Denninger is an Optimist

There's a scene in Tremors where Earl is explaining to Val the benefits of long-term planning, from which Val draws the lesson, "We plan ahead. That way we don't do anything right now." He would have felt as comfortable in the halls of Congress as in the deserts of Nevada, for that august body is receiving exactly that same advice from The Ben Bernanke this week:

To address both the near- and longer-term issues, the Congress and the Administration should consider replacing the sharp, frontloaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run. Such an approach could lessen the near-term fiscal headwinds facing the recovery while more effectively addressing the longer-term imbalances in the federal budget.

In other words, plan to cut in the future, but don't cut anything right now, even though cutting something right now is what you decided to do last year instead of cutting then.

This advice is not such a recurring theme because it's wise. After all, today's string of trillion dollar deficits is the longer-term imbalance we were going to address 10 years ago when the deficit was half of now, and 20 years ago when it was a quarter of the current size, and when long-term CBO projections showed the future so bright that we were going to have to start importing poor people so the government would have something to spend money on.*

Instead, it's a recurring theme because it allows the Fed, the Administration, and the Congress to make clucking noises about the fiscal disaster that is bearing down upon us, while doing exactly nothing to avert it.  They commission long-term studies, that way they don't have to do anything about it right now.

Which is why Denninger is an optimist when he says stuff like this:

Bernanke's machinations and other games "gave" the Congress four years to do the right thing. They didn't, because that same "gift" also destroyed all market signals of urgency. As such you have people like Krugman and others claiming that it's all ok and that we can spend with wild abandon, taking our fiscal medicine never. They were wrong. Congress was wrong. The Republicans were wrong, the Democrats were wrong, and the Administration was wrong. Congress is out of time; as I noted the deficit spending must stop now, irrespective of the fact that it will cause significant economic damage.

We will survive it if we do it now. If we don't do it now, look at the header up at the top of The Market Ticker for where the markets are going, and then figure out what that does not just to your retirement account but to pensions such as Calpers as well. Time's up; we either have serious people who will take serious actions right now or we're going to find out what a real "discontinuity" looks like. I promise that you won't like it. 

And the reason he's an optimist is not that he thinks we are going to fix the spending problem now,** but that he thinks that our nation's finances would survive if we did it now.  They won't.  The time to have acted was years ago, before we ran up $17t in debt, before our manufacturing base was destroyed, before we had trillion dollar deficits, and ObamaCare, and boomers retiring, and a fifth of us on food stamps. Denninger said then that we could survive only if we did something then, and we did nothing. Denninger was right then, and now it doesn't matter.

When my grandfather got lung cancer after a lifetime of smoking, he asked the doctor if he should quit.  The doctor told him, "If you enjoy it, you might as well continue."  It's not because he wished my grandfather to die of lung cancer, but because at that point he was going to die of it no matter what.  The die was cast. The reaper overtook him who soweth.

Just like today.  It doesn't matter if we give up our spending, because the cancer has already spread. The long-term has arrived. Now is not the time to avoid the decline, but to manage it as best as you can.

* We import them anyway, so we've got that going for us.
** I said "optimist," not "fool."