Spanish Hooverism

While the U.S. debates Obama's spending slushie, Spain readies truly draconian spending cuts plus tax increases, intended to cut its budget deficit from over 11% of GDP to 3% by 2014.

While the U.S. debates Obama's spending slushie, Spain readies truly draconian spending cuts plus tax increases, intended to cut its budget deficit from over 11% of GDP to 3% by 2014. Spain has a Socialist government by the way.

Spain has to do these things for the same reason that Herbert Hoover did what he did back in the 1930s: because its local currency is fixed to an external value, in Hoover's case gold, in Spain's case, the Euro.

My AEI colleague Desmond Lachman has been sounding the alarm about the crisis facing Euro countries: either impose severe deflation on themselves or face the crackup of their new currency.

Spain has made the choice: the currency, not the domestic economy. Can this possibly continue? And with this advance at what it means to close a budget deficit in the midst of a savage recession, there's cause to wonder: Could this be America's future too?