On Tuesday I listened to Prime Minister Mark Carney’s address at the World Economic Forum in Davos and found myself nodding along with nearly every point. He is undoubtedly one of the finest financial minds of our generation, and his diagnosis of the geopolitical landscape is sharp.
However, I want to offer a counter-perspective to one specific premise.
Carney argues that the rules-based order is fading, citing Thucydides: “The strong do what they can, and the weak suffer what they must.”
Respectfully, the events of this past week suggest the opposite. The “strong” (the Trump administration) tried to do what they wanted by threatening the sovereignty of a NATO ally. But they didn’t do “what they can”; they did only what the bond market allowed.
In my professional lifetime alone, the global financial system has endured three systemic stress tests: the Global Financial Crisis, the European Debt Crisis, and COVID-19. In every instance, the system proved to be a behemoth that didn’t break. Instead, it used its sheer weight to force relevant actors to act and save it.
We saw this mechanism trigger again this week. When the administration threatened to break the geopolitical order, the global financial system acted as an automatic stabilizer.
The rules-based order is using one of its most important tools, the global bond markets, to defend itself. The mechanism of enforcement has simply shifted from diplomatic norms to financial necessity. The order is currently being stress-tested, yes, but so far, the margin clerks are winning against the strongmen.
It is worth noting the irony: those currently testing the system are, without question, the greatest beneficiaries of the rules-based order that has existed for the past 80 years.
On Tuesday I listened to Prime Minister Mark Carney’s address at the World Economic Forum in Davos and found myself nodding along with nearly every point. He is undoubtedly one of the finest financial minds of our generation, and his diagnosis of the geopolitical landscape is sharp.
However, I want to offer a counter-perspective to one specific premise.
Carney argues that the rules-based order is fading, citing Thucydides: “The strong do what they can, and the weak suffer what they must.”
Respectfully, the events of this past week suggest the opposite. The “strong” (the Trump administration) tried to do what they wanted by threatening the sovereignty of a NATO ally. But they didn’t do “what they can”; they did only what the bond market allowed.
In my professional lifetime alone, the global financial system has endured three systemic stress tests: the Global Financial Crisis, the European Debt Crisis, and COVID-19. In every instance, the system proved to be a behemoth that didn’t break. Instead, it used its sheer weight to force relevant actors to act and save it.
We saw this mechanism trigger again this week. When the administration threatened to break the geopolitical order, the global financial system acted as an automatic stabilizer.
The rules-based order is using one of its most important tools, the global bond markets, to defend itself. The mechanism of enforcement has simply shifted from diplomatic norms to financial necessity. The order is currently being stress-tested, yes, but so far, the margin clerks are winning against the strongmen.
It is worth noting the irony: those currently testing the system are, without question, the greatest beneficiaries of the rules-based order that has existed for the past 80 years.