World leaders begin their meetings at the World Economic Forum in Davos tomorrow under highly unusual circumstances: unlike the past six years, there does not appear to be an immediate financial crisis aflame.
The world looks, for the moment, to be in a state of precarious stability.
It is not as if the world lacks for brewing economic trouble or burning concerns about monetary and fiscal policy. And the key question for world leaders to answer here is whether this is a false calm or the beginning of a real change that is connected to current policy.
What is clear is that the Davos meeting takes place with leading central banks leaning heavily on the throttle of monetary policy.The Federal Reserve in the United States looks set this year to purchase as much as $1 trillion in new assets.The European Central Bank has put in place the Long-Term Refinance Operation, in which it loaned out $1.3 trillion to banks in two rounds, and there is talk of a third. The ECB's massive Outright Monetary Transaction waits in the wings, waiting to be spent if requested.The Bank of Japan now is considering a 2 percent inflation target and measures to try and break the country out of its deflationary funk.
(Read more: It's the US, Not Europe, Discussed at Davos)
There is a key difference between these policies and those enacted during much of the financial crisis: these were not thumbs put in the dyke during emergency weekend meetings. They were --- rightly or wrongly --- the result of considered actions by policy makers.
It is at least worth asking whether these aggressive policies can be tied to the precarious stability in markets and the world. The S&P 500 has crept stealthily to a level that is just 5 percent below its all-time high. Gold remains below $1700 --- the level that indicates fears of an imminent global meltdown. And the VIX, the measure of stock volatility, suggests the global anxiety level has declined by a step function.
Meanwhile, in the United States, the Republican-led House has stepped back, successively, from hard line positions on the fiscal cliff and the debt ceiling. Bruising budget battles can still be expected in just a few months, but the worst possible outcome is, just in time for Davos, off the table.
(Read more: Is Income Inequality the Biggest Global Risk?)
As trying as circumstances are now, it's worth remembering how much worse they were a year ago. Europe's financial turmoil threatened dissolution of the Eurozone; having just been downgraded, the U.S. was in the midst of a divisive election; Chinese growth was slowing; and the IMF slashed the global growth outlook.
As bad as 2011 was, wrote Nobel Prize Economist Joseph Stiglitz last year, "This year (2012) is set to be even worse."
It will be worth watching how Stiglitz assesses the situation this year and to watch deliberations at Davos in this context of precarious stability. Do world leaders see it as nothing more than a false calm? Do they connect it to the aggressive policies of central banks? Does it spark renewed calls to ease off of throttle on the monetary side and for austerity on the fiscal side?
Finally, in that there is no current crisis, leaders may well use at least some of the time to review the six-year running response: was it worth it, and was there a better way?