It’s an exciting time in world financial circles. The American government is giving strong signals that interest rates there might rise before the end of the year, which means the American dollar will get even stronger against the Australian dollar. This is good news if you’ve got unhedged investments in US managed funds, but a disincentive if you’re a traveller.

There’s been bad news coming out of China, and markets have been extremely volatile, but you need to understand that volatility is the price you pay for the unique benefits of shares.

Greece has been dominating the headlines even thought it’s a county with just 12 million people, and only 2% of the Eurozone. It was certainly a victim of the global financial crisis, but their troubles started long before 2007. The root of the problem seems to have been that most Greeks expected their government to be a fountain of wealth, but were not prepared to pay one cent in tax to help make that happen.

Not only do the Greeks hate paying tax – the system is purpose-built for tax evasion. Can you believe that some of their more picturesque islands have more churches than citizens? Apparently, including a tiny church on the land when you are building a block of units means no planning approvals when you are in the development stage, and no tax on the rents when construction is finished.

I urge you to download the brilliant book ‘Boomerang’ by Michael Lewis, in which he points out, “the national railroad had annual revenues of 100 million Euro against an annual wage bill of 400 million Euro, with the average railroad employee earning 65,000 Euro a year … yet no doctor reported taxable income of more than 12,000 Euro a year. The long term picture was bleak. In 2010, in addition to its 400 billion dollars of outstanding government debt, the Greek number crunchers figured out that their government owed another 800 billion in pensions – that’s 1.2 trillion dollars, or more than a quarter of a million dollars, for every working Greek.”

Well, now the chickens are coming home to roost, and the world watches in shock as the effects trickle down to the ordinary people. Age pensions have been slashed; overseas credit cards transactions are banned, leaving many travellers stranded; and Apple device owners are unable to access iCloud. Businesses are closing as customers run out of money, and food prices could increase by up to 40% if Greece reverts to the Drachma, and the currency is devalued.

I have immense respect for Maurice Newman, who is Chairman of The Prime Minister’s Business Advisory Council. In a brilliant column on page 12 of today’s Australian, he points out that Greece wanted to “be prosperous without being competitive. It wanted to run a five star welfare state with a two-star economy. It wanted modernity without efficiency or transparency, and wealth without work.”

One can argue that Greece is an extreme case, but it may well be the tip of the iceberg. The world is awash with debt, and even countries like Britain and France have debts of close to 100% of GDP.

The favoured solution is the A word – austerity – which is understandably unpopular as it means cutting costs and raising taxes, while the underlying problems, such as government corruption and tax evasion, remain unchanged. Austerity measures usually involve sacking public servants, freezing wages and cutting pensions. Inevitably this leads to mass protests, which gives warring politicians the perfect opportunity to score points. The serious medicine needed is watered down or postponed.

But all that does is delay the inevitable – you can no more borrow ad infinitum than you can get water out of a well that has run dry.

Raising taxes is not easy either. Britain is now considering a special tax on banks. But banking giant HSBC has already worked out this will cost it over one billion pounds and has threatened to move offshore if the proposed tax becomes a reality.

Which brings us back to Australia. We certainly aren’t going to end up like Greece in the medium term as we have a robust tax system, and a strong export base. But the trend is in the wrong direction.

Government debt was $273 billion when the Abbot government was elected just 18 months ago – it has already increased by 36% to $371 billion and is going up by $100 million every day. Attempts to get the deficit back to surplus – by strategies like slowing the rate of growth of the aged pension and charging a co-payment for a doctor’s visit – have met with bitter opposition.

Most people know the famous Albert Einstein quote “Compound interest is the eighth wonder of the world”. The second part of that quote is rarely used: “He who understands it, earns it … he who doesn’t … pays it”. I fear it’s going to be a very slow road to recovery.