Trust no one with your money is the tragic legacy of the crisis The first casualty of war is said to be the truth but, in financial crises, it is trust that dies. While the after-effects of the recent crisis are constantly debated, this deeper issue remains unaddressed. Paul Seabright, a professor at the Toulouse School of Economics, has identified traits that underpin social systems such as money: the capacity to weigh up the costs and benefits of trusting others and the instinct to return favours in kind or seek revenge when trust is betrayed. When it is working well, the system enables strangers to safely deal with each other. But this fragile system, on which the global economy depends, is now at risk of failing. Money, a mechanism of exchange and a store of value, galvanised modern economies. Debasement of currencies through quantitative easing and artificially low interest rates undermine these functions. This is encouraging interest in alternative paper money, such as the Bavarian Chiemgauer, the Lewes Pound or the BerkShares programme in Massachusetts. With limited acceptance within a small area and (sometimes) a finite expiry date, alternative currencies encourage local business and emphasise community values. They also indicate distrust of governments, banks and global finance. Once an unquestioned and secure store of wealth, government bonds are threatened by the risk of sovereign defaults or destruction of purchasing power. Instead of risk-free return, government bonds now offer "return- free risk," in the words of Jim Grant. The rising value of gold is also evidence of these concerns. Wealthy savers are switching from financial instruments to alternative assets - farmland, fine arts and other collectibles - to preserve the value of their savings. But these savings are locked in unproductive investments and cannot circulate freely. Reviled and mistrusted, banks are losing legitimacy. In the US, on Bank Transfer Day (November 5, 2011), an online campaign launched by an unhappy Bank of America client, disgruntled customers withdrew money from traditional banks, transferring it to not-for-profit credit unions. The growth of peer-to-peer lending firms, such as Prosper and Lending Club is part of the same trend. If it continues, the trend may lead to a significant contraction in the availability of credit globally, with serious consequences for growth. The limits of policymakers" tools have been mercilessly exposed. Fiscal policy is severely restricted across the world and with interest rates in most developed countries near zero, the scope for conventional monetary policy is also limited. The European Central Bank is being called upon to print money to deal with the eurozone debt crisis. At best, this will be a palliative measure. And it would not be without nasty side-effects, undermining trust in money, government bonds and, ironically, central banks. The crisis has undermined the relationship between voters and elected politicians in many countries. The Greek prime minister's short lived and ill-fated attempt to stage a plebiscite to legitimise his policies was dismissed by larger eurozone states and the European Union as "disruptive." European policymakers appear to believe that a suspension of democracy and sovereignty with the implementation by technocrats of centrally determined policies is the answer. A "democracy deficit" is now as much of a problem as budget and trade deficits. A widening gap between the electorate and the elites threatens the fragile compact at the heart of free societies. The decline in support for major political parties and the rise of Germany's Pirate party, France's far right and Finland's True Finns testify to this breakdown in trust, as does the global Occupy movement. In seeking to resolve the financial crisis, the world must not destroy the trust central to modern societies or risk social as well as economic breakdown. In March 1933, John Maynard Keynes wrote: "We have reached a critical point . . . We can . . . see clearly the gulf to which our present path is leading. We must expect the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what ultimate outcome we cannot predict. His message is still sadly relevant today. The writer is author of Extreme Money: The Masters of the Universe and the Cult of Risk.