Between 2003 and 2007 I worked for a legal firm that utilized a settlement account that I and others monitored. The account was primary for property settlements with an average of 30 million AUD being deposited into the account every month, mostly from daily deposits. These amounts came in bundles, say $500,000.00 one day $1,000,000.00 the next. Our job was to break up the amounts and assign them to the different accounts (individual clients); sometimes instructions where vague and there was a lot of verification of fund amounts so each amount could be allocated to the correct account. Once monies have been verified and accounts credited with correct amounts then settlement could take place. The concern was of course a shortfall that would lead to an account deficit, as an example a bundle of funds would arrive, amounts are then separated into each account, a short fall is detected of $7,000.00. What we needed to do and do quickly is find the shortfall and what account it belonged too. The reason? If settlement was to take place (and settlements happed hourly) and a deficit was allowed to occur unchecked, then we would have a rapidly growing hole in the accounts from $7000.00 as other amounts arriving were now covering that shortfall and of course creating new shortfalls and leading to a greater deficit. This was nerve wreaking work but essentially taught you discipline that a deficit is an extremely hard thing to control and therefor should be avoided.
On a larger fiscal and economical model as we all know huge deficits have been created globally by governments, the PIIGS (Portugal, Ireland, Italy, Greece and Spain) of Europe are the now growing concern for global markets. As these country deficits are unlikely going to be plugged, they are just going to get worst. Say a company has a deficit in it's accounts and it can't repay it's interest on its debts, it then declares bankruptcy and sells off remaining assets. But essentially it no longer functions as a business. A country can do the same it can default on it's debt and tell it's creditors it is unable to pay. That is fine, but the instability it will create globally is far more damaging than Lehman Brothers going bankrupt in 2008, which lead to the global market crash. Since most developed countries have created massive deficits the after effect of a country or countries going bankrupt will be a massive shock to the global ecomomy.
An experiment you can do (if you can be bothered) is budget for a reasonable amount of groceries and other expenses for a week, say $100.00. I tried it and ended up going -111 into the negative (Tequilas and dinner Friday night was the deficit precursor). Yes my wage will bring that 'deficit' under control, but when a country is unable to increases it's credits or exports to boost GDP, it will find that it is unable to bring the account deficit under control. A country can do other things, one it can devalue it's currency (so exports can be cheaper and more competitive (note: Argentina devaluing the Peso in 2001, after Argentina couldn't repay it'd debt) or increases taxes (rapidly). But Inflation is the killer, as it creates civil unrest MORE SO than deflation. Then you have protectionism as most countries have fiscal deficits and they will all compete to sell their exports in a devalued environment.
So at this point Europe could implode, especially if Germany has to foot the bill for the PIIGS (bailouts) - and money has to come from somewhere, namely higher taxes and inflation.
A side note: The European Central bank like the others were good at printing money. This current debt problem has been exasperated by central banks intervention in the markets. There is not much the ECB can do now.
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