There is an old saying that if you don't disciple yourself, somebody will do it for you. Don't pay your taxes and the tax office will come knocking. Take what isn't yours and the police will find you. Spend money you don't actually own and you will pay a price in credit card fees or repossessions.

The same rule applies to Governments.In Australia the Federal Government has abandoned the concept of running a surplus and just keeps spending money like it's going out of style. A billion here and a billion there and pretty soon you're talking serious money- all of it falling back on the public.

In Cyprus they are just finding out what happens when Governments fail to exercise discipline- a "one-off" (yeah, right) 10% slug on all bank deposits. You go to bed one night with $10000 in the bank and the next day it's gone back to $9000. I can see that will go down well with the public. I can see how that will inspire confidence in the banking system.

When Governments over-spend they ultimately diminish the wealth of the people who pay their money. When you have a sane currency system where each nation has its own free market-driven currency, the markets automatically determine the national wealth. When the Government spends too much more than it earns, the local currency will fall in value and the market gradually reduces the value of the currency. You might still earn $A100 but it will only buy $70 in the U.S. When the local economy is doing well and Governments aren't overly spending, the market marks the currency up and overseas holidays become cheaper.

If you happen to be a country in the Eurozone, there is no such flexibility. Governments who overspend will have to borrow money to survive, but the day comes when the bank says "no more"– like when you hit the limit on the credit card. Again the market is responding to the reality of the diminished wealth of the nation. If you live in Cyprus, you receive a markdown of 10% of personal and corporate wealth.

Australia, the U.S. and quite a few countries at the moment are locked into unsustainable deficits. Unless those Governments change their policies, the markets will mark down their currencies and reduce their wealth. We don't know when that will happen, but it will happen. Because if you don't disciple yourself, somebody will do it for you.

When markets down grade a nation, it is a nasty business- ask anyone in Greece or Spain. Much better to rein in the Governments than to go through an economic melt-down.