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Cyprus' Debt a Long Time Building
Jesse Richman, 3/21/2013

The European Union is currently wrestling with the debt problems of Cyprus and the Cypriot banks.  In some ways these problems are new.  But in many ways they are old.  They have been building for decades as Cyprus has lived on borrowed money.  Eventually nations that do not save, that live on borrowing, lose credit.  

According to Trading Economics (http://www.tradingeconomics.com/cyprus/current-account-to-gdp) from 1995 through 2012 Cyprus averaged a current account deficit of nearly six percent of GDP.

Borrowing that much money over time makes for huge international vulnerabilities.  If the problem goes on too long, the choices become stark.  Either the lenders do not get repaid, or someone steps in to pay them.  Cyprus has, unfortunately, lived beyond its means for a great many years.  Unless natural gas in the Eastern Mediterranean or some other source develops quickly to rescue it's balance of payments, the balance of trade will have to move toward balance. 

In the context of the Euro Cyprus cannot adjust its currency value, nor can it impose trade restrictions on its major trading partners.  Long, painful declines in individual income is the primary available solution.  Poor Cyprus.  

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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]