The risks markets are ignoring

Investors are often taught to focus on economics. DAVE FOORD, founder of Foord Asset Management, argues that politics usually has the louder voice — and that debt and credit risk are likely to shape markets more profoundly than many investors expect.

Investors like clean theories. One of the neatest is that economics drives politics, and politics merely reacts. Real life is seldom that tidy. Politics has always had the upper hand — it shapes trade, taxes, currencies and the rules of the game. It decides who pays, who borrows and, when things go wrong, who gets rescued. Economics still matters, but politics often decides how it matters, and to whom.

There is nothing new about that. The post-war order did not emerge from markets acting spontaneously: it was built by politicians at Bretton Woods (see Did You Know?), with the Americans firmly in charge. What followed was a remarkable period of growth, globalisation and relative stability, underpinned by the dollar and American power. The system worked well for many countries; it worked especially well for the United States.

That order is now fraying. America is becoming more inward-looking. Donald Trump is the noisiest expression of that trend, but not the cause of it. A growing number of Americans no longer see why they should bankroll a global system while public finances weaken at home. Debt is too high, inequality too entrenched and public patience too short. Protectionism is an easy political sell in such an environment. And while it may feel protective now, over time it usually proves costly.

Debt is the bigger problem. Across the developed world, governments have become comfortable making promises they cannot afford. Europe has ageing populations, weak growth and large social commitments. America has also grown used to heavy government spending, especially since the COVID-19 pandemic. Politicians of all persuasions find it easier to spend than to explain how the spending will be paid for. The bill always turns up — the only question is when.

That is why inflation remains such an important danger. Investors tend to see it as a policy failure. Governments may find it more useful than that because inflation reduces the real value of debt, making it easier to repay. For heavily indebted states, it can be a quiet form of relief. It is not a cure, but it is a transfer — away from savers and towards debtors, away from financial claims and towards real assets. That is one reason why gold and other real assets are being taken more seriously again.

The dollar remains central to the global financial system. It is still the cleanest dirty shirt available. There is no obvious currency alternative with the same depth, tradability and global use. But that should not be mistaken for permanence. Confidence in paper money has limits. Central banks have been buying gold for a reason. Real assets have one attractive feature that currencies do not: they are not someone else’s liability.

If sovereign debt is one source of risk, credit is another. Here the greater vulnerability may lie out of sight — private lending has grown rapidly in an era of easy money. Risk has not disappeared; it has simply moved. When money is cheap for long enough, lending standards weaken and complacency sets in. Problems are easiest to ignore when recent losses are scarce. That is usually when they are being priced too cheaply.

The March 2026 oil shock is a reminder that geopolitics can still jolt markets without warning. But it is not the main story. The larger story is that politics is becoming more interventionist, debt more burdensome and credit risk less properly priced. Those forces will not vanish with the next ceasefire or the next market rally.

For investors, the lesson is straightforward. Risk is not short-term market swings. Risk is the permanent loss of capital. In a world shaped by politics, burdened by debt and lulled by easy money, caution is not cowardice. It is common sense.