OK, let's deal with this Financial Illusion
They say:
7. It is an elementary fact of accounting that the private sector as a whole can only spend less than it earns if some other sector spends more than it earns. That sector has tended to be the government, usually as automatic stabilizers kicked in while recessions deepened.
No, the sector that spends more then they earn is the sector that finds solutions to constraints. We make the recession worse when some sector spends more then they earn without solving the constraint problem.
This one:
5. Rapidly cutting fiscal deficits without considering the impact of such moves on private sector financial balances is a shortsighted,
Not if the sector cutting back is the inefficient sector, and the sector spending more is the efficient sector.
3. Ultimately, current account surpluses need to be recycled into chronic deficit nations in a sustainable fashion.
They are recycled, and they do eventually balance. What the authors fear is rebalance by war. These are European authors, and I suspect they may have a point, Europe does engage in war as a method to rebalance.
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