07/07/10 Paris, France – In the sushi again…just like we said!
The US stock market managed a weak rally yesterday. The Dow rose 56 points. Gold fell, closing the day below $1,200.
This morning, stocks are generally going down again all over the world.
Why does everything seem to be going down? Because it’s a Great Correction, what else?
The correction is doing its work. The feds tried to stop it with trillions in loans, guarantees, and ‘stimulus’ spending. They failed. Over the last three weeks we have had confirmation after confirmation – the recovery ain’t happening. Unemployment is getting worse. Prices are falling – even the price of labor. The banks don’t lend and the people don’t spend.
Cities and states are running out of money. Households are going broke. And the stock market looks like it wants to roll over and die.
Is that a great correction, or what?
Dear readers who are hoping to get rich on gold are probably going to have to wait. We’ve entered a period of gentle de-leveraging – at least that’s what it looks like today. Until we get some real crises – or better yet, some real inflation – gold will probably drift downwards.
Not that we’re worried about it. Ben Bernanke has added more to the nation’s monetary base than all the Fed chairmen that came before him combined – including Alan Greenspan. But don’t have any illusions. It can take a long time for this monetary inflation to turn into the kind of inflation that sends the price of gold soaring. And a lot can happen along the way.
But for now, businesses are reducing their debt. Households are reducing their debt. Even government is cutting back.
Rich nations will reduce their primary budget deficits, excluding interest payments, by 1.6 percentage points next year, the most since the Organization for Economic Cooperation and Development began keeping records in 1970, according to JPMorgan Chase & Co. economists. The budget squeeze will lop 0.9 percentage point off growth in 2011.
Greece is on target to cut its deficit in half. Europe, generally, is making a big effort to trim deficits and keep debt from getting out of control. They’ve all been rapped on the knuckles. They all know what happens when you let debt get away from you.
But people come to think what they need to think when they need to think it. And right now, the US government doesn’t need to think that debt is such a bad thing. It can borrow at low rates – almost indefinitely. In fact, US treasury yields are falling…it’s getting cheaper and cheaper for the US to bankrupt itself.
Which is what makes us think we have entered a period of gentle, pernicious de-leveraging.
The rest of the world is saving. What happens to the savings? The savers can thank the USA for taking them off their hands. While the rest of the world saves, the US is still borrowing…helping the world get rid of its surplus savings. In effect, the US government is now playing Japan’s role in its long, tired saga of de-leveraging. We guessed that the US would follow Japan into a long, slow, soft slump. Okay…we were 10 years too early! But now, it seems to be happening.
In Japan, the government helpfully absorbed household savings for 20 years. This allowed the people to de-leverage while the government kept spending. Now, the US is absorbing much of the world’s savings…allowing the rest of the world to put its balance sheets in order, while the US government keeps ‘stimulating.’
In the end, both programs are absurd. The savings disappear in boondoggles and bailouts. And the stimulus doesn’t stimulate anything but more government spending. But it suits the egos of the economists who imagine they are saving the world.
An economy can go on like this – softly, gently destroying savings…quietly bankrupting the government – for many, many years. That could be what is coming now.
But wait. The US Senate refused to extend unemployment benefits. Even in the US, Republicans are talking about ‘austerity.’ Paul Krugman is hopping mad, referring to a coalition of the “heartless, the clueless and the confused” that is refusing to go along with his ‘spend, spend, spend’ agenda. All of a sudden, the Americans seem to be catching the ‘austerity’ bug, too. Uh oh…this could be a disaster for everyone. If everyone saves, who will use their savings? Who will spend? Who will keep the wheels of commerce turning? Who will keep the lights on in the malls and the grills hot in the restaurants?
What will happen if all the grasshoppers suddenly become ants…and all of them go on a rampage of financial prudence? Wouldn’t it cause a new economic Dark Age for the whole world?
Nah, don’t worry about it. In the first place, governments are not reducing their debts. They are just moderating the rate at which they add to them. In the second place, there’s plenty of demand coming on line from the emerging economies. And in the third place, the world has too much debt; getting rid of it would be no bad thing – even if it occasioned a difficult period of adjustment.
More importantly, the feds are zombies. The fewer resources they take the better off we are.
07/07/10 Tampa, Florida – At breakfast I told the kids that I was instituting some new austerity measures around here, and they became so insistent that I heard all about how this was going to “ruin” them and their stupid social lives that I did not have to tell them that I was going to use the money to buy silver, which would have sent them ballistic.
The impetus for my New Mogambo Crusade (NMC) to acquire more silver came as a result of reading in Ed Steer’s Gold & Silver Daily where he noticed in the Comptroller of the Currency’s “Q1/2010 Report on Bank Trading and Derivatives Activities” that “the bottom-line numbers show that two US banks… JPMorgan and HSBC, USA hold between 97% and 99% of all the gold and silver derivatives held by all US banks.” Yow!
This is a result of naked short selling. Normally, to short something, you would have to borrow it from somebody, and then sell that. Now, to short gold or silver is as simple as getting somebody to pay money for a piece of paper that says it represents gold or silver. Easy! There is nothing behind it!
Of course, there are the slimy apologists who insist that while it is true, the shorts can simply buy back the paper gold or silver with cash, so everybody is happy.
It was this ridiculous comment that was the start of the now-infamous Mogambo Food Supply Program (MFSP) where I sold pieces of paper that promised “One complete, 5-course, home-cooked steak dinner,” and I only charged them one dollar! I took the dollar and invested the money in no-risk Treasuries.
Of course, business boomed, and any time anyone wanted to “cash in” their paper dinners, I would pay them with another piece of paper promising a complete, 5-course, home cooked steak dinner. Or, when they got tired of that scam, I would offer to pay them back their original dollar, while I keep the interest their money generated.
Of course, this Fabulous Mogambo Plan (FMP) was soon shut down, and my defense was that this is essentially the same scam that is going on – right now! – in the gold and silver futures markets!
This is not, of course, about how I am a soulless, greedy vulture who wants to make a lot of money in a hurry without actually working and using the actual workings of the futures markets and the stock markets and the bond markets as my business model, but about how JPMorgan and HSBC hold almost all the derivatives of gold and silver and, even worse, how this may actually be understating it.
Mr. Steer goes on “I want to qualify those percentages a bit, by saying that if a bank has a holding company [like Goldman Sachs does], any gold or silver derivatives held by them do not have to be reported to the OCC…and will not show up in this report. Right now the OCC reports that GS holds no derivatives in either gold or silver… but their bank holding company might… and there’s no way of finding that out.”
In fact, he goes on, “The other bottom-line number of interest is that the six largest US banks report holding 99.5% of all the precious metals derivatives in the US banking system.”
Now you know why silver, in serious short supply and evermore vitally needed, is selling for less than $19 an ounce right now, when gold is over $1,200! Using the last 4,500 years as evidence of their average correspondence, a gold-to-silver ratio of 15:1 means that silver should be $81 dollars an ounce! Right now! 426% higher!
And with the roaring inflation that is guaranteed because of all the money that the Federal Reserve is creating so that the federal government can borrow it and spend it, both silver and gold will be much, much, MUCH higher from here!
And if you have to cut the allowances of your own kids to get the money to buy silver, then trust me that the aggravation of them glaring at you all the time, and telling you how much they hate you, is a small price to pay to get more silver at such a low price, perhaps the Biggest Freaking Bargain (BFB) of the century!
And the best part is that it is so easy that I squeal in delight, like a hot pig in fresh mud, “Whee! This investing stuff is easy!”
Arizona suit imperils Western Dems
The Obama administration's lawsuit over the stringent Arizona border law might have just made the incline a little steeper for many Western Democrats, providing instant fodder to Republicans who are already optimistic about regaining ground lost over the last two election cycles.
The dust from the Department of Justice lawsuit filed Tuesday is just starting to settle, but the reflexive sense among strategists on both sides is that it will be a net negative for Democrats this fall.
The suit could, of course, help boost turnout among Hispanic voters in key areas across the West. And stridently anti-immigrant rhetoric could turn off independent voters. Yet many foresee a midterm electorate featuring an energized Republican base — for whom the immigration issue has emerged as a priority — prompting moderate white Western voters who are concerned about jobs to decamp to the GOP at least in the short term, political observers said.
“This is a tough issue for Democrats,” said former Colorado Gov. Dick Lamm, a Democrat who is co-director of the Institute for Public Policy Studies at the University of Denver. “Politically, I just can’t think of any place in the West where this is going to play well.”
"If you look like you're siding with illegal immigration, you're in trouble," said one national Republican strategist, adding that when it comes to the discussion of secured borders, "people think that's what should happen."
While the suit could prove helpful to President Barack Obama by revving up his own base in 2012 — and, by extension, prove harmful to Republicans that year because they risk offending a key and growing segment of the electorate — the near-term impact is a different matter.
One GOP strategist compared it to the ads Republican Pete Wilson ran in 1994 in California as he was trailing in the polls for his gubernatorial reelection bid on Proposition 187, the state's tough-as-nails immigration ballot option that roiled Latino voters for a generation — but won him his seat for another term.
"Those ads hurt him moving forward, but that's what won him the election," the strategist added.
Wes Gullett, an Arizona political strategist and a former longtime aide to Sen. John McCain (R-Ariz.), said the lawsuit was “manna from heaven” for Republicans.
“Obviously, the White House is tone-deaf on Western politics,” said Gullett, who noted he personally opposes the law. “While a lot of people wish that our law wouldn’t go into effect, for the administration to sue on this is crazy. It is just a complete political loser.”
Republicans have failed in recent years to turn the anger towards illegal immigration into a winning election issue, Lamm said, but this year could be different.
Our Deeply Unethical National Organ Policy
In America it is a felony to provide a financial incentive for someone to donate a bodily organ. Each year, this misguided and wrongheaded public policy takes the lives of nearly 5,000 Americans with end-stage renal disease and, ironically, costs taxpayers billions of dollars.
The math is simple. In a country the size of the United States, a payment, either direct (cash, vouchers, or tax credits) or indirect (tuition, charitable donations, etc.) of, say, $20,000 to kidney donors would probably produce enough donated kidneys each year to eliminate or drastically reduce the backlog of approximately 83,000 people waiting for their turn to receive a donated kidney. This financial inducement would cost about $1.7 billion. The federal government currently pays 100 percent of the cost for treating most people with end-stage renal disease. With the average annual cost estimated at about $30,000 to maintain one person on dialysis, the taxpayers are paying about $8 billion a year to dialyze fellow citizens in kidney failure. Furthermore, people usually wait about five years to receive a donated kidney unless they are fortunate enough to have a living donor offer one of their two healthy kidneys. Thus, the actual total cost to the taxpayers of maintaining fellow citizens on dialysis for five years is approximately $40 billion.
Each year, nearly 5,000 men, women, and children die in this country while waiting for a kidney to become available.
So in our zeal to protect the poor from exploitation by the moneyed classes, the organ donor, alone among all the participants in the world of transplantation, receives no benefit save the pleasure of performing a noble deed.
At first blush, the policy seems to make perfect sense. After all, few people would condone letting the wealthy use money to induce others, who may be in financial extremis, to provide vital organs for transplantation. Such a practice, the argument goes, would turn the altruistic concept of organ donation into little more than a mercantile opportunity for buying and selling body parts. This is an emotionally compelling argument. It is also seriously flawed, and has produced extremely questionable public policy.
In the case of kidney transplantation, the donor is subject to relatively little post-surgical risk. Statistically, a kidney donor fares no worse throughout his or her life than a person with both kidneys. Life insurance companies impose no rating on premiums for kidney donors because, actuarially, they represent no greater risk to the insurer.
At an average annual cost estimated at about $30,000 to maintain one person on dialysis, the taxpayers are paying about $8 billion a year to dialyze fellow citizens in kidney failure.
Everyone involved in the organ transplantation process benefits handsomely, except the donor. Organ transplantation provides a wonderful example of life-saving science and technology deployed in serving mankind. It is also a thriving industry. The entire transplant team, including the surgeons, nurses, technicians, pharmacists, nephrologists, and other specialists are well-paid for their respective roles in providing organ transplant service. The medical centers at which transplants are performed are also handsomely compensated. The procedure feeds revenue into virtually every facet of the hospital. It occupies rooms, keeps labs busy, requires numerous expensive tests, and staff at all levels benefit. The pharmaceutical industry certainly benefits, as transplant patients remain on various expensive drugs to protect their new organ for the rest of their lives. Then, of course, there is the recipient who is, perhaps, compensated best of all. He or she gets his or her life back. Only the donor, who gives the most and without whom the entire process would grind to an abrupt halt, is required to forego any material recompense for his or her service.
A more serious consequence of this flawed policy is that it costs thousands of lives annually, and consigns thousands of other people to years of expensive dialysis, the bill for which goes to taxpayers.
Each year, nearly 5,000 men, women, and children die in this country while waiting for a kidney to become available. We suggest that most of these individuals would, more than likely, have received a life-saving transplant but for the seriously flawed policy of denying compensation to those who might otherwise donate a kidney to a friend, a loved one, or even a stranger. A sensible, well-regulated program of organ donor compensation could convert most of these patients to transplant recipients. Their lives would improve drastically, the national cost of maintaining them on dialysis would be slashed, and donors would, in many cases, receive life-changing compensation for their generosity. Every time someone dies waiting for an organ in this country, the ethical case against providing compensation for organ donors is turned upside down. Unquestionably, the prohibition against compensating organ donors costs lives.
Yes, some donors might be poor, but what is wrong with a poor person receiving compensation for performing a noble deed?
Too many assume that this would motivate only the poor to donate an organ such as a kidney. Unquestionably, not only the poor, but many people who have considered such a donation would find reasonable compensation a legitimate factor in their decision-making process. Yes, some might be poor, but what is wrong with a poor person receiving compensation for performing a noble deed?
In the case of the authors, a daughter’s love for her father was all the motivation needed to produce a successful and happy outcome for both the recipient and donor. We were, however, both haunted by the reality that a system relying on pure, uncompensated altruism in thousands of other cases results in the unnecessary deaths of men, women, and children in end-stage renal failure.
All first-year medical students have drummed into their heads an old adage, “Above all, do no harm.” Perhaps members of Congress and public health officials should consider the same when considering organ transplant policy.
Harold Gershowitz is a businessman and recipient of a transplanted kidney. Amy Gershowitz Lask is an uncompensated kidney donor.
The federal government is surrendering our southern border
It's President Obama's policy not to secure America's southern border. Yesterday, his administration filed suit against Arizona for its new law to try to enforce immigration statutes already on the books. This comes after the administration brought legal action against the Grand Canyon State for a 2007 law that strips business licenses away from companies that violate immigration laws. It's clear the White House is working to make states defenseless against an illegal invasion.
During a Thursday speech at American University, Mr. Obama again claimed innocent American citizens will be subject to police stops "because of what they look like" and that the new Arizona law "makes it difficult for people here illegally to report crimes." Such fear-mongering consciously ignores numerous safeguards in the legislation. This comes as little surprise given the president's recent decision to hire former Houston Police Chief Harold Hurtt to head the U.S. Immigration and Customs Enforcement's Office of State and Local Coordination. Mr. Hurtt has been a strident supporter of so-called "sanctuary city" policies, which prevent police from checking immigration status even when crimes are involved.
All this is being done to set the stage for new far-left policies. According to Sen. Jon Kyl, Arizona Republican, Mr. Obama told him, "The problem is ... if we secure the border, then you all won't have any reason to support comprehensive immigration reform." Mr. Kyl understood this to be an admission that the president is holding border security hostage to an ideological agenda, which may include general amnesty or even a path to citizenship through executive order.
Federal law increasingly is catering to illegals already. The Obama administration promised to ensure illegal aliens get the same labor protections enjoyed by U.S. citizens. This means someone who broke the law to get here can complain to the Labor Department about minimum-wage or overtime violations without risk of deportation. The Labor Department even makes public-service announcements in Spanish. "You work hard," says one taxpayer-funded Spanish-language ad. "Every worker in America has the right to be paid fairly, whether documented or not. So call us." Obviously, making sure illegals get higher wages will encourage more - not fewer - illegal border crossings.
Rep. Gabrielle Giffords, Arizona Democrat, told Fox News on June 26, "We have the Department of Homeland Security and the Department of Education that had planned for meetings, had then canceled those meetings with the reason given that it was because of the immigration law." So, the federal bureaucracy is waging war against Arizona for trying to defend itself. This is change only illegals can believe in.
Venezuelan socialism courts an invisible backhand
Robbery of American corporation reveals tottering economy
By Otto Reich and Jon Perdue
Absent a coherent U.S. foreign policy in Latin America, the best ally of democrats in the region has always been the inevitable economic backlash that socialist economic policies
create. Other than the military coups and popular rebellions that have removed despots in the region, capital flight and economic chaos have most often augured the demise of the strongman caudillo.
Although it is customary among left-leaning activists to blame the CIA for Salvador Allende's removal from Chile's presidency in 1973, it was the economic bedlam brought about by Allende's nationalizations and economic mismanagement that set the stage for his ouster. This pattern has been repeated with predictable regularity in Latin America, as successive coup leaders have sown their own demise by economic suicide. But this lesson has not been internalized by Hugo Chavez and his fellow evangelists of 21st century socialism, who have staked their longevity in office on the ephemeral vote-buying capacity of redistributionist economics.
The latest illustration of Mr. Chavez's statecraft is the seizure of 11 oil rigs owned by U.S. driller Helmerich & Payne Inc. The U.S. company had shut down the rigs because PDVSA, the state-owned Venezuelan oil conglomerate, had failed to pay $43 million owed to it. This development should not be surprising. PDVSA saw a reduction in revenue from $120 billion in 2008 to $50 billion in 2009 and began to insist that its contractors accept a 40 percent cut in their bills. Rafael Ramirez, PDVSA's president, stated, "We will not pay contractors that have tried to speculate and don't care about our company."
The Financial Times reported in May of last year that Mr. Chavez had already confiscated at least 12 oil rigs, more than 30 oil terminals and about 300 boats from companies that had refused to give up 40 percent of their accounts receivable to the Chavez cause. After the seizure, Mr. Chavez told a crowd of supporters, "To God what is God's, and to Caesar what is Caesar's. Today we also say, to the people what is the people's."
It was this same populist, faux-religious rhetoric that Mr. Chavez used to put the state-owned oil company in charge of his misiones, the social programs for the poor that have diverted Venezuela's "golden goose" oil company from its mission and reduced oil production by 40 percent in the 10 years of Mr. Chavez's rule.
U.S. policy on Venezuela throughout the George W. Bush administration was to downplay Hugo Chavez's histrionics - a policy designed specifically to deny a budding despot the international attention he desired as an acknowledged enemy of "the Empire." But every policy has a trade-off. If the despot is not voted out before he can control the electoral process, the efficacy of this "benign neglect" fades as he consolidates power. Soon the neglect becomes an incentive for him continually to test the "threshold of concern" - the point at which diplomatic retaliation or sanctions are triggered.
Since 2005, Mr. Chavez has been hellbent on crossing that threshold by forming an alliance with Iran and, more important, undermining the sanctions designed to prevent or slow Iran's nuclearization. Both Mr. Chavez and Iranian President Mahmoud Ahmadinejad have used election fraud to perpetuate themselves in power, and both have waged economic warfare against the United States via oil-market manipulation.
But where Mr. Ahmadinejad can count on regional deterrents against retaliation, Venezuela is quite vulnerable to economic pressure. Moreover, if the U.S. decides to pressure Mr. Chavez now, it can indirectly affect the more immediate threat of Iran's nuclear program.
Mr. Ahmadinejad remains overly confident that he can withstand U.S. sanctions as long as Mr. Chavez keeps his promise to deliver 20,000 barrels of oil a day to Iran. If the U.S. quietly announced a policy of replacing the oil it purchases from "unstable" suppliers, the message would be felt unequivocally in Venezuela, which stands to lose much more than the U.S. in any standoff. The fact that oil is a fungible commodity that mostly is purchased by traders on the spot market makes the repercussions of any market manipulation much more deleterious to the producer. So the worst-case scenario for the U.S. could be a brief spike in gas prices. To mitigate this, the U.S. could announce that it will draw on supplies, if needed, from the Strategic Petroleum Reserve.
The State Department could follow this up by quietly revoking the visas of Mr. Chavez's illicit business partners - and it well knows who they are. The State Department revoked the visas of many pro-American Honduran democrats who were working to hold off the Bolivarian revolution from its territory. If the administration wishes to be taken seriously on its policy in the hemisphere, it should be amenable to pulling the visas of a few of our sworn enemies.
Finally, one intrepid Democrat is needed in the U.S. Senate to sign on with the 12 Republicans as a co-signer of a letter asking Secretary of State Hillary Rodham Clinton to designate Venezuela as a state sponsor of terrorism. Even the threat of the SSOT designation could turn the diplomatic and economic vice on Mr. Chavez. Its effect would reach far afield of Caracas - it would be felt just as smartly in Tehran.
Otto Reich served as assistant secretary of state, U.S. ambassador to Venezuela and special envoy for Western Hemisphere affairs over three administrations. Jon Perdue is author of "The War of All the People" (Potomac Books), a forthcoming book about the security threat posed by Iran and Venezuela.
Obama, Netanyahu make nice in public, deny rumors of rift
U.S.-Israel bond 'unbreakable,' president says
By Kara Rowland
President Obama and Israeli Prime Minister Benjamin Netanyahu came together in a very public setting Tuesday to play down reports of a rift, using a visit to the White House by the Israeli leader to reaffirm the special bond between the countries even amid recent dust-ups.
Mr. Netanyahu promised "concrete steps" on direct peace talks with Palestinians in the coming weeks, but for the most part the leaders offered no new details or deadlines on thorny issues such as Israel's policy on expanding settlements or the resumption of direct peace talks with the Palestinians.
But both sides had a lot riding on the meeting, according to analysts, one of whom described it as a public "time-out" after a slew of high-profile disagreements and perceived slights.
"The bond between the United States and Israel is unbreakable. It encompasses our national security interests, our strategic interests, but most importantly the bond of two democracies who share a common set of values and whose people have grown closer and closer as time goes on,” Mr. Obama, seated beside Mr. Netanyahu, told a group of reporters in the Oval Office.
The scene was in sharp contrast to Mr. Netanyahu's March visit, which was conducted entirely behind closed doors, with neither a working lunch nor any joint time with the press, a traditional staple when a head of state visits.
The atmosphere of that visit prompted many observers in Israel and the U.S. to conclude that Mr. Obama was punishing Mr. Netanyahu for allowing an expansion of Jewish settlements in East Jerusalem. The Netanyahu government announced the expansion during a trip to Israel by Vice President Joseph R. Biden Jr.
Tuesday's meeting also marked the first time the two men have met face to face since a deadly Israeli raid on a flotilla bound for the Gaza Strip a month ago. That raid, which drew international condemnation but which Israel said was necessary to enforce its blockade of Gaza, forced Mr. Netanyahu to put off a planned June 1 White House visit.
The two leaders were the picture of friendship on Tuesday, hitting back against reports of chilly relations. Mr. Obama at one point said a reporter was “wrong” in saying that he distanced himself from Israel in the past year, and Mr. Netanyahu similarly rejected such reports as “just flat wrong.”
Aaron David Miller, a former Middle East adviser at the State Department, said it was clear from the meeting that both leaders had a “major stake” in avoiding another hiccup and played it safe by not pushing too far.
"This was a time-out, basically. I think these guys got out of bed and said to each other one morning, 'What am I fighting with this guy for?'" said Mr. Miller, now a scholar at the Woodrow Wilson International Center. "The question is, where is the time-out leading, and we don't know the answer to that yet."
Indeed, neither leader provided new details on the prospect for direct talks between the Israeli government and the Palestinian Authority, moving beyond so-called "indirect" talks conducted through U.S. diplomats. But Mr. Netanyahu said he plans to take "concrete steps" in the coming weeks to "move the peace process further along in a very robust way."
Mr. Obama said he thinks Mr. Netanyahu is "willing to take risks for peace" and said the effort will require a series of confidence-building measures to set the stage for cooperation. But, he stressed, the U.S. will "never ask Israel to take any steps that would undermine their security interests."
Asked about a partial Israeli moratorium on the construction of new settlements in the West Bank, set to expire in September, Mr. Obama praised the Israeli government for showing "restraint" over recent months and suggested that direct talks will result in more trust between the Israelis and the Palestinians.
He also praised Israel for easing its blockade to allow more consumer goods into the Gaza Strip, calling the move "real progress." Israel instituted the blockade to prevent military supplies and other aid from getting to the militant Hamas movement, which controls the Palestinian enclave.
On Iran's nuclear programs, the two leaders said they will continue to pressure Tehran to honor international obligations and touted the latest round of U.N. sanctions aimed at preventing Iran from acquiring nuclear weapons. Mr. Obama last week signed into law tougher unilateral sanctions against Iran passed by Congress.
Some administration critics say Mr. Obama could do more to support Israel.
In a commentary that appeared Tuesday in Politico, Reps. Eric Cantor, Virginia Republican, and Peter Roskam, Illinois Republican, called on the White House to pull the United States out of the U.N. Human Rights Council to protest an investigation of Israel over the flotilla raid, in which nine Turkish activists were killed.
California puts the squeeze on bureaucrats
State employees to be paid minimum wage
Thousands of California bureaucrats face the prospect of having their lavish paychecks slashed by Gov. Arnold Schwarzenegger. Full payment will be withheld until lawmakers come to an agreement with the larger-than-life executive on how they're going to pay the state's overdue bills. With Mr. Schwarzenegger's fellow Republicans holding just 42 of the legislature's 120 seats, the Democratic majority has had little motivation to budge from their position. Until now.
Under orders from Mr. Schwarzenegger, most state employees will be paid no more than the federal minimum of $7.25 an hour because the state blew the constitutionally mandated June 15 budget deadline. The maneuver is perfectly appropriate, considering that powerful public-sector union bosses are largely responsible for the state's fiscal disaster. Lawmakers afraid to stand up to the unions have consistently approved ever-greater spending on benefit packages.
"The other side believes in higher taxes and bigger government and protecting the public-sector employees at the expense of the private sector," Mr. Schwarzenegger explained in a June 25 video statement. He pointed out that the state will spend $32 billion on salaries and benefits this year, an increase of 65 percent over the past 10 years. In that time, revenues went up just 24 percent.
The resulting bureaucrat paycheck averaged $57,536 last year, according to data from the Sacramento Bee. That represents a healthy 37 percent more than what the rest of the public earned on a per-capita basis. Individual examples provide even more insight into how absurd the system has become. At least 37 dentists employed by the state's Department of Corrections were paid more than $290,000 last year. Of these, Timothy B. Malan took home a whopping $621,970 to pull teeth from jailbirds at Avenal State Prison. The gravy train even has openings, as the state personnel board is currently advertising for prison dentists listing salary ranges that top out at $261,792.
The recession has not been kind to ordinary workers, who saw their personal incomes shrink 3.5 percent between 2008 and 2009, according to the latest data from the Bureau of Economic Analysis. State employees, on the other hand, engorged themselves over the same period. The state's payroll chief, Donald W. Scheppmann, saw his annual income rise from $121,109 to $250,978. It's not hard to see why his boss, state Controller John Chiang, would move to block the pay-cut order.
The California Court of Appeal on Friday crushed Mr. Chiang's arguments, blasting him for ignoring directives to prepare the payroll computers for the long-expected pay cut. "Here, legislative gridlock makes it reasonable to expect that budget impasses will continue in the future, and the Controller has made it clear he intends to disregard any similar pay letter in the event of a future budget impasse," the three-judge appellate panel wrote. Mr. Chiang and the Service Employees International Union lost the case on every point. On Tuesday, the governor filed suit to force Mr. Chiang to follow the law.
The Golden State's excessive spending problem mirrors the national problem. According to Department of Labor statistics released last month, the average salary for state and local employees was 22 percent higher than that of private-sector workers. The private-sector workers are hit hard with taxes to pay those overly generous public benefits. In California and nationwide, economic recovery will not take place without hearing the lamentation of the unions. Cutting pay to bring them to the table is a great start.
Immigration America's competitive advantage
If we can fix our immigration system and design it for economic prosperity, our country will have a competitive advantage that can last a century. However, after listening to the president's July 1 speech, I am deeply concerned that this administration will squander the opportunity for a great American victory by using immigration for partisan purposes. The president's approach to immigration reform sounded disappointingly tactical and opportunistic: Put more "boots on the ground" at the border; persuade fellow Hispanics to vote for Democrats by continuing to promise reform; and blame the lack of any progress on Republicans. Ironically, President Obama emphasized the need to be "above politics" and not allow "special interests to hijack the process."
Having been intimately involved in the 2005 immigration-reform effort with Michael Chertoff, then secretary of Homeland Security, and a bipartisan group of senators, I can state that failure to pass the bill was the fault of both Republicans and Democrats. Immigration reform is a complex and intricate issue that demands compromise from both parties.
The president promised Hispanic Americans during his presidential campaign that he would "reform immigration" during his first year in office. However, it was evident by the content of his speech - his first major address on the subject - that this will not get done anytime soon. It appears that Hispanic Americans have begun to realize they are being played. Some poll findings, such as the one issued by Public Policy Polling on Friday, suggest a 15-point drop in support among Hispanics since January 2010 because of Mr. Obama's handling of the immigration issue.
The president spoke about the need to legalize most of the 11 million undocumented workers in the country. Like former President George W. Bush, I support this move in the interests of national security and for economic and humanitarian reasons as part of a comprehensive reform of our immigration systems. However, this administration needs to understand that dealing with the 11 million undocumented workers does not constitute comprehensive immigration reform. The problem of illegal immigration is the result of a broken legal-immigration system. Unless we address the core issues, we will continue to foster the conditions for future illegal immigration.
The question of how to design an effective legal-immigration system for the 21st century is less politically attractive for Democrats. For instance, the president said little about reforming our temporary-worker programs or other programs for future immigration. This is a clear nod to labor unions, which see temporary-worker programs as providing low-wage competition. So much for not allowing special-interest groups to hijack the process.
Reforming our legal-immigration system means dealing with two key issues: designing a temporary and seasonal immigration system that meets the immediate needs of our economy, and creating a permanent immigration system that strengthens our communities and our country's long-term competitiveness.
Temporary workers initially enter the United States for one to three years in order to fill specific jobs for which no U.S. workers are available. However, the current system is inflexible, complicated and so bureaucratic that it almost encourages employers to bend the rules.
One of the most common complaints among businesses relates to the H-1B visa. This is a three-year permit (one renewal) for highly educated and/or highly skilled workers and is used extensively by the high-tech industry. The annual quota is 65,000. During better economic times, that quota filled in days. In 2009, in the midst of the recession, the quota filled in about seven months, suggesting that the number of visas is still insufficient to meet employer needs. Democrats claim this is another example of "big business" importing "cheap labor"; in the meantime, more research-and-development centers are moving overseas, threatening U.S. dominance in critical fields such as information technology and medical research.
Seasonal work is a unique sector of the U.S. economy because the jobs are short-term and often strenuous. According to the Department of Agriculture's Agricultural Research Service, about 1 million to 2.5 million farm laborers are hired each year. In 2006, more than half were unauthorized. The reason is clear to any agricultural employer who has tried to abide by the law: the lengthy bureaucratic process is unrealistic and damaging to the needs of an effective agricultural industry. As long as this continues, growers will be faced with difficult choices: shut down the business, hire unauthorized laborers or move to another country. The Obama administration and a Democrat-controlled Congress have done nothing to alleviate this problem, which will continue until our system is fixed.
Between 350,000 and 500,000 new permanent immigrants enter the country annually. An estimated 10 percent come for employment reasons; the rest are driven primarily by family ties. While I am proud that family ties are the bedrock of our immigration system, we need more skills-based immigration. A logical solution would be to increase the number of visas that are employer-sponsored, empowering the private sector to choose the people who have the skills it needs. However, once again, the cries against big business importing cheap labor stand in the way of sensible immigration reform. Sweden, for example, implemented an employer-based system in 2008 that has proved highly successful.
Economic growth is a function of productivity and the labor force's size. Without an expanding work force with the skills we need at the right time, all growth must come from productivity - an extremely improbable feat. This is a problem that nations ignore at their own peril.
In spite of the worst economic crisis in a generation, statistics from the Department of Labor estimate that the U.S. economy will require 1.3 million additional workers each year over the next 10 years (assuming annual growth in gross domestic product of just 2.4 percent). The bulk of the population growth within the U.S. will come from the U.S.-born children of immigrants.
Every major country in the world will face demographic challenges in the future. Their populations are aging, and the countries are not producing enough workers to drive economic growth, let alone pay for the entitlements of retirees. The population of Russia is already declining. Forty percent of all Japanese will be over the age of 65 by 2040. China will face similar problems in a number of decades. (As others have said, they will get old before they get rich.) Spain, once known for its large families, has seen its fertility rate decline from 2.7 children per woman in 1977 to 1.4 children per woman in 2007; it has not equaled or exceeded the universal replacement rate of 2.1 children per woman since 1980. All of its growth has come from immigration.
Many of these countries already have resorted or will resort to immigration to ensure that their economies can grow in the future. Few of them have any meaningful experience integrating immigrants into their societies. The European Union is struggling to assimilate an immigrant population largely from the Middle East, and countries like Japan have virtually no experience with immigration. The U.S. - while often a reluctant but highly successful home for immigrants - has the most experience.
Fixing our immigration system will require leadership and vision. Again, if we get this right, it will give us a competitive advantage that will last a century.
Carlos M. Gutierrez is a former U.S. secretary of commerce and a scholar at the University of Miami's Institute for Cuban and Cuban-American Studies.
Netanyahu Reviews Security Goals With Gates, Visits UN Chief
By Jonathan Ferziger
July 7 (Bloomberg) -- Israeli Prime Minister Benjamin Netanyahu followed up his fence-mending White House visit by meeting with Defense Secretary Robert Gates to discuss security arrangements that would underlie a Middle East peace treaty.
Netanyahu met Gates today at Blair House, the official presidential guesthouse, and said in a television interview that he wants to be sure Israel won’t face missile attacks if it signs a peace agreement with the Palestinians. He later flew to New York to meet United Nations Secretary-General Ban Ki-moon.
“We’ll have to have very strong security arrangements so that the areas that we vacate do not turn into Iranian strongholds for firing rockets and sending terrorists against us,” Netanyahu said in an interview on ABC’s “Good Morning America.” “That’s happened before in Lebanon and in Gaza.”
Netanyahu told President Barack Obama yesterday he will take “concrete steps” to ease conditions in the West Bank and Gaza Strip, while challenging Palestinian Authority President Mahmoud Abbas to engage in direct peace talks.
The Israeli leader conferred with Gates on ways to improve security “in the face of regional threats toward the goal of a comprehensive Middle East peace,” the Defense Department said in an e-mailed statement. Gates committed in the 75-minute meeting to help Israel “develop new defenses against emerging threats,” the Pentagon said, without elaborating.
The U.S. is already helping Israel improve its defenses against ballistic missile and rocket attacks, the Pentagon said. Obama has requested $205 million from Congress for a defense system known as Iron Dome that is intended to protect Israel from rockets and mortars fired from the Gaza Strip and Lebanon.
Shift in Talks
After yesterday’s White House encounter with Netanyahu, Obama said he hoped face-to-face negotiations will soon replace indirect talks being mediated by his Middle East envoy, former Senator George Mitchell.
Obama and Netanyahu, speaking to reporters at the White House yesterday, both said they wanted to dispel concerns that the U.S. commitment to Israel has been weakened by disputes over construction in West Bank settlements and east Jerusalem.
“Reports about the demise of the special United States- Israel relationship aren’t just premature, they’re flat wrong,” Netanyahu said.
Israeli Foreign Minister Avigdor Lieberman, speaking today during a visit to Vilnius, Lithuania, said direct talks can begin “in about September.”
Palestinians Seek ‘Signal’
Abbas said during a visit to Addis Ababa, Ethiopia, today that Palestinians are waiting for “a signal from the Israeli government,” which must agree to stop building settlements and show willingness to negotiate on a two-state solution, Zuhair Alshun, the Palestinian ambassador in Ethiopia, said in a telephone interview.
U.S. officials say that relations with the Israeli government have grown closer since March, when Israel’s announcement of an east Jerusalem housing plan during a visit by Vice President Joe Biden drew criticism from Secretary of State Hillary Clinton.
“I think we can say with some degree of encouragement that the relationship between the United States and Israel is back on track,” Democratic Senator Joseph Lieberman said at a press conference today while visiting Jerusalem.
Netanyahu told ABC that Israel is prepared to “take risks” for peace as long as it doesn’t have to face a threat such as the 2007 seizure of the Gaza Strip by Hamas.
The Islamic movement rejects Israel’s right to exist and fired about 3,200 rockets and mortars into Israel in 2008, according to the Israeli army. Israel cited the attacks as the reason for its military offensive in Gaza in December 2008, which left more than 1,000 Palestinians and 13 Israelis dead.
Hamas, classified as a terrorist group by the U.S. and Israel, continued to fire rockets after the operation. The number of projectiles fired from Gaza totaled 708 last year and about 160 so far this year, the army said June 8.
Hoenig, Fisher Say Stimulus Isn’t Needed for Recovery (Update1)
By Steve Matthews and Joshua Zumbrun
July 7 (Bloomberg) -- The presidents of the Federal Reserve Banks of Kansas City and Dallas indicated the U.S. is unlikely to slide back into a recession and additional stimulus isn’t needed even as the pace of growth slows.
The Kansas City Fed’s Thomas Hoenig repeated his view that the central bank should raise its benchmark interest rate to 1 percent to stave off the risks of asset-price bubbles and inflation. The Dallas Fed’s Richard Fisher said there’s no need for additional asset purchases by the central bank.
“I am not saying raise rates to very high levels, I am saying get it off zero,” Hoenig said today in an interview in Kansas City on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays. “I think we’ve done enough” to boost the economy, Fisher said in an interview with CNBC.
Their comments followed a report last week showing private payrolls increased less than forecast in June, capping a month of data signaling the world’s largest economy is slowing. Analysts including Avery Shenfeld, chief economist with CIBC World Markets in Toronto, and former Richmond Fed President J. Alfred Broaddus have said weakness in the economy increases the chances the Fed would resume expanding its balance sheet.
“We will continue to have modest, consistent growth” unless confidence falters or there is another shock to the economy, Hoenig said, lowering his forecast to “about” 3 percent this year from “above” 3 percent. “The economy will continue to move forward, just not as quickly as you would like.”
Hoenig, 63, has been the sole policy maker to dissent this year from decisions of the Federal Open Market Committee, objecting four times to its pledge to keep interest rates at a record low for an “extended period.”
He also said the central bank should dispose of assets accumulated while fighting the crisis “as reasonably as we can, as quickly as we can.” While he has proposed raising the target for overnight loans among banks to 1 percent by September, Hoenig said in the interview that the timing “can be debated.”
Fisher indicated there’s little more the Fed can do after cutting interest rates to a record low in December 2008 and pumping more than $1 trillion into the financial system through asset purchases.
“We ought to be very careful about not going too far,” he said. “Interest rates are zero. It’s not the cost of money that’s the issue.”
Fisher, who doesn’t vote on interest rates this year, said companies are holding back on investment because of uncertainty over government regulations in areas such as health care.
He said he expects the world’s largest economy to slow in the second half of the year as the contribution from business inventories wanes, although “I don’t think we’re going to go backwards” into another recession.
Asked about the prospect of additional asset purchases, Fisher said: “I’m not ruling it out, I’m just saying we have provided a lot of accommodation, there’s a lot of buildup of liquidity, there’s a lot of cash.”
Fisher, along with James Bullard of St. Louis and Philadelphia Fed’s Charles Plosser, has also expressed reservations about the “extended period” language. Richmond Fed President Jeffrey Lacker said he was “just sort of marginally comfortable” with the phrase.
Employment at companies rose 83,000 last month, compared with the 110,000 gain forecast by economists in a Bloomberg News survey. Including government, payrolls fell for the first time this year because of a drop in federal census workers.
“Recent developments make me even more convinced that current policy is appropriate,” Atlanta Fed President Dennis Lockhart said June 30.
Paul Krugman, a Princeton University economist and Nobel laureate, has called for an expansion of the Fed’s balance sheet and increased government spending to spur the economy.
“We are looking at what could be a very long siege here,” Krugman said in an interview yesterday in Princeton, New Jersey. “We really are at a stage where we should have a kitchen-sink strategy. We should be throwing everything we can get at this.”
The Federal Open Market Committee last month signaled Europe’s debt crisis may harm American growth. The crisis has battered stocks, propelling a 12 percent decline in the Standard & Poor’s 500 Index from April through June, the biggest since the last three months of 2008.
Stocks rallied today, sending benchmark indexes up the most since May, as the International Council of Shopping Centers said sales were growing at the fastest pace since 2006, easing concern that a slump in consumer confidence will undermine the economic recovery. The Standard & Poor’s 500 Index climbed 3.1 percent to 1,060.27.
The Fed has left the overnight interbank lending rate target at a record low of zero to 0.25 percent since December 2008. The central bank started using the “extended period” language in March 2009.
The Fed in March of this year ended its emergency purchases of $1.425 trillion of housing debt intended to hold down borrowing costs and prop up the real estate market at the center of the financial crisis.
The economy grew at a 2.7 percent annual rate in the first quarter, less than the 3 percent estimate a month earlier, according to Commerce Department data released June 25.
U.S., European Stocks Rally as Treasuries, Dollar Erase Gains
By Rita Nazareth and Kelly Bit
July 7 (Bloomberg) -- Stocks surged, sending U.S. benchmark indexes up the most since May, while the dollar and Treasuries slid as growth in American retail sales bolstered optimism in the earnings season and investors speculated European banks will pass stress tests.
The Standard & Poor’s 500 Index extended a two-day rebound from a 10-month low, rallying 3.1 percent to 1,060.27 at 4 p.m. in New York for its best gain since May 27. The Stoxx Europe 600 Index climbed 1.4 percent as Spanish and Italian lenders surged. The Dollar Index lost 0.2 percent to a two-month low of 83.888 and 10-year Treasury yields rose six basis points to 2.99 percent. Oil climbed from a four-week low and copper jumped.
Retailers advanced as the International Council of Shopping Centers said sales were growing at the fastest pace since 2006, easing concern that a slump in consumer confidence will undermine the economic recovery. Banks led the rally as State Street Corp. reported a profit and people with knowledge of the talks said European stress tests may assume a 17 percent loss on Greek bonds, half of the worst-case scenario estimated by JPMorgan Chase & Co.
“The market is very oversold,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $550 billion. “The improvement in retail sales numbers was enough to get some people back in. Over the next few weeks, we’ll probably get both economic and earnings data that will show that we’re not going to go back into recession.”
Rebound After Slump
The S&P 500 has tumbled 13 percent from its 2010 high in April amid a deceleration in the manufacturing and service industry expansion, a slow-to-recover job market and concern over Europe’s debt crisis and China’s steps to cool its economy. The gauge’s 14-day relative strength index, a measure of market momentum, fell to 30 on July 2, the day the S&P 500 closed at its lowest since September. An RSI of 30 often signals that stocks fell too far, too fast to analysts who study charts.
The Dow Jones Industrial Average rose yesterday for the first time in eight days, snapping its longest losing streak since the financial crisis of 2008. Cisco Systems Inc., JPMorgan, American Express Co. and General Electric Co. surged more than 4.6 percent today to lead the 30-stock gauge to its first back-to-back advance in almost three weeks. The Dow surged 274.66 points, or 2.8 percent, to 10,018.28 for its first close above 10,000 this month.
Profit for S&P 500 companies is projected to increase 34 percent in 2010, compared with the 27 percent estimated on March 29, according to more than 8,000 estimates compiled by Bloomberg. The Dow’s second-quarter earnings season starts next week when Alcoa Inc. reports on July 12.
‘Salivating a Bit’
A 5 percent slide last week pushed the S&P 500 to 12.5 times estimated earnings, the cheapest since March 2009 when the measure began an 80 percent rally.
“Folks are perhaps salivating a bit about some of the prospects of earnings,” said Barry James, who manages $2 billion as chief executive officer at James Investment Research Inc. in Xenia, Ohio. “That combined with the fact that the market was down so much last week is offering an opportunity for the market to rebound this week.”
All but one of 31 stock in an S&P 500 gauge of retailers advanced. Sales probably expanded at an average monthly rate of 4 percent in the first five months of the fiscal year that began Jan. 31, the biggest gain since 2006, the International Council of Shopping Centers trade group said before its June report tomorrow. Nordstrom Inc. and Kohl’s Corp. are among chains that will report June sales increases at stores open at least a year, according to analysts’ estimates.
The MSCI World Index of 24 developed nations rallied 3.7 percent over the past two days, the most since May.
Longer-term Treasuries fell as investors sold government securities before the U.S. announces the size of its note and bond sales scheduled for next week. Thirty-year bond yields rose eight basis points to 3.97 percent. Two-year yields were little changed near 0.63 percent after touching a record low of 0.5856 percent on June 30.
Treasury Secretary Timothy F. Geithner said the U.S. economy is growing and healing from the damage caused by the 2008 financial crisis.
“We still have a long way to go,” Geithner told Treasury Department employees at an appearance today in Washington with first lady Michelle Obama. “We still have a lot of challenges to meet. But we are coming back. We are healing the damage caused by the crisis. We are growing again.”
The Stoxx 600 extended its two-day gain to 4 percent, its biggest since the end of May, as Spain’s Banco Santander SA, France’s BNP Paribas and London-based Barclays Plc led a 3.9 percent rally in the index’s bank shares. Benchmark indexes for Spain and Italy jumped more than 3.3 percent.
The two people briefed on the European stress-test talks also said banks may assume a loss of 3 percent on Spanish bonds. There are unlikely to be so-called haircuts on German government securities under the evaluations being overseen by the Committee of European Banking Supervisors, said the people, who declined to be identified because the talks are private.
JPMorgan had estimated losses of 10 percent to 20 percent on Spanish bonds, and haircuts of 0 percent to 10 percent on German bunds, according to a note to clients today.
“The markets were ready for a rebound, all they needed was a trigger,” said London-based Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd., whose parent company oversees $33 billion. “In this case, they are getting a trigger from the bank stress tests,” he said. “It may not be as strict but the fact of the matter is that it is being applied. It could help the inter-lending market and therefore the equity market too if it has any credibility attached to it.”
Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default. Derivatives known as recovery swaps are trading at rates that imply investors would get back about 40 percent in a Greek default or debt restructuring.
The stress tests will be conducted on 91 companies that account for 65 percent of the region’s banking industry. They’ll examine whether the lenders can withstand a shrinking economy over two years and a drop in government bond values. Results of the tests will be disclosed July 23.
Earlier declines in global stocks came after a report showed German factory orders unexpectedly fell in May, the first time in five months, as demand for goods from Europe’s largest economy waned across the 16-nation euro region.
The MSCI Asia Pacific Index retreated 0.5 percent, its first drop in three days, after yesterday’s Institute for Supply Management report showed slower-than-estimated growth in U.S. service industries.
The U.S. dollar weakened against 12 of 16 major counterparts, led by declines of at least 0.8 percent against the Brazilian real, Australian dollar and New Zealand dollar. The euro increased 0.2 percent $1.2650, near the highest level since May reached yesterday.
Crude oil for August delivery gained for the first time in seven days, rising 2.9 percent to $74.07 a barrel in New York. Copper jumped 1.5 percent to $3.015 a pound in New York, extending its three-day gain to more than 5 percent.
Wheat rose to the highest price since January after analysts lowered production estimates for Russia and France because of hot, dry weather. Wheat futures for September delivery rose 4.5 percent to $5.305 a bushel on the Chicago Board of Trade. Corn and soybeans rallied on speculation heavy rain will reduce yields in the U.S., the biggest exporter of both crops.
A benchmark indicator of corporate credit risk in the U.S. fell for the fourth time in five business days, indicating improving investor confidence. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 2.9 basis points to a mid-price of 118.8 basis points as of 1:54 p.m. in New York, the lowest since June 28, according to Markit Group Ltd.
Elena Kagan's disturbing refusal to acknowledge pre-existing rights
From last week's confirmation hearings, we learned that Supreme Court nominee Elena Kagan likes to eat in Chinese restaurants on Christmas. She did not say how she spends Independence Day, but evidently it does not involve reflecting on the meaning of our founding document.
According to the Declaration of Independence, people create government to protect their pre-existing, inalienable rights. Yet when Sen. Tom Coburn (R-Okla.) asked Kagan whether armed self-defense is one of those rights, she professed agnosticism.
"I don't have a view of what are natural rights independent of the Constitution," Kagan said. In two days of testimony replete with the evasive maneuvers that she once complained had rendered Supreme Court confirmation hearings a "vapid and hollow charade," her silence on natural rights was one of the most disturbing things she didn't say.
In addition to eschewing statements that might "provide some kind of hints" about how she would vote on a case that could conceivably come before the Court, Kagan declined to offer opinions on subjects, such as natural rights, that she deemed irrelevant to the Court's work. In short, she was happy to answer any question, as long as it was neither related nor unrelated to the positions she would take as a justice.
But was Kagan right to say that natural rights should play no role in constitutional interpretation? "I'm not saying I do not believe that there are rights pre-existing the Constitution and the laws," she said, but "you should not want me to act in any way on the basis of such a belief, if I had one," because "my job as a justice is to enforce the Constitution and the laws."
Although justices should not read their own idiosyncratic notions of natural rights into the Constitution, the concept is essential to understanding what the Framers were trying to do. In addition to the Declaration of Independence, which reflects the Framers' philosophical premises but does not have the force of law, the Constitution itself repeatedly refers to pre-existing rights.
The First Amendment does not say, "The people shall have a right to freedom of speech." It says, "Congress shall make no law…abridging the freedom of speech." Likewise with "the right of the people to keep and bear arms" and "the right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures."
These are not rights the government creates; they are pre-existing rights the government is bound to respect. There is no other way to make sense of the Ninth Amendment: "The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people."
By contrast, here is how Kagan summarized the Supreme Court's conclusion in the 2008 case D.C. v. Heller (emphasis added): "The Second Amendment confers…an individual right to keep and bear arms." What the decision actually said is that the Second Amendment acknowledges that right. "It has always been widely understood," the Court explained, "that the Second Amendment, like the First and Fourth Amendments, codified a pre-existing right" that was considered "one of the fundamental rights of Englishmen."
That point was crucial in deciding, as the Court did last week, that the Second Amendment applies to the states via the 14th Amendment. Some theory of pre-existing, fundamental rights is also necessary in applying neglected yet important constitutional provisions such as the Ninth Amendment and the 14th Amendment's Privileges or Immunities Clause.
Constitutional interpretation aside, Kagan's reluctance to endorse the concept of pre-existing rights was troubling because without it we cannot draw moral distinctions between legal regimes. How can we condemn a dictator for legally authorized oppression, or say that our own Constitution is better now that it bans slavery than it was when it tacitly approved the practice? The traditional American answer is that people have certain rights by virtue of being human, regardless of what the law says.
Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist.