The latest entry in his blog concerns Spain and some especially disturbing aspects of its economy:
For much of the past decade, Spain had a huge construction boom, financed by vast inflows of capital: [here he's inserted a graph] Now that boom is over. But it left as its legacy a sharp rise in Spanish costs and prices relative to the rest of the euro zone (the chart below is Spanish unit labor costs in manufacturing relative to the EZ average, but it doesn’t much matter which measure you use): [another graph] How does Spain get out of this? No devaluation is possible — and no, I don’t think exiting the euro is feasible. So it has to do it with relative deflation, hard enough in normal times, when at least costs and prices elsewhere are rising a few percent a year. In the face of a depressed and possibly deflationary European economy … this is going to be ugly.Devaluation isn't an option for Spain because it no longer has its own currency. It now has only the Euro. And as the man says, "exiting the euro" isn't really an option either, as it would be way too disruptive.
I wrote a comment to this post on Krugman's blog, but it still isn't up yet and may never get up ("Your comment is awaiting moderation"). So, just in case you don't follow the blog or just in case they don't post it, or just for the Hell of it, here's what I wrote:
There is a common thread to all these crises and the common thread is: money. How do we reconcile this monetary problem with that one, how do we deal with the threat of either deflation or inflation or both, or, as in the case of Spain, the need to devalue or revalue a currency one can’t control? How do we deal with the huge sums of money that are owed, all the bad investments of huge sums of money by companies too big to fail? How do we borrow enough money to cover all these debts, how do we deal with a situation where those whose money we’ve borrowed no longer want to lend more money — or worse want to pull their money out? We’ve woven a Gordian knot out of all these trillions of dollars worth of MONEY and are now desperately looking for some magic formula that will untangle it for us.
So why not, simply, take up the sword of Alexander, who was not called “Great” for nothing, and cut the knot? Kill the money. Let all the leaders of the most heavily invested, and therefor most at-risk, nations meet and agree to simply do away with money. Or, at least, money as we now know it. For far too long, this particular medium has been dominating the message, this particular tail wagging the dog.
In the past, such a recourse would be unthinkable, as it would result in a huge destruction of wealth worldwide. But that wealth has already been destroyed. All that’s left is a mountain of essentially meaningless debt that must be shuffled around endlessly so it can be “serviced” as part of a process that no longer makes any sense, like the automated kitchen appliances still meaninglessly going through their prescribed motions at the end of the Ray Bradbury story (”There Will Come Soft Rains”).