socks at a level of s1.

The amount that the government receives in taxes is equal to the buyer’s price minus the seller’s price, multiplied by the quantity of the transaction, whether for goods or services. The area of the light red rectangle is the tax revenue collected by the government. The area of the dark red triangle is equal to the economic value that is lost to taxation.

This loss of economic value consists of buyers who will either buy less or not at all because the price is higher than what they can afford so they decide to do without. Likewise, some suppliers will not produce the product because they are not receiving a high enough price to cover their costs. The benefit that these buyers and sellers would have added to the economy if it were not for taxation is called the deadweight loss of taxation. Because these buyers and sellers do not participate in the market, they do not contribute to the tax. Instead, the taxes are paid by the buyers and sellers who continue to participate in the market. The tax burden falls on the fewer buyers and sellers who continue to participate in the market. A vicious taxation loop can start where a government raises taxes more to offset lower tax revenues caused by rising deadweight loss.

Demand and Supply Elasticity

Demand elasticity is the change in quantity demanded at a particular price. If a large change in price results in little change in the quantity demanded, then demand is considered inelastic. If a small change in price results in large changes in the quantity demanded, then demand is considered elastic.

Products that have good substitutes have a high elasticity of demand, since if the price of one substitute increases, buyers can switch to another substitute. For example, if the price of beef increases, then people will buy more chicken, ham, pork, or some other meat. Beef is considered an elastic product.

Products that have fewer or no substitutes have a high inelasticity of demand since if the price increases, there are no substitute products buyers can switch to. For example, if gasoline and oil prices increase, buyers have to pay the higher price because there are no close substitutes.

Supply elasticity is the change in supply costs at a particular price. If the supply changes little with a change in price, then supplies are considered inelastic. Supply is elastic if there are large changes in supply for a small change in price.

For example, the supply of land is inelastic because no one is making any more of it. By contrast, the supply of software is fairly elastic since it costs very little to make and distribute copies of software over the internet.

Deadweight Loss Varies with Elasticity

The amount of the deadweight loss varies with both demand elasticity and supply elasticity. When either demand or supply is inelastic, then the deadweight loss of taxation is small, because the quantity bought or sold does not vary much with the price.

Demand Inelasticity and Deadweight Loss

Buyers need to have the product and so changing the price through taxation is not going to change that. For example, buyers need gasoline to operate their automobile. Gasoline is inelastic as there are no substitutes. Raising taxes on gasoline will result in a lower deadweight loss.

Supply Inelasticity and Deadweight Loss

Sellers want to sell land, and so the tax rate is not going to heavily influence the supply of land for sale. The supply of land is inelastic because, as Will Rogers once said, they’re not making any more of the stuff. Raising taxes on land sales will result in a lower deadweight loss.

Deadweight loss increases proportionately to the elasticity of either supply or demand.

Higher Taxes and Deadweight Loss

Balancing the tax rate which gives the most tax revenue with the least amount of deadweight loss is impossible. The tax rate that worked during the Bill Clinton Administration did not work during the Obama Administration. An endless amount of factors come into play when determining a moderate tax rate with the most yield versus minimal deadweight loss. What we do know is that when the tax rate is small, there is less deadweight loss and conversely, when the tax rate is high, there is more deadweight loss as illustrated in the two graphs below.

As can be seen from the graph below, as taxes are increased, the deadweight loss of the tax also increases, gradually at first, then steeply as the size of the tax approaches the market price of the product without the tax. Likewise, tax revenue increases at first but then starts to decline as a decrease in quantity more than offsets the increase in the tax rate.

Macroeconomics and Taxes

The Federal Reserve has been unable to get the meaningful shift from aggregate demand outward that they wanted to increase GDP. It’s no coincidence that under the Obama Administration, the US has the third highest corporate income tax rate in the world, at 38.92 percent. The U.S. rate is exceeded only by the United Arab Emirates and Puerto Rico. Higher taxes shift the aggregate demand curve inward from AD1 to AD2.

Conversely, lower taxes shift the aggregate demand curve outward.

Higher taxes also negatively impact the number of people willing to work as illustrated by the Laffer Curve.

The marginal tax rate is measured on the vertical axis, and total tax revenues are measured on the horizontal axis. Note that the Laffer Curve is backward-bending, reflecting the behavioral notion that at some point, people will work less the more they are taxed. This backward bend means that above a certain tax rate, “m” in the figure, an increase in the tax rate will cause overall tax revenues to fall. Note also, for a supply-side tax cut to increase tax revenues, the existing tax rate before the tax cut must be above “m,” perhaps at a rate associated with point “n” on the curve. The tax rate being above “m” is an important point because, in the early 1980s, the Reagan Administration’s economists believed that the economy was on the backward-bending portion of the Laffer curve (above “m”) and that a tax cut would increase total tax revenues. Based on this assumption, it moved forward with one of the largest tax cuts in American history.

The Reagan Administration also took actions to shift the supply curve outward such as cutting back sharply on the regulation of everything from monopoly and oligopoly to pollution and product safety, critical elements that shift the aggregate supply curve outward.

Policies which can successfully shift the economy’s supply curve out, do so with the twin advantages of both lower unemployment and lower inflation.

Illegal Immigration and Job Wage Stagnation In the US

Illegal immigration negatively impacts the hourly wage of US citizens. Illegal immigrants are pouring across the Mexico border, and we have no way of counting them but what we can do is track legal immigration from Mexico then double the number for a fuzzy-math estimate.

With legal immigration and an impenetrable border, economists working for the US government can control and set the upper limit on the number of immigrants competing with existing US citizens for jobs. With illegal immigration, the flow of people into this country that are competing with US citizens for jobs and resources can not be controlled.

With the flow of millions of illegal immigrants into our country, the labor supply of workers with less than a high school education significantly increases. That puts even more downward pressure on the wages of the poorest Americans. That, in turn, limits their ability to climb the economic ladder. Limiting the number of jobs available for American citizens is not a smart economic policy for the long-term economic development of our nation.

The following graph illustrates the effects of importing illegal workers on the American labor market.

The “Y” axis shows wages paid per hour for a job, and the “X” axis shows the quantity of labor available for that job. Equilibrium (thin black line) is where the supply and demand curves cross. In this hypothetical example, at $16 per hour, there are 33 applications for a particular job.

An increase in the supply-of-labor from illegal immigration shifts the supply curve down from S1 to S2 as available labor rises. A new market equilibrium is established (thin red line). The business listing the job can lower the hourly wage to $13 per hour as there are now 45 applications for the job.

Without illegal immigration, the business would have to offer $19 per hour (w1) to get 45 applications for the job because the higher the hourly wage offered, the more people would apply for the job. The loss (shaded area) from illegal immigration, therefore, is w1 – S2 = -$6 per hour lost.

Macroeconomics and the supply and demand graph above proves that the effect of illegal immigration is to shift the supply-of-labor curve downward, causing it to intersect the demand-for-labor curve at an equilibrium point with a much lower wage level and a higher quantity-of-labor level. This shift signifies the willingness of illegal immigrants to perform more labor for lower wages than American citizens. This effect on the labor market affects all laborers, both illegal and legal.

Lower and lower wages caused by more and more illegal immigrants means consumers have less purchasing power because they make less per hour. Businesses will have to lower prices to sell their goods and services which creates a negative feedback loop and deflation. Remember, deflation is a decrease in general price levels throughout an economy. Massive illegal immigration during the Obama Administration explains in part why the Federal Reserve is having trouble getting inflation going (CPI) even after spending trillions of dollars of tax payers money to boost the economy.

But I Heard That Americans Are Unwilling To Take The Jobs Mexicans Take

It is not true that Americans are “unwilling to take the jobs” in question. The issue is not whether Americans are or are not willing, but at what hourly wage level. In a free market, American citizens have the right not to take a low paying job. In a free market, having some jobs go unfilled because businesses are not willing to pay higher wages is a legitimate outcome.

Illegal immigrants should not be able to compete with American citizens for jobs because their presence in our country is a violation of the law. The number of people granted citizenship in the US has to be at a controlled rate else our economy will crash under the weight of a deflationary spiral. This dire outcome of a deflationary crash is not an opinion but instead fact based on macroeconomics.

We have to get our immigration and borders under control else America’s shining beacon of light will burn out.