A paper from Princeton on Carry trades and Currency Crashes, by Markus K. Brunnermeier, Princeton, Stefan Nagel, Stanford and Lasse H. Pedersen, NYU, raises some curious questions about a possible snowball building up for certain currencies.

Carry traders borrow at low rates in currencies like the Japanese Yen and invest in higher yield assets such as US or emerging market debt. The risk, as happened in the US with the mortgage crisis, is that these carry traders may run out of liquidity to sustain the large transactions, and end up reversing, or unwinding, their trades. Which means that...