Distracted at Davos, leaders are ignoring one critical issue

Some weighty themes were addressed at the World Economic Forum in Davos, from the apparent return of the Monroe Doctrine and US “manifest destiny” in geopolitics, to a replay of the 19th-century “Great Game” among competing nations elsewhere. But one critical issue that did not receive sufficient attention was the prospect of a global financial system crisis undermining such monumental assumptions.These annual gatherings of the supposedly great and good, from national leaders to business barons and the cream of academia, produce a synthesis of expertise and maybe even international understanding. But the champagne haze of the events can detract from a sense of reality.The latest jamboree took place in the presence of a US president who appears to believe that the world is his oyster, ready for devouring wherever he chooses, from Venezuela to Greenland. Yet Donald Trump heads a nation with debt that is increasingly avoided by investors and a stock market widely seen as overvalued and liable to a sharp correction. That should by rights restrict his ability to talk and act big.In the literally lofty atmosphere of Switzerland’s Alpine resort of Davos, leaders are particularly prone to getting carried away by notions of self-importance or overambitious alliances. Such was the case with Trump’s largely unsuccessful attempts to sell his Board of Peace initiative (in effect, a replacement for the United Nations).The reportedly US$1 billion a head admission charge for the board might admittedly help to shore up shaky US finances as the world’s largest economy confronts onerous fiscal and trade deficits. As too, Trump hopes, will income derived from US tariffs on imports. But these are no solutions to fundamental financial problems.It is said that an army marches on its stomach (a saying often attributed to Napoleon). In the same way, a nation marches on its ability to pay its way – at least until its credit is no longer good. The latter condition is becoming increasingly less of a given where the US government bond market is concerned, and also when it comes to dollar credibility and the price of US stocks.A trader wearing “2026” glasses works on the floor of the New York Stock Exchange on December 31. Photo: AFP