The picture for 2013 and beyond is coming clear. Whilst important, talk of the current economic crisis might fill newspapers but it is barely scratching the surface of the real problem.It is essential though that we start to prepare for the next major economic reality: the impending death of wealth. This initially sounds like a big statement, but there were few voices in early 2007 predicting the situation we find ourselves in today.But the death of wealth is a coming reality its roots lie in the fact that when the credit crunch struck the economies of the west were left with huge deficits.From a fiscal balance where debts were large but generally under control, Europe and the US were immediately in unprecedented economic distress with fiscal deficits shooting to ten percent of GDP. Small countries like Greece, Ireland and Iceland melted down.While failed and failing banks were blamed for borrowing short term and lending long and leveraging up their capital to unprecedented multiples, the governments of the west had done the same thing.They had relied on short term income and taken on long term overheads, they had put themselves in a position where they had borrowed gigantic amounts of capital that could never be repaid or even serviced at long term historic rates of interest.GDP is the measure by which countries’ economies are measured. You can consider it to be the economic output of a state. However GDP contains government spending. Governments had boosted their GDPs to claim growth by inflating their public sector spending while there was much less growth in the real economy of the private sector.This might not seem wrong, until you consider that wealth is not created by the public sector so that this GDP growth exaggerated real economic activity by double counting and thereby mimicking real economic growth creating only the impression of wealth creation.As GDP was expanded by public sector growth, this had to be funded from the taxation of the private sector, the actual area of wealth creation. It is hard to increase tax and produce more fiscal income when the real economy is not growing much, but quite easy to tax credit expenditure when credit is allowed to grow quickly in to a bubble of leverage. This was the route taken by the public sectors of the developed world.A credit, and therefore asset bubble, was fermented and its results were skimmed off through tax.The asset bubble that grew from 2002 to 2007 was accelerated by new innovations in the banking world, facilitated by new regulation like the repeal of “Glass Steagel Act” and other such shifts.This created huge revenues for western governments.For example the rampant property bubbles leading up 2007 were huge cash cows for the countries now in such deep fiscal trouble.Depending on whose numbers you rely on, you can judge that a government received in tax income anywhere between 25 percent — 45 percent of the value of new housing created by this loose credit and asset boom, an irresistible incentive to let credit and property run riot.In effect the governments of the west levered their populations up on credit and then taxed its expenditure, reaping tomorrow’s taxation at the point of expenditure.This was in effect taxing tomorrow’s income a necessary move when today income is not sufficient to tax for today expenditure.In the good times this is a perfect recipe for growing the public sector. When the good times roll no one is focusing on the bill. Even when the hard times start few have the understanding to grasp what has happened.However the flaw in this process is that resources are transferred from the private sector to the public sector. The productivity of the private sector, the key to its success, is not improved. It is most likely harmed.The process meanwhile can continue until not only are all surplus consumed but yet more is taken by the public sector via the creation of sovereign debt, whose load ultimately is carried by the private sector as well.When the taxation load of a country GDP such as France or the UK, hits 50 percent and is then spent the total private sector GDP has been consumer. As private sector surplus plus public sector spending is effectively GDP, when a public sector takes half of GDP and spends it, it has in effect consumed the output of the private sector in its entirety.Under this dynamic saving and investment in the private sector is going to be under duress. How does a government get a private sector to grow when it takes all its resources?The answer is it finds it very difficult indeed. The government can QE all it likes, it can crash the country’s currency like the UK did, but nothing happens. If there is no fuel in the tank, you can turn the ignition all you like and the car will not get far.Governments and countries have balance sheets just like companies. As the public sectors of Europe and the US have grown, not only have resources been taken from the private, wealth creating, sector, so has the intangible assets of people.During the boom years of the economies of the west an idea in government became popular that the public sector was not about public service anymore but about paying top money to the best people to produce “best of breed” administration. Salaries boomed as the “best people” were sort out from the private sector to run the public sector.This sounds like a sensible and serious approach to government. Yet if you agree the private sector creates wealth and the public sector distributes a proportion of that wealth, every time you take a high quality person from the private sector and put them in the public sector you are turning an asset into a liability.A growing public sector is not just a growing balance sheet liability it is a drain on the asset column of that country too.As we shall start to see even more clearly, if this situation is not resolved wealth itself will die. The current state of affairs in the US points to this. Countries and investors need to stat realising this situation and making the necessary changes.Clem Chambers is CEO of leaving private investors website ADVFN.com and regular contributor to The Royal Gazette. This week's article is an extract from his latest financial book The Death of Wealth, out now on eBook. Follow Clem on Twitter: @ClemChambers