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Saving Greece, Spain, Portugal, Italy, France, and the U.S. From Bankruptcy
Raymond Richman, 5/13/2012

Greece, Spain, Portugal, Italy, France and the U.S. are close to bankruptcy and they all have the same causes: profligate government, large trade deficits, and bewildered economists. They are dysfunctional and incapable of doing what is necessary to survive as prosperous nations. By contrast, Germany, China, and Japan are doing very well.  As the following table reveals, the countries on the list that face economic collapse are those with large trade deficits and the countries doing well are those with large trade surpluses. No revolution is required for the former to resolve their problems.

That the troubles of Greece and the other eurozone countries and the recession in the U.S. are related to their trade deficits is evidenced in the following table relating the level of employment in various countries to their current-accounts balance:  


Unemployment Related to Trade Balance, Selected Countries, U.S., Europe, Asia






Balance, latest




rate, % (est.)


12 mos., $bn






































United States






























Source: (except Portugal) The Economist May 5th 2012


First, note that all the countries with unemployment rates above 7% have current-account balance deficits while all of the countries with unemployment rates below 7% have current account surpluses.

The eurozone countries all have the same currency, the euro. It is like being on the gold standard. The theory of how the gold standard operates is that countries experiencing inflows of gold, which if monetized raises prices and wages and causes a reduced demand for its exports while countries that experience outflows of gold are forced to reduce the supply of money which causes a reduction in prices and wages and makes it exports more attractive. European political leaders and economists believe the solution to the problems of Greece and the others is austerity, cutting government expenditures. Riots in Greece and the election results in France are evidence that their citizens do not approve of a policy that requires a recession or depression to correct the trade balance. Besides, as the U.S. trade balances of the past four years show, the improvement in the trade balance is only temporary. The U.S. trade deficit with China improved in 2009, a recession year, but increased every year since then.

Most economists outside of Europe believe that trade deficit countries need to devalue their currencies which would raise the prices of imports and lower the prices of export goods. This is not available to individual members of the eurozone. Besides, the U.S. dollar fell relative to the euro throughout the past decade with little effect on its trade deficit with Germany.

Others blame the mercantilist policies of trade surplus countries, particularly China. Mercantilist policies are policies which impose restrictions on imports and give subsidies to export industries. Keynes called them beggar one’s neighbor policies and said if they caused unemployment in the U.K., he would favor countermeasures. China has been using tariffs to bar imports. Recently, it raised its already high 25 percent tariff on Cadillacs not because it did not want Chinese to own luxurious gas-guzzlers but because it wanted General Motors to produce them in China. Almost immediately, GM announced it would build Cadillacs in China with a Chinese partner.  China and Japan before it used tariffs and subsidies to build up their economies at the expense of the U.S.

The Chinese deny that they are undervaluing their currency although some American economists including Nobel prize winner Paul Krugman called for a 25 percent tariff on imports from China unless they revalued the yuan. We are not convinced that the Chinese yuan is undervalued but , even if it were, that it would make much difference in the trade balance. But they cannot deny they are employing mercantilist policies.

Can trade in the eurozone be balanced? In our opinion, not with changing the rules.  Trade barriers are forbidden within the eurozone. The eurozone simply repeats the problems of the gold standard – if a country runs out of gold as a result of a chronic trade deficit the only solution economists recommend is devaluation. This is not possible in the eurozone at present. The world’s economists recommend that Greece Italy, Spain and Portugal pursue a policy of economic austerity. The problem with that policy is that Greece and Spain are already experiencing a depression. More austerity will solve nothing because it will not bring their trade into balance for a decade or more. Their impoverishment will reduce their imports but not increase their ability to earn foreign exchange unless prices and wages fall enough to make their goods and services attractive once again to foreigners.

Not only are Greece, Portugal, Spain, and Italy in trouble but so are France and the United States. The only thing preventing disaster in the U.S. is that all of our debt is expressed in dollars. When we can no longer service the debt, we can erase it by printing dollars and inflating the debt away. Unfortunately for Eurozone countries, this solution is not available to them. They all face chronic trade deficits which have been made worse by foolish investments in alternative energy which is making most of the world poorer.  But there is a solution available.

All that these countries need to do is balance their trade and there is a mechanism available to all of them, our invention, the scaled tariff. The scaled tariff is a variable rate single country tariff that is imposed when a country experiences a significant trade deficit with another country. The tariff rises as the trade deficit worsens and falls as trade is brought into balance. The scaled tariff is analyzed in an article which was published in the Journal of International Law and Trade Policy (Nov. 15, 2011.

Time has run out for Greece and is running out for the remaining countries and the  USA. But the U.S. is more fortunate than Greece; its bonds are payable in U.S. dollars, issued as needed by its central bank, the Federal Reserve System. Poor Greece, its debt is payable in euros which are printed only by the European central bank whose policies require Germany’s approval. And Germany does not approve profligacy. 

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Comment by Bessa, 5/15/2012:

Obviously you don't know what your talking about.

The portuguese trade balance for instance, which had a cover export/import ratio of less than 70%, in 2010 will turn positive at the end of the this year, therefore, it is possible to reverse that way in 2 years instead of 10 like you claim.

Also, most europeans collapsed due to their house bubbles, banking systems (thank you USA for that) or infrastructures (like roads, airports, ports, etc), and not because of "renewable energy". If that was the case, Finland would be bankrupt since is one of the main renewable energy proponents.

Response to this comment by , 10/24/2012:
solve geometry problems This bag for lively and lovely, outgoing, open the girls use. This kind of bag regardless of chun xiaqiu winter suit to use, and need not match any hang adorn the assembly, the bag bag itself has enough lovely.

Comment by squiddy, 5/15/2012:

Germany sucked the life out of all the other countries.

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  • [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....

    Atlantic Economic Journal:

  • 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]