Really, the Federal Government must deficit spend for the private sector to be able to save in the presence of a current account deficit. It's actually just acc

Really, the Federal Government must deficit spend for the private sector to be able to save in the presence of a current account deficit. It's actually just accounting, derived from the definition of GDP itself (it's called the Sectoral balances equation, see Godley & Lavoie 2012 but also around the Internet). If the Government doesn't deficit spend (or run large enough deficits), the only way the private sector can grow (as a whole) is by taking on more debt - which was the case before the GFC. But as soon as the lending slowed and stopped as the private sector stopped being able to take on more debt, a huge source of demand disappeared and the economy tanked. This actually very neatly explains the GFC as well as Japan's crash in the 80s, and even the Great Depression. It's no coincidence that the worst financial crashes have come after some of the most successful runs of surpluses! This was actually the main sign seen by most of the analysts and economists who warned of the GFC in the years running up to it (there were 11 identified by Dirk Bezemer in 2009 who qualified a set of conditions under their research). Sectoral Balances explains quite neatly also why austerity never work (unless you have a big trade surplus) - the more Government spending that is cut, the more that growth is reduced. So deficits aren't really discretionary for the Federal Government, but are more determined by the economy. If you cut the deficit while the economy is performing badly, growth suffers and revenue is reduced (of course, the flip-side is that too-large a deficit would be inflationary). The deficit should approach zero as the economy reaches full employment and full capacity/efficiency - but most economies aren't really anywhere near full employment.