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Kudlow’s Money Politics

Larry Kudlow’s daily web log of matters political and financial.

Fri, May 26th - 8:30 AM



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Great American Boom Continued



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The greatest story never told continues with the latest GDP report that shows strong growth, low core inflation, and record after-tax profits.

Roughly three years since the Bush tax cuts lowered capital costs and strengthened investment incentives, and about eighteen months after the Fed started tightening its liquidity policy, the American economy remains healthy.

Smoothing out the Hurricane Katrina fourth quarter, with the bounce back in the first quarter, gets you about 3.5 percent growth, slightly more than 2 percent inflation, and a stock market that is undervalued in relation to after-tax profits.

Interest rates are still mild, at around 5 percent for both short and long yields.

It’s a steady economy.

Economic pundits keep telling us about the impending slowdown. Well, they’ve been waiting for a slowdown for years. Actually, I’ve heard about this slowdown for 25 years, ever since Reagan restructured and revived American capitalism through low tax rates, deregulation, and disinflation.

The reality is about 3.5 percent growth since the early 1980’s with very few interruptions. Total employment and wealth creation have soared during this entire span of time.

There’s a lesson here: Tax incentives matter. Price stability matters. Markets are smarter than central planners.

Think of it.
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Net Neutrality is a Loser



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As I’ve said here before, net neutrality is an awful idea.

Investors Business Daily offers an insightful editorial explaining why this anti-capitalist nonsense deserves to be soundly rejected by Congress.

“It’s clear that one of the most liberating developments of recent history has been the Internet. But those who would obstruct Web freedom are on the move.

Massachusetts Rep. Edward Markey seldom has used the language in such an exquisitely Orwellian fashion since he tried to thwart the Reagan administration’s space-based defense project by comparing it to “Star Wars.”

This time, he’s joined by far left groups such as Moveon.org in demanding new regulations to ensure “nondiscriminatory” content.

These political activists are teaming with Web giants Google, Yahoo and Microsoft who want new rules to protect their established dominance. Doing them all a huge favor, Markey has introduced a bill to guarantee what proponents call “net neutrality.”

Markey and his legionnaires aren’t too worried. Armed with Internet-gathered petitions, they expect the House Judiciary Committee to take up “net neutrality” in coming days.

As you might expect, their objective cannot be realized without introducing seriously anti-competitive, indeed anti-capitalistic, enforcement measures.

The bill targets Internet service providers, who must find ways to pay for making content accessible to the seemingly limitless world of online users.

That could mean charging content providers – like Google, Yahoo and Microsoft – extra for faster service and other fees. So Markey would put the government behind the big content providers, sparing them any inconvenient expenses through “neutrality.”

(Click the link above to read the editorial in its entirety.)

What is Hastert Thinking?



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Why is Dennis Hastert openly opposing the FBI, when in fact, the G-Men are doing their job?

Congressman William Jefferson (D-LA) apparently took a $100,000 bribe and stashed it away in his freezer in his Congressional office. (It’s not only hard cash, it’s cold cash’”cold hard cash that is illegal and this guy has been repeatedly subpoenaed and refuses to respond.)

So let me get this right. Are Congressional members above the law?

Nancy Pelosi wants this crook to submit his immediate resignation from the Ways and Means Committee. And Hastert is out in front of the microphones going to bat for this guy? Huh?

She should call for his immediate resignation as House member. Hastert should do likewise.

What kind of message is Hastert sending to a voting public that already hates Congress? And, in particular, a voting public that is pissed off at Republicans?

Meanwhile, Hastert himself may be in a heap of trouble, stemming from his close ties to disgraced lobbyist Jack Abramoff, based on information from convicted lobbyists now cooperating with the government according to ABC News.

Hastert denies it, but between 2001 and 2004, Hastert collected more than $100,000 in donations from Abramoff’s firm and tribal clients.

More cold cash Dennis?

Google’s Liberal Bias



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It appears my old friend Bruce Bartlett has had his own problems with lefty Google’s censorship.

Here’s a note Mr. Bartlett sent me after reading my post, Beware of Google last night:

“For a long time, whenever I would Google myself, the versions of my column on Townhall and National Review would always turn up. But some months ago, I noticed that they had stopped. Of course, one result of this is to reduce the number of hits on conservative web sites, thus reducing their attractiveness for advertisers and lowering their revenue.”

(Looks like Google’s censorship extends all the way from China, to right here in good, old America…)
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Off Message



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Fed Chairman Ben Bernanke is totally off message.

His admission to Senator Jim Bunning of a ‘lapse of judgment’ in the Bartiromo kerfuffle is pure process’”not content. His ‘data-driven’ approach to policy is backward looking driving through the rear view mirror.

Bernanke should go back to his confirmation hearing statement, when he stated that price stability is the cornerstone of economic growth. This should be his main message. He should resurrect his numerical inflation target. And he should publicly say that enhanced dollar value is vital to price stability.

Also, he should reemphasize forward-looking market price indicators, which includes a widening breakeven inflation spread in the TIPs bond market, abnormally high gold and commodities and a dollar exchange rate that is too low. A few more quarter-point rate hikes will contain inflation and actually strengthen the economy, along with the stock market.

The rising volatility in U.S. and worldwide stock markets is because Bernanke is off message. The U.S. Fed calls the tune for world money. Right now, the tune is off key.

Until Mr. Bernanke gets back on message, with clarity, expect more market volatility.

Again, the message should be: price stability, price stability, price stability.

Kudos to McCain



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Kudos to John McCain for going after ‘nativist’ elements within the GOP, and singling out Lou Dobbs, Mike Savage and Rush Limbaugh, for helping to ’fuel the problem’ when it comes to immigration.

Kudos to Senator McCain for voting in favor of investor tax cut extensions.

Kudos to Senator McCain for steadfastly supporting the Iraq war, the troops, and the Bush mission of democratization as a means of protecting America’s national security.

Also, kudos to the Arizonan for his campaign against corrupt and wasteful budget earmarks and excess budget spending overall.

Beware of Google



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The American Thinker has a rather significant article (Is Left-Leaning Google Censoring Right-Leaning Websites?) concerning Internet behemoth Google that absolutely deserves a read.

This is a big deal.

Here’s an excerpt:

“Something frighteningly ominous has been happening on the Internet lately: Google, without any prior explanation or notice, has been terminating its News relationship with conservative e-zines and web journals.

At first blush, one can easily ignore such business decisions by the most powerful company on the Internet as being routine. However, on closer examination, such behavior could give one relatively small (when measured by the size of its workforce) technology corporation a degree of political might that frankly dwarfs even its current financial prowess.

…Few people with an above room temperature intelligence quotient question the existence of bias in the media, although there is great debate about the slant. However, it is conceivable that few folks have considered the possibility of Internet news aggregators possessing such partiality, and, maybe more important, the ramifications.

In the case of Google, there is some evidence that its employees lean strongly to the left. According to a February 2005 USA Today article on the subject:

’As it claws for greater power, the Democratic Party has found a newly rich ally in one of the fastest-growing U.S. companies: Google.’

The article stated that of the over $200,000 Google employees gave to federal candidates in 2004, ‘98% went to Democrats, the biggest share among top tech donors.’ And, with a largely successful public stock offering making ’scores of millionaires among [Google's] 3,000 workers,’

’Democrats now have a potentially potent source of cash as they fight to retake the White House and Congress.’

Potentially more telling, a May 15 ‘Washington Prowler’ piece at The American Spectator disclosed a link between Google and the ultra-left wing MoveOn.org:

’Google has become the single largest private corporate underwriter of MoveOn. According to sources in the Democrat National Committee, MoveOn has received more than $1 million from Google and its lobbyists in Washington to create grassroots support for the Internet regulation legislation ['Net Neutrality']. Some of that money has gone to an online petition drive and a letter-writing campaign, but the majority of that money is being used to fund their activities against Republicans out in the states.’

Beyond this, Google appears intimately tied to former vice president and potential 2008 Democratic presidential candidate Al Gore. It is no secret that Gore is a senior advisor to Google, a position that garnered him a sizable number of shares according to Fox News political analyst Susan Estrich. On May 19’s The Big Story, Estrich discussed with host John Gibson Gore’s connection with Google, and how the wealth generated from the shares he owns in the Internet behemoth could give him enough money to finance his own presidential campaign.

This relationship goes further. According to a recent Wired magazine article about Gore, he is extremely close to Google’s CEO Eric Schmidt who ’supported Gore’s 2000 presidential campaign.’ Moreover, in April 2005, Google partnered with Gore’s cable channel, Current.”

About that $1 million Google and its Washington lobbyists lavished on MoveOn.org in its (ostensible) support of the Internet regulation legislation, a.k.a. ‘Net Neutrality’: That is bad news too. It is a lousy idea.

The people that built the fiber optic pipes own it. So if they choose to rent it to whomever, or to whomever’s customers, for whatever reason, they get to set the rent based on free-market forces. The government should not step in to subsidize Google or anybody else. Because if they do, they’re going to stop the expansion of the whole network buildout since it won’t be profitable.

The bottom line here is that Google is using left wing politics and lobbying.

This is not a good thing. Not by a long shot.

Low Taxes Spur Growth Mayor Bloomberg



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Despite loads of taxpayer dollars sitting in New York City’s coffers (an estimated $3.4 billion dollar surplus this year), tax cuts are not in the game-plan Mayor Bloomberg said yesterday.

E.J. McMahon of the Manhattan Institute told the New York Post this is really bad news. “You’re talking about the most heavily taxed big city in the country, which happens to be in the mode where it can do some tax cutting.

McMahon warned the city’s high taxes would one day take their toll on the economy.

“Something in him thinks taxes don’t matter because they never mattered to him,” he said of the mayor.

I wrote a column in The Wall Street Journal back in January (“Low-Tax Tiger”) discussing the tax reform commission I chaired at Governor Pataki’s request.

“[W]e concluded that there is a clear relationship between state tax burdens and state economic health. States with high and rising tax burdens are more likely to suffer economic decline; those with low and falling tax burdens are more likely to enjoy strong economic growth. Academic studies, as well as real-world experience, show clearly that low-tax states consistently outperform high-tax states.

…It is absolutely essential that New York be more competitive in the global race for capital. New York competes regionally, nationally and internationally. What is overlooked, however, is the state’s need for new capital and new capital formation. New jobs require new businesses, and new business formation requires new capital sources. Nothing will make New York more prosperous than improving its economic climate to make the state a more hospitable place for the treatment of smart money and smart people. We compete daily with low-tax states elsewhere in the U.S. and with newly attractive destinations for capital in places like Russia, Eastern Europe, China and India. Smart money and smart people are highly mobile. In the world race for capital, they go to where the return on capital is highest.”

The same applies to New York City.

We’re Winning



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My old friend Ralph Peters has an op/ed worth reading in today’s New York Post (Defeating Terror: Despite the Pols, We’re Winning).

According to the military expert, America is winning the war against terror, despite the MSM and the ususal politicians playing partisan politics.

“The mainstream media said it couldn’t be done, so the Iraqis did it: Under new Prime Minister Nouri al-Maliki, they formed a permanent government based on free elections. (Those free elections were supposed to be impossible, too – remember?)…”

…Headlines from Afghanistan always read “Five Soldiers Killed and Wounded,” not “150 Taliban Killed.” If today’s journalists reported the Battle of Midway, we’d read “U.S. Aircraft Shot From Skies,” with a brief mention of the destruction of the Japanese carrier fleet buried at the bottom…”

…Al Qaeda has been broken. Yes, its remnants remain deadly. Yes, autonomous terror cells pose a growing threat. But the organization behind 9/11 has seen its surviving leaders driven into caves and remote villages where they live in constant fear. Islamist terror may have moved beyond al Qaeda, but our government and our military deserve credit for shattering the greatest international terror ring in history.”


With respect to Iran, Mr. Peters told me on the radio recently that the U.S. should be talking to Iran. One of the benefits is we’ll pick up intelligence. I completely agree. If we were ever to bomb them, we need to talk to them first.

In fact, the American public will not allow a such a campaign until talks are fully exhausted. This view is also supported by another old friend, brilliant miltary analyst Thomas P.M. Barnett.

What Goes Around Comes Around



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Terrific op/ed in today’s Wall Street Journal on Milberg Weiss.

’As the nation’s premier filer of class action lawsuits, Milberg Weiss Bershad & Schulman LLP has long presented itself as a fearless watchdog of America’s financial markets. Milberg lawyers are famed for their skill at seizing on missteps by the businesspeople they sue — a missed earnings projection, an omitted disclosure, a too-rosy accounting practice — and portraying them as evidence not of inadvertent or technical slip-ups, but of systematic and brazen crookedness.

All the while, if one is to credit the 102-page indictment by a federal grand jury in Los Angeles last week, Milberg Weiss was passing at least $11 million in payoffs under the table to plaintiffs in its suits. Since such payoffs are baldly illegal, prosecutors claim the firm took elaborate steps to keep them concealed from judges and othe…

…Milberg and partners David Bershad and Steven Schulman (who have taken leaves of absence from the firm) flatly deny the charges and say they’re victims of overzealous prosecution. There’s irony in this — since the firm is known for zealous tactics akin to those it’s now facing, such as the use of charges under the RICO (Racketeer Influenced and Corrupt Organizations) law.

…The two celebrity lawyers who made Milberg famous, Melvyn Weiss and the now-departed William Lerach, have thus far escaped indictment: Of course, if they were prosecuting such a case, they would miss no opportunity to insinuate that misconduct by part of a team of top executives must have been at least tolerated by the others, that the rot goes straight to the top, that senior partners turned a convenient blind eye to signs of misconduct because they profited handsomely from that misconduct, and so for…’

“Mexico Works to Bar Non-Natives From Jobs”



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Drudge linked to an interesting AP story on Mexican immigration policies:

“…Even as Mexico presses the United States to grant unrestricted citizenship to millions of undocumented Mexican migrants, its officials at times calling U.S. policies “xenophobic,” Mexico places daunting limitations on anyone born outside its territory.

In the United States, only two posts ‘” the presidency and vice presidency ‘” are reserved for the native born.

In Mexico, non-natives are banned from those and thousands of other jobs, even if they are legal, naturalized citizens…”


Mexico is a mess from the economy on down. And, yes, their immigration policies are hypocritical.

But the blunt fact remains that it’s the wage differential that continues to magnetize Mexicans to the U.S. economy.

Until that problem is solved, nothing will be solved.

Ray Nagin’s Magnanimous Remarks



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From today’s Washington Times:

“NEW ORLEANS — Rebuilding this city will take a team effort, said its newly re-elected Mayor C. Ray Nagin, who extended his hand to the governor and state officials, but most notably thanked President Bush for the aid he already has given.

To President Bush, I want to thank you, Mr. President. You and I have probably been the most vilified politicians in the country. But I want to thank you for moving on that promise you made at Jackson Square,” Mr. Nagin said during his acceptance speech.

Mr. Nagin said that the president called to congratulate him on his victory and said he was pleased with the opportunity to continue working on recovery with Mr. Nagin, instead of having to begin anew with a different administration…”

Whatever his shortfalls, Nagin is a classy guy for praising President Bush. Democrats never do this. Our political culture has become so polarized. But as Ray Nagin shows, it doesn’t always have to be that way.

Bush himself has acknowledged making mistakes in handling the Katrina disaster. So, here is an unusual example of civility in American politics.

Nagin himself is an interesting political character. DNC Chairman Howard Dean opposed him, as did the New Orleans business community. But Nagin let bygones be bygones last night saying, ‘I forgive you,’ referring to the business community.

Conservative Republican businessman Robert Couhig supported Nagin after being highly critical earlier on. The Republican’s support proved critical to Nagin’s victory.

No More Bacon!



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Certain members of Congress just don’t get it.

According to an editorial in today’s Wall Street Journal, House Members inserted one loophole after another in the recently passed lobbyist-reform bill.

These lawmakers turned a blind eye to polls showing that voters have absolutely had it with earmarks. One recent poll indicates earmark reform is the single most important issue facing Congress right now.

The WSJ writes, “When the House passed its lobbyist-reform bill last month, we praised the earmark transparency provision as a rare bright spot. Maybe we spoke too soon. Outsiders have now had a chance to inspect the fine print, and if Sarbanes-Oxley were this full of loopholes, few businesses would complain.

…Oh, and earmarks directed to state and local governments are also exempt from the requirement under some circumstances. How big a loophole is that? “It could be as big as the appropriators are clever,” Representative Jeff Flake (R., Ariz.) told us. “And they’re pretty clever.” Congressman Flake has been fighting the earmark tide since long before it became a cause celebre, and he’s hoping the loopholes can be narrowed when the House and Senate sit down to agree on a common version of the bill.”


These folks in Washington ignore the wishes of the electorate at their own peril. Come November, some of these bacon-lovers may be browsing through the “Help Wanted” ads.

Maybe they can get a job with Oscar Meyer…

CBS Poll: Bush’s Numbers Head Higher



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President Bush’s overall approval rating jumped 4 percent according to the latest CBS poll.

The President’s immigration policies are also polling well with voters:

- 62 percent favor his plan to station National Guard troops at the Mexican border.

- 61 percent approve of Mr. Bush’s proposal for a guest worker program to allow foreign workers to stay in the U.S. on a temporary basis and then return to their home country.

- 77 percent support a program that would clear the way for illegal immigrants to seek citizenship if they’ve been in the United States for at least five years, pay a fine and back taxes, learn to speak English and have no criminal record.

The CBS poll also found a majority of Americans approve the government collecting phone records to use in the fight against terrorism.

Kudlow on the Radio



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The Larry Kudlow Radio Show can be heard live every Saturday from 10:00am until 1:00pm (EST) on New York’s 770 AM radio dial. If you are located outside the greater New York area, you can tune in live to Larry’s show via the Internet at www.wabcradio.com.

Larry is also a regular guest every Friday night on Hugh Hewitt’s nationally syndicated radio show. Tune in at 7:20pm (EST) to catch Larry and Hugh discuss the latest political and financial news. (Check your local listings or listen live via Hugh’s website at www.hughhewitt.com.)

“National Security 101”



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From today’s New York Post:

“…[T]here is every reason to believe – albeit inferentially – that the NSA and military intelligence-gathering efforts are paying substantial dividends.

Since 9/11, the terrorists’ butcher’s bill has been horrific.

Consider:

* The October 2002 bombing of a Bali nightclub took 202 lives and injured 209.

* The October 2002 attack by Chechen separatists on a Moscow theater resulted in the deaths of 130 hostages.

* The March 2004 bombing of the Madrid rail system killed 192 people and wounded 2,050.

* The September 2004 Chechnyan siege of a Beslan school ended with 344 people dead (186 children) and 700 injured.

* The July 2005 bombings of London trains and a bus killed 56 people and wounded another 700.

* Ongoing suicide and car bombings in Iraq have killed thousands of innocent civilians.

But notably not on that list is an attack within the United States.

This absence has several causes – and not one of them is because the terrorists have suddenly forgotten about America or have given up trying to inflict various levels of harm on these shores.

One reason is that George W. Bush decided to take the war to the enemy rather than wait for the enemy to strike again on American soil.

Another, just as significant, is because the above-mentioned intelligence agencies have pulled out all the stops to prevent another 9/11.

The NSA initiatives are a huge part of that effort – and its success, knock on wood, speaks for itself…”

Mexico on the Brink?



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According to an AP story:

“Police enraged by the kidnapping of six officers club unarmed detainees. A bloody battle between steelworkers and police leaves two miners dead. Drug lords post the heads of decapitated police on a fence to show who’s in charge.

Less than two months before Mexicans elect their next president, many fear the country is teetering on the edge of chaos – a perception that could hurt the ruling National Action Party’s chances of keeping the presidency and benefit Mexico’s once-powerful Institutional Revolutionary Party, whose candidate has been trailing badly…”


To top it all off, a recent Mexican poll found 50 percent of respondents feared the government was on the brink of losing control.

No wonder they’re flocking here in droves.

The Cruelest Tax of All



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The President signed investor tax cut extenders today, which is a very good thing. Cheaper capital and stronger investment incentives are key themes in the American economic boom.

Unfortunately, inflation is the cruelest tax of all.

Since the capital gains tax remains unindexed for inflation, the effective tax rate on real stock market profits has been gradually rising from 22.5 percent to 28.6 percent, over the past two years, as the chained CPI has increased to 3.2 percent from 1.7 percent.

This means that investors keep $71.40 cents of every hundred-dollar capital gain today, but they kept $77.50 cents two years ago. That comes to an 8 percent disincentive, or drag, on stock market wealth.

All the more reason for the Fed to strengthen the dollar by withdrawing greenbacks from the financial system. Otherwise, the cruel inflation tax will continue to exact a stock market toll.

Our Privacy is Not at Stake - Our Security is...



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Heather Mac Donald of the Manhattan Institute wrote an illuminating column in the latest issue of The Weekly Standard about the truth behind USA Today’s reckless cover story on the NSA’s counterterrorism program.

(This little faux headline preceding her piece is priceless…)

“…Only a paranoid solipsist could feel threatened by the recently revealed calling analysis program. Since late 2001, Verizon, BellSouth, and ATT have connected nearly two trillion calls, according to the Washington Post. The companies gave NSA the incoming and outgoing numbers of those calls, stripped of all identifying information such as name or address. No conversational content was included. The NSA then put its supercharged computers to work analyzing patterns among the four trillion numbers involved in the two trillion calls, to look for clusters that might suggest terrorist connections. Though the details are unknown, they might search for calls to known terrorists, or, more speculatively, try to elicit templates of terror calling behavior from the data.

…True, the government can de-anonymize the data if connections to terror suspects emerge, and it is not known what threshold of proof the government uses to put a name to critical phone numbers. But until that point is reached, your privacy is at greater risk from the Goodyear blimp at a Stones concert than from the NSA’s supercomputers churning through trillions of zeros and ones representing disembodied phone numbers.”


Max Boot also delivers a scathing indictment of these blinded “civil-liberties absolutists” who consistently undermine our country’s national security.

In today’s Los Angeles Times, Boot writes, “When it comes to the war on terror, the biggest advantage we have comes from our electronic wizardry. The National Security Agency has its share of problems, but it has long been the best in the business at intercepting and deciphering enemy communications. Until now. If civil liberties agitators, grandstanding politicians and self-righteous newspaper editorialists have their way, we will have to give up our most potent line of defense because of largely hypothetical concerns about privacy violations.

…All this concern with privacy would be touching if it weren’t so selective. With a few keystrokes, Google will display anything posted by or about you. A few more keystrokes can in all probability uncover the date of your birth, your address and telephone number and every place you have lived, along with satellite photos of the houses and how much you paid for them, any court actions you have been involved in and much, much more.

It is only a little more work to obtain your full credit history and Social Security number. Or details of your shopping, traveling and Web-browsing habits. Such information is routinely gathered and sold by myriad marketing outfits. So it’s OK to violate your privacy to sell you something ‘” but not to protect you from being blown up.”


This latest brouhaha over supposed privacy rights violations is absolute nonsense. Garbage. The NSA calling analysis program is far from a threat; on the contrary, it is an essential component of the administration’s ongoing efforts to keep American citizens safe from those who wish us harm.

President Bush ought to take the offensive. Go straight to the American people; explain what this program entails, why we need it, and why these national security saboteurs are dead wrong – yet again.

Senator Specter, Dianne Feinstein, handfuls of other misguided politicians on Capitol Hill, as well as various television pundits and newspaper editors would do well to listen.

People’s lives are at stake here – not their privacy.

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