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The Security of Money is a False Pretence - With High Sovereign Debt Everyone is on the Hook for Financial Ruin.

27/02/2013 15:50 GMT | Updated 27/04/2013 10:12 BST

There has always been a perception that money solves all problems or at the very least provides security. I don't know if this is going to be true in the future. There are many people with healthy bank accounts and large properties that could find themselves in difficulty in the not so distant future. As the economic situation deteriorates the financial security of the population will ebb away, if the benefits of affluence and the social cohesion it creates disappear the false sense of security money has created could easily dissipate with it.

The problem is the enormous debt, especially sovereign debt in the West. Any wealth a person has today could easily be taken away with tax or inflation, depending on the tactic the government uses to get the funds needed to pay off the deficit. In fact the use of Quantitative Easing is the beginning of this wealth shift away from the current wealth holders. When the money supply is increased the control of the wealth of the country is transferred to whoever the recipient of the newly created money happens to be.

The justification for Quantitative Easing has been to create demand in the economy, to prevent a deeper recession. However it may soon become the tool used to pay off the deficit. Taxation and the confiscation of assets are likely to increase to pay off the national debt. There is no asset or person that does not run the risk of falling prey to the ravages of the record national debt. Anyone who currently has wealth or assets could find the security it has given them is taken away completely changing their situation.

Many people have benefitted from record high house prices, at the expense of the younger generation. The interest rate was lowered for prolonged periods of time preventing accessibility to the property market. Potential buyers were forced to get into unrealistic amounts of debt to purchase a property or to rent. The intervention of the central bank created a bubble in house prices that has led to a false perception of the asset value of the assumed wealthy. It is likely there will be a wealth shift as the market corrects itself. Wealth created from property investments could diminish significantly changing who has security.

Perhaps the biggest problem with high sovereign debt is the impact it has on economic productivity. As the deficit grows public spending will have to fall to stop the debt growing further and to enable repayment. As the investment in the economy falls due to a sharp decline in government expenditure the level of output and employment will fall pushing many people who had job security into a financially uncertain future. People will still be paying the high tax they did before the cut in public spending to pay the debt off, however the benefits of public sector services will no longer be there, at least not to the degree they were previously.

The problem with sovereign debt, unlike private debt, is that everyone is on the hook for repayment. No matter how well you have managed your own wealth you could be the one who has to pay the bill. In fact if you are financially successful it is more likely you will be the target of the taxman because you will have money to take. Not only is high sovereign debt very damaging to an economy the fallout punishes the innocent.

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