Is California’s deep-blue legislature out of control?
It sure seems that way to me. Recently, Gov. Newsom approved a clearly unconstitutional bill mandating racial and LGBTQ quotas for boards of directors of private companies. That’s pretty brazen.
He also signed legislation creating a task force to examine the possibility of slave reparations—even though California was never a slave state.
A third example is last month’s legislation forcing California State University students to take an ethnic studies course. If a conservative legislature had interfered with a curricular matter like that, the mainstream media would be going bananas.
Probably the most consequential legislation to pass in the last few months is the effort to repeal these words from the state constitution: “The state shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.”
Put there in 1996 by Proposition 209, those words were a response to over-the-top race-preferential admissions policies at the University of California and similar preferences for woman-owned and minority-owned businesses in public contracting.
The Left has been gunning for Prop 209 ever since. The legislature in particular has tried twice before. But maybe the third time is a charm.
Prop 209, however, can’t be repealed without the consent of voters. So all the legislature could do was call for a referendum. Called Prop 16, it’s on the ballot for this election. I’ll be voting no.
Prop 16 is not an effort to help the disadvantaged. Under current law, the University of California is free to give a leg up in admissions to students from low-income families. And it’s been doing so for decades (partly in response to Prop 209).
In part as a result of these efforts to help the disadvantaged, but mostly just in the ordinary courses of things, the entering admitted class at the University of California this year is about 41% under-represented minority (Latino or African American).
So why is Prop 16 thought to be necessary? Instead of helping the disadvantaged, the point of Prop 16 seems to be to allow the UC to again give preferential treatment based purely on race or ethnicity. Its effect will thus be to benefit students from high-income families.
Most polls have Prop 16 losing. But the pro-16 campaign has raised over $12 million, so this could easily change. Most of the pro-16 money comes huge donations. The wife of an Oakland real estate developer has given $3.5 million and lent the campaign an additional $2 million. The wife of the Netflix CEO has donated $1 million.
Then there are the extremely ill-advised corporate donations. Pacific Gas & Electric—which just emerged from bankruptcy a few months ago—has given the pro-16 side $250,000. You’d think they’d be focused on avoiding brown outs and fires. But apparently being viewed as “woke” is more important for a public utility these days. Similarly, Kaiser Foundation Health Plan has given over $1 million—rather than spend its funds on dealing with COVID19 pandemic.
It’s almost as if the corporations that can least afford to get distracted from their core mission decided they would lead the charge for Prop 16.
By contrast, the NO side has raised only about $1 million. Its largest single donation so far was for $50,000 from Students For Fair Admissions—the valiant little group fighting anti-Asian discrimination at Harvard University.
Overwhelmingly, the NO side donations are for $200, $100 or less—chump change by the standards of the pro-16 side. Many of the NO side donors are Chinese immigrants who don’t have a lot. But they are willing to sacrifice to ensure that the system will be fair to their children and grandchildren. And it’s not just money. It is truly inspiring to see hard many of our volunteers have been working to stop Prop 16.
On October 2, the Armenian-Azerbaijani war entered its 5th day. Forces of the Azerbaijani military, supported by Turkey, continued their attempts to capture the contested Nagorno-Karabakh Region and to dismantle the self-proclaimed Nagorno-Karabakh Republic, which is overwhelmingly populated by Armenians.
Intense artillery duels and Azerbaijani airstrikes are being reported across the entire frontline in Karabakh, and even near some parts of the Azerbaijani-Armenian border. Nonetheless, the main clashes still take place in the districts of Fizuli and Jabrayil, where Azerbaijan have achieved their main gains capturing several positions from the Armenians. The Azerbaijani artillery together with Turkish-made and Israeli-made combat drones played a key role in the tactical successes of Azerbaijan on the battlefield.
On October 1, the Armenian military even claimed that 4 Azerbeijani combat drones entered Armenian airspace and 3 of them were shot down, allegedly by the S-300 system. Additionally, the Armenian Defense Ministry claimed that its forces had shot down three Azerbaijani fighter jets and two helicopters. The Ministry of Defense of Azerbaijan dismissed the Armenian claims, calling them “complete nonsense and fake news.”
It insists that the Armenian side uses claims about attacks on its territory in an attempt to trigger the Collective Security Treaty Organization pact and obtain direct military support from Russia in the conflict in Karabakh, which formally is not its territory. What is even more strange, despite the 5 days of open war, the Armenian leadership has still not started the process for the recognition of the Nagorno-Karabakh Republic or the official integration of the region into Armenia. Therefore, it has no even theoretical legal grounds to request CSTO help in a conflict on its territory.
Meanwhile, the UK-based Syrian Observatory for Human Rights, known for its anti-Assad and pro-militant stance in the Syrian conflict, reported that dozens of Turkish-backed Syrian militants had been killed, injured or went missing while fighting against Armenian forces in Karabakh. According to the SOHR, 28 of them were killed and 62 others were injured or went missing. The report alleges that at least 850 Turkish-backed Syrian militants were deployed there. It should be noted that, according to Armenian estimates, their number is about 4,000. France and Russia also expressed their concern regarding the moving of militants to the region. In turn, Azerbaijani and Turkish media and officials insist that Armenia deploys members of Kurdish armed groups, considered to be terrorists by Ankara, to the combat zone. Nonetheless, these claims have not so far been supported by any evidence.
The self-styled Neo-Ottoman Empire of President Recent Tayyip Erdogan is on a full-scale propaganda offensive to instigate an Armenian-Azerbaijani war.
On October 1, the United States, Russia and France released a joint statement condemning the violence in the Nagorno-Karabakh region, calling on the sides to accept a ceasefire and return to the negotiating table. In response, President Erdogan made a fierce statement slamming the OSCE and claiming that Azerbaijan should continue its military push to capture the Nagorno-Karabakh region and thus the war with Armenia.
“I would like to declare that we are together with our brothers in Azerbaijan in their struggle for the liberation of their occupied land. The path to lasting peace in this region lies through the withdrawal of Armenia from all the spans of the Azerbaijani lands occupied by them,” Erdogan said addressing the Turkish Parliament. “Especially the so-called Minsk trio America, Russia, France and their seeking of a ceasefire in the face of this negative situation, which has been reflected these days because they have neglected this problem for nearly 30 years, is above all not acceptable,” he added.
In the best traditions of Turkish public diplomacy, Erdogan simultaneously accused Armenia of triggering the military escalation. Meanwhile, Turkish state media reported that during the recent phone call Turkish Foreign Minister Mevlut Cavusoglu told his Russian counterpart Sergey Lavrov that Turkey sees no reason for a ceasefire in Karabakh for as long as the region remains in the hands of Armenian forces.
Earlier, the Turkish leadership at the highest level declared that it is ready to provide any help, including military, to Baku. The Armenian side claims that Turkey is in fact participating in the war on the side of Azerbaijan.
via ZeroHedge News https://ift.tt/3incSfH Tyler Durden
Is California’s deep-blue legislature out of control?
It sure seems that way to me. Recently, Gov. Newsom approved a clearly unconstitutional bill mandating racial and LGBTQ quotas for boards of directors of private companies. That’s pretty brazen.
He also signed legislation creating a task force to examine the possibility of slave reparations—even though California was never a slave state.
A third example is last month’s legislation forcing California State University students to take an ethnic studies course. If a conservative legislature had interfered with a curricular matter like that, the mainstream media would be going bananas.
Probably the most consequential legislation to pass in the last few months is the effort to repeal these words from the state constitution: “The state shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.”
Put there in 1996 by Proposition 209, those words were a response to over-the-top race-preferential admissions policies at the University of California and similar preferences for woman-owned and minority-owned businesses in public contracting.
The Left has been gunning for Prop 209 ever since. The legislature in particular has tried twice before. But maybe the third time is a charm.
Prop 209, however, can’t be repealed without the consent of voters. So all the legislature could do was call for a referendum. Called Prop 16, it’s on the ballot for this election. I’ll be voting no.
Prop 16 is not an effort to help the disadvantaged. Under current law, the University of California is free to give a leg up in admissions to students from low-income families. And it’s been doing so for decades (partly in response to Prop 209).
In part as a result of these efforts to help the disadvantaged, but mostly just in the ordinary courses of things, the entering admitted class at the University of California this year is about 41% under-represented minority (Latino or African American).
So why is Prop 16 thought to be necessary? Instead of helping the disadvantaged, the point of Prop 16 seems to be to allow the UC to again give preferential treatment based purely on race or ethnicity. Its effect will thus be to benefit students from high-income families.
Most polls have Prop 16 losing. But the pro-16 campaign has raised over $12 million, so this could easily change. Most of the pro-16 money comes huge donations. The wife of an Oakland real estate developer has given $3.5 million and lent the campaign an additional $2 million. The wife of the Netflix CEO has donated $1 million.
Then there are the extremely ill-advised corporate donations. Pacific Gas & Electric—which just emerged from bankruptcy a few months ago—has given the pro-16 side $250,000. You’d think they’d be focused on avoiding brown outs and fires. But apparently being viewed as “woke” is more important for a public utility these days. Similarly, Kaiser Foundation Health Plan has given over $1 million—rather than spend its funds on dealing with COVID19 pandemic.
It’s almost as if the corporations that can least afford to get distracted from their core mission decided they would lead the charge for Prop 16.
By contrast, the NO side has raised only about $1 million. Its largest single donation so far was for $50,000 from Students For Fair Admissions—the valiant little group fighting anti-Asian discrimination at Harvard University.
Overwhelmingly, the NO side donations are for $200, $100 or less—chump change by the standards of the pro-16 side. Many of the NO side donors are Chinese immigrants who don’t have a lot. But they are willing to sacrifice to ensure that the system will be fair to their children and grandchildren. And it’s not just money. It is truly inspiring to see hard many of our volunteers have been working to stop Prop 16.
During a Democratic presidential debate last year, Cory Booker weaponized one of Joe Biden’s proudest accomplishments. The New Jersey senator noted that the former vice president, who represented Delaware in the Senate for 36 years, “has said that, since the 1970s, every major crime bill—every crime bill, major and minor—has had his name on it.”
Said was an understatement. Biden has not just noted his leading role in passing those laws; he has crowed about it repeatedly over the years, throwing it in the face of Republicans who dared to think they could be tougher on crime and fellow Democrats he viewed as too soft. Now here he was, after a notable shift in public opinion about criminal justice issues, bemoaning the excessively, arbitrarily punitive policies he had zealously promoted for decades.
“The house was set on fire, and you claimed responsibility for those laws,” Booker continued. “You can’t just now come out with a plan to put out that fire.”
Biden’s response was telling. Those crime bills, he said, “were passed years ago, and they were passed overwhelmingly.” More recently, he noted, he had tried to ameliorate some of their worst consequences—for example, by sponsoring a 2007 bill that would have eliminated the unjust, irrational sentencing disparity between the smoked and snorted forms of cocaine, which led to strikingly unequal treatment of black and white drug offenders. That gloss brushed over the fact that, just a few years before he entered the 2020 presidential race, Biden was still bragging about the incarceration-expanding Violent Crime Control and Law Enforcement Act—or, as he preferred to call it, “the 1994 Biden Crime Bill.”
Booker, one of three African-American senators, was not impressed by Biden’s excuses. “You are trying to shift the view from what you created,” he said. “There are people right now in prison for life for drug offenses because you stood up and used that ‘tough on crime’ phony rhetoric that got a lot of people elected but destroyed communities like mine. This isn’t about the past, sir. This is about the present right now. I believe in redemption. I’m happy you evolved. But you’ve offered no redemption to the people in prison right now for life.”
The exchange was a powerful reminder of Biden’s faults. The Democratic nominee’s main qualification for office, aside from the fact that he is not Donald Trump, is his long history of public service. But that history is littered with egregious misjudgments on a wide range of issues, some of which he sticks with still. Even when Biden changes his positions—as he has on issues such as gay marriage, immigration, the Iraq war, and the death penalty, as well as drug policy and mandatory minimum sentences—he tends to rewrite history, saying he only did what everybody else was doing, implying that he acted based on the best information available at the time, or suggesting that he voted strategically to prevent even worse outcomes.
Biden’s reluctance to forthrightly acknowledge his errors blurs the contrast with Trump, a man who seems incapable of taking the blame for anything. Biden magnified that problem by choosing as his running mate Sen. Kamala Harris (D–Calif.), a former prosecutor who, like Biden, has recently recast herself as a criminal justice reformer while airbrushing her hardline past. More to the point, Biden’s persistently misguided policy instincts, spanning nearly half a century, make you wonder what fresh disasters his presidency would bring.
‘A Big Mistake’
Biden’s handiwork in the Senate included the Comprehensive Crime Control Act of 1984, which he introduced along with Sen. Strom Thurmond (R–S.C.), an archconservative and former segregationist. That law abolished parole in the federal system, increased drug penalties, established mandatory sentencing guidelines, and expanded civil asset forfeiture.
Two years later, Biden wrote the Anti–Drug Abuse Act of 1986, which prescribed new mandatory minimums for drug crimes and created the notorious weight-based sentencing distinction that treated crack cocaine as if it were 100 times worse than cocaine powder, even though these are simply two different ways of consuming the same drug. Under that law, possessing five grams of crack with intent to distribute it triggered the same five-year mandatory minimum sentence as 500 grams of cocaine powder; likewise, the 10-year mandatory minimum required five kilograms of cocaine powder but only 50 grams of crack. Two years later, Biden co-sponsored another Anti–Drug Abuse Act, which established the “drug czar” position he had been pushing for years and created additional mandatory minimums, including a five-year sentence for crack users caught with as little as five grams, even if they were not involved in distribution.
As Biden explained it on the Senate floor in 1991 while holding up a quarter, “we said crack cocaine is such a bad deal that if you find someone with this much of it—a quarter’s worth, not in value, but in size—five years in jail.” To be clear: Biden was not marveling at the blatant injustice of that punishment but touting his anti-drug bona fides.
Because federal crack offenders were overwhelmingly black, while cocaine powder offenders were more likely to be white or Hispanic, the rule Biden championed meant that darker-skinned defendants received substantially heavier penalties than lighter-skinned defendants for essentially the same offenses. As that trend became clear, the African-American legislators who had supported the law turned against it. By the early 1990s, pressure was building for reform of crack penalties.
“We may not have gotten it right,” Biden conceded 16 years after he helped establish the 100-to-1 rule. Five years later, during an unsuccessful bid for his party’s 2008 presidential nomination, he introduced a bill to equalize crack and cocaine powder sentences. That was the bill he cited in response to Booker’s criticism, suggesting he had seen the injustice of excessively harsh drug penalties by then. Yet as vice president in 2012, he was still citing his work with Thurmond on the 1984 crime bill, which started the ball rolling on mandatory minimums, as an inspiring example of bipartisan collaboration.
The distinction between smoked and snorted cocaine “was a big mistake when it was made,” Biden admitted in a speech he gave just before entering the presidential race in 2019, nine years after Congress approved a law that shrank but did not eliminate the sentencing gap. “We thought we were told by the experts that crack…was somehow fundamentally different. It’s not different.” The misconception, he added, “trapped an entire generation.”
That was by no means Biden’s only mistake. Even as some of his fellow Democrats in Congress were beginning to question the conventional wisdom that drug penalties can never be too severe, he was working to make them more draconian.
Biden was eager to portray himself as tougher on drugs than the Republicans. In a televised response to a 1989 speech in which then-President George H.W. Bush announced yet another escalation of the war on drugs while waving a plastic bag of crack, Biden questioned the administration’s zeal. “Quite frankly,” he said, “the president’s plan’s not tough enough, bold enough, or imaginative enough to meet the crisis at hand,” which he called “the No. 1 threat to our national security.”
‘Hold Every Drug User Accountable’
After Bill Clinton was elected in 1992, Biden joined forces with the president to outflank the Republicans on crime issues, long a vulnerability for Democrats. Thus was born Biden’s pride and joy, the biggest crime bill in U.S. history.
The 1994 law created 60 new capital offenses, increased drug penalties yet again, established a federal “three strikes” rule requiring a life sentence for anyone convicted of a violent crime after committing two other felonies (one of which can be a drug offense), and provided $10 billion in subsidies for state prison construction, contingent on passage of “truth in sentencing” laws that limited or abolished parole, along with funding to hire 100,000 police officers. Biden, who bragged that he had conferred with “the cops” instead of some namby-pamby “liberal confab” while writing the bill, was proud of all the extra punishment. Like a crass car salesman hawking a new model with more of everything, Biden touted “70 additional enhancements of penalties” and “60 new death penalties—brand new—60.” He denounced as “poppycock” the notion, which would later be defensively deployed by Clinton, that “somehow the Republicans tried to make the crime bill tougher.”
Decades later, Biden was still defending his toughness. “I knew more people would be locked up across the board,” he told The New York Times in 2008, “but I also said it would drive down crime.” Yet a long downward trend in violent crime had already begun by the time Congress approved the 1994 bill. The violent crime rate, which includes homicide, rape, robbery, and aggravated assault, peaked in 1991 and fell for three consecutive years before the law took effect.
Although Biden said he was trying to lock up the sort of dangerous thugs who would “knock my mother on the head with a lead pipe,” “shoot my sister,” or “beat up my wife,” his ire was not restricted to predatory criminals. Equating peaceful transactions involving arbitrarily proscribed intoxicants with “a rising tide of violence,” he wanted to imprison low-level drug dealers and punish their customers. “We have to hold every drug user accountable,” he said in his 1989 response to Bush’s speech, “because if there were no drug users, there would be no appetite for drugs, and there would be no market for them.”
Biden likewise had no reservations about civil asset forfeiture, a system of legalized theft that allows police to seize cash and other property based on a bare allegation that it is connected to drug offenses. At that point, the owner has the burden of challenging the forfeiture, a process that often costs more than the property is worth. “The government can take everything you own,” Biden exulted in 1991, “everything from your car to your house, your bank account.”
Nor did Biden think through the implications of his Reducing Americans’ Vulnerability to Ecstasy (RAVE) Act, part of a long campaign against “club drugs.” The RAVE Act, which Biden renamed the Illicit Drug Anti-Proliferation Act in 2003 after critics complained that he was attacking a specific musical genre and the lifestyle associated with it, amended the so-called crack house statute, a provision of the Anti–Drug Abuse Act of 1986 that made it a felony, punishable by up to 20 years in prison, large fines, and property forfeiture, to “manage or control any building, room, or enclosure” and knowingly make it available for illegal drug use.
Biden thought that language was inadequate to go after rave promoters—”the scum who should be put in jail”—because they often used spaces owned by other people. So he expanded the provision to cover temporary venues used for raves or other events where people consume drugs.
A month after the law was enacted, the Drug Enforcement Administration (DEA) used it to shut down a fundraising concert in Billings, Montana, sponsored by two groups critical of the war on drugs, the National Organization for the Reform of Marijuana Laws and Students for Sensible Drug Policy. During a July 2003 confirmation hearing for DEA Administrator Karen Tandy, Biden pronounced himself “disturbed” by that use of his law. He asked Tandy to explain how she planned to “reassure people who may be skeptical of my legislation that it will not be enforced in a manner that has a chilling effect on free speech.”
In addition to chilling the exercise of First Amendment rights, Biden’s anti-rave law discouraged efforts to reduce drug hazards. Rave promoters who tried to protect MDMA users from dehydration and overheating by distributing water bottles and providing “chill out” rooms, or who let organizations such as DanceSafe distribute harm reduction literature, would thereby be providing evidence that they knowingly made a place available for illegal drug consumption. In recent years, the Justice Department has cited Biden’s legislation while threatening to prosecute any organization that sets up supervised consumption facilities where people can use opioids in a safe environment monitored by medical personnel.
‘Joe Biden Wrote Those Laws’
Biden’s record as a drug warrior is so appalling that Trump has attacked him from the left on the issue. “Anyone associated with the 1994 Crime Bill will not have a chance of being elected,” the president tweeted last year. “In particular, African Americans will not be able to vote for you. I, on the other hand, was responsible for Criminal Justice Reform, which had tremendous support, & helped fix the bad 1994 Bill!” Trump was alluding to the FIRST STEP Act, a package of modest reforms that he signed in 2018.
“Mass incarceration has put hundreds of thousands behind bars for minor offenses,” says a Trump campaign video released in May. “Joe Biden wrote those laws.” In a June 2 blog post, the campaign slammed Biden as “the chief architect of mass incarceration and the War on Drugs, which targeted Black Americans.”
Today Biden portrays himself as a criminal justice reformer, calling for the abolition of the mandatory minimums and death penalties he once championed. He also says the federal government should let states legalize pot. But unlike most of the candidates he beat for the Democratic nomination, he resists repealing the national ban on marijuana, saying he is waiting for science to clarify “whether or not it is a gateway drug”—a rationale for prohibition that drug warriors have been citing for 70 years.
Given the current climate of opinion in the Democratic Party, it seems unlikely that Biden could get away with reverting to his old drug-warrior ways. But his history on drug policy and criminal justice epitomizes his readiness to react mindlessly whenever he perceives a menace to public safety or national security.
One part of the 1994 crime bill that Biden definitely does not regret is the federal ban on semi-automatic guns that Congress described as “assault weapons,” which expired in 2004. Biden favors a new and supposedly improved version of that law, including a requirement that current owners of the targeted firearms either surrender them to the government or follow the same tax and registration requirements that apply to machine guns. During an argument with a Detroit autoworker in March, Biden suggested that the Second Amendment no more protects the right to own guns he does not like than the First Amendment protects the right to falsely cry “Fire!” in a crowded theater.
In a New York Times op-ed piece last year, Biden conceded that the 1994 “assault weapon” ban had no impact on the lethality of legal guns, because manufacturers could comply with the new restrictions “by making minor modifications to their products—modifications that leave them just as deadly.” But that is a problem shared by all such bans, since they draw lines based on features, such as folding stocks, barrel shrouds, and flash suppressors, that make little or no difference in the hands of criminals. The distinction that Biden perceives between guns with those features and functionally identical models without them is just as spurious as the distinction he once perceived between crack and cocaine powder.
As he did when confronting “the drug problem” in the 1980s and ’90s, Biden feels an overpowering urge to do something, whether or not that thing makes any sense. “There’s no excuse for inaction,” he tweeted after the 2017 massacre in Las Vegas. “We must act now,” he insisted after the 2019 mass shooting in Virginia Beach (which, like most such crimes, was committed with ordinary handguns rather than “assault weapons”). Such comments reflect the same sort of knee-jerk urgency that, by Biden’s account, “trapped an entire generation” because he did not bother to educate himself about matters on which he was legislating.
An ‘Epidemic’ of Sexual Assault on Campus
Biden’s career was built on the politics of panics. In the 1990s, he supported a Trump-like crackdown on illegal immigration, including a border fence and expedited removals, that resembled tactics he now deplores. A decade later, he was still calling for more border barriers, saying employers who hire unauthorized residents should go to prison, opposing driver’s licenses for people who can’t prove their citizenship, and condemning “sanctuary cities” that refuse to cooperate with immigration enforcement.
When he was vice president, Biden played a key role in Department of Education guidelines that undermined the due process rights of college students facing sexual assault allegations. To comply with the department’s new advice regarding Title IX, which prohibits sex discrimination in educational programs that receive federal money, colleges dramatically expanded their definitions of punishable behavior and adopted streamlined procedures that effectively presumed the guilt of accused students.
As critics such as the journalist Emily Yoffe have noted, the new rules commonly denied students the right to testify, the right to present exculpatory evidence, and even the right to know the details of the charges against them. The upshot was that students were suspended or expelled based on conflicting recollections of frequently drunken encounters that both parties agreed started consensually.
Biden said the regulatory guidance that gave rise to these kangaroo courts was necessary to address an “epidemic” of sexual assault on campus. He repeatedly cited a discredited estimate that “one in five” female college students is sexually assaulted by graduation, eight times the rate indicated by Justice Department data. And he falsely claimed that “we’ve made no progress” in reducing sexual assault of young women since the early 1990s, when in fact the rate of victimization among female college students had been cut in half.
After 9/11, Biden did not just vote for the PATRIOT Act, which expanded the federal government’s surveillance authority in the name of fighting terrorism. He bragged that it was essentially the same as legislation he had been pushing since 1994. And when President George W. Bush reacted to Al Qaeda’s attacks by targeting a country that had nothing to do with them, Biden did not just vote to authorize the use of military force against Iraq. He steadfastly defended the administration’s strategy, warning his colleagues that “failure to overwhelmingly support” the resolution was “likely to enhance the prospects that war will occur.”
Biden later claimed he never thought Bush actually would go to war, seeing the authorization as a way to pressure Saddam Hussein into cooperating with international arms inspectors. “Immediately, the moment it started, I came out against the war at that moment,” he told NPR last year. But that is not true. Although he occasionally criticized Bush for acting too hastily and with insufficient international backing, Biden repeatedly voiced support for the war. He did not publicly acknowledge that his vote to authorize it was a mistake until November 2005, more than two years after the U.S. invasion.
If Biden has learned anything from the Iraq debacle, it was not apparent in his response to a New York Times questionnaire about executive power last year. Biden argued that presidents have the authority to use military force without congressional approval “when those operations serve important U.S. interests and are of a limited nature, scope, and duration.” Since “U.S. interests” are in the eye of the beholder and the president unilaterally decides when military operations are “limited” enough that they do not qualify as “war,” that formulation amounts to a blank check.
At 78, Biden would be the oldest president ever elected in the United States. But there is little sign that he has acquired much wisdom during a career filled with lessons about the limits of government power and the fallible judgments of the people who wield it.
Should the government tax violent entertainment and use the proceeds to help crime victims? Biden sees “no legal reason” why not. Should the president fight COVID-19 by requiring all Americans to mask up, notwithstanding the lack of a plausible legal basis for such an order? “Yes, I would,” Biden says. Should Congress repeal Section 230 of the Communications Decency Act, which made the internet as we know it possible by protecting online platforms from liability for content posted by users, because Biden is mad at Facebook? You bet. What could possibly go wrong?
It’s a question that Biden, who presents himself as an alternative to an intolerably impulsive and shortsighted president, never seems to ask.
Justin Monticello, who produced a video for Reason about Biden’s record, contributed research for this article.
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During a Democratic presidential debate last year, Cory Booker weaponized one of Joe Biden’s proudest accomplishments. The New Jersey senator noted that the former vice president, who represented Delaware in the Senate for 36 years, “has said that, since the 1970s, every major crime bill—every crime bill, major and minor—has had his name on it.”
Said was an understatement. Biden has not just noted his leading role in passing those laws; he has crowed about it repeatedly over the years, throwing it in the face of Republicans who dared to think they could be tougher on crime and fellow Democrats he viewed as too soft. Now here he was, after a notable shift in public opinion about criminal justice issues, bemoaning the excessively, arbitrarily punitive policies he had zealously promoted for decades.
“The house was set on fire, and you claimed responsibility for those laws,” Booker continued. “You can’t just now come out with a plan to put out that fire.”
Biden’s response was telling. Those crime bills, he said, “were passed years ago, and they were passed overwhelmingly.” More recently, he noted, he had tried to ameliorate some of their worst consequences—for example, by sponsoring a 2007 bill that would have eliminated the unjust, irrational sentencing disparity between the smoked and snorted forms of cocaine, which led to strikingly unequal treatment of black and white drug offenders. That gloss brushed over the fact that, just a few years before he entered the 2020 presidential race, Biden was still bragging about the incarceration-expanding Violent Crime Control and Law Enforcement Act—or, as he preferred to call it, “the 1994 Biden Crime Bill.”
Booker, one of three African-American senators, was not impressed by Biden’s excuses. “You are trying to shift the view from what you created,” he said. “There are people right now in prison for life for drug offenses because you stood up and used that ‘tough on crime’ phony rhetoric that got a lot of people elected but destroyed communities like mine. This isn’t about the past, sir. This is about the present right now. I believe in redemption. I’m happy you evolved. But you’ve offered no redemption to the people in prison right now for life.”
The exchange was a powerful reminder of Biden’s faults. The Democratic nominee’s main qualification for office, aside from the fact that he is not Donald Trump, is his long history of public service. But that history is littered with egregious misjudgments on a wide range of issues, some of which he sticks with still. Even when Biden changes his positions—as he has on issues such as gay marriage, immigration, the Iraq war, and the death penalty, as well as drug policy and mandatory minimum sentences—he tends to rewrite history, saying he only did what everybody else was doing, implying that he acted based on the best information available at the time, or suggesting that he voted strategically to prevent even worse outcomes.
Biden’s reluctance to forthrightly acknowledge his errors blurs the contrast with Trump, a man who seems incapable of taking the blame for anything. Biden magnified that problem by choosing as his running mate Sen. Kamala Harris (D–Calif.), a former prosecutor who, like Biden, has recently recast herself as a criminal justice reformer while airbrushing her hardline past. More to the point, Biden’s persistently misguided policy instincts, spanning nearly half a century, make you wonder what fresh disasters his presidency would bring.
‘A Big Mistake’
Biden’s handiwork in the Senate included the Comprehensive Crime Control Act of 1984, which he introduced along with Sen. Strom Thurmond (R–S.C.), an archconservative and former segregationist. That law abolished parole in the federal system, increased drug penalties, established mandatory sentencing guidelines, and expanded civil asset forfeiture.
Two years later, Biden wrote the Anti–Drug Abuse Act of 1986, which prescribed new mandatory minimums for drug crimes and created the notorious weight-based sentencing distinction that treated crack cocaine as if it were 100 times worse than cocaine powder, even though these are simply two different ways of consuming the same drug. Under that law, possessing five grams of crack with intent to distribute it triggered the same five-year mandatory minimum sentence as 500 grams of cocaine powder; likewise, the 10-year mandatory minimum required five kilograms of cocaine powder but only 50 grams of crack. Two years later, Biden co-sponsored another Anti–Drug Abuse Act, which established the “drug czar” position he had been pushing for years and created additional mandatory minimums, including a five-year sentence for crack users caught with as little as five grams, even if they were not involved in distribution.
As Biden explained it on the Senate floor in 1991 while holding up a quarter, “we said crack cocaine is such a bad deal that if you find someone with this much of it—a quarter’s worth, not in value, but in size—five years in jail.” To be clear: Biden was not marveling at the blatant injustice of that punishment but touting his anti-drug bona fides.
Because federal crack offenders were overwhelmingly black, while cocaine powder offenders were more likely to be white or Hispanic, the rule Biden championed meant that darker-skinned defendants received substantially heavier penalties than lighter-skinned defendants for essentially the same offenses. As that trend became clear, the African-American legislators who had supported the law turned against it. By the early 1990s, pressure was building for reform of crack penalties.
“We may not have gotten it right,” Biden conceded 16 years after he helped establish the 100-to-1 rule. Five years later, during an unsuccessful bid for his party’s 2008 presidential nomination, he introduced a bill to equalize crack and cocaine powder sentences. That was the bill he cited in response to Booker’s criticism, suggesting he had seen the injustice of excessively harsh drug penalties by then. Yet as vice president in 2012, he was still citing his work with Thurmond on the 1984 crime bill, which started the ball rolling on mandatory minimums, as an inspiring example of bipartisan collaboration.
The distinction between smoked and snorted cocaine “was a big mistake when it was made,” Biden admitted in a speech he gave just before entering the presidential race in 2019, nine years after Congress approved a law that shrank but did not eliminate the sentencing gap. “We thought we were told by the experts that crack…was somehow fundamentally different. It’s not different.” The misconception, he added, “trapped an entire generation.”
That was by no means Biden’s only mistake. Even as some of his fellow Democrats in Congress were beginning to question the conventional wisdom that drug penalties can never be too severe, he was working to make them more draconian.
Biden was eager to portray himself as tougher on drugs than the Republicans. In a televised response to a 1989 speech in which then-President George H.W. Bush announced yet another escalation of the war on drugs while waving a plastic bag of crack, Biden questioned the administration’s zeal. “Quite frankly,” he said, “the president’s plan’s not tough enough, bold enough, or imaginative enough to meet the crisis at hand,” which he called “the No. 1 threat to our national security.”
‘Hold Every Drug User Accountable’
After Bill Clinton was elected in 1992, Biden joined forces with the president to outflank the Republicans on crime issues, long a vulnerability for Democrats. Thus was born Biden’s pride and joy, the biggest crime bill in U.S. history.
The 1994 law created 60 new capital offenses, increased drug penalties yet again, established a federal “three strikes” rule requiring a life sentence for anyone convicted of a violent crime after committing two other felonies (one of which can be a drug offense), and provided $10 billion in subsidies for state prison construction, contingent on passage of “truth in sentencing” laws that limited or abolished parole, along with funding to hire 100,000 police officers. Biden, who bragged that he had conferred with “the cops” instead of some namby-pamby “liberal confab” while writing the bill, was proud of all the extra punishment. Like a crass car salesman hawking a new model with more of everything, Biden touted “70 additional enhancements of penalties” and “60 new death penalties—brand new—60.” He denounced as “poppycock” the notion, which would later be defensively deployed by Clinton, that “somehow the Republicans tried to make the crime bill tougher.”
Decades later, Biden was still defending his toughness. “I knew more people would be locked up across the board,” he told The New York Times in 2008, “but I also said it would drive down crime.” Yet a long downward trend in violent crime had already begun by the time Congress approved the 1994 bill. The violent crime rate, which includes homicide, rape, robbery, and aggravated assault, peaked in 1991 and fell for three consecutive years before the law took effect.
Although Biden said he was trying to lock up the sort of dangerous thugs who would “knock my mother on the head with a lead pipe,” “shoot my sister,” or “beat up my wife,” his ire was not restricted to predatory criminals. Equating peaceful transactions involving arbitrarily proscribed intoxicants with “a rising tide of violence,” he wanted to imprison low-level drug dealers and punish their customers. “We have to hold every drug user accountable,” he said in his 1989 response to Bush’s speech, “because if there were no drug users, there would be no appetite for drugs, and there would be no market for them.”
Biden likewise had no reservations about civil asset forfeiture, a system of legalized theft that allows police to seize cash and other property based on a bare allegation that it is connected to drug offenses. At that point, the owner has the burden of challenging the forfeiture, a process that often costs more than the property is worth. “The government can take everything you own,” Biden exulted in 1991, “everything from your car to your house, your bank account.”
Nor did Biden think through the implications of his Reducing Americans’ Vulnerability to Ecstasy (RAVE) Act, part of a long campaign against “club drugs.” The RAVE Act, which Biden renamed the Illicit Drug Anti-Proliferation Act in 2003 after critics complained that he was attacking a specific musical genre and the lifestyle associated with it, amended the so-called crack house statute, a provision of the Anti–Drug Abuse Act of 1986 that made it a felony, punishable by up to 20 years in prison, large fines, and property forfeiture, to “manage or control any building, room, or enclosure” and knowingly make it available for illegal drug use.
Biden thought that language was inadequate to go after rave promoters—”the scum who should be put in jail”—because they often used spaces owned by other people. So he expanded the provision to cover temporary venues used for raves or other events where people consume drugs.
A month after the law was enacted, the Drug Enforcement Administration (DEA) used it to shut down a fundraising concert in Billings, Montana, sponsored by two groups critical of the war on drugs, the National Organization for the Reform of Marijuana Laws and Students for Sensible Drug Policy. During a July 2003 confirmation hearing for DEA Administrator Karen Tandy, Biden pronounced himself “disturbed” by that use of his law. He asked Tandy to explain how she planned to “reassure people who may be skeptical of my legislation that it will not be enforced in a manner that has a chilling effect on free speech.”
In addition to chilling the exercise of First Amendment rights, Biden’s anti-rave law discouraged efforts to reduce drug hazards. Rave promoters who tried to protect MDMA users from dehydration and overheating by distributing water bottles and providing “chill out” rooms, or who let organizations such as DanceSafe distribute harm reduction literature, would thereby be providing evidence that they knowingly made a place available for illegal drug consumption. In recent years, the Justice Department has cited Biden’s legislation while threatening to prosecute any organization that sets up supervised consumption facilities where people can use opioids in a safe environment monitored by medical personnel.
‘Joe Biden Wrote Those Laws’
Biden’s record as a drug warrior is so appalling that Trump has attacked him from the left on the issue. “Anyone associated with the 1994 Crime Bill will not have a chance of being elected,” the president tweeted last year. “In particular, African Americans will not be able to vote for you. I, on the other hand, was responsible for Criminal Justice Reform, which had tremendous support, & helped fix the bad 1994 Bill!” Trump was alluding to the FIRST STEP Act, a package of modest reforms that he signed in 2018.
“Mass incarceration has put hundreds of thousands behind bars for minor offenses,” says a Trump campaign video released in May. “Joe Biden wrote those laws.” In a June 2 blog post, the campaign slammed Biden as “the chief architect of mass incarceration and the War on Drugs, which targeted Black Americans.”
Today Biden portrays himself as a criminal justice reformer, calling for the abolition of the mandatory minimums and death penalties he once championed. He also says the federal government should let states legalize pot. But unlike most of the candidates he beat for the Democratic nomination, he resists repealing the national ban on marijuana, saying he is waiting for science to clarify “whether or not it is a gateway drug”—a rationale for prohibition that drug warriors have been citing for 70 years.
Given the current climate of opinion in the Democratic Party, it seems unlikely that Biden could get away with reverting to his old drug-warrior ways. But his history on drug policy and criminal justice epitomizes his readiness to react mindlessly whenever he perceives a menace to public safety or national security.
One part of the 1994 crime bill that Biden definitely does not regret is the federal ban on semi-automatic guns that Congress described as “assault weapons,” which expired in 2004. Biden favors a new and supposedly improved version of that law, including a requirement that current owners of the targeted firearms either surrender them to the government or follow the same tax and registration requirements that apply to machine guns. During an argument with a Detroit autoworker in March, Biden suggested that the Second Amendment no more protects the right to own guns he does not like than the First Amendment protects the right to falsely cry “Fire!” in a crowded theater.
In a New York Times op-ed piece last year, Biden conceded that the 1994 “assault weapon” ban had no impact on the lethality of legal guns, because manufacturers could comply with the new restrictions “by making minor modifications to their products—modifications that leave them just as deadly.” But that is a problem shared by all such bans, since they draw lines based on features, such as folding stocks, barrel shrouds, and flash suppressors, that make little or no difference in the hands of criminals. The distinction that Biden perceives between guns with those features and functionally identical models without them is just as spurious as the distinction he once perceived between crack and cocaine powder.
As he did when confronting “the drug problem” in the 1980s and ’90s, Biden feels an overpowering urge to do something, whether or not that thing makes any sense. “There’s no excuse for inaction,” he tweeted after the 2017 massacre in Las Vegas. “We must act now,” he insisted after the 2019 mass shooting in Virginia Beach (which, like most such crimes, was committed with ordinary handguns rather than “assault weapons”). Such comments reflect the same sort of knee-jerk urgency that, by Biden’s account, “trapped an entire generation” because he did not bother to educate himself about matters on which he was legislating.
An ‘Epidemic’ of Sexual Assault on Campus
Biden’s career was built on the politics of panics. In the 1990s, he supported a Trump-like crackdown on illegal immigration, including a border fence and expedited removals, that resembled tactics he now deplores. A decade later, he was still calling for more border barriers, saying employers who hire unauthorized residents should go to prison, opposing driver’s licenses for people who can’t prove their citizenship, and condemning “sanctuary cities” that refuse to cooperate with immigration enforcement.
When he was vice president, Biden played a key role in Department of Education guidelines that undermined the due process rights of college students facing sexual assault allegations. To comply with the department’s new advice regarding Title IX, which prohibits sex discrimination in educational programs that receive federal money, colleges dramatically expanded their definitions of punishable behavior and adopted streamlined procedures that effectively presumed the guilt of accused students.
As critics such as the journalist Emily Yoffe have noted, the new rules commonly denied students the right to testify, the right to present exculpatory evidence, and even the right to know the details of the charges against them. The upshot was that students were suspended or expelled based on conflicting recollections of frequently drunken encounters that both parties agreed started consensually.
Biden said the regulatory guidance that gave rise to these kangaroo courts was necessary to address an “epidemic” of sexual assault on campus. He repeatedly cited a discredited estimate that “one in five” female college students is sexually assaulted by graduation, eight times the rate indicated by Justice Department data. And he falsely claimed that “we’ve made no progress” in reducing sexual assault of young women since the early 1990s, when in fact the rate of victimization among female college students had been cut in half.
After 9/11, Biden did not just vote for the PATRIOT Act, which expanded the federal government’s surveillance authority in the name of fighting terrorism. He bragged that it was essentially the same as legislation he had been pushing since 1994. And when President George W. Bush reacted to Al Qaeda’s attacks by targeting a country that had nothing to do with them, Biden did not just vote to authorize the use of military force against Iraq. He steadfastly defended the administration’s strategy, warning his colleagues that “failure to overwhelmingly support” the resolution was “likely to enhance the prospects that war will occur.”
Biden later claimed he never thought Bush actually would go to war, seeing the authorization as a way to pressure Saddam Hussein into cooperating with international arms inspectors. “Immediately, the moment it started, I came out against the war at that moment,” he told NPR last year. But that is not true. Although he occasionally criticized Bush for acting too hastily and with insufficient international backing, Biden repeatedly voiced support for the war. He did not publicly acknowledge that his vote to authorize it was a mistake until November 2005, more than two years after the U.S. invasion.
If Biden has learned anything from the Iraq debacle, it was not apparent in his response to a New York Times questionnaire about executive power last year. Biden argued that presidents have the authority to use military force without congressional approval “when those operations serve important U.S. interests and are of a limited nature, scope, and duration.” Since “U.S. interests” are in the eye of the beholder and the president unilaterally decides when military operations are “limited” enough that they do not qualify as “war,” that formulation amounts to a blank check.
At 78, Biden would be the oldest president ever elected in the United States. But there is little sign that he has acquired much wisdom during a career filled with lessons about the limits of government power and the fallible judgments of the people who wield it.
Should the government tax violent entertainment and use the proceeds to help crime victims? Biden sees “no legal reason” why not. Should the president fight COVID-19 by requiring all Americans to mask up, notwithstanding the lack of a plausible legal basis for such an order? “Yes, I would,” Biden says. Should Congress repeal Section 230 of the Communications Decency Act, which made the internet as we know it possible by protecting online platforms from liability for content posted by users, because Biden is mad at Facebook? You bet. What could possibly go wrong?
It’s a question that Biden, who presents himself as an alternative to an intolerably impulsive and shortsighted president, never seems to ask.
Justin Monticello, who produced a video for Reason about Biden’s record, contributed research for this article.
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In an influential 1995 article, Professors Akhil and Vikram Amar argued that the 1947 Presidential Succession Act was unconstitutional. This law places the Speaker of the House next in line immediately after the Vice President. The Amars contended that this statute was unconstitutional. Their analysis began with the text of the Succession Clause. It provides:
In Case of the Removal of the President from Office, or of his Death, Resignation, or Inability to discharge the Powers and Duties of the said Office, the Same shall devolve on the Vice President, and the Congress may by Law provide for the Case of Removal, Death, Resignation or Inability, both of the President and Vice President, declaring what Officer shall then act as President, and such Officer shall act accordingly, until the Disability be removed, or a President shall be elected.”
If the Speaker is an “Officer,” for purposes of the Succession Clause, then there is no problem. The Constitution expressly empowers Congress to place “Officers” in the line of succession. If the Speaker is not an “Officer” for purposes of the Succession Clause, then the Presidential Succession Act is unconstitutional.
But the Amars contended that the Speaker is not an “Officer” for purposes of the Succession Clause. The Amars wrote that the word “Officer,” as used in “the Succession Clause[,] is merely shorthand for any of the[] . . . longer formulations” of the Constitution’s “office”- and “officer”-language, such as “officers of the United States” and “office . . . under the United States.” The Amars explained that “[a]s a textual matter,” the varied references to officers of the United States and office under the United States “seemingly describe[] the same stations.” The Amars did entertain the possibility that the Framers drew a “civil/military distinction” among different types of officers. But they posited that “the modifying terms ‘of,’ ‘under,’ and ‘under the Authority of’ are essentially synonymous.” In short, the Amars concluded that the Constitution’s divergent “office”-language creates a “global officer/legislator distinction.” The “global officer” extends only to positions in the Executive and Judicial Branches.
By contrast, elected Representatives and Senators reside in the Legislative Branch. Specifically, the Amars explained, “federal legislators are neither ‘Officers under the United States,’ nor (to the extent that there is any difference) ‘Officers of the United States.'” Accordingly, the Amars reasoned, “[l]egislators are not ‘Officers’ under the Succession Clause.” Finally, the Amars stated that the word “officer,” standing alone and unmodified in the Succession Clause, amounts to mere shorthand for “officer of the United States” and “office . . . under the United States.”
Ultimately, under the Amars’ theory, the Speaker of the House—qua legislator—is not an “Officer” and thus cannot stand in line of presidential succession. To the extent that the Speaker is an “Officer,” the Amars argued that he is an officer of the legislature or an officer of the House. As a result, the Speaker is neither an “officer of the United States,” nor is he an “Officer” as that word is used in the Succession Clause. According to the Amars, these phrases are coextensive.
Akhil Amar restated this position nearly two decades later in his magisterial tome, America’s Unwritten Constitution: “A member of the Congress, such as the House speaker, is simply not an eligible ‘Officer’ within the meaning of the [S]uccession [C]lause.”
In 2004, Akhil Amar testified before Congress about the constitutionality of the Presidential Succession Act. During this hearing, he took a less categorical position. Amar stated that “in very, very highly unusual situations” legislative succession may be permissible. During such a dire time where all cabinet officials are “gone . . . only a real constitutional zealot, maybe without good judgment, would say you can’t have congressional leaders in that circumstance because the Constitution really isn’t a suicide pact.” Presidential Succession Act: Hearing Before the Subcomm. on the Const. of the H. Comm. on the Judiciary, 108th Cong. 52 (2004).
Under their view, if the presidency and vice presidency become vacant—a so-called “double vacancy”—we would face a constitutional crisis. The Speaker of the House would claim the Presidency by virtue of the Presidential Succession Act. But succession by the Speaker would be unconstitutional because she is not an “Officer.” Thus, the Secretary of State—the next-in-line non-legislative officer—would also be likely to claim, and with some legitimacy, the presidency. This theory, if correct, risks throwing the United States and the entire free world into a state of chaos. Bush v. Gore would seem tame by comparison.
As I type, the President is in the hospital. The Vice President has been in close proximity to the President. The Speaker of the House was not in close proximity to the President. Soon, our Republic may be thrown into a state of chaos. And the public is relying on the Amars’ 1995 article.
The New York Times quoted Jack Goldsmith, who seemed to endorse the Amars’ position. And Professor John Yoo has favorably cited the Amars. He suggested that Secretary of State Mike Pompeo, and not Speaker Nancy Pelosi, is in line for the presidency after Vice President Pence. He wrote:
But Yale law professor Akhil Amar persuasively argued in 1995 (at the prospect of Speaker Newt Gingrich becoming president should Congress impeach Bill Clinton) that this provision is unconstitutional. The Constitution generally—but not always—uses “officers” to mean members of the executive branch. Further, the Incompatibility Clause of Article I provides that “no person holding any office under the United States, shall be a member of either house during his continuance in office.” That implies that neither Mrs. Pelosi nor Mr. Grassley could become acting president without resigning from Congress, which would remove them from the statutory line of succession. The cleanest reading of the law, then, is that if Messrs. Trump and Pence were both unable to serve as president, Mr. Pompeo would become acting president.
In November 2019, Seth Barrett Tillman and I explained our disagreement with the Amars in The Atlantic. (We wrote a much more detailed article on this topic that will be published in due course). Tillman has also unearthed an article from 1792 that casts doubt on a critical piece of evidence the Amars relied upon.
I hope the Amars can answer a simple question. Who is in line for the Presidency after Vice Pence: Speaker Pelosi or Secretary of State Mike Pompeo? In our view, Speaker Pelosi would become President.
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In an influential 1995 article, Professors Akhil and Vikram Amar argued that the 1947 Presidential Succession Act was unconstitutional. This law places the Speaker of the House next in line immediately after the Vice President. The Amars contended that this statute was unconstitutional. Their analysis began with the text of the Succession Clause. It provides:
In Case of the Removal of the President from Office, or of his Death, Resignation, or Inability to discharge the Powers and Duties of the said Office, the Same shall devolve on the Vice President, and the Congress may by Law provide for the Case of Removal, Death, Resignation or Inability, both of the President and Vice President, declaring what Officer shall then act as President, and such Officer shall act accordingly, until the Disability be removed, or a President shall be elected.”
If the Speaker is an “Officer,” for purposes of the Succession Clause, then there is no problem. The Constitution expressly empowers Congress to place “Officers” in the line of succession. If the Speaker is not an “Officer” for purposes of the Succession Clause, then the Presidential Succession Act is unconstitutional.
But the Amars contended that the Speaker is not an “Officer” for purposes of the Succession Clause. The Amars wrote that the word “Officer,” as used in “the Succession Clause[,] is merely shorthand for any of the[] . . . longer formulations” of the Constitution’s “office”- and “officer”-language, such as “officers of the United States” and “office . . . under the United States.” The Amars explained that “[a]s a textual matter,” the varied references to officers of the United States and office under the United States “seemingly describe[] the same stations.” The Amars did entertain the possibility that the Framers drew a “civil/military distinction” among different types of officers. But they posited that “the modifying terms ‘of,’ ‘under,’ and ‘under the Authority of’ are essentially synonymous.” In short, the Amars concluded that the Constitution’s divergent “office”-language creates a “global officer/legislator distinction.” The “global officer” extends only to positions in the Executive and Judicial Branches.
By contrast, elected Representatives and Senators reside in the Legislative Branch. Specifically, the Amars explained, “federal legislators are neither ‘Officers under the United States,’ nor (to the extent that there is any difference) ‘Officers of the United States.'” Accordingly, the Amars reasoned, “[l]egislators are not ‘Officers’ under the Succession Clause.” Finally, the Amars stated that the word “officer,” standing alone and unmodified in the Succession Clause, amounts to mere shorthand for “officer of the United States” and “office . . . under the United States.”
Ultimately, under the Amars’ theory, the Speaker of the House—qua legislator—is not an “Officer” and thus cannot stand in line of presidential succession. To the extent that the Speaker is an “Officer,” the Amars argued that he is an officer of the legislature or an officer of the House. As a result, the Speaker is neither an “officer of the United States,” nor is he an “Officer” as that word is used in the Succession Clause. According to the Amars, these phrases are coextensive.
Akhil Amar restated this position nearly two decades later in his magisterial tome, America’s Unwritten Constitution: “A member of the Congress, such as the House speaker, is simply not an eligible ‘Officer’ within the meaning of the [S]uccession [C]lause.”
In 2004, Akhil Amar testified before Congress about the constitutionality of the Presidential Succession Act. During this hearing, he took a less categorical position. Amar stated that “in very, very highly unusual situations” legislative succession may be permissible. During such a dire time where all cabinet officials are “gone . . . only a real constitutional zealot, maybe without good judgment, would say you can’t have congressional leaders in that circumstance because the Constitution really isn’t a suicide pact.” Presidential Succession Act: Hearing Before the Subcomm. on the Const. of the H. Comm. on the Judiciary, 108th Cong. 52 (2004).
Under their view, if the presidency and vice presidency become vacant—a so-called “double vacancy”—we would face a constitutional crisis. The Speaker of the House would claim the Presidency by virtue of the Presidential Succession Act. But succession by the Speaker would be unconstitutional because she is not an “Officer.” Thus, the Secretary of State—the next-in-line non-legislative officer—would also be likely to claim, and with some legitimacy, the presidency. This theory, if correct, risks throwing the United States and the entire free world into a state of chaos. Bush v. Gore would seem tame by comparison.
As I type, the President is in the hospital. The Vice President has been in close proximity to the President. The Speaker of the House was not in close proximity to the President. Soon, our Republic may be thrown into a state of chaos. And the public is relying on the Amars’ 1995 article.
The New York Times quoted Jack Goldsmith, who seemed to endorse the Amars’ position. And Professor John Yoo has favorably cited the Amars. He suggested that Secretary of State Mike Pompeo, and not Speaker Nancy Pelosi, is in line for the presidency after Vice President Pence. He wrote:
But Yale law professor Akhil Amar persuasively argued in 1995 (at the prospect of Speaker Newt Gingrich becoming president should Congress impeach Bill Clinton) that this provision is unconstitutional. The Constitution generally—but not always—uses “officers” to mean members of the executive branch. Further, the Incompatibility Clause of Article I provides that “no person holding any office under the United States, shall be a member of either house during his continuance in office.” That implies that neither Mrs. Pelosi nor Mr. Grassley could become acting president without resigning from Congress, which would remove them from the statutory line of succession. The cleanest reading of the law, then, is that if Messrs. Trump and Pence were both unable to serve as president, Mr. Pompeo would become acting president.
In November 2019, Seth Barrett Tillman and I explained our disagreement with the Amars in The Atlantic. (We wrote a much more detailed article on this topic that will be published in due course). Tillman has also unearthed an article from 1792 that casts doubt on a critical piece of evidence the Amars relied upon.
I hope the Amars can answer a simple question. Who is in line for the Presidency after Vice Pence: Speaker Pelosi or Secretary of State Mike Pompeo? In our view, Speaker Pelosi would become President.
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Note: all references to inflation are of the quantity of money and not to the effect on prices unless otherwise indicated.
In last week’s article I showed why empirical evidence of fiat money collapses are relevant to monetary conditions today.
In this article I explain why the purchasing power of the dollar is hostage to foreign sellers, and that if the Fed continues with current monetary policies the dollar will follow the same fate as John Law’s livre in 1720. As always in these situations, there is little public understanding of money and the realisation that monetary policy is designed to tax people for the benefit of their government will come as an unpleasant shock. The speed at which state money then collapses in its utility will be swift. This article concentrates on the US dollar, central to other fiat currencies, and where the monetary and financial imbalances are greatest.
Introduction
In last week’s Goldmoney Insight, Lessons on inflation from the past, I described how there were certain characteristics of Germany’s 1914-23 inflation that collapsed the paper mark which are relevant to our current situation. I drew a parallel between John Law’s inflation and his Mississippi bubble in 1715-20 and the Federal Reserve’s policy of inflating the money supply to sustain a bubble in financial assets today. Law’s bubble popped and resulted in the destruction of his currency and the Fed is pursuing the same policies on the grandest of scales. The contemporary inflations of all the major state-issued currencies will similarly risk a collapse in their purchasing powers, and rapidly at that.
The purpose of monetary inflation is always stated by central banks as being to support the economy consistent with maximum employment and a price inflation target of two per cent. The real purpose is to fund government deficits, which are rising partly due to higher future welfare liabilities becoming current and partly due to the political class finding new reasons to spend money. Underlying this profligacy has been unsustainable tax burdens on underperforming economies. And finally, the coup de grace has been administered by the covid-19 shutdowns.
The effect of monetary inflation, even at two per cent increases, is to transfer wealth from savers, salary-earners, pensioners and welfare beneficiaries to the government. In no way, other than perhaps from temporary distortions, does this benefit the people as a whole. It also transfers wealth from savers to borrowers by diminishing the value of capital over time.
Inflation of the money supply is now going into hyperdrive, so those negative effects are going to get much worse. It is time to move from empirical evidence to the situation today, which is the unprecedented increase in the global rate of monetary inflation and specifically that of the world’s reserve currency, the US dollar.
The dollar’s inflation
No doubt, the reluctance to reduce, or at least contain budget deficits is ruled out by the presidential election in November. But whoever wins, it seems unlikely that government spending will be reined in or tax revenue increased. For the universal truth of unbacked state currencies is that so long as they can be issued to cover budget deficits they will be issued. And as an inflated currency ends up buying less, the pace of its issuance all else being equal will accelerate to compensate. It is one of the driving forces behind hyperinflation of the quantity of money.
Since the Lehman crisis in August 2008, the pace of monetary inflation has accelerated above its long-term average, and the effect is illustrated in Figure 1 below.
Figure 1 includes the latest calculation of the fiat money quantity, to 1 August 2020. FMQ is the sum of Austrian money supply and bank reserves held at the Fed — in other words fiat dollars both in circulation and not in public circulation. Because commercial banks are free to deploy their reserves within the regulatory framework, either as a basis for expanding bank credit or to be withdrawn from the Fed and put into direct circulation, whether in circulation or not bank reserves at the Fed should be regarded as part of the fiat money total.
It can be seen that the rate of FMQ’s growth was fairly constant over a long period of time — 5.86% annualised compounded monthly to be exact — until the Lehman crisis when the rate of growth then took off. Since Leman failed in 2008 FMQ’s total has grown nearly 300%.
Since last March growth in the FMQ has been unprecedented, becoming almost vertical on the chart, triggered by the Fed’s response to the coronavirus. And now a second wave of it has hit Europe and the early stages of a resurgence appears to be hitting the land of the dollar as well. With lingering hopes of a V-shaped recovery being banished, a further substantial increase in FMQ is all but certain.
Already, FMQ exceeds GDP. If we take the last time things were normal, say, in 2005 when the US economy had recovered from the dot-com crash and before bank credit expansion and mortgage lending become overblown, we see that in a functioning relationship FMQ should be between 35%—40% of GDP. But with the US economy now crashing and FMQ accelerating, FMQ is likely to be in excess of 125% of GDP in the coming months.
What is the source of all that extra money? It is raised through quantitative easing by the central bank in a system that bends rules that are intended to stop the Fed from just printing money and handing it to the government. Yet it achieves just that. The US Treasury issues bonds by auction in the normal fashion. The major banks through their prime brokers bid for them in the knowledge that the Fed sets the yield for different maturities through its market operations. The Fed buys Treasury bonds up to the previously announced monthly QE limit, only now there is no limit, giving the primary brokers a guaranteed turn and crediting the selling banks’ reserve accounts with the proceeds.
This arm’s length arrangement absolves the Fed of the sin of direct money-printing but evades the rules by indirect money-printing. The Treasury gets extra funding through this roundabout arrangement. Participating banks generally expand their bank credit to absorb the new issue, which they then sell to the Fed, which in turn credits the banks’ reserve accounts. The Treasury gets the proceeds of the bonds to cover the deficit in government spending, and the banks get expanded reserves. The Fed’s balance sheet sees an increase in its liabilities to commercial banks and an increase in its assets of Treasury bonds. The Fed also funds agency debt in this manner, mostly representing mortgage finance.
Under President Trump, the Treasury’s current deficit initially expanded as a planned supply-side stimulus to the US economy to the tune of just over a trillion dollars before covid-19 created additional financial chaos. Businesses experienced severe dislocation and have suffered a widespread collapse. Consequently, and together with the direct injection of money into each household, the Congressional Budget Office revised its trillion-dollar deficit for the financial year just ended as the following screenshot from its website indicates:
Note how half the government’s income arose from revenues and half is covered by sales of government debt to the public (i.e. the commercial banks), which at the end of fiscal 2020 (ended yesterday) is estimated to total $20.3 trillion. But given that the first half of that fiscal year was pre-lockdown and the annualised rate of the deficit at that time was about a trillion dollars, simplistically the annualised rate of the deficit’s increase since last March is in the region of $4.4 trillion. Incidentally, the CBO’s economic projections look too optimistic given recent events, in which case budget projections for this new calendar year will be adjusted for considerably lower revenue figures, and significantly greater outlays at the least. We shall address the price inflation estimates later in this article.
Why QE is inflationary
On 23 March the Federal Open Markets Committee (FOMC) announced unlimited QE for both US Treasury stock and agency debt as well as however much liquidity commercial banks need.[i] While judging the expansion of the budget deficit to be inflationary, it is only inflationary to the extent that it is not financed by savers, either increasing the proportion of their savings relative to immediate spending, or to the extent they divert their savings from other investment media. In the latter case, citizens have been committing their savings more to equity markets than bond markets. The returns for discretionary portfolios managed on the public’s behalf have also found better returns in equities than in government and corporate bonds, though when assessing increasing investment risk Treasury stock is seen to be a safe haven in bond portfolios. Pension funds and insurance companies also allocate cash flow to US Treasuries and to the extent that this is the case, the issuance of further government debt is non-inflationary.
Furthermore, if a bank does not increase its balance sheet by expanding bank credit, its participation in the Fed’s QE programme is not inflationary either. For this to be the case, it would have to sell existing stock, call in loans or subscribe on behalf of clients.
By seeing them through a Nelsonian blind eye these factors give some encouragement to the Fed in funding the Treasury through QE, particularly since the statistics reflect a jump in savings, as the following chart from the St Louis Fed illustrates.
More correctly, the chart reflects the fall in spending when people locked down, as well as the $1,200 stimulus checks distributed to households at end-April, which marked the peak in the chart. Since then, there has been some downward adjustment, partly because some spending has returned, and the backlog of essential spending, such as property maintenance, is being addressed.
The evidence is not yet strong enough to claim this statistical shift in savings habits is permanent. Furthermore, being calculated as the percentage of personal disposable income that is not spent and given the high levels of personal debt throughout the population, much of these so-called savings will have disappeared into credit card and debt repayments. It is more likely that with rising unemployment and roughly 80% of the American salaried population living paycheque to paycheque, that far from there being a higher savings rate, personal finances have deteriorated so much that money is being withdrawn from savings on a net basis, to acquire life’s essentials. In fact, the savings rate is one of those unmeasurable economic concepts, and the reality is that Joe Average is worse off in today’s contracting economy and is drawing down on savings in order to subsist.
The non-inflationary element of QE then boils down roughly to increases in insurance company and pension fund investments in Treasury stock and the increase in bank holdings and reserves at the Fed not funded through the expansion of bank credit. But this creates another factor: the extent to which existing bond investments are sold in order to subscribe for Treasury stock inevitably undermines corporate bond markets and their ability to satisfy their funding requirements. And it is for this reason the Fed has appointed BlackRock to spearhead its purchases of corporate debt to ensure liquidity is available for those markets and to put a cap on risk premiums. Therefore, where banks do not expand credit to buy new Treasury stock, the Fed steps in to compensate with additional monetary inflation.
It has been necessary to go into the mechanisms behind funding government deficits in some detail to establish the inflationary consequences of QE, and to refute claims by monetary authorities and others that QE is either not or only partly inflationary, and so is consistent with the Fed’s mandate. No, with the exception of insurance and pension fund subscriptions, the Fed’s QE is almost pure monetary inflation
The relationship between inflation and prices
Assuming no change in the average cash balances held by a population, over time there must be an inverse relationship between the expansion in the quantity of money in circulation and the diminution of its purchasing power. This is unarguable in logic and to argue otherwise is to subscribe to a version of monetary perpetual motion. By the same token, while the effects on individual prices also have to allow for changes in the factors specific to them, the effects of monetary debasement on the general level of prices should be clear. Now it is time to introduce a second factor; changes in the average cash balances held by a population.
Changes in cash balances are an expression of relative preferences between money and goods. If a population as a whole is satisfied with the stability of money as the medium of exchange, it will be happy to retain balances surplus to its immediate needs. We see this even with inflating currencies, such as the Japanese yen, where irrespective of the level of interest rates monetary expansion merely accumulates as bank deposits. It is unusual for a population to go to the extremes evident in Japan, but equally, a population which realises its currency is declining in purchasing power has every reason to dispose of it in favour of goods, maintaining lower balances in consequence.
The complete rejection of a currency as the medium of exchange renders it utterly valueless and is the common outcome to every hyperinflationary collapse. Governments that become ensnared by inflationary financing face the growing certainty of a Venezuelan outcome.
For now, monetary authorities around the world are relying on public ignorance about money and the theory of exchange. Those who trouble themselves to consider how their currency’s purchasing power is actually changing will notice how it is declining more rapidly than official statistics say. This is deliberate. After the introduction of widespread indexation in the early 1980s governments devised methods to reduce the costs incurred. Changes in statistical methodology have achieved that, with consumer price indices now entirely suppressed, so much so that central banks claim to be struggling to get the CPI to rise to its two per cent target.
The evidence from independent analysts in America such as Shadowstats and the Chapwood Index is that real world prices there are rising at closer to a ten per cent rate and have been for the last ten years. With the FMQ having grown at a monthly compounding annualised rate of 9.6% from the Lehman crisis to the end of 2019, the truth about price inflation appears closer to independent analysts’ calculation than the official CPI. Furthermore, there is little evidence of noticeable change in savings rates or cash hoarding over the period, which would have affected the general level of prices.
The first to realise that the purchasing power of a currency is declining and will continue to do so are usually those who own it for reasons other than as a normal medium of exchange. These are foreign holders who have accumulated currencies other than their own government’s fiat money as a result of trade and have chosen to retain it instead of selling it in the foreign exchanges. And there is a second group of foreign holders which has diversified investment portfolios into foreign financial markets.
These groups are primarily sensitive to external economic and financial factors, such as changes in the outlook for trade, financial asset values and their requirements to hold liquidity in their own currencies. It stands to reason that a state that manages to run continuing deficits on the balance of trade and retain an accumulation of foreign ownership of its currency is vulnerable to changes in international sentiment. This is the situation the dollar finds itself in, with US Treasury TIC figures revealing foreigners own financial securities worth approximately $20.6 trillion, and additionally bank deposits and commercial and US Treasury short-term bills totalling $6.15 trillion. In other words, foreign ownership of the dollar is 130% of the CBO’s estimate of current US GDP.
The accumulation of foreign dollar positions was due to a number of factors: the dollar is the international reserve currency, trade expectations were of continual global growth, the perpetuation of US trade deficits, increasing portfolio investment and a rising dollar. Global trade is now contracting, and the dollar has begun to decline. Commercial priorities are changing from global expansion to conserving capital.
With the global economic outlook deteriorating rapidly, the dollar is notably over-owned by foreigners, which is not counterbalanced by American ownership of foreign currencies. Most of US foreign financial interests are denominated in dollars with exposure to foreign currencies remarkably small at $714bn at end-June.
China has already declared a policy of reducing her dollar investments in US Treasury bonds and is selling her dollars to buy commodities. Few realise it, but China is doing what ordinary people do when they begin to abandon a currency — dumping it for tangible goods which will cost more in future due to the dollar’s declining purchasing power. And as the dollar’s purchasing power declines measured in commodities more nations are likely to follow China’s lead.
When you see a chart of the expansion of money supply, as illustrated in Figure 2 below and combine that with a falling dollar in the foreign exchanges, it is only a matter of time before increasing members of the domestic population begin to follow the foreigners’ lead.
Compared with the past, there is a generation of millennials which through their understanding of cryptocurrencies has learned about the debasement of fiat currencies by their governments. It remains to be seen whether this knowledge will bring forward the general public’s understanding of monetary affairs for an earlier abandonment of money for goods.
Banking and its cyclical consequences
Not only are some of the global systemically important banks (G-SIBs) highly leveraged on their balance sheets — which one would expect at the end of a period of bank credit expansion — but in most cases stock markets are valuing their equity at a fraction of their balance sheet book values, contrasting with outrageously high valuations for non-financial stocks in the most severe economic downturn ever seen in peacetime.
Table 1 below illustrates the point by incorporating the combination of balance sheet gearing and stock market valuations for all the G-SIBs to give a multiple of balance sheet assets to market capitalisation, ranking them from most dangerous to the least on this measure. The only banks in the list with market capitalisations higher than balance sheet equity — price to book ratios of more than one — are North American banks, which might explain why critical leverages are not recognised as a systemic problem in US financial markets
The three highest leverages by a country mile are of Eurozone banks: remember these are just the G-SIBs — there will be many commercial banks as highly leveraged which are not on this list. To have your equity valued at only 15% of book value, which is the indignity suffered by the French bank, Société Générale, should send warning signals to French banking regulators. But they insist on only looking at the ratio of balance sheet assets to balance sheet equity; which for Soc Gen is still an eye-watering 21.4 times. Unlike the regulator, investors appear to think this bank is most likely bankrupt, its share price little more than a call option on its survival.
It is a problem which particularly affects banks in the Eurozone. And experience tells us that the numbers reported by banks are bolstered by their gaming of the regulatory system, which is why when a bank fails the outcome is always worse than the pre-failure numbers would suggest possible.
Large banks do not operate in national silos, having trade finance activities, foreign exchange and derivative trading, lending in foreign currencies and even substantial branches and subsidiary operations abroad. The idea that a crisis in the Eurozone, or Britain for example, can be contained to national boundaries is wishful thinking. With the exception of Wells Fargo, US G-SIBs come out better than those of other jurisdictions, but that will not save them from a systemic crisis originating elsewhere.
While we can point to the end of the credit cycle, there is no doubt that Covid-19 has precipitated a more immediate crisis for commercial banks. The official talk is no longer of a V-shaped recovery, and businesses are on life support.
In the near future, a banking crisis seems inevitable. The best case is it is contained by either governments nationalising all banks subject to failure, or they end up supported directly by their respective central banks, which given the crisis in the US repo market a year ago can be said to be already happening. For the inflationists there is the consolation that money-printing can then be used to support failing businesses through the banks with obstructive commercial considerations removed.
Interest rates
The principal control mechanism deployed by monetary planners is management of interest rates. They are under the delusion that a reduction of interest rates is a stimulus to industrial investment and therefore the betterment of the economy, whereas all their suppression achieves is the destruction of savings and the advancement of malinvestments.
Their delusions were Keynes’s, and remain so with all his acolytes, among which monetary policy planners are numbered. Interest rates are simply the expression of time preference, the cost that a borrower pays to achieve temporary possession. All goods share this feature, and sound money in free markets reflects an average of the time preference of these goods.
In Keynes’s General Theory, a search of the index reveals just one reference to time preference, which occurs three times on the same page and nowhere else. This vital topic is thus dismissed. Keynes accepted that there is time preference but became confused as to what it represents. He merely saw it as a psychological counterpart to his invention of the propensity to consume and failed to make the connection between time preferences for goods and their monetary representation. Since he judged it to be solely related to money as opposed to possession, for him it left open the possibility that interest rates can be managed for a desired economic outcome. This was despite the evidence of which he was otherwise aware, that managing interest rates with a view to controlling the rate of inflation did not work, and that the correlation was between wholesale borrowing costs and the general price level, not its rate of change represented by an inflation rate.[iv] Keynes named it Gibson’s paradox after its discoverer, but since he could not explain the paradox, he chose to ignore it as have all his followers.
For these reasons, managing interest rates to achieve economic outcomes, including recent introductions of negative rates, has proved to be a lamentable failure. But as the currency loses purchasing power, the reflection of time preferences for goods will see an additional factor related to money itself. Thus, time preference expressed in dollar terms becomes significantly higher than justified solely by the deferred ownership of goods. The foreign exchanges insistence that future currency depreciation due to monetary inflation be taken into account will then render the authority’s task of suppressing interest rates impossible.
The Fed will find that in the absence of a significant increase in savings — something it is determined should not happen anyway — as well as financing a deteriorating Federal deficit, it will have to absorb foreign sales of US Treasury, agency and corporate bonds. Foreigners are then reluctant possessors of surplus dollars.
In the absence of a rising level of domestic savings, a rapidly deteriorating budget deficit feeds through to one or both of two outcomes. As an identity of national accounting and in the absence of an increase in savings, a budget deficit is mirrored by a trade deficit, both of which in this new fiscal year on present indications are likely to expand to anything between three and five trillion dollars. That is the first outcome, and if President Trump is re-elected next month this deterioration will likely lead to increased hostility against America’s importers.
The second problem, in view of the first, is how importers already overloaded with dollars will respond to the increasing quantity of additional dollars accumulating in their bank accounts from an increasing trade imbalance. The answer must be that they have no reason to hold on to them. And unless the US Treasury buys these unwanted dollars, deflating the quantity in circulation, these dollars will end up driving the exchange rate lower and inflating prices in the domestic economy.
We can see the conditions where the dollar is driven down against other currencies as only a first step, and we are now aware that China is in the vanguard of selling dollars for commodities, likely to be joined by others as the dollar declines. Consequently, the purchasing power of the dollar — already deteriorating at a ten per cent clip according to independent estimates — is bound to deteriorate at a greater pace.
By its statements and actions, the Fed confirms a belief that an increase in price inflation can be controlled by raising interest rates. Consequently, a falling dollar in the foreign exchanges will present it with an insuperable dilemma: does it raise interest rates to protect the dollar and thereby burst the bubble in financial assets and force the Federal Government’s finances into insolvency? Or does it just let price inflation rip? The choice will be as black or white as that.
Almost always, central banks in this invidious position end up with a compromise, raising interest rates too little too late. Just occasionally, they raise overnight interest rates to stratospheric levels in an attempt to restore order by squeezing the speculators. Other than the temporary effects of the latter expedient, we know from Gibson’s paradox that raising interest rates to control price inflation does not work. And with 130% of the GDP statistic currently represented by foreign ownership of dollars, the bulk of nearly $27 trillion like an elephant in the room is overhanging the foreign exchanges. Worse still for the Fed, Gibson’s paradox tells us that even if the Fed raised interest rates to compensate fully for loss of purchasing power it would not be sufficient to stabilise the currency: that requires the adoption of sound money policies and a stop to inflationism.
The way to look at it is by understanding the foreigners’ assessment of time preference, comprised of a general level for the exchange of goods and an additional level peculiar to a depreciating currency. Therefore, irrespective of the Fed’s interest rate policy market forces represented by foreign interests will take over control of interest rates, and the Fed’s bond bubble will be burst. Rising yields for US Treasuries will collapse the equity market and the market for corporate debt. These events will threaten any remaining foreign interest in the dollar and its capital markets even further. In short, the policy of inflating a financial asset bubble becomes impossible to sustain and its failure will take the dollar down with it as well.
This was why when John Law’s Mississippi bubble burst three hundred years ago, by October 1720 his currency, the livre, was worthless on the foreign exchanges. The collapse had started eleven months earlier, when Law accelerated the inflation of the livre to support a failing share price. The Fed embarked on a doppelganger acceleration of monetary inflation on 23 March for the whole US bond market. If we replicate the John Law experience, the dollar could become valueless in a matter of months.
It is becoming clear to a growing audience that in the absence of a change in inflationary policies, the days of an unbacked dollar are rapidly coming to an end, and it will take down the international fiat order upon which it is based.
via ZeroHedge News https://ift.tt/2Sm8inr Tyler Durden
Gold Prices Supported By Western Investors As Consumer Demand In China And India Slows Tyler Durden
Fri, 10/02/2020 – 23:20
Some of the world’s most well known investors aren’t being coy about wanting to get exposure to gold. In addition to Berkshire Hathaway’s addition of Barrick Gold, Bridgewater also invested in gold backed ETFs during the second quarter.
In fact, holding up gold’s price is interest from the West that is offsetting softer demand from the East, according toFT. The demand coming out of the West has been spurred by the impact of the coronavirus and, more specifically, the idea of a path to endless money printing.
David Tait, chief executive of the World Gold Council, told FT that gold’s rally “has focused a lot of people who had historically looked at gold as the Armageddon trade to look at it through a broader lens”.
In places like India and China, however, demand for gold has been relatively soft. Buyers in the two biggest consumer markets have either been selling their holdings or borrowing against them.
The question then becomes whether or not retail consumption can continue to drive gold’s strength – and what would happen if demand from the West dries up all of a sudden. The last time demand dried up heavily in the West, gold plunged from $1,920/oz. to $1,200/oz. in 2013.
One tailwind is the fact that gold ETFs now make up 35% of global demand compared to just 8% a year ago. But inflows into these funds look as though they could be slowing. For example the GLD registered withdrawals of money in September for the first time in eight months.
A plunge in gold could trigger further selling by many of the same retail investors that have kept the commodity afloat. Gold is currently about 10% lower than its late summer highs.
Adrian Ash, head of research at BullionVault, said: “One risk [scenario] here is that Asian buyers put a floor under the market. But with demand being so abject in the big consumer nations where will that floor be?”
China and India account for more than half of global gold purchases, but demand has fallen 56% in India over the first half of the year. Suraj Popley, who owns a jewelry store in a busy neighborhood of Mumbai said: “People are coming to sell gold, in case they require cash, in case they require liquidity. Very few people are coming to buy.”
Terence Lucien, head of mutual funds at PhonePe in Bangalore said: “There is an affinity towards gold. The way Indians have bought it traditionally, there have been people buying in excess.”
But demand has slowed, also as a result of pandemic-induced lockdowns. Weddings have been postponed and have reduced the appetite for lavish spending. Longer term consumer demand is also falling; down from 900 tons a year from 2010 to 2015 to about 700 tons last year.
Shekhar Bhandari, head of precious metals at Kotak Mahindra Bank, thinks the market will rebound eventually: “Have weddings been postponed? The answer is Yes. Is the number of marriages over the [long term] going to decrease? No.”
China has seen a similar plunge in consumer demand. The country saw its lowest level of consumer demand since 2007 during the first half of this year at just 152.2 tons.
Jeremy East, a Hong Kong-based former Standard Chartered banker, said: “There’s no gold going into China and very little going into India this year. That means the [western] ETF guys need to keep buying, [especially] if at the end of the year China and India are still not buying . . . That gold has got to find a home somewhere. The market needs more money to come in to keep absorbing this gold.”
David Govett, a veteran precious metals trader concluded: “Covid-19 cases are on the rise, governments are starting to panic again, economies are facing down the barrel of a second lockdown. All in all, it should be a perfect storm for gold. There’s too much uncertainty in the world to be short gold.”
via ZeroHedge News https://ift.tt/2SlMBnx Tyler Durden
