by Eric Rauchway

Brad Setser
We've never had a deval like the USD, including loss of reserve currency status. That is, not just a change in flows -- but likely movement in "stocks" (holdings of US debt) that dwarfs the usual flows.
I'll bet the unexpected consequences would be far larger than the expected ones....
Plus, of course, during this transitional period we'll still be running a large current account deficit. Not only will the transition to a low c/a take time, AND any currency flight (by foreign & domestic investors) be financed, BUT ALSO the c/a could rise during the j-curve period. Scenarios in which the US regains export competitiveness seems path-dependent, and many of these paths seem "difficult." As a fringe observation, this transitional period seems to get little attention by those recommending solutions.
Who moves first to spark rebalancing? Central banks