According to the aforementioned Federal Reserve study of current account corrections in developed countries, although the large majority of episodes were characterized by some significant slowing of economic growth, most economies managed the adjustment without crisis. The institutional strengths of many of these developed economies--rule of law, transparency, and investor and property protection--likely helped to minimize disruptions associated with current account adjustments.
The United Kingdom, however, had significant adjustment difficulties in its early postwar years, as did, more recently, Mexico, Thailand, Korea, Russia, Brazil, and Argentina, to name just a few. Can market forces incrementally defuse a worrisome buildup in a nation’s current account deficit and net external debt before a crisis more abruptly does so?