It is remarkable that proposals for a Mar-a-Lago accord have not yet sparked an even greater flight out of US dollars, debt, and risk
That they have not yet done so is thanks to a mix of incredulity, inertia, and temporary liquidity factors
Current account deficits, though a source of vulnerability, are in many respects a measure of attractiveness to foreign capital
What’s damaging is when – as in the US – they are allowed to turn into ever-escalating debt
What the Mar-a-Lago proposals’ discussion of sticks and carrots lacks is a proper notion of trust – and of the scale and suddennness of the consequences once it has been lost
Markets’ response to the evident risks has thus far consisted primarily of risk rotation
This seems increasingly likely to evolve into full-fledged risk reduction
That it has not done so to date is thanks not only to dwindling hopes that Trump is bluffing, but also (yet again) to support from central bank liquidity
