Opinion

The Edgy Optimist

Stormy markets, smooth seas

Zachary Karabell
Jun 28, 2013 13:23 UTC

You could be forgiven for missing the latest installment of market panic over the past ten days. It came and went like a summer thunderstorm — passing over the global financial landscape quickly and violently. But unlike meteorological events that inflict actual harm, the sharp gyrations of financial markets have increasingly less relationship to real-world economies and exist in their own never-never land of self-fulfilling prophecies and conventional wisdom.

The proximate cause of the swoon was June’s monthly statement from the Federal Reserve and Ben Bernanke’s comments that the Fed might taper its purchases of bonds sooner than many market players had anticipated. The exact quote wasn’t exactly dramatic (so few Fed quotes are!):

“The Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear.”

The hint that the Fed would slow or even halt its monthly purchases of $85 billion of government and mortgage bonds was enough to send bond yields substantially higher and stocks substantially lower. It also made market bears substantially cockier. The most notable example was the ever-opinionated Rick Santelli on CNBC whose weekly rant took Bernanke to task not just for how he communicates, but for soft-pedaling the weak and tenuous U.S. and global financial system.

The bond market response was particularly dramatic. Yields on U.S. 10-year Treasuries went from just over 2 percent to 2.6 percent, still historically low but a substantial move in a short time. Emerging market bonds were even more eviscerated, and the ripple effects for pension funds and retirement accounts will be felt for some time as the value of supposedly safe bond holdings declined as much or more than supposedly riskier stocks.

Surveilling a double standard

Zachary Karabell
Jun 14, 2013 12:16 UTC

As the week continues, so does the furor over the government’s electronic and big data surveillance. It’s largely framed in the terms that President Obama described on June 7th: “You can’t have 100 percent security and also then have 100 percent privacy and zero inconvenience.” That observation may be true, but we are approaching this issue 100 percent wrong.

We should all “welcome” a healthy debate — as the president says he does — on vital questions of freedom versus security, safety versus privacy, and which is our priority. Such debate is a hallmark of a functional democracy. We should not accept, however, that what’s at issue here is American freedom versus potential Big Brother government tyranny. That’s too narrow a parameter. What’s really evident: we’re willing to give private corporations data, but we refuse to offer government agencies the same courtesy. That contradiction highlights a muddled, overwrought and inconsistent attitude towards privacy and freedom.

Privacy has rarely existed; it doesn’t now, and it didn’t way back when. It is more of a Platonic ideal than a lived reality. Most of human history lived in small communities. There was no Internet, no electronic surveillance of communications, no Big Brother fears of an all-seeing digital eye scanning our private lives. But there were still neighbors, who were right there, and family, and shared, cramped living. Not much privacy there or room for behavior that deviated much from whatever the norm was. Remember The Scarlet Letter? The Crucible? Think there was much privacy in Massachusetts Bay in 1650?

Obama and Xi’s weekend getaway

Zachary Karabell
Jun 7, 2013 17:44 UTC

This weekend, President Obama and China’s new leader Xi Jinping will meet at a retreat outside of Los Angeles. The two men are scheduled to spend six to seven hours covering a range of issues that confront the two countries, from the increasingly fraught issue of hacking and cybersecurity to what to do about an evermore unpredictable and rogue North Korea. The summit was arranged only recently, almost impromptu and more casual and low-key than the pomp and circumstances state visits of the past decade. That should in no way, however, obscure just how important the meeting is.

Rarely in history has an emerging power met an existing power without mayhem and conflict ensuing. China today is clearly emerging, with an economy that will soon be larger than the U.S.’s, though the income of Chinese citizens will remain far behind their U.S. counterparts for many years to come. In spite of recent stumbles, the U.S. remains the only country with global reach both economically and militarily.

Yet tensions notwithstanding, by any historical standard, the U.S.-China relationship has been managed remarkably well, and this casual but symbolically significant summit between the two leaders is yet another indication of that. We focus habitually on all that is going wrong in the world, yet for now at least, the China-U.S. relationship is going right. That’s not because either country and its people like the other or trust the other, but it is because we need each other.

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