Cyprus? Many people rolled out of bed this morning and unless they’ve been on a Mediterranean Cruise, may have had to remind themselves about this island nation of 1,000,000 people not far off the coasts of Turkey and Israel.

“There is no room…to believe that increasing debt has anything to do with long-term growth.” — Jeremy Grantham (GMO)

Grantham is talking about the period from 1982-Present, where the federal debt has tripled during a period when overall growth has materially slowed. (As he says, granted, there are other factors, BUT …)

This is a must-view interview with Jeremy and Charlie Rose.

It links with this weekend’s events in Cyprus. Keeping interest rates low is harmful — mostly to our senior citizens who need fixed-income alternatives that actually have a rate of return … and as Grantham points out, low interest rates are the engine for wealth transfer from the less wealthy to the most wealthy.

The real tragedy is that we’re painted into a corner … because increasing interest rates would slaughter the federal budget (and most likely do very damaging things to our muddle-through economic recovery.) President Clinton mentioned this briefly during the recent presidential election, an honest moment that seemed to be hushed as quickly as it was uttered. I don’t think our elected representatives WANT the general population to understand what dangerous challenges are presented by this condition. (And it’s not easy to decipher from any of the budget concepts distributed by any and all of the current party leaders)

Enter Cyprus. In a nutshell, imagine how you’d feel if you woke up to discover that FDIC insurance didn’t “hold up”, that you couldn’t withdraw your deposits … and that your total assets on deposit were about to be subjected to a special tax — with the amount based on the size of your account.

It’s not a pretty picture. You might want to hang on to a shamrock or two …